June 20, 2012 5:11 pm

Ryanair/Aer Lingus: competition worries

Muted reaction to €700m offer reflected scepticism on Brussels

According to Irish mythology, three sets of plucks on Daghdha’s harp produced first tears, then mirth and finally sleep. Ryanair’s third bid in six years for rival Irish carrier Aer Lingus did not quite have the last effect. But reaction to the €700m offer was muted: Aer Lingus shares gained 15 per cent, but remained one-fifth below the €1.30 offer price.

That reflects deep scepticism that Ryanair will ever get a merger deal past Europe’s competition authorities. Brussels rebuffed the proposed tie-up in 2007 because it would mean a near-monopoly on short-haul flights into and out of Ireland, including more than 80 per cent of those via Dublin. Ryanair is right when it says that the world has changed markedly since then. But in this case, the two airlines – both profitable – remain dominant in their home market. Deutsche Bank estimates that, combined, they would control between 80-90 per cent of UK-Ireland and Europe-Ireland capacity. True, more terminal space removes a barrier to new entrants at Dublin, but this hardly guarantees effective competition. A more pertinent question may be whether concessions could be carved out to assuage competition worries. But the carriers provide rival services on about 30 Dublin-Europe routes, so these would have to be chunky – more perhaps than Ryanair would concede.

More convincing is the theory that the low-cost carrier wants to get out in front of a UK inquiry, begun a few days ago, into whether Ryanair should be required to dispose of its 29.9 per cent stake in Aer Lingus and hopes to flush out rival interest. The Irish government, with 25 per cent of Aer Lingus, is also under some pressure to dispose of its stake, given its financial problems. The problem is identifying would-be buyers, although Lufthansa, IAG and Etihad might have interest in parts. Good Irish legends are lengthy, and this saga could run for a while yet.

Email the Lex team in confidence at lex@ft.com

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