|
B
- The Decision 66.
The
Decision identifies two types of players on the relevant market (see
paragraphs 72 and 75), the large tour operators on the one hand, and the
secondary or small tour operators on the other: -
the major tour operators are characterised by their relatively large size
- each of them having a market share exceeding 10% (according to the
Commission's data, Thomson accounts for 27% of sales, Airtours for 21%,
Thomas Cook for 20% and First Choice for 11%, that is, overall for 79% of
sales. On Airtours' figures, Thomson accounts for 30.7% of sales, Thomas
Cook for 20.4%, Airtours for 19.4% and First Choice for 15%, that is,
overall for 85.5% of sales). A further characteristic is that they are all
integrated both upstream (operation of charter airlines) and downstream (travel
agencies); -
the secondary operators are smaller, none of them having a market share in
excess of 5%, and in general they do not own either their own charter
airlines or their own travel agencies. Apart from Cosmos (which, since it
is linked to Monarch, one of the major charter airlines in the United
Kingdom, is exceptional among secondary operators where there is no
vertical integration), Manos and Kosmar, which are the fifth, sixth and
seventh tour operators accounting respectively for 2.9%, 1.7% and 1.7% of
sales, there are several hundred competing small tour operators, none of
them accounting for more than 1% of sales. 67.
It
is apparent from the Decision (see the summary of the Commission's
appraisal at paragraphs 168 to 172 of the Decision) that the Commission
formed the view that the proposed merger would create a dominant position
in the United Kingdom market for short-haul foreign package holidays, the
effect of which would be to impede competition significantly in the common
market for the purposes of Article 2(3) of Regulation No 4064/89, and that
it would do so for the following reasons: -
the proposed merger would remove competition between the three large
players remaining after the concentration (combined Airtours/First Choice,
Thomson and Thomas Cook). Because of the structural features of the market
and the way that it operates, which is dependent on capacity decisions,
and because of the high degree of market concentration (the three
remaining large tour operators would have about 80% of the market if the
operation took place) (Decision, paragraph 169), they would no longer have
an incentive to compete with each other; -
the operation would increase the degree of transparency and
interdependence which already exists, with the result that the three
remaining large tour operators would have every interest in adopting
parallel conduct so far as the decision as to how many package holidays
toput onto the market is concerned, reducing capacity below what is
required as a result of market trends (Decision, paragraph 170); -
an examination of past competition bears out this conclusion, since it
demonstrates that the relevant market already had a tendency towards
collective dominance (Decision, paragraphs 128 to 138); -
deterrents or scope for retaliation exist, which are connected with the
fact that if one of the three remaining large tour operators decided not
to restrict capacity, there would be a risk that the two others would do
the same, which would result in oversupply and serious financial
consequences for each of the operators (Decision, paragraph 170); -
the smaller operators or new entrants, that is to say current and future
competitors, would be further marginalised as a result of the operation,
since they would lose First Choice both as a supplier of airline seats and
as a potential distribution channel. In any event, those operators would
not have the ability to offset any reductions in capacity brought about by
the three remaining large tour operators (Decision, paragraph 171). 68.
So
far as the effects of the merger on effective competition are concerned,
the Commission found that the effect of restricting overall capacity put
onto the market would be to tighten the market and bring about an increase
in the prices and profits of the members of the dominant oligopoly (see,
in particular, paragraph 56 and the final part of paragraph 168 of the
Decision). C
- The Commission's alleged errors of assessment 69.
The
applicant argues that, contrary to the Commission's contention, the
factors put forward by the Commission in the Decision to characterise the
situation as one of collective dominance were not present at the time of
the notification and would not occur were the merger to proceed. 70.
More
specifically, the applicant claims, first, that, given the characteristics
of the relevant market, the Commission has not proved conclusively that,
were the merger to proceed, the three remaining large tour operators would
have an incentive to cease competing with each other. 71.
Second,
it argues that, even supposing that such an incentive did exist, the
absence of any deterrents or adequate means of retaliation would prevent
the emergence of the alleged dominant oligopoly. 72.
Third,
and in any event, smaller operators and new entrants, namely current and
future competitors, would challenge any capacity restrictions brought into
effect and consumers would react as a result, so that the three remaining
major operatorswould not be able, as a result of the concentration, to act
together to any appreciable extent independently of other competitors and
consumers. 73.
Fourth,
the applicant claims that the Commission incorrectly assessed the impact
of the merger on competition in the relevant market. 1.
Preliminary observations 74.
The
applicant's first point is that the natural tendency of operators in the
relevant market to set capacity cautiously has by no means prevented them
from engaging in competition with each other in the past and that there is
no reason to believe that proceeding with the proposed merger would put an
end to that competition by creating a situation in which the three
remaining large tour operators have a collective dominant position. 75.
The
Decision is particularly elliptical in its description of the competitive
situation at the time of the notification. However, it is not disputed
that the Commission concluded that the proposed merger would create,
rather than strengthen, a dominant position on the market (Decision,
paragraph 194). The Commission has confirmed in its pleadings that it does
not contend that that there was a situation of oligopolistic dominance at
the time of the notification and that what is at issue is the creation,
and not the strengthening, of a collective dominant position. Thus, it
does not deny that prior to the proposed merger the major tour operators
did not find it possible or profitable to restrict capacity in order to
increase prices and revenues. 76.
It
follows that in this instance the starting point for the Court's
examination must be a situation in which - in the Commission's own view -
the four major tour operators are not able to adopt a common policy on the
market and hence do not face their competitors, their commercial
associates and consumers as a single entity, and in which they thus do not
enjoy the powers inherent in a collective dominant position. 77.
In
those circumstances, it was for the Commission to prove that, in view of
the characteristics of the United Kingdom market for operating short-haul
package holidays and in light of the notified operation, approval of the
latter would have resulted in the creation of a collective dominant
position restrictive of competition, inasmuch as Airtours/First Choice,
Thomson and Thomas Cook would have had the ability, which they did not
previously have, to adopt a common policy on the market by setting
capacity lower than would normally be the case in a competitive market
already distinguished by a degree of caution in matters of capacity. 78.
It
is therefore necessary to examine the pleas and arguments raised by the
applicant in this case in the light of the foregoing considerations. 2.
The finding that were the merger to proceed, the three remaining large
tour operators would have an incentive to cease competing with each other 79.
The
applicant submits that the finding that if the merger proceeded, the three
remaining large tour operators would have an incentive to cease competing
with each other is erroneous because the Commission, first, did not take
into account, as it should have done, the competition obtaining between
the leading tour operators at the time of the notification and, second,
made errors in its appraisal of the characteristics of the market on which
it relied as evidence that a collective dominant position would be created,
in particular, the past and prospective development of demand, demand
volatility and the degree of market transparency. (a)
The assessment of competition between the leading tour operators 80.
