Ryanair’s tenacious quest to acquire Aer Lingus matches the EC’s equally tenacious drive to probe


Calvin Coolidge believed that “persistence and determination alone are omnipotent”. However it is doubtful that the wisdom of the 30th US President is applicable to Ryanair’s attempts to take over its smaller rival Aer Lingus. The European Commission (EC) on 29-Aug-2012 confirmed what was widely expected and opened an in-depth investigation into Ryanair’s latest offer to acquire control of Aer Lingus.

The European Union’s competition authority said that its preliminary probe into the proposed takeover had indicated potential competition concerns as Ryanair and Aer Lingus are “each other's closest competitor” on a large number of European routes, mainly out of Ireland, and many of these routes are currently only served by the two airlines. The “barriers to entry appear to be high,” the EC said, concluding that the takeover could therefore lead “to the elimination of actual and potential competition on a large number of these routes”.

The European Commission has 90 working days, until 14-Jan-2013, to determine whether to clear the deal or block it.

Both airlines are Irish and are based at Dublin airport. Ryanair is already Aer Lingus’ largest single shareholder with a 29.82% stake. The Irish government owns 25% of the company and Abu Dhabi-based and owned Etihad Airways acquired a 3% in May-2012 for about EUR15 million.

See related article: Etihad Airways gets springboard into Northern Europe with 2.9% stake in Aer Lingus

Fourth time lucky?

Europe’s largest LCC made a first surprise bid for Aer Lingus in the wake of the latter’s IPO in late 2006 and the EC prohibited the transaction in Jun-2007 because of competition concerns in spite of Ryanair’s offer to relinquish takeoff and landing slots at Dublin Airport. The Brussels-based competition authority concluded that, if the deal was allowed to proceed, the merged entity would become the monopoly operator on 22 routes and would have a market share in excess of 60% on a further 13.

Ryanair at that time had already acquired a 16% stake in the Irish flag carrier and offered EUR2.80 per share - a premium of 27% over the IPO share price of EUR2.20 per share - for the remaining shares. The LCC’s all-cash offer valued Aer Lingus at around EUR1.48 billion.

In 2008 Ryanair made a second bid on Aer Lingus, offering EUR1.40 per share, but the low cost carrier withdrew the offer after objections by the Irish government and the failure to win support of employee shareholders.  The ESOT (Employee Share Ownership Trust) had a 15% stake. The trust has been disbanded since Dec-2010, and the shares distributed to individual members.

Ryanair launched its third takeover attempt in Jul-2012 and this time Ryanair offered EUR1.30 per Aer Lingus share, valuing the target airline at EUR694 million. 

In accordance with Irish takeover rules, Ryanair’s latest offer lapsed on the back of the European Commission’s Phase II investigation but the company vowed it would table a renewed offer if Brussels officials grant approval. “Ryanair intends to re-bid for Aer Lingus if the European Commission clears its offer following its Phase II review,” it said in a brief statement.

Aer Lingus vehemently rejects Ryanair tie-up

The Aer Lingus board and management have intensely opposed all three takeover offers by its archrival and said that the number of routes into and out of Ireland on which Aer Lingus and Ryanair compete has sharply increased since 2007. “The reasons for prohibition are therefore even stronger than before,” the airline claims.

Also the European Commission has stated that its preliminary investigation showed that the number of routes where both Ryanair and Aer Lingus operate has increased compared with the situation in 2007, when it blocked the proposed merger.

In the 32-page document underpinning its reasoning for rejecting the latest Ryanair offer, Aer Lingus noted it now competes with Ryanair on 55 routes being served from Dublin, Cork, Shannon and Knock as compared to 35 in 2007. In 2007, Aer Lingus and Ryanair were the only operators on 22 of these overlapping routes and this number has doubled to 44 routes in 2012.

Aer Lingus-Ryanair route overlap 2007 vs 2012

Aer Lingus has rejected the bid also on grounds that it believes it “significantly” undervalues the company's worth and that Ryanair’s offer  attributes no value to the valuable slots that it holds at London Heathrow and New York JFK airports.  Aer Lingus has 23 daily slot pairs at London Heathrow and these will play a major role in the remedies to obtain regulatory clearance for the merger.

Aer Lingus losses vs Ryanair’s profits

Of course, Ryanair claims the opposite. In its offer document released in Jul-2012, Ryanair points out that in six years as a public company Aer Lingus has reported a cumulative after tax loss of EUR91 million and has seen its gross cash balances decline by more than EUR400 million from over EUR1.3 billion in Dec-2006 to under EUR900 million in Dec-2011.

In contrast, it said, “Ryanair has delivered continuous traffic growth, cumulative profits of over EUR2 billion, and growth in gross cash of over EUR1.3 billion” from 2006 to 2011 inclusive. 

