Today, the Competition Authority has issued an opinion No. 1/2013 to the Minister of the Interior and the Road Administration regarding serious barriers to competition arising from a concession granted by the Road Administration to the Association of Municipalities of the South-West (SSS) to provide scheduled bus services in the area, including between Leif Eiriksson Airport (FLE) and Reykjavik.The opinion reveals that changes made to the Passenger and Freight Transport Act at the end of 2011, if left unaltered, will seriously distort competition in passenger transport, to the detriment of the public and the tourism industry. The said amendments were intended to create conditions for associations of municipalities to organise public transport within and between municipalities in the most efficient and cost-effective manner. However, in implementing the new law, the public interest in effective competition in passenger transport was abandoned, and at the same time, serious damage was inflicted on Iceland's tourism industry.
These serious barriers to competition are evident in the licence that the Road Administration has granted to SSS to operate scheduled services in the area, including the route between Leif Eiriksson Airport (FLE) and Reykjavik. The tender, in which SSS intends to establish a monopoly on scheduled services for that route, is further evidence of this. This practice is based on the aforementioned Law on Passenger and Freight Transport, No. 73/2001, as amended by Law No. 162/2011.
The opinion states that competition has existed in scheduled services on the route between FLE and Reykjavik since 2011. Since that competition was introduced, the number of passengers using the shuttle bus has increased by 66%, which is far in excess of the increase in passengers passing through Keflavik Airport. The competition has also meant that the fare for the route has not increased, despite rising operating costs. Before competition was introduced, the fare regularly increased in line with inflation. Furthermore, services are more frequent and there are more destinations in Reykjavík since competition was introduced. The arguments put forward for the supposed benefits of the proposed monopoly, such as ensuring off-peak services, do not stand up to scrutiny.
The SSS tender for the scheduled route was intended to eliminate competition and establish a monopoly. The tender did not involve bidders offering the lowest fare to passengers or carrying out the service in the most cost-effective manner. Thus, bidders were not expected to offer a fixed price for the transport, but rather to bid for a percentage commission of a fare that had been set at kr. 1,950. The most favourable bid provided that SSS would receive a commission of just over 60% per ticket. It is estimated that the association's total revenue from this will amount to at least half a billion, or approximately twice the amount that the Road Administration provides in grants to municipal associations nationwide.
The incentives for SSS with the tender have, as stated above, been to secure the maximum share of the fare amount on the scheduled route, but the interests of those who need to use the service are not addressed at all. Fares are expected to increase once a monopoly is established, as the contracting parties have a direct financial interest in doing so.
It is also reprehensible that when the Road Administration and SSS negotiated the exclusive concession for public transport in the region, the agreement's impact on competition was not assessed, not least in light of the debate that had taken place in the Althingi over the authorisation.. No cost estimate was therefore carried out for this or other planned routes, and consequently the precise need for public funding to provide public transport in the area was not assessed.
During the Althingi's consideration of the bill which became Law No. 162/2011, many parties, including The Competition Authority, which warned against the legislative changes and considered them a risk of distorting competition, particularly on the route in question between FLE and Reykjavík. The report of the Environment and Transport Committee states the legislature's intention that the Act is not intended to hamper competition, but that it will instead take place on another forum, namely through a tendering process. It is clear from the above that these premises of the Act are not valid.
For these reasons, the Competition Authority recommends that the Minister of the Interior immediately review the aforementioned amendments to Act No. 73/2001. In that review, ways must be found for local authorities to organise and coordinate public transport within and between communities, without hindering competition and thereby harming the interests of the public and the tourism industry. In this regard, it is important to define public transport in relation to tourism and to prevent associations of municipalities from establishing a monopoly on profitable scheduled routes between municipalities. During this review, Iceland's obligations under the EEA Agreement must be observed.
The Competition Authority also directs the Minister of the Interior and the Road Administration to immediately seek all means to stop SSS's plans to establish a monopoly on the scheduled route between FLE and Reykjavík, which is based on the aforementioned law and the agreement between the Road Administration and SSS for an exclusive licence on the route. If they do not consider themselves to have the authority for such intervention, it is recommended that the assistance of the legislature be sought without delay.
The Competition Authority has therefore directed SSS to immediately cease its aforementioned plans to monopolise the scheduled route between FLE and Reykjavik.
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