The
applicant submits that the analysis of competition obtaining prior to the
notification (referred to as past competition) is of fundamental
importance in this instance, since the main incentives invoked by the
Commission, namely alleged capacity rigidities, are inherent in the way
the market normally operates, concern the industry as a whole and would
not be affected were the proposed merger to proceed. The relevant market
has been operating competitively in recent years and the applicant
challenges the Commission's assertion that there is already a tendency
towards collective dominance. In particular, it criticises the way in
which the Commission took into consideration the alleged tendency towards
collective dominance before examining the implementation of the proposed
merger and the volatility of historic market shares. 81.
The
Commission contends that the way in which the market previously operated
and the fact that competition obtained in the past are not significant
factors, since the Decision is based on the finding that a collective
dominant position would be created as a result of the proposed operation,
that is to say that market conditions would be altered in such a way that
previously examined incentives and conduct would no longer be an
appropriate guide in determining how operators would react in the new
market situation. Therefore, it argues that the crucial question is
whether the proposed operation would alter current market conditions in
such a way that the leading operators would no longer act in the same way
as they have done in the past. Thus, it does not follow that because the
market was competitive with four large tour operators, it would continue
to be so if the number were reduced to three. The Commission nevertheless
challenges the arguments put forward by the applicant to show that
competition among the main operators has been, and will continue to be,
keen. 82.
The
Court observes, however, that one of the questions which the Commission is
required to address where there is alleged to be collective dominance is
whether the concentration referred to it would result in effective
competition in the relevant market being significantly impeded (Kali
and Salz, paragraph 221, and Gencor vCommission,
paragraph 163). If there is no significant change in the level of
competition obtaining previously, the merger should be approved because it
does not restrict competition (see paragraph 58 above). It follows that
the level of competition obtaining in the relevant market at the time when
the transaction is notified is a decisive factor in establishing whether a
collective dominant position has been created for the purposes of
Regulation No 4064/89. 83.
As
the applicant has submitted, an analysis of competition prior to the
notification is particularly important in this instance, since the purpose
of the tacit coordination likely, in the Commission's submission, to
follow the concentration, would be to restrict capacity put onto the
market by the three remaining integrated tour operators. The restriction
would involve more than their natural caution in capacity planning, which
the Commission itself considers inherent in the way that the market
normally operates. (i)
The tendency towards collective dominance alleged to exist prior to the
proposed merger 84.
First,
it must be observed that, although the Commission devoted one section of
the Decision to an examination of 'Past Competition (paragraphs 128 to
138), a detailed analysis of that section reveals that, in fact, the
Commission does not there express an opinion on the degree of competition
obtaining in the market. It confines itself to setting out (paragraphs 128
to 138) a number of circumstances or factors which have been observed in
the market in the years leading up to the notification and concludes (Decision,
paragraph 138) that 'there is evidence that there is already a tendency
towards collective dominance in the market at present (most especially as
regards the setting of capacity). However, those passages of the Decision
make no mention of any reduced level of competition in the market prior to
the notification. -
The fact that the large tour operators take a cautious approach to
capacity planning and take particular note of the estimates of the main
competitors 85.
At
paragraphs 135 and 136 of the Decision, the Commission explains that the
large tour operators adopt a cautious approach to capacity planning and
take particular note of the estimates of their main competitors (the
Decision cites, at paragraph 136, certain statements made by senior
executives at the leading United Kingdom integrated tour operators, which
illustrate that cautious approach to planning). In the preceding paragraph
(paragraph 135), the Decision describes an episode which took place in the
summer of 1995, which, the Commission contends, illustrates the
consequences of oversupply in the market: during the 1994 planning period,
all the tour operators overestimated demand for the summer season 1995 and
were left with unsold capacity, which had to be cleared by means of heavy
discounting, something which led to them suffering heavy losses. 86.
The
applicant claims that the major tour operators cannot be criticised for
adopting a cautious approach to capacity planning, by taking particular
note of the estimates of the other leading operators' plans, since the
Community Courts have recognised that the requirement of independence does
not deprive economic operators of the right to adapt themselves
intelligently to the existing and anticipated conduct of their competitors
(Joined Cases 40/73, 41/73, 42/73, 43/73, 44/73, 45/73, 46/73, 47/73,
48/73, 50/73, 54/73, 55/73, 56/73, 111/73, 113/73 and 114/73 Suiker
Unie and Others v Commission [1975] ECR 1663, paragraphs 173
and 174). It does not consider such caution to be incompatible with
aggressive competition to maintain or increase its market share at the
expense of its main competitors. In that respect, the applicant cites the
statements made by the main tour operators describing their ambitions to
grow. 87.
The
Commission contends that the intentions ascribed to the main tour
operators by the applicant reflect the situation prior to the proposed
merger and thus relate to different circumstances. It does not contend
that there was previously a situation of dominant oligopoly. Furthermore,
the 'aggressive growth to which certain statements refer had in the past
been, and was in the future to be, carried out through acquisitions.
Lastly Thomas Cook indicated to the Commission that size was no longer its
prime concern, but rather profitability (Decision, paragraph 131). 88.
The
Court notes that the Decision acknowledges at several places that this
natural tendency to cautious capacity planning is a feature of the
relevant market in its current state, in which there is no collective
dominant position restrictive of competition, and that it impinges upon
all operators and not just the large tour operators, even though the
latter are more specifically concerned (see paragraphs 60 to 66, 97 and
136 of the Decision). Thus, in paragraph 97 of the Decision, the
Commission states that 'the volatility of demand makes it rational to
limit planned capacity and then add capacity later, if demand proves to be
particularly strong. In this way the suppliers protect themselves against
downwards volatility in demand, and, in paragraph 136, that 'the large
operators take a cautious approach to capacity planning, taking particular
note of estimates of the other major operators' plans. 89.
In
those circumstances and as the Commission has not denied that the relevant
market was competitive prior to the notification (in particular at the
time of the 1995 crisis), the episode which occurred in that year and to
which the Decision attaches great weight cannot, as such, constitute
evidence that a tendency towards collective dominance already existed in
the industry. The fact that during the 1994 planning period operators
miscalculated and suffered heavy losses after overestimating demand for
the 1995 summer season can be regarded as no more than an example of the
risks peculiar to this market, the distinctive operation of which is
explained at paragraphs 59 to 66 of the Decision. 90.
It
is quite apparent from the remarks cited at paragraph 136 of the Decision
that senior executives at the large tour operators are aware of the risks
inherent inexpansionist strategies in the relevant market, particularly
because of the lessons learned from the 1995 episode and because matching
capacity to demand is crucial to profitability (see paragraph 60 of the
Decision). However, those remarks do not give the slightest indication
that there is no competition between the main tour operators. 91.
