Bundeskartellamt warns Deutsche Lufthansa AG over its pricing strategy on the Frankfurt-Berlin route

According to a preliminary assessment the Bundeskartellamt considers Deutsche Lufthansa AG’s (DLH) pricing strategy on the Frankfurt-Berlin route as unfairly hindering its competitor Germania Fluggesellschaft mbH, Berlin, and squeezing it from the market. The competition authority intends to prohibit this form of abuse of market power and to have its prohibition order enforced immediately.

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 correspond to DLH’s business and 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. an average of € 100 per single journey (including fees). Compared with the fully-flexible business and economy tariffs which DLH previously offered exclusively (e.g. economy flight, one-way, € 254 or 242.50 including fees) this constitutes a price reduction of more than 60 per cent. In response to the € 100 tariff introduced by Lufthansa, Germania lowered its flight prices on this route from € 99 to € 55. For economic reasons, however, it was forced to raise them back to € 99 at the beginning of 2002.

The President of the Bundeskartellamt, Dr Böge, stated: “The reaction of Lufthansa, which used to be the monopolist on the Frankfurt-Berlin route, to Germania’s tariff gives grounds for suspicion that Lufthansa, through this low-price policy, is considerably impeding Germania’s opportunities to compete without any objective justification and that it is exploiting its superior market power over Germania to unfairly hinder this competitor. In this connection it should be noted that Lufthansa has not cut prices for business travellers on its remaining domestic routes where Germania has so far not been active as a competitor.”

According to the Bundeskartellamt’s initial observations, DLH is no longer able to cover its average costs per passenger by charging € 100 for a single flight and is thus pursuing a loss-making strategy. Lufthansa continues to offer at this price the same on-board service as before as well as bonus miles for frequent flyers and a greater number of flight frequencies. In view of higher costs and additional services there is no objective justification for this loss-making strategy. DLH is dominant on this route, has considerably greater resources than Germania and, due to its financial strength, is also able to squeeze Germania from this route and prevent competitors from starting up further domestic flight connections.

Böge stated: “If the suspicion is confirmed that DLH is squeezing out competitors by charging below-cost prices and pursuing other strategies impeding competition, this would constitute a serious violation of market economy rules which the Bundeskartellamt will not tolerate.”

DLH has until 30 January 2002 to comment.