Competition law

Specific regulation

Do sector-specific or general competition rules apply to aviation?

There are no sector-specific competition rules applying to aviation. The general competition rules (principally those contained in the Competition Act 1998, and closely modelled on articles 101 and 102 Treaty on the Functioning of the European Union (TFEU)) apply fully to aviation as they do to other sectors. 

Regulator

Is there a sector-specific regulator, or are competition rules applied by the general competition authority?

The body principally responsible for enforcing competition law in the United Kingdom is the Competition and Markets Authority (CMA), which replaced the Office of Fair Trading, although the Civil Aviation Authority has some role, particularly as regards airports. The European Commission has competence under EU law as regards matters with an EU or EEA dimension. 

Market definition

How is the relevant market for the purposes of a competition assessment in the aviation sector defined by the competition authorities?

The CMA has not yet had to do so on many occasions, but it has generally followed the well-developed European Commission approach based on identifying overlapping routes, starting on a basis of point-to-point city-pair routes, but also including surface and indirect alternatives, to the extent they provide acceptable substitutes and taking account of networks. 

Code-sharing and joint ventures

How have the competition authorities regulated code-sharing and air-carrier joint ventures?

Code-sharing agreements (CSAs) and joint ventures are governed by section 2 (known as the Chapter I Prohibition) and section 9 of the Competition Act 1998, which mirror articles 101(1) and 101(3) respectively of the TFEU. The principles of assessment under UK and EU competition law rules are very similar, and agreements that affect trade between EU member states will in any event be subject to article 101 of the TFEU. As with EU competition law, there is no ability to notify agreements for approval, self-assessment by the parties being required.

 

Joint ventures

At UK level, there is no case law from modern times on air carrier joint ventures. The CMA is investigating the BA/AA/IB joint venture, which was the subject of a commitments decision by the European Commission in 2010. Aer Lingus and Finnair are also currently signed up to the joint venture. In the case of an air carrier joint venture subject to UK competition law, the CMA would be likely to apply the principles of assessment followed by the European Commission in its numerous decisions on air carrier joint ventures.

 

CSAs

There are no regulations, case law or guidance at UK (or indeed EU) level specifically dealing with CSAs. However, the analysis that applies would be similar to that applicable to joint ventures discussed above.

Assessing competitive effect

What are the main standards for assessing the competitive effect of a transaction?

Similarly to EU merger control, UK merger control law is concerned with identifying whether a transaction would result in a substantial lessening of competition within the relevant market. 

Remedies

What types of remedies have been imposed to remedy concerns identified by the competition authorities?

The CMA only rarely has had occasion to seek remedies, but where it has done so it has followed the approach of the European Commission in connection with mergers, alliances and similar transactions. The principal remedy has been whereby the parties agreed to give up slots at congested airports to enable competitors to launch competing services on the affected routes. Other typical remedies include:

  • an agreement to enter into interline and special prorate agreements with new competitors, and to permit them to participate in the parties’ frequent-flyer programmes;
  • agreements to enter into intermodal agreements with surface transport operators; and
  • sometimes freezing frequencies. 

Financial support and state aid

Rules and principles

Are there sector-specific rules regulating direct or indirect financial support to companies by the government or government-controlled agencies or companies (state aid) in the aviation sector? Is state aid regulated generally?

There are no UK rules specific to state aid in the aviation sector. Since 11pm GMT on 31 December 2020, the United Kingdom has no longer been bound by the EU rules contained in articles 107 to 109 of the Treaty on the Functioning of the European Union, or the European Commission’s Guidelines on State aid to airports and airlines. 

The EU-UK Trade and Cooperation Agreement 2020 (TCA) sets out certain parameters for state aid rules after Brexit. 

The Subsidy Control Act 2022, which will come into force in autumn 2022 introduces a new UK state aid regime. The principles underlying the Act are the same as those within EU State aid rules. However, the provisions within that Act are intended to apply to measures that can have an impact on the UK’s internal market.

What are the main principles of the state aid rules applicable to the aviation sector?

The TCA set out six general principles that must be complied with when granting aid. These are open to interpretation, leaving something of an administrative vacuum. The Subsidy Control Act 2022 continues to reflect the UK’s obligations, including the principles agreed to in the TCA:

  • financial assistance from state sources will not constitute aid if it is such as would have been given by a private investor in market economic circumstances;
  • the concept of aid is to be interpreted very widely, as is the concept of state sources;
  • aid may be permitted, as furthering the development of economic activities, but is generally subject to certain conditions – principally, that the aid must form part of an approved restructuring programme and be used for its purposes, and not be used for any anticompetitive purposes, although the European Commission’s typical ‘one time, last time’ approach makes it unlikely that approval will be given for payment of aid to an airline that has already received it;
  • aid for the financing of the construction of airport infrastructure may be permitted if necessary to meet a clearly defined objective of general interest and there is no unacceptable effect on competition;
  • operating aid to regional airports is allowed for a period of 10 years and under certain conditions; and
  • start-up aid to airlines for new routes from small and peripheral airports (owned by the state or regional government) may be approved if a number of conditions are satisfied (following the European Commission’s decision in the Ryanair/Charleroi case).

Going forward, competition between air carriers within the UK and between UK air carriers and third-country air carriers will be regulated by the Subsidy Control Act 2022.

Exemptions

Are there exemptions from the state aid rules or situations in which they do not apply?

There is a de minimis threshold under the TCA of approximately £340,000 (325,000 special drawing rights) of subsidy over any three-year period. There are no other specific exemptions. The TCA's principles should be complied with. 

Clearance of state aid

Must clearance from the competition authorities be obtained before state aid may be granted? What are the main procedural steps for doing so?

The TCA rules do not require pre-notification of aid, but details of subsidies must be published within six months and may be challenged within one month of publication. The newly established Subsidy Advice Unit (SAU) within the Competition and Markets Authority will exercise oversight over UK subsidy control rules. However, there will be no pre-authorisation requirement and the SAU will only be able to issue non-binding guidance on the lawfulness of subsidies. The SAU’s reports will be made public. 

Recovery of unlawful state aid

If no clearance is obtained, what procedures apply to recover unlawfully granted state aid?

The TCA provides little detail on this subject. 

A Competition Appeal Tribunal will be set up under the Subsidy Control Act 2022, having the power to make a recovery order to allow public authorities to recover subsidies. The recovery order will be enforceable as if it were an order made by the High Court.

In relation to subsidies affecting trade in goods and electricity in Northern Ireland, the Subsidy Control Act 2022 will also apply.