See related articles

But Ryanair’s performance graph is a bit misleading as it swings from reported net profit to adjusted net profit after tax to flower up its own profit record. Its table shows a reported net profit of EUR560 million for its fiscal year ended 31-Mar-2012 and of EUR375 million for the fiscal year ended 31-Mar-2011 but an adjusted net profit for the two prior fiscal years, and this excludes the writedown in the value of its 29.8% stake in Aer Lingus and the accelerated depreciation on aircraft disposals.

The company booked an impairment charge of EUR13.5 million on its investment in Aer Lingus for the year ended 31-Mar-2010 and a EUR222.5 million writedown of its investment in Aer Lingus for the year ended 31-Mar-2009. When including those one-off items, net profit came in at EUR305.3 million in fiscal year ended 31-Mar-2010 and it reported a net loss of EUR169.2 million for fiscal year ended 31-Mar-2009, according to the company’s annual reports.

Having said this, FY2009 was Ryanair’s first and only loss-making year in its history as a listed company and the LCC is the one of the very few  consistently profitable airlines in Europe.

Financial performance of Aer Lingus and Ryanair: 2006-2012

Ryanair and Aer Lingus jointly control the Irish market

Aer Lingus is Ryanair’s main competitor on routes into and out of Ireland (domestic air transport is negligible and accounts for less than 0.5% of the country’s system capacity). Jointly, the pair produces about 83% of the country’s capacity in terms of seats, according to schedules in Innovata for the week of 27-Aug-2012 to 02-Sep-2012. The remaining capacity is very fragmented with not one carrier holding more than 2%.

Aer Lingus provides the most seats, some 44% of total seat capacity as compared to 39% by Ryanair, but Ryanair operates almost half of the country flight movements at peak times (defined as the hours of 6:00am to 9:00am and 4:30pm to 7:30pm). Aer Lingus, which also operates to four US destinations, has a 38% share of flight movements.

Ireland capacity (seats per week) by carrier:  27-Aug-2012 to 02-Sep-2012

In its argumentation supporting the prohibition of Ryanair’s initial takeover attempt of Aer Lingus, the European Commission took issue with the fact that both airlines shared the same hub at Dublin Airport. This will likely be a stumbling block in the current investigation also. Aer Lingus and Ryanair have a combined 82% share of Dublin's capacity expressed in seats per week and 80% in terms of flight movements, based on data in Innovata for the week of 27-Aug-2012 to 02-Sep-2012.

Dublin is Aer Lingus’ main and only large base, whereas the airport has gradually decreased in importance for Ryanair as it expanded its footprint throughout Europe. The LCC’s network spans over 51 bases and London Stansted is now Ryanair’s largest base, followed by Milan Bergamo/Orio al Serio Airport. Dublin takes a third position.

Dublin Airport system capacity share (% of seats by carrier): 27-Aug-2012 to 02-Sep-2012

Aer Lingus serves 76 non-stop scheduled passenger destinations from Dublin and Ryanair 70, according to schedules in Innovata for the week of 27-Aug-2012 to 02-Sep-2012. The airlines are the sole operators on seven of Dublin Airport’s 10 largest routes, leaving just the services to London Heathrow, Paris-Charles de Gaulle and Frankfurt with a competitor if the merger would be cleared and no remedies are imposed.

Dublin Airport top 10 international routes based on capacity (seats per week): 27-Aug-2012 to 02-Sep-2012

Competition on Dublin Airport top 10 international routes: 27 Aug-2012 to 02-Sep-2012

Airport pair


Capacity share

(% of seats)


Aer Lingus

British Airways




Aer Lingus





Aer Lingus








Aer Lingus

Air France




Aer Lingus





Aer Lingus


Air Moldova





Aer Lingus



Aer Lingus





Aer Lingus




Finding a new entrant at Dublin is herculean mission

Ryanair is well aware of the high market share the combined entity would have at Dublin Airport and its CEO Michael O’Leary has said the airline is prepared to make “radical concessions” to overcome competition concerns. The most common remedy proposed and accepted by Europe’s competition authorities to fix expected competition problems is the divestiture of slots, but the European Commission in 2007 decided that relinquishing slots was an inadequate undertaking in the Ryanair/Aer Lingus case as rival airlines were unlikely to step in.

Trying to get out of the lion’s den, Ryanair now has been looking for a new entrant and has reportedly approached at least six other airlines to consider providing services on some of the concerned routes. According to the Financial Times, the airlines in question include British Airways (BA), Air France-KLM Group which has a wholly-owned subsidiary CityJet operating out of Ireland, easyJet, Flybe Group, Virgin Atlantic and Etihad Airways. The latter is a United Arab Emirates airline and has no intra-EU traffic rights.

While some routes could be of interest to Flybe and CityJet, it is unlikely that easyJet will commence services from Ryanair’s home base and the interest of BA and Virgin Atlantic is mainly sparked by Aer Lingus’ attractive London Heathrow slot portfolio.

