In 2008, the Fair Trade Commission (FTC) issued the Guidelines on Handling Merger and Concerted Action Cases of Domestic Civil Air Transportation Enterprises ("Guidelines") which are intended to enable the FTC to effectively handle domestic civil air carriers' merger filings and applications for permission to engage in concerted actions, in order to maintain the trade order, uphold consumers' interests, and assure fair market competition. However, in consideration of the fact that the Fair Trade Act was amended in recent years and that the status of the market competition has changed since then, the FTC amended the Guidelines in December 2015 once again after amending slightly the Guidelines in April 2015. The main points of the amendment are as follows:
Market definition: The definition of market for civil air carriers' merger filings and concerted action applications will in principle be based on the 'city pair' as the smallest market unit. However, the following factors may also be considered depending on the circumstances of each case:
(1) The time and distance for transportation and the frequency of service of other air routes originating from areas close to the point of departure.
(2) The time and distance for transportation and the frequency of service of air, rail, road and water transportation modes.
(3) Other factors relevant to the definition of domestic air transportation market.
The FTC has replaced the "substitutability of air routes or transportation modes" with the "time and distance for transportation and the frequency of service" in reference to the OECD Background Paper on Airline Competition issued on June 12, 2014. Furthermore, in consideration that the domestic scheduled air routes has mainly been for offshore islands and eastern Taiwan and that the alternating transportation modes such as rail, road and water transportation modes, has not classified the economy class and the business class and the time for transportation does not differ due to the characteristics of passenger, the FTC has canceled the text such as "passenger characteristics" and "time cost of journey."
In addition, because the Principles of the Fair Trade Commission Regarding the Definition of Relevant Markets ("Principles") has introduced several analytical methods used in defining markets such as "Reasonable Substitutability Analysis" and "Cross Elasticity Test," rather than only the "Hypothetical Monopolist Test," the FTC has canceled Subparagraph 3, Paragraph 2, Article 4 of the Guidelines for flexibly handling merger and concerted action cases depending on the circumstances of each case. According to the amendment, unless otherwise provided for in the Guidelines, the general provisions in the Principles shall be applicable.
Market Share:Because the scope of Civil Air Transport Enterprise in Subparagraph 11, Article 2 of the Civil Aviation Act is not limited to the transportation of passengers but includes the transportation of cargo, the FTC has included "cargo volume"as one of the indexes for the "Market Demand Basis" and "cargo capacity" for the "Market Supply Basis."
Formerly, when calculating a domestic civil air carriers' market share in a relevant market, the FTC may adopt the "number of passengers" or "operating revenue" of specific routes of Taiwan High Speed Rail ("THSR")as basis for calculation in consideration of the fact that the Taipei-Kaohsiung air route overlaps and can be substituted by high-speed rail. However, the FTC has cancelled such provision because the THSR has substantially replaced air routes in western Taiwan since being open to traffic.
Factors to be considered when determining the impact of a merger on competition: the FTC has amended slightly the text of provisions with reference to the FTC Disposal Guidelines on Handling Merger Filings and the OECD Background Paper on Airline Competition issued on 12 June 2014:
(1) Market Structure: The number of market participants, market share in terms of passenger journeys, and degree of market concentration.
(2) Unilateral effects: The ability of the surviving enterprise for increasing the freight of a specific air route because of the elimination of competitive pressures.
(3) Coordinated effects: whether the surviving enterprises reach collective agreements with other competitors to restrain each other's business activities (such as freight, flights and the number of passengers); or whether in the absence of collective agreements, the reduced number of market participants makes unanimous acts so as to effectively hamper market competition.
(4) Extent of entry: The possibility and timeliness of market participation by potential competitors, and whether they can exert competitive pressure on existing enterprises in the market, such as the required time for application for an air route certificate and permission, the regular customer feedback program and the implementing of results of a discount system for enterprise customers.
(5) Countervailing power: The ability of existing or potential trading counterparties to deter the surviving enterprise from increasing its freight.
Domestic civil air carriers' joint acts: Formerly the "joint acts which don't constitute concerted actions under old Article 14 of the Fair Trade Act" and the "joint acts which shall be subject to other regulations in accordance with old Article 46 of the Fair Trade Act" are combined in the same provision and jointly exempted from the Fair Trade Act. However, in consideration of the fact that the above-mentioned joint acts shall be arranged differently, the FTC has provided respectively for each of them in several provisions. Furthermore, the FTC has, with reference to domestic and international practice, enumerated the joint acts which are not involved in the doubt of anti-competition and the integration of sensitive business information and do not constitute concerted actions under Article 14 of the Fair Trade Act, such as sharing the personnel of airport ground handling and security service, endorsing the ticket, VIP room services, fuel feeding, catering services, and other acts which are not involved in the integration of freight, flights and cargo capacities.
Expanding the conduct patterns of domestic civil air carriers' concerted actions: With reference to that Antitrust Division, the US Department of Justice had imposed heavy fines on EVA Air and other air freight forwarders involved in illegal concerted actions regarding fuel surcharge for freight and the practice in Taiwan, the FTC has added Article 13 to the Guidelines which enumerates the illegal concerted actions of domestic civil air carriers and includes a general clause:
(1) Jointly determine the fuel surcharge for freight or other charges even though the freight is not the final.
(2) Reach agreements to jointly restrain the proportion of supplied flights and the balanced amount with regard to the same air route and jointly share revenues.
(3) Any other behavior that reach agreements to jointly restrain the freight, flights and the number of passengers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.