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This text is made available for information purposes only.
A summary of this decision is published in all EU languages in the Official Journal of the European
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Case No COMP/M.6663 – RYANAIR/ AER LINGUS III
Only the English text is authentic.
REGULATION (EC) No 139/2004
MERGER PROCEDURE
Article 8 (3)
Date: 27/2/2013
Brussels, 27/02/2013
C(2013) 1106 final
COMMISSION DECISION
of 27/02/2013
addressed to:
Ryanair Holdings plc
declaring a concentration to be incompatible with the internal market and the EEA
agreement (Case No COMP/M.6663 – RYANAIR/ AER LINGUS III)
(Only the English text is authentic)
PUBLIC VERSION
EN 2 EN
TABLE OF CONTENTS
1. THE NOTIFICATION AND THE PROCEDURE .................................................... 11
2. THE PARTIES ........................................................................................................... 13
3. THE TRANSACTION ............................................................................................... 14
4. UNION DIMENSION ............................................................................................... 15
5. INVESTIGATION OF THE CASE ........................................................................... 15
6. GENERAL CONTEXT FOR THE ASSESSMENT OF THE CASE ....................... 17
7. RELEVANT MARKETS........................................................................................... 18
7.1. Introduction ................................................................................................................ 18
7.1.1. Operating models of carriers in the airline industry ................................................... 18
7.1.2. Services provided by Ryanair and Aer Lingus .......................................................... 19
7.2. Origin and destination approach (O&D) .................................................................... 20
7.2.1. Demand side considerations ....................................................................................... 20
7.2.2. Supply side and other considerations ......................................................................... 21
7.3. Analysis of the relevant routes (airport pairs vs. city pairs) ...................................... 23
7.3.1. Introduction: analytical framework ............................................................................ 23
7.3.2. Parameters considered ................................................................................................ 24
7.3.2.1. The 2007 Decision and other Commission precedents .............................................. 25
7.3.2.2. Airport catchment area of 100km or 1 hour's drive time ........................................... 26
7.3.2.3. Ryanair's and Aer Lingus' Price Monitoring .............................................................. 31
7.3.2.4. Ryanair's marketing practices .................................................................................... 32
7.3.2.5. Outcome of the market investigation ......................................................................... 33
7.3.2.6. Empirical analysis (price correlation) and Ryanair's Map-Based analysis ................ 33
7.3.2.7. No customer survey was necessary in this case ......................................................... 34
7.3.2.8. Argument raised by Ryanair: common sense and practical realities facing consumers
.................................................................................................................................... 34
7.3.2.9. Conclusion.................................................................................................................. 35
7.3.3. Airport-by-airport assessment .................................................................................... 35
7.3.3.1. Barcelona-El Prat Airport / Girona-Costa Brava Airport / Reus Airport ................... 39
7.3.3.2. Bilbao Airport and Santander Airport ........................................................................ 42
7.3.3.3. Birmingham Airport and East Midlands Airport: Nottingham, Leicester & Derby .. 45
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7.3.3.4. Brussels Airport and Brussels South Charleroi Airport ............................................. 49
7.3.3.5. Glasgow Airport and Glasgow Prestwick Airport ..................................................... 52
7.3.3.6. Frankfurt Airport and Frankfurt Hahn Airport ........................................................... 54
7.3.3.7. London airports .......................................................................................................... 57
7.3.3.8. Manchester Airport and Liverpool John Lennon Airport .......................................... 61
7.3.3.9. Milano Linate and Milano Malpensa and Orio al Serio International Airport Il
Caravaggio (Bergamo) ............................................................................................... 65
7.3.3.10. Munich Airport and Allgäu Airport Memmingen ...................................................... 67
7.3.3.11. Roissy-Charles de Gaulle Airport, Paris Beauvais Airport and Orly Airport ............ 70
7.3.3.12. Rome: Leonardo da Vinci International Airport (Fiumicino) and G.B Pastine
International Airport (Ciampino) ............................................................................... 73
7.3.3.13. Stockholm Arlanda Airport and Stockholm Skavsta Airport .................................... 75
7.3.3.14. Toulouse Blagnac Airport and Carcassonne Airport ................................................. 77
7.3.3.15. Venice Airport and Treviso Airport ........................................................................... 80
7.3.3.16. Vienna Airport and Bratislava Airport ....................................................................... 82
7.3.3.17. Warsaw Chopin Airport and Warsaw – Modlin Mazovia Airport ............................. 86
7.3.3.18. Other airports for which airport substitutability is relevant for entry or competition
from other carriers ...................................................................................................... 88
7.3.4. Supply- side considerations of airport substitution .................................................... 92
7.3.5. Conclusion.................................................................................................................. 93
7.4. Markets for direct flights and indirect flights ............................................................ 94
7.5. Distinction between groups of passengers ................................................................. 96
7.6. Substitutability between charter and scheduled services ........................................... 97
7.6.1. General issues regarding charter services .................................................................. 97
7.6.1.1. Market for package holidays ...................................................................................... 99
7.6.1.2. Sales of seats to tour operators ................................................................................. 101
7.6.1.3. Market for dry seat sales to end-customers .............................................................. 102
7.6.2. Conclusion on competition from charter companies ............................................... 104
7.7. Intermodal substitution............................................................................................. 104
8. COMPETITIVE ASSESSMENT............................................................................. 104
8.1. General framework for the assessment .................................................................... 104
8.2. Treatment of Aer Arann ........................................................................................... 107
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8.2.1. The Franchise agreement ......................................................................................... 108
8.2.2. Aer Arann is not an independent competitor of Aer Lingus .................................... 109
8.2.3. Conclusion................................................................................................................ 112
8.3. Market shares and concentration levels ................................................................... 113
8.4. Closeness of competition ......................................................................................... 115
8.4.1. Ryanair and Aer Lingus have the strongest market positions on routes ex-Ireland . 117
8.4.2. Business models: operations and brand ................................................................... 120
8.4.2.1. Services offering ...................................................................................................... 120
8.4.2.2. Brand recognition ..................................................................................................... 129
8.4.2.3. The Parties' average fare levels remain very close (if not the closest to each other) 131
8.4.2.4. Charter companies are distant competitors to the Parties ........................................ 134
8.4.3. Both airlines operate with a large base at Dublin but also significant bases in Cork
and Shannon ............................................................................................................. 135
8.4.3.1. General advantages of operating from a base .......................................................... 135
8.4.3.2. Ryanair and Aer Lingus operate significant bases in Ireland .................................. 141
8.4.3.3. Base advantages increase with the size of the base and therefore the limited presence
of the current based competitors is unlikely to constrain the Parties significantly .. 143
8.4.3.4. Competitors with a base at the destination airports are not equally close competitors
.................................................................................................................................. 144
8.4.4. Price regression analysis: Ryanair and Aer Lingus are close and closest competitors
.................................................................................................................................. 146
8.4.4.1. Approach followed ................................................................................................... 146
8.4.4.2. Fixed-effects regressions .......................................................................................... 147
8.4.4.3. Aer Lingus’ fixed-effects regression analysis .......................................................... 147
8.4.4.4. Commission’s fixed-effects regression analysis ...................................................... 148
8.4.4.5. Conclusion................................................................................................................ 151
8.4.5. Conclusion on closeness of competition .................................................................. 151
8.5. Entry is unlikely to eliminate the anti-competitive effects of the Transaction ........ 152
8.5.1. Introduction .............................................................................................................. 152
8.5.2. Barriers to entry ........................................................................................................ 154
8.5.2.1. Introduction .............................................................................................................. 154
8.5.2.2. Historical overview of past entry and exit events by competitors ........................... 156
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8.5.2.3. Base operations provide significant advantages to the merged entity that would
constitute a barrier to entry at Dublin, Cork and Shannon airports while the relevant
conditions for competitors to establish a base at Irish airports are generally not
satisfied .................................................................................................................... 159
8.5.2.4. Strong brand recognition .......................................................................................... 164
8.5.2.5. Dual branding strategy and strong market position ................................................. 170
8.5.2.6. The risk of aggressive retaliation ............................................................................. 171
8.5.2.7. Level of airport charges at Dublin airport ................................................................ 175
8.5.2.8. The Irish market for passenger flight is not considered as very attractive ............... 180
8.5.2.9. Airport congestion .................................................................................................... 183
8.5.2.10. The merged entity's position as largest user at Dublin, Shannon and Cork airports 199
8.5.3. Conclusion on barriers to entry and expansion ........................................................ 205
8.6. Forms of entry/expansion ......................................................................................... 206
8.6.1. Entry with a base in Ireland ..................................................................................... 206
8.6.1.1. Increased flexibility, cost savings and advantages ................................................... 206
8.6.1.2. A base is a prerequisite for having sufficient operations ......................................... 207
8.6.1.3. Brand awareness ....................................................................................................... 207
8.6.1.4. A base allows for early morning departures and late arrivals .................................. 208
8.6.1.5. The size of the base .................................................................................................. 208
8.6.2. Entry from a base outside Ireland ............................................................................ 208
8.6.3. Non base-related entry ............................................................................................. 210
8.6.4. Conclusion................................................................................................................ 212
8.7. Entry plans by actual and potential competitors ...................................................... 212
8.7.1. Analytical framework ............................................................................................... 212
8.7.2. General context ........................................................................................................ 214
8.7.3. Analysis of entry projects by actual and potential competitors ............................... 214
8.7.4. Conclusion................................................................................................................ 216
8.8. Treatment of routes exited by Ryanair and Aer Lingus after the announcement of the
Transaction ............................................................................................................... 216
8.8.1. Routes exited by Ryanair following the announcement of the Transaction ............ 216
8.8.2. Routes exited by Aer Lingus following the announcement of the Transaction ....... 216
8.9. Actual competition ................................................................................................... 217
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8.9.1. Methodology ............................................................................................................ 217
8.9.1.1. General approach ..................................................................................................... 217
8.9.1.2. Charter services ........................................................................................................ 219
8.9.2. Overview .................................................................................................................. 220
8.9.3. No significant constraints exercised by indirect services ........................................ 220
8.9.4. Monopoly routes ...................................................................................................... 223
8.9.4.1. Monopoly routes on airport-to-airport basis ............................................................ 224
8.9.4.2. Monopoly routes on city basis ................................................................................. 227
8.9.4.3. Entry ......................................................................................................................... 228
8.9.4.4. Conclusion on the monopoly routes ......................................................................... 228
8.9.5. Routes where other scheduled carriers operate ........................................................ 229
8.9.5.1. Dublin – Bristol/Cardiff/Exeter ................................................................................ 229
8.9.5.2. Dublin-Frankfurt ...................................................................................................... 236
8.9.5.3. Dublin – London ...................................................................................................... 245
8.9.5.4. Dublin-Madrid.......................................................................................................... 255
8.9.5.5. Dublin-Munich ......................................................................................................... 263
8.9.5.6. Dublin-Paris ............................................................................................................. 271
8.9.5.7. Dublin- Stockholm ................................................................................................... 280
8.9.5.8. Conclusion on the routes where other scheduled carriers operate ........................... 288
8.9.6. Routes where charter companies operate ................................................................. 289
8.9.6.1. Closeness of competition ......................................................................................... 289
8.9.6.2. No significant constraints exercised by indirect services ........................................ 290
8.9.6.3. Entry/exit .................................................................................................................. 291
8.9.6.4. Dublin-Barcelona ..................................................................................................... 291
8.9.6.5. Dublin-Faro .............................................................................................................. 295
8.9.6.6. Dublin-Gran Canaria ................................................................................................ 299
8.9.6.7. Dublin-Ibiza ............................................................................................................. 303
8.9.6.8. Dublin-Lanzarote ..................................................................................................... 306
8.9.6.9. Dublin-Malaga ......................................................................................................... 310
8.9.6.10. Dublin-Palma ........................................................................................................... 314
8.9.6.11. Cork-Barcelona ........................................................................................................ 316
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8.9.6.12. Cork-Lanzarote ........................................................................................................ 319
8.9.6.13. Cork-Malaga ............................................................................................................ 323
8.9.6.14. Cork-Palma .............................................................................................................. 327
8.9.6.15. Conclusion on the routes where charter companies operate .................................... 329
8.10. Potential competition ............................................................................................... 329
8.10.1. Analytical framework ............................................................................................... 329
8.10.2. Ryanair's arguments ................................................................................................. 330
8.10.3. Assessment ............................................................................................................... 331
8.10.3.1. First limb of the test set out at paragraph 60 of the Horizontal Merger Guidelines 331
8.10.3.2. Second limb of the test set out at paragraph 60 of the Horizontal Merger Guidelines
.................................................................................................................................. 340
8.10.4. Conclusion on potential competition ....................................................................... 342
8.11. Effects on consumers ............................................................................................... 342
8.12. Conclusion on the competitive effects of the Transaction ....................................... 343
9. EFFICIENCIES........................................................................................................ 345
9.1. The principles ........................................................................................................... 345
9.2. Ryanair's claims ....................................................................................................... 345
9.3. Aer Lingus' position ................................................................................................. 346
9.4. Commission's assessment ........................................................................................ 347
9.5. Conclusion................................................................................................................ 349
10. COMMITMENTS .................................................................................................... 350
10.1. The analytical framework for the assessment of proposed remedies ....................... 351
10.1.1. Overview .................................................................................................................. 351
10.1.2. Elimination of all identified competition concerns .................................................. 353
10.1.3. The remedy package must be workable and implementable within a short period of
time ........................................................................................................................... 354
10.1.4. Commission precedents ........................................................................................... 355
10.2. Description of the Commitments of 17 October 2012, 7 December 2012 and 15
January 2013 ............................................................................................................ 356
10.2.1. Commitments of 17 October 2012 ........................................................................... 356
10.2.1.1. Description ............................................................................................................... 356
10.2.1.2. No market test was warranted before the Statement of Objections ......................... 357
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10.2.2. Commitments of 7 December 2012 ......................................................................... 357
10.2.2.1. Description ............................................................................................................... 357
10.2.2.2. The Commission's assessment ................................................................................. 359
10.2.3. The Commitments of 15 January 2013 .................................................................... 362
10.2.3.1. Description ............................................................................................................... 362
10.2.3.2. The Commission's assessment ................................................................................. 364
10.3. The final Commitments ............................................................................................ 369
10.3.1. General description by Ryanair ................................................................................ 369
10.3.2. Divestiture of the business regarding 43 routes to Flybe ......................................... 369
10.3.3. Slot divestitures to IAG/BA ..................................................................................... 372
10.3.4. Other aspects ............................................................................................................ 373
10.3.4.1. Frequent Flyer programme ....................................................................................... 373
10.3.4.2. Potential competition ............................................................................................... 373
10.3.4.3. London-Ireland routes .............................................................................................. 373
10.3.4.4. Monitoring Trustee and Dispute Resolution ............................................................ 374
10.4. Assessment of the divestiture to Flybe ..................................................................... 374
10.4.1. Conceptual framework ............................................................................................. 374
10.4.2. Viability of the Divestment Business and suitability of Flybe as a buyer ............... 375
10.4.2.1. Assets and liabilities of the Divestment Business .................................................... 376
10.4.2.2. Flybe's business model ............................................................................................. 378
10.4.2.3. Flybe's independence from the Parties ..................................................................... 380
10.4.2.4. Flybe's experience .................................................................................................... 381
10.4.2.5. Flybe's financial resources ....................................................................................... 386
10.4.2.6. Flybe's ability to compete with the merged entity post-Transaction........................ 389
10.4.2.7. Flybe's incentive to continue to operate on a lasting basis on the 43 routes or on the
Irish market in general ............................................................................................. 406
10.4.2.8. Conclusion on the viability of the Divestment Business and suitability of Flybe as a
purchaser .................................................................................................................. 408
10.4.3. Further relevant aspects as regards the final Commitments ..................................... 408
10.4.3.1. Uncertainties as to the timely implementation of the final Commitments ............... 408
10.4.3.2. Involvement of Ryanair post-Transaction ................................................................ 409
10.4.3.3. Complex and not sufficiently clear-cut commitments ............................................. 410
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10.4.4. Conclusion on the divestiture to Flybe ..................................................................... 411
10.5. Slot divestitures to IAG/BA on the three London routes (Dublin, Cork and Shannon)
.................................................................................................................................. 411
10.5.1. Transfer of Heathrow Slots unlikely ........................................................................ 412
10.5.1.1. Introduction .............................................................................................................. 412
10.5.1.2. Description of the Heathrow Transfer Condition ..................................................... 413
10.5.1.3. Irish Government unlikely to sell its 25.11% stake in Aer Lingus .......................... 414
10.5.1.4. Article 10 of Aer Lingus' Articles of Association .................................................... 416
10.5.1.5. Conclusion................................................................................................................ 421
10.5.2. Merged entity unlikely to be constrained during the Minimum Period ................... 422
10.5.2.1. Gatwick Lease Agreement ....................................................................................... 422
10.5.2.2. Heathrow – Gatwick Transfer Agreement ............................................................... 426
10.5.2.3. Heathrow Lease Agreement ..................................................................................... 428
10.5.2.4. No proper misuse clause .......................................................................................... 430
10.5.2.5. No entrant identified ................................................................................................ 430
10.5.2.6. Conclusion................................................................................................................ 431
10.5.3. Merged entity unlikely to be constrained after the Minimum Period ...................... 432
10.5.3.1. No incentive for IAG to remain on the routes beyond the Minimum Period .......... 432
10.5.3.2. No mechanism for entry at the end of the Minimum Period.................................... 434
10.5.3.3. Conclusion................................................................................................................ 435
10.5.4. Complex and not sufficiently clear-cut commitments regarding the three London
routes ........................................................................................................................ 435
10.5.5. Overall conclusion on the slot divestiture on the three London routes .................... 436
10.6. Commitments relating to overlap routes where Aer Arann operates ....................... 437
10.6.1. Description of the commitments .............................................................................. 437
10.6.2. Ryanair's views ........................................................................................................ 437
10.6.3. The Commission's assessment ................................................................................. 437
10.6.3.1. The final Commitments are unclear ......................................................................... 437
10.6.3.2. Ryanair cannot modify, terminate or assign the Aer Arann franchise agreement in a
timely manner ........................................................................................................... 438
10.7. Commitments relating to potential competition routes ............................................ 439
10.7.1. Description of the commitments .............................................................................. 439
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10.7.2. Ryanair's views ........................................................................................................ 439
10.7.3. The Commission's assessment ................................................................................. 440
10.8. Conclusion on the final Commitments ..................................................................... 440
11. CONCLUSION ........................................................................................................ 441
Annex I - Price Correlation Analysis ..................................................................................... 443
Annex II - Ryanair IPR analysis ............................................................................................ 476
Annex III - Regression analysis. ............................................................................................ 486
EN 11 EN
COMMISSION DECISION
of 27.2.2013
addressed to:
- Ryanair Holdings plc
declaring a concentration to be incompatible with the internal market
and the EEA Agreement
(Case No COMP/M.6663 - RYANAIR / AER LINGUS III)
(Only the English text is authentic)
THE EUROPEAN COMMISSION,
Having regard to the Treaty on the Functioning of the European Union,
Having regard to the Agreement on the European Economic Area, and in particular Article 57
thereof,
Having regard to Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of
concentrations between undertakings
1
, and in particular Article 8(3) thereof,
Having regard to the Commission's decision of 29 August 2012 to initiate proceedings in this
case,
Having given the undertakings concerned the opportunity to make known their views on the
objections raised by the Commission,
Having regard to the opinion of the Advisory Committee on Concentrations
2
,
Having regard to the final report of the Hearing Officer in this case
3
,
Whereas:
1. THE NOTIFICATION AND THE PROCEDURE
(1) On 24 July 2012, the European Commission received a notification of a proposed
concentration pursuant to Article 4 of the Merger Regulation by which the
undertaking Ryanair Holdings plc ("Ryanair", Ireland) acquires within the meaning
1
OJ L 24, 29.1.2004, p. 1 ("the Merger Regulation"). With effect from 1 December 2009, the Treaty on
the Functioning of the European Union ("TFEU") has introduced certain changes, such as the
replacement of "Community" by "Union" and "common market" by "internal market". The terminology
of the TFEU will be used throughout this decision.
2
OJ C
3
OJ C
EN 12 EN
of Article 3(1)(b) of the Merger Regulation control of the whole of Aer Lingus
Group plc ("Aer Lingus", Ireland) by way of public bid announced on 19 June 2012
("the Transaction").The Transaction would be implemented through a wholly-owned
subsidiary of Ryanair, Coinside Limited.
(2) After examination of the notification, the Commission concluded that the
Transaction fell within the scope of the Merger Regulation and raised serious doubts
as to its compatibility with the internal market and with the EEA Agreement. The
Commission therefore initiated proceedings in accordance with Article 6(1)(c) of the
Merger Regulation (hereafter the "decision opening the proceedings") on 29 August
2012.
(3) Following a request by Ryanair of 31 August 2012, a non-confidential version of
certain key submissions of third parties collected during the first phase investigation
was provided to Ryanair on 6 September 2012.
(4) On 6 September 2012, Ryanair requested an extension of the time period for the
second phase investigation by 15 working days pursuant to the second subparagraph
of Article 10(3) of the Merger Regulation.
(5) Ryanair submitted its written comments on the decision opening the proceedings on
13 September 2012.
(6) Aer Lingus submitted its written comments on the decision opening the proceedings
on 28 September 2012.
(7) Ryanair submitted the first package of formal commitments on 17 October 2012
pursuant to Article 8(2) of the Merger Regulation (the "Commitments of 17 October
2012"). These Commitments were not market tested.
(8) On 13 November 2012, a Statement of Objections ("SO") was sent to Ryanair by the
Commission pursuant to Article 18 of the Merger Regulation.
(9) Ryanair submitted its reply to the SO on 28 November 2012. On 14 December 2012,
the Commission sent Ryanair a Letter of Facts. Ryanair replied to the Letter of Facts
on 20 December 2012.
(10) In order to address competition concerns identified in the SO, Ryanair submitted a
second set of commitments on 7 December 2012 ("Commitments of 7 December
2012"). The Commission launched a market test to gather the views of relevant
market participants on the effectiveness of the proposed commitments ("the first
market test").
(11) On 15 January 2013, Ryanair submitted a third and new version of the commitments
(the "Commitments of 15 January 2013"). On 21 January 2013, the Commission
launched a market test of Commitments of 15 January 2013 ("the second market
test").
(12) The Commitments of 15 January 2013 were subsequently modified on 1 February
2013 (the "final Commitments"). On 4 February 2013, the Commission launched a
market test of these modified commitments ("the final market test").
EN 13 EN
(13) The Advisory Committee was convened on 18 February 2013.
2. THE PARTIES
(14) Ryanair is a low-fares carrier operating point-to-point scheduled air services
essentially in Europe. The company has a fleet of 305 aircraft
4
and 51 bases across
Europe, the most important bases being London Stansted (114 routes, 39 aircraft),
Brussels Charleroi (78 routes, 15 aircraft), Milan Bergamo (78 routes, 15 aircraft) and
Dublin (18 aircraft in summer 2012). In the summer season 2012, Ryanair operated in
particular 62 short-haul routes ex-Dublin
5
.
(15) Ryanair is not a member of any airline alliance and does not have interlining
operations with any other carrier.
(16) Aer Lingus is a publicly-listed carrier based in Ireland. It offers essentially point-to-
point scheduled air transport services.
6
In the International Air Transport Association
("IATA") summer season of 2012, it operated on 108 routes, across Ireland, the
United Kingdom, Continental Europe, and the United States of America, with 45
aircraft. Aer Lingus explains that it carried 10.4 million passengers in 2011
7
. Aer
Lingus is based principally at Dublin Airport from where it operates a substantial
portion of its scheduled flights. In the 2012 summer season, Aer Lingus (including
Aer Arann) operated 66 short-haul routes ex-Dublin
8
. In the Union, Aer Lingus also
has bases in Cork, Shannon, Belfast, and Gatwick. Aer Lingus is not a member of
any airline alliance (it left oneworld in April 2007). It develops a concept of “open
4
11 Boeing 737-800 short-haul aircraft were delivered at the end of the calendar year 2012. Ryanair has
no further deliveries of aircraft planned witlogan Boeing or any other aircraft supplier.
5
1.Alicante/Murcia; 2.Barcelona/Reus/Gerona; 3.Berlin; 4.Bilbao/Santander;
5.Birmingham/EastMidlands; 6.Bristol/Cardiff; 7.Brussels/Charleroi; 8.Budapest; 9.Edinburgh;
10.Faro; 11.Frankfurt/Hahn; 12.Fuerteventura; 13.Glasgow/Prestwick; 14.Gran Canaria; 15.Ibiza;
16.Krakow; 17.Lanzarote; 18.London; 19.Madrid; 20.Malaga; 21.Manchester/Liverpool/Leeds;
22.Marseille; 23.Milan/Bergamo; 24.Munich/Memmingen; 25.Nice; 26.Palma; 27.Paris/Beauvais;
28.Rome/Ciampino; 29.Stockholm/Skavsta; 30.Tenerife; 31.Toulouse/Carcassonne; 32.Venice/Treviso;
33.Verona; 34.Vienna/Bratislava; 35.Vilnius/Kaunas; 36.Warsaw/Modlin; 37.Alghero; 38.Biarritz;
39.Bydgoszcz; 40.Eindhoven; 41.Gdansk; 42.Katowice; 43.La Rochelle; 44.Lodz; 45.Maastricht;
46.Malta; 47.Nantes; 48.Newcastle; 49.Palermo; 50.Pisa; 51.Porto; 52.Poznam; 53.Riga; 54.Rodez;
55.Rygge; 56.Rzeszow; 57.Seville; 58.Szczecin; 59.Tallinn; 60. Tours; 61.Valencia; 62.Wroclaw.
6
Aer Lingus also offers cargo transport services.
7
The 10.4 million passenger numbers for 2011 includes 0.8 million passengers attributable to Aer Lingus
Regional (passengers on fligths operated by Aer Arann under the Aer Lingus Regional brand) as well as
to the codeshare agreement with United Airlines under which Aer Lingus operated the Washington
Dulles-Madrid route (0.1 million).
8
1.Alicante/Murcia; 2.Barcelona/Reus/Gerona; 3.Berlin; 4.Bilbao/Santander;
5.Birmingham/EastMidlands; 6.Bristol/Cardiff; 7.Brussels/Charleroi; 8.Budapest; 9.Edinburgh;
10.Faro; 11.Frankfurt/Hahn; 12.Fuerteventura; 13.Glasgow/Prestwick; 14.Gran Canaria; 15.Ibiza;
16.Krakow; 17.Lanzarote; 18.London; 19.Madrid; 20.Malaga; 21.Manchester/Liverpool/Leeds;
22.Marseille; 23.Milan/Bergamo; 24.Munich/Memmingen; 25.Nice; 26.Palma; 27.Paris/Beauvais;
28.Rome/Ciampino ;29.Stockholm/Skavsta; 30.Tenerife; 31.Toulouse/Carcassonne; 32.Venice/Treviso;
33.Verona; 34.Vienna/Bratislava; 35.Vilnius/Kaunas; 36.Warsaw/Modlin; 37.Aberdeen; 38.Agadir;
39.Amsterdam; 40.Athens; 41.Blackpool; 42.Bologna; 43.Bordeaux; 44.Bourgas; 45.Bournemouth;
46.Bucharest; 47.Catania; 48.Copenhagen; 49.Dubrovnik; 50.Dusseldorf; 51.Geneva; 52.Hamburg;
53.Helsinki 54.Isle of Man; 55.Izmir; 56.Jersey; 57.Kerry; 58.Lisbon; 59.Lyon; 60.Naples;
61.Perpignan; 62.Prague; 63.Rennes; 64.Santiago; 65.Stuttgart; 66.Zurich.
EN 14 EN
network architecture” whereby its neutrality allows it to partner across alliances and
offer connectivity through major hubs to worldwide destinations in addition to
carrying point-to-point traffic.
9
(17) Ryanair and Aer Lingus are referred to together as “the Parties” in this Decision.
(18) Ryanair’s minority shareholding in Aer Lingus represents 29.82% of Aer Lingus’
total issued share capital and makes Ryanair the largest shareholder in Aer Lingus.
10
The Irish Government (Minister for Finance) is the next largest shareholder with a
stake of around 25.1%.
11
3. THE TRANSACTION
(19) On 19 June 2012, Ryanair announced its intention to acquire Aer Lingus, by means
of an all-cash offer for all of Aer Lingus' outstanding shares (70.18%) not already
owned by Ryanair. The offer document was sent to Aer Lingus shareholders on 17
July 2012 with a deadline for acceptance of 15 September 2012. If successful,
Ryanair would gain the majority of Aer Lingus’s shares and thus sole control over
Aer Lingus.
(20) The Transaction constitutes therefore a concentration within the meaning of Article
3(1)(b) of the Merger Regulation.
(21) The Transaction is the third attempt by Ryanair to acquire sole control over Aer
Lingus. In a Commission Decision of 27 June 2007 declaring a concentration to be
incompatible with the common market and the EEA Agreement in Case No
COMP/M.4439 – Ryanair/Aer Lingus (the "2007 Decision")
12
, the Commission
conducted an in-depth investigation of Ryanair’s first bid to takeover Aer Lingus,
and adopted the 2007 Decision under Article 8(3) of the Merger Regulation ("the
2007 Decision") whereby it declared the notified concentration incompatible with the
internal market. The 2007 Decision was upheld by the General Court of the
European Union in Case T-342/07 Ryanair Holdings plc v European Commission
[2010] ECR II-03457 ("the 2010 Judgment").
(22) In 2008-2009, Ryanair initiated a second takeover bid for Aer Lingus
13
, but
eventually withdrew its offer.
9
Aer Lingus has some code-share agreements with other carriers. These agreements do not have a
material impact on the competition assessment of the Transaction.
10
The latest acquisition of Aer Lingus' shares by Ryanair took place in July 2008. See OFT decision
ME/4694/10 Completed acquisition by Ryanair Holdings plc of a minority interest in Aer Lingus Group
plc of 15 June 2012, Table 1 "Ryanair shareholdings in Aer Lingus, 2006-present (per cent)".
11
The issue of the legality of the minority shareholding held by Ryanair in Aer Lingus under United
Kingdom merger law, currently under assessment by the United Kingdom Competition Commission,
can be left open in this Decision as the market investigation has confirmed that there is a significant
competitive interaction between Ryanair and Aer Lingus pre-merger, and the merger-specific effects of
the Transaction lead to significant impediment to effective competition on a number of routes.
12
OJ C 47, 20.2.2008, p.9.
13
Case No. COMP/M.5434 – Ryanair/Aer Lingus II, OJ C 14, 21.1.2009 p. 10.
EN 15 EN
4. UNION DIMENSION
(23) The undertakings concerned have a combined aggregate world-wide turnover of
more than EUR 5 000 million (Ryanair: EUR 4 390 million;
14
Aer Lingus: EUR 1
288 million)
15
. Both Ryanair and Aer Lingus have a Union-wide turnover in excess
of EUR 250 million. Ryanair did not achieve more than two-thirds of its turnover
within one and the same Member State.
(24) Consistent with the approach adopted in the 2007 Decision, turnover has been
calculated using the "50/50" methodology and the "point of departure"
methodology.
16
The turnover thresholds set out in of Article 1(2) of the Merger
Regulation are met under both methodologies.
(25) The concentration therefore has a Union dimension within the meaning of Article
1(2) of the Merger Regulation.
5. INVESTIGATION OF THE CASE
(26) The assessment of the case has proven highly complex. The Commission has sought
to make use of all available means of investigation pursuant to Article 11 of the
Merger Regulation. It not only analysed questionnaires which were sent inter alia to
competing scheduled carriers, charter carriers, travel agents, corporate customers,
consumers associations, and airports, but also undertook other written and oral
contacts with these market participants and other third parties such as slot
coordinators, civil aviation authorities, and transport authorities. In addition, the
Commission analysed a substantial amount of internal documents originating from
the potential upfront buyers ("UFB") identified by Ryanair.
(27) Against this background, it is important to stress that the assessment of the
competitive impact of the Transaction involves a complex legal and economic
analysis, the results of which are based on the totality of the available evidence
17
.
14
Ryanair's turnover data are for the year ended 31 March 2012. Ryanair's accounts for this period were
audited in May 2012. A letter from Ryanair’s auditors, KPMG International, dated 20 July 2012,
confirmed that the audit of Ryanair’s Financial Statements for the financial year ending 31 March 2012
was completed. Ryanair’s Financial Statements for the financial year ending 31 March 2012 were
signed by KPMG on 27 July 2012. Considering Commission Consolidated Jurisdictional Notice under
Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (the
"Jurisdictional Notice") paragraph 170 (OJ C95, 16.04.2008 p. 1), and the fact that the turnover figure
of Ryanair was published in the offer documents on 17 July 2012, the 2012 turnover figure can be
accepted by the Commission as the appropriate basis for establishing jurisdiction.
15
Turnover calculated in accordance with Article 5(1) of the Regulation (EC) No 139/2004 and the
"Jurisdictional Notice".
16
The 2007 Decision, recital 30. No changes in circumstances since 2007 would have warranted another
approach for the Transaction.
17
See the Decision 2007, paragraphs 35 and following. The fact that single pieces of evidence may not
support a certain conclusion, cannot as such put into question the Commission’s assessment, since the
Commission cannot base its decision on one single piece of evidence, but must collect as much
evidence as possible, analyse all available facts and opinions and weigh all the available evidence when
deciding on the compatibility of a transaction with the internal market.
EN 16 EN
(28) In particular as regards the questionnaires, it is important to note that the market
investigation is by no means an opinion poll. For instance, the fact that the majority
of third parties provide a similar opinion in reply to a specific question, can only be
an indication for the Commission's own investigation, not a foregone conclusion.
Likewise, it would not be appropriate to assume that the answers to the
questionnaires can always be considered to be fully informed and objective. The
specific level of knowledge of respondents might vary, the questions might have
been misunderstood, the replies might be more or less representative, and the opinion
provided might be biased to influence the Commission's decision-making process in
a certain way
18
.
(29) The Commission has also collected and used quantitative data. Once verified for
accuracy and relevance, quantitative data obtained were used in the decision-making
process for all relevant issues, complementing the qualitative assessment of those
issues.
(30) Ryanair claims in its response to the SO that the "Commission has failed to make use
of all available means of investigation pursuant to Article 11 of the EU Merger
Control regulation. In particular, given the complexities of this case, it should have
sent questionnaires to, and should have sought ample contact with, customers, as it
did in the context of the 2007 Ryanair/Aer Lingus proceeding".
19
Furthermore,
Ryanair suggests that "the SO contains no quantitative analysis (such as survey
evidence) using the SSNIP test for any of the airports it deems substitutable. The SO
analysis proceeds entirely in the abstract, leading to conclusions that are
inconsistent with basic facts and common sense".
20
(31) In this regard, the Commission considers that a survey similar to the one performed
in 2007 would not have been useful in the case at hand for the purposes (in particular
the market definition) alleged by Ryanair. The principal goal of the survey conducted
in 2007 was to test "Ryanair’s claim that, from the perspective of the customer, Aer
Lingus and Ryanair do not compete with each other".
21
In particular, the survey
examined that issue through questions of whether consumers would have considered
a given competitor in different types of routes ("same airport", "different airport" and
"oligopoly" routes). However, for the present Transaction, there is ample evidence
demonstrating that Ryanair and Aer Lingus compete. Therefore, such a survey would
have provided no material added value. In its assessment of the Transaction, the
Commission has gathered cogent alternative qualitative and quantitative (like the
correlation analysis) evidence supporting its conclusions on market definition
22
.
18
In particular, the Commission analyses opinions by competitors very carefully, since these might have
an interest in making the transaction of their competitors either more difficult, or easier (in particular
when they are interested in the possible commitments attached to the decision of the Commission).
19
Ryanair's Response to Statement of Objections, page 3.
20
Ryanair's Response to Statement of Objections, page 7.
21
See the 2007 Decision, paragraph 94.
22
Generally, it has to be emphasised that it is practically impossible for the Commission to make use of
all theoretical available means of investigation in each case. The Commission, given its limited
resources, has to judge whether there is a value added from engaging in a given means of investigation.
As explained above, in the case at hand the Commission focused its analyses and resources on other
means of investigation and conducted a wide-reaching market investigation to collect qualitative and
quantitative evidence to assess the airport substitution. Moreover, in the 2010 Judgment, the Court
EN 17 EN
Furthermore, for the vast majority of airport pairs, the issue of market definition was
also analysed in detail in the 2007 Decision, and the Commission assessed whether
changes in market circumstances had occurred since 2007.
(32) The Commission also remarks in this context that the views of the customers were
gathered in the market investigation through the usual proxy used by the
Commission in airline cases, sending questionnaires to corporate customers, and
travel agents (being in principle in close touch with customers, even if, in the case at
hand, the bulk of sales is achieved through the internet).
(33) As in any other merger investigation, the Commission has therefore carefully
analysed, interpreted and weighed all views expressed during the market
investigation.
6. GENERAL CONTEXT FOR THE ASSESSMENT OF THE CASE
(34) The 2007 Decision and the 2010 Judgment constitute important background elements
for the assessment of the Transaction. However the Transaction is assessed
considering present circumstances, while changes in market conditions since 2007
provide very relevant insights for the understanding and analysis of the present
circumstances.
(35) Ryanair points to "material market changes since Ryanair's unsuccessful 2006 bid for
Aer Lingus"
23
.
(36) Ryanair highlights first, that Europe’s flag carriers are inexorably consolidating into
five large scheduled airlines groups led by Air France, British Airways, easyJet,
Lufthansa and Ryanair. It considers that the most significant of these consolidations
is the recent takeover by IAG of bmi. Contrary to these trends, Ryanair claims that
Aer Lingus has, since 2006, failed to find a consolidation partner or make itself
attractive to one of Europe’s three "mega-carrier" groups (Air France-KLM, IAG,
Lufthansa) and that Aer Lingus is a subscale peripheral carrier that is not consistently
profitable and cannot grow or compete with the much larger carriers in Europe.
According to Ryanair, Aer Lingus has no sustainable growth plan, with annual traffic
having fallen by almost one million passengers (or 9%) since 2009, and has
significant accumulated losses since its 2006 initial public offering (IPO). In this
context, the Transaction would be “the only way to secure Aer Lingus’ future as part
of a well financed and highly competitive European carrier that continues to grow
and prosper in the single market.”
24
Ryanair claims that the Transaction would
therefore benefit consumers.
confirms that there is no hierarchy between ‘non technical’ (that is to say, qualitiative) and ‘technical’
(that it to say, empirical) evidence, and that “there is no need to establish such a hierarchy. It is the
Commission's task to make an overall assessment of what is shown by the set of indicative factors used
to evaluate the competitive situation. It is possible, in that regard, for certain items of evidence to be
prioritised and other evidence to be discounted." (paragraph 136).
23
In particular in Section 7 of the Form CO, but also in other documents, such as the presentation of its
all-cash offer of 19 June 2012 and its offer document of 17 July 2012.
24
Ryanair response to the SO, p.1.
EN 18 EN
(37) The Commission acknowledges that some consolidation is indeed taking place in the
air transport sector in the Union
25
. However, such consolidation cannot take place at
the expense of consumers. The specific effects on competition of the Transaction
must therefore be assessed. The Commission also notes that Aer Lingus has been
profitable since 2010 and presents a rather strong balance sheet, at a time of
difficulties both in Ireland and in the transport sector.
26
(38) Secondly, Ryanair claims that Dublin Airport is now operating at just over 50%
capacity. When Ryanair first bid for Aer Lingus in late 2006, Dublin Airport was
suffering from congestion. The Commission will examine this specific issue in
Section 8.5.2.
7. RELEVANT MARKETS
7.1. Introduction
(39) Ryanair and Aer Lingus both provide scheduled passenger air transport services
within the EEA. There are no other markets affected by the Transaction other than
those relating to passenger air transport services.
7.1.1. Operating models of carriers in the airline industry
(40) Carriers which currently offer scheduled air transport services within Europe form a
heterogeneous group, with significant differences between each single carrier. Such
differences between carriers relate mainly to the operating model of the respective
company (in principle hub & spoke or "network" carriers as opposed to point-to-point
models) and to the level of service that is offered to passengers (full service as
opposed to low-frills or no-frills model). Intermediate levels of services can also be
provided by some carriers.
(41) Some carriers operate a hub-and-spoke network model providing connecting services
throughout their system by using a centrally located airport. Within a hub-and-spoke
network, flights are concentrated in time and space to an airport (hub). These
network carriers serve various different passenger segments, such as passengers
flying short-haul or long-haul, time sensitive and non-time sensitive passengers and
passengers who are connecting or fly point-to-point, with a series of complex
operations at their hub airports. The hub-and-spoke network provides increased
flexibility to network airlines with regard to operations from their hub airport. On the
other hand, it is less likely that network carriers would build up significant operations
on a stand-alone basis, at airports not connected to their hub airport.
25
See for example Communication from the Commission to the European Parliament, the Council, the
European Economic and Social Committee and the Committee of the Regions – Report on Competition
Policy 2011 dated 30 May 2012, COM(2012)253 Final, p. 18.
26
[…]*.
* Parts of this text have been edited to ensure that confidential information is not disclosed; those parts
are enclosed in square brackets and marked with an asterisk.
EN 19 EN
(42) Other carriers concentrate on local traffic and offer point-to-point services on many
different city pairs. They focus on fewer passenger segments and have a simplified
operating model without incurring the additional cost and complexity of creating and
operating a hub. Point-to-point carriers decide on the business case for a new or
existing route based on the operational economics of individual routes. This provides
them with more flexibility to enter individual routes if sufficient demand exists. For
increased operational efficiency, point-to-point carriers often also concentrate their
activities on particular airports (bases). A "base" airport is an airport where carriers
base a certain number of aircraft and on which they concentrate their operations and
from which they operate several routes. A large majority of the respondents to the
market investigation agree with this definition for the purpose of the assessment of
this case
27
. At a base airport, carriers overnight aircraft, entertain additional facilities
and services, such as maintenance services, customer care services, ground-handling
services or stand-by aircraft. A base airport requires the commitment of
infrastructure, personnel and equipment (with the concomitant capital expenditure) at
an airport, which are used to operate several routes from that airport. Furthermore, as
crew are attached to it, a base airport leads to fewer costs (as there are no hotel
overnight expenditures for crew) and it tends to allow airlines to employ a lower
number of reserve crew while still ensuring adequate reserves are on hand to ensure
replacement of personnel (due to for example illness or delays) in a timely manner
28
.
(43) The difference between network carriers and point-to-point carriers often coincides
with the distinction between full-service carriers and low-frills or no frills carriers.
Network carriers operating a hub-and-spoke system generally provide an integrated
passenger product with additional service features such as complimentary luggage
transport, on board meals, seat allocation, access to airport lounges, frequent flyer
programmes, ticket flexibility. Point-to-point carriers, on the other hand, usually
operate as low frills or no frills carriers. They either charge extra for so-called "frill"
services like catering, checked-in luggage, hand luggage, lounges, seat allocation,
priority boarding and extra comfort or, alternatively, they choose not to offer these
services at all.
(44) The differences between the operating models which carriers use within the EEA
cannot, however, be grouped clearly into distinct categories. There are many
variations between the extremes of strictly no frills point-to-point services of certain
carriers and the traditional full service network product of others. As part of their
product differentiation, carriers may create their individual combinations of service
elements without clearly falling into any category.
7.1.2. Services provided by Ryanair and Aer Lingus
(45) Ryanair and Aer Lingus compete on the provision of scheduled air passenger
transport services on routes to and from Ireland and in particular to and from Dublin,
Cork, Shannon and Knock.
(46) Aer Lingus operated as a traditional full service carrier until 2001, when it
introduced a low fares model to compete with low cost carriers. Following the global
27
See responses to question 41 of questionnaire Q1 - Competitors.
28
Agreed minutes of a meeting of 14 September 2012 with Aer Lingus.
EN 20 EN
economic and financial crisis in 2008, Aer Lingus initiated a review of its business
model and since 2009, Aer Lingus has emphasised its positioning as a value carrier
between the low cost carriers and full service carriers, with a strong core product and
offering additional paid options. As such, Aer Lingus targets both leisure / non-time
sensitive and business / time sensitive passengers
29
.
(47) Ryanair on the other hand describes itself as an ultra "low-fares" or "low cost" carrier
and it operates a point-to-point no-frills service.
(48) For the purpose of the assessment of the Transaction, therefore, it is not appropriate
to define separate markets according to the distinctions between the different
operating models of carriers. These differences between operating models will be
taken into account when assessing the competitive impact of the Transaction. Each
competitor's incentives and ability to compete effectively with the merged entity
based on its business model will exert different levels of competitive constraints as
shown in particular in Section 8.9.
7.2. Origin and destination approach (O&D)
7.2.1. Demand side considerations
(49) The Commission's Notice on the definition of relevant market for the purposes of
Union competition law (the "Relevant Market Notice")
30
provides that the main
purpose of market definition is to identify in a systematic way the competitive
constraints faced by the undertakings involved. In so doing, the Commission takes
into account a range of evidence which would enable it to assess the extent to which
substitution would take place. The Commission considers the characteristics and
specificity of the industry and products or services analysed
31
.
(50) In its decisional practice, the Commission has traditionally defined the relevant
market for scheduled passenger air transport services on the basis of the "point of
origin/point of destination" ("O&D") city-pair approach
32
. Such a market definition
29
Aer Lingus' response to question 2 of questionnaire Q1 - Competitors.
30
OJ C 372, 9.12.1997, p. 5. See point 2.
31
The Relevant Market Notice, point 25, OJ C 372, 9.12.1997, p. 5.
32
Commission's Decision C(2012) 2320 in Case No COMP/M.6447 – IAG/bmi, OJ C161, 07.06.2012,
p.2, recitals 31-34; Commission's Decision of 26 January 2011 in Case No COMP/M.5830 –
Olympic/Aegean Airlines, recitals 41-44; Commission's Decision C(2010) 5346 in Case No
COMP/M.5889 – United Air Lines/Continental Airlines, OJ C225, 20.08.2010, p. 1, recitals 9-12;
Commission's Decision C(2010) 5008 in Case No COMP/M.5747 – Iberia/British Airways, OJ C241,
08.09.2010, p. 1, recitals 9-10; Commission's Decision of 28 August 2009 in Case No COMP/M.5440 –
Lufthansa/Austrian Airlines, recitals 11-14; Commission's Decision C(2009) 4004 in Case No
COMP/M.5403 – Lufthansa/bmi, OJ C158, 11.07.2009, p. 1, recitals 8-10; Commission's Decision of
22 June 2009 in Case No COMP/M.5335 – Lufthansa/SN Airholding, recitals 12-14; Commission's
Decision C(2009) 103 in Case No COMP/M.5364 – Iberia/Vueling/Clickair, OJ C72, 26.03.2009, p.23,
recitals 30-31; Commission's Decision C(2008) 4359 in Case No COMP/M.5181 - Delta/Northwest, OJ
C281, 05.11.2008, p.3, recitals 8-11; Commission's Decision of 27 June 2007 in Case No
COMP/M.4439 - Ryanair/Aer Lingus, recitals 54-66; Commission's Decision (2005) D/207690 in Case
No COMP/M.3940 – Lufthansa/Eurowings, OJ C18, 25.01.2006, p.22, recitals 10-11; Commission's
Decision (2005) D/202898 in Case No COMP/M.3770 - Lufthansa/Swiss, OJ C204, 20.08.2005, p.3,
recitals 12-14; Commission's Decision (2004) D/200549 in Case No COMP/M.3280 – Air
France/KLM, OJ C60, 09.03.2004, p.5, recital 9; Commission's Decision (2002) D/228776 in Case No
EN 21 EN
reflects the demand-side perspective whereby passengers consider all possible
alternatives of travelling from a city of origin to a city of destination, which they do
not consider substitutable for a different city-pair. As a result, every combination of a
point of origin and a point of destination is considered a separate market.
(51) Ryanair does not object to the O&D approach
33
.
(52) The majority of the respondents to the market investigation confirm that the
traditional O&D approach is the most appropriate tool for defining markets in this
case
34
.
(53) It follows from the O&D approach, as the Commission has traditionally considered,
that connecting passengers
35
are not part of the same market as O&D passengers. In
particular, this was the conclusion reached in the 2007 Decision, when considering
the specific situation of Ryanair and Aer Lingus
36
. Most recently, in the
Commission's decision of 30 March 2012 in Case No COMP/M.6447 - IAG/bmi
37
,
the Commission reached a similar conclusion. Therefore, the Commission considers
for the purposes of this Transaction that connecting passengers are not part of the
same market as O&D passengers.
(54) Therefore, the effects of this Transaction are assessed on the basis of an O&D city-
pair approach
38
.
7.2.2. Supply side and other considerations
(55) In the Commission's Decision of 11 February 2004 in Case No COMP/M.3280 – Air
France/KLM
39
, the Commission has also taken into consideration supply-side
elements such as network competition between airlines based on the hub-and-spoke
COMP/M.2672 – SAS/Spanair, OJ C93, 18.04.2002, p.7, recital 10; Commission's Decision of 12
January 2001 in Case No COMP/M.2041 - United/US Airways, recital 9; Commission Decision 2000/C
96/04, Commission's Decision in Case No IV./M.0019 – KLM/Alitalia, OJ C96, 05.04.2000, p.5, recital
22. The O&D approach was confirmed by the General Court: see Case T-342/07, Ryanair Holdings plc
v Commission [2010] ECR II-3457, paragraph 53; Case T-177/04, easyJet v Commission [2006] ECR
II-1931, paragraph 56; Case T-2/93, Air France v Commission [1994] ECR II-323 paragraph 84.
33
Section 6.2 of the Form CO. Ryanair is a point-to-point carrier which offers direct services from an
originating airport to a destination airport without connecting flights. See also paragraph 4.3.a of
Ryanair's submission on the SLC test, 31 August 2011.
34
See amongst others responses to question 8 of questionnaire Q1 - Competitors, responses to question 5
of questionnaire Q2 - Travel Agents and responses to question 8 of questionnaire Q4 - Airports,
responses to question 4 of questionnaires Q6 – Consumer Associations and Q7 - Trade Associations.
35
"Connecting" or "transfer passengers" are passengers who fly indirectly on a given city-pair (for
example, Dublin-Chicago via London Heathrow). These passengers do not necessarily travel each "leg"
or "sector" of such journey with the same carrier.
36
Recital 68. The Commission's position as to defining markets on an origin and destination basis was
upheld by the 2010 Judgment, paragraph 99.
37
Section IV.1.2.
38
Some respondents agree with the O&D approach but limit this to specific airports. See for example
Frankfurt Airport, response to question 8.1 of questionnaire Q1 - Competitors: "We agree that HHN-
DUB and FRA-DUB are separate O&D routes and therefore separate markets." However, the question
of an inclusion of airport substitutability at points of origin and destination is discussed in the context of
the specific O&D pair. See Section 7.3.3.
39
Recitals 9-18.
EN 22 EN
structure of traditional carriers. However the Commission considered that the degree
of supply-side substitutability between different O&Ds was limited.
(56) In the 2007 Decision, the Commission examined whether supply-side substitution
could warrant a departure from the established O&D approach (that is to say a so-
called market for short-haul flights from and to Ireland)
40
. The question was raised
whether the bundle of routes out of Dublin forms one single relevant market, since
suppliers operating from Ireland could switch between the different routes. The
Commission concluded in the 2007 Decision that non-Irish airlines face significant
barriers to entry and more difficulties to win sufficient customers for their Irish
routes than the two well-established Irish airlines Aer Lingus and Ryanair. The
Commission did not identify effects of supply-side substitution strong enough to be
equivalent to those of demand side substitution in terms of effectiveness and
immediacy. It thus upheld the use of the traditional O&D approach.
(57) Ryanair argues
41
that with the growth of point-to-point airlines, supply-side
substitution is an increasingly important aspect of market definition. However, as
explained in detail in Section 8.5.2, it remains the case that there are significant
barriers to entry on the Irish market which makes it difficult for airlines to switch
their services to Irish routes.
(58) In any event, as explained in detail in Section 7.2.1, the Commission considers that
the O&D approach is the most appropriate tool for defining markets in this case. The
evidence collected through the market investigation indicates the same
42
.
Furthermore, in line with the Commission's Relevant Market Notice
43
and with its
previous decisional practice, the competitive constraint arising from supply side
substitutability is normally only considered in the market definition when it has an
immediate and effective impact on the relevant product market. As this is not the
case here
44
, the Commission gives precedence to demand-side substitution
45
.
(59) Some respondents to the market investigation also pointed out the specificity of
"leisure travel". In their view, such passengers are not fixed on a given O&D pair,
but have the flexibility to switch between a number of O&D pairs depending on
various criteria, amongst which are prices and convenience
46
. Another respondent
argued that "[…] some consumers have a much wider set of criteria for their
destination choice, for example they may trade-off different holiday destinations. The
40
Recitals 57-66.
41
Ryanair's response to the Statement of Objections, paragraph 1.
42
See amongst others responses question 8 of questionnaire Q1 - Competitors, responses to question 5 of
questionnaire Q2 - Travel Agents and responses to question 8 of questionnaire Q4 - Airports, responses
to question 4 of questionnaires Q6 – Consumer Associations and Q7 - Trade Associations.
43
See point 13.
44
See also Air France/KLM Group (hereafter "Air France"), response to question 8.1 of questionnaire Q1:
"From the supply-side perspective, it is the AFKL Group’s position that there are clear signs that major
network airlines compete on a network-to-network basis. However, the AFKL Groups appreciates that,
from the demand side, the customer continues to ask for a transport service between two points and
that, on this basis, each point of origin/point of destination may constitute a relevant market."
45
As set out in the Relevant Market Notice, point 13: "From an economic point of view, demad
substitution constitutes the moste immediate and effective disciplinary force on the suppliers of a given
servie, in particular in relation to their pricing decisions."
46
For example, Thomas Cook, response to question 8.1 of questionnaire Q1 - Competitors.
EN 23 EN
product market here may therefore be ‘city destinations’, ‘access to ski stations’ or
‘beach destinations"
47
.
(60) As already acknowledged in the 2007 Decision
48
, the Commission considers that
some customers might consider flying to different city or holiday airports without
having a clear preference for one destination ("destination insensitive customers").
However, it also remains the case that for the vast majority of passengers, a flight
from Ireland to one destination is not simply substitutable with a flight to another
destination. On the contrary, from a demand-side perspective, every combination of a
point of origin and a point of destination forms a separate market from a customers'
viewpoint as customers require transportation from one specific point to another.
(61) Therefore, for the assessment of the Transaction, the Commission considers that
competition still takes place on an O&D basis.
7.3. Analysis of the relevant routes (airport pairs vs. city pairs)
7.3.1. Introduction: analytical framework
(62) In establishing whether an O&D pair forms a relevant market, the Commission
assesses the possibilities which are offered to consumers to travel between a given
point of origin and destination. Many cities are connected to two or more airports and
therefore when defining the relevant O&D markets for passenger air transport
services, the Commission examines whether flights from or to airports which have
sufficiently overlapping catchment areas can be considered as substitutes in the eyes
of passengers
49
. To this extent, both the point of origin and the point of destination
should include all airports that are substitutable in the eyes of passengers as
passengers beginning or ending their journey in the catchment area of two or more
airports can choose between flights offered to any of those airports
50
.
47
easyJet Airline Company Limited (hereafter "easyJet"), response to question 8.1 of questionnaire Q1 -
Competitors.
48
See recital 63.
49
For example Commission's Decision C(2012) 2320 in Case No COMP/M.6447 – IAG/bmi, OJ C161,
07.06.2012, p.2, recitals 43-67; Commission's Decision C(2010) 5346 in Case No COMP/M.5889 –
United Air Lines/Continental Airlines, OJ C225, 20.08.2010, p. 1, recitals 13-14; Commission's
Decision C(2010) 5008 in Case No COMP/M.5747 – Iberia/British Airways, OJ C241, 08.09.2010, p.
1, recitals 19-33; Commission's Decision of 28 August 2009 in Case No COMP/M.5440 –
Lufthansa/Austrian Airlines, recitals 15-17, 110, 124-126 and 155; Commission's Decision C(2009)
4004 in Case No COMP/M.5403 – Lufthansa/bmi, OJ C158, 11.07.2009, p. 1, recitals 11-13, 45-57;
Commission's Decision of 22 June 2009 in Case No COMP/M.5335 – Lufthansa/SN Airholding,
recitals 51-104, 116, 205-206 and 228; Commission's Decision C(2009) 103 in Case No COMP/M.5364
– Iberia/Vueling/Clickair, OJ C72, 26.03.2009, p.23, recitals 52-63; Commission's Decision (2005)
D/207690 in Case No COMP/M.3940 – Lufthansa/Eurowings, OJ C18, 25.01.2006, p.22, recitals 65,
82, and 96; Commission's Decision (2005) D/202898 in Case No COMP/M.3770 - Lufthansa/Swiss, OJ
C204, 20.08.2005, p.3, recitals 65-66, 77 and 100; Commission's Decision (2004) D/200549 in Case No
COMP/M.3280 – Air France/KLM, OJ C60, 09.03.2004, p.5, recitals 24-34. In the 2007 Decision the
Commission extensively investigated the substitutability of a number of airports with overlapping
catchment areas, recitals 72-287.
50
Commission's Decision of 22 June 2009 in Case No COMP/M.5335 – Lufthansa/SN Airholding, recital
13; see also Commission's Decision in Case COMP/M.3280 – Air France/KLM, recital 11.
EN 24 EN
(63) From the demand side, a number of factors influence passengers' choice of airport.
Passengers take into account the convenience and cost of getting to the airport, the
services offered from an airport such as the flight times, schedules and frequencies.
Certain passengers also take into account the availability of their preferred airline or
extra services like lounges, which they are entitled to use by reason of their
membership of loyalty programmes. Airport substitution increases competition if the
choice between airports also implies a wider choice between different airlines, to the
extent that they are independent from each other.
(64) According to the Relevant Market Notice "differences in product characteristics are
not in themselves sufficient to exclude demand substitutability, since this will depend
to a large extent on how customers value different characteristics"
51
.
(65) In order to correctly capture the competitive constraint that flights from and to two
(or more) different airports exert on each other, a detailed analysis is necessary by
taking into consideration the specific characteristics of the case at hand. As already
identified and explained in the 2007 Decision
52
, passengers take into account a
number of elements like travel time, travel costs, flight times/schedules/frequencies
and the quality of service when it comes to choosing between air transport services to
and from different airports. The passenger's choice for one or the other airline service
will ultimately be driven by a combination of these elements. These elements
continue to be relevant for the purpose of the assessment of the Transaction. Indeed
as Ryanair itself acknowledges, it competes with other airlines "primarily with
respect to fare levels, frequency and dependability of service, name recognition,
passenger amenities (such as access to frequent flyer programs), and the availability
and convenience of other passenger services."
53
7.3.2. Parameters considered
(66) The 2010 Judgment approved the Commission's approach to market definition as set
out in the 2007 Decision, that is to analyse the question of airport substitutability
from the perspective of customers using the technique of bundling evidence
54
.
(67) This approach involved defining, for the purposes of examining a concentration
between two carriers, the markets for passenger air transport on the basis of air routes
between two cities or bundles of air routes to the extent that there is substitutability
between them (according to the specific features of the transaction) and by using
different parameters to characterise the substitutability of these routes. These
parameters included inter alia a comparison of distances and travelling times to the
indicative benchmark of 100km/1 hour driving time, the responses of competitors,
airports, other civil aviation authorities to the market investigation or Ryanair's own
marketing practices.
(68) In its assessment of airport substitutability from the perspective of customers the
Commission will follow a similar approach and will use its findings in the 2007
51
See point 36.
52
Section 6.3.3.1.
53
Ryanair’s SEC Form 20-F filing of 31 July 2012, p.9.
54
See paragraphs 102, 104 and 108.
EN 25 EN
Decision and the following pieces of evidence, as described in detail in the Sections
that follow: a “first proxy” catchment area analysis, the price monitoring behaviour
of Aer Lingus and Ryanair, the outcome of the market investigation (views of the
airports, the competitors, the civil aviation authorities and other market participants),
Ryanair's marketing practices, the price correlation analysis, and any other relevant
element.
7.3.2.1. The 2007 Decision and other Commission precedents
(69) The Commission has in its previous decisional practice investigated the question of
airport substitutability as regards some of the airport pairs which are relevant for the
assessment of the current Transaction. The question of airport substitutability is
relevant for specific routes in particular for assessing whether passenger air transport
services between one point of origin and one airport at a point of destination is
substitutable for passenger air transport services between the same point of origin
and a different suitable airport for the same point of destination.
(70) In the 2007 Decision, the Commission assessed airport substitutability for certain
routes out of Ireland (Dublin, Cork, or Shannon in particular) operated by Ryanair
and Aer Lingus and which continue to be relevant for the current Transaction.
(71) The General Court held in its Judgment in Case T-158/00 ARD v Commission [2003]
ECR II-3825 that "a comparison with other merger cases can be relevant only if it is
established that they raise the same competition problems and concern markets with
the same charaterstics and where conditions have not changed."
55
(emphasis added)
(72) For the current Transaction, a comparison with the 2007 Decision is particularly
relevant. First, for market definition purposes, the current Transaction raises the
same competition problems as in 2007; both Ryanair and Aer Lingus target
essentially the same type of passengers as in 2007 and their service offerings have
not materially changed
56
. Secondly, the current Transaction concerns for most of the
routes exactly the same markets (O&D routes) as in 2007 and lastly, the market
conditions have not changed to such a degree as to justify a different approach.
(73) The Commission conducted an in-depth investigation into the matter of airport
substitutability and it considered both qualitative and quantitative evidence in its
2007 Decision. The Commission's methodology and conclusions have been upheld
by the 2010 Judgment
57
. The Commission hence treats its findings in the 2007
Decision as important factual elements which it takes into account in its assessment
of the question of airport substitutability. Indeed, the Commission sought to ascertain
during its market investigation into the Transaction, whether there have been any
significant changes in the market circumstances such as to warrant a different
conclusion than the one reached in the 2007 Decision as regards the relevant airport
pairs for flights to and from Dublin (or Cork or Shannon as relevant).
55
See paragraph 169.
56
Aer Lingus' emphasis as to its positioning as a "value carrier" since 2009 is consistent with the analysis
related to the closeness of competition between Ryanair and Aer Lingus.
57
See paragraphs 99-119.
EN 26 EN
(74) As will be shown below in Section 7.3.3, the Commission nevertheless closely
examined the question of airport substitutability and scrutinised various parameters
and it did not exclusively rely on its findings in the 2007 Decision.
(75) As regards other Commission precedents which dealt with airport substitutability
issues for some of the airport pairs which are relevant for the current Transaction,
these concerned routes to and from other countries than Ireland. Furthermore, the
other precedents generally did not concern carriers or destinations which have the
same characteristics as the destinations served or the passengers carried by Ryanair
and Aer Lingus. Therefore, such precedents are of much more limited relevance than
the 2007 Decision.
7.3.2.2. Airport catchment area of 100km or 1 hour's drive time
(76) In the 2007 Decision, the Commission established a proxy to estimate an airport’s
typical minimum catchment area on the basis of responses from airports
58
.
Accordingly, the Commission considered that airports are likely to have a catchment
area serving the same city if they are within 100km or 1 hour from the city centre
(the "100km/1 hour benchmark").
(77) However the Commission explained that the 100km or 1 hour's drive time is a
conservative estimate of an airport's typical catchment area and that within such
travelling distances or times to the airport, most passengers would not consider that
flying from one airport or the other to the same destination is manifestly
inconvenient. As a result, most passengers would openly consider flying from one
airport or the other, to the effect that competing air transport services between a point
in Ireland, on the one hand and each of these airports on the other, may exercise a
competitive constraint on each other
59
.
(78) The 100km/1 hour benchmark was used in the 2007 Decision merely as a "first
proxy"
60
and the General Court confirmed that "the Commission cannot be criticised
for having used the 100 km or one hour driving time benchmark in defining the
catchment areas of the airports"
61
.
(79) In the present Transaction, Ryanair argues that the Commission's decisional practice
creates a strong rebuttable presumption that, where airports are outside the 100km/1
hour benchmark, they are unlikely to be considered substitutes for antitrust
purposes
62
.
(80) Furthermore, Ryanair argues that the 100km/1 hour benchmark is less instructive
when two airports primarily serve different major cities or regions and are not
secondary airports but are the "main" airports for a certain city
63
. For these airports,
58
Recitals 82-85 of the 2007 Decision.
59
Recital 83 of the 2007 Decision.
60
Recital 85 of the 2007 Decision.
61
Paragraph 112 of the 2010 Judgment.
62
Ryanair's observations on the decision opening the proceedings, pages 2 and 3.
63
Ryanair's observations on the decision opening the proceedings, Annex I, for example in its assessment
of substitutability between Bilbao/Santander, Birmingham/East Midlands, Bristol/Exeter,
Manchester/Liverpool, Toulouse/Carcassonne or Vienna/Bratislava.
EN 27 EN
Ryanair claims that the Commission's following two presumptions should be much
weaker (or the validity of the presumption should be less clear)
64
: (i) if an airport
falls within 100km or 1 hour's drive time of a city centre, a large pool of the airport's
customers will reside between the airport and the city centre and (ii) when more than
one airport is within the catchment area of a city then customer pools overlap, that is
to say there will be an appreciable group of customers who consider the two or more
airports substitutable. Ryanair also argues that the 100km/1 hour benchmark is less
instructive for leisure routes (for example the Dublin-Bilbao/Santander route).
Lastly, Ryanair argues that, besides distance, the availability of transport connections
will also be a key factor in identifying the catchment areas of each airport
65
.
(81) On the contrary, Aer Lingus considers that the 100km/1 hour benchmark is an overly
conservative estimate of an airport’s typical catchment area and that the rule of
thumb should be extended to 200km or 2 hours for leisure non-time sensitive
passengers
66
.
(82) The Commission considers that it continues to be appropriate to use a first proxy
based on a catchment area of 100km/1 hour drive time for determining whether
airports appear prima facie as substitutable
67
. This does not mean that, if airports do
not fall within this benchmark, such airports would not be substitutable. It also does
not mean that once airports fall within this benchmark, they are to be automatically
treated as substitutable.
a) Appropriateness of using an "airport catchment area" filter
(83) As explained by the Civil Aviation Authority of the United Kingdom (the "United
Kingdom CAA") in its study Catchment area analysis (the "Catchment area
analysis"), a catchment area is "a way of estimating the geographic area from which
a large proportion of an airport's outbound passengers originate, or inbound
passengers travel to, and their geographic distribution within this area. The size of
catchment areas and overlaps between catchment areas of neighbouring airports
could provide useful evidence of the potential for, and the strength of competition
between these airports"
68
.
(84) The Commission considers that catchment areas provide useful evidence for
determining whether flights between two airports and the same destination could be
part of the same relevant market for competition law purposes. However such
evidence would need to be complemented with other elements which are relevant for
determining whether in the eyes of passengers, for airports situated in the same
catchment area (or outside such catchment area), particular scheduled point-to-point
64
Ryanair's observations on the decision opening the proceedings, Annex I, for example in its assessment
of substitutability between Bilbao/Santander, Birmingham/East Midlands, Bristol/Exeter,
Manchester/Liverpool, Toulouse/Carcassonne or Vienna/Bratislava.
65
Ryanair's observations on the decision opening the proceedings, Annex I, Substitutability between
Bilbao/Santander.
66
Aer Lingus, response to question 13.1.3 or 13.3.2.1 to questionnaire Q1 - Competitors.
67
See the remainder of this Section (sub-Sections (a) and (b)) for the Commission's view on Ryanair's
individual arguments.
68
United Kingdom CAA – Airport market power assessments, "Catchment area analysis", Working
Paper, October 2011, point 1.6.
EN 28 EN
flights from one airport to a given destination would be substitutable for flights from
another airport to the same destination. This approach was followed by the
Commission in its 2007 Decision
69
. Therefore, contrary to Ryanair's contentions, the
Commission's decisional practice cannot create any presumption that where airports
are outside the 100km/1 hour benchmark, they are unlikely to be considered
substitutes for competition purposes, let alone a strong rebuttable presumption.
(85) Indeed, as explained by the United Kingdom CAA in its Catchment area analysis,
catchment areas by themselves should not be taken as establishing which airports are
within the same geographic market, for two main reasons
70
: (i) while on the one
hand, catchment areas illustrate overlaps between all airports in the regions being
considered, there could be fewer airports in the same relevant market than indicated
by the catchment area analysis because the services offered at these airports may be
differentiated and (ii) on the other hand, catchment areas might in some
circumstances be smaller than the relevant geographic market and even if two
neighbouring airports with similar services and prices might have relatively small
catchment areas with little or no overlaps, an increase in price or reduction in service
quality might result in a significant shift of passengers from one airport to another,
suggesting they might be in the same (geographic) market.
b) Appropriateness of using a 100km/1hour benchmark
(86) The United Kingdom CAA explains in its Catchment area study that surface access
drive time seems to be an important consideration in passengers' choice of airport
and that an analysis of surface access travel time can provide an indication of the
potential usage of an airport and the potential for passengers to make choices
between different airports
71
. The United Kingdom CAA has previously used for
indicative purposes, 120 minutes to construct the drive time isochrones for United
Kingdom short-haul leisure passengers and 60 minutes for United Kingdom
international short-haul business passengers
72
and the United Kingdom Office of Fair
Trading (the "OFT") also previously used drive time isochrones of 60, 90 and 120
minutes
73
.
69
Recital 83 of the 2007 Decision. See also Case COMP/M.6447 – IAG/bmi recital 48-49; Case
COMP/M.5403 – Lufthansa/bmi recital 11; Case COMP/M.5440 – Lufthansa/Austrian Airlines recital
15; Case COMP/M.5335 Lufthansa/SN Airholding recital 53.
70
UK CAA – Airport market power assessments, "Catchment area analysis", Working Paper, October
2011, point 1.7.
71
UK CAA – Airport market power assessments, "Catchment area analysis", Working Paper, October
2011, point 2.1.
72
UK CAA – Airport market power assessments, "Catchment area analysis", Working Paper, October
2011, point 2.6 and references therein. The Catchment area analysis also includes a reference to the so-
called "Route shop" which is hosted on www.anna.aero and is a virtual shop dedicated to airline
network planning intelligence, and which classifies a significant number of airports in Europe and
around the world. In the "catchment area", depending on the airport, the route shop uses a driving time
of 30 minutes, 60 minutes, 90 minutes or even 120 minutes. The route shop also seems to have been
used by Ryanair (see quote of Ken O'Toole, identified as Director of new route development at Ryanair:
"I use the route shop because it tells me which airports are really hungry for growth"
http://www.therouteshop.com/about-therouteshop.php
73
For example OFT reference to the Competition Commission (CC) under section 131 of the Enterprise
Act 2002 (the Act) for an investigation into the supply of airport services by BAA Limited within the
United Kingdom, April 2007.
EN 29 EN
(87) The Commission considers that the 100km/1hour benchmark, while being
conservative for the purpose of defining the appropriate catchment area in the
Transaction, continues to be a relevant first proxy. In the majority of cases, as
appears from its' own commercial behaviour, Ryanair seeks and manages to attract
passengers which are bound for major cities
74
. Indeed Ryanair generally markets
itself toward price-sensitive leisure travellers who are largely indifferent to using
secondary airports and are generally less time-sensitive
75
. It therefore appears that at
least Ryanair's passengers generally accept a longer total journey time in exchange
for a competitive airline fare. These passengers seem to be willing to undertake
longer journey times in surface transportation to and from other airports if this would
lower the total transport costs between the point of departure and the final point of
destination.
(88) In its airport-by-airport analysis, the Commission ascertains whether a given airport
falls within the 100km/1 hour benchmark in the following manner:
(89) The distance in kilometres, as provided by Ryanair in the Form CO and as
complemented by the Commission where necessary, was calculated as a distance
from each individual airport served by Ryanair to the city centre of the closest city to
Aer Lingus' served airport
76
.
(90) As regards the duration, in its assessment of whether a certain airport falls within the
one hour drive time benchmark, the Commission scrutinised the time needed to
travel by car as well as the time needed to travel via public transport such as bus (city
bus, shuttle bus, coach) and train and metro (if available) on the basis of the
information provided by Ryanair and complemented by the Commission where
necessary. Therefore the Commission captured (insofar as provided by Ryanair) all
possible means of accessing the city centre from a given airport.
(91) As regards the use of a benchmark based on distance and drive time to the city
centre, the Commission explained in its 2007 Decision that, by using this approach,
if the centre of a city falls within the benchmark, a substantial part of the city and any
suburbs or other urban areas located in between is included in this catchment area
77
.
Furthermore, where the catchment areas overlap over densely-populated areas, the
number of inhabitants, potential air passengers who would consider flying from
either airport, is substantial. If this number is high enough, carriers serving one of the
two or more overlapping airports, will take this into account when setting the level of
74
For example its services between Dublin-Stockholm Skavsta, Dublin-Paris Beauvais, Dublin-Brussels
Charleroi, Dublin-Glasgow Prestwick, Dublin-Frankfurt Hahn, Dublin-Milan Bergamo, Dublin-Treviso
or Dublin-Warsaw Modlin.
75
Paragraph 7.32 of the Form CO. At the same time, Ryanair is also beginning to target all types of
passengers as is evidenced for example by Ryanair's low fare proposal to the Irish Government on
Ryanair’s double daily return flights between Dublin and Brussels during the Irish Presidency of the
Council of the European Union. Ryanair confirmed that the Irish Government accepted its proposal and
that the agreement between Ryanair and the Irish Government became effective as of 10 December
2012 (Ryanair's response to Commission's request for information of 9 January 2012).
76
Ryanair provided slightly different figures for the distance and travel duration in its response to the
Commission's request for information of 30 August 2012. However, these figures are broadly in line
with the figures provided in Annex 7.3.a to the Form CO. The only notable exception is the duration
and travel time to/from Paris Beauvais.
77
Recital 87 of the 2007 Decision.
EN 30 EN
their own fares
78
. This approach continues to be relevant for the purposes of the
Transaction.
(92) Most of the airports considered in this Decision are located close to a large city that
is likely to be the destination of most passengers, with the secondary airport typically
being further away from that city than the primary airport. This is the case for
example for Barcelona El Prat/Girona/Reus, Brussels Airport/Charleroi,
Glasgow/Prestwick, Frankfurt/Hahn, the London airports, Milan
Linate/Malpensa/Bergamo, Paris Roissy-Charles de Gaulle/Beauvais/Orly, Rome
Fiumicino/Ciampino, Stockholm/Skavsta, Venice/Treviso or Warsaw/Modlin.
(93) However the 100km/1 hour benchmark is also relevant for those airports which
Ryanair claims primarily serve different cities, for example the airports serving
Bilbao/Santander, Vienna/Bratislava, Birmingham/East Midlands,
Manchester/Liverpool, Toulouse/Carcassonne or Munich/Memmingen. The
Commission considers that, even for these pairs, it is likely that a substantial part of
the first city is captured by the catchment area of the other airport (or vice-versa) and
that an airline which serves one of the two airports will take the other into account
when setting the level of its own fares. Indeed, for the routes between Dublin, Cork,
Shannon or Knock (as applicable) and the airports which Ryanair claims are primary
airports for major cities, at least Aer Lingus (or Aer Arann) monitors Ryanair's fares
to the other airport
79
. Furthermore, it seems unlikely for passengers not to consider
alternative flights from the same origin to other airports in the area merely because
such alternative flights would be operated to another airport serving a different main
city. This is particularly true when the distance is small (as is the case for
Birmingham/East Midlands or Manchester/Liverpool). In addition customers in the
airline industry face great transparency on the market and they can easily compare
fares even from alternative airports
80
. Therefore, it becomes increasingly easy for the
customers to see alternative routes to the same city or region.
(94) In addition, the Commission found in its 2007 Decision that even for some holiday
destinations (like Bilbao/Santander, Toulouse/Carcassonne or even
Vienna/Bratislava) the city centre criterion is an indicative benchmark showing the
relative distance of the airports from the local centre and thus also the difference in
their ability to serve the tourist resorts in the vicinity. The Commission considers that
this approach is still relevant for the purpose of thes Transaction as explained in
more depth in the airport-by-airport assessment in Section 7.3.3.
(95) The Commission also points out the fact that the actual duration of a flight or the
frequency of flights on a certain route are not crucial elements in establishing the
catchment area of an airport for the purposes of the Transaction. The Commission
acknowledges that passengers would be more likely to travel for considerably longer
in order to reach an airport serving a long-haul destination and that this is less true
for short-haul destinations
81
. However, as explained above, considering the
78
Recital 87 of the 2007 Decision.
79
Aer Lingus, response to question 22.1 of questionnaire Q1 - Competitors. See also the airport-by-airport
analysis in Section 7.3.3 below.
80
For example the website www.skyscanner net provides the option of alternative airports.
81
See for example Wizz Air Group (hereafter "Wizz Air"), response to question 11.1 of Q1 - Competitors.
EN 31 EN
passenger profile in the Transaction, the 100km/1 hour benchmark remains suitable
as explained above. Furthermore, the question of frequencies is relevant when
assessing the strength of the competitive constraints and less so in determining
whether flights to and from one airport could be substitutable with flights to and
from another airport serving the same destination
82
.
(96) The ultimate purpose of using the benchmark is to provide a starting point for the
Commission to ascertain, on the basis of all information available, whether air
passengers would consider air transport services to/from neighbouring airports as an
alternative for a given route. Therefore, even if airports would fall outside the
100km/1 hour benchmark (which is only the case for a few of the airport pairs in the
Transaction
83
), the Commission considers that on the basis of the bundle of evidence
it can reach its conclusions. Therefore, the benchmark is merely one parameter in the
bundle of evidence used by the Commission.
(97) To conclude, establishing a 100km/1 hour benchmark is an indicative first step and
does not eliminate the need for detailed case-by-case analysis concerning the
individual airport pairs. The Commission needs to consider all relevant elements as
will be shown in the airport-by-airport descriptions in Section 7.3.3.
7.3.2.3. Ryanair's and Aer Lingus' Price Monitoring
(98) The Commission further investigated whether Ryanair and Aer Lingus monitor each
other's fares on the same routes (to nearby airports) or if they take into account these
fares in their normal course of business, for example when setting their own fares.
(99) [Ryanair's monitoring practices]*, it has continuously used "QL2" price comparison
software [Ryanair's monitoring practices]*. The QL2 software gathers pricing across
a range of dates at regular intervals. [Ryanair's monitoring practices]*
84
. Ryanair's
monitoring activity will be described in detail for each airport pair individually in
Section 7.3.3.
(100) Aer Lingus […]* monitors Ryanair's prices on all short-haul routes operated by
Ryanair where these overlap with a route operated by Aer Lingus from Dublin, Cork,
Knock or Shannon to the same or a nearby airport. For this it uses several systems
85
:
it uses a Sabre revenue management system which allows it to monitor competitor
pricing in real time and to amend their own pricing as required. In addition, Aer
Lingus uses […]*, QL2, the "screen scraping" software which harvests fares from
competitor websites. Aer Lingus runs reports from QL2 and benchmarks Aer Lingus
prices against Ryanair’s. Furthermore, Aer Lingus monitors the Ryanair website
manually to have a full understanding of the product attributes offered by Ryanair
and to monitor promotions and special events. Aer Lingus explained that it needs to
82
In the same manner, the question of the size of a certain airport and the number of passengers it serves
in general cannot determine whether flights from one airport are substitutable for flights from another
airport to the same destination in the eyes of passengers.
83
The only pairs which are outside the benchmark are the airports of Frankfurt/Hahn,
Munich/Memmingen, Arlanda/Skavsta and in addition Vienna/Bratislava, Paris/Beauvais and
Bilbao/Santander if the duration is taken into account out of a total of 20 airport pairs.
84
Footnote 33 of the Form CO
85
Aer Lingus, response to question 22.1 of questionnaire Q1 - Competitors.
EN 32 EN
determine the product offered by Ryanair in the base fare and relevant ancillary
charges, in order to ensure that Aer Lingus offers a comparable product at a
competitive price and to adjust its prices accordingly in order to remain competitive.
(101) Aer Lingus itself does not monitor Ryanair prices on routes served by Aer Arann
under the Aer Lingus Regional brand. Revenue management on these routes is the
responsibility of Aer Arann and Aer Arann uses the Aer Lingus revenue management
system to do so. Aer Arann monitors Ryanair's fares on all routes on which Aer
Arann operates in competition with Ryanair. It conducts the research manually on
Ryanair’s website on a daily or weekly basis
86
.
(102) [Ryanair and Aer Lingus monitoring practices]* Furthermore, such evidence shows
that Ryanair and Aer Lingus (including Aer Arann) largely compete for the same
customers.
(103) Furthermore, it is sufficient that only one of the two carriers (Ryanair or Aer
Lingus/Aer Arann) monitors the other on a given route to confer significant
relevance to the monitoring criterion for the purpose of airport substitutability. In this
sense, the fact that only one of the two Parties monitors the other and considers the
fares of the other in setting its own fares on a given route is still relevant evidence
showing that it is being constrained in its competitive conduct. Therefore, there is a
high likelihood that air passenger transport services on the same city pair (at different
airports) would be part of the same relevant market for the purpose of the
competitive analysis of the Transaction, and even more so when other evidence also
points to the same direction.
7.3.2.4. Ryanair's marketing practices
(104) The Commission further investigated Ryanair's practices in marketing its services
from and to certain airports. These marketing practices indicate whether Ryanair
itself considers that a certain airport is appropriate for passengers destined for a
certain region or city. Furthermore, Ryanair uses these practices to better inform its
passengers and to make it easier for customers who might be interested in booking a
flight with Ryanair to identify the flight destinations available and to dispel any
uncertainties as regards the means of reaching a certain city or region from the
airport which is served by Ryanair
87
.
(105) In this sense, the Commission considers that it is most relevant to look at Ryanair's
and not Aer Lingus' marketing practices because Ryanair typically serves the
secondary airports and needs to promote flights to these airports as suitable
alternatives to flights operated by Aer Lingus to a different airport which is
frequently more conveniently located.
(106) The scrutiny of such practices was conducted on the basis of the information
provided by Ryanair on its website on the dedicated page entitled "Destinations".
The Commission analysed the description of the city, the airport information, the
main attractions and the "Top 5 things to do".
86
Agreed minutes of conference call of 11 October 2012 with Aer Arann.
87
See also paragraph 113 of the 2010 Judgment.
EN 33 EN
(107) The Commission would like to point out that, for a number of airports, Ryanair flies
to both airports which might be considered as substitutable (either from Dublin or
from other Irish airports). This is the case in particular for the United Kingdom cities
Manchester, Liverpool, Leeds Bradford, Birmingham, East Midlands but also for
some cities in Spain like Alicante, Murcia, Bilbao and Santander. Therefore as
regards these cities (and in particular the United Kingdom cities), Ryanair markets
these cities as destinations in their own right. However this does not mean that from
the perspective of Ryanair's passengers, these airports would not be substitutable,
particularly if considering other qualitative and quantitative evidence as described in
Section 7.3.3.
7.3.2.5. Outcome of the market investigation
(108) The Commission contacted relevant stakeholders in order to gather their views as
regards the question of airport substitutability during its first phase and second phase
investigations.
(109) The Commission paid particular attention to the views expressed by airlines and
airports. As regards airlines, the Commission analysed the response of the other
airlines active on the specific route. When there were no such airlines, the
Commission took into account the responses of other airlines with a presence at the
airports involved (for example by having a hub or a base at the airport in question) or
airlines which operated on the route in question in the past. As regards airports, the
Commission considered the information received from the airports involved and,
where available, from the civil aviation authorities.
(110) Lastly, the Commission also took into account the overall outcome of its market
investigation and in particular the responses from other carriers, airports, travel
agents, civil aviation authorities, consumer associations, trade associations and
corporate customers.
7.3.2.6. Empirical analysis (price correlation) and Ryanair's Map-Based analysis
(111) The Commission also conducted a price correlation analysis which provides
quantitative support to the conclusions reached by the Commission on market
definition and in particular concerning the substitutability of neighbouring airports.
(112) The results of this analysis are included in Section 7.3.3, while explanations
regarding the methodology and more detailed description of the results are provided
in Annex I.
(113) Ryanair also submitted a map-based analysis based on illustrative price rises ("IPR")
which according to Ryanair relates to the substitutability of airports within O&D
pairs, as defined by the Commission in the decision opening the proceedings. The
analysis was performed on five city pairs (Dublin to Paris, Frankfurt, Munich,
Stockholm and Vienna) where Aer Lingus and Ryanair operate to different
destination airports, and uses customer location data from Ryanair's booking system.
The first goal of the analysis is to determine to what extent the catchment areas of
Ryanair and Aer Lingus overlap in these city pairs on the basis of this booking data.
(114) The Commission demonstrates in Annex II that Ryanair's Map-Based analysis relies
on several strong and arbitrary assumptions. First, the Commission does not consider
EN 34 EN
that the assumptions made by Ryanair (notably the 100km benchmark and the
assumptions on routes with competitors) provide a sufficiently meaningful
comparator for measuring actual diversion ratios for the purposes of market
definition and effects based analysis. Secondly, the results of the analysis are not
robust to changes in the assumptions of the computation of the critical diversion
ratio. Thirdly, the Commission cannot exclude that the sample provided is not a
representative sample. Therefore, the Commission does not consider that the results
of this analysis provide any evidence that the relevant airports belong to different
markets; on the contrary, even under the strong assumptions made by Ryanair in
several robustness checks they indicate the opposite.
7.3.2.7. No customer survey was necessary in this case
(115) As explained in Section 5 and contrary to what Ryanair alleges, the Commission
considers that a survey similar to the one performed in 2007 would not have been
useful in the case at hand for the purpose of market definition.
7.3.2.8. Argument raised by Ryanair: common sense and practical realities facing consumers
(116) Ryanair claims in its Response to the Statement of Objections that, as regards airport
substitutability, the SO's conclusions are in several cases contrary to common sense
and the practical realities facing consumers
88
.
(117) Ryanair argues that passengers who purchase flights on Ryanair would not switch to
Aer Lingus in response to a 5-10% price increase by Ryanair because the schedule
and destination would not change and Ryanair will generally still be by a wide
margin the cheapest available option. Ryanair argues that it is only Aer Lingus'
passengers who are likely to decide whether to switch between Aer Lingus' service
and a cheaper (but potentially less convenient) Ryanair alternative.
(118) Therefore, in Ryanair's view, Aer Lingus' and Ryanair's services belong to the same
market if in the event of a 5-10% price increase by Aer Lingus, a sufficient number
of Aer Lingus' passengers would switch to Ryanair such as to make the price
increase unprofitable. Ryanair uses the following example to support its point: Aer
Lingus' average fare from Dublin to Frankfurt Main Airport is EUR 89.76. A 10%
price increase in Aer Lingus' fare would amount to around EUR 9. Ryanair then
concludes that it is not credible that individual travellers would switch from Aer
Lingus to Ryanair, considering the increase in the total travel duration, the increased
transportation costs and the significant differences in service levels between Ryanair
and Aer Lingus.
(119) Aside from the fact that Ryanair's proposition is inconsistent with its own approach
elsewhere
89
and the unsubstantiated claim that its own passengers would not switch
to Aer Lingus
90
, even if one would only assess the likelihood that Aer Lingus'
88
Ryanair's Response to Statement of Objections, paragraph 5.
89
Ryanair's proposition that it is only relevant to ascertain whether Aer Lingus' passengers would switch
to Ryanair is inconsistent with its own approach in the Map Based analysis in which Aer Lingus
passengers are assumed to be equally willing to switch between airports as Ryanair's.
90
An increase of 10% in Ryanair's fare would by definition bring the fare of Ryanair and Aer Lingus
closer and while it is true that generally Ryanair's fare is cheaper than Aer Lingus' fare a mere fare
EN 35 EN
passengers would switch to Ryanair, the example and explanations provided by
Ryanair are not convincing.
(120) Generally, in cases of differentiated products, and notably in this case as Ryanair and
Aer Lingus sometimes fly from different airports, differences in fares alone do not
provide information on whether a product exerts a competitive constraint on the
other. In their decision as to whether or not to switch, passengers would look at all
cost elements as well as the fact that they would get a differentiated service.
Considering that before an increase in Aer Lingus' fares, certain passengers are
willing to pay a higher price to Aer Lingus for certain additional services (which they
would not obtain on a Ryanair flight), there is no convincing evidence that Aer
Lingus' passengers would value these services more than a price increase of EUR 9.
In the Frankfurt example which Ryanair used to prove its assertions, it appears
reasonable that a sufficient number of passengers would consider that an additional
EUR 9 (10%) price difference is not justified for the services and convenience
offered by Aer Lingus and would therefore choose to fly Ryanair instead. As
explained in Section 7.3.3.6 the Commission has cogent evidence pointing to a single
market for these two airports.
(121) Lastly, customers in the airline industry face great transparency on the market and
they can easily compare fares from alternative airports
91
. Furthermore, there is a
wealth of information available on the internet as to the means and costs for reaching
a city from an alternative airport.
7.3.2.9. Conclusion
(122) The Commission's analysis of airport substitutability has been carried out by taking
into account the parameters and factors described in Section 7.3.2. The Commission
has carefully analysed, interpreted and weighted all views expressed by the Parties
and all other stakeholders during the market investigation.
(123) The Commission's investigation into the Transaction revealed information and
evidence which sometimes pointed to different directions.
(124) However, the Commission considered all evidence which was available and it is by
bundling the evidence that the Commission reaches its conclusions as regards airport
substitutability.
7.3.3. Airport-by-airport assessment
(125) In the present case, the question of substitutability of scheduled air transport services
from different airports is relevant for three reasons: first for determining to what
extent the activities of the Parties overlap; secondly for the assessment of
competitive constraints from airlines operating at other airports and thirdly for the
assessment of entry prospects at other relevant airports.
comparison is not sufficient. If the other costs like the cost of travelling to the secondary airport were
added, the difference in the ultimate price which passengers would pay would be further reduced
between Ryanair and Aer Lingus and an increase by Ryanair might well trigger a switch by some of its
own passengers to Aer Lingus.
91
For example the search engine www.skyscanner.com provides such options.
EN 39 EN
(133) The detailed description of each individual airport pair is assessed in Sections 7.3.3.1
to 7.3.3.18.
7.3.3.1. Barcelona-El Prat Airport / Girona-Costa Brava Airport / Reus Airport
(134) Ryanair operates a service from Dublin to Girona-Costa Brava Airport (GRO
airport), Reus Airport (REU airport) and Barcelona-El Prat Airport (BCN airport)
while Aer Lingus operates a service from Dublin to BCN airport.
(135) Ryanair contends that, since GRO airport and REU airport are a substantial distance
from Barcelona city centre, they are not substitutable for services at BCN airport
97
.
(136) The Commission concluded in its 2007 Decision that scheduled point-to-point
passenger air transport services between Dublin on the one hand and BCN airport,
GRO airport or REU airport, on the other, belong to the same market
98
. The
Commission drew this conclusion by taking account of a number of elements
including the market investigation, Ryanair's marketing practices and the price
correlation analysis.
(137) In its Decision in case M.5747 Iberia/ British Airways
99
, the Commission left open
the question whether BCN airport, GRO airport and REU airport belong to the same
market for flights out of London while at the same time indicating that "several
respondents consider that non-time sensitive passengers who focus on low airfares
will find these three airports substitutable to each other"
100
. In its Decision in case
M.5364 Iberia/Vueling/Clickair
101
, the Commission found that there was a
significant number of passengers of the parties in that transaction for which BCN
airport, GRO airport and REU airport were not substitutable for a number of
domestic and European routes
102
.
(138) The question of airport substitutability as regards BCN, GRO and REU airport is
relevant for the route ex-Cork Airport, as Ryanair and Aer Lingus operate to/from
different airports. For the route ex-Dublin Airport, Ryanair and Aer Lingus both fly
to BCN airport (and in addition Ryanair flies from GRO airport and REU airport).
(139) Table 4 summarises the following: (i) the distance from BCN airport, GRO airport
and REU airport to Barcelona city centre (in km and time), (ii) the destination airport
and frequency
103
of both Ryanair and Aer Lingus on this route and (iii) the total
travel time from city centre to city centre.
97
Annex 7.7.a to the Form CO.
98
See recitals 226-233 of the 2007 Decision.
99
Case M.5747 Iberia/ British Airways, recital 33.
100
Case M.5747 Iberia/ British Airways, recital 32.
101
Case M.5364 Iberia/Vueling/Clickair, recitals 56-63.
102
Not involving routes to or from Dublin though.
103
Frequency per week, one way. Applies to all tables in this Section.
EN 40 EN
Table 4: Barcelona-El Prat Airport / Girona-Costa Brava Airport / Reus Airport
Dublin / Cork - Barcelona and Girona and Reus
Relevant airport(s)
Barcelona (BCN)
Girona (GRO)
Reus (REU)
Distance and travel times to
Barcelona city centre
BCN – 13 km
GRO – 100 km
REU – 80 km
Car: BCN – 25 mins; REU – 70 mins; GRO – 60 mins
Bus: BCN – 25 min; REU – 80 mins; GRO – 70 mins
Train: BCN – 20 mins; REU – none; GRO – none.
Airlines active on route from
Dublin (and airport served)
Ryanair: 7 per week ("pw") from BCN (and 4 pw from
GRO, 7 pw from REU)
Aer Lingus: 14 pw from BCN
Total Travel Time: Dublin
City Centre to Barcelona
City Centre
Ryanair: via BCN 315 mins
Ryanair: via GRO 330 mins
Ryanair: via REU 375 mins
Aer Lingus: via BCN 290 mins
Airlines active on route from
Cork (and airport served)
Ryanair: 2 pw GRO (and 4 pw from REU)
Aer Lingus: 3 pw BCN
Total Travel Time Cork City
Centre to Barcelona City
Centre
Ryanair: 335 mins to GRO
Ryanair: 330 mins to REU
Aer Lingus: 269 mins to BCN
Source: Form CO, Annex 7.3.a
(140) On the basis of the 100km / 1 hour benchmark, BCN airport, REU airport and GRO
airport appear prima facie to be substitutable from the demand side for point-to-point
scheduled passenger air transport services ex-Dublin or Cork in terms of distance and
if the travel duration by car is considered. If transportation by bus is considered, the
duration would be outside the Commission's benchmark (for REU airport also if travel
time by car is considered).
(141) […]*
104
. As explained above, Aer Lingus monitors the Ryanair prices on all short-
haul routes where Ryanair operates to the same or a nearby airport, including
Ryanair's fares on Dublin-GRO airport, Dublin-REU airport, Cork-GRO airport and
Cork-REU airport.
(142) Ryanair's marketing activities also indicate that Ryanair considers that GRO Airport
and REU airport would be appropriate for passengers destined for Barcelona. Indeed,
in its list of destinations on its website, under the destinations "Barcelona Girona"
104
Annex 7.7 to the Form CO.
EN 41 EN
and "Barcelona Reus", Ryanair describes the city of Barcelona and its main
attractions
105
. In addition, in its airport information section, Ryanair provides
information on the various public transport options for travelling to Barcelona
106
.
(143) The evidence collected through the market investigation also indicates that the
Commission's conclusion in the 2007 Decision is still appropriate for the current
Transaction, namely that scheduled point-to-point flights between Dublin on the one
hand and BCN airport, GRO airport or REU airport, on the other, belong to the same
market
107
and that this conclusion is also relevant for flights to or from Cork. Indeed
the operator of BCN airport, GRO airport and REU airport explained that "it can be
said that Girona and Barcelona on one hand, and Barcelona and Reus on the other,
share part of their catchment areas. In this sense, they share part of the market in the
overlap of the catchment area. Nevertheless there are also areas in Girona,
Barcelona and Reus that do not fall under the catchment area of the other two
airports."
108
Furthermore, IAG
109
and Vueling which has its main hub at BCN
airport both confirm this view and Vueling further stated that "In our specific
experience in the Catalonian region (BCN, GRO and REU), we believe that all these
three airports work as a focal inbound and outbound point of entry for the city of
Barcelona"
110
. The majority of respondents to the market investigation also share this
view.
(144) Lastly, the market investigation has not revealed any indication that there have been
significant changes in the market circumstances such as to warrant a different
conclusion than the one reached in the 2007 Decision as regards these airports for
flights ex Dublin
111
.
105
http://www.ryanair.com/en/flights-to-barcelona-reus/ and http://www ryanair.com/en/flights-to-
barcelona-girona/
106
"Girona Airport is located just 18 Km from Girona city. Buses, operated by Sagales", connect the
airport to Girona. The bus journey takes approximately 20-25 minutes and costs €2.50 one way. The
bus stop is located outside arrivals. Alternatively, there is a taxi rank outside arrivals. A taxi to Girona
takes approximately 15-20 minutes and costs €20-25." and "Reus Airport is located 5 km from the town
of Reus. Reus Transport bus no.50 links the airport to the town centre; tickets cost €2.20 and the
journey takes about twenty minutes. Hispano Igualadina operates a connection to Barcelona airport;
the journey time is 1 hour and 30 minutes and tickets cost €12.00. There is also a bus from the airport
to the coastal resorts of La Pineda, Salou and Cambrils; it takes about 30 minutes and costs €5.60.
Buses leave from outside the Arrivals Terminal. For more information, visit www.reustransport.cat ,
ryanair.hispanoigualadina.com and www.planabus.com" http://www ryanair.com/en/flights-to-
barcelona-reus/ and http://www.ryanair.com/en/flights-to-barcelona-girona/
107
See recitals 226-233 of the 2007 Decision.
108
Aena Aeropuertos, response to question 31.4.1 of questionnaire Q4 - Airports. At the same time Aena
Aeropuertos clarified that the issue of substitutability requires a detailed analysis, as the answer not
only depends on the catchment areas of the airports, but also on the passenger profile that potentially
could use any of the mentioned airports.
109
IAG is the holding company of both British Airways plc ("British Airways") and Iberia Líneas Aéreas
de España, S.A. ("Iberia"), (hereafter "IAG"), response to question 11.4 of questionnaire Q1 –
Competitors. Iberia has large operations in Spain.
110
Vueling, response to question 11.4 of questionnaire Q1 – Competitors.
111
Responses to question 11.4.1 of questionnaire Q1 – Competitors, question 18.4.1 of questionnaire Q2 -
Travel Agents, question 31.4.1 of Q4 - Airports and question 26.4.1 of questionnaire R1 – Corporate
Customers.
EN 42 EN
(145) The Commission's empirical analysis (price correlation) also provides evidence that
air transport services between Dublin or Cork on the one hand and BCN airport,
GRO airport or REU airport on the other hand belong to the same market (see further
Annex I).
(146) Therefore, the Commission takes the view that scheduled point-to-point passenger air
transport services between Dublin or Cork and BCN airport, GRO airport and REU
airport, belong to the same market.
7.3.3.2. Bilbao Airport and Santander Airport
112
(147) Ryanair operates a service from Dublin to Santander Airport (SDR airport) while Aer
Lingus operates a service from Dublin to Bilbao Airport (BIO airport).
(148) Ryanair contends in its response to the decision opening the proceedings that there is
no substitutability between BIO airport and SDR airport because of the following: (i)
SDR airport is on the outer margin of the Commission's 100km/1 hour benchmark,
(ii) this benchmark is less instructive in light of the leisure nature of routes to SDR
airport and BIO airport, (iii) SDR airport is not a "secondary" Bilbao airport but is
rather the primary airport of Santander and the resort area West of Santander, (iv) the
closest large city to BIO airport is Bilbao and multiple transport connections are in
place between BIO airport and Bilbao, therefore it would be reasonable to assume
that an appreciable amount of BIO airport's customers are travelling ex Bilbao, (v)
the closest large city to SDR airport is Santander and multiple transport connections
are in place between SDR airport and Santander, therefore it would be reasonable to
assume that an appreciable amount of SDR airport's customers are travelling to or
from Santander and (vi) other qualitative elements like Ryanair's marketing practices,
Aer Lingus' marketing practices or the names of the airports.
(149)
112
Recitals 242-247 of the 2007 Decision concluded that there was substitutability between Bilbao Airport
and Vitoria Airport. However for the purpose of the assessment of the current Transaction, the question
of substitutability between Bilbao Airport and Vitoria Airport is not relevant as there are no operations
between Dublin and Vitoria airport and there are no entry plans by competitors from Vitoria airport on
this route.
EN 43 EN
Table 5 summarises the following: (i) the distance from Bilbao Airport (BIO airport)
and Santander airport (SDR airport) to Bilbao city centre (in km and time), (ii) the
destination airport and frequency of each of Ryanair and Aer Lingus on this route
and (iii) the total travel time from city centre to city centre.
EN 44 EN
Table 5: Bilbao Airport /Santander Airport
Dublin – Bilbao and Santander
Relevant
airport(s)
Bilbao (BIO)
Santander (SDR)
Distance and
travel times to
Bilbao city
centre
BIO – 13km
SDR – 96km
Car: BIO- 17 mins; SDR – 56 mins
Bus: BIO – 20 mins; SDR – 65 mins (fastest).
Train: None
Airlines active
on route (and
airport served)
Aer Lingus: 3 pw from BIO
Ryanair: 2 pw from SDR
Total Travel
Time Dublin to
Bilbao
Aer Lingus from BIO – 270 mins
Ryanair from SDR – 315 mins
Source: Form CO, Annex 7.3.a
(150) On the basis of the 100 km / 1 hour benchmark, BIO airport and SDR airport appear
prima facie to be substitutable from the demand side for point-to-point scheduled
passenger air transport services to/from Dublin in terms of distance and if the travel
duration by car is considered. If transportation by bus is considered, the travel time
would be outside the Commission's benchmark.
(151) The fact that SDR airport is closer to the benchmark does not per se point to the
absence of substitutability of the two airports for this Transaction, as the 100 km / 1
hour benchmark is less instructive when, as argued by Ryanair, two airports
primarily serve a leisure destination. In fact, as mentioned above, even for these
destinations the city centre criterion is an indicative benchmark showing the relative
distance of the airports from the local centre and thus also the difference in their
ability to serve the tourist resorts in the vicinity. For the Dublin-Bilbao/Santander
route, the Cantabria region which lies along the coastal strip of Northern Spain
stretches almost as far as Bilbao and at least three well-known tourist centres lie on
the coastline between Bilbao and Santander, as presented by Ryanair on its website.
These are Castro Urdiales, Santona and Laredo
113
.
(152) In the same manner, the fact that SDR airport is not a "secondary" airport to BIO
airport and the fact that the names of the airports do not have a reference to the cities,
in general cannot preclude a finding that SDR airport and BIO airport could be
substitutable for scheduled point-to-point flights from Dublin, as explained in
Section 7.3.2.2. The Commission needs to take account of all elements which are
113
"Other well-know tourist centres lie on the coastline: Castro Urdiales and Santona, famous for the
anchovies; Laredo with it’s 6 kilometer long beach; the fishing village of San Vicente de La Barquera;
Comillas with the "Capricho", built by the world-known architect Gaudi; etc." [sic]
http://www.ryanair.com/en/flights-to-santander/
EN 45 EN
relevant for determining whether scheduled point-to-point flights between Dublin
and BIO airport are substitutable for flights between Dublin and SDR airport.
(153) […]*
114
. […]*, as explained above, Aer Lingus does monitor Ryanair's prices on all
short-haul routes where Ryanair operates to the same or a nearby airport, including
Ryanair's fares on Dublin-SDR airport.
(154) Ryanair's marketing activities regarding its services to SDR airport are more targeted
to passengers destined for Santander than for Bilbao. In its list of destinations on its
website, under the destination "Santander", Ryanair describes the city of Santander
and its main attractions.
115
However, in its airport information section, Ryanair
describes the various public transport options for travelling from SDR airport to
Bilbao city centre.
116
(155) The evidence collected through the market investigation indicates that these two
airports would be substitutable. Indeed, the airport operator of both SDR airport and
BIO airport explained that "it can be said that […] Santander and Bilbao […] share
part of their catchment areas. In this sense, they share part of the market in the
overlap of the catchment area. Nevertheless there are also areas in Bilbao, […] and
Santander that do not fall under the catchment area of the other two airports. "
117
.
Furthermore, IAG (which has large operations in Spain and which, according to
Ryanair, has a base at BIO airport) also considered that scheduled flights between
Dublin and BIO Airport are substitutable with scheduled flights between Dublin and
SDR airport for point-to-point passengers, further stating that "Bilbao is not
substitutable with Victoria but is substitutable with Santander."
118
Lastly, the
majority of respondents in the market investigation also share this view.
(156) The Commission's empirical analysis (price correlation) also provides evidence that
air transport services between Dublin on the one hand and BIO airport and SDR
airport on the other belong to the same market (see further Annex I Price correlation
analysis).
(157) In light of all the above, the Commission takes the view that scheduled point-to-point
passenger air transport services between Dublin and BIO airport and SDR airport
belong to the same market.
114
Ryanair's response to Commission's request of September 20, 2012 and Annex 7.7 to the Form CO.
115
http://www.ryanair.com/en/flights-to-santander/
116
"Santander Airport is situated 6.5 Km outside of Santander city. There is a bus connection to the city
centre, operated by Alsa; the journey time is 15 min; cost is €1.50. There is a connection to Bilbao from
the airport, operated by Alsa. Journey time is 1 hour and 30 minutes. Both buses leave from outside the
Arrivals Terminal." http://www.ryanair.com/en/flights-to-santander/
117
Aena Aeropuertos, response to question 31.1.1 of questionnaire Q4 - Airports. At the same time Aena
Aeropuertos clarified that the issue of substitutability requires a detailed analysis, as the answer not
only depends on the catchment areas of the airports, but also on the passenger profile that potentially
could use any of the mentioned airports.
118
IAG, response to question 13.1.1 of questionnaire Q1 - Competitors.
EN 46 EN
7.3.3.3. Birmingham Airport and East Midlands Airport: Nottingham, Leicester & Derby
(158) Both Ryanair and Aer Lingus operate a service from Dublin to Birmingham Airport
(BHX airport) and in addition Ryanair operates a service to East Midlands Airport:
Nottingham, Leicester & Derby (EMA airport). Furthermore, Ryanair operates a
service from Knock to EMA airport while Aer Lingus operates a service from Knock
to BHX airport.
(159) The question of airport substitutability as regards BHX airport and EMA airport is
relevant for the route ex Knock Airport, as Ryanair and Aer Lingus operate ex
different airports. For the route ex Dublin Airport, Ryanair and Aer Lingus both fly
to BHX airport (and in addition Ryanair flies to EMA airport).
(160) Ryanair contends in its response to the decision opening the proceedings that there is
no substitutability between BHX airport and EMA airport because (i) EMA airport
falls close to the Commission's 1 hour travel time benchmark, (ii) the Commission's
benchmark of 100km/1 hour is less instructive when two airports primarily serve
different major cities as is the case with BHX airport and EMA airport, (iii) EMA
airport is not a "secondary" Birmingham airport but rather the primary airport for
three nearby cities (iv) the closest large city to BHX airport is Birmingham and
multiple transport connections are in place between BMX airport and Birmingham,
(v) EMA airport is located centrally between three significant population centres
Nottingham, Leicester and Derby and multiple transport connections are in place
between EMA airport and these three cities while there is no public transport
connections in place between EMA airport and Birmingham and (vi) other
qualitative elements like Ryanair's marketing practices, Aer Lingus' marketing
practices or the names of the airports.
(161) The Commission concluded in its 2007 Decision that scheduled point-to-point
passenger air transport services between Dublin on the one hand and BHX airport or
EMA airport on the other, belong to the same market
119
. The Commission drew this
conclusion by taking account of a number of elements such as the market
investigation, Ryanair's internal documents and the price correlation analysis on the
routes Dublin-BHX airport and Dublin-EMA airport.
(162) In its Decision in Case No COMP/M.5403 – Lufthansa/British Midland
120
, the
Commission concluded that BHX airport and EMA airport are not substitutable for
flights ex Brussels. However, as the Commission recalled at recital 49 of that
Decision, "airport substitutability cannot be assessed in the abstract but can only be
determined taking into account the characteristics of the passengers travelling on the
routes at stake." Indeed, in that Decision, the Commission thoroughly described the type
of passengers travelling between Brussels and BHX airport and between Brussels and
EMA airport (business) and their needs (particularly fast connectivity to the place of
meetings). Therefore, the findings in that Decision were adapted to the specific
119
Recitals 136-142 of the 2007 Decision.
120
Commission's Decision of 14 May 2009 in Case No COMP/M.5403 – Lufthansa/British Midland,
recitals 49 to 57.
EN 47 EN
circumstances of that case, to the routes in question (out of Brussels) and to a type of
passenger that is not typical for Ryanair and Aer Lingus
121
.
(163) In the same manner, the OFT found in its decision on reference regarding the
acquisition by Flybe Group Limited of the BA Connect business
122
that for routes to
Edinburgh and Glasgow, "services from EMA [airport] would provide at most a weak
competitive constraint on Flybe's services from BHX [airport] post-merger." The
OFT reached this conclusion on the basis of passenger information which showed
that, on these routes, passengers living within one hour of BHX airport by and large
used that airport for travel and that business passengers suggested that EMA airport
was not a substitute for BHX airport. Lastly, the OFT also argued that, as the airline
operating on the route operated services to both Edinburgh and Glasgow from both
EMA airport and BHX airport, this suggested that the airline does not consider these
airports to be close enough substitutes for a sufficient number of passengers. As with
the Commission's Decision of 14 May 2009 in Case No COMP/M.5403 –
Lufthansa/British Midland, the case investigated by the OFT concerned different
markets, different carrier types and different customer groups than the ones relevant
for this Transaction. The arguments used by the OFT are specific to United Kingdom
internal routes between Edinburgh or Glasgow and BHX airport and EMA airport.
Furthermore, these arguments by and large take into account passenger
characteristics which are different to those of the typical passengers travelling with
Ryanair or Aer Lingus on the route from Dublin or Knock
123
.
(164) Table 6 summarises the following: (i) the distance from BHX airport and EMA
airport to Birmingham city centre (in km and time), (ii) the destination airport and
frequency of each of Ryanair and Aer Lingus on the route to Dublin and Knock and
(iii) the total travel time from city centre to city centre for both Dublin and Knock.
121
Ryanair indicated that the Dublin-BHX/EMA airport route is a mixed route business/leisure, however
the Knock-BHX/EMA route is mainly leisure according to Annex 7.3.a to the Form CO. Ryanair's
recent offering on the Dublin-Brussels route targeting more business passengers does not sustain a
similarity because it remains the case that the majority of Ryanair's passengers on Knock-BHX/EMA
are leisure, hence non-time sensitive passengers.
122
OFT decision on reference under section 33(1) of the Enterprise Act 2002 given on 7 February 2007,
recital 30. Full text of decision published 15 February 2007, http://www.oft.gov.United
Kingdom/shared_oft/mergers_ea02/361227/Flybe.pdf.
123
Ryanair indicated that the Dublin-BHX/EMA airport route is a mixed route business/leisure, however
the Knock-BHX/EMA route is mainly leisure according to Annex 7.3.a to the Form CO.
EN 48 EN
Table 6: Birmingham Airport / East Midlands Airport
Dublin / Knock - Birmingham and East Midlands
Relevant airport(s)
Birmingham International (BHX)
East Midlands (EMA)
Distance and travel times to
Birmingham city centre
BHX – 13km
EMA – 64km
Car: BHX – 15 mins; EMA – 52 mins
Bus: BHX – 25 mins; EMA – no service
Train: BHX – 17 mins; EMA – 74 mins
Airlines active on route from
Dublin (and airport served)
Aer Lingus: 27 pw from BHX
Ryanair: 20 pw from BHX (and 14 pw from EMA)
Total Travel Time from Dublin
city centre to Birmingham city
centre
Ryanair DUB-BHX 202 mins
Aer Lingus DUB-BHX 202 mins
Ryanair DUB-EMA 269 mins
Airlines active on route from
Knock (and airport served)
Aer Lingus: 7 pw from BHX (operated by Aer Arann)
Ryanair: 5 pw from EMA
Total Travel Time Knock to
Birmingham City Centre
Aer Lingus (via BHX) 217 mins
Ryanair (via EMA) 232 mins
Source: Form CO, Annex 7.3.a
(165) On the basis of the 100 km / 1 hour benchmark, BHX airport and EMA airport
appear prima facie to be substitutable from the demand side for point-to-point
scheduled passenger air transport services ex Dublin and ex Knock.
(166) The fact that the benchmark is less instructive when two airports primarily serve
different major cities, as argued by Ryanair, does not per se point to the absence of
substitutability of the two airports for the Transaction. In the same manner, the fact
that EMA airport is not a "secondary" airport to BHX airport but a primary airport
for three nearby cities and the fact that the names of the airports do not have a
reference to the cities, in general cannot preclude a finding that BHX airport and
EMA airport could be substitutable for scheduled point-to-point flights from Dublin
or Knock, as explained in Section 7.3.2.2. The Commission needs to take account of
all elements which are relevant for determining whether scheduled point-to-point
flights between Dublin or Knock and BHX airport are substitutable for flights
between Dublin or Knock and EMA airport.
EN 49 EN
(167) […]*
124
. […]*, Aer Arann, operating under the Aer Lingus regional brand on the
Knock-BHX airport route does monitor Ryanair's fares on the Knock-EMA airport
route
125
. As explained above, Aer Lingus monitors the prices of Ryanair on all short-
haul routes where Ryanair operates to the same or a nearby airport.
(168) As explained in Section 7.3.2.4, Ryanair's marketing practices are less relevant for its
flights to United Kingdom airports such as BHX airport or EMA airport because
Ryanair flies to both airports and by definition would try to advertise each airport
individually. The Commission therefore needs to take into account other more
relevant information.
(169) The evidence collected through the market investigation points to the fact that the
Commission's conclusion in the 2007 Decision remains appropriate for the current
Transaction, namely that scheduled point-to-point flights between Dublin on the one
hand and BHX airport or EMA airport, on the other, belong to the same market
126
.
The Commission has not identified any indications that the situation might be
different for flights out of Knock. While the operator of BHX airport considered that
Commission's conclusion in the 2007 Decision is no longer appropriate for the
current Transaction, it only explained that "East Midlands and Birmingham
International for this short-haul route (Birmingham Dublin) [and Birmingham
Knock] serve separate market places."
127
Flybe also disagrees with the
Commission's view, however it nuances its response as regards routes ex Dublin and
states that "[…] non- time sensitive (leisure) travellers may consider a switch (say
from Birmingham to East Midlands) […] In summary, and taking all of the above
into consideration, we doubt that the 5-10% trigger for a change in fares would have
a significant switching impact on passenger volumes."
128
On the other hand, for the
routes to/from Knock from BHX airport and EMA airport, Flybe explains that
"Whilst there are [sic] much more non-time (leisure) sensitive travellers travelling in
the Knock market, and one might consider the impact of fare changes to have a
greater effect, we still feel that the price trigger of 5-10% would have a limited
impact (given the low average yield levels) and that other considerations, such as
flight timing and schedule frequency, will have as much influence as fares."
129
Flybe
further clarified in its response to the Commission's Statement of Objections
130
that a
5-10% fare increase is unlikely to have a significant switching effect whether the
airport at the other end is Dublin or Knock. Flybe further suggested that the question
of market substitutability between Knock and these two airports can be left open. As
explained above, the question of airport substitutability is particularly relevant for
flights out of Knock because a finding of non-substitutability would lead to no
overlap between the Parties' activities from Knock.
124
Ryanair's response to Commission request of September 20, 2012 and Annex 7.7 to the Form CO.
125
Aer Arann, response to question 22.1 of Q1 - Competitors and agreed minutes of conference call of 11
October 2012 with Aer Arann.
126
See recitals 136-142 of the 2007 Decision.
127
Birmingham Airport Limited, response to question 31.2 and 31.2.3 of Q4 - Airports.
128
Flybe, response to question 11.2 of Q1 - Competitors.
129
Flybe, response to question 11.2.3.1 of Q1 - Competitors.
130
Flybe, response to the Commission's Statement of Objections.
EN 50 EN
(170) On the other hand, the operator of EMA airport confirmed that it is still appropriate
to consider that BHX airport and EMA airport are substitutable for scheduled point-
to-point passengers ex Dublin and Knock and explained that "The markets for […],
East Midlands/Birmingham […] all significantly overlap."
131
(171) Furthermore, the United Kingdom CAA also explained that "although the airports
are imperfect substitutes, a significant proportion of passengers are likely to see the
two airports as substitutes if an equivalent airline service was offered from both of
them. Routes between Dublin, Cork and Knock, on the one hand, and
Birmingham/East Midlands are short-haul flights, which means that passengers are
not likely to be willing to travel particularly far to reach a substitute airport.
However, given the high degree of catchment area overlap between Birmingham and
East Midlands airports, a large proportion of passengers would have similar drive
times to both airports and could therefore consider them to be substitutes. As a
result, if the catchment areas of these two airports overlap for routes to Dublin, then
they are likely to also overlap for routes to Cork and Knock."
132
The majority of
respondents in the market investigation also share this view as regards flights from
Dublin or Knock.
(172) Lastly, the market investigation has not revealed any other indication that there have
been significant changes in the market circumstances such as to warrant a different
conclusion than the one reached in the 2007 Decision as regards these airports for
flights ex Dublin
133
.
(173) The Commission's empirical analysis (price correlation) also provides evidence that
air transport services between Dublin on the one hand and BHX airport or EMA
airport on the other belong to the same market (see further Annex I Price correlation
analysis). The Commission considers that such evidence is also relevant for air
transport services from Knock, as the market investigation has not revealed
substantial differences between Dublin and Knock.
(174) In light of all the above, the Commission takes the view that scheduled point-to-point
passenger air transport services between (i) Knock and BHX airport and (ii) Knock
and EMA airport belong to the same market while the question can be left open for
air transport services between Dublin and BHX airport or EMA airport because the
competitive assessment would not change irrespective of the precise market
definition for this route (see Section 8.9.4.1).
7.3.3.4. Brussels Airport and Brussels South Charleroi Airport
(175) Ryanair operates a service from Dublin to Brussels South Charleroi Airport (CRL
airport) while Aer Lingus operates a service from Dublin to Brussels Airport (BRU
airport).
131
Manchester Airports Group, response to question 8.1 and 31.2 of Q4 – Airports.
132
United Kingdom Civil Aviation Authority, response to question 9.2.1 of questionnaire Q8 – Civil
Aviation Authorities.
133
Responses to question 11.2.1 of questionnaire Q1 - Competitors, question 18.2.1 of questionnaire Q2 -
Travel Agents and question 31.2.1 of questionnaire Q4 - Airports and question 26.2.1 of questionnaire
R1 – Corporate Customers.
EN 51 EN
(176) Ryanair submits that although it does not believe there is full substitutability between
BRU airport and CRL airport, it accepts that they form part of a single market for the
purposes of the competition assessment in the present case.
(177) The Commission concluded in its 2007 Decision that scheduled point-to-point
passenger air transport services between Dublin on the one hand and BRU airport or
CRL airport, on the other, belong to the same market
134
. The Commission drew this
conclusion by taking account of a number of elements including the market
investigation, Ryanair's marketing practices, its internal documents and the customer
survey.
(178) In its Decision in case M.5335 Lufthansa/SN
135
, the Commission left open the
question whether BRU airport and CRL airport would be substitutable for flights to
and from various destinations in Germany and Switzerland. In its Decision in case
M.5440 Lufthansa/Austrian
136
, the Commission found Ryanair's activities on route
between Bratislava Airport and CRL airport did not constrain the parties' activities
between Vienna Airport and BRU airport to any meaningful degree and that the
market investigation in that transaction had confirmed that flights from Vienna
airport to BRU airport and Bratislava airport to CRL airport were not in the same
market for the purposes of that transaction. The issue at stake in that Decision was
the question of the substitutability of flights to and from two primary airports
(Vienna Airport and BRU airport) with flights to and from two secondary airports
(Bratislava Airport and CRL airport). As the Commission explained in that Decision
"the operations between two secondary airports represent a far less immediate
constraint than operations between two primary airports."
137
However, this issue is
not at stake in the current Transaction as the question of airport substitutability is
only relevant at one end of the route (Brussels) and not both.
(179) Table 7 summarises the following: (i) the distance between each of BRU airport and
CRL airport to Brussels city centre (in km and time), (ii) the destination airport and
frequency of each of Ryanair and Aer Lingus on this route and (iii) the total travel
time from city centre to city centre.
134
Recitals 184-196 of the 2007 Decision.
135
Recitals 51-57.
136
Recital 259.
137
Recital 259.
EN 52 EN
Table 7: Brussels Airport / Brussels South Charleroi Airport
Dublin - Brussels and Charleroi
Relevant airport(s)
Brussels Airport (BRU airport)
Brussels South Charleroi Airport (CRL airport)
Distance and travel
times to Brussels
city centre
BRU airport– 12km
CRL airport– 46km
Car: BRU airport– 16 mins, CRL airport– 45 mins
Bus: BRU airport– 18 mins; CRL airport– 45 mins
Train: BRU airport- 17 mins; CRL airport– 50 mins
(via Charleroi Sud)
Airlines active on
route (and airport
served)
Aer Lingus: 18 pw from BRU airport
Ryanair: 7 pw from CRL airport
Total Travel Time
Dublin City Centre
to Brussels City
Centre
Aer Lingus via BRU airport: 237 mins
Ryanair via CRL airport: 265 mins
Source: Form CO, Annex 7.3.a
(180) On the basis of the 100km or 1 hour drive time benchmark, BRU airport and CRL
airport appear prima facie to be substitutable from the demand side for point-to-point
scheduled passenger air transport services ex Dublin.
(181) […]*
138
. As explained above, Aer Lingus also monitors the Ryanair prices on all
short-haul routes where Ryanair operates to the same or a nearby airport, including
Ryanair's fares on Dublin-CRL airport.
(182) Ryanair's marketing activities also indicate that Ryanair considers that CRL airport
would be appropriate for passengers destined for Brussels. Indeed, in its list of
destinations on its website, under the destination "Brussels Charleroi", Ryanair
describes the city of Brussels and its main attractions
139
. In addition, in its airport
information section, Ryanair mentions the distance to Brussels city and refers to the
website of CRL airport
140
which includes information on various transport options to
Brussels city (so-called Brussels City Shuttle)
141
.
(183) The evidence collected through the market investigation also indicates that the
Commission's conclusion in the 2007 Decision is still appropriate for the current
138
Annex 7.7 to the Form CO.
