The Competition Commission has confirmed that budget airline Ryanair will need to reduce its 29.8 per cent stake in Aer Lingus to just five per cent.
In its final report published today, the CC confirmed its provisional findings that Ryanair’s minority shareholding had led or may be expected to lead to a substantial lessening of competition between the airlines on routes between Great Britain and Ireland.
The importance of scale to airlines is clear from evidence of widespread industry consolidation in recent years. Against that background, the CC formed the view that Aer Lingus’s commercial policy and strategy was likely to be affected by Ryanair’s minority shareholding, in particular because it was likely to impede or prevent Aer Lingus from being acquired by, or combining with another airline.
The CC was also concerned that Ryanair’s minority shareholding was likely to affect Aer Lingus’s commercial policy and strategy by allowing Ryanair to block special resolutions, restricting Aer Lingus’s ability to issue shares and raise capital and to limit Aer Lingus’s ability to manage effectively its portfolio of Heathrow slots. Ryanair’s shareholding also increased the likelihood of Ryanair mounting further bids for Aer Lingus, with the associated disruption to Aer Lingus’s ability to implement its commercial strategy.
Last month, Ryanair offered to sell its stake to another EU airline if they can get the support of 50.1 per cent of Aer Lingus shareholders.
Simon Polito, deputy chairman of the Competition Commission and chairman of the inquiry, said:
In line with the recent decision of the European Commission prohibiting Ryanair from acquiring Aer Lingus, we recognize that Ryanair and Aer Lingus compete intensely for passengers travelling between Great Britain and Ireland, to the benefit of millions of passengers crossing the Irish Sea each year; and that competition between them is at least as intense now as it was when Ryanair first acquired its stake in Aer Lingus in 2006.
However, we consider that there is a tension between Ryanair’s position as a competitor and its position as Aer Lingus’s largest shareholder, and that Ryanair has an incentive to weaken its rival’s effectiveness as a competitor. Ryanair’s minority shareholding affects Aer Lingus’s commercial policy and strategy in various ways that could be crucial to Aer Lingus’s future as a competitive airline. We were particularly concerned about Ryanair’s ability, either directly or indirectly, to impede Aer Lingus from combining with another airline to build scale and achieve synergies to remain competitive.
Ryanair proposed various remedies to us in an attempt to address our specific concerns. In a dynamic and uncertain sector such as the airline industry, however, it is inherently difficult to design remedies that would cater for all eventualities. We concluded that the effective and proportionate remedy that would address our concerns was to require a partial divestment of Ryanair’s shareholding to 5 per cent, facilitated by the appointment of a Divestiture Trustee. Aer Lingus would then be free to take actions to maintain and strengthen its competitive position in the future for the benefit of passengers on routes between Great Britain and Ireland.