The Competition Authority has today directed the Minister of the Interior and Transport Authority to take action regarding competition-restricting practices related to the allocation of handling slots for airlines at Keflavik Airport. These recommendations are made to Transport Authority in Opinion No. 1/2015 and to the Minister of the Interior with opinion no. 2/2015. These opinions conclude the investigation into the complaint by WOW Air, which was submitted to the authority last year. 'Handling time' refers to the time allocated to airlines at an airport to land, use ground handling and services, and take off again.
In recent years, Icelandair's competitors have repeatedly complained that the airline enjoys a competitive advantage, as it has been given priority for check-in times at Keflavik Airport between 7:00 and 8:00, and 16:00 and 17:30. That priority also includes new handling times that have been added in recent years.
The Competition Authority's investigation reveals that slot times during these periods are particularly important for airlines wishing to establish competition in connecting flights between Europe and North America, with Keflavik Airport as a hub. The investigation further reveals that Icelandair not only has priority for previously allocated slots, but also for new slots resulting from increased capacity.
In the opinion of the Competition Authority, the current arrangement for the allocation of processing times constitutes a barrier to competition. The Ministry of the Interior and Transport Authority are therefore urged to take action that prioritises the public interest in effective competition in scheduled flights.
Páll Gunnar Pálsson, Director-General of the Competition Authority:
„Competition in scheduled flights to and from the country is of great importance to the public and business activities, not least tourism. Where competition has been established, we have benefited from lower airfares.
Keflavik Airport is our only gateway to and from the country. The government therefore has a duty to do everything in its power to ensure that all competitors are on a level playing field there.“
The Competition Authority's findings are, in particular, as follows:
1) Any restrictions on competition in air travel to and from Iceland are liable to cause significant harm to consumers and business life..
It is therefore particularly urgent that the government safeguards the public interest in this important area of business. A new OECD report on economic affairs in Iceland specifically points this out, urging the government to support the actions of the Competition Authority, and citing the allocation of landing slots at Keflavik Airport as an example.
2) Keflavik Airport has a unique position..
It is the only realistic gateway for passenger transport to and from the country. In most parts of the world, states rely on a diverse network of road, rail, sea and air transport for international passenger travel. This unique position requires the government to ensure healthy competition in air travel to and from the country.
3) The aviation market is sensitive in terms of competition..
For decades, air transport was developed with state support. Since competition was introduced following the entry into force of the EEA Agreement, competition authorities have repeatedly identified barriers to competition in various areas of air transport and have, among other things, had to intervene against Icelandair and its affiliated companies. In this light, it is significant that the authorities in this area work against any form of competition restriction.
4) Icelandair is by far the dominant airline for flights to and from Iceland.
In previous decisions by the Competition Authority, the company has been considered to be in a dominant market position. It is not against competition law for companies to be in a strong position, and it is both natural and desirable for companies like Icelandair to provide a good service and to offer strong competition to their rivals. However, it is crucial that public authorities do not prevent Icelandair's competitors from having the same opportunities to establish a solid business foundation and provide effective competition.
5) Check-in times during peak periods give Icelandair a significant competitive advantage.
Icelandair has been allocated almost all of the handling slots during peak periods, i.e. between 7:00 and 8:00 in the morning and 16:00 and 17:30 in the afternoon. The investigation by the Competition Authority reveals that departure times during these periods are of great importance for airlines wishing to build a scheduled route network between Europe and North America, where Keflavik Airport serves as a passenger hub. This conclusion is supported, among other things, by a public survey, an analysis of destination conditions, etc.
6) Icelandair not only enjoys heritage status but also receives all new check-in times..
The capacity of Keflavik Airport has been significantly increased in recent years. In recent years, this increased capacity during peak hours, i.e. between 7:00 and 8:00 and 16:00 and 17:30, has in all cases been allocated to Icelandair, despite WOW Air having requested an allocation during peak hours. Future plans for the development of Keflavik Airport and the terminal over the next 25 years provide for an even further increase in capacity, or approximately a doubling of the current capacity. There are strong indications that this increase in capacity is intended to meet the needs of Icelandair, and not those of its smaller competitors. This can be inferred, among other things, from the attitude towards competition that has been expressed in Isavia's responses.
7) The coordinator does not take competitive considerations into account when allocating new opening hours.
