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Mergers: Commission blocks proposed merger between Aegean Airlines and Olympic Air
Commission Européenne - IP/11/68 26/01/2011
Brussels, 26 January 2011
Mergers: Commission blocks proposed merger between Aegean Airlines and Olympic Air
The European Commission has prohibited, on the basis of the EU Merger Regulation, the proposed merger between Aegean Airlines and Olympic Air, as it would have resulted in a quasi-monopoly on the Greek air transport market. This would have led to higher fares for four out of six million Greek and European consumers travelling on routes to and from Athens each year. Together the two carriers control more than 90% of the Greek domestic air transport market and the Commission's investigation showed no realistic prospects that a new airline of a sufficient size would enter the routes and restrain the merged entity's pricing. The companies offered to cede take-off and landing slots at Greek airports, but Greek airports do not suffer from the congestion observed at other European airports in previous mergers or alliances.
Commission Vice President in charge of competition policy Joaquín Almunia said: "The merger between Aegean and Olympic would have led to a quasi-monopoly in Greece and thus to higher prices and lower quality of service for Greeks and tourists travelling between Athens and the islands. It is the duty of the Commission to prevent the creation of monopolies when applying the EU merger control powers conferred on it by the Member States. My services and myself did our best to find a solution, but unfortunately the remedies offered by the companies would not have adequately protected the interests of the four million consumers that use the routes."
The European Commission has prohibited the merger between Aegean Airlines, a publicly-listed company, and Olympic Air, which is part of the bigger Olympic group of companies themselves owned by Greece's Marfin Investment Group. The deal was notified to the Commission for regulatory clearance under the European Union's Merger Regulation.
Aegean provides scheduled and charter air passenger transport as well as cargo transport in Greece and on international short-haul routes. It operates from Athens International Airport and serves around 45 short-haul destinations, including to the Greek islands. It has been part of the Star alliance since 2010.
Olympic consists of three legal entities: (i) Olympic Air, active since 1 October 2009, following the privatization of the former Olympic Airlines; (ii) Olympic Handling, which offers a full range of ground handling services at 39 Greek airports, serving both Olympic Air and third party airlines; and (iii) Olympic Engineering, which is currently in start-up mode and is active in the provision of maintenance, repair and overhaul services.
Both Aegean and Olympic Air operate on routes covered by public service obligations (PSOs). Aegean has PSOs on four routes. Olympic has PSOs on thirteen routes.
As with previous airline mergers, the Commission analysed the combined effects of the proposed merger on the individual routes on which both companies operate. It received views and complaints from a large number of market participants in Greece and internationally, including consumer associations, public authorities, travel agents, airport operators, ferry operators and other airlines.
Quasi-monopoly on nine routes
The proposed merger would have led to a quasi-monopoly between Athens and Thessaloniki, the country's second-biggest city, and between Athens and eight island airports, namely Herakleion and Chania, both in Crete, Rhodes, Santorini, Mytilini, Chios, Kos and Samos. None of these are routes covered by public service obligations.
The investigation showed that ferry services do not generally constitute a sufficiently close substitute to air services so as to discipline the merged entity's pricing behaviour post-merger. Their travel times are much longer and frequencies lower. The only domestic route where ferry services were considered a close substitute to air services is Athens-Mykonos for which the Commission concluded there were no competition problems.
The market investigation also showed that there is no prospect that any new player would enter the Greek market after the merger and challenge the new entity on a sufficient scale as concerns domestic flights to and from Athens.
Olympic Air and Aegean Airlines currently compete head-to-head on these routes and will continue to do so in the future.
The market investigation did not find significant competition problems on short haul international routes also operated by the parties, including, for example, on the Athens-Brussels route where they face competition from Brussels Airlines.
The companies offered to release slots at Athens and other Greek airports as well as other remedies such as access to their frequent flyer programmes and interlining agreements However, the nature and the scope of these remedies were insufficient to ensure that customers would not be harmed by the transaction. This is notably because the main problem in this case - unlike in many previous airline cases - was not the availability of slots, which are available at Athens airport and at most Greek airports. The market test also showed that the remedies were unlikely to entice a credible new player to create a base at the Athens airport and exert a credible competitive constraint on the affected routes.
The Commission, therefore, had no alternative but to conclude that the concentration "would significantly impede effective competition in the internal market or a substantial part of it" (Art 2.3 of the Merger Regulation) and prohibited the transaction. The elimination of competition which would have been associated with the merger would have been harmful for Greek customers, which need to be able to rely on competitive airlines.
The merger was notified for clearance on 24 June 2010. On 30 July the Commission started an in-depth investigation. The deadline for a ruling was extended twice to assess the remedies and to wait for information requested from the parties. The parties were warned in the Statement of Objections sent in October that the merger raised very serious concerns and could be prohibited.
Previous airline mergers
The Commission has examined 11 mergers and many alliances in this sector since 2004 and this is only the second negative prohibition. The first, in 2007, was a prohibition of the proposed acquisition of Aer Lingus by Ryanair, both Irish, which presented similarities with the Greek case. Both transactions amounted to a merger of two airlines based at the same "home" airport in the national capital.1 The General Court upheld the Commission’s prohibition of the Irish case in its judgment of 6 July 2010.2
Merger control rules and procedures
The Commission, in 1989, was given the power to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Art 1 of the Merger Regulation).
It only accepts remedies or prohibits mergers when the notified transaction would lead to a significant impediment to competition and make consumers worse off. This is the first merger prohibition since the Ryanair/Aer Lingus case in 2007. In total 20 cases have been prohibited out of a total of more than 4,500 mergers reviewed.
From the moment a deal is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II). In-depth investigations generally last 90 to 105 working days. More than 90% of the concentrations notified to the Commission are cleared after a Phase I review because they pose no problem for competition or notifying parties have addressed competition concerns by submitting remedies (for example in the form of asset divestments). Such remedies, which can also be submitted in Phase II, ensure that competition is maintained and consumers benefit from choice and price competition.
The transaction was notified to the Commission on 24 June 2010. More information on the case will be available at:
COMP/M.4439 Ryanair/Aer Lingus, OJ C 47, 20.2.2008, pp. 9-20.
Case T-342/07 Ryanair Holdings v Commission, Judgment of the General Court of 6 July 2010. Regarding remedies, the General Court stated notably that ""Unlike previous mergers in the passenger air transport sector (such as those which were at issue in Air France/KLM and Lufthansa/Swiss), the Commission could not be satisfied in the present case that mere slots would ensure access to a route. This is not a transaction involving active operators which have a home airport in different countries. Ryanair and Aer Lingus operate from the same airport, Dublin Airport, where they have significant advantages which could not easily be countered by competitors."