Luxembourg, 06/06/2002 (Agence Europe) - The Court of First Instance has annulled the European Commission decision from 1999 declaring the merger between Airtours and First Choice incompatible with the common market (see yesterday's EUROPE, p.11). A CFI press release said that because of "a number of incorrect findings", the Commission "did not adequately show how the concentration would create a collective dominant position", failing to establish, "as it should have done, that … the three leading tour operators would have an incentive to cease completing with each other" (Thomson, Thomas Cook and Airtours).
The Court notes that three conditions "must be met if there is to be a finding of collective dominance", none of which were met by the Commission. "The Commission was wrong to conclude that the merger would allow the large tour operators to interpret each other's business strategies more easily and to adopt those strategies themselves"; it failed to "identify or demonstrate clearly the retaliatory measures which could be directed against a member of the oligopoly if it departed from common policy"; and it "erred in its assessment of the reaction of small tour operators, potential competitors and UK consumers".
The Court noted that the ability of the small tour operators to compete with Airtours, Thomson and Thomas Cook (in the event of an Airtours-First Choice merger) would have been positive for consumers since the small tour operators "can easily increase supply in order to take advantage of the opportunities inevitably afforded by any attempted restriction of capacity… and "tour operators active in other geographical markets or in the UK long-haul package holiday market would have an incentive to enter the relative market quickly".
The Commission wrongly submitted that consumers did not have any significant buyer power according to the Court, since they could have reacted to the price rise that would result should the large tour operators restrict market capacity, since they compare prices and can turn to smaller operators or other destinations if prices of short-haul package holidays are set at an anti-competitive level.
Initial Commission reaction
Reacting to the Court's ruling, Mario Monti said in a press release "I take full responsibility for the Airtours/First Choice decision" taken in September 1999 "five days after I took office as Competition Commissioner" in Prodi's Commission. "My services and I will be studying carefully the ruling of the Court which, of course, we fully respect, and its implications", he added. "I note that the Court has not questioned that the Merger Regulation can be applied to operations leading to collective dominance… This doctrine is entirely consistent with that of other jurisdictions in Europe and abroad, including the United States".
Asked what attitude the Commission would be taking in the next few weeks (the Commission has two weeks to decide whether to appeal against the Court ruling), Commissioner Monti's spokesperson, Amelia Torres, said that it was very premature at this stage to prejudge the Commission's reaction since the Commission would be examining all the fallout from the Court ruling with a fine toothcomb, and the ninety pages of the ruling would first be carefully studied by the relevant departments but that on first reading the ruling was taken on a lack of facts. In other words, the Court criticises the Commission for not providing proof of collective dominance (the three conditions) but didn't take a position on the idea of "collective dominance". Torres also pointed out that the ruling showed the Commission did not have full powers in terms of competition, as it was recently criticised for having following decisions not to authorise mergers (GE/Honeywell and Schneider/Legrand) since it remains subject to a court. After detailed examination of the ruling, before the end of the year the Commission will propose guidelines on the concept of "market power" in monitoring competition.