Stena AB and DFDS A/S merger inquiry A report on the completed acquisition by Stena AB from DFDS A/S of certain vessels and assets operated on the Irish Sea 29 June 2011 Competition Commission 2011 Website: www.competition-commission.org.uk Members of the Competition Commission who conducted this inquiry Dr Peter Davis (Chairman of the Group) Phil Evans Richard Farrant Anthony Morris Chief Executive and Secretary of the Competition Commission David Saunders The Competition Commission has excluded from this published version of the final report information which the inquiry group considers should be excluded having regard to the three considerations set out in section 244 of the Enterprise Act 2002 (specified information: considerations relevant to disclosure). The omissions are indicated by []. Some numbers have been replaced by a range. These are shown in square brackets. Non-sensitive wording is also indicated in square brackets. Contents Page Summary .............................................................................................................................. 3 Findings ................................................................................................................................ 7 1. The reference .................................................................................................................. 7 2. The parties ...................................................................................................................... 7 Stena .............................................................................................................................. 7 DFDS .............................................................................................................................. 8 3. The transaction ............................................................................................................... 8 4. Jurisdiction ...................................................................................................................... 9 5. The ferry operators, their Irish Sea services, and relevant markets ............................... 10 Operators ...................................................................................................................... 10 Seatruck .................................................................................................................... 10 Irish Ferries ................................................................................................................ 11 P&O ........................................................................................................................... 12 Services ........................................................................................................................ 12 Relevant markets .......................................................................................................... 15 6. Prevailing economic conditions and capacity operated .................................................. 15 7. The counterfactual ........................................................................................................ 17 Our approach ................................................................................................................ 18 Stena’s activities in the counterfactual ........................................................................... 19 Fleetwood–Larne closure ........................................................................................... 19 Opening an alternative diagonal route ....................................................................... 25 Strategic reasons for Stena to maintain a diagonal route in the counterfactual .......... 26 Finding on Stena’s operations in the diagonal corridor in the counterfactual .............. 26 DFDS ............................................................................................................................ 26 DFDS views and evidence ......................................................................................... 26 Our view .................................................................................................................... 27 Third parties .................................................................................................................. 27 Our view ........................................................................................................................ 27 8. Theories of harm ........................................................................................................... 28 Loss of actual competition ............................................................................................. 28 Loss of potential competition ......................................................................................... 29 Increased likelihood of coordinated effects .................................................................... 29 9. Evidence on the extent to which freight services on different routes constrain each other ........................................................................................................................... 30 Relationship between volumes, capacity and revenues on different routes ................... 30 Diagonal corridor events: NFL introduction of E-type vessels and Seatruck introduction of Heysham–Larne route ...................................................................... 31 Central corridor event ................................................................................................ 31 Northern corridor event .............................................................................................. 32 Diagonal corridor event: closure of Fleetwood–Larne ................................................ 33 Our view .................................................................................................................... 33 The GfK survey ............................................................................................................. 33 Stena’s view .............................................................................................................. 34 Our analysis ............................................................................................................... 34 Information on origin and destination of Stena’s freight customers ................................ 36 Information on customer accounts ................................................................................. 37 Views of ferry operators and ports ................................................................................. 38 Ferry operators .......................................................................................................... 38 Ports .......................................................................................................................... 40 Our view of competition within and between corridors ................................................... 41 10. Extent of competition within corridors and between unaccompanied and accompanied services ...................................................................................................................... 41 Evidence and analysis ................................................................................................... 42 1 Our view ........................................................................................................................ 43 11. Barriers to entry, expansion and exit ............................................................................. 44 Entry costs .................................................................................................................... 44 Ship availability .......................................................................................................... 44 Berth availability and port costs ................................................................................. 45 Exit costs ....................................................................................................................... 45 Customer switching costs .............................................................................................. 45 Recent entry or expansion in the Irish Sea .................................................................... 46 Plans for entry and expansion ....................................................................................... 46 Our view of competitive entry ........................................................................................ 47 12. Passengers ................................................................................................................... 47 Stena’s case ................................................................................................................. 47 Third-party views ........................................................................................................... 48 Our analysis .................................................................................................................. 48 Price movements ....................................................................................................... 49 Passenger volumes ................................................................................................... 49 Catchment areas ....................................................................................................... 50 Our view .......................................................................................................................