International Air Transport Association (Hansard, 11 May 2004)

§ Andrew Selous (South-West Bedfordshire) (Con)
It is a pleasure to raise this important matter on behalf of one of the major employers in my constituency. The debate is to do with competition policy and the International Air Transport Association, which is giving the company, the Official Airline Guide, great cause for concern. OAG Worldwide Group Limited is a private publishing and data business and the premier supplier of consolidated scheduled airline information to the airline and travel industry. It has been the international leader in its field for more than 70 years, and has 470 staff, some 300 of whom are based at its headquarters in Dunstable.
It is a high tech business, at the heart of airline schedules distribution in both the business-to-business and the business-to-consumer sectors. It is a core source of operational critical data for many airline reservation systems—the global distribution systems that feed the world's travel agents—and its direct consumer reach of more than 1 million people is growing rapidly as internet and mobile distribution grows.
OAG works independently, not beholden to any airline, travel company or other organisation. Its strength lies in the quality, depth and breadth of its regularly updated and meticulously checked global flight schedule database. It uses datasets, key raw data for industry capacity and route development analysis, with past and future data available. The data are distributed via data feeds, online, on CD-ROM, mobiles and personal data systems and in books of several sizes. It is an outstanding British company, investing heavily for the future. I recently had the pleasure of going round its offices. It has an outstanding staff with many years' experience, and it is investing significantly in the latest information technology. It is just the sort of company for which the country needs to guarantee a bright and prosperous future.
IATA is causing OAG serious concern, in that its officers claim that they have been given a brief by the airlines to destabilise OAG. OAG does not believe that that is the case so far as the airlines are concerned. It has evidence that IATA has sought to destabilise it by telling competitors that it is going bankrupt. I have, as evidence, a letter concerning disparaging remarks made by an employee of IATA to a representative of Golden Ware Travel Technologies. The letter, from Mr. Michael Feldman, IATA's director of passenger services, was faxed to Mr. Rory Veevers-Carter, vice-president of sales and marketing of Golden Ware. It begins: It has been brought to my attention that Mr Juan Catala recently made comments to representatives of Golden Ware Technologies ('GoldenWare') which have been misunderstood by Golden Ware as questioning OAG's financial standing. OAG has an excellent and long established reputation within the airline industry and IATA is not aware of any basis for questioning the company's financial or trading status. As such, on behalf of IATA, I wish to unequivocally and unconditionally correct any inference to the contrary which may have been derived from Mr Catala 's comments. It continues: IATA sincerely regrets any adverse imputation concerning OAG which may have been drawn from Mr Catala's comments and apologises unreservedly to OAG for any such imputation.
24WH IATA has tried to obtain OAG's pricing via IATA meetings, and has questioned OAG's customers about the value of its products. IATA has also asked airlines to commit to its service, which it calls the schedule reference service.
Individual airlines currently provide their flight schedules through various distribution channels to consolidators and intermediaries, such as OAG, who create their own data products and services and distribute them to airlines, businesses, passengers and the travel industry. As I said, however, IATA is establishing the schedule reference service—the SRS—which is an industry-wide consolidation service designed to provide, in IATA's words, a single, neutral industry schedule database for the collection, verification and onward distribution of schedule information for the whole air transport industry".
That simply proves that IATA wants to replace OAG as the industry's core schedules database. It wants not to provide an alternative data source, but to take sole control in an entirely unacceptable, monopolistic way. It is actively seeking to further its ambition by partnering, endorsing and entering into an exclusive marketing agreement with a small, historically loss-making US company, Innovata, to provide a competitive service and leverage IATA's industry status to help this player to take business from OAG. Innovata is the appointed operator of the SRS, while IATA claims that it is responsible only for marketing and promoting that service to the airlines. As the leading trade association for the airline industry, however, IATA's strong position unquestionably enables it to advance the interests of the Innovata-SRS service and to put direct and indirect pressure on its member airlines and, indeed, on other airlines in the industry.
OAG pointed out to me that this monopolistic channel of supply will have serious anti-competitive consequences, as IATA, through its member airlines, will be able to control the way in which the data is distributed. Inevitably, the loss of competition would increase prices, stifle technological innovation and reduce choice for users of airline information. Fundamentally, IATA is an association of competing airlines, and, as such, frequently can operate only on the basis of specific exemptions. To our knowledge, no such regulatory approval or exemptions have been granted to IATA for the SRS. Expecting IATA not to leverage its dominant status would not correspond with its ambition or track record. For example, IATA recently told OAG that it would take it out of the cargo business. Its tactics were successful in the cargo rates area, in which it dramatically increased OAG's data supply cost. It is currently trying similar tactics to suppress OAG's desire to distribute cargo rules.
