Condor battles against EW Leisure transatlantic codeshares

Condor (DE, Frankfurt Int’l) is continuing its battle in the United States against an application by Lufthansa Group leisure subsidiary EW Discover (4Y, Frankfurt Int’l) for authority to codeshare with Lufthansa, Austrian Airlines, Brussels Airlines, and Swiss on transatlantic routes.

The US Department of Transportation (DOT), in a regulatory filing on August 13, discloses that Condor has submitted a motion for leave to file an “unauthorised pleading and accompanying sur-reply” on the EW Discovery codeshare application.

According to Condor, the proposed codeshare is an “integral component of an anticompetitive scheme by Lufthansa to drive Condor from transatlantic routes”. It has requested that the DOT investigate Lufthansa’s alleged anticompetitive practices targeting Condor.

It has also asked that the granting of the EW Discovery codeshare be dependent on Lufthansa continuing to commit to exchange traffic with Condor consistent with its existing Special Prorate Agreement (SPA) with the leisure charter specialist.

Lufthansa recently agreed to extend the SPA with Condor until May 10, 2022, after the European Commission and the German competition watchdog (Bundeskartellamt) criticised its decision to unilaterally end the partnership in favour of its own leisure brand EW Leisure. The agreement covers Lufthansa’s, Austrian Airlines’, and Swiss’s domestic and regional flights feeding Condor’s long-haul leisure services out of Frankfurt Int’l. As previously reported, it is a cornerstone of Condor’s strategy, considering that it does not have its own feeder network, and many of its long-haul flights would not be viable based on local demand alone.

In response to EW Leisure’s argument that Condor’s objection relates to German and EU competition rules, Condor argues the codeshare harms US passengers and US competition as well as it would leave the Lufthansa Group in a position of monopoly. It argues that Lufthansa’s conduct, therefore, falls within the scope of US antitrust law. “It is well established that the federal antitrust laws apply to foreign conduct that has a substantial and intended effect in the United States. Lufthansa’s termination of the SPA will foreclose Condor as a competitor flying transatlantic routes from the US and therefore result in US passengers facing higher prices, fewer options, and lower quality services. These substantial anticompetitive effects are the direct and intended effect of Lufthansa’s termination of the SPA.”

It charges: “The termination of the Special Prorate Agreement (SPA) withCondor constitutes a classic case of a monopolist ceasing a long-established course of dealing and sacrificing profits in the short-term in order to eliminate competition from a smaller competitor over the long-term”.

Condor points out that Lufthansa has for decades voluntarily permitted Condor to connect with its transatlantic flights out of Frankfurt (where the German flag carrier has up to 75-85% market share at peak times) and which is Condor’s only gateway for offering transatlantic flights.

It claims the arrangement has been highly profitable for Lufthansa. “By obtaining additional feed for its existing flights, Condor estimates that Lufthansa realises tens of millions of dollars per year in annual profits from the arrangement. By terminating the SPA, Lufthansa will in the short-term sacrifice these profits; but it stands to benefit in the long-term by eliminating Condor as a disruptive and growing transatlantic competitor – and driving traffic to its affiliates, including through the codeshare with EW Discover.”

If the SPA is cancelled, traffic that would have flown on Condor would flow to Lufthansa, its affiliates like EW Discover and Lufthansa’s Star Alliance partners. ” The proportion of traffic diverted to Lufthansa and its Star Alliance partners is likely to be significant. The Star Alliance already operates 80% of the capacity between Germany and the US, and the addition of the EW Discover codeshare will only increase it,” Condor says.

In an August 16 letter to the DOT, EW Discover says it will not respond further to Condor’s “misguided and irrelevant serial filings, which are a transparent attempt to delay approval of EW Discover’s application”.

“EW Discover has applied for statements of authorisation for other Lufthansa Group carriers to place their codes on EW Discover’s US flights. Such codesharing is within the scope of rights available to EW Discover under the applicable “open skies” air transport agreements. These agreements also require the Department to approve the application with minimum procedural delay. EW Discover, therefore, requests prompt Department approval so that it may commence the inter-affiliate codesharing that is the subject of its application,” EW Discover says.