Airlines risk facing new barriers to operate from post-Brexit agreements, CMA says

16 July 2019 9:10am

10 July 2019, by Matthew Holehouse

Airlines risk facing new barriers to operate on routes to and from the UK as the government seeks to draw up post-Brexit air-transport agreements, the country's competition regulator has warned.

The Competition and Markets Authority urged the government to be mindful of the impact on competition as it races to put in place new deals to keep planes flying. It warned the introduction of restrictive terms could result in poorer choice and higher prices for passengers.

“We note the importance of airlines, businesses and passengers having confidence that particularly following the UK’s withdrawal from the EU, flights to and from the UK will continue without disruption,” the CMA said in a response to the UK government’s call for views on its long-term aviation strategy.

"However, when making and implementing new agreements, or extending those in place, we encourage the government to continue to work towards reaching agreements that do not place unnecessary restrictions on competition."

At the same time, the regulator welcomed the UK government’s plans to jettison nationality restrictions on ownership of airlines, which currently restrict internal EU routes to majority-European owned airlines.

The UK is currently part of the EU’s single-market aviation market, which enables a UK-based airline to fly any route within the bloc. In the event of a no-deal Brexit, the EU has proposed UK airlines have temporary there-and-back flying rights until March 2020.

The UK has also negotiated new bilateral air agreements with 17 states, replacing EU arrangements. The parties include the US, Canada, Israel, Jordan and Switzerland.

'Stifle entry'

In its strategy response, the regulator warned of a potential reduction in competition during these negotiations.

It noted that older air transport agreements may typically involve restrictions on the number of carriers that can operate a route or the frequency of flights, while more modern "open skies" agreements may still restrict rights to cover internal flights.

“Agreements that restrict the ability of airlines to operate on particular routes and to compete on commercial terms will stifle entry and innovation and may lead to UK air passengers paying higher fares,” the CMA said.

“While we recognize the complexity of international negotiations, we recommend that the government ensures that such agreements do not unduly restrict competition between airlines, regardless of domain or ownership.”

The UK government has proposed scrapping nationality restrictions on the ownership of domestic airlines. It argues such restrictions are designed to protect subsidized national carriers and don’t feature in other industries, such as automotive manufacturing.

The CMA welcomed the proposal, saying it “should reduce barriers to entry and expansion into international services and increase the ability of airlines to access capital to finance their operations.”

In addition, the antitrust regulator is pushing the UK to shake up the system of slot allocations — the timetables for individual airlines to take off and land at given airports. EU rules now grant priority to existing operators, with spare slots allocated under an administrative process.

The CMA today said this system is “inherently flawed” and that tinkering with the administrative process would make little difference. The UK should move to a system of auctions in order to most efficiently allocate scarce airport capacity, it said.

ABA 2019