EUROPEAN COMMISSION DG Competition

Only the English text is available and authentic.

REGULATION (EC) No 139/2004 MERGER PROCEDURE

Decision on the implementation of the commitments - Waiver of the Commitments Date: 19/11/2024

EUROPEAN COMMISSION

Brussels, 19.11.2024 C(2024) 7906 final

PUBLIC VERSION

In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC) No 139/2004 concerning non-disclosure of business secrets and other confidential information. The omissions are shown thus […]. Where possible the information omitted has been replaced by ranges of figures or a general description.

Deutsche Lufthansa AG Lufthansa Aviation Center Airportring 60546 Frankfurt am Main Germany

Dear Sir/Madam,

1. INTRODUCTION

1.(1) By decision of 4 July 2005 (the ‘Clearance Decision’), adopted in application of Article 6(1)(b) and Article 6(2) of Council Regulation No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the ‘Merger Regulation’) and Article 11(1) of the bilateral Agreement between the European Community and the Swiss Confederation on Air Transport (the ‘ATA’), the Commission declared the transaction by which Deutsche Lufthansa AG (‘Lufthansa’, Germany) acquired, within the meaning of Article 3(1)(b) of the Merger Regulation, control of Swiss International Air Lines Ltd. (currently Swiss International Airlines AG), (‘Swiss’, Switzerland) (the ‘Transaction’), compatible

1 OJ L 24, 29.1.2004, p. 1-22.

2 OJ L 114, 30.4.2002, p. 73-90.

Commission européenne/Europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel. +32 22991111

with the internal market, with the EEA Agreement and with the ATA, subject to full compliance with the commitments submitted by Lufthansa (in agreement with Swiss) annexed to the Clearance Decision (the ‘Commitments’).

2.(2) On 4 November 2013, Lufthansa and Swiss (together the ‘Parties’) requested a partial waiver of the Commitments given in the context of the Clearance Decision (‘First Waiver Request’). The First Waiver Request was ‘partial’ in that it only concerned the routes Zurich–Stockholm (‘ZRH–STO’) and Zurich–Warsaw (‘ZRH–WAW’), and did not concern the other nine European and six long-haul routes that were covered by the Commitments.

3.(3) On 25 July 2016, the Commission rejected the First Waiver Request (‘First Waiver Decision’). Lufthansa challenged the First Waiver Decision before the General Court.

4.(4) On 16 May 2018, the General Court delivered a judgment in case T-712/16 Deutsche Lufthansa AG v Commission, in which it partially annulled the First Waiver Decision in relation to the ZRH-STO route. The General Court dismissed Lufthansa’s application for annulment in relation to the ZRH-WAW route (the ‘Judgment’).

5.(5) On 22 January 2024, the Parties submitted an updated waiver request concerning the ZRH-STO and ZRH-WAW routes in particular with regard to Clause 1.2 (slot commitments) and Clause 11 (fare commitments) of the Commitments (‘Updated Waiver Request’). In the present decision, the Commission assesses the Parties’ Updated Waiver Request.

2. BACKGROUND

2.1. The Clearance Decision

2.1.1. The Commission’s assessment of the ZRH-STO route

6.(6) In the competitive assessment of the ZRH-STO route, the Commission assessed the cooperation between Lufthansa and its Star Alliance partner, SAS, which was active on the ZRH-STO route (together with Swiss).

7.(7) In particular, the Commission noted that the Star Alliance provided a legal framework for mutual contractual commitments among members, and that it ‘lists a number of areas for potential co-operation within such bilateral agreements. These

8.bilateral agreements may range from plain code-share agreements on a single route to world-wide network and fare co-ordination’.

