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February 27, 2013

European Commission Again Blocks Ryanair from Acquiring Aer Lingus

By E. Darius Sturmer, J.D.

The European Commission (EC) today announced that it has again prohibited, on the basis of the EU Merger Regulation, the proposed takeover of the Irish flag carrier Aer Lingus by low-cost airline Ryanair. The acquisition would have combined the two leading airlines operating from Ireland, according to the EC. The competition authority also prohibited Ryanair's first attempt to acquire Aer Lingus in 2007, and a second attempt in 2009 was withdrawn by the airline.

The EC concluded that the latest proposed merger would have harmed consumers by creating a monopoly or a dominant position on 46 routes where Aer Lingus and Ryanair currently compete vigorously against each other. The combination would have reduced choice and, most likely, would have led to price increases for consumers traveling on these routes, the EC said.

The EC noted that although Ryanair proposed several sets of remedies during the investigation that were aimed at alleviating the regulatory authority's competitive concerns, its 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 proposed transaction on the 46 routes. The final remedy package, it was noted, 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, Flybe "was not a suitable purchaser capable of competing sufficiently with the Ryanair/Aer Lingus merged entity," the EC found. The investigation also showed that IAG/British Airways would not constrain the merged entity to a sufficient degree and would have little incentive to stay on the routes beyond a 3 year period. In addition, the EC could not conclude with the requisite degree of certainty that the proposed commitments could actually be put in place in a timely manner. Nor was it certain that they would work in practice and for a sustained period of time.

In a separate statement, Joaquín Almunia, EC Vice President in charge of Competition Policy, observed that the market positions of the two companies on flights to and from Ireland are "even stronger today than they were in 2007," when the EC first blocked their proposed merger. Almunia noted that on 28 of the 46 routes currently at issue, the merger would have simply led to a monopoly, while on the other routes the only competitive constraint would have been exercised by airlines with a different business model, such as charter airlines or large airlines that focus on connecting flights. Such a constraint "would have been too weak."

"In the end," Almunia said, "the most likely outcome of this transaction would have been quite simple: when flying to and from Ireland, passengers wouldn't have been able to choose between as many options as they can today, and they would have ended up paying higher fares."

Ryanair has pledged to appeal the ruling. In a response issued by the company, a Ryanair spokesman lamented that the EC had "regrettably reversed its own precedents" in order to prohibit the proposed transaction. The statement added that "Ryanair's radical remedies package clearly addressed all of the concerns raised by the EU both in its 2007 prohibition and in its November 2012 statement of objections" and called the decision "manifestly motivated by narrow political interests rather than competition concerns."

Main Story: TopStory Antitrust

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