The General Court of the European Union told today the EU Commission that it must re-examine a  request made by Lufthansa and Swiss concerning the waiver of their pricing commitments for the Zurich-Stockholm route.

However, the General Court dismisses Lufthansa’s action so far as the Zurich-Warsaw route is concerned

In 2005 the Commission cleared, subject to conditions, the planned acquisition of Swiss by Lufthansa, a founding member of Star Alliance (the largest global airline alliance).

Those conditions included compliance with commitments on pricing (fare commitments)2 given by Lufthansa and Swiss in respect of the Zurich-Stockholm and Zurich-Warsaw routes. Those commitments provided that the merged entity would apply, each time it reduced a published fare on a comparable reference route, an equivalent reduction (in percentage) to the corresponding fares on those two routes. It was stipulated that that obligation would cease once a new air service provider began operations on the routes concerned.

By those commitments Lufthansa and Swiss addressed the Commission’s concerns regarding competition on those two routes. First, those routes were operated only by Swiss (which the Commission viewed as a likely future member of Star Alliance) and by Star Alliance partners (SAS3 on the Zurich-Stockholm route and LOT4 on the Zurich-Warsaw route) and, secondly, Zurich and Stockholm airports were congested.

On 4 November 2013, Lufthansa and Swiss submitted a request to the Commission seeking a waiver of the fare commitments in question. They argued (i) that a joint venture agreement entered into between Lufthansa and Swiss in 1995 had been terminated, (ii) that there had in the meantime been a change in the Commission’s policy with respect to the treatment of alliance partners in the context of merger review and (iii) that there was competition between, on the one hand, Swiss and, on the other, SAS/LOT.

The Commission rejected that request by a decision of 25 July 2016.5 It took the view that the conditions for a waiver of the commitments, which had been stipulated in the review clauses included in the 2005 clearance decision, were not met.

Lufthansa has brought an action before the General Court seeking annulment of the decision rejecting the waiver request.

By today’s judgment, the General Court annuls the Commission’s decision in so far as it concerns the Zurich-Stockholm route and dismisses the remainder of the action.

The Court considers that the Commission failed to fulfil its obligations. In particular, the Commission did not examine the impact on competition of termination of the joint venture agreement concluded between Lufthansa and SAS in 1995, either on its own or in conjunction with Lufthansa’s offer to terminate its existing bilateral alliance agreement with SAS.

Nor did the Commission adequately answer Lufthansa’s argument that the Commission had changed its policy by no longer taking alliance partners into account for the determination of affected markets.

Lastly, the Court finds that the Commission failed to fulfil its duty carefully to examine all the relevant information, to make enquiries or to conduct the necessary investigations in order to determine whether there was competition between Swiss and, inter alia, SAS.

As regards the Zurich-Stockholm route, the Court concludes that the Commission made a manifest error of assessment and that the matters relied on in the contested decision are not capable of justifying the rejection of the waiver request relating to that route.