Irish low cost airline Ryanair Holdings Plc (RYAAY, RYA.L) may have to reduce its stake in Aer Lingus (AERL.L), as the UK Competition Commission's or CC has provisionally decided that Ryanair's 61/2 year old minority or 29.8 percent shareholding in Aer Lingus is likely to lead to higher prices between its routes.
The CC has also provisionally found that, against a background of consolidation in the airline industry, Ryanair's shareholding obstructs Aer Lingus's ability to merge with another airline in order to achieve synergies to remain competitive.
Ryanair noted that Aer Lingus has only a tiny presence in the UK, serving just 6 routes to the Republic of Ireland, a traffic base that has declined over the past 3 years and now accounts for less than 1 percent of all UK air traffic.
However, Ryanair has criticised the CC's decision that through its shareholding in Aer Lingus, Ryanair has 'influence' over Aer Lingus and that this could reduce competition. Ryanair stated that the unfounded claim was disproven by the European Commission's ruling in February, 2013 that competition between Ryanair and Aer Lingus has 'intensified' since 2007.
Under EU law, the UK CC has a duty of sincere cooperation with the EU, and cannot contradict or reach different conclusions to the European Commission's findings.
According to Ryanair, today's provisional decision by the CC infringes this duty of sincere co-operation by ignoring the recent findings of the European Commission that "Aer Lingus and Ryanair compete on a greater number of routes compared to the 2007 Decision' and 'there is significant competitive interaction between the Parties."
Ryanair stated that it will appeal to the UK Competition Appeals Tribunal and thereafter, if necessary, to the Court of Appeal. The CC's final decision is due in July.
Ryanair's Michael O'Leary said, "This provisional decision by the UK CC is bizarre and manifestly wrong. The CC's finding that Ryanair's shareholding obstructs Aer Lingus' ability to attract other airlines was disproved by Etihad's purchase of a 3% stake and the evidence submitted by other large EU airlines, which confirmed that Ryanair's shareholding was not a barrier to other airlines acquiring a stake in Aer Lingus."
In a separate press release, Aer Lingus welcomed the announcement by the UK Competition Commission regarding the provisional findings of its investigation into Ryanair's minority shareholding in Aer Lingus. The company said it looks forward to continuing to assist the UK Competition Commission in its investigation. The issuing of the final report is expected by July 11, 2013.
In August 2012, Ryanair had said that it intends to re-bid for Aer Lingus if the European Commission clears its offer following its Phase II review.
In June 2012, Ryanair had said that it plans to make an all-cash offer of 1.30 euros per share for Aer Lingus, valuing that company at about 694 million euros or $879 million.
Ryanair had first tried to acquire Aer Lingus in late 2006, but that bid was blocked by the European Commission on antitrust grounds.
RYA.L is currently trading at 6.93 euros, up 0.06 percent.
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