EUROPEAN TRAVEL POLICY, 24 July 2002

EUROPEAN TRAVEL POLICY – INSTANT NEWS ON TRAVEL POLICY IN EUROPE

COMMISSION CLEARS CARNIVAL’S TAKEOVER BID FOR P&O PRINCESS

EUROPEAN TRAVEL POLICY, 24 July 2002

The European Commission has cleared the proposed acquisition of British cruise operator P&O Princess Plc by US-based cruise operator Carnival Corp. The Commission was initially concerned about the parties’ strong position in the cruise market in the UK and in Germany. But after an in-depth analysis it concluded that the strong growth enjoyed in the market, the absence of substantial barriers to entry and the ability for rivals in the market to shift capacity, for example from the US to the UK, would exert a sufficient competitive pressure on Carnival.

On 16 December 2001, Carnival announced a unilateral pre-conditional offer to acquire all the shares of P&O Princess, a UK-based worldwide cruise company which operates the brands Princess Cruises, P&O Cruises, Swan Hellenic, Aida Cruises, Seetours, and A’Rosa. Carnival is also a cruise company active worldwide. Its brands include Carnival Cruise Lines, Holland America Line, Costa Cruises, Cunard Line, Seabourn Cruise Lines and Windstar Cruises.

The takeover bid was notified to the Commission for regulatory clearance in February 2002. The UK competition authorities had requested referral of the case to them, citing their own concerns about the deal’s impact in the United Kingdom’s cruise market. However, the Commission decided to continue with the review as the deal originally raised concerns also in other Member States, particularly in Germany.

Together, Carnival and P&O Princess accounted for around a third of cruise passengers in 2000 in the European Economic Area (the 15 EU states plus Norway, Iceland and Liechtenstein), with the main overlap being felt in the UK and Germany. Market shares are also high in Italy and Spain, but in this case the addition of P&O’s cruise operations is minimal. In the course of its investigation of the Carnival bid, the Commission was in contact with the UK’s Competition Commission, which was assessing and has now cleared a rival bid by Royal Caribbean, as well as with the Federal Trade Commission of the United States, which is still examining both bids for P&O Princess.

The Commission’s in-depth investigation of the Carnival bid has, in the meantime, revealed that the initial concerns were unjustified. Although by acquiring P&O Princess, the UK’s largest player, Carnival would have around a third of the UK cruise market in terms of passengers, barriers to entry are not significant as illustrated by the rapid and successful arrival of tour operators in the last five years who now carry around one third of all UK cruise passengers. Existing operators have also experienced significant growth.

In addition, Carnival’s position in the UK market is expected to come under pressure from international competitors capable of modifying the proportion of British customers on their ships, for example by increasing the proportion of British passengers on cruises organised primarily for the US market, which have a significant presence in UK .The Commission has found that, while cruises carrying mainly UK passengers are preferred by a section of UK customers, a bigger proportion is not sensitive to this distinction . Moreover, ships can be and indeed are re-allocated on an ongoing basis between different geographic markets, from the US to the UK for example.

In the German market, the acquisition would give Carnival a 25% market share in terms of passenger cruise days. But Mediterranean companies, such as MSC and Festival, have successfully entered the market in last five to ten years. The Commission has also concluded that the merger would not have any significant impact on the cruise markets in Spain, Italy, France or other European countries, all countries which so far have had a lesser cruise tradition than the UK and Germany, but which present a significant potential for growth and market entry.

In any case, the Commission decided, the high recent and projected growth rate in cruise markets would in itself be a significant competitive constraint on the incumbent cruise operators, as high growth rates provide an incentive for new operators to enter the market. And while the additional cruise ship capacity which will come on-stream for Carnival and P&O in the next two or three years may lead to some increase in the parties’ market shares but it will also limit their ability to raise prices, as they will need to continue to persuade a sufficient number of holidaymakers to take up cruising to ensure high utilisation rates of this new capacity.

EU PROPOSAL FOR HARMONISED DIESEL FUEL TAX

EUROPEAN TRAVEL POLICY, 24th July 2002

The European Commission today proposed to a gradual harmonisation of member states’ excise duty on commercial diesel fuel and an alignment of minimum excise rates on non-commercial diesel and unleaded petrol. The aim, it says, is to achieve better environmental protection and to eliminate huge problems of distortion of competition in the EU’s liberalised road transport markets. The common approach to the taxation of excise duties on diesel used by road hauliers and coach operators is one of the objectives laid out in the Commission’s White Paper on European Transport Policy for 2010.

The proposal would establish a target ("central") rate of Euro 350 per 1000 litres from 1 January 2003, to be adjusted for inflation from 2003 onwards, allowing member states a gradually narrowing scope for variation either side of the central rate, so as to arrive at a single harmonised rate by 2010. For non-commercial diesel, the proposal would apply the same minimum level of excise duty as unleaded petrol by 2006 since there are no environmental or other reasons to justify the present lower minimum rate on diesel.

The proposal also envisages an increase in the present minimum rate of duty on unleaded petrol from Euro 287 to Euro 360 to take account of inflation. Once the lowest rate of duty on commercial diesel exceeds Euro 360 under the gradual move towards harmonisation of the rate, that minimum rate must also become the minimum rate for non-commercial diesel fuel and unleaded petrol. Thus the minimum duty rate on non-commercial diesel and unleaded petrol will never be lower than that on commercial diesel and will be constantly adjusted in line with inflation.

"The present huge differences between member states’ excise duty rates on diesel used by the road haulage sector lead to serious distortions of competition in the Internal Market, particularly since this sector has been fully liberalised since 1998" said Frits Bolkestein, European Commissioner for taxation. "This proposal would contribute to establishing a suitable overall framework for the taxation of energy products and help to protect the environment by encouraging more efficient fuel use."

The EU’s Council of Ministers has been debating for some years the Commission’s 1997 proposal for a common framework for energy taxation. The Spanish Presidency proposed guidelines to the Seville European Council in June this year to give a clear direction to further work on the energy tax proposal. In the Council discussions, member states have stressed the need for special tax treatment for the road haulage sector and passenger transport industry to offset increases in fuel costs while acknowledging the need to combat the significant competitive distortions caused by different national rates of diesel taxation. The Commission earlier this year undertook to present a Community proposal to resolve this matter.

The proposal would separate commercial diesel, defined as that used by vehicles over 16 tonnes and that used by buses and coaches which can carry more than 9 people, from diesel used by private individuals. Up to now they have been subject to the same Community tax rules. The distortions in competition created by the different rates of excise duty on diesel fuel applied by member states are in the international road transport market and studies have shown that, in the freight sector, it is usually vehicles over 16 tonnes that carry out international road haulage operations and in the passenger transport sector, it is usually coaches carrying more than 9 persons are those used for touring.

Commercial diesel

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