UK Competition Commission could force Ryanair to reduce Aer Lingus stake

Victoria
By Victoria May 30, 2013 10:11

UK Competition Commission could force Ryanair to reduce Aer Lingus stake

Ryanair faces having to reduce its shareholding in Aer Lingus after the UK Competition Commission (CC) provisionally decided that its 29.8% stake could reduce competition on routes between Great Britain and the Republic of Ireland.
In a summary of its provisional findings, published today, the CC has concluded that the shareholding gives Ryanair the ability to influence the commercial policy and strategy of Aer Lingus, its main competitor on these routes.
The CC has provisionally found that, against a background of consolidation in the airline industry, Ryanair’s shareholding obstructs Aer Lingus’s ability to merge or combine with another airline to build scale and achieve synergies to remain competitive.
The CC has also found that Ryanair’s shareholding allows it to block special resolutions by Aer Lingus and to hinder its plans to issue shares and raise capital; it could also prevent its rival from disposing of its valuable slots at Heathrow airport.
The CC has today published a notice of possible remedies which seeks views on how much of its shareholding Ryanair should have to sell and whether such a disposal should be accompanied by other safeguards, should the CC’s provisional findings be confirmed.
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.
‘We 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.
‘We recognize that there has been competition between Aer Lingus and Ryanair since 2006. However, without Ryanair’s minority shareholding, competition might have been more intense and may be restricted in the future. Passengers on routes between Great Britain and Ireland will benefit from Aer Lingus continuing to compete vigorously with Ryanair and so Aer Lingus needs to be free to take any actions that will strengthen its position in the 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, following previous unsuccessful attempts launched in 2006 and 2008. The most recent bid was investigated by the European Commission and prohibited in February 2013.
The CC’s own inquiry was extended whilst Ryanair sought to challenge the CC’s jurisdiction in view of the European Commission investigation. The Competition Appeal Tribunal (in August 2012) and the Court of Appeal (in December 2012) both dismissed Ryanair’s challenges and the Supreme Court refused it permission to appeal further in April. The CC restarted its investigation in March 2013.
The CC will publish its full provisional findings in the next few days. The provisional findings summary, notice of possible remedies and all other information relating to the inquiry can be found here. http://www.competition-commission.org.uk/our-work/directory-of-all-inquiries/ryanair-aer-lingus
The CC is expected to publish its final report by 11 July 2013.
Ryanair has criticised the CC’s provisional decision that Ryanair, through its 6½ year old minority (29.8%) shareholding in Aer Lingus, ‘has influence’ over Aer Lingus and that this ‘could reduce competition’.

The low-cost carrier said in a press release that “Under EU law, the UK CC has a duty of “sincere cooperation” with the EU, and cannot contradict or reach different conclusions to the European Commission’s findings. Inexplicably, today’s provisional decision by the CC infringes this duty of sincere co-operation by ignoring the recent findings of the European Commission that:
“Aer Lingus and Ryanair compete on a greater number of routes compared to the 2007 Decision” and “there is significant competitive interaction between the Parties” and “evidence collected by the Commission in the market investigation has also confirmed that the competitive relationship between Ryanair and Aer Lingus has at least persisted, if not increased, since 2007”.
“Should the CC maintain this untenable position in its final decision (due in July), Ryanair will appeal that decision to the UK Competition Appeals Tribunal and thereafter, if necessary, to the Court of Appeal. Until the outcome of this UK appeal, and the completion of Ryanair’s appeal against the European Commission’s February 2013 prohibition decision, the CC cannot impose any remedies, however unlawful, on Ryanair.”
Ryanair’s Michael O’Leary said: “This provisional decision by the UK CC is bizarre and manifestly wrong. The CC’s finding that Ryanair’s shareholding obstructs Aer Lingus’ ability to attract other airlines was disproved by Etihad’s purchase of a 3% stake and the evidence submitted by other large EU airlines, which confirmed that Ryanair’s shareholding was not a barrier to other airlines acquiring a stake in Aer Lingus.
“In February 2013 the European Commission found that competition between Ryanair and Aer Lingus has “intensified” since 2007. A decision by the Competition Commission that Ryanair’s 29.8% stake in Aer Lingus may lead to a lessening of competition will clearly breach the EU Treaty duty of sincere cooperation between the EU and the UK. Ryanair therefore calls on the Competition Commission to abide by this overriding legal principle and end this bogus and baseless enquiry into a 6½ year old minority shareholding between two Irish airlines.
“While Ryanair is one of the UK’s largest airlines, Aer Lingus has a tiny presence in the UK, serving just 6 routes to the Republic of Ireland, a traffic base that has declined over the past 3 years and now accounts for less than 1% of all UK air traffic. This case, involving two Irish airlines where one (Aer Lingus) accounts for less than 1% of the UK’s total air traffic, is yet another enormous waste of UK taxpayer resources on a case which has little if any impact on UK consumers.
“UK taxpayer interests would be better served if the UK Competition Commission investigated (rather than ignored) BA’s recent takeovers of BMI, Iberia and Vueling, instead of wasting time pursuing this Irish case, which is of no consequence to UK consumers.”

Aer Lingus has stated that it “looks forward to continuing to assist the UK Competition Commission in its investigation”.

Victoria
By Victoria May 30, 2013 10:11
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