Interest in Aer LingusLondon Heathrow slots

Virgin Atlantic lost its largest short-haul partner into its exclusively long-haul network with the takeover of bmi by British Airways’ parent company International Airlines Group (IAG) and it has announced its intent to build up its own short-haul network.  Virgin Atlantic’s first short-haul service will start in Mar-2013, a thrice daily from Heathrow to Manchester aboard a leased A319, and the new service will, said CEO Steve Ridgway, “provide strong competition to omnipresent BA; keep fares low and give consumers a genuine choice of airlines to fly to Heathrow and beyond”.

A Dublin-Heathrow service fits in Virgin Atlantic’s aspirations as it provides connectivity to its long-haul network at Heathrow and competition to “omnipresent” arch rival BA. London Heathrow is Dublin airport’s busiest route, with 252 weekly frequencies to/from and about 40,500 weekly seats operated by Aer lingus and British Airways. Aer Lingus currently operates 77% of this capacity but this slides to around 67% to 70% in the coming IATA northern winter timetable, based on schedules presently loaded in Innovata.

Dublin Airport to London Heathrow Airport capacity by carrier (seats per week, one way): 19-Sep-11 to 17-Feb-13

Six London airports are served from Dublin

Ryanair had already voiced its willingness to divest part of Aer Lingus' Heathrow slots as part of a remedy package in 2007 and Aer Lingus recently reiterated its stance on the matter and cautioned that this could “jeopardise both future competition and connectivity from Ireland via Heathrow” as some airlines interested in securing the Heathrow slots may commit to operate them on routes to Ireland for a limited period of time only, re-directing them when this time expires.

Aer Lingus operates to London Heathrow from Dublin but also from Cork Airport and from Shannon Airport. It is improbable that the important and profitable Dublin-London Heathrow route will be abandoned as a long-term result of the proposed Ryanair/Aer Lingus tie-up. The situation might be different for the services from Cork and Shannon.

Overall, London is well served from Ireland. There are services to all six London area airports from Dublin. There is also service to Heathrow, Gatwick and Stansted from Cork and from Shannon Airport; and to Gatwick, Stansted and Luton from Knock.

The combined Aer Lingus-Ryanair entity would have a dominant capacity share of over 85% in terms of weekly seat production between Dublin and London.

Dublin to London capacity (one-way seats per week) by carrier:  27 Aug-2012 to 02-Sep-2012

From Dublin to


One-way seats

London Heathrow  

Aer Lingus

British Airways



London Gatwick

Aer Lingus




London Stansted



London City

Air France (CityJet)


London Luton



London Southend  

Aer Lingus (Aer Arann operating as Aer Lingus Regional )


Dublin Airport to London by carrier (seats per week, one way: 19-Sep-11 to 17-Feb-13

Aer Lingus/Ryanair would be one of Europe’s Big Five  

Ryanair has said Aer Lingus and Ryanair will continue to operate as separate airlines with distinctive brands and preserve each airline’s “best features” including Ryanair’s low fare flights and Aer Lingus’ high frequency mid-frills short-haul services to primary airports and its trans-Atlantic operations. The airline has not provided details on how it would expand Aer Lingus’ trans-Atlantic service, but its network of 51 bases and large passenger base (Ryanair carried around 75.8 million passengers in the fiscal year ended 31-Mar-2012) potentially present vast opportunities to feed expanding operations to the US.

The European Union and the US have an Open Skies agreement allowing Ryanair/Aer Lingus to launch services to the country from each of the 27 EU member states. An order by Aer Lingus for nine Airbus A350-900s could help support that expansion.

The merger model Ryanair would follow is in line with the set-up used by other airlines in Europe to consolidate, such as Air France-KLM, Lufthansa Group and IAG where each airline keeps its brand, AOC and traffic rights.

Mr O’Leary has always maintained that as the air transport market in Europe inexorably consolidates into five large airlines/groups led by Air France, British Airways, easyJet, Lufthansa and Ryanair, the long term future of Aer Lingus, its brand and its growth prospects can best be secured within one strong Irish airline group. If Aer Lingus does not combine with a larger and more solid partner, Ryanair’s outspoken CEO argues that then Aer Lingus “remains a sub-scale, peripheral EU carrier which has no long term independent future”.

Strategically, Mr O’Leary’s view is correct. The high fuel prices and a tough economic environment stemming from the enduring euro-zone sovereign debt crisis have led to numerous failures in the European airline sector. An Aer Lingus/Ryanair combination would make a powerful group with a healthy balance sheet, a very low-cost structure and extremely streamlined operations. But the group will be too powerful and receiving regulatory approval will be difficult to obtain, much to the benefit of Europe’s traditional forces.

If by miracle, the European Commission gives its blessing, the combined entity will create an interesting shareholder mix and have the high-service end of the airline spectrum sitting beside the low-cost, no frills segment.

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