There are clear analogies to be drawn between IATA's conduct in relation to cargo rates and its anticipated monopolistic behaviour in relation to flight schedule data through the SRS. As with cargo rates, IATA could simply impose unreasonable prices or terms for the supply of consolidated flight schedules. 25WH There is no future for OAG if IATA achieves a monopoly in the flight schedule sector. Some 300 of my constituents' jobs could be lost. OAG's existence is therefore under direct threat from IATA. The knock-on effect would be the loss of jobs in Dunstable, about which I have already spoken. What is worse, however, is that this would seriously damage the UK's leading position in this sector.
IATA's aforementioned actions are questionable for the following reasons. In view of IATA's position as the airline industry's leading trade association, it is wholly inappropriate for IATA to align itself with particular suppliers to the airline industry. A trade association, which is a grouping of competitors in the industry, must remain neutral with respect to the products and services that its individual members buy in the marketplace. IATA holds huge sway in the airline industry and manages a breadth of committees that influence the way in which the industry operates and the standards that it adopts. Should IATA be allowed to masquerade as a trade association while furthering its own commercial interests?
As a result of IATA's actions, OAG made a formal complaint to the European Commission on 12 September 2003, a copy of which was registered with the United States Department of Justice. As I explained, the complaint details IATA's desire to establish a monopoly SRS. However, the complaint has so far not been progressed. OAG has corresponded with several MPs, but the British Government seem to have washed their hands of this complaint, stating that the complaint is an issue for the EC's competition directorate.
On 29 April 2004, I received a letter from Mr. Mario Monti, the European Commissioner which states: This complaint is currently being examined by my services. Given the complexity of this case, it will take some more time before my services are able to come to a preliminary conclusion about the possible existence of an infringement of competition rules by IATA. I hope you will therefore understand that I am not able at this stage to take a position on the merits of this case. Considering the prolonged delay in receiving a response from the European Commission, which lasted seven months from the date that the complaint was officially submitted, what can the Minister do to help the interests of a fine market-leading British company? If the complaint does not progress as soon as possible, OAG's ability to continue to provide an independent service to the industry will be irreparably damaged.
May I summarise the problem for the Minister? Essentially, the ramifications of IATA's actions are potentially immeasurable. The negative aspects of a monopolistic service will be felt by all players within the travel market including application service providers, global distribution systems and publishers, as well as the airlines that generate the data in question and the ultimate consumers of that information, namely the purchasers of airline and other integrated transport-related services and publications. No part of the schedules supply chain will be immune from the negative pressures that the SRS is expected to exert on it.
I hope that the Minister will declare that the arrangements are in breach of article 81 of the EC treaty and are not capable of individual exemption under that 26WH article. He should investigate the complaint, which covers the agreements, arrangements and practices within IATA and includes the marketing agreement with Innovata for the implementation of the SRS, and he should have that agreement with Innovata terminated. I hope that he will ensure that if the schedule reference service proceeds, it will not become an exclusive channel of supply. First, he should ensure that the airlines continue to provide raw flight schedules data to OAG on terms that do not discriminate in favour of the SRS; secondly, that the airlines and other users have an unrestricted right to source consolidated flight schedules data and other data products from competing consolidators such as OAG; thirdly, that IATA does not misuse its position as a trade association to favour the SRS.
In summary, I ask the Minister to champion the interests of a leading British company. All the issues that OAG has raised with me are highly worthy of debate as they seriously question both the role of IATA as a trade association and its future role as a competing commercial organisation. The Government, up until now, seem to have handed the buck to the European Union, but the complaint has been held up in the European Commission for nearly eight months. Surely the commercial interests of one of the UK's major employers should take priority? Can the Minister seriously let a trade association behave so anti-competitively? Should a trade association be allowed to undermine a company in such a blatant fashion?
OAG's criticism of IATA's anti-competitive behaviour is serious enough to merit an investigation, and I hope the Minister will investigate the matter further. I hope that he will in particular put pressure on the European Commission to take the action that I have outlined, in the interests of British business and British jobs as far as they affect my constituents.

§ The Parliamentary Under-Secretary of State for Trade and Industry (Nigel Griffiths)
It is a pleasure to be here with you again, Mr. Deputy Speaker, and to congratulate the hon. Member for South-West Bedfordshire (Andrew Selous) on securing this debate on an important issue.
OAG has a proven track record of providing a first-class service to business and the Government take this issue seriously. I shall outline the steps that have been taken so far. I would like to reassure the hon. Gentleman that the Government have acted properly on the matter, and I will take him through the procedures.