9.(8) The Commission then analysed the scope of the different bilateral agreements entered into by Lufthansa and its Star Alliance partners, including SAS. The Commission concluded that ‘[i]n the light of the extensive nature of the co-operation stemming from such agreements, the Commission has concluded that Austrian, bmi, SAS, and United Airlines cannot be considered as competitors of Lufthansa. In addition to being part of the Star Alliance, their respective bilateral agreements foresee a global joint pricing policy, joint network and flight planning, a joint hub system organisation and a single market strategy. These agreements thus provide the legal basis for a global integration of the companies’ networks and commercial policies. Furthermore, the scope of and rationale for these agreements go beyond the bundle of routes between Germany and their respective home countries. Thus, these carriers have little or no incentive to compete post-merger with Swiss. Not only will Swiss become a subsidiary of Lufthansa it will also become a member of the Star Alliance. The market investigation, in particular replies from travel agents and corporate customers, confirms this conclusion’(emphasis added).

10.(9) It follows from the above that, regarding the ZRH-STO route, the Commission’s competitive assessment was based on the overlap resulting from the operations of SAS in such route, due to the extensive nature of the cooperation between SAS and Lufthansa. Lufthansa did not have own operations in this route.

11.(10) In the Clearance Decision, the Commission found that, absent effective remedies, there were serious doubts as to the compatibility of the Transaction with the common market due to the fact that SAS and Swiss were the only players operating direct services on the route and that the Zurich and Stockholm Arlanda airports were congested during peak hours.

2.1.2. The Commission’s assessment of the ZRH-WAW route

12.(11) In the competitive assessment of the ZRH-WAW route, the Commission assessed the cooperation between Lufthansa and its Star Alliance partner, LOT, which was active on the ZRH-WAW route (together with Swiss).

13.(12) The Commission assessed a number of bilateral agreements between Lufthansa and LOT and concluded that, post-merger, LOT would have little or no incentive to compete with Swiss, in particular because of the close cooperation between Lufthansa and LOT: ‘[i]n the light of the extensive nature of the co-operation stemming from such agreements, the Commission has concluded that Austrian, bmi, SAS, and United Airlines cannot be considered as competitors of Lufthansa. […] The same reasoning applies to LOT and Air Canada, whose agreements with

14.Lufthansa foresee at least joint networking and joint pricing beyond their home countries. For the above reasons, these carriers’ market shares have been added to those of Lufthansa where relevant’(emphasis added).

15.(13) It follows from the above that, regarding the ZRH-WAW route, the Commission’s competitive assessment was based on the overlap resulting from the operations of LOT, which had entered into a series of cooperation agreements with Lufthansa. Lufthansa did not have own operations in this route.

16.(14) In the Clearance Decision, the Commission found that, absent effective remedies, there were serious doubts as to the compatibility of the Transaction with the common market due to the fact that LOT and Swiss were the only players operating direct services and that the Zurich airport was congested during peak hours.

2.2. The Commitments with respect to ZRH-STO and ZRH-WAW routes

17.(15) With respect to the ZRH–STO and ZRH–WAW routes, the Parties committed to making a specified number of slots available to potential entrants. In addition, the Parties agreed to enter into an interline agreement with a new entrant and to allow the new entrant, on request, to be hosted in their frequent flyer programmes.

18.(16) Moreover, the Parties made the following fare commitment, valid for as long as no entry would take place on the ZRH–STO and ZRH–WAW routes: whenever the Parties reduce a published fare on a comparable reference route where entry has occurred (the ‘benchmark routes’), they will apply an equivalent reduction on the corresponding fare on the ZRH–WAW and ZRH–STO routes (the ‘overlap routes’).

3. THE REVIEW CLAUSES OF THE COMMITMENTS AND APPLICABLE LEGAL FRAMEWORK

19.(17) Under Articles 6(2) and 8(2) of the Merger Regulation, the Commission may attach to its decision conditions and obligations (together generally referred to as commitments) to which its clearance is subject. The objective of such commitments is to render a transaction, that would otherwise be problematic from a competition perspective, compatible with the internal market.

20.(18) The General Court has held that ‘the purpose of commitments is in fact to remedy the competition problems identified in the decision authorising the concentration; accordingly, the commitments might have to be amended, or the need for them might disappear, depending on how the market situation develops’.