Finally,
contrary to the Commission's contention (see paragraphs 137 and 138 of the
Decision), the fact that to some extent (30 to 40% of the shares) the same
institutional investors are found in Airtours, First Choice and Thomson
cannot be regarded as evidence that there is already a tendency to
collective dominance in the industry. It is sufficient to point out in
that regard that, as the Commission itself has acknowledged in its defence
(paragraph 73), there is no suggestion in the Decision that the group of
institutional shareholders forms a united body controlling those quoted
companies or providing a mechanism for exchange of information between the
three undertakings. Furthermore, the Commission cannot contend that those
shareholders are a further force for cautious capacity management, unless
it has examined to what extent they are involved in the management of the
companies concerned. Finally, even assuming that it were proved that they
are capable of exercising some influence on the management of the
undertakings, since the concerns of the common institutional investors
with respect to growth (and thus capacity) merely reflect a characteristic
inherent in the relevant market, the Commission would still have to
establish that the fact that institutional investors hold shares in three
of the four leading tour operators amounts to evidence that there is
already a tendency to collective dominance. 92.
It
is apparent from the foregoing that, since it did not deny that the market
was competitive, the Commission was not entitled to treat the cautious
capacity planning characteristic of the market in normal circumstances as
evidence substantiating its proposition that there was already a tendency
to collective dominance in the industry. -
The assessment of horizontal and vertical integration characteristic of
the market since publication of the Monopolies and Mergers Commission
Report 93.
The
applicant points out that the United Kingdom Monopolies and Mergers
Commission (the 'MMC) examined the state of competition in the relevant
market in 1997 and produced a report entitled 'Foreign Package Holidays:
a report on the supply in the UK of tour operators' services and travel
agents' services in relation to foreign package holidays ('the MMC
Report). It maintains that the MMC concluded in that report that the
situation in that market was broadly competitive. 94.
The
Commission submits that the market situation has changed significantly
since the MMC Report was published in 1997, not only because of the
increase invertical integration of the main tour operators, as the
applicant claims, but also because of the significant horizontal
concentration that has taken place. 95.
At
paragraphs 128 to 134 of the Decision, the Commission cites, as evidence
of a tendency to collective dominance, the horizontal concentration and
vertical integration which have characterised the United Kingdom foreign
package holiday industry in recent years and which have accelerated since
the MMC Report was published in December 1997, due in particular to the
number of mid-sized operators taken over by the four major tour operators.
96.
The
Court observes, however, that if those trends are examined closely, it can
be seen that the main tour operators' acquisitions of tour operators,
airline companies and travel agencies, referred to at paragraph 134 of the
Decision, do not entail the kind of major alterations in the market which
would invalidate in 1999 the conclusions on competition in the market
reached by the MMC towards the end of 1997 and that, therefore, those
acquisitions could not be regarded as evidence of a tendency to collective
dominance. 97.
First,
the Court would point out that, as the applicant has noted, the MMC found
in its report published in 1997 that the foreign package holiday business
was dynamic, that competition was keen and that there were no significant
barriers to entry. It reached that conclusion after carrying out a
particularly detailed study (over 300 pages) of the state of the travel
business and the way in which it functioned. The study was carried out
over 12 months of inquiry and drew on large amounts of data and a great
number of views provided by all parties with a presence in the United
Kingdom foreign holidays business. For the purposes of drawing up its
report, the MMC commissioned four market studies from external consultants
and the report was completed in November 1997, only a year and a half
before the Commission examined the market in the context of the notified
transaction. 98.
More
specifically, in paragraph 1.6 of its report, the MMC expressed itself as
follows: 'The
travel trade has been far from static over the last ten years and the
picture continues to change, with a trend towards more vertical
integration. Of the major participants who featured in our 1986
investigation into foreign package holidays, only Thomson has retained a
prominent position. We have received a great deal of evidence to the
effect that competition in the trade is strong and we broadly agree with
this view. While concentration has increased over the past five years, it
is not at a particularly high level. Profits are not excessive taken year
on year. Players come and go. There are no significant barriers to
entering either the tour operator or the travel agent market. 99.
The
Commission has not challenged that analysis in the Decision, although in
several places it refers to findings made by the MMC in the report
relating to othermatters (paragraphs 9, 11, 47, 70, 76, 81, 114, 115, 123,
128, 129, 131, 133 and 134 of the Decision). It follows that it does not
challenge the MMC's findings regarding its description of that market, in
1997, as one in which competition was strong. 100.
The
Commission argues, however, (Decision, paragraph 123) that conditions of
competition in the market have changed significantly since 1997, in
particular owing to increased concentration and vertical integration, as
is stated at paragraph 134 of the Decision. In that regard, the
elimination of mid-sized operators represents an important change in the
competitive structure and increases the scope for parallel conduct between
the main tour operators. 101.
However,
the Court finds that the horizontal and vertical integration which has
occurred in the United Kingdom foreign package holiday industry since the
MMC Report was published are less significant than the Commission alleges.
102.
As
regards horizontal concentration, it is apparent from the documents before
the Court (page 33a of the document, at Annex 5 to the application,
notifying the Commission of the merger, paragraph 4.18 of the 1997 MMC
Report and paragraph 72 of the Decision) that the development, between
1996 and 1999, of the market shares of Thomson, Airtours and First Choice
does not prove that their shares of the short-haul market have increased
significantly. The graph illustrating the tour operators' market shares (Annex
5 to the application, page 33a), including all destinations, shows that
Thomson's sales of foreign package holidays, which accounted for 25% of
sales of foreign package holidays in 1996, accounted for no more than 22%
of sales in 1998, whilst Airtours' sales represented 16% in 1996 and 1998,
and those of First Choice fell from 10% in 1996 to 9% in 1998. The three
leading tour operators active in 1997 therefore accounted for 51% of sales
of foreign package holidays in 1996 and for 47% thereof in 1998. That
finding is borne out if the data relating purely to short-haul
destinations are examined. It is apparent from paragraph 4.18 of the MMC
Report that in 1997 the MMC had also examined the market shares of the
integrated tour operators by reference to the narrow definition of the
product market used in the Decision, since the advantages of also
examining the market by reference to such a definition had been pointed
out by Thomas Cook at that time. It is clear from a comparison of market
shares in 1996 (paragraph 4.18 of the MMC Report) and 1998 (paragraph 72
of the Decision) that Thomson's share fell from 33% to 30% or 27%,
depending on the source of the figures, Airtours' share moved from 20% to
19% or 21%, depending on the figures used, and First Choice from 12% to
15% or 11%, depending on the figures used. Only Thomas Cook increased its
market share significantly, rising from 6% to 20%. 103.
