Peskova v. Travel Service AS | Ireland

Ryanair and Aer Lingus

Facts
Remedies offered by Ryanair

Facts

The European Commission prohibited, on the basis of the EU Merger Regulation, a proposed takeover of the Irish flag carrier Aer Lingus by the low-cost airline Ryanair. The Commission concluded that the merger would have harmed consumers by creating a monopoly or a dominant position on 46 routes where, currently, Aer Lingus and Ryanair compete vigorously against each other. This would have reduced choice and, most likely, would have led to price increases for consumers travelling on these routes. During the investigation, Ryanair offered remedies. The Commission assessed them thoroughly and carried out several market tests. However the remedies proposed fell short of addressing the competition concerns raised by the Commission.

Commission Vice President in charge of competition policy Joaquín Almunia said: 'The Commission's decision protects more than 11 million Irish and European passengers who travel each year to and from Dublin, Cork, Knock and Shannon. For them, the acquisition of Aer Lingus by Ryanair would have most likely led to higher fares. During the procedure, Ryanair had many opportunities to offer remedies and to improve them. However, those proposals were simply inadequate to solve the very serious competition problems which this acquisition would have created on no less than 46 routes.'

Ryanair and Aer Lingus are by far the most important carriers operating out of Ireland. They compete directly on 46 routes. It was the third time that the proposed acquisition of Aer Lingus by Ryanair was notified to the Commission. In 2007 the Commission prohibited Ryanair's first attempt to acquire Aer Lingus and this decision was upheld by the EU General Court. In 2009, the second notification by Ryanair was withdrawn.

The Commission took into account the changes in market circumstances since 2007, for example the fact that the market positions of Ryanair and Aer Lingus have become even stronger, with their combined market shares going up from 80% in 2007 to 87% in 2012 for short-haul flights out of Dublin. The number of routes to and from Ireland operated in competition by Ryanair and Aer Lingus has increased from 35 in 2007 to 46 in 2012.

The combination of Ryanair and Aer Lingus would have led to very high market shares on all of these 46 routes:

On 28 routes the proposed merger would have created an outright monopoly.
On 11 further routes, the only alleged competitive constraint to the merged entity would have come from charter airlines. However, this constraint would have remained weak because charter airlines have a very different business model.
Finally, on 7 routes Ryanair and Aer Lingus operate alongside other scheduled carriers. In addition to their very high market shares Ryanair and Aer Lingus are very close competitors - if not each other's closest competitors – on these routes. The reason is that the business model of competing scheduled operators tends to focus on bringing connecting passengers to their own network hubs - typical examples are British Airways (to London Heathrow), Lufthansa (to Frankfurt) and Air France (to Paris Charles de Gaulle) – as opposed to the point-to-point connections that Ryanair and Aer Lingus offer.

The proposed merger would therefore have removed the currently vibrant competition between Ryanair and Aer Lingus on all these routes where their activities overlap.

Moreover, the Commission's investigation confirmed the existence of high barriers to entry stemming, in particular, from Ryanair's and Aer Lingus' strong market positions in Ireland. The market investigation showed that there was no prospect that any new carrier would enter the Irish market after the merger, in particular by the creation of a base at the relevant Irish airports, and challenge the new entity on a sufficient scale.

In short, customers' travelling options would have been substantially reduced and it is unlikely that competitors would have been able to sufficiently constrain the merged entity in its market behaviour. Higher prices for passengers would have been the likely outcome.

Remedies proposed by Ryanair

Ryanair offered several sets of remedies during the procedure. The final remedy package consisted mainly of the divestiture of Aer Lingus' operations on 43 overlap routes to Flybe and the cession of take-off and landing slots to IAG/British Airways at London airports, so that IAG/British Airways would operate on 3 routes (Dublin-London, Shannon-London, and Cork-London). Flybe and IAG committed to operate the routes for 3 years. Additional slot divestitures on London-Ireland routes were also offered.

However, the Commission's investigation demonstrated that these remedies were insufficient to ensure that customers would not be harmed, taking into account the scope and magnitude of the competition concerns raised by the proposal.

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