CELEX: 32019M9418
Language: en
Date: 2019-08-29 00:00:00
Title: Commission Decision of 29/08/2019 declaring a concentration to be compatible with the common market (Case No COMP/M.9418 - TEMASEK / RRJ MASTER FUND III / GATEGROUP) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                 Brussels, 29.8.2019
                                                                 C(2019) 6359 final
                                                                                         PUBLIC VERSION
                                                                  In the published version of this decision,
                                                                  some information has been omitted
                                                                  pursuant to Article 17(2) of Council
                                                                  Regulation (EC) No 139/2004 concerning
                                                                  non-disclosure of business secrets and
                                                                  other confidential information. The
                                                                  omissions are shown thus […]. Where
                                                                  possible the information omitted has been
                                                                  replaced by ranges of figures or a general
                                                                  description.
                                                                 To the notifying parties
Subject:             Case M.9418 — Temasek/RRJ Master Fund III/Gategroup
                     Commission decision pursuant to Article 6(1)(b) of Council Regulation
                     No 139/20041 and Article 57 of the Agreement on the European Economic
                     Area2
Dear Sir or Madam,
(1)       On 24 July 2019, the European Commission received notification of a proposed
          concentration pursuant to Article 4 of the Merger Regulation by which Temasek
          Holdings (Private) Limited (‘Temasek’) (Singapore) and RRJ Master Fund III,
          belonging to the group of RRJ Capital (‘RRJ’) (Hong Kong) acquire within the
          meaning of Article 3(1)(b) and 3(4) of the Merger Regulation joint control of
          gategroup Holding AG (‘Gategroup’) (Switzerland), currently solely controlled by
          RRJ Capital.3 Temasek and RRJ Master Fund III are collectively referred to as the
          ‘Parties.’
1     OJ L 24, 29.1.2004, p. 1 (the “Merger Regulation”). With effect from 1 December 2009, the Treaty on the
      Functioning of the European Union (“TFEU”) has introduced certain changes, such as the replacement of
      “Community” by “Union” and “common market” by “internal market”. The terminology of the TFEU will
      be used throughout this decision.
2     OJ L 1, 3.1.1994, p. 3 (the “EEA Agreement”).
3     Publication in the Official Journal of the European Union No C 257, 31.07.2019, p. 17.
Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak--- 1.       THE PARTIES
(2)      Temasek is an investment company headquartered in Singapore. Temasek has
         significant shareholdings in two businesses in related markets to Gategroup: SATS
         and Singapore Airlines. SATS is principally active in ground handling, cargo
         handling, in-flight catering and the provision of other in-flight services to airlines
         and is primarily active in the Asia Pacific region, it is not active in the EEA.
         Temasek also holds a [50-60]% controlling shareholding in Singapore Airlines.
         Within the EEA, Singapore Airlines offers air transport services, including passenger
         and freight transport, to airports in Belgium, Denmark, France, Germany, Greece,
         Italy, the Netherlands, Spain, Sweden, and the United Kingdom.
(3)      RRJ is an investment firm based in Hong Kong and Singapore. RRJ undertakes
         private equity investments in Asia and primarily focuses on growth capital and state-
         owned enterprises investments. RRJ’s interest in Gategroup is held indirectly by its
         RRJ Capital Master Fund III.
(4)      Gategroup is headquartered in Switzerland and operates in around 60 countries
         globally, including in contracting countries to the EEA Agreement. It provides
         various airport and in-flight food and hospitality solutions. Gategroup’s main
         activities consist of in-flight catering and retail on-board services which it provides
         primarily through its Gate Gourmet, Servair, gateretail, and Dutyfly brands.4
2.       THE OPERATION
(5)      The notified concentration consists of the acquisition of joint control by Temasek
         and RRJ of Gategroup, which is currently solely controlled by RRJ (the
         ‘Transaction’).
(6)      More specifically, Temasek intends to acquire 50% of Gategroup’s voting shares
         from RRJ (which currently controls the entire 100% shareholding of Gategroup)
         through two instruments. [Information on the transaction structure].5 [Information on
         the transaction structure].
(7)      The Transaction will therefore result in Temasek’s acquisition of 50% of
         Gategroup’s voting shares. Post-Transaction, RRJ will continue to own the
         remaining 50% of Gategroup’s voting shares.
2.1.     Joint control
(8)      Temasek and RRJ have undertaken to enter into a Shareholders’ Agreement that will
         govern the exercise of their interests in Gategroup. [Information on negotiations
4   In addition, Gategroup is active in in-flight catering equipment, airport lounge services, and to a more
    limited extent in airport retail and contract catering services.
5   [Information on the transaction structure] RRJ acquired 100% of Gategroup’s share capital from HNA on
    April 3, 2019. See Gategroup’s press release on April 3, 2019, available at:
    https://www.gategroup.com/en-gb/media/gategroup-announces-completion-of-change-in-ownership.
                                                             2
 ---pagebreak---          between Temasek and RRJ].6 Specifically, each of Temasek and RRJ is expected to
         have the following rights.