It
is clear from this that the key element in the consolidation that has
taken place in the foreign package holiday trade since 1997 is Thomas
Cook, whose status changed in the course of a few years from that of a
small operator to that of a major tour operator following several
transactions involving growth by acquisitions (acquisition in June 1996 of
Sunworld, acquisitions in 1998 of Flying Colours, whichaccounted for 3% of
the foreign package holiday trade, and of Carlson/Inspirations, which
accounted for between 1 and 3% of the trade) (MMC Report, table 4.1, p.
76; Decision, paragraphs 131 and 134). By virtue of that growth, Thomas
Cook emerged in 1998 as a fourth large tour operator, which was vertically
integrated and thus better placed to compete with the other integrated
tour operators. That fact cannot be interpreted as evidence of a lack of
competition in the market. 104.
If
the case of Thomas Cook is left aside, the acquisitions of tour operators
referred to at paragraph 134 of the Decision essentially concern the
purchase of smaller businesses which have not significantly increased the
market share of the main tour operators in the foreign package holiday
business. Therefore, the elimination of mid-sized operators, which the
Commission contends represented an important change in the structure of
competition and increased the scope for parallel conduct between the main
operators, amounts to the fact that a new major tour operator has emerged
- Thomas Cook, whose market share has risen from 6% to 20%. 105.
The
Commission contends that the large tour operators' increased level of
vertical integration, which has also occurred since 1997, is further
evidence of the industry's tendency to collective dominance (Decision,
paragraph 138). The Court observes that the Decision is inconsistent in
this regard, since it is based at the same time on the premiss that a
strategy of vertical integration is necessary in order to compete with the
large tour operators. Thus, at paragraph 132 of the Decision, the
Commission states that First Choice had adopted a policy of vertical
integration into distribution in 1998, the aim of which was to protect
itself against the business practices of the other large tour operators in
order to avoid paying them commission and to obtain better information on
market trends. That need to become vertically integrated is one of the key
factors in the Commission's conclusion, the Commission taking the view
that a collective dominant position would arise in the present case, in
particular because the concentration would remove First Choice as a
competitor at all three levels of the supply chain (paragraph 168 of the
Decision). 106.
It
follows that the Commission itself recognises in the Decision that an
increased level of vertical integration is pro-competitive, inasmuch as it
increases efficiency and limits the interdependence of the large tour
operators, who promote their own distribution channels over those of the
other main operators. The fact that vertical integration has occurred
since the MMC Report was published in 1997 therefore cannot at the same
time be evidence of a tendency to collective dominance. In addition, the
MMC also analysed in its report the growing tendency to vertical
integration and concluded that it was something that was as likely to
stimulate competition as to dampen it (see paragraph 2.193 of the MMC
Report). In particular, the MMC concluded that the anti-competitive
effects of vertical integration were slight in 1997, account being taken
of the levels of concentration in the industry. 107.
It
follows that the Commission was wrong in taking the view that the
horizontal concentration and vertical integration that has taken place
since the MMC Report was published in 1997 made it necessary to disregard
the latter's findings on the level of competition obtaining in the
relevant market. 108.
It
is apparent from the foregoing that the Commission erred in concluding at
paragraph 138 of the Decision that the factors set out at paragraphs 128
to 137 thereof are 'evidence that there is already a tendency towards
collective dominance in the market at present (most especially as regards
the setting of capacity). (ii)
The assessment of the volatility of historic market shares 109.
The
applicant goes on to cite as proof that the market is competitive the fact
that in the past the market shares of the main tour operators have been
volatile, dynamic and fluctuating. 110.
According
to the Commission, no such volatility has recently been observed in the
relevant market. The changes in the large tour operators' market shares,
cited by the applicant, result from acquisitions and not therefore from
their performance on the market. If acquisitions are discounted, the
market shares of the main operators have shown very little movement in
recent years, which suggests that organic growth is difficult (Decision,
paragraph 128 and footnote 86). 111.
It
is appropriate to point out that for the purpose of determining whether
there is a collective dominant position, the stability of historic market
shares is a factor conducive to the development of tacit collusion,
inasmuch as it facilitates division of the market instead of fierce
competition, each operator referring to its historic market share in order
to fix its production in proportion thereto. 112.
In
the present case, the Commission's finding that the market shares of
Thomson, Airtours, Thomas Cook and First Choice remained stable over the
last five years is predicated on the assumption that growth by acquisition
is to be ignored. The Commission takes the view that where changes in
market share result principally from the acquisition of competitors, the
'quota to be allocated can be calculated by adding the market shares of
the purchaser and the target and that therefore the problem of operators
seeking to align their market share on peaks they have achieved in the
past does not arise. 113.
However,
there is no justification in the present case for excluding growth by
acquisition when assessing the volatility of market shares, inasmuch as in
the relevant market the size of the undertakings and their degree of
vertical integration are significant factors in competition (see, inter
alia, paragraphs 73, 75, 77, 78, 99, 100, 114 and 115 of the Decision).
In such circumstances, the fact that the large operators have made
numerous acquisitions in the past, either before or after the MMC Report
was published, may be taken to be indicative of strong competitionbetween
those operators, which make further acquisitions to avoid being
outdistanced by their main competitors in key areas in order to take full
advantage of economies of scale. 114.
Moreover,
the assumption that growth by acquisition is to be ignored is at variance
here with several remarks made by the Commission itself in the Decision,
which suggest, contrary to the submissions in its pleadings, that an
acquisition by one of the major operators results, for the other major
operators, not in the mathematical addition of the market shares of the
purchaser and the target, but in a competitive reaction on their part. 115.
The
Decision thus points out at paragraph 137: '[w]hen Airtours' bid for First
Choice became known in April this year, an announcement by Thomson that it
would defend its market-share position led to an immediate drop in
Thomson's share price of 9% on the same day as the announcement, due to
fears that the company would start a price war, and Thomson's management
were obliged to make considerable efforts to convince institutional
investors that the announcement had been misinterpreted and that they had
no intention of adding capacity in the market but only of mopping up
capacity which would be shed by Airtours/First Choice as a result of the
merger. 116.
Similarly,
the Decision states at paragraph 145 that 'it is apparently widely
believed in the industry that all mergers lead to temporary losses of
market share for the protagonists due to defection of some customers and
suppliers as a result of elimination of duplication in their programmes.
An examination of the documents produced by the applicant concerning the
development of historic market shares (Annex 6 to the reply, page 2, see
also the table on the development of market shares, page 8 of the
application) shows that such concerns are well founded. Thus, following
Thomson's acquisition of Horizon in 1989, the market share of the new
entity should have been 32% (25% for Thomson and 7% for Horizon), whereas
it quickly dropped to around 25%. 117.
