SUMMARY OF NATIONAL EXPRESS GROUP AND SALTIRE HOLDINGS
LTD: A REPORT ON THE MERGER SITUATION
On 15 October 1993 the MMC were asked (see Appendix
1.1) to investigate and report on the acquisition by National Express
Group PLC (NEG) of Saltire Holdings Ltd (Saltire), which had taken effect
on 5 May 1993.
NEG, through its subsidiary National Express Ltd (NEL),
is the dominant operator of scheduled coach services in Great Britain.
It operates a network of services throughout England and Wales plus services
from London to Glasgow/Edinburgh and beyond. Saltire's subsidiary, Scottish
Citylink Coaches Ltd (SCC), operates a network of services throughout
Scotland and, until the merger, also operated services between Glasgow/Edinburgh
and London. NEL and SCC were the only two network operators of scheduled
coach services; there were a large number of other operators, some being
parts of substantial organizations, but none with more than a handful
of point-to-point routes. We estimate that following the merger NEG,
through its two subsidiaries, NEL and SCC, now accounts for about four-fifths
of scheduled coach services in Great Britain, and conclude that a merger
situation qualifying for investigation has been created.
We examined first the effects of the merger on services
between Glasgow/Edinburgh and London and between Glasgow/Edinburgh and
Aberdeen, the only two groups of routes where the merger has removed
direct competition between the two companies. We then looked at the more
general effects of merging the two networks.
On the Glasgow/Edinburgh to London routes NEL and SCC
were the only operators before the merger. Both companies ran similar
schedules and competition was mainly on convenience and comfort rather
than price. Both companies' services were running with loadings of about
one-third and were making losses. Since the merger SCC services have
been amalgamated with NEL's to remove duplication and one extra service
has been introduced. Loadings have improved and losses been reduced,
thus improving the prospects for maintaining the service. Two new operators
have started services since the merger on the London to Glasgow route
at significantly lower fares but one has since withdrawn. It is too early
to say whether the competition will establish itself on these routes
but we do not consider that competition from other coach operators can
in itself be relied on to constrain NEL's prices.
The main constraint, however, on NEL's ability to raise
fares on these routes is competition from BR's InterCity East and West
Coast operations and in particular their Apex and SuperApex fares. These
heavily discounted tickets, which have to be booked one and two weeks
in advance, are available in varying numbers on specified trains according
to day of week and season but in large numbers overall; average daily
numbers made available exceed the total scheduled coach capacity on the
routes. We are satisfied that they provide effective competition, particularly
for older passengers and students who form a large part of NEL's passengers.
While impending privatization introduces some uncertainties we think
the commercial pressures on rail franchisees will lead to a broadly similar
approach by them to pricing structures in the period after privatization.
Although there is a possibility that the privatized operators might increase
their lowest fares and thereby lessen the pressure on NEL prices, we
do not think that any expectation of change can be sufficiently firm
to justify basing any conclusions on it.
On the Glasgow/Edinburgh to Aberdeen route the merger
has resulted in some adjustment of services but with no loss of frequencies;
prices have been adjusted to the level of the cheaper of the two services.
Fife Scottish Omnibuses Ltd, a Stagecoach subsidiary, operates on part
of the route. We looked at the effects on this route as part of the SCC
intra-Scotland network. There are a number of smaller operators but none
appears likely to be an effective constraint on NEG. ScotRail is not
present on all routes and makes less use of price competition than InterCity.
We have some concerns about the future level of prices on all these routes
within Scotland but these arise from SCC's pre-existing dominant position
and not from the effects of the merger.
We received a number of complaints about SCC's response
to competitors, including allegations of aggressive behaviour on prices
and scheduling, and about its privileged arrangements for ticket sales
and access to stands at bus stations. While these caused us some concern
we concluded that they were not attributable to the merger.
Effects of the merger on employment have been modest
and NEG told us that it intends to maintain SCC to run its coach services
within Scotland. We do not see any adverse effects on the use of outside
contractors arising from the merger. We noted the views of the National
Federation of Bus Users that the merger would benefit passengers by maintaining
a viable alternative to rail travel.
We conclude that the creation of the merger situation
does not operate nor may it be expected to operate against the public
interest.
We have noted, however, a number of concerns about the
effects which NEG's position as a single large network operator may have
on its policies on prices and services, together with complaints from
competitors about the privileged position that SCC already possessed
in some respects and about earlier reactions to competition by the two
companies. These concerns, however, arise primarily from the dominant
positions already enjoyed by NEL and SCC and not from the merger situation
itself. We therefore urge the Director General of Fair Trading to keep
the scheduled coach services market under review; if the pricing or other
behaviour of either NEL or SCC gives rise to concern, further action
under the competition legislation could be considered.
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