IGS Ground Services ehf. at Keflavik International Airport fined for abuse of dominant position
The Competition Authority has concluded that IGS Ground Services at Keflavik Airport, a subsidiary of FL Group, abused its market dominance in ground services to passenger aircraft. The company violated the Competition Act by entering into 10 exclusive purchase agreements with airlines landing at Keflavik International Airport and by making an anticompetitive offer to the airline LTU. In its decision, the Competition Authority imposed on the company an administrative fine of ISK 80 million, to be paid to the State Treasury. The case has been referred to the Appeals Committee.
IGS has a dominant position in providing ground services to passenger aircraft at the Leif Eiriksson Air Terminal, where the company has a market share of over 95%. Until 2001, the company (previously Flugleidir) had an exclusive licence to service passenger aircraft at Keflavik Airport. In 2001, the company Vallarvinir entered into competition with IGS. Subsequently, the price of ground handling services fell significantly at Keflavik Airport. Nonetheless, IGS retained its dominance of the market, as in fact the company was responsible for all handling and services for its sibling company, Icelandair, which accounts for a large proportion of all the business relating to ground services for passenger aircraft at Keflavik Airport.
It constitutes a violation of the Competition Act when a dominant undertaking imposes an obligation on a buyer to purchase all services, or a significant part of such services, from that undertaking. In order to maintain its dominance of the market, IGS entered into such exclusive agreements with terms of 2-3 years with ten airlines which were doing business with the company. In this way, competition for important customers was made impossible, and these actions taken by IGS had the effect of seriously disrupting competition. It is the conclusion of the Competition Authority that the said agreements constituted abuse on the part of IGS of its dominant position.
One of the airlines that entered into business with Vallarvinir in 2001 was the German airline LTU. It had earlier been doing business with IGS (Flugleidir) which at that time, as stated earlier, had an exclusive licence to provide ground services to passenger aircraft at Keflavik Airport. The documents of the case reveal that LTU had been of the opinion that it was enduring monopolistic pricing on the part of IGS (Flugleidir), and paying approximately a 50% higher price than elsewhere in Europe before Vallarvinir entered the scene and started competing.
Early in 2004 IGS approached LTU, which was then doing business under contract with Vallarvinir. IGS made LTU an offer involving a considerable reduction from the price paid by the airline to Vallarvinir. The IGS price offer was lower than the price Vallarvinir believed themselves capable of offering, and LTU transferred its business from Vallarvinir to IGS in the middle of the tourist season in 2004. In this way, IGS managed to attract Vallarvinir's biggest customer. After attracting LTU's business from Vallarvinir, IGS has since made further offers to customers of Vallarvinir for the purpose of attracting their business.
It is the conclusion of the Competition Authority that there was no commercial basis for the price offer made by the company to LTU. The passenger aircraft ground services of the company were operated at a loss in 2004. It is the assessment of the Competition Authority that the offer made by IGS to LTU was a direct and specific action directed against Vallarvinir and intended to reduce the scope of the business of that company, and thereby competition in an important market which has an impact on a large segment of the tourist industry in Iceland.
The Competition Authority imposed a fine of ISK 80 million for the above violations of Article 11 of the Competition Act.
With its decision No. 3/2006, dated 5 July 2006, the Competition Appeals Committee confirmed the above decision of the Competition Authority. The Appeals Committee decided that IGS should pay an administrative fine of ISK 60,000,000, thereby reducing the originally determined fines by ISK 20 million.