| Author (Person) | Bower, Helen |
|---|---|
| Publisher | ProQuest Information and Learning |
| Series Title | In Focus |
| Series Details | 7.6.02 |
| Publication Date | 07/06/2002 |
| Content Type | News, Overview, Topic Guide | In Focus |
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The European Court of First Instance (CFI) took an unprecedented step on 6 June 2002 when it decided to overrule a European Commission merger veto in the case of two UK tour operators, Airtours and First Choice. On 29 April 1999, Airtours, now renamed MyTravel, launched a takeover bid for First Choice and in line with Community legislation, it notified the European Commission of the proposed concentration. In June 1999 the European Commission announced that it would be opening a full investigation into the proposed merger. It was concerned that the merger might lead to an 'oligopoly' that is, the possibility that as a result of the merger, the market structure would become concentrated in such a way that the major players could collectively have a dominant position, with consequent adverse effects on prices and/or other key competition matters. At the time Airtours ranked second (after Thomson) and First Choice ranked fourth (behind Thomas Cook) in the supply of foreign package holidays in the UK and these four companies were also vertically integrated, holding over three-quarters of the short-haul tour operating market between them. The rest of the market was fragmented amongst a large number of much smaller players, none of them fully integrated and most with shares of 1% or less. In its decision on 22 September 1999 the European Commission decided to prohibit the acquisition by Airtours of First Choice. It argued that the takeover would create a market structure where the remaining three vertically integrated companies would collectively have a dominant position, sharing 80% of the market between the three of them compared to 68% if First Choice was to continue to operate. Moreover, First Choice would disappear both as a competitor in its own right and as a supplier of charter airline seats and travel agency distribution to the non-integrated operators. This could lead the three major firms to restrict market capacity, leading to higher prices than those dictated by effective competition and marginalising smaller independent tour operators. UK holidaymakers would be affected by the supply of foreign package tour holidays and in particular, those made by air to the popular 'short haul' destinations in the mainland and islands of Southern Europe and North Africa. Airtours decided to challenge the European Commission's decision in the Court of First Instance, arguing that the European Commission had 'made a number of incorrect findings and did not adequately show how the concentration would create a collective dominant position'. In its ruling the Court of First Instance agreed with Airtours' argument and annulled the European Commission's decision. The CFI did not question that the EC Merger Regulation can be applied to operations leading to collective dominance which could have a negative effect on consumers but it stated that the European Commission had not proved that if the transaction proceeded, the three leading tour operators would have an incentive to cease competing with each other. Nor did the European Commission prove that the concentration would have resulted in the three conditions which must be met if there is to be a finding of collective dominance. It ruled that:
Although the bid has now lapsed, MyTravel welcomed the CFI's decision on 6 June 2002. The company's chief executive, Tim Byrne, said,
Indeed the unprecedented ruling is likely to affect the European Commission's powers over European mergers in the future and could speed up an overhaul of the DG Competition. Just two days before the decision members on the panel at a conference on reform of the European merger control hosted by the British Chamber of Commerce in Brussels criticised the DG Competition for being the 'policeman,judge and jury' when ruling on merger decisions. Responding after the judgement, Mario Monti, the European Commissioner responsible for competition, was keen to emphasise that the Court's decision showed that the European Commission 'is subject to effective judicial review by the Courts in Luxembourg and is conducted under their guidance'. But this is unlikely to quieten the critics of EU merger policy who are calling for a separation in the responsibilities of investigating and settling merger cases, the introduction of effective external scrutiny and disciplines and even the requirement for the European Commission to obtain prior court approval for merger vetoes, as US antitrust authorities are obliged to do. Mario Monti and his team will have to consider all of these suggestions before they propose guidelines on the reform of the merger regulation by the end of the year. Meanwhile, there are several merger cases still pending decisions in the Court of First Instance including the well known Schneider/Legrand and GE/Honeywell cases. Links: European Court of Justice:
European Commission:
European Sources Online: Financial Times:
BBC News Online: MyTravel plc (formerly Airtours): European Sources Online:
Helen Bower The European Court of First Instance (CFI) took an unprecedented step on 6 June 2002 when it decided to overrule a European Commission merger veto in the case of two UK tour operators, Airtours and First Choice. |
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| Subject Categories | Internal Markets |
