ICA directs recommendations to authorities regarding Isavia and the competitive environment at Keflavik Airport
The Icelandic Competition Authority (ICA) has published an opinion concerning the operational environment of Isavia ohf. and competitive conditions at Keflavik International Airport. The opinion is based on ICA's research on matters related to Isavia and Keflavik Airport in recent years but also OECD's recommendations on the same issue, which was published in 2020.
This opinion is directed towards the Ministry of Finance and Economic Affairs, the Ministry of Transport and Local Government, and the Ministry of Industries and Innovation, in accordance with the formation of a new government installed on November 28th.
ICA puts forward eight recommendations in the opinion with the aim to improve operational conditions at Keflavik Airport. The recommendations are designed to create competition, decrease cost, strengthen tourism, and benefit the public. The eight recommendations are as follows:
- Laws that regulate Isavia should not be interpreted in a way that narrows the scope of competition laws.
- Isavia's fee collection should be structured clearly and transparently. In fields where Isavia holds a monopoly position, relevant rules regarding fee collection should apply.
- The execution and content of tendering and franchise contracts, concerning the allocation of facilities in or around Keflavik Airport, should be regulated from a competitive point of view.
- Isavia's involvement in competitive activities in or around Keflavik Airport should be regulated, thereby securing equality and objectivity.
- Competition in aircraft ground handling at Keflavik Airport must be secured.
- In the process of slot allocation at Keflavik Airport, the interest of the public and the tourism industry that stems from the effective competition of flights to and from Iceland must be taken into consideration.
- Ways to improve efficiency at Keflavik Airport should be explored.
- Isavia's owners' policy should factor in the abovementioned recommendations and be made publicly accessible.
Páll Gunnar Pálsson, ICA's Director General, says that effective competition at and around Keflavik Airport is of great importance.
“Air transport to and from Iceland is of paramount importance for Icelandic consumers, travelers, the tourism industry, and other operations that rely on transportation. The same can be said about Iceland's economic prosperity and competitiveness.
Isavia is a publicly owned company responsible for the operation and development of Keflavik Airport and all other airports in Iceland.
In recent years, multiple cases involving operations at Keflavik Airport have emerged that raise important questions regarding how Isavia approaches matters involving competition and competitive matters. From these cases, one could draw the general conclusion that a better strategy needs to be in place in the field of competition.
Bearing this in mind, ICA has published recommendations to the authorities, which are suited to create a better and more competitive framework for airport operations in Iceland, improve Isavia's effectiveness and strengthen tourism in Iceland, secure travelers' interests, and make compliance with competition laws easier.”
The Importance and Uniqueness of Keflavik Airport
Isavia is a publicly owned corporation, and ICA's opinion is published pursuant to Article 18 of Icelandic competition law. According to that Article, ICA shall notify a relevant minister of the government if the Authority considers specific laws or regulatory acts go against the aim of the competition law act or in any other way hinders free competition.
ICA considers Isavia to hold a dominant market position and be in a monopoly position when it comes to operating an airport that can service international flights to and from Iceland. Keflavik Airport has a unique position compared to most international airports and transportation hubs in the world in the sense that most countries have a wide variety of transportation options built upon a complex network of cars, trains, ships, and airplanes. Given the small size of the Icelandic nation and the geographical position of Iceland, all international air traffic revolves around Keflavik Airport. Keflavik Airport handles all international commercial flights apart from Greenland and the Faroe Islands, which use Reykjavik Airport.
Experience has also clearly shown how important it is to consider competition for the framework and operations at Keflavik Airport. For instance, creating a competitive environment for the airport service in Keflavik benefitted Icelanders, travelers, and other businesses greatly.
Interpretation of the EFTA Court and OECD
The EFTA Court specifically pointed out the unique position of Keflavik Airport in 2014 when Reykjavík District Court requested an Advisory Opinion in a case pending before it between Wow air, ICA, Isavia, and Icelandair. The case concerned the interpretation of a Council Regulation on standard rules for the allocation of slots in the allocation of landing and take-off slots at Keflavík International Airport.
A similar assessment of the importance of Keflavik Airport can be found in the competition assessment of laws and regulations on Iceland's tourism and construction sectors which OECD conducted in 2020 in co-operation with ICA.
In the assessment, OECD stated the following about Keflavik Airport and Isavia's ownership:
“Nearly every international tourist arrives in Iceland via Keflavik International Airport, and commercial flights provide year-round accessibility to various parts of the country. However, Keflavik Airport is among the least cost-efficient and most expensive airports in Europe, including when compared to airports with a similar traffic mix, size and climate.
Further, Isavia, which owns and operates all airports in Iceland, is less cost-efficient than other airport groups in Europe. The regulatory and ownership framework for airports in Iceland may be contributing to this outcome. In particular, they do not constrain prices or costs for airport services in Iceland, to the detriment of consumers.”
Below are the three key recommendations from the OECD competition assessment:
- Explore ways to enhance the incentives for the operator of Keflavik Airport to seek cost-effectiveness and increase competitiveness. This could be through an alternative ownership model involving a competitive tender for the management of Keflavik, or separate competitive tenders for the management of the main domestic airports in Iceland, for example.
- Provide the Icelandic Transport Authority with the requisite independent powers and resources to introduce ex ante incentive regulation of airport tariffs. Consider defining a clear mandate specifying Isavia's main economic and public policy objectives, to supplement regulatory efforts.
- Isavia should revise future concession contracts for the provision of food, beverages, specialised retail and bus transport service
Here is a link to OECD's assessment of Iceland's tourism sector in 2020.
As is stated in ICA's opinion, the government needs to practice an active ownership policy regarding Isavia and its essential operations. ICA encourages the inclusion of the eight recommendations listed in the opinion and OECD's recommendations in the next revision process of Isavia's owner's policy.
If the government disagrees with the ICA's or OECD's recommendations, the Authority expects the government to make that opinion publicly known to prevent any legal uncertainty regarding an individual recommendation. The Authority also wishes continued and productive dialogue with the government about the above matter.