(9)      [Information on the composition of the Gategroup board].7 [Information on the
         composition of the Gategroup board].8
(10)     Any decision by the Gategroup board involving a “reserved matter” will require the
         affirmative vote of one Temasek director and one RRJ director.9 Reserved matters
         include, inter alia, the approval and amendment of Gategroup’s business plan and
         annual budget.10
(11)     These rights will therefore enable each of Temasek and RRJ to veto decisions which
         would be essential for the strategic commercial behaviour of Gategroup, including
         its business plan, budget and the appointment of senior management. Consequently,
         the Transaction would result in Temasek and RRJ obtaining joint control over
         Gategroup.
2.2.     Full functionality
(12)     Following the Transaction, Gategroup would perform all the functions of an
         autonomous undertaking on a lasting basis.
(13)     First, Gategroup would have sufficient resources to operate independently.
         Gategroup has its own dedicated management and employs over 43,000 personnel. It
         has assets in excess of EUR 2 500 million, focused around catering facilities that
         serve airlines at over 200 airports worldwide.
(14)     Second, it has activities beyond one specific function for its parent companies.
         Gategroup is responsible for all operations, sales, and purchases for its in-flight
         catering, retail on-board, and ancillary activities.
(15)     Finally, Gategroup provides services to customers (especially airlines) that are
         independent of RRJ and Temasek (just ca [0-5]% of Gategroup’s revenues come
         from sales to Singapore Airlines).
(16)     Therefore, the Transaction would result in a concentration within the meaning of
         Articles 3(1)(b) and 3(4) of the Merger Regulation.
3.       EU DIMENSION
(17)     In 2018, the undertakings concerned have a combined aggregate world-wide
         turnover of more than EUR 5 000 million11 [Temasek: EUR […] million, RRJ
         (excluding the turnover of Gategroup): EUR […] million, Gategroup:
         EUR 4 277 million]. Each of them has an EU-wide turnover in excess of
6   See Form CO, Annex 5.1.3 – 3 (the “Call Option Agreement”), Article 3.5(a).
7   Ibid., Schedule 3, Section 3.1 (page 17).
8   Ibid., Schedule 3, Section 3.2 (page 18).
9   Ibid., Schedule 3, Section 3.3 (page 18).
10  Ibid., Schedule 3, Section 3.4(a) (page 18).
11  Turnover calculated in accordance with Article 5 of the Merger Regulation.
                                                          3
 ---pagebreak---         EUR 250 million, but they do not achieve more than two-thirds of their aggregate
        EU-wide turnover within one and the same Member State. The notified operation
        therefore has an EU dimension pursuant to Article 1(2) of the Merger Regulation.
4.      MARKET DEFINITION
(18)    Gategroup mainly provides in-flight catering and retail on-board services. Temasek,
        through its majority shareholding in Singapore Airlines, is active in the downstream
        market for passenger air transport services.
(19)    There are, therefore, no horizontal overlaps but vertical links between the activities
        of Singapore Airlines and the services provided by Gategroup to its customers.
4.1.    Upstream market: In-flight catering services
(20)    In-flight catering comprises the provision and delivery of food and beverage
        solutions to airlines, which will be served to passengers on an aircraft during the
        flight.
4.1.1. Relevant product market
(21)    The Parties submit that the relevant product market is in-flight catering as a whole
        and argue that a segmentation between types of flight or meals is not warranted.12
        They also submit that the exact product market definition can be left open for the
        purposes of the Transaction, as no competitive concerns arise under any plausible
        market definition.
(22)    In previous cases, the Commission concluded that the relevant product market for in-
        flight catering comprises the entire range of meals (economy/business/first class) for
        all types of flights (short-haul/long-haul).13 The Commission left open whether a
        distinction should be made as between “traditional” (i.e., airline catering companies
        that provide the entire range of required meals to meet the different needs of airline
        companies) and “non-traditional” (i.e., catering companies or other food products
        suppliers that formally act as suppliers to “traditional” caterers, but also negotiate
        directly with airlines on quality and price suppliers) catering suppliers.14
(23)    In line with the Commission’s past decisional practice, the Commission concludes
        that, for the purposes of assessing the Transaction, the relevant product market for
        in-flight catering comprises the entire range of meals for all types of flights. As
        regards a possible segmentation of in-flight catering by a type of catering supplier, it
        can be left open whether the market for in-flight catering should be segmented
        between “traditional” and “non-traditional” catering suppliers, since the Transaction
        would not raise any serious doubts irrespective of the exact product market
        definition.
12  Form CO, paragraph 6.12.
13  Case M.8104 - HNA Group/Gategroup, paragraph 17, Case M.8137 – HNA Group/Servair, paragraph 42
14  Case M.8137 – HNA Group/Servair, paragraph 42.
                                                    4
 ---pagebreak--- 4.1.2. Relevant geographic market
(24)    The Parties submit that the geographic scope of in-flight catering services is likely to
        be limited to the local region around an airport. They have provided market share
        estimates based on the narrowest plausible geographic market, (i.e., the level of
        individual airports). They also submit that the exact geographic market definition
        can be left open for the purposes of the Transaction, as no competitive concerns arise
        under any plausible market definition.
(25)    In its most recent case, the Commission concluded that the geographic market for in-
        flight catering services comprised of at most an airport region.15 In that case the
        market investigation found that in-flight catering contracts were agreed either on an
        airport-by-airport basis, or a catchment area covering multiple airports. Competition
        between in-flight catering service providers was found to take place at airport level.16
(26)    In line with the Commission’s past decisional practice, the geographic market for in-
        flight catering comprises at most a relevant airport region. Nevertheless, for the
        purposes of the present case, the precise geographic scope of the in-flight catering
        market can be left open, as the Transaction would not raise any serious doubts
        irrespective of the exact geographic market definition.