The coordinator is responsible for the allocation of processing times. A Danish entity holds this role of coordinator under a contract with the government. However, he is required to follow specific criteria in the allocation, including competition considerations. His responses to enquiries from the Competition Authority regarding the grounds for the allocation unequivocally indicate that in recent years he has not taken competition considerations into account when allocating new opening hours.
8) Airport operator and aviation authorities show no understanding of competitive considerations.
Isavia has repeatedly objected to the Competition Authority's assessment of the competitive significance of handling times during the periods in question. Furthermore, correspondence with the Transport Authority indicates that the agency has a limited understanding of the barriers to competition related to the allocation of handling slots at Keflavik Airport, which the Competition Authority has pointed out for years. The authority has disregarded the recommendations of the Competition Authority to conduct a competition assessment when reviewing the procedure for allocating handling slots.
9) It is urgent to reconsider the decision that Keflavik Airport is considered an airport with a limited opening hours.. The Icelandic Civil Aviation Authority, in particular, has the option to define Keflavik Airport in two ways. On the one hand, the airport could be considered an airport with allocated handling slots (a Category 3 airport), as is currently the case, or it could be defined as an airport with handling slots determined by consultation (a Category 2 airport). This definition has significant implications for the ability of new and smaller airlines to be allocated slot times. Thus, the current definition (a 3rd-tier airport) guarantees Icelandair, for example, so-called grandfather rights, i.e. the right to retain the slots previously allocated to the airline. The Competition Authority has repeatedly urged the aviation authorities to review the designation of Keflavik Airport and to take competition considerations into account in that review.
10) The government should take the initiative in establishing guidelines on the allocation of processing times..
Another way to counteract the barriers to competition of the current system is for the aviation authorities to promote the establishment of guidelines based on EEC Regulation No 95/93 on the allocation of handling slots. Such guidance is also in line with the objectives of the recent Regulation No. 858/2014858/2014. They would stipulate that the coordinator takes account of competitive conditions when allocating new opening hours. Such guidelines are not to threaten the coordinator's independence.
11) The aviation authorities cannot shirk their responsibility.
It is imperative that the Ministry of the Interior and the Transport Authority, under which the portfolio falls, take action to reduce the barriers to competition that the Competition Authority has identified in this opinion. Inaction would be detrimental to the interests of customers and society as a whole. Opinion No. 1/2015 contains a detailed discussion of the above. In opinion no. 2/2015 A brief description of the investigation and the Competition Authority's findings is provided.
Background:
The opinions are, on the one hand, set out on the basis of Article 18 of the Competition Act No. 44/2005, which requires the Competition Authority to draw the Minister's attention to this in an opinion if it considers that a provision of an Act or a government regulation contravenes the purpose of the Act or hampers free competition. However, reference is made to paragraph 1(c). paragraph 8 of the Competition Act, which provides that the Authority shall monitor whether the actions of public authorities do not restrict competition and shall advise the government on ways to make competition more effective and to facilitate the entry of new competitors into the market.
The Competition Authority has repeatedly addressed the effects of the current system for the allocation of handling slots at Keflavik Airport. Recommendations were first made to the Civil Aviation Authority in the Competition Authority's report no. 2/2008, Robust development – Opening up markets and boosting business activity. Those recommendations were not heeded. In recent years, the supervisory authority has also handled complaints from Iceland Express ehf. and, subsequently, WOW Air ehf. (hereinafter WOW Air), the latter company's complaint from March 2013 leading to decision no. 25/2013, The submission of WOW Air ehf regarding the allocation by Isavia ohf of handling slots at Keflavik Airport. In that decision, instructions were given to Isavia.
The Competition Appeals Tribunal quashed the decision by its rulings in cases no. 10 and 11/2013. The committee considered that the case should be directed to the Coordinator instead of Isavia. WOW Air appealed the case to the Reykjavík District Court. During the proceedings before the court, an advisory opinion was sought from the EFTA Court, which subsequently agreed to a fast-track procedure and delivered its judgment in December 2014. That judgment contains important guidance on the powers of the authorities, including competition authorities, in relation to the allocation of handling slots. Ultimately, the case was dismissed at first instance, and that decision was upheld by the Supreme Court of Iceland.
Parallel to the aforementioned court proceedings in the older case, in April 2014 WOW Air submitted a new complaint to the Competition Authority regarding the allocation of handling slots for the summer of 2015. The Competition Authority took the complaint under consideration. That investigation forms the basis of this opinion, which is also based on the investigations and rulings referred to above.
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