Thomson’s announcement that it intends to merge with First Choice could make consolidation among the big four less rather than more likely if the European Commission opposes it on competition grounds.
Just six weeks ago Thomas Cook announced a merger with MyTravel to create what would have been the largest travel company in the UK with more than 1,000 shops and a tour operating capacity of more than six million passengers.
First Choice, which had been in talks with both firms about the purchase of its mainstream business, suddenly looked sidelined. But it has acted quickly by turning to Thomson to try and out-do the Thomas Cook/MyTravel deal by creating the largest travel firm in Europe in a deal worth up to £4.5 billion.
However, both deals could be blocked by the EC if it rules too much consolidation too quickly could lead to price increases and a deterioration of consumer choice.
The firms will argue they no longer command the same proportion of the overall travel market they did a decade ago when Europe controversially blocked a merger of MyTravel and First Choice.
Changing market
The rise of the no-frills carriers and the surge in dynamic packaging could be both the reason why consolidation among traditional operators has become so urgent and the justification for it.
“The market has changed,” said First Choice chief executive Peter Long, who will take control of the enlarged TUI Travel, at a press conference this week. “There are more modular trips being booked than package holidays.”
Travel trade union the Transport Salaried Staffs’ Association has called on the UK Competition Commission to investigate the deals, expecting mass shop closures and job losses.
However, the Competition Commission does not have the power to investigate the ramifications both deals will have on the UK travel market. Its remit means it can only look at the impact of the individual deals in isolation.
However, the EC does have the remit to review the impact both deals would have on the overall European travel market and in the UK.
If concerned by the power the big two would wield in the UK, Brussels could ask the Office of Fair Trading for its views on the impact of four becoming two so quickly.
Ultimately the decision rests with the EC.
This could see both deals blocked if the commission rules the big two have too much control over stock and distribution.
“We will be looking at the mergers to make sure they do not have a negative impact on price or consumer choice,” EC spokesman on competition Jonathan Todd said.
“We will deal with each one separately but will look at the overall market as it stands, how it’s likely to develop and how many major players there are in the market.”
Looking ahead
The EC could ratify the merger by the end of April which, assuming First Choice shareholders also rubberstamp the deal, could see the enlarged TUI Travel trading by September, a similar timeline to that expected by Thomas Cook/MyTravel.
One industry analyst said he believed both deals will go without a hitch.
“All that will happen is the Thomas Cook/MyTravel merger will be delayed by one month so Brussels can look at both together,” he said.
However, should the EC want to instigate a ‘Phase Two’ investigation, which would probably involve input from the UK because it is where both groups hold the most power, it could take up to four months to conclude.
Travel industry accountant White Hart Associates partner Chris Photi fears both deals could be blocked on competition grounds and that it could mean rising prices for the consumer.
The speed of the announcement of the Thomson/First Choice deal has led some industry insiders to speculate that Long has engineered the deal knowing it could scupper the Thomas Cook/MyTravel merger. Long denies the claims.
“He’s not stupid,” said former MyTravel boss Steve Endacott. “Long’s in a win-win situation. He either ends up running TUI or gets both deals scrapped and goes back to the status quo.”
However, another analyst dismissed the conspiracy theory claiming “nothing could be worse for First Choice’s share price than for the deal to fall through as it would show the company would have nowhere to go.”
He added: “Long really wants to be in charge of the biggest company in Europe, that’s what’s behind the deal.”