139
http://www.ryanair.com/en/flights-to-brussels-charleroi/
140
"Brussels South Charleroi Airport is located approximately 8 km from the centre of Charleroi and 46
Km from the centre of Brussels. A bus connects the airport to the train station. There are rail
connections to the rest of Belgium. Please check www.charleroi-airport.com for further information."
http://www.ryanair.com/en/flights-to-brussels-charleroi/
141
http://www.charleroi-airport.com/en/passengers/acces-and-parking/brussels-city-shuttle/index html
EN 53 EN
Transaction, namely that scheduled point-to-point flights between Dublin on the one
hand and BRU airport or CRL airport, on the other, belong to the same market
142
.
Indeed the operator of BRU airport
143
, and Brussels Airlines
144
which has a base at
BRU airport, all confirm this view. The fact that Ryanair will increase its frequencies
on the Dublin-CRL airport route during the Irish Presidency of the European Union
is also an indication that BRU airport and CRL airport are substitutable
145
. In
addition, the majority of respondents to the market investigation also agree with this
view.
(184) Lastly, the market investigation has not revealed any indication that there have been
significant changes in the market circumstances so as to warrant a different
conclusion than the one reached in the 2007 Decision as regards these airports for
flights ex Dublin
146
.
(185) The Commission's empirical analysis (price correlation) shows inconclusive results
for this airport pair as explained in Annex I.
(186) Therefore, the Commission takes the view that scheduled point-to-point passenger air
transport services between (i) Dublin and BRU airport and (ii) Dublin and CRL
airport belong to the same market.
7.3.3.5. Glasgow Airport and Glasgow Prestwick Airport
(187) Ryanair operates a service from Dublin to Glasgow Prestwick Airport (PIK airport)
while Aer Lingus operates a service from Dublin to Glasgow Airport (GLA airport).
(188) Ryanair considers that GLA airport and PIK airport are substitutable and part of the
same market for the purpose of competitive assessment in this case
147
.
(189) The Commission concluded in its 2007 Decision that scheduled point-to-point
passenger air transport services between Dublin on the one hand and GLA airport or
PIK airport on the other, belong to the same market
148
. The Commission drew this
conclusion by taking account of a number of elements like Ryanair's marketing
practices, the market investigation and the customer survey.
(190) Table 8 summarises the following: (i) the distance from each of GLA airport and PIK
airport to Glasgow city centre (in kilometres and time), (ii) the destination airport
and frequency of both Ryanair and Aer Lingus on this route and (iii) the total travel
time from city centre to city centre.
142
Recitals 184-196 of the 2007 Decision.
143
The Brussels Airport Company, response to question 31.5 of Q4 – Airports.
144
Brussels Airlines, response to question 11.5 of Q1 – Competitors.
145
Ryanair confirmed that the Irish Government accepted its proposal for low fares for civil servants and
diplomats and the agreement between Ryanair and the Irish Government became effective as of 10
December 2012 (Ryanair's response to Commission's request for information of 9 January 2012).
146
Responses to question 11.5.1 of questionnaire Q1 - Competitors, question 18.5.1 of questionnaire Q2 -
Travel Agents, question 31.5.1 of questionnaire Q4 - Airports and question 26.5.1 of questionnaire R1 –
Corporate Customers.
147
Annex 7.3.a to the Form CO.
148
Recitals 149-156 of the 2007 Decision.
EN 54 EN
Table 8: Glasgow Airport / Glasgow Prestwick Airport
Dublin – Glasgow and Prestwick
Relevant airport(s)
Glasgow Airport (GLA airport)
Glasgow Prestwick Airport (PIK airport)
Distance and
travel times to
Glasgow city
centre
GLA airport– 17 km
PIK airport– 54 km
Bus: GLA airport– 15 mins
PIK airport – 55 mins
Train: GLA airport none; PIK airport– 45 mins
Airlines active on
route (and airport
served)
Aer Lingus: 27 pw from GLA airport, operated
by Aer Arann
Ryanair: 11 pw from PIK airport
Total Travel Time
Dublin City Centre
to Glasgow City
Centre
Aer Lingus: 215 mins
Ryanair: 215 mins
Source: Form CO, Annex 7.3.a and www ryanair.com
(191) On the basis of the 100 km/1 hour benchmark, GLA airport and PIK airport appear
prima facie to be substitutable from the demand side for point-to-point scheduled
passenger air transport services ex Dublin.
(192) […]*
149
. Aer Arann, operating under the Aer Lingus regional brand on the route
[…]*monitors Ryanair's fares
150
.
(193) Furthermore, Ryanair's marketing activities also indicate that Ryanair considers that
PIK airport would be appropriate for passengers destined for Glasgow. Indeed, in its
list of destinations on its website, under the destination "Glasgow Prestwick",
Ryanair describes the city of Glasgow and its main attractions
151
. In addition, in its
airport information section, Ryanair includes information on the various public
transport options for travelling from PIK airport to Glasgow city
152
.
(194) The evidence collected through the market investigation also indicates that the
Commission's conclusion in the 2007 Decision is still appropriate for the current
Transaction, namely that scheduled point-to-point flights between Dublin on the one
hand and GLA airport or PIK airport, on the other, belong to the same market
153
.
Indeed, except for the operator of PIK airport which considers that "there is little
149
Annex 7.7 to the Form CO.
150
Aer Arann, response to question 22.1 of questionnaire Q1 - Competitors.
151
http://www.ryanair.com/en/flights-to-glasgow-prestwick/
152
"Glasgow Prestwick International Airport is located 51 Km from Glasgow. There are rail, bus and taxi
connections to Glasgow. Busses and trains leave every 30 minutes. The train takes 45 minutes and, with
a 50% discount, costs approximately £2.70 one way. Two "Stagecoach" busses go to Glasgow city: the
X77 (£4.15 one way, journey time is approximately 55 minutes) and the No.4 (£5.10 one way, journey
time is approximately 90 minutes)." http://www.ryanair.com/en/flights-to-glasgow-prestwick/
153
Recitals 149-156 of the 2007 Decision.
EN 55 EN
evidence to support this being the same market"
154
, the operator of GLA airport
155
and Aer Arann
156
, the operator on this route, the majority of the other respondents to
the Commission's market investigation
157
confirm that scheduled point-to-point
flights between GLA airport and PIK airport belong to the same market.
(195) Lastly, the market investigation has not revealed any indication that there have been
significant changes in the market circumstances such as to warrant a different
conclusion than the one reached in the 2007 Decision as regards these airports for
flights to/from Dublin
158
.
(196) The Commission's empirical analysis (price correlation) shows that a conclusion can
only be reached as regards the question of whether air transport services between
Dublin on the one hand and GLA airport and PIK airport on the other belong to the
same market after taking into account other qualitative evidence (see further Annex I
Price correlation analysis).
(197) Therefore, the Commission takes the view that scheduled point-to-point passenger air
transport services between Dublin and GLA airport and Dublin and PIK airport
belong to the same market.
7.3.3.6. Frankfurt Airport and Frankfurt Hahn Airport
(198) Ryanair operates a service from Dublin to Frankfurt Hahn Airport (HHN airport)
while Aer Lingus operates a service from Dublin to Frankfurt Airport (FRA airport).
(199) Ryanair contends in its response to the decision opening the proceedings that there is
no substitutability between FRA airport and HHN airport mainly because HHN
airport falls outside the Commission's 100km/1 hour benchmark and Ryanair's Map
Based analysis indicates that FRA airport and HHN airport are not substitutable from
a consumer perspective.
(200) The Commission concluded in its 2007 Decision that, for the purposes of that case,
scheduled point-to-point passenger air transport services between Dublin, on the one
hand, and FRA airport or HHN airport, on the other, belong to the same market
159
.
The Commission drew this conclusion by taking account of a number of elements
like Ryanair's marketing practices, Ryanair's competitive monitoring, a customer
survey and the market investigation.
154
Infratil Airports Europe Ltd, response to question 33.3.1 of questionnaire Q4 - Airports. On the other
hand, Infratil Airports Europe Ltd considered that there would be one way substitutability between
Edinburgh airport and GLA airport for flights to and from Dublin (see response to question 33.2.2 of
questionnaire Q4 - Airports. However, as explained in Section 7.3.3.18 below, it is not relevant to
conclude on the question whether there is airport substitutability between Edinburgh airport and
Glasgow Airport.
155
British Airport Authority, response to question 33.3 of questionnaire Q4 - Airports.
156
Aer Arann, response to question 13.3 of questionnaire Q1 - Competitors.
157
Flybe does not agree with the Commission's conclusion however, in its explanation it refers to time-
sensitive passengers only. Flybe, response to question 13.3.1 of questionnaire Q1 - Competitors.
158
Responses to question 13.3.1 of questionnaire Q1 - Competitors, question 20.3.1 of questionnaire Q2 -
Travel Agents and question 33.3.1 of questionnaire Q4 - Airports and question 27.3.1 of questionnaire
R1 – Corporate Customers.
159
Recitals 204-211 of the 2007 Decision.
EN 56 EN
(201) In its Decision in case M.5335 Lufthansa/SN
160
, the Commission left open the
question of whether FRA airport and HHN airport would be substitutable for flights
to/from BRU airport and CRL airport respectively. In its Decision in case M.5440
Lufthansa/Austrian
161
, the Commission found that Ryanair's services between HHN
airport and Bratislava airport did not constrain services between FRA airport and
Vienna airport to any meaningful degree given that the total travel time would have
been much longer than a trip involving Vienna airport and FRA airport, that the
respondents to the market investigation in that case did not consider Bratislava
airport as a substitute for Vienna airport and HHN airport as a substitute for FRA
airport and lastly because of lack of data to prove the contrary. In that case, the
Commission assessed the question of airport substitutability at both ends of the route,
that is to say both at the Vienna end where it assessed the substitutability of Vienna
airport with Bratislava airport and at the Frankfurt end where it assessed the
substitutability of FRA airport with HHN airport and concluded that, for that specific
case, FRA airport and HHN airport would not be substitutable. However, this issue is
not at stake in the current Transaction as the question of airport substitutability is
only relevant at one end of the route (Frankfurt). Furthermore, that Decision
concerned two airlines with a different profile and targeting different types of
customers than is the case in the Transaction.
(202) Table 9 summarises the following: (i) the distance from FRA airport and HHN
airport to Frankfurt city centre (in km and time), (ii) the destination airport and
frequency of Ryanair, Aer Lingus and other airlines flights' on this route and (iii) the
total travel time from city centre to city centre.
Table 9: Frankfurt Airport / Frankfurt Hahn Airport
Dublin - Frankfurt and Hahn
Relevant airport(s)
Frankfurt Main (FRA)
Frankfurt Hahn (HHN)
Distance and travel times
to Frankfurt city centre
FRA – 9km
HHN – 124km
Car: FRA- 20 mins; HHN - 85 mins
Bus: FRA – 15 mins; HHN - 105 mins
Train: FRA – 12 mins; HHN – None.
Airlines active on route
(and airport served)
Ryanair: 4 pw (from HHN)
Aer Lingus: 14 pw (from FRA)
Lufthansa: 21 pw (from FRA)
Total Travel Time Dublin
to Frankfurt City Centre
Ryanair: (via HHN) 345 mins
Aer Lingus: (via FRA) 257 mins
Lufthansa: (via FRA) 257 mins
Source: Form CO, Annex 7.3.a
160
Recital 116.
161
Recital 155.
EN 57 EN
(203) On the basis of the 100km or 1 hour drive time benchmark, FRA airport and HHN
airport do not appear prima facie to be substitutable from the demand side for point-
to-point scheduled passenger air transport services to/from Dublin.
(204) The fact that HHN airport falls slightly outside the benchmark does not per se point
to absence of substitutability with FRA airport for scheduled point-to-point flights to
and from Dublin as explained in Section 7.3.2.2. The Commission needs to take
account of all elements which are relevant for determining whether scheduled point-
to-point flights between Dublin and FRA airport are substitutable for flights between
Dublin and HHN airport.
(205) […]*
162
. Furthermore, Aer Lingus also monitors Ryanair's fares on the Dublin-HHN
airport route
163
.
(206) Ryanair's marketing activities indicate that Ryanair considers that HHN airport
would be appropriate for passengers destined for Frankfurt. Indeed, in its list of
destinations on its website, under the destination "Frankfurt Hahn", Ryanair
describes the city of Frankfurt and its main attractions
164
. In its airport information
section, Ryanair refers to the shuttle bus services connecting HHN airport with
Frankfurt city centre
165
.
(207) The evidence collected through the market investigation also indicates that the
Commission's conclusion in the 2007 Decision is still appropriate for the current
Transaction, namely that scheduled point-to-point flights between Dublin on the one
hand and FRA airport or HHN airport, on the other, belong to the same market
166
.
Indeed, the operator of FRA airport
167
, of HHN airport
168
and Lufthansa, the other
operator on this route
169
, all confirm this view in line with the majority of the other
respondents to the Commission's market investigation.
(208) Lastly, the market investigation has not revealed any indication that there have been
significant changes in the market circumstances such as to warrant a different
162
Ryanair's response to Commission request of September 20, 2012 and Annex 7.7 to the Form CO.
163
Aer Lingus' response to question 3 of the Commission's request for information of 20 September 2012.
164
http://www.ryanair.com/en/flights-to-frankfurt-hahn/
165
"Frankfurt-Hahn is located approximately 124 km from the city of Frankfurt in the low mountain range
area Hunsrück and the federal state Rheinland-Pfalz (Rhineland-Palatinate). There is no rail service to
the airport. There is a coach service connecting Hahn Airport to Neu-Isenburg, Offenbach and Hanau
for €8. Other shuttle bus services connect the airport with Frankfurt-city centre, Trier, Koblenz, Mainz,
Worms and other towns. There are connections the gemstone-city Idar-Oberstein and the health resort
Bad Kreuznach in the Nahe Valley. Bingen and Koblenz in the Middle Rhine Valley have shuttle bus
connections as well as Bullay and Zell in the Moselle valley. Cars can be hired in the terminal building
and taxis are available outside. The airport is reachable by car over the highway A 61, exit
Rheinböllen, from where you take the trunk road B 50 to Hahn airport."
http://www.ryanair.com/en/flights-to-frankfurt-hahn/
166
Recitals 204-211 of the 2007 Decision.
167
Fraport AG, response to question 31.6 of questionnaire Q4 - Airports.
168
Flughafen Frankfurt-Hahn GmbH, response to question 31.6 of questionnaire Q4 - Airports.
169
Deutsche Lufthansa AG ("Lufthansa"), response to question 11.6 of questionnaire Q1 – Competitors.
EN 58 EN
conclusion than the one reached in its 2007 Decision as regards these airports for
flights to/from Dublin
170
.
(209) The Commission's empirical analysis (price correlation) shows that a conclusion can
only be reached as regards the question of whether air transport services between
Dublin on the one hand and FRA airport and HHN airport on the other belong to the
same market after taking into account other qualitative evidence (see further Annex
I).
(210) As regards Ryanair's Map-Based analysis, it relies on several strong and arbitrary
assumptions and the Commission does not consider that the results of this analysis
provide any evidence that the relevant airports belong to different markets as
explained in detail in Annex II
171
.
(211) Therefore, the Commission takes the view that scheduled point-to-point passenger air
transport services between Dublin and FRA airport and Dublin and HHN airport
belong to the same market.
7.3.3.7. London airports
(212) Ryanair operates from Dublin to London Gatwick (LGW airport), to Stansted (STN
airport) and to Luton (LTN airport) and Aer Lingus from Dublin to London
Heathrow (LHR airport) and Gatwick (LGW airport). Aer Arann operates from
Dublin to London Southend (SEN airport) under the Aer Lingus Regional brand.
(213) Ryanair operates from Cork to LGW airport and STN airport. Aer Lingus operates
from Cork to LHR airport and LGW airport.
(214) On the route to Shannon, Ryanair operates from LGW airport and STN airport while
Aer Lingus operates from LHR airport.
(215) Lastly, Ryanair operates from Knock to LGW airport and Aer Lingus operates from
Knock to LTN airport and STN airport.
(216) Ryanair submits that although it does not believe there is full substitutability between
the various London airports, it accepts that they form part of a single market for the
purposes of competition assessment in the present case
172
.
(217) The Commission concluded in its 2007 Decision that scheduled point-to-point
passenger air transport services between Dublin, Cork or Shannon, and London
Heathrow (LHR airport), Gatwick (LGW airport), Stansted (STN airport), Luton
(LTN airport) and City (LCY airport) airports (the "London Airports"), belong to the
same market
173
. The Commission drew this conclusion by taking account of a
170
Responses to question 11.6.1 of questionnaire Q1 - Competitors, question 18.6.1 of questionnaire Q2 -
Travel Agents and question 31.6.1 of questionnaire Q4 - Airports and question 27.3.1 of questionnaire
R1 – Corporate Customers.
171
See Section 7.3.2.8 for the dismissal of Ryanair's argument that it is simply not credible that passengers
would switch from Aer Lingus to Ryanair for a 10% price increase.
172
Annex 7.7.a to the Form CO.
173
Recitals 109-125 of the 2007 Decision.
EN 59 EN
number of elements such as the market investigation, the customer survey and other
studies.
(218) In other previous Decisions the Commission concluded that the London Airports
might be substitutable
174
or left the question of substitutability open for some
airports
175
. For example in its Decision in case M.5747 – Iberia/British Airways
176
the Commission concluded that LHR airport, LGW airport and LCY airport are to be
considered substitutable
177
and it left open the question whether LTN airport and
STN airport were also substitutable for LHR airport, LGW airport and LCY airport
while also pointing out that the market investigation had provided indications that the
London Airports might be substitutable due to the existing transport infrastructure
and the availability of cheaper airfares at some airports which are less conveniently
located. In its Decision in case M.6447 IAG/bmi, the Commission left open the
question whether all London Airports (including SEN airport)
178
are substitutable.
(219) Table 10 summarises the following: (i) the distance from the London airports and
SEN airport to London city centre (in km and time), (ii) the destination airport and
frequency of each of Ryanair and Aer Lingus on the route to Dublin, Cork, Shannon
and Knock and (iii) the total travel time from city centre to city centre for Dublin,
Cork, Shannon and Knock.
Table 10: London airports
Dublin / Cork / Shannon / Knock – London airports
Relevant airport(s)
Heathrow (LHR)
Gatwick (LGW)
Luton (LTN)
Stansted (STN)
London City (LCY)
London Southend (SEN)
Distance and travel
times to London city
centre
LHR – 28 km
LGW – 46 km
STN – 59 km
LTN – 51 km
LCY – 14 km
SEN – 68 km
Car: LHR – 65 mins; LGW – 85 mins; STN – 85 mins; LTN – 44 mins; LC
– 20 mins; SEN – 64 mins
174
See also Commission's Decision of 10 December 2003 in Case No COMP/D2/38479 British
Airways/Iberia/GB Airways, recital 21 and following of the summary of the Commission's assessment.
175
Commission's Decision of 22 September 1997 in Case No COMP/M.967 KLM/Air United Kingdom,
recital 24.
176
Commission's Decision of 14 July 2010 in Case No COMP/M.5747 – Iberia/British Airways, recital 30.
177
In Commission Decision of 26 January 2011 in Case No COMP/M.5830 – Olympic/Aegean Airlines,
recital 1644, it was concluded that LHR airport and LGW airport are substitutes for all passengers on
the London-Athens route.
178
Commission's Decision of 30 March 2012 in case M.6447 IAG/bmi, recital 58.
EN 60 EN
Bus: LHR – 65 mins; LGW – 95 mins; STN – 90 mins; LTN – 80 mins;
Train: LHR – 15 mins; LGW – 30 mins; STN – 46 mins; LTN – 26 mins
plus 10 minute shuttle bus connection ; LCY – 22 mins; SEN – 53 mins
Airlines active on
Dublin route (and
airport served)
Aer Lingus: 89 pw from LHR, 37 pw from LGW, 21 pw from SEN
(Operated by Aer Arann)
BA/Bmi: 37 pw from LHR
Air France: 31 pw from LCY (operated by CityJet)
Ryanair: 31 pw from LGW, 47 pw from STN, 21 pw from LTN
Total Travel Time
City Centre to City
Centre from Dublin
Aer Lingus: from LHR 215 mins, from LGW 215 mins, from SEN 283
mins
BA/bmi: from LHR 220 mins
Air France: from LCY 237 mins
Ryanair: from LGW 230 mins, from STN 246 mins, from LTN 231 mins
Airlines active on
Cork route (and
airport served)
Aer Lingus: 28 pw from LHR, 6 pw from LGW
Ryanair: 7 pw from LGW, 16 pw from STN
Total Travel Time
City Centre to City
Centre from Cork
Cork to London (via LHR) 205 mins
Cork to London (via LGW) 220 mins
Cork to London (via STN) 231 mins
Airlines active on
Shannon route
Aer Lingus: 21 pw from LHR
Ryanair: 7 pw from LGW, 14 pw from STN
Total Travel Time
City Centre to City
Centre from Shannon
Shannon to London (via LHR) 220 mins
Shannon to London (via LGW) 235 mins
Shannon to London (via STN) 246 mins
Airlines active on
Knock route (and
airport served)
Aer Lingus: 7 pw from LGW
Ryanair: 5 pw from LTN, 7 pw from STN
Total Travel Time
Knock to London
Aer Lingus via LGW 230 mins
Ryanair via LTN 225 mins
Ryanair via STN 235 mins
Source: Form CO, Annex 7.3
(220) On the basis of the 100 km / 1 hour benchmark, the London Airports and SEN airport
appear prima facie to be substitutable from the demand side for point-to-point
scheduled passenger air transport services ex Dublin, ex Cork, ex Shannon and ex
Knock in terms of distance and travel time by train.
(221) […]*
179
. […]*Aer Lingus monitors Ryanair's operations to all the Ryanair London
airports for its Dublin-LHR airport route as well as for its Dublin-LGW airport
179
Ryanair's response to Commission request of September 20, 2012 and Annex 7.7 to the Form CO.
EN 61 EN
route.
180
[…]*, Aer Arann, operating under the Aer Lingus regional brand on the
Dublin-SEN airport route does monitor Ryanair's fares
181
.
(222) Ryanair's marketing activities also indicate that Ryanair considers that the airports to
which it operates (LGW airport, STN airport and LTN airport, the "Ryanair London
airports") would be appropriate for passengers destined for London. Indeed, in its list
of destinations on its website, under the destination "London Gatwick", "London
Luton" and "London Stansted", Ryanair describes the city of London and its main
attractions
182
. In addition, in its airport information section, Ryanair indicates the
distance to the city of London and includes information on the various public
transport options for travelling to London city.
(223) The evidence collected through the market investigation indicates that the
Commission's conclusion in the 2007 Decision is still appropriate for the current
Transaction, namely that scheduled point-to-point flights between Dublin, Cork or
Shannon on the one hand and the London Airports, on the other, belong to the same
market. The Commission has not identified any indications that the situation might
be different for flights out of Knock. The United Kingdom CAA indicated that they
had analysed the interactions and potential for competitive constraints between the
four major London airports (excluding LCY airport) in two studies
183
. Overall, the
United Kingdom CAA found that these airports have varying degrees of catchment
area overlaps and substitutability. However, the CAA considers on the whole that,
although the London airports are imperfect substitutes for scheduled point-to-point
passenger air transport services to Dublin, the Commission’s 2007 conclusion still
appears to be appropriate for current Transaction and this should also cover flights
from/to Knock
184
. British Airways
185
and Air France/CityJet
186
also agree with this
conclusion (including for flights out of Knock). Furthermore the majority of the other
respondents to the Commission's market investigation also confirm this view.
(224) Lastly, the market investigation has not revealed any indication that there have been
significant changes in the market circumstances such as to warrant a different
conclusion than the one reached in the 2007 Decision as regards these airports for
flights to/from Dublin, Cork or Shannon
187
.
(225) The Commission acknowledges that the degree of substitutability between the
London Airports might vary depending on which airports are precisely taken into
consideration as regards flights to/from Dublin, Cork, Shannon or Knock. However,
180
Aer Lingus' response to question 3 of the Commission's request for information of 20 September 2012.
181
Aer Arann, response to question 22.1 of questionnaire Q1.
182
http://www.ryanair.com/en/flights-to-london-stansted/, http://www ryanair.com/en/flights-to-london-
gatwick/ and http://www.ryanair.com/en/flights-to-london-luton/
183
Catchment area analysis http://www.caa.co.United
Kingdom/docs/5/Catchment%20area%20analysis%20working%20paper%20-%20FINAL.pdf and
Passengers’ airport preferences http://www.caa.co.United
Kingdom/docs/5/Passenger%20survey%20results%20-%20FINAL.pdf
184
UK CAA, response to question 11.2 of questionnaire Q8 – Civil Aviation Authorities.
185
IAG, response to question 13.2 of questionnaire Q1 - Competitors.
186
Air France, response to question 13.2 of questionnaire Q1 - Competitors.
187
Responses to questions 11.1.1 and 11.1.2 of questionnaire Q1 - Competitors, questions 18.1.1 and
18.1.2 of questionnaire Q2 - Travel Agents, questions 31.1.1 and 31.1.2 of questionnaire Q4 - Airports
and question 26.1.1 and 26.1.2 of questionnaire R1 – Corporate Customers.
EN 62 EN
the Commission notes that in any event for flights from Dublin and Cork Ryanair
and Aer Lingus both operate from LGW airport.
(226) The Commission's empirical analysis (price correlation) leads to inconclusive results
as regards the question of whether air transport services between Dublin, Cork,
Shannon or Knock on the one hand and all London Airports on the other belong to
the same market (see further Annex I).
(227) As regards the substitutability of SEN airport with the other London Airports, the
outcome of the market investigation was more nuanced. While a considerable
number of respondents considered that SEN airport is substitutable with all London
Airports, other respondents indicated some or the other London airports as
substitutable. However, for the purpose of this investigation, the Commission can
leave open the question whether SEN airport is part of the same market as the other
London Airports as it would not change the outcome of the competitive assessment.
(228) Therefore, the Commission takes the view that scheduled point-to-point passenger air
transport services between Dublin, Cork, Shannon or Knock and the London Airports
belong to the same market, while the question of whether SEN airport should also be
treated as substitutable with the other London Airports can be left open.
7.3.3.8. Manchester Airport and Liverpool John Lennon Airport
(229) Ryanair and Aer Lingus both operate a service from Dublin to Manchester Airport
(MAN airport) and in addition, Ryanair operates services to Liverpool John Lennon
Airport (LPL airport) and Leeds airport (LBA airport). Furthermore, Ryanair operates
a service from Cork and Shannon to LPL airport while Aer Lingus operates a service
from Cork and Shannon to MAN airport.
(230) Ryanair contends in its response to the decision opening the proceedings that there is
no substitutability between MAN airport and LPL airport because of the following:
(i) the Commission's benchmark of 100km/1 hour is less instructive when two
airports primarily serve different major cities as is the case with MAN airport and
LPL airport, (ii) LPL airport is not a "secondary" Manchester airport but rather the
primary airport for Liverpool as well as nearby cities such as Warrington (iii) the
closest large city to MAN airport is Manchester and multiple transport connections
are in place between MAN airport and Manchester and (iv) other qualitative
elements like Ryanair's marketing practices, the fact that Ryanair serves both MAN
airport and LPL airport, Aer Lingus' marketing practices or the names of the airports.
(231) The Commission concluded in its 2007 Decision that scheduled point-to-point
passenger air transport services between Dublin, Cork or Shannon, on the one hand,
and MAN airport, LPL airport or LBA airport on the other, belong to the same
market
188
. The Commission drew this conclusion by taking account of a number of
188
Recitals 126-135 of the 2007 Decision. For the current Transaction, the substitutability of Leeds airport
is not relevant for the overlap analysis. For flights out of Dublin, only Ryanair also flies to Leeds
airport, whereas there are no flights to Leeds airport from Cork or Shannon.
EN 63 EN
elements such as the market investigation, Ryanair's internal documents and the price
correlation analysis on the Dublin-MAN airport and Dublin-LPL airport routes
189
.
(232) The question of airport substitutability as regards MAN airport and LPL airport is
relevant for the routes to/from Cork Airport and to/from Shannon Airport, as Ryanair
and Aer Lingus operate to/from different airports
190
. For the routes to/from Dublin
Airport, Ryanair and Aer Lingus both fly to MAN airport (and in addition, Ryanair
flies to LPL airport and LBA airport).
(233) Table 11 summarises the following: (i) the distance from MAN airport and LPL
airport to Manchester city centre (in km and time), (ii) the destination airport and
frequency of each of Ryanair and Aer Lingus on the route to Dublin, Cork and
Shannon and (iii) the total travel time from city centre to city centre for Dublin, Cork
and Shannon.
Table 11 : Manchester Airport and Liverpool John Lennon Airport
Dublin / Cork / Shannon - Manchester and Liverpool
Relevant airport(s)
Manchester (MAN)
Liverpool (LPL)
Distance and travel times to
Manchester city centre
MAN – 17km
LPL – 52 km
Car: MAN – 15 mins; LPL – 41 mins;
Bus: MAN – 30 mins; LPL – 50 mins (from MAN) & 35
mins from LPL;
Train: MAN – 18 mins; Liverpool City Centre – 67 mins
(from MAN);
Airlines active on route from
Dublin (and airport served)
Aer Lingus: 24 pw from MAN
Ryanair: 24 pw from MAN (and 24 pw from LPL)
Total Travel Time from Dublin city
centre to Manchester city centre
Aer Lingus DUB-MAN 200 mins
Ryanair DUB-MAN 195 mins
Ryanair DUB-LPL 220 mins
Airlines active on route from Cork
(and airport served)
Aer Lingus: 16 pw from MAN, operated by Aer Arann
Ryanair: 5 pw (from LPL)
189
The 2007 Decision clearly explains at recitals 130-131 why the conclusion reached by the Commission
is not put into question by arguments which were discussed in the OFT decision on reference under
section 33(1) of the Enterprise Act 2002, given on 7 February 2007 regarding the acquisition by Flybe
Group Limited of the BA Connect business. Full text of decision published 15 February 2007,
http://www.oft.gov.United Kingdom/shared_oft/mergers_ea02/361227/Flybe.pdf . These arguments are
still valid for the current Transaction. In its Decision of 14 May 2009 in Case No COMP/M.5403 –
Lufthansa/British Midland, the Commission left open the question of substitutability between
Manchester Airport and Leeds Airport.
190
As there are currently no flights offered between Cork or Shannon and LBA airport and no likely,
timely and sufficient entry has been identified on these routes, it is not relevant to assess the
substitutability of LBA airport for these two routes while for the Dublin route the question can be left
open as both Ryanair and Aer Lingus operate to MAN airport.
EN 64 EN
Dublin / Cork / Shannon - Manchester and Liverpool
Total Travel Time from Cork city
centre to Manchester city centre
Cork to Manchester (via MAN) 218 mins
Cork to Manchester (via LPL) 235 mins
Airlines active on route from
Shannon (and airport served)
Aer Lingus: 13 pw from MAN (operated by Aer Arann)
Ryanair: 3 pw (from LPL)
Total Travel Time from Shannon
city centre to Manchester city
centre
Shannon to Manchester (via MAN) 218 mins
Shannon to Manchester (via LPL) 245 mins
Source: Form CO, Annex 7.3.a as corrected (in underline)
(234) On the basis of the 100 km or 1 hour drive time benchmark, MAN airport and LPL
airport appear prima facie to be substitutable from the demand side for point-to-point
scheduled passenger air transport services to/from Dublin, to/from Cork and to/from
Shannon.
(235) The fact that the benchmark is less instructive when two airports primarily serve
different major cities, as argued by Ryanair, does not per se point to the absence of
substitutability of the two airports for the purposes of the Transaction. In the same
manner, the fact that LPL airport is not a "secondary" airport to MAN airport but a
primary airport for Liverpool and the fact that the names of the airports do not have a
reference to the cities, in general cannot preclude a finding that MAN airport and
LPL airport could be substitutable for scheduled point-to-point flights from Dublin,
Cork or Shannon as explained in Section 7.3.2.2. The Commission needs to take
account of all elements which are relevant for determining whether scheduled point-
to-point flights between Dublin, Cork or Shannon and MAN airport are substitutable
for flights between Dublin, Cork or Shannon and LPL airport.
(236) […]*
191
. […]*, Aer Arann, operating under the Aer Lingus regional brand on the
Cork-MAN airport route and on the Shannon-MAN airport route does monitor
Ryanair's fares
192
. Furthermore, as explained above, Aer Lingus monitors Ryanair
prices on all short-haul routes where Ryanair operates to the same or a nearby
airport, including Ryanair's fares on Dublin-MAN airport, Dublin-LPL airport and
Dublin-LBA airport.
(237) As explained in Section 7.3.2.4 Ryanair's marketing practices are less relevant for its
flights to United Kingdom airports like MAN airport or LPL airport because Ryanair
flies to both airports and by definition would try to advertise each airport
individually. The Commission therefore needs to take into account other more
relevant information.
(238) The evidence collected through the market investigation points to the fact that the
Commission's conclusion in the 2007 Decision is still appropriate for the current
Transaction, namely that scheduled point-to-point flights between Dublin, Cork or
Shannon on the one hand and MAN airport or LPL airport, on the other, belong to
191
Ryanair's response to Commission request of September 20, 2012 and Annex 7.7 to the Form CO.
192
Aer Arann, response to question 22.1 of Q1 - Competitors.
EN 65 EN
the same market
193
. The operator of LPL airport considers that: "LPL-DUB, MAN-
DUB and LBA-DUB services do not serve the same market. Similarly, we believe
that LPL-SNN or LPL-ORK and LBA-SNN or LBA - ORK services serve separate
markets etc."
194
Flybe expressed a more nuanced view that "A combination of the
additional transport costs and additional logistics adding to the total journey times
are unlikely to be outweighed by the 5-10% increase in airline tariffs, particularly
for time sensitive (ie business) travellers, on the Liverpool-Manchester-Leeds
catchment."
195
On the other hand, the operator of MAN airport confirmed that it is
still appropriate to consider that MAN airport and LPL airport are substitutable for
scheduled point-to-point passengers to/from Dublin, Cork or Shannon and explained
that "The markets for Manchester/Liverpool, […] all significantly overlap."
196
Furthermore, Wizz Air, in its internal analysis of the Dublin-MAN airport route,
considers as "competition" the Ryanair services both between Dublin-MAN airport
and Dublin-LPL airport
197
. The United Kingdom CAA also confirmed that: "The
catchment area overlap is most significant between Manchester and Liverpool
airports, which would suggest that these airports may be seen as substitutable by
passengers in their respective catchment areas, were a suitable flight available."
198
Furthermore, the majority of the other respondents to the Commission's market
investigation also confirm this view.
(239) Lastly, the market investigation has not revealed any other indication that there have
been significant changes in the market circumstances such as to warrant a different
conclusion than the one reached in the 2007 Decision as regards these airports for
flights to/from Dublin, Cork or Shannon
199
.
(240) The Commission's empirical analysis (price correlation) also provides evidence that
air transport services between Dublin on the one hand and MAN airport and LPL
airport on the other belong to the same market (see further Annex I)
200
. The
Commission considers that such evidence is also relevant for air transport services
from Cork and Shannon, as the market investigation has not revealed substantial
differences between Dublin, Cork and Shannon.
(241) Therefore, the Commission takes the view that scheduled point-to-point passenger air
transport services between Cork or Shannon and MAN airport and LPL airport
belong to the same market. The question can be left open as regards substitutability
of air transport services between Dublin and MAN airport, LPL airport or LBA
airport as the Parties' activities overlap on the Dublin-MAN airport route.
193
Recitals 126-135 of the 2007 Decision.
194
Peel Airports Ltd, response to questions 31.1, 31.1.1 and 31.1.2 of questionnaire Q4 - Airports.
195
Flybe, response to questions 11.1, 11.1.1 and 11.1.2 of questionnaire Q1 - Competitors.
196
Manchester Airports Group, response to question 8.1 and 31.1 of Q4 – Airports.
197
Wizz Air's response to Commission's RFI of 27 November 2012.
198
United Kingdom Civil Aviation Authority, response to question 9.1.1 of questionnaire Q8 – Civil
Aviation Authorities.
199
Responses to questions 11.1.1 and 11.1.2 of questionnaire Q1 - Competitors1, questions 18.1.1 and
18.1.2 of questionnaire Q2 - Travel Agents, questions 31.1.1 and 31.1.2 of questionnaire Q4 - Airports
and question 26.1.1 and 26.1.2 of questionnaire R1 – Corporate Customers.
200
For Leeds, the results are inconclusive.
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7.3.3.9. Milano Linate and Milano Malpensa and Orio al Serio International Airport Il
Caravaggio (Bergamo)
(242) Ryanair operates a service from Dublin to Orio al Serio International Airport Il
Caravaggio (BGY airport) while Aer Lingus operates a service from Dublin to
Milano Linate (LIN airport) and Milano Malpensa (MXP airport).
(243) Ryanair contends that LIN airport, MXP airport and BGY airport are not
substitutable and do not overlap for competition purposes because there is a
substantial distance between these destination airports
201
.
(244) The Commission concluded in its 2007 Decision that scheduled point-to-point
passenger air transport services between Dublin, on the one hand, and LIN airport,
MXP airport or BGY airport on the other, belong to the same market
202
. The
Commission drew this conclusion by taking account of a number of elements such as
the market investigation and Ryanair's marketing. In its Decision in Case M.3280 Air
France /KLM
203
, the Commission concluded that LIN airport and MXP airport are
substitutable and that "Bergamo is generally considered an option only for non-time
sensitive passengers." In its Decision in Case M.5335 Lufthansa/SN
204
, the
Commission acknowledged that Milan is served by three airports (LIN airport, MXP
airport and BGY airport), however ultimately left the question open whether these
airports were substitutable.
(245) Table 12 summarises the following: (i) the distance from LIN airport, MXP airport
and BGY airport to Milan city centre (in km and time), (ii) the destination airport and
frequency of each of Ryanair and Aer Lingus on this route and (iii) the total travel
time from city centre to city centre.
Table 12: Milano Linate / Milano Malpensa / Orio al Serio International Airport Il Caravaggio (Bergamo)
Dublin – Milan Linate and Malpensa and Bergamo
Relevant airport(s)
Milano Linate (LIN)
Milano Malpensa (MXP)
Orio al Serio International Airport Il Caravaggio (BGY)
Distance and travel
times to Milan city
centre
LIN – 7km
MXP – 45km
BGY – 45km
Car: LIN – 45 mins; MXP –56 mins; BGY – 50 mins
Bus: LIN – 20 mins; MXP –50 mins; BGY – 60 mins
Train: MXP – 40 mins
Airlines active on route
(and airport served)
Aer Lingus: 7 pw from MXP, 7 pw from LIN
Ryanair: 7 pw from BGY
Total Travel Time
Dublin to Milan City
Centre
Aer Lingus: via MXP 325 mins via LIN 305 mins
Ryanair: via BGY 345 mins
Source: Form CO, Annex 7.3.a
201
Annex 7.7.a and Annex 6.2.a to the Form CO.
202
Recitals 262-267 of the 2007 Decision.
203
Commission Decision of 11 February 2004 in case M.3280 Air France/KLM, recitals 31 and 33.
204
Commission Decision of 22 June 2009 in case M.5335 Lufthansa/SN, recitals 343-344.
EN 67 EN
(246) On the basis of the 100 km or 1 hour drive time benchmark, LIN airport, MXP
airport and BGY airport appear prima facie to be substitutable from the demand side
for point-to-point scheduled passenger air transport services to/from Dublin.
(247) […]*. Aer Lingus monitors the prices of Ryanair on all short-haul routes where
Ryanair operates to the same or a nearby airport, including Ryanair's fares on
Dublin-BGY airport.
(248) Ryanair's marketing activities regarding its services to BGY airport are focused on
Bergamo rather than Milan. In its list of destinations on its website, under the
destination "Milan Bergamo", Ryanair describes the city of Bergamo and its main
attractions
205
. However, there are other elements in Ryanair's marketing practices
which point to the fact that Ryanair continues to consider that BGY airport would be
appropriate for passengers destined for Milan. Ryanair markets its services to BGY
airport as "Milan Bergamo" and in its airport information section, Ryanair provides
information on the various public transport options for travel to Milan city centre and
includes a link to the website on which tickets to Milan can be purchased
206
.
Furthermore, under the "Top things to do" in its destination city "Milan Bergamo",
Ryanair lists the top attractions in Milan (but not Bergamo).
(249) The evidence collected through the market investigation also points to the fact that
the Commission's conclusion in the 2007 Decision is still appropriate for the current
Transaction, namely that scheduled point-to-point flights between Dublin on the one
hand and LIN airport, MXP airport or BGY airport, on the other, belong to the same
market
207
. The operator of BGY airport considers that the Commission's conclusion
of 2007 is not appropriate because "each airport has also an own local market"
208
On
the other hand, the operator of LIN airport and MXP airport considers that the three
airports "are potentially partially overlapping"
209
and Alitalia
210
confirms the
Commission's view in line with the majority of the other respondents to the
Commission's market investigation.
(250) Lastly, the market investigation has not revealed any other indication that there have
been significant changes in the market circumstances so as to warrant a different
conclusion than the one reached in the 2007 Decision as regards these airports for
flights to/from Dublin
211
.
205
http://www.ryanair.com/en/flights-to-milan-bergamo/
206
"Milan Orio al Serio is located approximately 45 Km from the city of Milan. There is a bus connection
operated by Autostradale in the directions of Milan and Brescia. The bus journey to Milan will take
about an hour and ticket costs €9,90 one way, return €15,00. The bus journey to Brescia take 70 min,
the cost is €10,00. You can buy the ticket on Ryanair flights, in Airport by Autostradale’s box office or
on the website www.airportbusexpress.it. There is also a bus connection in the direction Bergamo city"
http://www.ryanair.com/en/flights-to-milan-bergamo/
207
Recitals 262-267 of the 2007 Decision.
208
SACBO, response to question 31.7.1 of questionnaire Q4 – Airports.
209
SEA, response to questionnaire Q4 – Airports.
210
Alitalia, response to question 11.7 of questionnaire Q1 - Competitors.
211
Responses to question 11.7.1 of questionnaire Q1 - Competitors, question 18.7.1 of questionnaire Q2 -
Travel Agents and question 31.7.1 of questionnaire Q4 - Airports and question 26.7.1 of questionnaire
R1 – Corporate Customers.
EN 68 EN
(251) The Commission's empirical analysis (price correlation) also provides evidence that
air transport services between Dublin on the one hand and MXP airport, LIN airport
or BGY airport on the other belong to the same market (see further Annex I Price
correlation analysis).
(252) Therefore, the Commission takes the view that scheduled point-to-point passenger air
transport services between Dublin and MXP airport, LIN airport and BGY airport
belong to the same market.
7.3.3.10. Munich Airport and Allgäu Airport Memmingen
(253) Ryanair operates a service from Dublin to Allgäu Airport Memmingen (FMM
airport) while Aer Lingus operates a service from Dublin to Munich Airport (MUC
airport).
(254) Ryanair contends in its response to the decision opening the proceedings that there is
no substitutability between MUC airport and FMM airport for flights to and from
Dublin for the following reasons: (i) FMM airport falls well outside the
Commission's 100km / 1 hour benchmark, (ii) FMM airport is substantially closer to
and within the 100km distance benchmark to other regional cities like Augsburg,
Friedrichshafen, Ulm, Kempten or Bregenz and FMM should be more appropriately
characterised as a regional airport serving a multitude of smaller cities in its vicinity
rather than as a secondary airport serving mainly Munich, (iii) Ryanair's marketing is
attempting to capture as many customers as possible including holiday makers with
varied itineraries that may end in/or otherwise include Munich, (iv) [30-40]*% of the
passengers on the DUB-FMM route originate in Ireland and passengers travelling
from Germany who live in Munich are unlikely to find an airport located over 100km
from their city a substitute for Munich Airport and lastly (v) Ryanair's Map Bases
analysis.
(255) In its previous Decision in case M.5335 Lufthansa/SN
212
, the Commission
considered for the purpose of the investigation in that case, that there was only one
airport serving Munich, namely MUC airport. However, the Commission in its
Decision also referred to FMM airport as being "sometimes considered as a potential
secondary airport for Munich."
213
However, the Commission found in that case that,
considering that FMM airport was only used by low cost/charter companies for a
limited number of domestic flights and leisure destinations it was unlikely to be
substitutable for MUC airport for flights to/from Brussels as there was no indication
that an airline could serve BRU from FMM in the near future
214
:
(256) Table 13 summarises the following: (i) the distance from MUC airport and FMM
airport to Munich city centre (in km and time), (ii) the destination airport and
212
Commission Decision of 22 June 2009 in case M.5335 Lufthansa/SN, recital 175 and footnote 185.
213
Commission Decision of 22 June 2009 in case M.5335 Lufthansa/SN, recital 175 amd footnote 185.
214
Commission Decision of 22 June 2009 in case M.5335 Lufthansa/SN, footnote 185. In Commission
Decision of 4 July 2005 in case M.3770 Lufthansa/Swiss, recital 65, the Commission left open the
question of substitutability between MUC Airport and Augsburg Airport for non-time sensitive
passengers.
EN 69 EN
frequency of Ryanair, Aer Lingus and other airlines flights' on this route and (iii) the
total travel time from city centre to city centre.
Table 13: Munich Airport /Allgäu Airport Memmingen
Dublin - Munich and Memmingen
Relevant airport(s)
Munich (MUC)
Memmingen Airport (FMM)
Distance and travel
times to Munich city
centre
MUC – 40 km
FMM – 110 km
Car: MUC 30 mins; FMM 80 mins
Bus: MUC 40 mins; FMM 85 mins
Train: MUC 45 mins; FMM none
Airlines active on
route (and airport
served)
Aer Lingus: 11 pw from MUC
Ryanair: 4 pw (from FMM )
Lufthansa: 1 pw from MUC
Total Travel Time
Dublin to Munich
City Centre
Aer Lingus (via MUC): 300 mins
Ryanair (via FMM): 345 mins
Lufthansa (via MUC): 300 mins
Source: Form CO, Annex 7.3.a
(257) On the basis of the 100km or 1 hour drive time benchmark, MUC airport and FMM
airport do not appear prima facie to be substitutable from the demand side for point-
to-point scheduled passenger air transport services to/from Dublin.
(258) However, the fact that FMM airport falls outside the benchmark does not per se
indicate an absence of substitutability between scheduled point-to-point flights from
Dublin to FMM airport and scheduled point-to-point flights from Dublin to MUC
airport. Furthermore, it is undisputed that one airport could be suitable for reaching
various cities or regions, therefore the fact that an airport like FMM airport would be
closer to other regional cities (than Munich) cannot change the conclusion as to the
substitutability between flights from Dublin to FMM airport or to MUC airport. The
Commission needs to take account of all elements which are relevant for determining
whether scheduled point-to-point flights between Dublin and MUC airport are
substitutable for flights between Dublin and FMM airport.
(259) […]*.
215
Aer Lingus […]* monitors Ryanair on the Dublin-FMM route and
considers Ryanair to be the primary competitor on this route due to the lack of real
alternatives in terms of frequency with Lufthansa only operating on a Sunday. Aer
Lingus also considers that the leisure segment is highly competitive between the two
airlines on this route
216
.
215
Ryanair response of 26 September 2012 and Annex 7.7 to the Form CO.
216
Aer Lingus' response question 3 to the Commission's request for information of 20 September 2012.
EN 70 EN
(260) Ryanair's marketing activities indicate that Ryanair considers that FMM airport
would be appropriate for passengers destined for Munich. Indeed, in its list of
destinations on its website, under the destination "Munich Memmingen", Ryanair
describes the city of Munich and its main attractions
217
. In its airport information
section, Ryanair states that FMM airport "not only serves Memmingen and the Allgäu
area but also provides a low-cost alternative to Munich Airport" and includes the
link to the Allgäu Express which inter alia offers direct bus connections to Munich
city centre.
218
While Ryanair is attempting to capture passengers with varied
itineraries, its marketing practices clearly show that it also targets passengers
destined for Munich and it considers that FMM airport would be "the low cost
alternative" to MUC airport.
(261) The evidence collected through the market investigation also points to the
substitutability of these two airports for flights to or from Dublin. Indeed, Lufthansa,
the other airline operating on this route, considers that "for some customers (non-
time-sensitive and cost sensitive) flights between Dublin and Memmingen Airport
might be an alternative to flights between the Dublin and Munich Airport."
219
Lufthansa estimates that around 0 to 10% of passengers would switch to scheduled
point-to-point flights between Dublin and FMM airport in case of a price increase of
scheduled point-to-point flights between Dublin and MUC airport
220
and that these
would be "Only non-time-sensitive and very cost sensitive passengers" because "the
additional transportation cost to/from Munich would probably be higher than the
price increase."
221
The operator of MUC airport also considers that these two airports
are substitutable and that "recent developments have shown that the opening of new
routes at FMM [airport] have automatically resulted in a reduction of passengers at
MUC [airport] to the same destinations”
222
. MUC airport therefore estimates that
between 10% to30% of passengers would switch from scheduled point-to-point fligts
between MUC airport and Dublin to scheduled point-to-point flights between FMM
airport and Dublin and about 0 to10% would switch the other way around "as
average fares at FMM are generally very low, those passengers that need to fly will
still accept the higher fares, whereas those passengers that do not necessarily need
to fly would rather refrain from flying at all"
223
. FMM airport also considers that,
generally, scheduled point-to-point flights from Dublin to FMM airport or MUC airport
"are substitutable to each other, because of the relative small distance betweeen
Munich and Memmingen. But it also depends on the capacity utilisation of the
217
http://www.ryanair.com/en/flights-to-munich-memmingen/
218
"Memmingen Airport is a small public airport located in the town of Memmingerberg in close proximity
to the city of Memmingen, Germany, in the Swabia region. It is one of three commercial airports in
Bavaria and the has the highest elevation of all of Germany's commercial airports. Prior to 2008-09-
25, it was known as Allgäu Airport/Memmingen. Located about 2.5 km from the city centre of
Memmingen and 100 km from the city centre of Munich, it not only serves Memmingen and the Allgäu
area but also provides a low-cost alternative to Munich Airport" http://www ryanair.com/en/flights-to-
munich-memmingen/
219
Lufthansa, response to question 14.1 of questionnaire Q1 - Competitors.
220
Or the other way around.
221
Lufthansa, response to question 14.1 of questionnaire Q1 – Competitors.
222
Flughafen München GmbH, response to question 34.1, 34.1.2, 34.1.1 and 34.1.2.1 of questionnaire Q4 -
Airports.
223
Flughafen München GmbH, response to question 34.1, 34.1.2, 34.1.1 and 34.1.2.1 of questionnaire Q4 -
Airports.
EN 71 EN
flights"
224
. While some of the respondents to the Commission's market investigation
have diverging views, the majority considered that for the purposes of this
Transaction, scheduled point-to-point flights between Dublin and MUC airport and
between Dublin and FMM airport belong to the same market.
(262) The Commission's empirical analysis (price correlation) is inconclusive as regards
Munich airport and Memmingen airport (see further Annex I).
(263) As indicated by Ryanair, [30-40]*% of its passengers on the DUB-FMM route
originate in Ireland. […]*. However, this does not mean that all Ryanair's passengers
originate in Munich and therefore, they would not consider flying from FMM airport
because they have the closer alternative MUC airport.
(264) As regards Ryanair's Map-Based analysis, it relies on several strong and arbitrary
assumptions and the Commission does not consider that the results of this analysis
provide any evidence that the relevant airports belong to different markets as
explained in detail in Annex II.
(265) In light of all the above, the Commission takes the view that scheduled point-to-point
passenger air transport services between (i) Dublin and MUC airport and (ii) Dublin
and FMM airport belong to the same market.
7.3.3.11. Roissy-Charles de Gaulle Airport, Paris Beauvais Airport and Orly Airport
(266) Ryanair operates a service from Dublin to Paris Beauvais Airport (BVA airport)
while Aer Lingus operates a service from Dublin to Paris Roissy-Charles de Gaulle
Airport (CDG airport).
(267) Ryanair contends that CDG airport and BVA airport are not substitutable or do not
overlap for competition purposes since there is a substantial distance between these
two destination airports
225
.
(268) The Commission concluded in its 2007 Decision that scheduled point-to-point
passenger air transport services between Dublin, on the one hand, and CDG airport or
BVA airport on the other, belong to the same market
226
. The Commission drew this
conclusion by taking account of a number of elements like Ryanair's marketing
practices, the market investigation, the price correlation analysis and the customer
survey.
(269) In its Decision in case M.3280 Air France /KLM
227
, the Commission concluded that
CDG airport and Orly airport (ORY airport) are substitutable from the demand side
for point-to-point traffic (including for intra-European flights). However the
224
Memmingen Airport, response to question 34.1 of questionnaire Q4 - Airports.
225
Annex 7.7.a to the Form CO. Currently there are no flights between Dublin and ORY airport. Ryanair
subsequently took a different approach as regards these airports in its observations on the 6(1)(c)
decision where it uses the example of Paris to contrast with the situation at other airports which would
allegedly not be substitutable.
226
Recitals 157-163 of the 2007 Decision. Note that Orly was not specifically addressed in the market
definition.
227
Commission Decision of 11 February 2004 in case M.3280 Air France/KLM, recitals 29-30.
EN 72 EN
Commission did not further investigate the substitutability with BVA airport as the
parties to that transaction had not argued for substitutability
228
. Similarly, in its
Decision in case in COMP/M.5830 Olympic / Aegean Airlines the Commission
concluded that CDG airport and ORY airport are substitutable for all passengers
travelling to and from Athens
229
.
(270) Table 14 summarises the following: (i) the distance from CDG airport, BVA airport
and ORY airport to Paris city centre (in km and time), (ii) the destination airport and
frequency of each of Ryanair and Aer Lingus on this route and (iii) the total travel
time from city centre to city centre
230
.
Table 14: Roissy-Charles de Gaulle Airport, Paris Beauvais Airport and Orly Airport
Dublin – Paris Charles de Gaulle and Beauvais and Orly
Relevant airport(s)
Paris Charles de Gaulle (CDG)
Paris Beauvais (BVA)
Paris Orly (ORY)
Distance and travel
times to Paris city
centre
CDG – 23km
BVA– 80km
ORY – 20 km
Car: CDG – 31 mins; BVA – 60 mins; ORY –
30 mins
Bus: CDG – 55 mins; BVA – 75 mins;
Train: CDG – 35 mins; ORY – 30 mins
Airlines active on
route (and airport
served)
Aer Lingus: 21 pw from CDG
Air France: 41 pw from CDG
Ryanair: 12 pw from BVA
Total Travel Time
Dublin City Centre
to Paris City Centre
Aer Lingus: (via CDG) 265 mins
Air France: (via CDG) 270 mins
Ryanair: (via BVA) 285 mins
Source: Form CO, Annex 7.3.a, www.viamichelin.com and www.aeroportsdeparis.fr (underlined)
(271) On the basis of the 100km/1 hour benchmark, CDG airport, BVA airport and ORY
airport appear prima facie to be substitutable from the demand side for point-to-point
scheduled passenger air transport services to/from Dublin in terms of distance and
driving time by car
231
.
228
In its Decision of 27 July 2010 in case M.5889 – United Air Lines/Continental Airlines the Commission
left open the question of the substitutability of Paris airports, recital 14.
229
Commission Decision C(2011) 316 in Case No COMP/M.5830 – Olympic / Aegean Airlines, recital
1676.
230
Currently there are no flights between Dublin and ORY airport.
231
In their response to the Commission's request for information of 30 August 2012, Ryanair provide
different travel duration of 73 minutes.
EN 73 EN
(272) […]*
232
. Furthermore, Aer Lingus compares its fare against Ryanair's fare on DUB-
BVA airport primarily, and against Air France on DUB-CDG airport secondarily
233
.
(273) Ryanair's marketing activities indicate that Ryanair considers that BVA airport
would be appropriate for passengers destined for Paris. Indeed, in its list of
destinations on its website, under the destination "Paris Beauvais", Ryanair describes
the city of Paris and its main attractions
234
. In its airport information section, Ryanair
provides information on the various public transport options for travel to Paris city
centre and includes a link to the website of the Paris Beauvais Airport Shuttle for
which tickets can be purchased online
235
.
(274) The evidence collected through the market investigation indicates that the
Commission's conclusion in its 2007 Decision is still appropriate for the current
Transaction, namely that scheduled point-to-point flights between Dublin on the one
hand and CDG airport or BVA airport, on the other, belong to the same market
236
.
Air France, the other operator on this route explained that "BVA [airport is] a clear
viable option for Paris travellers, whether time sensitive or non-time sensitive
passengers for the following reasons: BVA is part of the Paris Airport System: it
appears in the Global Distribution Systems (GDS) under the Paris (PAR) designator
code. Although Beauvais is further from central Paris than are Paris-Orly and Paris-
CDG airports, a substantial proportion of Ryanair’s passengers is travelling to or
from Paris"
237
. Furthermore, the operator of CDG airport also confirmed the
conclusion and indicated that nothing has changed since the 2007 Decision
238
. On the
other hand, the operator of BVA airport stated that it does not regard itself in
competition with CDG airport and explained: "La situation de concurrence entre la
plateforme de Beauvais Tillé et la plateforme de l’aéroport de Roissy-Charles de
Gaulle doit être fortement relativisée. En effet, l’aéroport de Roissy-Charles de
Gaulle est beaucoup plus accessible que celui de Beauvais Tillé (en termes de
distance, de temps de trajet, d'infrastructures de transport telles que le réseau
express régional) pour les passagers en provenance de Paris et de la banlieue
parisienne"
239
. However, as explained in detail by Air France in its response, "the
very low airport transit time at BVA compensates for the longer travelling time
between Paris and the airport: in fact, total voyage time from central Paris to the
aircraft at BVA can be comparable to ORY and CDG as each ground shuttle leaves 2
hours and 30 minutes before the planned take-off of the aircraft.[…]. The majority of
232
Ryanair's response to Commission request of September 20, 2012 and Annex 7.7 to the Form CO.
233
Aer Lingus' response question 3 to the Commission's request for information of 20 September 2012.
234
http://www.ryanair.com/en/flights-to-paris-beauvais/
235
"Beauvais Airport is located approximately 85 Km from the centre of Paris. There is no rail service
from the airport but there is a bus service. Journey time is approximately 1 hour 15 mins. Cost is
€15.00. Paris-Beauvais Airport Shuttle [link]" http://www ryanair.com/en/flights-to-paris-beauvais/
236
Recitals 157-163 of the 2007 Decision. Note that Orly was not specifically addressed in the market
definition.
237
Air France, response to question 13.4 and 13.4.2.1 of questionnaire Q1 - Competitors.
238
Aeroports de Paris, response to question 33.4 of questionnaire Q4 - Airports.
239
Paris-Beauvais Airport, e-mail of 3 August 2012. Translation into English (for convenience): "The
competitive situation between BVA airport and CDG airport has to be significantly relativised. In fact,
CDG airport is much more accessible than BVA airport (in terms of distance, travel duration, transport
infrastructure such as the express network) for the passengers coming from Paris and from the Paris
suburbs".
EN 74 EN
the other respondents to the Commission's market investigation also confirm the
findings in the 2007 Decision.
(275) Lastly, the market investigation has not revealed any other indication that there have
been significant changes in the market circumstances such as to warrant a different
conclusion to the one reached in the 2007 Decision as regards these airports for
flights to/from Dublin
240
.
(276) As regards the substitutability between CDG airport, BVA airport and ORY airport,
the market investigation broadly confirmed that ORY airport would be substitutable
with CDG airport and BVA airport respectively for flights to/from Dublin.
(277) The Commission's empirical analysis (price correlation) also points to the fact that
air transport services between Dublin on the one hand and CDG airport and BVA
airport on the other belong to the same market (see further Annex I).
(278) As regards Ryanair's Map-Based analysis, it relies on several strong and arbitrary
assumptions and the Commission does not consider that the results of this analysis
provide any evidence that the relevant airports belong to different markets as
explained in detail in Annex II.
(279) Therefore, the Commission takes the view that scheduled point-to-point passenger air
transport services between Dublin and CDG airport, BVA airport and ORY airport
belong to the same market.
7.3.3.12. Rome: Leonardo da Vinci International Airport (Fiumicino) and G.B Pastine
International Airport (Ciampino)
(280) Ryanair operates a service from Dublin to G.B Pastine International Airport
(Ciampino) (CIA airport) while Aer Lingus operates a service from Dublin to
Leonardo da Vinci International Airport (Fiumicino) (FCO airport).
(281) Ryanair contends that, since there is a substantial distance between these two
destination airports they are not substitutable or do not overlap for competition
purposes
241
.
(282) The Commission concluded in its 2007 Decision, that, for the purposes of that case,
scheduled point-to-point passenger air transport services between Dublin, on the one
hand, and FCO airport or CIA airport, on the other, belong to the same market
242
.
The Commission drew this conclusion by taking account of a number of elements
such as the market investigation, the customer survey and the price correlation
analysis.
(283) Table 15 summarises the following: (i) the distance from FCO airport and CIA
airport to Rome city centre (in km and time), (ii) the destination airport and
240
Responses to question 13.4.1 of questionnaire Q1 - Competitors, question 20.4.1 of questionnaire Q2 -
Travel Agents and question 33.4.1 of Q4 - Airports and question 27.4.1 of questionnaire R1 – Corporate
Customers.
241
Annex 7.7.a and Annex 6.2.a to the Form CO.
242
Recitals 254-261 of the 2007 Decision.
EN 75 EN
frequency of each of Ryanair and Aer Lingus on this route and (iii) the total travel
time from city centre to city centre.
Table 15: Leonardo da Vinci International Airport (Fiumicino) / G.B Pastine International Airport
(Ciampino)
Dublin – Rome Fiumicino and Ciampino
Relevant airport(s)
Rome Fiumicino (FCO)
Rome Ciampino (CIA)
Distance and travel
times to city centre
FCO – 26km
CIA – 18km
Car: FCO – 27 mins; CIA – 26 mins
Bus: FCO – 40 mins
Train: FCO – 30 mins ; CIA – 30 mins
Airlines active on
route (and airport
served)
Ryanair: 7 pw from CIA
Aer Lingus: 11 pw from FCO
Total Travel Time
City Centre to City
Centre
Ryanair: (from CIA) 345 mins
Aer Lingus: (from FCO) 345 mins
Source: Form CO, Annex 7.3.a
(284) On the basis of the 100 km or 1 hour drive time benchmark, FCO airport and CIA
airport appear prima facie to be substitutable from the demand side for point-to-point
scheduled passenger air transport services to/from Dublin.
(285) […]*
243
. As explained above, Aer Lingus monitors Ryanair prices on all short-haul
routes where Ryanair operates to the same or a nearby airport, including Ryanair's
fares on Dublin-CIA airport.
(286) The evidence collected through the market investigation also indicates that the
Commission's conclusion of 2007 is still appropriate for the current Transaction,
namely that scheduled point-to-point flights between Dublin on the one hand and
FCO airport or CIA airport, on the other, belong to the same market. The operator of
FCO airport and of CIA airport confirmed this
244
as did Alitalia
245
, which has a hub
at FCO airport and used to operate on this route, and the majority of the other
respondents to the Commission's market investigation.
(287) Lastly, the market investigation has not provided any indication that there have been
significant changes in the market circumstances such as to warrant a different
243
Annex 7.7 to the Form CO.
244
ADR S.p.A, response to question 31.8 of questionnaire Q4 - Airports.
245
Alitalia, response to question 11.8 of questionnaire Q1 - Competitors.
EN 76 EN
conclusion than the one reached in the 2007 Decision as regards these airports for
flights to/from Dublin
246
.
(288) The Commission's empirical analysis (price correlation) also provides evidence that
air transport services between Dublin on the one hand and FCO airport and CIA
airport on the other, belong to the same market (see further Annex I).
(289) Therefore, the Commission takes the view that scheduled point-to-point passenger air
transport services between Dublin and FCO airport and Dublin and CIA airport
belong to the same market.
7.3.3.13. Stockholm Arlanda Airport and Stockholm Skavsta Airport
247
(290) Ryanair operates a service from Dublin to Stockholm Skavsta Airport (NYO airport)
while Aer Lingus operates a service from Dublin to Stockholm Arlanda Airport
(ARN airport).
(291) Ryanair contends in its response to the decision opening the proceedings that there is
no substitutability between ARN airport and NYO airport mainly for the following
reasons: (i) NYO airport falls outside the Commission's 100km/1 hour benchmark
and (ii) Ryanair's data supports the conclusion that ARN airport and NYO airport are
not substitutable.
(292) The Commission's market investigation in case M.3770 Lufthansa/Swiss, regarding
the substitutability of ARN airport, NYO airport and Bromma Stockholm Airport for
flights to and from Zurich has found that: "in principle airport substitutability might
be justified from a demand-side view for all three airports [ARN airport, NYO
airport and Bromma Stockholm airport] for non-time sensitive passengers and
between [ARN airport] and Bromma [Stockholm airport] for non-time sensitive
passengers"
248
.
(293) Table 16 summarises the following: (i) the distance from ARN airport and NYO
airport to Stockholm city centre (in km and time), (ii) the destination airport and
frequency of Ryanair, Aer Lingus and other carriers flights' on this route and (iii) the
total travel time from city centre to city centre.
246
Responses to question 11.8.1 of questionnaire Q1 - Competitors, question 18.8.1 of questionnaire Q2 -
Travel Agents and question 31.8.1 of questionnaire Q4 - Airports and question 26.9.1 of questionnaire
R1 – Corporate Customers.
247
One additional airport, Stockholm Bromma Airport might also be relevant. However, as there are
currently no flights between Dublin and Stockholm Bromma Airport (and no intended operations from
this airport were identified), for the purpose of this Transaction it is only relevant to conduct an airport
substitutability analysis for Stockholm Arlanda Airport and Stockholm Skavsta Airport.
248
Commission Decision of 4 July 2005 in case M.3770 Lufthansa/Swiss, recital 100. In that Decision, the
Commission went on to consider the supply-side substitutability of these three airports, as there were no
carriers offering services between Zurich and Bromma airport and NYO airport and concluded that
there is limited supply-side substitutability between the two airports.
EN 77 EN
Table 16: Stockholm Arlanda Airport /Stockholm Skavsta Airport
Dublin – Arlanda and Skavsta
Relevant airport(s)
Stockholm Arlanda Airport (ARN airport)
Stockholm Skavsta Airport (NYO airport)
Distance and travel
times to Stockholm
city centre
45 km (ARN airport)
106 km (NYO airport)
Car: (ARN airport) 35 mins, (NYO airport) 80 mins
Bus: (ARN airport) 45 mins, (NYO airport) 80 mins
Train: (ARN airport) 20 mins; (NYO airport) none
Airlines active on
route (and airport
served)
Aer Lingus: 4 pw from ARN airport
Ryanair: 4 pw from NYO airport
SAS: 7 pw from ARN airport
Total Travel Time
City Centre to City
Centre
Aer Lingus Dublin to Stockholm (via ARN airport) 295
mins
SAS Dublin to Stockholm (via ARN airport) 300 mins
Ryanair Dublin to Stockholm (via NYO airport) 360 mins
Source: Form CO, Annex 7.3.a
(294) On the basis of the 100 km / 1 hour benchmark, ARN airport and NYO airport do not
appear prima facie to be substitutable from the demand side for point-to-point
scheduled passenger air transport services to/from Dublin.
(295) However, the fact that NYO airport falls outside the benchmark does not per se point
to absence of substitutability with ARN airport for scheduled point-to-point flights
to/from Dublin. The Commission needs to take account of all elements which are
relevant for determining whether scheduled point-to-point flights between Dublin
and ARN airport are substitutable for flights between Dublin and NYO airport.
(296) […]*
249
. Furthermore, Aer Lingus also monitors Ryanair and currently references
Ryanair as the primary competitor on this new route
250
.
(297) Ryanair's marketing activities indicate that Ryanair considers that NYO airport
would be appropriate for passengers destined for Stockholm. Indeed, in its list of
destinations on its website, under the destination "Stockholm Skavsta", Ryanair
describes the city of Stockholm and its main attractions
251
. In its airport information
section, Ryanair refers to the airport coaches that operate directly to and from
Stockholm
252
.
249
Ryanair response on 26 September 2012 and Annex 7.7 to the Form CO.
250
Aer Lingus' response question 3 to the Commission's request for information of 20 September 2012.
251
http://www.ryanair.com/en/flights-to-stockholm-skavsta/
252
"Stockholm (Skavsta) Airport is situated 100 KM south of Stockholm and 7 KM northwest from
Nyköping. Airport coaches operate directly to and from Stockholm and Norrköping/Linköping. The
EN 78 EN
(298) The evidence collected through the market investigation also points to the
substitutability of these two airports. Indeed, the other airline active on this route
SAS considers that these airports are substitutable for flights to/from Dublin and that
a "5-10 % price increase [on Dublin-Arlanda or on Dublin-Skavsta] would probably
render some deviation in the price sensitive segment. Probably not more than 10%
deviation as passengers are willing to pay a premium for proximity to Stockholm,
reliability, convenience and service"
253
. The operator of ARN airport also agrees that
there is a certain degree of substitutability between these two airports
254
. The
manager of NYO airport also stated that NYO airport is a "very viable alternative for
a price sensitive market"
255
. Indeed, NYO airport advertises and describes itself as
"Stockholm's second airport"
256
. Furthermore, Norwegian Airlines also took the view
that "Arlanda and Skavsta belong clearly to the same catchment area, even if
demographic characteristics are different between the two airports. Norwegian
considers Ryanair, which flies to Skavsta, as a direct competitor on its routes to
Arlanda (for example from London Gatwick)"
257
. The majority of other market
participants which issued an opinion also consider that ARN airport and NYO airport
are substitutable.
(299) As regards Ryanair's Map-Based analysis, it relies on several strong and arbitrary
assumptions and the Commission does not consider that the results of this analysis
provide any evidence that the relevant airports belong to different markets as
explained in detail in Annex II. On the other hand, the Commission cannot draw any
meaningful conclusions from its empirical analysis (price correlation) as regards air
transport services between Dublin on the one hand and ARN airport or NYO airport
on the other due to the small number of observations (see further Annex I).
(300) Therefore, the Commission takes the view that scheduled point-to-point passenger air
transport services between Dublin and ARN airport and Dublin and NYO airport
belong to the same market.
7.3.3.14. Toulouse Blagnac Airport and Carcassonne Airport
(301) Ryanair operates a service from Dublin to Carcassonne Airport (CCF airport) while
Aer Lingus operates a service from Dublin to Toulouse Blagnac Airport (TLS
airport).
local train station in Nyköping is 7 km away.A taxi to Nyköping costs from SEK 200 and take
approximately 10 minutes, while a taxi to the centre of Stockholm costs approximately SEK 1,300 and
should take approximately 60 minutes.Two bus services operate from Skavsta to Nyköping no. 515 and
715. Bus tickets can be bought at “Flygbussarna” Ticket Office for Airport coaches. On the bus no cash
is allowed, only credit card." http://www ryanair.com/en/flights-to-stockholm-skavsta/
253
SAS - Scandinavian Airlines (hereafter "SAS"), question 14.2 of questionnaire Q1 - Competitors.
254
Swedavia AB, response to question 34.2 of questionnaire Q4 - Airports. The operator of Arlanda airport
also refers to indirect flights being a stronger alternative than other flights from other airports to Dublin.
As explained in Section 7.4, the Commission does not consider that indirect flights constrain the Parties
to any meaningful degree.
255
London Luton Airport, response to question 34.2.2.1, questionnaire Q4 - Airports.
256
"Welcome to Stockholm's second airport!" and "Stockholm's 2nd airport is located 100 km south of
Stockholm - right next to the main E4-highway."http://www.skavsta.se/en/content/8/157/stockholm-
skavsta-corporate-information html.
257
Norwegian Airlines, agreed minutes of conference call of 27 September 2012.
EN 79 EN
(302) Ryanair contends in its response to the decision opening the proceedings that there is
no substitutability between TLS airport and CCF airport mainly for the following
reasons: (i) CCF airport is exactly at the Commission's 1 hour drive time benchmark
and just below the Commission's 100km distance benchmark, (ii) this benchmark is
less instructive when two airports primarily serve different major cities as is the case
with TLS airport and CCF airport, (iii) CCF airport is not a "secondary" Toulouse
airport but is rather a gateway to the Languedoc-Roussillon region, including the
town of Carcassonne itself and (iv) other qualitative elements like Ryanair's
marketing practices, Aer Lingus' marketing practices or the names of the airports.
(303) The Commission concluded in its 2007 Decision, that, for the purposes of that case,
scheduled point-to-point passenger air transport services between Dublin, on the one
hand, and TLS airport or CCF airport, on the other, belong to the same market
258
.
The Commission drew this conclusion by taking account of a number of elements
such as the market investigation and the price correlation analysis.
(304) Table 17 summarises the following: (i) the distance from TLS airport and CCF
airport to Toulouse city centre (in km and time), (ii) the destination airport and
frequency of Ryanair and Aer Lingus flights on this route and (iii) the total travel
time from city centre to city centre.
Table 17: Toulouse Blagnac Airport / Carcassonne Airport
Dublin - Toulouse and Carcassonne
Relevant airport(s)
Toulouse (TLS)
Carcassonne (CCF)
Distance and travel times to
Toulouse city centre
TLS – 8km
CCF – 90km
Car: TLS – 17 mins; CCF – 60 mins
Bus: TLS – 20 mins CCF – none
Train: TLS—none; CCF – none
Airlines active on route (and
airport served)
Aer Lingus: 3 pw from TLS
Ryanair: 3 pw from CCF
Total Travel Time Dublin City
Centre to Toulouse City Centre
Dublin to Toulouse (via TLS) 270 mins
Dublin to Toulouse (via CCF) 310 mins
Source: Form CO, Annex 7.3.a
(305) On the basis of the 100km/1 hour benchmark, TLS airport and CCF airport appear
prima facie to be substitutable from the demand side for point-to-point scheduled
passenger air transport services to/from Dublin.
(306) The fact that CCF airport is closer to the benchmark and that the benchmark is less
instructive when two airports primarily serve different major cities, as argued by
Ryanair, does not per se indicate the absence of substitutability of the two airports
258
Recitals 171-177 of the 2007 Decision.
EN 80 EN
for this Transaction. In the same manner, the fact that CCF airport is not a secondary
airport to Toulouse but a gateway to the Languedoc-Roussillon region and the fact
that the names of the airports do not have a reference to the cities, in general cannot
preclude a finding that TLS airport and CCF airport could be substitutable for
scheduled point-to-point flights from Dublin as explained in Section 7.3.2.2. In fact,
even for these destinations the city centre criterion is an indicative benchmark
showing the relative distance of the airports from the local centre and thus also the
difference in their ability to serve the tourist resorts in the vicinity. For the leisure
route Dublin-Toulouse/Carcassonne, while the two airports are located in different
administrative regions (Midi-Pyrénées and Languedoc-Roussillon), they are suitable
for passengers destined for one or the other region. For example, Toulouse airport
advertises on its website the accessibility to the Mediterranean coast
259
while the
Carcassonne airport mentions the attractiveness of the Canal du Midi which reaches
Toulouse
260
. In any event, the Commission needs to take account of all elements
which are relevant for determining whether scheduled point-to-point flights between
Dublin and TLS airport are substitutable for flights between Dublin and CCF airport.
(307) […]*
261
. […]*. As explained above, Aer Lingus monitors Ryanair prices on all short-
haul routes where Ryanair operates to the same or a nearby airport, including
Ryanair's fares on the Dublin-CCF airport route.
(308) Ryanair's marketing activities regarding its services to CCF airport are more targeted
to passengers destined for Carcassonne than for Toulouse. In its list of destinations
on its website, under the destination "Carcassonne", Ryanair describes the city of
Carcassonne and its main attractions
262
and in its airport information section it
describes the various ways to travel to Carcassonne city centre
263
. However, in its
"Top things to do" section, Ryanair lists the Canal du Midi
264
which reaches
Toulouse
265
. While there are no direct bus or train connections between CCF airport
259
"South West France is a very varied region, surrounded by the Atlantic Ocean, Mediterranean Sea and
the Pyrenees mountain range. Toulouse enjoys a perfect location, in the centre of this region. In under
2 hours, you can easily reach the sea, ocean or mountains. What more could you ask for when on
holiday?" http://www.toulouse.aeroport.fr/en/airport/toulouse-and-its-area
260
"The Canal du Midi, built in the seventeenth in the reign of Louis XIV by the architect Pierre Paul
Riquet was considered as Heritage of Humanity by UNESCO in 1996. With a length of 240 km, it
stretches from Toulouse to l’Etang de Thau. You can discover it by renting a boat without a driver
licence for a cruise of several days. Boat rides are also available from Carcassonne.
http://www.aeroport-carcassonne.com/en/page/canal-du-midi-tourism
261
Ryanair's response to Commission request of September 20, 2012. […]*.
262
http://www.ryanair.com/en/flights-to-carcassonne/
263
"Carcassonne Airport is 5 Km from Carcassonne city centre. Agglo'bus operate a bus service into the
city centre. Journey time is 15 minutes and cost is €5 one way.The bus stop is located in front of the
airport. Information on timetables is available on www.carcassonne.aeroport.fr. There is a taxi rank in
front of the airport. Journey time into the city is 10 minutes and the cost is between €10.00 and €12.00."
http://www.ryanair.com/en/flights-to-carcassonne/
264
"Discover the Canal du Midi: by strolling along its banks on the outskirts of Carcassonne, by hiring a
bike and going for a ride between Carcassonne and Trèbes or Carcassonne and Castelnaudary, by
taking a guided boat trip, by taking the time to explore the region in a hired boat, by making a stopover
at Carcassonne marina." http://www.ryanair.com/en/flights-to-carcassonne/
265
"The Canal du Midi, built in the seventeenth in the reign of Louis XIV by the architect Pierre Paul
Riquet was considered as Heritage of Humanity by UNESCO in 1996. With a length of 240 km, it
stretches from Toulouse to l’Etang de Thau. You can discover it by renting a boat without a driver
EN 81 EN
and Toulouse city centre, there is a bus connecting CCF airport to the city of
Carcassonne
266
and there are direct trains from there to the city of Toulouse
267
. The
same situation prevailed at the time of the Commission's 2007 Decision.
(309) The evidence collected through the market investigation points rather to the fact that
the Commission's conclusion of 2007 is still appropriate for the current Transaction,
namely that scheduled point-to-point flights between Dublin on the one hand and
TLS airport or CCF airport, on the other, belong to the same market
268
. While the
operator of CCF airport claims that these two airports are not substitutable for each
other for scheduled point-to-point flights to/from Dublin
269
, the operator of TLS
airport takes the opposite view
270
. Furthermore, Air France, which according to
Ryanair has a base at TLS airport, also confirms
271
, as does the majority of the
respondents which issued an opinion, that the Commission's conclusion of 2007 is
still appropriate.
(310) Lastly, the market investigation has not revealed any other indication that there have
been significant changes in the market circumstances such as to warrant a different
conclusion to the one reached in the 2007 Decision as regards these airports for
flights to/from Dublin
272
.
(311) The Commission's empirical analysis (price correlation) also provides evidence that
air transport services between Dublin on the one hand and TLS airport and CCF
airport on the other, belong to the same market (see further Annex I).
(312) Therefore, the Commission takes the view that scheduled point-to-point passenger air
transport services between Dublin and TLS airport and Dublin and CCF airport
belong to the same market.
7.3.3.15. Venice Airport and Treviso Airport
(313) Ryanair operates a service from Dublin to Treviso Airport (TSF airport) while Aer
Lingus operates a service from Dublin to Venice Airport (VCE airport).
(314) Ryanair accepts that VCE airport and TSF airport form part of a single market for the
purposes of competition assessment
273
.
licence for a cruise of several days. Boat rides are also available from Carcassonne.
http://www.aeroport-carcassonne.com/en/page/canal-du-midi-tourism
266
According to the information available on the website of Carcassonne airport, the shuttle bus from the
airport to the train station takes 25 minutes and the shuttle schedule is connected to the flight schedule.
See http://www.aeroport-
carcassonne.com/sites/default/files/horaire navette aero du 07 11 au 24 03 2013.pdf
267
According to www.sncf.fr, there are regular trains to Toulouse from Carcassonne (approximately every
half and hour to an hour)
268
Recitals 171-177 of the 2007 Decision.
269
Veolia Transdev, email of 8 August 2012.
270
Toulouse Airport, response to question 31.9 of questionnaire Q4 - Airports.
271
Air France, response to question 11.9 of questionnaire Q1 - Competitors.
272
Responses to question 11.9.1 of questionnaire Q1 - Competitors, question 18.9.1 of questionnaire Q2 -
Travel Agents, question 31.9.1 of questionnaire Q4 - Airports and question 26.9.1 of questionnaire R1 –
Corporate Customers.
273
Annex 7.3.a to the Form CO.
EN 82 EN
(315) The Commission concluded in its 2007 Decision, that, for the purposes of that case,
scheduled point-to-point passenger air transport services between Dublin, on the one
hand, and VCE airport or TSF airport, on the other, belong to the same market
274
.
The Commission drew this conclusion by taking account of a number of elements
such as the market investigation and Rynanair's marketing practices.
(316) Table 18 summarises the following: (i) the distance between each of VCE airport and
TSF airport to Venice city centre (in km and time), (ii) the destination airport and
frequency of Ryanair and Aer Lingus flights on this route and (iii) the total travel
time from city centre to city centre.
Table 18: Venice Airport / Treviso Airport
Dublin – Venice and Treviso
Relevant airport(s)
Venice Marco Polo (VCE)
Venice Treviso (TSF)
Distance and travel
times to Venice city
centre
VCE – 12km
TSF – 31km
Car: VCE – 20 mins; TSF – 35 mins
Bus: VCE – 20 mins; TSF – 45 mins
Airlines active on
route (and airport
served)
Aer Lingus: 4 pw from VCE
Ryanair: 3 pw from TSF
Total Travel Time
City Centre to City
Centre
Dublin to Venice (via VCE) 300 mins
Dublin to Venice (via TSF) 315 mins
Source: Form CO, Annex 7.3.a
(317) On the basis of the 100 km or 1 hour drive time benchmark, VCE airport and TSF
airport appear prima facie to be substitutable from the demand side for point-to-point
scheduled passenger air transport services to/from Dublin.
(318) […]*
275
. As explained above, Aer Lingus monitors the prices of Ryanair on all short-
haul routes where Ryanair operates to the same or a nearby airport, including
Ryanair's fares on Dublin-TSF airport.
(319) Furthermore, Ryanair's marketing activities also indicate that Ryanair considers that
TSF airport would be appropriate for passengers destined for Venice. Indeed, in its
list of destinations on its website, under the destination "Venice Treviso", Ryanair
describes the city of Venice and its main attractions
276
. In addition, in its airport
information section, Ryanair includes explanations about the transport options for
274
Recitals 268-274 of the 2007 Decision.
275
Annex 7.7 to the Form CO.
276
http://www.ryanair.com/en/flights-to-venice-treviso/
EN 83 EN
travelling from TSF airport to Venice city and includes the link to the website on
which tickets can be purchased
277
.
(320) The evidence collected through the market investigation also indicates that the
Commission's conclusion in the 2007 Decision is still appropriate for the current
Transaction, namely that scheduled point-to-point flights between Dublin on the one
hand and VCE airport or TSF airport, on the other, belong to the same market
278
.
Indeed, the operator of VCE airport and of TSF airport
279
and Alitalia
280
confirm this
view. In addition, the majority of respondents to the market investigation also agree
with this view.
(321) Lastly, the market investigation has not revealed any indication that there have been
significant changes in the market circumstances such as to warrant a different
conclusion to the one reached in the 2007 Decision as regards these airports for
flights to/from Dublin
281
.
(322) The Commission's empirical analysis (price correlation) also provides evidence that
air transport services between Dublin on the one hand and VCE airport and TSF
airport on the other, belong to the same market (see further Annex I).
(323) Therefore, the Commission takes the view that scheduled point-to-point passenger air
transport services between Dublin and VCE airport and Dublin and TSF airport
belong to the same market.
7.3.3.16. Vienna Airport and Bratislava Airport
(324) Ryanair operates a service from Dublin to Bratislava Airport (BTS airport) while Aer
Lingus operates a service from Dublin to Vienna Airport (VIE airport).
(325) Ryanair contends in its response to the decision opening the proceedings that there is
no substitutability between VIE airport and BTS airport mainly for the following
reasons: (i) BTS airport is closer to the outer limit of the 100km/1 hour benchmark;
(ii) this benchmark is less instructive when two airports primarily serve different
major cities as is the case with VIE airport and BTS airport; (iii) BTS airport is not a
"secondary" Vienna airport but is rather a primary airport for Bratislava and Slovakia
in general; (iv) a large portion of Ryanair's BTS airport originating passengers in fact
come from locations east of BTS airport and not from Vienna; (v) other qualitative
elements like Ryanair's marketing practices, Aer Lingus' marketing practices or the
names of the airports; and (vi) Ryanair's credit card data.
277
"Treviso Airport is situated 3 Km outside of Treviso city centre and 40 Km from Venice. AACT city
operates a bus service into town. Buses depart from outside the terminal building. Timetables and other
information can be found on www.actt.it. Airport Bus Express operate a bus connection to Venice city
centre the ticket costs €7,00 one way, for a return ticket €13,00. You can buy the ticket on Ryanair
flights, in Airport by Airport Bus Express office or on the website www.airportbusexpress.it"
http://www.ryanair.com/en/flights-to-venice-treviso/
278
Recitals 268-274 of the 2007 Decision.
279
SAVE S.p.A, response to question 31.12 of questionnaire Q4 – Airports.
280
Alitalia, response to question 11.12 of questionnaire Q1 - Competitors.
281
Responses to question 11.11.1 of questionnaire Q1 - Competitors, question 18.11.1 of questionnaire Q2
- Travel Agents and question 31.11.1 of questionnaire Q4 - Airports and question 26.11.1 of
questionnaire R1 – Corporate Customers.
EN 84 EN
(326) The Commission concluded in its 2007 Decision that, for the purposes of that case,
scheduled point-to-point passenger air transport services between Dublin, on the one
hand, and VIE airport or BTS airport, on the other, belong to the same market
282
. The
Commission drew this conclusion by taking account of a number of elements such as
Ryanair's marketing practices, the market investigation and the customer survey.
(327) In its Decision in case M.5440 Lufthansa/Austrian
283
, the Commission found that
Ryanair's services between HHN airport and BTS airport did not constrain services
between FRA airport and VIE airport to any meaningful degree given that the total
travel time would have been much longer than a trip involving VIE airport and FRA
airport, that the respondents to the market investigation in that case did not consider
both BTS airport as a substitute for VIE airport and HHN airport as a substitute for
FRA airport and lastly because of lack of data to prove the contrary. As is evident, in
that case, the Commission assessed the question of airport substitutability at both
ends of the route, that is to say both at the Vienna end where it assessed the
substitutability of VIE airport with BTS airport and at the Frankfurt end where it
assessed the substitutability of FRA airport with HHN airport. The Commission
concluded that for that specific route, the parties' contention that BTS airport would
be substitutable for VIE airport had not been confirmed by the market
investigation
284
. However, while in that Decision the question of airport
substitutability was relevant for both ends of the route, this issue is not relevant to the
current Transaction. Furthermore, that Decision concerned two airlines with a
different profile and targeting different type of customers than is the case in the
Transaction. In its Decision in case M.6447 IAG/bmi, the Commission ultimately left
open the question of the substitutability between VIE airport and BTS airport for
flights to/from London
285
.
(328) Table 19 summarises the following: (i) the distance from VIE airport and BTS
airport to Vienna city centre (in km and time), (ii) the destination airport and
frequency of Ryanair and Aer Lingus flights on this route and (iii) the total travel
time from city centre to city centre.
282
Recitals 218- 225 of the 2007 Decision.
283
Recital 155.
284
Recital 110.
285
Recital 67.
EN 85 EN
Table 19: Vienna Airport / Bratislava Airport
Dublin - Vienna and Bratislava
Relevant airport(s)
Vienna (VIE)
Bratislava (BTS)
Distance and travel
times to Vienna
city centre
VIE – 16km
BTS – 87km
Car: VIE - 21 mins; BTS – 55 mins
Bus: VIE – 20 mins; BTS – 100 mins
Train: VIE – 24 mins; BTS – none.
Airlines active on
route (and airport
served)
Aer Lingus: 7 pw from VIE
Ryanair: 6 pw from BTS
Total Travel Time
Dublin City Centre
to Vienna City
Centre
Dublin to Vienna (via VIE) 309 mins
Dublin to Vienna (via BTS) 380 mins
Source: Form CO, Annex 7.3.a
(329) On the basis of the 100km/1 hour benchmark, VIE airport and BTS airport appear
prima facie to be substitutable from the demand side for point-to-point scheduled
passenger air transport services to/from Dublin in terms of distance and if the travel
duration by car is considered. If transportation by bus is considered, the duration would
be outside the Commission's benchmark.
(330) The fact that BTS airport is closer to benchmark and that the benchmark is less
instructive when two airports primarily serve different major cities, as argued by
Ryanair, does not per se indicate the absence of substitutability of the two airports
for the purpose of the Transaction. In the same manner, the fact that BTS airport is
not a "secondary" airport to VIE airport but a primary airport for Bratislava and
Slovakia and the fact that the names of the airports do not have a reference to the
cities
286
, in general cannot preclude a finding that VIE airport and BTS airport could
be substitutable for scheduled point-to-point flights from Dublin as explained in
Section 7.3.2.2. The Commission needs to take account of all elements which are
relevant for determining whether scheduled point-to-point flights between Dublin
and VIE airport are substitutable for flights between Dublin and BTS airport.
(331) […]*
287
. Aer Lingus monitors the prices of Ryanair on all short-haul routes where
Ryanair operates to the same or a nearby airport, including Ryanair's fares on
Dublin-BTS airport.
286
That is to say for example that Bratislava airport does not have a reference to the city of Vienna in its
name.
287
Ryanair's response to Commission request of September 20, 2012 and Annex 7.7 to the Form CO.
EN 86 EN
(332) Ryanair's marketing activities regarding its services to BTS airport are focussed on
Bratislava rather than on Vienna. In its list of destinations on its website, under the
destination "Bratislava", Ryanair describes the city of Bratislava and its main
attractions
288
and in its airport information section, it describes the means to travel to
Bratislava city centre. Furthermore, Ryanair groups its destinations by countries so
that Bratislava appears under destinations in Slovakia
289
. However, there are other
elements in Ryanair's marketing practices which seem to point to the fact that
Ryanair continues to consider that BTS airport would also be appropriate for
passengers destined for Vienna. While Ryanair no longer markets its services to
Bratislava as "Bratislava (Vienna)" on its website,
290
it still lists under the "Top
things to do" in its destination city "Bratislava", the top attractions in Vienna (and not
so much Bratislava)
291
. Furthermore, Ryanair also markets transportation services
between BTS airport and Vienna by including the link to its shuttle direct transfer
bus through which transfer tickets from BTS airport to Vienna city centre can be
purchased online
292
.
(333) The evidence collected through the market investigation indicates that the
Commission's conclusion in the 2007 Decision is still appropriate for the current
Transaction, namely that scheduled point-to-point flights between Dublin on the one
hand and VIE airport or BTS airport, on the other, belong to the same market
293
. The
operators of VIE airport
294
, BTS airport
295
, Austrian Airlines
296
and the majority of
respondents confirm this view. Furthermore, BTS airport also seems to be marketing
itself as an advantageous alternative and a smart and flexible option to the more
expensive VIE airport
297
.
288
http://www.ryanair.com/en/flights-to-bratislava/
289
Some respondents during the market investigation pointed out that the two airports serve two different
countries.
290
Recital 221 of the 2007 Decision describes that at that time, Ryanair marketed its services to Bratislava
airport as services to "Bratislava(Vienna)". Therefore, a change in its marketing behaviour could
indicate that it wants to create further demand for Bratislava and its region. This does, however, not
mean that Ryanair could not at the same time also target passengers destined for Vienna.
291
Ryanair only dedicates one entry to top things to do in Bratislava out of a total of five entries (the other
four being the direct shuttle to Vienna, the Stephansdom, the Prater and the Schönbrunn Palace).
292
"Shuttle Direct: Vienna is a lot more than just sacher torte... To get straight into the heart of Vienna,
catch the Shuttle Direct transfer from Bratislava Airport to Vienna City Centre. Book your Shuttle
Direct transfer on-line now!" http://www ryanair.com/en/flights-to-bratislava/
293
Recitals 218- 225 of the 2007 Decision.
294
Flughafen Wien AG, response to question 31.11 of questionnaire Q4 - Airports.
295
Letisko M.R. Stefanika - Airport Bratislava a.s (BTS), response to question 31.11 of questionnaire Q4 -
Airports.
296
Austrian Airlines, response to question 11.11 of questionnaire Q1 - Competitors.
297
See for example http://www.airportbratislava.sk/de/uber-uns/news/news/190-destinations-from-
bratislava/ : "Airport Bratislava started to profile as smart and flexible option to Vienna airport, which
is placing burden on carriers addressing price sensitive passengers through ecological taxes, non-
transparent charges policy and night flight restrictions. Increased numbers of business passengers were
provided with possibility to buy entry into VIP lounge, without the necessity of owning loyalty cards or
programs", http://www.airportbratislava.sk/en/newsletter/daily-menu-moscow/ "Become one of those
who prefer advantageous flight from Bratislava rather than more expensive alternative from Vienna!",
http://www.airportbratislava.sk/de/uber-uns/news/news/190-destinations-from-bratislava/: "“We have
connected Bratislava with the World“, says Tomas Kika, Chief Commercial Officer of Airport
Bratislava and adds: „In less than one year after introducing new commercial strategy we succeeded to
connect Airport Bratislava with major transport hubs such as Oslo, Copenhagen and Moscow. It is not
EN 87 EN
(334) Lastly, the market investigation has not provided any indication that there have been
significant changes in the market circumstances such as to warrant a different
conclusion to the one reached in the 2007 Decision as regards these airports for
flights to/from Dublin
298
.
(335) The Commission's empirical analysis (price correlation) also provides evidence that
air transport services between Dublin on the one hand and VIE airport and BTS
airport on the other, belong to the same market (see further Annex I).
(336) As regards Ryanair's Map-Based analysis, it relies on several strong and arbitrary
assumptions and the Commission does not consider that the results of this analysis
provide any evidence that the relevant airports belong to different markets as
explained in detail in Annex II.
(337) In light of all the above, the Commission takes the view that scheduled point-to-point
passenger air transport services between Dublin and VIE airport and Dublin and BTS
airport belong to the same market.
7.3.3.17. Warsaw Chopin Airport and Warsaw – Modlin Mazovia Airport
(338) Ryanair operates a service from Dublin to Warsaw – Modlin Mazovia Airport (WMI
airport) while Aer Lingus operates a service from Dublin to Warsaw Chopin Airport
(WAW airport).
(339) Ryanair accepts that WAW airport and WMI airport form part of a single market for
the purpose of the competitive assessment in the present case
299
.
(340) Table 20 summarises the following: (i) the distance from WAW airport and WMI
airport to Warsaw city centre (in km and time), (ii) the destination airport and
frequency of Ryanair and Aer Lingus flights on this route and (iii) the total travel
time from city centre to city centre.
about these three new routes which carriers moved from Vienna to Bratislava or which directly
compete to Vienna but most of the nearly two hundred other comfortable options for the travellers".
298
Responses to question 11.12.1 of questionnaire Q1 - Competitors, question 18.12.1 of questionnaire Q2
- Travel Agents and question 31.12.1 of questionnaire Q1 - Competitors and question 26.12.1 of
questionnaire R1 – Corporate Customers.
299
Annex 7.3 (a) of the Form CO.
EN 88 EN
Table 20: Warsaw Chopin Airport / Warsaw – Modlin Mazovia Airport
Dublin – Warsaw and Modlin
Relevant airport(s)
Warsaw Chopin Airport (WAW airport)
Warsaw – Modlin Mazovia Airport (WMI airport)
Distance and travel
times to Warsaw city
centre
WAW airport – 8 km
WMI airport - 42 km
Car
WAW airport 15 mins
WMI airport 56 mins
Bus
WAW airport 20 mins
WMI airport 50 mins
Train
WAW airport 25 mins
WMI airport none
Airlines active on route
(and airport served)
Aer Lingus: 7 pw from WAW airport
Ryanair plans to commence 5 pw from WMI airport
Total Travel Time City
Centre to City Centre
Dublin to Warsaw (via WAW airport) 320 mins
Dublin to Warsaw (via WMI airport) 350 mins
Source: Form CO, Annex 7.3.a
(341) On the basis of the 100 km or 1 hour drive time benchmark, WAW airport and WMI
airport appear prima facie to be substitutable from the demand side for point-to-point
scheduled passenger air transport services to/from Dublin.
(342) […]*
300
. As explained above, Aer Lingus monitors the prices of Ryanair on all short-
haul routes where Ryanair operates to the same or a nearby airport, including
Ryanair's fares on Dublin-WMI airport.
(343) Ryanair's marketing activities also indicate that Ryanair considers that WMI airport
would be appropriate for passengers destined for Warsaw. Indeed, in its list of
destinations on its website, under the destination "Warsaw Modlin", Ryanair
describes the city of Warsaw and its main attractions
301
. In addition, under the
airport information section, Ryanair includes explanations about the various transport
options for travel from WMI airport to Modlin and to Warsaw city
302
.
300
Annex 7.7 to the Form CO.
301
http://www.ryanair.com/en/flights-to-warsaw-modlin/ .
302
"Ground transport to/from Warsaw Modlin: Koleje Mazowieckie Railways will provide direct train
services from Warsaw to Modlin (& vice versa). Train journey from Warsaw Central station to Modlin
station takes 44 minutes. Ticket price PLN12.50 (€3.00/£2.40) one way. Please click here to view the
train timetable: A shuttle bus will operate (every 20 minutes) from Modlin train station to Modlin
Airport (& vice versa). Ticket price PLN3.30 one way (80cents/70p), journey time 10 minutes. Tickets
EN 89 EN
(344) The evidence collected through the market investigation indicates that these two
airports would be substitutable. Indeed, the airport operators of WAW airport
303
and
of WMI airport
304
consider that these two airports are substitutable. The Polish
operator LOT
305
and Wizz Air
306
who have a base at WMI airport also responded
that flights between Dublin and WAW airport and flights between Dublin and WMI
airport are substitutable, in line with the majority of respondents which issued an
opinion in the Commission's market investigation.
(345) The Commission cannot draw any meaningful conclusions from its empirical
analysis (price correlation) as regards air transport services between Dublin on the
one hand and WAW airport or WMI airport on the other due to the small number of
observations (see further Annex I).
(346) In light of all the above, the Commission takes the view that scheduled point-to-point
passenger air transport services between Dublin and WAW airport and Dublin and
WMI airport belong to the same market.
7.3.3.18. Other airports for which airport substitutability is relevant for entry or competition
from other carriers
(347) The question of airport substitutability is further relevant for a number of airport
pairs for the purpose of assessing any entry plans by competitors at the other airport
or for ascertaining whether flights operated by other carriers would be part of the
same market as flights operated by the Parties. These airport pairs are Alicante and
Murcia (for flights to/from Dublin and Cork), Edinburgh and Glasgow (for flights
to/from Dublin), Tenerife North and Tenerife South (for flights from Dublin and
Cork) and Bristol/Cardiff and Exeter (for flights from Dublin).
(348) There are no indications that carriers, whether full service, low cost or charter
carriers, are making plans which post-Transaction would lead to timely, likely and
sufficient entry or expansion on routes between Ireland and the airports listed in sub-
Sections (a) to (c) below. Furthermore, competition from Dublin-Exeter seems to be
limited. Therefore, as the question of airport substitutability can be left open as
regards these airport pairs, the Commission has not conducted an in-depth
assessment.
a) Alicante and Murcia
(349) For the routes to/from Dublin Airport or Cork Airport to Alicante Airport (ALC
airport) or Murcia San Javier Airport (MJV airport), Ryanair and Aer Lingus both fly
to ALC airport (and in addition Ryanair flies to MJC airport from Dublin).
(350) Ryanair contends in its response to the decision opening the proceedings that there is
no substitutability between ALC airport and MJV airport because of the following:
can be purchased at the train station and on board the shuttle bus" http://www ryanair.com/en/flights-
to-warsaw-modlin/
303
Polish Airports State Enterprise (PPL), response to question 34.4 of questionnaire Q4 - Airports.
304
Mazovia Modlin Warsaw Airport Ltd, response to question 34.4 of questionnaire Q4 - Airports.
305
LOT, response to question 14.4 of questionnaire Q1 - Competitors.
306
Wizz Air, response to question 14.4 of questionnaire Q1 - Competitors.
EN 90 EN
(1) MJV airport falls at the outer margin of the Commission's 100km /1 hour
benchmark, (2) this benchmark is less instructive when two airports primarily serve
different major cities or regions as is the case with ALC airport and MJV airport,
ALC airport is the natural gateway to major beach resorts located in the north of
Alicante, (3) MJV airport is not a "secondary" airport for Alicante, but the natural
gateway to a number of popular tourist destinations, (4) the Commission's
benchmark is less instructive in light of the leisure nature of routes to ALC airport
and MJV airport and (5) other qualitative factors like Ryanair's marketing practices,
Aer Lingus' marketing practices or the names of the airports.
(351) Table 21 summarises the following: (i) the distance from ALC airport and MJV
airport to Alicante city centre (in km and time), (ii) the destination airport and
frequency of Ryanair and Aer Lingus flights on the route from Dublin and Cork and
(iii) the total travel time from city centre to city centre.
Table 21: Alicante Airport / Murcia San Javier Airport
Dublin / Cork -Alicante and Murcia
Relevant airport(s)
Alicante (ALC)
Murcia San Javier (MJV)
Distance and travel
times to Alicante city
centre
ALC – 9 km:
MJV – 71 km
Car: ALC –19 mins; MJV – 52 mins
Bus: ALC – 40 mins; MJV – None direct to Alicante.
Train: None
Airlines active on route
from Dublin (and
airport served)
Aer Lingus: 5 pw (from ALC)
Ryanair: 7 pw from ALC (and 7 pw from MJV)
Total Travel Time City
Centre to City Centre
(Dublin to Alicante)
Aer Lingus (from ALC) 345 mins
Ryanair: (from ALC) 345 mins
Ryanair (from MJV) 362 mins
Airlines active on route
from Cork (and airport
served)
Ryanair: 3 pw (from ALC)
Aer Lingus: 2 pw (from ALC)
Total Travel Time City
Centre to City Centre
Ryanair (from ALC): 307 mins
Aer Lingus (from ALC): 307 mins
Source: Form CO, Annex 7.3.a
(352) On the basis of the 100 km / 1 hour benchmark, ALC airport and MJV airport appear
prima facie to be substitutable from the demand side for point-to-point scheduled
passenger air transport services to/from Dublin or Cork.
(353) The majority of respondents to the Commission's market investigation confirmed the
conclusion reached in the 2007 Decision
307
that flights between ALC airport and
307
Recitals 234-241 of the 2007 Decision.
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Dublin are substitutable for flights between MJV airport and Dublin. As none of the
Parties or other third parties operates flights between Cork and MJV airport and no
sufficient, likely and timely entry has been identified, it is not relevant to address the
issue of airport substitutability between ALC and MJV airport for flights out of Cork.
(354) Therefore, the Commission takes the view that the question whether scheduled point-
to-point passenger air transport services between Dublin or Cork and ALC airport or
MJV airport belong to the same market can be left open as it does not have any
consequences on the competitive assessment in this Transaction.
b) Edinburgh/Glasgow
(355) For the routes to/from Dublin Airport to Edinburgh Airport (EDI airport) or Glasgow
Airport (GLA airport), Ryanair and Aer Lingus both fly to EDI airport (and in
addition Aer Lingus flies to GLA airport from Dublin).
(356) Ryanair contends in its response to the decision opening the proceedings that there is
no substitutability between EDI airport and GLA airport, because: (i) GLA airport is
on the outer margin of the Commission's 100km/1 hour benchmark, (ii) the
Commission's benchmark is less instructive (particularly in a relatively small country
such as Scotland) in a situation when two airports are neighbouring and they
primarily serve different major cities, (iii) GLA airport is not a secondary Edinburgh
airport but rather the primary airport for Glasgow, (iv) the lack means of
transportation from GLA airport to Edinburgh, (v) other qualitative elements like
Ryanair's marketing practices, Aer Lingus' marketing services or the name of the
airport.
(357) Table 22 summarises the following: (i) the distance from EDI airport and GLA
airport to Edinburgh city centre (in km and time), (ii) the destination airport and
frequency of Ryanair and Aer Lingus flights on this route and (iii) the total travel
time from city centre to city centre.
Table 22: Edinburgh Airport /Glasgow Airport
Dublin – Edinburgh and Glasgow
Relevant airport(s)
Edinburgh (EDI
Glasgow International (GLA)
Distance and travel
times to Edinburgh
city centre
EDI – 11 km
GLA – 89 km
Car: EDI- 15 mins; GLA – 90 mins
Bus: EDI – 25 mins; GLA – no direct bus.
Train: None
Airlines active on
route (and airport
served)
Aer Lingus: 26 pw from EDI, operated by Aer Lingus
and Aer Arann and 27 pw from GLA operated by Aer
Arann.
Ryanair: 18 pw from EDI
Total Travel Time
City Centre to City
Centre
Aer Lingus (via EDI): 210 mins
Ryanair (via EDI): 205 mins
Aer Lingus (via GLA): 268 mins
Source: Form CO, Annex 7.3.a, www.viamichelin.com and www.glasgowairport.com
(358) On the basis of the 100 km / 1 hour benchmark, EDI airport and GLA airport do not
appear prima facie to be substitutable from the demand side for point-to-point
EN 92 EN
scheduled passenger air transport services to/from Dublin, if looking at the travel
time.
(359) About half of the respondents to the market investigation which issued an opinion
considered that these airports are substitutable while a significant number also
considered that these airports are not substitutable. On the other hand, BAA Airports
Limited, the operator of GLA airport and the operator of EDI airport responded that
these two airports would be substitutable
308
.
(360) Therefore, the Commission takes the view that the question of whether scheduled
point-to-point passenger air transport services between Dublin and EDI airport or
GLA airport belong to the same market can be left open as it does not have any
consequences for the competitive assessment in this Transaction.
c) Tenerife South / North
(361) As none of the Parties or third parties operate flights between Dublin and Tenerife
North airport and no sufficient, likely and timely entry has been identified on this
route from Tenerife North, it is not relevant to address the issue of airport
substitutability between Tenerife South and Tenerife North airport for flights out of
Dublin or Cork in this Transaction
309
.
d) Bristol/Cardiff/Exeter
(362) Ryanair and Aer Lingus/Aer Arann
310
both operate from Dublin to Bristol airport
(BRS airport). In addition, Aer Lingus/Aer Arann operates from Dublin to Cardiff
airport (CWL airport) and Flybe operates from Dublin to Exeter airport (EXT
airport).
(363) Ryanair contends in its response to the decision opening the proceedings that there is
no substitutability between BRS airport, CWL airport and EXT airport because of the
following: (i) the Commission's benchmark of 100km/1 hour is less instructive when
two airports primarily serve different major cities as is the case with BRS airport,
CWL airport and EXT airport, (ii) the closest largest city to CWL airport is Cardiff
itself, (iii) CWL airport is not a "secondary" BRS airport but rather the primary
airport for Cardiff, (iv) EXT airport falls outside the 100km/1hour benchmark, (v)
CWL airport is not a "secondary" Bristol airport but rather the primary airport for
Exeter, (vi) other qualitative elements like Ryanair's marketing practices, Aer
Arann's marketing practices or the name of the airports.
(364)
308
See response of BAA and Edinburgh Airport to question 33.3.2 of questionnaire Q4 - Airports.
309
Recitals 248-253 of the 2007 Decision.
310
As explained in Section 8.3, Aer Arann’s operations under the "Aer Lingus Regional" brand have to be
attributed to Aer Lingus.
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Table 23 summarises the following: (i) the distance from of BRS Airport, CWL
Airport and EXT airport to Bristol city centre (in km and time), (ii) the destination
airport and frequency of Ryanair, Aer Lingus and their competitors flights on this
route and (iii) the total travel time from city centre to city centre.
EN 94 EN
Table 23: Bristol Airport /Cardiff Airport / Exeter Airport
Dublin – Bristol and Cardiff and Exeter
Relevant
airport(s)
Bristol Airport (BRS)
Cardiff Airport (CWL)
Exeter Airport(EXT)
Distance and
travel times to
Bristol city centre
BRS – 13km
CWL – 95km
EXT – 124 km
Car: BRS - 15 mins; CWL – 56 mins; EXT – 95 mins
Bus: BRS - 30 mins; CWL – none, EXT - none
Train: No rail link at BRS
Airlines active on
route (and airport
served)
Aer Lingus: 14 pw from BRS, operated by Aer Arann
(and 13 pw from CWL, operated by Aer Arann)
Ryanair: 19 pw from BRS
Flybe: 14 pw from EXT
Total Travel Time
City Centre to
City Centre
(Dublin to Bristol)
Aer Lingus: BRS 235 mins;
Aer Lingus CWL 251 mins
Ryanair: BRS 210 mins
Source: Form CO, Annex 7.3.a, market investigation and www.viamichelin.com
(365) On the basis of the 100 km / 1 hour drive time benchmark, BRS airport and CWL
airport appear prima facie to be substitutable from the demand side for point-to-point
scheduled passenger air transport services to/from Dublin. On the contrary, prima
facie flights between BRS airport and EXT airport do not appear to be substitutable
for point-to-point scheduled passenger air transport services to/from Dublin.
(366) As regards the substitutability between BRS airport and CWL airport and between BRS
airport and EXT airport, the respondents to the Commission's market investigation
have diverging views. However the majority considered that for the purposes of this
Transaction, BRS airport and CWL airport and BTS airport and EXT airport are
substitutable for flights out of Dublin.
(367) Therefore, the Commission takes the view that the question whether scheduled point-to-
point passenger air transport services between Dublin and BRS airport or CWL airport
and between Dublin and BRS airport or EXT airport belong to the same market can
be left open as it does not have any consequences for the competitive assessment in
this Transaction.
7.3.4. Supply- side considerations of airport substitution
(368) From the supply-side, that is to say from the airlines' point of view, the
substitutability of airports depends on the needs of the airlines' passengers, on their
operating model and the services they wish to provide from the airport.
(369) From the network airlines' point of view secondary airports are in principle not viable
substitutes for primary airports due to the needs of their passengers and their
EN 95 EN
operating model. Conversely, point-to-point, low-cost airlines may regard secondary
airports and primary airports as providing substitutable services, subject to the costs
of the services provided to carriers (which would be higher in primary airports)
311
.
The Commission's market investigation also confirmed these findings
312
.
(370) In any event, in line with the Commission's Notice on market definition
313
, the
Commission will focus its analysis on demand-side substitutability.
7.3.5. Conclusion
(371) Therefore, the Commission concludes that the airports listed in Table 24 are
substitutable for a substantial proportion of Aer Lingus' and Ryanair's passengers
who travel from/to these airports to/from Dublin, Cork, Shannon or Knock as
relevant.
Table 24: Summary: airports substitutable
Barcelona El Prat,
Girona and Reus
London Airports (Heathrow,
Gatwick, Stansted, Luton
and City)
Stockholm Arlanda
and Skavsta
Bilbao and Santander
Manchester and Liverpool
(for Cork and Shannon)
Toulouse and
Carcassonne
Birmingham and East
Midlands (for Knock)
Milan Linate, Malpensa and
Bergamo
Venice and Treviso
Brussels and Charleroi
Munich and Memmingen
Vienna and
Bratislava
Glasgow and
Prestwick
Paris CDG, Beauvais and
Orly
Warsaw and Modlin
Frankfurt and Hahn
Rome Fiumicino and
Ciampino
(372) The Commission takes the view that the question whether scheduled point-to-point
passenger air transport services between Dublin or Cork (as relevant) and the
following airport pairs belong to the same market, can be left open as it does not
have any consequences for the competitive assessment of the Transaction:
311
See e.g. Case COMP/M.3280 – Air France/KLM recitals 26; Case COMP/M.2041 - United/US Airways
recital 12.
312
See responses to question 5 of questionnaire R4 - Competitors.
313
Commission Notice on the definition of the relevant market, point 13, OJ C 372, 09.12.1997, p. 5.
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Table 25: Summary: airport substitutability left open
London Southend and the
London Airports
Birmingham and East
Midlands (for Dublin)
Alicante and
Murcia
Edinburgh and Glasgow
Bristol and Cardiff
Bristol and Exeter
Tenerife
North/South
Manchester, Liverpool,
Leeds Bradford (for
Dublin)
7.4. Markets for direct flights and indirect flights
(373) On a given O&D pair, passengers can travel either by way of a direct flight between
the point of origin and the point of destination (for example Dublin-Budapest) or by
way of an "indirect" flight on the same O&D pair but via an intermediate destination
(for example Dublin-London-Budapest).
(374) The level of substitutability of indirect flights for direct flights largely depends on the
duration of the flight. As a general rule, the longer the flight, the higher the
likelihood that indirect flights exert a competitive constraint on direct flights
314
.
(375) When defining the relevant O&D markets for air transport services, the Commission
has considered in previous decisions
315
that with respect to short-haul routes
(generally below 6 hours flight duration) indirect/one-stop flights do not generally
provide a competitive constraint to direct/non-stop flights absent exceptional
circumstances (for example the share of indirect flights in the overall market is
significant)
316
.
(376) In the 2007 Decision, the Commission concluded that, for the assessment of that
transaction, indirect flights should not be considered as part of the relevant market
317
.
(377) Ryanair submits that, in principle, indirect flights may also constrain direct services
on flights of a duration of less than three hours
318
. According to Ryanair, for the
314
Case COMP/M.6447 – IAG/bmi recital 68; Case COMP/M.5440 – Lufthansa/Austrian Airlines, recital
24 and following; Case COMP/M.5335 – Lufthansa/SN Airholding, recital 36 and following.
315
Case COMP/M.5440 – Lufthansa/Austrian Airlines, recital 25 and following; Case COMP/M.5403 –
Lufthansa/bmi, recital 17; Case COMP/M.5335 – Lufthansa/SN Airholding, recital 37 and following;
Case COMP/M.3770 – Lufthansa/Swiss, recital 16 and following.
316
The Commission has sometimes distinguished mid-haul routes, which are routes of more than three
hours where direct flights normally do not provide the option of one-day return trips, so that indirect
flights may be able to compete with direct flights: Case COMP/M.5440 – Lufthansa/Austrian Airlines,
recital 26; Case COMP/M.5335 – Lufthansa/SN Airholding, recital 37 and following; Case
COMP/M.3770 – Lufthansa/Swiss, recital 16 and following; Case COMP/M.2672 – SAS/Spanair,
recital 12 and following. However, this is less relevant in this case, given the routes at issue in this case.
317
Recitals 288-291 of the 2007 Decision.
318
Paragraph 6.4 of the Form CO .
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overlap routes to and from Ireland, potentially relevant indirect flights would largely
be flights via the hubs of Air France/KLM/Alitalia, British Airways/Iberia/bmi or
Lufthansa/Austrian/Swiss
319
.
(378) Ryanair argues that the following routes would be constrained by indirect flights:
Dublin-Budapest, Dublin-Fuerteventura, Dublin-Gran Canaria, Dublin-Lanzarote,
Dublin-Malaga, Dublin-Palma, Dublin-Rome, Dublin-Tenerife and Dublin-
Warsaw/Modlin, Cork-Lanzarote and Cork-Tenerife
320
. Ryanair further claims that
this list identifies only services offered by the same airline on each leg and if alliance
partner or codeshare services were included, the list of available indirect services
would increase significantly
321
. Ryanair did not however identify the list of routes on
which indirect flights would exist and constrain the merged entity post-Transaction.
(379) Aer Lingus contends that all overlap routes are short-haul or medium-haul routes and
are well-served by direct flights and that there are essentially no circumstances under
which an indirect service would be a substitute for a direct service on these routes.
Furthermore, Aer Lingus argues that a direct flight is superior to an indirect flight
from the customer’s perspective on a number of dimensions: not only on travel time
(in Aer Lingus' view, indirect routes involve a significant increase to travel time) but
also convenience and vulnerability to disruption. The magnitude of these differences
is such that there are no practical circumstances under which an indirect flight would
be viewed as a substitute for a direct flight by a customer. Lastly, Aer Lingus also
stated that it does not monitor the prices of indirect flights on the overlap routes, it
never monitors the fares of indirect routings using QL2 and it never inputs such fares
into Sabre Inflight for use in yield management. Generally speaking, Aer Lingus
believes that indirect flights on the overlap routes would be significantly more
expensive than the direct services offered from Dublin
322
.
(380) Other carriers which responded to the Commission's market investigation have
different views on the question of whether for the purposes of the Transaction
indirect flights would be substitutable for direct flights on the overlap routes. While
on the one hand most carriers consider that for their passengers indirect flights are
substitute services for direct flights when the extension of the total flights duration is
limited and the total travel time is still comparable with the non-stop service, others
consider that indirect flights would be substitute services under other circumstances
for example depending on the fare level or the frequency and scheduling
323
.
(381) The Commission considers that, because the overlap routes in the present
Transaction are short-haul or medium-haul flights, indirect flights are unlikely to
exercise a competitive constraint on direct flights
324
. However, the question of
whether indirect flights would belong to the same market can be left open, as it
319
In paragraph 6.4 of the Form CO, Ryanair argues that the question of substitutability can be left open in
the light of the remedies Ryanair is prepared to offer.
320
Ryanair response of 19 September 2012.
321
Ryanair response of 26 September 2012.
322
Aer Lingus, response to question 1.2 of questionnaire R4 - Competitors.
323
Responses to questions 1.2 and 1.3 of questionnaire R4 - Competitors.
324
See Section 8.9.3 for a detailed analysis.
EN 98 EN
would not ultimately change the outcome of the competitive assessment in this
Transaction. This is a very cautious and conservative approach.
7.5. Distinction between groups of passengers
(382) The Commission has in its decisional practice (mostly concerning network carriers)
considered distinguishing, for a given O&D route, between: a relevant market for
time sensitive (TS) passengers who tend to travel for business purposes, require
significant flexibility for their tickets and are willing to pay higher prices for this
flexibility and a relevant market for non-time sensitive (NTS) passengers who travel
predominantly for leisure purposes, do not require flexibility with their booking and
are more price-sensitive than the first category. Moreover, they tend to buy their
tickets longer before the flight date than TS passengers. The Commission considered
that NTS passengers typically tend to purchase restricted tickets while TS tend to
purchase unrestricted tickets. If this approach was followed, it would mean that on a
given O&D pair, competition conditions may be different on the TS segment and on
the NTS segment, which should be assessed separately.
(383) However, in the 2007 Decision
325
, while acknowledging the existence of different
passenger categories and although an overall majority of Ryanair and Aer Lingus’
customers on the overlap routes were rather non-time-sensitive and were flying for
private purposes, the Commission found that it was not appropriate to define separate
markets for different categories of passengers, whether according to the distinction
between TS and NTS passengers or other distinctions such as the distinction between
business and leisure passengers, or the “time between booking and departure”
approach. The Commission's conclusion was based in particular on the finding that
both airlines did not discriminate between different types of passengers by offering
unrestricted alongside restricted tickets and offered one-way tickets only.
326
.
(384) Ryanair submits that this approach remains applicable for the assessment of the
Transaction. Ryanair, which offers only one class of non-refundable tickets (that is to
say only restricted tickets) does not think that market circumstances have changed in
a way to warrant an analysis different from that undertaken in the 2007 Decision
327
.
(385) As mentioned above, since 2009, Aer Lingus has emphasised its positioning as a
value carrier between the low cost and full service carriers, with a strong core
product and offering additional paid options. As such, Aer Lingus targets leisure
NTS and business TS passengers. In 2011, Aer Lingus introduced "flexi" tickets on
short-haul routes
328
. Aer Lingus argues that they do not believe that for purposes of
the present case it is appropriate to segment point-to-point scheduled passengers into
different categories. Aer Lingus also claims that, whilst various European
Commission Decisions have previously concluded that it may be appropriate to
distinguish between different types of passengers, this is not appropriate in relation to
325
Recitals 330-331 of the 2007 Decision and Annex I, answers to question 5 of the Customer Survey.
326
The Commission explored whether airlines price discriminate on the basis of time lapsed between
booking and departure. It considered whether a distinct group of passengers can be defined who booked
their flights seven days or less before departure (see recitals 324-327 of the 2007 Decision).
327
Paragraph 6.3 of the Form CO.
328
Aer Lingus, response to question 9.1 of questionnaire Q1 - Competitors.
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the market for travel ex-Ireland as it remains the case that the vast majority of Aer
Lingus’ short-haul fares are one-way restricted tickets. Aer Lingus' flexible fares
represent a small portion of their overall sales and they do not capture all TS or
business passengers
329
.
(386) Overall, a large majority of respondents to the market investigation in the present
case support the Commission's approach in the 2007 Decision, considering that no
significant changes in the market conditions have taken place since 2007 which
would warrant a different conclusion as regards passenger differentiation in the
Transaction
330
. They generally confirm that there is no need to define separate
markets for the different categories of passengers for the purpose of analysing the
Transaction.
(387) Therefore the Commission concludes that, for the purposes of the Transaction, it is not
appropriate to define separate markets for different categories of passengers, whether
according to the distinction between TS and NTS passengers, the distinction between
business and leisure passenger or other approaches such as the "time between
booking and departure" approach.
7.6. Substitutability between charter and scheduled services
7.6.1. General issues regarding charter services
(388) Charter flights, as opposed to scheduled flights, are usually defined as air transport
services that take place outside normal schedules, normally through a hiring
arrangement with a particular customer (in particular a tour operator). Charter
companies often fly to destinations where no scheduled airline is active and usually
operate on a seasonal basis with a relatively low frequency of flights, in response to
the requirements of tour operators (for example, once a week on Saturday, only
during the summer or only during the ski season).
(389) Indeed, charter companies did not traditionally sell tickets directly to passengers.
They sold seats on their aircraft to tour operators which included the flight in a
holiday package. As such, the flight (air transport) is part of a package holiday, the
price of which includes flights, accommodation and other services. However, charter
329
Aer Lingus's response to request for information of 20 July 2012. The Aer Lingus 2011 annual report
also mentions that "The Irish market continues to be dominated by non-business, leisure travel
(including travel to visit friends and relatives) and as a result, is particularly exposed to adverse trends
in personal expenditure levels … The group operates in an extremely competitive market. The core Irish
market is very price sensitive, with a substantial majority of passengers travelling for leisure or family
reasons." (pages 7 and 19).
