Said The Arrangement May Block Aer Lingus From Merging With Another Airline

The European Competition Commission is considering whether to force budget carrier Ryanair to reduce its share of rival Air Lingus because the arrangement could reduce competition on flights between the Ireland and the U.K.

According to the committee's report, the Competition Committee (CC) has concluded that the shareholding gives Ryanair the ability to influence the commercial policy and strategy of Aer Lingus, its main competitor on these routes. The CC has provisionally found that, against a background of consolidation in the airline industry, Ryanair’s shareholding obstructs Aer Lingus’s ability to merge or combine with another airline to build scale and achieve synergies to remain competitive.

The CC has also found that Ryanair’s shareholding allows it to block special resolutions by Aer Lingus and to hinder its plans to issue shares and raise capital; it could also prevent its rival from disposing of its valuable slots at Heathrow airport.

The CC has published a notice of possible remedies which seeks views on how much of its shareholding Ryanair should have to sell and whether such a disposal should be accompanied by other safeguards, should the CC’s provisional findings be confirmed.

"Our provisional view is that Ryanair’s shareholding is likely to weaken its main competitor on routes between Great Britain and the Republic of Ireland," said Simon Polito, CC Deputy Chairman and Chairman of the Ryanair/Aer Lingus inquiry group. "(While) not giving it control over the day-to-day running of its rival, Ryanair’s minority shareholding can influence the major strategic decisions that could be crucial to Aer Lingus’s future as a competitive airline on these and other routes.

"We were particularly concerned about Ryanair’s influence over Aer Lingus’s ability to be acquired by, merge with, or acquire another airline," he continued. "We thought it likely that such a combination would be necessary to increase Aer Lingus’s scale and achieve synergies to allow it to remain competitive in future.

"We recognize that there has been competition between Aer Lingus and Ryanair since 2006. However, without Ryanair’s minority shareholding, competition might have been more intense and may be restricted in the future. Passengers on routes between Great Britain and Ireland will benefit from Aer Lingus continuing to compete vigorously with Ryanair and so Aer Lingus needs to be free to take any actions that will strengthen its position in the future."

In a news release, Ryanair called the findings a breach of EU law. The company said the "unfounded claim is disproven by the European Commission’s recent (Feb 2013) ruling that competition between Ryanair and Aer Lingus has “intensified” since 2007."
 
According to Ryanair, under EU law, the UK CC has a duty of “sincere cooperation” with the EU, and cannot contradict or reach different conclusions to the European Commission’s findings. Inexplicably, today’s provisional decision by the CC infringes this duty of sincere co-operation by ignoring the recent findings of the European Commission that “Aer Lingus and Ryanair compete on a greater number of routes compared to the 2007 Decision” and “there is significant competitive interaction between the Parties” and “evidence collected by the Commission in the market investigation has also confirmed that the competitive relationship between Ryanair and Aer Lingus has at least persisted, if not increased, since 2007”.

Ryanair said that should the CC maintain this untenable position in its final decision (due in July), it will appeal that decision to the UK Competition Appeals Tribunal and thereafter, if necessary, to the Court of Appeal. Until the outcome of this UK appeal, and the completion of Ryanair’s appeal against the European Commission’s February 2013 prohibition decision, the CC cannot impose any remedies, however unlawful, on Ryanair.

“This provisional decision by the UK CC is bizarre and manifestly wrong. The CC’s finding that Ryanair’s shareholding obstructs Aer Lingus’ ability to attract other airlines was disproved by Etihad’s purchase of a 3% stake and the evidence submitted by other large EU airlines, which confirmed that Ryanair’s shareholding was not a barrier to other airlines acquiring a stake in Aer Lingus," said Ryanair CEO Michael O’Leary.

The company said that while it is one of the UK’s largest airlines, Aer Lingus has a tiny presence in the UK, serving just 6 routes to the Republic of Ireland, a traffic base that has declined over the past 3 years and now accounts for less than 1% of all UK air traffic. This case, involving two Irish airlines where one (Aer Lingus) accounts for less than 1% of the UK’s total air traffic, is yet another enormous waste of UK taxpayer resources on a case which has little if any impact on UK consumers.
 
"UK taxpayer interests would be better served if the UK Competition Commission investigated (rather than ignored) BA’s recent takeovers of BMI, Iberia and Vueling, instead of wasting time pursuing this Irish case, which is of no consequence to UK consumers,” O'Leary said.

FMI: www.competition-commission.org.uk, www.ryanair.com