Bundeskartellamt prohibits Lufthansa from hindering its rival Germania

The Bundeskartellamt sees the pricing strategy of Deutsche Lufthansa AG (DLH) as an attempt to squeeze its new competitor, Germania Fluggesellschaft mbH, Berlin (Germania) out of the market and fears that emerging competition will be substantially impaired as a result. Consequently it has prohibited DLH from demanding a price (including passenger fees) for a one-way ticket per passenger on the Frankfurt-Berlin/Tegel route which is not at least 35 euro above Germania’s price, as long as DLH does not have to charge more than € 134 as a result. The decision is immediately enforceable. 

The President of the Bundeskartellamt, Dr Böge, stated: “If Germania were forced out of the market by DLH’s aggressive pricing strategy not only would competition on the Berlin-Frankfurt route be brought to a standstill.  DLH’s abusive practices would also have a considerable deterrent effect on other potential rivals and on other routes which are currently dominated by DLH. The emergence of further competition in domestic air traffic would be blocked for years, to the long-term detriment of the consumer.“ On DLH’s warning of a long legal dispute over the matter, Böge stated that in view of the overriding public interest in maintaining emerging competition provided by the newcomer, Germania, the Bundeskartellamt had ordered immediate enforceability of the abuse ruling. “In order to avoid irreparable damage to competition the decision must also be enforceable during the legal dispute announced by DLH."

Should the court, contra to expectation, invalidate the immediate enforceability of the ruling at DLH’s request, the lawmaker would be called upon to embody this instrument in law as a general rule to ensure better protection of competition, for the benefit of the consumer.

Germania started operating scheduled flight services between Berlin – Tegel and Frankfurt/Main on 12 November 2001. The company offers tickets at € 99 for a one-way, fully-flexible and rebookable flight. The conditions essentially correspond to DLH’s economy tariffs suitable for business travellers. DLH reacted to this by also introducing a fully-flexible economy tariff of a total of € 200 for an outward and return flight to be booked separately, i.e. at an average of € 100 per single journey (including fees). Compared with the exclusively fully-flexible economy tariffs DLH previously offered this constitutes a price reduction from €485 to €200, (including fees), i.e. of almost 60 per cent. Since 1 January 2002 DLH has raised the price to € 105.11 (Berlin-Frankfurt) and 105.31 (Frankfurt-Berlin) by introducing a new price tariff.

With this price DLH has in effect clearly undercut Germania’s price of € 99 as it includes services which are not offered by Germania. These offered include catering and miles&more for frequent fliers with Lufthansa. The fact that DHL offers three times as many flights is another considerable incentive for business travellers to fly with DLH and not Germania. Other advantages of flying with DLH are its access to travel agencies and its substantial participation in the Amadeus reservation system, its integration in the Star Alliance network as well as the reputation it enjoys among long-standing business travellers.  Even on conservative estimates the Bundeskartellamt assumes a price advantage of approx. € 35 one-way.

The price DLH is asking is set clearly below its average operating costs per passenger. The only rational explanation for this pricing strategy is that it is an attempt to force Germania from this route and to recoup resulting losses at a later stage by discontinuing this price tariff and resorting to previous ones. Recent cases on the Munich-London/Stansted and Munich-Frankfurt routes are further evidence of this strategy. In both cases DLH significantly raised its prices after its rivals, Go-Fly and Deutsche BA, had abandoned these routes.

DLH’s introduction of the new cut-price is a clear reaction to Germania’s competition inroad. Not only the timing but also the scale of this reaction, which is limited to the Berlin-Frankfurt route, are clear evidence of this. On no other route has DLH offered comparable budget tariffs. In order to maintain the principle of proportionality the €35 price difference demanded of DLH vis-à-vis its rival, Germania, is limited to a certain amount and for a specific period. This restriction is justified in that within two years Germania should have gained sufficient recognition and established a clientele base.  Germania’s operational procedures and other competition factors should have also improved to such an extent that protection against predatory conduct on the scale as provided by this decision should no longer be necessary.