4.2.    Upstream market: Retail on-board services
(27)    Retail on-board services comprise the provision of shopping services that are made
        available to passengers during the flight, such as snacks (food and beverages) and
        duty free goods.
4.2.1. Relevant product market
(28)    The Parties refer to the Commission’s past decisional practice, noting that the
        Commission had considered a separate product market for the provision of third-
        party retail on-board services. They also submit that the exact product market
        definition can be left open for the purposes of the Transaction, as no competitive
        concerns arise under any plausible market definition.17 The Parties have however
        provided market share information on the basis of the narrowest plausible product
        market definition, i.e., retail on-board services segmented into snacks and duty free
        products.
(29)    In previous cases, the Commission considered whether there was a stand-alone
        market for the provision of third-party retail on-board services, distinct from in-flight
        catering services and excluding airlines’ own in-house sourcing of retail on-board
        products. The Commission, has, however, left open the question whether the market
        may be further segmented into markets for snacks (i.e., the on-board sale of food and
        beverage products) and duty free products (i.e., the on-board sale of cigarettes,
        alcohol, perfumes, and other items).18
15  Case M.8104 – HNA Group/Gategroup, para. 23, Case M.8137 – HNA Group/Servair, paragraph 50.
16  Case M.8137 – HNA Group/Servair, paragraphs 46-50. See also Case M.8104 – HNA Group/Gategroup,
    paragraphs 20 to 22.
17  Form CO, paragraph 6.16.
18  Case M.8137 – HNA Group/Servair, paragraph 26.
                                                    5
 ---pagebreak--- (30)    In line with the Commission’s past decisional practice, the Commission concludes
        that, for the purposes of assessing the Transaction, the market for the provision of
        retail on-board services is separate from the market for the provision of in-flight
        catering services. As regards a possible segmentation of retail on-board services by
        type of product, it can be left open whether the market for retail on-board services
        comprises both snacking (food and beverage) and duty free products, since the
        Transaction does not raise any serious doubts irrespective of the exact product
        market definition.
4.2.2. Relevant geographic market
(31)    The Parties provide market share estimates on an EEA-wide basis as the narrowest
        plausible geographic market.19 They also submit that the exact geographic market
        definition can be left open for the purposes of the Transaction, as no competitive
        concerns arise under any plausible market definition.
(32)    In previous cases, the Commission has concluded that the geographic market for
        retail on-board services is at least EEA-wide, if not global.20
(33)    In line with the Commission’s past decisional practice, the geographic market for
        retail on-board services is at least EEA-wide. Nevertheless, for the purposes of the
        present case, the precise geographic scope of the retail on-board market can be left
        open, since the Transaction does not raise any serious doubts irrespective of the
        exact geographic market definition.
4.3.    Downstream market: Passenger air transport services
4.3.1. Relevant product market
(34)    The Parties refer to the Commission’s past decisional practice, noting that the
        Commission has defined one overall market for passenger air transport services,
        when assessing vertical relationships.21 The Parties argue that this reflects the reality
        that an airline’s demand for in-flight catering or retail on-board services is a function
        of total passenger numbers, irrespective of the time-sensitivity of those passengers
        and their readiness to travel on indirect flights.
(35)    In previous vertical cases, the Commission considered that there is an overall market
        for passenger air transport services, but left open whether this market for passenger
        air transport services might be further sub-segmented into scheduled and charter
        flights or into “time-sensitive” and “non-time-sensitive” passengers.22
(36)    In line with the Commission’s past decisional practice, the Commission concludes
        that the relevant product market for the purposes of assessing the Transaction is an
        overall market for passenger air transport services. As regards a possible
        segmentation of passenger air transport services, it can be left open whether the
        market for passenger air transport services should be further segmented into
        scheduled and charter flights or “time-sensitive” and “non-time-sensitive”
19  Form CO, paragraph 6.24.
20  Case M.8137 – HNA Group/Servair, paragraph 33.
21  Form CO, paragraph 6.9.
22  Case M.8104 – HNA Group/Gategroup, paragraph 35, Case M.8137 – HNA Group/Servair, paragraph 58.
                                                    6
 ---pagebreak---         passengers, since the Transaction does not raise any serious doubts irrespective of
        the exact product market definition.
4.3.2. Relevant geographic market
(37)    The Parties submit that the most appropriate geographic market definition for the
        assessment of the vertical relationship between Singapore Airlines’ passenger air
        transport services and Gategroup’s upstream services is an airport-by-airport
        approach.23 The Parties provide market share estimates on this basis.
(38)    In previous cases involving a vertical relationship between in-flight catering and
        retail on-board services on the one hand and passenger air transport services on the
        other hand, the Commission found that airlines procure in-flight catering and retail
        on-board services on an airport-by-airport basis and not on a route-by-route basis.
        Therefore, it was considered necessary to look at the market share of the particular
        airline into the total demand for in-flight catering services and retail on-board
        services at the relevant airports instead of making a route-by-route assessment.24
(39)    In line with the Commission’s past decisional practice, the geographic market for the
        provision of passenger air transport services in this case comprises every route
        combination between a given point-of-origin airport and a point-of-destination
        airport. Nevertheless, for the purposes of the present case, the precise geographic
        scope of the passenger air transport services market can be left open, since the
        Transaction does not raise any serious doubts irrespective of the exact geographic
        market definition.
