27/02/2013 07:15 GMT

Ryanair Takeover Bid For Aer Lingus Rejected, EC Says Ryanair's Remedies Not Enough To Prevent Monopoly

The European Commission has officially rejected Ryanair's third attempt to takeover Aer Lingus on the grounds that a merger would result in passengers paying more for their flights.

Ryanair revealed it expected the merger deal to be refused earlier this month, announcing then it would challenge the decision at an appeal.

Despite the remedies offered by Michael O'Leary's low cost carrier, including handing 43 of the Irish carrier's short-haul routes to Flybe and IAG's commitment to take over divestments of Ryanair's and Aer Lingus's entire London-Gatwick operations, the EC ruled the monopoly of a combined Ryanair and Aer Lingus would still be too great.

The number of routes to and from Ireland operated in competition by Ryanair and Aer Lingus has increased from 35 in 2007 to 46 in 2012.

The combination of Ryanair and Aer Lingus would have led to very high market shares on all of the 46 routes on which the two airlines currently compete with each other, and on 28 of the routes the proposed merger would have created an outright monopoly, the EC said.

On 11 further routes, the only alleged competitive constraint to the merged entity would have come from charter airlines. However, this constraint would have remained weak because charter airlines have a very different business model.

Finally, on seven routes Ryanair and Aer Lingus operate alongside other scheduled carriers, but those scheduled operators tend to focus on bringing connecting passengers to their own network hubs - typical examples are British Airways (to London Heathrow), Lufthansa (to Frankfurt) and Air France (to Paris Charles de Gaulle) – as opposed to the point-to-point connections that Ryanair and Aer Lingus offer.

The proposed merger would therefore have removed the currently vibrant competition between Ryanair and Aer Lingus on all these routes where their activities overlap.

The Commission also said it didn't consider Flybe to be a suitable purchaser capable of competing sufficiently with the Ryanair/Aer Lingus merged entity, and that IAG, which owns British Airways, would not constrain the merged entity to a sufficient degree and would have little incentive to stay on the routes beyond a three-year period.

Reuters reported that Flybe was disappointed at the EC's decision to prohibit the takeover.

"In addition, the Commission could not conclude with the requisite degree of certainty that the proposed commitments could actually be put in place in a timely manner. Nor was it certain that they would work in practice and for a sustained period of time," the report read.

Ryanair is publicly fuming. It claims it went out of its way to assuage concerns from the EC about competition and maintains the market test questionnaire relating to Ryanair's remedy package showed a clear majority of respondents agreed that the assets divested to Flybe were sufficient and that EU airlines representing a majority of air passengers in Europe were supportive of key remedies proposed.

Ryanair's communcations director Robin Kiely said in a statement: "At a time when airlines in Europe and further afield are merging to form bigger competition champions (witness American Airlines' merger with US Airways last week and Emirates' recent strategic joint-venture with Qantas) the EU Commission has yet again set back competition and choice in Europe while delaying much-needed consolidation.

"This decision leaves Aer Lingus as a small, isolated airline and leaves the two Irish airlines at the mercy of the government-owned Dublin Airport monopoly, which continues to increase passenger charges, deliver third-rate services and oversee traffic declines.

"We regret that this prohibition is manifestly motivated by narrow political interests rather than competition concerns and we believe that we have strong grounds for appealing and overturning this politically-inspired prohibition. Accordingly, Ryanair has instructed its legal advisers to prepare a comprehensive appeal against this manifestly unjust prohibition."