BRUSSELS (Thomson Financial) - The European Commission said it has cleared
the proposed merger between Germany's TUI AG's tourism unit and the UK's First
Choice Holidays PLC to create Europe's number one tour operator, subject to TUI
divesting its Irish business operating under the 'Budget Travel' brand.
In light of this commitment, the EU executive concluded that the transaction
would not significantly impede effective competition in the European Economic
Area.
The commission explained that the takeover would result in horizontal
overlaps, in particular in the supply of package holidays, including the UK and
Ireland.
"The UK and Irish markets have vertically integrated tour operators (Thomas
Cook/MyTravel, TUI and First Choice), a large number of smaller independent tour
operators for short-haul holidays and a few medium-size operators like Virgin
Holidays and Kuoni for long-haul package holidays," it said.
The commission found that the transaction as initially notified would raise
"serious competition concerns in Ireland" where the parties would be "by far the
leading tour operator for short-haul package holidays, controlling more than 50
pct of the market, and would have the largest nationwide network of travel
agencies.
"Package holidays and their distribution through high street travel agents
are still popular in Ireland, where broadband access to the Internet and the
range of independent travel options are less developed than in the UK," it
added.
As regards the UK, the commission said the industry has changed
substantially since the in-depth analysis, carried out in 1999 in the context of
the Airtours/First Choice case -- a clearance that was subsequently annulled.
The commission's investigation found that in view of the combined market
shares of TUI and First Choice on the markets for the supply of short-haul and
long-haul package holidays in the UK, the concentration would not enable the
parties to independently raise prices.
The parties would in particular continue to experience competition from
Thomas Cook/MyTravel, as well as from numerous small package holiday operators.
The commission also found that the deal would "not significantly increase"
the risk of coordination of prices or capacity between the remaining major tour
operators in the UK, taking into account not only the transaction between Thomas
Cook and MyTravel but also the recent developments in the travel industry.
It added that the deal would not adversely affect access to airlines and
accommodation capacity for other tour operators, given that the combined market
position of TUI and First Choice in these wholesale markets would not be large
enough to seriously affect the ability of smaller tour operators to compete on
the market in the UK.
In relation to travel agency services, the parties account for a relatively
small number of retail outlets whereas a large majority of travel agents would
remain independent from the parties.
The Commission also said there would be no anti-competitive effects on tour
operating and/or travel agency services markets in France, The Netherlands,
Austria and Germany and on the cruise markets in the UK and Ireland.
Annual sales at the London-based merged business, to be called TUI Travel,
is estimated at 17 bln eur, with around 27 mln customers in over 20 markets.
The combination of Europe's third and fourth largest tour operators will be
51 pct owned by TUI, with the remaining 49 pct owned by First Choice.
The two firms estimate that the merger will allow them to save about 100 mln
stg a year.
First Choice chief executive Peter Long will head the new entity
The commission in May approved of the merger between UK package tour peer
MyTravel Group PLC and German distribution group KarstadtQuelle AG's Thomas
Cook.
That deal consolidated the number two position in Europe's travel industry
and will create a business with annual turnover of almost 12 bln eur.
KarstadtQuelle will own 52 pct of the group and MyTravel the remainder.
The package holiday industry has seen a downturn as independent planning for
trips using the Internet and low-cost airlines has grown in popularity.
Companies in the sector are trying to combat this with cost savings and by
diversifying into leisure markets.
The commission's previous record on merger clearance in the travel sector
has come under increased scrutiny in recent years.
In 1999, it blocked a merger between MyTravel -- formerly Airtours PLC --
and First Choice on anti-competitiveness grounds. That decision was overturned
by the EU's second-highest court, the European Court of First Instance, in 2002.
Judges said the commission had failed to prove the combination would result in
an anti-competitive monopoly in the UK travel market.
MyTravel has a pending case against the commission at the EU courts, seeking
damages for veto.
simon.zekaria@thomson.com
sz/dca
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