330
One respondent highlighted that different routes would attract different customer types. Also, travelling
habits of customers have significantly changed in the recent past. Over the last couple of years, there
has been an increased number of travellers that do not book flights in order to reach a specific
destination, but based on what is available from a certain airport (the one closest to the traveller) and at
a certain time (typically for weekend trips). This behaviour has mainly been pushed by Ryanair's and
easyJet's offer. Therefore a differentiation between pure leisure and other (O&D) customers could be
envisaged. Thomas Cook, minutes of conference call of 5 October 2012. The Commission does not
consider that a significant number of Ryanair's and Aer Lingus' passengers would be destination
insensitive and therefore conducts its assessment on an O&D basis without distinguishing as explained
above.
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companies now sell to some extent so-called "dry seats" directly to passengers (that
is to say seats only without other services), in addition to sales of seats to tour
operators for inclusion in package holidays.
(390) Ryanair have significantly expanded their operations to traditional charter
destinations and it argues in its response to the decision opening the proceedings that
the decline in the charter business ex-Ireland is a direct consequence of Ryanair's
expansion into several routes that were traditionally served by charter companies. In
Ryanair's view this is clear evidence of the substitutability between charter services
and Ryanair's services. Furthermore, Ryanair contends that charter companies have
the proven ability to expand capacity on routes they wish to serve at short notice and
can do so in response to surges in market demand.
(391) In past Decisions regarding the airline sector and in particular in the 2007
Decision
331
, the Commission concluded that most of the services offered by charter
companies are not in the same market as scheduled air transport services (package
holiday sales
332
and seat sales to tour operators). However, the Commission has so
far left open the question of whether or not dry seat sales of charter companies are
part of the same relevant market since this would not have changed the competitive
assessment in the cases where this was considered.
(392) Some respondents to the market investigation in the Transaction indicated that there
would be competition between the services provided by scheduled carriers and those
provided by charter carriers, "where the two providers are operating to a similar
destination market. For example, […] for people seeking a holiday to a Greek island
(or indeed a ‘beach’ destination) sufficient numbers of people will compare options
across charter and scheduled operations to put these in the same markets"
333
.
Furthermore, other respondents explained that "both charter and scheduled services
are providing simply a means of transport between the point of departure and
destination of the passengers who use those services. […] As such, […] that there is no
difference between the customers who book charter airlines and those who book
scheduled airlines. It is more likely that distinctions may be drawn by destinations
[…]"
334
.
(393) In line with the Commission's decisional practice, the Commission will distinguish
different types of activities by charter companies in its analysis: sales of package
holidays to end customers, sales of seats to tour operators, and sales of dry-seats to
end customers.
331
Recital 311 of the 2007 Decision, Commission’s Decision of 17 December 2008 in case COMP/M.
5141 – KLM/ MARTINAIR, recitals 111-121, Commission’s Decision of 26 January 2011 in case
COMP/M.5830 - Olympic/Aegean, recitals 45-51.
332
Seats included in "package holidays" cannot be considered as substitutable for seats on scheduled
flights as most passengers purchase seats only and not package holidays. By definition, package
holidays oblige passengers to acquire a number of complementary products such as accommodation,
transportation at destination, meals, etc. in which only a reduced subset of passengers might be
interested.
333
easyJet, response to question 15.1 of questionnaire Q1 - Competitors.
334
Thomas Cook, response to question 15.1 of questionnaire Q1 - Competitors.
EN 101 EN
7.6.1.1. Market for package holidays
(394) The Commission has assessed to what extent Ryanair and Aer Lingus might face
competition from providers of package holidays.
(395) Evidence from the market investigation pointed to the fluid character of the market
as regards competition between the various services. One respondent indicated that
"the disappearance of traditional demarcation lines in the sale of travel products
(package vs. independent, charter vs. scheduled vs. low-cost carriers, travel agent v
tour operator) has also created a fluid market in which distinct business roles and
models have broken down and competition has increased even more"
335
. This has
therefore provided consumers with increased choice of individual travel components,
packages, suppliers and independent, impartial information that can easily be
researched and compared to capture the best deal. The increasing tendency of
consumers to "self-package" flights and accommodation (and other travel products) has
given rise to demand-side substitution between package holidays and independently
arranged holidays, placing the charter company element of the package under indirect
competitive pressure from low cost carriers and scheduled airlines that may otherwise
be used in an independently arranged holiday. As regards sales made to tour operators,
charter companies face a similar degree of demand-side substitutability with low-cost
carriers and scheduled airlines
336
.
(396) Furthermore, another respondent considered that "it is possible that some customers,
on routes where charter services overlap with those of Ryanair or another low cost
carrier, may consider a point-to-point seat-only ticket which they would buy as part
of assembling their dynamic package as (imperfectly) substitutable with a tour
package offered by a charter airline. Indeed, Ryanair and other low cost carriers
typically have links on their respective websites to hotel bookings, car hire and other
ancillary services, which are potential components of a “dynamic” package"
337
.
(397) Indeed, Ryanair and Aer Lingus both provide the possibility to book a hotel and to
rent a car on their websites. However, Ryanair does not sell and invoice
accommodation or rental cars, but receives a fee if such products are booked via
Ryanair’s website
338
. In that respect, Ryanair’s service would rather be similar to that
of a travel agency or retailer. Similarly Aer Lingus does not sell and invoice
accommodation or rental cars, but receives a fee if such products are booked via its
website. Aer Lingus confirmed that it "sources ancillary partners who can provide
its passengers an added value service that fits with their travel booking e.g. car hire,
hotels, travel insurance etc. Aer Lingus partners with the leading companies in each
relevant area but the service is completely provided by each partner and the
passenger contracts directly with the relevant partner with Aer Lingus merely acting
as an agent. Aer Lingus receives a commission for each booking purchased via its
website, and therefore does not directly sell car hire or accommodation which are
335
Tui Travel plc, response to question 15.1 of questionnaire Q1 - Competitors.
336
Tui Travel plc, response to question 15.1 of questionnaire Q1 - Competitors.
337
See response of United Kingdom Civil Aviation Authority to question 8.1 of questionnaire Q8 – Civil
Aviation Authorities.
338
Ryanair response to Commission request of October 4, 2012, paragraph 4.1.
EN 102 EN
sold via partners"
339
. In that respect, Aer Lingus' service would also rather be similar
to that of a travel agency or retailer.
(398) Therefore, while Ryanair and Aer Lingus could arguably be deemed to be, at least to
a certain extent, active in the market for package holidays and therefore exercise
pressure on tour operators and charter carriers, this is not the case the other way
around (that is to say that tour operators or charter carriers do not exercise pressure
on Ryanair and Aer Lingus) for routes to/from Ireland. [Ryanair and Aer Lingus
monitoring practices of charter companies]*
340
. The fact that tour operators and
charter carriers are negatively affected by Ryanair's and Aer Lingus' services does
not mean that the tour operators and charter carriers exert any competitive pressure
on the Parties.
(399) Furthermore, significant differences in the characteristics of the two services can be
clearly identified. The providers of package holidays by definition offer a number of
additional services and request their customers to acquire a number of
complementary products such as accommodation, transportation at destination,
meals, travel guides, animation
341
. These services go well beyond the product that
can be booked on Ryanair’s and Aer Lingus’ website (flight plus hotel or car).
Furthermore, the Parties' customers assemble the package themselves and customise
which services they require, having therefore a lot of flexibility.
(400) In addition, tour operators offer fixed packages with fixed flight dates (typically with
flights only at weekends) and frequencies, while low-cost airlines such as Ryanair
and Aer Lingus offer scheduled and thus flexible frequencies. This means for
instance that a customer willing to stay 3 o 5 nights would not be able to use charter
services, which would operate once a week only, imposing a stay of 7 or 14 nights at
a destination
342
.
(401) The Commission therefore considers that if services provided by charter companies
and tour operators were to exercise a constraint on the Parties this would be only
regarding those customers who want to book a flight and accommodation and who
would have considered booking a package holiday from a tour operator or charter
company (so-called "care-free" service).
(402) Indeed, evidence collected through market investigation indicates that customers of
tour operators are looking for "the complete package including the flights,
accommodation and transfers"
343
and they would choose a tour operator because
these will provide them "with a convenient way of delivering their travel
requirements within a group of like-minded travellers"
344
.
(403) Ryanair and Aer Lingus on the other hand do not target these passengers. Indeed,
many passengers flying with Ryanair or Aer Lingus would not need such a package
339
Aer Lingus' response to request for information of 3 October 2012.
340
[…]*.
341
See responses to questions 2, 3 and 4 to questionnaire R2 – Tour Operators.
342
Agreed minutes of conference call of 5 October 2012 with Thomas Cook.
343
TravelAgent.ie, response to question 4 of questionnaire R2 – Tour Operators.
344
The Travel Department, response to question 4 of questionnaire R2 – Tour Operators.
EN 103 EN
(for example passengers flying to holiday homes, passengers flying to visit friends
and family, etc). Even those customers who book a hotel via Ryanair and Aer
Lingus, or independently, are likely not to consider package holidays as an
alternative, since they would not want to pay for or are not interested in the extra
services provided by a tour operator such as hotel transfer, travel guides and
animation. Indeed, Ryanair's business objective is to offer low fares that generate
increased passenger traffic
345
.
(404) As a result, a test based on a small but significant non-transitory increase ("SSNIP")
of 5 % or 10 % in the price of scheduled flights is unlikely to lead a sufficient
number of passengers to purchase a package holiday so as to render the SSNIP
unprofitable for a hypothetical airline with a monopoly on all scheduled flights.
(405) In its 2007 Decision, the Commission concluded that sales of package holidays
offered by charter companies and tour operators are not in the same market as the
scheduled air transport services provided by Ryanair and Aer Lingus on the then
affected routes
346
. No material changes in circumstances have occurred in this regard
since 2007. Indeed, the majority of the respondents to the market investigation
confirm the Commission's conclusion in the 2007 Decision that most of the services
offered by charter companies (package holiday sales and seat sales to tour operators)
are not in the same market as scheduled point-to-point air transport services
347
.
(406) Therefore, seats included in package holidays could not be considered as
substitutable for seats on scheduled flights as most passengers relevant for the
purpose of the investigation of the Transaction purchase seats only and not package
holidays.
(407) As a conclusion, the Commission considers that sales of package holidays offered by
charter companies and tour operators are not in the same market as the scheduled air
transport services provided by Ryanair and Aer Lingus on the overlap routes.
7.6.1.2. Sales of seats to tour operators
(408) Charter companies sell seats (or entire flights) to holiday companies, who then
integrate the flight into a package holiday
348
. In previous decisions, the Commission
regarded the wholesale supply of airline seats to tour operators as a distinct market
from the supply of scheduled air transport services to end customers
349
.
345
Ryanair annual report 2011, Annex 5.3.a to the Form CO.
346
Recital 310 of the 2007 Decision.
347
See responses to questionnaire Q1 - Competitors, Q4 - Airports, Q6 – Consumer Associations and Q7 -
Trade Associations. For the assessment of dry seats offered by charter airlines see Section 7.6.1.3.
348
It should be noted that also scheduled carriers sell, usually to a limited extent, seat packages to tour
operators. This is for example the case of Aer Lingus. However, Ryanair does not sell to tour operators.
The Transaction would therefore possibly have an impact on the market for sales of seats to tour
operators as far as Ryanair would prevent Aer Lingus to continue selling seats to tour operators.
349
See case M.1524 – Airtours/First Choice, paragraphs 34-50 (insofar as unaffected by the CFI's
annulment decision); M.157 - AirFrance/Sabena, paragraph 25; see also cases M.1494 - Sair
Group/AOM, paragraph 11 and M.3770 - Lufthansa/Swiss, paragraph 20.
EN 104 EN
(409) Indeed, from a demand-side perspective, conditions on the market for sales of seats
to tour operators differ significantly from those on the market for sales to individuals.
The market for sales of seat packages to tour operators is one which is upstream to
the market for seat sales to individuals. Accordingly, the competitive conditions in
this market are manifestly different, since tour operators have different requirements
from those of individual customers (for example, buying of large seat packages,
negotiation of rebates, taking into account of customers' needs in terms of flight
times).
(410) It can thus be concluded that wholesale sales of seat packages to tour operators are
not in the same market as scheduled air transport services for end-customers.
7.6.1.3. Market for dry seat sales to end-customers
(411) Ryanair has identified charter companies offering seat only services on the relevant
city-pairs. Ryanair submits also that, where a charter company currently operates on
the route, that airline is clearly capable of adding additional flights or additional
routes to and from Dublin at any time and in any season
350
.
(412) Indeed, on the same O&D route, the dry seat sales of charter companies are similar to
the sale of scheduled air transport passenger transport services. While there are some
differences between these services, from the customer's perspective, under certain
circumstances, these could be seen as substitutes.
(413) The market investigation indicated that since the Commission's 2007 Decision,
Ryanair have significantly expanded their operations to traditional charter
destinations and one respondent highlighted the fact that “there has been some
convergence between the charter flight operations and scheduled services and as a
result in many cases it is now possible for passengers to independently book seats on
charter services"
351
.
(414) However, regarding the sale of dry seats, some respondents to the market
investigation pointed out that charter flights are of inferior quality compared to
scheduled flights not least because of the limited capacity of dry seats and the limited
visibility to consumers
352
in addition to the frequencies and fare price
353
. Indeed
350
Paragraph 6.6 and footnote 9 to the Form CO.
351
BAA, response to question 11 of questionnaire Q4 - Airports.
352
Ryanair claims in its Response to the Statement of Objections that the flights search site SkyScanner
shows charter flights and scheduled flights without distinction and therefore dry seats on charter airlines
are easy for consumers to find. Ryanair did not submit any evidence in this sense and a spot check of
the SkyScanner website shows that such sales are actually not available.
353
See for example Aer Lingus, response to question 15.3.1 of questionnaire Q1 - Competitors, Wizz Air,
response to question 15.3.1 of questionnaire Q1 - Competitors, Ebookers, response to question 10.1 of
questionnaire Q2 - Travel Agents, or Expedia response to question 9.2 of questionnaire Q2 - Travel
Agents: "Dry seats sold by charter operators are not substitutable with scheduled point-to-point
passenger air transport services since: i) The frequency of service offered by charter operators is
generally less than that offered point-to-point passenger services such as Ryanair or Aer Lingus; ii) The
range of destinations offered by charter operators is limited and, where available, is also subject to
substantial seasonal variation (i.e. different destination choices in summer and winter); iii) The
capacity offered by charter operators for standalone air sales is generally very limited because the
majority of the seats are dedicated to package holiday sales; iv) Charter flights tend to be less 'visible’
EN 106 EN
7.6.2. Conclusion on competition from charter companies
(418) The Commission therefore concludes for the purposes of the Transaction that most of
the services offered by charter companies (package holiday sales, seat sales to tour
operators) are not in the same market as scheduled point-to-point air transport
services.
(419) Furthermore, it can be left open whether or not dry seat sales are part of the same
relevant market as scheduled point-to-point air transport services, because this would
not change the conclusion of the competitive assessment of the Transaction.
7.7. Intermodal substitution
(420) When determining the scope of the relevant markets on various city-pairs, the
Commission analysed in earlier Decisions the level of substitutability of air travel
with other available transport modes
355
. Such intermodal substitutability was in
particular considered in cases where relevant alternative modes of transport were
deemed comparable options for prospective passengers in terms of price, aggregate
travel time, schedule or quality.
(421) No intermodal substitutability issue appears relevant for the assessment of the
Transaction, nor has any been put forward by Ryanair.
(422) The Commission therefore concludes, for the purposes of this Transaction, that
intermodal substitution is not relevant for any of the overlap routes.
8. COMPETITIVE ASSESSMENT
8.1. General framework for the assessment
(423) As already described in Section 6, Ryanair argues that the air transport market in
Europe has materially changed since 2007 and there are compelling reasons why the
Commission should approve the Transaction.
356
(424) Ryanair refers to the fact that Europe's flag carriers are consolidating and Aer Lingus
has failed to find a consolidation partner. Aer Lingus is said to be a subscale
peripheral carrier that is not consistently profitable and cannot grow or compete with
larger carriers in Europe. Ryanair also points out that Dublin Airport is currently
operating at just over 50% capacity. The earlier congestion problems no longer exist
due to the drop in annual traffic and the expansion carried out in the meantime, in
particular, with the opening of Terminal 2.
(425) Changes in market circumstances since 2007 have been analysed by the
Commission. In broad overview, for the purposes of the competition analysis, the
main changes appear to be the following:
355
Commission Decision of 8 October 2010, M.5655 SNCF/LCR/Eurostar, recital 21, Commission
Decision of 26 January 2011, M. 5830 OLYMPIC/AEGEAN AIRLINES, recitals 94 ff.
356
Paragraphs 7.5 to 7.19 of the Form CO.
EN 107 EN
– The financial and economic crisis, which started in 2008, affecting Member
States, including Ireland. The crisis has also hit the air transport sector in
Ireland and in other Member States relevant for the assessment of the present
Transaction, such as Spain and the United Kingdom.
– Some further consolidation is taking place in the air transport sector.
– The number of airlines operating at Dublin airport has decreased significantly
compared to 2007.
– Aer Lingus and Ryanair compete on a greater number of routes compared to
the 2007 Decision. The number of routes of overlap has increased significantly,
from 35 in 2007 to 46 in 2012. Furthermore, on almost 85% of these routes
(63% in 2007) there are no other scheduled airlines active.
– With regard to short-haul point-to-point traffic out of Dublin airport,
concentration has further increased. The combined market share of Ryanair and
Aer Lingus of flights out of Dublin (in terms of passenger volumes) in IATA
summer season of 2012 reaches 85%, an increase from the 73% in IATA
summer season of 2007.
– The operation of charter companies out of Dublin appears to have decreased by
70% between 2007 and 2011.
– Finally although Dublin Airport Authority ("DAA") has added capacity at
Dublin airport since 2007, especially with the opening of Terminal 2 in late
2010, Dublin airport is still a level 3 coordinated airport
357
.
(426) Ryanair notes that "a relatively weak domestic economy does not only represent an
opportunity for future growth, but it also ensures that airlines have an incentive to
lower prices in order to increase consumer demand."
358
(427) However, Ryanair's stance is somewhat contradicted by other statements, for
example, where Ryanair claimed that “We expect market conditions in Europe to
remain tough as recession, austerity, high fuel costs, and excessive Government taxes
dampen air travel demand.”
359
(428) As mentioned by DAA, there is considerable evidence that traffic volumes at Dublin
Airport are affected by economic growth (see Figure 1 below)
360
. For instance,
Boeing has reported that “Worldwide economic activity is the most powerful driver of
growth in commercial air transport.”
361
There is also economic literature suggesting
that, while the demand for passenger services arises from the complex interaction of
357
Coordinated airports are airports where, in order to land or take off, it is necessary for an air carrier or
any other aircraft operator to have been allocated a slot by a coordinator (with the exception of State
flights, emergency landings and humanitarian flights).
358
Ryanair's response to the Statement of Objections, paragraph 39.
359
Ryanair, Half Year Results 2013 of 5 November 2012, available at http://www.ryanair.com/en/news/5-
nov-half-year-results-2013.
360
DAA’s response to the Statement of Objections dated 13 November 2012, paragraph 2.17.
361
Boeing’s Current Market Outlook 2011-2030.
EN 108 EN
a large number of factors which affect the different market segments differentially, as
far as the impact of economic growth is concerned, there appears to be a very strong
correlation between the annual rates of growth in the world's GDP and the growth
rates in air travel, measured in revenue passenger-kilometers. Broadly speaking,
there would be a two to one relationship between demand for air travel and world
GDP
362
.
Figure 1: DAA Airports Passenger Performance v Irish GDP growth rates 2000-2012
363
(429) There has been a significant reduction in economic output in Ireland with real GDP
falling by 8.2% between 2007 and 2010 according to most recent estimates.
Although real GDP growth of 1.4% was recorded in 2011, this was driven by net
exports, with domestic demand (the sum of private consumption, government
consumption, domestic investment and changes in stocks) continuing to contract for
the year, and down by a cumulative 21% between 2007 and 2011 in real terms (see
Figure 2).
362
Rigas Doganis, "Flying off course – airline economics and marketing", fourth edition, Section 8.7,
pages 192 to 196.
363
Traffic performance relative to GDP in 2010 was significantly impacted by the exceptional volcanic ash
events.
EN 110 EN
(435) Aer Arann carried 1 million passengers in 2011 and in the last financial year, Aer
Arann generated a turnover of nearly EUR 100 million. Aer Arann has not been
profitable since its restructuring in 2010, but expects to generate profits in 2013
368
.
(436) Aer Arann operates on 7 of the routes subject to this Decision, namely Dublin –
Bristol/Exeter/Cardiff, Dublin–Edinburgh/Glasgow, Dublin – Glasgow/Prestwick,
Dublin – London, Cork – Manchester/Liverpool, Knock – Birmingham/East
Midlands, Shannon – Manchester/Liverpool
369
.
(437) The Dublin – Edinburgh/Glasgow
370
and Dublin – London
371
routes are operated by
both Aer Arann and Aer Lingus
372
.
8.2.1. The Franchise agreement
(438) Aer Lingus and Aer Arann entered into a franchise agreement in 2010. The
agreement was expanded in 2012 to include all services operated by Aer Arann. As a
result, from April 2012 all Aer Arann flights are operated under the franchise
agreement with Aer Lingus and branded "Aer Lingus Regional".
(439) A 10 year extension of the franchise agreement was agreed in late 2012
373
.
(440) Aer Lingus describes the key objectives of the franchise agreement as the following:
(i) to expand the Aer Lingus brand reach at United Kingdom regional airports; (ii) to
improve connectivity with Aer Lingus’ North Atlantic network; (iii) to provide
increased travel options for Aer Lingus customers and retain loyalty; (iv) to
positively differentiate Aer Lingus’ product from competition based on improved
access and schedules; and (v) to deliver new revenue streams from franchise fees and
commissions
374
.
(441) The key terms of the franchise agreement are as follows:
– Under the franchise arrangement, Aer Arann operates its routes under the
“Aer Lingus Regional” brand
375
.
– Aer Arann assumes full operation and commercial responsibility for the
services covered by the franchise agreement
376
.
– Aer Arann employs the crew and engineers and has its own aircraft
377
.
368
Agreed minutes of conference call of 11 October 2012 with Aer Arann.
369
Aer Arann, response to question 4.1 of questionnaire Q1 – Competitors.
370
Both Aer Lingus and Aer Arann operate on the Dublin – Edinburgh route. Aer Arann also operates on
the Dublin – Glasgow route.
371
Aer Lingus operates on the Dublin – London Heathrow and Dublin – London Gatwick routes. Aer
Arann operates on the Dublin – London Southend route.
372
Aer Arann (Aer Lingus Regional) operated some flights on the Dublin – Birmingham route in Summer
2012. This route is however predominantly served by Aer Lingus. See Aer Lingus' response to question
1.1 of the Commission's request for information of 3 July 2012.
373
Aer Lingus' announcement of preliminary results for the year ended on 31 December 2012.
374
Aer Lingus' response to question 2.2 of the Commission's request for information of 3 July 2012.
375
Aer Lingus's response to question 2.2 of the Commission's request for information of 3 July 2012.
376
Agreed minutes of conference call of 11 October 2012 with Aer Arann.
EN 111 EN
– Franchise services are sold exclusively through Aer Lingus direct and
indirect sales channels
378
. Aer Arann does not have a booking engine or a
website (tickets on Aer Arann flights are bought directly from the Aer
Lingus' website)
379
.
– While Aer Arann has principal responsibility for the marketing and
promotion of the franchise services, Aer Lingus incorporates routes
operated as franchise services in relevant information and promotional
activity, including, but not limited to, network based advertising, route
group promotions, and web and print route and timetable information
380
.
– Aer Lingus provides customer relations management for the franchise
services
381
.
– Aer Arann pays a franchise fee to Aer Lingus
382
.
8.2.2. Aer Arann is not an independent competitor of Aer Lingus
(442) Ryanair claims that Aer Arann should be treated as an independent competitor. It
argues that Aer Arann is a separately owned and managed airline that is legally and
operationally independent of Aer Lingus. It further argues that when a route is
operated by Aer Arann (and not by Aer Lingus), Aer Lingus has no control over Aer
Arann's prices, revenues, costs, schedules, or its route network, which are all
determined independently by Aer Arann. According to Ryanair, Aer Lingus would
merely receive a fee per passenger for the use of its brand. It claims that Aer Arann
views itself as an independent competitor and that Aer Arann nowhere "suggest[s]
that it was not a competitor of its own, operating independently from Aer Lingus"
383
.
Ryanair submits that its claim that Aer Arann must be treated as an independent
competitor is further supported by the fact that the Stobart Group has taken control
over Aer Arann
384
.
(443) Aer Arann stated that it does not compete directly with Aer Lingus (on fares or any
other commercial aspect)
385
.
It further considers that its schedule complements the
Aer Lingus schedule and product offering by providing frequency benefits with
smaller aircraft. Aer Arann fears that its future at all Irish airports could be seriously
in doubt if the Transaction goes ahead. It explains that its ability to operate following
its financial restructuring in 2010 is due to the fact that it now has access to a brand
that enables a small airline like Aer Arann to enter competitive routes and provide
the customer with frequency, connectivity and choice and it considers it unlikely that
377
Agreed minutes of conference call of 11 October 2012 with Aer Arann.
378
Aer Arann, response to question 6 of questionnaire Q1 – Competitors.
379
Agreed minutes of conference call of 11 October 2012 with Aer Arann.
380
Aer Lingus's response to question 2.2 of the Commission's request for information of 3 July 2012.
381
Aer Lingus's response to question 2.2 of the Commission's request for information of 3 July 2012.
382
Aer Lingus's response to question 2.2 of the Commission's request for information of 3 July 2012.
383
Ryanair's observations on the Article 6(1)(c) Decision.
384
Ryanair's response to the Statement of Objections, paragraph 9. The transaction was cleared by the Irish
competition autority on 12 December 2012: http://www.tca.ie/EN/News--Publications/News-
Releases/Competition-Authority-clears-Stobart-acquisition-of-Aer-Arann-.aspx
385
Agreed minutes of conference call of 11 October 2012 with Aer Arann.
EN 112 EN
there would be such cooperation with a new entity as it is unclear what their business
model would be. It considers that it is not really possible for Aer Arann to create a
brand as strong as the Aer Lingus brand. It further indicates that it is unlikely that
Aer Arann operating under Aer Lingus Regional brand would be able to enter any
new routes that Ryanair is already operating should the Transaction take place
386
.
(444) Aer Lingus does not consider Aer Arann to be a competitor of Aer Lingus while Aer
Lingus considers that Aer Arann is a competitor of Ryanair
387
.
(445) Aer Lingus stresses that, under the terms of the franchise agreement, all of Aer
Arann's operations are operated under the Aer Lingus brand umbrella and all tickets
are sold exclusively via Aer Lingus distribution channels (principally aerlingus.com).
In the absence of the franchise agreement, Aer Arann would not have the resources
or systems necessary to carry out the required investment in distribution, brand
development, revenue accounting, and marketing. According to Aer Lingus, it is
therefore incorrect to assert that Aer Lingus has no control over Aer Arann's prices,
revenues, costs, schedules, or route network. On the contrary, Aer Arann no longer
exists as a separate brand and does not have any material commercial operations
outside of its franchise agreement with Aer Lingus
388
.
(446) Aer Lingus believes that without the franchise agreement, Aer Arann would not be
able to operate routes in competition with Ryanair as it currently does. It indicates
that at a brand level the competition between Aer Lingus and Ryanair includes those
routes operated by Aer Arann under the Aer Lingus Regional brand and is broader
than that indicated by the routes on which Aer Lingus and Ryanair directly operate.
As such, it feels that the competitive interaction between Aer Arann and Ryanair is
also relevant to the analysis of the Transaction
389
.
(447) In the OFT’s recent decision under reference on Ryanair's minority interest in Aer
Lingus
390
, whilst acknowledging the commercial relationship between Aer Lingus
and Aer Arann, the OFT did not find it necessary for the purposes of its decision to
decide on the extent to which Aer Arann overlaps should be included or excluded
from the analysis.
(448) The Commission has already been confronted with the existence of a franchise
agreement between carriers in the past. In the Iberia/Clickair/Vueling case
391
, the
Commission had to assess the relationship between Iberia and Air Nostrum. Despite
the fact that Air Nostrum was an independent regional airline, in which Iberia was
not a shareholder, the Commission decided to add Air Nostrum's shares of the market
to those of Iberia because of the existence of an exclusive franchise agreement
between them.
386
Aer Arann, response to questionnaire Q1 – Competitors and agreed minutes of conference call of 11
October 2012 with Aer Arann.
387
Aer Lingus, response to question 21 of questionnaire Q1 – Competitors.
388
Aer Lingus' Comments on Ryanair's Response to the Commission's Statement of Objections.
389
Aer Lingus' response to question 2.2 of the Commission's request for information of 3 July 2012.
390
OFT’s decision on reference under section 22 of 15 June 2012 on the completed acquisition by Ryanair
of a minority interest in Aer Lingus, reference ME/4694/10.
391
Commission's Decision of 9 January 2009 in Case No COMP/M.5364 – Iberia/ Vueling/ Clickair.
EN 113 EN
(449) The fact that Aer Arann is a separately owned and managed airline does not mean
that it is an independent competitor to Aer Lingus. To the contrary, the Commission
is of the view that Aer Arann is actually closely linked to and dependent on Aer
Lingus through the franchise agreement.
(450) Under the franchise agreement, Aer Arann undertakes to operate the agreed
scheduled flights exclusively under the Aer Lingus Regional brand and using Aer
Lingus flight numbers. All of Aer Arann's operations are governed by the franchise
agreement. Aer Arann therefore always appears in the market as "Aer Lingus
Regional" as opposed to under its own trading name.
(451) A main feature of the franchise cooperation between Aer Lingus and Aer Arann is to
provide regions in the United Kingdom with connectivity for example through Aer
Lingus transatlantic flights. Accordingly, the schedules of the two carriers are
complementary. The fact that Aer Arann can decide on frequencies and schedule of
the flights and that it can set prices does not imply that they are to be considered an
independent competitor of Aer Lingus. The fact that on two of the routes, Aer Arann
and Aer Lingus operate in parallel does not contradict this.
392
Moreover, the
franchise agreement requires Aer Lingus' approval for the use of the Aer Lingus
Regional brand on any new routes
393
.
(452) Aer Lingus integrates the routes operated by Aer Arann under the franchise
agreement in the relevant information and promotional activity, including but not
limited to network-based advertising, route group promotions, route map, and
timetable information
394
.
(453) Tickets for Aer Arann's flights are sold exclusively through Aer Lingus' sales
channels and Aer Arann also depends on Aer Lingus for a number of other
supporting services (such as customer relations management).
(454) In addition, Aer Arann is not a very well-known brand in Ireland. Market research
carried out in June 2012 and provided by DAA, demonstrates that Aer Arann, despite
being present on the Irish market since 1970, is significantly behind Aer Lingus and
Ryanair. The respondents were asked to name Irish travel/transport companies. Two
measures of spontaneous and total awareness were taken into account. Three airlines
were mentioned with the following scores: Aer Lingus (52%/98%); Ryanair
(50%/97%), Aer Arann (25%/88%)
395
.
392
It is noted that on the Dublin – Edinburgh/Glasgow route Aer Lingus operated in IATA summer season
2012 only one daily flight to Edinburgh. This flight was scheduled outside peak hours, namely in the
beginning of the afternoon. Aer Arann to the contrary offered flights also in morning and evening.
Since Aer Arann has started operating on the route under the franchise agreement, Aer Lingus has
reduced its own capacity. On the Dublin – London route, Aer Lingus and Aer Arann fly to different
airports. Aer Lingus offers flights to London Heathrow and London Gatwick throughout the day. Aer
Arann only flies to London Southend and offers morning, afternoon and evening flights to this airport.
393
Agreed minutes of conference call of 11 October 2012 with Aer Arann.
394
See, for instance, the route map for the UNITED KINGDOM available on Aer Lingus' website:
http://www.aerlingus.com/travelinformation/planandbook/routemapUnited Kingdom/ and the online
timetable for Aer Lingus flights: http://www.aerlingus.com/cgi-
bin/obel01im1/bookonline/timeTables.doc
395
DAA submission of 4 October 2012, footnote 25.
EN 114 EN
(455) Aer Lingus does not consider that it competes with Aer Arann, and Aer Arann does
not consider that it competes with Aer Lingus (on fares or any other commercial
aspect)
396
. On the other hand, Aer Arann monitors Ryanair's fares on all routes on
which Aer Arann operates in competition with Ryanair
397
.
(456) The results of the market investigation show that the majority of those competitors
that expressed a view on the matter consider that Aer Arann is a competitor of
Ryanair but not of Aer Lingus
398
.
(457) Moreover, it is noted that Ryanair itself has included the Aer Arann frequencies and
market shares in the data provided in the Form CO and its annexes and it has
described the relationship between Aer Lingus and Aer Arann as a "partnership"
399
.
(458) The fact that the Stobart Group has taken control over Aer Arann
400
does not change
the Commission's assessment as the Stobart Group has confirmed that the current
relationship between Aer Arann and Aer Lingus will continue post-Transaction and
that, in particular, the franchise agreement will be maintained
401
. This was confirmed
by Aer Arann that indicated that "the proposed restructuring and new business plan
focuses on further developing the success of our franchise agreement with Aer
Lingus. The plan will focus on extending the scale of the franchise agreement in
tandem with a fleet replacement programme at Aer Arann. The proposed agreement
is franchise agreement-centric. […/…] The proposed investment is dependent on the
franchise agreement as it contains the vital economical attributes to allow for the
Aer Arann business to be sustainable and grow. It is therefore vital that the franchise
agreement remains instact including all lines of flying as contained today, along with
proposed additional routes."
402
(459) It appears therefore that Aer Arann cannot be considered as an independent
competitor from Aer Lingus, while it is a competitor of Ryanair.
(460) It is thus appropriate to add Aer Arann's shares of the market to those of Aer Lingus
for the purposes of the competitive assessment.
8.2.3. Conclusion
(461) In the light of the above, the Commission considers that Aer Arann is a competitor of
Ryanair, but not of Aer Lingus. The market shares of Aer Arann (operating under the
Aer Lingus Regional brand) have to be attributed to Aer Lingus for the purposes of
the competitive assessment.
396
Agreed minutes of conference call of 11 October 2012 with Aer Arann.
397
Agreed minutes of conference call of 11 October 2012 with Aer Arann.
398
See responses to question 21 of Questionnaire Q1 – Competitors. For the views of travel agents, see
responses to question 12 of Questionnaire Q2 – Travel Agents.
399
See Section 8.56 of the Form CO.
400
The transaction was cleared by the Irish competition autority on 12 December 2012:
http://www.tca.ie/EN/News--Publications/News-Releases/Competition-Authority-clears-Stobart-
acquisition-of-Aer-Arann-.aspx.
401
Stobart Group's response to to the Commission's request for information of 29 November 2012.
402
Aer Arann's response to to the Commission's request for information of 27 November 2012.
EN 115 EN
8.3. Market shares and concentration levels
(462) Ryanair is of the view that, in previous airline merger decisions, the Commission has
repeatedly found that high post-Transaction market shares do not necessarily give
rise to competitive concerns, particularly where one or more competitors are active
on the relevant route
403
. This would apply in particular on 7 routes ex Dublin:
Frankfurt, London, Madrid, Munich, Paris, Stockholm, and Bristol/Cardiff/Exeter.
(463) According to the "Guidelines on the assessment of horizontal mergers under the
Council Regulation on the control of concentrations between undertakings"
404
(" the
Horizontal Merger Guidelines"), market shares and concentration levels provide
useful first indications of the market structure and of the competitive importance of
both the merging parties and their competitors.
(464) The Horizontal Merger Guidelines also state that according to well established case-
law, very large market shares (50% or more) may in themselves be evidence of the
existence of a dominant market position
405
.
(465) The General Court confirmed that although the importance of market shares may
vary from one market to another, very large shares are in themselves, and save in
exceptional circumstances, evidence of the existence of a dominant position.
406
In
another case concerning the airline sector, the General Court also stated that "market
shares held by the parties to the merger led the Commission to conclude that
commitments should be offered on the markets affected and on which those parties
enjoyed a market share of almost 50%, thereby respecting the presumption of
dominance as laid down by the case-law".
407
(466) Finally, in the 2010 Judgment, the General Court also established with respect to the
2007 Decision that "the Commission was rightly able to find that the acquisition of
very high market shares as a result of both the implementation of the concentration
and the concentration level associated with it were relevant indicators of the market
power which would have been acquired by Ryanair-Aer Lingus combined".
408
(467) Ryanair’s and Aer Lingus’ activities overlap only in relation to scheduled short-haul
passenger services, from or to airports located in Dublin, Shannon, Cork and Knock.
(468) This decision deals with 46 direct/direct overlap routes: 33 from Dublin, 9 from
Cork, 2 from Knock, and 2 from Shannon
409
.
403
Ryanair's response to the Statement of Objections, paragraph 20. This would apply in particular on 7
routes ex Dublin: Frankfurt, London, Madrid, Munich, Paris, Stockholm, and Bristol/Cardiff/Exeter.
These routes are examined in depth in Section 8.9.
404
OJ C 31, 5.2.2004, pages 5, see paragraph 14.
405
See Horizontal Merger Guidelines, paragraph 17.
406
See Case T-210/01 General Electric v Commission [2005] ECR II-5575, paragraph 115.
407
Case T-177/04 easyJet v Commission [2006] ECR II-1913, paragraph 174.
408
Paragraph 53 of the 2010 Judgment.
409
As explained in Section 8.2 above, these new routes also include the routes operated by Aer Arann
under the "Aer Lingus Regional" brand.
EN 116 EN
(469) Of the 46 routes
410
, 26 were also assessed in the 2007 Decision. Compared to the
situation in 2007, the merged entity would have larger market shares on most of
these 26 routes, in particular due to the exit of competitors on some routes. In
addition, there are 20 new routes, on which Ryanair and Aer Lingus now compete
and on which they did not in 2007.
(470) Several route overlaps are seasonal: Ryanair and Aer Lingus overlap only in IATA
summer season on 9 routes
411
.
(471) In addition, on 27 of the overlap routes there are direct airport-to-airport overlaps as
both Parties fly from and to the same airports at both ends of the O&D routes
412
. On
the remaining 19 routes there is a city-to-city overlap with Ryanair and Aer Lingus
using different but substitutable airports
413
.
(472) As detailed in Section 8.9.4, the Transaction would create a monopoly on 28 routes
compared to 16 in the 2007 Decision.
(473) Furthermore, there are 18 overlap routes on which the merged entity would operate
alongside other carriers. On 11 of these 18 routes, the only other operating carrier(s)
is a charter company. As described in Section 8.9.6, the Parties' combined market
shares on each of these routes exceeds 80%.
(474) On 6 of the 18 routes on which the Parties operate alongside other airlines, the
competitors of the Parties are scheduled carriers, whose business model is different
from those of the Parties. On these routes, as described in Section 8.9.5, the
combined market shares of Ryanair and Aer Lingus would be above 50% according
to the most recent available data. On the last remaining route, Dublin-
Bristol/Cardiff/Exeter, if flights between Dublin and Exeter are included in the
relevant market, as described in Section 8.9.5.1, the Parties' competitor is Flybe, a
scheduled regional carrier with a marginal market share between [5-10%]
414
.
410
Unlike in the decision opening the proceedings these 46 routes do not include the routes from Dublin to
Amsterdam/Eindoven, and Nantes/Rennes, the routes from Northern Ireland and the route from Dublin
to Verona. The Cork-Gran Canaria route is also not included in the above list since the Parties
essentially operate on this route in different seasons of the year. In addition, the Cork-Barcelona route is
included in the list of routes concerned by this Decision.
411
These are routes from Dublin-Palma, Dublin-Venice, Dublin-Bilbao/Santander, Dublin-Marseille,
Dublin-Ibiza, Cork-Palma, Cork-Faro, Cork-Alicante and Cork-Barcelona.
412
These are routes from Dublin to London Gatwick, Manchester, Birmingham, Edinburgh, Bristol,
Malaga, Faro, Barcelona, Madrid, Berlin, Budapest, Alicante, Palma, Nice, Lanzarote, Gran Canaria,
Tenerife, Marseille, Ibiza, Fuerteventura and routes from Cork to Malaga, Faro, Alicante, Palma,
Lanzarote and Tenerife.
413
These routes are Dublin to Milan Malpensa / Milan Linate / Bergamo, Frankfurt / Frankfurt Hahn,
Rome Ciampino / Rome Fiumicino, Vienna / Bratislava, Paris CDG/ Paris Beauvais/Orly, Toulouse /
Carcassonne, Bilbao / Santander, Glasgow / Prestwick, Brussels / Charleroi, Venice / Treviso, Munich /
Memmingen, Warsaw / Warsaw Modlin, Stockholm Arlanda / Skavsta, Cork to Barcelona El
Prat/Girona/Reus, London Heathrow/Gatwick/Stansted, Manchester / Liverpool, Shannon to
Manchester/Liverpool, London Heathrow / Gatwick / Luton / Stansted / City and Knock to
Birmigham/East Midlands, London Heathrow / Gatwick / Luton / Stansted / City.
414
However this route would be a monopoly if the market only comprised air transport services between
Dublin and Bristol airport.
EN 117 EN
(475) Upon the Commission's request, Ryanair computed HHIs for all routes using
passenger data
415
. The HHIs are high in absolute terms, and often nearly double post-
Transaction, going up to 10 000 where the Transaction leads to a monopoly.
According to Ryanair, the lowest HHIs post-merger were 5009 in IATA winter
2011/12 and 5035 in IATA summer 2011 for the Knock-Birmingham route
416
. The
Commission disagrees with Ryanair's computation and, in fact, considers that a
monopoly on city basis would be created post-Transaction on the Knock-
Birmingham route. Despite already indicating a concentrated market, the HHI
computation by Ryanair on the Dublin-Stockholm route does not take into account
the significant market share increase by Aer Lingus on that route in summer 2012.
(476) Therefore, the Commission concludes that the Parties would have very high market
shares on all routes on which their activities overlap. For 28 routes the Transaction
would create a monopoly, depriving customers of the only available alternative. On
the other routes, given the very high market shares of the Parties, convincing
evidence is necessary to conclude that the Transaction would not result in the
creation or strengthening of a dominant position.
(477) The Commission has carefully analysed whether there are circumstances which
might exclude a significant impediment to effective competition as a result of the
creation of a dominant position despite the high market shares. In order to take due
account of the particularities of each route, the Commission has also analysed the
competitive situation and in particular the main factors that could counteract the
effects of the Transaction: closeness of competition (Section 8.4), and entry or
barriers to entry (Sections 8.5, 8.6 and 8.7). Furthermore, additional analysis is
conducted where relevant in the route-by route-assessment (Section 8.9).
8.4. Closeness of competition
(478) The Commission considers that Ryanair is in competition with Aer Lingus. In this
regard, the market investigation has not provided material indications that market
circumstances have changed since 2007. If anything, competition may have
increased between the Parties.
(479) It is worth noting that in response to the decision opening the proceedings Ryanair
has stated that it "is relatively little influenced by the activities of competitors"
417
.
Yet, Ryanair "does not claim that it belongs to "a market on its own" or that it does
not in any circumstance compete against Aer Lingus"
418
. Ryanair maintains a view
that, at least on the seven routes, where the merged entity would face competing
airlines, these competitors would exert a sufficient competitive constraint on the
merged entity post-Transaction.
(480) Based on the evidence collected in the investigation, the Commission considers that
it is clear that Ryanair and Aer Lingus (including Aer Arann) are in competition with
each other. Both Aer Lingus and Ryanair monitor prices of the other when setting
415
Ryanair' s response to the Commission's request for information of 20 September 2012, Annex Q 31.
416
This route is operated by Aer Arann.
417
Paragraph 18 of Ryanair's observations on the Article 6(1)(c) Decision.
418
Paragraph 18 of Ryanair's observations on the Article 6(1)(c) Decision.
EN 118 EN
their own prices on a given route
419
and they react to each other’s promotions and
advertising campaigns. Aer Lingus has confirmed that it "monitors in particular the
pricing of its main competitor, Ryanair, on routes served by both airlines at both the
airport and city pair level […] Ryanair's pricing has a direct effect on Aer Lingus
pricing. Aer Lingus sees a reciprocal effect in how Ryanair responds to Aer Lingus'
price changes"
420
. […]*
421
.
(481) Therefore, it is apparent that Aer Lingus and Ryanair compete on the routes covered
by this Decisison.
(482) The concept of "closeness of competition" may play an important role in better
understanding the competitive constraint exerted by different competitors on each
other in differentiated markets such as airline markets
422
. This concept is however of
limited added-value on markets in which from the outset only two competitors are
active (such as on the 28 duopoly markets affected by the Transaction), since both
competitors in a duopoly are by definition each other’s closest competitors
423
.
(483) For two airlines to be considered as offering services which are close substitutes to
each other it is not necessary that the two services are identical. Some services may
be closer substitutes than others. What matters from a substantive competition
perspective is the high degree of substitutability between the services of Aer Lingus
and Ryanair on the overlap city pairs.
(484) In view of this, it is considered that the analysis of closeness of competition will
focus on those competitors who actually compete with Ryanair and Aer Lingus on
the affected markets
424
. Therefore, it is relevant to compare the Parties, but also the
remaining competitors in the affected markets
425
.
(485) In this context, there is a strong presumption that the Parties are each other's closest
competitors in those markets where each of the Parties are by far the largest
competitors in terms of market shares
426
. This is obviously the case for the 28 merger
to monopoly routes, given that the Parties are by definition the closest competitors on
these routes. Even on those routes on which Ryanair and Aer Lingus face one or
more competitors, the distance in market share between the competitor(s) and each of
the Parties is in most cases significant. This is true for 11 routes where the Parties
face competition from charter companies. This approach is also in line with the 2010
judgement which notes "for example, that, on the 22 routes [i.e., 16 routes leading to
419
Prices in the airline sector are transparent.
420
Agreed minutes of conference call of 14 September 2012 with Aer Lingus, Section II.
421
See Annex 7.7 of Form Co[…]*.
422
See paragraphs 28-30 of the Horizontal Merger Guidelines.
423
Paragraph 89 of the 2010 Judgement. In the same line, see also OFT's findings in its decision
No. ME/4694/10 at paragraph 111: “On the five routes referred to in paragraph 109, where Ryanair
and Aer Lingus are the only operators, by the nature of a duopoly, the OFT considers the carriers are
likely to be closest competitors and the degree of substitutability between them especially high”.
424
Carriers such as easyJet might be “overall” closer to Ryanair than Aer Lingus as far as certain elements
(such as the service model) are concerned. However these carriers are not operating on the routes
analyzed in this Decision.
425
See Horizontal Merger Guidelines at paragraph 28: "[...] The merging firms' incentive to raise prices is
more likely to be constrained when rival firms produce close substitutes".
426
See the 2007 Decision, footnote 369.
EN 119 EN
monopoly and 6 other routes where the Parties face charter airlines] on which
Ryanair and Aer Lingus are the only airlines in operation, at present there are no
other airlines in a position to offer scheduled air transport services. On those
markets […] Aer Lingus thus remains Ryanair’s closest competitor"
427
. Furthermore,
on 4 out of the 7 remaining routes where the Parties are facing other scheduled
operators (namely, Dublin-Bristol/Cardif/Exeter, Dublin-London, Dublin-Madrid
and Dublin-Munich), the distance in market share between the competitor(s) and
each of the Parties is also significant.
(486) For the remaining 3 out of 7 routes, namely the Dublin-Stockholm
428
, Dublin-
Frankfurt, and Dublin-Paris routes, there are only three carriers (Ryanair, Aer Lingus
and the other incumbent carrier) with significant market shares, that is in the range of
[20-30]%, [30-40]% and/or [40-50]% depending on the route and IATA season.
However, even on those routes the Parties appear to be very close (if not the closest)
competitors of each other based on their business models, and generally the closest
competitors in terms of brand recognition, their well-established positions in Irish
airports and bases in Ireland.
(487) In response to the Decision opening the proceedings, Ryanair reiterated its claim that
product offerings of both airlines are significantly different, in particular in terms of
fares, services and airports, and insisted that the question of closeness of competition
should be addressed on a route-by-route basis, in particular given the differences of
competitive conditions on many overlap routes.
(488) Individual route-by-route assessment of closeness of competition will be set out in
Sections 8.9.5-8.9.6 for those routes, where the merged entity will face competition
from other carriers.
(489) The following Sections 8.4.1-8.4.3 will address general arguments in relation to
closeness of competition, concerning the Parties' strong market position on routes ex-
Ireland and their business model and brand and their significant bases in Ireland. In
the final Section concerning the closeness of base operations of the Parties. There,
the Commission will first describe the advantages arising from base operations, such
as increased flexibility in reacting to demand side (or supply-side) shocks, and cost
savings arising from economies of scale and scope, and will then analyse the
closeness of base competition between airlines with bases in Ireland and those with
bases at the destination airports. Lastly Section 8.4.4 will outline the Commission's
price regression analysis.
8.4.1. Ryanair and Aer Lingus have the strongest market positions on routes ex-Ireland
(490) Based on the evidence collected in the market investigation it is concluded that
Ryanair and Aer Lingus have a particularly strong position in Ireland. The
Transaction would lead to a monopoly on the 28 out of 46 routes concerned by this
Decision. Even on routes where both airlines face competition, the position of their
competitors is, in most cases, significantly weaker than the Parties’ combined
position.
427
Paragraph 89 of the 2010 Judgement.
428
The Dublin-Stockholm route is specific in the sense that entry by Aer Lingus is very recent.
EN 120 EN
(491) Ryanair has not contested the Commission's conclusion that Ryanair and Aer Lingus
have a particularly strong position in Ireland in its response to the Decision opening
the proceedings
429
. However, in its response to the Statement of Objections, Ryanair
has considered that the Commission's attempt to show that there is high degree of
substitutability between Ryanair and Aer Lingus by reference to their market position
in Ireland was unsubstantiated within the meaning of paragraphs 28-30 of the
Horizontal Merger Guidelines
430
, albeit without giving further explanations.
(492) As acknowledged in the 2007 Decision, the Commission considers that the fact that
both carriers have equally strong positions in Ireland and face few competitors out of
Dublin is a relevant consideration, among a number of elements, leading to the
conclusion that Ryanair and Aer Lingus are each other closest competitors
431
. The
Commission considers that there are no material indications that market
circumstances have changed since 2007 to an extent, that would warrant a different
approach in the present Decision.
(493) Ryanair and Aer Lingus serve the single largest number of destinations ex-Dublin;
the operations of Ryanair and Aer Lingus currently overlap on 48 routes out of
Ireland. Aer Lingus and Ryanair also accounted for the largest share of passenger
traffic at Dublin airport compared to the next largest carriers. Both Ryanair and Aer
Lingus accounted for approximately [30-40]*% of passengers ex-Dublin in 2011,
whereas all other carriers combined (for example, IAG, Lufthansa, Air France)
accounted for less than [20-30]%*. Table 27 shows that, compared to the situation in
2007, the combined share of Ryanair and Aer Lingus of European departing seats at
Dublin airport has increased from [80-90]*% (2007) to [80-90]*% (2012). Therefore,
if anything, concentration on European short-haul flights ex-Dublin has steadily
increased, and the combined position of the Parties has strengthened since 2007.
Table 27: Ryanair and Aer Lingus share of European departing seats as % of European departing seats at
Dublin
432
Year
Ryanair
(‘000)
Aer
Lingus
(‘000)
Total
(‘000)
%
Ryanair
% Aer
Lingus
Combined
Ryanair/Aer
Lingus
Share
2007
[…]*
[…]*
[…]*
[40-50]*%
[30-40]*%
[80-90]*%
2008
[…]*
[…]*
[…]*
[40-50]*%
[30-40]*%
[80-90]*%
2009
[…]*
[…]*
[…]*
[40-50]*%
[30-40]*%
[80-90]*%
2010
[…]*
[…]*
[…]*
[40-50]*%
[40-50]*%
[80-90]*%
2011
[…]*
[…]*
[…]*
[40-50]*%
[40-50]*%
[80-90]*%
2012
[…]*
[…]*
[…]*
[40-50]*%
[40-50]*%
[80-90]*%
429
See paragraph 4 of Annex I to Ryanair's observations on 6(1)(c) Decision.
430
See paragraph 13 of Ryanair's response to the Statement of Objections.
431
See Section 7.3.1 of the 2007 Decision.
432
See Ryanair's response to the Commission's request for information of 6 August 2012, Table A in
paragraph 8.4. Rounding effects.
EN 121 EN
(494) The figures in Table 27 also show that in number of seats, Aer Lingus has remained
rather stable over the period, […]*.
(495) The information provided by the DAA
433
also demonstrates the strengthening of the
market positions of Aer Lingus and Ryanair at Dublin airport over the last five years.
The combined share of European point-to-point passenger volumes of Ryanair and
Aer Lingus increased from 73% in 2007 to 85% in 2011
434
. Overall slot capacity
allocated at Dublin airport to the Parties increased from 60% (2008) to 75% (2012)
and the allocation of peak slot capacity from 80% (2007) to 90% (2012)
435
.
Currently, Ryanair and Aer Lingus are the two largest customers of DAA accounting
for 82% of total traffic (in the first half of 2012), while the remaining 18% are
divided among over 60 other airlines
436
.
(496) The DAA data
437
demonstrates furthermore that the short-haul passenger services
market has become more concentrated over the last 5 years. The number of overlap
routes has increased from 35 to 48
438
over the last five years. Although in 2011 the
Parties overlapped on 48 out of 139 routes from the airports managed by the DAA,
these 48 routes represented around 78% of the total short-haul capacity for both
airlines across Dublin, Cork and Shannon airports, compared to 65% for the 35
routes that overlapped in 2007. These 48 overlap routes (including the 44 out of 46
routes concerned by this Decision
439
) comprise 8 of the 10 most important routes to
or from Dublin (on airport-to-airport basis).
440
The number of duopoly overlap routes
has increased from 16 in 2007 to 28 in 2012, and the number of routes where the
parties face compeitition only from the sale of dry seats by charter operators has
increased from 6 in 2007 to 11 in 2012. In 2012 the Parties operated around 90 non-
competing routes out of Dublin, Cork and Shannon airports, while in 2007 they
operated 122 non-competing routes. Other evidence collected by the Commission in
the market investigation has also confirmed that the competitive relationship between
Ryanair and Aer Lingus has at least persisted, if not increased, since 2007
441
.
433
DAA is a state-owned company entrusted with the operation, management and development of Dublin,
Shannon and Cork airports. These three airports account for 46 of the 48 overlap routes concerned by
this Decision. The Parties' respective position in Knock airport has no bearing on the competitive
assessment, given that the two routes out of Knock concerned by this Decision (i.e., Knock-London and
Knock-Birmingham/East Midlands) are duopoly routes, where the Parties are by definition each other's
closest competitors.
434
DAA, responses to questions 13 of questionnaire Q5 - Dublin Airport Authority.
435
DAA, responses to questions 13 of questionnaire Q5 - Dublin Airport Authority.
436
DAA, response to question 24 of questionnaire Q5 - Dublin Airport Authority.
437
DAA, response to question 24 of questionnaire Q5 - Dublin Airport Authority.
438
The figure in this recital concerns the year 2011 and therefore includes the Dublin-Krakow, Dublin-
Vilnius/Kaunas, and Dublin-Verona routes, which are no longer operated by either of the Parties and
that are not concerned by this Decision. The figure above also includes the Cork-Gran Canaria route,
which is not concerned by this Decision. However, this figure does not include the overlap routes from
Knock to London and Birmingham/East Midlands, which are not managed by the DAA.
439
The remaining two routes concerned by this Decision are the routes from Knock to London and
Birmingham/East Midlands, as Knock airport is not managed by the DAA.
440
Namely, London (Heathrow, Stansted, Gatwick), Manchester, Paris (CDG), Birmingham, Frankfurt,
and Malaga.
441
See responses to question 24 of Questionnaire Q1 - Competitors Q1, responses to question 29 of
Questionnaire R2 - Tour Operators, and responses to question 12.4 of Questionnaire Q2 – Travel
Agents.
EN 122 EN
(497) Therefore, the Commission considers that the Parties have by far the strongest
market positions in Ireland
442
. Therefore, the Commission concludes that Aer Lingus
and Ryanair are each other's closest competitors in terms of their overall market
positions in Ireland.
8.4.2. Business models: operations and brand
(498) As pointed out in Section 7.1, carriers are highly differentiated and do not often fulfil
all characteristics of a particular category (full service or low frills model, or pure
network carriers and point-to-point carriers).
(499) Ryanair claims that it has a unique business model and that "it would be
uncontroversial to any traveller who has flown both airlines that its product offering
is significantly different from that of Aer Lingus in terms of services, fares and
airports"
443
, and that "in pricing and product terms other low fare airlines such as
easyJet, Norwegian, and Wizz Air are more similar to Ryanair than Aer Lingus is to
Ryanair”
444
.
8.4.2.1. Services offering
(500) The comparison of service offering is a relevant factor for assessing the closeness of
competition between carriers
445
.
(501) As regards the services offering, Ryanair submits, inter alia, that other low fares
airlines are more similar to Ryanair than Aer Lingus. Unlike Ryanair, Aer Lingus
targets business customers (through flexi fares) and provides services on a
connecting basis through Dublin and under various partnership agreements
(including code share agreements with various airlines and its franchise agreement
with Aer Arran)
446
. According to Ryanair, the Commission's admission that Ryanair
now offers seat reservations and priority boarding products is only further evidence
that Commission's no frills or low frills analysis is incorrect
447
.
(502) First it is to be noted that easyJet, Norwegian and Wizz Air are not competitors
currently flying on the routes subject to this Decision. The analysis of closeness of
competition must focus on those competitors who actually compete with Ryanair and
Aer Lingus on the affected markets.
(503) Moreover, there are a number of elements that differ in the services offered between
Aer Lingus and Ryanair. As set out in Section 7.1.2, Ryanair describes itself as an
ultra low-fares or low cost carrier and it operates point-to-point no-frills services.
442
In response to Decision opening the proceedings, Ryanair claimed that the Commission did not support
with evidence a conclusion that Ryanair and Aer Lingus have a particularly strong position in Northern
Ireland. However the routes from Northern Ireland are not concerned by this Decision and therefore will
not be analysed further.
443
Paragraph 18 of Ryanair's observations on the Art. 6(1)(c) Decision.
444
Paragraph 18, fifth indent, of Ryanair's observations on the Art. 6(1)(c) Decision.
445
Paragraph 90 and ff. of the 2010 Judgement.
446
Aer Lingus' response to questions 2.2 and 2.3 of the Commission's request for information of 3 July
2012.
447
Paragraph 6 of Annex 1 to Ryanair's observations on the Art. 6(1)(c) Decision.
EN 123 EN
Although Ryanair operates mostly to secondary or regional airports, its business
model does not prevent it from operating in central airports, where Aer Lingus is
present
448
(on 27 of the city pairs
449
concerned by this Decision, Ryanair and Aer
Lingus both fly to the same airport). According to Ryanair, it targets only price-
sensitive leisure passengers, and all Ryanair passengers are asked to check-in online
(or pay a charge at the airport) and pay for food and drinks and checked-in luggage.
(504) Aer Lingus operated as a traditional full service carrier until 2001, when it
introduced a low-fares model to compete with low-cost carriers. Following the global
economic and financial crisis in 2008, Aer Lingus initiated a review of its business
model and since 2009 emphasised it's positioning as a value carrier between the low
cost and full service carriers, with a strong core product and offering additional paid
options. Aer Lingus offers business lounges, frequent flyer programme and flies into
central airports, however at a more competitive prices than most of the legacy
carriers
450
. As such, Aer Lingus targets both leisure or NTS and business or TS
passengers. As a result of business model changes, Aer Lingus has introduced a few
differentiated and discretionary product options (flexi-fare targeting business
passengers and plus-fare tickets
451
). With respect to connecting traffic, the most
significant change was in expansion of the partnerships with airlines on its own long-
haul business (with United Airlines and JetBlue), and the franchise agreement with
Aer Arran. According to Aer Lingus, the partnerships with airlines for its' short-haul
business within Europe has already been a consistent element of the Aer Lingus
model before the introduced changes in 2009
452
.
(505) This view was also confirmed by the responses to the market investigation, showing
there was some differentiation in terms of brand and service offering between Aer
Lingus and Ryanair
453
.
(506) Indeed, in 2009-2010, Aer Lingus revised its strategic direction and positioned itself
as a value carrier. It considered that the pure low cost and low fares model was not
sustainable while a full service model would not be viable in serving its key markets.
The market positioning adopted by Aer Lingus was shown as follows:
448
This was also recently evidenced by Ryanair's decision to move a number of flights from Kaunas
airport (secondary) to Vilnius International airport (primary). See The Baltic Course, Ryanair moves 5
routes from Kaunas to Vilnius, 27 July 2012, available at http://www.baltic-
course.com/eng/transport/?doc=60595, accessed on 18 October 2012 and Aer Lingus' response to
question 2.1 of the Commission's request for information of 3 July 2012.
449
On the Dublin-London route, both Ryanair and Aer Lingus fly to London Gatwick airport. In addition
Aer Lingus operates to London Heathrow airport, while Ryanair flies to London Luton and London
Stansted airports. On the Dublin –Milan route, both Ryanair and Aer Lingus fly to Malpensa, while Aer
Lingus flies also to Linante airport.
450
Aer Lingus' response to question 2 of questionnaire Q1 - Competitors.
451
Flexi Fare tickets offer refundability and free changes in addition to some ancillary elements, such as
two checked bags, seat selection, and lounge access free of charge. For Plus fare tickets Aer Lingus
allocates the same fare revenue as for Low fares, but it includes some ancillary elements, such as one
checked-in luggage and seat allocation free of charge.
452
Aer Lingus response to question 2.3 of the Commission's request for information of 3 July 2012.
453
See responses to question 32 of questionnaire Q1 - Competitors.
EN 124 EN
Figure 3: Aer Lingus’ comparative view of its service offering
Source: Aer Lingus
454
(507) In the analysis of closeness of competition, for two airlines to be considered as
offering services which are close substitutes for each other, it is not necessary that
the two services are identical. Although Aer Lingus' services can be regarded as mid-
frills when compared to Ryanair, whose services are no-frills, the Commission
considers that the services included in the Ryanair fare base are closer to those
included in the Aer Lingus base fare than to services of traditional full-service
airlines, which are in stark contrast to Ryanair.
(508) The other scheduled carriers that operate on the affected routes are mainly traditional
flag network carriers that provide full service and for whom feeder-oriented traffic
and business customers are important (for example Air France, through its subsidiary
City Jet, IAG - British Airways, Iberia, Lufthansa or SAS)
455
. All these flag carriers
also belong to worldwide alliances. Therefore they offer services that are not offered
at all by Ryanair, and are not offered to any significant extent by Aer Lingus.
(509) The Commission considers that operations of network carriers on a particular route
are essentially driven by the number of transfer passengers they can feed into their
454
Aer Lingus, Our Strategy, available at http://corporate.aerlingus.com/companyprofile/ourstrategy/
visited on 22 October 2012. It is to be noted that since 2010, Aer Lingus has improved its check-in
offering, including web, mobile, same day return cehck-in, self service at an airport together with
check-in desk availability, which is now more comparable to full service carriers.
455
See responses to questions 2 and 3 of questionnaire Q1 - Competitors.
EN 125 EN
network.
456
Both Ryanair’s and Aer Lingus’ primarily "point-to-point" operating
model differs from “feeder-oriented” services of network carriers. Although Aer
Lingus provides incremental services on a connecting basis through its base/hub in
Dublin and under various partnership agreements
457
, Aer Lingus' primary operations
remain on a scheduled point-to-point basis.
458
On its corporate website Aer Lingus
explains that the full service model is not competitive for its operations, because
Dublin hub is in a disadvantageous geographical position for short-haul connecting
flows"
459
. This is further evidenced by the submission of Aer Lingus, that it remains
the case that "the majority of Aer Lingus traffic is point-to-point"
460
. In fact on most
of the routes of concern, where full service operators are active, these latter have
carried a higher ratio of connecting passengers than Aer Lingus
461
.
(510) There is only one route, the Dublin-Bristol/Cardiff/Exeter route, where a competitor
– Flybe - with a mid-frills model is active. Although Flybe serves both business and
leisure market segments,
462
Flybe has confirmed that there is an important product
differentiation not only between Flybe and Ryanair, but also between Flybe and Aer
Lingus
463
. However, in any event, Flybe is a distant competitor of both Ryanair and
Aer Lingus on the Dublin-Bristol/Cardiff/Exeter route, in particular because its
market share on this route is very low
464
.
456
See responses to questions 2 and 3 of questionnaire Q1 - Competitors. See also agreed minutes of
conference call of 11 October 2012 with Air France and agreed minutes of conference call of 5 October
2012 with SAS.
457
That is (i) a codeshare agreement with KLM for flights from Dublin and Cork to Amsterdam, on which
KLM has a marketing code for connecting passengers only; and (ii) a codeshare agreement with British
Airways for transfer of passengers from Dublin, Cork, Shannon and Belfast to British Airways' long-
haul network via London Heathrow airport; (iii) a franchise agreement with Aer Arran with respect to
regional airports of the United Kingdom, (iv) a codeshare agreement with Etihad with respect to flight
to/from United Arab Emirates, (v) a codeshare agreement with United Airlines with respect to
transatlantic flights and certain European routes, (vi) cooperation agreement with JetBlue with respect
to transatlantic routes and (v) interline agreements with several other airline for the provision of feeder
traffic through London Heathrow airport. See Aer Lingus' response to questions 2.2 and 2.3 of
Commission's request for information of 3 July 2012 and Aer Lingus' response to question 2 of
Commission's request for information of 3 July 2012.
458
"This incremental source of traffic has increased the viability of short-haul operations to Dublin
airport" (see Aer Lingus' response to question 2.4 of Commission's request for information 3 July
2012).
459
Aer Lingus, Our Strategy, available at http://corporate.aerlingus.com/companyprofile/ourstrategy/
visited on 22 October 2012.
460
Aer Lingus, response to question 2 of Questionnaire Q1 - Competitors. See also Aer Lingus' response to
question 2.2 of the Commission's request for information of 3 July 2012.
461
See responses of Lufthansa, SAS, IAG, Air France and Aer Lingus to Annex II "Your data" of
Questionnaire Q1 - Competitors. On the Dublin-London route, Air France carried a smaller proportion
of connecting passengers than Aer Lingus. However, given the small presence of Air France on this
route, this has no effect on the competitive assessment.
462
According to Flybe's Annual Report 2011/2012, "During calendar year 2011, 41.6% of Flybe’s
passengers were travelling on business, 29.7% of passengers stated they were ‘visiting friends or
relatives’ (‘VFR’) and 23.7% were flying for a holiday or break" (Flybe Annual report 2011/2012, page
5).
463
Flybe response to question 23 of Commission's request of information of 20 November 2012 and
reponse to question 1 of Commission's request of information of 28 November 2012.
464
See Section 8.9.5.1 for a detailed analysis of Dublin-Bristol/Cardiff/Exeter route.
EN 126 EN
(511) As regards the "frills" spectrum, Ryanair also acknowledged that "it is clear that
among scheduled carriers Ryanair sits at one end of the spectrum, full service
network carriers such as British Airways, Air France and Lufthansa sit at the other
end of spectrum, and Aer Lingus falls in between"
465
. However, Ryanair claims that
although "in the context of "frills" spectrum, Aer Lingus service offering will
generally be somewhere between Ryanair and a network carrier, it does not follow
that Aer Lingus and Ryanair are, in every case, each other's closest competitor" and
that on at least 7 routes "Aer Lingus' service offering is considerably closer to that of
major network carriers than to Ryanair's"
466
. According to Ryanair, the differences
between Ryanair and Aer Lingus service offering are qualitatively substantial, while
the differences between Aer Lingus and full service offering are minor. In particular,
unlike Aer Lingus and full service carriers, Ryanair claims that these key differences
include the fact that Rynair does not operate to primary hub airports, does not offer
multiple check-in methods, flexible fares, business lounges, allocated seating, fast
track check-in and does not carry children unaccompanied
467
.
(512) However, the Commission considers that the services offering of Ryanair on the
short-haul flights ex Ireland is closer to Aer Lingus' than to the service model mix
offered by network carriers. As regards the service offering of Aer Lingus on short-
haul routes out of Ireland, the Commission considers that it is also very close (if not
the closest) to Ryanair's.
(513) First, full service/network carriers operate into main airports (their "hubs"), offer
wider connectivity options and mostly provide full-service.
(514) Secondly, both Ryanair and Aer Lingus apply true one-way pricing models (that is to
say that a passenger pays the same price for a ticket regardless of whether it is
purchased as part of the return journey)
468
. Lufthansa,
469
IAG (British Airways
470
and
Iberia
471
), and Air France (on the Dublin-Paris route)
472
do not offer true one-way
pricing on the routes of concern. However SAS on the Dublin-Stockholm route and
Air France/CityJet on the Dublin-London route sell true one-way tickets.
465
Paragraph 19 of Ryanair's observations on the Art. 6(1)(c) Decision.
466
Ryanair's response to the Statement of Objections, paragraphs 13-14.
467
Ryanair's response to the Statement of Objections, paragraphs 16-17.
468
Aer Lingus' response to question 7 of the Commission's request for information of 20 September 2012.
469
Lufthansa sells only a very limited number of one-way tickets on flights from Dublin to Frankfurt and
Munich, as its business model is based on return tickets (see agreed minutes of conference call of 9
September 2012 with Lufthansa).
470
BA does not sell "true" one-way-tickets. It favours the sale of return tickets over one-way-tickets.
British Airways also offers fenced (i.e., restricted) fares, determined by the rules such as a "Saturday
night stay" rule (see agreed minutes of conference call of 10 October 2012 with IAG).
471
Iberia's fare structure in the economy cabin is mostly based on one-way fares replicating the low cost
model, but the first two steps of the fare ladder are return fares. Iberia does not apply a Saturday night
stay rule on the Dublin-Madrid route (see agreed minutes of conference call of 10 October 2012 with
IAG and IAG email of 26 October 2012).
472
Air France offer return fares on Dublin-Paris route (see agreed minutes of conference call of 11 October
2012 with Air France). Air France also offers highly fenced (that is to say, restricted) fares, determined
by rules such as "Saturday night away", "same day return" (see Aer Lingus' response to question 3 of
the Commission's request for information of 20 September 2012).
EN 127 EN
(515) Thirdly, as for Ryanair, the vast majority of Aer Lingus short-haul fares are one-way,
one-class and restricted non-refundable tickets. Aer Lingus confirmed that, compared
to 2007, it remains the case that the vast majority of Aer Lingus’ short-haul fares are
one-way restricted tickets (non-refundability and changes being subject to additional
fees and fare difference). Aer Lingus allocates the same fare revenue for both Low
fare and Plus Fare tickets; the only difference is accounted in bundling of ancillary
products, such as free checked-in luggage and seat selection. Aer Lingus' Flexi Fare
tickets offer refundability and free changes plus other ancillary elements
473
; however
Flexi Fares (and Plus Fares) represent only a very small portion of Aer Lingus
sales
474
. On the contrary, Lufthansa
475
, British Airways
476
, Iberia
477
, Air France
478
and SAS
479
offer a larger variety of fare classes on the routes of concern (with
varying degrees of flexibility, often using "fare fencing" and return fares).
(516) As in 2007, it also remains the case that both companies operate a single class
economy cabin on their European short-haul flights, while this is not the case for full
service operators on the routes of concern
480
. Several full service providers strongly
target business and TS customers, and in particular Lufthansa on Dublin-Frankfurt
and Dublin-Munich routes (where TS passengers were estimated at [80-90]% in
summer 2012 season)
481
and Air France/CityJet on Dublin-Paris and Dublin-London
routes (where TS passengers were estimated at [60-80]% in the last three IATA
seasons)
482
. IAG (British Airways and Iberia) and SAS also operate business cabin
and estimate that [10-20]%
483
, [5-10]%
484
and, respectively, [10-20]%
485
, of their
473
E.g., two checked bags free of charge, seat selection, date/time changes, refundability, access to
frequent flyer programme and business lounges.
474
Aer Lingus' response to question 1 of the Commission's request for information of 3 July 2012 and Aer
Lingus' response to question 7 of Commission's request for information of 20 September 2012.
475
Lufthansa offers a variety refundable/changes permitted fares, non-refundable/changes subject to extra
changes and non-refundable/restricted tickets in the First, Business or Economy class (see Lufthansa's
email of 26 October 2012).
476
In Club Europe (business class) cabin IAG (British Airways) offers Fully flex fares, "Prem leisure"
fares (with Saturday night stay restriction, or with Saturday might stay required and 30-day fare apex),
and "Prem redemptions", while in Euro Traveller cabin (economy class) - Fully flex, Semi-flex fares,
Long-haul transfer & Late leisure return fares, Group fares, and Economy redemptions (see IAG email
of 26 October 2012).
477
In the business cabin IAG (Iberia) offer fares without conditions, while in the economy cabin: fares
(baggage and seat reservations included) and fares (baggage and seat reservations at extra-surcharges).
Iberia also sells return tickets, but does not apply a "Saturday night stay" rule (see IAG email of 26
October 2012).
478
Air France offers business fares, full flex fares (change and refund possible), week fares (no refund,
changes with charges), and stay fares (obligation of Sunday rule or 3 nights) on Dublin-Paris route; and
Full flex CityPlus, Semi-flex CityValue and Semi-restricted CityValue fares on Dublin-London route
See email of Air France of 30 October 2012.
479
SAS offers three ticket classes, namely business class, economy flex and economy tickets (see SAS
email of 29 October 2012).
480
Long-haul flights operated by Aer Lingus are not relevant for the present analysis. See business class
descriptions for Lufthansa, for IAG/British Airways/bmi/Iberia, for Air France/CityJet, and for SAS.
481
Lufthansa, response to Annex II "Your data" of questionnaire Q1 - Competitors, where Lufthansa
estimates that over 80% of passengers were time-sensitive over the last IATA season.
482
See agreed minutes of conference call of 11 October 2012 with Air France, and Air France's response to
Annex II "Your data"of questionnaire Q1- Competitors.
483
British Airways and Air France responses to Annex II "Your data" of questionnaire Q1 – Competitors.
484
IAG/Iberia response to Annex II "Your data" of questionnaire Q1 - Competitors.
485
SAS response to Annex II "Your data" of questionnaire Q1 - Competitors.
EN 128 EN
passengers are TS passengers on the routes of concern. On the contrary, Ryanair
argues that it does not specifically target business customers. Aer Lingus also
confirms that its sales of Flexi-fare and Plus fare tickets represents a very small
portion of overall sales and that the sales of these ticket in any event would "not
accurately reflect the level of business / time sensitive passengers carried by Aer
Lingus"
486
. […]*
487
.
(517) In addition, the Commission considers that the fact that Aer Lingus offers limited
access to frequent flyer programme and business lounges does not amount to a
substantial difference in the overall service offering between Ryanair and Aer
Lingus. Only Aer Lingus' Flexi fare passengers and the passengers who have accrued
a sufficient number of points to qualify for Aer Lingus frequent flyer programme
(The Gold Circle Club
488
) or the passengers who opt for "pay-as-you-go" access at a
small number of airports (for example, Dublin and Heathrow), can enjoy access to
business lounges. However, as set out above flexi fares still represents a very small
portion of Aer Lingus sales. Furthermore, the frequent flyer program of Aer Lingus
differs from programmes offered by full service carriers in that Aer Lingus rewards
members for the number of flights booked, while the programmes of most full
service carriers (including BA and Lufthansa) base rewards by reference to the level
of fares,
489
that is, in order to reward less price sensitive passengers.
(518) Furthermore, it is important to note that Ryanair's service offering has also evolved
over time to include various ancillary paid options proposing new services to
passengers. According to Ryanair's half year results "Ancillary revenues increased by
20% to €583.8m, faster than the 7% increase in passenger volume, due to a
combination of an improved product mix, the network roll out of reserved seating,
and higher internet related revenues."
490
(emphasis added) Contrary to 2007,
Ryanair now offers both priority boarding and reserved seating at an additional
charge. Aer Lingus' reserved seating is free only for those passengers who can avail
themselves of Flexi-fare and Plus fare tickets which account for a very small
percentage of sales.
491
Both Ryannair and Aer Lingus impose ancillary charges for
baggage, food and drinks
492
, facts which further differentiate them from full service
network carriers that do not charge for checked-in baggage (or allow at least one
piece) and offer some level of complimentary food or beverage onboard. In this
context it is to be noted that Ryanair's response to the SO omits to consider these
486
Flexi Fare offers refundability and free changes together with ancillary elements, but "flexi [fare] tickets
represent a very small portion of overall sales" (Aer Lingus' email dated 23 July 2012). See also Aer
Lingus' response to questions 1.1-1.4 of the Commission's request for information of 3 July 2012 and
Aer Lingus' response to question 8 of the Commission's request for information of 2 August 2012.
487
[…]*.
488
Gold Circle Points can be earned when travelling on any valid Aer Lingus or partner airline scheduled
flight (source: www.aerlingus.com).
489
Aer Lingus, response to question 1 of Commission's Request for Information of 30 November 2012.
490
Ryanair Half Year Results 2013, available at
http://www.ryanair.com/doc/investor/2013/q2 2013 doc.pdf, accessed on 3 December 2012
491
Aer Lingus, Fees & Fares, available at http://www.aerlingus.com/help/help/feesfares/#d.en.1583,
accessed on 14 January 2013.
492
Free checked luggage is offered by Aer Lingus as part of Flexi-fare and Plus fare ticket, while free
food.drinks are offered only for flexi-fare passengers. Flexi-fare and Plus fare ticket still represent a
minor portion of Aer Lingus sales on European short haul flights.
EN 129 EN
further aspects of service offering that are very similar between Ryanair and Aer
Lingus and differentiate them from full service carriers
493
.
(519) Further elements also differentiate full service carriers from Ryanair and Aer Lingus,
including greater seat pitch in economy class
494
, higher ratio of crew to
passengers
495
, and options for children carried unaccompanied under the age of 12
years
496
offered by full service carriers.
(520) Other evidence collected in the market investigation also supports the view that Aer
Lingus and Ryanair indeed are very close ( if not the closest) competitors in terms of
quality and sophistication of the product on the routes of concern: for instance,
according to mid-frills carrier Flybe, "Aer Lingus’s short haul model utilises Airbus
aircraft and has in recent years moved more towards the Ryanair model in its
ambition to operate at high load factors ( 75% plus), with similar yield management
policies, high density seating, and a broad range of ancillary revenue charges for the
customer. Although there are certain facilities to attract the business passenger, such
as a frequent flyer programme and business lounges and assigned seating, in Flybe’s
view the proposition to the majority of their customers is low ticket prices, similar to
Ryanair, which is its biggest short haul competitor. Aer Lingus’s regional operations
are conducted through Aer Arann as a franchise of Aer Lingus. These are delivered
by relatively old ATR turboprop aircraft on routes that cannot justify Airbus
operations due to their small scale. Again the main proposition to the customer is
price"
497
.
(521) In addition, both Ryanair and Aer Lingus realise most of their bookings from the
internet rather than via travel agents. Ryanair sells almost all its tickets through its
own website with […]* sold through call centres and airport ticket desks. In 2010-
2011 Aer Lingus sold [80-90] % of its tickets through direct sales channels (that is,
online or via call center) as opposed to only [10-20] % sold indirectly on the routes
to and from Ireland
498
. In the Irish market Aer Lingus distributes its short haul flights
exclusively through direct channels (particularly, aerlingus.com)
499
. This is in sharp
contrast to, for example, IAG (British Airways) that realised only [30-40] % tickets
directly and over [60-70] % through indirect channels, such as travel agents
500
. These
results of the market investigation are in line with the view that full service or
network carriers more widely distribute fares through Computer Reservation Systems
493
See table in paragraph 17 of Ryanair's response to the Statement of Objections.
494
According to Aer Lingus, full service carriers offer up to 10% greater seat pitch in economy than Aer
Lingus (response to question 1 of Commission's request for information of 30 Novemeber 2012.
495
For example, with regard to Airbus A320 aircraft, Aer Lingus has a single cabin with 4 cabin crew with
a crew to passenger ration of 1:43. In contrast with BA, for example, the ration of crew to passengers is
1:40 or even lower in club cabin (Aer Lingus, response to question1 of Commission's request for
information of 30 Novemeber 2012).
496
On Aer Lingus short haul European flights, children under 12 years must be accompanied by an adult
aged 16 years or older. The policies of full service airlines generally permit children under 12 subject to
payment of a fee (Aer Lignus, response to question 1 of Commission's request for information of 30
Novemeber 2012). Ryanair does not carry children unaccompanied.
497
Flybe, response to question 1 of Commission's request for information of 28 November 2012
498
Aer Lingus, response to question 6 of questionnaire Q1 - Competitors and Aer Lingus' email of 28
September 2012.
499
Aer Lingus, response to question 1 of the Commission's Request for Information of 4 December 2012.
500
IAG, response to question 6 of Questionnaire Q1 - Competitors.
EN 130 EN
("CRSs") and have much lower level of direct or online sales compared to Ryanair
and Aer Lingus
501
.
(522) Ryanair further argues that on the routes, where Aer Lingus flies to primary hub
airports along with another network carrier, while Ryanair flies to a secondary
airport, it is simply not credible to claim that the Parties are the closest competitors.
From Ryanair's viewpoint, the market shares in this context would significantly
overstate the position of the merged entity.
(523) In this respect, the Commission notes that it remains the case that on the majority
(namely, 27
502
out of 46) of the city pairs concerned by this Decision, Ryanair and
Aer Lingus both fly to the same airport. On a further 14 routes, Ryanair and Aer
Lingus fly to different airports; however, all these routes are merger to monopoly
routes, where Ryanair and Aer Lingus are by definition the closest competitors.
(524) On the other hand, for the remaining routes (in particular Dublin-Frankfurt, Dublin-
Munich, Dublin-Paris, and Dublin-Stockholm), the fact that the Parties fly to
different airports needs to be taken into account on an individual basis. However, as
analysed in the individual route-by-route assessment, there are other important
differences between the competing carriers (that operate to the same airports as Aer
Lingus) and the Parties on these routes.
503
On the routes, where the Parties fly to
different airports, it is clear that Ryanair's closest competitor is Aer Lingus. It is also
apparent that Aer Lingus is a very close (if not the closest) competitor to Ryanair in
comparison to other full service carriers. Aer Lingus and Ryanair appear as very
close (if not the closest) in terms of services offering and business models.
Furthermore, Ryanair and Aer Lingus are the closest competitors with respect to Irish
originating passengers, due to their well-established positions in Irish airports, brand
recognition and base presence in Ireland. The competitive constraints exercised by
individual competitors will be discussed in detail in the individual route-by-route
analyses.
(525) Regarding charter companies, the services offering is generally different from that of
scheduled carriers, like Ryanair and Aer Lingus. The sales of seat only flight tickets
is of secondary importance for charters companies, unlike for Ryanair or Aer Lingus.
(526) As regards the sale of dry seats, as set out in Section 7.6.1.3, some respondents to the
market investigation pointed out that charter flights are of inferior quality when
compared to scheduled flights not least because of the limited capacity of dry seats
and the limited visibility to consumers (in addition to the frequencies and fare
price)
504
. "The typical travel customer would not be aware of the existence of dry seats
501
Aer Lingus, response to question 1 of Commission's Request for Information of 30 November 2012.
502
On the Dublin-London route, both Ryanair and Aer Lingus fly to London Gatwick airport. In addition
Aer Lingus operates to London Heathrow airport, while Ryanair flies to London Luton and London
Stansted airports. On the Dublin –Milan route, both Ryanair and Aer Lingus fly to Malpensa, while Aer
Lingus flies also to Linante airport.
503
See Sections 8.9.5.2-3 and 8.9.5.5-7 for individual route assessment.
504
See for example Aer Lingus, response to question 15.3.1 of questionnaire Q1 - Competitors, Wizz Air,
response to question 15.3.1 of questionnaire Q1 - Competitors, Ebookers, response to question 10.1 of
questionnaire Q2 - Travel Agents, or Expedia, response to question 9.2 of questionnaire Q2 - Travel
Agents.
EN 131 EN
as a) customers are not generally aware that charter airlines offer flight-only seats b)
these would usually only be available via a tour operator, who do not generally
specialise in last-minute travel and c) it is difficult to envision how a charter flight
would effectively sell last minute dry seats due to their business model generally
favouring the packaged approach and not being set-up for such sales."
505
In addition,
the responses of competitors, travel agents, tour operators and corporate customer
confirm the view that charter companies are not the closest competitors to either of
the Parties.
(527) In any event, further comparison of closeness in the level of charter services for dry
seats vis-à-vis the Parties (for example, in terms of fare types) would have no
material impact on the current competitive assessment, in particular given the
negligible activities of charter companies on the routes concerned subject to this
Decision.
(528) Therefore, it is concluded that, even if not identical, Ryanair’s services offering is
the closest to that of Aer Lingus in comparison with other carriers on the routes
subject to this Decision. Furthermore, it is considered that Aer Lingus’ level of
services is also generally very close (if not the closest) to that of Ryanair in
comparison with other carriers on the routes subject to this Decision
506
.
8.4.2.2. Brand recognition
(529) Ryanair claims that brand awareness is not an important competitive factor. Given
that competition in the Irish market is predominantly driven by price and consumers
are price-sensitive and are purchasing tickets predominantly online, Ryanair
considers that band awareness is a much less relevant factor, while value for money
is the key criterion.
(530) The Commission is of the view that the claims of Ryanair cannot be accepted on
several grounds. First, Ryanair does not provide evidence that the role of brand
awareness is insignificant. By contrast, the majority of respondents to the
Commission's market investigation have considered that brand awareness still plays
an important role in the competitive process on the short-haul routes to and from
Ireland.
507
Furthermore, the scheduled air transport services markets are not a
homogeneous product market. On the contrary, there is a high degree of product
differentiation with airline business models ranging from a high degree of
sophistication to a no-frills business models. It is also relevant to note that the role of
brand awareness in these markets has also been acknowledged by the 2010
judgement
508
.
(531) As regards brand recognition, there are certain differences between Ryanair and Aer
Lingus. Ryanair was generally associated with low fares, secondary airports, basic
505
Ebookers, response to question 9.2 of questionnaire Q2 - Travel Agents.
506
Specific situations are assessed in detail in the route by route assessment in Section 8.9.5.
507
Responses to question 31 of the questionnaire Q1 - Competitors, where a majority of respondents
considered that the brand names play a significant role in the competitive process with respect to short-
haul routes to and from Ireland.
508
See, e.g., paragraph 269, 276-280 of the 2010 Judegment.
EN 132 EN
services, a price-orientated marketing, and an extensive European network, making it
a low-cost carrier with a strong identity.
509
(532) The responses to the market investigation were less clear in relation to Aer Lingus'
perceived brand positioning and operating model. Respondents generally considered
it to be a solid brand (in particular in Ireland but to a lesser extent elsewhere in
Europe) with a long history, still perceived by many as the former Irish national
carrier serving city centre airports.
510
However, it remains the case, as in 2007, that
no other competing airline enjoys the same high level of brand recognition across a
large number of routes to and from Ireland, which is a very important competition
factor (as confirmed by majority of respondents to the market investigation
511
) and
taking into account the high level of online sales in the Irish market
512
. In this
context, the Commission considers that brand awareness is important in delivering
high level of direct sales. In other words, customers are less likely to book flights on
the websites they are less familiar with.
513
(533) The evidence collected in the market investigation shows that other competing
scheduled operators have strong brands but which are distinct from those of the
Parties. The evidence suggests that IAG (British Airways and Iberia) have strong
brand recognition
514
, but they have only very limited activities on the routes ex
Ireland (that is, the Dublin-London route for British Airways and the Dublin-Madrid
route for Iberia). Air France's CityJet brand is mostly a business focused brand on the
London City network
515
. While Air France is also a strong brand in France (for the
Dublin-Paris route), Air France considers that Ryanair and Aer Lingus both dominate
the Irish market
516
. Similarly, SAS considered it has a strong brand, but rather on the
Swedish side of the Dublin-Stockholm route
517
. Flybe has been established only for
some time on the Dublin-Exeter route and therefore has much lower brand
recognition in Ireland compared to the Parties
518
. Lufthansa, although it has a strong
509
See responses to question 32.1 of questionnaire Q1 - Competitors.
510
See responses to question 32.2 of questionnaire Q1 - Competitors.
511
See also responses to question 31.1 of the questionnaire Q1 - Competitors, where a majority of
respondents considered that the brand names play a significant role in the competitive process with
respect to short-haul routes to and from Ireland.
512
Aer Lingus, response to question 32.2 of questionnaire Q1 - Competitors. Ryanair and Aer Lingus are
the largest operators on the short-haul routes ex Ireland and both have realised most of their booking
from the web rather than through indirect sales channels.
513
E.g., Aer Lingus continues to rely on CRSs for distribution of tickets only in those markets (not
concerned by this Decision), where its brand is less strong (i.e., mainland Europe and the US) (see Aer
Lingus' response to question 1 of Commission's request for Information of 4 December 2012). Aer
Lingus and Ryanair’s internet pages are, according to independent third party research, the most popular
airline internet pages in Ireland (ranking no 61 and 80 respectively of Ireland’s most visited websites).
No web page from any actual or potential competitor appears in the “top 100” list of Irish web pages
nor do any websites which collect fares of different competitors (http://www.alexa.com, visited on 14
January 2013. See also Section 8.5.2.4).
514
IAG response to question 32 of questionnaire Q1 - Competitors. See also agreed minutes of conference
call of 10 October 2012 with IAG, Section II.
515
Air France, response to question 32 of questionnaire Q1 - Competitors.
516
See agreed minutes of conference call of 11 October 2012 with Air France.
517
SAS, response to question 32 of questionnaire Q1 - Competitors.
518
Flybe, response to question 32.2 of questionnaire Q1 - Competitors.
EN 133 EN
brand across Europe, considered that when it comes to traffic ex-Ireland it is weak
compared to Ryanair and Aer Lingus
519
.
(534) Furthermore, the DAA has provided recent market research showing that both
Ryanair and Aer Lingus rank very highly in terms of spontaneous brand awareness in
Ireland. The DAA runs a brand tracker on a quarterly basis, involving phone-based
interviews. For the fieldwork conducted from 9 to 11 June 2012, the respondents
were asked to name Irish travel or transport companies. Two measures of
spontaneous and total awareness were taken into account. Three airlines were
mentioned with the following scores: Aer Lingus (52%/98%); Ryanair (50%/97%),
Aer Arann (25%/88%)
520
. These results demonstrate that Aer Arann, despite being
present on the Irish market since 1970, significantly lags behind the Parties in terms
of spontaneous brand recognition. This also indicates that non-Irish based carriers
would have only limited abilities to replicate the strength of brand awareness that the
Parties enjoy.
(535) According to respondents, at least two years or more would be required to create a
strong brand or to upgrade their own brand on routes ex Ireland, notably by means of
increased marketing expenditure
521
.
(536) Ryanair has also argued that brand awareness is not an important competitive factor
(and not a barrier to entry), as demonstrated by recent development of brand
presence in Ireland by carriers, such as Etihad, Emirates or Qatar Airways.
522
These
arguments will be further analysed in the Section 8.5.2.5 on barriers to entry. In this
context the Commission notes that the examples given by Ryanair concern Etihad,
Emirates and Qatar which are all global brands that can afford intensive marketing
expenditure
523
. These examples therefore tend to confirm the Commission's finding
that marketing and promotion costs required to upgrade a brand would be significant.
(537) Therefore, the Commission concludes that the Parties are closest competitors in
terms of brand recognition in Ireland.
524
8.4.2.3. The Parties' average fare levels remain very close (if not the closest to each other)
(538) As regards fare levels, it is considered that the Parties are also very close (if not the
closest) competitors in terms of their fare levels. Although Aer Lingus’ fares are
519
Lufthansa, response to question 32.3 of questionnaire Q1 - Competitors.
520
DAA submission of 4 October 2012, footnote 25.
521
See responses to question 32.4 of the questionnaire Q1 – Competitors, where competitors have
acknowledged that establishing a brand with the strength of Ryanair and Aer Lingus could take
significant amount of time and/or investment.
522
Form RM of 7 December 2012, footnote 97 and Form CO, paragraph 8.36.
523
DAA response to the Statement of Objections dated 13 November 2012.
524
Ryanair also claims in paragraph 43 of response to Statement of Objections that Commission fails to
compare brand awareness at Irish and non-Irish end of the route. In this regard it can be acknowledged
that while the evidence collected in the market investigation shows that Ryanair enjoys a very strong
brand recognition on both sides of the routes, Aer Lingus brand is less strong outside its home base in
Ireland. However, these finding have no bearing on the Commission conclusion that the Parties are
closest competitors in terms of brand recognition in Ireland.
EN 134 EN
usually higher, Aer Lingus' customers pay a certain premium for additional
services
525
.
(539)
(540) Table 28 indicates the evolution of "short-haul average fares since 2006" as
computed by Ryanair
526
. It also shows the evolution of the price difference between
Ryanair's short-haul average fares and Aer Lingus' average short-haul fares since
2006.
Table 28: Evolution of short-haul average fares since 2006
(In Euro)
2006
2007
2008
2009
2010
2011
Aer Lingus
91
94
88
77
86
91
Ryanair
44
44
40
35
39
45
Difference
47
50
48
42
47
46
Difference as %
of Ryanair fare
107%
114%
120%
120%
102%
102%
Source: Ryanair response to RFI of 6 August 2012, table in paragraph 5.1.
(541) If anything, Table 28 shows that in 2011 Ryanair and Aer Lingus had short-haul
average fares which were very similar to those in 2007. Also, as Ryanair itself
acknowledges, "the gap between Ryanair and Aer Lingus pricing has remained
largely unchanged"
527
. Furthermore, according to the data provided by Ryanair, the
difference between average fares of Ryanair (or Aer Lingus) and other scheduled
competitors is even more significant compared to a difference between the fares of
Ryanair and Aer Lingus, as shown in
525
In its response to question 1.1 of the Commission's request for Information of 3 July 2012, Aer Lingus
indicates that the Plus Fare, which is priced above the Low Fare, offers ancillary elements, including
free bag and free seat selection. Moreover, the Flex Fare offers refundability and free changes plus other
ancillary elements (two checked-in luggage, seat selection, lounge access). It should however be noted
that Aer Lingus' customers usually have to pay less for the transfer to the airport and can reach the
primary airports served by Aer Lingus more easily. See recital 372 of the 2007 Decision.
526
Ryanair response of 6 August 2012 to the Commission's request for information, table in paragraph 5.1.
527
Ryanair's response to the Commission's request for information of 6 August 2012, paragraph 5.1.
EN 136 EN
Table 29: Comparison of average fares (March 2011-March 2012)
Carrier
Average fare
(in euro, 2006)
Average fare
(in euro, 2011/2012)
Comparison to Ryanair's fare
(2011/2012)
Ryanair
41
45
-
Aer Lingus
91
91
+102%
Iberia
na
169
+276%
Lufthansa
225
244
+442%
British Airways
268
248
+451%
Air France
216
254
+464%
Source: Form CO, paragraph 7.69
528
(542) The Commission has taken into account that the reliability of Table 29 provided by
Ryanair could be contested on several grounds. For example, the average fares of
competitors include both short-haul and long-haul activities, while for Ryanair and
Aer Lingus, Ryanair has calculated the average fares for short-haul operations only.
Secondly, the figures for Aer Lingus and Ryanair concern a different portfolio of
routes. While Aer Lingus primarily operates from or to Irish airports, the same is not
true for Ryanair operations, with over 50 aircraft bases across Europe.
(543) It is worth noting that although Aer Lingus average fares are generally higher than
those charged by Ryanair, this is not always the case. When booking a ticket, it is
possible that a customer can buy a flight at a cheaper price from Aer Lingus than
from Ryanair. Furthermore the difference in prices charged by Ryanair and those
charged by Aer Lingus also reflects some quality advantages associated with Aer
Lingus’s service, such as the fact that it serves primary airports, offers business
lounges and higher service orientation. For a customer who takes into account the
price and time for transfer to the secondary airport when purchasing a ticket, the
effective price difference may therefore be lower than the mere difference in bare
flight ticket price. In view of the above, the exact fare comparison is made more
complicated.
(544) In this regard, the price correlation analysis conducted by the Commission provides
additional evidence that, at least with respect to the vast majority of the overlap
routes, Aer Lingus and Ryanair prices have also systematically moved together over
time. As the price difference reflects perceived differences in quality, a price change
by one carrier would affect demand for services provided by the other on the same
528
The data in the table is based on the latest published accounts. In the case of Aer Lingus, short-haul
revenues were divided by total short-haul passengers. For other airlines, the fares were calculated based
on total revenues and total passenger numbers, as their annual accounts do not provide a breakdown of
revenues between short-haul and long-haul routes.
EN 137 EN
route. Likewise at given prices, increases in frequencies or improved flight schedules
by either of the Parties can be expected to divert passengers to the other
529
.
(545) No material change in market circumstances has been evidenced regarding fare
levels in comparison with the situation prevailing in 2006-2007.
(546) Therefore, it is concluded that the Parties remain very close (if not the closest
competitors) in terms of their average fare levels on the routes subject to this
Decision. For the Dublin-Bristol/Cardiff/Exeter route, the Commission considers that
it is not necessary to conclude whether Flybe is a close competitor to either Ryanair
or Aer Lingus in terms of the average fare levels, in particular because its market
share on this route is very low
530
.
8.4.2.4. Charter companies are distant competitors to the Parties
(547) Charter companies often operate on a seasonal basis with relatively low flight
frequencies set in response to the requirements of tour operators.
(548) As set out in Section 7.6, the majority of services offered by charter companies (in
particular package holiday sales and seat sales to tour operators) do not belong to the
same market as scheduled air transport services and the number of dry seat sales is
limited
531
. Moreover, sales of dry seats are very limited in volumes (see Section
8.9.1).
(549) The Parties are each other's closest competitors also considering the charter routes
where each of the Parties are by far the largest competitors in terms of market shares
(see Section 8.9.6).
(550) […]*
532
, […]*.
(551) In conclusion, even if not identical, Aer Lingus' business model is much closer to
that of Ryanair than to the business models of charter companies active on the routes
subject to this Decision. The same is true for Ryanair’s business model, which is
much closer to that of Aer Lingus than to charter companies’ business models.
529
See Annex I Price correlation analysis.
530
See Section 8.9.5.1 for a detailed analysis of Dublin-Bristol/Cardiff/Exeter route.
531
See Section 7.6 of this Decision. In response to the Statement of Objections, Ryanair has claimed that
the Commission did not appreciate the development in the market since 2007 that were reflected in the
market investigation, for instance with respectto response of TUI highlighting thethe disappearance of
the traditional demarcation between various types of carriers. The Commission notes that the trend of
converging business models has been specifically acknowledged in Section 7.6.1.1; however it was
concluded that traditional charter services do not belong to the same product market as point-to-point
scheduled passenger transport services.
532
See agreed minutes of meeting of 14 September 2012 with Aer Lingus, Section II, Aer Lingus' response
to question 4.2 of questionnaire R4 - Competitors and responses to question 4 of Questionnaire R4 -
Competitors by other competitors.
EN 138 EN
8.4.3. Both airlines operate with a large base at Dublin but also significant bases in Cork
and Shannon
8.4.3.1. General advantages of operating from a base
(552) The term "base" is used to characterise the advantages of concentrating significant
operations at one single airport
533
. A base airport is an airport where carriers base a
certain number of aircraft and on which they concentrate their operations and from
which they operate several routes. At a base airport airlines do not simply overnight
aircraft but entertain additional facilities and services.
(553) At its base airport an airline can carry out various activities: overnight aircraft,
entertain additional facilities and services (maintenance, customer care, ground-
handling or stand-by planes). A base requires the commitment of infrastructure at an
airport, personnel and equipment (with the concomitant capital expenditure) all of
which are used to operate several routes from that airport. On the basis of the
evidence collected through the market investigation, the market participants
generally support this definition
534
.
(554) Generally speaking, base operations provide significant advantages to airlines as they
allow for flexible deployment of assets, ability to react to demand shifts and generate
operational cost savings. In the 2007 Decision, the Commission already noted that,
"concentrating aircraft and traffic at certain bases can generate considerable cost
savings and increased flexibility. In comparison to providing a point-to-point service on
a single route without a base at either end, base operations provide numerous
competitive advantages for the routes operated from that base. There are mainly two
effects which arise from base operations. First, the base allows realising cost savings
due to economies of scale and scope. Secondly, there is a "competition effect", in that
the airline can react more easily and more quickly to changes in supply and demand on
routes out of this base. Dynamic reaction to the behaviour of competitors is therefore
easier when operating from a base than outside a base"
535
.
(555) Ryanair claims that the Parties have no significant competitive advantage as a result
of having bases in Ireland. According to Ryanair, this is illustrated amongst other
things by recent events involving Aer Lingus, whereby Aer Lingus closed its Shannon
base only to reopen it, and opened Belfast and Gatwick bases, to subsequently scale
them back or close them, thereby reducing the so-called "base advantages"
536
.
(556) It is acknowledged that large carriers can also enjoy certain advantages thanks to
their overall size, for instance when purchasing aircraft. Advantages that result from
an airline's size, while not necessarily being similar to advantages resulting from base
operations, can to some extent overlap with or complement the base advantages. This
however does not preclude the fact that operating from a base leads to specific cost
533
A base needs to be distinguished from a hub, since hub relates to the hub and spoke system (related to
connecting (feeding) traffic into a network).
534
See response to question 40 and 41 of questionnaire Q1 – Competitors.
535
Recital 381 of the 2007 Decision.
536
Ryanair Observations on the Article 6(1)(c) Decision, Annex 1.
EN 139 EN
efficiencies arising from an increased ability to react to changes in demand or supply
as well as from economies of scale and scope.
(557) The evidence collected during the market investigation largely confirmed this and the
advantages resulting from base operations are explained in detail below.
– Increased flexibility in reacting to demand-side or supply-side shocks
(558) Large operations at base airports allow faster responses to unexpected shocks or
shifts in demand-side, but also supply-side incidents, on individual routes. The
dynamic nature of competition in the airline industry is evidenced by the fact that
airlines constantly adjust the capacity and routes operated in their network. In this
respect both Ryanair and Aer Lingus appear to shift their frequencies from one route
to another and open, close or change frequencies on routes out of Ireland regularly.
This is evidenced inter alia by the higher number of overlap routes in this Decision
compared to the 2007 Decision. Also the weekly frequencies between seasons vary
significantly for both Ryanair and Aer Lingus, who also have a significant number of
seasonal routes operated ex-Ireland.
(559) Two types of demand shocks
537
may be distinguished in the air transport industry
538
.
First, certain shifts in demand, such as changes in customer preference or a change in
the overall income, can affect all routes out of an airport. The second type of changes
in demand is route specific and does not affect all routes in the same way. Route-
specific demand fluctuations can arise notably due to different seasonality patterns
but also due to important one-time events or festivities. In the case of route specific
demand shocks, having a wider route network at a base allows the carriers to adjust
capacity to match such fluctuations in demand. Carriers can more easily reallocate
planes, slots and crew, between the different routes in response to changes in relative
demand or profitability without incurring significant additional costs or risks. A
carrier which does not have a significant presence at the airport would find it more
difficult and time-consuming to react to such an increase in demand on a certain
route. DAA further explains that "only a based carrier with large scale […] has the
flexibility to so alter capacity. Where capacity is fragmented, as between different
non-based carriers, each carrier has much less flexibility, and faces a different
decision: Fly to Dublin or not, rather than where best to fly to from Dublin with that
aircraft at that time"
539
.
(560) DAA further claims that "As based carriers have a higher proportion of overall slots
at peak times, they have greater flexibility as regards their deployment across the
range of route and services offered form that base. This enables them to act quickly
in response to changing market circumstances and to counter competitive entry. For
example Ryanair has for a number of years based a second aircraft in Cork for the
summer months. The airline has now elected to continue to deploy that aircraft in
Cork to compete directly with Wizz commencing Winter 2012"
540
.
537
A demand shock is a sudden increase or a sudden decrease in demand for the services provided.
538
Recitals 389-392 of the 2007 Decision. See also Case COMP/M.5830 – Olympic/Aegean Airlines.
539
See DAA response to the Commission's request for information of 21 September 2012.
540
See DAA response to the Commission's request for information of 21 September 2012.
EN 140 EN
(561) Also a number of competitors noted that Ryanair, in particular, adjusted its frequency
in routes (or even entered the route) that these competitors entered ex-Dublin or ex-
Cork (where Ryanair had based aircraft) following their entry into the market. This
illustrates the increased ability of based companies to react flexibly to changes in the
competitive conditions.
(562) Some competitor airlines also considered that carriers with an established base in an
airport are better positioned to reallocate aircraft to adjust capacity to match
fluctuations in demand than non-base carriers
541
. For example, Swiss explains that
"Airlines with an established base at an airport are better positioned because of an
existing infrastructure and presence at the airport which allows quicker/easier
frequency reductions/increases and aircraft shifts"
542
.
(563) Aer Lingus adds that "Aer Lingus’ sizeable base in Dublin airport allows for
changes in route selection, schedule, and aircraft integration and enables Aer Lingus
to react to market changes quickly. A route that performs strongly or poorly on a
particular day of the week is likely to have more options for optimising frequency as
the number of based aircraft increases." Aer Lingus also regularly “switches the
deployment of its A321 and A320 aircraft on Dublin routes within a 4–6 week
window to match growing or shrinking demand on individual routes"
543
.
(564) Furthermore, on the basis of the evidence collected during the market investigation,
the Commission considers that carriers with significant city presence have an
advantage when opening new routes compared to a carrier with no such activities
544
.
If a carrier operates several routes out of an airport, it becomes more likely that
consumers become generally aware of the carrier and will be more likely to fly with
that carrier. This reflects the city presence effect that reduces the marketing cost of
introducing new routes. Wizz Air explains that "The higher the market share of a
particular airline, generally the better known the airline will be, and the more likely
that this airline will be included in the relevant set of travel options. Total exposure
of the consumer population to the airline and its network will also be higher (e.g.
because more people consult the airline's website to look for travel options), which
will in turn lead to better awareness of new routes (e.g. because the airline website
can reach more people when it advertises a new route on its own website)"
545
.
– Cost savings arising from economies of scale and scope
(565) The evidence collected through the market investigation indicates that there are
significant economies of scale and scope from operating a base. Ryanair and Aer
Lingus also benefit from supply-side economies of scale and scope stemming from
spreading marketing, sales and catering, technical or maintenance, airport costs,
disruption and crew deployment costs (reduced costs for crew hotel accommodation
and increased crew usage) as well as from optimal infrastructure use at their bases.
These cost categories are the following:
541
See responses to question 35 of questionnaire R4 - Competitors.
542
See Swiss response to question 35 of questionnaire R4 - Competitors.
543
See Aer Lingus' response to the Commission's request of information of 2 August 2012.
544
See responses to question 36 of questionnaire R4 - Competitors.
545
See Wizz Air response to question 36 of questionnaire R4 - Competitors.
EN 141 EN
(566) Disruption costs: a based operation can more easily re-allocate aircraft across the
network when delays or incidents occur minimising the impact for consumers. For
example, stand-by aircraft and crew reduces the likelihood of cancellations and gives
the carrier greater schedule recovery options
546
. This is important given the
legislative protection afforded to passengers (as set out in Regulation (EC) N°
261/2004 of the European Parliament and of the Council of 11 February 2004
establishing common rules in compensation and assistance to passengers in the event
of denied boarding and of cancellation or long delay of flights, and repealing
Regulation (EEC) N°295/91) in cases of denied boarding, cancellation or delay.
(567) Sales and Marketing: the costs associated with sales and marketing are largely fixed.
Recovering these costs over a larger fleet of aircraft and a wider portfolio of routes
therefore also translates into lower unit costs. Examples of such marketing costs are
Ryanair and Aer Lingus adverts with slogans such as "Sales from EUR 25.99 – over
100 routes reduced" which may cover many individual route options
547
. Also
knowledge of the market can ensure more targeted and efficient sales and marketing
expenditure. A strong base presence also leads to greater awareness and may allow
based carriers to bypass costs associated with distribution channels such as travel
agents and attract passengers directly to their websites. This is all the more relevant
as Irish air travel distribution is heavily internet based. Wizz Air also explains that
"Marketing at a particular end of the route involves a 'setup cost' to get in
consumers' minds"
548
.
(568) Customer service and provision of own ground-handling facilities: sufficient scale
also allows carriers to operate their own dedicated facilities at an airport (such as
own check-in and customer information counter), thereby providing higher levels of
service at a lower cost. Air Berlin for example explains that "scale allows carriers to
operate their own dedicated facilities (check-in, customer information counters etc)
"
549
.
(569) Slots and stands: in coordinated airports airlines that operate many routes from the
airport will be able to substitute slots from one route to another as they will benefit
from 'grandfather' rights over their slots. Aer Lingus and Ryanair account for the
"bulk of slot capacity at Dublin Airport and 90% of peak capacity"
550
. As explained
in Section 8.5.2, at Dublin airport, runway slot capacity is constrained in the peak
morning departure period. A feature of the slot co-ordination process is that demand
for departures in this period exceeds supply. "However, a based carrier with a large
number of existing slots nevertheless enjoys a significant amount of flexibility in the
peak period through being able to switch the slot allocations between different
routes. For instance, looking at the third week in August, as between 2011 and 2012,
546
DAA's response to the Commission's information request of 11 October 2012: "Ryanair currently uses
the standby aircraft stand in Dublin Airport and has since the incentive scheme's inception. The standby
incentive scheme has only recently been introduced at Cork Airport and Ryanair has not yet applied to
avail of it. However, it is anticipated that Ryanair will seek to use the standby stand during the
upcoming winter season".
547
See DAA' response to the Commission's information request of 21 September 2012.
548
Wizz Air, response to question 30 of questionnaire R4 - Competitors.
549
Air Berlin, response to question 30 of questionnaire R4 - Competitors.
550
See DAA response to the Commission's information request of 21 September 2012.
EN 142 EN
Ryanair added 10 routes to the peak departures period and withdrew 9 routes;
further adjustments were made to the frequency/timing of other departures"
551
(570) Large scale air carriers with a base may also benefit from a stronger negotiation
position for example in discussions with groundhandlers, airports and regulators and
suppliers.
(571) Ground-handling: As ground-handling is typically a volume business a base with
multiple aircraft allows a carrier to obtain better terms for ground-handling.
(572) Negotiations with airports and regulators: Based operators, due to the large overall
traffic they bring to the airport have leverage in different negotiations. For example,
the Commission also notes that Ryanair has a significant track record in negotiating
favourable agreements with airports, in particular regarding the setting of airport
charges.
(573) However, the stronger negotiation position may not necessarily be reflected in terms
of the airport charges that are negotiated between airports and carriers (notably in
large or congested airports) and therefore it may be more difficult to obtain better
terms from airport managers. In terms of airport charges DAA explains that "The
airport charges levied at DAA Airports are not dependant on the size of the air
carrier" and that "DAA does not engage in direct negotiations with individual
carriers in relation to airport charges"
552
.
(574) However, based carriers typically obtain preferential facilities and represent their
interests in various user forums in airports ultimately leading to an increase in
product quality at little or no additional cost
553
. This is also reflected in DAA's
response "However to encourage based operations, DAA offers a standby aircraft
scheme for based carriers at Cork and Dublin airports. Under this scheme the
aircraft operator is not charged aircraft parking charges in relation to a Standby
Aircraft for periods on which it is parked on a Standby Aircraft Stand. A standby
aircraft is one which is on standby to be used exclusively by a Relevant Operator for
the purpose of temporarily replacing one or more aircraft (operated by the same
Relevant Operator to or from Dublin or Cork Airports) which is prevented from
flying into or out of Dublin or Cork Airports by reason of technical, mechanical
and/or operational problems"
554
.
(575) Moreover, based carriers would be in a more favourable position to represent their
interests directly in various user forums, including the Dublin Airport Coordination
551
The routes added to the peak departure window were: Alghero, Budapest, Faro, Krakow, , Rodez,
Seville, Stockholm-Skavsta, Venice-Treviso, Bremen, Hahn and the routes withdrawn from the peak
departure window were: Ibiza, Lodz-Lublinek, Trapani, Venezia, Zadar, Berlin, Carcassone, Malta,
Szezecin. See DAA' response to the Commission's request of information of 21 September 2012.
552
See DAA' response to the Commission's request of information of 21 September 2012.
553
DAA provides an example where "in the recent consultation regarding stand allocation rules, Aer
Lingus as a based operator was supportive of proposals to enable clustering of operations on particular
stands. This minimises walking distances for terminal based groundhandling personnel between check-
in, gates and ramp accommodation and enables more efficient operation of ground services
equipment." DAA' response to the Commission's request of information of 21 September 2012.
554
See DAA response to the Commission's information request of 21 September 2012.
EN 143 EN
Committee ("DACC"), while carriers that operate from bases outside Ireland may
have no company personnel on the ground and would have to rely on their local
ground-handler or agent to represent their views at such meetings, if indeed they
engage in them at all. For example, DAA explained that “in the consultation exercise
carried out with users in respect of changes to stand allocation rules in Summer
2011, ALL based carriers submitted views on the proposed rules, in contrast DAA
received no direct replies from non based scheduled operators (despite issuing a
request for comment to all AOC members). In relation to the slot co-ordination
committee Dublin-based carriers have consistently attended meetings since 2007.
Lufthansa and Turkish Airlines are the only non based carriers that have attended
periodically. These examples demonstrate that based carriers have the necessary
resources and vested interest to ensure that their airline’s views are aired at
consultation forums"
555
.
(576) DAA provides an example where "in the recent consultation regarding stand
allocation rules, Aer Lingus as a based operator was supportive of proposals to
enable clustering of operations on particular stands. This minimises walking
distances for terminal based groundhandling personnel between check-in, gates and
ramp accommodation and enables more efficient operation of ground services
equipment"
556
.
(577) Therefore, even if based carriers do not necessarily obtain better monetary terms
these examples indicate that they are in a position to extract better facilities from the
airport to encourage their activities.
(578) Procurement: Based carriers also have greater power in negotiations with suppliers
such as fuel, maintenance and catering companies and are thereby able to extract
better terms. For example, Swiss notes that "Due to higher contract volumes
(economies of scale), base carriers are likely to enjoy discounted rates"
557
. DAA also
notes that "In the event that a new route is not successful a based aircraft can simply
be redeployed to other routes without incurring penalties that may be imposed on
single operators that face difficulties with sustainability on individual routes (no
ground-handling contract break fees, no surplus office or other property lease time
etc)"
558
.
Cost advantages arising from economies of scope
(579) By having a number of aircraft in a given airport, carriers benefit from economies of
scope derived from the ability to easily switch assets between routes, increasing the
competitiveness of the routes operated from a base.
(580) A base can also allow better aircraft utilisation by reducing the overall fleet
downtime by reducing the fleet downtime as any temporary delays can be absorbed
by using the ground time for other aircraft in the base (for example standby aircraft).
555
See DAA response to the Commission's information request of 21 September 2012.
556
See DAA response to the Commission's information request of 21 September 2012.
557
See Swiss response to question 30 of questionnaire R4 - Competitors.
558
See DAA response to the Commission's information request of 21 September 2012.
EN 144 EN
(581) In particular, the higher the number of aircraft the easier it will be for a carrier to
maximize the aircraft utilisation because there are more combinations of flights to fill
the 10, 12 or even 16 hour schedule. As operating rules set an hour limitation on
crew utilisation, a based carrier can maximize the working hours of its crew and
aircraft and extend the working day of its aircraft beyond the 10 hour limitation on
crew by exchanging staff during the day at their base.
(582) A larger base also makes it possible to pool reserve requirements for pilots and cabin
crew. Airlines operating a number of aircraft at a base can spread reserve crew costs
over a wide number of operations as their crews are shared across more aircraft. For
example Air Berlin explains that a base makes it possible to pool reserves of pilots
and cabin crew thus increasing operational flexibility
559
.
(583) Additionally, airlines operating from a base can use the early morning slots at their
base airport which are economically important since the demand for flights is
particularly high at that time, in particular for routes where a significant majority of
passengers originate at this end of the route. For example, Vueling notes that "A base
implies having more operation, so more options for interchanging slots are possible
and better scheduling of each of the routes" as well as "Morning and night flights are
needed to serve the demand so these flights (that otherwise you would not operate)
increase your utilisation"
560
. Furthermore, operating a base allows operating early
morning flights and more generally providing a better schedule.
Conclusion
(584) Competitors have generally confirmed that the operation of an aircraft base confers
all the categories of cost advantages and ability to have a better schedule described
above. The category that most competitors consider as providing significant
advantages is the ability to have a better schedule due to the flexibility of allocating
aircraft to early morning slots and the possibility to adapt schedules to more
profitable routes
561
.
(585) The Commission has attempted to quantify the size of these advantages. However,
this has proven a very complex exercise for all competitors
562
. However, the different
cost savings categories described in this Section 8.4.3.1 have been recognised by
most competitors as providing at least some advantages.
(586) Therefore, the Commission concludes that base operations provide significant cost
advantages and the ability to react flexibly to market conditions.
8.4.3.2. Ryanair and Aer Lingus operate significant bases in Ireland
(587) Both Ryanair and Aer Lingus operate significant bases in Ireland. In particular, Aer
Lingus and Ryanair currently both have by far the largest bases at Dublin airport
with respectively 32 (mostly Airbus 320 and A321, 174-212 seats) and 18 (Boeing
559
See Air Berlin response to question 30 of questionnaire R4 - Competitors.
560
See Vueling response to question 30 of Questionnaire R4 - Competitors.
561
See responses to question 30 of Questionnaire R4 - Competitors.
562
See responses to questions 30.1, 30.3. 31 of Questionnaire R4 - Competitors.
EN 145 EN
737-800, 189 seats) based aircraft in the summer season 2012, which is significantly
more than any other competitor (see Table 30 below). Furthermore, Ryanair submits
that in addition to Irish based aircraft, 12 routes identified in the decision opening the
proceedings (on an airport-to-airport basis) are served by non-Dublin/Cork based
aircraft, while 13 routes were served by a mix of Dublin-based and non-Dublin/Cork
based aircraft
563
. Therefore a figure of 18 Dublin-based aircraft significantly
underestimates Ryanair's position in Dublin airport, in particular since no other airline
competing on the routes concerned by this Decision has such a wide network of bases
across Europe
564
.
(588) The other Dublin-based carriers have bases of very limited size. Specifically, Aer
Arann has a base at Dublin airport with 8 low capacity aircraft (all turboprops, 42 or
68 seats). As far as carriers independent from the Parties are concerned, Air France
(CityJet) has 3 regional aircraft (Avro RJ 85 with 95 seats) based at Dublin airport.
In addition, IAG/British Airways, TUI/Thomson, Lufthansa and Europe Airpost have
one aircraft based at Dublin airport or keep it overnight.
Table 30: Carriers with bases or overnighting aircraft at Dublin airport
Airlines
No. of aircraft 2012
Passenger estimate 2012
(‘000)
No. of routes 2012
Aer Lingus
32
565
7,780
73
Ryanair
18
566
7,150
70
Aer Arann
8
596
11
Air France
3
567
470
3
IAG (British Airways)
1
310
1
Lufthansa
1
290
3
TUI/Thomson
1
568
80
12
Europe AirPost
569
1
unknown
unknown
Source: Form CO, annex 7.3(f), modified according to responses provided by competitors.
563
See Ryanair response to request for information of 11 October 2012, pages 5-6.
564
See also Aer Lingus' response to Article 6(1)(c) Decision, page 18, and response to the Commission's
request for information of 20 September 2012, page 6.
565
See Aer Lingus response to question 4 of the Commission's request for information of 2 August 2012. 4
aircraft are of the A330 family, 24 of the A320 family, 3 aircraft are A321 and one aircraft A332. In
2007, Aer Lingus and Ryanair had respectively 22 and 15 short-haul aircraft.
566
In summer 2012 Ryanair had 18 aircraft based at Dublin airport. It is planned that 12 aircraft will be
based in winter 2012-13 as Ryanair globally reduces its activities in the winter seasons (the equivalent
of around 80 aircraft will not operate). See agreed minutes of meeting of 14 September 2012 with
Ryanair.
567
Air France, response to Annex II "Your data" of questionnaire Q1 - Competitors.
568
TUI, minutes of a conference call of 5 October 2012.
569
Owned by AirContractors.
EN 146 EN
(589) The 2010 General Court decision acknowledged that "in relation to the impact of
scheduled airlines or charter airlines having an aircraft parked overnight at Dublin
for a season or throughout the year (see paragraphs 256 and 257 above), the
Commission rightly noted in the contested decision that the advantages which those
companies enjoy were not comparable to those inherent in operating a base, in
particular as regards the flexibility of switching between routes, redeployment of
aircraft, minimising disruption costs, exchange of crews, customer care and brand
awareness (recital 560). It is those advantages of operating a base which are
important in this case and not the possibility of offering flights to any particular
destination by operating an aircraft. "
570
(590) It is also noted that Aer Lingus has a base at Cork (4 aircraft) and Shannon (2
aircraft). Ryanair also has a base at Cork and Shannon, with 1 aircraft at each
airport.
571
In addition Aer Arann has a base at Cork with two small capacity aircraft
and a base at Shannon with one small capacity aircraft. No other airlines operate
bases at Cork, Shannon, or Knock airports.
(591) The fact that Aer Arann also has aircraft based at Dublin, Cork and Shannon airports,
does not materially impact the Commission's assessment, in particular given that as
described in Section 8.2, it is considered that Aer Arann is a competitor of Ryanair,
but not of Aer Lingus, and that the market shares of Aer Arann (operating under the
Aer Lingus Regional brand) have to be attributed to Aer Lingus for the purposes of
the competitive assessment.
(592) It is therefore concluded that Ryanair and Aer Lingus are the only carriers that
operate significant bases in Ireland.
8.4.3.3. Base advantages increase with the size of the base and therefore the limited presence
of the current based competitors is unlikely to constrain the Parties significantly
(593) On the basis of the evidence collected during the market investigation it is concluded
that the cost savings related to having a base increase with the size of the base – at
least until a certain threshold. In particular, several competitors do not consider that a
one aircraft base generates significant cost savings, either because this would not
lead to critical mass or because they have no knowledge of single-aircraft bases
572
that exist. However the clear majority of competitors consider that benefits are
significant for 5, 10 and 15 aircraft bases compared to having no base
573
. Moreover,
the negative answers relate to competitors that do not have the experience of 5 and
10 aircraft bases.
