Ryanair determined to pursue Aer Lingus as EC steps into fray

By GARETH MACKIE
Published on 30/08/2012 00:00

Ryanair said it plans to make a fresh bid for rival Aer Lingus next year after European regulators raised concerns that its takeover
approach could reduce competition.

The European Commission (EC) said it will carry out a full review into the deal and announce a decision on whether to clear or block the takeover by 14 January.

However, the budget airline responded by saying its €694 million (£550m) offer for Aer Lingus had lapsed as a result of the EC’s move and it will launch a fresh approach if regulators give it the go-ahead.

The EC said: “On a large number of European routes, mainly out of Ireland, the two airlines are each other’s closest competitors and barriers to entry
appear to be high.

“Many of these routes are currently only served by the two airlines. The takeover could therefore lead to the elimination of actual and potential competition on a large number of these routes.”

Analysts said the investigation would step up the pressure on Ryanair to offer concessions such as opening up routes to rival operators.

Ryanair, run by chief executive Michael O’Leary, has made two previous attempts to acquire Aer Lingus, in which it holds a 29.82 per cent. Its first approach was blocked by the EC in 2007, while a subsequent bid in 2009 was withdrawn.

The carrier launched its latest offer in June, arguing that consolidation in the airline sector meant the long-term future of Aer Lingus would be secured if it became part of a larger group.
A number of airlines have joined forces in recent years. International Airlines Group, the owner of British Airways and Iberia, completed its purchase of BMI from German carrier Lufthansa in April. Lufthansa itself has acquired Swiss Air and Austrian Air, as well as taking stakes in SN Brussels and SAS.

Air France and KLM merged in 2004 and bought a 25 per cent stake in Italy’s Alitalia in 2009.

O’Leary has also said that competition authorities should approve its advances as Dublin airport is operating at around 50 per cent capacity since the opening of a new terminal in 2010, lowering the barrier to any new entrants.

Aer Lingus has rejected its rival’s bid, claiming it “fundamentally undervalues” the company. A spokesman said yesterday: “Aer Lingus is a much stronger airline today than it was at the time of the previous Ryanair offers and is Ryanair’s only significant competitor on the vast majority of Irish air routes.

“The number of routes into and out of Ireland on which Aer Lingus and Ryanair compete has sharply increased since 2007. The reasons for prohibition are therefore even stronger than before.”

The UK Competition Commission is also investigating Ryanair’s holding in Aer Lingus, in which the Irish government owns a 25 per cent stake.

Etihad Airways owns a 3 per cent stake in Aer Lingus and has expressed an interest in acquiring the government’s holding.

Ryanair posted a record profit of €503m for the 12 months to the end of March, up 25 per cent on the previous year, but expects profits to be lower this year, at between €400m and €440m, after being hit by rising fuel prices. It saw passenger numbers rise 5 per cent to 75.8 million during the financial year.

Profits at Aer Lingus soared almost 66 per cent to €71.2m, while it carried 9.5 million passengers in the year to 31 December, an increase of 1.8 per cent over the previous 12-month period.