4. The Commitments in the Clearance Decision refer to two alternative situations under which a waiver to the Commitments may be granted:

(a) Clause 15.1 of the Commitments: ‘The Commission may, in response to a request from the Merged Entity justified by exceptional circumstances or a radical change in market conditions, such as the operation of a Competitive Air Service on a particular Identified European or Long-Haul City Pair, waive, modify, or substitute any one or more of the undertakings in these Commitments’.

(b) Clause 15.2 of the Commitments: ‘At the request of the Merged Entity, all the Commitments submitted herein may be reviewed, waived or modified by the Commission based on long-term market evolution. In particular, the Commission shall waive the obligation to make slots available to the extent that it finds that the contractual relationships underlying the Commission's finding of reduced incentives for competition between the merged entity in the Decision and the respective Lufthansa alliance carriers have changed in such a material respect as to remove the concerns identified by the Commission.’

(20) While Clause 15.2 does not refer specifically to the fare commitments, the General Court has held that Clause 15.2 should be interpreted to refer to both the slot and fare commitments.

(21) It is for the parties bound by the commitments to provide sufficient evidence to demonstrate that the conditions for waiving the commitments are fulfilled. As regards the relevant legal standard for the assessment, the General Court has held that the purpose of a decision concerning a request for the waiver of commitments is to: ‘ascertain whether the conditions laid down in the review clause forming part of the commitments are met or, as the case may be, whether the competition concerns identified in the decision authorising the merger subject to the commitments have ceased to exist.’

(22) Within this framework, in the following section, the Commission will assess the Parties’ waiver request against the criteria mentioned above, notably whether the conditions laid down under Clause 15.2 of the Commitments are met and whether the competition concerns regarding the ZRH-STO and ZRH-WAW routes identified in the Clearance Decision have ceased to exist.

22 Case T-712/16, Deutsche Lufthansa AG v Commission, EU:T:2018:269, paragraph 59.

23 Commission notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004, OJ C 267, 22.10.2008, p. 1-27, paragraph 74 and Case T-712/16, Deutsche Lufthansa AG v Commission, EU:T:2018:269, paragraph 45.

24 Case T-712/16, Deutsche Lufthansa AG v Commission, EU:T:2018:269, paragraph 42.

4. ASSESSMENT OF THE UPDATED WAIVER REQUEST

4.1. The Parties’ views

4.1.1. ZRH-STO

23.(23) The Parties request the Commission to waive the Commitments, in particular Clause 1.2 (slots commitments) and Clause 11 (fare commitments) in relation to the ZRH-STO route.

24.(24) The Parties argue that, in the Clearance Decision, the Commission found that in view of the bilateral agreements between Lufthansa and SAS, SAS could not be considered as a competitor of Lufthansa and had only insufficient incentives to compete with Swiss post-merger.

25.(25) The Parties submit that the following agreements between Lufthansa and SAS that were in place at the time of the Clearance Decision have been terminated:

a) Star Alliance agreement between Lufthansa and SAS: SAS left the Star Alliance on 31 August 2024. As part of the cooperation with Air France-KLM, SAS instead joined the SkyTeam Air Alliance on 1 September 2024;

b) Bilateral Alliance Agreement between Lufthansa and SAS: This agreement was terminated with effect as of 15 June 2022;

c) Codesharing agreement between Lufthansa and SAS: This agreement was terminated on 11 March 2024 effective as of 1 September 2024;

d) Marketing and Sales Agreement between Lufthansa and SAS: This agreement was terminated as a result of the termination of the Bilateral Alliance Agreement between Lufthansa and SAS. According to Clause 14.2 of the Marketing and Sales Agreement between Lufthansa and SAS, ‘[t]his Agreement shall terminate immediately upon termination of the Alliance Agreement’.

e) Bilateral JV agreement between Lufthansa and SAS: This agreement was terminated on 2 May 2013, with effect as of 1 June 2013.