(594) Also the vast majority of competitors consider that the economies of scale increase
with the number of aircraft in a given base
574
. For example, TUI Travel considers
that "The synergies from scale are greater in operations of more than 6 aircraft.
There are a number of steps that will drive synergies as aircraft numbers increase,
570
Paragraph 269.
571
Annex 7.3(f) of the Form CO.
572
See responses to question 32.1 of questionnaire R4 to Competitors.
573
See responses to question 32.2, 32.3, and 32.3 of questionnaire R4 to Competitors.
574
See responses to question 43.2 of questionnaire Q1 - Competitors.
EN 147 EN
but these thresholds will differ for each category of costs. Generally speaking, the
larger the operation, the greater the cost and operational synergies that can be
leveraged"
575
.
(595) On the basis of the evidence in the market investigation, it is considered that the
advantages of having a base follow decreasing returns once a certain number of
aircraft has been attained. For example, Air France/CityJet considers that "the
benefits from having a base do not increase much further when an air carrier has
more than 30 aircraft in a given base"
576
.
(596) The only competitor to Ryanair and Aer Lingus which may be considered as having
bases of some scale is a subsidiary of Air France, CityJet, which operates with 3
lower capacity aircraft (a fleet of RJ 85 with 95 seats) from Dublin. However, in
particular due to lower seat capacity, CityJet has higher costs per passenger than
Ryanair and Aer Lingus. Moreover, the limited size of CityJet’s operations at Dublin
airport would not allow the carrier to redeploy capacity from one route to another in
reaction to a shift in demand as is the case of Aer Lingus and Ryanair.
(597) Besides, the carriers that have single-aircraft bases or simply overnight aircraft at
Dublin, Cork, and Shannon airports neither benefit from the same scale and scope of
advantages of a base nor from the flexibility of switching between the routes and the
opening of new routes. The 2010 Judgement acknowledged that "in relation to the
impact of scheduled airlines or charter airlines having an aircraft parked overnight
at Dublin for a season or throughout the year (see paragraphs 256 and 257 above),
the Commission rightly noted in the contested decision that the advantages which
those companies enjoy were not comparable to those inherent in operating a base, in
particular as regards the flexibility of switching between routes, redeployment of
aircraft, minimising disruption costs, exchange of crews, customer care and brand
awareness (recital 560). It is those advantages of operating a base which are
important in this case and not the possibility of offering flights to any particular
destination by operating an aircraft. "
577
(598) Therefore it is concluded that competitors of Ryanair and Aer Lingus with a base, or
overnighting aircraft, at Dublin, Cork and Shannon airports are not equally close
competitors.
8.4.3.4. Competitors with a base at the destination airports are not equally close competitors
(599) In 2007, it was also considered that carriers that have a base at the other end of a
route did not exert the same competitive constraint on Ryanair compared to the
constraint from Aer Lingus.
(600) Furthermore, the 2010 Judgement explained that: "It is apparent from the analysis
set out in the contested decision that it is rare for carriers which operate on routes
not to use a base airport; it grants them an economic advantage. The fact that both
Ryanair and Aer Lingus have an important base at Dublin airport thus had to be
575
See TUI travel responses to question 43.2.1 of questionnaire Q1 – Competitors.
576
See agreed minutes of conference call of 11 October 2012 with Air France.
577
Paragraph 269.
EN 148 EN
taken into consideration in so far as that enables these two companies, among
others, to benefit from similar advantages (sections 7.3.4.1 and 7.3.4.2). For the
reasons set out in the contested decision, this situation is not comparable to that of
competitors which base their aircraft overnight at Dublin airport, in particular given
the significant differences in terms of economies of scale and scope which a base
airport provides (section 7.3.4.3), nor to that of competitors which have a base at the
destination airport, because of the particularities of Dublin airport (section
7.3.4.4)."
578
(emphasis added)
(601) Generally, air carriers with bases at the destination airport can only constrain the
merged entity on the specific routes from these bases, while Aer Lingus and Ryanair
exert dynamic competition on each other (that is to say on a variety of routes) as the
same based carriers have increased flexibility in reacting to demand-side (or supply-
side) shocks.
(602) In the 2007 Decision the issue was raised that both Ryanair and Aer Lingus have an
advantage in gaining Irish originating customers who represent a significant share on
certain routes
579
. According to the information submitted by Ryanair on a significant
number of the routes the proportion of passengers originating in Ireland is over
50%
580
. There is in particular a significant imbalance between Ireland and non-
Ireland originating passengers on routes to the Mediterranean
581
.
(603) In this respect, Ryanair claims that on certain routes, the majority of Ryanair's
passengers originate at the non-Irish end of a route […]*. Accordingly, airlines with
bases at the non-Irish end of the route would arguably enjoy advantages (such as
lower marketing costs) associated with Ryanair and Aer Lingus having bases in
Dublin, Cork, and Shannon. However, the evidence collected in the investigation
does not fully support this view. Even on those routes, where the Ryanair's
passengers originating from Ireland range between 30-50%, the evidence collected in
the market investigation shows that both Ryanair and Aer Lingus carry a higher ratio
of Irish originating passengers compared to incumbent scheduled airlines
582
.
Therefore both Ryanair and Aer Lingus have an advantage over their competitors in
gaining Irish originating customers who represent a significant share on routes out of
Ireland.
(604) The evidence collected in the market investigation also suggests that most
competitors without bases in Ireland would suffer from certain disadvantages in
terms of brand recognition
583
. Nearly all carriers consider that they do not enjoy the
578
Paragraph 124.
579
Recitals 593-603 of the 2007 Decision.
580
See Annex 7.3(e) of the Form CO.
581
See Annex 7.3(e) of the Form CO: […]*.
582
See responses of Lufthansa, SAS, IAG, Air France; Aer Lingus and Flybe to Annex II "Your data" of
questionnaire Q1 - Competitors.
583
See responses to question 32.3 of the questionnaire Q1 - Competitors and Section 8.4.2 of this Decision
in relation to brand recognition.
EN 149 EN
same kind and level of brand recognition at the Irish end of the route as Ryanair and
Aer Lingus
584
.
(605) Besides, unlike the Parties, carriers with bases on the other end of a route are likely
to only operate one or very few routes from Dublin, Cork, or Shannon. The
destination-based carriers are therefore unlikely to show the same degree of
commitment to routes to and from Dublin, Cork, and Shannon or the same ability
and incentives to adjust capacity to react to shifts in demand as Ryanair and Aer
Lingus. For such carriers, Dublin, Cork, and Shannon represent just one route from
their destination base or hub. It would have many other alternative routes to consider
opening or expanding operations, without facing aggressive competition from the
merged entity. Furthermore, unlike Ryanair and Aer Lingus (primarily)
585
, most
competitors active on the routes of concern are full service/network carriers, focused
on connecting traffic to their "hub" destinations outside Ireland.
(606) Therefore it is considered that competitors with a base at the destination airports are
not equally close competitors.
8.4.4. Price regression analysis: Ryanair and Aer Lingus are close and closest competitors
8.4.4.1. Approach followed
(607) The Commission has used regression analysis technique, which is a statistical tool
for understanding the relationship between two and more variables, to test the
competitive interaction between the Parties
586
. Using this regression analysis the
Commission has investigated whether the presence of one of the Parties has an
impact on the fares of the other, to quantify the magnitude of such an effect and to
help predict the average increase in fares post-Transaction (if any). In more detail,
this quantitative work has tested the following:
– whether the presence of one of the Parties on the route is associated with
a statistically and economically significant reduction in the fares of the
other;
– whether the Parties exert on each other a stronger competitive constraint
than any other existing competitor;
– whether the existence of an actual or potential competitor with a
significant presence at the destination airport on a route originating in
Dublin has an impact on the Parties' prices;
584
Although IAG (British Airways) considered that they have a strong brand on both Irish and the
UNITED KINGDOM ends of the Dublin-London route, British Airways has a business model (network
carrier) that is distinct from Ryanair and Aer Lingus, and operates only a very few routes out of Ireland.
See also Section 8.4.2.
585
For Aer Lingus connecting traffic represents only an incremental source of income (Aer Lingus'
response to question 2.4 of the Commission's request for information of July 3, 2012).
586
A comprehensive description of the regression analysis conducted by the Commission is provided in
Annex III.
EN 150 EN
– whether a stronger presence of one of the Parties (in terms of number of
frequencies) has a more pronounced effect on the other's fares.
(608) The Commission in the 2007 Decision used different regression techniques (cross-
section and fixed-effects analysis) but concluded that the fixed-effects analysis
provides the most appropriate approach in the case at hand.
(609) The principal advantage of the fixed-effects analysis is that it takes into account
important but unobserved (or unmeasured) influences on price that do not vary over
time on any single route. For this reason, the Commission has followed the same
fixed-effects methodology in this Decision.
(610) Ryanair's comments on the regression analysis
587
have been assessed in detail by the
Commission in Annex III to this Decision.
8.4.4.2. Fixed-effects regressions
(611) The fixed-effect procedure compares the level of Aer Lingus prices on a route after
Ryanair entered, with the level before Ryanair entered. This before-and-after
comparison is done systematically over time and for all routes where Aer Lingus
operates. In this way the regression generates the average effect of Ryanair’s
presence on Aer Lingus fares.
(612) A regression analysis with route specific fixed-effects accounts for specificities on
given routes
588
. When an analysis does not control for such specificities the results of
the analysis may be biased due to the so-called omitted variable bias (that affects
alternative regression analysis techniques, namely cross-sectional regressions). By
controlling for route specificities the omitted variable bias risk is mitigated because
unobservable cost or demand factors, whose variation across routes would be likely
to affect fares, are more likely not to vary over time on any single route. The
Commission regards this methodology as the most suitable for assessing the
competitive constraint exerted by Ryanair on Aer Lingus.
8.4.4.3. Aer Lingus’ fixed-effects regression analysis
(613) A fixed-effects regression analysis, following largely the methodology of the 2007
Decision, has been provided by Aer Lingus based on their own data
589
.
(614) Aer Lingus used average net fare data and load factors of Aer Lingus from January
2007 to June 2012 on all short- and mid-haul routes out of Dublin and in addition
587
Ryanair's response to the Statement of Objections of 28 November 2012, Assessment of the
Commission's analysis in Annex I, II, and III of the SO.
588
Sources of route heterogeneity possibly affecting fares include: characteristics of the destination city,
number of alternative airports at destination, characteristics of these airports, the popularity of the route
according to purpose of travel, customer awareness and expectations, route distance, duration of travel,
air traffic regulations at country of destination, population levels and population density and population
income at destination, cultural affinity between origin and destination countries. Not all these variables
can be measured or indeed observed.
589
Aer Lingus, Revisiting the empirical analysis of competition between Ryanair and Aer Lingus, 10
August 2012.
EN 151 EN
extracted schedule data from Diio Mi
590
on the total number of departures and seats
per carrier on all routes for the same period. Aer Lingus employed a fixed-effect
methodology and estimated the effect of Ryanair's entry or exit on the net fares and
load factors of Aer Lingus. It included route and month fixed-effects and a capacity
variable in certain specifications. The main variable of interest has been the presence
of Ryanair.
(615) The analysis showed that Aer Lingus' fares are, on average, lower as a result of
Ryanair's entrance on the route and as a result of Ryanair's entrance on the city-pair.
Aer Lingus claims that these findings remain true regardless of whether they include
the capacity variable in the regression or not. According to Aer Lingus, the analysis
also shows that Aer Lingus' load factor is on average lower on routes that are also
served by Ryanair for the airport-pair specification and also lower for the city-pair
specification. These findings would be statistically significant and remain true
irrespective of whether the capacity variable is included in the regression or not.
(616) While Aer Lingus' analysis closely follows the methodology employed by the
Commission, it does not, however, take into account several other variables of
interest (for example the presence of competitors). These further variables, as
discussed in the Commission's fixed-effects regression analysis, are used partly to
confirm the robustness of the results but also to test whether other competitors
constrain the Parties.
8.4.4.4. Commission’s fixed-effects regression analysis
(617) The Commission has undertaken a fixed-effects regression analysis which has
largely confirmed that, as in the 2007 Decision, there is significant competitive
interaction between the Parties. The analyses are performed both at airport pairs (that
is to say, in instances where both carriers fly to exactly the same airport) and at city
pairs (that is to say, in instances where both carriers fly to substitutable airports; city
pairs are defined on the basis of the market definition as set out in this Decision
591
).
(618) The Commission has requested data from Aer Lingus and Ryanair on fares and fuel
cost. The Commission has also requested DAA data for frequencies, passengers, and
capacity. The data was requested on a monthly basis for the period from November
2004 to July 2012.
(619) Using merged data sets, the Commission has used a standard fixed-effects procedure
to assess the competitive constraint exerted by the Parties on each other. The
Commission’s initial specification tests whether the presence of one of the Parties in
a given route is negatively related with the fares charged by the other Party (this is
labelled as the presence specification). An alternative specification tests whether the
number of frequencies of one Party in a given route is associated with the other Party
charging lower fares (this is labelled as the frequency specification).
590
According to Aer Lingus, Diio Mi (previously apgDat) provides an online database of airline schedule
data.
591
When market definitions are left open, the widest market is taken into account (eg. Cardiff, Bristol and
Exeter are considered for the purposed of this analysis as a city pair). The only exception is Edinburgh –
Glasgow as Glasgow is a city pair with Glasgow Prestwick.
EN 152 EN
(620) The presence specification includes controls for the presence of Ryanair, one or more
flag carriers and one or more non-flag carriers. It also controls for the presence of
Aer Arann and CityJet (through the use of dummy variables), which according to
Ryanair's claim in the 2007 Decision also exercise a strong constraint on the Parties.
The Commission extends the baseline specification to include various control
variables for demand and costs as well as variables to indicate whether flag or non-
flag carriers have a strong presence at the destination airport (as a proxy for a base at
destination airport). In all cases, the presence of Ryanair is statistically significant
and is correlated to Aer Lingus charging lower prices. Similarly, Aer Lingus also
constrains Ryanair's fares, albeit to a smaller extent and in particular less on city
pairs.
(621) The fixed-effects regressions with Aer Lingus's fares as the dependent variable show
that Ryanair exerts a significant competitive constraint on Aer Lingus's fares. In
particular the Commission's analysis show the following results:
– First, depending on the specification, Ryanair's presence is associated
with Aer Lingus charging around 9-14 % lower prices when considering
airport-pairs and around 7 - 11% lower prices when considering city-
pairs. This effect is economically and statistically significant in all tested
regressions. It is also highly robust to the use of alternative specifications
including alternative demand and supply controls. Also, in most cases the
control variables in the different regressions have the expected signs and
are statistically significant. The explanatory power of the regression (that
is to say, the fit of the model) is also high (R2, a measure of the fit of the
model, is consistently around 80%). Ryanair also appears to impose a
more significant constraint on Aer Lingus when it serves the same
airport.
– Secondly, comparing the coefficients of Ryanair with that of flag-carriers
and non-flag carriers, as well as Aer Arann and CityJet, Ryanair's
presence or number of frequencies has a much stronger economic impact
than that of any other type of carrier. This also holds true for charter
carriers. In fact, in most cases the regressions indicate that the presence
of other carriers has no economic or statistically significant effect on Aer
Lingus' fares. The presence of flag carriers has a negative effect on the
average fares of Aer Lingus but at the same time this effect seems to be
significant only if Ryanair is also present on the route and is typically
significantly smaller than the effect of Ryanair. Therefore, Ryanair
appears to be Aer Lingus' closest competitor.
– Thirdly, neither destination-based flag carriers nor destination-based non-
flag carriers exert a significant constraint (that is to say, a negative
effect). Moreover a flag carrier base at the destination airport has a
significant positive effect on Aer Lingus prices, limiting the effect of flag
carriers. Thus it cannot be expected that the merged entity would be
effectively constrained by flag or other non-flag carriers post-
Transaction.
– Fourthly, measuring the strength of Ryanair's presence using the number
of frequencies on the route as a proxy provides further confirmation that
EN 153 EN
Ryanair constrains Aer Lingus. Depending on the specification, the price
effect of a 1 % increase in frequencies of Ryanair on Aer Lingus prices is
negative at around 5-6 %. This adds to the robustness of the results
derived from the presence specifications.
(622) The fixed-effects regressions with Ryanair's fares as the dependent variable show
that Aer Lingus exerts a significant competitive constraint on Ryanair's fares. In
particular the Commission's analysis shows the following results:
– First, the presence of Aer Lingus is associated with Ryanair charging
around 3-10 % lower prices when considering airport-pairs and around 3-
14 % lower prices when considering city-pairs. This effect is
economically and statistically significant in all tested regressions. It is
also highly robust to the use of alternative specifications including
alternative demand and supply controls. The explanatory power of the
regression is also high with R
2
consistently above 80%
592
.
– Secondly, comparing the coefficients of Aer Lingus with that of flag-
carriers and non-flag carriers, as well as Aer Arann and CityJet, Aer
Lingus's presence or number of frequencies has stronger economic
impact than that of any other type of carrier. In fact, in most cases the
regressions indicate that the presence of flag-carriers, as well as Aer
Arann and CityJet, has no economic or statistically significant effect on
Ryanair fares. The presence of non-flag carriers has a significant negative
effect on Ryanair's prices but this effect is not robust in the different
specifications. Therefore, Aer Lingus appears to be the closest competitor
to Ryanair on routes from Dublin, Cork and Shannon.
– Thirdly, neither destination-based flag nor destination-based non-flag
carriers exert a constraint on Ryanair (that is to say, a negative effect).
Moreover a non-flag carrier base at the destination airport has a
significant positive effect on Aer Lingus prices, limiting the effect of
non-flag carriers. Thus it cannot be expected that the merged entity
would be effectively constrained by flag or other non-flag carriers after
the merger.
– Fourthly, measuring the strength of the presence of Aer Lingus using
the number of frequencies on the route as a proxy provides further
confirmation that Aer Lingus constrains Ryanair. Following the
Commission’s frequency regressions, a 1 % increase in frequencies of
Aer Lingus leads to around a 2 % price decrease in Ryanair prices. This
adds to the robustness of the results derived from the presence
specifications. Also, the frequencies of non-flag carriers do not appear to
constrain Ryanair's pricing.
592
On the city pair analysis, Aer Lingus appears to impose a statistically significant constraint on Ryanair
only when it serves the same airport (however there is a limited number of entry/exit events when they
fly to a different airport).
EN 154 EN
(623) The Commission also notes that the estimated effects of Ryanair on Aer Lingus
prices (and of Aer Lingus on Ryanair's prices) are likely to be underestimated as the
presence of Ryanair and Aer Lingus in Dublin exerts a potential competitive
constraint on Aer Lingus and Ryanair. For example, on routes out of Dublin where
Ryanair is the only carrier, it can be expected that it sets prices which are lower than
what it would charge if Aer Lingus had no base in Dublin (as there is the threat that
Aer Lingus can enter such a route). Since the regression analysis only considers
fares' overtime variations within each route and only captures price reductions
subsequent to Aer Lingus' entry, this potential competition constraint does not show
up in the empirical results (see also Section 8.10).
(624) Ryanair has raised some criticisms on the regression analysis put forward by the
Commission and Aer Lingus has performed some robustness checks.
593
The
Commission discusses Ryanair's criticisms and Aer Lingus' comments in detail in
Annex III to this Decision. However, the Commission considers that these comments
do not alter the Commission's findings.
8.4.4.5. Conclusion
(625) The Commission’s price regression analysis confirms significant competitive
interaction between Ryanair and Aer Lingus. It confirms and complements the
conclusion derived from qualitative evidence that Ryanair and Aer Lingus are close
and the closest competitors.
8.4.5. Conclusion on closeness of competition
(626) The activities of Ryanair and Aer Lingus overlap on a number of routes and they
compete very closely.
(627) On the majority of the overlap routes, Ryanair and Aer Lingus are the only operating
carriers. On these routes, Ryanair and Aer Lingus are, by definition, each other's
closest competitor. Even on those routes on which Ryanair and Aer Lingus face one
or more competitors, the Parties are most often by far the largest operators in terms
of market shares.
(628) The assertion that Aer Lingus is the closest competitor of Ryanair and that Ryanair is
very close (if not the closest) competitor of Aer Lingus is further confirmed by the
fact that they have similar business models, which differ from those of most of their
competitors. They also enjoy very high brand recognition in Ireland, which is a
distinctive feature in contrast to all their competitors. Ryanair and Aer Lingus are
particularly well-established in Irish airports and, unlike other operators, they both
operate significant bases in Ireland, in particular at Dublin airport. Having important
bases at the same airport corroborates the finding that Ryanair and Aer Lingus are
very close (if not the closest) competitors.
(629) Therefore, the Commission concludes that Aer Lingus and Ryanair are very close
competitors, if not each others closest competitor, on all routes subject to this
593
See "Assessment of the Commission's analysis in the Annexes, I, II and III of the SO," Oxera, 28
November 2012 and Aer Lingus Response to Statement of Objections, Annex B, 30 November 2012.
EN 155 EN
Decision. The Transaction is therefore likely to eliminate the important competitive
constraint that both carriers exert upon each other pre-Transaction on the routes.
Customers' choices of travelling options would be substantially reduced and it is
unlikely that other operators could sufficiently constrain the merged entity, especially
in terms of fare levels.
(630) Further route specific assessment is made in Sections 8.9.4-8.9.6.
8.5. Entry is unlikely to eliminate the anti-competitive effects of the Transaction
8.5.1. Introduction
(631) In the 2007 Decision, it was extensively examined whether the entry of new
competitors onto the market or the expansion of existing competitors was likely to
eliminate the anti-competitive effects of the concentration
594
. While it was found that
regulatory barriers did not play as important a role as barriers to entry
595
, the
Commission found that barriers to entry did exist on account of Ryanair's and Aer
Lingus' 'strong position' with large bases in Ireland
596
. It also found that entry costs
and risks would be significant in a market already served by two strong airlines with
well-established brands
597
, that the risk of 'aggressive retaliation' by the merged
entity was high
598
, that competitors considered other markets more attractive than the
small Irish market
599
, that airport congestion constituted an additional barrier to
entry, both at Dublin airport and certain destination airports
600
and that the strong
position of the merged entity at Dublin airport might hinder further expansion by
competitors
601
.
(632) It was thus concluded that "there are a number of important entry barriers to
operating flights from or to Dublin in competition with Ryanair/Aer Lingus. These
barriers go well beyond the problem of the partly congested airport and are in
particular linked to Ryanair’s and Aer Lingus’ well established position at their
home base. The investigation showed that, as a result of these barriers, entry is not
likely, but even unlikely on almost all overlap routes. In the absence of potential
entrants on the vast majority of overlap routes and given that competitors have
unanimously indicated that they would not even consider entering in direct
competition with the merged entity on a significant scale (in particular by opening a
base at Dublin), the Commission concludes that entry is not likely, timely and
sufficient to constitute a sufficient competitive constraint on the merged entity and
defeat the likely anti-competitive effects of the proposed merger."
602
(633) These findings were upheld by the General Court in the 2010 Judgement. With
respect to the entry analysis, the General Court confirmed that "What counts is the
594
Section 7.8 of the 2007 Decision.
595
Section 7.8.2 of the 2007 Decision.
596
Section 7.8.3 of the 2007 Decision.
597
Section 7.8.4 of the 2007 Decision.
598
Section 7.8.5 of the 2007 Decision.
599
Section 7.8.6 of the 2007 Decision.
600
Section 7.8.7 of the 2007 Decision.
601
Section 7.8.8 of the 2007 Decision.
602
Recital 784 of the 2007 Decision.
EN 156 EN
prospect of an entrant which offsets the anti-competitive effects specifically
established in the contested decision at that stage of the assessment"
603
. The General
Court considered in this respect that the mere 'threat" of an entry or the explanation
that there are no entrants because of Ryanair's efficiency on the relevant routes and
because of customer satisfaction are not sufficient
604
. The General Court further
found that as regards the analysis of barriers to entry, what is relevant is not the
current situation (a situation in which Aer Lingus is present as a competitor of
Ryanair or represents the most likely potential competitor) "but the situation which
would result from the concentration on the routes dominated by Ryanair-Aer Lingus
combined"
605
. In this regard, the General Court found that Ryanair's argument that
the lack of entry would show that its fares and capacity are so competitive that no
competitor considers that it would make sense to compete, is not relevant for the
analysis. It also rejected Ryanair's argument that it does not envisage charging prices
higher than required to remain competitive following the implementation of the
concentration since the control of concentrations focuses on the control of market
structures and not on the control of companies' conduct thereby also noting that the
price criterion is not the only one which may be taken into consideration
606
.
(634) Ryanair argues that the overlap routes are highly contestable.
607
Carriers can and do
move aircraft between different routes quickly to maximize profits and take
advantage of growth opportunities. According to Ryanair there are virtually no
barriers to entry and expansion for an existing carrier on almost any Irish route, since
services can be commenced on short notice with little or no capital expenditure,
given that slots are available.
(635) In Ryanair's view, a carrier with an aircraft base at Dublin airport could immediately
enter and offer services on any or all of the overlap routes. According to Ryanair, Air
France, British Airways and Lufthansa already have established bases at Dublin
airport and are well placed to compete.
(636) Ryanair also submits that the Parties have no significant competitive advantage from
having a base in Ireland and that the scale advantages are the same at both ends of a
given route.
608
Ryanair also submits that the threat of competition from existing
bases at destination cities on overlap routes and/or the presence of strong competitors
which could easily establish such bases will effectively constrain the merged
entity.
609
(637) Generally, if entering a market is sufficiently easy, a merger is unlikely to pose any
significant anti-competitive risk.
610
Therefore, entry analysis constitutes an important
element of the overall competitive assessment, in particular in airline cases.
603
Paragraph 239 of the 2010 Judgement.
604
Paragraph 239 of the 2010 Judgement.
605
Paragraph 249 of the 2010 Judgement.
606
Paragraph 250 . of the 2010 Judgement.
607
Form CO paragraph 7.20-7.21.
608
Form CO paragraph 7.22-7.24; Ryanair's response to the Statement of Objections, paragraph 30.
609
Form CO paragraph 7.30; Ryanair's response to the Statement of Objections, paragraph 30.
610
See Horizontal Merger Guidelines, paragraph 68.
EN 157 EN
(638) In line with the provisions of the Horizontal Merger Guidelines, the Commission
examines whether entry is likely to eliminate the anti-competitive effects of the
Transaction. For entry to be considered a sufficient competitive constraint on the
merging parties, it must be shown to be likely, timely and sufficient to deter or defeat
any potential anti-competitive effects of the Transaction.
611
(639) It is examined whether entry is likely and whether potential entry is likely to
constrain the behaviour of the merged entity post-Transaction. It is recalled that, for
entry to be likely, it must be sufficiently profitable taking into account the price
effects of injecting additional output into the market and the potential responses of
the incumbents.
612
(640) It is also examined whether there are barriers to entry that potential entrants would
encounter. Barriers to entry are specific features of the market, which give incumbent
firms advantages over potential competitors.
613
Barriers to entry can take various
forms such as legal advantages, technical advantages or may result from the
established position of the incumbent firms on the market.
614
(641) Moreover, it is examined whether entry would be timely, that is to say sufficiently
swift and sustained to deter or defeat the exercise of market power
615
and whether it
would be of sufficient scope and magnitude to deter or defeat the anti-competitive
effects of the merger.
616
(642) As will be set out below, the Commission's analysis and the market investigation
show that a number of important barriers to entry and expansion exist on the overlap
routes.
(643) Furthermore, the evidence collected in the market investigation indicates that no
other competitor would have post-Transaction entry or expansion projects which
could be considered as timely, likely and sufficient enough to constitute a
competitive constraint on the merged entity and defeat the anticompetitive effects of
the Transaction.
8.5.2. Barriers to entry
8.5.2.1. Introduction
(644) During the market investigation, competitors were asked to provide their views on
the existence of barriers to entry in relation to the overlap routes.
617
The evidence
collected during the market investigation points to the existence of various barriers to
entry. The most commonly-identified barriers to entry are the position of
competitors, the frequency advantage of competitors, brand recognition, availability
of slots, airport charges, and availability of aircraft. The fear of retaliation, network
611
See Horizontal Merger Guidelines, paragraph 68.
612
See Horizontal Merger Guidelines, paragraph 69.
613
See Horizontal Merger Guidelines, paragraph 70.
614
See Horizontal Merger Guidelines, paragraph 71.
615
See Horizontal Merger Guidelines, paragraph 74.
616
See Horizontal Merger Guidelines, paragraph 75.
617
See amongst others questionnaire Q1 - Competitors, questions 33 to 35.
EN 158 EN
effects, need for a base, and to a lesser extent constraints on terminal capacity are
also identified as barriers to entry. It is generally agreed that there are no regulatory
barriers.
(645) However, some other competitors consider that there are no barriers to entry.
Lufthansa, which is currently operating on the Dublin – Frankfurt and Dublin –
Munich routes considers that there are currently (pre-Transaction) no barriers to
entry whatsoever at Dublin airport (nor at Shannon, Cork and Knock)
618
. It
nevertheless indicates that there could possibly be barriers should the Transaction
take place "since it cannot be excluded that the dominance of a combined FR/EI
could lead to a potential barrier for some carriers"
619
. IAG indicates that there are
no barriers at Dublin "other than the general economic climate and the weak
demand"
620
. Flybe, while identifying a number of barriers to entry that it considers as
'significant'
621
, nevertheless indicates that the existence of these barriers would not,
as such, prevent it from entering on the routes
622
post-Transaction.
(646) The competitors were also asked whether the entry barriers at Dublin airport have
evolved over the last five years
623
. A number of respondents consider that the entry
barriers had either not changed since 2007 or had worsened. For instance, Aer Arann
indicates that "Yes Dublin airport has become a more expensive place to operate as
an airline. As a result the bar required for new routes to make money has become
higher over the last 5 years"
624
. Jet2.com indicates that "Increase in airport charges
makes this airport less attractive"
625
. Aer Lingus considers that "None of the entry
barriers identified in the EC's Prohibition Decision in 2007 have become less
relevant in 2012. Indeed, with regard to some of them an entrant would be in a worse
position now then in 2007"
626
. LOT indicates that "Yes, the strength of Ryanair has
grown over the last 5 years"
627
. Air France on the other hand indicates that "(…)
stand capacity, which was a huge issue in 2007 and therefore a significant obstacle
(…) is no longer relevant (…)"
628
and easyJet indicates that "it has become easier to
acquire slots in peak time at Dublin, but we don’t think this has had a significant
effect on barriers to entry, as the entry costs would remain very high"
629
.
(647) The competitors overall consider that if the Transaction takes place, these barriers to
entry would be the same, or would increase.
630
(648) The views expressed by competitors during the market investigation show that a
majority of the respondents having expressed an opinion considers that if the
618
Lufthansa, response to questions 33, 33.1 and 34 of questionnaire Q1 - Competitors.
619
Lufthansa, response to question 33.1.1 of questionnaire Q1 - Competitors. FR is the IATA designator
for Ryanair and EI for Aer Lingus.
620
IAG, response to questions 33 and 33.1 of questionnaire Q1 - Competitors.
621
Flybe, response to questions 33 and 33.1 of questionnaire Q1 - Competitors.
622
Flybe, response to question 37 of questionnaire Q1 - competitors.
623
See responses to question 33.3 of questionnaire Q1 - Competitors.
624
Aer Arann, response to question 33.3 of questionnaire Q1 - Competitors.
625
Jet2, response to question 33.3 of questionnaire Q1 - Competitors.
626
Aer Lingus, response to question 33.3 of questionnaire Q1 - Competitors.
627
LOT, response to question 33.3 of questionnaire Q1 - Competitors.
628
Air France, response to question 33.3 of questionnaire Q1 - Competitors.
629
easyJet, response to question 33.3 of questionnaire Q1 - Competitors.
630
See responses to question 33.1.1 of questionnaire Q1 - Competitors.
EN 159 EN
Transaction took place, the combined market position of Ryanair and Aer Lingus at
Irish airports may act as a barrier to entry. For instance, Aer Arann indicates that
"The relative size of the combined entity is too large for most commercial airlines to
take on in Ireland and the United Kingdom."
631
Aer Lingus refers to the merged
entity becoming by far the largest purchaser of services from third parties at Dublin
airport. In Aer Lingus' view, "This may result in the merged entity obtaining
preferential treatment over potential entrants or provide it with the opportunity to
influence any plans on expansion of facilities in a way which may frustrate potential
new entrants at Dublin airport."
632
Lufthansa
633
and Swiss
634
indicate that jointly
Ryanair and Aer Lingus "will have a greater competitive clout and can optimize their
offer on specific routes and in Ireland overall. They will be the biggest customer (at
airports) in Ireland and be able to exert increased purchasing power (esp. A/A
handling, fee, flexibility in slot use etc.)". They further indicate that the merged entity
"will be the largest airline in Ireland and therefore will have a strong sales power
and this might be a barrier for other entrants in the Irish market."
635
Germanwings
indicates that "The incumbents combined market share, pricing power and slot
flexibility throughout the day would make it even harder for a new entrant.”
636
Vueling indicated that "If the Transaction takes place, the new airline will have more
than 80% of the total seats at DUB. This gives the new company a great power in
many fields: commercial, network, operational".
637
(649) However, some other respondents answer that the strength of the merged entity
would not be a barrier to entry. In particular, IAG indicate that they are used to
operating into the hubs of their competitors.
638
Wizz Air indicates that "While the
combined market-strength of the combined carrier may increase, the Transaction
itself may trigger for DUB to become more active in attracting new carrier to
diversify. There may also be some capacity consolidation which could open up new
opportunities for other carriers."
639
(650) The existence and extent of factors that could deter entry or expansion by
competitors on the overlap routes is examined in detail below.
8.5.2.2. Historical overview of past entry and exit events by competitors
(651) Historical examples of entry and exit in the industry may provide useful information
about the size of entry barriers.
640
(652) It is recalled that in the 2010 Judgement, the General Court found that there were
only a marginal number of entry events in competition with Ryanair on routes out of
Dublin, Cork and Shannon (other than by Aer Lingus) and that most of them were
631
Aer Arann, response to question 37.1 of questionnaire Q1 - Competitors.
632
Aer Lingus, response to question 37.1 of questionnaire Q1 - Competitors.
633
Lufthansa, response to question 37.1 of questionnaire Q1 - Competitors.
634
Swiss, response to question 37.1 of Questionnaire Q1 – Competitors.
635
Lufthansa, response to question 37.1 of questionnaire Q1 - Competitors.
636
Germanwings, response to question 37.1 of questionnaire Q1 - Competitors.
637
Vueling, response to question 37.1 of questionnaire Q1 - Competitors.
638
IAG, response to question 37.1 of questionnaire Q1 - Competitors.
639
Wizz Air, response to question 37.1 of questionnaire Q1 - Competitors.
640
See Horizontal Merger Guidelines, paragraph 70.
EN 160 EN
failed entry attempts insofar as the airline was no longer present on the route the
same month a year later
641
. The General Court further found that the existence of
barriers to entry as identified by the Commission in the 2007 Decision is not
contradicted by the lively entry and exit which characterises the air transport sector
in Europe since it was deregulated. The General Court thereby upheld the
Commission's approach that consisted in basing the evaluation of competition and
the entries on a targeted assessment of the affected markets and not on the air
transport sector in general
642
.
Entry and exit events on the routes subject to this Decision
643
(653) The routes subject to this Decision have seen little sustained entry by scheduled
airlines other than Ryanair and Aer Lingus in the last 5 years:
644
– Centralwings, the former low cost subsidiary of LOT Polish airlines, entered in
2007 on the Dublin – Warsaw route, however exited the route the following
year.
645
– Clickair entered the Dublin – Barcelona route in 2007 and exited in 2008.
646
– British Airways started services on the Dublin – London City route in 2008,
however it stopped its Dublin – London City and Dublin – London Gatwick
services in 2009.
647
In 2012 it took over bmi's services on the Dublin – London
route, on which it still operates.
– Austrian operated a weekly service between Dublin and Vienna from May
2009 to September 2009.
648
– Malev entered the Dublin – Budapest route in March 2010, however stopped
operating on the route in February 2012.
649
– Lufthansa entered the Dublin – Berlin route in April 2008 only to exit it in
September 2008.
650
641
Paragraph 244 of the 2010 Judgement.
642
Paragraph 243 and 245 of the 2010 Judgement.
643
Appendix A and B of the regression analysis also comprise a list of entry and exit events. Appendix A
and B however identify entry and exit events on a monthly basis and are limited to entries or exits by
Ryanair or Aer Lingus.
644
See Annex 7.3(a)(ii) of the Form CO and DAA's response to question 8 of the Commission's request for
information of 20 September 2012.
645
Annex 7.3(a)(ii) of the Form CO and DAA's response to question 8 of the Commission's request for
information of 20 September 2012.
646
Annex 7.3(a)(ii) of the Form CO and DAA's response to question 8 of the Commission's request for
information of 20 September 2012.
647
Annex 7.3(a)(ii) of the Form CO and DAA's response to question 8 of the Commission's request for
information of 20 September 2012.
648
Ryanair's response to question 26 of the Commission's request for information of 19 July 2012.
649
DAA's response to question 8 of the Commission's request for information of 20 September 2012.
650
DAA's response to question 8 of the Commission's request for information of 20 September 2012.
EN 161 EN
– Lufthansa re-entered the Dublin – Munich route in 2011.
651
It had previously
entered the Dublin – Munich route in July 2008, but exited it in August
2008.
652
(654) There have been a number of entry events by charter companies: Thomson entered
the Dublin – Lanzarote route, the Dublin – Gran Canaria route, the Dublin – Malaga
route and the Dublin – Palma route in 2008. It entered the Dublin – Barcelona route
in 2010 and the Dublin – Faro route in 2012.
653
Germania entered the Dublin – Faro
and the Dublin – Malaga routes in 2012.
654
Orbest entered the Dublin – Faro route in
2012.
655
(655) Finally, there have been some expansions by operating scheduled airlines on the
routes subject to this Decision: Flybe increased capacity on the Dublin –
Bristol/Cardiff/Exeter route in summer 2010 and summer 2012, Lufthansa increased
capacity on the Dublin – Frankfurt route in winter 2010/2011, summer 2011, winter
2011/2012 and summer 2012; IAG (bmi) recently increased capacity on the Dublin –
London route (it however reduced capacity in winter 2009/2010, in summer 2010
and in winter 2010/2011); Air France/CityJet increased capacity in winter 2009/2010
and summer 2010 on the Dublin – London route (however it also reduced capacity in
winter 2010/2011 and summer 2011); SAS increased capacity on the Dublin–
Stockholm route in summer 2010, summer 2011 and summer 2012.
656
(656) The above shows that there have only been limited entry events on routes subject to
this Decision, especially by scheduled airlines other than the Parties. Moreover, the
limited entry events by scheduled carriers were often followed shortly thereafter by
an exit, thus showing that many of these entries were not sustainable. The only
scheduled airlines, other than the Parties, that entered in the last five years and that
still operate on any of the routes subject to this Decision are Lufthansa on the
Dublin–Munich route with a seasonal service (summer only) and very low
frequencies and British Airways that took over services on the Dublin–London route
following its acquisition of bmi in 2012.
(657) On the contrary, several scheduled airlines exited the routes subject to this
Decision
657
: TAP exited the Dublin – Faro route in 2007; SkyEurope exited the
Dublin – Bratislava route in 2008; Flynordic exited the Dublin – Stockholm route in
2007; LOT exited the Dublin – Warsaw route in 2007; Spanair exited the Dublin –
Malaga route in 2007; Luxair exited the Dublin –Manchester route in 2007; Iberia
exited the Dublin – Barcelona route in 2007; Clickair exited the Dublin – Barcelona
route in 2008; BA exited the Dublin – London City and Dublin - London Gatwick
route in 2009; bmibaby exited the Cork – Manchester route in 2010 and the Knock –
Birmingham route in 2012; Malev exited the Dublin –Budapest route in 2012;
651
Annex 7.3(a)(ii) of the Form CO and DAA's response to question 8 of the Commission's request for
information of 20 September 2012.
652
DAA's response to question 8 of the Commission's request for information of 20 September 2012.
653
Annex 7.3(a)(ii) of the Form CO.
654
Annex 7.3(a)(ii) of the Form CO.
655
Annex 7.3(a)(ii) of the Form CO.
656
DAA, response to question 17 of questionnaire Q5 – Dublin Airport Authority.
657
Annex 7.3(a)(ii) of the Form CO and DAA's response to question 8 of the Commission's request for
information of 20 September 2012.
EN 162 EN
Lufthansa exited the Dublin – Berlin route in 2008. Several charter companies also
exited routes subject to this Decision: MyTravel exited the Dublin – Ibiza route in
2007; XL Airways exited the Dublin – Faro route in 2008; Centralwings exited the
Dublin – Warsaw route in 2008.
Entry events on routes to and from Dublin, Shannon and Cork
(658) The Commission also examined entry events by scheduled carriers on routes to and
from Dublin, Shannon and Cork that took place since 2008 up to the end of August
2012.
658
(659) Such analysis shows that there have been relatively few entry events by scheduled
airlines other than Ryanair and Aer Lingus at the airports of Dublin, Cork and
Shannon. Ryanair and Aer Lingus (including Aer Arann) represent for more than half
of all entry events by scheduled carriers on routes to or from Dublin, Shannon and
Cork. Moreover, most of the entry events by other scheduled carriers occurred on
routes that were not yet operated by Ryanair or Aer Lingus (including Aer Arann).
Finally, a considerable number of the entry events by other scheduled carriers were
not sustainable (meaning that the route was exited again).
(660) The limited number of sustained entry events resulted in a significant drop in the
number of airlines that operate from Dublin airport. As illustrated in Table 31, while
there were 46 airlines operating from Dublin airport in 2007, there are just 32 airlines
operating from the airport in 2012.
Table 31: evolution of number of airlines operating at Dublin airport
Year
# Airlines
Entry/Exit
2007
46
Entry (3): Etihad, SATA, Akria Israel
Exits (10): My Travel, LOT, Spanair, Gulf Air,
Finnair, Flynordic, TAP, Blue1, Bulgaria Air, Air
Malta
2008
41
Entry (5): Air Canada, Air Transat, Flyglobespan,
Pegasus, S7 Airlines
Exits (8): Centralwings, Clickair, Sky Europe, XL
Airways, LTU, Eurocypria, Pegasus, FlyLAL
2009
36
Entry (3): Austrian, Thomson, Star1
Exits (3): Flyglobespan, Austrian, British Airways
2010
35
Entry (2): Blue Air, Cimber Sterling
Exits (1): Estonian,
2011
36
Entry (2): Sunwing, Pegasus
Exits (6): Pegasus, Sunwing, Cimber Sterling,
Adria Airways, Air Southwest, CSA,
2012
32
Entry (2): Air Moldova, Emirates
Exits (2): Malev,Luxair
Source: Ryanair – reply to question 41 of the Commission's request for information of 11 July
2012.
8.5.2.3. Base operations provide significant advantages to the merged entity that would
constitute a barrier to entry at Dublin, Cork and Shannon airports while the relevant
658
The analysis is based on the information received from the DAA in response to the Commission's
request for information of 20 September 2012.
EN 163 EN
conditions for competitors to establish a base at Irish airports are generally not
satisfied
(661) In the 2007 Decision, the Commission examined the entry barriers related to
Ryanair's and Aer Lingus' strong position with large bases in Ireland
659
. It found that
the fact that Ryanair and Aer Lingus operate from the same base at Dublin airport
and that they are also present in Cork and Shannon is one of the reasons why the two
airlines are closest competitors on the routes to and from Ireland
660
. The Commission
further found that the role of the base-related barriers to entry was even more
significant than in past cases, given the fact that both airlines has a strong presence at
the same airport
661
.
The level of market presence of the Parties at Irish airports, and in particular at Dublin airport
(662) Ryanair claims that base operations are not a barrier to entry for new competitors and in
its response to the Statement of Objections, it claims that the Commission failed to
conduct a correct analysis of base operations as a barrier to entry
662
.
(663) The individual position of the Parties in Ireland, at Irish airports, and at Dublin
airport in particular (see Section 8.4.3) is very strong.
(664) During the market investigation, competitors most frequently mentioned the position
of their competitors at Dublin airport as a barrier to entry.
663
Competitors also
frequently indicated frequency advantage of competitors referring to the advantage
of the two Irish incumbent carriers. The vast majority of competitors found that post-
Transaction, the combined market position of Ryanair and Aer Lingus at Irish
airports would act as a barrier to entry or expansion.
664
Brussels Airlines explain that
"Coverage of all market segments make it very hard to penetrate" given the strong
combined market position of Ryanair and Aer Lingus at Irish airports.
665
Germanwings considers that "The incumbents combined market share, pricing power
and slot flexibility throughout the day would make it even harder for a new
entrant".
666
These conclusions are equally relevant for the airports of Cork, Shannon
and Knock.
667
(665) Moreover, the Commission considers that, if threatened by entry on a particular
route, thanks to its very strong base at Dublin airport as well as at its bases in Cork,
and Shannon, the merged entity could quickly re-allocate flights in order to offer the
most attractive schedules on the challenged route (for example, by re-arranging
659
Section 7.8.3 of the 2007 Decision.
660
Recital 552 of the 2007 Decision.
661
Recital 553 of the 2007 Decision.
662
Ryanair's response to the Statement of Objections, paragraph 30.
663
See responses to question 33 of questionnaire Q1 – Competitors. See also Sections 8.4.3 and 8.5.2.3 (i)
and (ii).
664
See responses to question 37 of questionnaire Q1 – Competitors.
665
Brussels Airlines, response to question 37 of questionnaire Q1 – Competitors.
666
Germanwings, response to question 37 of questionnaire Q1 – Competitors.
667
See Aer Lingus response to question 34 of questionnaire Q1 – Competitors. In general competitors only
indicated the availability of slots and the lack of congestion as a difference of entry barriers at Cork,
Shannon and Knock compared to Dublin airport.
EN 164 EN
departure times close to those of the entrant). Previous entry events in the Irish
market have been followed by an aggressive response by Ryanair as explained in
Section 8.5.2.6.
(666) Therefore, it appears that the strong market presence of the Parties at Irish airports,
and at Dublin airport in particular, constitutes a very significant barrier to entry for
competitors.
The decision to establish a base is dependent on the market position of competitors
(667) The level of competition and airlines concentration at an airport is considered by
competing carriers as a very important parameter in their decision for establishing a
base. For example, Flybe considers this to be the second most important parameter
(after the size of demand in the relevant catchment area)
668
. Brussels Airlines
considers that "Given the market position of Ryanair/Aer Lingus, establishing a base
at Dublin airport is not sustainable"
669
. Similar conclusions also apply for the other
Irish airports.
(668) Wizz Air also considers that "if competing carriers have a base at a given airport,
this makes entry harder, especially in a capacity constrained airport (where
historical advantages will accrue to based competitors)".
670
(669) Air France/CityJet currently already "finds it hard to compete with the two large
based companies in Dublin given [that] it operates with smaller aircraft"
671
. At the
same time some carriers such as Flybe considers that "the existence of bases as such
is not decisive, but rather the size of the operations conducted from the airport.
Therefore, to compete effectively with Ryanair and Aer Lingus in Dublin, an air
carrier would also need to have scale".
672
(670) From the above it appears that the level of competition and airlines concentration at a
given airport is considered by possible new entrants as a very important parameter in
their decision to establish a base at such airport. This fact, combined with the very
strong market position of the Parties at Irish airports and in particular at Dublin
airport, is likely to deter a new entrant from establishing a base at the Irish airports of
Dublin, Shannon and Knock.
Establishing a base requires a significant upfront investment and involves significant
commercial risks
(671) The likelihood of entry on a given route would depend on the potential profitability
of the given route. Also, as explained in the Horizontal Merger Guidelines: "a high
risk and costs of failed entry may make entry less likely. The costs of failed entry will
be higher, the higher is the level of sunk cost associated with entry"
673
.
668
Flybe, response to question 44 of questionnaire Q1 – Competitors.
669
Brussels Airlines, response to question 48 of questionnaire Q1 – Competitors.
670
Agreed minutes of conference call of 12 October 2012 with Wizz Air.
671
Agreed minutes of conference call of 11 October 2012 with Air France.
672
Agreed minutes of conference call of 12 October 2012 with Flybe.
673
Paragraph 69.
EN 165 EN
(672) Ryanair argues that sunk costs of establishing a base are minimal […]* and that any
competing airline planning to open a base would be able to do so in a very short
period of time
674
. Ryanair claims that the Commission has included certain non-sunk
costs as costs for opening a base and that the Commission has failed to conduct a
correct analysis of base operations as an entry barrier.
(673) The Commission considers that it is complex to accurately quantify the sunk costs
involved in setting up bases as this would depend on the identity and business model
of the airline, as well as on the level of its activities from that base. However, the
results of the market investigation have indicated that setting up a base is a risky
activity that indicates an airline's commitment to a particular airport and therefore
involves a significant level of sunk costs as these costs cannot be fully recouped.
(674) The marketing costs but also costs for installing and operating necessary ground
services in an airport where no facilities existed before represent a risk of incurring
additional sunk costs
675
. Regarding brand recognition for instance, entering into
competition with Ryanair/Aer Lingus in Ireland would require a significant
investment in marketing, brand-building, and other start-up costs for any potential
competitor who would wish to compete head-to-head with the merged entity. Since
these costs cannot be recouped should the attempt to enter the market fail, any
potential competitor takes a material financial risk. This is likely to deter entry.
(675) Wizz Air considers that establishing a base involves "high start up costs –
marketing"
676
. Flybe considers that they are "Approximately £3m pa per aircraft."
677
(676) Even according to Ryanair press releases recently announcing base openings, the
investment per aircraft required to open a base would appear to be approximately
EUR 54 million
678
. While part of these costs may not be sunk, the level of expenses
reflects the important costs involved and the associated commitment of this
investment, and is inconsistent with the figures quoted by Ryanair […]*.
679
Besides,
Ryanair has not provided a break down of which costs are sunk and which are non-
sunk for the particular cases indicated in the press releases.
(677) Therefore, on the basis of the evidence collected during the market investigation, and
despite Ryanair's contention to the contrary
680
, the Commission considers that the
costs for establishing a base are significant.
674
Ryanair's comments on the Statement of Objections, paragraph 30.
675
See also 2007 Decision, recital 612.
676
Wizz Air, response to question 36.2.1 of questionnaire Q1 – Competitors.
677
Flybe's response to question 45.1 of questionnaire Q1 – Competitors.
678
Maastricht (opens December 2012): one aircraft with $70 million invested in base. Paphos (opened
April 2012): 2 aircraft with $170 million invested in base. Manchester (opened October 2011), 4 aircraft
with $280 million invested in base; Seville (opened October 2011): 2 aircraft with 140 million invested
in base. Using the ECB’s Euro-Dollar average monthly exchange rate for September 2012 (1.2856),
USD 70 million amount to EUR 54 million. See DAA' response to the Commission's request of
information of 11 October.
679
See Form CO, Annex 7.3(f), page 3.
680
Ryanair's response to the Statement of Objections, paragraph 30.
EN 166 EN
(678) The significant costs involved in establishing a base coupled with the significant
financial risk that this investment entails, in particular in the case of the Irish airports
of Dublin, Cork and Shannon, where the Parties have their own established bases, are
a deterrant for possible new entrants and make entry at these airports unlikely.
Furthermore, the Parties also benefit from their established brand and experience in
the Irish market (see for instance Section 8.5.2.4).
Barriers are likely to increase post-Transaction
(679) The strong individual position of the Parties in Ireland, at the Irish airports, and at
Dublin airport in particular would be significantly reinforced after the Transaction.
The existence of this strong base at Dublin airport post-Transaction would be likely
to give the Parties an unrivalled position. Indeed, a merger may lead to price
increases but not attract entry because entrants would suffer a significant cost
disadvantage relative to incumbents. A reason for a cost disadvantage could indeed
be the presence for competitor(s) of significant economies of scale and scope.
(680) Overall competitors do not consider that barriers to entry will decrease post-
Transaction. If anything several competitors have claimed that higher barriers to
entry could result from the Transaction. For example, Lufthansa is of the view that
"it cannot be excluded that the dominance of a combined FR/EI could lead to a
potential barrier for some carriers"
681
while Lufthansa did not consider that there
would be barriers to entry at Dublin airport pre-Transaction. Lufthansa further
explains that post-Transaction the "Cost of entry would probably be higher if there is
one large competitor. FR and EI will be the biggest customer and therefore be able
to exert increased purchasing and sales power and will therefore be at an advantage
to other airlines especially new (and smaller) entrants."
682
(681) Thomas Cook also explains that "the fact that the merged entity would have post-
Transaction an even more important base in Ireland would constitute a further
barrier to entry given that a competitor or new entrant would need to compete with
the merged entity in its home base"
683
.
(682) Furthermore, the great majority of competitors explain that they would not
reconsider their decision regarding opening a base in Ireland post-Transaction
684
. Aer
Arann for example claims that "the scale of the competition post-transaction that
would exist at the airport would make opening a base at Dublin airport impossible
financially. The potential losses that would be incurred in the initial years would be
too large."
685
Flybe claims that it would consider establishing a base post-
Transaction, however, this would take place in the context of the remedies
686
.
681
Lufthansa, response to question 33.1.1 of questionnaire Q1 – Competitors.
682
Lufthansa, response to question 36.5 of questionnaire Q1 – Competitors.
683
Agreed minutes of conference call of 5 October 2012 with Thomas Cook.
684
See responses to question 50 of questionnaire Q1 – Competitors.
685
Aer Arann, response to question 50.1 of questionnaire Q1 – Competitors.
686
Flybe, response to question 50 of Q1 – Competitors and Annex II.
EN 167 EN
Conclusion
(683) The Commission concludes that the strong market position of the Parties in Dublin,
Cork and Shannon inter alia as a result of their established bases, and the position of
the merged entity post-Transaction constitute a significant barrier to entry. In
addition, the Commission concludes that the relevant conditions for competitors to
establish a base at Irish airports are generally not satisfied, inter alia because
competitors would be deterred by the strong market position of the merged entity in
Ireland, by the significant upfront investment and commercial risks.
8.5.2.4. Strong brand recognition
(684) The Commission considered in 2007 that Ryanair and Aer Lingus have a well-known
brand in Ireland which provides them with specific advantages and which means that
entry by potential competitors would require high marketing costs and entail a high
risk of sunk costs.
(685) The 2010 Judgement confirmed that "the Commission was right to state in the
contested decision that an entry in Ireland required considerable expenditure in
order to establish a brand capable of competing with Ryanair and Aer Lingus and to
gain access to new customers."
687
(686) It remains the case, as in 2007, that no other competing airline enjoys the same high
level of brand recognition as Ryanair and Aer Lingus across a large number of routes
to and from Ireland.
(687) Ryanair contests the importance of a strong brand recognition. It argues that
competition is driven either by product differentiation (which may include branding),
in which case consumers are less-price sensitive, or by price, in which case
competition is between more homogeneous products. It argues that in an
environment where consumers are said to be price-sensitive, and to be purchasing
tickets predominantly online (where all prices can be easily compared), brand
awareness is a much less relevant factor, while value-for-money is the key criterion
for consumers.
688
(688) Ryanair also claims that the Commission should distinguish between Ryanair's and
Aer Lingus' brand awareness at the Irish end and the non-Irish end of the routes,
notably on routes where a strong competitor, such as BA, Lufthansa, Air France or
SAS, is currently present. Brand awareness of these competitors at the non-Irish end
of the route is, according to Ryanair, at least as high as Ryanair's or Aer Lingus'
brand recognition.
689
(689) Ryanair further argues that there are other airlines that are well-known brands in
Ireland (for example Flybe, Wizz Air, easyJet, Alitalia, SAS and Iberia).
690
687
Paragraph 280.
688
Ryanair's response to the Statement of Objections, paragraph 44.
689
Ryanair's response to the Statement of Objections, paragraph 45.
690
Ryanair's response to question 38 of the Commission's request for information of 11 July 2012.
EN 168 EN
(690) Ryanair finally argues that marketing expenditures are insignificant for any existing
airline and that the recent expansion of numerous carriers demonstrates that airlines
can easily establish strong brand presences in relatively short periods of time
691
. It
refers to the examples of various Middle East carriers such as Qatar Airways, Etihad
and Emirates which have recently begun operations on routes from various
destinations to and from Europe. It argues in this respect that the new, non-facilitated
entries of Emirates (entry in 2011) and Etihad (entry in 2007) are examples of
establishment of strong brand recognition in a relatively short period of time through
intensive marketing.
692
Importance of brand recognition
(691) Ryanair's argument that brand awareness is a much less relevant factor in an
environment where consumers are said to be price sensitive and purchase tickets
predominantly online, cannot be sustained.
(692) While the core Irish market may be price sensitive, price is not the only factor that
drives competition. The Commission does not consider the market to be
homogeneous but acknowledges that carriers are highly differentiated and that there
are differences in services offered. Ryanair itself notes that there are "significant
differences in service levels between Aer Lingus and Ryanair"
693
and states that
"value-for-money" is the key criterion for consumers
694
, which is not the same as a
pure price factor.
(693) The Irish market for short-haul passenger flights is characterised by (i) a high level
of direct sales and more in particular (ii) of online sales.
(694) Direct sales present the advantage that they allow airlines to avoid paying a
commission to travel agents. Both Ryanair and Aer Lingus, the most important
providers of shorthaul scheduled passenger air transport services to and from Ireland,
distribute their shorthaul flights in Ireland exclusively through direct channels,
without the intervention of travel agents.
(695) The Irish market is furthermore characterised by a high level of online sales. As set
out in Section 8.4.2. Ryanair and Aer Lingus both realised most of their bookings in
Ireland from the web.
(696) In a market where an important part of the sales are direct sales (that is to say,
without the intervention of a professional travel agent who could advise customers of
the airlines operating on a particular route) and where an important part of the sales
occur via airline websites, it is important for airlines to enjoy brand awareness
amongst customers. Customers – also price sensitive customers – are more likely to
visit the websites of airlines that they know than websites of airlines with which they
are less familiar.
691
Form RM, footnote 97.
692
Ryanair's response to question 18 of the Commission's request for information of 19 July 2012.
693
Ryanair's response to the Statement of Objections, paragraph 6.
694
Ryanair's response to the Statement of Objections, paragraph 44.
EN 169 EN
(697) Aer Lingus and Ryanair both have very strong websites. Their internet pages are,
according to independent third party research, the most popular airline internet pages
in Ireland (ranking number 61 and 80 respectively of Ireland’s most visited
websites). No web page from any actual or potential competitor appears in the “top
100” list of Irish web pages nor do any websites which collect fares of different
competitors. Other airlines are ranked much lower, for example British Airways is
ranked at number 572, easyJet at number 874, Lufthansa at number 2 627, Flybe is
ranked at number 2 657 and Air France at number 4 895. Skyscanner ranks at
number 226, Ebookers at 394 and Expedia at number 459
695
.
(698) As noted in the 2007 Decision
696
, it remains the case that while the importance of the
internet distribution channel has certainly reduced distribution cost, new competitors
still face the problem that their web pages must be visited and used by Irish
customers in order to win such customers.
(699) Consequently, brand awareness – also in an environment where customers are said to
be price sensitive and purchase tickets predominantly online – is an important factor
and any entrant to the Irish market will need to develop a very strong brand if it
wants to be able to compete effectively with the merged entity for customers (and
avoid a disadvantageous position compared to the merged entity with respect to the
cost of sale).
(700) The result of the market investigation showed that competitors broadly recognise the
significant role of brand names and good reputation for the competitive process with
respect to short haul routes to and from Ireland
697
.
(701) The history of Aer Arann / Aer Lingus Regional provides a good example of the
importance of a recognised brand and of the difficulty of sustaining a viable Irish
operation against the Ryanair and Aer Lingus brands. Aer Arann explains that "as the
Aer Arann brand was not recognised in the United Kingdom (compared with the Aer
Lingus brand), Aer Arann faced serious difficulties and could not compete with other
carriers on short-haul flights out of Ireland." Then, Aer Arann entered into a
franchise agreement with Aer Lingus in January 2010 which enabled it to use the Aer
Lingus Regional brand and to have access to distribution through the Aer Lingus
website. Aer Arann confirmed that since the franchise agreement has been put in
place, it has increased its load factor (from 55% in 2009 to 65% in 2012 and it
expects a further increase) and registered a significant growth every year, in terms of
passengers and thus yield.
698
Importance of brand recognition in Ireland
(702) The Commission acknowledges that certain competitors that are active on routes to
and from Ireland may enjoy a strong brand recognition in their home territory. For
instance, Sections 8.4.2 and 8.9.5 discuss in this respect the brands IAG, and Air
France/CityJet, Lufthansa, SAS, and Flybe. The Commission also acknowledges that
695
http://www.alexa.com, visited on 14 January 2013.
696
Paragraph 599.
697
Responses to question 31 of questionnaire Q1 - Competitors.
698
Agreed minutes of conference call of 11 October 2012 with Aer Arann.
EN 170 EN
potential entrants that currently do not operate on any routes affected by the
Transaction may enjoy a strong brand at the non-Irish end of the route.
(703) The Commission acknowledges that a strong brand at a destination may to some
extent be of use when competing with the Parties on certain routes to and from
Ireland. The Commission nevertheless considers that the benefits of such brand
recognition outside Ireland are limited compared to the advantages that Ryanair and
Aer Lingus enjoy thanks to their strong brand recognition in Ireland.
(704) In this respect, the Commission first notes that the fact that a competitor or potential
entrant would have a strong brand at the non-Irish end of the route does not imply
that they also have a strong brand in Ireland (for example as set out in Section 8.9.5.2
Lufthansa considers that, although it has a strong brand across Europe, it is weak
compared to Ryanair and Aer Lingus when it comes to traffic ex-Ireland).
(705) Moreover, the benefits of having a strong brand at the non-Irish end of the route
would be limited to any such route, while Ryanair and Aer Lingus would benefit
from their strong brand with respect to all routes to and from Ireland. This is
reflected by the fact that the competitors referred to by Ryanair are only active on a
very limited number of routes to and from Ireland (mostly routes connecting their
home territory to Ireland).
(706) Moreover, the Commission notes that on many of the routes affected by the
Transaction, a majority of customers originate from Ireland (the share of Irish
originating passengers is in particular high on routes from Ireland to holiday
destinations).
(707) As noted in the 2007 Decision
699
, in particular on routes where the majority of
customers originate in Ireland, competitors face a significant disadvantage vis-à-vis
Ryanair and Aer Lingus. In order to successfully operate such routes, it is important
for competitors to be able to sell tickets to Irish customers. It is therefore crucial for
competitors to have access to Irish customers. Since the customers originating from
the non-Irish end of the route would account only for a minority of the passengers on
this route, it would not be sufficient to rely only on such customer base. This is
especially the case given that Ryanair is not only strong in Ireland, but also Europe-
wide.
(708) Even on routes where only half or fewer of the passengers originate from Ireland, it
would still be important for competitors to have access to Irish customers given
Ryanair's strength not only in Ireland but also elsewhere in Europe.
Difficulty of creating a strong brand in Ireland.
(709) Both Ryanair and Aer Lingus enjoy strong brand recognition on the routes from/to
Ireland. No other competing airline enjoys the same high level of brand recognition
across a large number of routes to and from Ireland. The airlines that, according to
Ryanair, are well-known brands in Ireland (for example, Flybe, Wizz Air, easyJet,
Alitalia, SAS and Iberia) mostly did not share this view:
699
Paragraph 595.
EN 171 EN
– Flybe, Wizz Air, easyJet and Alitalia identified "brand recognition" as a
significant barrier to entry on routes subject to this Decision while SAS and
Iberia did not.
– Flybe identified brand awareness as a significant barrier to entry and indicated
in this respect that “it's important to promote the brand and new services when
developing new routes (…)”
700
. It considered that while Ryanair and Aer
Lingus enjoy a strong brand on the routes subject to this Decision, its own
brand is considered as a medium brand by passengers on the routes subject to
this Decision. The main reasons for this is that it only has a presence on two
routes ex-Dublin and that only moderate levels of marketing have been
undertaken in Ireland. It estimates that it would take two years to upgrade its
brand into a strong brand. Flybe considers that as such Ryanair's and Aer
Lingus' brand presence would not be a barrier for entry into operations ex-
Dublin as it has a strong presence at the other end of the route, namely in the
United Kingdom market.
– Wizz Air, which also identified brand recognition as a significant barrier to
entry, did not share Ryanair's view about the strength of its brand in Ireland.
Wizz Air
701
considered that while Ryanair and Aer Lingus enjoy strong brand
recognition on the routes subject to this Decision, its own brand is considered
as a "weak" brand by passengers.
In the Irish market, Wizz Air’s brand
awareness is low, due to the fact that Irish operations represent a small part of
Wizz Air's network and thus Wizz Air undertakes limited marketing in Ireland.
In Ireland, Wizz Air only operates ex Cork. It explains that it works with direct
distribution (not through agents) and that therefore both marketing and low
fares are important for its business to be successful. It further considers that a
period of two years would not be sufficient to upgrade its brand into a strong
brand for routes to and from Ireland and that investment will be required to
raise brand awareness which it considers can only be achieved through
discounting fares and advertising spend. In conclusion, it considered that "The
large number of destinations already served combined with the brand strength
of Ryanair and Aer Lingus would be significant barriers to entry."
702
– easyJet identified "brand recognition" as a significant barrier to entry for the
routes subject to this Decision. It indicates that, while having strong brand
recognition in Northern Ireland (Belfast), the fact that it does not operate to the
Republic of Ireland means that its brand recognition is weaker there. It expects
that it would take significant time (more than two years) and cost to upgrade its
brand to a strong brand for routes to and from Ireland.
703
easyJet indicates in
this respect that it believes that even more than a strong brand, market presence
is important. As easyJet has a lower market presence in Ireland than Ryanair,
its brand is also less known. easyJet thus believes that Ryanair and Aer Lingus
700
Flybe, response to questions 32, 33 and 33.1 of questionnaire Q1 – Competitors and agreed minutes of
conference call of 12 October 2012 with Flybe.
701
Wizz Air, response to question 32 of questionnaire Q1 - Competitors and agreed minutes of conference
call of 12 October 2012 with Wizz Air.
702
Wizz Air, response to question 46.1 of questionnaire Q1 - Competitors.
703
easyJet, response to questions 32 and 33 of questionnaire Q1 - Competitors.
EN 172 EN
would be the first brands travellers would think of in connection with Ireland
and that new entrants in Ireland, in addition to having a strong presence in
Ireland, would need to invest in significant marketing campaigns
704
.
– Alitalia also identified "brand recognition" as a significant barrier to entry for
the routes subject to this Decision. While indicating that it considers it has a
strong brand, Alitalia indicates that in Ireland it only has a medium brand due
to the lack of operation on the relevant route.
705
– Iberia indicated that it has strong brand recognition in Spain which it generally
perceives to be stronger than the brand recognition of Aer Lingus and
Ryanair.
706
For the size of the Irish market it expects that a significant
investment on brand marketing would be needed in order to establish itself as a
recognised brand.
(710) Furthermore, the Commission takes into account the difficulty and cost of
establishing a recognised brand in Ireland. The result of the market investigation
indicated that brand recognition is amongst the most frequently identified barriers to
entry.
707
Moreover, several competitors are of the opinion that at least two years or
more would be required to create a strong brand or to upgrade their own brand on
routes to and from Ireland, notably due to an increased marketing costs
expenditure.
708
Furthermore, the cost of marketing and promotion required to
upgrade the brand would be significant.
709
(711) The examples raised by Ryanair of new, non-facilitated entries such as by Qatar
Airways, Emirates and Etihad
710
do not contradict the Commission's finding. First,
these entries took place on routes where they were not in competition with the Parties
and the routes on which these entry events took place were not routes subject to this
Decision. Moreover, Etihad and Emirates for example conducted important
marketing campaigns. Etihad has been sponsoring the All Ireland Hurling
Championship since its entry on the Abu Dhabi-Dublin route in 2007 and recently
renewed its sponsorship undertaking for a further 5 years, a deal which is believed to
be worth EUR 5 million
711
. Emirates, when launching its new Dubai – Dublin route
last year, launched an extensive marketing campaign in Ireland to promote its new
service. It declared in this respect that the campaign represents a significant
investment for the airline
712
. As acknowledged by Ryanair, these airlines conducted
an intensive marketing campaign (which most airlines would not be in a position to
do). This confirms rather than contradicts the Commission's finding that marketing
and promotion costs required to upgrade a brand would be significant.
704
Agreed minutes of a conference call of 17 October 2012 with easyJet.
705
Alitalia, response to questions 32 and 33 of questionnaire Q1 - Competitors.
706
IAG's response to questions 32 and 33 of questionnaire Q1 – Competitors.
707
Responses to question 33 of questionnaire Q1 - Competitors.
708
Responses to question 32.4 of questionnaire Q1 - Competitors.
709
Responses to question 32.5 of questionnaire Q1 - Competitors.
710
Etihad has a code-share agreement with Aer Lingus.
711
See http://www.adworld.ie/news/read/?id=518fe84e-95bf-4499-a92f-05d355e87d6d, consulted on 5
December 2012.
712
See http://www.businessandleadership.com/marketing/item/33250-emirates-supports-new-dubli,
consulted on 5 December 2012.
EN 173 EN
Conclusion
(712) The Commission concludes that on the short-haul routes to and from Ireland, brand
recognition and good reputation play a significant role for the airline industry in the
competitive process. Considering that a new entrant would face competition from the
merged entity which has the two strongest brands in Ireland and that it would take
considerable time and investment for an entrant without a strong brand to upgrade its
brand in Ireland, brand recognition constitutes a barrier to entry. This entry barrier is
equally relevant for routes from Dublin, Shannon, Cork and Knock.
8.5.2.5. Dual branding strategy and strong market position
(713) Ryanair intends to maintain Aer Lingus as a separate company operating as a viable
and scalable competitor to legacy carrier short-haul operations, as well as carriers
such as easyJet. Ryanair indicates that it intends to maintain the individual brand and
identity of both Ryanair and Aer Lingus.
(714) Ryanair believes that, following the Transaction, it will be able to reduce Aer
Lingus’ operating costs considerably in some areas. It further indicates that Aer
Lingus will be committed to a growth strategy, which will facilitate securing volume
and growth driven cost reductions at primary airports such as Copenhagen and
Brussels (Zaventem). It argues that as part of the Ryanair Group, Aer Lingus will
enjoy lower unit costs and will be better placed to increase competition, thereby
offering an alternative to the Air France, British Airways, and Lufthansa groups at
their “home” airports.
(715) In the 2007 Decision, it was considered that "If anything, a dual branding strategy
may enable Ryanair to exploit its market power more effectively and, thus, extract
additional profits as compared to a single-branding strategy from its customers.
Dual branding can make it easier for a firm to charge higher prices to customers
with a higher willingness to pay and lower prices to more price-elastic customers,
increasing the firm's profits."
713
(716) The results of the market investigation showed mixed views amongst competitors as
to whether the dual branding strategy would make entry less likely
714
. Alitalia for
instance indicated that "Double brand operations could create more consolidation
and make entry by another player less attractive"
715
. Loganair
716
considers that it
would make entry less likely and explains that the "[m]arket perception would be of
two independent operators and that fares would be competitive"
717
. TAP considers
that it might make entry less likely "if such dual-branding operations perceived as,
or effectively reflecting, a stronger market presence and visibility"
718
. Vueling
indicates that a dual branding strategy would "be more of a deterrant to new
entrants". It argues that it has experience in this area and that "two "selling" brands
713
Recital 1224 of the 2007 Decision.
714
Responses to question 29 of the first market test.
715
Alitalia, response to question 29 of the first market test.
716
Loganair operates as a franchise carrier of Flybe, principally on point to point markets; response to
question 2 of questionnaire Q1 – Competitors.
717
Loganair, response to question 29 of the first market test.
718
TAP, response to question 29 of the first market test.
EN 174 EN
typically generate a more competitive sales platform"
719
. Wizz Air indicates that
customers consider flight options based on a 'relevant set' of airlines offering services
and that "a third entrant is less likely to be included in consumers' relevant set of
choices, especially [i]f both incumbent airlines are already well established"
720
.
(717) Germanwings
721
and IAG
722
do not consider that the dual branding strategy would
make entry less likely. Thomas Cook
723
believes that it makes little difference.
Lufthansa indicates that this would not be the case and explained that "(…) there are
already several merged airline entities that operate under two or even more brands
(AF, KL, IAG) etc"
724
. Flybe
725
considers that there are other more important factors
such as market size, potential future market share and pricing.
(718) The dual branding strategy announced by Ryanair post-Transaction would provide
the merged entity with a wide coverage of the different segments of the short-haul
point-to-point air transport.
(719) The merged entity would benefit from a strong brand and a strong position both in
the no-frills segment with the lowest fares (Ryanair) as well as in the segment with
higher service level (Aer Lingus). In addition, in both segments the merged entity
would have an advantageous cost base structure compared to its competitors.
(720) Therefore, the Commission considers that the merged entity's strong market position
in the two segments resulting from the announced dual branding strategy would
constitute an additional barrier to entry. This entry barrier is equally relevant for routes
to and from Dublin, Shannon, Cork and Knock.
8.5.2.6. The risk of aggressive retaliation
Introduction
(721) In its 2007 Decision, the Commission found that Ryanair has a reputation of
engaging in aggressive competition in case of new entry to Ireland, notably by
temporarily lowering prices and expanding its capacity in order to drive out the new
entrant on routes to or from Ireland.
726
(722) The 2010 Court decision confirmed that "the risk of aggressive retaliation would be
even greater following the concentration, since Ryanair-Aer Lingus combined would
be the dominant operator on literally all routes from and to Ireland. In building up a
reputation for deterring the entry of competitors, Ryanair creates a de facto barrier
to entry for new competitors."
727
719
Vueling, response to question 29 of the first market test.
720
Wizz Air, response to question 29 of the first market test.
721
Germanwings, response to question 29 of the first market test.
722
IAG, response to question 29 of the first market test.
723
Thomas Cook, response to question 29 of the first market test.
724
Lufthansa, response to question 29 of the first market test.
725
Flybe, response to question 29 of the first market test.
726
Recital 625 and Section 7.8.5. of the 2007 Decision.
727
Paragraph 286.
EN 175 EN
(723) Ryanair argues that its competitive behaviour is not an entry barrier. It claims that it
does not engage in retaliatory behaviour designed to deter entry and that it simply
aims to deliver low fares to customers in line with its business model as Europe's
lowest fare airline. Ryanair considers this to be a healthy competitive environment
which benefits consumers and is consistent with new entry and innovation
728
. It
claims that the views expressed by competitors that Ryanair, as Europe's lowest fare
airline, responds to competition by offering low fares, is unsurprising and indicative
of nothing more than that Ryanair has the lowest cost base and the lowest fares in
Europe.
729
Ryanair further claims that the Commission’s 2007 finding that Ryanair
responds to entry by “temporarily lowering prices and expanding capacity in order
to drive out new entrants on routes ex Ireland” was incorrect and that it has
continued to offer low fares and increased capacity to or from ex-Ireland since
2007.
730
Ryanair finally claims that the fact that it has identified upfront buyers in the
context of the proposed remedies package clearly shows that they will be able to
compete successfully, which undermines, according to Ryanair, the conclusion on
aggressive retaliation
731
.
(724) In line with the General Court's findings in the 2010 Judgement, it is noted from the
outset that the debate does not concern Ryanair's pricing policy as such but the
classification of its aggressive reputation as a barrier to entry
732
. The Commission
thus examines whether Ryanair's past conduct (even if such conduct would result
from its business model) is liable to dissuade potential competitors from entering a
market on which it is present. Moreover, Ryanair's claim that it has continued to
offer low fares and increased capacity ex Ireland since 2007 is not relevant for the
analysis since – even if it were well founded (quod non as shown by Table 27:
Ryanair and Aer Lingus share of European departing seats as % of European
departing seats at Dublin) – such claim refers to a competitive situation in which Aer
Lingus is present, while the Transaction would eliminate Aer Lingus as a competitive
constraint on Ryanair.
Risk of aggressive retaliation as a barrier to entry
(725) Fear of retaliation was amongst the commonly referred to barriers to entry.
733
Several
respondents indicated that they would expect an aggressive reaction by Ryanair in
terms of pricing and marketing.
734
(726) According to Aer Lingus "Ryanair has an established reputation for aggressive
retaliation to entry".
735
Similarly, Vueling believes "…that Ryanair and Aer Lingus
will commercially react with all the tools available to them to prevent any new
additional airline at Dublin"
736
. It finds it very difficult to compete with Ryanair
when Ryanair has a strong position in a market and it considers Ryanair to be a very
728
Ryanair's response to the Statement of Objections, paragraph 33.
729
Ryanair's observations on Article 6(1)(c) Decision, paragraph 59.
730
Ryanair's observations on Article 6(1)(c) Decision, paragraph 60.
731
Ryanair's response to the Statement of Objections, paragraph 33.
732
Paragraph 287 of the 2010 Judgement.
733
See responses to question 33 of questionnaire Q1 - Competitors.
734
See responses to question 38 of questionnaire Q1 - Competitors.
735
Aer Lingus, response to question 38 of questionnaire Q1 - Competitors.
736
Vueling, response to question 33.1 of questionnaire Q1 - Competitors.
EN 176 EN
aggressive competitor.
737
Aer Arann indicates that “The primary barrier to route
expansion by Aer Arann at Dublin airport is the potential competitive reaction from
Ryanair.”
738
In the same way, Air Berlin would expect very aggressive pricing.
739
According to easyJet, "Ryanair is an aggressive competitor as has been shown by its
reactions to other airlines trying to enter that market. Thanks to its financial
strength, its low cost model and its size it can easily enter into long-lasting price
wars and push competitors out of the market".
740
(727) During the market investigation, several references were made to Ryanair reacting to
new entry on its routes by increasing frequencies and capacity, thus forcing
competitors out of the market.
(728) Some examples were already described in the 2007 Decision and include the failed
attempt by easyJet to enter the United Kingdom-Ireland market
741
, MyTravelLite's
attempt to enter the Dublin – Birmingham route or GoFly's failed entry attempts on
the Dublin – Glasgow and Dublin Edinburgh routes
742
.
(729) Aer Arann refers to its operations on the Dublin-Cork route as an exemple of
Ryanair's strategy towards competitors. Aer Arann had been operating on this route
for a number of years before Ryanair entered. When Ryanair did enter, it
significantly undercut the prices, and Aer Arann could not sustain its level of
frequencies on the route. Aer Arann reduced its frequencies (from 6 to 4 to 2) and
then ceased operating on the route altogether as it was incurring significant losses.
After Aer Arann exited the route, Ryanair stopped operating on the Dublin-Cork
route.
743
(730) Ryanair's reaction towards Wizz Air with respect to routes to and from Modlin
airport provides another example of the aggressive strategies used by Ryanair
towards competitors
744
. When Wizz Air announced in the beginning of February
2012 that it would move its entire Warsaw based operations to the new Warsaw
Modlin Airport, this triggered an immediate reaction by Ryanair who announced the
opening of eight Warsaw Modlin routes from July 2012 (Brussels, Budapest, Dublin,
London, Milan, Oslo, Rome and Stockholm). In its press announcement concerning
the opening of the new routes, Ryanair indicated releasing launch fares "less than
737
Agreed minutes of conference call of 11 October 2012 with Vueling.
738
Aer Arann, response to question 33.1 of questionnaire Q1 - Competitors.
739
Air Berlin, response to question 38 of questionnaire Q1 - Competitors.
740
Agreed minutes of a conference call of 17 October 2012 with easyJet.
741
Recitals 635 and ff. of the 2007 Decision.
742
Recitals 653 and ff. of the 2007 Decision.
743
Agreed minutes of conference call of 11 October 2012 with Aer Arann and DAA's supplementary
comments to European Commission of 22 August 2012.
744
While the Commission acknowledges that these events mostly concern routes other than the ones object
of this decision, it nevertheless considers that Ryanair's reaction towards Wizz Air at Modlin is of
relevance for the assessment of the barriers to entry in the present case. It is thereby recalled, as noted in
Section 8.5.2.2, that there have been relatively few entry events by scheduled airlines other than
Ryanair and Aer Lingus at the airports of Dublin, Cork and Shannon since 2008 and most of the entry
events by other scheduled carriers occurred on routes that were not yet operated by Ryanair or Aer
Lingus (including Aer Arann).
EN 177 EN
half Wizz's lowest fares to/from Warsaw in July 2012".
745
The fact that Ryanair's
behaviour was designed to deter entry and force Wizz Air to exit the routes is
evidenced by statements in Ryanair's internal documents. […]*.
(731) Later that same year, Ryanair also engaged in an aggressive strategy against Wizz
Air on the routes operated by Wizz Air from Cork
746
. Ryanair entered 5 routes from
Cork (to Gdansk, Krakow, Warsaw, Wroclaw and Vilnius) in Winter 2012. Ryanair
actively promoted these new routes by referring to the fact that its fares would be
"more than 50% cheaper than Wizz's lowest fares".
747
Wizz Air has meanwhile
announced its exit from three of these routes (namely from Cork to Warsaw, to
Wroclaw and to Vilnius), whereby it notably referred to overcapacity on the routes
which made it sensible to focus on other routes with higher demands instead
748
.
(732) Ryanair's claim that the upfront buyers that it has identified to take up part of the
operations to be divested in the context of the commitments clearly conclude that
they will be able to compete successfully in this environment is unconvincing and
does not undermine the Commission's findings. Any such entry by upfront buyers
would take place in the context of the commitments, and thus in the context of an
agreement between the upfront buyer and Ryanair. Such circumstances cannot be
assimilated with a typical competitive environment.
(733) The above shows that Ryanair's claims that it does not engage in retaliatory
behaviour designed to deter entry and that it simply aims to deliver low fares to
customers cannot be sustained.
(734) Ryanair has a reputation for and the ability to engage in aggressive competition
where airlines try to enter a route on which it operates ex-Ireland (or elsewhere), in
particular by lowering its prices temporarily and expanding its capacity. Ryanair's
past conduct is likely to dissuade potential competitors from entering on a market on
which it is present since the risk of an aggressive retaliation by the merged entity is
perceived as high.
(735) Building up a reputation of deterring entry creates a factual barrier to entry for new
competitors as set out in the Horizontal Merger Guidelines.
749
745
See Ryanair News, "Ryanair opens 8 Warsaw Modlin routes from 16 July 2012" of 8.February 2012.
Available at: http://www ryanair.com/en/news/ryanair-opens-8-warsaw-modlin-routes-from-16-july-
2012, visited on 11 January 2013.
746
While it is acknowledged that Wizz Air was already operating on these routes for some time before
Ryanair entered, and that Ryanair's reaction could therefore not be considered as an immediate
retaliation against new entry, the Commission does consider that the events on the Cork routes are
relevant for the assessment of the present Transaction insofar as they give an example of Ryanair's
aggressive strategies towards competitors.
747
See Ryanair News, "5 New Cork Winter Routes - 50% Cheaper than Wizz", of 2 August 2012.
Available at: http://www.ryanair.com/en/news/5-new-cork-winter-routes-50-percent-cheaper-than-wizz,
consulted on 7 November 2012.
748
See "Wizz Air toend three Cork services Aviation" of 13 December 2012. Available at:
http://m.irishtimes.com/newspaper/finance/2012/1213/1224327803796.html visited on 13 December 2012 and
Wizz Air's response to the Commission's request for information of 13 December 2012.
749
See Horizontal Merger Guidelines which states at paragraph 69 that "For entry to be likely, it must be
sufficiently profitable taking into account the price effects of injecting additional output into the market
and the potential responses of the incumbents".
EN 178 EN
(736) The risk of aggressive retaliation would be even greater following the Transaction
given the strong market position that the merged entity would have on the routes
subject to this Decision and given its even stronger position on the Irish market.
(737) In the light of the above, the Commission concludes that the fear of aggressive
retaliation by the merged entity post-Transaction constitutes a barrier to entry. This
entry barrier is equally relevant for routes to and from Dublin, Shannon, Cork and
Knock.
8.5.2.7. Level of airport charges at Dublin airport
Introduction
(738) In the recent decision in case M.5830 Olympic / Aegean Airlines the Commission
considered that high airport charges may constitute a deterrent for domestic and
international airlines (in particular for low cost carriers) to set up a base at Athens
International Airport.
750
(739) Airport charges at Dublin airport have increased over the past number of years
751
.
Ryanair itself indicates that in recent years, airport charges at Dublin airport have
doubled.
752
It refers to the introduction by the Irish Government of air travel tax in
March 2009 and the doubling of airport charges at Dublin airport since 2007.
753
(740) In February 2011, Ryanair brought a complaint before the Commission against DAA
and against Aer Lingus regarding alleged violations of Articles 101 and/or 102 of the
Treaty
754
. With respect to the alleged violation of Article 102 of the Treaty by DAA,
Ryanair argued inter alia that the increase in airport charges (including their non-
differentiation between terminals), the Transfer Incentive Scheme and the policy on
remote stands represented excessive pricing. In its letter of 23 November 2012
pursuant to Article 7(1) of Regulation No 773/2004 in Case No COMP/39.886 –
Ryanair/DAA-Aer Lingus, the Commission adopted the provisional conclusion that
Ryanair's claim regarding excessiveness of DAA's pricing could not be supported
given that there are no indications that the charges would not reflect the actual costs
incurred and given that the aeronautical revenue per passenger at Dublin airport is
below the Union average.
(741) Referring to the Commission's provisional conclusions in Case No COMP/39.886 –
Ryanair/DAA-Aer Lingus, where the Commission considered that "even considering
the recent airport charges increases, the aeronautical revenue per passenger at
Dublin airport is below the EU average", Ryanair argues that the Commission
750
Commission Decision C(2011) 316 in Case No COMP/M.5830 – Olympic / Aegean Airlines, recital
599.
751
In addition, the Irish Government has recently decided to introduce a tourist tax of 10 EUR per
passenger, which however has meanwhile been reduced to 3 EUR per passenger.
752
Ryanair's observations on Article 6(1)(c) Decision, paragraph 54.
753
Ryanair Observations on Article 6(1)(c) Decision, Annex 1.
754
Case No COMP/39.886 – Ryanair/DAA – Aer Lingus – Complaint under Articles 101 and 102 of the
Treaty.
EN 179 EN
cannot interpret the same facts in diametrically opposite ways in order to arrive at
conflicting conclusions.
755
(742) Ryanair also argues that airport charges are borne equally by incumbents and new
entrants and thus do not constitute barriers to entry under the Horizontal Merger
Guidelines. It claims that if indeed the level of airport charges at Dublin airport were
a barrier to entry, it would be in Ryanair's interest, as an established airline, to
support high airport charges in order to deter competitors from entering the market,
while it has campaigned against the increased in airport charges at Dublin airport
756
.
(743) Ryanair further argues that, if the Commission's claim that a combined Ryanair/Aer
Lingus would be able to exert some market power against the DAA monopoly is
correct, then the claimed entry barrier in the form of high airport charges at Dublin
should naturally be removed post-Transaction. As Wizz Air highlights, the
Transaction can deliver a pro-competitive effect in that it may force the DAA "to
become more active in attracting new carrier[s]"
757
.
(744) Ryanair finally argues that the fact that as part of the proposed remedies package, at
least two upfront buyers are willing to set up substantial base operations at Dublin
airport, makes it clear that Dublin airport charges do not constitute a barrier to
entry.
758
(745) Ryanair's view that the level of airport charges at Dublin airport cannot be considered as
a barrier to entry is shared by the DAA. The latter make to following arguments: (i) that
airport charges at Dublin airport are amongst the lowest when benchmarked against
comparable airports, (ii) that there are other more predominant considerations such as
for example, the economic climate, affecting entry and expansion at Dublin airport, (iii)
that similarly, traffic volumes at Dublin airport are affected by economic growth, (iv)
that the government's decision to reduce the air travel tax (by an amount that exceeded
the level of increase in airport charges) has not led to a material increase in passengers
and (v) that Ryanair has devoted considerable marketing efforts to generating a negative
perception of airport charges at Dublin airport
759
.
The level of airport charges as a deterrent to entry and expansion
(746) It is noted from the outset that the Commission's provisional conclusion that DAA's
pricing is not excessive (as set out in its letter of 23 November 2012 pursuant to Article
7(1) of Regulation No 773/2004 in Case No COMP/39.886 – Ryanair/DAA-Aer
Lingus) does not mean that the level of airport charges at Dublin airport could not be a
factor deterring competitors from entering or expanding on routes to and from Dublin
airport. Also, the finding that the level of airport charges would deter potential entrants
does not necessarily imply that DAA's pricing is excessive and constitutes a violation of
Article 102 of the Treaty.
755
Ryanair's response to the Statement of Objections, paragraph 34.
756
Ryanair's response to the Statement of Objections, paragraph 35.
757
Ryanair's response to the Statement of Objections, paragraph 36.
758
Ryanair's response to the Statement of Objections, paragraph 37.
759
DAA’s response to the Statement of Objections dated 13 November 2012, paragraph 2.17 and 2.18.
EN 180 EN
(747) For the excessive pricing analysis under Article 102 of the Treaty, the Commission
assesses whether the price bears a reasonable relation to the economic value of the
product supplied. For the present analysis, what is relevant is the question of whether
the level of airport charges (regardless of whether they constitute excessive pricing or
not) is perceived by potential entrants as a factor deterring entry on routes to and from
Dublin airport (for example, compared to the level of profitability they expect on the
route).
(748) Also, the fact that the aeronautical revenue per passenger at Dublin airport is below the
EU average does not necessarily mean that for routes to and from Dublin the level of
airport charges (even if below EU average) could not act as a deterrent to entry.
(749) Ryanair used the increased airport charges at Dublin airport to justify its decision to
reduce capacity at Dublin Airport in 2009.
760
It consistently maintained that growth at
Dublin airport is only possible, and therefore contingent upon, significant reductions in
airport charges.
761
When DAA confirmed the airport charges for 2012 at the end of last
year, Ryanair called for government action, asking the government to force DAA to
reduce Dublin airport's charges by at least 40%. It confirmed in this context that
"Dublin Airport is the most expensive of the 160 airports it operates to/from, which is
why the DAA monopoly’s Dublin traffic has plummeted by 20% to just 18.4m (2010)
from its peak of 23.4m pax in 2008" and that "tourist taxes and the DAA monopoly’s
high fees continue to damage Irish tourism and jobs".
762
(750) Moreover, Ryanair referred to quotes made following the increase of airport charges
after the opening of Terminal 2 by Aer Lingus’ CEO (with a similar 40% share of
traffic at Dublin airport) described as “insane”
763
or by Etihad’s CEO which has also
described Dublin airport’s price increases as “too excessive”
764
.
(751) The foregoing shows that Ryanair itself considers the high level of airport charges
and taxes as reasons for the decrease in traffic at Dublin airport and a barrier to
growth in traffic at Dublin airport.
760
See Ryanair News, Ryanair Announces Flight & Job Cuts at Dublin Airport, 12.02.2009: "Ryanair,
Dublin airport’s largest airline, today (12th Feb) announced details of its first ever Summer season
flights and traffic cut backs at Dublin Airport, as the combination of high and rising DAA charges,
allied to the Irish Government’s crazy decision to impose a €10 tourist tax from 30th March next is set
to decimate traffic and tourism through Dublin Airport".
761
DAA, response to question 13 of questionnaire Q4.
762
See Ryanair's press statement of 11 November 2011, "Government must act after DAA confirms high
charges for 2012".
763
Aer Lingus’ CEO Christoph Mueller as quoted by RTE News in “Aer Lingus to target airport costs
Ireland,”, 06.05.2011 (“Addressing the media following the airline’s AGM in Dublin, Christoph
Mueller said that in Ireland’s darkest hour, when we urgently need tourists to visit, to increase airport
taxes by 39% is ‘insane’.") Available at: http://archives.californiaaviation.org/airport/msg47368.html,
visited on 31 October 2012.
764
Etihad’s CEO James Hogan as quoted by the Irish Times in “Etihad chief offers lift with 100 jobs”,
07.10 2011 (“Hogan was also planning to have a ‘word’ with Dublin Airport Authority chief Declan
Collier about passenger charges. ‘In our opinion, the charges are too excessive. They need to come
down’”), available at: http://www.irishtimes.com/newspaper/finance/2011/1007/1224305381871 html,
visited on 31 October 2012.
EN 181 EN
(752) Several respondents to the market investigation, in particular low cost companies,
indicated that the level of airport charges makes routes to and from Dublin less
attractive for potential new entrants.
765
(753) Aer Lingus indicated that “there has been a significant increase in airport charges
since the 2007 Decision which makes it much less attractive for entry by third party
carriers, particularly low cost entrants.”
766
(754) Jet2.com indicated that "Increase in airport charges makes this airport less
attractive"
767
and Aer Arann indicated that "Yes Dublin airport has become a more
expensive place to operate as an airline. As a result the bar required for new routes
to make money has become higher over the last 5 years."
768
(755) Flybe indicated that they consider airport charges as a 'significant' barrier to entry at
Dublin airport
769
.
(756) Wizz Air stated that "key to a decision [to enter any of the routes ex-Dublin] would
also be a reduction in DUB airport charges. Only then could a meaningful analysis
of route opportunities be made"
770
. It identified the level of airport charges at Dublin
airport as a significant barrier to entry
771
and explained that the level of airport
charges was one of the factors making entry at Dublin difficult
772
, thereby noting that
the transaction may force DAA to become more active in attracting new airlines.
(757) The level of airport charges is a factor which co-determines the level of profitability
that a potential competitor can achieve on a route. In line with Aer Arann's above
mentioned response, the higher the airport charges, the higher the bar required for
new routes to generate a profit.
(758) Ryanair makes the point that airport charges are borne equally by the incumbents and
by potential new entrants. This however does not mean that the level of airport
charges could not deter new entrants from operating on routes to and from Dublin
and would thus be irrelevant for the assessment of the question of whether entry is
likely to eliminate the anti-competitive effects of the Transaction. Moreover, Ryanair
itself identified the level of airport charges as a barrier to entry for low cost carriers
in the context of the Commission's investigation in the recent case n°M.5830 -
Olympic/Aegean. As noted in Recital 582 of the Decision n°M.5830 -
Olympic/Aegean, Ryanair indicated that "(…) the level of airports charges, in
particular at AIA, as the primary barrier to entry for low cost companies. According
to Ryanair, entry can occur only if there is a reduction of the airports costs."
765
See responses to question 33 of questionnaire Q1 - Competitors.
766
Response of Aer Lingus to question 33.1 of questionnaire Q1 - Competitors.
767
Response of Jet2 to question 33.3 of Questionnaire Q1 - Competitors.
768
Response of Aer Arann to question 33.3 of Questionnaire Q1 - Competitors.
769
Response of Flybe to question 33 of questionnaire Q1 – Competitors. At the same time, Flybe considers
that Ireland is attractive in terms of the Airport Passenger Duty charges, Flybe's letter of 7 December
2012.
770
Wizz Air, reponse to question 52.1 of Questionnaire Q1 – Competitors.
771
Wizz Air, reponse to question 33 of Questionnaire Q1 – Competitors.
772
Agreed minutes of a conference call of 12 October 2012 with Wizz Air.
EN 182 EN
(759) Ryanair's argument that, if indeed the level of airport charges at Dublin airport were
a barrier to entry it would be in its interest to support high airport charges in order to
deter competitors, is not convincing. Ryanair operates on a large number of routes to
and from Dublin and it is thus affected by the level of airport charges on all these
routes. If entry were to take place, this would only affect one or a limited number of
routes on which Ryanair operates. The level of airport charges on the other hand
affects Ryanair's operations on all routes ex Dublin, which would be even more in
number post-Transaction. It is thus unlikely that it would be in Ryanair's interest to
deter entry on one or more routes by supporting high airport charges which would
affect it on all its operations to and from Dublin. Moreover, as set out in this Section,
the level of airport charges is just one factor contributing to deterring entry and
expansion.
(760) Ryanair further argues that the claimed entry barrier in the form of high airport
charges at Dublin would naturally be removed since the DAA may become more
active in attracting new carriers in response to the alleged market power of the
merged entity against the DAA. This argument is unconvincing and unfounded. In
line with its provisional conclusions in Case No COMP/39.886 – Ryanair/DAA-Aer
Lingus, it is noted that there are no indications that the current charges set by the
DAA would not reflect the actual cost incurred. There are no elements that indicate
that the DAA would be in a position to proceed to a significant reduction of the
airport charges in the near future. Moreover, the DAA has already put in place
incentive programmes to promote traffic at Dublin airport
773
. However, these
incentive schemes have had only limited success in inducing entry or expansion on
European short-haul routes. Even if – as Ryanair claims – the Transaction would lead
to DAA becoming more active in attracting new carriers at Dublin airport, such
strategy to attract new carriers would only be relevant for the present assessment
insofar as it would lead to entry or expansion on routes which are already served by
the merged entity. It is thereby noted that incentive schemes such as the current
short-haul route support scheme only apply to new routes (that is to say, routes that
are not yet served).
(761) Finally, the mere fact that upfront buyers would be willing to enter routes to and
from Dublin does not contradict the finding that the level of airport charges deters
entry. Any such entry by upfront buyers would only take place in the context of the
proposed Commitment package.
773
DAA offers a number of support schemes to promote and develop new and existing traffic at Dublin
Airport (and also at Shannon and Cork airports). The incentive schemes include amongst other things a
short-haul route support scheme which is awarded to qualifying new short-haul routes operating on a
year round or seasonal basis whereby a certain discount is granted for a number of years and a transfer
incentive scheme. There are also other support schemes such as a long-haul route support scheme, a
growth incentive scheme, marketing support, ad hoc marketing campaigns and airport standby aircraft
incentive scheme. See DAA, response to question 20.1 of questionnaire Q5 – Dublin Airport Authority
and Dublin airport website: http://www.dublinairport.com/gns/about-us/airport-charges/incentive-
schemes.aspx.
EN 183 EN
Conclusion
(762) In the light of the foregoing, the Commission therefore considers that the level of
airport charges at Dublin airport is likely to deter new entrants, in particular low cost
companies, from opening routes from or to Dublin.
8.5.2.8. The Irish market for passenger flight is not considered as very attractive
Introduction
(763) In the 2007 Decision
774
, it was concluded that the Irish market is not considered by
many competitors as a particularly attractive market and that many airlines indicated
that they would rather seek to open new routes to other destinations than routes to
Ireland. The reasons for this were as follows:
– that entering this market where there are already two strong low-cost carriers
with a strong base would require significantly higher marketing costs than
entry on other markets;
– that the Irish market is regarded as a relatively small market with limited
turnover;
– that the small Irish market is in general not expected to be the fastest growing
and most profitable market in the future by many competitors, at least not on
the main routes between Ireland and the United Kingdom, and
– that the specific geographic situation of Ireland does not favour new entry but
rather discourages it because Dublin is not a "pass-by" destination.
(764) It was also noted that when it comes to serving Dublin, the incentives of a network
carrier operating a route between Dublin and its hub are different from those of a
point-to-point carrier. It was finally considered as a disadvantage, in particular for
low-frills operators, that there are no secondary airports in Ireland.
(765) The Commission's finding that many competitors considered that the Irish market
was not particularly attractive and that many potential competitors rather seek to
open new routes to destinations other than Ireland was upheld by the General Court
in the 2010 Judgement, and this despite the fact that the General Court recognised the
then prevailing buoyancy of the Irish economy
775
.
(766) Ryanair argues that the Irish economic situation affects incumbents and new entrants
equally, and it therefore cannot properly be characterized as an entry barrier within
the meaning of the Commission's own Horizontal Merger Guidelines. Ryanair further
argues that the analysis is not grounded on the business realities of the low-fare
airline industry and that relatively weak economies have often served as springboards
774
Recitals 661 to 669 of the 2007 Decision.
775
Paragraph 302 of the 2010 Judgement.
EN 184 EN
for low-cost airlines to begin operations as consumers become more price-sensitive
and look for cheaper ways to travel
776
.
(767) It underlines that both Ryanair and easyJet have seen sustained growth across Europe
in the last four years in spite of the ongoing economic difficulties in the area. A
relatively weak domestic economy does not only represent an opportunity for future
growth, but it also ensures that airlines have an incentive to lower prices in order to
increase consumer demand
777
.
(768) Ryanair finally argues that the fact that the Irish market is attractive to competing
airlines is self-evident from Ryanair's proposed remedies package and the upfront
buyer's commitment to entering the market.
Unattractivess of the Irish market deters entry and expansion
(769) Most of the circumstances reflected in the 2007 Decision remain unchanged: the
Irish market is still a small market with limited turnover and is already served by two
strong carriers. Due to its geographic situation, Ireland is not a pass-by destination
and there are no secondary airports.
(770) The most important change affecting the attractiveness of the Irish market compared
to 2007 is the economic situation in Ireland. While the 2007 situation was
characterised by a buoyancy of the Irish economy, Ireland is now dealing with a
severe economic downturn.
(771) The fact, as argued by Ryanair, that the Irish economic situation affects incumbents
and new entrants equally, does not mean that it would not deter potential new
entrants and would thus be irrelevant for the assessment of the question of whether
entry is likely to eliminate the anti-competitive effects of the Transaction.
(772) As set out in Section 8.1, it is clear that passenger numbers, which is one of the
important factors affecting the profitability that a potential entrant could achieve on a
route are affected by the Irish economic downturn.
(773) Flybe, one of the upfront buyers identified by Ryanair, notes that due to the financial
crisis, operations at Dublin are still down by 20-25%. It believes however that
growth will slowly return to Dublin also due to the increase of growth in the aviation
sector overall and it indicates that Dublin is attractive in terms of air passenger duty
charges which are lower than for example in the United Kingdom.
778
(774) The results of the market investigation showed however that many other airlines still
consider the Irish market as an unattractive market and competitors referred to the
economic situation and drop in passenger numbers.
779
776
Ryanair's response to the Statement of Objections, paragraph 38.
777
Ryanair's response to the Statement of Objections, paragraph 39.
778
Flybe's response to question 22 of Questionnaire R4 – Competitors and agreed minutes of conference
call of 12 October 2012 with Flybe.
779
See responses to question 22 of Questionnaire R4 – Competitors.
EN 185 EN
(775) British Airways refers to the “general economic climate and the weak demand”
which mean that “BA and IB can make better returns from their assets being
deployed on routes other than those in Annex 1”.
780
(776) Vueling indicates that the current economic situation is worse than in 2007 and it
does not expect that demand will grow in either Ireland or Spain due to the economic
situation of both countries. It also believes that it would not be possible to operate a
profitable operation at Dublin.
781
(777) Aer Arann considers that the Irish market has suffered a lot as a result of the
economic crisis. However, Aer Arann notes that in 2011 average fares started to rise
for the Irish to United Kingdom routes. In Aer Arann’s views, the factor that limits
the attractiveness of the Irish market is the stalling economic growth.
782
(778) easyJet considers that "the overall economic situation in Ireland does not make the
market attractive either. Ireland's economic outlook does not look great. easyJet was
already not very interested in Ireland even pre-2008 and certainly now that the
economic situation has gone worse".
783
For this reason and because of the strong
presence of Ryanair on the Irish market, easyJet does not consider Ireland to be a
market that is worth entering. It is therefore clear that easyJet does not share
Ryanair's view that the weak economy would serve as a springboard and that it
would represent an opportunity for future growth.
(779) Ryanair itself indicates that a weak economy ensures that airlines have an incentive
to lower prices in order to increase consumer demand. However, the prospect of
lower prices, especially on routes already served by Europe's largest low cost carrier,
is not likely to incentivise entry, rather to the contrary.
(780) As set out in Section 8.1, Ireland has suffered a large reduction in economic output in
recent years. This has translated into a contraction of air passenger movements to and
from Ireland (which according to Ryanair are further explained by the introduction
by the Irish Government of air travel tax in March 2009 or the doubling of airport
charges at Dublin airport since 2007). In Ireland, the economic outlook for the
medium term projects a continuation of modest GDP growth over the 2012-2015
period, while domestic demand is set to make a negative contribution to growth (of
about 1 percentage point) over the period as the adjustment in the domestic economy
continues. At the same time, a number of other Member States such as Spain are also
suffering from an economic downturn. Such economic circumstances do not favour
entry on routes to and from these countries. Moreover, other circumstances referred
to in the 2007 Decision with respect to the attractiveness of the Irish market remain
unchanged.
(781) Finally, the mere fact that upfront buyers would be willing to enter routes to and
from Dublin does not contradict the finding that the Irish market is not considered by
780
IAG, response to question 33.1 of Questionnaire Q1 – Competitors
781
Vueling's response to question 33.1 of questionnaire Q1 – Competitors and to question 22 of
Questionnaire R4 – Competitors.
782
Agreed minutes of conference call of 11 October 2012 with Aer Arann.
783
Agreed minutes of a conference call of 17 October 2012 with easyJet.
EN 186 EN
many competitors as an attractive market. Any such entry by upfront buyers would
take place in the context of the proposed Commitments packages.
Conclusion
(782) In the light of the above it is concluded that the Irish market is not considered by
many competitors as an attractive market. The economic downturn in Ireland, but
also in other Member States such as Spain, has further deteriorated the attractiveness
of the Irish market compared to in 2007.
8.5.2.9. Airport congestion
(783) Different degrees of capacity constraints exist at relevant airports. These constraints
could make entry or expansion by airlines on routes to/from these airports more
difficult. This is because in order to operate a flight to/ from a given airport an airline
needs access to airport facilities, such as a runway, stands, and terminals.
(784) In the 2007 Decision the Commission concluded with respect to Dublin airport that
potential entrants were deterred by congestion problems at certain peak times which
were not likely to disappear in the near future.
784
The Commission considered that
there were runway congestion problems during peak hours
785
and that there was
insufficient (contact-) stand availability
786
. It did however disregard congestion
problems at terminal level as a potential entry barrier at Dublin airport.
787
The
Commission further considered that at many of the airports at the other end of the
route (such as London Heathrow / Gatwick or Frankfurt), congestion problems were
even more serious than in Ireland since some of these airports were congested
throughout the whole day.
788
The Commission finally concluded that airport
congestion did play a role as a deterrent factor for potential entrants, despite
Ryanair's argument that airport congestion plays a more limited role than in other
cases since many of the routes relate to holiday or leisure routes.
789
(785) The Commission's findings were upheld by the General Court in the 2010
Judgement
790
.
(786) In the present case, Ryanair disagrees that there are capacity constraints at Dublin
airport. It argues that the congestion problem indicated in the 2007 Decision was
eliminated and that Dublin airport is currently operating at just over 50% capacity.
Ryanair also argues that there are no congestion problems at other Irish airports or at
the destination airports.
784
Recitals 676 and 691 of the 2007 Decision.
785
Recitals 683 to 687 of the 2007 Decision. In Recital 686 of the 2007 Decision, reference was made to a
new runway in Dublin, which was planned to open in 2011 or 2012. This new runway was however
never constructed (in anticipation of a decline in passenger numbers and fall in profits).
786
Recitals 688 and 689 of the 2007 Decision.
787
Recital 690 of the 2007 Decision.
788
Recital 692 to 694 of the 2007 Decision.
789
Recitals 695 to 700 of the 2007 Decision.
790
Paragraphs 306 to 310 of the 2010 Judgement.
EN 187 EN
(787) The Commission has analysed to what extent the conclusions of the 2007 Decision
regarding airport congestion remain valid and whether and to what extent airport
congestion constitutes an entry barrier in the present case.
Airport congestion at Dublin airport
1. Runway congestion
– Introduction
(788) The right to use the runway for a departure or arrival of an aircraft is ensured through
the allocation of a 'slot' to a particular airline. Runway capacity constraints together
with security requirements regarding the time interval between aircraft movements
put a limit on the maximum number of available slots during a given time interval,
which might be less than the slots demanded by airlines. In such a case a mechanism
to allocate slots is needed and, according to the level of congestion, different rules
for slot allocation apply. Airports with limited level of congestion are designated as
schedules facilitated airports and operations are facilitated by a scheduled facilitator
appointed by airlines on the basis of voluntary cooperation. Highly congested
airports are designated as coordinated and slots there are allocated by a slot-
coordinator.
(789) The Commission has found in previous cases that the limited availability of slots can
be an important barrier to entry for potential competitors.
791
Without access to a
sufficient number of slots at commercially attractive times throughout the day, a new
entrant is often unable to operate a regular service on a sufficient scale, and as a
result, would not be able to provide an effective competitive constraint on the
merged entity. Landing and take-off slots are therefore critical inputs for any entrant
wishing to operate a new service or expanding an existing service to or from Ireland.
(790) The results of the market investigation show that early morning peak hour slots are
considered by competitors as important for the viability of potential entry plans at
Dublin airport
792
. Respondents point out that these slots are of particular significance
for business travel, which is identified as more time sensitive, as well as to reach
connections in the United Kingdom and Continental Europe. For example, according
to Lufthansa: "It is important for business passengers and for connecting traffic to
have a slot in the morning at DUB"
793
and Alitalia: "It's important both for local
traffic which needs to move early in the morning and for connections"
794
.
Competitors mostly describe peak hour slots as being between 06.00 and 08.00
795
.
791
See e.g. cases M.3940 – Lufthansa / Eurowings, M.3770 – Lufthansa / Swiss; M.3280 – Air France /
KLM, M.4439 – Ryanair / Aer Lingus; M.5830 – Olympic / Aegean Airlines; M.6447 - IAG / bmi.
792
See responses to question 9 of questionnaire R4 – Competitors.
793
Lufthansa, response to question 9 of questionnaire R4 – Competitors.
794
Alitalia, response to question 9 of questionnaire R4 – Competitors.
795
See responses to question 8 of questionnaire R4 – Competitors.
EN 188 EN
– Current situation at Dublin airport
(791) Dublin airport is a level 3 coordinated airport. It has been a coordinated airport since
2007, following a decision by the Commission for Aviation Regulation ("CAR").
796
Prior to 2007, Dublin airport was a schedules facilitated airport.
(792) Asked how the limitations on terminal, aircraft parking stand, runway capacity and
other limitations (as relevant) have evolved since Dublin airport's designation as a
coordinated airport in March 2007, the CAR
797
indicated that “Overall, total runway
capacity has increased slightly, especially between hours 10 am to 4 pm. Small
capacity decreases can be observed between 5-6 am, 8-9am, 5-6pm and 8-9pm for
the total numbers. In the critical morning hours between 6 and 7 am, runway
capacity for departing passengers increased by one slot”.
798
(793) Ryanair claims that Dublin airport is a level 3 coordinated airport for historical
reasons only and that it suffers no slot constraints even at peak hours either in early
morning or late evening.
799
Accordingly, Ryanair has argued in recent years that
since there is no capacity constraint at Dublin airport, it should no longer be Level 3
coordinated, but has been outvoted
800
at the DACC
801
meetings.
(794) Aer Lingus (including Aer Lingus Regional) and Ryanair hold up to 90% of slots
allocated between 06.00 and 08.00 local time.
802
– A number of slot requests have not been accommodated
(795) Airport Coordination Limited (“ACL”)
803
indicates that Dublin airport faces slot
constraints.
804
In the previous four IATA seasons, there were slot requests that could
796
The CAR had decided to designate Dublin Airport as a coordinated airport from 2006. However, that
decision was successfully legally challenged by Ryanair on the grounds of insufficient supporting
analysis. CAR subsequently commissioned further analysis which underpinned the decision in 2007.
See DAA's submission of 4 October 2012.
797
The CAR is amongst other things responsible for discharging Ireland’s responsibilities for schedule
coordination/slot allocation at Irish airports and the appointment where necessary of a schedules
facilitator/coordinator. The CAR monitors the status of Dublin Airport on a continuing basis, including
by attending the meetings of the airport coordinating committee.
798
CAR, response to question 5 of Questionnaire R3 – Commission for Aviation Regulation.
799
Ryanair’s observations on Article 6(1)(c) Decision, paragraph 33.
800
Ryanair’s observations on Article 6(1)(c) Decision, paragraph 35.
801
The functions of the DACC are defined by law. The Committee declares capacity at the Dublin Airport,
including terminal and runway capacity, and oversees the process by which the slot coordinator, ACL
allocates slots.
802
DAA's response to question 5 of the Commission's request for information of 20 September 2012. In
particular, in terms of allocated slot capacity Aer Lingus' and Ryanair's combined share has increased
from 60% in 2008 to 75% in 2012. Moreover, during the 2012 summer peak departuyre hour Aer
Lingus and Ryanair combined account for over 90% of the allocated slot capacity, an increase from
80% in 2008. DAA's response to question 3 of the Commission's request for information of 8 January
2012.
803
ACL is the independent company appointed by the CAR to act as slot coordinator for Dublin Airport in
accordance with the Regulation (EEC) N°95/93.
804
ACL, response to question 4.1 of Questionnaire Q3 – Slot Coordinators.
EN 189 EN
not be accommodated within a +/- 20 minutes time window due to
limitations/constraints at the airport.
805
These requests were mainly related to early
morning departure slots.
(796) DAA also submits that "Dublin Airport is runway constrained during the peak
morning hours between 0600 and 0755hrs local time where initial demand (during
the first stage of the slot filings process) from airlines to use the runway cannot be
satisfied. This constraint is particularly acute in the 0630 to 0730 period."
806
(797) From ACL’s “Start of Season Report” for Dublin for the summer season 2012, it appears
that Dublin airport operates close to, or at its maximum capacity in the morning peak
from 05.00 to 07.00 UTC.
807
The Report also shows that the demand for departure
slots in certain segments of the time period from 05.00 to 07.00 UTC exceeds
maximum capacity.
808
(798) Ryanair submits that airlines (including Ryanair) routinely over-request slots to
facilitate route planning and schedule optimisation. It considers that it is both normal
and irrelevant that some slot requests cannot be accommodated and that these
requests are therefore not indicative of real or actual demand.
809
Ryanair also argues
that the report shows that only 29 out of a total of 101 046 slot requests at Dublin
airport for the entire summer season 2012 could not be facilitated within 15 minutes
of the requested time.
810
(799) The Commission acknowledges that the number of final slot requests may be lower
than the number of initial slot requests. However, rather than attributing this
difference solely to the fact, as Ryanair claims, that airlines routinely overstate their
requests, the Commission considers that this difference also results from the fact that
airlines limit their requests to those that they know could be accommodated. ACL
indicates in this respect that "For the initial slot requests made by carriers, it is not
uncommon that there is oversubscription in the 5:00-6:55 am (UTC) interval in the
Summer Season and in the 6:10-7:00 am (UTC) interval in the Winter Seasons.
Based on the current demand (2012) most of the requests however eventually can be
satisfied within R10 (as some requests may drop out), also as carriers limit their
requests to what they know would be available. Airlines typically do not necessarily
get their optimal time for the morning departure wave."
811
.
(800) The Commission considers that Dublin airport operates in the early morning peak
hour at or close to its maximum capacity and that a limited number of slot requests
805
ACL, response to question 5 of Questionnaire 3 – Slot Coordinators.
806
DAA, response to question 11 of questionnaire Q5 – Dublin Airport Authority.
807
ACL's "Start of Season" Report for Dublin for the summer season 2012, graphs on page 9 and
following.
808
ACL's "Start of Season" Report for Dublin for the summer season 2012, graphs on page 14 and 15]. See
also ACL Summer 2012 R60 Movements – Departures Peak Week Movements – Demand/Start of
season.
809
Ryanair’s observations on Article 6(1)(c) Decision, paragraph 38. Ryanair's response to the Statement
of Objections, paragraph 41.
810
ACL's "Start of Season" Report for Dublin for the summer season 2012, table on page 2.
811
Agreed minutes of conference call of 1 October 2012 with ACL.
EN 190 EN
cannot be accommodated. The Commission further considers that this might be a
deterrent for competitors to request early morning peak slots.
– Early morning congestion exist despite the decline in traffic
(801) Ryanair also refers to the decline in traffic at Dublin airport over the past 5 years
from 23.3 million passengers per annum ("MPPA") (2007) to 18.7 MPPA (2011)
while the 2012 traffic, up to July 2012, has declined again by 1%.
812
It submits that
Dublin airport is operating at 50% capacity. It further claims that the fact that Dublin
airport used to process 30% more passengers and air traffic movements than it
currently does, is conclusive and irrebuttable evidence that Dublin airport suffers no
congestion issues whatsoever.
813
(802) This decline in traffic is acknowledged by the Commission. However, as explained
by the CAR, it appears that “while overall traffic has fallen in recent years, at peak
times demand remains high relative to capacity.”
814
CAR’s most recent annual report
shows that while overall traffic has fallen in recent years, at peak times demand
remains high relative to capacity.
815
(803) Figure 4 shows how the number of movements by scheduled hour of departure has
evolved since 2007 up to 2012.
Figure 4 – Movements by Scheduled Hour of Departure
Source: DAA
816
812
Ryanair’s observations on Article 6(1)(c) Decision, paragraph 34.
813
Ryanair's response to the Statement of Objections, paragraph 41.
814
CAR, response to question 3 of Questionnaire R3 – Commission for Aviation Regulation.
815
CAR's 2011 Annual Report, available at http://www.aviationreg.ie/ fileupload/2012-03-
21AnnualReport.pdf , visited on 29 October 2012.
816
DAA's response to the Commission's request for information of 8 January 2013.
EN 191 EN
(804) Figure 4 shows that there has been little change in the number of departure
movements during the peak hours (between 06.00 and 07.59) since 2007 despite a
decline in overall movements at Dublin airport. While there has been a 23% decline
in total departure movements since 2007, in the peak hours from 06.00 to 07.59 there
has only been a 9% decline. Moreover, while in 2007 17% of all departures left
between 06.00 and 07.59, in 2012 21% of all departures left during this peak time.
The situation is even more pronounced during the months of July and August, where
there has only been a 3% decline in weekly departures since 2007 during the 06.00 to
07.59 peak time
817
.
(805) Therefore, the Commission considers that early morning congestion exists despite
the decline in passenger traffic at Dublin airport over recent years.
– It is unlikely that the maximum limit of peak morning runway
movements will be increased in the foreseeable future.
(806) Ryanair submits in this respect that ACL and the DAA appear to unnecessarily
constrain, or artificially understate peak, morning runway movements at Dublin to 39
per hour compared to the declared peak of 48 movements per hour during the 18.00
to 18.55 hour period. Moreover, according to Ryanair, an efficient single runway like
Dublin should and could operate at a maximum limit of 51 (as is the case at London
Gatwick).
818
(807) Regarding the question why runway capacity is lower at peak time than at later times
in the day, DAA explains that "it is not possible to operate the airport at peak
conditions throughout the day due to the mixed profile of activity during the day (i.e.
arrival peaks, departure peaks and mixed traffic peaks represent different
characteristics)."
819
Given that departures can follow each other more quickly than
arrivals, allocations between arrival and departure slots are flexed to ensure that more
departures are allowed when departure capacity is required, reducing the number of
arrivals to compensate, and more arrivals are allowed when arrival capacity is
required, reducing the number of departures to compensate. Therefore, the declared
capacities for departures and arrivals are different at different times of day.
820
(808) Asked whether there is room to increase the total movement capacity at peak time at
Dublin airport, ACL indicated that "The total capacity figures at any one time at
Dublin are based on the available infrastructure. Changes to the capacity are based
on a wish list combining previous demand, potential growth of carriers and
significant planned retimes. NATS regularly performs simulations for DAA to test the
impact of increased capacity. These simulations show that it is not possible to
increase the number of movements in the peak early morning hours (between 05:00
and 06:55 UTC) without exceeding the 10 minute delay criteria which is the agreed
limit at Dublin Airport".
821
817
DAA's response to question 3 of the Commission's request for information of 8 January 2013.
818
Ryanair’s obervations on Article 6(1)(c) Decision, paragraphs 25, 26 and 39.
819
Agreed minutes of a meeting of 13 September 2012 with DAA.
820
Agreed minutes of meeting of 16 August 2012 with DAA.
821
Agreed minutes of conference call of 1 October 2012 with ACL.
EN 192 EN
(809) Asked whether Dublin airport is comparable, for example concerning the total peak
hour flights, to other airports having a single runway, such as Stansted or Gatwick,
ACL explained that "it would be impossible to compare two airports only by looking
at the declared runway capacity in isolation. When determining capacity, while the
runway capacity is one item, it is important to also consider other items like the
infrastructure surrounding the runway and in general what space is available and
how it its utilised. For example, the facilities at Gatwick airport are such that the
space around the runway can be maximised; for example there is a greater staging
area which enable optimum delivery of departing aircraft to the runway and more
rapid exits for arrival aircraft. Further aspects which are also relevant in addition to
the organisation of the movements are the air space constraints. These might render
a different picture on the runway capacity at two airports, even if they both have only
one single runway."
822
(810) DAA highlighted that "other single runway airports, such as Gatwick, Luton, and
Stansted are comparable to Dublin airport in their declared departure and arrival
movement limits (for example 30-31 departure limit at peak hours of 05.00 to 06.55
am, UTC). However, in other airports the movements might be spread more equally
throughout the day or there might be more movements overall depending on
particular circumstances, infrastructure, ATC rules, departure flight paths, agreed
separation distances etc."
823
(811) Article 6 of Council Regulation (EEC) No 95/93 of 18 January 1993 on common
rules for the allocation of slots at Community airports
824
shows that it is too
simplistic to simply compare airports on the basis of the number of runways they
have. A whole set of constraints need to be taken into account when determining the
coordination parameters.
(812) In the light of the above, the Commission considers that it is unlikely that the
maximum limit of peak morning runway movements would be increased in the
foreseeable future.
– The second runway cannot be taken into account for the calculation of
runway capacity.
(813) Runway capacity at Dublin airport is calculated on the basis of the main runway,
namely runway 28. In practice, a second runway (a crosswind runway or runway 34)
is also regularly being used. Nevertheless, this second runway is not taken into
account for calculating the runway capacity.
(814) The second runway cannot be used under certain meteorological conditions. DAA
declares that "the use of the cross runway during dual runway operation periods (i.e.
runways 28 & 34) is restricted to those occasions when weather conditions allow
airline flight crew to select the runway based on their aircraft operating limits in the
context of wind/speed direction and condition of runway pavement (wet/dry)."
825
822
Agreed minutes of conference call of 1 October 2012 with ACL.
823
Agreed minutes of meeting of 13 September 2012 with DAA.
824
OJ L 14,22.1.1993, p. 1, See Article 6.
825
DAA's response to question 4.1 of the Commission's request for information of 20 September 2012.
