Airlines scrutinised in ‘Impact of Airline Consolidation on Consumer Choice’ report. Ian Taylor takes an exclusive look

Consolidation among carriers can lead to “higher fares and restricted supply”, according to a report on ‘The Impact of Airline Consolidation on Consumer Choice’ published this week.

The study, by aviation consultancy GRA, cites 72 academic and industry reports on the airline sector in the US, Europe and Asia Pacific and concludes consolidation has “strengthened airlines versus independent distribution channels”.

It notes that, historically, “competition authorities found that consumers benefit from liberalisation and deregulation of airline markets”.

But it argues that studies since 2007 “show some mergers and codeshare agreements (particularly those involving coordination of capacity and price and/or joint-venture features) inhibit competition”.

The report suggests: “Consumers in Europe should be particularly concerned as evidence from the US suggests further consolidation may be costly.”

It argues: “Key markets in Europe are now reaching levels of concentration where competition may be at risk [and] consolidation, particularly in the form of mergers and joint-venture partnerships, gives rise to at least five key consumer concerns.”

These are that airlines:

● “Have incentives to foreclose markets to independent carriers by refusing to interline with them.”

● “May be able to raise fares…by coordinating more closely.”

● “[Can] keep cost savings rather than pass them on to consumers.

● “[May] increase or preserve margins at the expense of consumers by exercising capacity ‘discipline’.

● “[Can] reduce comparison shopping as carriers coordinate policies toward independent distributors

Airlines ‘making it more difficult to compare fares’

Comparison shopping is key to protecting consumer choice, but is threatened by airline attempts to bypass independent distribution channels.

That is the conclusion of the report on ‘The Impact of Airline Consolidation on Consumer Choice’, published this week.

It notes: “Carriers’ relative bargaining position has been strengthened through consolidation and direct access to consumers and agents” and this “threatens the business models of independent distribution platforms that are the primary source for comparison shopping.”

It warns: “Carriers are employing commercial practices to shift consumers to their own websites where they avoid comparison-shopping, avoid ‘head to head’ competition and upsell services to consumers.

“This strategy has accelerated as consolidation has increased the size of the airlines, and the ability to coordinate product between alliance partners. Consolidation has made it easier to coordinate new industry distribution standards and direct connections to agents.”

This is a reference to airline association Iata’s new distribution capability (NDC) standard.

British Airways and Iberia announced direct connect deals with travel management company Hogg Robinson Group (HRG) last week to utilise NDC technology, although the deal excludes the UK, Italy and Switzerland.

The IAG-owned airlines will impose a €9.50 charge on GDS bookings from November 1, but the agreement means HRG bookings of BA and Iberia across the rest of Europe will not attract the fee.

BA and Iberia announced similar deals with the UK-based Lotus Group, which operates DialAFlight and Supertravel, and leisure agency Travel Up last week.

The report argues such moves mean “independent comparisonshopping channels risk being disintermediated” and warns imposition of GDS fees “may reduce the long-term health of independent distribution outlets”.

It calls for the maintenance of comparison shopping, suggesting: “Consumers need independent distribution to find lower cost alternatives and to make trade-offs between service and prices.”

The report, produced by aviation consultancy GRA, was commissioned by the European Travel & Technology Services Association (Ettsa), the European federation of travel agents’ and tour operators’ associations Ectaa, and the European Passengers’ Federation (EPF).

‘Carriers should be transparent across all sales platforms’

The ‘Impact of Airline Consolidation on Consumer Choice’ report presents a series of demands

It argues the EC directorategeneral (DG) for competition should evaluate “the consequences for consumers of the increased power airlines enjoy relative to corporate purchasers of air travel and to independent distributors of air travel, such as travel agencies, metasearch sites, travel management companies and their GDS suppliers”.

The report suggests: “If carriers succeed in denying content to independent channels, comparative shopping will become less effective, imposing higher search costs on consumers.”

It also argues that the DG for competition and DG for transport “should seek to preserve consumers’ ability to find the travel options that best match their needs via comparison shopping”.

The report suggests: “All carriers of substantial size should offer publicly available fares via the GDSs. Carriers should provide full information on fares and custom features (including ancillaries) in all distribution channels. Carriers should not unjustly discriminate among distribution channels.”

EC probes Lufthansa’s €16 charge for possible rule breach

The European Commission is already examining whether Lufthansa may be in breach of the CRS Code of Conduct, which forms part of EC Regulation 80/2009.

The German carrier introduced a charge for GDS bookings in 2015. European transport commissioner Violeta Bulc confirmed the investigation in September, telling the European Parliament: “The commission is investigating whether the €16 distribution cost charge (DCC) introduced by Lufthansa Group on bookings through a computerised reservation system breaches Regulation EC 80/2009.”

Lufthansa responded by saying: “Lufthansa has been in discussion about this with the EU commission for two years already. It is not the case [that] the €16 charge is being investigated. The commission is exclusively looking at the question [of] if the DCC-free booking tool is in breach of the Code of Conduct for Computer Reservation Systems.”

However, the statement by Bulc did not mention the booking tool.

Bulc also explicitly referred to British Airways’ and Iberia’s intention to introduce a similar GDS surcharge of €9.50 from November 1.

Report at a glance

The ‘Impact of Airline Consolidation on Consumer Choice’ report cites 72 academic and industry reports on the airline sector in the US, Europe and Asia Pacific. It concludes:

• The last 10 years have seen increasing airline consolidation through mergers and acquisitions, joint ventures and code-share arrangements leading to reduced competition between airlines.

• Consumers may have an impression of choice “even where none exists” because airline brands have often been retained.

• Independent distribution is necessary for consumers to compare options.

• Airlines have become “more likely to deny information to neutral distribution channels or impose discriminatory surcharges on agents”, leaving consumers with fewer choices and higher search costs.