5.      COMPETITIVE ASSESSMENT
(40)    The Transaction does not lead to any horizontally affected markets.25 However, it
        gives rise to a number of vertically affected markets in the EEA. More specifically,
        the Transaction leads to vertically affected markets arising from Gategroup’s supply
        of in-flight catering upstream and Temasek’s provision of passenger air transport
        services (via its portfolio company Singapore Airlines) at 11 airports in the EEA.26
(41)    The Transaction also leads to a vertically affected market between Gategroup’s
        provision of retail on-board services upstream and passenger air transport services by
        Temasek downstream (via its portfolio company Singapore Airlines) in the EEA.27
23  Form CO, paragraph 6.29.
24  See Case M.8137 – HNA Group/Servair (2018), paragraph 61. See also Case M.8104 – HNA
    Group/Gategroup (2018), paragraph 35.
25  To a limited extent, the Parties overlap in the management of airport lounges at London Heathrow (LHR)
    airport. Given that there are no affected markets with respect to airport lounges (see footnote 43 of the
    Form CO), this aspect is no longer discussed in this decision.
26  See section 5.1.1 below.
27  See section 5.1.2 below.
                                                           7
 ---pagebreak--- 5.1.     Market shares
5.1.1. In-flight catering services
(42)     The Transaction gives rise to vertically affected markets due to Gategroup’s
         significant presence in the upstream markets for in-flight catering at a number of
         major European airports, with market shares ranging from [30-40]% (at Munich
         (MUC)) to [90-100]% and [90-100]% (at Stockholm Arlanda (ARN) and
         Copenhagen Kastrup (CHP) respectively), excluding captive sales. However, in all
         of these vertically affected markets, Singapore Airlines’ market share on the
         downstream market for passenger air transport services is very low (between [0-5]%
         and [0-5]%).
(43)     More specifically, on the basis of the Parties’ submission, the Transaction gives rise
         to vertically affected markets for in-flight catering at the following airports in the
         EEA:
  Table 1. The Parties’ In-Flight Catering and Passenger Air Transport Market Share
                                               Estimates, 2018
               Country                 Airport (IATA          Singapore Airlines’           Gategroup’s In-
                                            Code)                Passenger Air              flight Catering
                                                                                                        28
                                                               Transport Share                   Share
                                        Copenhagen                    [0-5]%                   [90-100]%
               Denmark
                                       Kastrup (CPH)
                                      Paris Charles de                [0-5]%                   [90-100]%
                 France
                                       Gaulle (CDG)
                                    Berlin Tegel (TXL)                [0-5]%                    [30-40]%
               Germany               Dusseldorf (DUS)                 [0-5]%                    [50-60]%
                                      Frankfurt (FRA)                 [0-5]%                    [30-40]%
                                       Munich (MUC)                   [0-5]%                    [30-40]%
                                      Rome Fiumicino                  [0-5]%                    [50-60]%
                  Italy
                                            (FCO)
                                         Amsterdam                    [0-5]%                    [80-90]%
              Netherlands
                                      Schiphol (AMS)
                  Spain              Barcelona (BCN)                  [0-5]%                    [40-50]%
                                    Stockholm Arlanda                 [0-5]%                   [90-100]%
                Sweden
                                            (ARN)
                                                                                                           29
                                     London Heathrow                  [0-5]%                   [40-50]%
                   UK
                                            (LHR)
                                           Source: Form CO and Annex 7.1
28  For their estimate of the total market size at each relevant airport, the Parties provided data that excludes
    captive sales from Air Chef to Emirates Airlines; KLM Catering Services (KCS) to KLM; and LSG to
    Lufthansa Group Airlines (Lufthansa, Swiss, and Austrian Airlines) as in-house supply. See Form CO,
    Annex 7.1.
29  British Airways (the largest airline active at London Heathrow (LHR)) will switch from Gategroup to DO
    & CO in 2020, therefore, according to the Parties, the stated Gategroup’s market share overstates its
    competitive position. See Form CO, Annex 7.1.
                                                            8
 ---pagebreak--- 5.1.2. Retail on-board services
(44)     The Transaction gives rise to a vertically affected market due to Gategroup’s
         significant presence on the upstream market for retail on-board services in the EEA.
         In 2018, Gategroup’s combined market share for its gateretail and Dutyfly brands
         accounts for approximately [60-70]% on the EEA-wide level.30
(45)     On a potential narrower market for retail on-board services of snacking, Gategroup’s
         market share in 2018 amounts to [70-80]% in the EEA. Gategroup’s market share on
         a potential narrower market for retail on-board services of duty free services in 2018
         is [50-60]% in the EEA.
(46)     However, as indicated in Table 2 below, in each of the EEA airports where the
         Parties’ activities overlap, Singapore Airlines’ market share is very low (between
         [0-5]% and [0-5]%).
