Is it time to assuage the regulatory regime for the airport of Milano Linate?
The status of congested airport of the Milan airport of Linate (LIN) has already played a decisive role in the reviews carried out by the Italian Competition Authority or ICA on the competition effects of some concentrations or restrictive business practices in the transport aviation industry (ex multis, AGCM, case C7667, Alitalia/Volare). The dearth of available slots at this airport constitutes an almost insurmountable entry barrier for airlines intending to operate flights from/to LIN. The markets corresponding to routes between LIN and other airports are so likely to be concentrated with only one or a few carriers providing this links. This problem also surfaces in an opinion recently released by the ICA on the new regime for the public service obligations regarding the air links between Sardinia and Continental Italy (AGCM, opinion AS509, Regime di Imposizione di Obblighi di Servizio Pubblico sui Servizi Aerei di Linea da e per la Sardegna, Boll. 12/2009).
The ministerial decree of 5 August 2008 has confirmed the cross-subsiding mechanism for the funding of air fares charged to Sardinian resident. Lower fares applied to the latter are funded by higher fares applied to non Sardinian resident. The decree has innovated the previous regime by liberalizing the maximum fare applicable to non Sardinian residents. While the freedom of carriers to determine the maximum fare is unlikely to distort competition in competitive markets, in highly concentrated or monopolistic markets it may enable the dominant player to extract a rent on the routes where no effective or potential competition exists.
Unfortunately, this is the case with the routes between LIN and the airports of Alghero (AHO) and Olbia (OLB) in Sardinia. Due to the status of congested airport of LIN, the LIN/ AHO and LIN/OLB routes amount to monopolistic markets being operated by only carrier, Air One and Meridiana, respectively. Following the cancellation of the maximum air fare for non residents these carriers may have an incentive to apply higher fares to non residents, namely during the summer season. That may amount to excessive pricing banned by Article 82 EC.
To avert such risks, the ICA has tabled the proposal to amend the competitive structure of the above routes by letting more carriers to fly them. More operators would mean more competition and lower incentives for airlines to charge higher fares. To do so, however, if one takes into account the status of congested airport of LIN, it is necessary to up the number of hourly flights at LIN that have been discretionarily set by the competent regulatory authority. That would result in the availability of more slots at LIN, which can be employed to operate new flights, included those to/from AHO and OLB, which are now impeded by the current stringent regulatory regime LIN is subjected to. Is that a feasible solution? Probably not. In any event, the ICA makes it clear that if the available slots at LIN are not be increased as suggested, the cap on maximum fares applicable to non residents will to be kept in place to protect passengers from the risk of exploitative abuses.
The ministerial decree of 5 August 2008 has confirmed the cross-subsiding mechanism for the funding of air fares charged to Sardinian resident. Lower fares applied to the latter are funded by higher fares applied to non Sardinian resident. The decree has innovated the previous regime by liberalizing the maximum fare applicable to non Sardinian residents. While the freedom of carriers to determine the maximum fare is unlikely to distort competition in competitive markets, in highly concentrated or monopolistic markets it may enable the dominant player to extract a rent on the routes where no effective or potential competition exists.
Unfortunately, this is the case with the routes between LIN and the airports of Alghero (AHO) and Olbia (OLB) in Sardinia. Due to the status of congested airport of LIN, the LIN/ AHO and LIN/OLB routes amount to monopolistic markets being operated by only carrier, Air One and Meridiana, respectively. Following the cancellation of the maximum air fare for non residents these carriers may have an incentive to apply higher fares to non residents, namely during the summer season. That may amount to excessive pricing banned by Article 82 EC.
To avert such risks, the ICA has tabled the proposal to amend the competitive structure of the above routes by letting more carriers to fly them. More operators would mean more competition and lower incentives for airlines to charge higher fares. To do so, however, if one takes into account the status of congested airport of LIN, it is necessary to up the number of hourly flights at LIN that have been discretionarily set by the competent regulatory authority. That would result in the availability of more slots at LIN, which can be employed to operate new flights, included those to/from AHO and OLB, which are now impeded by the current stringent regulatory regime LIN is subjected to. Is that a feasible solution? Probably not. In any event, the ICA makes it clear that if the available slots at LIN are not be increased as suggested, the cap on maximum fares applicable to non residents will to be kept in place to protect passengers from the risk of exploitative abuses.
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