Concerns Raised Over Ryanair Holdings Stake Acquisition of Aer Lingus Group
The Competition Commission in UK is looking into the completed acquisition by Ryanair Holdings plc of a minority stake in Aer Lingus Group plc after the Office of Fair Trading (OFT) raised red flags about its impact to competition.
The OFT launched an investigation into Ryanair’s stake of 29.8 per cent in Aer Lingus in October 2010. The OFT was legally unable to act prior to this date because Ryanair’s bid for outright control of Aer Lingus was under review by the European Commission and European Courts.
Ryanair initially acquired a stake in Aer Lingus in late-2006. It mounted a public bid for the entire shareholding in Aer Lingus in October 2006. The European Commission investigated the public bid and decided to prohibit it in June 2007. The General Court ruled in July 2010 that the European Commission does not have the ability to examine or require divestment of minority shareholdings that do not confer ‘decisive influence’ for the purposes of the EU Merger Regulation.
The OFT subsequently commenced a UK merger investigation. However, it was suspended on two occasions, once by the OFT because it had insufficient information with which to proceed, and once due to a legal challenge by Ryanair, which was dismissed by the Court of Appeal on 22 May 2012.
In January 2011, Ryanair appealed to the Competition Appeal Tribunal against the OFT’s decision that it was ‘in time’ to investigate and refer, should it decide to do so, Ryanair’s minority stake in Aer Lingus. The Competition Appeal Tribunal delivered judgment in July 2011 favoring the OFT’s investigation.
In September 2011, Ryanair appealed the Competition Appeal Tribunal judgment to the Court of Appeal. In November 2011, the Court of Appeal stayed the OFT’s investigation until the appeal had been determined. In May 2012 the Court of Appeal dismissed Ryanair’s challenge to the Competition Appeal Tribunal judgment.
The OFT has now concluded that Ryanair’s stake may afford it material influence over the commercial policy of Aer Lingus and that there is a realistic prospect that its stake has resulted or will result in a substantial lessening of competition on a number of Ryanair and/or Aer Lingus routes between the UK and Ireland. The OFT therefore considers it appropriate for the Competition Commission to undertake a more detailed investigation into this matter.
Ryanair and Aer Lingus are, by far, the two largest scheduled airlines operating between the UK and Ireland by passenger traffic. They provide the only two scheduled airline services on five routes between the UK and Ireland and are the two most significant scheduled airline operators on the important London to Dublin route. Overall, around 370,000 scheduled air passengers travel between the UK and Ireland every month, with Ryanair and Aer Lingus together carrying over 80 per cent of these.
The OFT has identified three principal competition concerns for UK passengers that may result from the minority stake and which require further detailed investigation. First is Ryanair’s ability to weaken Aer Lingus as a competitor through use of its voting power at Aer Lingus shareholder meetings, for example through restricting Aer Lingus’ funding opportunities, influencing how it uses key assets such as airport slots at London Heathrow, or blocking acquisitions above certain value thresholds.
The second concern pertains to Ryanair’s shareholding may fetter Aer Lingus’ options to benefit from investment by other airlines which may, in turn, weaken the competitive position of Aer Lingus over time including restricting its ability to expand and enter onto routes directly in competition with Ryanair.
As a result of its shareholding, Ryanair’s own incentives to compete against Aer Lingus may be dampened since it would be able to raise prices in the knowledge that a proportion of the profits of any lost passengers that switch to Aer Lingus would be recouped through its shareholding in Aer Lingus.
Amelia Fletcher, OFT Chief Economist and Decision Maker in this case, said: “Ryanair and Aer Lingus are key rivals on routes between the UK and Ireland, together carrying over 80 per cent of traffic. Competition between airlines benefits passengers, keeping fares down and increasing flight frequencies.
“This OFT investigation has been into the acquisition of a minority stake in Aer Lingus. We are concerned that Ryanair’s shareholding places it in a position to influence the commercial policy and strategy of Aer Lingus in a number of different ways that could dampen competition to the disadvantage of UK passengers. We therefore believe it is important for the Competition Commission to investigate this shareholding in more detail. The time that has elapsed since the acquisition took place does not make it any less important to passengers that our competition concerns are considered.”