25 Updated Waiver Request, page 1.

26 Updated Waiver Request, paragraph 5.

27 Lufthansa’s reply to RFI dated 24 February 2024, Question 1(a).

28 SkyTeam’s announcement of 1 September 2024 ‘SAS Officially Joins SkyTeam Global Airline Alliance’, available at https://www.skyteam.com/en/about/press-releases/press-releases-2024/sas-officially-joins-skyteam#:~:text=SkyTeam%20will%20now%20serve%20the,global%20network%20to%20new%20heights (last accessed 23 October 2024).

29 Updated Waiver Request, paragraph 8. Lufthansa’s reply to RFI dated 24 February 2024, Question 1(a) and Annex 1.

30 Lufthansa’s reply to RFI dated 24 February 2024, Annex 2.

31 Lufthansa’s reply to RFI dated 24 February 2024, Question 1(a).

32 Lufthansa’s reply to RFI dated 24 February 2024, Question 1(a) and Annex 4.

26.(26) Further, a codeshare agreement entered into between Swiss and SAS in 2006, after the Clearance Decision, was also terminated on 11 March 2024, with effect as of 1 September 2024.

27.(27) The Parties note that Lufthansa and SAS have not entered into any other material contractual relationships that would provide for a comparable joint pricing, network, flight planning or hub system organisation between Lufthansa and SAS on the route ZRH-STO. In the Parties’ view, the departure of SAS from the Star Alliance and its cooperation with Air France-KLM eliminate any prospect that this could happen in the foreseeable future.

28.(28) The Parties submit that the contractual relationships between Lufthansa and SAS have changed in such a material respect as to remove any and all concerns previously identified by the Commission within the meaning of Clause 15.2 of the Commitments. In addition, the exit by SAS from the Star Alliance and its cooperation with Air France-KLM qualifies as radical change in market conditions within the meaning of Clause 15.1 of the Commitments, or at the very least long-term market evolution within the meaning of Clause 15.2 of the Commitments.

4.1.2. ZRH-WAW

29.(29) The Parties request the Commission to waive the Commitments, in particular Clause 1.2 (slots commitments) and Clause 11 (fare commitments) in relation to the ZRH-WAW route.

30.(30) The Parties submit that the close cooperation between Lufthansa and LOT that was foreseen in their alliance agreements at the time of the Clearance Decision never materialised in the kind of concrete commercial cooperation that Lufthansa had with SAS at the time of the Clearance Decision. The Parties note that the strategic differences between LOT and Lufthansa have grown continuously, which have manifested themselves in LOT focusing on developing its own hub in Warsaw rather than having long-haul passengers transfer at Lufthansa hubs, attempting to buy Lufthansa’s competitor Condor, and challenging before the General Court the Commission’s approval of Lufthansa buying certain assets from insolvent carrier Air Berlin.

31.(31) In addition, the Parties note that the codesharing agreement that was entered into between Swiss and LOT in 2007 and which was considered relevant for the assessment of the Transaction in the First Waiver Decision, was subject to some important modifications since the First Waiver Decision was adopted. In particular, the Parties submit that the codesharing agreement between Swiss and LOT no longer extends to ‘point-to-point’ traffic, which means that Swiss can only sell seats on LOT-operated flights in connection with another flight behind/beyond ZRH-WAW (and vice versa LOT can sell seats on Swiss-operated flights on this route only in connection with a behind/beyond flight).

33 Lufthansa’s reply to RFI dated 24 February 2024, Question 1(a) and Annex 3.

34 Updated Waiver Request, paragraph 9.

35 Updated Waiver Request, paragraph 4.

4.2. Opinion of the Monitoring Trustee

4.2.1. ZRH-STO

33.(33) On 25 September 2024, the Monitoring Trustee provided a reasoned opinion on the Parties’ Updated Waiver Request.

34.(34) With respect to ZRH-STO, the Monitoring Trustee notes that, according to the Parties, all relevant bilateral agreements between Lufthansa and SAS that were the basis for the Commission’s finding of reduced incentives for competition between Lufthansa and SAS have been terminated and that copies of the termination notices have been provided.

35.(35) The Monitoring Trustee is of the view, consistent with the Judgment, that the contractual relationships underlying the Commission’s findings in the Clearance Decision have changed in such a material respect as to remove the concerns identified by the Commission. The Monitoring Trustee considers that the requirements of Clause 15.2 of the Commitments are met in relation to ZRH-STO.

