Legal turbulence

Germany's competition watchdog, the Bundeskartellamt, is looking into whether contracts between Lufthansa and its corporate customers required that they provide the airline with sensitive information about competitors' pricing structures, thereby possibly distorting competition.

Authorities say contracts between Europe's largest air carrier and some large corporate customers stipulated that the firms would not receive discounts unless data on price and discounts from other airlines were provided.

"We're investigating whether these contracts were designed in such a way that the so-called competition secrecy could be constrained," Jana Zacharias, a spokesperson with the Bundeskartellamt, told Deutsche Welle.

Undercutting the competition

"It can be problematic when competitors know exactly how the price and discount systems of their competitors are designed and is a violation of the law against restricting competition," she added.

In the short-term, such a practice could be beneficial to customers if Lufthansa lowered its prices to undercut the competition. But in the longer term, competition could suffer.

The agency has sent out letters of inquiry to a "fair number" of companies, Zacharias said, asking for information on Lufthansa contracts and any information provided to the company, although she would not provide names.

According to a source who spoke with news magazine Der Spiegel, if a corporate client, for example, booked a trip via Frankfurt to Asia and flew one stretch with Lufthansa and another with a competitor, Lufthansa would ask for data for both flights. Otherwise, according to the airline, it would be impossible to determine the discount rate.

Lufthansa's corporate clients include big German companies such as Bayer and BASF, according to media reports. Although many firms agreed to give Lufthansa the information, others, including Volkswagen and car parts supplier Deutz, reportedly refused and terminated their contracts.

“Handing over all data is something that's simply impossible,” Christa Degen-Kodinger, travel manager for Deutz, told the Financial Times Deutschland.

Denial of wrongdoing

For its part, Lufthansa has denied it engaged in any practices that might hurt competition in the airline industry.

"We are convinced that we have complied with all existing competition laws," company spokesman Jan Bärwalde told Deutsche Welle. "We have no access to data that could harm competition in our sector."

He added that the fact that Volkswagen and Deutz chose not to renew their contracts is normal practice in the business world, where client needs change constantly.

"It is in our own interest to have good relationships with our corporate clients," he said, stressing that the data in question did not apply to individuals and could not be used to build a travel or movement profile of any one person.

According to Lufthansa, the company first received a letter of inquiry from the competition authority on the matter in the fall of 2009, and there has been a regular exchange of information since then. The Bundeskartellamt said the inquiries sent to Lufthansa corporate clients went out recently.

"We will have to see what kind of response we get, and only then will we know what the next step in the probe will be," said competition authority spokesperson Zacharias.

Necessary for business?

The company had a very good 2010 business year, with an operating profit of 876 million euros ($1.29 billlion), a nearly five-fold increase over the previous year's results. The group's 2010 profit rose to 1.1 billion euros. Lufthansa's Passenger Airline Group benefited particularly from the recovery in demand in long-haul traffic.

"It's not as if Lufthansa needed to do something like this to squeeze the competition," Sebastian Steinke, who covers civil aviation for the magazine Flug Revue, told Deutsche Welle.

"I'm a little surprised at these kinds of practices. As a client, I would not be happy if Lufthansa wanted to look into my books. It goes too far."

While Lufthansa is flying high right now, the German flagship carrier is facing increasing competition from up-and-coming companies such as Air Berlin.

If the competition authorities do find that Lufthansa has violated existing competition law, it could force the air carrier to change its contracts or even fine the company.

"But right now, that's a completely open question," Zacharias said.

Author: Kyle James
Editor: John Blau