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June 19, 2002

Cruise merger clears a hurdle
U.K. Competition Minister Melanie Johnson today published the Competition Commission's report into the proposed merger of P&O Princess Cruises Plc (POPC) and Royal Caribbean Cruises Ltd (RCCL).

The commission has concluded that the proposed merger could not be expected to operate against the public interest for the following reasons:

  • The existence of a wider holiday market, and the availability of cruises of types other than those operated by POPC and RCCL, constrained those companies' actions and commercial freedom, whether or not they were regarded as being in the same market.

  • The geographic market for the inquiry was the U.K., i.e. cruises taken by passengers drawn from the U.K., irrespective of whether they sailed on ships focused mainly on U.K., U.S. or European customers, or of whether they embarked in the U.K. or flew to an overseas port.

  • A number of possible product markets were examined, ranging from a narrow to a broad definition. Although the Commission found that the proposed merger might give rise to potential concerns in some of these markets, it also identified other factors that could offset or mitigate their effects.

The Commission's overall conclusion was that the market for U.K. cruise customers was characterized by growth, variety and new entry, and that this could be expected to continue.

The number of UK passengers carried more than tripled between 1990 and 2000 and around a third of the berths provided in 2000 were being offered by operators that did not enter the business until 1995 or later. Furthermore, between a third and a quarter of U.K. passengers chose ships that were focused mainly on North American or mainland European customers, rather than lines aimed at the domestic market.

Given this diversity and choice, and the widespread view among industry commentators that cruising capacity will continue to grow, it did not conclude that the proposed merger was likely to have a significant impact on competition.

Carnival comment
Eyeing the decision with some interest is Carnival Corporation, which has made a rival offer for Princess.

Carnival commented that it noted that the U.K. decision states that "The existence of a wider holiday market, and the availability of cruises of types other than those operated by POPC and RCCL, constrained those companies' actions and commercial freedom, whether or not they were regarded as being in the same market."

Carnival says it has maintained throughout the process that as the whole European cruise market represents less than one per cent. of the European leisure travel market and less than 4.0 per cent. and 1.2 per cent. of the U.K. and German leisure travel markets respectively, neither of these deals should raise competitive concerns in Europe.

The Royal Caribbean/P&O Princess combination has now been cleared in both the UK and Germany. These are the only two countries examined in the European Commission's review and both the Carnival and Royal Caribbean combinations are similarly positioned in these countries. Carnival therefore believes that there is no reason why its combination with P&O Princess should not gain European regulatory approval, consistent with the EU's policy to support national competition authorities and to ensure the equal application of competition law across the EEA.

Both transactions also remain under review by the Federal Trade Commission in the US, with decisions expected on a similar timetable to the European Commission's review.

"We have said all along that both of these deals should be cleared in all jurisdictions," said Micky Arison, CEO of Carnival Corporation. "From a regulatory perspective they are similarly placed and the UK decision today confirms that our offer for P&O Princess should be cleared by the European Commission. When all regulatory approvals have been obtained, I look forward to taking this deal back to the ultimate decision makers, the P&O Princess shareholders."

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