Airtours is a British company which sells package holidays, inclusive of travel and accommodation, to short-haul destinations (Spain, Greece, Turkey ...) in the United Kingdom. Its main competitors are Thomson, Thomas Cook and First Choice.

On 29 April 1999, Airtours launched a takeover bid for First Choice. In accordance with the applicable Community legislation, Airtours notified the Commission of the proposed concentration.

By decision of 22 September 1999, the Commission declared that the operation was incompatible with the common market on the ground that it would give Airtours/First Choice and the other two large tour operators in the United Kingdom short-haul foreign package holiday market (Thomson and Thomas Cook) a collective dominant position, since there would be an incentive for those undertakings to restrict market capacity, leading to higher prices and increased profits.

The Commission maintained that Airtours' acquisition of First Choice would result in increased concentration, as the three abovementioned tour operators, which currently hold 68% of the market, would have a total market share of 79%.

The three operators would then be able to coordinate their conduct tacitly (without needing to enter into an agreement or a cartel) and to impose, by adopting a common policy, higher prices than those dictated by effective competition. Small independent tour operators would be further marginalised as a result of the new market structure.

Challenging the Commission's analysis, Airtours brought an action before the Court of First Instance for annulment of the Commission decision.

Airtours submitted that the Commission has made a number of incorrect findings and did not adequately show how the concentration would create a collective dominant position.

The Court recalls that if a concentration is to be prohibited it must have the direct and immediate effect of creating or strengthening a collective dominant position significantly and lastingly impeding effective competition in the market.

In the Court's view, the Commission has not proved that the concentration would have created a collective dominant position capable of restricting competition in the United Kingdom short- haul package holiday market.

The Court states that three conditions must be met if there is to be a finding of collective dominance.

First, given the characteristics of the relevant market, each member of the oligopoly must know how the other members are behaving in order to be able to adopt the same policy.

Second, members of the oligopoly must be deterred over time from departing from the policy thus adopted.

Third, that policy must be able to withstand challenge by other competitors ("small tour operators"), potential competitors (tour operators with a presence on other markets) or customers.

The Court finds that the Commission has not established, as it should have done, that if the transaction proceeded, the three leading tour operators would have an incentive to cease competing with each other. The three conditions for a finding of collective dominance are not met. First, the Commission was wrong to conclude that the merger would allow the large tour operators to interpret each other's business strategies more easily and to adopt those strategies themselves.

Second, the Commission has failed to identify or demonstrate clearly the retaliatory measures which could be directed against a member of the oligopoly if it departed from the common policy.

Third, the Court notes that the Commission erred in its assessment of the reaction of small tour operators, potential competitors and United Kingdom consumers. It underestimated their ability to compensate for the establishment of a collective dominant position. Competitors can increase supply in order to take advantage of the opportunities inevitably afforded by any attempted restriction of capacity. Furthermore, in such a situation, tour operators active in other geographical markets or in the United Kingdom long-haul package holiday market would have an incentive to enter the relevant market quickly.

The Commission submits that consumers do not have any significant buyer power. In the Court's view, it is above all necessary to ascertain whether consumers can react to the price rise which would result should the large tour operators restrict market capacity. Such a reaction seems possible, inasmuch as consumers compare prices and can turn to smaller operators or other destinations if prices of short-haul package holidays are set at an anti- competitive level.

On the basis of that analysis the Court concludes that the Commission's decision is vitiated by errors relating to factors fundamental to any determination of the question of the creation of a collective dominant position.

The Court finds that the Commission prohibited the transaction without proving that it would actually have an adverse effect on competition and it annuls the decision.

Reminder: an appeal, limited to points of law, may be brought before the Court of Justice of the European Communities against the decision of the Court of First Instance within two months of its notification.

Unofficial document for media use which is not binding on the Court of First Instance Available in English, French, German and Spanish For the full text of the judgment please consult our Internet page www.curia.eu.int  at approximately 3 pm today For further information please contact Cristina Sanz: Tel: (00 352) 4303 3367; Fax: (00 352) 4303 2668 Pictures of the hearing are available on "Europe by Satellite" European Commission, Press and Information Service, L-2920 Luxembourg Tel: (00 352) 4301 35177; Fax: (00 352) 4301 35249, or B-1049 Brussels, Tel: (00 32) 2 2964106, Fax: (00 32) 2 2965956, or (00 32) 2 301280