Commission Decision of 14/07/2010 declaring a concentration to be compatible with the common market (Case No COMP/M.5747 - IBERIA / BRITISH AIRWAYS) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)
| Published date | 14 July 2010 |
| Subject Matter | Competition,Concentrations between undertakings |
Commission Decision of 14/07/2010 declaring a concentration to be compatible with the common market (Case No COMP/M.5747 - IBERIA / BRITISH AIRWAYS) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)
EN
Case No COMP/M.5747 - IBERIA/ BRITISH AIRWAYS
Only the English text is available and authentic.
MERGER PROCEDURE
Article 6(1)(b) NON-OPPOSITION
Date: 14/07/2010
In electronic form on the EUR-Lex website under document number 32010M5747
|EUROPEAN COMMISSION |
Brussels , 14.07.2010
In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC) No 139/2004 concerning non-disclosure of business secrets and other confidential information. The omissions are shown thus […]. Where possible the information omitted has been replaced by ranges of figures or a general description. PUBLIC VERSION SG-Greffe(2010) D/10756 / 10757 C(2010) 5008
MERGER PROCEDURE ARTICLE 6(1)(b) DECISION
To the notifying parties:
Dear Sir/Madam,
Subject: Case No COMP/M.5747 – Iberia/ British Airways Notification of 10 June 2010 pursuant to Article 4 of Council Regulation No 139/2004 [1]
1. On 10 June 2010, the Commission received a notification of a proposed concentration pursuant to Article 4 of the Merger Regulation by which the undertakings Iberia Líneas Aéreas de España, S.A. ("Iberia" or "IB", Spain) and British Airways Plc ("British Airways" or "BA", United Kingdom) enter into a full merger within the meaning of Article 3(1)(a) of the Merger Regulation.
I. THE PARTIES
2. British Airways serves some 150 cities in about 75 countries with an additional 215 cities served under various code-sharing relationships. It has several subsidiaries (CityFlyer, OpenSkies) and franchisees (Comair and Sunair). BA has its main hub at London Heathrow airport and also operates bases at London Gatwick and London City. In addition to passenger transport services, BA provides air transport of cargo services, aircraft maintenance and groundhandling services.
3. Iberia serves more than 106 destinations in over 43 countries with an additional 110 cities served under various code-sharing relationships. Its main hubs are in Madrid and Barcelona. IB's operations in Barcelona are carried out mainly through its subsidiary Vueling. IB's franchisee Air Nostrum operates mostly on Spanish domestic routes. In addition to passenger transport services, IB provides air transport of cargo services, aircraft maintenance and groundhandling services.
4. Both BA and IB are members of the oneworld alliance. [2]
II. CONCENTRATION
5. On 8 April 2010, IB and BA entered into a merger agreement according to which they will integrate the entirety of their activities. Pursuant to the merger agreement, a recently incorporated Spanish company TopCo, will become the holding company of both airlines that will remain separate entities operating under their respective trade names. TopCo's shareholders will be the existing shareholders of IB and BA.
6. The proposed transaction thus constitutes a merger within the meaning of Article 3(1)(a) of the Merger Regulation.
III. EU DIMENSION
7. The undertakings concerned, BA and IB, have a combined aggregate world-wide turnover of more than EUR 5 000 million. [3] Each of them has an EU-wide turnover in excess of EUR 250 million, but they do not achieve more than two-thirds of their aggregate EU-wide turnover within one and the same Member State. The methodology used by the notifying parties to calculate their turnover is the "point of sale" methodology, although in any event the thresholds would also be met under the "point of origin" or "50/50 split" methods. [4] The notified concentration therefore has an EU dimension.
IV. RELEVANT PRODUCT AND GEOGRAPHIC MARKETS
8. The activities of IB and BA overlap in air transport of passengers, air transport of cargo, groundhandling services and maintenance, repair, and overhaul services ("MRO").
