The northern hemisphere summer may be drawing to a close, but the past few months have seen a raft of competition and regulatory developments in the aviation sector, with regulatory scrutiny and change at levels not seen in the industry for some time. The wave of consolidation underway in the sector continues to attract intense competition scrutiny, with the European Commission having recently reviewed two high-profile proposed transactions (Lufthansa/ITA and IAG/Air Europa). At the same time, there is growing interest in airline pricing practices under both competition and consumer law, and further regulatory developments in the sector's challenge to become more sustainable. We have also seen successful challenges to the Covid-19 support packages for airlines, and regulatory updates on matters that will underpin the future needs of the aviation sector.

Consolidation and cooperation

Airline mergers: European developments

Mergers and partnerships within the airline sector continue to attract close scrutiny from competition authorities:

• Iberia and British Airways owner, IAG, has abandoned its second attempt to acquire a minority stake in Air Europa after the European Commission (Commission) was poised to block the deal (August 2024). After a prolonged review, the Commission ultimately rejected remedies proposed by IAG, which included Air Europa ceding 52% of its 2023 routes to rivals, over concerns that the proposed merger may restrict competition on routes to and from Spain. The Commission noted that Air Europa was a stronger competitor in 2024 than it had been when the Commission previously looked at a proposed tie-up in 2021, meaning the remedies to address the competition concerns were more extensive.
• In another lengthy review process, the Commission conditionally gave the green light for Lufthansa to acquire 41% of Italian flag carrier ITA Airways (ITA) for €325 million (July 2024). Despite initial competition concerns, the deal was cleared, but only with an extensive remedies package that includes:
  • ITA making available the necessary assets for one or two rival airlines to enter short-haul routes between Rome and Milan, and certain key Central European destinations; and
  • ITA granting one of these rival carriers access to its domestic network; and
  • the merged company agreeing to enter into agreements with rivals to improve its competitiveness on certain long-haul routes, such as through interlining agreements and slot swaps; and
  • Lufthansa and the Italian Ministry of Economy and Finance giving up some take-off and landing slots at Milan Linate airport.
• Air France recently acquired a non-controlling 19.9% stake in Scandinavian carrier SAS (August 2024). The deal saw Air France investing as part of a consortium, with SAS quitting Star Alliance to become a member of SkyTeam. Although the non-controlling stake avoided scrutiny by the Commission, it was subject to review by the German competition authority.

Further consolidation in the sector appears to be on the horizon. In particular, TAP Air Portugal appears ripe for investment by rival airlines following an announcement by the Portuguese government to privatise the flag carrier.

Airline mergers: global developments

• In the US, Alaska Airline's proposed acquisition of Hawaiian Airlines has been cleared by the US Justice Department (August 2024). Clearance will be a welcome step forward for the parties, after the deal also faced a lawsuit brought by a group of consumers in an effort to halt the deal. Approval is now required from the US Transportation Department.
• Korean Air is still in talks with the US Department of Justice in an attempt to remedy concerns about its long-running proposed acquisition of Asiana Airlines, a regulatory stoush which has been ongoing since 2020. In May 2024, it submitted a package of remedies aimed at mitigating the merger's impact on competition in the passenger and cargo markets between South Korea and the US. In Europe, the Commission cleared the deal in February 2024, after the carriers committed to selling Asiana's cargo business.
• ANA Holdings, Japan's largest airline group, is facing scrutiny from Japanese authorities over its proposed acquisition of Nippon Cargo Airlines (July 2024). Recently approved in Singapore (May 2024), the deal was originally set to close in October 2023, but is now scheduled for March 2025.

Alliances and codeshare arrangements

While there has been a burst of M&A, airline alliances still very much feature in the regulatory landscape.

• Air India and Japan's All Nippon Airways have agreed a codeshare partnership (May 2024) for flights between India and Japan. Further cooperation on additional routes is being considered by both airlines. Air India currently has codeshare partnerships with 15 airlines.
• The Singaporean competition watchdog has granted conditional approval to a commercial pact between Singapore Airlines and Garuda Indonesia (July 2024). The regulator identified concerns about the parties' market power on key inter-country routes and mandated measures to counteract competition concerns (including maintaining seat capacity at stipulated levels on specific routes).