EN 193 EN
This is confirmed by ACL who states that "it cannot be used at all times as its
utilisation depends on weather conditions (such as wind)."
826
(815) Also, the second runway is not used by all types of aircraft. The DAA indicates that
aircraft that tend to use the runway have sector lengths less than approximately two
hours duration.
827
ACL indicates that this runway is shorter and that it is up to each
pilot to decide whether to use it or not.
828
(816) In IATA Season Summer 2012, the second runway was used 62.7% of the days.
829
(817) According to DAA "There is very little prospect that this runway will be taken into
account for the declared capacity in the future. (…) The inclusion of Runway 34 in a
capacity declaration would result in significant delays. Runway capacity experts
NATS UNITED KINGDOM advised the Co-ordination Group as recently as 24
th
September 2012 that approximately 4 minutes extra delay would accrue with just 2
extra departure movements being added to the peak hour departure capacity and this
delay would become exponential as extra departure movements are added. Delay to
the first wave of departing flights could persist for a significant part of the day.
NATS therefore concluded that dual runway operations [are] not a capacity
enhancing tool."
830
(818) The Irish Aviation Authority (the statutory body responsible for air traffic control)
advised at the DAAC meeting that took place on 17 April 2012 that "it would not be
prudent to base runway capacity on dual runway operations when it is not available
100% of the time."
831
(819) Notwithstanding the fact that the second runway is regularly used in practise,
because of the operational restrictions attached to it, it appears unlikely that it will be
taken into account for the calculation of declared runway capacity in the foreseeable
future and it is thus unlikely that this second runway would lead to an increase of the
declared runway capacity in the near future.
– Plans for the construction of a new runway are in an early stage
(820) The DAA has plans to build a new northern parallel runway. The CAR has made an
allowance for capital expenditure on a new runway to be included in the calculation
of airport charges subject to a threshold for the years 2010-13 which would be
activated if annual passenger numbers at Dublin airport exceeded 23.5 million per
annum. This threshold has not been met. Passenger numbers in 2011 were 18.7
million.
832
826
Agreed minutes of conference call of 1 October 2012 with ACL.
827
DAA's response to question 4.1 of the Commission's request for information of 20 September 2012].
828
Agreed minutes of conference call of 1 October 2012 with ACL.
829
In IATA Season Winter 2011 the second runway was used on 56.6% of the days, in IATA Season
Summer 2011 on 63.6% of the days and in IATA Season Winter 2010 on 52.3% of the days – see
DAA's response to question 4.2 of the Commission's request for information of 20 September 2012.
830
DAA's response to question 4.4 of the Commission's request for information of 20 September 2012.
831
Minutes of the Dublin Airport Coordination Committee of 17 April 2012.
832
CAR, response to question 6 of R3 – Commission for Aviation Regulation.
EN 194 EN
(821) DAA specified that the parallel runway project is under way but still at a very early
stage (DAA plans to resubmit its planning permission, but the project, if successful,
would not start until 2017 or 2018).
833
(822) Therefore, it appears that plans for the construction of a new runway are at a very
early stage and will not lead to an increase of the declared runway capacity in the
foreseeable future.
– Views of competitors
(823) Respondents to the market investigation indicate frequently that the availability of
slots would be a significant barrier to entry at Dublin airport.
(824) Ryanair claims to the contrary that the evidence resulting from the market
investigation shows that there are no capacity constraints at Dublin airport.
834
Ryanair also claims that the fact that a number of carriers expressly decided not to
identify the availability of slots as a barrier to entry at Dublin airport (when the
option was clearly presented to them at question 33 of the Commission's
Questionnaire - Q1) is strong evidence that no such barrier exists.
835
(825) A number of carriers did not identify the availability of slots as a barrier to entry at
Dublin airport. Nevertheless, the fact that such carriers did not identify slot
constraints as a barrier to entry does not necessarily mean that there are no slot
constraints. It must thereby be noted that a carrier that wishes to start operating one
route to/from Dublin will have a different need for slots at Dublin than a carrier that
wishes to start operating a number of routes out of Dublin. The first type of carrier
will have a more limited need for slots at Dublin, while the operations of the second
type of carrier would critically depend on obtaining a sufficient number of slots in
the morning peak time.
(826) Also, carriers that operate a route to/from Dublin from their exiting hub or base
(outside Ireland) will have a different need for slots than carriers that wish to
establish a base at Dublin. For instance, given that their first morning flight will
depart from their home base or hub, they do not necessarily need a very early
morning departure slot at Dublin airport.
(827) Moreover, it is noted that Dublin airport is not slot constrained during the entire day,
and slots are available outside peak hours. Should a carrier therefore be satisfied with
a slot outside peak hours, it would not be facing slot constraints.
836
(828) Aer Lingus indicates in this respect that the availability of slots outside of the
morning peak hour would not help a prospective entrant which intends to operate a
Dublin base with a substantial number of aircraft and that were its aircraft unable to
833
Agreed minutes of meeting of 13September 2012 with DAA.
834
Ryanair’s observations on Article 6(1) (c) Decision, paragraph 31, 32 and 37. Ryanair's response to the
Statement of Objections, paragraph 41.
835
Ryanair's response to the Statement of Objections, paragraph 41.
836
This also explains why Dublin Airport's incentive plan (through which it provides significant discounts
for new route entrants and growth on existing routes) does not prejudice the conclusion that Dublin
Airport is slot congested in early morning peak hours.
EN 195 EN
leave in the first morning departure wave, the operation of a Dublin base would not
be economically sustainable. By way of illustration, Aer Lingus indicated that in the
summer season 2012 all of its short-haul aircraft based at Dublin airport (apart from
its standby aircraft) left the base before the end of the morning peak.
– Conclusion
(829) Therefore, the Commission concludes that there is runway congestion at Dublin
airport in morning peak hours. This congestion would in particular affect new
entrants which would like to operate a base on several routes ex- Dublin, and would
contribute to the already high barriers to entry.
2. Parking stands
(830) In the 2007 Decision the Commission considered that there was insufficient stand
capacity at Dublin airport.
837
(831) Since 2007, a number of changes took place at Dublin airport with respect to parking
stand availability. The main change was the construction of Terminal 2, Piers D and
E and some minor changes in stand layouts around Pier A and Pier B.
838
(832) In order to manage the demand for contact stands
839
, formal Stand Allocation Rules
were instituted in 2002 and updated in 2006 and 2011. These confirm that "Stands
will be allocated to ensure efficient usage of airport infrastructure. In particular the
usage of airbridge-served and walk-in walk-out Contact Stands will be
maximised".
840
(833) The responses to the market investigation show that airlines generally consider it
important to have access to contact stands at Dublin airport in the early morning peak
hours for European short-haul or mid-haul routes.
841
(834) In theory, pier served contact stands may be supplemented by use of remote
stands.
842
Nevertheless, the majority of competitors would not be willing to use
remote stands or would only be willing to do so under certain circumstances.
843
(835) According to DAA, despite the changes that took place since 2007, there are
nevertheless still constraints with regard to parking stand capacity at Dublin airport
at the early morning peak hours.
844
DAA submits that Pier served parking stands in
piers A, B and D are constrained during the first wave of departures in the morning
837
Recitals 688 and 689 of the 2007 Decision.
838
Minutes of meeting of 13 September 2012 with DAA.
839
A contact stand, as opposed to a remote stand, is a stand that does not require a bus service to deliver
passengers from the terminal to the aircraft side or to deliver passengers from the aircraft side to the
terminal.
840
Dublin Airport Stand Allocation Rules (amended July 2011).
841
See responses to question 12 of Questionnaire R4 – Competitors.
842
In 2008 DAA introduced a differentiated (lower) charge to intensivise the use of remote stands.
843
See responses to question 13 of Questionnaire R4 – Competitors and question 20 of questionnaire R5 –
Charter Airlines.
844
DAA, response to question 11.1 of questionnaire Q5 – Dublin Airport Authority.
EN 196 EN
(06.00 to 07.30). All of the piers (A, B, D and E) are constrained from 22.00 to 06.00
due to aircraft parking on stands overnight for the first wave departures.
845
(836) Ryanair submits to the contrary that pier served and remote parking stands are freely
available during the early morning peak period.
(837) The market investigation showed mixed results with respect to the availability of
parking stands at Dublin airport.
846
Several competitors indicate that contact stands
are restricted to some extent in their availability in the morning peak.
847
Air France
on the other hand, while indicating that contact stands are available in early morning
peak hours only in Pier A, indicates at the same time that "(…) stand capacity , which
was a huge issue in 2007 and therefore a significant obstacle (…) is no longer
relevant (…)".
848
(838) Data provided by the DAA show daily contact stand usage for the month of July
2012, at 06.00 (local time).
849
These data show that while there is a maximum of 57
contact stands available (in narrow body equivalents) usage is often at 55 or more
and never drops below 50. DAA also presented data on stand usage by pier for 6 July
2012, a day which they consider represents a typical day. These data show that at
06.00 local time, Piers E, B and D are 100% occupied while at Pier A 9 out of 11
stands were used.
(839) Ryanair on the other hand produced 'dynamic' data (based on a 35 minute turnaround
time plus a 10 minute buffer) showing that 88% of pier-served stands and 92% of
remote stands are available for departures and turnaround between 06.30 and 08.30
in summer 2012. Ryanair also argues that there is substantial stand availability at
Dublin airport in morning peak hours from 05.00 to 07.00, where 28% of stands
remain available. Ryanair, when asked to provide utilisation ratio of contact stands
by pier (for piers A, B, D and E) at various points in time in the morning (that is to
say, at 04.00 , at 05.00 and at 06.00) on a typical weekday of the summer season,
argued that stand utilisation rates cannot be assessed with reference to "a precise
moment".
850
(840) The dynamic argument put forward by Ryanair is not without substance. Airlines
could for example be willing to use remote stands or after their passengers have
disembarked, the aircraft can be towed to remote stands and later towed back to
contact stands.
845
DAA, response to question 11.3 of questionnaire Q5 – Dublin Airport Authority.
846
See responses to questions 11 and 12.1 of Questionnaire R4 – Competitors.
847
Aer Lingus, response to question 12.1 of Questionnaire R4 – Competitors, IAG, response to question
12.1 of Questionnaire R4 – Competitors, Lufthansa, response to question 12.1 of Questionnaire R4 –
Competitors, Flybe, response to question 12.1 of Questionnaire R4 – Competitors and Swiss, response
to question 12.1 of Questionnaire R4 – Competitors.
848
Air France, response to question 33.3 of questionnaire Q1 – Competitors.
849
DAA's response to the Commission's request for information of 20 September 2012.
850
Ryanair's response to question 2.1 of RFI of 11 October 2012.
EN 197 EN
(841) Nevertheless, the data on static stand capacity
851
show that in early morning peak
hours there are only a very limited number of contact stands available. Despite the
fact that there appear to be some stands available at Pier A in the morning, it must be
noted that stands are not easily interchangeable for airlines which cluster their
activities in particular terminals and piers. Moreover, DAA indicates that Pier A is
regarded as unsuitable by some airlines because arriving and departing passengers
are not segregated, because there are some constraints as regards aircraft size,
because it is not air-bridge-served and because it is the oldest pier.
852
(842) It may thus be difficult for a competitor starting up a route from Dublin airport to
have access to a contact stand in early morning peak hours and as indicated above the
results to the market investigation show that airlines generally consider it important
to have access to contact stands in the early morning peak hours for European short-
haul or mid-haul routes.
(843) While the DAA does not exclude the technical possibility in the current situation for
an airline to enter Dublin airport with a small base or without a base, it indicates that
this would nevertheless require some flexibility from the airlines already present (and
it considers that this would be more difficult if there is one big intransigent operator
such as Ryanair or the merged entity).
853
(844) Therefore the Commission considers that competiting airlines may face some
difficulties in having access to contact stands for early morning peak hour flights,
which can contribute to the already high barriers to entry.
3. Terminal constraints
(845) As regards terminal capacity, there has been a recent major change, namely the
construction of a new terminal, Terminal 2 ("T2"). Terminal 2 opened for its first full
season in Sumer 2011 and this resulted in a substantially improved terminal capacity.
Terminal 1 (and some of its piers) have been extended and modernized in recent
years.
854
(846) Terminals 1 and 2 are both classified as IATA level of service ‘C’ and offer
equivalent services with equivalent service levels.
855
(847) All long-haul services at Dublin airport are concentrated in Terminal 2 which has a
United States Customs and Border Protection pre-clearance facility. Aer Lingus’
short-haul and long-haul operations are located in Terminal 2 but some of its flights
depart from Pier B (which is connected to Terminal 1 but linked to Terminal 2 via a
walkway) during peak times. In addition, all Aer Lingus Regional services currently
depart from Pier A which is linked to Terminal 1.
851
Static stand capacity relates to the physical number of stands available for the simultaneous parking of
aircraft at any particular time.
852
DAA's response to the Commission's request for information of 20 September 2012.
853
Agreed minutes of meeting of 16 August 2012 with DAA.
854
Aer Lingus, response to question 10.1 of questionnaire R4 – Competitors.
855
Aer Lingus, response to question 10.1 of questionnaire R4 – Competitors.
EN 198 EN
(848) DAA submits that there are constraints with regard to check-in desk capacity at
Dublin airport in the early morning peak hours.
856
In particular, DAA submits that
Terminal 2 check- in Desks 1 to 28 are currently fully utilised from 06.00 to 10.15
and the remaining desks 29 to 56 are full from 04.00 to 07.00. At the same time
DAA is investigating a range of options to increase terminal operational capacity and
reduce constraints over the next few years. At the same time, DAA nevertheless
acknowledges that there are no constraints in Terminal 1.
857
(849) Ryanair claims that the question of whether Terminal 2 is constrained is misleading
and irrelevant in view of the fact that Terminal 1 check-in desks are less than 25%
utilized during that period. It further submits that its own data on Terminal 1 and
Terminal 2 check-in desk utilisation for 05.00 , 06.00 , and 07.00 on September 11,
2012, show that during these times 77%, 68%, and 70% of all Terminal 1 and
Terminal 2 check-in desks are not utilized.
858
(850) DAA itself does not contest that there is, and will be in the near future, spare
capacity in Terminal 1.
(851) ACL, who monitors whether there are terminal capacity constraints as part of the
coordination process, declared that "currently the terminal is not a constraining
factor at Dublin".
859
(852) The routes subject to this Decision are European short-haul routes for which United
States Customs and Border Protection pre-clearance facilities are irrelevant.
Therefore, in general both Terminal 1 and 2 should be suitable for operations on such
routes. This is confirmed by the results of the market investigation
860
which show
that only a few airlines consider Terminal 2 to be the only suitable terminal for their
operations.
(853) Aer Lingus referred to the fact that all long-haul services operate from Terminal 2
where pre-clearance facilities are located and that its operations are therefore based
in Terminal 2 as it would be inefficient to spread operations over two terminals (it
being noted that some of its flights and Aer Lingus Regional services
861
continue to
depart from piers which are linked to Terminal 1.)
862
(854) Flybe considers that Terminal 2 would be the only suitable terminal for its operations
because “the business traveller product is enhanced flying out of T2 and competition
with Aer Lingus might be constrained for business oriented routes if services were
developed using T1”
863
.
856
DAA, response to question 11 of questionnaire Q5 – Dublin Aiport Authority.
857
DAA, response to question 11.3 of questionnaire Q5 – Dublin airport Authority.
858
Ryanair’s observations on Article 6 (1) (c) Decision.
859
Agreed minutes of conference call of 1 October 2012 with ACL.
860
Responses to question 10 of Questionnaire R4 – Competitors.
861
Aer Arann nevertheless noted that only Terminal 2 would be suitable because it is the terminal its
partner Aer Lingus operates from. Aer Arann, response to question 10.2 of questionnaire R4 –
Competitors.
862
Aer Lingus, response to question 10.2 of questionnaire R4 – Competitors.
863
Flybe, response to question 10.2 of questionnaire R4 – Competitors.
EN 199 EN
(855) Given that the routes subject to this Decision are European-short-haul routes for
which the US Customs and Border Protection pre-clearance facilities which are only
available in Terminal 2 are not required, and given that there is spare capacity in
Terminal 1, it can be considered that a new entrant would in principle find the
necessary terminal capacity in Terminal 1. Constraints in Terminal 2 would
constitute a barrier to entry only for entrants such as Flybe which would consider
access to Terminal 2 as a pre-requisite for their operations, however such competitors
represent a minority.
(856) Therefore, the Commission considers that terminal capacity constraints do not appear
to be a barrier to entry relevant for the Transaction.
4. Conclusion on congestion at Dublin airport
(857) The Commission concludes that there is runway congestion at Dublin airport during
morning peak hours and carriers may face some difficulties in having access to
contact stands for early morning peak hour flights. This would contribute somewhat
to the already high barriers to entry. The Commission concludes on the other hand
that terminal capacity constraints do not appear to be a barrier to entry relevant for
the Transaction.
Airport congestion at Shannon, Cork and Knock
(858) The airports of Cork and Shannon are not coordinated, their status is level 1.
According to ACL, there are no capacity constraints at these airports.
(859) The operator of these airports, DAA, also indicated the absence of any constraints at
these airports. According to DAA capacity problems would arise only if the traffic at
Shannon were to reach around 5 MPPA.
864
The current passenger number at Shannon
reaches 1.6 MPPA.
865
(860) Knock airport is not coordinated, nevertheless it is stand restricted due to the fact that
the airport has only 3 aircraft stands. Ryanair submits nevertheless that aircraft stand
constraints at Knock Airport have not in any way impeded the airport’s development
and could be readily remedied by the construction of additional stands.
866
(861) According to the slot coordinator, "[t]he airport authority has made applications to
the Irish Department of Transport, Tourism and Sport for capital funding to increase
its size so to permit additional stands and thus an increase in capacity at peak
times"
867
, which is currently under review.
(862) It therefore seems that, subject to the issue of aircraft parking stand constraints at
Knock airport, there are no capacity constraints at the airports of Shannon, Cork and
Knock.
864
DAA, response to question 11.1 of questionnaire Q5 – Dublin Airport Authority.
865
Traffic data for 2011. See DAA Annual Report 2011 page 18, available at
http://www.daa.ie/Libraries/Annual_Reports/DAA_Annual_Report_2011.sflb.ashx.
866
Ryanair's observations on Article 6 (1)(c) Decision.
867
Connaught Airport Development Company Ltd., response to question 4.4 of questionnaire Q3 – Slot
Coordinators.
EN 200 EN
Airport congestion at other airports
(863) Ryanair submits that there is spare capacity at one or more airports at each end of the
overlap city pairs.
868
(864) While it is acknowledged that secondary airports are generally not congested, this
does not necessarily mean that the congestion at the main airport would not
constitute a barrier to entry for potential new entrants. Indeed, this would depend on
the willingness of the new entrant to operate on routes to and from secondary airports
which is not an option for many airlines, in particular for those airlines whose service
or operating model does not allow secondary airports to be used.
(865) Ryanair further submits that the fact that an airport is level 3 coordinated does not
mean that such airport is constrained and refers notably to the airports of Warswaw
Chopin, London Stansted, Barcelona El Pratt and Manchester which it claims are
operating significantly below their maximum capacity and have ample room for
growth.
869
(866) The fact that an airport operates below its maximum capacity does not mean that that
is the case at all times during the day, and it is quite possible that an airport, even
though it operates in general well below its maximum capacity, faces constraints
during peak hours.
(867) The following relevant airports are level 3 coordinated airports:
Table 32: Coordinated airports on the routes of concern
Warsaw Chopin
London Stansted
London Gatwick
London Heathrow
London City
Barcelona El Prat
Nice
Tenerife Norte Los
Rodeos
Tenerife Sur Reina
Sofia
Manchester
Paris CDG
Frankfurt
Munich
Berlin
Alicante
Malaga
Madrid
Palma
Ibiza
Rome Fiumicino
Rome Ciampino
Milan Linate
Milan Malpensa
Bergamo Orio al
Serio
Gran Canaria
Brussels
Bilbao
Venice
Lanzarote
Fuertaventura
Stockholm Arlanda
Faro
Paris Orly
(868) The results of the market investigation show that airport congestion remains an issue
at several other airports on the routes of concern.
(869) At Heathrow there are constraints on airline access to slots throughout the whole
operating day. Also in LGW, demand exceeds capacity throughout most or all of the
day. In London City, there are slot constraints during part of the day and in addition,
868
Ryanair's observations on Article 6 (1) (c) Decision, paragraph 44.
869
Ryanair observations on Article 6(1)(c) Decision, Annex 1.
EN 201 EN
there are a number of other limitations, for example not all aircraft models can use
this airport.
(870) ACL indicates runway and terminal constraints for STN, LGW and LTN
870
, in
addition to the known congestion situation of LHR regarding lack of slots and
runway, terminal and stand constraints. BAA however considers that STN airport
generally does not have capacity constraints
871
.
(871) Spanish airports may present constraints with regard to access to slots, in particular
at peak hours, although due to the traffic decrease of recent years the situation has
improved compared to 2007. Aeropuertos Españoles y Navegación Aérea ("AENA"),
the Spanish slot coordinator, indicated that at all the spanish coordinated airports
(Level 3) and at some of the schedules facilitated airports (Level 2) may be or may
have been very recently some limitations/constraints for airlines to get access to
slots.
872
These limitations would apply to all the Spanish airports on the routes of
concern. However, it was specified that "…constraints present today much less
difficulties than they presented during the preceding years"
873
and that "[i]n most
cases, limitations/constraints only exist during "peak times" and/or "peak days""
874
.
The AENA indicates that "the situation of congestion at these airports, that used to
be very important during the years before 2008, has changed dramatically and
where it used to be a lack of capacity available now airlines have good choices to
obtain slots (perhaps with the exception of Ibiza and Palma de Mallorca airports on
peak days)"
875
. Moreover, at several of the Spanish airports, plans would be
developed to implement capacity expansion during the next 3 years.
(872) Congestion problems are present or may arise at the airports of Rome
876
(Fiumicino,
Ciampino), Milan
877
(Linate, Malpensa, Bergamo), Frankfurt
878
, Munich
879
, Paris
870
ACL, response to question 4 of questionnaire Q3 - Slot Coordinators.
871
BAA, response to questions 14 and 15 of questionnaire Q4 – Airports. See also Commission's decision
of 30 March 2012 in Case No 6447 – IAG / bmi, Section 1.2 Airport congestion in London.
872
AENA, response to question 4 of questionnaire Q3 – Slot Coordinators.
873
AENA, response to question 4.1 of questionnaire Q3 – Slot Coordinators.
874
AENA, response to question 4.3 of questionnaire Q3 – Slot Coordinators
875
AENA, response to question 4.2 and 4.3 of questionnaire Q3 – Slot Coordinators.
876
See ADR, response to questions 14 and 15 of questionnaire Q4 – Airports and Assoclearance, response
to questions 4 and 5 of questionnaire Q3 – Slot Coordinators.
877
Assoclearance, response to questions 4 and 5 of questionnaire Q3 – Slot Coordinators.
878
The airport operator Fraport AG indicates that by opening a new runway in October 2011, Frankfurt
Airport has been expanding its runway capacity and there are presently no airside capacity limitations
(other than during the legal night ban). Fraport AG, response to question 14 of questionnaire Q4 –
Airports. The slot coordinator FHKD nevertheless indicates that capacity is reached during the arrival
or departure peaks (while arrival slots would still be available during departure peaks and departure
slots would still be available during arrival peaks, total capacity would be close to full during morning
hours). FHKD, Airport Coordination Germany, response to question 4.3 of questionnaire Q3 – Slot
Coordinators.
879
FHKD, Airport Coordination Germany, response to question 4.3 of questionnaire Q3 – Slot
Coordinators. FHKD indicates that capacity is reached during the arrival or departure peaks, i.e. arrivals
still available in departure peaks and vice versa, limit for total capacity not reached.
EN 202 EN
(Charles de Gaulle, Orly), Brussels
880
, Stockholm Arlanda
881
, Warsaw Chopin
882
and
Manchester
883
.
(873) Faro Airport is classified as a coordinated airport in IATA summer season however it
appears that there are currently no constraints with regard to the capacity of Faro
Airport
884
.
(874) The same is the case for the Aeroport de la Cote d'Azur in Nice
885
. In Germany, at
Berlin Schonefeld, despite being designated a fully coordinated airport, there are,
according to the airport authorities, no constraints
886
. Moreover, the opening of a new
airport is planned for spring 2013. For Venice, no constraints were identified by the
slot coordinator Assoclearance.
887
(875) The results of the market investigation show that competitors mentioned the
availability of slots as a barrier to entry in particular at London Heathrow, London
Gatwick, London City, Barcelona El Prat, Paris CDG, Frankfurt, Munich, Milan
Linate, Amsterdam, Ibiza, Alicante, Madrid Barajas.
888
(876) Therefore, the Commission concludes that some capacity constraints appear to exist
at various airports at the other end of the routes of concern, especially at peak hours,
constituting a possible barrier to entry and expansion post-Transaction.
(877) The level of congestion at the other end of each analysed route will be discussed
individually as relevant on a case by case basis in the context of the analysis of the
competitive situation on the respective routes.
8.5.2.10. The merged entity's position as largest user at Dublin, Shannon and Cork airports
(878) In the 2007 Decision, it was concluded that the merger would allow the merged
entity to increase its weight in the consultation process for airport charges, airport
880
Belgium Slot Coordination, response to question 4.3 of questionnaire Q3 – Slot Coordinators. The
Belgium Slot Coordinator states that "There are peak periods where we cannot satisfy the slots demand
as requested. In this case the deviation offered to the aircraft operator is limited to maximum 20
minutes off the slot requested."
881
According to ACS and Swedavia, the airport authority, there are runway constraints during peak hours.
However Swedavia does not predict future problems based on today's prognosis. ACS, response to
question 4 of questionnaire Q3 – Slot Coordinators and response, Swedavia, questions 14 and 15 of
questionnaire Q4 – Airports.
882
ACL, response to question 4 of questionnaire Q3 – Slot Coordinators. ACL, the slot coordinator for,
amongst other airports, Warsaw Chopin airport, referred to runway and terminal constraints.
883
Manchester Airport Group, response to question 14 of questionnaire Q4 – Airports. According to the
Manchester Airport Group, Manchester Airport is "broadly not capacity or slot constrained, but is
subject to a limited supply at the peaks".
884
ANA Aeroportos de Portugal, response to question 14 of questionnaire Q4 – Airports.
885
See response of COHOR Airport Cordination France to question 4 of questionnaire Q3 – Slot
Coordinators.
886
See response of Flughafen Berlin Brandeburg Gmbg to question 14 of questionnaire Q4 – Airports.
887
Response of Assoclearance to question 4.2 of Questionnaire Q3 – Slot Coordinators.
888
See responses to question 35 of questionnaire Q1 – Competitors.
EN 203 EN
facility allocation or expansion plans and that the merged entity's strong position
would be likely to hinder further expansion by competitors.
889
(879) The General Court upheld the Commission's findings on this point in the 2010
Judgement
890
.
(880) Airlines are represented, at the airports where they operate, on a number of airport
users committees and user consultation interfaces.
(881) At Dublin airport, given its status as coordinated airport, there is a coordination
committee, the DACC. The DACC assists the coordinator in a consultative capacity
and in particular advises on possibilities for increasing the capacity of the airport,
improvements to traffic conditions, complaints about the facilitation of air traffic
movements, guidelines for the facilitation of air traffic movements and on methods
for monitoring air traffic movements' data quality.
891
Moreover, the DACC also
agrees, by majority vote, the capacity limits at Dublin airport.
892
(882) In Dublin, Shannon and Cork, there is an Airport Operators Committee ("AOC"). The
AOC is primarily focussed on operational issues such as terminals and systems
installed, conditions of apron, taxiways and runways, local air traffic and ground
circulation, airport development progress from a user's point of view, access to
airport and airport buildings.
893
It meets regularly to discuss these operational issues
and to liaise with the airport authority on behalf of the members.
(883) A large majority of the competitors consider that the Transaction would provide the
merged entity with advantages as regards the DACC and the AOC.
894
The market
investigation, however, showed mixed views with respect to the question of whether
the Transaction would have an impact on the entry or expansion opportunities due to
the merged entity's influence in these bodies
895
: For instance, Aer Lingus indicates
that "In the case of a combined Ryanair/Aer Lingus entity, such an entity would be
the single dominant voice in the various consultation bodies (…) and would be in a
strong position to determine issues relating to the operation of and developments at
the various airports." It further submits that the "strengthened position [within the
DACC] would provide Ryanair with the opportunity to control the decision making
on important issues such as slot availability and possibly ensure that there is limited
slot availability for any potential new entrants" and that "There is no doubt therefore
that a combined Ryanair/Aer Lingus entity would dominate the AOC and would have
the greatest influence on operational decisions at the airport."
896
British Airways
889
Recitals 701 to 708 of the 2007 Decision.
890
Paragraphs 313-316 of the 2010 Judgement.
891
See Section 3 "Purpose and Principles" of the constitution document of the Dublin Airport Coordination
Committee.
892
See for example the minutes of the meeting of the DACC Executive Meeting of 17 April 2012.
893
See Section 2 "Purpose" of the constitution document of the Dublin Airport Airline Operators
Committee.
894
See responses to question 16.3 of questionnaire R4 – Competitors and question 23.3 of questionnaire
R5 – Charter Airlines.
895
See responses to question 16.4 of questionnaire R4 – Competitors and question 23.4 of questionnaire
R5 – Charter Airlines.
896
Aer Lingus, response to question 16.4 of questionnaire R4 – Competitors.
EN 204 EN
indicates that the merged entity would have 80% of the votes and "could have some
influence over decisions in these meetings"
897
. LOT considers that the merged entity
would have a stronger voice.
898
However, Lufthansa considers that the Transaction
would not have an impact on the extry or expansion opportunities due to the mergerd
entity's influence in the DACC and AOC
899
; Air France indicates that "No once there
is capacity available and the EU Commission should deal with this issue in the
remedies package that will be offered by the merging parties."
900
.
(884) Ryanair argues that the merged entity will not be able to influence airport
infrastructure investments at Irish airports to their advantage
901
. It submits in this
respect that Dublin airport is a government-owned monopoly with no competitor or
substitutable airport.
(885) Ryanair also claims that it is factually untrue that the CAR has to take the views of
users into account and that in recent years the views of users have been consistently
overridden by binding directions from the Irish Minister for Transport. It refers for
example, to its longstanding opposition to the development of Terminal 2 which it
argues proceeded based on a binding directive by the Irish Minister for Transport
issued to the CAR.
(886) It further underlines that the DACC is a consultative body, not a decision-making
body and that any majority by the merged entity will therefore have no effect on
runway capacity.
(887) It also underlines that the real decision making body at Dublin airport is the DAA,
supported by binding legal directions issued by the Minister for Transport.
Dublin airport – decisions on airport charges, capital expenditure and infrastructure
investments
(888) The maximum level of airport charges and the level of capital expenditure for Dublin
airport is set by the CAR
902
. Airport users are consulted in the process and their view
is one of the factors the CAR considers when making its determination on airport
charges.
903
897
British Airways, response to question 16.4 of questionnaire R4 – Competitors.
898
LOT, response to question 16.4 of questionnaire R4 – Competitors.
899
Lufthansa and Swiss, response to question 16.4 of questionnaire R4 – Competitors.
900
Air France, response to question 16.4 of questionnaire R4 – Competitors.
901
Ryanair's observations on Article 6(1)(c) Decision, paragraphs 47 to 50.
902
The CAR regulates certain aspects of the aviation and travel trade sectors in Ireland. It sets a price cap
on airport charges and aviation terminal services charges. Further, it licences the travel trade in Ireland,
licences airlines and approves ground-handling service providers. The CAR has also a role in consumer
protection as it is the national enforcement body tasked with the monitoring and enforcement of EU
legislation covering Air Passenger Rights and the provision of assistance to Passengers with Reduced
Mobility (PRM), see CAR, response to question 2 of Questionnaire R3 – Commission for Aviation
Regulation.
903
See Section 33 of the Irish Aviation Regulation Act 2001 as amended from time to time:
"(1) In making a determination the objectives of the Commission are as follows—
(a) to facilitate the efficient and economic development and operation of Dublin Airport which meet the
requirements of current and prospective users of Dublin Airport,
EN 205 EN
(889) The CAR submits that Ryanair and Aer Lingus have been historically the two users
that were most likely to respond to its consultation on price reviews. The Transaction
would consolidate the views of two currently separate users and so, all other things
being equal, increase the weight of the merged entity in the CAR's assessment of the
reasonable interests of current users of Dublin airport.
904
The CAR further indicates
that "The merged entity might be expected to have a larger voice in capital
expenditure consultations, which influence new investments made at the airport, such
as runways, terminals or other aeronautical and commercial investments. In the end,
this could influence the possibilities for entry or expansion at the airport."
905
DAA
claims that the merged entity would have the ability to influence capital expenditure
and the use and development of airport infrastructure
906
.
(890) Ryanair and Aer Lingus currently are the two largest customers of DAA accounting
for 82% of total traffic, while the remaining 18% are divided over 60 other
airlines
907
. The Transaction would thus combine the two airlines which are by far the
largest airport users.
(891) Ryanair has often had views and expectations in the past with respect to airports and
airport facilities that were different from those of other airlines (including from Aer
Lingus). For example, Ryanair was opposed to the construction of the new Terminal
2.
(892) Such different views and expectations with respect to airports and airport facilities
result in particular from the fact that Ryanair is a low-fares airline with a no-frills
business model and thus seeks only basic, low cost, airport services, while many
other airlines present at Dublin airport have a different business model for which
they seek a higher service level.
(893) The fact that, in the words of Ryanair, Dublin airport is a government owned
monopoly with no competitor or substitutable airport or that according to Ryanair the
views of users at Dublin airport have been overridden by binding directions from the
Irish Minister for Transport does not mean that the merged entity would not have
leverage vis-à-vis the DAA or CAR. Ryanair has significantly cut its operations from
Dublin airport in the past in response to a decision by the Irish Government to
impose a tourist tax
908
. The Transaction would even increase the merged entity's
leverage and this would likely deter to some extent potential new entry at Dublin.
(b) to protect the reasonable interests of current and prospective users of Dublin Airport in relation to
Dublin Airport (...)" (text highlighted by the Commission).
904
CAR, response to question 9 of questionnaire R3 – Commission for Aviation Regulation.
905
CAR, response to question 9.1 of questionnaire R3 – Commission for Aviation Regulation.
906
DAA's supplementary comments to European Commission of 22 August 2012 and agreed minutes of a
meeting of 16 August 2012with DAA.
907
See Section 8.4.1.
908
See Ryanair's news release of 12 February 2009, "Ryanair announces flight & job cuts at Dublin
Airport as Irish Gvt €10 tax devastates tourism". Ryanair uses its bargaining power with a number of
airports to negotiate airport charges. The chances of success of such negotiation attemps depend on how
airport charges are set at such airport and the degree to which they are regulated. At some airports,
airport charges are highly regulated and there is no room for individual negotiation with airlines. This
would seem to be the case for Dublin Airport. A stronger negotiation position may therefore not
necessarily be reflected in actual airport charge levels. It is unclear whether the merged entity would be
EN 206 EN
Dublin airport - Slot coordination issues
(894) In the past, there have been several examples of divergent views between Ryanair
and the other airlines represented in the DACC. For example, Ryanair was strongly
opposed to Dublin airport's classification as a Level 3 – coordinated airport, and it
continues to be opposed to this status.
909
Also the voting pattern at the recent meeting
of the DACC's Executive Committee showed that Ryanair took a different position
than the other airlines as regards for example the runway capacity limits and the
terminal limits
910
.
(895) A large majority of competitors consider that the Transaction would provide the
merged entity with advantages as regards the DACC (and the AOC). The market
investigation showed however mixed views with respect to the question of whether
the Transaction would have an impact on the entry or expansion opportunities due to
the merged entity's influence in these bodies.
(896) The DACC is a consultative and not a decisional body. It nevertheless has an
important role in assisting the airport's coordinator and advises on various issues
such as possibilities for increasing the capacity of the airport, improvements to traffic
conditions, complaints about the facilitation of air traffic movements, guidelines for
the facilitation of air traffic movements and on methods for monitoring air traffic
movements' data quality. Moreover, the DACC also agrees (by majority) the capacity
limits at Dublin airport.
(897) As a result of the Transaction, the merged entity would have the majority of the
voting rights within the DACC
911
while the remaining votes would be fragmented
amongst other airlines with a much smaller presence at Dublin airport and amongst
the airport operator, air traffic control and other organisations.
912
(898) The Transaction would thus give the merged entity increased weight within the
DACC and the merged entity, thanks to its strong position with a majority of voting
rights, would be able to influence the decision making within the DACC.
Nevertheless, because of the role of the slot coordinator and of the Irish State, the
impact of such influence seems to be limited.
in a position post-Transaction to influence the airport charges or structure of airport charges at least at
Dublin airport.
909
See for instance Ryanair's suggestion at the recent meeting of the DACC's Executive Meeting to revert
to the status of a schedules facilitated airport (IATA Level 2).
910
Minutes of the meeting of the DACC's Executive Meeting of 17 April 2012.
911
See Schedule 1 to DACC's constitutional document.
912
See also Commission for Aviation Regulation, response to question 10 of questionnaire R3 –
Commission for Aviation Regulation. The CAR explains as follows: "The current voting rules in this
Committee are the following. Majority voting applies. Airport Operator and Air Traffic Control and
other organisations get a fixed number of votes. Remaining votes are shared in proportion to the
number of Air Traffic Movements (ATM) flown by members at Dublin airport in the previous year.
Members not present will not be able to vote. At the last vote carried out in April 2012, the number of
votes by Committee member were: Dublin Airport Authority: 40, Irish Aviation Authority: 20, Ryanair:
294, Aer Lingus (incl. IE regional):350, Aer Arann: 36, Cityjet: 44. Under the current voting rules and
ATM shares, the merged entity would cast a majority of votes at meetings of the Committee."
EN 207 EN
(899) According to the DAA, the merged entity could use its voting power within the DACC
to adopt a proposal to reverse Dublin airport's status as a coordinated airport to a
schedules facilitated airport
913
. However, the decision to change the airport's status
from level 3 (coordinated airport) to level 2 (schedules facilitated airport) is a
decision of the Irish State, not of the DACC. The Irish State must comply in this
respect with the provisions of Regulation (EEC) No 95/93, in particular Article 3 of
that Regulation. It therefore does not seem likely that the merged entity, even though
it would gain weight in the DACC, would be in a position to influence a possible
change in Dublin airport's status as coordinated airport.
(900) The DAA also claims that the merged entity could use its voting power within the
DACC to ensure that slot allocation is made on the most favourable basis to it.
914
However, decisions regarding slot allocation are made by the slot coordinator
ACL
915
. ACL must act in an independent, neutral, non-discriminatory and
transparent manner
916
. It therefore does not seem likely that the merged entity,
eventhough it would gain weight in the DACC, would be able to ensure that slot
allocation by ACL is done in a manner favourable to it.
(901) Also, according to the DAA, Ryanair's use of slots will no longer be effectively
controlled by the DACC and the DACC will not be able to prevent it from abusing
the air traffic movements to the detriment of the passengers and the other air carriers.
While the DACC shall make proposals to or advise ACL on the methods of
monitoring the use of allocated slots
917
, the monitoring of airlines' operations is
nevertheless the responsibility of ACL. Pursuant to Article 4.6 of Regulation (EEC)
No 95/93, the coordinator shall monitor the conformity of air carriers' operations
with the slots allocated to them. ACL shall carry out the conformity checks in
cooperation with the DAA and the air traffic control authorities. It therefore does not
seem likely that the merged entity, even though it would gain weight in the DACC,
would be in position to avoid control of the use of its slots.
(902) The above shows that while the Transaction would provide the merged entity with a
majority of the voting rights within the DACC, which would give it more weight in
the decision making within the DACC, because of the roles of the Irish State (for
example, with respect to the status of the airport ) and of ACL (for example, with
respect to slot allocation and monitoring) who must act in an independent, neutral,
non-discriminatory and transparent manner, it does not seem likely that the merged
entity would be able to influence to a significant extent slot issues at Dublin airport
so as to deter potential new entrants or competitors with expansion plans.
913
DAA's supplementary comments to European Commission of 22 August 2012 and agreed minutes of a
meeting of 16 August 2012with DAA.
914
DAA's supplementary comments to European Commission of 22 August 2012 and agreed minutes of a
meeting of 16 August 2012with DAA.
915
Council Regulation (EEC) No 95/93 of 18 January 1993 on common rules for the allocation of slots at
Community airports, article 4 (5).
916
Council Regulation (EEC) No 95/93 of 18 January 1993 on common rules for the allocation of slots at
Community airports, article 4(2).
917
Council Regulation (EEC) No 95/93 of 18 January 1993 on common rules for the allocation of slots at
Community airports, article 5(1)(a).
EN 208 EN
Dublin Airport, Shannon Airport and Cork Airport – Operational issues
(903) As set out above, the AOC in Dublin, Shannon and Cork meets regularly to discuss
operational issues and to liaise (on behalf of the members) with the airport authority.
(904) As set out above, a large majority of competitors consider that the Transaction would
provide the merged entity with advantages as regards the DACC and the AOC. The
market investigation showed, however, mixed views with respect to the question of
whether the Transaction would have an impact on the entry or expansion
opportunities due to the merged entity's influence in these bodies.
(905) While within the AOC, each member airline is entitled to one vote on each issue,
motion or proposition placed at meetings
918
, it is however, not unlikely that the
merged entity will have an important say in the decision-making of the AOC. As set
out above, the merged entity will be the largest airport user in Dublin, Shannon and
Cork airports. It is not unlikely that this strong position would enable the merged
entity to influence operational matters at the airports, possibly to its own advantage
and to the detriment of competitors or new entrants. It is however unclear to what
extent this in itself would deter potential new entry at Dublin, Cork and Shannon.
8.5.3. Conclusion on barriers to entry and expansion
(906) The barriers to entry with respect to the routes subject to this Decision are high.
(907) These barriers to entry relate primarily to Ryanair's and Aer Lingus' strong positions
in Ireland.
(908) A new entrant would need to compete with the merged entity which would have a
strong market position in Dublin, Cork and Shannon as a result of its established
bases. Also, the merged entity would have the two strongest brands in Ireland and a
new entrant would need considerable time and investment to upgrade its brand. Due
to the announced dual branding strategy, the merged entity would have a strong
market position in two different market segments, namely in the no-frills segment
with the lowest fares as well as in the segment with higher service level. In addition,
competitors would fear aggressive retaliation by the merged entity in case of entry.
These considerations constitute significant barriers to entry which are equally
relevant for routes to and from Dublin, Shannon, Cork and Knock.
(909) The entry barriers also derive from the specific situation at Dublin airport or in
Ireland. The level of airport charges and taxes at Dublin airport is likely to deter new
entrants, in particular low cost companies, from opening routes from or to Dublin.
Also, the Irish market is not considered by many competitors as an attractive market
and the economic downturn in Ireland but also in other Member States such as Spain
has further deteriorated the attractiveness of the Irish market compared to the
situation in 2007.
(910) Also, the fact that new entrants may face difficulties in obtaining early morning peak
hour slots and parking stands at Dublin airport, coupled with the fact that there are
918
Clause 6.2 of the Consitition document.
EN 209 EN
capacity constraints at certain destination airports would contribute further to the
already high barriers to entry. Finally, the merged entity's increased weight in the
decision making process regarding the use and development of airport infrastructure
at Dublin airport and operational matters at Dublin, Shannon and Cork airport could
further deter to some extent potential new entry at Dublin, Cork and Shannon.
(911) The conclusion that the entry barriers in this case are high is corroborated by the fact
that in recent years only limited entry events took place (by airlines other than
Ryanair of Aer Lingus) on the routes subject to this Decision.
8.6. Forms of entry/expansion
(912) Entry or expansion may take three different forms: First, a possible entrant may
establish itself with a base in Dublin, or at other Irish airports to compete on routes
ex-Ireland. Secondly, an entrant may use a base which it has established at an airport
at the other end of the route. Thirdly, a carrier could enter on a point-to-point basis
without having a base at either end of the route (a non-base entrant).
8.6.1. Entry with a base in Ireland
(913) Ryanair and Aer Lingus are the only carriers which operate significant bases in
Ireland, and the only other competitor which may be considered as having bases of
some scale is Air France/CityJet which operates from Dublin airport with 3 lower
capacity jets.
(914) While the Commission does not dismiss the possibility that airlines with a base at the
other end of the route would in theory be in a position to constrain the merged entity
to some extent (see Section 8.6.2) the results of the market investigation showed that
competitors often considered that in order to be capable and have sufficient
incentives to effectively constrain the merged entity post-Transaction on routes ex-
Dublin (and ex-Shannon and ex-Cork), an air carrier would need to establish a base
at such airports
919
.
8.6.1.1. Increased flexibility, cost savings and advantages
(915) As set out in Section 8.4.3, operating with a base provides advantages such as
increased flexibility in reacting to demand-side or supply-side shocks, cost savings
arising from economies of scale and scope and cost advantages arising from
economies of scope.
(916) The importance of economies of scale and scope arising from base presence at
Dublin airport, as well as in Cork and Shannon airports emerges from competitors’
responses to the Commission’s market investigation. Several competitors confirmed
919
See responses to question 53 of questionnaire Q1 – Competitors; responses to questions 25, 27 and 29
of Questionnaire R4 – Competitors and responses to questions 32, 34 and 36 of questionnaire R5 –
Charter Airlines.
EN 210 EN
the advantages of economies of scale and scope, increased operational flexibility and
other advantages provided by base operations
920
.
(917) In Aer Lingus' view, "Operating from a base allows an airline to spread costs over its
various routes. These costs include ground crew and pilot/inflight crews, ground
equipment, and maintenance efficiencies (staff, parts, facilities). Operating from a
base means the same ground crew and equipment can be used for one flight or
multiple flights in each shift, with benefits accruing for the airline as utilisation and
productivity are maximised."
921
(918) According to Lufthansa "an operation out of a base airport is always more favorable
than an operation out of a non-base airport due to economies of scale and scope and
additional operational flexibility."
922
Lufthansa further argues that "[..]the airline
business is a business in which economies of scale play an important role. Against
this background bases provide for higher economic efficiencies (…) In terms of
comparing the effects of having a base with the effects of being a large company, LH
contends that base effects have more impact as they influence a larger proportion of
costs"
923
.
(919) A base is needed inter alia to benefit from a cost position that would allow a
competitor to constrain the merged entity. Lufthansa and Swiss indicate in this
respect that "Only a carrier with an established base in Dublin would have the cost
position and market power to constrain the merged entity in ex-Dublin routes."
924
A
base also allows for a better utilisation of aircraft
925
.
8.6.1.2. A base is a prerequisite for having sufficient operations
(920) A base is also a pre-requisite for having sufficient operations from a given airport.
According to Austrian Airlines "Due to the larger number of routes the combined
entity offers, only a (new) base airline could effectively constrain the merged
entity."
926
Swiss indicates that in order to be an effective competitor, an airline has to
have a base to enjoy the same benefits in terms of cost savings but also to offer a
comparable product in terms of wide network portfolio with a competitive schedule
which includes morning departure times
927
.
8.6.1.3. Brand awareness
(921) A base and accordingly market presence is also important to have sufficient brand
awareness at the base end of the route. According to Air Berlin, a new entrant should
have a base because of the "Need of a certain size to compete in Dublin / brand
920
See responses to question 43 of questionnaire Q1 - Competitors. See also Aer Lingus' response to
question 6 of the Commission's request for information of 2 August 2012.
921
Aer Lingus, response to question 6 of the Commission's request for information of 2 August 2012.
922
Lufthansa, response to question 43.1.1 of questionnaire Q1 – Competitors.
923
Agreed minutes of a conference call of 9 October 2012 with Lufthansa.
924
Lufthansa and Swiss, response to question 53 of Questionnaire Q1 – Competitors.
925
Agreed minutes of conference call of 11 October 2012 with Vueling.
926
Austrian Airlines, response to question 53 of questionnaire Q1 – Competitors.
927
Swiss, response to question 25 of questionnaire R4 – Competitors.
EN 211 EN
awareness."
928
According to Lufthansa, "an airline needs to have a certain number of
routes to increase customer awareness. The airline needs to be present on more than
one or two destinations so it can attract customers, especially business
customers".
929
8.6.1.4. A base allows for early morning departures and late arrivals
(922) Moreover, a base allows the new entrant to offer early morning departures and late
arrivals. Flybe indicates in this respect that "it would be essential to have a Dublin
base to ensure the new entrant could serve the Dublin market with early departures
and late arrivals."
930
It also indicates that while early morning departures can be
achieved by a 'night-stopped' fleet, establishing a base brings benefits from cost
efficiencies
931
. In the same line, Vueling indicates that "A base allows having an
early morning flight out, which is an important criterion for efficiency."
932
According
to Aer Arann, a base is necessary because "(…) you need to be able to operate the
morning slots to provide frequencies to the United Kingdom."
933
According to BA,
"Having a base ensures a convenient slot portfolio which is a requirement to be a
real competitive alternative."
934
8.6.1.5. The size of the base
(923) The size of the base that a new entrant would require depends on a number of
parameters, including inter alia the business model of the new entrant, the size of
demand for flights to and from the airport and the level of operations of the merged
entity (that is to say, more aircraft would be required for Dublin than for Shannon
and Cork). Given the fact that Aer Lingus' and Ryanair's bases at Shannon and Cork
airports are smaller, it is considered that an entrant could have a base with less
aircraft there
935
.
8.6.2. Entry from a base outside Ireland
(924) The results of the market investigation showed that some competitors considered that
it could be sufficient for a new entrant to have a base at the destination airport
936
.
(925) Loganair indicated that a financially sound operator with a strong home customer
base and a powerful brand could mount a potential challenge on routes to Dublin,
with the marketing expenditure to build some brand awareness in the Irish market. It
further indicates that for example on the Dublin – London route, a United Kingdom-
based operator would be a strong competitor providing home market advantages for
928
Air Berlin, response to question 53 of questionnaire Q1 – Competitors.
929
Lufthansa, response to question 25 of questionnaire R4 – Competitors.
930
Flybe, response to question 53 of questionnaire Q1 – Competitors.
931
Flybe, response to question 25 of questionnaire R4 – Competitors.
932
Agreed minutes of conference call of 11 October 2012 with Vueling.
933
Aer Arann, response to question 25 of questionnaire R4 – Competitors.
934
IAG, response to question 25 of questionnaire R4 – Competitors.
935
See also the response of Flybe to questions 27 and 29 of questionnaire R4 – Competitors.
936
See responses to question 53 of Questionnaire Q1 – Competitors; responses to questions 25, 27 and 29
of Questionnaire R4 – Competitors and responses to questions 32, 34 and 36 of Questionnaire R5 –
Charter Airlines.
EN 212 EN
flights to Dublin
937
. LOT indicates that "a new entrant needs a base or a hub at the
other end of a relevant route to have connecting traffic. It will be very difficult to
compete on point-to-point traffic with the merged Ryanair/Aer Lingus."
938
TAP goes
on to indicate that "Being a relatively small point-to-point market, it is unlikely that
any scheduled carrier will operate a route if it doesn't have a base on one of its
ends."
939
It also indicates that there may be a competitive advantage at the other end
of the route that surpasses the advantage at the Dublin end of the route. Alitalia
makes a distinction according to the plans of the new entrant. It indicates that "In
order to be an effective competitor on all routes, a carrier should establish a base at
Dublin airport. In order to be a competitor on a few routes it is not necessary to do
so, even if it should be convenient from an economic point of view (cost savings,
economies of scale, etc…)."
940
Wizz Air indicates that it currently serves six intra-
European routes from Cork
941
and that all these routes are served from the other end
of the route. It indicates nevertheless that to operate longer flights (such as to
Alicante) it would need a base in Ireland.
(926) The Commission does not dismiss the possibility that airlines with a base at the other
end of the route would in theory be in a position to constrain the merged entity to a
certain extent.
(927) However, as set out in Section 8.4.3.8, it is considered that competitors with a base at
the destination airports are not equally close competitors. In particular, the constraint
on the merged entity by an entrant with a base at the other end of the route would be
limited inter alia for the following reasons:
(928) An airline that operates flights to Dublin, Cork and Shannon from a base outside
Ireland would only offer a constraint on the merged entity on that specific route
while Aer Lingus currently competes with Ryanair on a variety of routes out of
Ireland.
(929) Moreover, an airline operating from a base outside of Ireland would likely only have
a limited market presence in Ireland and would thus lack a strong brand in the Irish
market, while it would often have a strong brand in its home base. This would be a
disadvantage compared to Ryanair and Aer Lingus, which have strong brands in the
Irish market
942
.
(930) Also, given that airlines with a base at the other end of a route are likely to operate
only one or very few routes from Ireland, they would be unlikely to show the same
level of commitment to routes to and from Ireland.
(931) They would also not have the same ability and incentives to adjust capacity to react
to shifts in demand as Ryanair and Aer Lingus have on routes ex Ireland, and if they
937
Loganair, response to question 53 of questionnaire Q1 – Competitors and to question 25 of
questionnaire R4.
938
LOT, response to question 53 of questionnaire Q1 – Competitors.
939
TAP, response to question 53 of questionnaire Q1 – Competitors.
940
Alitalia, response to question 25 of Questionnaire R4 – Competitors.
941
It is thereby noted that Wizz Air has meanwhile decided to exit three of these routes.
942
See also section 8.5.2.4 in this respect.
EN 213 EN
do, this would typically be limited to the route or the small number of routes they
currently operate to Ireland.
(932) Finally, network carriers operating flights to Ireland from their hub in their home
country would likely be interested in connecting passengers to feed flights from their
hub, while they would compete for point-to-point passengers only to a lesser extent.
(933) The 2010 Judgement already noted that Ryanair's arguments were unable to
contradict the conclusion that "potential entrants with a base at the other end of a
route face disadvantages."
943
(934) It is thus unlikely that an airline with a base at the other end of the route would in
general be an equally close competitor to the merged entity as Ryanair and Aer
Lingus currently are.
8.6.3. Non base-related entry
(935) The need to have base operations in order to be an effective competitor to the Parties
is also corroborated by the limited activities of competitors on non-base routes.
(936) As set out in the 2007 Decision, the most common option
944
of non-base point-to-
point flights are so-called "W" or "triangular" flights. On such a W-flight, the aircraft
first flies from its base to a non-base destination. Instead of returning to the base, the
aircraft then flies one or several times to another non-base destination (for example a
destination a shorter distance away to use the weak demand over lunchtime) during
the day and only returns to the base in the evening
945
.
(937) Out of a total of 1,318 routes in summer 2012, Ryanair operates 26
946
routes on a
“W” or triangular pattern (that is to say, less than 2%). These routes account for
approximately 1.4% of Ryanair’s flights in the summer 2012
947
. A paper prepared in
November 2011 by RBB Economics at the request of Ryanair on the subject of
"airline bargaining power at the airport of Stansted" shows that Ryanair considers
that there are significant costs associated with operating such routes. In particular it
is indicated that one of the main operational costs associated with this model relates
to the difficulties of changing crews between rotations. Another cost derives from the
fact that there is less scope to react when things go wrong, which can translate into
significant delays and complications due to crew flight time limits. As a result of
943
Paragraph 271 of the 2010 Judgement.
944
Aircraft may also be flown in empty to the starting point of the route from a base in the morning and
return empty in the evening, however, with additional costs; aircraft may also be parked over night at
destinations where a carrier has no base (this however involves additional costs such as hotel expenses
for the crew, technical support at non-base airport and others).
945
Recital 573 of the 2007 Decision.
946
In its response to question 29 of the Commission's request for information of 11 July 2012, Ryanair
refers to 28 "W" routes out of a total of 1,318 routes in summer 2012 and in its response to question 25
of the Commission's request for information of 11 July 2012, Ryanair lists 27 "W" routes. This would
however have no material impact on the proportion of "W" routes remaining - which would be around
2% of the total number of routes.
947
Ryanair's response to question 7 of the Commission's request for information of 6 August 2012.
EN 214 EN
these significant costs, Ryanair operates W routes only as a strategic investment in
building up potential base airports
948
.
(938) In the merger case Olympic/Aegean, Ryanair stated: "It is Ryanair’s policy to avoid
routes that do not have a base at either end of the route, given that such routes
introduce complexity to operations and increase the risk of so-called knock-on delays
to the system.”
949
(emphasis added)
(939) The results of the market investigation correspond to the above and show that
competitors in general tend not to operate to a significant extent routes without a
base at either end of the route.
(940) In particular while several competitors state that they operate on routes with no base
at either side,
950
the proportion of routes and of passengers transported on routes
without a base at either end exceeds 5% for only two airlines (Volotea and Wizz
Air)
951
.
(941) Companies typically operate on these routes only when it could not justify incurring
the costs involved in establishing a base in either airport, for example where the
market is niche or where there is only seasonal demand for the route.
(942) Wizz Air considers that W flights allow market development and testing
952
.
(943) On the other hand it was indicated by carriers that do not operate routes in the Union
without having a base at either end that operating on a route without a base at either
end would lead to significantly higher costs. Reference is made to a number of
factors, including increased operational risk whereby it is more difficult to handle
unforeseen disruptions without a base, higher complexity and cost of crew
changeover, higher costs because of the impossibility of self-supplying some of the
related ground services or getting volume discounts and higher marketing and sales
cost in general
953
.
(944) Swiss explains that "Operating routes with no base at either end of the route result in
higher production costs and operational complexity
954
". Also, Thomas Cook
considers that there are two main disadvantages of having W flights: "they imply a
significant crew cost and increase impact when delays occur (A delay on one leg
causes delays on the subsequent legs and such delays are difficult to recover)."
955
948
RBB Economics, "Ryanair: assessment of Airline Bargaining Power at Stansted Airport", submission of
28 November 2001, available at http://www.caa.co.United
Kingdom/docs/5/rbb%20stansted%20final%20non-confidential%20version%2029%20Nov%2011.pdf
949
Commission Decision C(2011) 316 in Case No COMP/M.5830 – Olympic / Aegean Airlines, recital
752.
950
See responses to question 42 of questionnaire Q1 – Competitors.
951
See responses to question 33 of questionnaire R4 – Competitors and to question 40 of questionnaire R5
– Charter Airlines.
952
Wizz Air, response to question 42 of questionnaire Q1 – Competitors.
953
Aer Lingus', Germanwings and Swiss' response to question 42.2 of Questionnaire 1 – Competitors.
954
Swiss, response to question 42.2 of questionnaire Q1 – Competitors.
955
Agreed minutes of conference call of 5 october 2012 with Thomas Cook.
EN 215 EN
SAS explains that "it is difficult to operate on a route without having a base at one
end of the route."
956
(945) Competitors did not consider that triangular or W flights would be an economically
viable way for their company to enter routes to/from Dublin
957
, Cork, Shannon or
Knock
958
. The results of the market investigation did not reveal that entry or entry on
a sufficient scale could be expected through the use of triangular or W flights.
(946) The above shows that carriers use base airports and therefore that point-to-point
entry on a non-base route is unlikely to be sufficient to constrain the merged entity.
On the contrary, the market investigation showed that there are significant
disadvantages attached to operating such flights and that triangular or W flights
would not be an economically viable way for competitors to enter routes to or from
Dublin,
Cork, Shannon or Knock.
8.6.4. Conclusion
(947) Therefore, the Commission concludes that because of the various disadvantageous
attached to it, non-base related entry is unlikely to sufficiently constrain the merged
entity.
(948) Furthermore, the Commission acknowledges that while an entrant with a base
outside Ireland might in theory be in a position to constrain the merged entity to
some extent, such constraint would however be limited to the specific route or routes
on which the competitor would enter, and the entrant would likely be a less close
competitor to Ryanair and Aer Lingus (due to factors such as the limited market
presence and brand awareness in Ireland, the lack of early morning and late evening
flights, amongst others).
(949) The Commission considers that in order to act as an effective constraint of sufficient
scale on the merged entity on the routes to and from Dublin, Cork and Shannon
airports, a new entrant would need to establish a base at these airports, which would
allow it to enjoy the advantages resulting therefrom, to have a sufficient market
presence and brand awareness and to have an appropriate schedule with early
morning departures and late arrivals.
8.7. Entry plans by actual and potential competitors
8.7.1. Analytical framework
(950) Since new entrants would be confronted, post-Transaction, with a significant number
of barriers to entry in competition with the merged entity on the routes of concern, it
956
Agreed minutes of conference call of 5 October 2012 with SAS.
957
See responses to question 19 of questionnaire R4 – Competitors and responses to question 26 of
questionnaire R5 – Charter Airlines.
958
See responses to question 20 of questionnaire R4 – Competitors and responses to question 27 of
Questionnaire R5 – Charter Airlines, whereby it is noted that the charter airline Tui Travel indicated
that it operated W flights in winter from Cork and Shannon. Tui, response to questionnaire R5 – Charter
Airlines.
EN 216 EN
is necessary to examine to what extent post-Transaction entry would constrain the
merged entity.
(951) Ryanair claims that whether or not a new carrier commences service on an overlap
route, the credible threat of entry is sufficient to offset any incentive that the merged
entity might otherwise have to raise fares
959
.
(952) British Airways indicates that "(…) it is often easy to switch assets from one route to
another for network and p2p carriers providing there is a more profitable
opportunity. Therefore the threat of entry is always a competitive discipline."
960
Flybe considered that "The industry has good visibility of acheived load factors and
can assess competing carriers fare performance by route through web monitoring;
this provides the mechansims for market entry in the event of 'super-profits' being
achieved by incumbents."
961
However, a majority of competitors responding to the
question consider that a mere possibility of entry (that is to say, without the threat of
entry materialising) at Dublin, Cork, Shannon or Knock by competing airlines would
not discipline the merged entity if the Transaction took place
962
.
(953) For entry to be a sufficient competitive constraint on the merged entity, it must be
shown to be likely, timely and sufficient in order to offset the anti-competitive
effects of the Transaction.
(954) According to the 2010 Judgment, “the mere ‘threat’ of an entry, on which the
applicant relies, is not sufficient […] What counts is the prospect of an entrant which
offsets the anti-competitive effects specifically established in the contested decision
at that stage of the assessment”
963
.
(955) Hence, the Commission must ensure that entry is not only a theoretical and remote
possibility, but constitutes an immediate and actual threat to the merged entity. Entry
must exert a competitive constraint on the merged entity to such an extent that the
latter would refrain from any transaction-induced anti-competitive behaviour. It is
not necessary to show that entry is impossible on a given route to dismiss the
likelihood of entry as a countervailing factor. It is sufficient to establish that the
degree of likelihood of Transaction-induced entry is low or that the scope of the
expected entry is insufficient to counteract the anti-competitive effects of the
Transaction in all relevant markets. This is applicable in particular in the present
case, as Ryanair and Aer Lingus hold very large market shares and are considered as
very close (if not closest) competitors on all relevant domestic markets.
(956) Furthermore, in order to be a countervailing factor, entry should compensate for the
loss of competitive constraint that Ryanair and Aer Lingus would have exerted on
each other in the absence of the Transaction. A selective entry whereby competing
airlines either avoided competing with the merged entity or engaged in limited
959
Section 7.21 of the Form CO.
960
IAG, response to question 39 of questionnaire Q1 – Competitors.
961
Flybe, response to question 39 of Questionnaire Q1 – Competitors.
962
See responses to question 39 of Questionnaire Q 1 – Competitors.
963
Paragraph 239 of the 2010 Judgement.
EN 217 EN
selection of particular routes would not compensate for the loss of the competitive
constraint.
(957) In markets in which Ryanair and Aer Lingus reach very large market shares or even
create monopoly, a remote likelihood of entry cannot be sufficient to dismiss the
Commission's competition concerns. In such a situation, the significant impediment
to effective competition cannot be dismissed without clear indications that actual or
potential entry would constrain the merged entity’s behaviour on relevant city-pairs.
8.7.2. General context
(958) The economic and financial crisis has affected Member States and in particular
Ireland. The sluggish economic environment in Ireland and also in other member
States relevant for the assessment of the Transaction, in particular Spain and the
United Kingdom, does not appear as conducive to entry
964
. Moreover, the results of
the market investigation show that the Irish market is still considered by many
carriers as an unattractive market. This constitutes a barrier to entry and it is against
this background that any entry plans must be assessed (see in particular Sections 8.1
and 8.5.2.8).
8.7.3. Analysis of entry projects by actual and potential competitors
(959) In this context, the Commission analysed whether potential competitors have entry
and expansion plans on an individual basis or an aggregate level, which would be
sufficient to offset the anti-competitive effects of the Transaction on the routes of
concern.
(960) Airlines constantly monitor their existing routes and explore possible opportunities
on new routes that would complement their portfolio. For example, Alitialia indicates
that its subsidiary Air One "would, in principle, be interested in operating flights on
some of the routes indicates in the Commitments"
965
. Such monitoring or general,
remote and inconcrete interest in itself is not sufficient to establish that timely and
likely entry of a carrier would take place on a given route. There are overall no
indications that other airlines, wheter they be full service, low cost or charter airlines,
have concrete and timely entry or expansion plans.
(961) It is worth noting in this regard that, in the context of the remedies discussions, IAG
mentioned that, if it manages to acquire full control over Vueling, which it hopes to
do in 2013, it "(…) would look across the Group for growth opportunities […]*"
966
.
IAG was however not in a position to provide any specific details in this regard and
indicated that the decision to enter a given route will depend on a number of factors,
in particular the supply and demand features of the route and the return that could be
expected
967
. It moreover indicated that at least one additional condition for IAG to
964
The impact of the crisis on air transport is evidenced for instance by the significant reduction in traffic
at Dublin Airport, which has fallen by 20%, from 23.3 million passengers in 2007 to 18.7 million in
2011. See Form CO, paragraph 7.14.
965
Alitalia's response to the Commission's request for information of 15 January 2013.
966
IAG's response to the Commission's request for information of 21 December 2012.
967
IAG's response to the Commission's request for information of 21 December 2012.
EN 218 EN
start operating with its own aircraft is that "current market and demand conditions in the
Irish market would have to improve"
968
.
(962) In its response to the market investigation Vueling indicated that if the Transaction
were to take place, it "would not enter on any of these routes. When Vueling analyses
a possible entry on a route, it looks in particular at the existing competitors. Ryanair
has an extreme low cost model. In addition, the merged entity will have a strong
market position in Dublin where it will represent about 80% of total traffic. This will
allow it to compete harsh with a new entrant by putting an interesting schedule and
low prices. Vueling feels that it cannot compete with this and that Ryanair could
push competitors out of the market". Vueling added that "even though being the
second lowest cost carrier in Europe, (Vueling) finds it very difficult to compete with
Ryanair where Ryanair has a strong position in a market. It considers it a very
aggressive competitor"
969
. Vueling also explained that it does not expect a growth in
demand between Ireland and Spain and that it would not be possible to perform a
profitable operation at Dublin Airport
970
. It also indicated that while brand plays a
significant role
971
, its own brand is perceived as weak on Irish routes. Furthermore,
in the context of the first market test, Vueling indicated that "As main Spanish
operator in the short-mid haul, all the routes from/to Spain are under evaluation
permanently. At this moment, we cannot set a timeframe for the launching of these
routes, but the deicision will be based on profitability analysis"
972
. Vueling clarified
in this context that it "expressed a mere potential interest in operating said routes.
This cannot be construed as any kind of commitment on our side to do so" (emphasis
added)
973
.
(963) To conclude, the Commission considers that the launch by IAG, including its
subsidiaries of its own services on the routes subject to this Decision is unlikely and
would in any event not take place in a timeframe relevant for the assessment of the
Transaction.
(964) Therefore, actual or potential entry by another carrier is unlikely to sufficiently
compensate for the substantial loss of competition between the Parties.
(965) It should also be noted that competing entry would have to occur on 32 overlap
routes where Ryanair have bases at both ends of the routes.
974
Entry in such
968
IAG's response to request for information of 21 November 2012, question 22.(c) and (d).
969
Agreed minutes of a conference call of 11 October 2012 with Vueling. This conference call took place
without any reference to a possible remedies package.
970
Vueling, response to question 33.1 of questionnaire Q1 – Competitors. This answer was given outside
the context of the remedies package.
971
Vueling, response to question 31 of of questionnaire Q1 – Competitors.
972
Vueling's response to the Commission's request for information of 18 December 2012.
973
Vueling's response to the Commission's request for information of 21 December 2012.
974
The 32 routes are: Dublin to London, Manchester (and Liverpool), Birmingham (and East Midlands),
Edinburgh, Glasgow, Bristol, Malaga, Brussels, Faro, Barcelona (and Girona and Reus), Milan,
Frankfurt, Rome, Madrid, Budapest, Alicante (and Murcia), Palma, Lanzarote, Stockholm, Gran
Canaria, Tenerife; Cork to London, Manchester (and Liverpool), Malaga, Barcelona, Faro, Alicante,
Lanzarote, Palma, Tenerife; and Shannon to London and Manchester (and Liverpool). On these routes,
16 already had a base at both ends in 2007. On the Dublin-Marseille route, there is no base at
destination (non-Irish end of the route) in 2012, while there was one in 2007. See Ryanair response to
the request for information of 15 August 2012.
EN 219 EN
circumstances would appear even more difficult. On the other hand, the mere
possibility of entry, would not discipline the merged entity according to the majority
of competitors.
975
8.7.4. Conclusion
(966) The Commission considers that the anti-competitive effects of the Transaction would
not be sufficiently compensated for by timely entry on an isolated route or even buy
expanded entry by carriers operating some routes to and from their home bases.
8.8. Treatment of routes exited by Ryanair and Aer Lingus after the announcement
of the Transaction
(967) Given the dynamic nature of competition in the airline industry, Ryanair and Aer
Lingus regularly open and close routes according to their performance and to their
overall strategy. In particular, Ryanair and Aer Lingus exited several routes, on which
they were competitors, since the public announcement of the Transaction in June
2012.
(968) The Commission analyses whether, for all routes, the exit of Ryanair or Aer Lingus
was related to the Transaction ("Transaction specific"). If the exit of a given route is
not found to be Transaction specific, that route is not be treated as an overlap
between the Parties for the purpose of the present competitive assessment.
8.8.1. Routes exited by Ryanair following the announcement of the Transaction
(969) Following the failure to resolve a contractual dispute with Verona airport, Ryanair
closed all flights from Verona on 13 October 2012
976
. Accordingly, it can be
concluded that Ryanair's exit from the Dublin-Verona route is not Transaction-
specific. As such, for the assessment of the Transaction, there is no competitive
overlap between Ryanair and Aer Lingus on those routes.
(970) For the purposes of the assessment of the Transaction, the Commission concludes
therefore that there is no actual competition between Ryanair and Aer Lingus on the
Dublin-Verona route.
(971) As exit took place very recently, in a cautious approach, no potential competition
issues will be considered on this route.
8.8.2. Routes exited by Aer Lingus following the announcement of the Transaction
(972) Having cited 'business reasons' as the basis of its decision, Aer Lingus is exiting the
Dublin-Krakow, and Dublin-Vilnius
977
routes following the announcement of the
Transaction.
975
See response to question 39 of questionnaire Q1 - Competitors.
976
Ryanair's response to question 14 of the Commission's request for information of 4 October 2012.
977
Aer Lingus' response to question 7 of the Commission's request for information of 14 August 2012.
EN 220 EN
(973) Accordingly, it can be concluded that Aer Lingus' exit from these four routes is not
Transaction-specific. As such, for the purposes of the assessment of the Transaction,
there is no competitive overlap between Ryanair and Aer Lingus on those routes.
(974) Therefore, for the purposes of the assessment of the Transaction, the Commission
concludes that there is no actual competition between Ryanair and Aer Lingus on the
Dublin-Krakow and Dublin-Vilnius routes.
(975) As exits took place very recently, the Commission concludes that no potential
competition issues will arise on these routes.
8.9. Actual competition
8.9.1. Methodology
8.9.1.1. General approach
(976) The route-by-route analysis is based on the data for the following IATA seasons:
summer 2011, winter 2011/2012, and summer 2012. In general, the Commission
considers that as operating conditions may vary significantly between winter and
summer seasons, in particular in terms of frequencies, analys must be conducted and
conclusions must be drawn on a seasonal basis.
(977) Ryanair provided Market Information Data Tape ("MIDT") data. MIDT data is based
on bookings through booking systems, known as Computerised Reservation Systems
("CRS") or Global Distribution Systems ("GDS") as traditionally used by travel
agents. MIDT data thus does not include directs sales made by the airlines through
their website. Further MIDT data does not include connecting passengers, but
comprises only point-to-point passengers. Ryanair has further provided data from the
Central Statistics Office ("CSO")
978
. This data includes all airlines, both scheduled
and charter, without distinguishing between connecting and non-connecting
passengers. Ryanair provided also frequency data from OAG. With regard to weekly
flight frequency, Ryanair provided the number of weekly flights for the respective
first week of the following three months of a summer season: April, July and
October, and the first week of January for the winter season
979
. These figures are
intended to represent a typical week of the summer peak period (July), the shoulder
period (April/October) and the winter peak period (January). In the route-by-route
analysis, the Commission has taken the frequency for the respective peak months of
the seasons, namely January and July as a general benchmark for conducting its
assessment.
(978) With regard to seat capacity, Ryanair provided the number of weekly seats for the
respective first week of the following three months of a summer season: April, July
and October, and the first week of January for the winter season
980
. These figures are
intended to represent a typical week in terms of capacity of the summer peak period
(July), the shoulder period (April/October) and the winter peak period (January).
978
http://www.cso.ie/en/surveysandmethodology/transport/aviationstatistics/ .
979
These numbers were only provided for scheduled flights, not for charter flights.
980
These numbers were only provided for scheduled flights, not for charter flights.
EN 221 EN
Ryanair calculated market shares based on seat capacity on the basis of OAG data for
January and July. In the route-by-route analysis, the Commission has taken the seat
capacity for the respective peak months of the seasons, namely January and July as a
general benchmark for conducting its assessment.
(979) In addition, Ryanair, in its comments regarding the Commission letter of facts of
December 14, 2012, provided for a limited number of routes figures based on the
capacity data from Innovata
981
and passenger numbers provided by the DAA for the
summer season 2012. Innovata is a dataset which primarily focuces on data for
scheduled carriers. Only some, but not all, charter airlines are included in its
schedules. Innovata is based on planned schedules and is not updated to reflect actual
operations following, for instance, last-minute cancellations or weather closures.
Innovata information reflects the information available at the point in time that the
schedule is run; any subsequent changes of schedules by airlines are not taken into
account
982
.
(980) The Commission regularly
983
endorses the use of MIDT data as the best available
proxy to estimate market shares. Accordingly, the Commission has relied on the
MIDT data for the purposes of market share analysis.
(981) However, Ryanair has contested the use of MIDT data
984
. Ryanair has argued that as
MIDT data only includes passengers that fly on the point-to-point route in question
with no connection flights, the shares of network carriers on point-to-point routes
was likely to be understated. Ryanair generally considers that frequency and capacity
data are a better indicator of market position.
(982) In order to take into account Ryanair's arguments and, in addition, the fact that MIDT
does not take into account direct sales made by the airlines through their website, the
market shares computed on the basis of the MIDT data were cross-checked by the
Commission with data provided by DAA, tracking the number of passengers flown
on the respective routes. With regard to this data, a distinction between point-to-point
passengers and connecting passengers was made in order to provide for true
comparability. However, in the DAA data, the distinction between connecting and
non-connecting passengers refers only to passengers that are making a connection at
Dublin, Cork or Shannon
985
. For this reason, the Commission has recomputed market
shares on the basis of the total passengers on major airlines taking into account the
share of connecting passengers for their routes ex-Dublin that were provided to the
Commission for the routes from Dublin to Frankfurt, Munich, Madrid, Paris, London
and Stockholm
986
. When material discrepancies were detected for capacity and
981
Innovata data correspond to the data from OAG used for the purposes of preparing Ryanair's annex
7.3(b), with the difference being that Innovata capacity data relate to the entire season while the OAG
capacity data used to complete the annex related to specific weeks.
982
DAA's response to the Commission's request for information of 7 January 2013.
983
Commission's Decisions of 30 March 2012 in Case No COMP/M.6447 – IAG/ BMI; 27 July 2010 in
Case No COMP/M.5889 – United Airlines/ Continental Airlines; 14 July 2010 in Case No
COMP/M.5747 – Iberia/ British Airways.
984
Ryanair's observations on Article 6(1)(c) Decision, footnote 19.
985
DAA's response to the Commission's request for information of 9 October 2012.
986
On the Dublin-Exeter route, Flybe has limited capacity market share and very small number of
connecting passengers, so that recomputation effect is not material.
EN 222 EN
passenger data for IATA summer season 2011 and for IATA winter season
2011/2012, both the market shares provided by Ryanair (based on MIDT) and those
based on the DAA data are indicated in the route-by-route analysis. For the IATA
summer season 2012, the Commission has indicated market shares based on
passengers relying on DAA's data, recomputed as explained above, in particular
because Ryanair did not provide data on passengers carried by the other airlines
active on all the overlapping routes of concern.
(983) As regards indirect services, the Commission relied on the MIDT data
987
and cross-
checked its accuracy during the market investigation. Considering the small numbers
of passengers using indirect services, the analysis shows that the Parties’ combined
market shares including indirect services would be similar to their combined market
shares taking into account only direct services.
(984) The Commission also acknowledges that frequencies constitute a relevant aspect to
be considered in the competition assessment of the overlap routes. For instance,
frequencies are an indicator for the quality of the services offered, and of the targeted
customers (that is to say, business passengers would in general require higher
frequencies than leisure passengers).
(985) However, the Commission considers that it is the assessment of market shares based
on point-to-point passengers that reflects most accurately the market power of the
competitors on a certain route as they mirror the interest of passengers on that route
and in the services provided by the chosen carrier.
(986) Moreover, the Commission has also considered market shares based on seat capacity
to be an additional indicator for the competition assessment. With regard to market
shares based on seat capacity, the Commission has taken into account DAA's data
based on real seat capacity offered by airlines for the full relevant season. For that
reason, DAA's data are more accurate than the data provided to Ryanair by OAG
which merely stem from frequency data and thus does not capture variations within a
season.
(987) In order to respect the confidentiality of DAA's data, market shares based both on
seat capacity and on passengers have been replaced by the standard ranges used by
the Commission. These ranges are adequate for the competition assessment.
(988) Finally, the Commission, in its assessment, also considered whether the different
types of information available to it indicated the same outcome and corroborated
each other. In that respect, market shares based on seat capacity may differ from
market shares based on passengers, as the load factor may differ between carriers.
8.9.1.2. Charter services
(989) Ryanair has not determined seat capacity and passenger volumes for individual
charter companies
988
. Moreover, no meaningful distinction could be made by
987
Ryanair's response to the Request for Information of September 20, 2012.
988
Ryanair's response to the request for information of 6 August 2012, paragraph 9.1. The only exceptions
relate to the Dublin-Gran Canaria and Dublin-Lanzarote routes, for which Ryanair provided in its
EN 223 EN
Ryanair between dry seats and other seats sold to tour operators and for package
holidays.
(990) The DAA dataset reports the full passenger numbers and capacity data of carriers
irrespective of whether the offered service is a "dry seat" or otherwise. Therefore, in
the computation of market shares based on capacity and passengers for charter
companies on the basis of DAA data, the Commission applied the very conservative
estimate that 20% of the passengers and seats
989
attributed to charter companies are
for the market for "dry-seats" on the basis of the responses of charter companies in
question
990
. This approach very likely overestimates the share of dry seats sold by
charter companies on any given route.
(991) For routes where a charter company operates, market shares based on DAA data
have been replaced by the standard ranges used by the Commission. These ranges are
adequate for the competition assessment.
(992) Ryanair provided imprecise charter frequencies only for the "peak months" of
January and July. On each route where according to Ryanair competition of charter
services is relevant, DAA data regarding the precise level of frequencies of the
Parties and of charter operators were gathered by the Commission.
8.9.2. Overview
(993) In general, the following 3 main groups of overlap routes with distinct characteristics
can be distinguished:
– monopoly routes;
– routes where other scheduled carriers operate;
– routes where charter carriers operate.
(994) Even though these main groups could be further subdivided according to a number of
criteria, they have common features.
8.9.3. No significant constraints exercised by indirect services
(995) Ryanair argues that depending on price and total travel time (including flight
duration and connecting time), indirect flights can be a feasible alternative for
passengers as they provide one-stop flights to the relevant destinations. Ryanair
stressed that this assessment is in line with the Commission’s previous Decisions,
comments on the Commission letter of facts of December 14, 2012, seat capacity data for one charter
company (Thomson). As apparent from Ryanair's response to the request for information of 7 January
2013, the Innovata figures do not distinguish dry seats from the total seat capacity offered by Thomson.
989
In detail, it is considered that 20% of all passengers travelling with a charter airline were "dry-seat"
passengers. Similarly, it is assumed that 20% of the seat capacity of charter airlines is attributed on a
"dry-seat" basis. The sale of "dry-seats" is taken into account for charter airlines on all the routes.
990
Agreed minutes of conference call of 5 October 2012 with Thomas Cook; agreed minutes of conference
call of 8 October 2012 with Monarch; agreed minutes of conference call of 5 October 2012 with TUI.
EN 224 EN
and Ryanair considers that this assessment applies equally to all routes where the
duration of a direct flight is around 3 hours or more
991
.
(996) According to Ryanair
992
, the ultra-low fares that it offers make these alternative
services less attractive to Ryanair’s typical consumer base than direct routes, but they
nonetheless are commonly offered to and purchased by travellers as an alternative to
direct flights, and thus will continue to represent a constraint on Ryanair and the
merged entity.
(997) However, the Commission considers that this argument is not supported by the
evidence collected during the market investigation.
(998) Ryanair and Aer Lingus both offer point-to-point scheduled air transport services.
Neither of them is member of an airline alliance and Ryanair does not have
interlining agreements with any other airline. Indirect services are not a matter of
business focus for them.
(999) [Ryanair's data and monitoring practices on indirect services]*
993
.
(1000) Aer Lingus does not monitor indirect services […]*. According to Aer Lingus,
indirect flight availability between two cities is not taken into account in Aer Lingus
yield management operations when setting the prices for its own direct flights
between the two cities
994
. Aer Lingus "does not consider the possibility of connecting
traffic to be a competitive constraint on the pricing of its own direct flights and
believes that essentially no passengers would substitute to indirect flights in the face
of an increase in the price of Aer Lingus’ or Ryanair’s direct flights. As a matter of
more general planning, if Aer Lingus identifies a significant volume of passengers
following an indirect itinerary, this would indicate unmet customer demand and may
prompt it to add capacity on the direct route or launch a direct route; but third party
prices on the indirect routing are not among the competitive parameters used by the
yield management team in setting Aer Lingus prices. Indeed the Aer Lingus team
does not monitor pricing on indirect services on any of the overlap routes using
Sabre or QL2 or otherwise."
995
(1001) Furthermore, there are only 11 routes where Ryanair argues specifically that the
merged entity would be constrained by indirect competitors: Dublin-Budapest,
Dublin-Fuerteventura, Dublin-Gran Canaria, Dublin-Lanzarote, Dublin-Malaga,
Dublin-Palma, Dublin-Rome, Dublin-Tenerife, Dublin-Warsaw/Modlin, Cork-
Lanzarote and Cork-Tenerife
996
. As regards, Cork-Lanzarote and Cork-Tenerife, the
991
Ryanair's response to the Commission's request for information of 26 September 2012, questions 9-15.
Ryanair initially claimed that indirect flights would constrain flights with a duration of less than three
hours, but in the later submission it has not any more developed this claim (paragraph 6.4 of the Form
CO).
992
Ryanair's response to the Commission's request for information of 26 September 2012, questions 9-15.
993
Ryanair's response to the Commission's request for information of 26 September 2012, questions 9-15.
994
Indirect flights may indirectly affect yield management operations in the case of city pairs where the
destination city is a hub airport: in these cases a share of the passengers carried on the route are on a leg
of their indirect flight and this affects supply demand balance on the route.
995
Aer Lingus' response to the Commission's Article 6(1)(c) decision, 28 September 2012, page 11.
996
Ryanair's response to the Commission's request for information of 20 September 2012.
EN 225 EN
data provided by Ryanair
997
does not show evidence of any indirect passengers. On 8
of these routes (Dublin-Budapest, Dublin-Fuerteventura, Dublin-Gran Canaria,
Dublin-Lanzarote, Dublin-Malaga, Dublin-Rome, Dublin-Tenerife and Dublin-
Warsaw Modlin), the percentage represented by indirect passengers is limited,
namely below [5-10]*%. The Dublin-Palma route is, according to the data provided
by Ryanair, the only route where indirect passengers would represent [10-20]*% of
all passengers. However, this estimate of [10-20]*% is likely not be fully accurate as
in particular it only concerns the IATA winter season 2011/2012 (compared to [0-
5]*% for the IATA summer season 2011) and corresponds to only 326 passengers. In
addition, further data provided by British Airways show no indirect passengers on
this particular route
998
. Furthermore, out of these 11 routes, the British Airways data
mention indirect passengers for only the Dublin-Budapest, Dublin-Rome and Dublin-
Warsaw/Modlin routes with a percentage of [0-5]*% or less for each of these 3
routes
999
. More generally, it is also British Airways' and Iberia's view that for the
Dublin-Budapest, Dublin-Fuerteventura, Dublin-Gran Canaria, Dublin-Lanzarote,
Dublin-Malaga, Dublin-Palma, Dublin-Rome, Dublin-Tenerife, and Dublin-
Warsaw/Modlin, and for European short-haul routes ex-Ireland in general, indirect
flights do not constrain direct flights
1000
.
(1002) In addition, as indicated by Ryanair
1001
, travel flight duration for indirect services is
much longer than direct flights on these 11 routes. These flights present the
disadvantage of being longer as a result of stopovers. Taking the Dublin-Budapest
route as an example, a direct flight (outbound) lasts 2 hours and 50 minutes with
Ryanair and 2 hours and 55 minutes with Aer Lingus. An indirect flight (outbound)
operated by Air France through CDG lasts 7 hours and 25 minutes (with a stopover
of 3 hours and 25 minutes) or, at the minimum, 4 hours and 25 minutes with
Lufthansa via Frankfurt (with a stopover of 45 minutes
1002
). As another example, the
same feature applies to the Dublin-Gran Canaria route, where an Iberia flight
(outbound) through Madrid lasts 11 hours and 15 minutes with a stopover time of 5
hours and 50 minutes. Ryanair's direct flight lasts 3 hours and 25 minutes while Aer
Lingus' direct flight takes 3 hours and 30 minutes.
(1003) Indirect flights appear also to be more expensive. According to Ryanair
1003
, as an
example, the price for a Dublin-Budapest direct flight with Ryanair is EUR 74.98,
compared to a direct flight with Aer Lingus at EUR 123, whereas the prices of the
other scheduled carriers with indirect services range from EUR 212.90 for Lufthansa
to EUR 570.75 for Air France. On the Dublin-Warsaw/Modlin route, the fares range
from EUR 51.98 for a direct flight with Ryanair, EUR 113.00 for a direct flight with
Aer Lingus to and indirect flight with LOT/Lufthansa with the highest fares at EUR
404.88. A similar situation occurs also on the Dublin-Gran Canaria route: Ryanair's
997
Annex Q.12(i) of Ryanair's response to the Commission's request for information of 4 October 2012.
998
British Airways, response to questionnaire Q1 – Competitors. Agreed minutes of conference call of 10
October 2012 with IAG.
999
British Airways, response to questionnaire Q1 – Competitors. Agreed minutes of conference call of 10
October 2012 with IAG.
1000
Agreed minutes of conference call of 10 October 2012 with IAG.
1001
Annexes Q.12(i) of Ryanair's response to the Commission's request of information of 4 October 2012.
1002
A stop-over of 45 minutes at Frankfurt airport might be challenging, considering possible delays,
transfer within the airport, etc.
1003
Annexes Q.12(i) of Ryanair's response to the Commission's request of information of 4 October 2012.
EN 226 EN
ticket is EUR 152.98 for a direct flight, Aer Lingus' is EUR 182.38 for a direct flight
and Iberia's ticket is EUR 415.90 for an indirect flight
1004
. Spot checks confirm such
finding: on the Dublin-Budapest route
1005
and the Dublin-Gran Canaria route
1006
:
direct flights are much cheaper than indirect flights. This is further confirmed by Aer
Lingus: "due to the intense competition between Aer Lingus and Ryanair, fares are
low and Aer Lingus believes that the prices of indirect flights would likely
significantly exceed those of direct flights, particularly given the cost disadvantages
faced by an airline in offering indirect flights (including multiple sets of airport
charges, ground-handling, etc.)"
1007
.
(1004) Moreover, as emphasised by Aer Lingus
1008
, the inconvenience of connecting
through a hub airport would be particularly significant for families with children, as
well as other categories of passengers such as the elderly for whom the experience of
connecting flights may be particularly burdensome. This is likely to be a relevant
factor on leisure routes such as the Dublin-Fuerteventura, Dublin-Tenerife, Dublin-
Gran Canaria, Dublin-Lanzarote, Dublin-Malaga, and Dublin-Palma routes.
(1005) On relatively short flights such as the Dublin-Budapest, Dublin-Rome, Dublin-
Warsaw/Modlin, Dublin-Malaga, and Dublin-Palma routes, all of which are below
3.5 hours, the additional time required for an indirect flight will be particularly
significant in proportion to the travel time of the direct flight.
(1006) It is therefore very unlikely that a customer would find an indirect flight more
convenient than any direct flight offered by Aer Lingus or Ryanair
1009
.
(1007) To conclude, the Commission considers that it is unlikely that indirect flights would
be able to sufficiently constrain the merged entity in its market behaviour, especially
concerning fare setting.
8.9.4. Monopoly routes
(1008) The Transaction would create a monopoly on 28 routes
1010
: Dublin-Alicante/Murcia;
Dublin-Berlin; Dublin-Bilbao/Santander; Dublin-Birmingham/East Midlands;
Dublin-Brussels/Charleroi; Dublin-Budapest; Dublin-Edinburgh/Glasgow; Dublin-
Fuerteventura; Dublin-Glasgow /Prestwick; Dublin-Manchester/Liverpool/Leeds;
Dublin-Marseille; Dublin-Milan/Bergamo; Dublin-Nice; Dublin-Rome
Fiumicino/Ciampino; Dublin-Tenerife; Dublin-Toulouse/Carcassonne; Dublin-
Venice/Treviso; Dublin-Vienna/Bratislava; Dublin-Warsaw/Modlin; Cork-
Alicante/Murcia; Cork-Faro; Cork-London; Cork-Manchester/Liverpool; Cork-
Tenerife; Knock-Birmingham/East Midlands; Knock-London; Shannon-
Manchester/Liverpool; and Shannon-London.
1004
Annexes Q.12(i) of Ryanair's response to the Commission's request of information of 4 october 2012.
1005
www.skyscanner.net, 24 October 2012.
1006
www.skyscanner.net, 24 October 2012.
1007
Aer Lingus, response to question 1.4 of questionnaire R4 – Competitors.
1008
Aer Lingus, response to question 1.4 of questionnaire R4 – Competitors.
1009
Aer Lingus, response to question 1.4 of questionnaire R4 – Competitors.
1010
Compared to 16 monopoly routes in the 2007 Decision.
EN 227 EN
(1009) Ryanair disagrees with the fact that Aer Lingus is its closest competitor on the basis
that the product offering of Ryanair and Aer Lingus would be significantly
differentiated in terms of fares, services and airports served
1011
.
(1010) However, the concept of closeness of competition is of limited added value for routes
on which from the outset only two competitors are active, since both competitors in a
duopoly are by definition each other's closest competitors
1012
.
(1011) On most of these routes, Ryanair and Aer Lingus operate all year round. Only 5 of
these monopoly routes (Dublin–Bilbao/Santander; Dublin-Marseille; Dublin–
Venice/Treviso; Cork-Alicante and Cork–Faro) can be considered as seasonal.
(1012) Despite Ryanair's contention to the contrary
1013
, the Commission does not consider
the Cork-Tenerife route as seasonal as both parties have operated during the IATA
summer seasons 2011 and 2012 as well as during the IATA winter season
2011/2012
1014
. The Commission also does not consider the Dublin-Budapest route as
seasonal as the number of passengers is significant enough on this route in both
seasons. As regards the Dublin-Nice route, the Commission treats this route as a year
round route because Aer Lingus operates in both the summer and the winter season.
In any event, the seasonality of a monopoly route cannot change the outcome of the
competitive assessment as the Commission has to ensure that customers of seasonal
routes would not be harmed. Such harm to consumers would stem from the
elimination of the only remaining competitor in the case of a merger leading to
monopoly.
8.9.4.1. Monopoly routes on airport-to-airport basis
(1013) Out of these 28 monopoly routes, the activities of Ryanair overlap with Aer Lingus
on 6 routes on an airport-to-airport basis on which the Commission has not identified
other relevant alternative airports.
1011
Paragraph 7.32 of the Form CO. Ryanair's observations on Article 6(1)(c) Decision, paragraphs 17-20.
1012
In the same line, see also OFT's findings in its decision No. ME/4694/10 at, paragraph 111: “On the five
routes referred to in paragraph 109, where Ryanair and Aer Lingus are the only operators, by the
nature of a duopoly, the OFT considers the carriers are likely to be closest competitors and the degree
of substitutability between them especially high”.
1013
Annex 7. 3. (a)(1) of the Form CO.
1014
DAA's response to the Commission's request of information of 26 July 2012.
EN 228 EN
Table 33: Monopoly routes for which there is no airport substitutability issue
Route
Total pax winter
season 2011/12
Total pax summer
season 2011
Seasonality
1.
Dublin-Berlin
[…]*
[…]*
Year round
service
2.
Dublin-
Budapest
1015
[…]*
[…]*
Year round
service
3.
Dublin-
Fuerteventura
[…]*
[…]*
Year round
service
4.
Dublin-Marseille
[…]*
[…]*
Summer only
5.
Dublin-Nice
[…]*
[…]*
Year round
service
1016
6.
Cork-Faro
[…]*
[…]*
Summer
only
1017
Source Annex 7.3.b and Annex 10 as updated on 22 August 2012, Annex 7.3(a)(i) of the Form CO of 24 July 2012
(1014) The Transaction would lead to a reduction in the number of carriers active on all
these routes from 2 to 1 and would give the merged entity a 100% market share. The
Transaction would therefore lead to a monopoly which would eliminate all existing
competition on these 6 routes.
(1015) On an additional 7 routes out of these 28 monopoly routes, although there is more
than one airport in the destination city, Ryanair and Aer Lingus fly to the same
destination airport ("airport pair overlap"). For some of them, the other airport is also
served by one of the Parties.
1015
These figures include passengers on Aer Lingus and Malev flights. Ryanair only recently entered on
this route and Malev exited from this route in February 2012.
1016
Ryanair only seems to operate in the summer seasons while Aer Lingus operates both in the summer
and in the winter seasons.
1017
Aer Lingus' operations in the winter season are extremely limited, Annex 7.3 (a)(i) of the Form CO.
EN 229 EN
Table 34: Monopoly routes for which there is an airport pair overlap
Route
Total pax
winter
season
2011/12
Total
pax
summer
season
2011
Seasonality
Airport to
which both
Ryanair
and Aer
Lingus fly
Name of the
Party or third
party who flies
to an
additional
airport
1.
Dublin-Alicante/Murcia
1018
[…]*
[…]*
Year round
service
Alicante
Ryanair
(Murcia)
2
Dublin-Birmingham/East Midlands
1019
[…]*
[…]*
Year round
service
Birmingham
Ryanair (East
Midlands)
3
Dublin-Edinburgh/Glasgow
1020
[…]*
[…]*
Year round
service
Edinburgh
Aer Lingus
(Glasgow)
4.
Dublin-Manchester/Liverpool/Leeds
1021
[…]*
[…]*
Year round
service
Manchester
Ryanair (Leeds
and Liverpool)
5.
Dublin-Tenerife
[…]*
[…]*
Year round
service
Tenerife
South
None
6.
Cork-Alicante/Murcia
[…]*
[…]*
Summer
only
Alicante
None
7
Cork-Tenerife
[…]*
[…]*
Year round
service
Tenerife
South
None
Source: Annex 7.3.b and Annex 10 as updated on 22 August 2012, Annex 7.3(a)(i) of the Form CO of 24 July 2012
(1016) The question of airport substitutability (such as substitutability of Alicante for
Murcia airport) could be relevant to entry projects by the Parties' potential
competitors. However, according to the outcome of the market investigation,
entry/expansion by competitors on these routes post-Transaction would not be likely,
timely and sufficient to constitute a competitive constraint on the merged entity and
offset the anticompetitive effects of the Transaction on these routes.
(1017) Therefore, on these 7 'merger-to-monopoly' routes, the question of airport
substitutability can be left open.
(1018) Indeed, irrespective of the precise market definition (that is to say, the actual overlap
on the Dublin-Alicante, Dublin-Birmingham, Dublin-Edinburgh, Dublin-Manchester,
Dublin-Tenerife South, Cork-Alicante or Cork-Tenerife South routes or the
alternative comprising also the other airports(s) as indicated in Table 34), the
Transaction would in any event lead to a monopoly which would eliminate all
existing competition on these 7 routes.
1018
These figures include Ryanair's and Aer Lingus' passengers on Dublin-Alicante as provided by Ryanair
in the updated Annex 10 of 22 August 2012. No figures were provided for Murcia.
1019
These figures include Ryanair's and Aer Lingus' passengers on the Dublin-Birmingham route and
Ryanair's passengers on the Dublin-East Midlands route as provided by Ryanair in the updated Annex
10 of 22 August 2012.
1020
These figures include Ryanair's and Aer Lingus' passengers on the Dublin-Edinburgh route and Aer
Lingus' passengers on the Dublin-Glasgow route.
1021
These figures include Ryanair's and Aer Lingus' passengers on the Dublin-Manchester route and
Ryanair's passengers on the Dublin-Liverpool and Dublin-Leeds routes as provided by Ryanair in the
updated Annex 10 of 22 August 2012.
EN 230 EN
8.9.4.2. Monopoly routes on city basis
(1019) On 15 out of the 28 monopoly routes, Ryanair and Aer Lingus fly from Ireland to
different airports at same destination cities as shown in Table 35:
Table 35: Monopoly routes for which there is a destination city overlap
Route
Total
pax
winter
season
2011/12
Total
pax
summer
season
2011
Seasonal
Airport to
which
Ryanair
flies
Airport to
which Aer
Lingus flies
1.
Dublin-Bilbao/Santander
[…]*
[…]*
Summer only
Santander
Bilbao
2.
Dublin-Brussels/Charleroi
[…]*
[…]*
Year round service
Charleroi
Brussels
3.
Dublin-Glasgow/Prestwick
[…]*
[…]*
Year round service
Prestwick
Glasgow
International
4.
Dublin-Milan/Bergamo
[…]*
[…]*
Year round service
Bergamo
Malpensa and
Linate
5.
Dublin-Rome
Fiumicino/Ciampino
[…]*
[…]*
Year round service
Ciampino
Fiumicino
6.
Dublin-Toulouse/Carcassonne
[…]*
[…]*
Summer only
1022
Carcassone
Toulouse
7.
Dublin-Venice/Treviso
[…]*
[…]*
Summer only
Treviso
Venice
8.
Dublin-Vienna/Bratislava
[…]*
[…]*
Year round service
Bratislava
Vienna
9.
Dublin-Warsaw/Modlin
1023
[…]*
[…]*
Year round service
Modlin
Warsaw
10.
Cork-London
1024
[…]*
[…]*
Year round service
Gatwick,
Stansted
Heathrow
11.
Cork-Manchester/Liverpool
[…]*
[…]*
Year round service
Liverpool
Manchester
12.
Knock-Birmingham/East
Midlands
1025
[…]*
[…]*
Year round service
East
Midlands
Birmingham
13.
Knock-London
1026
[…]*
[…]*
Year round service
Luton,
Stansted
Gatwick
14.
Shannon-London
1027
[…]*
[…]*
Year round service
Gatwick,
Stansted
Heathrow
15.
Shannon-Manchester/Liverpool
38 837
65 619
Year round service
Liverpool
Manchester
Source: Annex 7.3.b and Annex 10 as updated on 22 August 2012, Annex 7.3(a)(i) of the Form CO of 24 July 2012
(1020) However, as explained in depth in Section 7.3.3 above, air transport services from
Dublin, Cork, Shannon or Knock respectively to each of the airports listed above
belong to the same relevant market.
1022
Aer Lingus' operations in the winter season are limited. Aer Lingus did not have any scheduled services
to Toulouse during IATA winter season 2011/12. For IATA winter season 2012/13, Aer Lingus
operates one flight in November and one flight in March.
1023
These figures only include Aer Lingus' passengers as Ryanair started to operate on this route only in
2012.
1024
These figures include Ryanair's flights from Stansted and Gatwick and Aer Lingus' flights from
Heathrow and Gatwick. Note however that Aer Lingus will exit the Cork-Gatwick route as of IATA
Winter season 2012/13.
1025
These figures include passengers on bmibaby and Ryanair flights. Aer Lingus only recently entered on
this route and bmibaby exited from this route in June 2012.
1026
These figures include Ryanair's flights from Stansted and Luton and Aer Lingus' flights from Gatwick.
1027
These figures include Ryanair's flights from Stansted and Gatwick and Aer Lingus' flights from
Heathrow (and Gatwick but only for IATA Summer season 2011).
EN 231 EN
(1021) The Dublin-Glasgow/Prestwick, Cork-Manchester, Knock-Birmingham and
Shannon-Manchester routes are operated by Aer Arann under the Aer Lingus
Regional brand. As explained in Section 8.2, Aer Arann’s operations under the Aer
Lingus Regional brand must be attributed to Aer Lingus.
(1022) Therefore, the Transaction leads to an overlap between the Parties on these 15 routes.
The Commission concludes that the Transaction is likely to eliminate all existing
competition on these 15 routes and lead to a monopoly on each of these routes.
8.9.4.3. Entry
(1023) First, the Commission notes that there has been no sustained entry on these routes in
recent years. Centralwings entered the Dublin – Warsaw route in 2007, but exited the
route the following year. Also, Lufthansa entered the Dublin – Berlin route in April
2008 only to exit it again in September 2008. Moreover, there have been a number of
exit events by scheduled airlines. SkyEurope exited the Dublin – Bratislava route in
2008. LOT and Norwegian airlines exited the Dublin – Warsaw route in 2007. Luxair
exited the Dublin–Manchester route in 2007. Bmibaby exited the Cork – Manchester
route in 2010 and the Knock – Birmingham route in 2012. Malev exited the Dublin –
Budapest route in 2012.
(1024) Secondly, after assessing the evidence collected in the market investigation, the
Commission is of the view that no competitor would be likely to have post-
Transaction entry projects which could be considered as timely, likely and sufficient
enough to constitute a competitive constraint on the merged entity so as to offset the
anticompetitive effects of the Transaction.
8.9.4.4. Conclusion on the monopoly routes
(1025) The Commission therefore concludes that the Transaction is likely to significantly
impede effective competition in particular as a result of the creation of a dominant
position on the following 28 routes, where the merged entity would enjoy a
monopoly post-Transaction: Dublin-Alicante/Murcia; Dublin-Berlin; Dublin-
Bilbao/Santander; Dublin-Birmingham/East Midlands; Dublin-Brussels; Dublin-
Budapest; Dublin-Edinburgh/Glasgow; Dublin-Fuerteventura; Dublin-Glasgow
International/Prestwick; Dublin-Manchester/Liverpool/Leeds; Dublin-Marseille;
Dublin-Milan/Bergamo; Dublin-Nice; Dublin-Rome Fiumicino/Ciampino; Dublin-
Tenerife; Dublin-Toulouse/Carcassonne; Dublin-Venice/Treviso; Dublin-
Vienna/Bratislava; Dublin-Warsaw/Modlin; Cork-Alicante/Murcia; Cork-Faro;
Cork-London; Cork-Manchester/Liverpool; Cork-Tenerife; Knock-Birmingham/East
Midlands; Knock-London; Shannon-Manchester/Liverpool, and Shannon-London.
(1026) This conclusion also applies to the 7 merger to monopoly routes where the question
of airport substitutability can be left open (that is to say, Dublin-Alicante/Murcia;
Dublin-Birmingham/East Midlands; Dublin-Edinburgh/Glasgow; Dublin-
Manchester/Liverpool/Leeds; Dublin-Tenerife South; Cork-Alicante/Murcia and
Cork-Tenerife South) as the Transaction would in any event lead to a monopoly
which would eliminate all existing competition on these 7 routes.
EN 232 EN
8.9.5. Routes where other scheduled carriers operate
(1027) The Parties' activities lead to further overlaps on 7 routes on which other scheduled
carriers operate: Dublin-Bristol/Cardiff/Exeter; Dublin-Frankfurt; Dublin-London;
Dublin-Madrid; Dublin-Munich; Dublin-Paris and Dublin-Stockholm.
8.9.5.1. Dublin – Bristol/Cardiff/Exeter
(1028) The Commission left open the question of whether scheduled point-to-point
passenger air transport services between Dublin and BRS airport or CWL airport and
between Dublin and BRS airport or EXT airport belong to the same market
1028
. For
the sake of convenience, the Commission will present the various features of this
route by taking into account air transport services from Dublin to all these airports
(BRS airport, CWL airport and EXT airport). Such an approach does not impact the
Commission's assessment on the airport substitutability on this route
1029
.
– Route characteristics
(1029) On the Dublin-Bristol/Cardiff/Exeter route, […]* passengers travelled in IATA
summer season 2011 while […]* passengers travelled by air in IATA winter season
2011/12
1030
.
(1030) According to Ryanair
1031
, the nature of the route is a mix of business and leisure.
(1031) The route has no significant seasonal pattern
1032
.
(1032) […]* of Ryanair's passengers on the Dublin-Bristol/Cardiff/Exeter route originate in
Ireland
1033
.
– Parties' and competitors' operations
(1033) Both Parties
1034
operate on the route with non-stop services. Ryanair and Aer
Lingus/Aer Arann overlap on an airport-to-airport basis. Both Ryanair and Aer
Lingus/Aer Arann operate from Dublin to Bristol (BRS).
(1034) Aer Lingus started to operate from Dublin to BRS before 2004 and then exited in
March 2007. Aer Arann entered Dublin-Cardiff (CWL) in May 2010 and Dublin -
BRS in March 2011 and since then has been operating both segments under the Aer
Lingus Regional brand. Ryanair has been operating on the route since May 1997
1035
.
1028
Section 7.3.3.
1029
Section 7.3.3.18.
1030
Annex 7.3(b) of the Form CO (as revised on 22 August 2012). According to DAA data, [200 000 – 300
000] passengers travelled by air in IATA summer season 2011, [100 000 - 200 000] passengers
travelled by air in IATA winter season 2011/12 and [200 000 – 300 000] passengers travelled by air in
IATA summer season 2012.
1031
Annex 7.3(a) of the Form CO.
1032
Annex 7.3(a)(i) of the Form CO.
1033
Annex 7.3 (e) of the Form CO.
1034
As explained in Section 8.3, Aer Arann’s operations under the "Aer Lingus Regional" brand have to be
attributed to Aer Lingus.
1035
Annex 7.3(a) of the Form CO.
EN 233 EN
Ryanair operates a fleet of Boeing 737-800 aircraft
1036
. Aer Arann operates
turboprops ATR42-500
1037
.
(1035) Flybe has been operating from Dublin to Exeter (EXT) for around 15 years. Flybe
operates a fleet of Q400 aircraft with 78 seats and Embraer jet 88 aircraft with 112
seats
1038
.
– Frequencies
(1036) According to Ryanair, the weekly flights operated by the Parties and the only other
operating carrier on this route are as follows:
Table 36: Weekly flights between Dublin and Bristol/Cardiff/Exeter
Summer season 2011: Weekly frequency (1 way) July
Aer Lingus/Aer Arann
33
Ryanair
21
Combined
54
Flybe
6
Winter season 2011/2012:Weekly frequency (1 way)
January
Aer Lingus/Aer Arann
28
Ryanair
21
Combined
49
Flybe
4
Source: Annex 7.3 (b) as updated on 22 August 2012 and Ryanair's response to the Commission's
request for information of 25 and 26 October 2012
(1037) In IATA summer season 2011, Ryanair operated 21 weekly frequencies to BRS,
while Aer Lingus/Aer Arann operated 33 weekly frequencies to BRS and CWL
combined (namely, 20 weekly frequencies to BRS and 13 to CWL). In IATA winter
season 2011/2012, Ryanair operated 21 weekly frequencies to BRS, while Aer
Lingus/Aer Arann operated 28 weekly frequencies to BRS and CWL combined
(namely, 15 weekly frequencies to BRS and 13 to CWL). The Parties would
therefore have had combined 54 and 49 weekly frequencies for IATA summer
season 2011 and IATA winter season 2011/2012 respectively.
1036
Paragraphs 1.2 and 1.3 of the Form CO.
1037
Agreed minutes of conference call of 11 October 2012 with Aer Arann.
1038
Agreed minutes of conference call of 12 October 2012 with Flybe.
EN 234 EN
(1038) Apart from the Parties, Flybe operated a service between Dublin and EXT with 6
weekly frequencies in summer season 2011 and with 4 weekly frequencies in winter
season 2011/2012.
(1039) The weekly frequencies for the summer season 2012 for Ryanair amounted to 21 to
BRS, to 27 for Aer Lingus/Aer Arann to BRS and CWL combined (namely, 14
weekly frequencies to BRS and 13 to CWL), whereas for Flybe amounted to 6 to
EXT.
– Market shares - capacity
(1040) Table 37 indicates the market shares of the Parties and Flybe on the route on the
basis of seat capacity in IATA summer season 2011 and in IATA winter season
2011/12:
Table 37: Market shares for seat capacity
Carrier
Summer season 2011 (July)
Weekly Seats available
(1 way)
Parties' and
competitor's market
shares
Aer Lingus/Aer Arann
2 376
34%
Ryanair
3 969
57%
Combined
6 345
92%
Flybe
573
8%
Carrier
Winter season 2011/2012 (January)
Weekly Seats available (1 way)
Parties' and
competitor's market
shares
Aer Lingus/Aer Arann
2 016
32%
Ryanair
3 969
63%
Combined
5 985
95%
Flybe
304
5%
Source: Annex 7.3 (b) as updated on 22 August 2012 and Ryanair's response to the Commission's
request for information of 25 and 26 October 2012
(1041) According to Ryanair's data updated on 22 August 2012, the weekly capacity for the
summer season 2012 for Ryanair remained unchanged, with 3 969 weekly seats
(60%) to BRS. The weekly capacity for the summer season 2012 for Aer Lingus/Aer
Arann amounted to 1 944 weekly seats (29.5%) to BRS and CWL combined
EN 235 EN
(namely, 1 008 to BRS and 936 to CWL), whereas the weekly capacity of Flybe was
666 weekly seats (10.1%) to EXT. If only weekly seats between Dublin and BRS and
EXT are taken into account, Flybe's market share would be 12%.
(1042) According to DAA's data pertaining to the whole IATA summer season 2012, the
market shares based on seat capacity are the following: Ryanair [60-70%], Aer
Lingus [20-30%] and Flybe [5-10%]
1039
.
(1043) In its comments regarding the Commission Letter of Facts
1040
, Ryanair argued that
the ranges provided for capacity shares misrepresented the actual capacity shares of
the relevant airlines on this route for the IATA summer season 2012. However, as
stated in the Methodolgy Section of this Decision, the market shares provided by
DAA are replaced by the standard ranges used by the Commission. The suggestion
made by Ryanair to use 5% ranges instead of 10% ranges would in any event not
alter the Commission's conclusion
1041
.
(1044) It follows that the Parties would have had a very large market share in terms of seat
capacity of more than 80% in each of the three previous IATA seasons.
– Market shares based on passengers
(1045) Table 38 indicates the market shares of the Parties and the only other competitor
active on the route on the basis of passengers carried in IATA summer season 2011
and in IATA winter season 2011/12:
Table 38: Market shares for air services
Season
Total pax
Annex 7.3.b
Ryanair
market
share
Aer Lingus
Market
share
Combined
market
share
Flybe
Total
Summer season
2011
[…]*
1042
[50-60]*%
[30-40]*%
[90-100]*%
[5-10]*%
100%
Winter season
2011/2012
[…]*
1043
[60-70]*%
[30-40]*%
[90-100]*%
[5-10]*%
100%
Source: Annex 7.3 (b) as updated on 22 August 2012 and Ryanair's response to the Commission's
request for information of 25 and 26 October 2012
(1046) Furthermore, on the basis of DAA's data for IATA summer season 2012, the
combined market share of the Parties would amount to [90-100]% and of Flybe to [5-
10]%
1044
.
1039
DAA's response to the Commission's request for information of 3 December 2012.
1040
Ryanair comments on Commission Letter of Facts of 14 December 2012.
1041
Besides, Flybe's range is already within a 5 point interval.
1042
The number of passengers on Dublin-Cardiff was […]*. Flybe's share on a Dublin-BRS/EXT route
would be [5-10]*%.
1043
The number of passengers on Dublin-Cardiff was […]*. Flybe's shares on Dublin-BRS/EXT route
would be [5-10]*%.
EN 236 EN
(1047) It follows that the Transaction would lead to a monopoly on the Dublin-
Bristol/Cardiff route and to a reduction in the number of carriers operating on the
Dublin-Bristol/Exeter route from three to two and would give the merged entity a
very high combined market share of around 90% in terms of point-to-point
passengers carried on the route.
(1048) The Commission considers that such a high combined share on this route is in itself
evidence of a dominant market position.
– Closeness of competition
(1049) Ryanair has not identified any other competitor apart from Aer Arann on the Dublin-
Bristol route, in particular because Ryanair does not consider Exeter (where Flybe
operates) to be in the same product market
1045
.
(1050) Ryanair also argues that this route should not be treated as an overlap route because
Aer Arann should be considered as an independent carrier that competes not only
with Ryanair, but also with Aer Lingus. However, as explained in Section 8.2, it is
considered that Aer Arann is a competitor of Ryanair, but not of Aer Lingus and that
the market shares of Aer Arann have to be attributed to Aer Lingus for the purposes
of the competitive assessment.
(1051) Given that the market definition has been left open with respect to Bristol, Cardiff
and Exeter, the Commission will assess the closeness of competition between all
three carriers active on Dublin-Bristol/Cardiff/Exeter route that is to say Ryanair,
Aer Lingus and Flybe.
(1052) The Parties are the only carriers operating from Dublin to Bristol and Cardiff. They
are the closest competitors on the market defined as the Dublin-Bristol/Cardiff route.
(1053) It can also be observed from the frequencies, seat capacity and passenger data that
both Ryanair and Aer Lingus/Aer Arann are by far the largest competitors on this
route, even on the basis of a market definition, comprising flights from Dublin to
Bristol and Exeter. This is in itself a strong presumption that they are closest
competitors.
(1054) As regards closeness of competition on this route, the evidence collected in the
market investigation clearly confirmed that Ryanair and Aer Lingus are each other's
closest competitors. This was specified by the vast majority of competitors
1046
,
airports,
1047
travel agents
1048
and corporate customers
1049
.
(1055) Flybe is a large regional European airline operating scheduled, short-haul services on
a point-to-point and hub basis. Flybe operates a mid-frills business model, which
combines low-frills features, such as low-fare options, high levels of internet sales,
1044
DAA's response to the Commission's request for information of 3 December 2012.
1045
Annex 7.3(b) and Section 7.3.3.18 on market definition of the Form CO.
1046
See responses to questions 29 and 30 of questionnaire Q1 - Competitors.
1047
See responses to questions 22 and 23 of questionnaire Q4 - Airports.
1048
See responses to questions 14 and 15 of questionnaire Q2 - Travel agents.
1049
See responses to questions 14 and 15 of questionnaire R1 - Corporate customers.
EN 237 EN
on-board sales including purchased food and beverages with full-service
characteristics, such as pre-assigned seating, business schedules, IATA membership
and interlining and thus overall is closer to Aer Lingus/Aer Arann than to Ryanair.
Flybe also operates smaller aircraft (Q400 with 78 seats and E series jets with 88-112
seats), which are much smaller than Ryanair's (or Aer Lingus') aircraft
1050
.
(1056) According to Flybe: "For example, Ryanair has limited seat allocation, Flybe
allocates every seat, with a paid for choice of a specific seat if required. Ryanair
charge for check in, Flybe doesn’t. Flybe has a frequent flyer loyalty programme and
executive lounges, Ryanair does not. Flybe has a business class product, Economy
Plus and a premium product, New Economy, where additional benefits such as
baggage, lounge access and free changes to tickets are allowed, as well as free
vouchers for in-flight catering, Ryanair sells only one class of ticket. Flybe operates
aircraft where there is only 2x2 seating, with significantly more cabin space per
passenger than Ryanair’s 3x3 seating where 33% of passengers have to take a
middle seat"
1051
. Flybe also operates at lower load factors than Ryanair
1052
.
(1057) Furthermore, according to Flybe its business model is differentiated from Aer
Lingus': "Aer Lingus’s regional operations are conducted through Aer Arann as a
franchise of Aer Lingus. These are delivered by relatively old ATR turboprop aircraft
on routes that cannot justify Airbus operations due to their small scale. Again the
main proposition to the customer is price. From Flybe’s perspective, although both
Flybe and Aer Lingus operate several of the features such as frequent flyer
programme, business lounges and assigned seating, Flybe has a greater focus on
customer convenience, offering relatively high frequency flights to both major, but
importantly also smaller local airports where there is less emphasis on price"
1053
.
Internal documents of Flybe also indicate that Flybe considers that "In many ways,
there is little to differentiate between Ryanair and Aer Lingus"
1054
, while Flybe "is
able to offer a modern jet based product which is particularly relevant to the
business and time-sensitive customer segments which represent a significant portion
(c45%) of curent Flybe customer base"
1055
. The Commission's regression analysis
confirms and complements the conclusion derived from qualitative evidence that
Ryanair and Aer Lingus are close and closest competitors as described in more detail
in Annex III.
(1058) The Commission furthermore considers, as set out in Section 8.4, that the Parties are
each other's closest competitors on the Dublin-Bristol/Cardiff/Exeter route with
respect to Irish originating passengers, based on their high brand recognition in
Ireland, strong overall market positions and bases in Ireland.
1050
Aer Lingus mostly operates Airbus 320 and A321 (174-212 seats) and Ryanair operates Boeing 737-
800 (189 seats).
1051
Flybe, response to question 23 of Commission's request for information of 20 November 2012.
1052
Flybe, response to question 1 of Commission's request for information of 28 November 2012. Aer
Lingus, response to first Market test questionnaire, paragraph7.8.
1053
Flybe, response to question 1 of Commission's request for Information of 28 November 2012.
1054
Flybe, response to question 23 of Commission's request for Information of 20.11.2012.
1055
Flybe, response to question 12 of the first Market test questionnaire.
EN 238 EN
(1059) Flybe has confirmed that Ryanair and Aer Lingus/Aer Arann are the closest
competitors to each other on this route
1056
and has perceived Aer Lingus and Ryanair
to be the strongest brands in Ireland. Flybe has stated that it "does not have a very
strong brand in Ireland, as it only has a presence on two routes ex-Dublin, albeit for
many years"
1057
. The evidence collected in the investigation also shows that both
Ryanair and Aer Lingus enjoy strong brand recognition on the routes to and from
Ireland
1058
.
(1060) Flybe has no aircraft based in Dublin and therefore does not enjoy the same base
advantages as Ryanair and Aer Lingus on the Irish side of the route. Similarly, Flybe
does not exert the same level of constraint from its base in Exeter, as Aer Lingus and
Ryanair do on each other. Ryanair and Aer Lingus exert dynamic competition on
each other (that is to say, on a variety of routes) as they both have significant bases in
Dublin and a similar degree of flexibility to react to demand-side (or supply-side)
shocks. For Flybe, Dublin represents only one route to and from its base in Exeter,
and it is therefore less committed to adjusting its capacity to match fluctuations in
demand on the variety of routes from and to Dublin.
(1061) Furthermore, both Ryanair and Aer Lingus have the strongest city presence in Dublin
and therefore have an advantage in winning Irish-originating customers who
represent a significant share of passengers on the Dublin-Bristol/Cardiff/Exeter
route. The evidence collected in the market investigation shows that both Ryanair
and Aer Lingus carried a higher ratio of passenger originating in Ireland than Flybe
over the summer 2011 and winter 2011/2012 seasons: […]* % for Ryanair
1059
, [40-
50] % for Aer Lingus
1060
and [30-40] % for Flybe
1061
.
(1062) Therefore the Commission is of the view that, Ryanair and Aer Lingus are each
other's closest competitor on the Dublin-Bristol/Cardiff/Exeter route, irrespective of
the precise market definition. The Transaction would lead to the elimination of the
competitive rivalry existing between Ryanair and Aer Lingus, which has been an
important source of competition on this route, in particular for point-to-point
passengers.
– Entry and expansion
(1063) Ryanair argues
1062
that easyJet, Thomson and Eastern have a base at Bristol airport
and can enter the route at any time they wish and compete with the merged entity.
(1064) The route is subject to the general barriers to entry described in Section 8.5 and to the
assessment described in Sections 8.6 and 8.7.
1056
Flybe, response to questions 29 and 30 of the questionnaire Q1 - Competitors.
1057
Agreed minutes of conference call of 12 October 2012 with Flybe.
1058
See responses to questions 32.1-32.2 of the questionnaire Q1 - Competitors and Section 8.4.2 of this
Decision with respect to brand recognition.
1059
Annex 7.3(e) of the Form CO. Ryanair's passengers originating from Ireland (April 2011-March 2012).
1060
Aer Lingus, response to Annex II "Your data" to questionnaire Q1 - Competitors.
1061
Flybe, response to Annex II "Your data" to questionnaire Q1 - Competitors.
1062
Annex 7.3 (a) of the Form CO.
EN 239 EN
(1065) Moreover, ACL, the slot coordinator for British and Irish airports and Warsaw
Chopin airport, indicates runway and terminal constraints for Bristol airport
1063
.
(1066) The evidence collected in the market investigation indicates that no competitor
would have post-Transaction entry or expansion projects which could be considered
as timely, likely and sufficient enough to constitute a competitive constraint on the
merged entity and offset the anticompetitive effects of the Transaction on the Dublin
– Bristol/Cardiff/Exeter route, irrespective of the precise market definition.
