Analysis: Government support moves Aer Lingus deal towards success

The potential impact of takeover by IAG on consumers remains unclear

 Aer Lingus: It is not clear yet whether the deal will mean lower fares for consumers.  Photograph: Peter  Muhly/AFP/Getty Images

Aer Lingus: It is not clear yet whether the deal will mean lower fares for consumers. Photograph: Peter Muhly/AFP/Getty Images

 

International Consolidated Airline Group’s (IAG) €1.4 billion bid for Aer Lingus moved a critical step closer to success when the Government announced it was supporting the takeover.

If the deal finally goes through, Aer Lingus will be part of a larger group whose other members are British Airways and Spanish airlines, Iberia and Vueling. Like them, it would have its own management and retain its brand and identity.

The main plank of IAG’s plan is to use Dublin Airport, and to a certain extent Shannon Airport, as natural gateways through which it can feed passengers from Britain and elsewhere in Europe to North America.

By 2020 it intends Aer Lingus will have eight new long-haul craft to carry this extra business. That will almost double its current transatlantic fleet, which currently stands at nine.

The Irish airline’s chief executive, Stephen Kavanagh, said yesterday this would lead to the creation of 635 extra jobs in the long term. IAG believes it will have hired an extra 150 staff by the end of next year.

However, IAG chief executive Willie Walsh conceded to an Oireachtas committee last February there would be an unspecified number of job losses in the short term as some head- office roles are likely to be duplicated.

It is not clear yet if the deal will mean lower fares for consumers. Walsh would not be drawn on the issue when he was asked about it a number of weeks ago. Instead he argued the market here is already very competitive, which he said meant people were already paying low fares.

Ryanair’s

presence Walsh singled out Ryanair’s big presence in the Irish market,

responsible for more than 80 of the 163 routes available out of Dublin alone, as a big factor in this.

However, in January, shortly after the issue first hit the headlines, Ryanair chief marketing officer Kenny Jacobs said that, in general, when one airline took over another, price increases had followed.

David Holohan, aviation analyst with Dublin firm Merrion Stockbrokers, said it should mean air fares remained low and travellers should enjoy more choice, as Aer Lingus would be tied into IAG’s network and that of its partners, such as American Airlines.

“People should be able to access hundreds of new routes,” he said.

Their options would not be limited to the north Atlantic, he added, as British Airways, IAG’s biggest subsidiary, has plans to grow its business in China and southeast Asia.

Holohan pointed out that as IAG intends to increase the number of aircraft flying from the Republic, and particularly from Dublin, across the north Atlantic, this would add significantly to the number of available seats on these routes, which should in turn help to keep fares low, or potentially drive them down.

Potential reduction

in seats He did not believe

that it should push up prices on routes between Ireland and Britain, one of Europe’s busiest air corridors.

While the analyst suggested that there could be some reduction in the number of available seats on some routes, as both British Airways and Aer Lingus fly from Belfast and Dublin to London, this should not hit the overall picture.

Instead, he said, both airlines would simply sell more seats on individual aircraft than they do now.

In any case, he said, Ryanair would continue to compete for passengers, and particularly business travellers, who were an important part of the market between the two countries.

The European Commission’s competition-law regulators will have to weigh up the deal’s possible impact on consumers before allowing IAG to take over its smaller rival.

They could look at the Irish-British market as a whole, or they could choose to assess individual segments of it, such as Dublin-London.

Depending on how it chooses to analyse a takeover’s implications, it could order IAG and Aer Lingus to allow another player in to operate some of the routes that they are now flying. The Brussels mandarins could take two to three months to come to a decision.

Some observers believe that the commission could move relatively quickly, as it already has a lot of information on the air-travel market between the two countries, as it has had to review three unsuccessful Ryanair bids for Aer Lingus over the past nine years.

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