Ryanair may have to reduce its stake in Aer Lingus

Ryanair Holdings plc (Ryanair) faces having to reduce its shareholding in Aer Lingus Group plc (Aer Lingus), after the Competition Commission (CC) provisionally decided that its 29.8 per cent stake could reduce competition on routes between Great Britain and the Republic of Ireland.

In a summary of its provisional findings, published today, the CC has concluded that the shareholding gives Ryanair the ability to influence the commercial policy and strategy of Aer Lingus, its main competitor on these routes.

The CC has provisionally found that, against a background of consolidation in the airline industry, Ryanair’s shareholding obstructs Aer Lingus’s ability to merge or combine with another airline to build scale and achieve synergies to remain competitive.

The CC has also found that Ryanair’s shareholding allows it to block special resolutions by Aer Lingus and to hinder its plans to issue shares and raise capital; it could also prevent its rival from disposing of its valuable slots at Heathrow airport.

The CC has today published a notice of possible remedies which seeks views on how much of its shareholding Ryanair should have to sell and whether such a disposal should be accompanied by other safeguards, should the CC’s provisional findings be confirmed.

Simon Polito, CC Deputy Chairman and Chairman of the Ryanair/Aer Lingus inquiry group 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.

‘We were particularly concerned about Ryanair’s influence over Aer Lingus’s ability to be acquired by, merge with, or acquire another airline. We thought it likely that such a combination would be necessary to increase Aer Lingus’s scale and achieve synergies to allow it to remain competitive in future.

‘We recognize that there has been competition between Aer Lingus and Ryanair since 2006. However, without Ryanair’s minority shareholding, competition might have been more intense and may be restricted in the future. Passengers on routes between Great Britain and Ireland will benefit from Aer Lingus continuing to compete vigorously with Ryanair and so Aer Lingus needs to be free to take any actions that will strengthen its position in the future.’

The Office of Fair Trading (OFT) referred the case to the CC in June 2012, shortly after which Ryanair made its third bid for Aer Lingus, following previous unsuccessful attempts launched in 2006 and 2008. The most recent bid was investigated by the European Commission and prohibited in February 2013.

The CC’s own inquiry was extended whilst Ryanair sought to challenge the CC’s jurisdiction in view of the European Commission investigation. The Competition Appeal Tribunal (in August 2012) and the Court of Appeal (in December 2012) both dismissed Ryanair’s challenges and the Supreme Court refused it permission to appeal further in April. The CC restarted its investigation in March 2013.

The CC will publish its full provisional findings in the next few days. The provisional findings summary, notice of possible remedies and all other information relating to the inquiry can be found here.

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