– Conclusion
(1067) The Commission therefore concludes that the Transaction is likely to significantly
impede effective competition in particular as a result of the creation of a dominant
position in relation to the Dublin-Bristol/Cardiff/Exeter route, irrespective of the
precise market definition (that is to say, whether (i) scheduled point-to-point
passenger air transport services between Dublin and BRS airport or CWL airport
belong to the same market, in which case the Transaction would lead to a monopoly
or (ii) air transport services between Dublin and BRS airport or EXT airport belong
to the relevant market in which case the Transaction would lead to a duopoly in
which the Parties would have very high combined market shares).
(1068) Moreover, the Transaction is also likely to result in the elimination of the very close
competitive relationship between Ryanair and Aer Lingus/Aer Arann and thus to
eliminate the important competitive constraint that both carriers exert upon each
other pre-Transaction on the route. Customers' travelling options therefore would be
substantially reduced and it is unlikely that Flybe would be able to constrain the
merged entity's market behaviour sufficiently, especially with regard to fare setting,
on the Dublin-Bristol/Cardiff/Exeter route under any plausible market definition.
8.9.5.2. Dublin-Frankfurt
– Route characteristics
(1069) As set out in Section 7.3.3.6, the Commission takes the view that scheduled point-to-
point passenger air transport services between Dublin and FRA airport and Dublin
and HHN airport belong to the same market. On the Dublin-Frankfurt route, […]*
passengers travelled by air in IATA summer season 2011 while […]* passengers
travelled by air in IATA winter season 2011/12
1064
.
(1070) According to Ryanair, the nature of the route is a mix of business and leisure:
passengers flying to Frankfurt airport (FRA) were mainly business travellers, thus TS
passengers, while passengers flying to Frankfurt Hahn airport (HHN) were mainly
leisure travellers, thus NTS passengers
1065
.
1063
ACL, response to question 4 of questionnaire Q3 - Slot Coordinators.
1064
Annex 7.3(b) of the Form CO, as updated on 22 August 2012. According to DAA data, [200 000 – 300
000] passengers travelled by air in IATA summer season 2011, [100 000 – 200 000] passengers
travelled by air in IATA winter season 2011/12 and [200 000 – 300 000] passengers travelled by air in
IATA summer season 2012.
1065
Annex 7.3(a) of the Form CO.
EN 240 EN
(1071) The route has no significant seasonal patterns
1066
.
(1072) […]*. […]* of Ryanair's passengers originate from Ireland
1067
.
– Parties' and competitors' operations
(1073) Both Parties operate on the route with non-stop services. Ryanair and Aer Lingus
overlap on a city-to-city basis. Ryanair operates from Dublin to HHN and Aer
Lingus from Dublin to FRA.
(1074) Aer Lingus started to operate on the route before 2004, while Ryanair has been
operating on it since May 2005
1068
. Ryanair operates a fleet of Boeing 737-800
aircraft. For short-haul routes, Aer Lingus operates essentially a fleet of Airbus A
320 aircraft
1069
. Lufthansa has been operating on this route since before 2004 and
currently uses Airbus A 321 aircraft.
– Frequencies
(1075) According to Ryanair, the weekly flights operated by the Parties and the only other
operating carrier on this route are as follows:
Table 39: Weekly flights between Dublin and Frankfurt
Summer season 2011
Carrier
Weekly Frequency (1 way)
July
Aer
Lingus
14
Ryanair
4
Combined
18
Lufthansa
21
Winter season 2011/2012
Carrier
Weekly Frequency (1 way)
January
Aer
Lingus
13
Ryanair
4
Combined
17
Lufthansa
18
Source: Annex 7.3(b)(i) as updated on 22 August 2012 and Ryanair's response to the Commission's
request for information of 25 and 26 October 2012
(1076) In the IATA summer season 2011, Ryanair operated 4 weekly frequencies to HHN,
while Aer Lingus operated 14 weekly frequencies to FRA. In the IATA winter
1066
Annex 7.3(a)(i) of the Form CO.
1067
Annex 7.3(e) of the Form CO.
1068
Annex 7.3(b) of the Form CO, as updated on 22 August 2012.
1069
Paragraphs 1.2 and 1.3 of the Form CO.
EN 241 EN
season 2011/12, Ryanair operated 4 weekly frequencies to HHN, while Aer Lingus
operated 13 weekly frequencies to FRA. On the Dublin-Frankfurt route the Parties
would therefore have had combined 18 weekly frequencies for IATA summer season
2011 and 17 weekly frequencies for IATA winter season 2011/12.
(1077) Lufthansa operated a service between Dublin and FRA with 21 weekly frequencies
in the IATA summer season 2011 and 18 weekly frequencies in the IATA winter
season 2011/12.
(1078) The frequencies for the IATA summer season 2012 were 5 for Ryanair and 14 for
Aer Lingus, thus 19 weekly frequencies combined. The frequencies for Lufthansa
remained at 21.
– Market shares - capacity
(1079) Table 40 indicates the market shares of the Parties and the only other competitor
active on the route on the basis of seat capacity in the IATA summer season 2011
and the IATA winter season 2011/12:
Table 40: Market shares for seat capacity
Summer season 2011
Carrier
Weekly Seats available (1 way)
Market shares
July
Aer
Lingus
2 436
37%
Ryanair
756
11%
Combined
3 192
48%
Lufthansa
3 458
52%
Winter season 2011/2012
Carrier
Weekly Seats available (1 way)
Market shares
January
Aer
Lingus
2 262
36%
Ryanair
756
12%
Combined
3 018
48%
Lufthansa
3 276
52%
Source: Annex 7.3(b) as updated on 22 August 2012 and Ryanair's response to the Commission's
request for information of 25 and 26 October 2012
(1080) The weekly capacity for the IATA summer season 2012 indicated that Aer Lingus
offered 2 436 seats (34%) while Ryanair offered 945 seats (13%). The Parties'
combined weekly capacity thus increased to 3 381 seats (47%). Lufthansa's weekly
seat capacity for the IATA summer season 2012 also increased to 3 822 seats (53%).
The market share as regards the seat capacity has therefore not changed significantly.
EN 242 EN
(1081) It follows that post-Transaction the Parties would control in terms of shares of
capacity nearly half of the available seats in both IATA summer and winter seasons.
– Market shares based on passengers
(1082) Table 41 indicates the market shares of the Parties and of the only other competitor
active on the route on the basis of passengers carried in the IATA summer season
2011 and in the IATA winter season 2011/12:
Table 41: Market shares for air services
Season
Total pax
Annex
7.3.b
Ryanair
market
share
Aer
Lingus
Market
share
Combin
ed
market
share
Lufthansa
Total
Summer
season
2011
[…]*
[20-
30]*%
[40-
50]*%
[60-
70]*%
[30-40]*%
100%
Winter
season
2011/2012
[…]*
[20-
30]*%
[50-
60]*%
[70-
80]*%
[20-30]*%
100%
Source: Annex 7.3(b) as updated on 22 August 2012 and Ryanair's response to the Commission's
request for information of 25 and 26 October 2012
(1083) However, the Commission notes that the market shares for passengers as calculated
on the basis of the information provided by Ryanair are not in line (to the
disadvantage of Ryanair) with the market shares for passengers calculated on the
basis of the more accurate information provided by DAA. The market shares
calculated on the basis of the information provided by DAA would be the following:
Table 42: Market shares for air services on the Dublin-Frankfurt route
Season
Combined
market
share
Lufthansa
Summer
season
2011
[60-70]%
[30-40]%
Winter
season
2011/2012
[50-60]%
[40-50]%
Source: DAA's response to the Commission's request for information of 26 July 2012
(1084) Moreover, on the basis of DAA's data for IATA summer season 2012, the market
shares would remain similar to those of the previous winter season, namely
EN 243 EN
combined market share of the merged entity of [50-60%] and of Lufthansa of [40-
50%]
1070
.
(1085) Such a high combined share on this route is in itself evidence of a dominant market
position.
– Closeness of competition
(1086) Ryanair argues that Aer Lingus and Lufthansa are much closer competitors of each
other than each is to Ryanair on this route, in particular because they both operate
services to FRA, while Ryanair operates to HHN
1071
. Ryanair also argues that
product offering of Ryanair and Aer Lingus is significantly different in terms of fares
and services
1072
.
(1087) However, the finding that Aer Lingus, not Ryanair, is a closer competitor to
Lufthansa in certain respects would not in itself exclude the finding that on the
Dublin-Frankfurt route Ryanair and Aer Lingus are very close competitors, if not
each other closest competitors.
(1088) As regards closeness of competition, the responses to the market investigation are
divided in relation to the Dublin-Frankfurt route
1073
.
(1089) Lufthansa considers Aer Lingus to be a closer competitor to itself than Ryanair
"inasmuch as Aer Lingus' business model is closer to LH's business model"
1074
.
Lufthansa also considers that it is in direct competition with Aer Lingus as they serve
the same airports and the same customer segment
1075
. It is also apparent that Aer
Lingus is closer to Lufthansa in terms of the number of frequencies and overall seat
capacity
1076
. Lufthansa considered itself also to be the closest competitor of Ryanair,
but also of Aer Lingus based on its significant seat capacity
1077
. It further considered
itself to be competing with Ryanair in particular with regard to its NTS customers on
this route
1078
and with Aer Lingus for the same customer segment and the same
airports
1079
.
(1090) An equal number of competitors have indicated Aer Lingus and Lufthansa as the
closest competitor to Ryanair and slightly more competitors have considered
Lufthansa as the closest to Aer Lingus. The responses of airports were also largely
divided as to whether Aer Lingus or Lufthansa is a closer competitor to Ryanair,
1070
DAA's response to the Commission's request for information of 3 December 2012.
1071
Ryanair's observations on Article 6(1)(c) Decision, paragraph 7.
1072
Ryanair's observations on Article 6(1)(c) Decision, paragraph 18.
1073
When counting the replies, in cases where respondents have indicated several competing airlines as the
closest to Ryanair, on a conservative basis the Commission took into account all carriers that were
specified when counting the respective majorities (that is, where both Lufthansa and Aer Lingus were
indicated as the closest to Ryanair, each of Lufthansa and Aer Lingus were counted once).
1074
Agreed minutes of conference call of 9 October 2012 with Lufthansa, page 1.
1075
Lufthansa, response to questions 7.4 and 7.4.1 of questionnaire Q1 – Competitors.
1076
This is also reflected in Lufthansa's response to questions 29 and 30 of questionnaire Q1 - Competitors,
which is based on the highest seat capacity of Lufthansa.
1077
Lufthansa, response to question 29 of questionnaire Q1 - Competitors.
1078
Lufthansa, response to question 7.3.1 of questionnaire Q1 - Competitors.
1079
Lufthansa, response to question 7.4. 1 of questionnaire Q1 - Competitors.
EN 244 EN
while the majority considered that Ryanair is the closest to Aer Lingus. Most travel
agents considered Aer Lingus as the closest competitor to Ryanair, but the views
were equally divided as to whether Lufthansa or Ryanair is the closest to Aer Lingus.
The majority of corporate customers considered that Aer Lingus is the closest
competitor to Ryanair; the majority of corporate customers also indicated that
Lufthansa is the closest competitor to Aer Lingus.
(1091) It appears that the replies were largely split because the respondents based their
views on different criteria. For instance, they considered the following: (i)
Lufthansa's frequency of flights
1080
, (ii) the fact that Lufthansa has a significant seat
capacity
1081
and (iii) that Lufthansa has a strong network brand, a hub in Frankfurt
and that it provides connectivity from Frankfurt
1082
. . On the other hand those who
specified Aer Lingus and/or Ryanair as the closest competitors to each other have
based their views for example on the following: (i) the fact that several airlines
exited from the Irish market
1083
, (ii) on Ryanair's and Aer Lingus' frequency of
flights on the route
1084
, (iii) the fact that Lufthansa is more focused on business and
connecting traffic than the Parties
1085
, (iv) the fact that both Ryanair and Aer Lingus
are Irish operators
1086
. It can be observed that a number of respondents did not give
any explanations and many have specified all three carriers as the closest to each
other, despite Aer Lingus and Ryanair flying to different airports
1087
. Some specified
that Lufthansa's pricing is much more expensive than Aer Lingus'
1088
.
(1092) Despite these diverging responses to the market investigation, the Commission
considers that the Parties are very close competitors if not each other's closest
competitors on the Dublin-Frankfurt route. Although the Parties do not fly to the
same airport, it is apparent that Aer Lingus is a closer competitor to Ryanair in
comparison to Lufthansa, a full service carrier. In addition, Ryanair and Aer Lingus
also appear as very close competitor if not the closest competitors in terms of
services and business models.
(1093) Lufthansa’s business model is that of a traditional network carrier operating a hub
and spoke system as opposed to the models of Ryanair and Aer Lingus. Even though
Lufthansa serves the same airport in Frankfurt as Aer Lingus, Lufthansa is primarily
1080
See Pfizer, response to questions 14 and 15 of questionnaire R1 – Corporate customers.
1081
Lufthansa and Swiss International Airlines, responses to questions 29 and 30 of questionnaire Q1 –
Competitors.
1082
Flybe, response to questions 29 and 30 of questionnaire Q1 – Competitors; Priceline, response to
questions 14 and 15 of questionnaire Q2 – Travel Agents; lastminute.com, response to questions 14 and
15 of questionnaire Q2 – Travel Agents, Leeds Bradford International Airport, response to questions 22
and 23 of questionnaire Q4 – Airports.
1083
See Ebookers, response to questions 14 and 15 of questionnaire Q2 – Travel Agents.
1084
See lastminute.com, response to questions 14 and 15 of questionnaire Q2 – Travel Agents, Thomas
Cook, response to questions 29 and 30 of questionnaire Q1 – Competitors.
1085
See Aer Lingus, response to questions 29 and 30 of questionnaire Q1 – Competitors.
1086
See Loganair, response to questions 29 and 30 of questionnaire Q1 – Competitors.
1087
See responses of Alitalia, Germania, Eurolot, and SAS to questions 29 and 30 of questionnaire Q1 –
Competitors. See, also Belfast International Airport, Cardiff Airport, Flufhafen Frankfurt-Hahn Gmbh,
Peel Airports, responses to to questions 22 and 23 of questionnaire Q4 – Airports and Travelport
International, response to questions 14 and 15 of questionnaire Q2 – Travel Agents, Royal Bank of
Scotland and J&J, responses to questions 14 and 15 of questionnaire R1 – Corporate customers.
1088
Response of Kerry Group.
EN 245 EN
focused on feeding its medium and long-haul services in Frankfurt. The point-to-
point passengers carried on the route represent a smaller part of its activities, while
connecting passengers accounted for over 50% of total passengers for Lufthansa in
the last three IATA seasons
1089
. This compares to only [10-20] % for Aer Lingus
1090
.
Unlike Lufthansa, Ryanair does not carry connecting passengers.
(1094) In addition, Lufthansa concentrates more on business customers than does Aer
Lingus and Ryanair. Lufthansa operates a business cabin and offers refundable and
freely exchangeable classes of tickets. It has estimated that [80-90] % of its
passengers in the summer 2012 season were TS on this route
1091
. For Aer Lingus the
sales of flexi-fare and plus-fare tickets still represents a very small portion of its
overall sales. Aer Lingus does not operate business class cabins and confirms that it
"does not collect or possess data which enables it to distinguish between different
categories of passengers on its short-haul routes"
1092
. Similarly, Ryanair does not
specifically target business passengers.
(1095) Moreover, Lufthansa has a different model in terms of pricing. It sells only a very
limited amount of one-way tickets, including on the route at issue, as its pricing and
business models are based on return tickets
1093
. Ryanair and Aer Lingus both operate
true one-way pricing, and primarily sell a one class restricted ticket. According to
Aer Lingus on the Dublin –Frankfurt route in the event of a 5-10% price increase of
Ryanair's fares only "few passengers would switch to the scheduled airline operating
direct services, whilst significant numbers of passengers would switch to Aer Lingus.
[…] the scheduled carriers on these routes (all “flag carriers”) are often
significantly more expensive than Aer Lingus or Ryanair"
1094
.
(1096) According to Aer Lingus, Ryanair is also the closest competitor to Aer Lingus as
regards the number of frequencies on the days when both Ryanair and Aer Lingus
operate. Aer Lingus further explained that while it operates to the same airport as
Lufthansa, the Lufthansa operation includes double the frequency per day and is
considered a premium product. For Aer Lingus, due to the variances in frequency, its
primary competitor is Ryanair on the same day of operation, but analysts will follow
Lufthansa more closely on the days which Ryanair do not operate. Aer Lingus
monitors both and keeps fares closer to Ryanair where possible
1095
.
1089
Lufthansa, response to Annex II "Your data" of questionnaire Q1 – Competitors.
1090
Aer Lingus, response to Annex II "Your data" of questionnaire Q1 – Competitors.
1091
Lufthansa, response to Annex II "Your data" of questionnaire Q1 – Competitors.
1092
Flexi Fare offers refundability and free changes together with ancillary elements, but "flexi [fare] tickets
represent a very small portion of overall sales". Aer Lingus sales of flexi-fare and plus fare tickets
represent a very small portion of overall sales and that the sales of these ticket in any event would "not
accurately reflect the level of business / time sensitive passengers carried by Aer Lingus" (See email of
Aer Lingus dated 23 July 2012, Aer Lingus, response to question 8 of the Commission's request for
Information of 2 August 2012 and Aer Lingus, response to questions 1.1-1.4 of the Commission's
request for information of 20 July 2012).
1093
Agreed minutes of conference call of 9 October 2012 with Lufthansa, page 1.
1094
Aer Lingus, response to question 6.2.1 of questionnaire R4 – Competitors.
1095
Aer Lingus, response to the Commission's request for information of 20 September 2012.
EN 246 EN
(1097) The Commission's regression analysis shows that the conclusion derived from
qualitative evidence that Ryanair and Aer Lingus are close and closest competitors as
described in more detail in Annex III.
(1098) The Commission furthermore considers, as set out in Section 8.4, that the Parties are
each other's closest competitors on the Dublin-Frankfurt route with respect to Irish
originating passengers, based on their high brand recognition in Ireland, strong
overall market positions and bases in Ireland.
(1099) While Ryanair and Aer Lingus both enjoy strong brand recognition on the routes to
and from Ireland,
1096
according to Lufthansa its strong brand as a network carrier
does not give it an important advantage on the Irish side of a market: "for traffic ex-
Ireland [Lufthansa's brand is a] rather weak brand compared to Ryanair and Aer
Lingus as [there is a] rather small network to/from Ireland"
1097
. Similarly, according
to Aer Lingus, Ryanair remains its closest competitor on the Dublin-Frankfurt route:
"[t]his remains unchanged from the 2007 decision: as the strongest Irish carriers
Ryanair and Aer Lingus clearly enjoy the best brand recognition on routes into and
out of Ireland"
1098
.
(1100) Both Ryanair and Aer Lingus have the strongest city presence in Dublin and
therefore have an advantage in winning Irish-originating customers who represent a
significant share of passengers on the Dublin-Frankfurt route. The evidence collected
in the market investigation shows that both Ryanair and Aer Lingus carried a higher
ratio of passenger originating in Ireland compared to Lufthansa over the summer
2011 and winter 2011/2012 seasons: that is to say […]* % for Ryanair
1099
, [40-50] %
to [50-60] %
1100
for Aer Lingus and [20-30] % for Lufthansa.
1101
(1101) Furthermore, Lufthansa has only one overnight aircraft at Dublin airport, and
therefore does not enjoy the same base advantages as Ryanair and Aer Lingus on the
Irish side of the route. Similarly, Lufthansa does not exert the same level of
constraint from its hub in Frankfurt, as Aer Lingus and Ryanair do on each other.
Ryanair and Aer Lingus exert dynamic competition on each other on a variety of
routes as they have significant bases in Dublin and a similar degree of flexibility to
react to demand-side or supply-side shocks. For Lufthansa, Dublin represents only
one route from its destination hub, and it is therefore less committed to adjusting its
capacity to match fluctuations in demand on the variety of routes from and to Dublin.
As a network carrier, Lufthansa is more focused on connecting traffic to its hub
airports.
(1102) Therefore it is considered that Ryanair and Aer Lingus are very close competitors, if
not each other's closest competitors, on the Dublin-Frankfurt route. The Transaction
1096
See the responses to questions 32.1 and 32.2 of questionnaire Q1 - Competitors.
1097
See Section 8.4.2 on closeness of competition and responses of Lufthansa to questions 32.1-32.3 of
questionnaire Q1 – Competitors. Only [20-30]% of passengers for Lufthansa originated from Ireland in
the last three IATA seasons (see Lufthansa, response to Annex II "Your data" of questionnaire Q1 -
Competitors).
1098
Aer Lingus, response to questions 29, 30, and 32 of questionnaire Q1 – Competitors.
1099
Annex 7.3(e) of the Form CO. Ryanair's passengers originating from Ireland (April 2011-March 2012).
1100
Aer Lingus, response to Annex II "Your data" to questionnaire Q1 - Competitors.
1101
Lufthansa, response to Annex II "Your data" to questionnaire Q1 - Competitors.
EN 247 EN
would lead to the elimination of the competitive rivalry existing between Ryanair
and Aer Lingus, which has been an important source of competition on this route, in
particular for point-to-point passengers.
– Entry and expansion
(1103) According to Ryanair
1102
, given Lufthansa's overall size and its base in FRA,
Lufthansa is particularly well placed to compete with Aer Lingus and Ryanair on that
route, including by adding frequencies.
(1104) […]*
1103
, Ryanair argues that airlines with bases at the non-Irish end of the route
would enjoy every advantage associated with Ryanair and Aer Lingus having bases
in Dublin
1104
. This would apply to Lufthansa in FRA.
(1105) Furthermore, according to Ryanair
1105
, slots are freely available at both FRA and
HHN, so that any airline can begin operating services on this route. Moreover, Air
Berlin, Condor and Thomson operate bases at FRA and could thus freely enter the
route at any time they wish.
(1106) The route is subject to the general barriers to entry described in Section 8.5 and to the
assessment described in Sections 8.6 and 8.7.
(1107) There are no examples of an attempted new entry on the Dublin-Frankfurt route by
any other carrier than Lufthansa in recent years.
(1108) Moreover, FRA is a level 3 coordinated airport. While the airport operator Fraport
AG indicates that by opening a new runway in October 2011, there are presently no
airside restrictions
1106
, the Slot Coordinator FHKD nevertheless indicates that
capacity is reached during the arrival or departure peaks, while arrival slots would
still be available during departure peaks and departure slots would still be available
during arrival peaks, total capacity would be close to full during morning hours
1107
.
(1109) Furthermore, the evidence collected in the market investigation indicates that no
competitor would have post-Transaction entry or expansion projects which could be
considered as timely, likely and sufficient enough to constitute a competitive
constraint on the merged entity and defeat the anticompetitive effects of the
Transaction on the Dublin – Frankfurt route.
– Conclusion
(1110) The Commission therefore concludes that the Transaction is likely to significantly
impede effective competition in particular as a result of the creation of a dominant
position in relation to the Dublin-Frankfurt route.
1102
Ryanair's observations on Article 6(1)(c) Decision, paragraph 8.
1103
Annex 7.3 (e) of the Form CO.
1104
Ryanair's observations on Article 6(1)(c) Decision, paragraph 8.
1105
Ryanair's observations on Article 6(1)(c) Decision, Section II.A.7 and Annex 7.3.(a) of the Form CO.
1106
Fraport AG, response to question 14 of questionnaire Q4 – Airports.
1107
FHKD, Airport Coordination Germany, response to question 4.3 of questionnaire Q3 – Slot
Coordinators.
EN 248 EN
(1111) Moreover, the Transaction is also likely to result in the elimination of the very close
competitive relationship between Ryanair and Aer Lingus and thus to eliminate the
important competitive constraint that both carriers exert upon each other pre-
Transaction on the route. Customers' travelling options therefore would be
substantially reduced and it is unlikely that Lufthansa would be able to constrain
sufficiently the merged entity's market behaviour, especially with regard to fare
setting, on the Dublin-Frankfurt route.
8.9.5.3. Dublin – London
– Route characteristics
(1112) As set out in Section 7.3.3.7, the Commission takes the view that scheduled point-to-
point passenger air transport services between Dublin and the five London Airports
(LHR, LGW, LTN, STN, LCY) belong to the same market, while the question
whether SEN airport should also be treated as substitutable with the other London
Airports is left open.
(1113) On the Dublin-London route, […]* passengers travelled by air in the IATA summer
season 2011 while […]* passengers travelled by air in the IATA winter season
2011/12
1108
.
(1114) According to Ryanair
1109
, the nature of the route is a mix of business and leisure.
(1115) The route has no significant seasonal pattern
1110
.
(1116) […]*
1111
.
– Parties' and competitors' operations
(1117) Both Parties operate on the route with non-stop services. Ryanair and Aer Lingus
overlap on a city-to-city basis and on one airport pair. Ryanair operates from Dublin
to London Gatwick (LGW), to Stansted (STN) and to Luton (LTN) and Aer Lingus
from Dublin to London Heathrow (LHR) and Gatwick (LGW). Aer Arann operates
from Dublin to London Southend (SEN) under the Aer Lingus Regional brand.
(1118) Aer Lingus has been operating from Dublin to LHR since before 2004, from Dublin
to LGW since October 2007 and from Dublin to SEN (Aer Arann) since May 2012,
while Ryanair has been operating from Dublin to LGW since October 1994, from
Dublin to STN since June 1989 and from Dublin to LTN since May 1986
1112
.
Ryanair operates a fleet of Boeing 737-800 aircraft. For short-haul routes as Dublin-
1108
Annex 7.3(b) of the Form CO, as revised on 22 August 2012. According to DAA data, [1 500 000 – 2
000 000] passengers travelled by air in IATA summer season 2011, [1 000 000 – 1 500 000] passengers
travelled by air in IATA winter season 2011/12 and [1 500 000 – 2 000 000] passengers travelled by air
in IATA summer season 2012.
1109
Annex 7.3(a) of the Form CO.
1110
Annex 7.3(a) (i) of the Form CO.
1111
Annex 7.3 (e) of the Form CO.
1112
Annex 7.3(b) of the Form CO (as revised on 22 August 2012).
EN 249 EN
London, Aer Lingus operates essentially a fleet of Airbus A 320 aircraft
1113
. Aer
Arann operates a fleet of turboprops ATR42-500
1114
.
(1119) Air France/CityJet has been operating from Dublin to LCY since 2003. Air
France/CityJet has a base at Dublin airport and operates two 85 seater Avro RJ
aircraft on this route
1115
.
(1120) British Airways, one of the operating carriers of IAG, started operating the Dublin-
London route in March 2012, following the acquisition of bmi, which was operating
on the route. Before being acquired by British Airways, bmi, an independent
competitor controlled since 2009 by Lufthansa, operated from Dublin to LHR and
LGW before 2004 and to LCY since June 2008. bmi exited LGW and LCY in March
2009. On the Dublin-London route, British Airways operates a fleet of Airbus A320
and A319
1116
.
– Frequencies
(1121) According to Ryanair, the weekly flights operated by the Parties and the other
operating carriers on this route are as follows:
Table 43: Weekly flights between Dublin and the five London airports
Summer season 2011
Carrier
Weekly Frequency (1 way)
July
Aer Lingus
124
Ryanair
99
Combined
223
Bmi
34
CityJet
27
Winter season 2011/2012
Carrier
Weekly Frequency (1 way)
January
Aer Lingus
125
Ryanair
97
Combined
222
bmi
27
CityJet
26
Source: Annex 7.3 (b) as updated on 22 August 2012
1113
Paragraphs 1.2 and 1.3 of the Form CO.
1114
Agreed minutes of conference call of 11 October 2012 with Aer Arann.
1115
Agreed minutes of conference call of 11 October 2012 with Air France/CityJet.
1116
The Decision refers to bmi when dealing with IATA seasons preceding its acquisition by British
Airways (Commission's Decision of 30 March 2012 in Case No COMP/M.6447 – IAG/bmi).
EN 250 EN
(1122) During the IATA summer season 2011, Ryanair operated 47 weekly frequencies to
STN, 31 weekly frequencies to LGW, 21 weekly frequencies to LTN, while Aer
Lingus operated 89 weekly frequencies to LHR and 35 weekly frequencies to LGW.
During the IATA winter season 2011/2012, Ryanair operated 47 weekly frequencies
to STN, 31 weekly frequencies to LGW, 19 weekly frequencies to LTN, while Aer
Lingus operated 89 weekly frequencies to LHR and 36 weekly frequencies to LGW.
On the Dublin-London route, the Parties would therefore have had combined 223 and
222 weekly frequencies for the IATA summer season 2011 and the IATA winter
season 2011/2012 respectively.
(1123) Apart from the Parties, bmi operated a service between Dublin and LHR with 34
weekly frequencies in IATA summer season 2011 and 27 weekly frequencies in
IATA winter season 2011/2012 and Air France/CityJet operated from Dublin to LCY
with 27 weekly frequencies in IATA summer season 2011 and with 26 weekly
frequencies in IATA winter season 2011/2012.
(1124) The weekly frequencies for the summer season 2012 for Ryanair and Aer Lingus
combined amounted to 226 weekly frequencies (to the five London airports),
whereas the frequencies for Air France/CityJet amounted to 31 and for IAG (British
Airways) to 37. In addition, in IATA summer season 2012, Aer Arann under the Aer
Lingus Regional brand started operating to London Southend with 21 weekly
frequencies.
– Market shares - capacity
(1125) Table 44 indicates the market shares of the Parties and the other competitors active
on the route on the basis of seat capacity in IATA summer season 2011 and in IATA
winter season 2011/12:
EN 251 EN
Table 44: Market shares for seat capacity on the Dublin-London route
Summer season 2011
Carrier
Weekly Seats available (1 way)
Parties' and competitors' market
shares
July
Aer Lingus
21 918
47%
Ryanair
18 711
40%
Combined
40 629
87%
Bmi
4 010
9%
1117
Air
France/CityJet
2 214
5%
Winter season 2011/2012
Carrier
Weekly Seats available (1 way)
Parties' and competitors' market
shares
January
Aer Lingus
23 308
49%
Ryanair
18 333
39%
Combined
41 641
88%
Bmi
3 734
8%
Air
France/CityJet
2 132
4%
Source: Annex 7.3 (b) as updated on 22 August 2012
(1126) According to Ryanair's data updated on 22 August 2012, the capacity for the summer
season 2012 for Ryanair amounted to 18 900 (38.2%) and for Aer Lingus amounted
to 22 890 (46.3%). For the merged entity this gives a total of 41 790 (84.5%), while
the capacity for Air France/CityJet amounted to 2 287 (4.6%) and for IAG (British
Airways) amounted to 5 354 (10.8%). In addition, in the summer season 2012, Aer
Arann started operating to London Southend with a 966 seat capacity (2%)
1118
.
(1127) According to DAA's data pertaining to the whole IATA summer season 2012, the
market shares based on seat capacity are the following: Ryanair [30-40%], Aer
Lingus together with Aer Arann [40-50%], IAG [10-20%] and Air France [5-
10%]
1119
.
(1128) It follows that the Parties would have had a large combined market share in terms of
seat capacity of at least 70% or more in each of the three previous IATA seasons.
1117
The total amount is more than 100% due to the effects of rounding.
1118
If flights from Dublin to London Southend would not be part of the relevant market, the market shares
would be as follows: 38.9% (Ryanair), 45.2% (Aer Lingus), 4.7% (Air France/CityJet) and IAG (11%).
The merged entity would therefore have a market share of 84.1%.
1119
DAA's response to the Commission's request for information of 3 December 2012.
EN 252 EN
– Market shares based on passengers
(1129) Table 45 indicates the market shares of the Parties and the other competitors active
on the route on the basis of passengers carried in IATA summer season 2011 and in
IATA winter season 2011/12:
Table 45: Market shares for air services on the Dublin-London route
Season
Total pax
Annex 7.3.b
Ryanair
market
share
Aer
Lingus
Market
share
Combined
market
share
Other
airlines'
market
share
Total
Summer
season
2011
[…]*
[50-
60]*%
[30-
40]*%
[90-
100]*%
1120
[5-
10]*%
100%
Winter
season
2011/2012
[…]*
[40-
50]*%
[40-
50]*%
[90-
100]*%
[5-
10]*%
100%
Source: Annex 7.3 (b) as updated on 22 August 2012
(1130) However, the Commission notes that the market shares for passengers as calculated
on the basis of the information provided by Ryanair are not in line (to the
disadvantage of Ryanair) with the market shares for passengers calculated on the
basis of the more accurate information provided by DAA. The market shares when
calculated on the basis of the information provided by DAA would be the following:
Table 46: Market shares for air services on the Dublin-London route
Season
Combined market
share
Other airlines' market share
Summer
season
2011
[80-90]%
[10-20]%
Winter
season
2011/2012
[80-90]%
[10-20]%
Source: DAA's response to the Commission's request for information of 26 July 2012
(1131) Moreover, on the basis of DAA's data for IATA summer season 2012, the market
shares of the merged entity would amount to [80-90] % and the market share of the
other competitors active on the route would amount to [10-20] %
1121
.
(1132) Such a high combined share on the route is in itself evidence of a dominant market
position.
– Closeness of competition
1120
The small difference between the combined market share and the sum of Ryanair's and Aer Lingus'
market shares is explained by the effects of rounding.
1121
DAA's response to the Commission's request for information of 3 December 2012. The conclusion
remains the same even if flights to London Southend would not be part of the relevant market.
EN 253 EN
(1133) Ryanair argues
1122
that British Airways/bmi and Air France/CityJet are two
significant competitors on the Dublin-London route based on their combined market
shares of around 15% and of around 10% in terms of frequency and point-to-point
passengers respectively. Ryanair also claims that Aer Lingus is much closer to IAG
(British Airways), which also flies to LHR
1123
and that the product offering of
Ryanair and Aer Lingus is significantly different in terms of fares and services
1124
.
(1134) However, it can be observed from the seat capacity and passenger data that both
Ryanair and Aer Lingus are by far the largest competitors, which in itself is a strong
presumption that they are the closest competitors. Furthermore, as explained in
Section 8.9.1, market shares in terms of frequency are not the most accurate proxy
for assessing the market power of airlines, and all the more so if these airlines have
different business models and use very different types of aircraft in terms of capacity
- Air France/CityJet operates a fleet of RJ 85 aircraft with 95 seats, while Ryanair
and Aer Lingus both operate large aircraft.
(1135) As regards closeness of competition, the results of the market investigation also show
that Aer Lingus and Ryanair are indeed each other's closest competitors on the
Dublin-London route
1125
. The majority of competitors who responded to the market
investigation have indicated that Aer Lingus and Ryanair are the closest competitors
to each other
1126
. The same was confirmed by the majority of airports
1127
, travel
agents
1128
, and corporate customers
1129
. For example BAA Airports Limited
considers Ryanair and Aer Lingus to be each other's closest competitors on the
Dublin-London route by reason of the frequency offered on the route and the
closeness of the ticket price.
1130
The same was confirmed by the National Consumer
Agency of Ireland
1131
.
(1136) The Commission does not contest the view that Aer Lingus, not Ryanair, is a closer
competitor to IAG (British Airways) and Air France in view of their business
models, especially given that Aer Lingus positions itself between Ryanair and full
service carriers as a value-carrier. However, this does not exclude the finding that
Aer Lingus remains the closest competitor to Ryanair.
(1137) It is also apparent that Aer Lingus is a closer competitor to Ryanair in comparison to
IAG (British Airways) and Air France/CityJet. In addition and despite the fact that
both IAG (British Airways) and Aer Lingus operate to London Heathrow airport,
1122
Ryanair's observations on Article 6(1)(c) Decision, paragraph 12.
1123
Ryanair's observations on Article 6(1)(c) Decision, paragraph 12.
1124
Ryanair's observations on Article 6(1)(c) Decision, paragraph 18.
1125
When counting the replies, in cases where respondents have indicated several competing airlines as the
closest to Ryanair, on a conservative basis the Commission took into account all carriers that were
specified when counting the respective majorities (e.g., where both British Airways and Aer Lingus
were indicated as the closest to Ryanair, each of British Airways and Aer Lingus were counted once).
1126
Responses to question 30 of questionnaire Q1 – Competitors.
1127
Responses to question 23 of questionnaire Q4 - Airports.
1128
Responses to questions 14 and 15 of questionnaire Q2 – Travel Agents.
1129
See responses to questions 14 and 15 of questionnaire R1 – Corporate Customers.
1130
BAA Airport Limited, response to questions 22 and 23 of questionnaire Q4 - Airports.
1131
National Consumer Agency, response to questions 8 and 9 of questionnaire Q6 - Consumer
Associations.
EN 254 EN
Ryanair and Aer Lingus appear as very close competitors if not each other's closest
competitors in terms of services and business models on this route.
(1138) Although IAG (British Airways) indicated both Ryanair and Aer Lingus as
competitors on the Dublin-London route
1132
, IAG (British Airways) is, unlike the
Parties, a full service network airline operating a hub-and-spoke model. IAG (British
Airways) offers both economy and business class on the Dublin-London route and
provides an integrated passenger product with additional services such as ticket
flexibility, complementary luggage transport, access to airports lounges, frequent
flyer programmes, on-board meals, seat allocation.
(1139) Furthermore, IAG (British Airways) operates a large network of medium and long-
haul services out of LHR and uses short-haul routes including Dublin-London to feed
its hub at LHR. The market shares of Aer Lingus' connecting passengers on this
route
1133
were in the range of [10-20] % over the last three IATA seasons, which is
lower than the share of connecting passengers for IAG (British Airways) on this
route, that is to say [30-40] %
1134
. While both Ryanair and Aer Lingus operate true
one-way pricing policy, IAG (British Airways) also sells return tickets and applies
"fare fencing"
1135
. Bmi used to operate a single cabin on this route (as do Ryanair and
Aer Lingus); however, IAG (British Airways) has now introduced a Club Europe
cabin (business class) in line with its other European routes
1136
. Generally, IAG
considers that both Ryanair and Aer Lingus "offer a practically identical service in
terms of product (typical low cost product / service). Both companies follow the same
business model […]"
1137
.
(1140) Air France/CityJet considers Aer Lingus, IAG (British Airways) and Ryanair as
competing on the Dublin-London route, the closest to Air France being Aer Lingus
followed by IAG (British Airways)
1138
. However, unlike the Parties, Air
France/CityJet is a scheduled full service carrier and point-to-point carrier operating
on short-haul routes
1139
. The services offered by CityJet on the Dublin-London route
are very distinct from those of Ryanair and Aer Lingus; for instance CityJet flies
with smaller aircraft (95 seats)
1140
. Although CityJet does not carry a significant
number of connecting passengers on this route, it is a specialised service provider,
operating to LCY only. As LCY is the closest airport to London city centre, CityJet
1132
IAG, response to questions 7.3, 7.4, 29 and 30 of questionnaire Q1 – Competitors.
1133
Aer Lingus, response to Annex II "Your data" of questionnaire Q1 - Competitors.
1134
IAG, response to Annex II "Your data" of questionnaire Q1 – Competitors.
1135
Agreed minutes of conference call of 11 October 2012 with IAG. IAG (British Airways) offers a variety
of fares. E.g., in Club Europe cabin IAG (British Airways) offers fully flex, Prem leisure (Saturday
night stay), prem redemptions fares. In Euro Traveller cabin, IAG (British Airways) offers fully flex,
semi-flex economy fares, long-haul transfer & late leisure return fares, group fares, and economy
redemptions. For Aer Lingus, the sales of Flexi-fares still represent an insignificant portion of overall
sales (Aer Lingus' response to the Commission's request for information of 3 July 2012, email of Aer
Lingus 23 July 2012 and Aer Lingus' response to the Commission's request for information of 20
September 2012.
1136
IAG's response to the Commission request for information of 24 October 2012.
1137
IAG, response to question 59 of questionnaire Q1 – Competitors.
1138
Air France/CityJet, response to questions 7.3, 7.4 of questionnaire Q1 - Competitors and agreed minutes
of 11 October 2012 with Air France/CityJet.
1139
Air France/CityJet, response to question 2 of questionnaire Q1 - Competitors.
1140
Air France/CityJet, response to questions 2 and 32.3 of questionnaire Q1 – Competitors.
EN 255 EN
targets mostly business travelers
1141
. However, the Commission also takes into
account that CityJet sells one-way tickets on the Dublin-London route.
(1141) Aer Lingus considers that it operates in direct competition with Ryanair on the
Dublin-LGW airport pair, but also reviews Ryanair fares on STN and LTN as
secondary comparisons
1142
. On the Dublin-LHR airport pair, where a close
competitor to Aer Lingus is IAG (British Airways)
1143
, Aer Lingus still monitors
Ryanair's operations from Dublin to LGW, from Dublin to STN and from Dublin to
LTN against its operations from Dublin to LHR
1144
. This indicates that Ryanair
represents an effective constraint on Aer Lingus' operations from Dublin to LHR.
Furthermore, according to Aer Lingus, CityJet is a distant competitor, as its fares can
be considered as one of the highest in the market and therefore not relevant for low-
fare monitoring
1145
.
(1142) Similarly, in Aer Arann's view
1146
Ryanair and Aer Lingus are the closest
competitors to each other on the Dublin-London route. Furthermore, Aer Arann
considers Ryanair as a competitor and monitors all competing routes with Ryanair.
(1143) These findings are in line with the situation that was prevailing in 2007: "British
Airways is a full service network carrier and CityJet is a carrier offering flights
aimed at business passengers to an airport situated near London city centre. Those
specific features mean that the business model and competitive capacity of those
undertakings is unlike those of Ryanair-Aer Lingus combined."
1147
(1144) The Commission's regression analysis confirms and complements the conclusion
derived from qualitative evidence that Ryanair and Aer Lingus are close and closest
competitors as described in more detail in Annex III.
(1145) The Commission furthermore considers, as set out in Section 8.4, that the Parties are
each other's closest competitors on the Dublin-London route with respect to Irish
originating passengers, based on their high brand recognition in Ireland, strong
overall market positions and bases in Ireland.
(1146) While Ryanair and Aer Lingus both enjoy strong brand recognition on the routes
from and to Ireland,
1148
CityJet considers indeed that its brand is mostly a business
focused brand on the London City network
1149
. Air France considers that Ryanair and
Aer Lingus both dominate the Irish market
1150
. IAG (British Airways) has strong
1141
Agreed minutes of conference call of 11 October 2012 with IAG, page 3.
1142
Aer Lingus, response to the Commission's request for information of 20 September 2012, page 4.
1143
Both IAG (British Airways) and Aer Lingus operate from Dublin to LHR airport.
1144
Aer Lingus, response to the Commission's request for information of 20 September 2012, page 4.
1145
Aer Lingus, response to the Commission's request for information of 20 September 2012.
1146
Aer Arann, response to question 22.1 of questionnaire Q1 – Competitors.
1147
Paragraph 341 of the 2010 Judgement.
1148
See responses to questions 32.1 and 32.2 of questionnaire Q1 - Competitors.
1149
Air France/CityJet, response to questions 32.3 of Questionnaire Q1 - Competitors.
1150
Agreed minutes of conference call of 11 October 2012 with Air France/CityJet.
EN 256 EN
brand recognition
1151
, but it has very limited activities on the routes out of Ireland
(that is to say, only Dublin-London, while Dublin-Madrid is operated by Iberia).
(1147) Both Ryanair and Aer Lingus have the strongest city presence in Dublin and
therefore an advantage in winning Irish-originating customers who represent a
significant share of passengers on Dublin-London route. […]* for Ryanair
1152
, [40-
50] % - [50-60]% for Aer Lingus
1153
, [20-30]%- [30-40]% for IAG (British
Airways)
1154
and [40-50]% for Air France
1155
.
(1148) Furthermore, IAG (British Airways) has only one overnight aircraft at Dublin
airport,
1156
and therefore does not enjoy the same base advantages as Ryanair and
Aer Lingus on the Irish side of the route. Air France/CityJet has based 3 lower
capacity aircraft (a fleet of three 95 seater RJ 85 aircraft) at Dublin airport, of which 2
serve the Dublin-London route
1157
. However due to lower seat capacity, CityJet would
have higher costs per passenger than Ryanair and Aer Lingus. The limited size of
CityJet’s operations at Dublin airport would not allow the CityJet to redeploy capacity
from one route to another in reaction to demand shift as in the case of Aer Lingus and
Ryanair. Ryanair and Aer Lingus exert dynamic competition on each other (that is to
say, on a variety of routes) as they have significant bases in Dublin and have a
similar degree of flexibility to react to demand-side or supply-side shocks. For IAG
(British Airways) and Air France/CityJet
1158
, Dublin represents only one route to and
from their destination hub, and they are therefore less committed to adjusting their
capacity to match fluctuations in demand on the variety of routes from or to Dublin.
Furthermore, network carriers are typically more focused on connecting traffic to
their hub airports.
(1149) Therefore it is considered that Ryanair and Aer Lingus are each other's closest
competitors on the Dublin-London route. They are both airlines operating essentially
point-to-point air transport services, and are not strongly specialised in business
traffic, as is the case for CityJet. Furthermore, Ryanair and Aer Lingus compete
head-to-head on the Dublin-LGW route, where the Transaction would lead to a
monopoly. Generally, the Transaction would lead to the elimination of the
competitive rivalry existing between Ryanair and Aer Lingus, which has been an
important source of competition on the Dublin-London route, in particular for point-
to-point passengers.
– Entry and expansion
(1150) According to Ryanair
1159
, IAG (British Airways), bmi regional, Flybe, easyJet, Wizz
Air, Virgin Atlantic and Air France have a base at one or more of the various London
1151
IAG, response to question 32 of questionnaire Q1 - Competitors and agreed minutes of conference call
of 10 October 2012 with IAG, Section II.
1152
Annex 7.3(e) of the Form CO.
1153
Aer Lingus, response to Annex II "Your data" to questionnaire Q1 - Competitors.
1154
IAG, response to Annex II "Your data" to questionnaire Q1 - Competitors.
1155
Air France/CityJet, response to Annex II "Your data" to questionnaire Q1 – Competitors.
1156
IAG, responses to questions 40, 43.1.3, 49.2 and 50 of questionnaire Q1 – Competitors.
1157
Agreed minutes of conference call of 11 October 2012 with Air France/CityJet
1158
See Section 8.4.3.4.
1159
Ryanair's observations on the decision opening the proceedings, paragraph 12.
EN 257 EN
airports or at Dublin, so they can enter or expand their services on the route at any
time.
(1151) […]*
1160
carriers based there would enjoy the same advantages as Ryanair and Aer
Lingus having bases in Dublin.
(1152) According to Ryanair
1161
, while LHR is slot constrained, slots are generally available
at the other relevant London airports, in particular at LTN and STN, so that entry
would not be constrained to a significant degree due to availability of slots at the
London end of the route.
(1153) The route Dublin-London is subject to the general barriers to entry described in
Section 8.5 and to the assessment described in Sections 8.6 and 8.7.
(1154) Moreover, ACL indicates runway and terminal constraints for STN, LGW and LTN
airports
1162
, in addition to the known congestion situation of LHR regarding lack of
slots and runway, terminal and stand constraints. BAA however considers that STN
generally does not have capacity constraints
1163
.
(1155) London Southend Airport indicates that the passenger terminal is constrained at peak
times due to the size of the building, in particular between 06.30 and 07.30
1164
.
(1156) In the recent Case M. 6447 IAG/bmi, it was concluded that LHR, LGW and LCY, as
fully coordinated airports, are slot constrained. In particular, LHR and LGW suffer
capacity constraints across the whole operating day, while LCY, although it is partly
slot constrained, suffers from other limitations, such as runway capacity as only
short-haul aircraft certified to operate at LCY are admitted
1165
.
(1157) The availability of slots has often been identified by competitors as a barrier to entry
at LHR, LGW and LCY
1166
. IAG (British Airways) considers that there are barriers
to entry or to expansion at LHR, LGW and LCY due to lack of slots available at
those airports
1167
. The fact that there is availability at other London airports would
only be relevant insofar as a potential entrant would be interested in flying to such
other airports.
(1158) IAG (British Airways) entered the route in March 2012 following it's acquisition of
bmi. British Airways increased its frequencies on this route for IATA winter season
212/2013: "We have now planned 1061 LHR-DUB departures and 1059 DUB-LHR
departures in W12"
1168
.However, IAG has indicated
1169
that even if "BA has since
1160
Ryanair's observations on the decision opening the proceedings, paragraph 12.
1161
Ryanair's observations on the decision opening the proceedings, paragraph 12.
1162
ACL, response to question 4 of questionnaire Q3 - Slot Coordinators.
1163
BAA, response to questions 14 and 15 of questionnaire Q4 – Airports. See also Commission's decision
of 30 March 2012 in Case No 6447 – IAG / bmi, Section 1.2 Airport congestion in London.
1164
London Southend, response to question 4 of questionnaire Q4 – Airports.
1165
Commission Decision of 30 March 2012 in Case No. COMP/M. 6447 - IAG/bmi, paragraph 1.2, page
42.
1166
See responses to Annex II "barriers to entry" of questionnaire Q1 – Competitors.
1167
IAG, response to Annex II (Your data) of questionnaire Q1 – Competitors.
1168
Email correspondence between the case team and IAG of 15 November 2012.
1169
IAG, response to question 52.1 of questionnaire Q1 – Competitors.
EN 258 EN
acquiring bmi re-entered the LHR/DUB and LHR/BFS routes", it "would not
currently devote more LHR slots to these routes as there are more profitable options
on other parts of the network. Therefore absent a slot remedy on LHR BA would not
expand significantly its service on these routes nor enter other Irish routes from
LHR." IAG also mentioned
1170
that Iberia "is not interested in entering any other
DUB routes." However, this new player on the Dublin-London route cannot exert the
same level of competitive constraint as that exerted by the Parties, who are each
other's closest competitors. Besides, the Commission considers that even with this
increased level of services in the winter season 2012/13, the competition constraint
exercised by competitors on the merged entity would not be sufficient after the
Transaction.
(1159) Beside British Airways' entry, there are no other examples of an attempted new entry
to this route by any other carrier in recent years
1171
.
(1160) Furthermore, the evidence collected in the market investigation indicates that no
other competitor would have post-Transaction entry or expansion projects which
could be considered as timely, likely and sufficient enough to constitute a
competitive constraint on the merged entity and defeat the anticompetitive effects of
the Transaction on the Dublin – London route.
– Conclusion
(1161) Therefore, the Commission concludes that the Transaction is likely to significantly
impede effective competition in particular as a result of the creation of a dominant
position in relation to the Dublin-London route irrespective of whether flights
between Dublin and SEN airport are included or not.
(1162) Moreover, the Transaction is also likely to result in the elimination of the very close
competitive relationship between Ryanair and Aer Lingus and thus to eliminate the
important competitive constraint that both carriers exert upon each other pre-
Transaction on the route. Customers' travelling options therefore would be
substantially reduced and it is unlikely that BA and CityJet would be able to
constrain the merged entity's market behaviour sufficiently, especially with regard to
fare setting, on the Dublin-London route.
8.9.5.4. Dublin-Madrid
– Route characteristics
(1163) On the Dublin-Madrid route, […]*passengers travelled by air in IATA summer
season 2011 while […]* passengers travelled by air in IATA winter season
2011/12
1172
.
1170
IAG, response to question 52.1 of questionnaire Q1 – Competitors.
1171
Annex 7.3 (a) of the Form CO.
1172
Annex 7.3(b) of the Form CO, as updated on 22 August 2012.According to DAA data, [100 000 – 200
000] passengers travelled by air in IATA summer season 2011, [100 000 – 200 000] passengers
travelled by air in IATA winter season 2011/12 and [100 000 – 200 000] passengers travelled by air in
IATA summer season 2012.
EN 259 EN
(1164) According to Ryanair, the nature of the route is a mix of business and leisure
1173
.
(1165) The route has no significant seasonal patterns
1174
.
(1166) […]*. […]*% of Ryanair's passengers originate from Ireland
1175
.
– Parties' and competitors' operations
(1167) Both Parties operate the route with non-stop services. Ryanair and Aer Lingus
overlap on an airport-to-airport basis, namely Dublin – Barajas (MAD).
(1168) Iberia has been operating on this route since before 2004. From May 2011 to May
2012 the operations were conducted by Air Nostrum as Iberia's franchisee; tickets
were still sold exclusively by Iberia
1176
. Since June 2012 Iberia has started to operate
the service itself again under the brand name "Iberia Express"
1177
. Spanair operated
the route between IATA summer season 2004 and IATA summer season 2008, when
it exited the route.
– Frequencies
(1169) According to Ryanair, the weekly flights operated by the Parties and the only other
operating carrier on this route are as follows:
Table 47: Market shares for air services on the Dublin-Madrid route
Summer season 2011
Carrier
Weekly Frequency (1 way)
July
Aer Lingus
10
Ryanair
7
Combined
17
Iberia
14
Winter season 2011/2012
Carrier
Weekly Frequency (1 way)
January
Aer Lingus
10
Ryanair
7
Combined
17
Iberia
7
Source: Annex 7.3(b)(i) as updated on 22 August 2012
1173
Annex 7.3(a) of the Form CO.
1174
Annex 7.3.(a)(i) of the Form CO.
1175
Annex 7.3(e) of the Form CO.
1176
Air Nostrum, response to questionnaire Q1 – Competitors; British Airways, responses to questions 3
and 17 of questionnaire Q1 - Competitors; agreed minutes of conference call of 10 October 2012 with
IAG.
1177
Agreed minutes of conference call of 10 October 2012 with IAG.
EN 260 EN
(1170) In IATA summer season 2011, Ryanair operated 7 weekly frequencies to MAD,
while Aer Lingus operated 10 weekly frequencies to MAD. In IATA winter season
2011/12, Ryanair operated 7 weekly frequencies and Aer Lingus 10 weekly
frequencies to MAD. On the Dublin-Madrid route the Parties would therefore have
had combined 17 weekly frequencies in both IATA season.
(1171) Apart from the Parties, only Iberia operates a service between Dublin and Madrid
with 14 weekly frequencies during summer season and 7 weekly frequencies during
winter season.
(1172) The frequencies for the IATA summer season 2012 for Ryanair and Aer Lingus
combined amounted to around 17 weekly frequencies, whereas the frequencies for
Iberia amounted to 9
1178
.
– Market shares – capacity based
(1173) Table 48 indicates the market shares of the Parties and the only other competitor
active on the route on the basis of seat capacity in IATA summer season 2011 and
IATA winter season 2011/12:
Table 48: Market shares for seat capacity
Summer season 2011
Carrier
Weekly Seats available (1 way)
Parties' and competitor's
market shares
July
Aer Lingus
1 740
42%
Ryanair
1 323
32%
Combined
3 063
74%
Iberia
1 060
26%
Winter season 2011/2012
Carrier
Weekly Seats available (1 way)
Parties' and competitor's
market shares
January
Aer Lingus
1 740
48%
Ryanair
1 323
36%
Combined
3 063
84%
Iberia
566
16%
Source: Annex 7.3(b)(i) as updated on 22 August 2012
(1174) It follows that post-Transaction the Parties would control, in terms of shares in
capacity, around 74% of the available seats in IATA summer season 2011 and
around 84% in IATA winter season 2011/12.
1178
Annex 7.3(b) of the Form CO, as updated on 22 August 2012.
EN 261 EN
(1175) According to Ryanair's data updated on 22 August 2012, the weekly capacity for
IATA summer season 2012 for Aer Lingus amounted to 1 740 seats (39%) while for
Ryanair it amounted to 1 323 seats (29.8%). Thus, the Parties' combined weekly
capacity remained at 3 063 seats (69%). Iberia's weekly seat capacity, as Iberia
Express, increased to 1 350 seats (31%).
(1176) However, the Commission notes that the market shares for seat capacity as calculated
on the basis of the information provided by Ryanair are not in line with the market
shares for seat capacity calculated on the basis of the more accurate information
provided by DAA. The market shares would then be the following:
Table 49: Market shares for seat capacity on the Dublin-Madrid route
Season
Combined
market
share
Iberia
Summer season
2011
[80-90]%
[10-20]%
Winter season
2011/2012
[80-90]%
[10-20]%
Source: DAA's response to the Commission's requests for information of 26 July 2012 and of 3
December 2012
(1177) According to DAA's data pertaining to the whole IATA summer season 2012, the
market shares based on seat capacity are the following: Ryanair [30-40%], Aer
Lingus [40-50%], Iberia [20-30%]
1179
.
(1178) It follows that the Parties, if merged, would have had a very large market share in
terms of seat capacity in each of the three previous IATA seasons.
(1179) Such a high combined market share on the route is in itself evidence of a dominant
market position.
– Market shares - passengers
(1180) Table 50 indicates the market shares of the Parties and the only other competitor
active on the route on the basis of passengers carried in IATA summer season 2011
and in IATA winter season 2011/12:
1179
DAA's response to the Commission's request for information of 3 December 2012.
EN 262 EN
Table 50: Market shares for air services
Season
Total pax
Annex
7.3.b
Ryanair
market
share
Aer
Lingus
Market
share
Combined
market
share
Iberia
Total
Summer
season
2011
[…]*
[50-
60]*%
[30-
40]*%
[90-100]*%
[0-
5]*%
100%
Winter
season
2011/2012
[…]*
50-
60]*%
[40-
50]*%
[90-100]*%
[0-
5]*%
100%
Source: Annex 7.3(b) as updated on 22 August 2012
(1181) The market shares for passengers, as calculated on the basis of the information
provided by Ryanair, are not in line (to the disadvantage of Ryanair) with the market
shares for passengers calculated on the basis of the more accurate information
provided by DAA.
(1182) The market shares calculated on the basis of the information provided by DAA
would then be the following:
Table 51: Market shares for air services on the Dublin-Madrid route
Season
Combined
market
share
Iberia
Summer season
2011
[80-90]%
[10-20]%
Winter season
2011/2012
[80-90]%
[10-20]%
Source: DAA's response to the Commission's request for information of 26 July 2012
(1183) Moreover, on the basis of DAA's data, for IATA summer season 2012 the market
shares of the Parties amounted to [80-90%] and of Iberia amounted to [10-20%]
1180
.
(1184) The very high combined market share on this route is itself evidence of a dominant
market position.
– Closeness of competition
(1185) Ryanair argues that the merged entity would face a strong constraint from Iberia,
which is the largest Spanish airline and has a share based on frequencies of 16-18%
1180
DAA's response to the Commission's request for information of 3 December 2012.
EN 263 EN
in winter and 26-31% in summer. Ryanair also argues that product offering of
Ryanair and Aer Lingus is significantly different in terms of fares and services.
(1186) However, it can be observed from the seat capacity and passenger data that both
Ryanair and Aer Lingus are by far the largest competitors, which in itself is a strong
presumption that they are the closest competitors. In any event, a finding that Aer
Lingus may be closer in certain respects to Iberia, does not in itself exclude the
finding that Ryanair and Aer Lingus are each other's closest competitors on this
route.
(1187) As regards closeness of competition, a significant majority of competitors that
replied to the market investigation have indicated that Aer Lingus is the closest
competitor to Ryanair, while an equal number has considered that Ryanair and/or
Iberia are the closest to Aer Lingus
1181
. A slight majority of airports considered that
Iberia is closer to Ryanair than Aer Lingus is, while the majority indicated that
Ryanair is the closest to Aer Lingus on this route
1182
. For example, according to the
Spanish Airports and Air Navigation authority ("AENA"), Iberia would present only
a limited competitive alternative to Ryanair
1183
. Most travel agents considered Aer
Lingus as the closest competitor to Ryanair, but the views were equally divided as to
whether Iberia or Ryanair is the closest to Aer Lingus
1184
. The majority of corporate
customers considered that Ryanair and Aer Lingus are each other's closest
competitors
1185
.
(1188) Despite divided answers to the market investigation, the Commission considers that
the Parties are however each other's closest competitors on the Dublin-Madrid route.
The Commission considers that Aer Lingus is a closer competitor to Ryanair in
comparison to Iberia, which is a full service carrier. In addition, Aer Lingus and
Ryanair appear as very close if not each other's closest competitor in terms of
services and business models.
(1189) Iberia indicated both itself and Aer Lingus to be the closest competitor to Ryanair on
the route, but without giving any explanation based on which grounds. Iberia
monitors the prices of both Ryanair and Aer Lingus. However, Iberia is distinct from
Ryanair and Aer Lingus in terms of its business model. Iberia operates the route
mostly to feed its medium and long-haul services in MAD. Iberia's business model is
the one of a traditional network carrier operating a hub and spoke system as opposed
to the models of Ryanair and Aer Lingus. The point-to-point passengers carried on
the route by Iberia is not the most significant part of its activities. In particular, over
the last three IATA seasons, Iberia carried from [30-40]% to [50-60]% of connecting
passengers, while Aer Lingus only [0-5]% of connecting passengers on this route.
Ryanair does not carry connecting passengers. The different business model is also
reflected in the fact that Iberia in addition to one-way tickets, offers return fares and
operates business cabins and fares without conditions
1186
, while Ryanair and Aer
1181
Responses to questions 29 and 30 of questionnaire Q1 – Competitors.
1182
Responses to questions 22 and 23 of questionnaire Q4 – Airports.
1183
AENA, response to questions 22 and 23 of questionnaire Q4 – Airports.
1184
Responses to questions 14 and 15 of questionnaire Q2 – Travel Agents.
1185
Responses to questions 14 and 15 of questionnaire R1 – Corporate Customers.
1186
Agreed minutes of conference call of 11 October 2012 with IAG and email of 26 October 2012.
EN 264 EN
Lingus have a true one-way pricing policy and operate single cabins. Iberia considers
this route to be interesting from a feed perspective but indicates that it is very
difficult to compete effectively with Ryanair and Aer Lingus
1187
.
(1190) Aer Lingus monitors Ryanair with considerably more attention on this route than it
monitors Iberia. According to Aer Lingus, in this highly competitive route Ryanair
and Aer Lingus compete almost exclusively on point-to-point traffic, while Iberia is
the clear secondary competitor for Aer Lingus
1188
.
(1191) These finding are in line with the situation that was prevailing in 2007: ""[….] the
Commission set out the reasons why Iberia, so far as concerns the Dublin-Madrid
route (recital 984) […], would not be capable of competing effectively with the
merged entity. The Commission stated that Iberia would not be considered to be a
close competitor to the parties to the merger due to its business model based on full-
service network operations, including a significant portion of connecting passengers
on that route."
1189
(1192) The Commission's regression analysis confirms and complements the conclusion
derived from qualitative evidence that Ryanair and Aer Lingus are close and closest
competitors as described in more detail in Annex III.
(1193) The Commission furthermore considers, as set out in Section 8.4, that the Parties are
each other's closest competitors on the Dublin-Madrid route with respect to Irish-
originating passengers, based on their high brand recognition in Ireland, strong
overall market positions and bases in Ireland.
(1194) Furthermore, while Ryanair and Aer Lingus both enjoy strong brand recognition on a
large number of routes from and to Ireland
1190
, Iberia has a strong brand
1191
but only
very limited activities on the routes from and to Ireland (that is, only Dublin-Madrid,
while Dublin-London is operated by British Airways).
(1195) Both Ryanair and Aer Lingus have the strongest city presence in Dublin and
therefore have an advantage in winning Irish-originating customers who represent a
significant share of passengers on the Dublin-Madrid route. The evidence collected
in the market investigation shows that both Ryanair and Aer Lingus carried a higher
ratio of passengers originating in Ireland compared to Iberia over the summer 2011
and winter 2011/2012 seasons: that is to say, […]*% for Ryanair
1192
, [40-50] % for
Aer Lingus
1193
and [10 -20]%-[20-30]% for Iberia
1194
.
(1196) Furthermore, British Airways has only one overnight aircraft at Dublin airport, and
therefore does not enjoy the same base advantages as Ryanair and Aer Lingus at the
1187
Agreed minutes of conference call of 11 October 2012 with IAG.
1188
Aer Lingus' response to the Commission's request for information of 20 September 2012.
1189
See paragraph 377 of the 2010 Judgment.
1190
Responses to questions 32.1 and 32.2 of questionnaire Q1 – Competitors.
1191
IAG, response to question 32 of questionnaire Q1 - Competitors; agreed minutes of conference call of
10 October 2012 with IAG, Section II.
1192
Annex 7.3(e) of the Form CO.
1193
Aer Lingus, response to Annex II "Your data" of questionnaire Q1 – Competitors.
1194
IAG, response to Annex II "Your data" of questionnaire Q1 - Competitors.
EN 265 EN
Irish side of the route. Ryanair and Aer Lingus exert dynamic competition on each
other (that is to say, on a variety of routes) as they have significant bases in Dublin
and have a similar degree of flexibility to react to demand-side or supply-side
shocks. For British Airways, Dublin represents only one route from and to its
destination hub, and it is therefore less committed to adjusting its capacity to match
fluctuations in demand on the variety of routes from and to Dublin. Furthermore as a
network carrier, Iberia is more focused on connecting traffic to its hub airports.
(1197) Therefore it is considered that Ryanair and Aer Lingus are each other's closest
competitor on the Dublin-Madrid route. The Transaction would lead to the
elimination of the competitive rivalry existing between Ryanair and Aer Lingus,
which has been an important source of competition on this route, in particular for
point-to-point passengers.
– Entry and expansion
(1198) According to Ryanair
1195
, given Iberia's overall size and its base in MAD, Iberia is
particularly well placed to compete with Aer Lingus and Ryanair on that route,
including by adding frequencies. Ryanair further refers to the bases of Vueling and
Air Europa in MAD.
(1199) […]*
1196
, Ryanair argues that airlines with bases at the non-Irish end of the route
would enjoy every advantage associated with Ryanair and Aer Lingus having bases
in Dublin
1197
. This would apply to Ryanair in MAD.
(1200) According to Ryanair
1198
, slots are freely available at MAD so that any airline can
begin operating services on this route.
(1201) The route is subject to the general barriers to entry described in Section 8.5 and to the
assessment described in Sections 8.6 and 8.7.
(1202) In addition, MAD is a level 3 coordinated airport. According to AENA, MAD airport
is not constrained as such apart from during particular peak hours. However,
according to the AENA, for the cases in which there may be some excess demand at
particular peak hours, there is infrastructure capacity to increase traffic
1199
. The
Commission came to the same finding in its recent decision IAG/bmi
1200
.
(1203) The only scheduled airline that entered and still operates on the overlap route is
Iberia, which operates with lower frequencies than the Parties.
(1204) There are no examples of an attempted new entry on this route by another carrier in
the recent years
1201
. Iberia declared in particular not to have an entry plans with
1195
Ryanair's observations on the Article 6(1)(c) Decision, paragraph 8.
1196
Annex 7.3 (e) of the Form CO.
1197
Ryanair's observations on Article 6(1)(c) Decision, paragraph 8.
1198
Ryanair's observations on Article 6(1)(c) Decision, paragraph 8.
1199
AENA, response to question 14.3 of questionnaire Q4 – Airports.
1200
Commission's Decision of 14 July 2010 in Case No COMP/M.5747 – Iberia/British Airways, paragraph
93.
1201
Annex 7.3 (a) of the Form CO, as updated on 22 August 2012.
EN 266 EN
regard to the route at issue or any routes to and from Ireland for the moment.
Because of the strong competition from Aer Lingus and Ryanair, Iberia explained
that it has even been forced to downsize its operations on the route at issue
1202
.
(1205) However, Iberia Express very recently decided to expand its services on the Dublin-
Madrid route for the 2013 summer season, adding five extra return flights per week
in July (which means it will have a double daily service throughout the month). For
the month of August, Iberia Express will increase its frequency from 9 flights per
week to 10 flights per week. Such increase in frequencies, essentially limited to the
month of July, is not sufficient to constrain the merged entity post-Transaction
during most of the year
1203
.
(1206) Vueling explicitly stated that without the Transaction it would consider entry on
some routes, however, that should the proposed Transaction be cleared it would
certainly refrain from any new entry on the routes concerned by the Transaction
1204
.
(1207) Furthermore, the evidence collected in the market investigation indicates that, post-
Transaction, no other competitor would have entry or expansion projects which
could be considered as timely, likely and sufficient enough to constitute a
competitive constraint on the merged entity and defeat the anticompetitive effects of
the Transaction on the Dublin – Madrid route.
– Conclusion
(1208) The Commission therefore concludes that the Transaction is likely to significantly
impede effective competition as a result of the creation of a dominant position in
relation to the Dublin-Madrid route.
(1209) Moreover, the Transaction is also likely to result in the elimination of the very close
competitive relationship between Ryanair and Aer Lingus and thus to eliminate the
important competitive constraint that both carriers exert upon each other pre-
Transaction on the route. Customers' travelling options therefore would be
substantially reduced and it is unlikely that Iberia would be able to constrain the
merged entity's market behaviour sufficiently, especially with regard to fare setting,
on the Dublin-Madrid route.
8.9.5.5. Dublin-Munich
– Route characteristics
(1210) As set out in Section 7.3.3.10, the Commission takes the view that scheduled point-
to-point passenger air transport services between Dublin and MUC airport and
between Dublin and FMM airport belong to the same market.
1202
Agreed minutes of conference call of 10 October 2012 with IAG.
1203
http://www.dublinairport.com/gns/at-the-airport/latest-news/13-01-
09/Iberia Express to Add Capacity on Dublin-Madrid.aspx.
1204
Agreed minutes of conference call of 11 October 2012 with Vueling.
EN 267 EN
(1211) On the Dublin-Munich route, […]*passengers travelled by air in IATA summer
season 2011 while […]*passengers travelled by air in IATA winter season
2011/12
1205
.
(1212) According to Ryanair
1206
, the nature of the route is a mix of business and leisure.
According to Aer Lingus
1207
, the leisure segment is highly competitive between the
two airlines on this route.
(1213) The route has no significant seasonal pattern
1208
.
(1214) […]*of Ryanair's passengers on the Dublin-Munich route originate in Ireland
1209
.
– Parties' and competitors' operations
(1215) Both Parties operate on the route with non-stop services. Ryanair and Aer Lingus
overlap on a city-to-city basis. Ryanair operates from Dublin to Memmingen Airport
(FMM) and Aer Lingus from Dublin to Munich Aiport (MUC).
(1216) Aer Lingus started to operate on this route before 2004 while Ryanair has been
operating on it since May 2009
1210
. Ryanair operates a fleet of Boeing 737-800
aircraft. For short-haul routes, Aer Lingus operates essentially a fleet of Airbus A
320 aircraft
1211
.
(1217) Lufthansa started operating on this route in April 2011 and only for the IATA
summer season. Lufthansa operates essentially a fleet of Airbus A 319 aircraft
1212
– Frequencies
(1218) According to Ryanair, the weekly flights operated by the Parties and Lufthansa on
this route are as follows:
1205
Annex 7.3(b) of the Form CO (as revised on 22 August 2012). According to DAA data, [100 000 – 200
000] passengers travelled by air in IATA summer season 2011, [50 000 – 100 000] passengers travelled
by air in IATA winter season 2011/12 and [100 000 – 200 000] passengers travelled by air in IATA
summer season 2012.
1206
Annex 7.3 (a) of the Form CO.
1207
Aer Lingus' reply to the Commission's request for information of 20 September 2012.
1208
Annex 7.3(a)(i) of the Form CO.
1209
Annex 7.3 (e) of the Form CO.
1210
Annex 7.3(b) of the Form CO (as revised on 22 August 2012).
1211
Paragraphs 1.2 and 1.3. of the Form CO,
1212
Lufthansa' website.
EN 268 EN
Table 52: Weekly flights between Dublin and Munich
Summer season 2011
Carrier
Weekly Frequency (1 way)
July
Aer Lingus
11
Ryanair
4
Combined
15
Lufthansa
1
Winter season 2011/2012
Carrier
Weekly Frequency (1 way)
January
Aer Lingus
11
Ryanair
4
Combined
15
Lufthansa
0
Source: Annex 7.3 (b) as updated on 22 August 2012.
(1219) In IATA summer season 2011, Ryanair operated 4 weekly frequencies to FMM and
Aer Lingus operated 11 weekly frequencies to MUC. In IATA winter season
2011/12, Ryanair operated 4 weekly frequencies to FMM and Aer Lingus operated
11 weekly frequencies to MUC. On the Dublin-Munich route, the Parties would
therefore have combined 15 weekly frequencies, for each of IATA summer season
2011 and winter season 2011/2012.
(1220) Apart from the Parties, only Lufthansa operates a service between Dublin and MUC
with only 1 weekly frequency operating on Sunday and only during the summer
season.
(1221) The weekly frequencies for the IATA summer season 2012 amounted to 4 for
Ryanair and 11 for Aer Lingus. The weekly frequency for Lufthansa remained
unchanged with 1 frequency.
– Market shares – capacity
(1222)
EN 270 EN
Table 53: Market shares for seat capacity
Summer season 2011
Carrier
Weekly Seats available (1 way)
Parties' and
competitor's market
shares
July
Aer Lingus
1 914
68%
Ryanair
756
27%
Combined
2 670
94%
1213
Lufthansa
156
6%
Winter season 2011/2012
Carrier
Weekly Seats available (1 way)
Parties' and
competitor's market
shares
January
Aer Lingus
1 914
72%
Ryanair
756
28%
Combined
2 670
100%
Lufthansa
0
0%
Source: Annex 7.3(b) as updated on 22 August 2012
(1223) The weekly capacity for IATA summer season 2012 showed that Aer Lingus offered
1 914 seats (68%) while Ryanair offered 756 seats (27%). Thus, the Parties'
combined weekly capacity remained unchanged in the IATA summer season 2012.
Lufthansa's weekly capacity for IATA summer season 2012 remained unchanged
with 156 seats (6%).
(1224) It follows that post-Transaction, the Parties would hold more than 90% market share
in capacity in the IATA summer season. Furthermore, this would be a monopoly
route in the IATA winter season, as Lufthansa does not operate in that season.
– Market shares - passengers
(1225)
1213
The small difference between the combined market share and the sum of Ryanair's and Aer Lingus'
market shares is explained by the effect of rounding.
EN 272 EN
Table 54: Market shares for air services
Season
Total pax
Annex
7.3.b
Ryanair
market
share
Aer
Lingus
Market
share
Combined
market
share
Lufthansa
Total
Summer season
2011
[…]*
[30-
40]*%
[60-
70]*%
[90-100]*%
[0-5]*%
100%
Winter season
2011/2012
[…]*
[20-
30]*%
[70-
80]*%
[90-100]*%
[0-5]*%
100%
Source: Annex 7.3(b) as updated on 22 August 2012
(1226) It follows that post-Transaction, the Transaction would lead to a reduction in the
number of carriers operating on the Dublin-Munich route from three to two in the
IATA summer season 2011 and would give the merged entity a very high combined
market share of 97% in terms of point-to-point passengers carried on the route.
(1227) Moreover, on the basis of DAA's data for the IATA summer season 2012, the market
share would remain similar to those of the previous summer season, namely a
combined market share of the merged entity of [90-100%] and of Lufthansa of [0-
5%]
1214
.
(1228) Such a high combined share on this route is in itself evidence of a dominant market
position. As regards the IATA winter season, this would be a merger to monopoly
situation which would eliminate all existing competition on this route.
– Closeness of competition
(1229) Ryanair argues
1215
that Aer Lingus and Lufthansa are much closer competitors to
each other than they are to Ryanair on this route, in particular because they both
operate services to MUC, while Ryanair operates to FMM. Ryanair argues that the
combined entity would face a strong constraint from Lufthansa, given its overall size
and base in MUC, despite its modest market share. Ryanair also argues that the
product offering of Ryanair and Aer Lingus is significantly different in term of fares
and services
1216
.
(1230) However, the Commission observes from the frequencies, seat capacity and
passenger data that both Ryanair and Aer Lingus are by far the largest competitors,
which in itself is a strong presumption that they are the closest competitors. In any
event, although Aer Lingus may be closer in certain respects to Lufthansa, this would
not in itself exclude the finding that Ryanair and Aer Lingus are the closest
competitors on this route.
(1231) As regards closeness of competition, the responses to the market investigation were
largely divided in relation to the Dublin-Munich route. A significant majority of
1214
DAA's response to the Commission request for information of 3 December 2012.
1215
Ryanair's observations on 6(1)(c) Decision, paragraph 8.
1216
Ryanair's observations on 6(1)(c) Decision, paragraphs 11 and 18.
EN 273 EN
competitors have indicated that Aer Lingus is closest to Ryanair, while a larger
number has considered that Lufthansa is the closest to Aer Lingus
1217
. A slight
majority of airports considered that Lufthansa is the closest both to Ryanair and Aer
Lingus
1218
. However, most travel agents
1219
and corporate customers
1220
considered
Aer Lingus and Ryanair as each other's closest competitors.
(1232) It appears that the replies were largely split because the respondents based their
views on different criteria. A number of respondents did not give any explanations
and many have specified all three carriers as the closest to each other, despite Aer
Lingus and Ryanair flying to different airports
1221
.
(1233) Despite divided answers to the market investigation and the fact that Aer Lingus and
Ryanair fly to different airports, the Commission considers that the Parties are each
other's closest competitors on the Dublin-Munich route. It is apparent that Aer
Lingus is a closer competitor to Ryanair in comparison to Lufthansa, a full service
carrier. In addition, Aer Lingus and Ryanair appear as very close if not each other's
closest competitors in terms of services and business models.
(1234) Lufthansa’s business model is the one of a traditional network carrier operating a hub
and spoke system as opposed to the models of Ryanair and Aer Lingus. Lufthansa is
primarily focused on feeding its medium and long-haul services in MUC and the
point-to-point passengers carried on the route represent a smaller part of its activities
(for example, Lufthansa's connecting passengers accounted for [30-40]% of total
passengers compared to only [0-5]% for Aer Lingus in the last three IATA
seasons)
1222
. Ryanair does not carry connecting passengers.
(1235) In addition, Lufthansa concentrates more on business customers than is the case for
Aer Lingus and Ryanair
1223
. Lufthansa offers, amongst others, refundable and change
free tickets and estimates that [80-90]% its passengers were TS passengers on this
route in the IATA Summer season 2012
1224
. For Aer Lingus the sales of flexi-fare
and plus-fare tickets still represents a very small portion of overall sales and it "does
not collect or possess data which enables it to distinguish between different
categories of passengers on its short-haul routes"
1225
. Similarly, Ryanair does not
target business passengers.
1217
See responses to questions 30 of questionnaire Q1 - Competitors.
1218
See responses to questions 23 of questionnaire Q4 - Airports.
1219
See responses to questions 14 and 15 of Questionnaire Q2 – Travel Agents.
1220
See responses to questions 14 and 15 of Questionnaire R1 – Corporate Customers.
1221
See responses of Alitalia, Germania, Eurolot, and SAS to questions 29 and 30 of questionnaire Q1 –
Competitors. See, also Belfast International Airport, Cardiff Airport, Flughafen Frankfurt-Hahn Gmbh,
Peel Airports, responses to to questions 22 and 23 of questionnaire Q4 – Airports, Travelport
International, response to questions 14 and 15 of questionnaire Q2 – Travel Agents; Royal Bank of
Scotland and J&J, responses to questions 14 and 15 of questionnaire R1 – Corporate customers.
1222
See Lufthansa's and Aer Lingus responses to Annex II "Your data" of questionnaire Q1 – Competitors.
1223
Lufthansa, response to Annex II "Your data" of questionnaire Q1 - Competitors.
1224
Lufthansa, response to Annex II "Your data" of questionnaire Q1 - Competitors.
1225
Flexi Fare offers refundability and free changes together with ancillary elements, but "flexi [fare] tickets
represent a very small portion of overall sales". Aer sales of flexi-fare and plus fare tickets represents a
very small portion of overall sales and that the sales of these ticket in any event would "not accurately
reflect the level of business / time sensitive passengers carried by Aer Lingus" (See email of Aer Lingus
dated 23 July 2012, Aer Lingus' response to question 8 of the commission's request for information of 2
EN 274 EN
(1236) Moreover, Lufthansa is different in terms of pricing and ticket model. It sells only a
very limited amount of one-way tickets, including on the route at issue, as its pricing
and business model are based on return tickets
1226
, as opposed to Ryanair and Aer
Lingus that operate true one-way pricing and primarily sell one class restricted
tickets.
(1237) According to Aer Lingus, Ryanair is its primary competitor on this route due to lack
of a real alternative in terms of frequency with Lufthansa only operating on a
Sunday. The leisure segment is highly competitive between Aer Lingus and Ryanair
on this route
1227
.
(1238) The Commission's regression analysis confirms and complements the conclusion
derived from qualitative evidence that Ryanair and Aer Lingus are close and closest
competitors as described in more detail in Annex III.
(1239) The Commission furthermore considers, as set out in Section 8.4, that the Parties are
each other's closest competitors on the Dublin-Munich route with respect to Irish
originating passengers, based on their high brand recognition in Ireland, strong
overall market positions and bases in Ireland.
(1240) While Ryanair and Aer Lingus both enjoy a strong brand recognition on the routes to
and from Ireland,
1228
according to Lufthansa its strong brand as a network carrier
does not give it an important advantage on the Irish side of a market: "for traffic ex-
Ireland [Lufthansa's brand is] rather weak brand compared to Ryanair and Aer
Lingus as [there is] rather small network to/from Ireland"
1229
. Similarly, according
to Aer Lingus, Ryanair remains its closest competitor on the Dublin-Munich route:
"[t]his remains unchanged from the 2007 decision: as the strongest Irish carriers
Ryanair and Aer Lingus clearly enjoy the best brand recognition on routes into and
out of Ireland"
1230
.
(1241) Both Ryanair and Aer Lingus have the strongest city presence in Dublin and
therefore an advantage in winning Irish-originating customers who represent a
significant share of passengers on the Dublin-Munich route. The evidence collected
in the market investigation shows that both Ryanair and Aer Lingus carried a higher
ratio of passenger originating in Ireland compared to Lufthansa over the summer
2011 and winter 2011/2012 seasons: that is to say, […]*% for Ryanair
1231
, [40-50] %
to [60-70] %
1232
for Aer Lingus and only [5-10] % for Lufthansa
1233
.
August 2012, and Aer Lingus' response to questions 1.1-1.4 of the Commission's request for
information of 20 July 2012).
1226
Agreed minutes of conference call of 9 October 2012 with Lufthansa, page 1.
1227
Aer Lingus' response to the Commission's request for information of 20 September 2012, page 4.
1228
See the responses to questions 32.1 and 32.2 of questionnaire Q1 - Competitors.
1229
See Section 8.4.2 on closeness of competition and responses of Lufthansa to questions 32.1-32.3 of
questionnaire Q1 – Competitors.
1230
Aer Lingus, response to questions 29, 30, and 32 of questionnaire Q1 - Competitors.
1231
Annex 7.3(e) of the Form CO. Ryanair's passengers originating from Ireland (April 2011-March 2012).
1232
See Aer Lingus' response to Annex II "Your data" to questionnaire Q1 - Competitors.
1233
See response of Lufthansa to Annex II "Your data" to questionnaire Q1 - Competitors. In summer 2012
season only [10-20].
EN 275 EN
(1242) Furthermore, Lufthansa has only one overnight aircraft at Dublin airport, and
therefore does not enjoy the same base advantages as Ryanair and Aer Lingus at the
Irish side of the route. Similarly, Lufthansa does not exert the same level of
constraint from its hub in Frankfurt, as Aer Lingus and Ryanair do on each other.
Ryanair and Aer Lingus exert dynamic competition on each other (that is to say, on a
variety of routes) as they have significant bases in Dublin and a similar degree of
flexibility to react to demand-side or supply-side shocks. For Lufthansa, Dublin
represents only one route from its destination hub, and it is therefore less committed
to adjusting its capacity to match fluctuations in demand on the variety of routes
from and to Dublin. Furthermore, as a network carrier, Lufthansa is more focused on
connecting traffic to its hub airports.
(1243) Therefore it is considered that Ryanair and Aer Lingus are each other's closest
competitor on the Dublin-Munich route. The Transaction would lead to the
elimination of the competitive rivalry existing between Ryanair and Aer Lingus,
which has been an important source of competition on this route, in particular for
point-to-point passengers.
– Entry and expansion
(1244) According to Ryanair
1234
, given Lufthansa's overall size and its base in MUC,
Lufthansa is particularly well placed to compete with Aer Lingus and Ryanair on that
route, including by adding frequencies.
(1245) […]*
1235
, Ryanair argues that airlines with bases at the non-Irish end of the route
would enjoy every advantage associated with Ryanair and Aer Lingus having bases
in Dublin
1236
. This would apply to Ryanair in Munich.
(1246) Moreover, according to Ryanair
1237
, slots are freely available at both MUC and
FMM, so that any airline can begin operating services on this route.
(1247) The route is subject to the general barriers to entry described in Section 8.5 and to the
assessment described in Sections 8.6 and 8.7.
(1248) In addition, MUC is a level 3 coordinated airport, and is slot constrained. According
to Flughafen München GmbH
1238
, the Terminal that is used by Lufthansa is
constrained both in terms of runway capacity during peak hours and of passenger
terminal capacity. Aer Lingus does not operate during these peak times and their
flights are operated from to Terminal 1, which has no capacity constraints. The
construction of a new terminal satellite is due for 2015. In addition, planning and
approval procedures for a third independent runway are under way. Flughafen
München GmbH expects a deterioration of capacity constraints regarding runway
capacity until completion of that third runway. According to FHKD, the airport
1234
Ryanair's obervations on the decision opening the proceedings, paragraph 8.
1235
Annex 7.3 (e) of the Form CO of 24 July 2012.
1236
Ryanair's obervations on the decision opening the proceedings, paragraph 8.
1237
Ryanair's obervations on the decision opening the proceedings, paragraph 8.
1238
Flughafen München, responses to questions 14-15 of questionnaire Q4 – Airport.
EN 276 EN
coordinator, there are hourly movement restrictions due to runway limitations and
capacity is reached during the arrival and departure peaks
1239
.
(1249) As regards FMM which has no slot restrictions, Memmingen Airport has indicated to
the Commission that there is a limitation relating to the runway and the available
aircraft stand during peak hours. If the planning approval under process is not
granted, Memmingen Airport expects a deterioration of the currently existing
limitations
1240
.
(1250) Beside Lufthansa’s entry, there are no other examples of an attempted new entry to
this route by any other carrier in the recent years
1241
.
(1251) Furthermore, the evidence collected in the market investigation indicates that no
competitor would have post-Transaction entry or expansion projects which could be
considered as timely, likely and sufficient enough to constitute a competitive
constraint on the merged entity and defeat the anticompetitive effects of the
Transaction on the Dublin – Munich route.
– Conclusion
(1252) Therefore the Commission concludes that the Transaction is likely to significantly
impede effective competition in particular as a result of the creation of a dominant
position in relation to the Dublin-Munich route.
(1253) Moreover, the Transaction is also likely to result in the elimination of the very close
competitive relationship between Ryanair and Aer Lingus and thus to eliminate the
important competitive constraint that both carriers exert upon each other pre-
Transaction on the route. Customers' travelling options therefore would be
substantially reduced and it is unlikely that Lufthansa would be able to constrain the
merged entity's market behaviour sufficiently, especially with regard to fare setting,
on the Dublin-Munich route.
8.9.5.6. Dublin-Paris
– Route characteristics
(1254) As set out in Section 7.3.3.11, the Commission takes the view that scheduled point-
to-point passenger air transport services between Dublin and CDG airport, BVA
airport and ORY airport belong to the same market. On the Dublin-Paris route, […]*
passengers travelled by air in IATA Summer season 2011 while […]* passengers
travelled by air in IATA Winter season 2011/12
1242
.
1239
FHKD, response to question 4 of questionnaire Q3 – Airport coordinator.
1240
Memmingen Airport , responses to questions 14-15 of questionnaire Q4 – Airport.
1241
Annex 7.3(a) of the Form CO as updated on 22 August 2012.
1242
Annex 7.3(b) of the Form CO (as revised on 22 August 2012).According to DAA data, [300 000 – 400
000] passengers travelled by air in IATA summer season 2011, [200 000 – 300 000] passengers
travelled by air in IATA winter season 2011/12 and [300 000 – 400 000] passengers travelled by air in
IATA summer season 2012.
EN 277 EN
(1255) According to Ryanair
1243
, the nature of the route is a mix of business and leisure:
passengers flying to Paris-Beauvais (BVA) would be NTS passengers whereas
passengers flying to Paris Charles de Gaulle (CDG) would include both TS and NTS
customers.
(1256) The route has no significant seasonal pattern
1244
.
(1257) […]* of Ryanair's passengers on the Dublin-Paris route originate in Ireland.
1245
– Parties' and competitors' operations
(1258) Both Parties operate on the route with non-stop services. Ryanair and Aer Lingus
overlap on a city-to-city basis. Ryanair operates from Dublin to BVA and Aer Lingus
from Dublin to CDG.
(1259) Aer Lingus started to operate on this route in 2001, while Ryanair has been operating
on it since May 1997
1246
.
(1260) Ryanair operates a fleet of Boeing 737-800 aircraft. For short-haul routes, including
this route Aer Lingus operates a fleet of Airbus A 320 aircraft
1247
.
(1261) Air France, through CityJet, has been operating on this route since 2001. Air
France/CityJet operates essentially a fleet of Avro RJ85 aircraft
1248
. No services are
currently offered from Dublin to ORY.
– Frequencies
(1262) According to Ryanair, the weekly flights operated by the Parties and the only other
operating carrier on this route are as follows:
1243
Annex 7.3(a) of the Form CO.
1244
Annex 7.3(a)(i) of the Form CO.
1245
Annex 7.3(e) of the Form CO.
1246
Annex 7.3(b) of the Form CO (as revised on 22 August 2012).
1247
Paragraphs 1.2 and 1.3. of the Form CO.
1248
Air France's website.
EN 278 EN
Table 55: Weekly flights between Dublin and Paris
Summer season 2011
Carrier
Weekly Frequency (1 way)
July
Aer Lingus
21
Ryanair
10
Combined
31
Air France/CityJet
42
Winter season 2011/2012
Carrier
Weekly Frequency (1 way)
January
Aer Lingus
21
Ryanair
8
Combined
29
Air France/CityJet
41
Source: Annex 7.3 (b) (i) as updated on 22 August 2012.
(1263) In IATA summer season 2011, Ryanair operated 10 weekly frequencies to BVA and
Aer Lingus operated 21 weekly frequencies to CDG. In IATA winter season
2011/12, Ryanair operated 8 weekly frequencies to BVA and Aer Lingus operated 21
weekly frequencies to CDG. On the Dublin-Paris route, the Parties combined would
therefore have 31 weekly frequencies, based on IATA summer season 2011 and 29
weekly frequencies, based on IATA winter season 2011/2012.
(1264) Apart from the Parties, only Air France/CityJet operates on the route, to CDG, with
around 41 weekly frequencies in the winter season 2011/2012 and 42 in the summer
season 2011.
(1265) During the IATA summer season 2012, Ryanair operated 13 weekly frequencies to
BVA and Aer Lingus operated 21 weekly frequencies to CDG (34 frequencies
combined). Air France/CityJet operated 41 weekly frequencies to CDG.
– Market shares - capacity
(1266)
EN 280 EN
Table 56: Market shares for seat capacity
Summer season 2011
Carrier
Weekly Seats available (1 way)
Parties' and
competitor's market
shares
July
Aer Lingus
3 654
41%
Ryanair
1 890
21%
Combined
5 544
62%
Air France/CityJet
3 444
38%
Winter season 2011/2012
Carrier
Weekly Seats available (1 way)
Parties' and
competitor's market
shares
January
Aer Lingus
3 654
43%
Ryanair
1 512
18%
Combined
5 166
61%
Air France/CityJet
3 362
39%
Source: Annex 7.3(b) (i) as updated on 22 August 2012
(1267) According to Ryanair data, as updated on 22 August 2012, Ryanair had 2,457 weekly
seats (26%) available to BVA in IATA summer season 2012. Aer Lingus had 3,645
weekly seats (39%) available to CDG. The Parties' combined weekly capacity has
thus increased to 6 102 weekly seats (65%). Air France/CityJet weekly seats'
availability to CDG remained unchanged with 3362 seats (36%). In its' comments
regarding the Commission Letter of Facts of 14 December 2012, Ryanair adjusted
the figures on the basis of the Innovata database, indicating that Ryanair, Aer Lingus
and Air France/CityJet had respectively 23%, 37%, and 39% share of capacity.
According to DAA, the Innovate estimates are confirmed by its own dataset
1249
.
(1268) It follows that the Parties would have had a very large combined market share of at
least 60% in terms of shares in capacity in each of the three previous IATA seasons.
– Market shares - passengers
(1269)
1249
DAA's response to the Commission's request for information of 7 January 2013.
EN 282 EN
Table 57: Market shares for air services
Season
Total pax
Annex
7.3.b
Ryanair
market
share
Aer
Lingus
Market
share
Combined
market
share
Air
France/CityJet
Total
Summer
season 2011
[…]*
[30-
40]*%
[40-
50]*%
[70-80]*%
[20-30]*%
100%
Winter season
2011/2012
[…]*
[20-
30]*%
[50-
60]*%
[80-
90]*%
1250
[10-20]*%
100%
Source: European Commission on the basis of information provided by Ryanair
in Annex 7.3(b) as updated on 22 August 2012
(1270) However, the Commission notes that the market shares for passengers as calculated
on the basis of the information provided by Ryanair are not in line (to the
disadvantage of Ryanair) with the market shares for passengers calculated on the
basis of the more accurate information provided by DAA. The market shares
calculated on the basis of the information provided by DAA would then be the
following:
Table 58: Market shares for air services on the Dublin-Paris route
Season
Combined
market
share
Air
France/CityJet
Summer season 2011
[60-70]%
[30-40]%
Winter season 2011/2012
[60-70]%
[30-40]%
Source: DAA's response to the Commission's request for information of 26 July 2012
(1271) Moreover, on the basis of DAA's data, in IATA summer season 2012 the market
share of the merged entity increased to [70-80%] and of Air France/CityJet decreased
to [20-30%]
1251
.
(1272) In its' comments regarding the Commission Letter of Facts of 14 December 2012,
Ryanair considered that the market shares based on passengers on this route deviates
considerably from the figures Ryanair calculated based on capacity numbers and
DAA traffic statistics. However, the capacity data do not necessarily have to be
similar to passenger data, as for instance the percentage of point to point
passengers
1252
and the load factor may differ significantly between carriers.
1250
The small difference between the combined market share and the sum of Ryanair's and Aer Lingus
market share is explained by the effects of rounding.
1251
DAA's response to the Commission's request for information of 3 December 2012.
1252
In Ryanair's comments on the Commission letter of facts of December 14, 2012, the share of passengers
flown computed by Ryanair on the basis of DAA data does not take connecting passengers into account.
EN 283 EN
(1273) The very high combined market share on this route is itself evidence of a dominant
market position.
– Closeness of competition
(1274) Ryanair argues that Aer Lingus and Air France/CityJet are much closer competitors
to each other than they are to Ryanair on this route, in particular because they both
operate services to CDG, while Ryanair operates to BVA
1253
. Ryanair also argues
that the product offering of Ryanair and Aer Lingus is significantly different in terms
of fares and services
1254
.
(1275) The Commission does not contest the view that Aer Lingus, not Ryanair, is a closer
competitor to Air France in view of its business model, especially given that Aer
Lingus positions itself between Ryanair and full service carriers as a value-carrier.
However, this does not exclude the finding that Ryanair and Aer Lingus would
remain very close competitors, if not each other's closest competitors on the Dublin-
Paris route.
(1276) As regards closeness of competition, the responses to the market investigation are
largely divided in relation to the Dublin-Paris route
1255
. A majority of responding
competitors have indicated Aer Lingus as the closest competitor to Ryanair, but a
comparable majority of competitors have also considered Air France as the closest
competitor to Aer Lingus
1256
. Most of the airports considered Air France as the
closest competitor to Ryanair, while Ryanair was more often indicated as the closest
competitor to Aer Lingus
1257
. Most travel agents considered Aer Lingus and Ryanair
as each other's closest competitors
1258
. The replies of corporate customers were
equally split between all three carriers
1259
.
(1277) It appears that the replies were largely split because the respondents based their
views on different criteria. For example those who specified on the one hand both
Air France and Ryanair as the closest competitor to Aer Lingus and on the other hand
both Air France and Aer Lingus as the closest competitor to Ryanair, either gave no
explanation or based their views on the following: (i) high seat capacities and/or
market shares (for example, "AF No.2 in seats per week"
1260
or "Air France is the
main competitor" or Air France (the biggest)"
1261
) or(ii) Air France's strong network
brand recognition
1262
. It can be observed that many respondents have specified
Ryanair and Aer Lingus or all three carriers as the closest competitor to each other,
1253
Ryanair's obervations on Article 6(1)(c) Decision, paragraph 9.
1254
Ryanair's obervations on Article 6(1)(c) Decision, paragraphs 11 and 18.
1255
When counting the replies, in cases where respondents have indicated several competing airlines as the
closest to Ryanair, on a conservative basis the Commission took into account all carriers that were
specified when counting the respective majorities (e.g., where both Air France and Aer Lingus were
indicated as the closest to Ryanair, each of Air France and Aer Lingus were counted once).
1256
See responses to question 30 of questionnaire Q1 - Competitors.
1257
See responses to questions 22 and 23 of questionnaire Q4 - Airports.
1258
See responses to questions 14 and 15 of questionnaire Q2 – Travel Agents.
1259
See responses to questions 14 and 15 of questionnaire R1 – Corporate Customers.
1260
See responses of Lufthansa and Swiss International to question 29 of questionnaire Q1 - Competitors.
1261
See responses of SAS and Alitalia to question 29 of questionnaire Q1 - Competitors.
1262
Flybe, response to question 29 of questionnaire Q1 - Competitors.
EN 284 EN
despite Aer Lingus and Ryanair flying to different airports
1263
. Although it is true
that all three carriers enjoy relatively high market shares, they differ in terms of
brand recognition, business models and the extent of operations in Ireland.
(1278) Despite split answers to the market investigation and the fact that Aer Lingus and
Ryanair fly to different airports, the Commission considers that the Parties are very
close competitors, if not each other's closest competitors, on the Dublin-Paris route.
It is apparent that Aer Lingus is a closer competitor to Ryanair in comparison to Air
France/CityJet, a full service carrier. In addition, Aer Lingus and Ryanair appear as
very close if not each other's closest competitor in terms of services and business
models.
(1279) Even though Air France/CityJet serves the same airport in Paris as Aer Lingus, its
business model is clearly different from Aer Lingus and Ryanair. CityJet, which is a
100% subsidiary of Air France, is primarily focused on feeding the medium and
long-haul services of Air France hub at CDG
1264
. Connecting passengers accounted
for [30-50]% of total passengers of Air France on this route compared to only [5-
10]% - [10-20]% for Aer Lingus in the last three IATA seasons
1265
. For this purpose,
CityJet operates a high frequency service with schedules accommodated according to
the departure and arrival waves of Air France at CDG.
(1280) As regards point-to-point passengers, CityJet concentrates on higher-yield business
customers. CityJet operates substantially smaller aircraft than Ryanair or Aer Lingus
and thus would not be able to compete with them efficiently for the lower fares
segments of customers
1266
. Air France/CityJet offers business class tickets
1267
and
estimates that [60-70]% of passengers are TS. On the contrary, Ryanair does not
target business passengers and for Aer Lingus the sales of flexi-fare and plus-fare
tickets still represents a very small portion of overall sales and it "does not collect or
possess data which enables it to distinguish between different categories of
passengers on its short-haul routes"
1268
.
1263
See responses of Alitalia, Eurolot, and SAS to questions 29 and 30 of questionnaire Q1 – Competitors.
See, also replies of Belfast International Airport, Cardiff Airport, and Peel Airports, responses to
questions 22 and 23 of questionnaire Q4 – Airports; responses of travel agents, e.g., Travelport
International, response to questions 14 and 15 of questionnaire Q2 – Travel Agents; Royal Bank of
Scotland Group and J&J, responses to questions 14 and 15 of questionnaire R1- Corporate customers.
1264
Air France, response to question 2 of questionnaire Q1 - Competitors. See also agreed minutes of
conference call of 11 October 2012 with Air France.
1265
Air France, response to Annex II "Your data" of questionnaire Q1 - Competitors and Aer Lingus,
response to Annex II "Your data" of questionnaire Q1 – Competitors.
1266
Agreed minutes of a teleconference call of 11 October 2012 with Air France.
1267
See Air France description of business class.
1268
Flexi Fare offers refundability and free changes together with ancillary elements, but "flexi [fare] tickets
represent a very small portion of overall sales". Aer Lingus sales of flexi-fare and plus fare tickets
represents a very small portion of overall sales and that the sales of these ticket in any event would "not
accurately reflect the level of business / time sensitive passengers carried by Aer Lingus" (see email of
Aer Lingus dated 23 July 2012, Aer Lingus' response to question 8 of the Commission's request for
information of 2 August 2012 and response to questions 1.1-1.4 of the Commission's request for
information of 20 July 2012).
EN 285 EN
(1281) The difference in business model is also reflected in the fact that Air France/CityJet
sells mainly return tickets on the route at issue
1269
. Air France/CityJet also offer
fenced fares, determined by rules such as "Saturday night away" or "same day
return"
1270
. Ryanair and Aer Lingus both operate one-way pricing, and primarily sell
one class restricted tickets.
(1282) Although Aer Lingus flies to the same airport as Air France/CityJet, Aer Lingus
compares its fares primarily against Ryanair and secondarily against Air France
(CDG). According to Aer Lingus, "there are greater similarities in product and
service between Ryanair and Aer Lingus than exist between Aer Lingus and Air
France (all economy service, one-way pricing, LCC ethos) which renders Ryanair
Aer Lingus' closest competitor on the Dublin-Paris route. The Air France product is
not a comparable product and is not suitable for competitive tracking: Air France
operates a business class cabin; offers highly fenced fares […]; operates a higher
pricing structure; and is a “full-service” airline”
1271
.
(1283) It is to be noted that these findings are in line with the situation that was prevailing in
2007 as acknowledged in paragraph 377 of the 2010 Judgement: "[….] the
Commission set out the reasons why […] City Jet, so far as concerns the Dublin-
Paris route (recital 1017), would not be capable of competing effectively with the
merged entity. [...] the Commission stated that CityJet is primarily focused on
feeding the medium and long-haul services of Air France at Roissy-Charles-de-
Gaulle Airport."
(1284) The Commission's regression analysis shows that the conclusion derived from
qualitative evidence that Ryanair and Aer Lingus are close and closest competitors as
described in more detail in Annex III.
(1285) The Commission furthermore considers, as set out in Section 8.4, that the Parties are
each other's closest competitors on the Dublin-Paris route with respect to Irish
originating passengers, based on their high brand recognition in Ireland, strong
overall market positions and bases in Ireland
(1286) Furthermore, both Ryanair and Aer Lingus enjoy the strongest brand recognition on
the routes to and from Ireland
1272
. While Air France on Paris CDG is also a strong
brand, "Air France considers that the Ryanair and Aer Lingus brands dominate the
Irish market. There are no other strong brands in the Irish airline market"
1273
.
Similarly, according to Aer Lingus, Ryanair remains its closest competitor on the
Dublin-Paris route: "[t]his remains unchanged from the 2007 decision: as the
strongest Irish carriers Ryanair and Aer Lingus clearly enjoy the best brand
recognition on routes into and out of Ireland"
1274
.
1269
Agreed minutes of teleconference call of 11 October 2012 with Air France.
1270
Agreed minutes of teleconference call of 11 October 2012 with Air France.
1271
Aer Lingus' response to the Commission's request for information of 20 September 2012, page 4.
1272
See the responses to questions 32.1 and 32.2 of questionnaire Q1 - Competitors.
1273
See agreed minutes of conference call of 11 October 2012 with Air France.
1274
Aer Lingus, response to questions 29, 30, and 32 of questionnaire Q1 – Competitors.
EN 286 EN
(1287) Both Ryanair and Aer Lingus have the strongest city presence in Dublin and
therefore an advantage in winning Irish-originating customers who represent a
significant share of passengers on the Dublin-Paris route. The evidence collected in
the market investigation shows that both Ryanair and Aer Lingus carried a higher
ratio of passengers originating in Ireland compared to Air France/CityJet over the
summer 2011 and winter 2011/2012 seasons: that is to say, […]*% for Ryanair
1275
,
[40-50] % - [60-70] % for Aer Lingus
1276
and [30-40]% - [40-50] % for Air
France/CityJet
1277
.
(1288) Furthermore, Air France/CityJet has based 3 lower capacity aircraft (RJ 85 with 95
seats) at Dublin airport, of which 1 serves the Dublin-Paris route. However due to
lower seat capacity, CityJet would have higher costs per passenger than Ryanair and
Aer Lingus. The limited size of CityJet’s operations at Dublin airport would not
allow CityJet to redeploy capacity from one route to another in reaction to demand
shift as in the case of Aer Lingus and Ryanair. Ryanair and Aer Lingus exert
dynamic competition on each other (that is to say, on a variety of routes) as they have
significant bases in Dublin and have a similar degree of flexibility to react to
demand-side (or supply-side) shocks. For Air France/CityJet, Dublin represents only
one route to/from its destination hub, and it is therefore less committed to adjusting
its capacity to match fluctuations in demand on the variety of routes from and to
Dublin. Furthermore, as a network carrier, Air France/CityJet is more focused on
connecting traffic to its hub airports.
(1289) Therefore it is considered that Ryanair and Aer Lingus are very close, if not each
other's closest competitor, on the Dublin-Paris route. The Transaction would lead to
the elimination of the competitive rivalry existing between Ryanair and Aer Lingus,
which has been an important source of competition on this route, in particular for
point-to-point passengers.
– Entry and expansion
(1290) According to Ryanair
1278
, slots are freely available at both Dublin airport and BVA,
so that any airline can begin operating services on this route.
(1291) The route is subject to the general barriers to entry described in Section 8.5 and to the
assessment described in Sections 8.6 and 8.7.
(1292) In addition, CDG is a level 3 coordinated airport. According to Aéroport de Paris
(ADP), CDG is constrained due to night operation restrictions. In order to reduce
aircraft noise pollution, the number of night movements is limited between 00.30 and
05.29 local time for arrivals and between 00.00 and 04.59 local time for departures
from parking stands. There are no limitations or constraints which would only apply
at peak times
1279
.
1275
Annex 7.3(e) of the Form CO.
1276
Aer Lingus, response to Annex II "Your data" to questionnaire Q1 - Competitors.
1277
Air France, response to Annex II "Your data" to questionnaire Q1 - Competitors.
1278
Ryanair's observations on the Article 6(1)(c) Decision, paragraph 9.
1279
Aéroports de Paris, responses to questions 14-15 of questionnaire Q4 – Airport.
EN 287 EN
(1293) There are no examples of an attempted new entry to this route by other carriers in
recent years
1280
.
(1294) Furthermore, the evidence collected in the market investigation indicates that no
competitor would have post-Transaction entry or expansion projects which could be
considered as timely, likely and sufficient enough to constitute a competitive
constraint on the merged entity and defeat the anticompetitive effects of the
Transaction on the Dublin – Paris route.
– Conclusion
(1295) Therefore, the Commission concludes that the Transaction would significantly
impede effective competition in particular as a result of the creation of a dominant
position in relation to the Dublin-Paris route.
(1296) Moreover, the Transaction is also likely to result in the elimination of the very close
competitive relationship between Ryanair and Aer Lingus and thus to eliminate the
important competitive constraint that both carriers exert upon each other pre-
Transaction on the route. Customers' travelling options therefore would be
substantially reduced and it is unlikely that Air France/CityJet would be able to
constrain the merged entity's market behaviour sufficiently, especially with regard to
fare setting, on the Dublin-Paris route.
8.9.5.7. Dublin- Stockholm
– Route characteristics
(1297) As set out in Section 7.3.3.13, the Commission takes the view that scheduled point-
to-point passenger air transport services between Dublin and Arlanda (ARN) airport
and Dublin and Skavsta (NYO) airport belong to the same market. On the Dublin-
Stockholm route, […]* passengers travelled by air in IATA Summer season 2011
while […]* passengers travelled by air in IATA Winter season 2011/12
1281
.
(1298) According to Ryanair
1282
, the nature of the route is a mix of business and leisure.
(1299) Ryanair contends that this route is seasonal
1283
. Ryanair operates on this route in both
seasons
1284
whereas Aer Lingus only started to operate on this route in March 2012.
However, Aer Lingus has confirmed that tickets for flights on the Dublin–Stockholm
route are on sale for the Winter 2012/2013 and the proposed schedule extends for the
full duration of the Winter 2012/2013 season
1285
. Therefore, the Commission
considers that this route could be considered as seasonal, depending on the evolution
1280
Annex 7.3(a) of the Form CO as updated on 22 August 2012.
1281
Annex 7.3(b) of the Form CO (as revised on 22 August 2012). According to DAA data, [50 000 – 100
000] passengers travelled by air in IATA summer season 2011, [20 000 – 50 000] passengers travelled
by air in IATA winter season 2011/12 and [50 000 – 100 000] passengers travelled by air in IATA
summer season 2012.
1282
Annex 7.3(a) of the Form CO.
1283
Annex 7.3 (a) (i) to the Form CO.
1284
The total number of passengers carried during the IATA summer season 2010 was 51 519 and the total
number of passengers carried during the IATA winter season 2010 was 38 606.
1285
Aer Lingus's response to the Commission's request for information of 3 October 2012.
EN 288 EN
of the numbers of passengers. The precise qualification does not affect the
conclusion drawn in this Decision about this route.
(1300) […]* of Ryanair's passengers on the Dublin-Stockholm route originate in Ireland
1286
.
– Parties' and competitors' operations
(1301) Both Parties operate on the route with non-stop services. Ryanair and Aer Lingus
flights overlap on a city-to-city basis. Ryanair operates from Dublin to (NYO) and
Aer Lingus from Dublin to ARN.
(1302) Aer Lingus started to operate on this route only in March 2012, while Ryanair has
been operating it since October 2007. Ryanair operates a fleet of Boeing 737-800
aircraft. For short-haul routes, Aer Lingus operates essentially a fleet of Airbus A
320 aircraft
1287
.
(1303) Since April 2004, SAS offers direct services on the Dublin-Stockholm city pair,
namely to ARN. SAS operates essentially a fleet of Boeing 737-800 aircraft.
– Frequencies:
(1304) According to Ryanair, the weekly flights operated by the Parties and the only other
operating carrier on this route are as follows
1288
:
Table 59: Weekly flights between Dublin and Stockholm
Summer season 2011
Carrier
Weekly Frequency (1 way)
July
Aer Lingus
0
Ryanair
5
Combined
5
SAS
5
Winter season 2011/2012
Carrier
Weekly Frequency (1 way)
January
Aer Lingus
0
Ryanair
3
Combined
3
SAS
2
Source: Annex 7.3 (b) (i) as updated on 22 August 2012
1286
Annex 7.3 (e) of the Form CO.
1287
Paragraphs 1.2 and 1.3 of the Form CO.
1288
As Ryanair did not provide the number of weekly flights for whole IATA seasons, only the frequency
for the respective peak months July and January is indicated, as a general benchmark.
EN 289 EN
(1305) Aer Lingus started to operate on this route (to ARN) only in March 2012, with 4
weekly frequencies both in the shoulder season starting the first week of April and in
the peak season starting the first week of July.
(1306) Ryanair operated an average of 5 weekly frequencies in the summer season 2011 and
an average of 3 weekly frequencies in the winter season 2011/2012 to NYO. Apart
from the Parties, SAS operated 5 weekly frequencies in the summer season 2011 and
2 weekly frequencies in the winter season 2011/2012 to ARN.
(1307) The weekly frequencies for the summer season 2012 for Ryanair and Aer Lingus
combined amounted to 7 weekly frequencies, whereas for SAS remained the same as
in summer season 2011. Therefore, in the summer season 2012, the Parties had more
combined weekly frequencies than SAS.
– Market shares - capacity
(1308) Table 60 indicates the market shares of the Parties and the other only competitor
active on the route on the basis of seat capacity in IATA summer season 2011 and in
IATA winter season 2011/12
1289
:
Table 60: Market shares for seat capacity
Summer season 2011
Carrier
Weekly Seats available (1 way)
Parties' and competitor's market shares
July
Aer
Lingus
0
0%
Ryanair
945
56%
Combined
945
56%
SAS
730
44%
Winter season 2011/2012
Carrier
Weekly Seats available (1 way)
Parties' and competitor's market shares
January
Aer
Lingus
0
0%
Ryanair
567
67%
Combined
567
67%
SAS
280
33%
Source: Annex 7.3(b) (i) as updated on 22 August 2012
(1309) Ryanair had a market share of more than 50% in each of the two above presented
IATA seasons.
1289
As Ryanair did not provide the number of seat capacity for whole IATA seasons, only the seats
available for the respective peak months July and January is indicated, as a general benchmark.
EN 290 EN
(1310) Aer Lingus entered the Dublin-Stockholm route in March 2012 and took market
share away from Ryanair and SAS. According to Ryanair's data, updated on 22
August 2012, as regards IATA summer season 2012, Ryanair had 567 weekly seats
(28.7%) available to NYO. Aer Lingus had 696 weekly seats (35%) available to
ARN. SAS weekly capacity to ARN amounted to 712 seats (36%). According to
DAA data pertaining to the whole IATA summer season 2012, the market shares
based on seat capacity are the following: Ryanair [30-40%], Aer Lingus [30-40%]
and SAS [30-40%]
1290
.
(1311) In its' comments regarding the Commission letter of facts of December 14, 2012,
Ryanair argued that the ranges provided for capacity shares misrepresented the actual
capacity shares of the relevant airlines on this route for the IATA summer season
2012. However, as stated in the Section 8.9.1., the market shares provided by DAA
are replaced by the standard ranges used by the Commission. The suggestion made
by Ryanair to use 5% ranges instead of 10% ranges would not alter the Commission's
conclusion in any event
1291
.
– Market shares - passengers
(1312) Table 61 indicates the market shares of the Parties and the only other competitor
active on the route on the basis of passengers carried in IATA summer season 2011
and in IATA winter season 2011/12:
Table 61: Market shares for air services
Dublin - Stockholm
Season
Total
pax
Annex
7.3.b
Ryanair
market
share
Aer
Lingus
Market
share
Combined
market
share
SAS
Total
Summer
Season 2011
[…]*
[60-
70]*%
[0-5]*%
[60-70]*%
[30-
40]*%
100%
Winter Season
2011/2012
[…]*
[60-
70]*%
[0-5]*%
[70-
80]*
1292
%
[20-
30]*%
100%
Source: European Commission on the basis of information provided by Ryanair in Annex 7.3(b) as updated on
22 August 2012
(1313) However, the Commission notes that the market shares for passengers as calculated
on the basis of the information provided by Ryanair are not in line (to the
disadvantage of Ryanair) with the market shares for passengers calculated on the
basis of the more accurate information provided by DAA. The market shares
1290
DAA's response to the Commission's request for information of 3 December 2012.
1291
In the comments on the Commission letter of facts of December 14, 2012, Ryanair argued that using
DAA data it would have a 29% share of capacity. However, upon further questions raised by the
Commission, Ryanair reviewed that data again and agreed with the Commission's proposal to use a
range of 30-40% for Ryanair's capacity on the Dublin-Stockholm route for the summer 2012 season.
1292
The small difference between the combined market share and the sum of Ryanair's and Aer Lingus'
market shares is explained by the effects of rounding.
EN 291 EN
calculated on the basis of the information provided by DAA would then be the
following:
Table 62: Market shares for air services on the Dublin-Stockholm route
Season
Combined
market
share
SAS
Summer season
2011
[50-60]%
[40-50]%
Winter season
2011/2012
[50-60]%
[40-50]%
Source: DAA's response to the Commission's request for information of 26 July 2012
(1314) Moreover, on the basis of DAA's data for IATA summer season 2012, the market
share of the merged entity, taking Aer Lingus entry into account, would increase to
[60-70%]
1293
.
(1315) Such high combined market share on this route is itself evidence of a dominant
market position.
(1316) It is to be noted that SAS' current very difficult financial situation would indicate that
SAS would be a weak competitor to the merged entity in the short to medium-
term
1294
.
– Closeness of competition
(1317) Ryanair argues that Aer Lingus and SAS are much closer competitors to each other
than they are to Ryanair on this route, in particular because they both operate
services to ARN, while Ryanair operates to NYO
1295
.
(1318) Ryanair also argues that the product offering of Ryanair and Aer Lingus is
significantly different in term of fares and services
1296
. The Commission does not
contest the view that Aer Lingus is a closer competitor to SAS than Ryanair, given
that Aer Lingus positions itself between Ryanair and full service carriers, such as
SAS as a value-carrier. In any event, this does not in itself exclude the finding that on
the Dublin-Stockholm route Ryanair and Aer Lingus would remain very close if not
each other's closest competitor.
(1319) As regards closeness of competition, the responses to the market investigation were
largely divided, in favour of SAS, in relation to the Dublin-Stockholm route
1297
. A
1293
DAA's response to the Commission's request for information of 3 December 2012.
1294
Print out of 6 December 2012 of http://www.newsinenglish no/2012/11/16/sas-seeks-to-reassure-
customers/.
1295
Ryanair's observations on Article 6(1)(c) Decision, paragraph 10.
1296
Ryanair's observations on Article 6(1)(c) Decision, paragraph 18.
1297
When counting the replies, in cases where respondents have indicated several competing airlines as the
closest to Ryanair, on a conservative basis the Commission took into account all carriers that were
EN 292 EN
majority of competitors have indicated SAS as the closest competitor to Ryanair and
the majority of competitors have considered SAS as the closest competitor to Aer
Lingus
1298
. The majority of airports considered SAS as the closest competitor to
Ryanair, while Ryanair was more often indicated as the closest competitor to Aer
Lingus
1299
. Most travel agents considered Aer Lingus as the closest competitor to
Ryanair, but the views were equally divided as to whether SAS or Ryanair is the
closest competitor to Aer Lingus
1300
. The majority of corporate customers considered
that SAS is the closest to both Ryanair and Aer Lingus
1301
.
(1320) However, those who specified both SAS and/or Aer Lingus as the closest competitor
to Ryanair either gave no explanation or based their views on either of the following:
(i) comparable seat capacities and/or market shares of SAS, Aer Lingus and Ryanair
(ii) SAS's strong network brand recognition. Although it is true that all three carriers
have had similar market shares in summer 2012, they differed in terms of brand
recognition, business models and the extent of operation in Ireland.
(1321) Despite diverging responses to the market investigation and the fact that Aer Lingus
and Ryanair fly to different airports, the Commission considers that the Parties are
very close, if not each other's closest competitor on the Dublin-Stockholm route. It is
apparent that Aer Lingus is a closer competitor to Ryanair in comparison to SAS, a
full service carrier. In addition, Aer Lingus and Ryanair appear as very close if not
each other's closest in terms of services and business models.
(1322) SAS does not consider that either Aer Lingus or Ryanair is a very close competitor to
SAS. SAS deems itself to be "a network carrier, flying to primary airports and
targeting passengers that travel mainly for business purposes"
1302
. SAS’ business
model is the one of a traditional network carrier operating a hub and spoke system as
opposed to the models of Ryanair and Aer Lingus. It can also be observed from the
evidence collected in the market investigation that even on the Dublin-Stockholm
route Aer Lingus is less focused on connecting passengers than SAS (SAS carried
[10-20]% of connecting passengers, while Aer Lingus only [0-5]% of connecting
passengers over the last two IATA seasons)
1303
.
(1323) Even though SAS serves the same airport in Stockholm as Aer Lingus, SAS
"network is mainly dimensioned according to business travellers' needs, but leisure
travel is a growing segment […]"
1304
. SAS offers business class tickets and estimates
that [10-20]% are TS passengers on this route
1305
. On the contrary, Ryanair does not
target business passengers and for Aer Lingus the sales of flexi-fare and plus-fare
tickets still represents a very small portion of overall sales and it "does not collect or
specified when counting the respective majorities (e.g., where both SAS and Aer Lingus were indicated
as the closest to Ryanair, each of SAS and Aer Lingus were counted once).
1298
See responses to questions 29 and 30 of questionnaire Q1 - Competitors.
1299
See responses to questions 22 and 23 of questionnaire Q4 - Airports.
1300
See responses to questions 14 and 15 of questionnaire Q2 – Travel agents.
1301
See responses to questions 14 and 15 of questionnaire R1 – Corporate Customers.
1302
Agreed minutes of conference call of 5 October 2012 with SAS, page 1.
1303
SAS, response to Annex II "Your data" of questionnaire Q1 – Competitors; and Aer Lingus, response to
Annex II "Your data" of questionnaire Q1 – Competitors.
1304
SAS, response to question 2 of questionnaire Q1 – Competitors.
1305
SAS, response to Annex II "Your data" of questionnaire Q1 – Competitors.
EN 293 EN
possess data which enables it to distinguish between different categories of
passengers on its short-haul routes"
1306
.
(1324) SAS uses a one-way pricing model as does Ryanair and Aer Lingus. However, unlike
for Ryanair and Aer Lingus, SAS sells a vast majority of its tickets indirectly (such
as, via travel agents)
1307
. Ryanair sell all tickets online, while Aer Lingus also sells
[80-90]% of tickets directly to end-customers.
(1325) The Commission's regression analysis confirms that the conclusion derived from
qualitative evidence that Ryanair and Aer Lingus are close and closest competitors as
described in more detail in Annex III.
(1326) According to Aer Lingus, Ryanair remains its primary competitor on the Dublin-
Stockholm route, since " [t]he other carrier (SAS) is focused on connecting and
business traffic"
1308
. Aer Lingus confirms that it offers low fares and a choice of
unbundled products, similar to Ryanair. Although SAS operates true one-way
pricing, as do the Parties, SAS prices much higher and is monitored less closely by
the parties
1309
. Aer Lingus also considers that on the Dublin–Stockholm route in case
of 5-10% price increase of Ryanair fares only "few passengers would switch to the
scheduled airline operating direct services, whilst significant numbers of passengers
would switch to Aer Lingus. […] the scheduled carriers on these routes (all “flag
carriers”) are often significantly more expensive than Aer Lingus or Ryanair"
1310
.
(1327) Further evidence on the closeness of competition between Ryanair and Aer Lingus
can be observed from the changes in the seat capacity and passenger market share
data in response to a recent entry by Aer Lingus in late Winter 2011/2012. Since
entry, in the summer of 2012 Aer Lingus has gained a significant market share of
35% in terms of seat capacity and [20-30]% in terms of point-to-point passenger
numbers (DAA data) largely at the expense of Ryanair, rather than SAS. In
particular, the market share of Aer Lingus has increased from [0-5]% to [20-30]%,
while the market share of Ryanair decreased from [50-60]% to [30-40]%. The market
share of SAS changed only slightly by [0-5]%.
