EU commission denies Aegean/Olympic merger

The plan, which was announced in February 2010, was designed to create a stronger presence for Greek carriers in the marketplace and to stave off possible ruinous competition, especially in the domestic sector.

Aegean as the surviving carrier and a Star Alliance member, also believed that a single domestic carrier could offer a more seamless product by offering a wider range of connections.

However, the European Commission said Wednesday a merger "would have led to higher fares for four out of six million Greek and European consumers travelling on routes to and from Athens each year."

Some unhappy CEOs

The heads of both groups, Theodore Vassilakis from Aegean and Andreas Vgenopoulis from Marfin, were critical of the decision. While stating their intent to abide by the ruling, they also both felt that adequate consumer safeguards had been created and that, in the long run, the EU decision would hurt consumer interests.

Especially given Greece’s dire economic circumstances both carriers doubt the sustainability of two airlines in a relatively small market. In its most recent release, Aegean reported a loss for the first nine months of 2010. Domestic traffic has been especially hard hit by the economic crisis and declined by 15% over the period with a fall of 19% in the third quarter. While International passenger counts rose, the net result was a 3% overall traffic drop for the entire period which increased in the third quarter to minus 8%.

Olympic is part of the Marfin group’s portfolio and specifics are not publicly broken out for review.

Anti-competitive

However, looking at the current situation at Athens, the Greek carriers are significantly overpowered by competing airlines and, especially in international markets, it is difficult to see just how a combined Greek presence would damage competition.

The following charts depict the foreign carriers serving ATH and the A3/OA presence as competitors. The first chart covers the Gulf, Middle East and Central Asia.

Gulf, Middle East, Central Asia

	Other	A3	OA
Abu Dhabi	EY 7
Amman	RJ 2
Bahrain	GF 2
Beirut	ME 4
Cairo	MS 9	5	7
Chisinau	9U 2
Damascus	RB 2
Doha	QR 14
Donetsk	VV 1
Dubai	EK 11
Erbil	VQ 2
Sulaymaniyah	VQ 2
Tel Aviv	LY 3	7
Tripoli	LN 3
Tunis	TU 2
Yerevan	U8 1

Source: OAG

It is immediately evident that the Greek carrier presence is minimal at best and that the vast majority of passengers arrive in Athens on foreign carriers. All three of the major Gulf carriers are active in the market and doubtless do well to Australia, home to a sizeable Greek expatriate community.

Outgunned in Europe

In Europe, the area of primary concern to the EU commission, Greek carriers have a larger but hardly overwhelming presence.

Europe

	Other	A3	OA
Amsterdam	KL 14		7
Belgrade	JU 4
Berlin	U2 4	6
Brussels	SN 7	7	7
Bucharest	RO 11		12
Budapest	MA 9
Dusseldorf		6
Geneva	LX 7
Istanbul	TK 19	7	14
Izmir	PC 4
Kiev	VV 4
Larnaca	CY 26	23	17
London	BA 20, U2 13	14	17
Madrid	IB 10	7
Malta	KM 2
Manchester	VQ 2, U2 3
Milan	U2 7	14
Moscow	SU 7
Munich	LH 21	14
Naples	AZ 10
Odessa	VV 1
Paris	AF 21, U2 4	7	14
Prague	OK 11
Rome	AZ 21, U2 7	16
Sofia	F8 4		12
Stuttgart		7
Timosoara	V3 3
Tirana	LZ 6		12
Warsaw	LO 6
Zurich	LX 21

Source: OAG

There are only two European destinations absent a competitive offer and 12 points to which neither Greek carrier flies. Aegean and Olympic overlap at only five European points and in each case, the foreign response is substantial. The net result is that in each market where there is overlap, the foreign carriers offer more service than either of the Greek airlines and the Greek offer is splintered in response to stronger home airline service.

To Paris, for instance, the combined totals of Aegean and Olympic only matches that of Air France, and there is easyJet to contend with as well. A similar situation exists in London where the combined BA/easyJet offer exceeds the combined services of Aegean and Olympic. It is difficult to see just how a unified Greek presence would adversely affect competition.

Plenty of domestic monopolies at present

The domestic market is also fragmented with a significant number of destinations already having monopoly service. In addition to Aegean and Olympic, Athens Airways (ZF) was established in 2008 and operates on many of the trunk routes with three Embraer 145s and a single Bombardier Dash 8. GQ or Sky Express operates only a few flights with turboprop commuter aircraft and is not a factor in the market.

Domestic

	A3	OA	ZF*	GQ
Alexandropolus	14	13	11
Astypalia		4
Chania	21	21	14
Chios	7	19	7
Ikaria		5
Ioannia		17
Heraklion	41	31	14
Kalymnos		7
Karpathos		7
Kastoria			4
Kavala		16	7
Kefallinia		7	3
Kerkyra	20		3
Kos	7	20
Kozani			5
Kythira		5
Leros		7
Limnos		16
Milos		10
Mykonos	4	6
Mytilini	13	14	11
Naxos		6
Paros		12
Rhodes	21	21	11
Samos	7	13
Siteia		4		5
Skiathos		2
Skyros				2
Salonika	60	42	16
Thira	7	7	3
Zakinthos		5	3

Source: OAG

*Athens Airways (ZF) currently not operating but website is still live

Absent specific load factors on domestic services, it is difficult to assess the profitability and performance of these services. According to Greece’s Aviation Authority, Salonika handled 859,063 domestic passengers in 2009 on 25,687 arrivals and departures. A quick bit of math yields about 33 passengers per flight – far below the capacity of the Airbus aircraft that dominate the route. Additionally, it is 185 air miles; a challenging stage length on which to make a profit.

Air Traffic Passengers

Stunning seasonality as well

The chart above, also produced by the Authority and covering all operations at all airports, shows yet another problem faced by Greek operators, extraordinary seasonality. It also shows a drop in international visitors in 2009 as compared to 2008. Figures for 2010 are not yet available but the results reported by Aegean indicate that 2010 will show a further decline.

Finally, a look at the long-haul airlines servicing Athens, which are few and far between.

Long-haul services to Athens

Bangkok	TG 3
Johannesburg	HT 2
New York	DL 7, CO 3
Singapore	SQ 2

Source: OAG

For the few services operated, Aegean’s Star affiliation complements Thai, Singapore and Continental. HT is Hellenic Imperial Airways, a company with a very chequered past, having twice in the recent past had its AOC suspended though still with aircraft and apparently the will to fly, if not the immediate wherewithall.

A rethink

The European Commission spent 10 months examining the data and concluded that a merger of Aegean and Olympic would be anti-competitive. While the decision must be respected, the current economic situation in Greece, combined with an examination of the current competitive landscape, certainly appears at odds with the decision.

But there may be a second chapter. The joint press release ends with the following statement: “The companies will review the final document of the EC decision which was received today and following internal consideration and consultation with their advisers will decide for their possible further actions within the framework of existing legislation.”