27-Jan-2011 9:46 AM

Commission blocks proposed merger between Aegean and Olympic Air

European Commission has prohibited (26-Jan-2011), on the basis of the EU Merger Regulation, the proposed merger between Aegean Airlines and Olympic Air, stating it "would have resulted in a quasi-monopoly on the Greek air transport market". The EC added that the merger would "significantly impede effective competition in the internal market or a substantial part of it" adding that elimination of competition would have been harmful for Greek customers, which need to be able to rely on competitive airlines. The EC revealed the following as part of its decision: 

  • Fares: EC stated the merger would have resulted in fares being higher for 4.0 out of 6.0 million Greek and European consumers travelling on routes to and from Athens each year. Together the two carriers control more than 90% of the Greek domestic air transport market and the EC's investigation showed "no realistic prospects" that a new airline of a sufficient size would enter the routes and restrain the merged entity's pricing;
  • PSOs: Both Aegean and Olympic Air operate on routes covered by public service obligations (PSOs). Aegean has PSOs on four routes. Olympic has PSOs on 13 routes;
  • Quasi-monopoly on nine routes: The proposed merger would have led to a quasi-monopoly between Athens and Thessaloniki, the country's second-biggest city, and between Athens and eight island airports, namely Herakleion and Chania, both in Crete, Rhodes, Santorini, Mytilini, Chios, Kos and Samos;
  • Ferry services: The investigation showed that ferry services do not generally constitute a sufficiently close substitute to air services so as to discipline the merged entity's pricing behaviour post-merger;
  • New entrant: The market investigation showed that there was "no prospect that any new player would enter the Greek market after the merger and challenge the new entity on a sufficient scale as concerns domestic flights to and from Athens". Olympic Air and Aegean Airlines currently compete head-to-head on these routes and will continue to do so in the future;
  • Short haul international route: The market investigation did not find significant competition problems on short haul international routes also operated by the parties;
  • Slots: The companies offered to cede take-off and landing slots at Greek airports, but Greek airports do not suffer from the congestion observed at other European airports in previous mergers or alliances according to the EC;
  • Other proposed remedies: The two carriers also offered other remedies such as access to their frequent flyer programmes and interlining agreements. However, the nature and the scope of these remedies were "insufficient" to ensure that customers would not be harmed by the transaction;
  • Previous airline mergers: The Commission has examined 11 mergers and many alliances in this sector since 2004 and this is only the second negative prohibition. The first, in 2007, was a prohibition of the proposed acquisition of Aer Lingus by Ryanair. [more - European Commission Press Release] [more - Speech by VP EC responsible for Competition Policy] [more - Aegean/Marfin Investment Group] [more - Perspective]

The EU decision “will have negative consequences for consumers as well as our country’s economy,” according to Andreas Vgenopoulos, Chairman of Olympic owner, Marfin Invesment Group (Bloomberg/AP/Yahoo, 26-Jan-2011). Aegean and Olympic stated they would "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".

Aegean:  “Throughout last year we presented to the European Commission the benefits of the merger for our companies, our passengers and our country’s economy. We also offered important commitments to safeguard consumers as well as measures to facilitate the entry of new competitors in the domestic market. Unfortunately, the EC decided to prohibit the agreement. An important opportunity for a consolidated representation in the European aviation market has been lost. We will adjust and continue. Our track record shows that we can succeed through challenging times,” Theodore Vassilakis, Chairman. Source: Company Statement, 26-Jan-2011.

Marfin Investment Group: "The EC Decision will have negative consequences for consumers as well as our country’s economy while it will benefit foreign competitors. Obviously we as well as Aegean will continue to do our best for the benefit of our staff, our shareholders and our passengers," Andreas Vgenopoulos, Chairman of the BoD. 

European Commission: "The merger between Aegean and Olympic would have led to a quasi-monopoly in Greece and thus to higher prices and lower quality of service for Greeks and tourists travelling between Athens and the islands. It is the duty of the Commission to prevent the creation of monopolies when applying the EU merger control powers conferred on it by the Member States. My services and myself did our best to find a solution, but unfortunately the remedies offered by the companies would not have adequately protected the interests of the four million consumers that use the routes," Joaquín Almunia, Commission Vice President in charge of competition policy. Source: Company Statement, 26-Jan-2011."

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