   Table 2. The Parties’ Retail On-Board and Passenger Air Transport Market Share
                                             Estimates, 2018
                Country              Airport (IATA          Singapore Airlines’       Gategroup’s Total
                                          Code)                Passenger Air            Retail On-Board
                                                              Transport Share          Share in the EEA
                                       Copenhagen                   [0-5]%                  [60-70]%
                Denmark
                                      Kastrup (CPH)
                                     Paris Charles de               [0-5]%                  [60-70]%
                 France
                                      Gaulle (CDG)
                                   Berlin Tegel (TXL)               [0-5]%                  [60-70]%
                Germany             Dusseldorf (DUS)                [0-5]%                  [60-70]%
                                     Frankfurt (FRA)                [0-5]%                  [60-70]%
                                     Munich (MUC)                   [0-5]%                  [60-70]%
                                     Milan Malpensa                 [0-5]%                  [60-70]%
                                          (MXP)
                  Italy
                                    Rome Fiumicino                  [0-5]%                  [60-70]%
                                          (FCO)
                                       Amsterdam                    [0-5]%                  [60-70]%
               Netherlands
                                     Schiphol (AMS)
                  Spain             Barcelona (BCN)                 [0-5]%                  [60-70]%
                                   Stockholm Arlanda                [0-5]%                  [60-70]%
                 Sweden
                                          (ARN)
                                    London Heathrow                 [0-5]%                  [60-70]%
                   UK                     (LHR)
                                       Manchester                   [0-5]%                  [60-70]%
                                         Source: Form CO and Annex 7.2
30  All retail on-board services market shares exclude captive sales. Gategroup based its own retail on-board
    market shares on the actual 2018 revenues and provided estimates for the rest of the market based on its
    market intelligence. See Form CO, Annex 7.2.
                                                         9
 ---pagebreak--- 5.2.    The Parties’ arguments
(47)    The Parties submit that the vertical relationships brought about by the Transaction
        will not lead to input or customer foreclosure for in-flight catering and retail on-
        board services in the EEA due to the following reasons.
(48)    First, Gategroup is only jointly-controlled by Temasek (i.e., the controlling
        shareholder in Singapore Airlines). The other parent company of Gategroup, RRJ,
        would not benefit from any input foreclosure strategy and therefore would be likely
        to block any foreclosure strategy. In addition, given Singapore Airlines’ de minimis
        presence at all affected airports, any putative input foreclosure strategy would
        inevitably result in a significant reduction in sales for Gategroup.
(49)    Second, there is no commercial rationale for Gategroup to engage in a foreclosure
        strategy. Gategroup’s business at affected European airports accounts for a small
        fraction of its overall global business with its airline customers. Any deterioration in
        price and quality for the European airport contracts would undermine Gategroup’s
        commercial reputation and could put at risk the entire global relationship.
(50)    Third, Gategroup will continue to face significant competition in the supply of in-
        flight catering, retail on-board, and other related services at all affected airports. The
        competitive landscape of the affected markets is driven by a competitive
        procurement process with a number of credible bidders. This will ensure that all
        future bidding contests remain competitive, while prices under existing contracts
        remain determined by the competitive parameters of previous bidding contests.
(51)    Last, airline customers are sophisticated buyers with significant countervailing
        power. They are likely to respond to any attempted foreclosure strategy by switching
        to another supplier and/or make use of “return catering” arrangements, i.e., sourcing
        meals for both legs of a route at a single airport.
5.3.    The Commission’s assessment
5.3.1. Input foreclosure
(52)    According to the Non-Horizontal Merger Guidelines,31 foreclosure occurs when
        actual or potential rivals’ access to supplies or markets is restricted, thereby reducing
        those companies’ ability and/or incentive to compete. Such foreclosure may
        discourage entry or expansion of rivals or encourage their exit.32
(53)    In order for input foreclosure to be a concern, three conditions need to be met post-
        merger: (i) the merged entity needs to have the ability to foreclose access to inputs;33
        (ii) the merged entity needs to have the incentive to do so;34 and (iii) the foreclosure
31  Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of
    concentrations between undertakings, OJ C 265, 18.10.2008, p. 6, (the “Non-Horizontal Merger
    Guidelines”).
32  Non-Horizontal Merger Guidelines, paragraphs 29 to 30.
33  Non-Horizontal Guidelines, paragraphs 33 to 39.
34  Non-Horizontal Merger Guidelines, paragraphs 40 to 46,
                                                       10
 ---pagebreak---         strategy needs to have a likely significant detrimental effect on competition on the
        downstream market.35
5.3.1.1. In-flight catering services
(54)    The Commission assessed the vertical relationships between the Parties’ activities in
        in-flight catering and passenger air transport services and considers that post-
        Transaction, Gategroup would not have the ability or incentive to foreclose airlines
        competing with Singapore Airlines downstream from in-flight catering.
(55)    First, while Gategroup’s upstream market share is high ranging from [30-40]% (at
        Munich (MUC)) to [90-100]% (at Paris Charles de Gaulle (CDG)) and [90-100]%
        (at Copenhagen Kastrup (CPH)),36 in-flight catering cannot be considered an
        important input for the downstream market for passenger air transport services. As
        demonstrated by the Commission’s market investigation, in-flight catering services
        account for a very low proportion (on average around 5%) of the total costs of
        providing passenger air transport services.37 It is also ancillary to the core service of
        providing passenger air transport services.
