German Cruise Operator Cleared To Acquire First Choice

by Ulrika Lomas, for LawAndTax-News.com, Brussels

06 June 2007

The European Commission announced on Monday that under EU Merger Regulations. it has approved the proposed acquisition of First Choice, a UK travel services company, by TUI, parent of the German TUI group, which is active in tourism and shipping services.

However, the Commission's decision is conditional upon the pledged divestiture by TUI of its Irish business operating under the 'Budget Travel' brand. In light of this commitment, the Commission has concluded that the proposed transaction would not significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it.

TUI is the parent company of TUI Group, which offers package tours, travel agency services, flights, hotel accommodation, car rental and cruises.

First Choice is also active in tourism, and supplies package tours, flights, travel agency services, car rental and cruises to customers in a number of Member States.

The proposed takeover in its original form would result in horizontal overlaps, in particular in the supply of package holidays, inter alia in 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.

The Commission found that the proposed 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% 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.

To address the Commission's concerns, TUI offered to divest its Irish business. In view of this commitment, the Commission found that the transaction would no longer raise serious competition doubts in Ireland.

As regards the UK, the Commission's recent market investigations concerning both this transaction and the merger between Thomas Cook and MyTravel cleared by the Commission on 4th May 2007 showed that the industry has changed substantially since the in-depth analysis, carried out in 1999 in the context of the Airtours/First Choice case.

According to the EC:

"The development of the Internet gives consumers access to a wide range of travel sites so that they can choose and book their holidays independently of a travel agent. In 2005, Internet bookings accounted for more than 35% of all UK overseas holidays compared to 31% via travel agents. In parallel, the rise of low cost airlines has opened up many new holiday destinations and encouraged independent travelling. In the UK, independent holidays have increased by over 100% since 1996 and accounted for the majority of trips abroad since 2003 (58% in 2005)."

"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 proposed 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 found that the proposed operation 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."

"The Commission also concluded that the proposed transaction 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."

"In view of the above, the Commission considered that the proposed takeover would not harm UK consumers, who would continue to have access to package tours at competitive prices."

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