THE EUROPEAN Commission’s decision to examine in detail Ryanair’s bid for Aer Lingus can have surprised few. The result of its in-depth investigation, which must be announced by mid-January, seems close to a foregone conclusion. The commission in its preliminary review has already signalled major potential competition concerns.
One is that on a large number of European routes, mainly out of Ireland, “the two airlines are each other’s closest competitors and barriers to entry seem high”. A takeover, it suggests, could lead to less rather than more competition between Ryanair and Aer Lingus, as many of the routes from Dublin are only served by these two airlines. Ryanair’s bid for Aer Lingus has now lapsed pending the commission’s investigation, and decision. For Ryanair’s chief executive Michael O’Leary, his remarkable success in developing Europe’s leading budget airline has few parallels. In contrast, his attempts to expand the company by acquisition have proved less successful, exemplified by the failure of Ryanair’s series of takeover bids for Aer Lingus. Will it be third time lucky? The odds, it would seem, are stacked against Ryanair.
The Government is no more willing now to sell its minority stake to Ryanair than before. Financial markets have passed judgment, and already priced the Ryanair bid for failure: Aer Lingus’s share price has remained far below Ryanair’s offer price for the company. Ryanair too has already lost heavily on its Aer Lingus investment. The value of its 29.9 per cent stake - which cost €407 million – has since been written down substantially. This time the commission seems less likely to change its mind, given that Aer Lingus and Ryanair share even more routes than before. And, the UK Competition Commission has begun its own investigation into Ryanair’s minority stake in Aer Lingus. Ryanair could yet be ordered to sell its Aer Lingus holding.
Mr O’Leary has never been one to take no for an answer, as his legal and verbal battles with the European Commission and others have shown. This time is different, he has claimed, pointing to recent consolidation among European airlines that has met with commission approval, while suggesting other airlines could be persuaded to take over some airline routes that Ryanair and Aer Lingus now operate from Ireland. Increasingly, the Ryanair bid looks doomed. It has become an exercise in futility, wasteful of management time in both companies and of huge sums spent on legal fees. Mr O’Leary might well pause for thought.