19 Jun, 2019

Flying on the edge

I want to get away, I want to fly away”, Lenny Kravitz sang.

Ok Lenny, but which airline will you choose?

The cheapest one? Way to go! But let’s check something first.

Have you noticed the disparity in ticket prices between EU and non-EU airlines, which in turn has a knock-on effect on who you chose to fly with, Lenny?

Oh, so, you haven’t noticed? Who cares, right? You usually take to the skies in your private jet so matters as trivial as these don’t concern you.

Well, guess what Lenny – THE EU CARES!

Aviation is widely regulated throughout the world, and especially in the EU given its importance to the Union’s economy.

Fair trade, as a mainstay EU principle, is embraced by EU airlines; however, a dearth of fair trade regulations outside the EU makes the development of unilateral worldwide fair trade aviation rules an arduous task.

In the last couple of years there has been a growing interest in regulating this sector. Testament to this are the numerous plans, drafts and notes, including the ambitious Aviation Strategy (published on December 7, 2015) as the harbinger of change.

Violeta Bulc, EU Commissioner for Transport, recently pointed out the importance of competition in the aviation industry:

European aviation is facing a number of challenges and today’s Strategy sets out a comprehensive and ambitious action-plan to keep the sector ahead of the curve. It will keep European companies competitive, through new investment and business opportunities, allowing them to grow in a sustainable manner. European citizens will also benefit from more choice, cheaper prices and the highest levels of safety and security

And this brings us to May 2019…

The Regulation on safeguarding competition in air transport (link) entered into force on May 31, 2019 (“Regulation”). The Regulation aims at ensuring fair competition between EU and non-EU airlines and protecting Union airlines from possible injuries and losses.

The Regulation sets out the investigative power of the European Commission (“Commission”) and the redressive measures it may impose regarding distortions of competition between EU and non-EU airlines.  The investigation shall aim to determine whether a practice distorting competition, adopted by a third country or a third-country entity, has caused injury or threat of injury to the Union airlines concerned.

Namely, the Commission is entitled to:

  • initiate an investigation following a written complaint submitted by a Member State, one or more Union airlines or an association of Union airlines, or on it’s own initiative, if there is, prima facie evidence of the existence of all the following circumstances:
    • a practice distorting competition, adopted by a third country or a third-country entity;
    • injury or threat of injury to one or more Union air carriers;
    • a causal link between the alleged practice and the alleged injury or threat of injury.
  • examine the accuracy and adequacy of elements provided in the complaint, in order to determine whether there is sufficient evidence to initiate an investigation.
  • seek all information, it considers to be necessary, in order to conduct the investigation.
  • carry out investigations in the territory of a third country, provided that the third-country entity concerned has given its consent and the government of the third country has been officially notified and has not raised any objection.

Furthermore, an investigation shall not be initiated if the facts (i) neither raise a systemic issue (ii) nor have a significant impact on one or more Union airlines.

And what of the Western Balkans?

For example, pursuant to Article 73 of the Stabilization and Association Agreement (“SAA”), Serbia is legally obliged to harmonize its national law with the EU acquis and apply EU competition and State aid rules as prescribed in EU Treaties and interpreted by EU institutions.

Moreover, the Agreement on the Establishment of a European Common Area (“ECAA Agreement”) contains a set of competition and State aid rules which replicate the EU acquis in this field. Serbia, being an associated party to the ECAA Agreement, has a duty to comply with those rules under international law.

According to Article 14 of the ECAA Agreement, if rules on competition and State aid are included in other agreements between two or more contracting parties, such as association agreements, these rules shall apply between those parties. Otherwise, contracting parties must act in accordance with Annex III of the ECAA Agreement, Article 3 of which stipulates that:

“[a]ny practices contrary to this Article shall be assessed on the basis of criteria arising from the application of the competition rules applicable in the European [Union], in particular from Articles [101, 102, 106 and 107 of the TFEU] and interpretative instruments adopted by the European [Union] institutions.”

Therefore, even at this juncture Serbia is required to adhere to EU competition and State aid rules, be it under the SAA (in relation to the EU and its Member States) or under Annex III of the ECAA Agreement (in relation to non-EU ECAA members), so this Regulation merely serves to underscore Serbia’s existing commitments and those of its Western Balkan neighbors.

So, there you go Lenny, now you know. Don’t bother, the Commission will. Have a nice flight!

Authors: Miluša Okiljević and Nikola Nikodinović