It
is appropriate to point out that an analysis of the data produced to the
Court shows that, as the applicant has submitted without challenge from
the Commission, if growth by acquisition is included, there is
considerable variation in the major tour operators' shares of the foreign
package holiday market. This can be seen from the table showing the
operators' market shares, set out by the applicant in its notification (reproduced
on page 8 of the application). Thus, in 1990, Thomson's market share was
21.81%, that of First Choice was 5.82%, that of Airtours was 4.27% and
that of Thomas Cook was 2.13%. In 1994 Thomson's market share was 23.13%,
Airtours' 15.52%, First Choice's 5.88% and Thomas Cook's 2.41%. Then, in
1998, Thomson's market share was 19.28%, Airtours' 14.26%, First Choice's
7.47% and Thomas Cook's 11.38%. 118.
It
follows that the Commission erred in holding that market shares resulting
from acquisitions should not be taken into consideration and, accordingly,
in concludingthat the major tour operators' market shares have remained
stable over recent years. 119.
Finally,
as regards competition obtaining in the relevant market, it should be
added that the applicant has claimed, and the Commission has not disputed,
that the performances of the main tour operators may vary in a given
season (with winners and losers) and may also vary from one season to
another. That fact must be regarded as evidence that the market is
competitive and consequently militates against any finding of collective
dominance. (iii)
Conclusion on the assessment of competition between the leading tour
operators 120.
It
follows from the foregoing that the Commission made errors of assessment
in its analysis of competition obtaining in the relevant market prior to
the notification. First, it did not provide adequate evidence in support
of its finding that there was already a tendency in the industry to
collective dominance and, hence, to restriction of competition,
particularly as regards capacity setting. Second, it did not take into
account, as it should have done, the fact that the main tour operators'
market shares have been volatile in the past and that such volatility is
evidence that the market was competitive. (b)
The assessment of past and anticipated development of demand, demand
volatility and the degree of market transparency 121.
A
section of the Decision entitled 'Market Characteristics (oligopolistic
dominance) (paragraphs 87 to 127) sets out a number of characteristics
which, according to the Commission, make the relevant market conducive to
oligopolistic dominance. They include, inter alia, product
homogeneity, low demand growth, low price sensitivity of demand, the
similar cost structures of the main suppliers, a high degree of
transparency, interdependence and commercial links between the main
suppliers, substantial barriers to market entry and the insignificant
buyer power of consumers. According to the Decision (paragraph 87), those
characteristics are already present and would remain present if the
proposed merger were to take place. 122.
The
applicant challenges the findings which led the Commission to conclude
that those characteristics are already present in the relevant market and
that they would make it conducive to oligopolistic dominance if the merger
were to proceed. It argues, in particular, that the rate of demand growth
and the degree of demand volatility in the relevant market, as well as the
degree of market transparency, are, in the present case, factors which,
contrary to the Commission's contention, render creation of a collective
dominant position more difficult. (i)
Findings on low demand growth 123.
The
applicant argues in essence that the Commission made an error of
assessment in considering demand growth overall to be weak, whilst both
the data produced in the administrative procedure and the fact that demand
growth is faster than growth in gross domestic product are evidence to the
contrary. 124.
The
Commission sets out its findings about the level of demand growth in the
relevant market at paragraphs 92 and 93 of the Decision. 125.
At
paragraph 92, the Commission states that '[a] recent study for a major
tour operator, referred to in response to the Commission's enquiries,
noted ... that the overall average annual growth rate (3 to 4% over the
decade) was quite low. It is also stated that '[d]emand growth for the
next two years is expected to be close to zero, according to several
industry estimates, but with some recovery in prospect thereafter. 126.
At
paragraph 93, the Commission goes on to state that 'based on its
investigation in this case, it has reached the conclusion that 'overall
growth of demand in the market for short-haul package holidays will
continue to be moderate as has been the case in the 1990s. Finally, in
conclusion, the Commission 'finds that market growth is not likely to
provide a stimulus to competition within the foreseeable future. 127.
The
Court holds that the Commission's findings are based on an incomplete and
incorrect assessment of the data submitted to it during the administrative
procedure. 128.
First,
it is appropriate to point out that, in response to a measure of
organisation of procedure by which the Court called on the Commission to
produce the study referred to at paragraph 92 of the Decision, the
Commission stated that a full version of that study had at no point been
made available to it during the administrative procedure and that all it
could produce to the Court was an extract, which a tour operator had
annexed to a response to a request for information. That extract consisted
of a single page of a document entitled 'Forecasting Holiday Demand
prepared by Ogilvy & Mather at an unknown date. 129.
According
to that extract, '[t]he GB market for holidays abroad has grown massively
over the last 20 years. According to the British National Travel Survey,
Britons took nearly 30 million holidays abroad (4-plus nights) - more than
treble the number in 1978. Over the last decade the market has grown by an
average of 3.7% per annum. The extract also states, in relation to demand
volatility, that '[w]hile underlying market growth has been persistent,
annual growth rates have been far from steady. Annual growth rates of 10%
or more are quickly followed by sizeable contractions; that 'not only is
holiday demand more volatile than both gross domestic product and consumer
durable spending, it is not fully coincidentwith the economic cycle (for
example, the market grew by over 10% during the depth of the 1980/1
recession); and that '[t]he volatility of demand makes forecasting volumes
highly problematic. 130.
However,
it is apparent from a cursory examination of that document that the
Commission's reading of it was inaccurate. Thus, at paragraph 92 of the
Decision, it states that 'it also noted that the overall average
annual growth rate ... was quite low, whilst no statement to that effect
is made in the extract sent to the Court. Conversely, the Commission
ignored the emphasis placed by the author of the extract on the massive
increase in foreign holiday sales that has taken place over the last 20
years. It follows that the Commission construed that document without
having regard to its actual wording and overall purpose, even though it
decided to include it as a document crucial to its finding that the rate
of market growth was moderate in the 1990s and would continue to be so (Decision,
paragraph 93). 131.
Second,
it is apparent from these passages of the Decision (paragraphs 92 and 93)
that the Commission did not take account of the rate of demand growth
during the two years preceding the notification, 1997 and 1998, which,
however, proved to be important points of reference inasmuch as the
effects of the 1995 episode had by then been absorbed by the market. It is
clear from data in volume 4 of the 1998 British National Travel Survey (dated
February 1999), provided in Annex 9 to the applicant's notification of a
concentration, that the foreign holiday sector enjoyed strong growth
throughout the decade and, thus, also over recent years. It is apparent
from page 113 (and the table on page 112) that the number of departures
for foreign holidays rose from 21 million in 1989 to 29.25 million in 1998
(an increase of more than 39.2% over the last decade). After the crisis of
1995, as a result of which the number of foreign holidays fell from 26
million in 1995 to 23.25 million in 1996 (a fall of around 10.5%), the
number of foreign holidays rose from 23.25 million to 27.25 million in
1997 (an increase of more than 17.2%) and from 27.25 million to 29.25
million in 1998 (an increase of more than 7.3%). It is specifically stated
in relation to 1998 that what is concerned is real growth and not a
difference caused by the common practice of rounding up figures where the
changes from one year to another are small. The fact that those data also
relate to long-haul package holidays does not undermine their probative
value as regards the tendency to sustained growth, since that type of
holiday has accounted for only a fifth of all holidays in recent years (see
page 116 of the British National Travel Survey). 132.