(56)    Second, the majority of respondents to the Commission’s market investigation were
        of the view that it is not likely that Gategroup will restrict access to or increase
        prices of its in-flight catering services as this would have a detrimental effect on its
        position and encourage customers to switch to other service providers.38 Indeed, one
        market participant responding to the Commission’s market investigation noted that
        due to their global footprint large airlines are able to leverage their buyer power and
        negotiate certain discounts.39
(57)    At the same time, the Commission’s market investigation showed that an airline’s
        current in-flight catering provider may have an advantage compared to competing
        players due to, for example, its knowledge of the airline’s service needs and
        preferences. This may reduce the airlines’ willingness to switch to other in-flight
        catering providers. Indeed, some respondents considered that potential delays related
        to getting accustomed with the internal procedures of the airline, staff training,
        logistics costs associated with the change of a supplier might limit the possibilities of
        switching.40 On the other hand, more than half of the airlines responding to the
        Commission’s market investigation confirmed that they had switched their in-flight
        catering provider at least once in the last five years.41 However, as noted by a market
        respondent, changing in-flight catering suppliers at the hubs is much more difficult,
        because “the requirements to tender and change suppliers are higher”42 and that
        typically the existing supplier is “the only [one] having enough capacity to fulfil all
35  Non-Horizontal Merger Guidelines, paragraphs 47 to 57.
36  Excluding captive sales, see Form CO and Annex 7.1
37  Replies to Q1 – questionnaire, question 11.
38  Replies to Q1 – questionnaire, questions 12 and 12.1.
39  This, however, applies only to those airports where more than one in-flight catering providers are active.
    Replies to Q1 – questionnaire, question 5.
40  Replies to Q1 – questionnaire, questions 9; 9.1 ; 10; and 10.1.
41  Market respondents noted various reasons for the switch, including lack of capacity, inadequate service of
    the previous service provider, better commercial conditions, and the fact that there existing in-flight
    services provider had been acquired by a larger player. Replies to Q1 – questionnaire, questions 7 and 7.1.
42  Customer/Competitor’s Reply to Q1 – questionnaire, question 7.1.
                                                           11
 ---pagebreak---        needs of the customer without having to build any additional infrastructure
       [whereas] other suppliers […] will have to invest in new buildings, equipment and
       hire hundreds of people”.43 On balance, the Commission considers that if Gategroup
       restricted access to or increased prices of its in-flight catering services post-
       Transaction, customers would have some alternatives for in-flight catering services
       from other competing providers such as LSG Sky Chefs or smaller players such as
       DO & CO or Newrest (see paragraph (59) below).
(58)   Third, Gategroup will have a limited ability to negatively affect market prices and
       conditions to customers post-Transaction due to the bidding type of in-flight catering
       market. Indeed, airlines typically select their suppliers at airports based on a regular
       competitive tender process in which they invite as many suppliers as can potentially
       respond.44 The in-flight catering contracts are typically concluded on average for a
       period of 2 to 5 years with extension and termination possibilities.45 In order to
       remain competitive, Gategroup will have to maintain competitive price/quality of its
       services. Such market dynamics also makes it unlikely for Gategroup to increase
       prices or reduce service quality of in-flight catering services despite its considerable
       shares at a given airport and will constrain Gategroup’s ability to affect market
       prices and conditions.
(59)   Last, while Gategroup is the largest in-flight catering provider in the EEA having by
       far the highest market share in the majority of the affected airports in the EEA,46 it
       will continue to face competition from a number of in-flight catering providers, in
       particular from the second largest provider LSG Sky Chefs that is active in 7 out 11
       affected airports in the EEA47 with a market share estimate ranging from [5-10]% (at
       Amsterdam Schiphol (AMS)) to [40-50]% (at Berlin Tegel (TXL)) and [40-50]% (at
       Frankfurt (FRA)).48 Other competitors include smaller in-flight catering providers
       such as Newrest (active in 4 out 11 affected airports in the EEA)49 and DO & CO
       (active in 5 out of 11 affected airports in the EEA)50 as well as other suppliers.
(60)   In terms of new market entry, the Commission’s market investigation showed that
       there exist a number of barriers to entry in the market for in-flight catering related to
       the logistics set up and required investment in infrastructure and equipment.51 For
       instance, one market participant noted that “[t]he in-flight catering services are
       dominated by a few big payers covering […] many airports and only some few minor
43 Customer/Competitor’s Reply to Q1 – questionnaire, question 10.1.
44 Form CO, paragraph 7.3 and Replies to Q1 – questionnaire, question 5.
45 Form CO, paragraph 7.3 and Replies to Q1 – questionnaire, question 6.
46 With the exception of Berlin Tegel (TXL), Frankfurt (FRA), and Munich (MUC) airports where
   Gategroup is the second largest in-flight catering provider after LSG Sky Chefs (Lufthansa Group) and
   Barcelona (BCN)where it is a close second in-flight catering provider after Newrest. See market share
   information submitted by the Parties in Annex 7.1 of the Form CO.
47 Namely, Berlin Tegel (TXL), Dusseldorf (DUS), Frankfurt (FRA), Munich (MUC), Rome Fiumicino
   (FCO), Amsterdam Schiphol (AMS), and London Heathrow (LHR) airports.
48 Excluding captive sales. See market share information submitted by the Parties in Annex 7.1 of the Form
   CO.
49 Namely, Paris Charles de Gaulle (CDG), Amsterdam Schiphol (AMS), Barcelona (BCN), and London
   Heathrow (LHR) airports.
50 Namely, Berlin Tegel (TXL), Dusseldorf (DUS), Frankfurt (FRA), Munich (MUC) and London Heathrow
   (LHR) airports.
