On May 29, 2013, the National Development and Reform Commission (“NDRC“) and the Civil Aviation Administration of China (“CAAC“) held a seminar discussing the potential issues in setting up an antimonopoly immunity scheme under Chinese Antimonopoly Law (“AML“). Chinese regulators and representatives from the International Air Transport Association (“IATA“) participated in the seminar and exchanged views on the antimonopoly review policy in the aviation industry and the possible outlooks of the contemplated immunity scheme. The immunity scheme under consideration, once came into effect, could have material effects on the cooperation between airlines operators.

Antitrust Issues Stemming from Cooperation between Airlines

Article 13 of AML prohibits various monopoly agreements between competitors containing certain restrictions regarding (among other things) price-fixing, market sharing and collective boycotts.1 In the past two decades, airlines frequently enter into agreements with each other to coordinate capacity, schedules, routes and revenue sharing. Depending on the depth and breadth of the agreements, agreements between airlines operators may appear as collusion or price-fixing and thus violate Article 13 of Anti-Monopoly Law (“AML”). However, it is recognized in other jurisdictions that antitrust immunized cooperative agreements could benefit consumers. In order to limit the airlines operators’ exposure to antitrust risks and protect the consumers against potential abuses, competition authorities around the globe promulgated rules and guidelines under domestic competition laws to assist airlines operators obtaining antitrust immunity to minimize competition concerns. It is therefore necessary to examine relevant rules under AML which may provide the basis for and shape the outlooks of the Chinese antitrust immunity programs.

Statutory Authority for the Chinese Antitrust Immunity Programs

Article 15 of AML provides the potential basis for antitrust immunity program. Under Article 15, an agreement prohibited by Article 13 can be exempted under the conditions that: 1) the agreement shall not substantially restrict competition in the relevant market; 2) the consumers can benefit from the agreement; and 3) the agreement is entered into for the stated justification and purposes. The stated justification and purposes include inter alia R&D, products development and upgrades, efficiency improvement and costs reduction.2

The common justifications and purposes offered by airlines operators in seeking immunity for cooperative agreements include: 1) expand into new routes and increase consumers’ choice in schedule and routes by linking to commercial partners; 2) improve efficiencies and realize consumer benefits through coordinated schedules, single on-line prices, reciprocal frequent flyer programs, and service upgrade potential; 3) gain wider brand recognition; or 4) meet challenges brought by other airlines.

Although some of the foregoing justifications and purposes may arguably fall within the permitted scope under Article 15 as specified above, it should be noted that the pro-competitive justifications offered by the airlines operators shall be weighted against the possibility of reduced competition and increased market power in the horizontal and vertical markets and the potential for collusion on fares, code sharing and capacity allocation. As demonstrated by the controversies over a recent IATA Resolution, this balancing approach adopted under AML can some times prove to be a daunting task to competition authorities.

On March 11, 2013, IATA filed an antitrust immunity application at the United States Department of Transportation for approval of an XML schema. IATA alleged inter alia that the computer communications protocols will improve the display of fares and facilitate the offering of ancillary services. However, various consumer groups and trade associates voiced opposition to the proposed XML schema, contending that the schema shall raise the fares by allowing the airlines operators to engage in price discrimination. The Department of Transportation extended the public comment period for the resolution and has yet to make a decision on the application.

Ex Ante Review and Ex Post Control

The enforcement activities undertaken by NDRC and SAIC have centered on ex post prohibition of monopoly agreements. Furthermore, AML does not provide guideline as to how Article 15 shall apply to ex ante review. This creates uncertainty for airlines companies considering entering into agreements that may enhance efficiency but appear as monopoly agreements.

The United States establishes an ex ante review of agreements. The Department of Transportation (“DOT“) has the statutory authority to approve and immunize from the U.S. antitrust laws agreements relating to international air transportation.3  DOT may grant antitrust immunity to inter-carrier agreements if it finds that immunity is required by the public interest.4  DOT has granted immunity to over twenty international alliance agreements, permitting immunized participants to enter into agreements on prices, schedules, marketing, and others.5

In Europe, the Commission has the sole authority to immunize certain cooperative agreements between airlines. Unlike the United States, the Commission has adopted ex post control for the cooperative agreements.

It is a worth-noting move for NDRC to explore the establishment of an ex ante review mechanism under Article 15. The U.S. experiences may be particular useful in devising our own immunity programs.

Conclusion

The immunity programs in other jurisdictions are said to lead to pro-competitive changes in industry structure and consumer benefits in the form of improved service and price reductions. In light of increasing cooperation between airlines on domestic and international flights, the contemplated antitrust immunity application program is a significant step towards certainty by aligning the international practices with that of China.