The
Commission failed to take account of those data in its estimates of the
level of market growth; instead, it referred to the trend for the next two
years, stating at paragraph 92 of the Decision: 'Demand growth for the
next two years is expected to be close to zero, according to several
industry estimates, but with some recovery in prospect thereafter. When it
was questioned on this point at the hearing, the Commission replied that
the finding was based on an econometric study produced during the
administrative procedure in response to a request for information. It is
noteworthy that neither the nature of that econometric study, norits
authorship, nor the context in which it was produced were mentioned in the
Decision. Lastly, it should be added that the estimate of demand growth
close to zero is at variance with the following paragraph of the Decision
(paragraph 93), in which the Commission itself 'recognises that the market
for short-haul foreign package holidays is likely to continue to grow and
that '[i]t may also be that the market will grow somewhat faster than
overall GDP growth due to increases in vacation time and general wealth. 133.
It
is clear from the foregoing that the Commission's interpretation of the
data available to it concerning growth demand was inaccurate in its
disregard for the fact that the market had been marked by a clear tendency
to considerable growth over the last decade in general, despite the
volatile nature of demand from one year to another, and that the pace of
demand growth has increased during recent years in particular. In that
context of growth, and having failed to produce any more specific evidence
establishing that the tendency to grow would be reversed in future years,
the Commission was not entitled to conclude that market development was
characterised by low growth, which was, in this instance, a factor
conducive to the creation of a collective dominant position by the three
remaining large tour operators. (ii)
Findings on demand volatility 134.
The
applicant submits that demand volatility renders it more difficult to show
that a collective dominant position exists, since volatility adds 'noise
to the market making it more difficult to differentiate between changes in
demand caused by volatility in the market and capacity increases brought
about by departures from the common policy. The fact that it is so
difficult to distinguish between the two types of event clearly suggests
that any attempted collusion will be unstable. 135.
The
Commission recognises in the Decision that there is a degree of demand
volatility in the market (Decision, paragraphs 92 and 95). However, it
argues (Decision, paragraph 97) that in the present case that volatility
does not preclude the creation of a collective dominant position but
rather the reverse: '[it] makes the market more conducive to oligopolistic
dominance. The reason is that the volatility demand in combination with
the fact that it is easier to increase than to decrease capacity, means
that it is rational for the major operators to adopt a conservative
approach (wait and see approach) to capacity decisions. In particular the
volatility of demand makes it rational to limit planned capacity and then
add capacity later, if demand proves to be particularly strong. In this
way the suppliers protect themselves against downward volatility in demand.
136.
In
any event, at paragraphs 94 to 96 of the Decision, the Commission
challenges the arguments put forward by the applicant during the
administrative procedure concerning demand volatility and its causes,
which are linked to gross domestic product, changing consumer tastes and
changing costs (the impact of low-cost airlines). The Commission contends
(paragraph 95) that 'all tour operators areexposed to the business cycle
and have to consider the macroeconomic development in their forecast.
Therefore it is likely that all tour operators will have similar views as
to the market development. 137.
The
Commission recognises (Decision, paragraph 96 and footnotes 73 and 74)
that certain exogenous shocks, such as terrorist attacks on tourists in
Egypt or Turkey, may disrupt the planning of tour operators, but it none
the less refuses to take them into consideration as a factor likely to
make the market less conducive to collective dominance, since such events,
which are by nature exceptional, are not peculiar to the short-haul
package holiday market but may happen in any market. 138.
Lastly,
the Commission accepts that the applicant's remarks on the difficulty that
such volatility entails for the creation of collective dominance are in
accordance with economic theory but asserts that they are not relevant in
the present case. According to the Commission, since it is easier to add
capacity than to reduce it, operators will tend to be cautious in order
protect themselves against possible volatility. Moreover, it is easy to
differentiate between a decline in demand and an increase in capacity by
another operator, since the actions of the latter can be observed directly.
139.
The
Court observes in limine that, as the Commission recognises,
economic theory regards volatility of demand as something which renders
the creation of a collective dominant position more difficult. Conversely,
stable demand, thus displaying low volatility, is a relevant factor
indicative of the existence of a collective dominant position, in so far
as it makes 'deviations from the common policy (that is, cheating) more
easily detectable, by enabling them to be distinguished from capacity
adjustments intended to respond to expansion or contraction in a volatile
market. 140.
In
the present case, the Commission acknowledges that a certain degree of
demand volatility is a characteristic of the relevant market (Decision,
paragraphs 92, 95 and 97). However, several of the documents before the
Court indicate that there is a considerable degree of volatility in the
market. The extract from the study cited at paragraph 92 of the Decision
explains that '[n]ot only is holiday demand more volatile than both gross
domestic product and consumer durable spending, it is not fully coincident
with the economic cycle (for example, the market grew by over 10% during
the depth of the 1980/81 recession) and '[t]he volatility of demand makes
forecasting volumes highly problematic. Likewise, there is evidence of the
high volatility of the market in the figures taken from the 1998 British
National Travel Survey. After the 1995 crisis, as a result of which the
number of foreign holidays fell from 26 million in 1995 to 23.25 million
in 1996 (a fall of around 10.5%), the number of trips abroad rose from
23.25 million to 27.25 million in 1997 (an increase of more than 17.2%)
and from 27.25 to 29.25 million in 1998 (an increase of more than 7.3%). 141.
The
Commission contends, however, that that fact is not relevant in the
present case as operators tend to be cautious to protect themselves
against any volatility. 142.
However,
the Commission is not entitled to rely on the fact that tour operators, to
protect themselves against sudden downward volatility in demand, plan
capacity cautiously, preferring to increase it later if demand proves to
be particularly strong (Decision, paragraph 97), for the purpose of
denying the relevance in this instance of a factor which is significant as
evidence of oligopolistic dominance, such as the degree of market
stability and predictability. Although it is certainly the case that the
caution inherent in the way the market normally operates means that
account must be taken of the need to make the best possible estimates of
the way in which demand will develop, the planning process remains
difficult, because each operator must anticipate (some 18 months in
advance because of the market's distinctive features) how demand will
evolve - demand being distinguished by its considerable volatility and
thus entailing a degree of speculation. Furthermore, the Commission did
not regard either the operators' caution or demand volatility to be
restrictive of competition in the pre-merger market. Caution cannot
therefore be interpreted, as such, as evidence of a collective dominant
position rather than as a characteristic of a competitive market of the
kind that existed at the time of the notification. 143.
