Dog fight Euro Airlines Fire Shot at Gulf Rivals

Lufthansa and Air France-KLM demand that the European Commission clamp down on Middle Eastern airlines to ease competition.
All aboard: Gulf airlines are on a shopping spree in Europe.

Two of Europe's largest airlines, Lufthansa and Air France-KLM, have written a joint letter to the European Commission asking it to take steps against rivals based in the Persian Gulf region, which have increasingly been eating away at their business.

According to the letter, sent to transport commissioner Violeta Bulc, the commission must "be provided with a proposal as quickly as possible to ensure that fair competition is upheld more effectively and efficiently."

Handelsblatt has learned that the letter was sent to the E.U.'s executive arm shortly before Christmas, and that it contains very specific requests.

The signatories, Lufthansa CEO Carsten Spohr and Air France-KLM Chairman Alexandre de Juniac, as well as the heads of their subsidies, asked the commission to examine whether Gulf airlines investing in European carriers are complying with E.U. regulation 1008/2008.

The request follows a spending spree by Gulf-based carriers such as Etihad and Qatar Airways to obtain shares in European airlines and secure access to lucrative routes.

The request to review the balance of power is clearly aimed at Air Berlin and Alitalia.

The regulation is intended to ensure that a European airline is majority-owned and run by Europeans. Under E.U. law, if this is not the case the airline loses traffic rights and, as a result, its operating license. The regulation also makes it possible to appeal to independent authorities, such as the World Trade Organization, in case of dispute.

The letter is remarkable in two respects. Firstly, it is the first time that major European airlines have joined forces to fight off competition from Gulf carriers. Second, Air France-KLM maintains a partnership with Etihad and two airlines in which Etihad holds controversial stakes, Air Berlin and Alitalia.

The request to review the balance of power is clearly aimed at Air Berlin and Alitalia. Etihad holds a 29 percent stake in Air Berlin, Germany's second largest airline after Lufthansa, and many in Germany believe it is already calling the shots. This has deeply worried Lufthansa and the government, and the matter is currently being investigated by German and E.U. authorities.

As well as putting partnerships at risk, competition from budget airlines is further squeezing Europe's major airlines, and competition generally is intensifying. Last Friday, Qatar Airways announced that it intended to acquire about 10 percent of shares in IAG, the parent group of British Airways and Iberia, the Spanish national carrier.

Lufthansa hopes the German government will back its demands to Mrs. Bulc. In a statement, a ministry of transport spokesman said the authority will support the commission in developing a fair competition clause, and noted that it was a question of antitrust law, the need for financial transparency and how public subsidies are handled.

The ministry will decide this month whether Air Berlin will be permitted to operate so-called code share flights for Etihad on domestic German routes, including those to Berlin. This would mean that Air Berlin aircraft would operate using Etihad flight numbers, or vice versa.

The ministry, it appears, believes such flights should be prohibited in the future. In addition, Qatar Airways, which is seeking to increase its presence in Europe, cannot expect to receive expanded traffic rights. Whenever such requests have been made, the ministry has "repeatedly reviewed and rejected them," a spokesman said.

 

The authors are Handelsblatt editors specializing in the airline industry. To contact the authors: [email protected][email protected]