EU accuses Czech rail operator of predatory pricing

The European Commission has issued a statement of objections to state-owned Czech railway operator České dráhy for allegedly charging predatory prices.

The commission revealed today that it has reached a preliminary view that České dráhy charged prices for train tickets that did not cover its costs from 2011 to 2019 on a route between Prague and Ostrava to hinder competition in the market. Predatory pricing is a “serious infringement of the EU antitrust rules” and the rail operator’s conduct could amount to an abuse of dominance, the agency said.

The EU enforcer raided České dráhy’s premises in April 2016 after receiving a complaint from LEO Express. The commission opened a formal investigation in November 2016 to determine if the rail operator charged predatory prices on the line between Prague and Ostrava, which the authority said is “the backbone of the Czech rail network”.

In 2011 and 2012, rivals RegioJet and LEO Express started operating commercial trains on the route and the number of travelling passengers doubled in a few years, the authority found.

The enforcer said its investigation shows that České dráhy “potentially felt that RegioJet and LEO Express expanded too quickly” and started to offer its services at predatory prices to reduce competition.

České dráhy now has the opportunity to respond to the commission’s allegations. The commission will issue a decision if it finds an infringement and can fine the company up to 10% of its annual turnover.

EU competition commissioner Margrethe Vestager said competition in the rail passenger transport sector can reduce prices and increase quality, benefiting consumers and the environment.

The European Green Deal’s action plan strongly prioritises rail transport and improving railway networks, which cannot be achieved without the existence of effective competition, the enforcer said.

České dráhy said in a statement today that it does not take the statement of objections lightly, but it does not believe it has broken competition law. The company will cooperate with the commission and will examine the statement of objections before deciding on further action, it said.

Pavel Kysilka, the chair of České dráhy’s supervisory board, said in a press release that the statement of objections comes at a very difficult time when the company has suffered major financial loss due to the covid-19 pandemic. A multi-million fine would be very painful for České dráhy, he said.

Prague-based Skils partner Jiří Kindl, who is counsel to České dráhy, said the firm has to analyse the statement of objections to understand what the commission’s theory of harm is, because competition in the Czech Republic rail market is thriving in comparison to “practically all other member states”.

Non-incumbent carriers – such as RegioJet and LEO Express – are using the profits they generate in the Czech Republic to expand in other member states and RegioJet became the number one carrier on the route between Prague and Ostrava in 2014, he said.

It is hard to understand how České dráhy’s conduct could be viewed as exclusionary, Kindl added.

Pavel Dejl, a partner at Kocián Šolc Balaštík in Prague and counsel to LEO Express, said the company is pleased that the commission heard its arguments and “confirmed our deep belief that České dráhy has been abusing its dominant position on the Czech rail passenger market in order to exclude LEO Express from the market”.

The enforcer’s decision to issue a statement of objections is a “very positive signal for new entrants to incumbent-dominated markets”, he said.

It shows that the commission will protect the emerging competitive environment through enforcing competition rules “against incumbents resorting to methods outside the framework of competition on merits”, Dejl added.

České dráhy and the commission clashed earlier in this case when the rail operator challenged the enforcer’s decision to raid its premises. The EU General Court ruled in June 2018 that the commission had sufficient evidence to justify the raid. České dráhy appealed against the ruling to the European Court of Justice, which fully upheld the lower court’s judgment in February 2020.

The rail operator has also received competition scrutiny from Czech Republic’s Office for the Protection of Competition. The enforcer fined České dráhy 367.8 million koruna (€13.5 million) in December 2017 for abusing its dominance by submitting a “disproportionately low” bid to the Ministry of Transport during a procurement procedure.

České dráhy appealed against the decision to the authority – which handles appeals in the first instance – and in August 2019 upheld its finding but reduced the fine to 247.7 million koruna (€10.1 million).

Counsel to České dráhy

Skils

Partners Jiří Kindl in Prague and Karel Muzikář, assisted by Viktor Kuča

Economics

Oxera

Partner Alexander Gaigl in Berlin and consultant Anna den Boer in the Netherlands

Counsel to LEO Express

Kocián Šolc Balaštík

Partners Pavel Dejl and Sylvie Sobolová in Prague, assisted by Martin Vráb and Hana Dejlová


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