Commissioner Monti, who is responsible for competition matters, has agreed to open a formal investigation of OAG's complaint concerning IATA, which will be carried out under article 81 of the treaty. The Commission must carry out a thorough investigation in accordance with competition-related criteria. The Enterprise Act 2002 took Ministers and politics out of competition decisions in the UK in the interests of producing a more transparent and predictable system for the consideration of competition cases. The decision to do so was based on three principles: that competition-related decisions are best 27WH determined by the competition authorities according to competition-related criteria; that Ministers should avoid undermining the regulators or appearing to influence them in carrying out their independent functions; and that Ministers should seek to support competition regulators in their work. Although the policy was primarily developed for a domestic regime, it applies equally to competition investigations carried out by the European Commission.
Commission investigations are legal processes under article 81 of the treaty. The hon. Gentleman voiced his concern about the time that the investigation might take, and yesterday, at my instigation, officials at the Department of Trade and Industry checked with the Commission and made our view clear about the need to expedite proceedings. As it is a legal process, the Commission will give interested parties the opportunity to submit evidence, and the party under investigation—in this case IATA—will take every opportunity to defend itself as it sees fit.
I want the Commission to resolve the investigation as soon as it can. The Commission has recognised that there may be a case to answer and is formally investigating the complaint. I shall ensure that the hon. Gentleman's contribution to the debate, and my response, is forwarded to Commissioner Monti.

§ Andrew Selous
I am grateful to the Minister for giving way and for his Department's action on the matter yesterday.
On the time scale of proceedings, can the Government exercise any influence to ensure that this serious matter, which has been with the Commission for eight months, is expedited as quickly as possible?

§ Nigel Griffiths
We have left the Commission in no doubt that delays in handling competition matters can damage all the parties involved, and I am sure that the Commission has taken that message to heart.
Our position on competition policy is clear: we believe that strong competition benefits businesses and consumers. For business, it sets out a level playing field on which it can compete fairly; for consumers, strong, fair competition can set downward pressure on prices and upward pressure on quality. The overall aim of competition policy is to encourage and enhance the competitive process to bring wider benefits to the economy in increased productivity. In recent years, the Government have taken active steps to modernise and strengthen the UK's competition laws as part of our wider agenda of promoting competitiveness and growth. The stated cornerstones of that modernisation are choice and value for consumers and dynamic and innovative markets, such as the one that the company in question has created from its base in the hon. Gentleman's constituency.
The mainstay of our competition regime is the Competition Act 1998, which I had the honour of taking through the House of Commons as the competition Minister. That Act is closely modelled on the EC treaty, particularly articles 81 and 82, which it mirrors, and replaces earlier legislation, including that relating to restrictive trade practices. We have moved away from 28WH public interest tests by means of consolidation in the Enterprise Act 2002, in order to take the politics out of competition decisions in all but a narrow set of circumstances. It is important to stress that such decisions are now taken by the independent expert competition authorities, using competition-based tests.
The rigorous enforcement of rules by the relevant independent competition authorities is important—whether by the Office of Fair Trading, the Competition Commission or the sectoral regulators in the UK or, as in this case, the European Commission, where intra-Community and global trade are involved. The Commission is widely respected for its independence and its balanced and rigorous approach to enforcing EU competition rules in a number of landmark cases. I hope that that will reassure the hon. Gentleman and his constituents.
In the UK, the Competition Act, which mirrors articles 81 and 82 of the treaty, constitutes the basic EU competition rules. Under the treaty, the Commission—specifically, the director general for competition—has sole responsibility for enforcing the EU's competition rules and considering individual cases under the rules. Article 81 prohibits agreements between undertakings that prevent, restrict or distort competition in intra-Community trade. Article 82 prohibits the abuse of a dominant position with no exemption possible. Those areas were elaborated on by the hon. Gentleman.
Turning to the technicalities, exemption from the prohibition of article 81(1) is possible under article 81(3), which lists four conditions that must all be satisfied if an agree rent is to be exempt from the general prohibition. The agreement must contribute to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and … not: (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.
In straightforward terms, those conditions are answered by one question: are the restrictive aspects of the arrangements in question indispensable to improving the product or benefiting consumers? If a case fails that test. any anti-competitive behaviour is prohibited and any anti-competitive agreements are declared void. In extreme cases, parties infringing the rules can be fined a maximum of 10 per cent. of their turnover, so the stakes in such an investigation are obviously very high. That is one of the reasons why the competition, following due legal process, must give any parties to an investigation every opportunity to submit their side of the story. Obviously, the Commission sets down a reasonable time scale for that, but I want the Commission to ensure that no parties take advantage of its procedures to delay and drag out the proceedings unnecessarily. As I said, I recognise the damage that that does to other parties and, quite often, to the party under investigation as well.
29WH I know that the hon. Gentleman will continue to monitor the situation carefully, as will my hon. Friend the Minister for Employment Relations, Competition and Consumers, who is unable to be here. I shall ensure that he, too, is fully aware of the contribution that the hon. Gentleman has made and of the follow-up actions that I have given a commitment to undertake.