Finally,
the arguments advanced by the Commission (Decision, paragraphs 94 to 96)
concerning the applicant's points cannot be accepted. 144.
As
regards volatility linked to the business cycle, the Commission cannot
just conclude - as it does as at paragraph 95 of the Decision - that 'it
is likely that all tour operators will have similar views as to the market
development without producing any evidence in support of that statement,
given that capacity is set initially some 18 months before the start of
the season (see paragraph 63 of the Decision). At that point, it is not
possible to make a precise forecast of how the main macroeconomic
variables, such as growth in gross domestic product, exchange rates or
consumer confidence, will develop. 145.
The
Commission's approach to volatility related to exogenous shocks is that
tour operators take data relating to market volatility into account when
setting capacity (Decision, paragraph 96 and footnotes 73 and 74). That
approach amounts to acting in the way that it criticises, namely treating
exogenous shocks as endogenous variables by taking them into account in
forecasting demand. However, tour operators apparently do not act in that
way. That can be seen from the reversals suffered by Thomson in May 1999
when it made heavy losses on its package holiday sales in the Eastern
Mediterranean as a result of the war in Kosovo and terrorist threats in
Turkey, whilst Airtours, for its part, was not affected, a point made by
the applicant, which is not disputed by the Commission. 146.
Finally,
the Court must reject the Commission's argument that there is no
difficulty in differentiating between a decline in demand and an increase
in capacity by another operator because the latter can be observed
directly. The Court rejectsthat argument on the ground that an integrated
tour operator will, for the reasons set out below in the examination of
market transparency, find it difficult to interpret with any accuracy
capacity decisions taken by the other tour operators. 147.
It
follows from the foregoing that the Commission has failed to establish
that economic theory is inapplicable in the present case, and that it was
wrong in concluding that volatility of demand was conducive to the
creation of a dominant oligopoly by the three remaining major tour
operators. (iii)
The assessment of the degree of market transparency 148.
At
paragraph 102 of the Decision the Commission states with regard to
transparency: 'a distinction has to be made between the planning period
and selling season, where the catalogues have been launched, '[b]ut
transparency of the market is high for the four major integrated operators
in both periods. 149.
At
paragraphs 103, 104 and 105, the Commission states that '[i]n the planning
period the crucial capacity decisions for the coming season are made and
that '... the capacity decisions of the four major integrated operators
will be transparent for each of these suppliers, for the following reasons:
-
none of the major tour operators puts out a completely new programme from
one season to the next. Rather, the planning of a future season is based
on sales in the previous season, increased or decreased by a forecast of
demand for the coming season. Changes compared to the previous season are
therefore incremental and the development of the programme of a tour
operator is evolutionary. Consequently, by virtue of past experience, tour
operators know already before the planning of a season to a large extent
what the offerings of the other four integrated suppliers will be for the
new season (Decision, paragraph 104); -
each of the four major integrated tour operators has some knowledge of the
changes planned by the other three during that period, given that they use
the same hotels and avail themselves of the other tour operators' airline
companies to obtain or supply capacity or agree swaps of seats or slots (Decision,
paragraph 105); -
substantial capacity additions cannot be kept secret, for example the
purchase or long-term lease of additional aircraft is necessarily made
public (Decision, paragraph 105). 150.
At
paragraph 105 of the Decision, the Commission finds that 'for all the
above reasons, each of the four major integrated operators would know if,
for example, one of the other integrated operators was planning to
increase the number of passengers carried and thus the number of holidays
it could offer. Each of the fourintegrated operators is thus well able to
monitor the total amount of holidays offered by each of the others. 151.
At
paragraph 113 of the Decision, the Commission concludes from this that,
given the capacity rigidities, the high degree of transparency 'will make
it even more likely [after the merger] that the major suppliers will
under-supply the market, leaving more unsatisfied demand than would be
likely under a less transparent system (in which there would be more -
temporary - oversupply, requiring lower prices in order to clear the
products) so allowing them to raise average prices above the competitive
level. 152.
The
applicant submits that the relevant market is not transparent during the
planning period. It argues, in essence, that overall capacity decisions
consist of a wide range of individual planning decisions concerning each
resort and each flight and that changes made to capacity planned by
reference to past capacity are significant and very difficult to identify.
153.
Nor,
in the applicant's submission, is the relevant market transparent during
the selling period. It maintains in essence that capacity transparency is
not possible without price transparency and that the Commission failed to
appreciate the nature of the information available on the computerised
holiday reservation systems. 154.
The
Commission accepts that capacity decisions taken in the planning period
are not wholly transparent. However, it recalls the various ways in which
information may be obtained, referred to at paragraphs 104 and 105 of the
Decision, so far as the four major tour operators are concerned. 155.
The
Commission contends that during the selling period price transparency is
of no importance, since the key determinant of competition in the relevant
market is not price but capacity. However, during that period transparency
in relation to overall capacity is virtually complete, since each operator
is able to calculate the capacity of its competitors on the basis of what
is offered in their catalogues and also on the basis of their past
programmes. 156.
It
is appropriate to observe in limine that the fact that a market is
sufficiently transparent to enable each member of the oligopoly to be
aware of the conduct of the others is conducive to the creation of a
collective dominant position. 157.
First,
the Court observes (i) that the Commission's argument is based on the
contention that in this instance the tacit coordination instancing the
collective dominant position is focused not on prices but on the capacity
put onto the market and (ii) that, as the Commission states at paragraph
103 of the Decision, the crucial capacity decisions for the coming season
are taken during the planning period. At paragraph 63 of the Decision, the
Commission itself recognises that 'once the booking season has begun (for
example, from about the summer of 1999 for departures in summer 2000), the
scope for changes is heavily constrained, due tothe inflexibility of many
commitments with suppliers and the problems associated with changing
dates, flights, hotels, etc. for customers who have already booked. It
states (paragraph 62 of the Decision) that Airtours accepts that there is
scope for an increase of capacity of up to 10% during that period. 158.
The
approach thus taken by the Commission is borne out by its assertion (paragraph
108 of the Decision) in response to the applicant's argument that, since
each of the large integrated tour operators has to deal with several
thousand different prices because of the various programmes offered, tacit
agreement on all those prices would be impossible: the Commission asserts
that it does not consider an agreement on prices to be necessary in this
instance in order to reach a collective dominant position. It adds: 'during
the selling season, there is little incentive for any of the integrated
operators to cut prices in order to gain market share, which is determined
by the amount of capacity offered. Therefore, operators have no need to
tacitly collude on thousands of prices. Indeed, this point was confirmed
by the economic experts of Airtours: pricing behaviour of firms after
capacity has been determined is not directly relevant for joint dominance,
i.e. the collective exercise of market power. 159.
