RYANAIR HAS BEEN warned that it may have to reduce its stake in Aer Lingus.
The warning comes from the UK’s Competition Commission, which said that it has provisionally decided that the company’s 29.8 per cent stake in its competitor could “reduce competition on routes between Great Britain and the Republic of Ireland”.
It said that the shareholding gives the budget airline “the ability to influence the commercial policy and strategy of Aer Lingus”, which is its main competitor on these routes.
It also obstructs Aer Lingus’s ability to merge or combine with another airline, said the CC’s provisional findings, adding that it allows it to block special resolutions by Aer Lingus and hinder its plans to issue shares and raise capital.
The share could also prevent its rival from disposing of its valuable slots at Heathrow airport, said the CC.
Aer Lingus said it welcomes the announcement and “looks forward to continuing to assist the UK Competition Commission in its investigation into the anti-competitive effects of Ryanair’s minority shareholding”.
Ryanair has criticised the announcement, saying that the UK CC has a duty of ‘sincere cooperation’ with the EU and cannot contradict the European Commission’s findings.
It said the EC said that competition between the two airlines has intensified since 2007, which is at odds with the CC’s findings. Ryanair said that if the CC maintains its position on this in its final decision, it will appeal that to the UK Competition Appeals Tribunal and if necessary to the Court of Appeal.
Michael O’Leary of Ryanair described the provisional decision as “bizarre and manifestly wrong”.
Remedies
To deal with this situation, the CC has published a notice of possible remedies. These seek views on how much of its shareholding Ryanair should sell and whether safeguards should accompany this.
Simon Polito, CC deputy chairman and chairman of the Ryanair/Aer Lingus inquiry group said:
Our provisional view is that Ryanair’s shareholding is likely to weaken its main competitor on routes between Great Britain and the Republic of Ireland. Whilst not giving it control over the day-to-day running of its rival, Ryanair’s minority shareholding can influence the major strategic decisions that could be crucial to Aer Lingus’s future as a competitive airline on these and other routes.
He said they were “particularly concerned” about Ryanair’s influence over Aer Lingus’s “ability to be acquired by, merge with, or acquire another airline”.
We thought it likely that such a combination would be necessary to increase Aer Lingus’s scale and achieve synergies to allow it to remain competitive in future.
The Office of Fair Trading (OFT) referred the case to the CC in June 2012, shortly after which Ryanair made its third bid for Aer Lingus. It had made previous unsuccessful attempts in 2006 and 2008.
The most recent bid was investigated by the European Commission and was prohibited in February of this year.
The CC’s full provisional findings can be found here, and its final report is due by 11 July this year.
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