CMA gives green light to railway merger with behavioural commitments

The Competition and Markets Authority has cleared the completed acquisition by Arriva of the Northern Rail franchise after a Phase 2 inquiry and conditional on the parties’ commitments to fare caps on four routes.

The CMA concluded that the acquisition gave rise to a substantial lessening of competition (SLC) on three rail flows (Leeds to Sheffield, Wakefield to Sheffield and Chester to Manchester).

The CMA had provisionally identified a further problematic overlap (Chester to Stockport) but finally ruled out competition concerns after a further investigation. This shows the scope to move the CMA away from its provisional assessment following the submission of further evidence in the course of a Phase 2 investigation.

The CMA concluded that the merger situation arising from the award of the rail franchise did not give rise to an SLC in relation to the award of rail franchises and any overlapping public transport networks and bus/ rail flows. It did not consider that the parties had sufficient incentives to raise bus fares on these flows as a result of the merger.

To address the SLC on overlapping rail flows, the CMA has decided to impose fare caps on the unregulated fares on the overlapping rail routes of Northern Franchise and Arriva rail.  Generally, commitments on conduct are more prevalent in merger cases involving transport networks than structural remedies as it can be easier to monitor such remedies in a regulated environment.

The methodology that the CMA has adopted in this case may be of interest to future bidders for rail franchises as they seek to navigate the possible competition issues.

CMA Final Report, 2 November 2016