It
follows that in this instance it is appropriate to ascertain, first,
whether each of the large tour operators will be able, when making its
crucial capacity decisions during the planning period, to find out with
any degree of certainty what those of its main competitors are. Only if
there is sufficient transparency will an operator be able to estimate the
total capacity decided upon by the other members of the alleged oligopoly
and then be in a position to be sure that by planning its capacity in a
given way it is adopting the same policy as them and hence will have an
incentive to do so. The degree of transparency is also important for the
purposes of permitting each member of the oligopoly subsequently to detect
alterations made by the others as regards capacity, to distinguish
deviations from the common policy from mere adjustments consequent upon
volatility of demand and, finally, to ascertain whether it is necessary to
react to any such deviations by punishing them. 160.
It
is apparent from the applicant's responses (part B.1 and Annexes 5 to 8)
to a measure of organisation of procedure taken by the Court that capacity
setting for each season is not a mechanical exercise involving no more
than renewing capacity from one year to the next, which would be easy for
the other tour operators to predict, but instead involves each large tour
operator in a very complex task, which takes historical data into account
only to a limited extent and which is based principally on a subjective
assessment by each operator by reference to a whole range of variables and
factors. 161.
Specifically,
an examination of the data shows that the planning cycle does not simply
run from year to year. By way of example, for the summer season 1999 ('Year
N), running from May 1999 to October 1999, capacity planning starts some
18 months before, in October or November 1997 ('Year N-2). During the
mainplanning period, culminating with first brochure issue about April or
May 1998 ('Year N-1), tour operators have available to them data relating
to results for the summer season 1997 (Year N-2) and some data relating to
the forthcoming summer 1998 season (Year N-1). Within that time frame,
overall capacity planning operates by reference to general and specific
considerations which are refined over time. General considerations
('top-down considerations) take account of the key factors influencing
holiday demand, such as economic activity, exchange rates and consumer
confidence. Specific considerations ('bottom-up considerations) are based
on a detailed analysis of existing product offerings, starting with, for
example, consideration of gross and net margins by flight and
accommodation unit for each resort. In that connection, each flight (by
departure and destination airport and flight slot) is analysed, as are the
available destinations and products and consumer demand for particular
types of holiday, so that a comprehensive range of short-haul foreign
package holidays can be prepared. That range is also supplemented by new
product offerings developed by the applicant. 162.
The
applicant has stated that, given that the products concerned are
perishable, it tends during the planning stage to attach greater
importance to its analysis of macro-economic factors or specific
considerations concerning costs and margins than to its examination of
levels of historic demand, since those factors are more likely than
previous performance (sales realised and projected for Years N-2 and N-1)
to affect disposable income and future demand. Previous performance is,
however, also taken into account in planning for the summer season of Year
N, inasmuch as it is an indicator of the strengths and weaknesses of what
is currently on offer and of where what is offered can be improved. 163.
In
statistical terms, the table submitted by the applicant (Annex 7 to its
response) comparing budgeted and actual sales of its main United Kingdom
subsidiary, Airtours Holidays Ltd, for the period 1996-2000 shows the
differences between projected capacity for the year being planned (Year
N), budgeted capacity for Year N-1 (whose selling season has already begun)
and capacity sold during Year N-2 (as that season is already over). The
table shows that capacity budgeted by Airtours Holidays Ltd for Year N
varies significantly in comparison with either budgeted capacity for Year
N-1 (from + 7.5% to + 11.2%, depending on the Year N under consideration)
or with capacity sold during Year N-2 (from + 7.5% to + 18.6% depending on
the Year N under consideration). By way of comparison, the variations
represent a capacity increase which is two or three times greater than the
overall average annual demand growth in the market (between 3 and 4%)
identified by the Commission at paragraph 92 of the Decision. 164.
It
is apparent from the foregoing that the crux of the planning process is
not simply the renewal of capacity budgeted or sold in the past but is the
attempt to predict how demand will develop on both a macroeconomic and
microeconomic level. 165.
In
addition to the factors set out above, it is necessary to mention the
practical difficulties, to which the applicant has drawn attention, which
make it very difficultto find out what capacity is projected by each of
the other large tour operators during the planning period, inasmuch as
their decisions on total capacity for a given season consolidate a whole
range of individual decisions, taken on a resort-by-resort and
flight-by-flight basis and varying from one season to the next. 166.
The
applicant maintains, without challenge from the Commission, that it serves
around 50 destinations from 21 United Kingdom airports, which represents
more than 1 000 permutations, and that it varies those permutations
appreciably from one season to the next. Thus, for the summer of 1999,
Airtours increased its capacity to Fuerteventura by 19%, although it
reduced its departures to that destination from Manchester by 13%, while
departures from Cardiff were increased by 42%. Similarly, Airtours'
capacity to Minorca was reduced by 9%, with departures to that destination
from Manchester being reduced by 33% and departures from Scottish airports
being increased by 25%. By way of example, within the '3-star/self-catering
category, which according to the Decision (paragraph 90) accounts for the
large majority of short-haul package holidays, there are differences as to
the airport and the departure date, the length of the stay and the resort.
It should be observed in this respect that the argument that little
differentiation is made for the air component (Decision, paragraph 90)
does not alter the fact that decisions relating to airline capacity are
taken airport by airport and flight by flight. 167.
So,
contrary to the Commission's contention, capacity decisions do not involve
merely increasing or reducing overall capacity, without taking account of
the differences between the various categories of package holidays, which
are differentiated by destination, departure date, departure airport,
aircraft model, type and quality of accommodation, length of stay and,
finally, price. To be able to develop their package holidays, tour
operators must take into account a series of variables, such as the
availability of accommodation at the various destinations and the
availability of airline seats on various dates and at different times of
the year. As the applicant has argued, capacity decisions are necessarily
taken on a 'micro level. 168.
The
Commission's global approach (paragraphs 88 to 91 of the Decision), which
regards the total number of package holidays offered by each operator as
what is important, thus encounters some significant difficulties on a
practical level, since, in order to ascertain total capacity - to the
extent that it stems from a miscellaneous set of individual decisions - it
is necessary to be able to identify those decisions. 169.
It
follows that, on the face of it, the complexity of the capacity planning
procedure, the development of the product and its marketing is a major
obstacle to any attempt at tacit coordination. In a market in which demand
is on the whole increasing, but is volatile from one year to the next, an
integrated tour operator will have difficulty in interpreting accurately
capacity decisions taken by the other operators concerning holidays to be
taken a year and a half later. 170.
However,
despite the fact that each tour operator takes capacity decisions on the
basis of a miscellaneous set of factors, it is nevertheless necessary to
consider whether, in practice, at the time when total capacity is set,
each member of the oligopoly can know 'the overall level of capacity (number
of holidays) offered by the individual integrated tour operators. 171.
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