Joint Venture Between UK in-flight Catering Firms Under Probe

Jack Humphrey, Regulatory journalist
October 11, 2011 /

The anticipated joint venture between Alpha Flight Group Limited and LSG Lufthansa Service Holding AG has been referred to the Competition Commission for further investigation as the Office of Fair Trading sees highly combined shares of both companies in UK airports.

The OFT has a duty to make a reference to the Competition Commission if it deems the arrangements to be in progress or in contemplation which will result in the creation of a relevant merger situation if carried out.

The creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.

Alpha and LSG are major UK suppliers of in-flight catering to the airline industry, providing both traditional hot meals and light snacks for passenger flights in and out of the UK.

The OFT argued that there is a significant overlap in their activities in the UK, and the merger will lead to high combined market shares at 10 UK airports (including London Heathrow), creating a risk of increased prices for customers.

The 10 UK airports where the merger creates high market shares are Birmingham, Cardiff, East Midlands, Glasgow, London Gatwick, London Heathrow, Luton, Manchester, Newcastle, and Stansted.

The merger would also lead to a reduction in the number of major national UK suppliers from three to two, and to the creation of a monopoly in the provision of in-flight catering for long-haul operators flying from Manchester airport.

The OFT’s investigation found that there is some evidence of competitive constraint from smaller players and of new entry in the supply of short-haul customers, where there has been a move away from traditional full meals and towards the provision or sale of snacks and more limited catering.

However, it was not clear that existing competitive constraints or new entry would be sufficient to replace the loss in competition which would be likely to arise from the merger, in particular in relation to supply to long-haul customers, where a traditional full service meal is provided. This view is consistent with the third party concerns received by the OFT.

Amelia Fletcher, OFT Chief Economist and Decision Maker in this case said: “This merger would bring together two of the three national competitors for traditional full service in-flight catering, and create a very strong market position at a number of UK airports.

“Several airline customers are concerned about the impact that the transaction could have on their options for a supplier. This reduction in options could also lead to higher prices for passengers.

“We therefore believe that this is an appropriate case to refer to the Competition Commission for a fuller investigation.”

Under the Enterprise Act 2002, a relevant merger situation is created if two or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million; or a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.

The Competition Commission is expected to report by March 25, 2012.

The Competition Commission may extend the 24-week period within which it is required to publish its report by no more than eight weeks if it considers that there are special reasons why the report cannot be published within that period.

 

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