IP/07/893

Brussels, 27th June 2007

Mergers: Commission prohibits Ryanair’s proposed takeover of Aer Lingus

The European Commission has prohibited, on the basis of the EU Merger Regulation, the proposed takeover by Ryanair of Aer Lingus. The acquisition would have combined the two leading airlines operating from Ireland which currently compete vigorously against each other. The Commission concluded that the merger would have harmed consumers by removing this competition and creating a monopoly or a dominant position on 35 routes operated by both parties. This would have reduced choice and, most likely, led to higher prices for more than 14 million EU passengers using these routes to and from Ireland each year. The Commission's investigation and market test of remedies offered by Ryanair demonstrated that these remedies were inadequate to remove the competition concerns. In particular the limited number of airport "slots" offered was not likely to lead to competition sufficient to replace the competitive pressure currently exercised by each airline on the other. The Commission therefore concluded that the concentration would significantly impede effective competition within the European Economic Area (EEA) or a substantial part of it.

Competition Commissioner Neelie Kroes said “Our decision to prohibit this merger was essential to safeguard Irish consumers, who depend heavily on air transport, and other EU consumers. Monopolies are bad for consumers because they reduce choice, lower quality and give rise to higher prices. Low-cost carriers like Ryanair are no exception to this rule. Unfortunately, the remedies proposed by Ryanair were not sufficient to remove the competition concerns."

Ryanair is an Irish-based "low-cost" airline, offering point-to-point scheduled air transport services on more than 400 routes across Europe. With more than 40 million passengers carried in 2006, Ryanair is one of the largest airlines in the world.

Aer Lingus is the former Irish "flag"-carrier, which has changed its business model in recent years to offer mainly "low-cost" point-to-point short-haul flights. Aer Lingus operates more than 80 routes and carried more than 8.6 million passengers in 2006. Aer Lingus' activities are limited to routes to and from Ireland, operating from Dublin, Shannon and Cork.

Both Ryanair and Aer Lingus are currently by far the largest airlines offering short-haul flights to and from Ireland and constitute the main competitive constraints on each other on these routes. Their position is particularly strong to and from Dublin, where the merged entity would have accounted for around 80% of all intra-European traffic. In line with its approach in previous airline merger cases, the Commission has analysed the effects of the merger on the individual routes on which both companies' activities overlap. The Commission's extensive in-depth investigation of the case (involving contacts with dozens of airlines, other third parties, a consumer survey at Dublin airport and various quantitative analyses) showed that Aer Lingus and Ryanair currently compete directly with each other on 35 routes to and from Ireland. On 22 of these routes, the merger would have left customers with a monopoly. On the remaining routes, Aer Lingus and Ryanair are each other's closest competitors, and the merger would have significantly reduced consumer choice, with the merged entity holding market shares of over 60%.

The market investigation also revealed that most airlines were unlikely to enter into direct competition against a merged Ryanair/Aer Lingus in Ireland. This is not only because the merged entity would be able to operate from the very large bases of Ryanair and Aer Lingus in Ireland, having access to customers through their two well-established brands, but also because Ryanair has a reputation of aggressive retaliation against any entry attempt by competitors. A merged Ryanair/Aer Lingus would have had even greater flexibility to engage in selective short-term price reductions and capacity increases if competitors entered routes to/from Ireland, in order to protect its powerful market position. The likelihood of entry is further reduced by peak-time congestion at Dublin airport and other airports on overlap routes.

Ryanair offered various remedies to solve the competition issues identified. However, the scope of these remedies was insufficient to ensure that customers would not be harmed by the transaction. In particular, the limited number of "slots" offered was unlikely to stimulate market entry of a size necessary to replace the competitive pressure currently exercised by Aer Lingus. This was confirmed by the results of the extensive market tests of the proposed remedies.

The facts of this case differ from previous airline mergers. This was the first time the Commission had to assess a proposed merger of the two main airlines in a single country, with both operating from the same "home" airport – Dublin. It was also the first time the Commission had to assess a merger of two "low-cost" airlines, operating on a "point-to-point" basis. Finally, the number of overlapping routes is unprecedented compared with previous airline cases.
More information on the case will be available at:

http://ec.europa.eu/comm/competition/mergers/cases/index/m88.html#m_4439

See also MEMO/07/258