National Express Group PLC and Saltire Holdings Ltd: A report on the merger situation

Summary of report (html format)
Full text (pdf format)

Adobe Acrobat Reader can be downloaded from http://www.adobe.com

Summary

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have started services since the merger on the London to Glasgow route at significantly lower fares but one has since withdrawn.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 preexisting 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.

Full text

Back to the top