4.2.2. ZRH-WAW

36.(36) In its reasoned opinion of 25 September 2024, the Monitoring Trustee refers to the Parties’ argument that, with respect to ZRH-WAW, the cooperation between Lufthansa and LOT has never been as close as that existing with SAS at the time of the Clearance Decision and that strategic differences have grown over time between Lufthansa and LOT. In particular, the Monitoring Trustee notes that LOT made a failed attempt to take over German leisure airline Condor in 2020, which was in direct competition with Lufthansa.

37.(37) In addition, the Monitoring Trustee refers to the amendment of the codeshare agreement between Swiss and LOT, by which point-to-point traffic on the ZRH-WAW route is excluded from that agreement. Further, the Monitoring Trustee indicates that the Parties had informed them that since the First Waiver Request, Lufthansa has not entered into new codeshare agreements with LOT or introduced material modifications to existing codeshare agreements.

38 Updated Waiver Request, paragraph 29.

39 Updated Waiver Request, paragraph 27.

40 Monitoring Trustee’s Reasoned Opinion, 25 September 2024, pages 5-7.

41 Monitoring Trustee’s Reasoned Opinion, 25 September 2024, pages 5-7.

42 Monitoring Trustee’s Reasoned Opinion, 25 September 2024, page 8.

38.(38) The Monitoring Trustee is of the view that the requirements of Clause 15.2 of the Commitments are met in relation to ZRH-WAW.

4.3. The Commission’s assessment of the Updated Waiver Request in relation to the ZRH-STO route

39.(39) The Commission is of the view that the evidence put forward by the Parties in the Updated Waiver Request shows that the conditions for waiving the Commitments, including in particular Clause 1.2 and Clause 11, under Clause 15.2 are fulfilled with respect to ZRH-STO.

40.(40) First, the Commission considers that the termination of the bilateral agreements existing at the time of the Clearance Decision between Lufthansa and SAS has removed the ‘extensive nature of the co-operation’ between Lufthansa and SAS. The Commission recalls that the existence of these bilateral agreements led to the conclusion in the Clearance Decision that SAS could not be considered a competitor to Lufthansa and that, therefore, an overlap arose between SAS’s and Swiss’s activities in the ZRH-STO route. In this regard, the termination of these agreements constitutes a ‘material’ change which removes the concerns identified by the Commission in the Clearance Decision in light of Clause 15.2 of the Commitments.

41.(41) Second, as explained by the Parties, Lufthansa and SAS have not entered into any other material contractual relationships that would provide for a comparable joint pricing, network, flight planning or hub system organisation between Lufthansa and SAS on the route ZRH-STO in the likes of the bilateral agreements that were assessed in the Clearance Decision.

42.(42) Finally, the Commission notes that SAS has departed from the Star Alliance, and is now a member of the Sky Team Alliance. SAS’s equity and commercial cooperation with Air France/KLM further reduces the likelihood that SAS would re-enter into cooperation agreements of ‘extensive nature’ with Lufthansa.

(43) It follows from the above that the ‘extensive nature of co-operation’ between Lufthansa and SAS which led the Commission to conclude in the Clearance Decision that SAS could not be considered a competitor to Lufthansa no longer exists. As a result, the overlap identified by the Commission in the Clearance Decision between SAS’s and Swiss’s operations in ZRH-STO has ceased to exist and, therefore, the concerns identified in the Clearance Decision with regards to the ZRH-STO route have been removed.

44 Monitoring Trustee’s Reasoned Opinion, 25 September 2024, page10.

45 Clearance Decision, Paragraph 22.

46 Clearance Decision, Commitments, Clause 15.2.

47 Updated Waiver Request, paragraph 9.

48 See https://www.flysas.com/us-en/eurobonus/skyteam/ (last accessed 23 October 2024).

49 Air France/KLM completed on 24 August 2024 the acquisition of a non-controlling stake in SAS and is set to initiate an ‘extensive commercial cooperation’ as from September 2024 (see https://www.airfranceklm.com/en/newsroom/air-france-klm-group-completes-acquisition-non-controlling-stake-share-capital-sas-ab (last accessed 23 October 2024).

