The OFT has accepted undertakings in lieu of referring the anticipated acquisition by Flybe Group Limited of the BA Connect business of BA Airways plc to the Competition Commission under the Enterprise Act 2002.
The undertakings discussed included vacation of slots at Southampton, a commitment to deploy a 118 seater aircraft in the morning to ensure continued high capacity, capping fares on the Southampton to Manchester routes and vacating a parking stand at Southampton.
Flybe is a European low-cost airline which specialises in serving regional destinations. It operates on 140 routes from 45 airports in nine countries. Flybe intends to acquire BA Connect, British Airways' regional, low-cost division. Flybe intends to acquire the BA Connect assets in return for a 15% stake in Flybe.
On seven of the eleven overlapping routes, the merger will reduce the number of direct competitors from three to two. On the other four routes, the number of direct competitors will be reduced from two to one.
The OFT assessed barriers to entry at each of the relevant airports:
- At Manchester, demand exceeds capacity for sufficient periods. However, the OFT found that there was evidence that there had been new entry at Manchester and that the airport operator has an incentive to encourage new entry. The OFT was satisfied that entry will generally be accommodated to ensure a viable service for new entrants at Manchester.
- Birmingham, Edinburgh, Hanover and Glasgow each have runway capacity available through the day, but may be close to limit at peak times. Evidence indicated that new entrants are generally able to obtain slots at or close to the required times. The OFT concluded that there were no significant structural barriers to entry at these airports. In addition, a number of other airlines already have a significant presence at these airports and this could facilitate potential new entry.
- There are no significant runway constraints at Southampton, but there are issues in relation to parking stand availability. Parking stands allow airlines to park aircraft overnight. All stands are currently being used. Only occupants of a stand are able to operate early morning flights from Southampton. Such flights are considered to be essential for business passengers. The OFT found that there were no concerns relating to Edinburgh and Glasgow flights as BA Connect's flights operate from an Edinburgh base.
- The OFT therefore found that for all the routes except Southampton to Manchester, the possibility for new entry or expansion would be sufficient and timely to counter any reduction of direct competitive constraint.