AIRTOURS’ expansion plans have been put on hold after the European Commission’s shock decision on Thursday night to open a full investigation into the operator’s takeover of First Choice.
The EC said it was investigating the deal because it could lead to the major players having a dominant position and being able to push up prices and restrict competition.
The EC was also concerned that the supply of airline capacity would be limited. First Choice’s Air 2000 is a significant supplier to small operators but much of its flying would be brought in house by Airtours.
Retail distribution for small operators would also be limited, said the EC.
Airtours, which tabled an all-paper bid originally valued at £852m, has confirmed it has the backing of more than 50% of First Choice shareholders and the deal will stay on the table for 21 days.
The EC has up to four months to decide whether to block the deal and if it does not make a decision within 21 days, Airtours’ bid will lapse. Airtours will then reconsider whether to submit another bid for the company.
Airtours group finance director Tim Byrne wanted time to digest the decision but said: “We were highly confident and we are naturally disappointed. It is a highly competitive market and we are making £25 a passenger in a good year.”
The investigation is a victory for the Association of Independent Tour Operators, whose chairman Paul Chandler said: “This is a merger too far and at last the EC has taken notice. We know the deal could still go through but at least it gives us a chance to present a more detailed case to Brussels. This is a major step in the right direction.”
The investigation will leave First Choice in limbo and puts chairman Ian Clubb in a difficult position. Clubb was an opponent of the deal, despite the wishes of his shareholders.
Also, before Airtours made a bid, Clubb said:”We would have been hung out to dry while any deal was investigated which would have caused untold damage to the group.”
First Choice chief executive Peter Long said he was not surprised by the decision and said the EC had vindicated First Choice’s belief that there were regulatory issues to be considered.
Long said First Choice would now hold a board meeting to discuss the matter and the original planned merger with Kuoni. He urged his shareholders to do nothing at this stage.
Meanwhile, Thomson will continue with its expansion plans during the investigation and will only take capacity out of the market if it is certain that Airtours will not take over First Choice.
Whatever happens, Thomson will forge ahead with its plans to launch a budget brand because it feels it is under-represented in that market.