A. Passenger air transport services
A.1 O&D approach
9. The Commission has traditionally defined the relevant market for scheduled passenger air transport services on the basis of the "point of origin/point of destination" (O&D) city-pair approach. [5] Such market definition reflects the demand-side perspective whereby customers consider all possible alternatives of travelling from a city of origin to a city of destination which they do not consider substitutable to a different city-pair. As a result, every combination of a point of origin and a point of destination is considered to be a separate market.
10. The market investigation has confirmed this approach in the present case. While in particular the parties and some network carriers tend to believe that the market should be defined on a network basis, the O&D approach best reflects the demand-side perspective according to which both the point of origin and the point of destination should include all airports that are substitutable in the eyes of passengers.
A.2 Time sensitive vs. non-time sensitive passengers
11. The Commission has traditionally found that a distinction may be drawn between time sensitive and non-time sensitive passengers. Time sensitive passengers tend to travel for business purposes, require significant flexibility with their tickets (such as cost-free cancellation and modification of the time of departure, etc.) and tend to pay higher prices for this flexibility. Non-time sensitive customers travel predominantly for leisure purposes or to visit friends and relatives, book long time in advance, do not require flexibility with their booking and are generally more price-sensitive. [6]
12. The parties submit that such a distinction is not meaningful as a chain of substitution (between fare classes or cabins) exists between the two categories of passengers.
13. The market investigation however showed that time sensitive passengers often have different requirements from non-time sensitive passengers, in particular as regards flexibility, the level of frequencies, convenient schedules, airport location, and comfort. Accordingly, time sensitive passengers are willing to pay a significant premium for such features. [7]
14. A relevant number of respondents amongst the parties' competitors had moreover indicated that airlines are able to identify and discriminate passengers according to their price elasticity based on their observable behaviour at the time of booking. In particular, passengers with lower price elasticity tend to purchase tickets with a high degree of flexibility and/or purchase their ticket close to departure and to have a short permanence at destination (which does not normally include a weekend). [8]
15. The Commission has requested and analysed sales data from the parties and their competitors. The analysis of the parties' data indicates the existence of strong correlation between business flexible and economy flexible fares, while no meaningful correlation is observed between business and economy restricted tickets. [9] This result appears to suggest that, besides other key characteristics such as comfort of travel, flexibility is a key driving factor in determining the pattern of substitution between different types of tickets.
16. However, for the purpose of the present case, the conclusion on whether time sensitive and non-time sensitive passengers belong to the same market can be left open as no competition concerns arise under any alternative market definition.
A.3 Direct (non-stop) vs. indirect (one-stop) flights [10]
17. The Commission has considered in previous decisions [11] that with respect to short-haul routes (below 6 hours flight duration) indirect/one-stop flights generally do not provide a competitive constraint to direct/non-stop flights absent exceptional circumstances (for example the direct flight does not allow for a one-day return trip, or the share of indirect flights in the overall market is significant). However, with the increased flight time, indirect flights constitute a more credible alternative to direct flights and their attractiveness in the eyes of passengers should be assessed on a route-by-route basis. [12] This is in line with Commission's practice to consider that with respect to long-haul routes (more than 6 hours flight duration), indirect flights constitute a competitive alternative to direct services under certain conditions (for example if they are marketed as connecting flights on the O&D pair in the computer reservation system). [13]
18. However, for the purpose of the present case, the conclusion on whether or not direct/non-stop and indirect/one-stop flights belong to the same market can be left open as no competition concerns arise under any alternative market definition.
A.4 Airport substitutability
19. In its practice, the Commission has found that flights from or to airports which have sufficiently overlapping catchment areas can be considered as substitutes in the eyes of passengers. Such airport substitution has often been found where several airports are located in the same city. In order to correctly capture the competitive constraint that flights from/to two different airports exert on each other, a detailed analysis taking into consideration the specific characteristics of the case at hand is necessary. [14]
20. The parties submit that all airports serving a particular city should be included in the relevant markets. In the present case, such airport substitutability is particularly relevant for London and Barcelona, as five different airports are located in the London urban area, i.e. Heathrow (LHR), Gatwick (LGW), City (LCY), Luton (LTN) and Stansted (STN), while three different airports are located in the Barcelona urban area, i.e. El Prat, Girona and Reus.
A.4.1 London...
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