51 Replies to Q1 – questionnaire, questions 8 and 10.1.
                                                        12
 ---pagebreak---          players”52 adding that “due to large investments to enter the market not many new
         entrants are seen”.53 Nevertheless, in recent years there have been some instances of
         smaller players expanding their footprint at various airports in the EEA. For
         example, DO & CO has expanded in London Heathrow (LHR),54 while Newrest has
         sought to expand to new locations in the EEA.55 Also, Inflight International
         Logistics started operations in 2015 in the Nordic region56 and a new player has
         started operations at Copenhagen Kastrup recently.57
(61)     The Commission therefore considers that it is unlikely that Gategroup could engage
         in an input foreclosure strategy in in-flight catering post-Transaction.
5.3.1.2. Retail on-board services
(62)     Post-Transaction, the Parties will have an EEA-wide combined market share of
         [60-70]% in the upstream market for retail on-board services (and [70-80]% on
         a potential market for snacking only, and [50-60]% for a potential market for duty
         free only). The respondents to the Commission’s market investigation noted that
         there were limited providers in this market, noting for example that there were “only
         3 significant suppliers Gate Retail and Retail in Motion, which both together have
         more than 70% of the market, and Tourvest.”58 A majority of respondents also
         indicated that switching to other providers was difficult,59 noting for example that
         “the business model is very integrated into the airlines operation and daily
         business”60 and while there are “many suppliers of logistics services […] last mile
         suppliers within the restricted safety areas in an airport are limited due safety
         issues.”61 However, on the downstream market, Singapore Airlines’ market share
         however is very low, ranging from [0-5]% to [0-5]%.
(63)     The Commission considers that Gategroup would not therefore have the ability or
         incentive to foreclose airlines competing with Singapore Airlines downstream from
         retail on-board services.
(64)     In particular, while Gategroup’s upstream market share is high ([60-70]% and
         [70-80]% for snacking and [50-60]% for duty free), retail on-board services cannot
         be considered an important input for the downstream market for passenger air
         transport services. For example, retail on-board services accounts for a very low
52  Customer’s Reply to Q1 – questionnaire, question 8.
53  Ibid.
54  Customer’s Reply to Q1 – questionnaire, question 8. See also Form CO, paragraph 7.3.
55  Customer’s Reply to Q1 – questionnaire, questions 8 and 25.
56  Competitor’s Reply to Q1 – questionnaire, questions 1 and 8. However, based on the Parties estimates,
    Inflight International Logistics’ market shares have remained very low, namely [0-5]% in Copenhagen
    Kastrup (CPH) and [0-5]% in Stockholm Arlanda (ARN), see Form CO, Annex 7.1.
57  Customer/Competitor’s Reply to Q1 – questionnaire, question 8.
58  Competitor’s Reply to Q1 – questionnaire, question 17.1. Gateretail is one of Gategroup’s retail on-board
    services brands and Retail inMotion is a Lufthansa Group’s subsidiary. Another respondent also
    mentioned a recent market entrant in on-board retail services, see a Competitor’s Reply to Q1 –
    questionnaire, question 16.
59  Replies to Q1 – questionnaire, question 17.
60  Customer/Competitor’s Reply to Q1 – questionnaire, question 17.1.
61  Customer/Competitor’s Reply to Q1 – questionnaire, question 17.1.
                                                         13
 ---pagebreak---         proportion (less than 5%) of total costs of providing passenger air transport
        services.62 It is also ancillary to the core service of providing air transport services.
(65)    Furthermore, all market participants who responded to the market investigation
        indicated that, in their view, Gategroup would not have an incentive to pursue an
        input foreclosure strategy.63 The Commission’s market investigation showed that
        post-Transaction, any attempt to foreclose competitors downstream would result in
        loss of sales for Gategroup, but that it would not result in a corresponding diversion
        of demand to Singapore Airlines due to the fact that, as noted by a market
        participant, “on-board retail part not decisive”64 and would not therefore be
        profitable. The same market participant does however go on to note that “[l]ogistics
        at the airport is [a] bottleneck.”65
(66)    In addition, Gategroup is jointly controlled by Temasek and RRJ. Any input
        foreclosure strategy would entail loss of sales for Gategroup. RRJ, which is not
        active in the downstream passenger air transport services market, would not benefit
        from this strategy and it would be in RRJ’s economic interest to block it.66 The
        Commission does not therefore consider that it is not likely that the Transaction will
        lead to increased prices in the downstream market for passenger air transport
        services.67
(67)    The Commission therefore considers that it is unlikely that Gategroup could engage
        in an input foreclosure strategy in retail on-board services (or in retail on-board
        snacking, or retail on-board duty free) post-Transaction.
5.3.2. Customer foreclosure
(68)    According to the Non-Horizontal Merger Guidelines, customer foreclosure may
        occur when a supplier integrates with an important customer in the downstream
        market.68
(69)    The Non-Horizontal Merger Guidelines acknowledge that customer foreclosure may
        be of concern if a vertical merger involves a company that is an important customer
        with a significant degree of market power in the downstream market, as only then
        does an integrated firm have a potential ability to foreclose access to a sufficient
        customer base. No such concerns arise, however, where a sufficiently large customer
        base is likely to turn to alternative suppliers, as this would provide upstream
        competitors with sufficient economic alternatives.69
62  Replies to Q1 – questionnaire, question 19.
63  Replies to Q1 – questionnaire, question 20.
64  Customer/Competitor’s Reply to Q1 – questionnaire, question 20.1.
65  Customer/Competitor’s Reply to Q1 – questionnaire, question 20.1.
66  As noted in the Non-Horizontal Merger Guidelines, paragraph 45 (footnote), “in cases where two
    companies have joint control over a firm active in the upstream market, and only one of them is active
    downstream, the company without downstream activities may have little interest in foregoing input sales.”
