Reed Smith Client Alert

Authors: Edward S. Miller Marjorie C. Holmes

The European Commission has prohibited Ryanair’s proposed acquisition of Aer Lingus, finding the remedies proposed by Ryanair insufficient to alleviate the substantial concerns about the merger’s impact on the market and the anticipated resultant consumer harm. This decision is the third prohibition decision by the European Commission in the air transport sector (and the second involving a proposed acquisition of Aer Lingus by Ryanair) arising from the 15 mergers and several alliances it has examined since 2004. Ryanair’s existing 29.8% shareholding in Aer Lingus remains under review by the UK Competition Commission.

The European Commission (the "Commission") has decided that Ryanair’s proposed acquisition of Aer Lingus would have harmed consumers through a reduction in choice and a likely increase in prices arising from the creation of a monopoly or a dominant position on 46 routes where Aer Lingus and Ryanair currently compete vigorously against each other.

Ryanair proposed a number of remedies to alleviate the Commission’s concerns. These included 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 to enable IAG/British Airways to operate on three of the relevant routes. Each committed to operate on the routes for a period of three years.

The Commission rejected these remedies and prohibited the acquisition finding that:

  • Ryanair and Aer Lingus are "by far the most important carriers out of Ireland" directly competing on 46 routes
  • The merger would have led to very high market shares on all of these 46 routes including the creation of an outright monopoly on 28 routes
  • There were very high barriers to entry in the Irish market stemming from Ryanair’s and Aer Lingus’ strong market positions and that there was "no prospect" that any new carrier would enter the Irish market after the merger
  • The remedies proposed were "simply inadequate to solve the very serious competition problems which this acquisition would have created" since Flybe was not a "suitable purchaser capable of competing sufficiently with the Ryanair/Aer Lingus merged entity" and 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."

The prohibition decision is the third prohibition out of the 15 mergers and several alliances examined in the air transport sector by the Commission since 2004. This decision as well as the two prior prohibition decisions involved two airlines having large bases at the same "home" airport. In each case this fact proved determinative in finding that the proposed merger would result in a reduction in competition.

Not only has Ryanair now been prohibited from acquiring the remaining shares in Aer Lingus, but its existing 29.8% share is also in jeopardy as it is currently being scrutinised by the UK’s Competition Commission. The Competition Commission is due to decide the fate of Ryanair’s existing share in Aer Lingus this summer. Meanwhile Aer Lingus has launched a challenge against the European Commission in the General Court of the European Union for its award of slots under the IAG/bmi commitments proceedings.


Client Alert 2013-064