Proposed acquisition by easyJet Plc of NewGo 1 Limited

No. ME/1282/02

A report under section 125(4) Fair Trading Act 1973 on the advice given on 10 July 2002 to the Secretary of State for Trade and Industry under section 76 of the Act

THE PARTIES

easyJet plc (easyJet) operates low fare scheduled air transport services on 40 routes within Europe. It also has a 49% holding in easyJet Switzerland SA. easyJet was floated on the London Stock Exchange in November 2000. In the year ended 30 September 2001, easyJet reported pre-tax profits of £40m, on turnover of £357m and gross assets of £508m.

NewGo 1 Limited is the ultimate holding company of Go Fly Limited (Go). Go operates low fare scheduled air transport services on 42 routes within and between nine European countries. British Airways sold Go to a management buy out, backed by 3i, in March 2001. In the year ended 31 March 2001, Go reported pre-tax profits of £4.2m, on turnover of £160m and gross assets of £78m.

JURISDICTION

The merger qualifies under both the assets and share of supply tests of the Fair Trading Act 1973. The ECMR does not apply.

ASSESSMENT AND RECOMMENDATION

The parties overlap in the supply of low-cost flights on various domestic UK routes and certain routes between London and continental Europe. The merger will create a substantial market share for the merged entity on some overlapping routes (e.g. Edinburgh/Belfast 90 percent [31percent increment]). All overlapping routes will remain contestable, with at least one substantial competitor remaining active on each.

The parties have been close competitors. Together with other low cost carriers they have, through innovative strategies, brought substantial new competition to established carriers and their low price offerings have substantially expanded demand.

Analysis of the proposed merger must focus on the competitive constraints on the merged entity. These are likely to be sufficiently strong that the merger will not substantially lessen competition. First, for leisure travellers, who are the bulk of the parties' customers, there will continue to be a wide range of competitive choice available. This includes choice among destinations and among rival carriers. Price sensitive leisure travellers might also decide not to travel by air at all in the event of a price increase.

Second, for business passengers, who have not been the primary customers of the low cost carriers, the merger will not substantially reduce choice and, indeed, might enhance competition to established airlines, especially on routes where frequency increases.

Third, entry barriers are not high, as the entry and growth of the low cost carriers demonstrates.

Regulatory bodies and other third parties raised no significant competition concerns regarding the merger.

On these grounds we recommend that the proposed merger is not referred to the Competition Commission.

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