67  Non-Horizontal Merger Guidelines, paragraph 47.
68  Non-Horizontal Merger Guidelines, paragraph 58.
69  Non-Horizontal Merger Guidelines, paragraphs 58 to 74.
                                                        14
 ---pagebreak--- 5.3.2.1. In-flight catering services
(70)    The Commission assessed the vertical relationships between the Parties’ activities in
        in-flight catering and passenger air transport services and considers that Gategroup
        would not have the ability or incentive to foreclose access of Gategroup’s
        competitors to Singapore Airlines’ demand of in-flight catering services.
(71)    First, while Gategroup’s in-flight catering market share exceeds 30% at 11 European
        airports (namely, Copenhagen Kastrup (CPH), Paris Charles de Gaulle (CDG),
        Berlin Tegel (TXL), Dusseldorf (DUS), Frankfurt (FRA), Munich (MUC), Rome
        Fiumicino (FCO), Amsterdam Schiphol (AMS), Barcelona (BCN), Stockholm
        Arlanda (ARN), and London Heathrow (LHR)), Singapore Airlines’ downstream
        share on the market for passenger air transport services at all of these airports is very
        low, ranging between [0-5]% and [0-5]%. Given the de minimis market share of
        Singapore Airlines at the affected airports, it cannot be considered an “important
        customer” within the meaning of the Commission’s Non-Horizontal Guidelines.70
        Even if Singapore Airlines were to purchase its in-flight catering services
        exclusively from Gategroup, the overwhelming majority of customer demand for in-
        flight catering services at any given airport would remain available to other upstream
        in-flight catering suppliers, providing them with sufficient alternatives to avoid
        being foreclosed.71
(72)    Second, neither the market investigation nor the evidence submitted by the Parties
        provide strong indication that post-Transaction Gategroup would have the incentive
        to engage in customer foreclosure. Indeed, any such strategy would be unsuitable to
        increase the costs of its upstream competitors. The Commission considers that
        following the Transaction, the upstream suppliers will continue to have economic
        alternatives to avoid being foreclosed.
(73)    The Commission therefore considers that it is unlikely that Gategroup could engage
        in a customer foreclosure strategy in in-flight catering post-Transaction.
5.3.2.2. Retail on-board services
(74)    As noted above in Section 5.3.2.1, based on the Parties’ estimates, Singapore
        Airlines has a very low downstream share on the market for passenger air transport
        services at all of these airports is very low, ranging between [0-5]% and [0-5]%.
        Given the de minimis market share of Singapore Airlines at the affected airports, it
        cannot be considered an “important customer” within the meaning of the
        Commission’s Non-Horizontal Guidelines.72 Even if Singapore Airlines were to
        purchase its demand of retail on-board services exclusively from Gategroup, the
        overwhelming majority of customer demand for such services at any given airport
        would remain available to other upstream suppliers of retail on-board services,
        providing them with sufficient alternatives to avoid being foreclosed.73
70  Non-Horizontal Merger Guidelines, paragraphs 58 and 61.
71  Non-Horizontal Merger Guidelines, paragraph 61.
72  Non-Horizontal Merger Guidelines, paragraphs 58 and 61.
73  Non-Horizontal Merger Guidelines, paragraph 61.
                                                      15
 ---pagebreak--- (75) The Commission therefore considers that it is unlikely that Gategroup could engage
     in a customer foreclosure strategy in retail on-board services (or in retail on-board
     snacking, or retail on-board duty free) post-Transaction.
5.4. Conclusion on competitive assessment
(76) In light of the outcome of the market investigation and the evidence submitted by the
     Parties, the Commission concludes that it is unlikely that the combined entity could
     engage in either an input or customer foreclosure strategy post-Transaction.
(77) The Commission therefore concludes that the Transaction does not raise serious
     doubts about its compatibility with the internal market or the functioning of the EEA
     Agreement as regards its impact on competition for the markets for in-flight catering
     in Copenhagen Kastrup (CPH), Paris Charles de Gaulle (CDG), Berlin Tegel (TXL),
     Dusseldorf (DUS), Frankfurt (FRA), Munich (MUC), Rome Fiumicino (FCO),
     Amsterdam Schiphol (AMS), Barcelona (BCN), Stockholm Arlanda (ARN), and
     London Heathrow (LHR) airports and on retail on-board services (and in retail on-
     board snacking, or retail on-board duty free) in the EEA on the basis of vertical
     effects.
6.   CONCLUSION
(78) For the above reasons, the European Commission has decided not to oppose the
     notified operation and to declare it compatible with the internal market and with the
     EEA Agreement. This decision is adopted in application of Article 6(1)(b) of the
     Merger Regulation and Article 57 of the EEA Agreement.
                                                    For the Commission
                                                    (Signed)
                                                    Margrethe VESTAGER
                                                    Member of the Commission
                                               16