SAS´s response concerning bonus programs

"Warning of possible intervention against SAS's and Braathens' bonus programs, agreements with major customers and with travel agencies" - SAS's response to the Norwegian Competition Authority Competition Authority's intended intervention can lead to two national losses: Does not save Braathens, but can considerably weaken SAS in terms of international competition SAS has today submitted to the Norwegian Competition Authority (KT) the company's response to the Authority's warning about intervention against bonus programs, agreements with major customers and agreements with travel agencies. This also included demands for capacity restrictions or reductions in capacity. With its warning of possible intervention, KT expresses a wish to limit and regulate a national market that is, to a large extent, part of an international market. This would represent a return to the time prior to the introduction of free competition in the air and would also be unique in Europe. However, the warning from KT provides insufficient information about what such intervention would consist of and the effects it would have, which means that it does not fulfill the requirements contained in administrative legislation regarding this point. SAS has therefore asked KT for a more thorough report before satisfactory comment can be made. In the meantime, in its response to the Competition Authority, SAS has provided factual information and stated some general views relating to the current situation. While most countries are involved in creating optimum conditions to enable national airlines to compete in the international market, it appears that the Norwegian Competition Authority wants to use special Norwegian intervention to take the opposite route. As a matter of principle, SAS supports free competition with equal conditions. As a result, SAS reacts strongly to the fact that the Competition Authority, by seeking to regulate the Norwegian domestic market, wants to considerably weaken SAS's competitiveness in relation to its international competitors. This will have major and, to a certain extent, dramatic, consequences, not only for SAS, but also for the Norwegian airline industry and Norwegian customers. A weakening of SAS could lead to a reduction in the international offering - an offering that is based on the needs of Norwegian customers and the conditions in the Norwegian market. In addition, SAS is one of the largest companies conducting international marketing of Norway as a destination - a weakened SAS could lead to considerable side effects. By applying restrictions to Norwegian airlines, which foreign players do not have, national interests will become weaker. At the same time, it is difficult to see how any of the intended intervention is designed to safeguard continued operations for Braathens. Agreements with major customers - within the Competition Authority's own resolution The agreements with major customers are not exclusive. This is, in principle, a matter of volume-related discounts negotiated on an individual basis by large customers, of the type that exist in all sectors. These arrangements do not bind customers to SAS. SAS's agreements with major customers are within the framework established by KT in its resolution regarding such agreements that was directed at SAS in 1997 and is applicable until March 2003. Agreements with travel agencies - in line with the European Commission's policy The travel agency agreements are not exclusive. They are designed to be in keeping with the established policy of the European Commission regarding such agreements. The agreements were submitted to the Commission and the Swedish Competition Authority before their introduction in January 2000. Neither of these had, or has since had, any objections to the agreements. As recently as June 20 this year, the Competition Authority concluded that SAS had fulfilled its obligations. The applicable agreements in Norway correspond to the agreements with travel agencies included in the Swedish decision and were discussed with the Commission. Bonus programs - necessary for competition in the air SAS has no problems in confirming that bonus programs have a loyalty- promoting effect, as KT contends. This is actually the aim of the bonus program arrangements that all players have today. However, the arrangement is not exclusive - it is perfectly possible to be a member of several airlines' bonus programs. The bonus program is an important element of air travel competition. The program is a significant factor in the alliances that have been established in the international air travel sector and have formed the basis for a more comprehensive offering of routes, improved service and lower prices. Each individual airline contributes its domestic market to the alliance (domestic and international). By weakening Eurobonus, SAS and the Star Alliance will also be weakened. This would lead to unequal conditions for competition, whereby, for example, Air France can offer bonus programs to its customers in its domestic market, but SAS is not permitted to do the same. SAS's main argument is that special Norwegian intervention against bonus programs will not be aimed at having a decisive effect on competition in the domestic market, but will have a considerable negative effect on international competition. No competition authority has prohibited the use of bonus programs of this type. Only in Sweden has there been a certain amount of intervention and this applied to three routes. It is SAS's opinion that the bonus programs will be maintained. If there is intervention against bonus program arrangements, this would have to be coordinated to apply to all international players at the same time and on a global basis. Demand for reduction in capacity - incompatible with EEA agreements KT does not have the right to demand capacity reductions by SAS in the Norwegian domestic market. In practice, this would be the same as demanding that SAS divest or terminate parts of its operations. Any demand of this kind would not be compatible with the EEA agreements. For further information, please contact: Gunnar Reitan, Deputy CEO, SAS Tel: +46 70 9972844 Johnny Skoglund, Director of Norwegian domestic operations Tel: + 47 95716380 Simen Revold, head of Corporate Communications, Norway Tel: + 47 95716310 SAS CORPORATE COMMUNICATIONS ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/09/04/20010904BIT00480/bit0002.doc http://www.waymaker.net/bitonline/2001/09/04/20010904BIT00480/bit0002.pdf