Ryanair may have to reduce stake in Aer Lingus: UK Competition Commission

In a preliminary ruling yesterday, the UK's Competition Commission (CC), the country's independent watchdog, said that Europe's largest low-cost carrier Ryanair Holdings Plc may have to reduce its stake in smaller rival Aer Lingus in order to sustain competition on routes between Great Britain and Ireland.

The CC believes that Ryan Air's shareholding will give it the ability to influence the commercial policy and strategy of Aer Lingus, its main competitor on these routes.

Dublin-based Ryanair, which has been eying Aer Lingus since 2006, holds a 30-per cent stake in the Irish carrier, while the Irish government holds a 25-per cent interest.

In February, the European Commission (EC) prohibited Ryanair's offer for Aer Lingus, making it Ryanair's third failed offer for Aer Lingus.

The CC's deputy chairman and chairman of the RyanAir / Aer Lingus inquiry group Simon Polito 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,'' Polito further stated.

Ryan Air's shareholding obstructs Aer Lingus's ability to merge or combine with another airline to remain competitive, and also allows it to block the company's special resolutions to issue shares and raise capital, the CC observed.

The CC is seeking views on how much of its stake Ryanair should have to sell and other safeguards, should its provisional findings be confirmed.

In 2007, the EC blocked Ryanair's first merger attempt with Aer Lingus on the grounds of its potential domination in the routes and in the Dublin market.

Dublin-based Air Lingus operates a young all-Airbus fleet comprising A320, A321 and A330 aircraft. It has 43 airplanes and carries around 10 million passengers per annum. In addition, Air Lingus provides cargo services to the UK, continental Europe and the US.

Strongly reacting to the CC's finding, Ryanair chief executive officer 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-per cent 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, he further stated.

A decision by the CC that Ryanair's 30-per cent 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. In fact, EC found that competition between Ryanair and Aer Lingus has ''intensified'' since 2007, Ryanair said.

Ryanair called on the CC 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 only accounts for less than 1 per cent of the UK's total air traffic, Ryanair said.

The number of routes into and out of Ireland on which Ryanair and Aer Lingus compete has sharply increased since the first offer was blocked by the EC in 2007.

Aer Lingus earlier said that it will cooperate with the UK CC's investigation into Ryanair's 30-per cent stake. The investigation began following the referral by the UK's Office of Fair Trading in June last year.

Aer Lingus said that Ryanair's further bid in June just few days later was clearly motivated to derail UK CC's investigations.

The CC is expected to publish its final report by 11 July 2013.