(1328) The Commission furthermore considers, as set out in Section 8.4, that the Parties are
each other's closest competitors on the Dublin-Stockholm route with respect to Irish
originating passengers, based on their high brand recognition in Ireland, strong
overall market positions and bases in Ireland.
1306
Flexi Fare offers refundability and free changes together with ancillary elements, but "flexi [fare] tickets
represent a very small portion of overall sales". Aer Lingus' sales of flexi-fare and plus fare tickets
represent a very small portion of overall sales and the sales of these ticket in any event would "not
accurately reflect the level of business / time sensitive passengers carried by Aer Lingus" (see email of
Aer Lingus dated 23 July 2012, Aer Lingus' response to question 8 of the Commission's request for
Information of 2 August 2012 and Aer Lingus' response to questions 1.1-1.4 of the Commission's
request for information of 3 July 2012).
1307
See agreed minutes of conference call of 5 October 2012 with SAS, page 1.
1308
Aer Lingus, response to questions 29 and 30 of questionnaire Q1 - Competitors.
1309
Aer Lingus' response to the Commission's request for information of 20 September 2012, page 4.
1310
Aer Lingus, response to question 6.2.1 of questionnaire R4 - Competitors.
EN 294 EN
(1329) While Ryanair and Aer Lingus both enjoy a strong brand recognition on the routes to
and from Ireland
1311
, according to SAS, its brand is stronger in Sweden than in
Ireland and primarily in "segment(s) requiring service, punctuality and
reliability"
1312
, not low fares
1313
. Similarly, according to Aer Lingus, Ryanair
remains its closest competitor on the Dublin-Stockholm route: "[t]his remains
unchanged from the 2007 decision: as the strongest Irish carriers Ryanair and Aer
Lingus clearly enjoy the best brand recognition on routes into and out of
Ireland"
1314
.
(1330) Both Ryanair and Aer Lingus have the strongest city presence in Dublin and
therefore an advantage in winning Irish-originating customers who represent a
significant share of passengers on the Dublin-Stockholm route. The evidence
collected in the market investigation shows that both Ryanair and Aer Lingus carried
a higher ratio of passenger originating in Ireland compared to SAS over the last three
IATA seasons: that is to say, […]* % for Ryanair
1315
, [40-50] % for Aer Lingus
1316
and only [20-30]* % for SAS
1317
.
(1331) Furthermore, SAS has no based aircraft at Dublin airport, and therefore does not
enjoy the same base advantages as Ryanair and Aer Lingus at the Irish side of the
route. Similarly, SAS does not exert the same level of constraint from its hub in
Stockholm, as Aer Lingus and Ryanair do on each other. Ryanair and Aer Lingus
exert dynamic competition on each other (that is to say, on a variety of routes) as
they have significant bases in Dublin and have a similar degree of flexibility to react
to demand-side (or supply-side) shocks. For SAS, Dublin represents only one route
from its destination hub, and it is therefore less committed to adjusting its capacity to
match fluctuations in demand on the variety of routes from and to Dublin. As a
network carrier, SAS has more focus on connecting traffic to its hub.
(1332) Therefore it is considered that Ryanair and Aer Lingus are very close competitors, if
not each other's closest competitor, on the Dublin-Stockholm route. The Transaction
would lead to the elimination of the competitive rivalry existing between Ryanair
and Aer Lingus, which has been an important source of competition on this route, in
particular for point-to-point passengers.
– Entry and expansion
(1333) SAS started to operate the Dublin-Stockholm route in 2004. Ryanair entered the
route in October 2007. Aer Lingus entered in March 2012.
1311
See the responses to questions 32.1 and 32.2 of questionnaire Q1 - Competitors.
1312
SAS, response to question 32.3.1 of questionnaire Q1- Competitors.
1313
See Section 8.4.2 of this Decision on closeness of competition and response of SAS to questions 32.1-
32.3 of questionnaire Q1 – Competitors. Only 20% of passengers for SAS originated from Ireland in the
last three IATA seasons (see SAS, response to Annex II "Your data" of questionnaire Q1- Competitors).
1314
Aer Lingus, responses to questions 29, 30, and 32 of questionnaire Q1 – Competitors.
1315
Annex 7.3(e) of the Form CO.
1316
Aer Lingus, response to Annex II "Your data" of questionnaire Q1 - Competitors, data for summer 2012
season only.
1317
See responses to Annex II "Your data" to questionnaire Q1 - Competitors.
EN 295 EN
(1334) Flynordic started operations on this route in April 2006 but exited in September
2007, following its acquisition by Norwegian.
1318
(1335) Ryanair argues that Norwegian has a base at ARN and is a potential competitor that
can enter the route at any time
1319
.
(1336) The route is subject to the general barriers to entry described in Section 8.5 and to the
assessment described in Sections 8.6 and 8.7.
(1337) In addition, ARN is a level 3 coordinated airport, and is slot constrained. According
to the ACS
1320
, the airport coordinator and Swedavia AB
1321
, there are runway
constraints during peak hours, in particular in the morning from 06.55 local time to
09.15 local time. However, Swedavia AB indicates that "even though there are some
constraints, we do not see future problems based on today's prognosis"
1322
.
(1338) Finally, the evidence collected in the market investigation indicates that no
competitor would have post-Transaction entry or expansion projects which could be
considered as timely, likely and sufficient enough to constitute a competitive
constraint on the merged entity and defeat the anti-competitive effects of the
Transaction on the Dublin – Stockholm route.
– Conclusion
(1339) Therefore, the Commission concludes that the Transaction is likely to significantly
impede effective competition in particular as a result of the creation of a dominant
position in relation to the Dublin-Stockholm route.
(1340) Moreover, the Transaction is also likely to result in the elimination of the very close
competitive relationship between Ryanair and Aer Lingus and thus to eliminate the
important competitive constraint that both carriers exert upon each other pre-
Transaction on the route. Customers' travelling options therefore would be
substantially reduced and it is unlikely that SAS would be able to constrain the
merged entity's market behaviour sufficiently, especially with regard to fare setting,
on the Dublin-Stockholm route.
8.9.5.8. Conclusion on the routes where other scheduled carriers operate
(1341) In view of the foregoing the Commission concludes that the Transaction is likely to
significantly impede effective competition on the following 7 routes where other
scheduled carriers operate: Dublin-Bristol/Cardiff/Exeter; Dublin-Frankfurt; Dublin-
London; Dublin-Madrid; Dublin-Munich; Dublin-Paris and Dublin-Stockholm.
1318
Annex 7(3) (a) and 7(3)(a)(ii) of the Form CO.
1319
Ryanair's observations on Article 6(1)(c) Decision, paragraph 10.
1320
ACS, response to question 4 of Questionnaire 3 – Airport coordinators.
1321
Swedavia, responses to questions 14-15 of questionnaire Q4 – Airports.
1322
Swedavia, responses to questions 14-15 of questionnaire Q4 – Airports.
EN 296 EN
8.9.6. Routes where charter companies operate
(1342) There are 11 routes on which charter companies and the Parties operate: Dublin-
Malaga; Dublin-Faro; Dublin-Barcelona; Dublin-Palma; Dublin-Lanzarote; Dublin-
Gran Canaria; Dublin-Ibiza; Cork-Barcelona; Cork-Lanzarote; Cork-Malaga and
Cork-Palma.
8.9.6.1. Closeness of competition
(1343) As assessed in particular in Section 8.4.2, charter companies are only distant
competitors to the Parties and therefore cannot be considered to constitute a
significant competitive constraint to Ryanair and Aer Lingus on the overlap routes.
The Parties are each other's closest competitors considering that each of the Parties is
by far the largest competitor of the other Party on all the routes where charter
companies are active.
(1344) Charter companies are not close competitors to the Parties as they often operate on a
seasonal basis with relatively low flight frequencies set in response to the
requirements of tour operators. In particular, on seven out of the 11 routes, charter
companies operate lower flight frequencies than Ryanair or Aer Lingus (Dublin-
Barcelona, Dublin-Faro, Dublin-Gran Canaria, Dublin-Ibiza, Dublin-Malaga, Cork-
Barcelona, Cork-Malaga). On eight out of the 11 routes (Dublin-Barcelona, Dublin-
Faro, Dublin-Ibiza, Dublin-Malaga, Dublin-Palma, Cork-Barcelona, Cork-Malaga,
and Cork-Palma), charter companies do not operate, or operate negligibly, in winter
season, while both Aer Lingus and Ryanair offer scheduled services.
(1345) In this respect, Ryanair considers that a number of charter companies offer dry seats
on the 11 routes where charter companies are active, and that they have proven
ability to expand capacity
1323
. Ryanair also submits that by dismissing charter
companies the Commission "ignores the fact that many of the overlap routes are
seasonal routes and, although charter carriers' average frequencies during an entire
season may be low, actual frequencies flown during periods of significant customer
demand likely exceed the season-wide average charter frequencies"
1324
.
(1346) As set out in Section 8.9.1 regarding methodology, the Commission has found that
the frequency data appears adequate for the competitive assessment. In any event,
even on the routes where charter companies offer a somewhat comparable number of
frequencies to Ryanair and Aer Lingus, the sales of dry seats still represent only a
small part of charter companies' business activities. In fact, based on the market share
data, on all overlap routes the share of dry seats did not exceed [10-20] % in the
summer season, and [5-10]% in winter season, both in terms of weekly seat capacity
and number of passengers. In most cases the market shares of charter companies
were even lower. In this respect the business models of all the charter companies that
are active on the 11 routes is materially different from that of the Parties.
(1347) The market investigation has also confirmed that charter companies are not the
closest competitors of either of the Parties. The travel agencies that sell package
1323
Paragraph 6.6, footnote 9, of the Form CO.
1324
Ryanair's observations on Article 6(1)(c) Decision, paragraph 28.
EN 297 EN
holidays named mostly Ryanair and Aer Lingus to be each other's closest competitor
on the charter routes at issue
1325
. Similarly, the tour operators, to which charter
companies sell seats or entire flights, named mostly Ryanair and Aer Lingus to be
each other's closest competitor on the charter routes at issue
1326
. This was confirmed
by the charter companies themselves
1327
as well as by the corporate customers
1328
.
(1348) Finally, Ryanair submits that the Commission has wrongly dismissed charter
companies as actual and potential constraints on the merged entity […]* and because
no data on passenger volumes was readily available. Ryanair states that it cannot
monitor charter companies simply because there is no source of pricing evidence to
monitor. However, this does not appear consistent with the information provided by
Ryanair. For instance, in Annex 7.7 to the Form CO, Ryanair specified that it
monitors a number of carriers, including Thomson, Thomas Cook, Monarch and
Germania which are charter companies. However, Ryanair does not monitor these
airlines on the charter routes concerned by this Decision despite their presence
1329
.
On the contrary, Ryanair actively monitors Aer Lingus on the 11 routes, where
charter operators are active.
(1349) Similarly, Aer Lingus does not take into account the prices of charter companies and
does not believe that charter companies impose a competitive constraint on it
1330
.
(1350) The Commission's regression analysis confirms and complements the conclusion
derived from qualitative evidence that Ryanair and Aer Lingus are close and each
other's closest competitors as described in more detail in Annex III.
(1351) In any event, although Ryanair's entry on certain leisure routes may have had an
impact on charter operations, it does not mean that charter companies constrain
Ryanair to the same extent as Aer Lingus, that essentially offers point-to-point
services on these routes.
(1352) Therefore it is considered that Ryanair and Aer Lingus are each other's closest
competitor on the 11 routes on which charter companies compete with the Parties.
The Transaction would lead to the elimination of the competitive rivalry existing
between Ryanair and Aer Lingus, which has been an important source of competition
on those routes, in particular for point-to-point passengers.
8.9.6.2. No significant constraints exercised by indirect services
(1353) The absence of significant constraints by indirect services has been developed in
Section 8.9.3. The same conclusion applies to routes on which charter companies
operate.
1325
Responses to questions 14 and 15 of questionnaire Q2 - Travel Agents.
1326
Responses to questions 27 and 28 of questionnaire R2 - Tour Operators.
1327
Responses to questions 29 and 30 of questionnaire Q1 – Competitors.
1328
Responses to questions 14 and 15 of questionnaire R1 – Corporate Customers.
1329
See second table in Annex 7.7 of the Form CO.
1330
Agreed minutes of a meeting of 14 September 2012 with Aer Lingus, Section II.
EN 298 EN
8.9.6.3. Entry/exit
(1354) Evidence collected in the market investigation indicates that no charter company
would have post-Transaction entry projects which could be considered as timely,
likely and sufficient enough to constitute a competitive constraint on the merged
entity and offset the anti-competitive effects of the Transaction on the routes where
charter companies operate.
8.9.6.4. Dublin-Barcelona
– Route characteristics
(1355) On the Dublin-Barcelona route, […]* passengers travelled with the Parties in IATA
summer season 2011, while […]* passengers travelled in IATA winter season
2011/12. These figures include Ryanair passengers from Girona (GRO) and Reus
(REU), as Ryanair not only operates to Barcelona city airport (BCN), but also these
latter airports
1331
. However, as Ryanair did not provide numbers for the passengers
travelling on charter flights on this route
1332
, the total number of passengers including
those charter passengers cannot be indicated
1333
.
(1356) According to Ryanair, Dublin-Barcelona is a mixed business - leisure route
1334
.
(1357) The route overlaps are not only seasonal. Both Ryanair and Aer Lingus operate this
route to BCN in both seasons. Moreover, Ryanair also operates its services to Girona
and Reus in both seasons
1335
.
(1358) With regard to the airport pairs DUB-BCN and DUB-GRO […]*% of Ryanair's
passengers originate from the Irish end of the route. On DUB-REU this percentage is
higher, namely […]*%
1336
.
– Parties' operations
(1359) Both Parties operate on the route with non-stop services. Ryanair and Aer Lingus
overlap on an airport-to-airport basis with regard to DUB-BCN and moreover on a
city-to-city basis with regard to Ryanair's additional operations to GRO and REU.
1331
Annex 7.3(b) of the Form CO, as revised on 22 August 2012. According to the information provided by
Ryanair in Annex 7.3(b) and in its reply to the Commission's request for information of 20 September
2012, the number of passengers booked on the airport pairs Dublin-Girona were 29 069 for summer
2011 and 2 604 for winter 2011/12 and for Dublin-Reus 81 394 for summer 2011 and 2 131 for winter
2011/12.
1332
Ryanair did not provide figures for the charter passengers on the Dublin-Barcelona route in the table of
response 9.1 to the Commission's request for information of 6 August 2012.
1333
According to DAA data, [200 000 – 300 000] passengers travelled by air in IATA summer season 2011,
[50 000 – 100 000] passengers travelled by air in IATA winter season 2011/12 and [300 000 – 400 000]
passengers travelled by air in IATA summer season 2012. These figures are based on the very
conservative assumption that the ratio of dry seats amounts to 20% of passengers.
1334
Annex 7.3(a) of the Form CO; the 2007 Decision held it to be predominantly a leisure route in
paragraph 228.
1335
Table on page 7 of Ryanair's response to the Commission's request for information of 20 September
2012.
1336
Annex 7.3 (e) of the Form CO.
EN 299 EN
(1360) Aer Lingus entered this route in March 2002. Ryanair first entered DUB-GRO in
2003, then added DUB-REU in 2004 and finally also entered DUB-BCN in
September 2012. According to Ryanair, Thomson entered this route in 2010. Iberia
operated the airport pair DUB-BCN from 2004 to 2007. Clickair was active between
this airport pair from March 2007 to September 2008
1337
.
– Frequencies
(1361) Table 63 indicates the weekly flights operated by the Parties on this route. The
average frequency for the charter flights is based on DAA data.
Table 63: Weekly flights between Dublin and Barcelona
Summer season 2011
Carrier
Weekly Frequency (1 way)
July
Aer Lingus
13
Ryanair
7
1338
Combined
20
All charters
3
Winter season 2011/2012
Carrier
Weekly Frequency (1 way)
January
Aer Lingus
11
Ryanair
7
1339
Combined
18
All charters
0
Source: Annex 7.3 (b) as updated on 22 August 2012 and Annex "Question 1.6" to DAA's response to the
Commission's request for information of 20 September 2012
1340
(1362) In the IATA summer season 2011 Ryanair operated 7 weekly frequencies between
the airports DUB-BCN; Aer Lingus operated 13 weekly frequencies between the
same airport pair. Three charter companies each operated on average 1 weekly
frequency between the airport pair DUB-REU.
(1363) In the IATA winter season 2011/12 Ryanair operated 7 weekly frequencies on DUB-
BCN, and Aer Lingus operated 11 weekly frequencies on DUB-BCN. No charter
company operated the route at issue during winter seasons 2011/12.
(1364) In the IATA summer season 2012 Ryanair operated a total of 18 weekly frequencies
on the route Dublin-Barcelona (7 on DUB-BCN, 4 on DUB-GRO and 7 on DUB-
1337
Annex 7.3(a) of the Form CO; Annex 7.3(a)(ii) of Form CO.
1338
Excluding Ryanair's operations to GRO and REU, as the frequency for those airports was not submitted
for IATA season summer 2011.
1339
Including Ryanair's operations to GRO and REU, table 6.1 of Ryanair's response to the Commission's
request for information of 6 August 2012.
1340
Annex "Question 1.6" to DAA's response to the Commission's request for information of 20 September
2012.
EN 300 EN
REU), while Aer Lingus increased its frequencies to 14 weekly frequencies. Two
charter companies each operated on average 1 weekly frequency between the airport
pair DUB-REU.
(1365) Charter companies thus operated only on DUB-REU and only during the summer
seasons.
– Market shares - capacity
(1366) Table 64 indicates the market shares of the Parties and the charter companies active
on this route on the basis of seat capacity in the IATA summer season 2011 and in
the IATA winter season 2011/12. As Ryanair did not provide data in this respect for
charter companies, the market shares were computed on data made available by
DAA.
Table 64: Market shares for seat capacity
Summer season 2011
Carrier
Market shares
Aer Lingus
[40-50%]
Ryanair
[50-60%]
Combined
[90-100%]
Charters
[0-5%]
Winter season 2011/2012
Carrier
Market shares
Aer Lingus
[50-60%]
Ryanair
[40-50%]
Combined
100%
Charters
0
Source: DAA's response to the Commission's request for information of 26 July 2012.
(1367) As regards the IATA summer season 2012, Ryanair had a market share of [50-60%]
and Aer Lingus a market share of [30-40%]. The charter companies represented [0-
5%] of the seat capacity on this route
1341
.
(1368) It follows that post-Transaction, the Parties would have a quasi-monopoly on the
route in the summer season and a monopoly in the winter season.
1341
DAA's response to the Commission's request for information of 3 December 2012.
EN 301 EN
– Market shares - passengers
(1369) Table 65 indicates the market shares of the Parties and of the charter companies
active on the route on the basis of passengers carried in the IATA summer season
2011 and in the IATA winter season 2011/12.
Table 65: Market shares for air services
Summer season 2011
Carrier
Market shares
Aer Lingus
[30-40%]
Ryanair
[60-70%]
Combined
[90-100%]
Charters
[0-5%]
Winter season 2011/2012
Carrier
Market shares
Aer Lingus
[50-60%]
Ryanair
[40-50%]
Combined
100%
Charters
0
Source: DAA's response to the Commission's request for information of 26 July 2012
(1370) As regards the IATA summer season 2012, Ryanair had a market share of [60-70%]
and Aer Lingus of [30-40%]. The charter companies carried a share of [0-5%] of the
passengers on this route
1342
.
(1371) It follows that post-Transaction, the Parties would have a quasi-monopoly on the
route in the summer season and a monopoly in the winter season.
– Conclusion
(1372) Therefore, the Commission concludes that the Transaction is likely to significantly
impede effective competition in particular as a result of the creation of a dominant
position in relation to the Dublin-Barcelona route.
(1373) Moreover, the Transaction is also likely to result in the elimination of the very close
competitive relationship between Ryanair and Aer Lingus and thus to eliminate the
1342
DAA's response to the Commission's request for information of 3 December 2012.
EN 302 EN
important competitive constraint that both carriers exert upon each other pre-
Transaction on the route. Customers' travelling options therefore would be
substantially reduced and it is unlikely that charter companies would be able to
constrain sufficiently the merged entity's market behaviour, especially with regard to
fare setting, on the Dublin-Barcelona route.
8.9.6.5. Dublin-Faro
– Route characteristics
(1374) On the Dublin-Faro route, […]* passengers travelled in IATA summer season 2011
while […]* passengers travelled in IATA winter season 2011/12
1343
.
(1375) According to Ryanair, Dublin-Faro is predominantly a leisure route
1344
.
(1376) However, the route overlaps are not only seasonal, as both Ryanair and Aer Lingus
operate this route in the summer and the winter seasons
1345
.
(1377) According to Ryanair […]*% of its passengers originate from the Irish end of the
route
1346
.
– Parties' operations
(1378) Both Parties operate on the route with non-stop services and overlap on an airport-to-
airport basis.
(1379) Aer Lingus entered this route in 2002. Ryanair subsequently entered in March 2003.
– Frequencies
(1380) Table 66 indicates the weekly flights operated by the Parties on this route. The
average frequency for the charter companies is based on DAA data.
1343
Annex 7.3(b) of the Form CO, as revised on 22 August 2012 and Ryanair's response to the
Commission's request for information of 6 August 2012. According to DAA data, [200 000 – 300 000]
passengers travelled by air in IATA summer season 2011, [20 000 – 50 000] passengers travelled by air
in IATA winter season 2011/12 and [200 000 – 300 000] passengers travelled by air in IATA summer
season 2012. These figures are based on the very conservative assumption that the ratio of dry seats
amounts to 20% of passengers.
1344
Annex 7.3(a) of the Form CO.
1345
Annex 7.3(a) of the Form CO.
1346
Annex 7.3 (e) of the Form CO.
EN 303 EN
Table 66: Weekly flights between Dublin and Faro
Summer season 2011
Carrier
Weekly Frequency (1 way)
July
Aer Lingus
11
Ryanair
18
Combined
29
All charters
4
Winter season 2011/2012
Carrier
Weekly Frequency (1 way)
January
Aer Lingus
3
Ryanair
3
Combined
6
All charters
0
Source: Annex 7.3 (b) as updated on 22 August 2012 and Annex "Question 1.6" to DAA's response to the
Commission's request for information of 20 September 2012
1347
(1381) In the IATA summer season 2011 Ryanair operated 18 weekly frequencies and Aer
Lingus operated 11 weekly frequencies on the route. Two charter companies
operated each on average 1 weekly frequency, while a third charter company
operated on average 2 weekly frequencies on the route.
(1382) In the IATA winter season 2011/12 Ryanair and Aer Lingus both operated 3 weekly
frequencies. No charter company operated on the route during the winter season
2011/12.
(1383) In the IATA summer season 2012, Ryanair increased its weekly frequencies to 19,
and Aer Lingus increased its weekly frequencies to 14. The Parties thus operated a
total of 33 weekly frequencies on the route at issue. The number of frequencies by
the charter companies decreased to a total of 3 weekly frequencies.
(1384) Charter companies thus operate on the Dublin-Faro route only during the summer
seasons.
– Market shares - capacity
(1385)
1347
Annex "Question 1.6" to DAA's response to the Commission's request for information of 20 September
2012.
EN 304 EN
Table 67 indicates the market shares of the Parties and the charter companies active
on this route on the basis of seat capacity in the IATA summer season 2011 and in
the IATA winter season 2011/12. As Ryanair did not provide data in this respect for
charter companies, the market shares were computed on data made available by
DAA.
EN 305 EN
Table 67: Market shares for seat capacity
Summer season 2011
Carrier
Market shares
Aer Lingus
[40-50%]
Ryanair
[50-60%]
Combined
[90-100%]
Charters
[0-5%]
Winter season 2011/2012
Carrier
Market shares
Aer Lingus
[40-50%]
Ryanair
[50-60%]
Combined
100%
Charters
0
Source: DAA's response to the Commission's request for information of 26 July 2012
(1386) As regards IATA summer season 2012 Ryanair had a market share of [40-50%] and
Aer Lingus a market share of [40-50%]. The charter companies represented between
[0-5%]
1348
.
(1387) It follows that post-Transaction, the Parties would have a quasi-monopoly on the
route in the summer season and a monopoly in the winter season.
– Market shares - passengers
(1388)
1348
DAA's response to the Commission's request for information of 3 December 2012.
EN 307 EN
Table 68: Market shares for air services
Summer season 2011
Carrier
Market shares
Aer Lingus
[40-50%]
Ryanair
[50-60%]
Combined
[90-100%]
Charters
[0-5%]
Winter season 2011/2012
Carrier
Market shares
Aer Lingus
[40-50%]
Ryanair
[50-60%]
Combined
100%
Charters
0
Source: DAA's response to the Commission's request for information of 26 July 2012
(1389) As regards IATA summer season 2012 Ryanair had a market share of [40-50%] and
Aer Lingus a share of [40-50%]. The charter companies represented between [0-
5%]
1349
.
(1390) It follows that post-Transaction, the Parties would have a quasi-monopoly on the
route in the summer season and a monopoly in the winter season.
– Conclusion
(1391) Therefore, the Commission concludes that the Transaction is likely to significantly
impede effective competition in particular as a result of the creation of a dominant
position in relation to the Dublin-Faro route.
(1392) Moreover, the Transaction is also likely to result in the elimination of the very close
competitive relationship between Ryanair and Aer Lingus and thus to eliminate the
important competitive constraint that both carriers exert upon each other pre-
Transaction on the route. Customers' travelling options therefore would be
substantially reduced and it is unlikely that charter companies would be able to
constrain sufficiently the merged entity's market behaviour, especially with regard to
fare setting, on the Dublin-Faro route.
1349
DAA's response to the Commission's request for information of 3 December 2012.
EN 308 EN
8.9.6.6. Dublin-Gran Canaria
– Route characteristics
(1393) On the Dublin-Gran Canaria route, […]* passengers travelled in the IATA summer
season 2011 while […]* passengers travelled in the IATA winter season 2011/12
1350
.
(1394) According to Ryanair
1351
, the Dublin-Gran Canaria route is a leisure route.
(1395) […]*% of Ryanair's passengers on this route originate at the Irish end of the
route
1352
.
– Parties' operations
(1396) Both Parties operate on the route with non-stop services. Ryanair and Aer Lingus
overlap on an airport-to-airport basis. Both operate from Dublin to Las Palmas
airport (LPA).
(1397) Aer Lingus started to operate on this route in winter 2004/2005 while Ryanair has
been operating on it since winter 2009/2010
1353
.
– Frequencies
(1398) Table 69 indicates the weekly flights operated by the Parties on this route. The
average frequency for the charter companies is based on DAA data.
1350
Annex 7.3(b) of the Form CO (as revised on 22 August 2012); Ryanair's response to the Commission's
request of information of 6 August 2012. According to DAA data, [50 000 – 100 000] passengers
travelled by air in IATA summer season 2011, [20 000 – 50 000] passengers travelled by air in IATA
winter season 2011/12 and [50 000 – 100 000] passengers travelled by air in IATA summer season
2012. These figures are based on the very conservative assumption that the ratio of dry seats amounts to
20% of passengers.
1351
Annex 7.3(a) of the Form CO.
1352
Annex 7.3 (e) of the Form CO.
1353
Annex 7.3(b) of the Form CO (as revised on 22 August 2012).
EN 309 EN
Table 69: Weekly flights between Dublin and Gran Canaria
Summer season 2011
Carrier
Weekly Frequency (1 way)
July
Aer Lingus
3
Ryanair
4
Combined
7
All charters
2
Winter season 2011/2012
Carrier
Weekly Frequency (1 way)
January
Aer Lingus
3
Ryanair
3
Combined
6
All charters
1
Source: Annex 7.3 (b) as updated on 22 August 2012 and Annex "Question 1.6" to DAA's response to the
Commission's request for information of 20 September 2012
1354
(1399) In the IATA summer season 2011, Ryanair operated 4 weekly frequencies and Aer
Lingus operated 3 weekly frequencies to LPA. In the IATA winter season 2011/12,
Ryanair operated 3 weekly frequencies and Aer Lingus operated 3 weekly
frequencies to LPA. On the Dublin-Gran Canaria route, the Parties would therefore
have combined 7 weekly frequencies for the IATA summer season 2011 and 6
weekly frequencies for the IATA winter season 2011/2012.
(1400) Two charter companies each operated 1 weekly frequency in the IATA summer
season 2011, while in in the IATA winter season 2011/2012 the only charter
company active on the route operated 1 weekly frequency.
1354
Annex "Question 1.6" to DAA's response to the Commission's request for information of 20 September
2012.
EN 310 EN
(1401) The frequencies for the IATA summer season 2012 for Ryanair and Aer Lingus
combined amounted to around 7 weekly frequencies, whereas the frequencies for
charter companies amounted to 2 in total.
– Market shares - capacity
(1402) Table 70 indicates the market shares of the Parties on the basis of seat capacity in the
IATA summer season 2011 and in the IATA winter season 2011/12. As Ryanair did
not provide data in this respect for charter companies, the market shares were
computed on data made available by DAA.
Table 70: Market shares for seat capacity
Summer season 2011
Carrier
Market shares
Air Lingus
[40-50%]
Ryanair
[50-60%]
Combined
[90-100%]
Charters
[0-5%]
Winter season 2011/2012
Carrier
Market shares
Air Lingus
[40-50%]
Ryanair
[50-60%]
Combined
[90-100%]
Charters
[0-5%]
Source: DAA's response to the Commission's request of information of 26 July 2012
(1403) As regards IATA summer season 2012
1355
, Ryanair had a market share of [50-60%]
and Aer Lingus a market share of [40-50%]. The charter companies represented
between [5-10%].
(1404) In its Comments regarding the Commission Letter of Facts of 14 December 2012,
Ryanair stated that one charter company Thomson had a market share of [10-20]*%
and therefore contested the capacity ranges based on DAA data for the IATA
summer season 2012. However, the ranges indicated in the Decision for that season
represent the market shares of the Parties and of charter companies active on this
route, based on DAA data for the entire summer season and on the very conservative
1355
DAA's response to the Commission's request for information of 3 December 2012.
EN 311 EN
assumption that for charter companies the ratio of dry seats amounts to […]*% of
passengers. As apparent from Ryanair's response to the request for information of 7
January 2013, the Innovata figures used by Ryanair do not distinguish dry seats from
the total seat capacity offered by Thomson. In any event, the use of Ryanair's data
would not affect the Commission's conclusion, in particular as the Parties combined
capacity market share would add up to [80-90]*%.
(1405) The very high combined market share on this route is itself evidence of a dominant
market position.
– Market shares - passengers
(1406) Table 71 indicates the market shares of the Parties and of the charter companies on
the route at issue on the basis of passengers carried in IATA summer season 2011
and in IATA winter season 2011/12.
Table 71: Market shares for air services
Summer season 2011
Carrier
Market shares
Air Lingus
[40-50%]
Ryanair
[50-60%]
Combined
[90-100%]
Charters
[0-5%]
Winter season 2011/2012
Carrier
Market shares
Air Lingus
[40-50%]
Ryanair
[50-60%]
Combined
[90-100%]
Charters
[0-5%]
Source: DAA's response to the Commission's request of information of 26 July 2012
(1407) As regards IATA summer season 2012, Ryanair had a market share of [50-60%] and
Aer Lingus of [40-50%]. The charter companies represented between [5-10%]
1356
.
(1408) Such high combined market share on this route is in itself evidence of a dominant
market position.
1356
DAA's response to the Commission's request for information of 3 December 2012.
EN 312 EN
– Conclusion
(1409) In view of the foregoing, the Commission concludes that the Transaction is likely to
significantly impede effective competition in particular as a result of the creation of a
dominant position in relation to the Dublin-Gran Canaria route.
(1410) Moreover, the Transaction is also likely to result in the elimination of the very close
competitive relationship between Ryanair and Aer Lingus and thus to eliminate the
important competitive constraint that both carriers exert upon each other pre-
Transaction on the route. Customers' travelling options therefore would be
substantially reduced and it is unlikely that charter companies would be able to
constrain the merged entity's market behavior sufficiently, especially with regard to
fare setting, on the Dublin-Gran Canaria route.
8.9.6.7. Dublin-Ibiza
– Route characteristics
(1411) On the Dublin-Ibiza route, […]*passengers travelled in IATA summer season 2011
while […]*passengers travelled in the IATA winter season 2011/12
1357
.
(1412) According to Ryanair
1358
, the Dublin-Ibiza route is a leisure route.
(1413) The route is a summer only route
1359
.
(1414) […]*% of Ryanair's passengers on this route originate at the Irish end of the
route
1360
.
– Parties' operations
(1415) Both Parties operate on the route with non-stop services in the summer season only.
Ryanair and Aer Lingus overlap on an airport-to-airport basis. Both operate from
Dublin to Ibiza (IBZ).
(1416) Ryanair is the only airline that operates during the winter season.
(1417) Aer Lingus started to operate on this route in summer 2008 while Ryanair has been
operating on it since the winter 2011
1361
.
– Frequencies
1357
Annex 7.3(b) of the Form CO (as revised on 22 August 2012) and Ryanair's response to the
Commission's request for information of 6 August 2012. According to DAA data, [20 000 – 50 000]
passengers travelled by air in IATA summer season 2011, less than 1 000 passengers travelled by air in
IATA winter season 2011/12 and [20 000 – 50 000] passengers travelled by air in IATA summer season
2012. These figures are based on the very conservative assumption that the ratio of dry seats amounts to
20% of passengers.
1358
Annex 7.3(a) of the Form CO.
1359
See Annex 7.3(a)(i) of the Form CO.
1360
Annex 7.3 (e) of the Form CO.
1361
Annex 7.3(b) of the Form CO (as revised on 22 August 2012).
EN 313 EN
(1418) Table 72 indicates the weekly flights operated by the Parties on this route. The
average frequency for the charter companies is based on DAA data.
Table 72: Weekly flights between Dublin and Ibiza
Summer season 2011
Carrier
Weekly Frequency (1 way)
July
Aer Lingus
3
Ryanair
2
Combined
5
All charters
1
Annex 7.3 (b) as updated on 22 August 2012 and Annex "Question 1.6" to DAA's response to the Commission's
request for information of 20 September 2012
1362
(1419) In the IATA summer season 2011, Ryanair operated 2 weekly frequencies and Aer
Lingus operated 3 weekly frequencies to Ibiza (IBZ). On the Dublin-Ibiza route, the
Parties combined would therefore have 5 weekly frequencies for the IATA summer
season 2011.
(1420) 1 weekly frequency was operated by a charter company in IATA summer season
2011.
(1421) In the IATA summer season 2012, the frequencies for Ryanair and Aer Lingus
combined amounted to around 7 weekly frequencies, whereas for the charter
company active on this route the figure was 1 weekly frequency.
e) Market shares - capacity
(1422)
1362
Annex "Question 1.6" to DAA's response to the Commission's request for information of 20 September
2012.
EN 315 EN
Table 73: Market shares for seat capacity
Summer season 2011
Carrier
Market shares
Air Lingus
[40-50%]
Ryanair
[40-50%]
Combined
[90-100%]
Charters
[0-5%]
Source: DAA's response to the Commission's request for information of 26 July 2012
(1423) As regards IATA summer season 2012, Ryanair had a market share of [50-60%] and
Aer Lingus a share of [40-50%]. Charter services represented a market share of
between [0- 5%]
1363
.
(1424) The very high combined market share of the Parties on this route is itself evidence of
a dominant market position.
f) Market shares - passengers
(1425) Table 74 indicates the market shares of the Parties and of the charter companies on
the route at issue on the basis of passengers carried in the IATA summer season
2011:
Table 74: Market shares for air services
Summer season 2011
Carrier
Market shares
Air Lingus
[40-50%]
Ryanair
[40-50%]
Combined
[90-100%]
Charters
[0-5%]
Source: DAA's response to the Commission's request for information of 26 July 2012.
(1426) As regards IATA summer season 2012, Ryanair had a market share of [50-60%] and
Aer Lingus of [40-50%]. Charter services represented a market share of between [0-
5%]
1364
.
1363
DAA's response to the Commission's request for information of 3 December 2012.
1364
DAA's response to the Commission's request for information of 3 December 2012.
EN 316 EN
(1427) Such a high combined market share of the Parties on this route is in itself evidence of
a dominant market position.
– Conclusion
(1428) Therefore, the Commission concludes that the Transaction is likely to significantly
impede effective competition in particular as a result of the creation of a dominant
position in relation to the Dublin-Ibiza route.
(1429) Moreover, the Transaction is also likely to result in the elimination of the very close
competitive relationship between Ryanair and Aer Lingus and thus to eliminate the
important competitive constraint that both carriers exert upon each other pre-
Transaction on the route. Customers' travelling options therefore would be
substantially reduced and it is unlikely that charter companies would be able to
constrain the merged entity's market behavior sufficiently, especially with regard to
fare setting, on the Dublin-Ibiza route.
8.9.6.8. Dublin-Lanzarote
– Route characteristics
(1430) On the Dublin-Lanzarote route, […]* passengers travelled in IATA summer season
2011 while […]* passengers travelled in IATA winter season 2011/12
1365
.
(1431) According to Ryanair
1366
, the Dublin-Lanzarote route is a leisure route.
(1432) […]* of Ryanair's passengers on this route originate at the Irish end of the route
1367
.
– Parties' operations
(1433) Both Parties operate on the route with non-stop services. Ryanair and Aer Lingus
overlap on an airport-to-airport basis. Both operate from Dublin to Lanzarote airport
(ACF).
(1434) Aer Lingus started to operate on this route in October 2006 while Ryanair has been
operating on it since October 2009
1368
.
– Frequencies
(1435) Table 75 indicates the weekly flights operated by the Parties on this route. The
average frequency for the charter companies is based on DAA data.
1365
Annex 7.3(b) of the Form CO (as revised on 22 August 2012) and Ryanair's response to the
Commission's request for information of 6 August 2012. According to DAA data, [50 000 – 100 000]
passengers travelled by air in IATA summer season 2011, [50 000 – 100 000] passengers travelled by
air in IATA winter season 2011/12 and [100 000 – 200 000] passengers travelled by air in IATA
summer season 2012. These figures are based on the very conservative assumption that the ratio of dry
seats amounts to 20% of passengers.
1366
Annex 7.3(a) of the Form CO.
1367
Annex 7.3 (e) of the Form CO.
1368
Annex 7.3(b) of the Form CO (as revised on 22 August 2012).
EN 317 EN
Table 75: Weekly flights between Dublin and Lanzarote
Summer season 2011
Carrier
Weekly Frequency (1 way)
July
Aer Lingus
6
Ryanair
4
Combined
10
All charters
6
Winter season 2011/2012
Carrier
Weekly Frequency (1 way)
January
Aer Lingus
3
Ryanair
4
Combined
7
All charters
2
Annex 7.3 (b) as updated on 22 August 2012 and Annex "Question 1.6" to DAA's response to the Commission's
request for information of 20 September 2012
1369
(1436) In the IATA summer season 2011, Ryanair operated 4 weekly frequencies and Aer
Lingus operated 6 weekly frequencies to Lanzarote. In the IATA winter season
2011/12, Ryanair operated 4 weekly frequencies and Aer Lingus operated 3 weekly
frequencies to Lanzarote. On the Dublin-Lanzarote route, the Parties combined
would therefore have 10 weekly frequencies for the IATA summer season 2011 and
7 weekly frequencies for the IATA winter season 2011/2012.
(1437) In the IATA summer season 2011, charter companies operated on average 6 weekly
frequencies (namely, four charter companies each operated on average 1 weekly
frequency, while one charter company operated on average 2 weekly frequencies)
and in IATA winter season 2011/2012 charter companies operated on average 2
weekly frequencies (namely, two charter companies each operated on average 1
weekly frequency).
1369
Annex "Question 1.6" to DAA's response to the Commission's request for information of 20 September
2012.
EN 318 EN
(1438) The frequencies for the IATA summer season 2012 for Ryanair and Aer Lingus
combined amounted to around 10 weekly frequencies, whereas the total frequencies
for charter companies amounted to 5.
– Market shares - capacity
(1439) Table 76 indicates the market shares of the Parties on the basis of seat capacity in
IATA summer season 2011 and in IATA winter season 2011/12. As Ryanair did not
provide data in this respect for charter companies, the market shares were computed
on data made available by DAA.
Table 76: Market shares for seat capacity
Summer season 2011
Carrier
Market shares
Air Lingus
[30-40%]
Ryanair
[50-60%]
Combined
[80-90%]
Charters
[10-20%]
Winter season 2011/2012
Carrier
Market shares
Air Lingus
[50-60%]
Ryanair
[40-50%]
Combined
[90-100%]
Charters
[0-5%]
Source: DAA's response to the Commission's request for information of 26 July 2012
(1440) As regards the IATA summer season 2012
1370
, Ryanair had a market share of [50-
60%] and Aer Lingus a market share of [40-50%]. The charter companies
represented a market share of between [5-10%].
(1441) In its Comments regarding the Commission Letter of Facts of 14 December 2012,
Ryanair stated that one charter company Thomson had a market share of 18% and
therefore contested the capacity ranges based on DAA data for the IATA summer
season 2012. However, the ranges indicated in the Decision for that season represent
the market shares of the Parties and of charter companies active on this route, based
on DAA's data for the entire summer season and on the very conservative assumption
1370
DAA's response to the Commission's request for information of 3 December 2012
EN 319 EN
that for charter companies the ratio of dry seats amounts to 20% of passengers. As
apparent from Ryanair's response to the request for information of 7 January 2013,
the Innovata figures used by Ryanair do not distinguish dry seats from the total seat
capacity offered by Thomson. In any event, the use of Ryanair's data would not
affect the Commission's conclusion, in particular as the Parties combined capacity
share would add up to 82% if calculated using Ryanair's data.
(1442) The very high combined market share on this route is itself evidence of a dominant
market position.
– Market shares - passengers
(1443) Table 77 indicates the market shares of the Parties and of the charter companies on
the route at issue on the basis of passengers carried in the IATA summer season 2011
and in the IATA winter season 2011/12.
Table 77: Market shares for air services
Summer season 2011
Carrier
Market shares
Air Lingus
[30-40%]
Ryanair
[50-60%]
Combined
[80-90%]
Charters
[10-20%]
Winter season 2011/2012
Carrier
Market shares
Air Lingus
[40-50%]
Ryanair
[40-50%]
Combined
[90-100%]
Charters
[0-5%]
Source: DAA's response to the Commission's request for information of 26 July 2012
(1444) As regards the IATA summer season 2012, Ryanair had a market share of [50-60%]
and Aer Lingus of [40-50%]. The charter companies represented a market share of
between [5-10%]
1371
.
1371
DAA's response to the Commission's request for information of 3 December 2012.
EN 320 EN
(1445) Such high combined market share on this route is in itself evidence of a dominant
market position.
– Conclusion
(1446) Therefore, the Commission concludes that the Transaction is likely to significantly
impede effective competition in particular as a result of the creation of a dominant
position in relation to the Dublin-Lanzarote route.
(1447) Moreover, the Transaction is also likely to result in the elimination of the very close
competitive relationship between Ryanair and Aer Lingus and thus to eliminate the
important competitive constraint that both carriers exert upon each other pre-
Transaction on the route. Customers' travelling options therefore would be
substantially reduced and it is unlikely that charter companies would be able to
constrain the merged entity's market behavior sufficiently, especially with regard to
fare setting, on the Dublin-Lanzarote route.
8.9.6.9. Dublin-Malaga
– Route characteristics
(1448) On the Dublin-Malaga route, […]* passengers travelled in the IATA summer season
2011 while […]* passengers travelled in the IATA winter season 2011/12
1372
.
(1449) According to Ryanair, Dublin-Malaga is predominantly a leisure route
1373
.
(1450) The route overlaps are not only seasonal. Both Ryanair and Aer Lingus operate on
this route in the summer and the winter seasons.
(1451) […]* of Ryanair's passengers originate from the Irish end of the route
1374
.
– Parties' operations
(1452) Both Parties operate on the route with non-stop services and overlap on an airport-to-
airport basis.
(1453) Ryanair started operating on this route in March 2003 and Aer Lingus has been
operating on it since before 2004.
1372
Annex 7.3(b) of the Form CO (as revised on 22 August 2012) and Ryanair's response to the
Commission's request for information of 6 August 2012. According to DAA data, [300 000 – 400 000]
passengers travelled by air in IATA summer season 2011, [50 000 – 100 000] passengers travelled by
air in IATA winter season 2011/12 and [300 000 – 400 000] passengers travelled by air in IATA
summer season 2012. These figures are based on the very conservative assumption that the ratio of dry
seats amounts to 20% of passengers.
1373
Annex 7.3(a) of the Form CO; the 2007 Decision held it to be predominantly a leisure route, paragraph
228.
1374
Annex 7.3 (e) of the Form CO.
EN 321 EN
– Frequencies
(1454) Table 78 indicates the weekly flights operated by the Parties on this route. The
average frequency for the charter companies is based on DAA data.
Table 78: Weekly flights between Dublin and Malaga
Summer season 2011
Carrier
Weekly Frequency (1 way)
July
Aer Lingus
14
Ryanair
16
Combined
30
All charters
2
Winter season 2011/2012
Carrier
Weekly Frequency (1 way)
January
Aer Lingus
7
Ryanair
4
Combined
11
All charters
0
Source: Annex 7.3 (b) as updated on 22 August 2012 and Annex "Question 1.6" to DAA's response to the
Commission's request for information of 20 September 2012
1375
(1455) In the IATA summer season 2011, Ryanair operated 16 weekly frequencies, while
Aer Lingus operated 14 weekly frequencies. Two charter companies each operated
on average 1 weekly frequency.
(1456) In the IATA winter season 2011/12, Ryanair operated 4 weekly frequencies, while
Aer Lingus operated 7 weekly frequencies. No charter company operated this route
during the winter seasons 2011/12.
(1457) The frequencies for the IATA summer season 2012 for Ryanair amounted to 16
weekly frequencies, for Aer Lingus to 14 weekly frequencies and for charter
companies to a total of 2 weekly frequencies.
(1458) Charter companies thus operated only during the summer seasons.
– Market shares - capacity
(1459) Table 79 indicates the market shares of the Parties and the charter companies active
on this route on the basis of seat capacity in the IATA summer season 2011 and in
the IATA winter season 2011/12. As Ryanair did not provide data in this respect for
1375
Annex "Question 1.6" to DAA's response to the Commission's request for information of 20 September
2012.
EN 322 EN
charter companies, the market shares were computed on data made available by
DAA.
Table 79: Market shares for seat capacity
Summer season 2011
Carrier
Market shares
Aer Lingus
[50-60%]
Ryanair
[40-50%]
Combined
[90-100%]
Charters
[0-5%]
Winter season 2011/2012
Carrier
Market shares
Aer Lingus
[50-60%]
Ryanair
[40-50%]
Combined
100%
Charters
0
Source: DAA's response to the Commission's request for information of 26 July 2012.
(1460) As regards IATA summer season 2012, Ryanair had a market share of [40-50%] and
Aer Lingus a market share of [50-60%]. Charter services represented a market share
of between [0-5%] of passengers
1376
.
(1461) It follows that post-Transaction, the Parties would have a quasi-monopoly on the
route in the summer season and a monopoly in the winter season.
– Market shares - passengers
(1462)
1376
DAA's response to the Commission's request for information of 3 December 2012.
EN 324 EN
Table 80: Market shares for air services
Summer season 2011
Carrier
Market shares
Aer Lingus
[50-60%]
Ryanair
[40-50%]
Combined
[90-100%]
Charters
[0-5%]
Winter season 2011/2012
Carrier
Market shares
Aer Lingus
[50-60%]
Ryanair
[40-50%]
Combined
100%
Charters
0
Source: DAA's response to the Commission's request for information of 26 July 2012
(1463) As regards IATA summer season 2012, Ryanair had a market share of [40-50%] and
Aer Lingus of [50-60%]. The charter companies carried between [0-5%] of the
passengers travelling on this route
1377
.
(1464) It follows that post-Transaction, the Parties would have a quasi-monopoly on the
route in the summer season and a monopoly in the winter season.
– Conclusion
(1465) Therefore, the Commission concludes that the Transaction is likely to significantly
impede effective competition in particular as a result of the creation of a dominant
position in relation to the Dublin-Malaga route.
(1466) Moreover, the Transaction is also likely to result in the elimination of the very close
competitive relationship between Ryanair and Aer Lingus and thus to eliminate the
important competitive constraint that both carriers exert upon each other pre-
Transaction on the route. Customers' travelling options therefore would be
substantially reduced and it is unlikely that charter companies would be able to
constrain the merged entity's market behavior sufficiently, especially with regard to
fare setting, on the Dublin-Malaga route.
1377
DAA's response to the Commission's request for information of 3 December 2012.
EN 325 EN
8.9.6.10. Dublin-Palma
– Route characteristics
(1467) On the Dublin-Palma route, […]* passengers travelled in IATA summer season 2011
while […]* passengers travelled in IATA winter season 2011/12
1378
.
(1468) According to Ryanair, the Dublin-Palma route is predominantly a leisure route
1379
.
(1469) The route overlaps are only seasonal. Both Ryanair and Aer Lingus have been
operating this route only during summer seasons.
(1470) […]* of Ryanair's passengers originate from the Irish end of the route
1380
.
– Parties' operations
(1471) Both Parties operate on the route with non-stop services and overlap on an airport-to-
airport basis.
(1472) Aer Lingus started this route in April 2006. Subsequently Ryanair entered it in
March 2008.
– Frequencies
(1473) Table 81 indicates the weekly flights operated by the Parties on this route. The
average frequency for the charter companies is based on DAA data.
Table 81: Weekly flights between Dublin and Palma
Summer season 2011
Carrier
Weekly Frequency (1 way)
July
Aer Lingus
4
Ryanair
6
Combined
10
All charters
7
Source: Annex 7.3 (b) as updated on 22 August 2012 and Annex "Question 1.6" to DAA's response to the
Commission's request for information of 20 September 2012
1381
1378
Annex 7.3(b) of the Form CO (as revised on 22 August 2012) and Ryanair's response to the
Commission's request for information of 6 August 2012. According to DAA data, [50 000 – 100 000]
passengers travelled by air in IATA summer season 2011, [< 10 000] passengers travelled by air in
IATA winter season 2011/12 and [100 000 – 200 000] passengers travelled by air in IATA summer
season 2012. These figures are based on the very conservative assumption that the ratio of dry seats
amounts to 20% of passengers.
1379
Annex 7.3(a) of the Form CO; the 2007 Decision held it to be predominantly a leisure route, paragraph
228.
1380
Annex 7.3 (e) of the Form CO.
1381
Annex "Question 1.6" to DAA's response to the Commission's request for information of 20 September
2012.
EN 326 EN
(1474) In the IATA summer season 2011 Ryanair operated 6 weekly frequencies, while Aer
Lingus operated 4 weekly frequencies. Three charter companies each operated on
average 1 weekly frequency on the route at issue, while another charter company
operated on average 4 weekly frequencies.
(1475) In the IATA winter season 2011/12 neither Ryanair, nor Aer Lingus had activities on
this route in the benchmark month (January). There was no charter company active
during the winter season.
(1476) In the IATA summer season 2012 Ryanair increased its weekly frequencies to 8 on
the Dublin-Palma route, while Aer Lingus increased its weekly frequencies to 5. The
weekly frequencies for charter companies in the IATA summer season 2012
amounted to a total of 6 (namely, two charter companies each operate on average 1
weekly frequency on the route at issue, while a third charter company operates on
average 4 weekly frequencies).
– Market shares - capacity
(1477) Table 82 indicates the market shares of the Parties and the charter companies active
on this route on the basis of seat capacity in the IATA summer season 2011 and in
the IATA winter season 2011/12. As Ryanair did not provide data in this respect for
charter companies, the market shares were computed on data made available by
DAA.
Table 82: Market shares for seat capacity
Summer season 2011
Carrier
Market shares
Aer Lingus
[40-50%]
Ryanair
[40-50%]
Combined
[90-100%]
Charters
[5-10%]
Source: DAA's response to the Commission's request for information of 26 July 2012
(1478) As regards IATA summer season 2012, Ryanair had a market share of [50-60%] and
Aer Lingus a market share of [30-40%]. Charter services represented a market share
of between [5-10%] of the seat capacity
1382
.
(1479) The very high combined market share of the Parties on this route is itself evidence of
a dominant market position.
– Market shares - passengers
1382
DAA's response to the Commission's request for information of 3 December 2012.
EN 327 EN
(1480) Table 83 indicates the market shares of the Parties and of the charter companies
active on the route on the basis of passengers carried in IATA summer season 2011
and in IATA winter season 2011/12.
Table 83: Market shares for air services
Summer season 2011
Carrier
Market shares
Aer Lingus
[40-50%]
Ryanair
[50-60%]
Combined
[90-100%]
Charters
[5-10%]
Source: DAA's response to the Commission's request for information of 26 July 2012
(1481) As regards the IATA summer season 2012, Ryanair would have a market share of
[50-60%] and Aer Lingus of [30-40%]. The charter companies carried between [5-
10%] of the passengers travelling on this route
1383
.
(1482) Such a high combined market share of the Parties on this route is in itself evidence of
a dominant market position.
– Conclusion
(1483) Therefore, the Commission concludes that the Transaction is likely to significantly
impede effective competition in particular as a result of the creation of a dominant
position in relation to the Dublin-Palma route.
(1484) Moreover, the Transaction is also likely to result in the elimination of the very close
competitive relationship between Ryanair and Aer Lingus and thus to eliminate the
important competitive constraint that both carriers exert upon each other pre-
Transaction on the route. Customers' travelling options therefore would be
substantially reduced and it is unlikely that charter companies would be able to
constrain the merged entity's market behavior sufficiently, especially with regard to
fare setting, on the Dublin-Palma route.
8.9.6.11. Cork-Barcelona
– Route characteristics
(1485) On the Cork-Barcelona route, […]* passengers travelled in IATA summer season
2011 while […]* passengers travelled in IATA winter season 2011/12
1384
.
1383
DAA's response to the Commission's request for information of 3 December 2012.
1384
Annex 7.3(b) of the Form CO (as revised on 22 August 2012). According to DAA data, [20 000 – 50
000] passengers travelled by air in IATA summer season 2011, [10 000 – 20 000] passengers travelled
EN 328 EN
(1486) According to Ryanair
1385
, the nature of the Cork-Barcelona route is a mix of business
and leisure.
(1487) […]* of Ryanair's passengers on this route originate at the Irish end of the route
1386
.
– Parties' operations
(1488) Ryanair is the only airline that operates during the winter season. However, both
Parties operate on the route with non-stop services in the summer season. Aer Lingus
will exit the route in IATA winter season 2012/13 but will operate on this route in
the summer season as from the next IATA summer season 2013. The Cork-
Barcelona route is therefore an actual overlap route in the summer season.
(1489) Ryanair and Aer Lingus overlap on a city-to-city basis. Ryanair operates from Cork
to Girona (GRO) and Reus (REU). Aer Lingus operates from Cork to Barcelona
(BCN). Aer Lingus started to operate on this route in March 2004 (with a short
interruption in IATA winter season 2012/2013), while Ryanair has been operating on
it since summer 2010 to REU and just started to operate to GRO in summer 2012
1387
.
The market investigation confirmed that the three airports are substitutable for flights
ex-Cork
1388
.
– Frequencies
(1490) Table 84 indicates the weekly flights operated by the Parties on this route. The
average weekly frequency for the charter airlines is based on DAA data.
Table 84: Weekly flights between Cork and Barcelona
Summer season 2011
Carrier
Weekly Frequency (1 way)
July
Aer Lingus
3
Ryanair
4
Combined
7
All charters
1
Annex 7.3 (b) as updated on 22 August 2012 and Annex "Question 1.6 Additional info" to DAA's response to the
Commission's request for information of 22 October 2012
1389
by air in IATA winter season 2011/12 and [50 000 – 100 000] passengers travelled by air in IATA
summer season 2012. These figures are based on the very conservative assumption that the ratio of dry
seats amounts to 20% of passengers.
1385
Annex 7.3(a) of the Form CO.
1386
Annex 7.3 (e) of the Form CO.
1387
Annex 7.3(b) of the Form CO (as revised on 22 August 2012).
1388
See Section 7.3.3.1.
1389
Annex "Question 1.6 Additional info" to DAA's response to the Commission's request for information
of 22 October 2012.
EN 329 EN
(1491) In the IATA summer season 2011, Ryanair operated 4 weekly frequencies to REU
and Aer Lingus operated 3 weekly frequencies to BCN. On the Cork-Barcelona
route, the Parties would therefore have combined 7 weekly frequencies for the IATA
summer season 2011.
(1492) 1 weekly frequency was operated by a charter company in the IATA summer season
2011.
(1493) The frequencies for the IATA summer season 2012 for Ryanair and Aer Lingus
combined increased to 9 weekly frequencies as Ryanair added 2 frequencies out of
GRO, whereas the charter company accounted for only 1 weekly frequency.
– Market shares - capacity
(1494) Table 85 indicates the market shares of the Parties on the basis of seat capacity in
IATA summer season 2011.As Ryanair did not provide data in this respect for
charter companies, the market shares were computed on the basis of data made
available by DAA.
Table 85: Market shares for seat capacity
Summer season 2011
Carrier
Market shares
Air Lingus
[50-60%]
Ryanair
[30-40%]
Combined
[90-100%]
Charters
[0-5%]
Source: DAA's response to the Commission's request for information of 26 July 2012
(1495) As regards the IATA summer season 2012, Ryanair had a market share of [50-60%]
and Aer Lingus a market share of [40-50%]. The charter company represented a
market share of between [0-5%]
1390
.
(1496) The very high combined market share on this route is itself evidence of a dominant
market position.
– Market shares - passengers
(1497)
1390
DAA's response to the Commission's request for information of 3 December 2012.
EN 331 EN
Table 86: Market shares for air services
Summer season 2011
Carrier
Market shares
Air Lingus
[50-60%]
Ryanair
[30-40%]
Combined
[90-100%]
Charters
[0-5%]
Source: DAA's response to the Commission's request for information of 26 July 2012
(1498) As regards the IATA summer season 2012, Ryanair had a market share of [50-60%]
and Aer Lingus of [30-40%]. The charter company represented a market share of
between [0-5 %]
1391
.
(1499) Such a high combined market share of the Parties on this route is in itself evidence of
a dominant market position.
– Conclusion
(1500) Therefore, the Commission concludes that the Transaction is likely to significantly
impede effective competition in particular as a result of the creation of a dominant
position in relation to the Cork-Barcelona route.
(1501) Moreover, the Transaction is also likely to result in the elimination of the very close
competitive relationship between Ryanair and Aer Lingus and thus to eliminate the
important competitive constraint that both carriers exert upon each other pre-
Transaction on the route. Customers' travelling options therefore would be
substantially reduced and it is unlikely that charter airlines would be able to constrain
the merged entity's market behavior sufficiently, especially with regard to fare
setting, on the Cork-Barcelona route.
8.9.6.12. Cork-Lanzarote
– Route characteristics
(1502) On the Cork-Lanzarote route, […]* passengers travelled in IATA summer season
2011 while […]* passengers travelled in IATA winter season 2011/12
1392
.
1391
DAA's response to the Commission's request for information of 3 December 2012.
1392
Annex 7.3(b) of the Form CO (as revised on 22 August 2012) and Ryanair's response to the
Commission's request for information of 6 august 2012. According to DAA data, [20 000 – 50 000]
passengers travelled by air in IATA summer season 2011, [20 000 – 50 000] passengers travelled by air
in IATA winter season 2011/12 and [20 000 – 50 000] passengers travelled by air in IATA summer
season 2012. These figures are based on the very conservative assumption that the ratio of dry seats
amounts to 20% of passengers.
EN 332 EN
(1503) According to Ryanair
1393
, the Cork-Lanzarote route is a leisure route.
(1504) […]* of Ryanair's passengers on this route originate in Ireland
1394
.
– Parties’ operations
(1505) Both Parties operate on the route with non-stop services. Ryanair and Aer Lingus
overlap on airport-to-airport basis. Both Ryanair and Aer Lingus operate from Cork
to Lanzarote (ACE).
(1506) Aer Lingus has been operating on this route since October 2006, while Ryanair since
June 2006
1395
.
– Frequencies
(1507) Table 87 indicates the weekly flights operated by the Parties on this route. The
average frequency for the charter companies is based on DAA data.
Table 87: Weekly flights between Cork and Lanzarote
Summer season 2011
Carrier
Weekly frequency (1 way)
July
Aer Lingus
3
Ryanair
1
Combined
4
All charters
2
Winter season 2011/2012
Carrier
Weekly frequency (1 way)
January
Aer Lingus
3
Ryanair
1
Combined
4
All charters
1
Source: Annex 7.3 (b) as updated on 22 August 2012 and Annex "Question 1.6" to DAA's response to the
Commission's request for information of 20 September 2012
1396
(1508) In the IATA summer season 2011, Ryanair operated 1 weekly frequency, while Aer
Lingus operated 3 weekly frequencies. In the IATA winter season 2011/2012,
Ryanair operated 1 weekly frequency, while Aer Lingus operated 3 weekly
frequencies. On the Cork-Lanzarote route, the parties would therefore have had
1393
Annex 7.3(a) of the Form CO.
1394
Annex 7.3 (e) of the Form CO.
1395
Annex 7.3(a) of the Form CO.
1396
Annex "Question 1.6" to DAA's response to the Commission's request for information of 20 September
2012.
EN 333 EN
combined 4 weekly frequencies for the IATA summer season 2011 and IATA winter
season 2011/2012.
(1509) Two charter companies each operated 1 weekly frequency in the IATA summer
season 2011, while in the IATA winter season 2011/2012 only one charter company
was active on the route and operated 1 weekly frequency.
(1510) The weekly frequencies for the summer season 2012 for Ryanair and Aer Lingus
remained unchanged with 4 combined weekly frequencies, whereas the planned
frequencies for the only charter company active on this route amounted to 1 weekly
frequency.
– Market shares - capacity
(1511) Table 88 indicates the market shares of the Parties and of the charter companies
active on the route on the basis of seat capacity in the IATA summer season 2011
and in the IATA winter season 2011/12. As Ryanair did not provide data in this
respect for charter companies, the market shares were computed on data made
available by DAA.
Table 88: Market shares for seat capacity
Summer season 2011
Carrier
Market shares
Aer Lingus
[60-70%]
Ryanair
[20-30%]
Combined
[90-100%]
All charters
[5-10%]
Winter season 2011/2012
Carrier
Market shares
Aer Lingus
[60-70%]
Ryanair
[20-30%]
Combined
[90-100%]
All charters
[0-5%]
Source: DAA's response to the Commission's request for information of 26 July 2012
(1512) As regards the IATA summer season 2012, Ryanair had a market share of [20-30%]
and Aer Lingus a market share of [60-70%]. The charter companies represented
market share of [0-5%] of the market
1397
.
1397
DAA's response to the Commission's request for information of 3 December 2012.
EN 334 EN
(1513) The very high combined market share on this route is itself evidence of a dominant
market position.
– Market shares - passengers
(1514) Table 89 indicates the market shares of the Parties and of the charter companies
active on the route on the basis of passengers carried in the IATA summer season
2011 and in the IATA winter season 2011/12.
Table 89: Market shares for air services
Summer season 2011
Carrier
Market shares
Aer Lingus
[60-70%]
Ryanair
[20-30%]
Combined
[80-90%]
All charters
[10-20%]
Winter season 2011/2012
Carrier
Market shares
Aer Lingus
[60-70%]
Ryanair
[20-30%]
Combined
[90-100%]
All charters
[0-5%]
Source: DAA's response to the Commission's request for information of 26 July 2012
(1515) As regards the IATA summer season 2012, Ryanair had a market share of [20-30%]
and Aer Lingus of [60-70%]. The charter companies represented a market share of
[5-10%] of the market
1398
.
(1516) Such high combined share on this route is in itself evidence of a dominant market
position.
– Conclusion
(1517) Therefore, the Commission concludes that the Transaction is likely to significantly
impede effective competition in particular as a result of the creation of a dominant
position in relation to the Cork-Lanzarote route.
1398
DAA's response to the Commission's request for information of 3 December 2012.
EN 335 EN
(1518) Moreover, the Transaction is also likely to result in the elimination of the very close
competitive relationship between Ryanair and Aer Lingus and thus to eliminate the
important competitive constraint that both carriers exert upon each other pre-
Transaction on the route. Customers' travelling options therefore would be
substantially reduced and it is unlikely that charter companies would be able to
constrain the merged entity's market behavior sufficiently, especially with regard to
fare setting, on the Cork-Lanzarote route.
8.9.6.13. Cork-Malaga
– Route characteristics
(1519) On the Cork-Malaga route, […]* passengers travelled in IATA summer season 2011
while […]* passengers travelled in IATA winter season 2011/12
1399
.
(1520) According to Ryanair
1400
, the Cork-Malaga route is a leisure route.
(1521) […]* of Ryanair's passengers on this route originate in Ireland
1401
.
– Parties' operations
(1522) Both Parties operate on the route with non-stop services. Ryanair and Aer Lingus
overlap on airport-to-airport basis. Both Ryanair and Aer Lingus operate from Cork
to Malaga (AGP).
(1523) Aer Lingus has been operating on this route since 2004, while Ryanair since June
2010
1402
.
– Frequencies
(1524) Table 90 indicates the weekly flights operated by the Parties on this route. The
average frequency for the charter companies is based on DAA data.
1399
Annex 7.3(b) of the Form CO (as revised on 22 August 2012) and Ryanair's response to the
Commission's request for information of 6 august 2012. According to DAA data, [50 000 – 100 000]
passengers travelled by air in IATA summer season 2011, [20 000 – 50 000] passengers travelled by air
in IATA winter season 2011/12 and [50 000 – 100 000] passengers travelled by air in IATA summer
season 2012. These figures are based on the very conservative assumption that the ratio of dry seats
amounts to 20% of passengers.
1400
Annex 7.3(a) of the Form CO.
1401
Annex 7.3 (e) of the Form CO.
1402
Annex 7.3(a) of the Form CO.
EN 336 EN
Table 90: Weekly flights between Cork and Malaga
Summer season 2011
Carrier
Weekly Frequency (1 way)
July
Aer Lingus
7
Ryanair
4
Combined
11
All charters
1
Winter season 2011/2012
Carrier
Weekly Frequency (1 way)
January
Aer Lingus
3
Ryanair
2
Combined
5
All charters
0
Source: Annex 7.3 (b) as updated on 22 August 2012 and Annex "Question 1.6" to DAA's response to the
Commission's request for information of 20 September 2012
1403
(1525) In the IATA summer season 2011, Ryanair operated 4 weekly frequencies, while Aer
Lingus operated 7 weekly frequencies. In the IATA winter season 2011/2012,
Ryanair operated 2 weekly frequencies, while Aer Lingus operated 3 weekly
frequencies. On the Cork-Malaga route, the Parties combined would therefore have
had 11 and 5 weekly frequencies for the IATA summer season 2011 and the IATA
winter season 2011/2012 respectively.
(1526) The charter company operated 1 weekly frequency in the IATA summer season
2011. No charter operations appear to have taken place during the winter season
2011/2012.
(1527) The weekly frequencies for the summer season 2012 for Ryanair amounted to 4 and
for Aer Lingus to 7 weekly frequencies, whereas the frequencies for the only charter
company active on the route amounted to 1 weekly frequency.
– Market shares - capacity
(1528) Table 91 indicates the market shares of the Parties and of the charter companies
active on the route on the basis of seat capacity in the IATA summer season 2011
and in the IATA winter season 2011/12. As Ryanair did not provide data in this
1403
Annex "Question 1.6" to DAA's response to the Commission's request for information of 20 September
2012.
EN 337 EN
respect for charter companies, the market shares were computed on data made
available by DAA.
Table 91: Market shares for seat capacity
Summer season 2011
Carrier
Market shares
Aer Lingus
[60-70%]
Ryanair
[30-40%]
Combined
[90-100%]
All charters
[0-5%]
Winter season 2011/2012
Carrier
Market shares
Aer Lingus
[50-60%]
Ryanair
[40-50%]
Combined
100%
All charters
0
Source: DAA's response to the Commission's request for information of 26 July 2012
(1529) As regards the IATA summer season 2012, Ryanair had a market share of [30-40%]
and Aer Lingus a market share of [60-70%]. The charter companies represented a
market share of [0-5%] of the market
1404
.
(1530) It follows that post-Transaction, the Parties would have a quasi-monopoly on the
route in the summer season and a monopoly in the winter season.
– Market shares - passengers
(1531)
1404
DAA's response to the Commission's request for information of 3 December 2012.
EN 339 EN
Table 92: Market shares for air services
Summer season 2011
Carrier
Market shares
Aer Lingus
[60-70%]
Ryanair
[30-40%]
Combined
[90-100%]
All charters
[0-5%]
Winter season 2011/2012
Carrier
Market shares
Aer Lingus
[50-60%]
Ryanair
[40-50%]
Combined
100%
All charters
0
Source: DAA's response to the Commission's request for information of 26 July 2012
(1532) As regards the IATA summer season 2012, Ryanair had a market share of [30-40%]
and Aer Lingus of [60-70%]. The charter companies represented a market share [0-
5%] of the market
1405
.
(1533) It follows that post-Transaction the Parties would have a quasi-monopoly on the
route in the summer season and a monopoly in the winter season.
– Conclusion
(1534) Therefore, the Commission concludes that the Transaction is likely to significantly
impede effective competition in particular as a result of the creation of a dominant
position in relation to the Cork-Malaga route.
(1535) Moreover, the Transaction is also likely to result in the elimination of the very close
competitive relationship between Ryanair and Aer Lingus and thus to eliminate the
important competitive constraint that both carriers exert upon each other pre-
Transaction on the route. Customers' travelling options therefore would be
substantially reduced and it is unlikely that charter companies would be able to
constrain the merged entity's market behavior sufficiently, especially with regard to
fare setting, on the Cork-Malaga route.
1405
DAA's response to the Commission's request for information of 3 December 2012.
EN 340 EN
8.9.6.14. Cork-Palma
– Route characteristics
(1536) On the Cork-Palma route, […]* passengers travelled in IATA summer season 2011
there are no passengers in IATA winter season 2011/12
1406
.
(1537) According to Ryanair
1407
, the Cork-Palma route is a leisure route and it has a
seasonal pattern, as the operations of the Parties on the Cork-Palma route overlap
only in the summer season.
(1538) […]* of Ryanair's passengers on this route originate in Ireland
1408
.
– Parties' operations
(1539) Both Parties operate on the route with non-stop services. Ryanair and Aer Lingus
overlap on airport-to-airport basis. Both Ryanair and Aer Lingus operate from Cork
to Palma (PMI).
(1540) Aer Lingus has been operating on this route since March 2011, while Ryanair started
operating in March 2012
1409
. Therefore, the Parties' operations on the Cork-Palma
route started overlapping in the summer season 2012.
– Frequencies
(1541) Table 93 indicates the weekly flights operated by the Parties on this route. The
average frequency for the charter companies is based on DAA data.
Table 93: Weekly flights between Cork and Palma
Carrier
Summer season 2012
Weekly Frequency (1 way)
July
Aer Lingus/
Aer Arann
2
Ryanair
2
Combined
4
All charters
2
Source: Annex 7.3 (b) as updated on 22 August 2012 and Annex "Question 1.6" to DAA's response to the
Commission's request for information of 20 September 2012
1410
1406
Annex 7.3(b) of the Form CO (as revised on 22 August 2012) and Ryanair's response to the
Commission's request for information of 6 august 2012. Figures do refer only to Aer Lingus and charter
passengers, as Ryanair started operating the route in summer season 2012. According to DAA data, [20
000 – 50 000] passengers travelled by air in IATA summer season 2011, less than 1 000 passengers
travelled by air in IATA winter season 2011/12 and [20 000 – 50 000] passengers travelled by air in
IATA summer season 2012. These figures are based on the very conservative assumption that the ratio
of dry seats amounts to 20% of passengers.
1407
Annex 7.3(a) of the Form CO.
1408
Annex 7.3 (e) of the Form CO.
1409
Annex 7.3(a) of the Form CO.
EN 341 EN
(1542) In IATA summer season 2012, Ryanair and Aer Lingus both operated 2 weekly
frequencies. On the Cork-Palma route, the merged entity therefore had 4 weekly
frequencies in IATA summer season 2012.
(1543) The only charter company active on the route operated 2 weekly frequencies in
IATA summer season 2012.
– Market shares - capacity
(1544) Table 94 indicates the market shares of the Parties and of the charter companies
active on the route on the basis of seat capacity in IATA summer season 2012. As
Ryanair did not provide data in this respect for charter companies, the market shares
were computed on the basis of data made available by DAA.
Table 94: Market shares for seat capacity
Summer season 2012
Carrier
Market shares
Aer Lingus
[30-40%]
Ryanair
[50-60%]
Combined
[90-100%]
All charters
[5-10%]
Source: DAA's response to the Commission's request for information of 3 December 2012
(1545) Such high combined share on this route is in itself evidence of a dominant market
position.
– Market shares - passengers
(1546) Table 95 indicates the market shares of the Parties and of the charter companies
active on the route on the basis of passengers carried in IATA summer season 2012.
Table 95: Market shares for air services
Summer season 2012
Carrier
Market shares
Aer Lingus
[30-40%]
Ryanair
[50-60%]
Combined
[90-100%]
All charters
[5-10%]
Source: DAA's response to the Commission's request for information of 3 December 2012
1410
Annex "Question 1.6" to DAA's response to the Commission's request for information of 20 September
2012.
EN 342 EN
(1547) The Transaction would give the merged entity a very high combined market share of
above 90% in terms of estimated point-to-point passengers carried on the route in the
2012 summer season.
(1548) Such a high combined share on this route is of itself evidence of a dominant market
position.
– Conclusion
(1549) Therefore, the Commission concludes that the Transaction is likely to significantly
impede effective competition in particular as a result of the creation of a dominant
position in relation to the Cork-Palma route.
(1550) Moreover, the Transaction is also likely to result in the elimination of the very close
competitive relationship between Ryanair and Aer Lingus and thus to eliminate the
important competitive constraint that both carriers exert upon each other pre-
Transaction on the route. Customers' travelling options therefore would be
substantially reduced and it is unlikely that charter companies would be able to
constrain the merged entity's market behavior sufficiently, especially with regard to
fare setting, on the Cork-Palma route.
8.9.6.15. Conclusion on the routes where charter companies operate
(1551) Therefore, the Commission concludes that the Transaction is likely to significantly
impede effective competition in particular as a result of the creation of a dominant
position on the following 11 routes, where charter companies operate: Dublin-
Barcelona, Dublin-Faro, Dublin-Gran Canaria, Dublin-Ibiza, Dublin-Lanzarote,
Dublin-Malaga, Dublin-Palma, Cork-Barcelona, Cork-Lanzarote; Cork-Malaga and
Cork Palma.
(1552) Moreover, the Transaction is also likely to result in the elimination of the very close
competitive relationship between Ryanair and Aer Lingus and thus to eliminate the
important competitive constraint that both carriers exert upon each other pre-
Transaction on these routes. Customers' travelling options therefore would be
substantially reduced and it is unlikely that charter companies would be able to
constrain the merged entity's market behavior sufficiently, especially with regard to
fare setting, on these routes.
8.10. Potential competition
8.10.1. Analytical framework
(1553) Competition on the routes currently operated by both Ryanair and Aer Lingus ex
Dublin, Shannon, and Cork, where both carriers have bases, cannot be regarded in
isolation. Such an isolated analysis would imply that the respective product markets
are entirely independent from each other. Potential competition is an important
parameter of competition amongst Ryanair and Aer Lingus due to their bases at Irish
airports and as evidenced by past experience of entry events.
(1554) Both carriers have the necessary flexibility to shift and add routes from their existing
bases at these airports in reaction to changes in the competitive structure of the
different routes operated from their bases. The analysis can therefore not only be
EN 343 EN
static, that is to say, focusing only on the overlap routes. The analysis must also be
dynamic looking at to what extent the disappearance of one carrier's very close, if not
closest, competitor might eliminate potential competition that would have
constrained Ryanair and Aer Lingus in the absence of the Transaction.
(1555) In this context the decision opening the proceedings raised serious doubts regarding
potential competition issues on 24 routes
1411
.
(1556) According to the Horizontal Merger Guidelines, "a merger with a potential
competitor can generate horizontal anti-competitive effects, whether coordinated or
non-coordinated, if the potential competitor significantly constrains the behaviour of
the firms active in the market. This is the case if the potential competitor possesses
assets that could easily be used to enter the market without incurring significant sunk
costs."
1412
(1557) Paragraph 60 of the Horizontal Merger Guidelines sets two conditions for
establishing loss of potential competition:"[f]irst, the potential competitor must
already exert a significant constraining influence or there must be a significant
likelihood that it would grow into an effective competitive force. … Second, there
must not be a sufficient number of other potential competitors, which could maintain
sufficient competitive pressure after the merger."
(1558) In previous cases, the Commission found that an airline active on a route could be
constrained not only by its actual competitors on this route but also by potential
competitors
1413
.
8.10.2. Ryanair's arguments
(1559) Ryanair is of the view that the Transaction is not likely to significantly impede
effective competition by eliminating the most credible potential entrant on 9 Ryanair
routes and 11 Aer Lingus routes identified in the Statement of Objections. Ryanair
argues that the Commission vastly overstates the alleged loss of potential competition
as it fails to adequately take into account that Ryanair and Aer Lingus are
differentiated competitors and these differences are particularly acute as regards non-
overlap routes, that Ryanair has already decided not to enter the non-overlap routes
currently served by Aer Lingus and that Aer Lingus is unlikely to enter the non-
overlap routes currently served by Ryanair as it has no aircraft orders and no
demonstrable intention to expand in such markets
1414
.
(1560) In a more route-specific approach, Ryanair has put forward the following two types
of arguments to dismiss the serious doubts expressed in the decision opening the
proceedings
1415
:
1411
Decision opening the proceedings, Table 27 and Table 28.
1412
Paragraph 59.
1413
Recitals 498-540 of the 2007 Decision, and Commission's Decision in case No COMP/M.5830 Olympic
/ Aegean Airlines, recitals 1470-1502.
1414
Ryanair's response to the Statement of Objections, paragraph 22.
1415
Ryanair's response to Commission request for information September 20, 2012, paragraph 30.1 and
30.2.
EN 344 EN
– First, [operations on routes]*.
– Secondly, [thinness of routes]*.
(1561) Ryanair also considers that Aer Lingus is not a potential competitor on Ryanair’s
non-overlap routes because of the following
1416
:
– Aer Lingus is cutting back its short-haul capacity and traffic, which has
declined from 9.5 to 8.4 MPPA over the past three years;
– on a number of overlap routes in recent years, Aer Lingus has essened its
seat capacity from direct competition with Ryanair and replaced it with
smaller Aer Arann turbo-prop aircraft
1417
;
– Aer Lingus short-haul fares have been consistently double those of
Ryanair, which makes it extremely difficult for Aer Lingus to
successfully enter any Ryanair non-overlap route.
(1562) Finally, in the response to the Statement of Objections, Ryanair argues that the
Commission inexplicably and without evidence rules out Wizz Air as a likely entrant
on a number of routes mainly to Central and Eastern Europe, despite the fact that
Wizz Air already operates to and from Cork. If the Commission believes that Wizz
Air is not a credible entrant on these routes, then the Commission cannot at the same
time claim that Ryanair and Aer Lingus are likely entrants on these non-overlap
routes
1418
.
8.10.3. Assessment
(1563) There is a significant number of routes to and from Irish airports where the activities
of the Parties do not currently overlap.
(1564) Ryanair flies on 27 routes out of Dublin, on 8 routes out of Cork, on 6 routes out of
Shannon and on 11 routes out of Knock, where Aer Lingus does not operate any
services
1419
.
(1565) Aer Lingus operates on 20 routes out of Dublin and on 8 routes out of Cork,
1420
where Ryanair does not operate any services
1421
.
8.10.3.1. First limb of the test set out at paragraph 60 of the Horizontal Merger Guidelines
(1566) The first condition set out at paragraph 60 of the Horizontal Merger Guidelines for
establishing loss of potential competition is that the potential competitor must
1416
Ryanair's observations on the decision opening the proceedings, paragraph 64.
1417
This would indicate that, even in Ryanair's view, Aer Arann is not a competitor of Aer Lingus, as
discussed in detail in section 8.2.
1418
Ryanair's response to the Statement of Objections, paragraph 22.
1419
Decision opening the proceedings, paragraph 194.
1420
Including the route Cork-Gran Canaria as explained above but excluding the route Cork-Fiumicino
which Aer Lingus will exit as of IATA winter weason 2012/13.
1421
Decision opening the proceedings, paragraph 194.
EN 345 EN
already exert a significant constraining influence or there must be a significant
likelihood that it would grow into an effective competitive force.
(1567) When one of the Parties is not active on a route which is operated by the other Party,
it is in a position to enter this route relatively easily, should it find it profitable.
Indeed, there is convincing evidence of the following:
– that both Ryanair and Aer Lingus have a significant presence at Irish
airports, with bases at Dublin, Cork and Shannon airports, giving them
the necessary flexibility to shift and add routes in reaction to changes in
the competitive structure of the different routes operated from their bases.
– that entry on a new route by Ryanair or Aer Lingus, by means of the
redeployment of an aircraft situated at their bases in Dublin, Cork and
Shannon would not involve significant sunk costs. Due, inter alia, to base
advantages and a strong city presence, no significant sunk costs would
have to be incurred by the Party entering the new route
1422
.
– that considering the concrete entry behaviour of Ryanair in relation to
Aer Lingus' routes and the size of Ryanair's operations at its bases in
Ireland, Aer Lingus is aware that Ryanair would be able to move capacity
to other Aer Lingus' routes if prices were to increase on the latter routes,
and vice-versa.
– that both Ryanair and Aer Lingus have a deep knowledge of the air
transport service markets from and to Ireland.
(1568) Also, there is a pattern of dynamic entry and capacity reallocation in routes out of
Dublin.
(1569) Since 2007, entry patterns have demonstrated that Aer Lingus and Ryanair frequently
enter on each other's routes.
(1570) Indeed, Aer Lingus and Ryanair now compete on a greater number of routes
compared to the 2007 Decision. The number of overlap routes has increased
significantly, from 35 in 2007 to 46
1423
in 2012. Furthermore, on almost 84% of these
routes (63% in 2007) there are no other scheduled airlines active. These facts, in
themselves, are already clear evidence that Aer Lingus and Ryanair are each other’s
most credible potential competitor.
(1571) Entry and exit events on the short-haul routes ex-Dublin have been described in
Section 8.5.2. 15 of the routes operated by Aer Lingus ex Dublin in summer 2012
1422
Given that base presence of other airlines is very limited (CityJet is, after the Parties, the biggest
operator with three regional jets; besides, CityJet operates under a different business model), it is very
doubtful that they would enjoy the same capabilities as Ryanair and Aer Lingus in redeploying their
aircraft on other routes.
1423
This number includes the routes operated by Aer Arann.
EN 346 EN
have had new entries by scheduled carriers since 2007
1424
. Of these 15 routes, 10
(67%) have been entered into by Ryanair only.
(1572) In total, since 2007, Ryanair entered on 9 routes out of Dublin, 1 out of Shannon, and
7 out of Cork where at least one carrier other than Aer Lingus operated
1425
.
(1573) Moreover, 8 of the short-haul routes operated by Ryanair ex Dublin in summer 2012
have had new entries by scheduled carriers since 2007
1426
. Of these 8 routes, 3 (37%)
have been entered into by Aer Lingus/Aer Arann only.
(1574) Several studies have tried to quantify the effect of potential competition. For
example, Kwoka and Shumilkina (2010) have shown that, following the merger of
US Air and Piedmont, "prices rose by 5-6% on routes that one carrier served and the
other was a potential entrant."
1427
Also, Goolsbee and Syverson (2005) argue that
"We find incumbents cut fares significantly when threatened by Southwest's entry.
Over half of Southwest's total impact on incumbent fares occurs before Southwest
starts flying. These cuts are only on threatened routes, not those out of non-
Southewest competing airports."
1428
(1575) Moreover, the 2007 Decision
1429
concluded that the notified merger was likely to
significantly impede effective competition as a result of the creation or strengthening
of a dominant position by the elimination of a credible potential entrant on 5 Aer
Lingus' routes to and from Dublin (Dubrovnik, Naples, Nice, Palma de Mallorca and
Santiago de Compostela)
1430
. On 2 of these routes (Dublin-Nice and Dublin-Palma),
there is now actual competition between Aer Lingus and Ryanair.
(1576) The 2007 Decision concluded also that the notified merger was likely to significantly
impede effective competition as a result of the creation or strengthening of a
dominant position by the elimination of a credible potential entrant on 10 of Aer
Lingus' routes to and from Cork (Tenerife, Lanzarote, Faro, Malaga, Alicante, Nice,
1424
1.Barcelona/Reus/Gerona: Ryanair; 2.Berlin: Lufthansa; 3.Bilbao/Santander: Ryanair; 4.Budapest:
Ryanair; 5.Fuerteventura: Ryanair; 6.Gran Canaria: Ryanair; 7.Ibiza: Ryanair; 8.Lanzarote: Ryanair;
9.Munich/Memmingen: Lufthansa and Ryanair; 10.Palma: Ryanair; 11.Verona : Ryanair;
12.Vilnius/Kaunas: Ryanair and Air Baltic and Star 1; 13.Warsaw/Modlin : Ryanair; 14.Bucharest :
Blue Air; 15.Dusseldorf: Lufthansa & Ryanair. It is also noted that Centralwings, the former low cost
subsidiary of LOT Polish airlines, entered in 2007 on the Dublin – Warsaw route (however exited the
route already the next year), and Clickair entered the Dublin – Barcelona route in 2007 (however exited
in 2008).
1425
Ryanair also entered on 9 routes ex-Dublin, 8 routes ex-Shannon, 5 routes ex-Cork, and 8 routes ex-
Knock where no other carrier was operating. Ryanair’s response to Commission request of October 11,
2012, pages 3 and 4.
1426
1. Stockholm : Aer Lingus ; 2. Bristol : Aer Arann; 3. Munich: Lufthansa: 4. Düsseldorf : Lufthansa ; 5.
Oslo: Norwegian; 6. Vilnius/Kaunas : Air Baltic and Star1 ; 7. Newcastle : Aer Lingus ; 8. Berlin :
Lufthansa.
1427
Kwoka, J., Shumilkina, E. (2010), "The Price Effect of Eliminating Potential Competition: Evidence
from an Airline Merger", The Journal of Industrial Economics, Volume LVIII, no4.
1428
Goolsbee, A., Syverson, C. (2005), "How do Incumbents Respond to the Threat of Entry? Evidence
from the Major Airlines", NBER, Working Paper 11072.
1429
That decision, in a conservative approach, did not identify any routes of Ryanair on which Aer Lingus
exerted a significant constraining influence or on which it would have been significantly likely to grow
into an effective competitive force.
1430
Recital 540 of the 2007 Decision.
EN 347 EN
Madrid, Berlin, Rome, and Barcelona)
1431
. On 6 of these routes (from Cork to
Tenerife, Lanzarote, Malaga, Alicante, Faro and Barcelona), there is now actual
competition between Aer Lingus and Ryanair.
(1577) The 2010 Judgement also highlighted that "the comparison made by the Commission
does not take account of the influence on Aer Lingus’s fares of Ryanair’s presence as
a potential competitor on routes out of Dublin (section 7.6). On those routes, it is in
fact likely that Aer Lingus would charge lower fares than it would charge if Ryanair
did not have a base at Dublin airport."
1432
(emphasis added)
(1578) Finally, the presence of Ryanair and Aer Lingus at Irish airports appears to be an
important stimulant for the development of new routes, as both carriers are willing to
benefit from a first-mover advantage, in particular in the context of a complex
economic environment.
(1579) Therefore, the Commission considers that each Party already exerts a significant
constraining influence on the other Party, or there is a significant likelihood that one
Party would grow into an effective competitive force at least on some routes operated
by the other Party.
– Ryanair routes of potential competition
(1580) The Commission focused initially on the following routes: (i) routes on which
currently only Aer Lingus (including Aer Arann) operates and not Ryanair operates,
(ii) routes on which there are no other competing airlines offering services on the
route (iii) routes on which Ryanair either has a base at the non-Irish end of the route
or has a presence at that end with services provided from other Ryanair bases.
Applying these criteria, 13 routes were initially identified
1433
: Dublin-Bordeaux,
Dublin-Hamburg, Dublin-Lyon, Dublin-Perpignan, Dublin-Santiago de Compostela,
Dublin-Stuttgart, Dublin-Bologna, Dublin-Düsseldorf
1434
, Cork-Paris, Cork-Munich,
Cork-Nice, Cork-Brussels, and Cork-Gran Canaria
1435
.
(1581) Further relevant convincing evidence has been gathered through the market
investigation.
(1582) Firstly, while Ryanair has shifted significant capacity away from the Irish markets in
recent years
1436
, Ryanair describes its route selection policy […]*
1437
. It explains that
no decisions are made on the choice of new routes until negotiations in relation to
1431
Recital 540 of the 2007 Decision.
1432
Paragraph 162 of the 2010 Judgement.
1433
Table 27 of the Decision opening the proceedings.
1434
In the meantime, Lufthansa has started to operate a seasonal service on the Dublin-Düsseldorf route. In
a cautious approach, this route is not considered anymore as a route on which potential competition
issue might occur.
1435
Decision opening the proceedings, paragraphs 202 to 207.
1436
See for instance Table 27 of the Decision opening the proceedings, indicating the number of Ryanair's
European departing seats at Dublin since 2007.
1437
Form CO paragraph 8.12.
EN 348 EN
costs and facilities are completed with airports. There are numerous examples of
significant shifts in Ryanair's choice of routes served over recent years
1438
.
(1583) Furthermore, Ryanair recently made an offer to the Irish Government to grow traffic
at Irish airports by 5 million passengers over 4 years
1439
. Such expansion would mean
an increase in excess of […]*% in Ryanair's current traffic at Dublin, Cork and
Shannon airports
1440
. […]*
1441
.
(1584) The Commission acknowledges that the threat of entry is not necessarily equally
significant on all the routes where only one of the Parties is present. Therefore,
taking a prudent and "conservative" approach, the Commission has identified some
routes on which the likelihood of entry is high. The Commission is of the view that
Ryanair could enter on the following routes, (i) currently only Aer Lingus, or Aer
Arann, operates (and not Ryanair), (ii) routes on which there are no other competing
airlines offering services (airport pair) and (iii) routes on which Ryanair either has a
base or at least a significant presence at the non-Irish end of the route.
(1585) Secondly, regarding the Aer Lingus non-overlap routes, Ryanair refers to routes
(airport pairs) to major airports on which Ryanair would have chosen not to operate
and has no intention to operate
1442
. Of the relevant routes listed in the decision
opening the proceedings, the following 6 routes would fall into this category: Dublin-
Hamburg, Dublin-Lyon, Dublin-Stuttgart, Cork-Paris (Charles de Gaulle), Cork-
Munich, and Cork-Brussels (Zaventem).
(1586) The Commission considers that Ryanair's arguments regarding major airports are
irrelevant. The Commission is of the view that Ryanair would not enter these routes
through major airports (Paris Charles de Gaulle, Munich, Brussels) but through the
secondary airports to which Ryanair already operates, and which are substitutable
airports (respectively Beauvais, Memmingen and Charleroi).
(1587) The Statement of Objections referred also to the Dublin-Hamburg (Lübeck) and
Dublin-Stuttgart (Baden-Baden) routes. However, in a cautious approach in relation to
airport substitutability, the Commission does not need to conclude whether a significant
impediment to effective competition exists on these two routes as the overall conclusion
of the present Decision would not be affected.
(1588) In addition, the Statement of Objections referred to the Cork-Brussels (Charleroi)
routes. However, while no operations took place in summer 2011, there were less than
20 000 passengers in the IATA summer 2012 season. As explained below in recital
1595, this route falls below the threshold of 20,000 passengers.
(1589)
1438
See the examples of airports in Spain (2011-2012), Marocco (2012), Dublin (2009), Budapest (2010),
or Cyprus (2012). Most recently, Ryanair also decided to close its Verona operations.
1439
Form CO, page 31 footnote 23.
1440
Calculated based on the figures in Annex 8.4(b) of the Form CO.
1441
Ryanair response to Commission request for information of October 4, 2012, paragraph 5.1.
1442
Ryanair's response to Commission request of September 20, 2012, paragraph 30.2.
EN 350 EN
Table 96: 3 routes to major airports
Routes
Base or presence
1443
at non-Irish end
Passengers, summer
2011 and summer
2012
Dublin-Lyon
Not significant presence
[20 000 - 50 000]
Cork-Munich
Memmingen: 17 routes, 59 weekly
frequencies
[20 000 - 50 000]
Cork-Paris
Beauvais: 44 routes, 228 weekly
frequencies
[50 000 - 100 000]
(1590) Thirdly, [thinness of routes]*
1444
.
(1591) [thinness of routes]*:
Table 97: passenger numbers on routes regarded as too thin by Ryanair
[thinness of routes]*
(1592) The routes in Table 97 have significant seasonality patterns, with the large majority
of their passengers flying in the summer season (except for the Dublin-Agadir route).
(1593) However, the passenger numbers in Table 97 compare in terms of magnitude with
passenger numbers on several routes operated by Ryanair and Aer Lingus in
competition (for instance Dublin-Bilbao/Santander, Dublin-Marseille, Cork-Alicante,
Cork-Tenerife, Dublin-Ibiza, and Cork-Lanzarote, in the summer season).
(1594) Moreover, the passenger numbers in Table 97 compare in terms of magnitude also
with passenger numbers on several routes operated by Ryanair in competition with a
third carrier. For example, on 2 August 2012 Ryanair announced its intention to enter
the market with five new routes from Cork to Gdansk, Krakow, Warsaw, Wroclaw
and Vilnius, which were served by Wizz Air. Most of these routes had less than 20
000 passengers in summer 2011 and less than 10 000 passengers in winter 2011-
2012. Ryanair has also been operating on thinner routes, such as Cork-Bordeaux,
where it carried [10 000 - 20 000] passengers in the summer seasons 2010 and 2011.
(1595) In addition, several past entries by Ryanair (irrespective of whether these routes had
been operated by third carriers or not) have taken place on routes with passenger
numbers of 20 000 in the summer season or less.
(1596) It is therefore relevant, in a conservative approach, to apply a fourth criterion in order
to define routes on which the likelihood of entry by Ryanair is high
1445
: the routes
should have had at least 20 000 passengers in the summer season 2011 and in the
1443
Form CO, Annex 6.3.(a) list of all non-overlap routes.
1444
Ryanair's observations on Article 6(1)(c ) decision, paragraph 63, and Ryanair's response to
Commission's request for information of 20 September 2012, paragraph 30.2.
1445
Ryanair accepts that the thickness of a route is a relevant factor for determining likelihood of entry.
EN 351 EN
summer season 2012
1446
. In the case of low-cost airlines which often operate low
frequency services, the 20 000 passengers threshold seems appropriate for the purposes
of this Transaction
1447
. Moreover, considering the summer season, when generally more
passengers travel on the relevant routes, it is a cautious approach.
(1597) It appears from Table 97 that the only routes that pass the 20 000 passengers
threshold and on which Ryanair also has a base or a significant presence at the other
end are the Dublin-Bologna (base)
1448
and Dublin-Bordeaux (significant presence
with 8 routes, 30 weekly frequencies) routes
1449
. These two routes had [20 000 - 50
000] passengers in both summer 2011 and summer 2012 seasons.
(1598) Fourthly, in its response to the Commission's request of September 20, 2012,
[operations on routes]*. However, the Commission checked the thickness of these
routes and whether Ryanair would have a base or significant commercial presence at
the non-Irish end of the routes. The Cork-Birmingham and Shannon-Birmingham
routes meet both criteria, as Ryanair has a base at Birmingham. However, only the
Cork-Birmingham route had [20 000 - 50 000] passengers in both summer 2011 and
summer 2012 seasons.
(1599) In conclusion, for the purpose of this Decision, the Commission is taking a cautious
and conservative approach to identify those concrete routes where it is most likely
that Ryanair's entry has a significant constraining influence.
(1600) In particular in view of the opportunistic entry policy of Ryanair, and focusing on the
following routes: (i) routes where currently only Aer Lingus or Aer Arann operate
(and not Ryanair), (ii) routes where there are no other competing airlines offering
services on the route , (iii) routes where Ryanair either has a base at the non-Irish end
of the route or has a significant presence at that end with services provided from
other Ryanair routes, (iv) routes where more than 20 000 passengers were carried in
the summer 2011 and summer 2012 seasons on the routes,. The Commission
considers in a cautious approach that Ryanair already exerts a significant constraining
influence on Aer Lingus and Aer Arann, or there is a significant likelihood that
Ryanair would grow into an effective competitive force on the following 5 routes:
Dublin-Bologna, Dublin-Bordeaux, Cork-Paris (Beauvais), Cork-Munich
(Memmingen), and Cork-Birmingham.
1446
The Statement of Objections used data for the summer season 2011 in that context. However, as data
for the summer season 2012 are available for the present Decision, these data are also used, leading to
the conclusion that there would be no significant impediment to effective competition on the Cork-
Brussels and Shannon-Birmingham routes.
1447
Ryanair, while not arguing that stimulation effect on passenger numbers would exist upon Ryanair’s
entry on a route, considered that it is impossible to assess any such effect (Ryanair’s response to
Commission request for information of 11 October 2012, page 5).
1448
Ryanair exited the route more than a year ago, after the summer 2011 season. It still has a base at
Bologna.
1449
Form CO, Annex 6.3.(a) list of all non-overlap routes.
EN 352 EN
– Aer Lingus routes of potential competition
(1601) The Commission initially identified 11 specific routes
1450
, (i) on which currently only
Ryanair operates (and not Aer Lingus), (ii) on which there are no other competing
airlines offering services on the route and (iii) on which the route was an overlap
route in the 2007 Decision (iv) or on which Aer Lingus serves the airport or airports
which are substitutable for the airport served by Ryanair from other Irish airports.
The routes that were overlap routes in 2007 and are currently operated by Ryanair
without competitors are: Dublin–Krakow
1451
, Dublin-Newcastle and Dublin-Sevilla.
The routes where Aer Lingus flies from other Irish airports and on which Ryanair
without competitors are: Cork-Barcelona
1452
, Cork-Bordeaux, Cork-Carcassonne,
Cork-Gran Canaria, Cork-Milan, Cork-Fuerteventura, Shannon-Malaga, Shannon-
Tenerife.
(1602) Contrary to Ryanair’s assertions, Aer Lingus has not really cut back its short-haul
capacity and flights. The number of short-haul seats operated by Aer Lingus has
remained relatively constant over the period; increasing slightly from 11.0 million in
2007 to a high of 12.6 million in 2009 before decreasing to 11.9 million in 2012.
This would represent an increase of 0.9 million seats between 2007 and 2012
1453
.
(1603) Further relevant evidence has been gathered through the second phase market
investigation.
(1604) Aer Lingus entered in recent years on the following Ryanair routes (airport pairs):
Cork-London Gatwick (2010)
1454
, and Dublin-Stockholm (2012). Aer Arann entered
on the following Ryanair routes (airport pairs) under the franchise agreement:
Dublin-Bristol (2011), and Knock-Birmingham (2012). These events show that Aer
Lingus and Aer Arann are able to enter on Ryanair's routes (airport pairs) and in fact
enter on such routes where Ryanair is operating. This has been done despite the fact
that Aer Lingus (and Aer Arann) fares tend to be higher than Ryanair's fares.
(1605) Aer Lingus considers that the Commission has been too conservative in its initial
approach. In particular, the criterion limiting the routes of concern to routes where no
other carrier offers services would be too restrictive. However, the same criterion
was also used in the 2007 Decision and the Commission considers this cautious
approach still to be warranted in this Decision.
(1606) Nevertheless, Aer Lingus highlights that other initial criteria were overly restrictive
and contradicted by Aer Lingus' entry patterns since 2007
1455
. In particular, Aer
1450
Table 28 of the Decision opening the proceedings.
1451
Aer Lingus will exit the Dublin-Krakow route in the IATA winter season 2012/13.
1452
Aer Lingus will operate on the Cork-Barcelona route in the summer seasons. The route is therefore an
actual seasonal overlap route (summer season).
1453
This evolution is also confirmed by Ryanair's information on the number of Aer Lingus European
departing seats at Dublin, which has increased in 2012 against previous years; see response of Ryanair
to request of information of 6 August 2012, Table 27 in paragraph 8.4.
1454
Aer Lingus will however exit this route as of IATA winter season 2012/13.
1455
Aer Lingus response to the decision opening the proceedings, 28 September 2012, p.15.
EN 353 EN
Lingus entered the Dublin-Stockholm route without flying to Stockholm from any
other airport. Furthermore, the Dublin-Stockholm route was not an overlap route in
the 2007 Decision.
(1607) While Ryanair claims that Aer Lingus has no aircraft orders
1456
, the Commission is
of the view that the existence of aircraft orders is not a necessary requirement for a
carrier to expand on specific routes
1457
. Indeed, considering the base advantages Aer
Lingus enjoys, opening new routes would not necessarily require the acquisition of
new aircraft. Aer Lingus could easily redeploy aircraft and reduce frequencies on less
profitable routes to enter new routes. Besides, Aer Arann is reported to have aircraft
on order, which according to the Commission, could be used for instance on the
relatively thick Dublin-Newcastle route.
(1608) The thickness of the routes would also be a relevant factor in the assessment of the
Commission. The Commission considers that the same threshold of 20 000
passengers in the summer 2011 and summer 2012 seasons used for Ryanair should
apply
1458
. Aer Lingus and Aer Arann operate routes of this order of passenger
numbers (for instance Dublin-Bilbao/Santander, Dublin-Marseille, Dublin-
Warsaw/Modlin, Cork-Alicante, Cork-Tenerife, Dublin-Ibiza, and Cork-Lanzarote,
in the summer season).
Table 98: routes thickness
Routes
Passenger summer 2011 and
summer 2012
Dublin-Bydgoszcz
[20 000 - 50 000]
Dublin-Eindhoven
[50 000 - 100 000]
Dublin-Katowice
[20 000 - 50 000]
Dublin-Lodz
[20 000 - 50 000]
Dublin-Malta
[20 000 - 50 000]
Dublin-Nantes
[20 000 - 50 000]
Dublin-Newcastle
1459
[50 000 - 100 000]
Dublin-Pisa
[20 000 - 50 000]
Dublin-Poznan
[20 000 - 50 000]
Dublin-Rzeszow
[20 000 - 50 000]
(1609) Moreover, applying to Aer Lingus a similar criterion to the one applied to Ryanair in
terms of having a base or a significant presence at the non-Irish end of the route
would not be appropriate as Aer Lingus and Ryanair operate under different models
1456
Ryanair's response to the Statement of Objection, paragraph 22.
1457
Aer Lingus has two A319 aircraft on order under operating lease agreements due for delivery in March
2013 and May 2013 respectively (Aer Lingus response to questionnaire R4, question 21.
1458
The Statement of Objections used data for the summer season 2011 in that context. However, as data
for the summer season 2012 are available for this Decision, these data are also used, leading to the
conclusion that there would be no significant impediment to effective competition on the Dublin-Tallin
route.
1459
Aer Lingus exited the Dublin-Newcastle route in April 2009.
EN 354 EN
in this regard. It is in particular obvious that Aer Lingus operates most of its flights to
destinations where it does not have a base or presence due to flights other than ex
Dublin.
(1610) However, the Commission also takes into account the fact that Aer Lingus has entered
onto Ryanair's operated routes less frequently than the opposite.
(1611) As a conclusion, the Commission is taking a cautious and conservative approach to
identifying those concrete routes where it is most likely that Aer Lingus' entry has a
significant constraining influence. In particular, focusing on (i) routes where
currently only Ryanair operate (and not Aer Lingus and Aer Arann), (ii) routes where
there are no other competing carriers offering services on the route, (iii) routes where
the thickness of the route compares with other routes operated by Aer Lingus and
Aer Arann. Considering entry patterns of Aer Lingus and Aer Arann, the
Commission considers in a very cautious approach that Aer Lingus and Aer Arann
already exert a significant constraining influence on Ryanair, or there is a significant
likelihood that Aer Lingus and Aer Arann would grow into an effective competitive
force on the Dublin-Newcastle route. The Commission has reached this conclusion
also taking into account the business model of Aer Arann (that is to say, serving
typically provincial United Kingdom routes).
(1612) The Commission does not need to conclude whether significant impediment to effective
competition exists on the routes from Dublin to Bydgoszcz, Eindhoven, Katowice,
Lodz, Malta, Nantes, Pisa, Poznan, and Rzeszowas, as the conclusion of the present
Decision would not be affected.
8.10.3.2. Second limb of the test set out at paragraph 60 of the Horizontal Merger Guidelines
(1613) As regards the second limb of the test set out at paragraph 60 of the Horizontal
Merger Guidelines, it is necessary to demonstrate that entry by other competing
airlines on these routes is less likely and that they would not provide sufficient
competitive pressure on the merged entity.
(1614) The market investigation has not identified any other potential competitor, whose
entry would be timely, likely and sufficient, so that sufficient competitive pressure
on the merged entity would exist after the Transaction, at least on the 6 routes listed
at recitals 1599 and 1610.
(1615) Ryanair has claimed that "Ryanair and Aer Lingus are differentiated competitiors
and these differences are particularly acute as regards non-overlap routes"
1460
without providing any further explanations. The Commission, on the contrary
considers that the Parties are generally each other's closest competitor. In particular,
when compared to other carriers, Aer Lingus and Ryanair are the only carriers with
bases at Dublin and Cork airports, enjoying all the related base advantages (see
Section 8.4.3). Both Ryanair and Aer Lingus can relatively easily adjust their
schedule to react to new route opportunities as they enjoy scale effects, have early
morning slots available and enjoy considerable brand awareness at least on the Irish
side of the route. A carrier with a base on the other side of the route may still pose
1460
Ryanair's response to the Statement of Objections, paragraph 22.
EN 355 EN
such potential competitive constraint, however, the strength of such effect is more
likely to be proncounced between closest competitors and when the carriers have the
same base.
(1616) The only other independent scheduled carrier with a base at Dublin airport is CityJet.
Considering market circumstances, and its different business model and limited
scope of activities in Ireland, CityJet cannot be considered to be a likely entrant who
could provide sufficient competitive pressure post-Transaction on Ryanair's or Aer
Lingus' routes listed at recitals 1599 and 1610.
(1617) No other independent carrier has a base at Cork airport, which would make entry
likely on these routes.
(1618) Ryanair considers in particular that "the Commission inexplicably and without
evidence rules out Wizz Air as a likely entrant on a number of routes mainly to
Central and Eastern Europe, despite the fact that Wizz Air already operates to/from
Cork."
1461
(1619) Wizz Air operates indeed several flights from Cork airport but has no base in Ireland.
Its business model focuses on operating from bases in central and eastern European
countries. No change is contemplated by Wizz Air in this regard
1462
. None of the 6
routes identified at recitals 1599 and 1610 relates to central and eastern European
countries.
(1620) It is also noted that Wizz Air recently decided to exit several routes ex Cork, after
Ryanair entered on the routes in the summer 2012 (see section 8.5.2.6).
(1621) Moreover, Wizz Air made clear that "also Wizz Air does not currently plan to enter
routes ex-Ireland that serves Western European airports" and that "while Wizz Air is
constantly evaluating routes, it does not have any immediate action plan for entering
any other Irish route in the short/medium term."
1463
(1622) Specifically, Wizz Air considers that, absent commitments, entry at Dublin airport
"would be difficult, because of the competitive environment (i.e. Ryanair's strength
and capacity in Dublin), the level of airport charges, scarcity of slots as well as due
to the economic downturn."
1464
(1623) To conclude, the Commission considers that Wizz Air would not be a likely entrant
on any of the routes mentioned in recitals 1599 and 1610 after the Transaction,
absent commitments.
(1624) Moreover, no similar pattern of entry to the one of Ryanair, Aer Lingus and Aer
Arann on ex-Dublin and Cork routes can be observed from scheduled carriers with a
base at the destination airport on any of the routes mentioned at recitals 1599 and
1610.
1461
Ryanair's response to the Statement of Objections, paragraph 22.
1462
Minutes of conference call with Wizz Air of 12 October 2012, p. 2 and 3.
1463
Minutes of conference call with Wizz Air of 12 October 2012, p. 2 and 3.
1464
Minutes of conference call with Wizz Air of 12 October 2012, p. 1.
EN 356 EN
(1625) Charter operators, even those with a base at Irish airports or at the destination
airports, cannot be considered to be likely entrants who could provide sufficient
competitive pressure post-Transaction on any of the routes mentioned at recitals
1599 and 1610, in particular in view of their business models. This makes them at
best very distant competitors of both Ryanair and Aer Lingus.
(1626) Finally, Ryanair's aggressive reaction to entry by increasing capacity and frequencies
on the routes concerned would also act as a barrier to entry for potential competitors.
Moreover, Ryanair has been very profitable in recent years, has deep pockets, and
would therefore be able to sustain a prolonged period of very low prices.
(1627) To conclude, there are not a sufficient number of other potential competitors, which
could maintain sufficient competitive pressure post-Transaction on the routes
mentioned at recitals 1599 and 1610.
8.10.4. Conclusion on potential competition
(1628) As a consequence of the dynamic pattern of entry in competition with each other and
the very limited impact of entry by other carriers on the Parties, Ryanair and Aer
Lingus exert a potential competitive constraint on each other.
(1629) The Commission therefore concludes that the Transaction is likely to significantly
impede effective competition, in particular as a result of the creation or strengthening
of a dominant position, by eliminating the most credible potential entrant on the
following routes on which Aer Lingus or Ryanair respectively exert a significant
constraining influence and on which there is no sufficient number of other potential
competitor which could maintain sufficient competitive pressure on the merged
entity post-Transaction:
Table 99: Ryanair routes of potential competition
1.
Dublin-Bologna
4.
Cork-Munich (Memmingen)
2.
Dublin-Bordeaux
5
Cork-Paris (Beauvais)
3.
Cork-Birmingham
Table 100: Aer Lingus routes of potential competition
1.
Dublin - Newcastle
8.11. Effects on consumers
(1630) As noted by the Commission in the 2007 Decision, "a merger leading to high market
shares is particularly likely to lead to price increases when customers of the Merging
Parties are likely to have difficulties or to be unable to switch to other suppliers,
because there are few or no alternative suppliers. Such customers are, according to
the [Horizontal Merger] Guidelines, 'particularly vulnerable to price increases'."
1465
(1631) The Transaction would significantly reduce customers' ability to switch between
different suppliers, since it would not only reduce the number of alternative airlines
1465
Recital 541 of the 2007 Decision; Horizontal Merger Guidelines, paragraph 31.
EN 357 EN
to whom they could turn in case of a price increase post-merger, but would remove
entirely the possibilities to switch for customers entirely on many routes. Airline
customers would have no countervailing buyer power against the merged entity to
offset the anti-competitive effects of the merger, in particular because sales to larger
corporate customers or to tour operators would be limited. Customers would be
particularly vulnerable to price increases by the merged entity.
8.12. Conclusion on the competitive effects of the Transaction
(1632) The very large market shares achieved by the merged entity are in themselves, and
save in exceptional circumstances, evidence of the existence of a dominant
position.
1466
(1633) Moreover, on the basis of all available evidence, the Commission concludes that Aer
Lingus and Ryanair appear to be very close competitors, if not the closest
competitors, on each of the overlap routes and they enjoy significant base advantages
at Dublin airport in particular. In addition, the main barriers to entry identified in the
2007 Decision have not changed to a significant extent. If anything, barriers to entry
have increased. While terminal congestion at Dublin airport has diminished, the
Commission is of the view that the availability of slots for early morning frequencies
would still be a relevant issue in Dublin and at certain congested airports. Although
airport congestion or slot availability is not an issue at Cork and Shannon, there are
significant barriers to entry identified due in particular to the Parties' strong position
at these airports.
(1634) In markets in which Ryanair and Aer Lingus would reach a large combined market
share or even would create a monopoly, a remote likelihood of entry cannot be
sufficient to dismiss the Commission's competition concerns. The Commission
considers that sufficient and timely entry appears unlikely after the Transaction. The
market investigation has not identified, in the absence of commitments, post-
Transaction entry or expansion projects of competitors on the routes to and from
Ireland, which would be likely, timely and sufficient in order to provide competitive
constraints offsetting the effects of the Transaction. The absence of material entry or
capacity increases by competitors in recent years, irrespective of the cause, suggests
that the prospects for entry or expansion by other carriers are highly uncertain.
(1635) Moreover, considering the identified barriers to entry and the absence of material
pattern of entry by competitors on short haul routes to and from Ireland, the
Commission is also of the view that a mere threat of entry or expansion would not
sufficiently constrain the Parties post-Transaction.
1467
(1636) In view of the foregoing, the Commission concludes that the Transaction is likely to
significantly impede effective competition, in particular as a result of the creation or
strengthening of a dominant position, on the 46 routes listed in Table 101. Moreover,
the Transaction is also likely to result in the elimination of the very close competitive
relationship between Ryanair and Aer Lingus and thus to eliminate the important
1466
Case T-210/01 General Electric v Commission [2005] ECR II-5575, paragraph 115.
1467
Paragraph 239 of the 2010 Judgement considers also that "the mere 'threat' of entry, on which the
applicant relies, is not sufficient."
EN 358 EN
competitive constraint that both carriers exert upon each other pre-Transaction on the
routes on which the merged entity would operate alongside other scheduled carriers
or charter carriers.
Table 101: Routes with likely SIEC
1.
Dublin-Alicante/Murcia
2.
Dublin-Palma
3.
Dublin-Berlin
4.
Dublin-Lanzarote
5.
Dublin-Bilbao/ Santander
6.
Dublin-Gran Canaria
7.
Dublin-Birmingham/East
Midlands
8.
Dublin-Ibiza
9.
Dublin-Brussels/Charleroi
10.
Dublin-Munich/Memmingen
11.
Dublin-Budapest
12.
Dublin-CDG/Beauvais/Orly
13.
Dublin-Edinburgh/
Glasgow
14.
Dublin-Stockholm
Arlanda/Skavsta
15.
Dublin-Fuerteventura
16.
Dublin-London
17.
Dublin-Glasgow/Prestwick
18.
Dublin-Madrid
19.
Dublin-Manchester/
Liverpool/Leeds
20.
Cork-Barcelona/Reus/Gerona
21.
Dublin-Marseille
22.
Cork-London
23.
Dublin-Milan
24.
Cork-Lanzarote
25.
Dublin-Nice
26.
Cork-Malaga
27.
Dublin-Rome
Fiumicino/Ciampino
28.
Cork-Palma
29.
Dublin-Tenerife
30.
Cork-Alicante/Murcia
31.
Dublin-Toulouse/
Carcassonne
32.
Cork-Faro
33.
Dublin-Venice/Treviso
34.
Cork-Manchester/Liverpool
35.
Dublin-Vienna/ Bratislava
36.
Cork-Tenerife
37.
Dublin-Warsaw/Modlin
38.
Shannon-Manchester/
Liverpool
39.
Dublin-Malaga
40.
Shannon-London
41.
Dublin-Faro
42.
Knock-London
43.
Dublin-
Barcelona/Reus/Gerona
44.
Knock-Birmingham/East
Midlands
45.
Dublin-Frankfurt/Hahn
46.
Dublin-Bristol/Cardiff/
Exeter
(1637) Moreover, the Commission concludes that the Transaction is likely to significantly
impede effective competition, in particular as a result of the creation or strengthening
EN 359 EN
of a dominant position, by eliminating the most credible potential entrant on the
routes listed in Table 102 and Table 103:
Table 102: Ryanair routes of potential competition
1.
Dublin-Bologna
4.
Cork-Munich (Memmingen)
2.
Dublin-Bordeaux
5
Cork-Paris (Beauvais)
3.
Cork-Birmingham
Table 103: Aer Lingus routes of potential competition
1.
Dublin - Newcastle
9. EFFICIENCIES
9.1. The principles
(1638) According to the Merger Regulation
1468
and the Merger Horizontal Guidelines
1469
, it
is possible that efficiencies brought about by a merger counteract the effects on
competition and in particular the potential harm to consumers that it might otherwise
have. Parties to a concentration may thus detail the efficiency gains generated by the
concentration that are likely to enhance the ability and the incentive of the merged
entity to act pro-competitively for the benefit of consumers.
1470
Efficiency claims
need to be verifiable. The parties have to demonstrate that such efficiencies are likely
to be passed on to consumers and could not have been achieved to a similar extent by
means that are less anticompetitive than the proposed concentration (the so-called
"merger specificity").
(1639) The three conditions – verifiability, merger specificity and consumer benefit - are
cumulative.
9.2. Ryanair's claims
(1640) Ryanair claims that the Transaction brings about substantial efficiencies, which
would benefit all customers
1471
as Ryanair applies its cost-cutting expertise to
improve Aer Lingus’ efficiency, lower its costs and air fares, and enhance its
competitiveness against other airlines at primary airports while growing both its
short-haul and long-haul traffic. Ryanair expects to generate synergies and savings in
most cost categories, in particular staff costs, turnaround times, aircraft costs, fuel
costs, maintenance costs, airport and handling costs, and distribution and other costs.
(1641) In the Form CO, Ryanair claims that it plans to reduce Aer Lingus’ annual cost base
(excluding fuel) by at least […]*% or approximately […]*. Assuming that these cost
1468
Article 2(1)(b) and Recital 29.
1469
Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of
concentrations between undertakings, OJ C 31, 5.2.2004, p. 5.
1470
Paragraph 77 of the Horizontal Guidelines.
1471
For instance, Form CO, paragraph 9.6 et seq.
EN 360 EN
savings are achieved, Aer Lingus’ unit operating cost (excluding fuel) per passenger
would be reduced from EUR 100.08 to EUR […]*.
(1642) Regarding the verifiability criterion, Ryanair claims in particular that "a direct
comparison of the costs currently incurred by Ryanair as compared to those incurred
by Aer Lingus shows that Ryanair’s efficiency claims are tangible and
achievable."
1472
(1643) Regarding the merger-specificity criterion, Ryanair considers that Aer Lingus would
not be able to achieve a significant reduction in its cost base independently of the
Transaction. Ryanair is of the view that Aer Lingus' “Greenfield” cost reduction
program is not capable of generating more than an additional EUR 13 million in cost
savings in 2012, which contrasts with Ryanair’s conservative estimate of the EUR 50
million per annum reduction in Aer Lingus’ costs post-Transaction. Furthermore, a
significant proportion of the efficiencies projected by Ryanair are derived from
economies of scale, which are not available to Aer Lingus
1473
.
(1644) Regarding the consumer benefit criterion, Ryanair considers that efficiencies would
not be offset against reductions in elements which are beneficial to the consumer,
such as the quality of service or airport location. The efficiencies would derive from
the size and scale advantages already enjoyed by Ryanair. In addition, Ryanair plans to
increase the volume of Aer Lingus’ passengers from 9.5 million to 14.5 million
passengers per annum in the next 5 years. This will enable Ryanair to generate even
greater cost savings and to reduce overall costs per passenger. Finally, after the
Transaction, Aer Lingus will, as a result of this reduction in costs, be able to compete
more aggressively with mega carriers such as US Airways and American Airlines on
Ireland-United States of America routes. It will also be in a position to expand its
long-haul offering by, for example, flying to the west coast of the United States of
America, and creating more routes between the United States of America and
Europe, whilst providing lower fares to consumers across the board
1474
.
9.3. Aer Lingus' position
(1645) Aer Lingus has developed a cost reduction programme called Greenfield. As at 31
December 2011, Aer Lingus had achieved total Greenfield cost savings with an
annual value of EUR 84 million. The majority of savings achieved during 2011 relate
to non-staff items and include initiatives relating to sourcing of catering stock, fuel
efficiency savings and ground-handling process improvements
1475
.
(1646) Moreover, Aer Lingus considers that Greenfield remained on track in the first half of
2012. Aer Lingus expects to achieve cost savings in 2012 with an annual value of at
least EUR 97 million in the context of Greenfield
1476
. Implementation of this
programme would continue beyond 2012
1477
.
1472
Ryanair's response to the Statement of Objections, paragraph 57.
1473
Ryanair's response to the Statement of Objections, paragraphs 58 and 59.
1474
Ryanair's response to the Statement of Objections, paragraphs 60 and 61.
1475
Aer Lingus annual report 2011.
1476
Aer Lingus annual report 2011, p10.
1477
Aer Lingus public document "reject Ryanair's offer".
EN 361 EN
9.4. Commission's assessment
(1647) Efficiencies to be acceptable as a countervailing factor under the Merger Regulation
must be verifiable, likely to be passed on to consumers and merger specific to the
extent that no other practicable less-anticompetitive alternatives exist to achieve the
same benefits.
1478
The three conditions – verifiability, merger specificity and
consumer benefit - are cumulative.
(1648) Most of the information allowing the Commission to assess efficiencies is solely in
the possession of the parties to the Transaction. It is therefore 'incumbent upon the
notifying parties to provide in due time the relevant information'
1479
.
(1649) Ryanair has not provided relevant information allowing the Commission to assess
whether the claimed efficiencies meet the cumulative criteria set out in the
Horizontal Merger Guidelines.
(1650) The more precise and convincing the efficiency claims of the Parties are, the better
the Commission can evaluate the claims. In that regard point 86 of the Horizontal
Merger Guidelines states that, where reasonably possible, efficiencies and the
resulting benefit to consumers should therefore be ‘quantified’ and that, when the
necessary data are not available to allow for a precise quantitative analysis, it must be
possible to foresee a clearly identifiable positive impact on consumers, not a
marginal one.
(1651) In this regard, the Commission has not found verifiable evidence, beyond Ryanair's
mere statements, that the latter can reduce Aer Lingus' costs without offsetting
reductions in other elements beneficial to consumers, such as quality of service or
airport location. For instance, claimed efficiencies would derive from airport and
handling costs, where Aer Lingus’ airport and handling cost per passenger would be
[…]*, while Ryanair’s would be […]*
1480
. However, Ryanair also explains that Aer
Lingus would continue to operate to primary airports post-Transaction
1481
. Therefore,
it is unclear to what extent the difference in cost between the two carriers could be
translated into efficiencies as there would be no volume effects linked to the
Transaction when Ryanair operates from or to another airport than Aer Lingus.