50 Clearance Decision, Paragraph 22.

44.(44) The Commission considers that these elements show a long-term market evolution in the ZRH-STO route that justifies the waiver of the Commitments in ZRH-STO pursuant to Clause 15.2 of the Commitments.

4.4. The Commission’s assessment of the Updated Waiver Request in relation to the ZRH-WAW route

45.(45) The Commission is of the view that the evidence put forward by the Parties in the Updated Waiver Request shows that the conditions for waiving the Commitments, including in particular Clause 1.2 and Clause 11, under Clause 15.2 are fulfilled with respect to ZRH-WAW.

46.(46) The Commission notes that today, there is no cooperation of an ‘extensive nature’ (as found in the Clearance Decision, Paragraph 22). In addition, the cooperation between the Parties and LOT has decreased in intensity with regard to the route ZRH-WAW compared to the point in time when the First Waiver Decision was adopted.

47.(47) First, the scope of the codeshare agreement that was entered into between Swiss and LOT in 2007 and which was considered relevant for the assessment of the First Waiver Request with regard to the ZRH-WAW route in the First Waiver Decision (upheld by the General Court in the Judgment) was reduced in August 2023. In particular, point-to-point traffic is no longer covered by the codeshare agreement. As a result, Swiss can only sell seats on LOT-operated flights in connection with another flight behind/beyond ZRH-WAW (and vice versa LOT can sell seats on Swiss-operated flights on this route only in connection with a behind/beyond flight).

51 Case T-712/16, Deutsche Lufthansa AG v Commission, EU:T:2018:269, paragraph 154.

52 Lufthansa’s reply to RFI dated 24 February 2024, Question 2(b), Annex 5 (containing a copy of the codeshare) and Annex 6 (referring to the exemption of point-to-point traffic from the codeshare). Updated Waiver Request, paragraph 29.

48.(48) Second, evidence put forward by the Parties shows that the strategic differences between LOT and Lufthansa have grown over time and particularly since the First Waiver Decision. The Parties have shown that (i) LOT has been focusing on developing its own hub in Warsaw rather than having long-haul passengers transfer at Lufthansa hubs at least since 2017, (ii) in 2018 LOT challenged before the General Court the Commission’s approval of Lufthansa’s acquisition of certain assets from insolvent carrier Air Berlin; and (iii) LOT attempted to buy Lufthansa’s competitor Condor in 2020.

49.(49) It follows from the above that, based on the available evidence, today there is no cooperation of an ‘extensive nature’ between Lufthansa and LOT with regard to the ZRH-WAW route. As a result, the overlap identified by the Commission in the Clearance Decision between LOT’s and Swiss’ operations in ZRH-WAW does not exist today and, therefore, the concerns identified in the Clearance Decision with regards to the ZRH-WAW route have been removed.

53 Updated Waiver Request, Footnote 13 referring to article “Polish top government ministers back plan to build central hub airport” dated 15 March 2017, available at: https://www.reuters.com/article/airlines-poland-airport-idINL5N1GS2A2/ (last accessed 17 January 2024).

50.(50) The Commission considers that these elements show a long-term market evolution in the ZRH-WAW route that justifies the waiver of the Commitments in ZRH-WAW pursuant to Clause 15.2 of the Commitments.

5. CONCLUSION

51.(51) Based on the assessment set out in paragraphs (23) to (50) above, the Commission considers that the conditions for granting a partial waiver of the Commitments regarding the ZRH-STO and ZRH-WAW routes, pursuant to Clause 15.2 of the Commitments because the competition concerns identified in the Decision have ceased to exist regarding those routes.

52.(52) Therefore, the Commission waives the Commitments with respect to the ZRH-STO and ZRH-WAW routes.

For the Commission

(Signed) Margrethe VESTAGER Executive Vice-President

11