Leisure & Tourism- European Union

In the early 1990s British Airways introduced a variable additional commission which applied when its travel agents increased their sales of its tickets above a certain level over a specified period. The additional commission was structured to apply to all ticket sales made in the relevant period, not only those above the threshold at which the additional commission was triggered.

Virgin Atlantic Airways complained to the European Commission that the commission structure employed by British Airways was an abuse of its dominant position in the market for UK air travel. Following a detailed investigation, the commission found in favour of Virgin and decided that British Airways' arrangements were an unlawful abuse of dominant position. British Airways appealed to the European Court of First Instance, which confirmed the commission's decision, and subsequently to the European Court of Justice (ECJ).

Article 82

Article 82 of the EC Treaty prohibits abuse of a dominant position by one or more undertakings which has an effect on trade between EU member states. Such conduct is unlawful and may result in fines of up to 10% of worldwide turnover. EU law is reflected in Chapter II of the Competition Act 1998. The article has direct effect in member states.

Judgments

The commission had found that British Airways was dominant in the market for the supply of air travel services from the United Kingdom. British Airways' strong market position allowed it to pay agents large sums by offering small discounts on ticket prices. British Airways' competitors, whose sales were inevitably much lower than those of British Airways, were obliged to offer much larger discounts in order to give their agents a similar level of revenue. Accordingly, the additional commission scheme had the effect of making it even less likely that agents would choose to sell non-British Airways tickets in the knowledge that their income would be lower than if they sought to sell as many British Airways tickets as possible.

The European Court of First Instance confirmed the commission's decision and identified the additional commission as being akin to a loyalty bonus for travel agents (ie, a discount based not on volume-related cost savings, but on ensuring customer loyalty).

The ECJ dismissed all of British Airways' grounds of appeal. It confirmed that a system of discounts or bonuses is abusive where it has an exclusionary effect which is harmful to competition. It was irrelevant whether direct detriment to travel agents' customers had arisen from the arrangements; what mattered was that the arrangements were detrimental to competition and there were no objective justifications based on efficiency gains that would also benefit consumers.

Comment

The case marks the end of a dispute that started in 1993 between two rivals on transatlantic routes. The commission has sought to maintain that loyalty bonuses offered by companies in a dominant market position should be seen as abusive and hence unlawful, even where there is no direct detriment to customers. Loyalty bonuses are not unlawful when offered by non-dominant airlines.

A similar complaint brought by Virgin in the United States under the Sherman Act was dismissed by the courts at an early stage.

ILO