Regulatory scrutiny

The airline sector has come under considerable scrutiny under both antitrust and consumer laws, with several novel cases instigated. In the competition and antitrust arena:

• The Italian Competition Authority (AGCM) is under pressure, following a dawn raid it conducted on Ryanair's Dublin headquarters back in March. The AGCM must now disclose its justification for the raid or risk being annulled in its entirety. The AGCM alleges that Ryanair has breached EU competition law by discriminating between customers who booked via the airline's app or website and those who used travel agencies and online travel agents. This follows a finding from the Italian Court of Appeal that Ryanair's practice of reserving online ticket sales to itself was not abusive (February 2024).
• The Canadian Competition Authority is engaging with the public in preparation for a market study into Canada's domestic air travel industry (July 2024). The study will scrutinise barriers to market entry and expansion, and investigate obstacles to consumer awareness and choice.
• Romania's competition authority has launched a probe into the pricing strategies employed by airlines for flights departing the country (May 2024). Amidst a recent hike in ticket costs, the Competition Council is set to assess the structure of the passenger air transport market, given Blue Air's bankruptcy in 2022 and TAROM's reduction of flight routes.
• The Court of Justice of the EU is examining a legal dispute between Avram Iancu International Airport in Cluj and Romania's competition regulator (July 2024). The case centres around the potential abuse of a dominant position regarding market access for airport ground handling services. Regia, the airport's managing body, has been fined RON 1.7 million (approximately €340,000) for preventing Romanian Airport Services from accessing essential infrastructure for ground handling services.

Recent consumer law action has focused on ticket selling practices, as well as claims made about sustainability and environmental impact.

• Australian airline Qantas reached an agreement with the Australian Competition and Consumer Commission (ACCC) to pay approximately A$20 million to 86,000 misled customers who were shown adverts for tens of thousands of flights that the carrier had already cancelled (May 2024). The ACCC has also asked the Australian Federal Court to impose an A$100 million penalty for a breach of Australian consumer law.
• The Commission and EU consumer authorities issued a letter to 20 airlines pinpointing various types of potentially misleading "green" claims (April 2024). The airlines were invited to align their practices with EU consumer law within 30 days.

Over the summer, there have also been key regulatory developments concerning the economic regulation of airports and potential reforms to the regulatory framework for slot allocation:

• In July, the Civil Aviation Authority (CAA) published its final adjustments to the price controls for Heathrow Airport for the current "H7" regulatory period. On appeal, the UK competition authority had largely upheld the CAA's original decision, assessing it as striking an appropriate balance between fair passenger prices and the need for airport investment. The CAA's final adjustments set out its revised decisions on a handful of areas remitted to the CAA.
• The UK government has been consulting on its proposals for reform to the airport slot allocation system in the UK (March 2024). Whilst the overall outcome of the consultation is pending, the UK competition authority has come out in support of a new market-based mechanism for slot allocation (such as through auctions for new and existing slots) (August 2024). The consultation follows an announcement from the Australian government that it would introduce slot allocation rules at Sydney airport to free up capacity (August 2024). Reforms to the EU slot allocation rules are under evaluation, but the process appears to have stalled in 2024.
• The UK has given a boost to the UK's sustainable aviation fuel (SAF) industry. A new law has been proposed which will support SAF producers by providing revenue certainty, and the SAF Mandate (proposed July 2024) will require SAF to comprise 22% of total UK jet fuel demand by 2040. With less than 1% of UK jet fuel comprising SAFs last year, the industry has its work cut out.

Consumer protection is set to be a key area for consumer-facing aviation businesses to watch, as regulators' powers increase. In the UK, the new Digital Markets, Competition and Consumer Act empowers the competition authority to fine and penalise companies for breaches of consumer law, such as "greenwashing", through direct enforcement action. Greenwashing will be a particularly challenging area, as the industry continues to take steps to improve its sustainability credentials.

EU state aid post-pandemic

The legal aftermath of Covid-19 state support measures continues to make waves in the European courts, with several state aid decisions of the Commission having been recently challenged and overturned.

• The Commission has launched an investigation into the German government's €6 billion recapitalisation of Lufthansa which was approved in 2020 under the Covid Temporary Framework (July 2024). This probe follows a May 2023 ruling where the EU General Court overturned the Commission's initial approval of the aid package. The investigation will consider, amongst other things, Lufthansa's significant market power at several European airports.
• In July 2024, the Commission decided that €10.4 billion of aid granted to Air France-KLM during the pandemic was compliant with EU rules. The aid has been subject to an ongoing legal battle, after the EU General Court rescinded the approval of the aid in December 2023 following challenges brought by Ryanair.
• Ryanair has successfully challenged the Commission's approval of a restructuring aid package worth €321 million to German airline Condor (May 2024).
• There is still a role for state support to airlines in the post-Covid operating environment, with the Commission recently approving up to €95.3 million in restructuring state aid to be granted to Romanian state-owned airline TAROM (April 2024). TAROM's financial bounce-back plan includes a debt write-off of approximately €50 million coupled with a capital injection of around €46 million. The aid is granted subject to TAROM trimming down its routes and fleet size, and making a commitment to maintain a smaller market presence throughout its restructuring phase, which is set to last until the end of 2026.

The success of appeals challenging Covid-19 aid measures, of which many date back to more than four years ago, leaves the Commission in a difficult spot. Arguably it also means that future state support in Europe for the aviation sector will be subject to increased scrutiny.