The Competition Authority has recommended to the Secretary of State for Transport that he ensures equality of treatment between airlines in the awarding of state aid for air transport, in order to facilitate potential competition in the relevant markets. The Minister for Transport is therefore directed to ensure that, in future, tenders are held for state subsidies to airlines for domestic routes in accordance with the relevant rules and general good competition practices, so as to ensure, as far as possible, fairness and competition in the domestic air service market.ust market.
The background to the case is that after Landsflug Ltd. ceased scheduled flights between the Westman Islands and Reykjavík on 25 September 2006, the Minister of Transport instructed the Road Administration to negotiate with Flugfélag Íslands Ltd. to maintain temporary scheduled flights on the route. The contract was finalised on 11 October 2006 and flights commenced under it on 15 October 2006. It was a contract to be in force for at least 10 months, during which time it was anticipated that a formal tender for the route would be conducted.
The decision on the award of the grant was made by interviewing selected parties, namely Flugfélag Íslands, Landsflug and Flugfélagið Ernir ehf. No contact was made with Flugfélag Vestmannaeyja in connection with these government measures, despite the fact that the company was at that time the operator carrying the most passengers on flights to Vestmannaeyjar, as the company operated scheduled flights between Vestmannaeyjar and Bakkaflugvöllur, as well as charter flights between Vestmannaeyjar and Reykjavík. Furthermore, it is reported that at this time Flugfélag Vestmannaeyja was considering launching scheduled flights between Reykjavík and Vestmannaeyjar. The ministry considered that the company could not meet the Vegagerðin's requirements regarding aircraft fleet. In the opinion of the Vestmannaeyjar Air Society, the state subsidy to Flugfélag Íslands has caused the Vestmannaeyjar Air Society damage.
The Competition Authority's opinion states that the Vestmannaeyjar Air Service has an interest in how flights between the Westman Islands and Reykjavík are arranged. The Competition Authority considers it neither objective nor in accordance with good competition practice that the Road Administration did not consult the Vestmannaeyjar Air Service when it decided to enter into a short-term contract for the state-subsidised flight between Vestmannaeyjar and Reykjavík in the autumn of 2006. The requirements that the Road Administration made for the service in question, such as regarding size and other matters concerning aircraft and service, could have been specified without pre-emptively excluding a competitor from the aviation market from the process. The Competition Authority is of the opinion that the Road Administration, on behalf of the Ministry of Transport, should have given the Vestmannaeyjar Air Service an opportunity to submit a bid for the state-subsidised flight, alongside the one that was sought, or alternatively, to tender it in accordance with the regulations. The Ministry's actions in this matter prevented the potential entry of a new operator into the Reykjavík-Westman Islands flight service.
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