Geographical allocation of turnover in aviation mergers: What the European Commission recently hold

The European Merger Control Regulation (ECMR) stipulates that only concentrations with a European dimension fall within the regulatory jurisdiction of the European Commission to review. A concentration is presumed to have such a dimension when it meets the financial threshold in Article 1 of the ECMR. To this end, it is necessary to calculate the turnover generated by the merging parties within the Community or in one or more member states. However, the geographical allocation of the turnover required by Article 1 for the purpose to establish the Commission’s jurisdiction can be a tricky issue in case of mergers between undertakings with a cross-border activity such airliners. In fact, the activities of airlines span several countries as they typically operate flights and sell tickets in many national markets.
Recently, the Commission has dealt with the issue at length in the Ryanair/Aer Lingus case. It identified three possible methodologies for geographical allocation of turnover:
-the “point of sale” method;
-the “50/50” method;
-the “point of departure” method.
The “point of sale” method allocates the turnover to the country where the tickets are sold. Yet, the practical application of this method may be difficult with the increasing share of air tickets sold through the Internet. In fact, establishing the location of customers when they purchased the tickets from the carrier’s website is not an easy task. The main channel relied on by low-cost carriers for the sale of tickets is the Internet. Therefore, the Commission correctly held that the “point of sale” method is not appropriate when a merger takes place between low-cost carriers, such as Ryanair and Aer Lingus, and dismissed it in this case.
According to “50/50” method, half of the revenue is allocated to the country of departure and the other half to the country of destination. The strong point of this method is that it reflects the cross-border nature of the service provided.
The “point of departure” allocates revenue only to the country of departure. This criterion is a good proxy for determining where the service is provided and where airlines compete for customers. Further, it is easy to identify the point of departure of each journey, to the benefit of legal certainty. Yet this method must be applied with a caveat in case of roundtrips tickets. Such tickets can be treated as one service with one only place of departure to which the total revenue from the return ticket should be allocated. Alternatively, in case of point-to-point airlines that do not sell traditional return tickets but a bundle of one way tickets, such as low-cost carriers, it is more appropriate to apply the point of departure method by splitting the two one-way flights of a round trip tickets.
Having that said, it may be worth considering how the Commission allocated the geographical turnover in the latest aviation merger case it has vetted. It ruled that the Iberia/British Airways, United Air Lines/Continental Airlines, Lufthansa/ SNAH (Brussels Airlines) and Lufthansa/ Austrian Airlines concentrations met the statutory financial thresholds, thereby having a European dimensions, regardless of which of the above methods applied.
Interestingly, the parties to the Iberia/British Airways and Lufthansa/ Austrian Airlines concentrations relied on the point of sale method to calculate their turnover. However, as hinted above, the Commission observed that the transaction also met the financial threshold had the other methods applied.