Thursday, August 12, 2004

Italy will probably get away with it

It seems that the EU will not be able to do anything very much about Italy demanding that BA and other airlines stop undercutting Alitalia , the deeply indebted Italian flag carrier. (Among others it is deeply indebted to the Italian government, that has just granted it an emergency loan of €400 million, which is not likely to help Italy to get away from the persistent deficit.)

Commission officials have explained that Italy may well be entitled to demand that competitors raise their prices under the terms of various bilateral agreements signed under the worldwide Convention of International Civil Aviation of 1944. Apparently, under these agreements air fares should receive approval from the member states concerned and should not undercut the flag carrier. A little out of date in this day of multitudinous airlines, cheap air fares and, above all, the single EU aviation market.

Clearly not. As the destinations involved are outside the EU, the old bilateral treaties will apply. As an analyst with J. P. Morgan put it: “This is a clear case of attempting to close up markets.” Quite so. And, furthermore, it is unlikely to salvage the wretched Alitalia.

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