(1652) Other efficiencies would derive from maintenance costs, for which Aer Lingus’
maintenance costs would be […]* per passenger, while Ryanair’s would be […]*
1482
Ryanair does not explain how it would engender material efficiencies in this regard
while Aer Lingus fleet is comprised of different aircraft than those used by Ryanair
(Airbus vs Boeing).
1478
Horizontal Merger Guidelines, paragraph 78.
1479
Paragraph 407 of the 2010 Judgment.
1480
Form CO, paragraph 9.8.
1481
Ryanair notes that "in relation to airport costs, Ryanair proposes that Aer Lingus will continue to
operate largely from the existing airports to the extent these airports/routes are profitable. As a result,
there will be no reduction in airport quality or service. By expanding traffic at these airports, Aer
Lingus management will be encouraged to negotiate volume cost reductions from both the airports and
handling agents." (Form CO, paragraph 9.11).
1482
Form CO, paragraph 9.8.
EN 362 EN
(1653) Further efficiencies would stem from turnaround times. Ryanair’s turnaround time
between landing and take-off is usually 25 minutes, while Aer Lingus’ turnaround
times on short-haul flights is significantly longer. Ryanair does not provide detailed
information on how efficiencies would be created. The Commission is of the view
that several elements may have an influence on boarding time, such as the way
passengers are boarding and unboarding, or the congestion degree of the airports
served. The Commission considers that Ryanair's very rapid average turnover time
stems, inter alia, from the way passenger boarding and seating are managed and from
the fact that Ryanair often operates at secondary airports which are not congested or
at least less congested than primary airports. Since Aer Lingus operates at main
airports, a faster boarding time is less likely to be achieved. Cost reductions would
then either derive from a possible lessening in service quality for passengers, and
would relate to a change in the airport mix served by Aer Lingus, which would also
affect service quality.
(1654) Ryanair also notes in the response to the Statement of Objections that "a significant
proportion of the efficiencies projected by Ryanair are derived from economies of
scale."
1483
However, the magnitude of this proportion is not described.
(1655) In its response to the Statement of Objections, Ryanair refers to the ability of Aer
Lingus post-Transaction to compete more aggressively on routes to the United States
of America
1484
. This assertion is not substantiated
1485
.
(1656) Generally, the Commission is of the view that data provided by Ryanair are suffering
from a significant lack of precision.
(1657) Moreover, looking at figures provided by Ryanair and Aer Lingus, the "net"
efficiencies made of the insufficiently detailed EUR 50 million claimed by Ryanair
minus the efficiencies which would stem from Aer Lingus' "Greenfield" project,
which is not merger-specific, would represent, according to Ryanair's own estimates
around EUR 37 million. According to Aer Lingus's figures, the "Greenfield" project
achieved cost savings with an annual value of EUR 84 million and was expected to
generate at least EUR 97 million for 2012. According to Aer Lingus preliminary
results for 2012, the annualised cost savings target was exceeded by 7% (€104
million in annualised savings compared to targeted €97 million).
(1658) Furthermore, it is also "for the parties to provide in due time all the relevant
information necessary to demonstrate that there are no less anti-competitive,
realistic and attainable alternatives than the notified concentration".
1486
In order to
establish merger specificity the Commission would only consider alternatives that
are reasonably practical in the business situation of the parties, having regard to
established practice in the air transport sector.
1483
Ryanair's response to the Statement of Objections, paragraph 59.
1484
Ryanair's response to the Statement of Objections, paragraph 61.
1485
Besides, point 79 of the Guidelines states that efficiencies should be substantial and timely, and should,
in principle, benefit consumers in those relevant markets where it is otherwise likely that competition
concerns would occur. No competition concern would relate to long-haul routes and there is no reason
to believe that passengers flying on short-haul routes are materially the same as the ones flying on long-
haul routes.
1486
Paragraph 427 of the 2010 Judgment.
EN 363 EN
(1659) Ryanair satisfies itself with claiming that a significant proportion of the […]*
efficiencies projected by Ryanair would be derived from economies of scale, which are
not available to Aer Lingus
1487
. The Commission does not contest that Ryanair is
significantly bigger in size than Aer Lingus'. However, it is not apparent that mere size
would lead to merger specific efficiencies, for instance, in staff costs, which could
also be achieved by Aer Lingus independently of the Transaction.
(1660) Moreover, the Horizontal Merger Guidelines state that "the incentive on the part of
the merged entity to pass efficiency gains on to consumers is often related to the
existence of competitive pressure from the remaining firms in the market and from
potential entry". It is further indicated that: "It is highly unlikely that a merger
leading to a market position approaching that of a monopoly, or leading to a similar
level of market power, can be declared compatible with the common market on the
ground that efficiency gains would be sufficient to counteract its potential anti-
competitive effects"
1488
.
(1661) Post-Transaction, as explained in detail in the present Decision, the merged entity
would enjoy very significant market power on a high number of routes ex Ireland.
Assuming profit maximisation behaviour by the merged entity
1489
, and considering
the fact that the claimed efficiencies would apply essentially to Aer Lingus, it is
highly unlikely that the theoretical price-reducing effect of the efficiencies would be
sufficient to reverse the price increase resulting from the Transaction. Even taking
Ryanair's own expected cost savings of around 5% into account, this level of scost
savings is extremely unlikely to be sufficient to counteract the likely increase in
prices that would result from the merger.
(1662) The reference made by Ryanair that passing on efficiencies to consumers through
lower fares would be the only way Ryanair can deliver on its offer commitment to
grow Aer Lingus’ traffic from 9.5 million to 14 million passengers over a five-year
period, does not change the Commission's assessment. First, this offer was rejected
by the Irish Government
1490
. Secondly, as for any firm, Ryanair's objective would
still be that of (at least long run) maximising profit.
9.5. Conclusion
(1663) The three conditions pertaining to efficiencies – verifiability, merger specificity and
consumer benefit – are not met.
(1664) Given the extremely high combined market shares, often approaching monopoly
levels, and the absence of timely, sufficient, and likely entry on the routes on which
competition problems have been identified, it appears that any sufficient pass-on of
alleged efficiencies to consumers would not likely take place.
1487
Ryanair's response to the Statement of Objections, paragraphs 58 and 59.
1488
See Horizontal Merger Guidelines, paragraph 84.
1489
The assessment by the Commission that Ryanair's priority is still probably that of maximising profit is
not contested in Ryanair's response to the Statement of Objections.
1490
Ryanair response to Commission request of October 4, 2012, paragraph 5.1.
EN 364 EN
(1665) Therefore, Ryanair has not provided sufficient evidence to demonstrate that any
efficiency claims would materialise and counteract the competitive harm likely to
arise from the Transaction.
10. COMMITMENTS
(1666) On 17 October 2012, Ryanair submitted its first set of Commitments aimed at
addressing the serious competition issues identified by the Commission in the
decision opening the proceedings
1491
. These commitments were not market tested for
the reasons stated in Section 10.2.1.
(1667) In order to address the competition concerns identified in the Statement of
Objections, Ryanair submitted the Commitments of 7 December 2012.
(1668) The Commitments of 7 December 2012 were the subject of the first market test
launched on 11 December 2012, by which the Commission sought to gather the
views of competitors, customers, airport operators and associations on the
effectiveness of the commitments submitted and their ability to restore competition
on the markets where competition concerns were identified. In addition, the
Commission sent further specific questions
1492
, in particular to the identified
potential upfront buyers ("UFB")
1493
in order to understand the UFBs' intentions
towards the divestments proposed by the Commitments of 7 December 2012.
(1669) A State-of-Play meeting was held on 8 January 2013, at which Ryanair was informed
of the results of the first market test and the Commission's preliminary assessment of
the 7 December Commitments.
(1670) In order address the concerns expressed by the Commission, Ryanair submitted the
Commitments of 15 January 2013. On 21 January 2013
1494
, the Commission
launched the second market test
1495
.
1491
Draft commitments had previously been addressed to the Commission in August 2012 and in
September 2012. The Commission commented on these drafts in particular at the first phase state of
play meeting of 20 August 2012, and at a meeting of 27 September 2012. Commitments were also
discussed at a meeting held in Ryanair's premises on 14 September 2012.
1492
For example request for information of 30 October 2012, of 21 November 2012 or of 17 January 2013
to IAG(BA), request for information of 30 October 2012 to Flybe, request for information of 31
October 2012 to Thomson/TUI , request for information of 21 November 2012 to Virgin.
1493
The Commission had contact with UFBs in a broad sense as all UFBs identified by Ryanair in the
course of the procedure were questioned: IAG and Flybe, and also Virgin Atlantic, Air France,
Norwegian, City Jet, TUI, and Wizz Air. Ryanair confirmed also that easyJet and Etihad declined to
enter into discussion about the Commitments.
1494
Ryanair confirmed by email of 21 January 2013 that the non-confidential Commitments as submitted on
January 16 2013 were non-confidential in their entirety. The non-confidential version of the
Commitments attached to the email of 21 January 2013 clarified the situation also for the annexes.
1495
On 25 January 2013, the Commission sent a questionnaire to the addressees of the second market test;
the questionnaire contained a clarification related to questions 3 and 6 of the market test questionnaire
of 21 January 2013, and one related additional question. This followed a letter of Ryanair dated 24
January 2013 about the on-going market testing of the Commitments of 15 January 2013. The
assessment of the second market test conducted by the Commission encompasses the responses to the
questionnaire of 25 January 2013.
EN 365 EN
(1671) On 28 January 2013, a further State-of-Play meeting was held in which Ryanair was
informed about the results of the second market test and the Commission's
preliminary assessment of the Commitments of 15 January 2013.
(1672) Ryanair subsequently submitted the final Commitments dated 1 February 2013
1496
.
On 4 February 2013, the Commission launched the final market test
1497
. A final
State-of-Play meeting was held with Ryanair on 12 February 2013.
10.1. The analytical framework for the assessment of proposed remedies
10.1.1. Overview
(1673) When a concentration raises competition concerns because it could significantly
impede effective competition, in particular as a result of the creation or strengthening
of a dominant position, the parties may seek to modify the concentration in order to
resolve the competition concerns and thereby gain clearance of their merger. The
commitments have to eliminate the competition concerns entirely and have to be
comprehensive and effective in all respects. In assessing whether proposed
commitments are likely to eliminate the competition concerns identified, the
Commission will consider all relevant factors including inter alia the type, scale and
scope of the proposed commitments, judged by reference to the structure and
particular characteristics of the market in which the competition concerns arise,
including the position of the parties and other participants on the market.
1498
(1674) The Commission has to be able to conclude with the requisite degree of certainty that
it will be possible to implement the commitments and that it is likely that the new
commercial structures resulting from them will be sufficiently workable and lasting
to ensure that the significant impediment to effective competition will not
materialise
1499
.
(1675) In the 2010 Judgment
1500
, the Court clarified that "it must be held in that regard that
commitments proposed by one of the parties to a merger will meet that condition
only in so far as the Commission is able to conclude, with certainty, that it will be
possible to implement them and that the remedies resulting from them will be
sufficiently workable and lasting to ensure that the creation or strengthening of a
dominant position, or the impairment of effective competition, which the
commitments are intended to prevent, will not be likely to materialise in the
relatively near future."
1496
The Commitments are dated 1st February 2013 by Ryanair. However Ryanair modified them and
provided the final version of these commitments on 3 February 2013. The latest non-confidential
version of these Commitments was received by the Commission on 4 February 2013.
1497
On 5 February 2013, the Commission sent a questionnaire to the addressees of the final market test; the
questionnaire contained a rectification related to question 7 of the market test questionnaire of 4
February 2013, and one related additional question. The assessment of the final market test conducted
by the Commission encompasses the responses to the questionnaire of 5 February 2013.
1498
See Commission notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under
Commission Regulation (EC) No 802/2004 ("the notice on remedies"), paragraphs 5, 9, and 12 (OJ
2008/C 267/01).
1499
The notice on remedies, paragraph 10.
1500
Paragraph 453 of the 2010 Judgment.
EN 366 EN
(1676) Ryanair’s last two sets of Commitments were submitted well after 21 December
2013, which corresponded to day 65 of the procedure. As regards commitments
which are submitted out of time, the Court held in the 2010 Judgment that "it is
apparent from point 43 of the Notice on remedies acceptable under the former
merger regulation and under Commission Regulation (EC) No 447/98 (OJ 2001 C
68, p. 3) (‘the notice on remedies’), whose approach was adopted by the Commission
in the present case as regards the merger regulation and Regulation No 802/2004,
that the parties to a notified concentration may have such commitments taken into
account subject to two cumulative conditions, namely, first, that those commitments
clearly and without the need for further investigation resolve the competition
concerns previously identified and, secondly, that there is sufficient time to consult
the Member States on those commitments…"
1501
In that regard, it should be noted that
the Commission exceptionally decided to examine the last two sets of Commitments
submitted by Ryanair despite the fact that these Commitments did not represent only
limited modifications of the previous commitments and that additional market tests
had to be conducted.
(1677) Commitments must be put forward by the Parties and the Commission has the power
to accept only such commitments as are capable of rendering the Transaction
compatible with the internal market.
(1678) Ryanair's Commitments amount in substance to fix-it-first type of remedy. Indeed,
Ryanair committed to enter into legally binding agreements with Flybe and IAG
prior to the Commission's Decision, conditional on the Commission’s acceptance of
Flybe and IAG as suitable purchasers, the adoption of the Decision, and the closing
of the Transaction
1502
.
(1679) A fix-it first remedy implies that "the Parties identify and enter into a legally binding
agreement with a buyer outlining the essentials of the purchase during the
Commission's procedure" and "such agreements are normally conditional on the
final Commission decision accepting the remedy in question"
1503
.
(1680) The Commission welcomes fix-it-first remedies in particular where the identity of
the purchaser is crucial for the effectiveness of the proposed remedy because the
purchaser needs to have specific characteristics in order for the remedy to solve the
competition concerns. If the parties choose to enter into a binding agreement with a
suitable purchaser during the procedure by way of a fix-it-first solution, the
Commission can in those circumstances conclude with certainty that the
commitments will be implemented with a sale to a suitable purchaser.
This can
resolve the Commission's concerns particularly in cases where, given the
circumstances, only very few potential purchasers can be considered suitable
1504
.
(1681) A clearance decision which is combined with a fix-it-first remedy is appropriate in
cases in which there is a sufficient degree of likelihood that the entrant would
1501
Paragraph 455 of the 2010 Judgment and case-law cited. See also notice on remedies, paragraph 94.
1502
Final Commitments, paragraph 1.
1503
See notice on remedies, paragraph 56 .
1504
See notice on remedies, paragraph 57 .
EN 367 EN
eliminate all identified competition concerns and that the remedy would be workable
and implementable
1505
.
(1682) Lastly the Commission notes that the Commitments of 17 October 2012, of 7
December 2012, and of 15 January 2013, as well as the final Commitments cannot be
characterized as up-front buyer remedies as that requires inter alia a clear and precise
clause which actually makes the implementation of the Transaction conditional on
the implementation of the corresponding commitment. Such a clause does not exist
in any of the Commitments proposed by Ryanair.
10.1.2. Elimination of all identified competition concerns
(1683) Before analysing the successive Commitments offered by Ryanair, it should first be
emphasised that the Transaction comprises the merger of two Irish scheduled carriers
based at Dublin, Cork, and Shannon airports, having by far the largest bases at these
airports, and de facto covering the large majority of short haul routes ex Ireland.
(1684) As explained extensively elsewhere in this Decision, in order to be able to exert a
sufficient competitive constraint on the merged entity so as to counteract a potential
price increase post-Transaction, a new entrant would in particular have to be based at
the Irish ends of the routes, have a strong brand to be able to compete with those of
the merged entity, and be in a position to withstand in the medium term the
competitive pressure of the merged entity.
(1685) In order to be effective, any proposed commitments would have to address these
issues.
(1686) Regarding the exact form of the commitments, the General Court has pointed out
that, while the Merger Regulation lays down the principle whereby the Commission
may authorize a merger only if the proposed commitments address the competition
concerns identified, it "leaves it a wide discretion as to the form which the
commitments in question may take."
1506
(1687) If "divestitures are the benchmark for other remedies in terms of effectiveness and
efficiency", the Commission "may accept other types of commitments but only in
circumstances where the other remedy proposed is at least equivalent in its effects to
a divestiture"
1507
. Often, a sufficient reduction of entry barriers is not achieved by
1505
See e.g. Case T-210/01 General Electric v Commission [2005] ECR II-5575, paragraph 555: "It must be
noted that under Regulation No 4064/89 the Commission has power to accept only such commitments
as are capable of rendering the notified transaction compatible with the common market (...). It must be
held in that regard that structural commitments proposed by the parties will meet that condition only in
so far as the Commission is able to conclude, with certainty, that it will be possible to implement them
and that the new commercial structures resulting from them will be sufficiently workable and lasting to
ensure that the creation or strengthening of a dominant position (...)." (emphasis added); see also
paragraph 7 of the notice on remedies.
1506
Case T-177/04 easyJet v Commission [2006] ECR II-1913, paragraph 197: "Article 6(2) of Regulation
No 4064/89 provides that the Commission may authorise a merger if the commitments proposed by the
parties dispel the serious doubts as to the compatibility of the merger with the common market.
Regulation No 4064/89 thus lays down the objective to be achieved by the Commission, but leaves it a
wide discretion as to the form which the commitments in question may take."
1507
See notice on remedies, paragraph 61
EN 368 EN
individual measures, but by a package comprising a combination of divestiture
remedies and access commitments or a commitments package with the overall aim of
facilitating entry of competitors. If the commitments offered actually make entry by
sufficient competitors timely and likely, they can be considered to have a similar
effect on competition in the market as a divestiture. If it cannot be concluded that the
lowering of the entry barriers by the proposed commitments is likely to lead to the
entry of new competitors, such as to eliminate any significant impediment to
effective competition in the market, the Commission will reject such remedy
package. The notice on remedies points out specifically that, in air transport mergers,
a mere reduction of barriers to entry by a commitment of the parties to offer slots on
specific airports may not always be sufficient to ensure the entry of new competitors
on those routes where competition problems arise and to render the remedy
equivalent in its effects to a divestiture
1508
.
(1688) According to paragraph 68 of the Horizontal Merger Guidelines, "for entry to be
sufficient competitive constraint on the merging parties, it must be shown to be likely,
timely and sufficient to deter or defeat any potential anti-competitive effects of the
merger."
1509
(1689) The effectiveness of the Commitments of 17 October 2012, of 7 December 2012 and
of 15 Janauary 2013, as well as of the final Commitments, and the results of the
market tests have been analysed notably with a view to determining whether they
create a prospect of entry that is likely, timely and sufficient to exert competitive
constraint on the merged entity so as to offset the likely anticompetitive effects
specifically established in this Decision
1510
.
10.1.3. The remedy package must be workable and implementable within a short period of
time
(1690) The Commitments have to eliminate the competition concerns entirely and have to
be comprehensive and effective from all points of view. Furthermore, commitments
must be capable of being implemented effectively within a short period of time as the
conditions of competition on the market will not be maintained until the
commitments have been fulfilled
1511
.
(1691) The Commission has therefore investigated whether all the commitments submitted
by Ryanair would be fully workable and implementable so that it could be concluded
with the requisite degree of certainty that it would be possible to implement them and
that the new commercial structures resulting from them would be sufficiently
workable and lasting to ensure that the significant impediment to effective
competition would not materialise in the near future.
(1692) In addition, in the case of fix-it first remedies, a legally binding agreement with one
or more suitable UFB must be concluded during the Commission procedure, in order
for the Commission's final decision to be able to determine whether the transfer of
1508
See notice on remedies, paragraph 63.
1509
The three characteristics of entry, i.e. likely, timely and sufficient are cumulative.
1510
Paragraph 239 of the 2010 Judgment.
1511
See notice on remedies, paragraph 9.
EN 369 EN
the divested business to the identified UFBs on the terms of the proposed divestiture
will remove the competition concerns
1512
.
(1693) It should be mentioned that while Ryanair referred to numerous UFBs at various
stages of the investigation, the vast majority of the alleged UFBs eventually declined
the offers made by Ryanair (this concerns easyJet, Etihad, Norwegian, Virgin
Atlantic, Air France/City Jet and Wizz Air
1513
).
10.1.4. Commission precedents
(1694) Ryanair argued that all its proposed Commitments significantly exceeded the scope
of prior commitments made in the context of airline mergers
1514
.
(1695) The Commission points out that whether a remedy is suitable to eliminate the
competition concerns identified can only be examined on a case-by-case basis
1515
.
The mere fact that certain remedies have been accepted in previous airline cases
cannot be a decisive factor and justify accepting such remedies in the present case.
The Commission has to assess the proposed commitments taking into account the
specificities of the transaction under review.
(1696) The correctness of a case-by-case approach was acknowledged by the Court in the
2010 Judgment
1516
, in the context of the remedies proposed in that case, in essence
the release of slots: "…Unlike previous mergers in the passenger air transport sector
(such as those which were at issue in Air France/KLM and Lufthansa/Swiss), the
Commission could not be satisfied in the present case that mere slots would ensure
access to a route. This is not a transaction involving active operators which have a
home airport in different countries. Ryanair and Aer Lingus operate from the same
airport, Dublin Airport, where they have significant advantages which could not
easily be countered by competitors."
(1697) Furthermore, the Court found in ARD v Commission that "a comparison with other
merger cases can be relevant only if it is established that they raise the same
competition problems and concern markets with the same characteristics and where
conditions have not changed."
1517
This reasoning also applies to the analysis of
commitments.
(1698) The Commission notes that Ryanair's analysis of previous commitments made in the
context of airline mergers ignores both the 2007 Decision involving Ryanair and Aer
1512
See notice on remedies, paragraph 56.
1513
Until at least 20 November 2012, Ryanair stated that "Ryanair is finalising the HoTs with Wizz Air and
envisages that it will be in a position to provide the Commission with a copy in the next few days"
(email of Ryanair of 20 November 2012 to the Commission). As regards its negotiations with Virgin,
Ryanair indicated to the Commission on 12 November 2012 that Virgin had not sought further contact
with them for unknown reasons.
1514
For instance Form RM of 1 February 2013, paragraphs 48 and 49.
1515
See notice on remedies, paragraph 16.
1516
Paragraph 522 of the 2010 Judgment.
1517
Case T-158/00 Ard v Commission [2003] ECR II-3825, paragraph 169. See also Case T-210/01 General
Electric Company v Commission, [2005] ECR II-5575, paragraphs 118-120 and Case T-282/06 Sun
Chemical Group and Others v Commission [2007] ECR II-2149, paragraph 88.
EN 370 EN
Lingus and the Decision in case COMP/M.5830 Olympic/Aegean Airlines
1518
, where
both Olympic and Aegean operated from the same airport. In the latter case, the
proposed remedies (essentially in the form of slot releases) were dismissed inter alia
as they were unlikely to induce a credible new player to create a base at Athens
airport and exert a credible competitive constraint on the affected routes.
10.2. Description of the Commitments of 17 October 2012, 7 December 2012 and 15
January 2013
(1699) As noted above, Ryanair submitted four remedies packages to the Commission; on
17 October 2012, 7 December 2012, 15 January 2013 and lastly on 1 February 2013,
as described in the Sections that follow.
10.2.1. Commitments of 17 October 2012
10.2.1.1. Description
(1700) According to Ryanair, the Commitments of 17 October 2012 identified multiple
UFBs
1519
that would have opened new bases at Dublin and London Heathrow to
guarantee continuing competition on all relevant routes by agreeing to take over
some or all of the overlapping frequencies (and in some cases more) and/or to enter
into block-space agreements (“BSAs”)
1520
on thinner or seasonal routes beginning at
the next practicable IATA season changeover.
(1701) Ryanair considered that it had offered a package of remedies based on tried and
tested principles. In Ryanair's view, the Commitments of 17 October 2012 were
argued to be unprecedented in their scale and scope
1521
.
(1702) The Commitments of 17 October 2012 addressed 39 routes. Ryanair considered that
5 routes required no remedies given the strong competition that exists from one or
more major Union carriers currently operating on the route from one of their major
base airports
1522
and where (in 3 of the 5 cases) the airports were, in Ryanair's view,
clearly not substitutable
1523
. Furthermore, Ryanair explained that no remedies were
1518
Commission Decision of 26 January 2011 in Case No COMP/M.5830 – Olympic/Aegean Airlines.
1519
According to the Commitments of 17 October 2012, up to 4 UFBs might be selected by Ryanair.
Ryanair listed the following UFBs: UFB 1: IAG/BA, Virgin Atlantic; UFB 2: Flybe Grould Plc (Flybe),
Wizz Group Ltd; UFB 3: IAG, Virgin Atlantic, Flybe Grould Plc, Wizz Group Ltd, TUI Travel Plc; and
UFB 4: IAG, Virgin Atlantic, Flybe, Wizz Group Ltd, TUI Travel Plc. IAG/BA was Ryanair’s
preferred candidate for the UFB 1 and UFB 3 packages. Flybe was Ryanair’s preferred candidate for the
UFB 2 and UFB 4 packages.
1520
BSAs are agreements on the purchase of reserved seating capacity by one airline (the marketing airline)
on flights operated by another airline (the operating airline). In the present case, BSA would include a
hard-block and a soft-block component: i) a set percentage (10 or 15% depending on the UFB) of the
available seats in Aer Lingus flights would be sold at a price pre-defined in the Commitments on a
hard-block basis, meaning the UFB would be obliged to acquire these seats; ii) a set percentage (10 or
15% depending on the UFB) of the available seats in Aer Lingus flights would be sold at a price pre-
defined in the Commitments on a soft-block basis, meaning that the UFB would have the option to
return some or all of these seats a minimum of 28 days before the date of departure.
1521
Form RM of 17 October 2012, paragraph 1.
1522
These 5 routes are: (1) Dublin-Frankfurt (Lufthansa); (2) Dublin-Munich (Lufthansa); (3) Dublin-Paris
(Air France); (4) Dublin-Stockholm (SAS); and (5) Dublin-Madrid (IAG/Iberia.
1523
These 3 routes are: (1) Dublin-Frankfurt; (2) Dublin-Munich; and (3) Dublin-Stockholm.
EN 371 EN
required on 3 other routes
1524
operated by Ryanair and Aer Arann, because Aer
Arann is an independently owned and managed airline that is not part of the Aer
Lingus Group, so it would not be appropriate to treat these as overlap routes. In
addition, on each of these routes, Ryanair claimed that no overlap arose in any event
because Ryanair and Aer Arann fly to non-substitutable airports.
10.2.1.2. No market test was warranted before the Statement of Objections
(1703) Pursuant to Article 10(2) of the Merger Regulation, the Commission has to take a
clearance decision as soon as the serious doubts referred to in Article 6(1)(c) of the
Merger Regulation are removed as a result of commitments submitted by the parties.
This rule applies to commitments proposed in phase II-proceedings before the
Commission issues a statement of objections. The Commission may decide not to
carry out a market test if it is clear from the information already at its disposal that
the proposed remedies cannot be accepted.
(1704) Ryanair presented the Commitments of 17 October 2012 as being radical and
transformational
1525
.
(1705) However, the Commitments of 17 October 2012 did not cover all routes where the
decision opening the proceedings raised serious doubts. In particular 8 overlap routes
were outside the scope of these Commitments. Moreover, the Commitments of 17
October 2012 did not cover all routes on which the SO preliminarily concluded that
the Transaction would significantly impede effective competition
1526
.
(1706) Therefore, it was clear that no market test was warranted for the Commitments of 17
October 2012.
10.2.2. Commitments of 7 December 2012
10.2.2.1. Description
(1707) Ryanair submitted revised commitments on 7 December 2012. According to Ryanair,
the main aspects of these remedies
1527
were as follows:
(1708) IAG would take over Aer Lingus' entire existing Dublin-London Heathrow, Cork-
London Heathrow and Shannon-London Heathrow schedule and operate aircraft
bases at Dublin, Heathrow, Cork, and Shannon, with 6 aircraft in total (2 at Dublin, 1
at Cork, 1 at Shannon and 2 at Heathrow), in order to serve these 3 routes.
1524
These routes are: (1) Cork-Manchester; (2) Shannon-Manchester; and (3) Knock-Birmingham/East
Midlands.
1525
Ryanair's response to the Statement of Objections, paragraph 66.
1526
The Commission also notes that the Commitments of 17 October 2012 referred to several UFBs with
which no HoT were signed. The SO also identified other issues related to the Commitments (section
10.2).
1527
Ryanair had reached binding understandings, in the form of Heads of Terms ("HOT") with IAG/British
Airways to act as UFB 1 and UFB 3 and with Flybe to act as UFB 2 and UFB 4. See Form RM of 7
December 2012, paragraph 8.
EN 372 EN
(1709) In addition, Ryanair committed to lease, or to cause Aer Lingus to lease, the Dublin-
Heathrow Slots, the Cork-Heathrow Slots and the Shannon-Heathrow Slots to IAG
for 6 IATA seasons. At the end of the 6 IATA seasons, IAG could elect either (i) to
acquire these slots from Aer Lingus at their current open market value or (ii) to
extend the leases for these Slots for another 4 IATA seasons. If IAG elected to
extend the leases, it would have the right to acquire these Slots from Aer Lingus at
their current open market value at the end of the additional 4 IATA seasons. In the
event that Ryanair was prevented from extending the lease or from selling the slots to
IAG as a consequence of the application of Article 10 of Aer Lingus’ Articles of
Association, Ryanair would enable IAG to continue to operate these Slots, either by
means of a form of joint operation or through similar means such as wet-leasing of
aircraft, until such time as it was possible for Ryanair to sell the slots to IAG.
(1710) Flybe would take over Aer Lingus' existing flights on 20 key overlap city pairs out of
Dublin airport, Cork and Shannon
1528
, establish and operate a 6 aircraft base in
Dublin and enter into BSAs on 9 thin and/or seasonal city pairs from Dublin and
Cork airports
1529
.
(1711) Both IAG and Flybe would enter into BSAs on Aer Lingus' flights on 14 thin and/or
seasonal city pairs, mainly charter/leisure routes, from Dublin, Cork and Knock
Airports
1530
.
(1712) In addition, Ryanair committed to preserve the Aer Lingus/Aer Arann franchise
agreement on existing terms on all franchise routes with the exception of the 6 routes
on which Aer Arann (operating under the Aer Lingus Regional brand) and Ryanair
both operate and which, post-Transaction, would be operated by Flybe. The 6 routes
are Dublin-Edinburgh, Dublin-Glasgow, Dublin-Bristol, Cork-Manchester, Shannon-
Manchester and Knock-Birmingham.
(1713) Regarding the 23 overlap routes on which Ryanair would enter into BSAs with IAG
and/or Flybe to guarantee continued competition, Ryanair also proposed the
divestiture of slots to any applicant, including IAG and Flybe, which would plan to
begin operating with its own frequencies on those routes
1531
.
(1714) BSAs would also be offered on all 20 potential competition routes identified by the
Commission, for 2 IATA seasons, on request by any applicant, the request to be
made during the 6 IATA seasons or at any time thereafter
1532
. Slot divestments, up to
the number of frequencies currently operated by Ryanair / Aer Lingus, would be
offered for an indefinite period of time to enable any applicant to enter any of the 20
routes with their own aircraft.
1528
The 20 routes are from Dublin to Alicante, Berlin, Birmingham, Bristol, Brussels, Edinburgh,
Frankfurt, Glasgow, Madrid, Manchester, Milan, Munich, Nice, Paris, Rome, Stockholm, and Venice;
and from Manchester to Cork and Shannon; and from Knock to Birmingham.
1529
The 9 routes are Dublin-Budapest, Dublin-Warsaw, Dublin-Tenerife, Dublin-Marseille, Dublin-
Fuerteventura, Cork-Faro, Cork-Alicante, Cork-Tenerife, and Cork-Barcelona.
1530
The 14 routes are Dublin-Faro, Dublin-Gran Canaria, Dublin-Ibiza, Dublin-Lanzarote, Dublin-Malaga,
Dublin-Palma, Dublin-Barcelona, Dublin-Bilbao, Dublin-Toulouse, Dublin-Vienna, Knock-London,
Cork-Lanzarote, Cork-Malaga, and Cork-Palma.
1531
Clause 8 and Annex II of the Commitments of 7 December 2012.
1532
Clause 68 of the Commitments of 7 December 2012.
EN 373 EN
(1715) In addition, Ryanair committed not to enter the 3 Heathrow routes which IAG would
operate with its own aircraft for 6 (or 10 in case of extension
1533
) IATA seasons, not
to increase the remaining Ryanair or Aer Lingus frequencies on any route where
Flybe entered with its own aircraft for 6 IATA seasons, and not to increase Aer
Lingus' frequencies on routes subject to BSAs (while the BSAs were in force), unless
otherwise requested or agreed by the UFB
1534
. At the request of IAG, Flybe, or any
applicant that acquired slots to operate on BSA routes, or Aer Arann in respect of
Dublin-Edinburgh, Dublin-Glasgow, Dublin-Bristol, Cork-Manchester, Shannon-
Manchester and Knock-Birmingham routes, Ryanair would allow such party to be
hosted in Aer Lingus' Frequent Flyer Programme.
(1716) Ryanair stated that "its unprecedented remedies package will entail the withdrawal of
up to 12 of Aer Lingus' 36 short-haul aircraft (33% of its short-haul fleet) from 23
city pairs"
1535
and the transfer of more than 4 million of Aer Lingus' 8.8 million
short-haul passengers per annum
1536
to two substantial competitor airlines (IAG and
Flybe)"
1537
.
10.2.2.2. The Commission's assessment
(1717) On the basis of all the information available to the Commission and the evidence
collected during the first market investigation, the Commission concluded that the
Commitments of 7 December 2012 would not be likely to eliminate the competition
concerns identified.
(1718) As regards the commitments regarding the Dublin-London Heathrow, Cork-London
Heathrow and Shannon-London Heathrow routes, the Commission's investigation
revealed in particular that it did not appear with the requisite degree of certainty that
a permanent transfer of Heathrow slots to IAG would take place, in particular
because of a protection mechanism enshrined in Article 10 of Aer Lingus' Articles of
Association (see Section10.5.1).
(1719) Furthermore, the Commission found that the Commitments of 7 December 2012 did
not contain any specific provision related to a commitment of IAG to buy the slots at
the end of the lease period
1538
, and no possibility existed that other interested carriers
could apply for these slots. Hence it could not be excluded that at the end of 6 (or 10)
IATA seasons, Ryanair/Aer Lingus would take the Heathrow slots back. Lastly, the
Commitments of 7 December 2012, by identifying IAG as the proposed entrant on
1533
The Commitments of 7 December 2012 defined the 'Extension Period' as a period of 4 IATA seasons,
which could have taken place at the end of the Minimum Period of 6 IATA seasons. Clause 4 of the
Commitments of 7 December 2012 sets that "At the end of the Minimum Period, UFB 1 may elect either
(i) to acquire these Slots from Aer Lingus at their current open market value or (ii) to extend the leases
for these Slots for the Extension Period."
1534
Clause 60 of the Commitments of 7 December 2012.
1535
These are the routes where IAG and Flybe take up slot divestitures and enter the routes with their own
frequencies.
1536
2012 estimate (excluding Aer Arann flights).
1537
Form RM of 7 December 2012, paragraph 5.
1538
Clause 28 of the Commitments of 7 December 2012 sets that IAG "has the right to acquire any or all of
the Dublin-Heathrow Slots, Cork-Heathrow Slots and Shannon-Heathrow Slots from Aer Lingus at
their current open market value either at the end of the Minimum Period or, if applicable, at the end of
the Extension Period." (emphasis added)
EN 374 EN
the three routes, were also likely to be insufficient in scope considering the likely
reallocation to other (long haul) routes of at least some of the slots currently operated
by IAG on the Dublin-London Heathrow route. Therefore the likely dominant
position of the merged entity would have been maintained
1539
.
(1720) Concerning the Flybe base commitment, the Commission considered that the
competitive constraint exercised by Flybe from its 6 aircraft base in Dublin would
not be sufficient to defeat the anti-competitive effects of the Transaction. Flybe
would not be likely to maintain and develop its Dublin base, and operate all the 20
routes exerting sufficient constraint to defeat the anticompetitive effects of the
Transaction. There were mixed answers to the first market test questionnaire
1540
with
several respondents supporting the view that Flybe would be a sufficient constraint
on the merged entity
1541
, whereas equally credible other respondents
1542
held the
opposite view. The Commission has concluded that Flybe is a distant competitor to
the merged entity, with a rather different business model and different fleet
composition, focusing on business passengers, and with very limited brand
recognition outside the United Kingdom. Furthermore, Flybe is significantly smaller
than Aer Lingus (in terms of revenues) and its Cost of Available Seat-Kilometer
("CASK")
1543
, based on operating regional jets, are much higher than those of
Ryanair and Aer Lingus, which operate B737 and A320 aircraft
1544
. In addition,
Flybe’s financial situation does not appear to be strong
1545
; while Aer Lingus has
been profitable over recent years, and has significant cash reserves; so the
Commission considered it unlikely that Flybe would be in a position to provide the
medium term financial support to make sufficiently certain that the Dublin base
would be maintained after the Commitment period
1546
. Therefore, the Commission
considered that Flybe would not constrain to a sufficient extent the merged entity on
the 20 routes at stake.
1539
See Sections 10.2.3.2 and 10.5.1 below for a more detailed description of the issues.
1540
See responses to question 12 of questionnaire Market test on remedies of 14 December 2012 –
Competitors.
1541
Lufthansa, response to question 12 of Market test remedies - Competitors of 14 December 2012,
Germania Fluggesellschaft GmbH, response to question 12 of Market test remedies - Competitors of 14
December 2012, Belfast International Airport Ltd,. response to question 12 of Market test remedies -
Others of 14 December 2012, Ebookers.ie Ltd (Flightbookers), response to question 12 of Market test
remedies - Others of 14 December 2012, Letisko M.R.Stefanika - Airport Bratislava, response to
question 12 of Market test remedies - Others of 14 December 2012.
1542
Air France, response to question 12 of questionnaire Market test on remedies - Competitors of 14
December 2012; Vueling, response to question 12 of questionnaire Market test on remedies -
Competitors of 14 December 2012, Birmingham Airport Limited, response to question 12 of Market
test remedies - Others of 14 December 2012, ClickandGo.com, response to question 12 of Market test
remedies - Others of 14 December 2012, Microsfot EMEA, response to question 12 of Market test
remedies - Others of 14 December 2012.
1543
CASK is a widely used unit cost metric within the airline industry which provides a metric which
allocates cost to units of production rather than units sold (i.e., ASKs rather than seats or passengers)
and facilitates comparative analysis between airlines.
1544
See for example Aer Lingus, response to the first market test, section 5.13, who indicates that "Whilst
turboprops can be cost-competitive on short routes (e.g. between Ireland and the UK), they are not
competitive on longer routes. In the current fuel environment, regional jets are not costcompetitive
against turboprops for short sectors, nor against larger jets (A320/737)". See also Aer Lingus' response
to the Commissions request for information of 7 January 2013.
1545
See Section 10.4.2.
1546
The Commitments of 7 December 2012 did not mention financial support by Ryanair to Flybe.
EN 375 EN
(1721) Therefore, the Commission considered that the Commitments of 7 December 2012
did not eliminate the significant impediment to effective competition as far as the 20
Flybe Routes were concerned.
(1722) Furthermore, while the BSA and slot release measures might to some limited extent
have facilitated entry on such routes, the Commission found that it was unlikely that
these measures would make entry likely, at least on a significant number of routes
such as […]* as these routes are beyond the range accessible by Flybe's aircraft.
Furthermore, […]* and […]* would not be profitable given Flybe's business model
and the too long distances between Dublin and these two destinations.
(1723) Moreover, even if entry were likely, entry would remain insufficient on many routes.
For instance, the UFBs' market shares obtained through BSA would remain generally
low. Furthermore, the Commission found that BSAs were not likely to allow a carrier
to establish a brand presence and independent track record, and to compete on all of
the many parameters of competition in which differentiated carriers compete,
including, for example, to freely set capacity (e.g. number of seats offered, aircraft
type), to decide on flight times, training and incentives of crew members, quality of
service, food provision, designated seating, seat pitch offered to passengers, on-
aircraft interiors, cost management, etc. Price competition would be at best very
limited.
(1724) Therefore, considering the BSAs, the slot releases, and the related measures like the
frequency limitation or freeze, the Commission concluded that Flybe, or other
carriers, would not be likely to be able to effectively enter and build a presence on all
the routes in the short-term and would not constrain the merged entity to a sufficient
extent. Moreover, considering for instance its business model, IAG would not likely
enter on (most of) these routes. Therefore, these measures would not be likely to lead
to effective competition on a lasting basis.
(1725) In addition, as regards the termination of the Aer Arann franchise agreement on the 6
relevant routes as set out in the Commitments of 7 December 2012, it did not appear
with the requisite degree of certainty that Ryanair would be in a position post-
Transaction to implement the Commitment and modify the scope of the franchise
agreement in a timely manner because of Aer Arann's consent rights
1547
.
(1726) Lastly, no binding agreement with the UFBs was sent to the Commission in relation
to the Commitments of 7 December 2012, despite their fix-it-first nature.
(1727) Based on all the available evidence, including the results of the first market test, the
Commission considered that the Commitments of 7 December 2012 would not lower
barriers to entry sufficiently to lead to the entry of new competitors able to exert a
sufficient competitive constraint on the merged entity. In addition, the Commission
could not conclude, with the requisite degree of certainty, that the Commitments of 7
December 2012 could be implemented and that they would be sufficiently workable
and lasting to ensure that the significant impediment of effective competition which
those Commitments were intended to remove would not be likely to materialise in
the relatively near future.
1547
See also Section 10.6.
EN 376 EN
(1728) On the basis of the assessment of the Commitments of 7 December 2012, the
Commission therefore concluded that those Commitments were unable to remedy the
significant impediments to effective competition identified, and, thus, could not
render the proposed concentration compatible with the internal market.
10.2.3. The Commitments of 15 January 2013
10.2.3.1. Description
(1729) Ryanair submitted a revised set of remedies on 15 January 2013.
(1730) According to Ryanair
1548
, the Commitments of 15 January 2013 eliminated all
competition concerns identified in the SO. The Commitments of 15 January 2013
retained core elements of the Commitments of 7 December 2012, including the
involvement of 2 UFBs (IAG and Flybe), but incorporated structural changes that,
according to Ryanair, addressed the issues raised by the Commission regarding the
Commitments of 7 December 2012. Ryanair considered that this remedies package
was based on clear-cut structural divestitures and would result in the establishment of
independent competitors with their own operations on all the overlapping routes.
(1731) Ryanair would enter into legally binding agreements with the approved UFBs prior
to the adoption of the final Decision, those agreements being conditional only on the
Commission’s approval and the closing of the Transaction
1549
. The Commitments of
15 January 2013 would therefore be "fix-it-first" commitments. Ryanair insisted that
these Commitments would provide the Commission with far more certainty about
their effective implementation than was provided in the context of any previous
airline merger case
1550
.
(1732) According to Ryanair, the main features of the Commitments of 15 January 2013
were as follows:
–
Divestiture of Aer Lingus' operations to Flybe on 43 overlap routes
1551
(1733) Eliminating the BSAs offered under previous versions of its Commitments, Ryanair
committed to divest a stand-alone business for operating Aer Lingus’ actual
operations on 43
1552
(out of the 46) overlap routes to become a wholly-owned
1548
Form RM of 15 January 2013, paragraph 2.
1549
Commitments of 15 January 2013, paragraph 1.
1550
Form RM of 15 January 2013, paragraph 3.
1551
Section II of the Commitments of the 15 January 2013; Final Head of Terms signed between Ryanair
and Flybe on 15 January 2013.
1552
Dublin-Alicante/Murcia, Dublin-Barcelona/Reus/Gerona, Dublin-Berlin, Dublin-Bilbao/ Santander,
Dublin-Birmingham/East Midlands, Dublin-Bristol/Cardiff/Exeter, Dublin-Brussels/Charleroi, Dublin-
Budapest, Dublin-CDG/Beauvais/Orly, Dublin-Faro, Dublin-Frankfurt/Hahn, Dublin-Fuerteventura,
Dublin-Edinburgh/Glasgow, Dublin-Glasgow/Prestwick, Dublin-Gran Canaria, Dublin-Ibiza, Dublin-
Lanzarote, Dublin-Madrid, Dublin-Malaga, Dublin-Manchester/ Liverpool/Leeds, Dublin-Marseille,
Dublin-Milan, Dublin-Munich/Memmingen, Dublin-Nice, Dublin-Palma, Dublin-
Rome/Fiumicino/Ciampino, Dublin-Stockholm Arlanda/Skavsta, Dublin-Tenerife, Dublin-Toulouse/
Carcassonne, Dublin-Venice/Treviso, Dublin-Vienna/Bratislava, Dublin-Warsaw/Modlin, Cork-
Alicante/Murcia, Cork-Barcelona/Reus/Gerona, Cork-Faro, Cork-Lanzarote, Cork-Malaga, Cork-
EN 377 EN
subsidiary of Flybe, possibly named "Flybe Ireland". The package would include the
divestiture of up to 12 aircraft from Aer Lingus
1553
, together with the divestiture of
airport slots, and the transfer of personnel (for example pilots, cabin crew, and
engineers), relevant contracts, forward bookings, a share of Aer Lingus existing
capital, and any other elements necessary to operate the 43 city pairs via this stand-
alone entity. Flybe would use the slots exclusively to operate the agreed schedule
1554
on each of the 43 routes during the first 6 IATA seasons. In case of misuse of the
slots, such as cessation of services or reallocation of the slots to other routes, Flybe
would need to hand back the slots to Ryanair.
(1734) The remedy also foresaw that Flybe would base the divested aircraft at Dublin airport
for 6 IATA seasons.
(1735) The selling price for the divested business would be EUR 1 million. In addition,
Ryanair undertook to sufficiently capitalise the divested business "with reference to
historical performance of the 43 Flybe Routes and Aer Lingus’ current
capitalisation"
1555
to maintain its current estimated annual pre-tax profitability in the
first 3-5 year trading period, and thus its long-term viability.
– Divestiture to IAG of slots on 3 overlap routes to London Heathrow
1556
(1736) Subject to applicable law (in particular, Aer Lingus' Articles of Association), Ryanair
committed to lease slots (at origin and destination) to IAG in order to enable it to
operate the agreed schedule
1557
on the Dublin-Heathrow, Cork-Heathrow and
Shannon-Heathrow routes. IAG would acquire slots to operate 6 daily frequencies on
the Dublin-London Heathrow route, as well as the entirety of Aer Lingus' current
schedule on the Cork-London Heathrow route (28 weekly frequencies) and Shannon-
London Heathrow route (21 weekly frequencies). The merged entity would retain
slots and continue to operate 47 weekly frequencies on the Dublin-London Heathrow
route in competition with IAG and other carriers. During the first 6 IATA seasons
(which, upon request by IAG, could be prolonged by another 4 IATA Seasons), IAG
could only use the slots on the three above mentioned routes. After these 6 or 10
IATA seasons, IAG would acquire the slots from Aer Lingus against payment of an
agreed price. In case of misuse, IAG would hand back the slots to Ryanair.
(1737) In the event that Article 10 of Aer Lingus' Articles of Association prevented Ryanair
from leasing or selling the slots to IAG, Ryanair would enable IAG to operate these
Manchester/Liverpool, Cork-Palma, Cork-Tenerife, Knock-Birmingham/East Midlands, Knock-London
and Shannon-Manchester/Liverpool.
1553
Under the Flybe Agreement, Flybe will have the option of acquiring up to 12 Aer Lingus aircraft as part
of the Divestment Business. Flybe will also have the option of acquiring fewer than 12 Aer Lingus
aircraft in the event that it decides to operate some of the frequencies on the Flybe Routes Schedule
with its own Embraer 195 jet aircraft, in which case it will increase the number of frequencies in order
to at least match the seat capacity currently offered by Aer Lingus.
1554
The weekly frequencies operated by Aer Lingus in the 2012 Summer IATA season and the weekly
frequencies operated by Aer Lingus in the 2012/2013 Winter IATA season on each of the 43 routes.
1555
Commitments of 15 January 2013, paragraph 6.
1556
Section III of the Final Commitment/Commitments of the 15 January 2013; Final Head of Terms signed
between Ryanair and IAG on 15 January 2013.
1557
The weekly frequencies operated by Aer Lingus in the 2012 Summer IATA season and the weekly
frequencies operated by Aer Lingus in the 2012/2013 Winter IATA season on each of the 3 routes.
EN 378 EN
slots, either by means of a form of joint operation or through similar means such as
wet-leasing of aircraft, until such time as it was possible for Ryanair to sell these
slots to IAG
1558
.
– Aer Arann Franchise
1559
(1738) Under the Commitments of 15 January 2013, Ryanair would have caused Aer Lingus
to serve on Aer Arann, a notice of termination of the Aer Arann Franchise, as far as it
related to any Flybe Routes, as soon as practicable following Closing, and in
accordance with the terms of the Aer Arann Franchise
1560
.
(1739) In addition to the commitment to modify the scope of Aer Arann's franchise
agreement in relation to the Flybe Routes, Ryanair committed to facilitate the
transfer of the Aer Arann Franchise to Flybe, so as to enable Aer Arann to operate
under Flybe's franchise on any of the Flybe Routes, if requested by Flybe.
10.2.3.2. The Commission's assessment
(1740) On the basis of all the information available to the Commission and the evidence
collected during the market investigation, the Commission concluded that the
Commitments of 15 January 2013 would not be likely to eliminate all the
competition concerns and did not remove the uncertainties as regards their
implementation. The main reasons are explained below.
(1741) As regards the full divestiture of Aer Lingus' operations to Flybe on 43 overlap
routes
1561
, the Commitments of 15 January 2013 were insufficiently clear with
respect to the requirement for Flybe to establish and maintain a base with at least 12
aircraft in Dublin; moreover it seemed that Flybe would not establish a base at Cork,
while the presence of a base has been identified as a significant element for a
competitor to be able to exert sufficient competition constraint on the merged entity
(see Sections 8.4.3 and 8.5.2.3). The Commission's investigation showed that the
scope of the Commitments of 15 January 2013 was unlikely to be sufficient,
considering in particular the insufficient number of divested frequencies on some
routes (also taking into account some rounding effects), the fact that the completion
penalty would only be payable by Flybe should Flybe not operate 80% of its daily
frequencies on any of the Flybe routes
1562
, and the risks attached to the size of the
fleet.
1558
In the event that Aer Lingus would be prevented from selling its Heathrow slots to IAG as a
consequence of the application of Article 10 of Aer Lingus' Articles of Association, it "will enable
[IAG] to continue to operate these Slots, either by means of a form of joint operation or through similar
means such as wet-leasing of aircraft, until such time as it is possible for Ryanair to sell these slots to
[IAG], and Ryanair will use its best endeavours to enable such a sale within the shortest possible
timeframe" (Commitments of 15 January 2013, paragraph 23). This mirrors a similar provision in the
Commitments of 7 December 2012 (paragraph 5).
1559
Section VII of the Final Commitment/Commitments of the 15 January 2013.
1560
The 6 routes concerned would have been Dublin-Edinburgh, Dublin-Glasgow, Dublin-Bristol, Cork-
Manchester, Shannon-Manchester and Knock-Birmingham.
1561
Section II of the Commitments of the 15 January 2013; Final Head of Terms signed between Ryanair
and Flybe on 15 January 2013.
1562
Clause 16 of the Commitments of the 15 January 2013.
EN 379 EN
(1742) In addition, based on the market investigation, and again despite mixed views
expressed by respondents to the second market test questionnaire
1563
, the
Commission could not conclude with the requisite degree of certainty that Flybe
would be able to constrain the merged entity sufficiently post-transaction, mainly due
to its different business model, the lack of brand awareness in particular in Ireland,
the route composition of the divested business, and its financial situation. Moreover,
several respondents to the second market test
1564
expressed doubts as to the ability
and the intention of Flybe to operate the divested business after 6 IATA seasons.
Therefore, the uncertainty as to Flybe's commitment to operate the divested business
for a sufficient period of time cast considerable doubts on its suitability as a
purchaser of the divested business.
(1743) Moreover, several market participants raised concerns that the divested business
would not be a viable business, because of the nature of the routes operated by Flybe
(for example, the relatively high number of seasonal routes), the lack of brand
awareness of Flybe and the fact that it would not benefit from the long haul
operations of Aer Lingus
1565
.
(1744) The profitability, and hence the viability, of the divested business was still unclear.
(1745) It is also noted that the Commitments of 15 January 2013 provided, without further
elaboration, that "The Divestment business will be sufficiently capitalised, with
reference to historical performance of the 43 Flybe Routes and Aer Lingus’ current
capitalisation, to maintain its current estimated pre-tax profitability of […]* per
annum in the first 3-5 year trading period, and thus its long-term viability." For a
fix-it first type of remedy, such a clause would be unacceptable because of its lack of
1563
See responses to question 14 of the Market test remedies II of 24 January 2013. See for example: SAS,
response to question 14 of the Market test remedies II -. Competitors of 24 January 2013, TAP,
response to question 14 of the Market test remedies II -Competitors of 24 January 2013, Germanwings,
response to question 14 of the Market Test remedies II - Competitors of 24 January 2013; Lufthansa,
response to question 14 of the Market test remedies II - Competitors of 24 January 2013, Loganair,
response to question 14 of the Market test remedies II - Competitors of 24 January 2013, Johnson &
Johnson, response to question 14 of the Market test remedies II - Others of 24 January 2013, Marseille
Airport, response to question 14 of the Market test remedies II - Others of 24 January 2013, Leeds
Bradford International, response to question 14 of the Market test remedies II - Others of 24 January
2013, Civil Aviation Authority of Republic of Poland, response to question 14 of the Market test
remedies II - Others of 24 January 2013, Gatwick Airport, response to question 14 of the Market test
remedies II - Others of 24 January 2013, Ebookers.ie Ltd (Flightbookers), response to question 14 of
the Market test remedies II - Others of 24 January 2013.
1564
See responses to question 12 of the Market test remedies II of 24 January 2013. See for example: SAS,
response to question 12 of the Market test Remedies II - Competitors of 24 January 2013, Vueling,
response to question 12 of the Market test Remedies II - Competitors of 24 January 2013, Airports
Council International (ACI), response to question 12 of the Market test Remedies II - Others of 24
January 2013, Flughafen Berlin Brandenburg GmbH, response to question 12 of the Market test
Remedies II - Others of 24 January 2013, Johnson & Johnson, response to question 12 of the Market
test Remedies II - Others of 24 January 2013.
1565
Etihad, response to question 8 of the Market test remedies II – Competitors of 24 January 2013,
Germanwings, response to question 8 of the Market test remedies II – Competitors of 24 January 2013,
Budapest airport zrt, response to question 8 of the Market test remedies II – Others of 24 January 2013,
Civil Aviation Authority of Republic of Poland, response to question 8 of the Market test remedies II –
Others of 24 January 2013, Gatwick Airport, response to question 8 of the Market test remedies II –
Others of 24 January 2013.
EN 380 EN
clarity. In addition, Ryanair's commitment to capitalise the divested business raised
serious concerns as it could not be excluded at that stage that the financial support, to
be provided by Ryanair in favour of Flybe, the concrete form of which was not
described in the Commitments of 15 January 2013, would constitute a sponsored
entry of Flybe by Ryanair, creating unacceptable continuing financial links between
Ryanair and Flybe
1566
.
(1746) As regards the divestiture to IAG of slots on 3 overlap routes to London Heathrow,
the Commission concluded that the remedy could not be implemented as a
consequence of restrictions on the disposal of slots at Heathrow in Aer Lingus'
Articles of Association (see Section 10.5.1)
1567
.
(1747) The Commission also found that the "joint operation" or "wet lease" approach, which
was put forward in a very abstract and unclear manner by Ryanair, was not an
appropriate alternative
1568
. The Commission points out that it is for the Parties to
provide all relevant explanations so as to satisfy the Commission of the precise
content of the proposed commitments and it is not for the Commission to second
guess the Parties' intentions in this regard.
(1748) It was only in a legal Opinion of 14 January 2013 that these concepts were explained
by Ryanair. A "joint operation" was defined as a concept in the IATA Worldwide
Slot Guidelines, involving "slots held by one airline being used by another airline".
Under such joint operation, "the original slot holder retains historic precedence, not
the operator of the slots. The slot holder is responsible for initial submissions and
typically retains control of the slots until the Slot Return Deadline" and "[a]t the end
of the shared operation, the slots involved in a shared operation remain allocated to
the original slot holder".
(1749) Under the European Union Slot Regulation
1569
the concept of "joint operation" is
caught under Article 10(8)
1570
. Air carriers involved in such joint or shared
operations must advise the slot coordinator of the detail of such operations prior to
the beginning of such operations.
1566
Under the notice on remedies, the Commission will normally not accept any financing of the divestiture
by the seller. See notice on remedies, paragraph 103.
1567
This analysis was also confirmed by a legal opinion issued by an independent legal expert mandated by
the Commission. See also Section 10.5.1 below.
1568
In Ryanair's legal Opinion of 14 February 2013, the concept of a "licence" is further discussed.
However this concept was not part of any of the Commitments (of 7 December 2012 or of 15 January
2013). At first sight, as transactions involving slots are restricted to those specifically set out in the in
the European Union Slot Regulation, a "licence" within the meaning expounded by Ryanair's counsel
does not seem acceptable.
1569
Council Regulation (EEC) No 95/93 of 18 January 1993 on common rules for the allocation of slots at
Community airports, OJ L 14, 22.1.1993, p. 1 as amended.
1570
Article 10(8) reads as follows: "Slots allocated to one air carrier may be used by (an)other air
carrier(s) participating in a joint operation, provided that the designator code of the air carrier to
whom the slots are allocated remains on the shared flight for coordination and monitoring purposes.
Upon discontinuation of such operations, the slots so used will remain with the air carrier to whom they
were initially allocated. Air carriers involved in shared operations shall advise coordinators of the
detail of such operations prior to the beginning of such operations." (emphasis added)
EN 381 EN
(1750) Ryanair's legal Opinion of 14 January 2013 further explained the concept of a "wet-
lease" as "an agreement between air carriers pursuant to which the aircraft is
operated under the AOC [air operator certificate] of the lessor". It further explained
that "under a wet lease arrangement an aircraft is operated by the lessee for the
benefit of the lessor who essentially remains responsible for the state and
maintenance of the aircraft i.e. the lessor retains effective control of the flight. The
presumption, therefore, is that the lessor is the aircraft operator and that the flight
plan will contain the ICAO designator of the lessor/owner or the registration
marking of the aircraft."
(1751) The slot coordinator at London Heathrow confirmed to the Commission that in order
to qualify as a joint operation "it would not be sufficient to have a mere codeshare
arrangement but the airlines involved must demonstrate a substantive cooperation in
providing the services jointly. This would typically involve a risk sharing mechanism
or alike, for example a block seat arrangement"
1571
ACL further explained that "An
important criterion for a cooperation to qualify as a "joint operation" would also be
that tickets are actively marketed and sold on both airline's websites. ACL's role is to
assess the operation in order to ensure that there is no fake arrangement, put in
place just to facilitate the use of the slots at London Heathrow but that there is to the
contrary a genuine commercial cooperation behind it."
1572
(1752) Therefore, the Commission considered it questionable that a joint operation or a wet
leasing arrangement could be a credible alternative to a Heathrow slot disposal. Such
joint operation would have been likely to have created links between Ryanair and
IAG(BA) which would not have been acceptable in the context of a remedy proposal
which was meant to resolve an identified competition issue by creating a competitive
constraint on the merged entity not by creating further links between the merged
entity and its competitors. A commitment which would have maintained a structural
long term relationship between Ryanair and IAG, such as a joint operation or a wet
lease agreement, could not have been acceptable on competition grounds
1573
.
(1753) Furthermore, the Commission also could not exclude that such "joint operation" or
"wet-lease solution" would also have fallen under the provisions of Article 10 of Aer
Lingus' Articles of Association. Indeed, as explained in detail in Section 10.5.1, the
concept of "disposal transaction" is a broad one and in any event includes all
measures "to otherwise dispose of or encumber" Aer Lingus' slots. In this scenario,
the uncertainties as to the workability of such commitments are described in detail in
Section 10.5.1 below
1574
.
1571
ACL, minutes of a conference call of 21 January 2013.
1572
ACL, minutes of a conference call of 21 January 2013.
1573
Notice on remedies, paragraph 48.
1574
The "Supplemental joint opinion of Counsel" submitted by Ryanair on 14 February 2013 does not
provide any new evidence or explanations, which would lead the Commission to alter its conclusion.
This submission does not address the issues raised by ACL as noted above and tends at best to confirm
the legal uncertainties characterising the proposed commitment. As a consequence, the Commission
could not conclude with the requisite level of certainty that the commitments related to joint operation,
or similar means such as wet-leasing of aircraft, in the Commitments of 7 December 2012 and of 15
January 2013 would be workable.
EN 382 EN
(1754) Lastly, the Commission notes that it could not rely on a commitment by Ryanair to
resolve the restrictions which arose as a result of Aer Lingus' Articles of Association
and to enable a sale of the Heathrow slots by using "best endeavours". Such
commitment is too vague and uncertain and does not satisfy the Commission of its
workability. As the issue here relates to the workability and enforceability on a
lasting basis of the Commitments as regards the three routes to London Heathrow,
the Commission was not satisfied that the Commitments of 15 January 2013 would
have ensured that the significant impediment to effective competition (which the
commitments were intended to prevent), would not have been likely to
materialise
1575
. There was a significant risk that the implementation of the
Commitments of 15 January 2013 would have been delayed
1576
.
(1755) Therefore, the Commission considers that the solution proposed by Ryanair to solve
the issue of its (lack of) ability to dispose of the Heathrow slots is not sufficiently
clear. Such solution appears hence unsuitable to resolve the Commission's concerns.
(1756) As regards the commitment regarding Aer Arann's franchise agreement, the concerns
identified with respect to the Commitments of 7 December 2012 were still not
alleviated. The Commission could not be satisfied to the requisite degree of certainty
that Ryanair would be in a position post-Transaction to implement the commitment
and modify the scope of the franchise agreement in a timely manner
1577
.
(1757) Based on all the available evidence, including the results of the second market test,
the Commission considered that the Commitments of 15 January 2013 would not
guarantee that Flybe would be able to exert a sufficient competitive constraint on the
merged entity. In addition, the Commission could not conclude, with the requisite
degree of certainty that it would be possible to implement the Commitments of 15
January 2013 in particular as regards the slot divestiture to the benefit of IAG at
Heathrow (even if implementable, the contemplated slot divestiture would not have
been sufficient to avoid the creation of a dominant position of the merged entity on
the Dublin-London route through the Transaction) and the change in the scope of Aer
Arann's franchise agreement. The Commitments of 15 January 2013 appeared
therefore not to be workable and lasting so as to ensure that the impediments of
effective competition which those Commitments were intended to remove would not
likely materialise in the relatively near future.
(1758) Lastly, no binding agreement with IAG and Flybe was sent to the Commission in
relation to the Commitments of 15 January 2013, despite their fix-it-first nature.
(1759) The Commission considered that it was not possible to determine with the requisite
degree of certainty that the Commitments of 15 January 2013 would and could have
been fully implemented. It was therefore concluded that those Commitments were
not able to remove the identified significant impediment to effective competition,
1575
Case T-210/01 General Electric v Commission [2005], ECR II-5575, paragraph 555, the 2010
Judgment, paragraph 453.
1576
In this regard, a similar conclusion was reached by the Commission regarding the Commitments of 7
December 2012.
1577
See Section 10.6.3 for the comprehensive assessment of the workability of this commitment.
EN 383 EN
and, thus, could not render the proposed concentration compatible with the internal
market.
10.3. The final Commitments
1578
10.3.1. General description by Ryanair
(1760) According to Ryanair
1579
, the final Commitments eliminate all competition concerns
identified in the Statement of Objections. This revised proposal retains the core
elements of the Commitments of 15 January 2013, including the unprecedented
involvement of two UFBs, Flybe and IAG/BA, and the divestiture of aircraft, slots,
and other assets required to establish competing services on all 46 overlap routes
identified by the Commission.
(1761) Ryanair is of the view that the final Commitments are qualitatively and quantitatively
superior to the remedies accepted in any prior airline merger conditionally approved
by the Commission over the past 20 years, which have involved offers of slot
divestitures to unidentified potential entrants that in many instances have never
materialised. Unlike in its previous proposals, which featured Heads of Terms
negotiated with UFBs, Ryanair has now entered into binding agreements with both
IAG (the “IAG Agreement”) and Flybe (the “Flybe Agreement”, the “Divestiture
Agreements”). The Divestiture Agreements lead to clear-cut structural solutions that
comprehensively remedy all overlaps.
(1762) Furthermore, Ryanair considers that the business sold to Flybe represents about one-
third of Aer Lingus’ shorthaul capacity
1580
. It will carry some 4 million passengers
per annum (close to half of Aer Lingus’ short haul traffic), and is expected to
generate annual revenues of approximately […]*, with an annual pre-tax profit of
[…]*, based on current performance of Aer Lingus’ short-haul operations. Together
with Flybe Ireland, Flybe will be a larger airline post Transaction than Aer Lingus is
today.
10.3.2. Divestiture of the business regarding 43 routes to Flybe
(1763) Ryanair commits that it will divest to Flybe a stand-alone business comprising
virtually all of Aer Lingus’ present operations on 43 overlap routes (the “Flybe
Routes”).
(1764) Ryanair undertakes to transfer to Flybe a new and stand-alone company (the
Divestment Business – possibly to be called Flybe Ireland) to which it will transfer a
number of assets (as listed in Annex II to the final Commitments). The assets will
1578
All references to "final Commitments" should be understood as referring to the Commitments dated 1
February 2013 as revised on 3 February 2013.
1579
Form RM of 1 February 2013, paragraph 2. It is noted that all references to the Form RM of 1 February
2013 should be understood as referring to the Form RM of 1 February 2013 as revised on 3 February
2013.
1580
Form RM of 1 February 2013, paragraph 8.
EN 384 EN
include inter alia cash of EUR 100 million
1581
, a lease for at least 9 Airbus A320
aircraft, airport slots (at origin and destination), a royalty-free, non-sub-licensable,
non–exclusive and non-transferable license to the Aer Lingus trademark for 3 years,
personnel, contracts, real estate etc. The transfer of these assets to the Divestment
Business is referred to as the "Hive-Down".
(1765) For determining the assets and liabilities of the Divestment Business, Ryanair will, in
consultation with Flybe, develop a business plan for the Divestment Business that
will project a certain amount of annual pre-tax profits agreed upon between Ryanair
and Flybe in the first year. Ryanair will ensure that the business plan is appropriate to
meet the profitability target by identifying and transferring sufficient assets to the
Divestment Business. If Ryanair is not able to structure the Divestment Business in a
way that is shown by the business plan to meet this profitability target, Ryanair shall
provide Flybe with additional cash for the Divestment Business in order to ensure the
viability of the latter. The profit projection is however not a guarantee of
profitability. Ryanair will, during the post-closing process, identify the assets to be
included in the business and begin steps that may be required to restructure the
business to ensure that it will reach the profitability targets in the business plan. In
the event that Ryanair is not able to complete any restructuring required to justify a
profit projection of EUR 20 million prior to the completion of the Hive-Down
1582
,
Ryanair will provide additional cash to assist Flybe in completing the restructuring
process.
(1766) Flybe shall operate on the 43 Flybe Routes the schedule set out in Annex V of the
final Commitments (the "Flybe Routes Schedule") during 6 IATA seasons (the
"Minimum Period"), subject to its right to 'churn' routes. Flybe will acquire the slots
on the 43 routes and may use them to operate the frequencies. 6 of the 43 Flybe
Routes are currently operated by Aer Arann. With respect to these routes, Flybe shall
be able to satisfy its obligation to operate on these routes by assuming the Aer Arann
franchise agreement or by entering into a new franchise agreement with Aer Arann.
(1767) Regarding the churn provision, provided that the aggregate weekly frequencies per
season scheduled by the Divestment Business on all routes originating and/or
terminating in Ireland is at least equal to the aggregate weekly frequencies per season
as set out in Annex V of the final Commitments, Flybe is only required to schedule
flights on 90% of the Flybe Routes in the third and fourth IATA Season of the
Minimum Period and 85% of the Flybe Routes in the fifth and sixth IATA Season of
the Minimum Period.
(1768) Flybe will base the aircraft necessary to operate the Flybe routes schedule at Dublin
Airport, provided that at least one aircraft is based operationally at Cork airport.
(1769) The Divestment Business will include leases for 9 Airbus A320 aircraft. Flybe will
commit in addition to lease 5 Embraer 195 jet aircraft for operating the Flybe Routes
1581
This is an indicative amount, subject to upward or downward revision depending on the profit projected
for the first year by a business plan, as explained below. Forward sales cash and retained earnings will
also be provided; see Flybe Ireland balance sheet as prepared by Ryanair.
1582
Hive-Down is defined in the Commitments as the contribution to the Divestment Business of the Aer
Lingus' right, title and interest in and to the Divestment Business Assets.
EN 385 EN
Schedule
1583
. Flybe will have the right to replace the Airbus A320's leased to the
Divestment business with its own Embraer 195 jet aircraft. Where Flybe operates
aircraft other than Airbus A320 aircraft, the number of weekly frequencies that Flybe
is required to schedule shall be increased so that the total scheduled weekly seat
capacity at least matches that which would prevail if Airbus A320 aircraft were
used
1584
.
(1770) To provide Flybe with additional publicity and brand awareness, the following
measures are proposed in the final Commitments:
– Trade Mark Licence: Flybe will be given a royalty-free, non-exclusive,
non-sub-licenceable and non-transferable right to use the "Aer Lingus"
trademark for the purposes of operating the Divestment Business for a
period of three years. Other than during a short initial transitional period
of 30 days, the Aer Lingus trademark can be used only in conjunction
with Flybe's own brand name "Flybe", for example "Aer Lingus by
Flybe" or "Flybe Aer Lingus".
– Publicity for the Divestment Business on the Aer Lingus website: during
the first 3 IATA seasons, the welcome screen of Aer Lingus' website will
be divided vertically into two halves bearing the trade names and logos
of Aer Lingus and the Divestment Business respectively. The welcome
screen will be hyperlinked so that clicking on the Divestment Business’
side of the screen directs the user to the Divestment Business' booking
website and clicking on Aer Lingus' side of the screen directs the user to
the booking website of the Aer Lingus group. After the first 3 IATA
season, a banner will be put at the top of the Aer Lingus website stating
“Visit the [Flybe Aer Lingus OR Aer Lingus by Flybe OR similar] for
more routes and fares” and providing a web link to the Divestment
Business' website.
(1771) In case of misuse of the slots, if Flybe operates less than 85% of the frequencies on
any of the Flybe Routes (other than those for which it has used its 'churn right'),
Flybe shall pay, without prejudice to any remedy available to Ryanair, a certain
amount into a blocked account. The magnitude of the penalty will be determined in
function of the revenues achieved on the route (during the previous two complete
IATA seasons) and will vary between the IATA seasons
1585
. Such amounts would be
used, as decided by the Monitoring Trustee, to encourage competition and/or new
entry on the 43 routes. In addition, if Flybe fails to operate 60% of the frequencies on
any of the Flybe Routes for 2 consecutive IATA seasons, Ryanair would use its
reasonable best efforts to identify another competitor that will enter the route and fly
for at least 2 IATA Seasons to at least compensate for the shortfall in frequencies
operated by Flybe and the Monitoring Trustee may use penalty payments to facilitate
such new entry.
1583
Clause 7 of the final Commitments.
1584
See Section 10.4.2.6 for issues relating to availability of slots at the other end of the route.
1585
The Table at Clause 19 of the final Commitments sets out the various amounts.
EN 386 EN
10.3.3. Slot divestitures to IAG/BA
(1772) During 6 IATA seasons, Ryanair undertakes that IAG/BA would operate on the
Dublin-London route, the Cork-London and the Shannon-London route, using Airbus
A 319 or equivalent aircraft, using its own slots in combination with those divested
by Ryanair as explained below.
(1773) IAG and Ryanair may enter into a Gatwick Lease Agreement or a Heathrow –
Gatwick Transfer Agreement, depending on whether and when the Heathrow
Transfer Condition is satisfied. The Heathrow Transfer Condition consists in the
determination by both Ryanair and IAG that giving effect to the Heathrow – Gatwick
Transfer Agreement would not violate Article 10 of the Aer Lingus Articles of
Association (or other successor provision) or any other applicable law or regulation.
(1774) If the Gatwick Lease Agreement is in effect, IAG would operate on the following
routes and frequencies:
– 68 weekly frequencies on the Dublin-London Gatwick route, 13 weekly
frequencies on the Cork-London Gatwick route and 7 weekly frequencies
on the Shannon-London Gatwick route using airport slot pairs owned by
Ryanair and
– an additional 2 weekly frequencies on the Dublin-Gatwick Route, 1
weekly frequency on the Cork-Gatwick Route and 7 weekly frequencies
on the Shannon-Gatwick Route using slots currently owned or to be
acquired by IAG.
(1775) If the Gatwick Lease Agreement is in effect and the Heathrow Slot Condition is
satisfied, IAG may exercise its right to terminate the Gatwick Lease Agreement and
give effect to the Heathrow – Gatwick Transfer Agreement (the IAG Call Option).
(1776) Furthermore, according to the final Commitments, if the Gatwick Lease Agreement
is in effect, IAG would also operate 7 weekly frequencies on the Dublin-Heathrow
route using slots that IAG would lease from Ryanair once the existing Aer Lingus
short-term lease over these slots with a third party (the identity of which is currently
unknown to Ryanair) expires. However a revised IAG Agreement
1586
provides that
IAG and Ryanair would enter into a "First Heathrow Lease Agreement" for 7
Heathrow slots and IAG should have the option to lease further Heathrow slots under
a "Second Heathrow Lease Agreement" which are not restricted in their use
1587
.
(1777) Under the final Commitments, if the Heathrow – Gatwick Transfer Agreement is in
effect, IAG would transfer its Gatwick slots (as identified above) and 7 additional
Gatwick slots to operate on Dublin – Gatwick in exchange for slots currently owned
by Aer Lingus at London Heathrow slots for IAG to operate:
1586
Ryanair submitted a revised version of the IAG Agreement very late in the process, on 11 February
2013.
1587
While the recitals of this revised IAG Agreement provides that the Heathrow slots in the First Heathrow
Lease Agreements will be "sufficient to operate 7 weekly frequencies on the Dublin-Heathrow route",
no such limitation is included for the slots leased under the "Second Heathrow Lease Agreement"
EN 387 EN
– 70 weekly frequencies on the Dublin Heathrow route,
– 14 weekly frequencies on the Cork – Heathrow route, and
– 14 weekly frequencies on the Shannon-Heathrow route. The revised IAG
Agreement no longer includes the obligation to give the 7 additional
Gatwick slots to Ryanair
1588
.
(1778) The IAG Agreement also provides that Ryanair shall pay a so called "Break Fee" to
IAG of […]* if by the final day of the Minimum Period the Heathrow Transfer
Condition is not satisfied and within […]* IAG serves a written notice on Ryanair
requiring such payment. On payment of the Break Fee the Gatwick Lease
Agreement, and if it is in effect, the First Heathrow Lease Agreement and the Second
Heathrow Lease Agreement shall terminate and IAG will transfer the Ryanair
Gatwick Slots back to Ryanair. However, if IAG does not serve the notice within
[…]*, the Gatwick Lease Agreement and the First Heathrow Lease Agreement and
Second Heathrow Lease Agreement will continue in effect for a total term of no
more than […]* from the first IATA changeover date (Paragraph 5.4 of the IAG
Agreement). If such termination occurs beyond the […]*, the Ryanair Gatwick Slots
will be transferred to British Airways.
(1779) The final Commitments provide for a mechanism in case of misuse by IAG of the
IAG Routes Slots.
10.3.4. Other aspects
10.3.4.1. Frequent Flyer programme
(1780) At the request of IAG, Flybe, or Aer Arann, Ryanair shall allow such party to be
hosted in Aer Lingus' Frequent Flyer Programme for any of the routes operated by
Flybe, IAG or Aer Arann.
10.3.4.2. Potential competition
(1781) During the first 6 IATA seasons and at all times thereafter, Ryanair commits to
transfer, or to cause Aer Lingus to transfer, slots for the Potential Competition
Routes to any EU-licensed airline which so applies (an "Applicant"), to enable the
relevant Applicant to operate frequencies with its own aircraft on any of the Potential
Competition Routes, up to a maximum number of Frequencies as identified on a
route-by-route basis in Annex VII. Potential Competition Routes are listed in Annex
VII as being Dublin-Bologna, Dublin-Bordeaux, Cork-Birmingham, Cork-Munich,
Cork-Paris and Dublin-Newcastle.
10.3.4.3. London-Ireland routes
(1782) Pursuant to a slot transfer procedure, and during the first 6 IATA seasons, Ryanair
commits to transfer, or to cause Aer Lingus to transfer, to any Applicant, sufficient
1588
There would only be an exchange of Aer Lingus' Heathrow slots for IAG's Gatwick slots as identified
above.
EN 388 EN
slots to operate frequencies with its own aircraft on the Dublin-London, Cork-
London and/or Shannon-London routes, provided that the number of slots transferred
does not exceed the route overlap difference (the lower of the Aer Lingus or Ryanair
frequencies) on the relevant route.
10.3.4.4. Monitoring Trustee and Dispute Resolution
(1783) The final Commitments also set up a mechanism for a Monitoring Trustee and
provide for a dispute resolution mechanism (which will be addressed in Section
10.4.3 and 10.5.4 below).
10.4. Assessment of the divestiture to Flybe
10.4.1. Conceptual framework
(1784) The Commission notes that, despite their submission so late in the investigation, it
decided exceptionally to examine the final Commitments notwithstanding that they
did not clearly resolve the competition concerns previously identified and therefore
required a further market test
1589
.
(1785) Under paragraph 23 of the notice on remedies, the divested activities must consist of
a viable business that, if operated by a suitable purchaser, can compete effectively
with the merged entity on a lasting basis. Furthermore, according to paragraph 24 of
the notice on remedies, in proposing a viable business for divestiture, it is necessary
to take into account the uncertainties and risks related to the transfer of a business to
a new owner as these risks may limit the competitive impact of the divested business
and may lead to a market situation where the competition concerns would not
necessarily be eliminated.
(1786) Under paragraphs 25 and 26 of the notice on remedies, the business has to include all
the assets which contribute to its current operation or which are necessary to ensure
its viability and competitiveness and all currently employed personnel or at least the
personnel necessary to ensure the business' viability and competitiveness. To this
extent personnel and assets which are currently shared between the business to be
divested and other businesses of the parties, but which contribute to the operation of
the business or which are necessary to ensure its viability and competitiveness, also
have to be included.
(1787) Therefore, the divested business has to contain the personnel providing essential
functions for the business such as, for instance, group R&D and information
technology staff even where such personnel are currently employed by another
business unit of the parties — at least in a sufficient proportion to meet the on-going
needs of the divested business. In the same way shared assets have to be included
even if those assets are owned by or allocated to another business unit.
(1788) A viable business is a business that can operate on a stand-alone basis, independently
of the merging parties as regards the supply of input materials or other forms of
cooperation other than during a transitory period (paragraph 32 of the notice on
1589
See also Section 10.1.1.
EN 389 EN
remedies). In case the Commitments require a carve-out of a business, the
Commission will only be able to accept such commitment if it can be certain that, at
least at the time when the business is transferred to the purchaser, a viable business
on a stand-alone basis will be divested and the risks for the viability and
competitiveness caused by the carve-out will thereby be reduced to a minimum
(paragraphs 35-36 of the notice on remedies). Also in case the divestiture consists of
a combination of certain assets which did not form a uniform and viable business in
the past, the resulting business should be viable and competitive (paragraph 37 of the
notice on remedies).
(1789) Under paragraph 30 of the notice on remedies, the business to be divested has to be
viable as such. However, if during the procedure a sales and purchase agreement
with a specific purchaser is already concluded, its resources can be taken into
account in the assessment of the viability of the divested business.
(1790) As set out in paragraph 47 of the notice on remedies, the intended effect of a
divestiture will only be achieved if and once the business is transferred to a suitable
purchaser in whose hands it will become an active competitive force in the market.
(1791) Paragraph 48 of the notice on remedies sets out the standard purchaser requirements,
which may have to be supplemented on a case-by-case basis. The standard purchaser
requirements are the following:
1590
– the purchaser is independent of and unconnected to the parties
– the purchaser must possess the financial resources, proven relevant
expertise and have the incentive and ability to maintain and develop the
divested business as a viable and active competitive force in competition
with the parties and other competitors, and
– the acquisition of the business by a proposed purchaser must neither be
likely to create new competition problems nor give rise to a risk that the
implementation of the commitments will be delayed. Therefore, the
proposed purchaser must reasonably be expected to obtain all necessary
approvals from the relevant regulatory authorities for the acquisition of
the business to be divested.
(1792) Considering that the final Commitments are presented as a fix-it-first type of remedy
and the identity of the buyer is known, the Commission will assess the viability of
the Divestment Business together with the suitability of the purchaser in Section
10.4.2 below.
10.4.2. Viability of the Divestment Business and suitability of Flybe as a buyer
(1793) Ryanair argues that the Divestment Business (for ease of reference "Flybe Ireland")
will have all the assets required for it to be a strong, credible, and independent carrier
including aircraft, sufficient capital, slots, personnel, contracts to operate on the
routes, real estate and a license pursuant to which Flybe Ireland obtains a royalty-
1590
Paragraphs 48 and 49 of the notice on remedies.
EN 390 EN
free, nonexclusive and non-transferable right to use the “Aer Lingus” trademark for a
term of three years following closing
1591
. Ryanair considers that Flybe has all
capabilities necessary to compete with the merged entity on ex-Ireland routes
1592
.
(1794) The Commission will first examine in Section 10.4.2.1 whether the Divestment
Business will have the necessary assets in order to be a viable and competitive
business. The Commission will then examine the suitability of Flybe as a purchaser
in the light of paragraph 48 of the notice on remedies. Section 10.4.2.2 will describe
Flybe's business model, Sections 10.4.2.3, 10.4.2.4 and 10.4.2.5 will discuss
respectively Flybe's independence from the Parties, its past experience (in
starting/taking over significant operations, in the Irish market as well as in competing
with Ryanair), and its financial resources. The Commission will then assess the
ability of Flybe to maintain and develop Flybe Ireland as a viable and active
competitive force in Section 10.4.2.6 and its incentives to do so in Section 10.4.2.7.
10.4.2.1. Assets and liabilities of the Divestment Business
(1795) The responses to the final market test showed that respondents were largely positive
about whether the list of assets to be transferred to Flybe Ireland (enumerated in
Annex II of the final Commitments) would be sufficient for Flybe to take over Aer
Lingus' operations on the 43 Flybe Routes and to continue these operations in a
viable manner for at least 6 IATA Seasons
1593
. Some respondents however raised
concerns
1594
.
(1796) The Commission notes that the business that will be transferred to Flybe only
comprises short-haul activities while within Aer Lingus these activities are part of a
global network, encompassing also long-haul activities. Ryanair argues that Aer
Lingus’s long-haul connectivity and code-share agreements are immaterial to the 43
routes in this respect
1595
. Flybe however has admitted that it is "sceptical about the
real profitability of Aer Lingus in the short haul business and it would need to see
Aer Lingus' figures first, although it believes that there is capacity to reduce Aer
Lingus’s costs"
1596
. The profitability of Flybe Ireland as a stand-alone business is
examined below, in particular in Section 10.4.2.6.
(1797) The Commission further notes that Flybe Ireland business will not include the
divestment of the Aer Lingus trademark, but a 3-year non-exclusive licence for Flybe
to use the trademark in combination with its own trademark. The issue of brand
awareness is further assessed in Section 10.4.2.6.
1591
Form RM of 1 February 2013, paragraph 10.
1592
Form RM of 1 February 2013, paragraph 15.
1593
See responses to question 2 of the final market test.
1594
See for example the responses of Aer Arann, Aer Lingus, bmi Regional, Etihad and Thomas Cook to
question 2 of the final market test.
1595
Ryanair, response to question 3 of the Commission's request for information of 17 January 2013.
Ryanair further indicated that if the Commission would consider that Flybe Ireland should enter into an
interline/code-share agreement with Aer Lingus for long-haul connecting traffic, Ryanair will facilitate
this.
1596
Agreed minutes of a meeting with Flybe held on 21 January 2013.
EN 391 EN
(1798) The Commission finally notes that there is no exact definition of the assets and
liabilities that will be transferred to Flybe Ireland, other than the rather general list
which is set out in Annex II to the final Commitments and the limited information
given in the Form RM
1597
. For example, Ryanair is very vague about the type and
number of staff to be transferred and simply refers to "Personnel based in the
Republic of Ireland (pilots, cabin crews and engineers) necessary to operate the
Flybe Routes as currently operated by Aer Lingus"
1598
. Ryanair is also vague about
the contracts and real estate to be transferred and refers to "Contracts (receivables
from forward ticket sales, airport and handling agreements, corporate account
agreements) necessary to operate the Flybe routes as currently operated by Aer
Lingus"
1599
and to "Real estate in the Republic of Ireland to necessary, taken to
operate the Flybe routes as currently operated by Aer Lingus"
1600
.
(1799) Ryanair indicates that the identification of the assets to be included in the Flybe
Ireland business will be done during the post-closing process
1601
.
(1800) Ryanair itself acknowledges that there are various uncertainties regarding the exact
assets to be transferred. For example, it acknowledges that "Given the unsolicited
nature of the Transaction, [it] has no knowledge of the existing corporate
agreements that Aer Lingus has entered into"
1602
and that third party consents might
be required to transfer relevant rights under contracts and that where such consent
would not be obtained by the time of completion of the Hive-Down, it shall procure
that the relevant member of Ryanair Group holds such rights for the benefit of Flybe
Ireland
1603
.
(1801) Under paragraph 34 of the notice on remedies, "[…] In cases involving a hostile bid,
a commitment to divest activities of the target company may, in such circumstances
of limited information available to the notifying parties about the business to be
divested, increase the risk that this business might not, after a divestiture, result in a
viable competitor which could effectively compete in the market on a lasting basis
[…]"
(1802) In the absence of specifically defined assets to be divested as part of the Flybe
Ireland business, the Commission finds that there is insufficient evidence that would
1597
Form RM of 1 February 2013, in particular paragraph 10.
1598
Form RM of 1 February 2013, paragraph 10, fourth bullet point. It is thereby noted that the precise
number of staff to be transferred is unknown. Ryanair refers to 432 staff in its modelling; Flybe refers to
[…]*.
1599
Form RM of 1 February 2013, paragraph 10, fifth bullet point.
1600
Form RM of 1 February 2013, paragraph 10, seventh bullet point.
1601
Form RM of 1 February 2013, paragraph 8 and final Commitments, paragraph 10. It is further stated
that "In the event that Ryanair is not able to complete any required restructuring prior to the
completion of the Hive-Down, Ryanair will provide additional cash to assist Flybe in completing the
restructuring process", see the final Commitments, paragraph 10.
1602
Form RM of 1 February 2013, paragraph 86.
1603
Annex II of the final Commitments. It is thereby noted that the final Commitments foresee that Ryanair
shall provide for a period of six months following the transfer date of the Divestment Business, provide
such transitional services for no cost to the Divestment Business as may be required, taken with the
Divestment Business Assets, to operate as at completion of the Hive-Down, subject to obtaining any
third party consents required in order to provide and receive such services. See the final Commitments,
paragraph 18.
EN 392 EN
allow the Commission to conclude that the Divestment Business would possess the
necessary assets in order to be a viable and competitive business.
10.4.2.2. Flybe's business model
(1803) Flybe is a large regional airline group based in Exeter, Devon, England, operating
scheduled, short-haul services on a point-to-point and hub basis. The airline employs
around 3400 people, flies on over 200 routes and manages a fleet of around 100
aircraft (regional jets and turboprops).
(1804) Flybe operates a business model which combines low-frills features (such as low-fare
options, high levels of internet sales, on-board sales including purchased food and
beverages) with full-service characteristics (such as pre-assigned seating, business
schedules, IATA membership and interlining).
(1805) In the United Kingdom, Flybe's largest bases are Birmingham airport, Belfast City
airport, Southampton airport, and Manchester airport, with a total of 14 crew and
aircraft bases across the United Kingdom.
(1806) In the financial year ending 31 March 2012, Flybe achieved GBP 678.8 million
revenue under management
1604
(up 14% on 2011). It transported 7.6 million
passengers under management (up 6% on 2011)
1605
.
(1807) As a result of the final Commitments, Flybe would take over several hundred
employees
1606
and add 43 routes to its portfolio, to be operated with 9 Airbuses (the
lease of which will be part of the Divestment Business) and 5 regional jets (for which
Flybe undertook to procure that these would be leased by the Divestment
Business
1607
). This is expected to raise Flybe's revenues by about EUR 300 million.
(1808) The final Commitments thus imply a significant increase in the scope of Flybe's
business.
(1809) According to Ryanair, the business model of Flybe is well suited to compete
aggressively with the merged entity for short-haul passengers
1608
.
(1810) The responses to the final market test show mixed views in this regard
1609
. A number
of respondents consider that the operations on the routes match with Flybe's business
model. Such respondents indicate for example that Flybe is an experienced regional
airline
1610
, already having a pan-European operation
1611
and whose model has been
1604
Revenue under management includes the revenues of the Flybe Finland joint venture.
1605
Flybe's presentation given at the meeting of 21 January 2013, page 5.
1606
The precise number is unknown. Ryanair refers to 432 staff in its modelling. Flybe refers to […]* staff
in its assessment of closure costs. See Flybe, "Ryanair / Aer Lingus, Cash and Profit Scenarios", 1
February 2013
1607
Final Commitments, paragraph 7.
1608
Form RM of 1 February 2013, paragraph 4.
1609
See responses to question 16 of the final market test.
1610
See for example European Lows Fares Airlines Association (ELFAA), response to question 16 of the
final market test.
1611
See for example Belfast International Airport Ltd., response to question 16 of the final market test.
EN 393 EN
exported successfully to Nordic countries
1612
. They also indicate that Flybe has a
strong service offering and can target both business and leisure passengers
1613
. A
majority of respondents however consider that the operations on the 43 routes or at
least part thereof would not match Flybe's business model. Respondents express
doubts in particular with respect to routes with longer sector length such as routes to
the Canaries
1614
, while the provincial routes in the United Kingdom would fit in
Flybe's portfolio depending on the type of aircraft used. Also, while Flybe specialises
in targeting high yielding business traffic
1615
, the 43 routes would include more non-
time sensitive routes compared to the current Flybe operations. Several respondents
also refer to the fact that operations with A320 aircraft would be new for Flybe
1616
and that Flybe would struggle to develop a connecting model to rival what Aer
Lingus has today
1617
.
(1811) When asked whether the operations on the 43 routes would match with its business
model, Flybe distinguishes three types of routes, namely Business/Leisure, Mid
Distance Leisure and Distant Leisure. According to Flybe, the Business Leisure
routes (representing 75% of the divested frequencies) fit its core business model
extremely well. The Mid Distance Leisure routes (representing 20% of the divested
frequencies) are an important part of Flybe’s network, but not currently at its core.
The Distant Leisure routes (representing 5% of the divested frequencies) are outside
of Flybe’s existing business model, essentially as they are beyond the economic
range of its aircraft
1618
.
(1812) The Commission notes that Flybe has no experience in operating Airbus A320
aircraft. It has limited experience in operating with Boeing 737 aircraft, which are
somewhat comparable in size to the Airbus A320 aircraft. However, as
acknowledged by Jim French, Flybe's Chairman and Chief Executive Officer, that
was only during an 18-months project that took place 8 years ago in a totally
different context. Also Mr French indicated that " […] an Airbus has got two wings,
a couple of engines, two people sit upfront, a lot people are behind and it runs on
fuel; an 80-seat jet does the same. The complexity is not running the jet, the aircraft,
or the size of the aircraft – the complexity is understanding the market they operate
in."
1619
(emphasis added).
1612
See for example Loganair, response to question 16 of the final market test.
1613
See for example European Lows Fares Airlines Association (ELFAA), response to question 16 of the
final market test.
1614
See for example IAG, response to question 16 of the final market test, who explains that "the main
difference concerns a number of long-distance leisure-dominated routes […] where Flybe's business
model does not have experience of filling Airbus A-320 size aircraft on long leisure-only sectors",
thereby nevertheless indicating that it believes that Flybe's business model does not necessarily mean
that, across the majority of routes, the type cannot be operated economically.
1615
See for example Aer Arann, response to question 16 of the final market test.
1616
See for example bmi Regional, response to question 16 of the final market test; DAA, response to
question 16 of the final market test.
1617
See for example Aer Arann, response to question 16 of the final market test; DTTAS, response to
question 16 of the final market test.
1618
Flybe, response to question 16 of the final market test.
1619
Flybe, transcript of a conference call of 6 February 2013 with reference 97864301, page 22.
EN 394 EN
(1813) While Ryanair undertakes to transfer personnel
1620
to the extent necessary to Flybe
Ireland, due to the hostile nature of the Transaction, Ryanair is unable to provide the
identities of such personnel
1621
. Uncertainties exist whether Ryanair would be in a
position to deliver upon this commitment and whether sufficient personnel with the
required knowledge to manage a business operating with Airbus A320 aircraft would
indeed be transferred to Flybe Ireland especially considering Aer Lingus'
management resistance to Ryanair's bid. It is thus not unlikely that Flybe would face
challenges in terms of operations and schedules at least in an initial period and would
need to go through a learning process as regards the Airbus A320 aircraft operations.
(1814) In light of the above, the Commission considers that the operations of routes
connecting Ireland to the United Kingdom would fit in Flybe's current business
model, depending on the aircraft used. Other routes, especially leisure routes with
longer sector lengths, would not fit in Flybe's current business model. Moreover, the
Commission notes that Flybe, due to its business model, does not have experience
with operating with Airbus A320 aircraft and therefore considers that it would thus
face a challenge in understanding the market in which it would operate.
10.4.2.3. Flybe's independence from the Parties
(1815) Ryanair argues that Flybe is independent of, and unconnected to, both Ryanair and
Aer Lingus. It indicates that there are no cross-shareholdings or cross-directorships
between Flybe on the one hand, and Ryanair and Aer Lingus on the other. There are
also no other commercial relationships – for example, alliances, common frequent
flyer programmes, shared facilities at any airports, etc. – between Flybe, Ryanair and
Aer Lingus
1622
.
(1816) The Commission notes that Flybe and Ryanair have agreed that Ryanair would
prepare a one year business plan for Flybe Ireland (its supposed competitor) in which
it estimates projected revenues, costs and profits (in consultation with Flybe)
1623
. In
this respect, it is also noted that in the event that the one year business plan to be
prepared by Ryanair for Flybe Ireland did not project a yearly EUR 20 million profit
under the stipulated presumptions, then Ryanair would provide additional cash to
Flybe Ireland to compensate for a reduced-profitability forecast
1624
.
(1817) In its Form RM, Ryanair states its commitment to "ensuring that Flybe Ireland's cost
base is structured in such a way to enable it to achieve a profit of at least €20 million
in its first year of operation […]"
1625
. Pursuant to paragraph 10 of the final
Commitments, "during the post-Closing process, Ryanair will identify the assets to
be included in the Divestment Business and begin steps that may be required to
1620
Annex II of the final Commitments. Personnel would include pilots, cabin crews, engineers,
maintenance staff, administrative, managerial and executive staff.
1621
Form RM of 1 February 2013, paragraph 69.
1622
Form RM of 1 February 2013, paragraph 14.
1623
For more details on the mechanism regarding the one year business plan, see Section 10.4.2.6, sub-
section "Divestment Business Asset Plan".
1624
Final Commitments, Annex I, paragraph 11.
1625
Form RM of 1 February 2013, paragraph 87.
EN 395 EN
restructure the business to ensure that it would reach the profitability targets in the
business plan"
1626
.
(1818) . Ryanair indicates that it intends to structure a cost base for Flybe Ireland that is
driven by its own cost management skills, together with input from analysis of
carriers such as easyJet and Flybe. Ryanair is confident that it can provide a cost base
that will provide Flybe Ireland with margins at least as good as Aer Lingus'
margins
1627
.
(1819) Flybe expects Ryanair to deliver to Flybe Ireland a cost base that should allow the
latter to achieve EUR 20 million in pre-tax profits. It indicates in this respect that
Ryanair has to undertake the transition and reorganisation of the Divestment
Business to bring it down to the shape, size and cost structure before Flybe takes
over Flybe Ireland
1628
. Flybe itself does not propose any concrete actions as to how
the cost base should or could be reduced, but leaves it largely up to Ryanair to
achieve a lower cost base.
(1820) The Commission acknowledges that the arrangement whereby Ryanair prepares a
one-year business plan and could proceed to the (re-)structuring of the cost base of
the Divestment Business does not lead to a lasting relationship between the merged
entity and the Divestment Business.
(1821) However, the Commission considers that the viability of the Divestment Business to
be transferred to Flybe would largely depend on the ability and incentive of Ryanair
to provide a profitable business. Uncertainties about Ryanair's ability to reduce
sufficiently the cost base are discussed below in Section 10.4.2.6.
(1822) The Commission therefore concludes that the arrangement whereby Ryanair prepares
a one year business plan for Flybe Ireland, and the arrangement whereby Ryanair
could proceed to the (re-)structuring of the cost base of the Divestment Business,
even though not leading to a lasting relationship between the merged entity and the
Divestment Business, does not seem reconcilable with the concept of independent
competitors. Even if strictly speaking the business plan is not binding upon Flybe, it
is clear that Flybe would rely to a large extent on Ryanair to undertake the transition
and reorganisation of the Divestment Business to bring it down to the shape, size and
cost structure. Furthermore, as explained in Section 10.4.3.2, there are no appropriate
ring-fencing measures in place.
10.4.2.4. Flybe's experience
– Experience in starting up/taking over operations
(1823) Ryanair and Flybe argue that Flybe is well placed to take over the Divestment
Business inter alia due to its past experience in starting up or taking over operations.
1626
Paragraph 10 of the final Commitments further state that "In the event that Ryanair is not able to
complete any required restructuring prior to the completion of the Hive-Down, Ryanair will provide
additional cash to assist Flybe in completing the restructuring process".
1627
Letter of Ryanair's representatives of 11 February 2013.
1628
Flybe, transcript of a conference call of 6 February 2013 with reference 97864301, pages 4 and 13.
EN 396 EN
(1824) Ryanair indicates that Flybe has significant experience in the airline industry.
According to Ryanair, after the acquisition of the Divestment Business, Flybe will be
larger than Aer Lingus is today in terms of total aircraft, routes served, and
passengers flown
1629
. Ryanair further states that Flybe is active across a number of
markets, offering "low-frills" options in addition to catering for business passengers
and operating across the spectrum of Aer Lingus' and Ryanair's business models
1630
.
Ryanair argues that Flybe, given its past experience, is well accustomed to
establishing regional bases, developing brand awareness in new markets and
operating new routes profitably
1631
. Ryanair refers to Flybe's success with respect to
Flybe Finland and the fact that it has grown 14% in 2011, despite weak economic
conditions throughout Europe
1632
.
(1825) Flybe acquired a stake in Flybe Finland (Flybe Finland is a subsidiary of Flybe
Nordic, a joint venture with Finnair) in August 2011 as a loss making business. Flybe
argues that the Flybe Finland business has been restructured and refocused, and
although Flybe Finland is still loss making, Flybe plans substantial growth and
performance. It further indicates that the business is on track to meet its original
planned financial performance and that it expects 15% return on investment and
forecasts profitable operations in the next financial year commencing March
2013.
1633
(1826) The Commission notes that Flybe's joint venture with Finnair remains loss making
and that Flybe has admitted that its expansion beyond the United Kingdom market
has caused operational losses: as set out in Flybe's annual report "The key driver of
the overall Group loss arises from the expansion into Europe with Flybe Europe
generating a £3.7m loss, being its share of loss from joint venture operations in
Finland together with related management costs.
1634
"
(1827) The Commission further notes that the majority of the routes operated by Flybe
Finland are contract flying (namely 38 routes out of a total of 58 routes). On the
contract flying routes, Flybe Finland operates (under a form of long term wet lease
agreement similar to the regional carrier model in the United States) on behalf of
Finnair; the commercial risk is borne by Finnair who sells the tickets. Flybe has no
codeshare agreements on these contract flights.
1635
Compared to contract flying
which is profitable as Flybe does not bear the commercial risk of these
operations
1636
, Flybe Finland makes losses on the routes which it operates itself and
is expected to continue to do so in the financial year 2013/14. The own commercial
operations of Flybe Finland have thus not yet proven to be profitable. Flybe
acknowledges this and explains that the losses generated by routes that are its own
commercial operations arise in particular due to the Finish market not being very
1629
Form RM of 1 February 2013, paragraph 14.
1630
Form RM of 1 February 2013, paragraph 14.
1631
Form RM of 1 February 2013, paragraph 14.
1632
Form RM of 1 February 2013, paragraph 14.
1633
Flybe's presentation given at the meeting of 21 January 2013, page 12 and agreed minutes of meeting
with Flybe held on 21 January 2013.
1634
Flybe, Annual Report 2011/12.
1635
Agreed minutes of a meeting with Flybe held on 21 January 2013.
1636
Risks are borne by Finnair and Flybe earns revenues from the lease.
EN 397 EN
responsive to stimulation (low prices)
1637
. Moreover, the Commission notes that
Flybe Finland is a subsidiary of Flybe Nordic, a joint venture with Finnair. This is a
very different situation to the divestiture proposed in the context of the final
Commitments, which would be the divestment of a stand-alone business, which
would be operated exclusively by the Flybe Group.
(1828) In addition, Flybe acquired British Airways' regional business in the United
Kingdom "BA Connect" in March 2007. BA Connect essentially operated regional
flights within the United Kingdom and routes to continental Europe, primarily
business routes. BA Connect comprised 39 aircraft, 1,700 staff and GBP 350 million
revenue (in terms of revenues the BA Connect services were approximately equal to
Flybe’s revenues in 2007, prior to the restructuring of the business post acquisition).
Flybe indicates that it received GBP 109 million cash from BA to fund the
integration into Flybe, and that it fully integrated BA Connect within 12 months
(with restructuring costs amounting to around GBP 96 million). Flybe indicates that
while the BA Connect business generated GBP 40 million per annum losses at
acquisition, the business made substantial profits at the end of the first 12 months'
ownership
1638
.
(1829) An independent analyst considered that "(…) the format of the deal [the proposed
Commitments] appears to be a reminiscent of Flybe's acquisition of BA Connect
operations a few years ago. Namely the business comes with a dowry to fund the
necessary restructuring costs in order to improve profitability".
1639
(1830) The Commission acknowledges that there may be a number of similarities between
the acquisition of BA Connect and the acquisition of Flybe Ireland; for instance both
transactions would involve a dowry payment
1640
. The Commission nevertheless notes
that the acquisition of BA Connect took place about 6 years ago, in a year which was
described in Flybe's own words as "a year in which we became one of Europe’s
largest and most profitable regional airlines"
1641
. Such a context is hardly
comparable with today's context, where Flybe has just announced a major
restructuring programme, and the current overall economic climate, in both the
United Kingdom and Ireland is much more difficult compared to 2007. The network
acquired in the context of the BA Connect acquisition also seemed much closer to
Flybe's then existing business (focused on regional passengers in the United
Kingdom), than the Divestment Business would today be for Flybe
1642
. Finally, while
1637
Agreed minutes of a meeting with Flybe held on 21 January 2013.
1638
Flybe's presentation given at the meeting of 21 January 2013, page 13 and agreed minutes of a meeting
with Flybe held on 21 January 2013.
1639
Letter of legal representatives of Ryanair, sent on 6 February 2013, quote from Oriel Securities.
1640
It is noted however that BA received 15% of Flybe's capital as part of the operation.
1641
Flybe's annual report and accounts 2007/08, page 6.
1642
The 2007 Decision noted in this regard "Flybe operates three types of aircraft: Q400 with 78 seats,
Embraer 195 with 118 seats and BAe 146-300 with 112 seats. BA Connect operates a number of
different types of aircraft which are in general even smaller than Flybe's aircraft (around 50 seats with
only a few larger aircraft). Therefore, the aircraft of Flybe/BA Connect are significantly smaller than
the aircraft used by Ryanair and Aer Lingus and less able to compete efficiently with the low-frills
operations of the Merging Parties. Flybe indicated that the small 50-seat aircraft of BA Connect will be
gradually replaced by larger and more efficient aircraft. They also indicated that in view of this
replacement it is unlikely that any expansion to new routes would be possible at least in the next two
years. The strategy of Flybe (including BA Connect) is to focus on regional routes to/from UK
EN 398 EN
in the BA Connect acquisition, Flybe implemented the restructuring itself, here Flybe
relies on the business plan (which in turn relies on certain presumptions) for at least
initial reassurance that the cost base of Flybe Ireland will be sufficiently low to
justify the profit projection of EUR 20 million, and given the context of a hostile bid,
Flybe only has very limited information on and knowledge of the business that it
proposes to take over. Also the scope for cost efficiencies is not the same in the two
cases, considering in particular the significant cost cutting measures Aer Lingus has
already implemented since 2010.
(1831) Therefore, the Commission concludes that these previous experiences are rather
different from the current operation and do not provide sufficient relevant evidence
as to Flybe's ability to profitably restructure and operate Flybe Ireland as a sufficient
competitive force against the merged entity in the medium term.
– Experience in the Irish market
(1832) Flybe only has a limited past experience in operating routes to and from Ireland.
Currently, Flybe is present with its own operations on only two routes ex-Dublin
1643
.
On both routes Flybe is not serving the same airport on the non-Irish side of the route
as Ryanair/Aer Lingus.
(1833) Furthermore, Flybe itself stated that it "does not have a very strong brand in Ireland,
as it only has a presence on two routes ex-Dublin, albeit for many years"
1644
. The
brand issue is further discussed below in Section 10.4.2.6.
(1834) Flybe thus has only very limited experience in the Irish market which does not
provide sufficient evidence as to Flybe's ability to profitably restructure/operate
Flybe Ireland as a sufficient competitor force against the merged entity in the
medium term.
– Experience in competing with Ryanair
1645
(1835) To demonstrate that it would be able to compete with Ryanair post-Transaction,
Flybe refers to the example of competition on routes from Belfast City. According to
Flybe, Ryanair came into Belfast City for a couple of years, competed with Flybe on
a number of routes, and then left the airport. It further indicates that it competed with
provincial cities. In general, Flybe is trying to avoid capital cities and prefers flying to regional
destinations. Flybe has confirmed that it has no plans for further expansion of its activities to Ireland,
even if prices increase on routes from/to Dublin. It would rather expand its activities in Northern
Ireland (Belfast). Even after the replacement of its fleet, other destinations are “more interesting” than
Irish destinations for Flybe" (Recitals 774 and 775).
1643
Agreed minutes of a conference call of 12 October 2012 with Flybe. These routes are Dublin-Exeter
and Dublin-Southampton.
1644
Agreed minutes of a conference call of 12 October 2012 with Flybe.
1645
As the Commission only assessed the fear of retaliation by Ryanair as a barrier to entry, it is not as
relevant to assess the competitive interaction between Flybe and Aer Lingus. In any event, according to
the information on Flybe's website, Flybe and Aer Lingus would only overlap on one route namely
Dublin to Southampton / Bournemouth.
EN 399 EN
Ryanair on some of the routes into Dublin from the South Coast of the United
Kingdom
1646
.
(1836) Flybe further provides a list of routes on which it currently competes with Ryanair.
1647
According to the information received from Flybe, on about half of these routes
Flybe's market share increased between Winter 2009/10 and Winter 2011/2012 while
Ryanair's market share decreased. On about the other half of these routes Ryanair's
market share increased while Flybe's market share decreased. It thus appears that
Flybe manages to successfully withstand competition from Ryanair at least on some
of these routes. In addition, Flybe operates on one of the 43 overlap routes subject to
the Decision, namely Dublin – Bristol/Cardiff/Exeter. On this route, Flybe has a very
limited market share, below 10%.
(1837) Unlike Aer Lingus which faces competition from Ryanair on a significant portion of
the routes it operates, Flybe competes with Ryanair on only a limited number of the
routes it operates.
(1838) The Commission notes moreover that on most of these routes, Flybe and Ryanair do
not operate from the same base, while Flybe Ireland would be operating on most of
the routes in competition with the merged entity from the same base, namely in
Dublin.
(1839) On balance, the Commission considers that Flybe, unlike Aer Lingus, has only
limited experience and track record in competing with Ryanair.
(1840) Flybe acknowledges that it cannot match Ryanair on price given that Ryanair has a
very low cost base. However, it believes that by driving down the cost base and
having a price premium differential that is not too great, it can creep into the market
against Ryanair
1648
.
(1841) With respect to the Divestment Business, Flybe indicates that it would aim at
bringing a different model to the market which would combine low cost through the
operation of Airbus aircraft but also offering interesting frequencies
1649
.
– Conclusion on Flybe's experience
(1842) Given that Flybe's previous experiences in operating in new markets are rather
different from the proposed acquisition of Flybe Ireland, given that Flybe only has
limited experience in the Irish market, and given that Flybe, unlike Aer Lingus, has
only limited experience and track record in competing with Ryanair, the Commission
considers that these elements do not provide sufficient evidence to support the
conclusion that Flybe has the proven relevant experience to maintain and develop
1646
Flybe, transcript of a conference call of 6 February 2013 with reference 98267226, page 7.
1647
See Flybe's response to question 25 of the Commission's request for information of 20 November 2012.
It is thereby noted that Flybe assumes that Bournemouth and Southampton airports are substitutable.
This has not been subject to any in-depth assessment by the Commission in the present case. However,
in the 2007 Decision, it was noted that Southampton airport "can possibly be regarded as substitutable
with" Bournemouht airport (Recital 526).
1648
Flybe, transcript of a conference call of 6 February 2013 with reference 97864301, page 16.
1649
Flybe, transcript of a conference call of 6 February 2013 with reference 98267226, page 9.
EN 401 EN
(1847) Moreover, Flybe's net assets at 30 September 2012 amounted to GBP 85.4 million,
with total cash of GBP 59.1 million
1654
.
(1848) Figure 5 below shows that Flybe's cash on balance sheet appears low (versus peers).
This would suggest a limited ability to withstand shocks, which is important given
the concerns on the viability of the Divestment Business as explained in this Section
10.4.2 and the risk of aggressive retaliation by Ryanair as explained in section
8.5.2.6.
Figure 5: Flybe cash position versus its peers
1655
Source: Company reports, Factset as at 2 January 2013.
(1849) In 2013, Flybe announced a major restructuring plan consisting of a two year
roadmap to return the business to profitability
1656
. Flybe explained that the
1654
Flybe's presentation given at the meeting of 21 January 2013, page 21.
1655
Analyst report prepared by UBS on behalf of Aer Lingus, January 2013.
1656
"Flybe announces two year roadmap to return the business to profitability and further exploit European
potential", available at http://www.flybe.com/corporate/media/news/1301/23.htm, consulted on 6
February 2012.
EN 402 EN
restructuring is designed to make the business leaner but without compromising
customer service which is one of the core principles of Flybe's business
proposition
1657
. The turnaround plan includes risk-reduction actions, and projects that
breakeven per seat would not be restored before the year 2013/2014.
(1850) Flybe argues that, three years ago, Aer Lingus lost substantial sums and has had to
radically reduce its costs and staff numbers, prior to returning to profitability
1658
.
Flybe is confident that it will be able to bring its existing business back to
profitability in the coming 1 to 2 years
1659
.
(1851) The Commission does not take a view on whether or not Flybe will bring its existing
business back to profitability in the coming 1 to 2 years. The Commission
nevertheless must examine whether Flybe possesses the necessary financial resources
to maintain and develop the Divestment Business as a viable and active competitive
force in competition with the merged entity on a lasting basis.
(1852) Flybe and Ryanair argue that the Divestment Business will be a well-capitalised
business. They indicate that the Divestment Business will be capitalised in such a
way as to compensate for potential trading losses and the investment required to
strengthen the Flybe brand in Dublin and at a number of destinations
1660
. They
indicate that such a capital buffer should allow the Divestment Business to become a
strong and viable competitor to the Merged Entity.
(1853) The Commission notes firstly that the fact that Flybe requires such significant
capitalisation by Ryanair of the Divestment Business could be considered as an
indicator that it does not itself have the required financial resources. This is
corroborated by Flybe's above described financial position and recently announced
restructuring.
(1854) At the same, time, the Commission notes that Aer Lingus has a significant level of
cash reserves and that the amount of capital that will be injected into the Divestment
Business by Ryanair would represent only a small proportion of the cash reserves
that Aer Lingus currently has.
(1855) Secondly, the Commission notes that the (indicative) EUR 100 million cash is not
restricted to the Divestment Business and could be used, for instance, for Flybe’s
main business in the United Kingdom. As set out above, the cash position of Flybe is
rather weak compared to its peers in the industry, and Flybe is expected to continue
to make losses on its own operations (in particular, breakeven per seat would not be
restored before the year 2013/2014). The cash which would be injected into the
Divestment Business would be available as from the day on which Flybe would take
over the Divestment Business. Flybe’s board has noted in this respect that the EUR
100 million cash would be unrestricted as to its use and the same fact was also
acknowledged by Flybe during a conference call with investors, indicating that while
the EUR 100 million is very much earmarked for Flybe Ireland because of its role as
1657
Agreed minutes of a meeting with Flybe held on 21 January 2013.
1658
Agreed minutes of a meeting with Flybe held on 21 January 2013.
1659
Agreed minutes of a meeting with Flybe held on 21 January 2013.
1660
Flybe's presentation given at the meeting of 21 January 2013, page 22.
EN 403 EN
a revenue buffer contingency, the amount is not legally ring-fenced
1661
. In a
communication to Flybe staff of 6 February 2013, Jim French, CEO of Flybe, also
stated that "If this transaction is completed then Flybe Group plc will be in a much
stronger position".
(1856) The capital which would be injected into the Divestment Business could thus
represent a way for Flybe to have access to new funds without having to go to the
shareholders or seek external financing in the market. It therefore cannot be excluded
that at least part of the EUR 100 million that would be part of the Divestment
Business would be transferred and used by Flybe for purposes other than
restructuring and developing Flybe Ireland, especially if Flybe finds that the
Divestment Business is not viable.
(1857) Even in the worst case scenario assessed by Flybe's Board, […]*
1662
.
(1858) Thirdly, Flybe would also not have the ability to provide further financing that may
be necessary to withstand shocks (for instance in case of aggressive competition by
Ryanair, during or after the Commitment period), or make additional investment to
improve the likelihood of the Divestment Business being viable.
(1859) Lastly, while Ryanair claims that Aer Lingus is a "subscale peripheral carrier that is
not consistently profitable and cannot grow or compete with the much larger
carriers in Europe", Flybe appears as an airline that is in a financially more
precarious position with limited ability to undertake new or risky activities without
extra external financing, compared to Aer Lingus, who demonstrates profitability and
strong cash reserves. One of the proposed rationales of Ryanair's bid is that Aer
Lingus would not be in a position to compete with the "giant" carriers
1663
. Following
Ryanair's reasoning, this raises the question of how an entrant like Flybe which is not
part of any of these giant groups and who is in a less favourable financial position
than Aer Lingus would be a suitable purchaser of the Divestment Business.
(1860) In light of the above, the Commission concludes that Flybe does not possess the
financial resources to maintain and develop Flybe Ireland as a viable and active
competitive force in competition with the merged entity in the medium term.
10.4.2.6. Flybe's ability to compete with the merged entity post-Transaction
(1861) The market investigation showed mixed views with respect to the question whether,
taking into account all proposed commitments, Flybe, through Flybe Ireland, would
be able to constrain the merged entity so that the competition concerns identified by
the Commission would be eliminated
1664
.
– Brand recognition
(1862) In Section 8.5.2.4, the Commission analysed the entry barriers in terms of
establishing a strong brand on the routes subject to this Decision. A number of
1661
Flybe, transcript of a conference call of 6 February 2013 with reference 97864301, page 15.
1662
Flybe, "Ryanair / Aer Lingus, Cash and Profit Scenarios", 1 February 2013, page 9.
1663
Form CO, section 3.6.
1664
See responses to question 14 of the final market test.
EN 404 EN
competitors, including Flybe, have identified "brand recognition" as a significant
barrier to entry on routes subject to this Decision, and marketing and promotion costs
required to upgrade the brand would be significant. According to Flybe “it's
important to promote the brand and new services when developing new routes (…)”
Flybe also indicated that while both Ryanair and Aer Lingus enjoy a strong brand on
the routes subject to this Decision, its own brand was considered as a "medium"
brand by passengers on the routes subject to this Decision. The main reason for this
was that it only has a presence on two routes ex-Dublin and that only moderate levels
of marketing have been undertaken in Ireland. Flybe has estimated that it would take
two years to upgrade its brand to a strong brand. At the same time, Flybe considered
that Ryanair's and Aer Lingus' brand presence would not as such be a barrier for
entry into operations ex-Dublin as it has a strong presence at the other end of the
route, namely in the market in the United Kingdom.
(1863) Ryanair argues in the same manner that Flybe has strong brand recognition in the
United Kingdom and throughout Europe, including in Ireland as it already operates a
number of destinations from Ireland
1665
.
(1864) The Commission acknowledges that a strong brand at destination may be of use
when competing with the merged entity on certain routes to and from Ireland. For the
reasons set out in Section 8.5.2.4 of this Decision, the Commission nevertheless
considers that the benefits brought about by such brand recognition outside Ireland
are limited compared to the advantages that Ryanair and Aer Lingus enjoy thanks to
their strong brand in Ireland. Therefore, the Commission considers that it would be
important for Flybe Ireland to have a strong brand in Ireland.
(1865) Moreover, while Flybe already operates to 15 of the 32 destinations outside Ireland,
it only has operations with more than 100 weekly frequencies to 6 destinations
(namely Birmingham, Manchester, Edinburgh, London Gatwick, Glasgow, and
Paris-CDG). Post transaction only Dublin would be added to the list (on all other
destinations, Flybe's maximum operations would not be more than 3 daily
frequencies)
1666
.
(1866) Ryanair argues that it offers commitments to address any of the Commission's
concerns with respect to the Flybe brand. It will offer a licence to Flybe Ireland
pursuant to which it obtains a royalty-free, non-exclusive, non-sublicenceable and
non-transferable right to use the Aer Lingus trademark for a term of three years
following closing. In addition, to provide Flybe with additional publicity and brand
awareness, for a period of 3 IATA seasons post-closing, Ryanair will ensure that the
welcome screen of the Aer Lingus website will be vertically divided into two halves,
bearing the trade names and logos of Aer Lingus and Flybe Ireland, together with an
agreed explanatory text. On the Flybe Ireland side of Aer Lingus' website welcome
screen, there will be a hyperlink that directs customers to the Flybe Ireland booking
website and on the Aer Lingus side there will be a link to the Aer Lingus booking
website. Moreover, for the 3 IATA seasons thereafter, there will be a "banner" on the
Aer Lingus website with a hyperlink to the booking website of Flybe Ireland.
1665
Form RM of 1 February 2013, page 10.
1666
Flybe's presentation given at the meeting of 21 January 2013, page 19.
EN 405 EN
(1867) Respondents to the market investigation gave mixed views with respect to the
question whether the licence to use the Aer Lingus trademark for the Flybe Ireland
operations is sufficient to enable Flybe Ireland to compete effectively with the
merged entity
1667
. Respondents to the market investigation also show mixed views
with respect to the question whether the use by Flybe Ireland of the Aer Lingus
trademark in combination with its own trademark would help Flybe to develop the
brand awareness of its own Flybe / Flybe Ireland brand in Ireland
1668
.
(1868) The Commission acknowledges that the temporary combined use of the strong Aer
Lingus trademark may help Flybe Ireland to penetrate the routes and generate
revenues in the very short term by gaining customers. The Commission nevertheless
notes that the licence would be limited to the trademark alone and would not extend
to the wider branding and image of Aer Lingus, which would remain with the
merged entity. The Commission moreover notes that the merged entity would
continue to use the Aer Lingus brand, even on some of the overlap routes. The
Commission considers that the parallel use of the Aer Lingus brand by the merged
entity and of the Aer Lingus trademark by Flybe Ireland (in combination with the
Flybe brand) is quite likely to confuse customers, a concern which was also raised by
several respondents to the market investigation
1669
. It would create uncertainty in the
mind of customers as to whether Flybe operates separately from the merged entity.
Even worse, it could even lead customers to believe that Flybe is not an alternative
independent option from the merged entity and thus dissuade them from
investigating Flybe's offering.
(1869) The Commission further considers that such a branding strategy could be at the
expense of Flybe creating a strong level of awareness of its own brand.
(1870) In this context, the Commission notes that the trademark licence is granted for the
same term as the Minimum Period, which means that the moment at which Flybe
would lose the right to use the Aer Lingus trademark would coincide with the
moment at which it would be free to exit the routes without incurring a penalty. This
could increase the incentive for Flybe to exit the routes at the end of the Minimum
Period.
(1871) The responses to the final market test also show mixed and divergent views about the
extent to which the website publicity measures would enable the migration or carry-
through of the Aer Lingus customer base to Flybe Ireland
1670
.
(1872) As set out in Section 8.5.2, the Irish market is characterised by a high level of online
sales and Ryanair and Aer Lingus both realised most of their bookings in Ireland
from the internet. The airline's website is thus an extremely important tool for
attracting customers. The website publicity measures as foreseen in the final
1667
See responses to question 3 (in particular 3(a)) of the final market test.
1668
See responses to question 3 (in particular 3(b)) of the final market test.
1669
See for example response of bmi Regional to question 3(a) of the final market test, which states that
"(…) the use of the Aer Lingus brand in any form on Flybe Ireland will confuse the market and cause
problems for both businesses, simple examples being airport branding, which call centre to call and
what flight numbers are to be used"; or Etihad's response to the same question, saying that "It is not
clear how this would work in practice and would likely cause confusion in the market".
1670
See responses to question 4 (in particular 4(a)) of the final market test.
EN 406 EN
Commitments could help to some extent to carry through part of the visitors of Aer
Lingus' website to Flybe Ireland's website during the transitional period. However, it
is not clear to what extent such transferred customer would actually go on to book on
Flybe's website. This would depend on a number of factors such as frequencies and
prices offered and the customer's willingness to travel with an airline other than (the
original) Aer Lingus. Furthermore, the Commission notes that such website publicity
measures are highly unusual between competitors and might create confusion in the
minds of customers.
(1873) Moreover, Flybe indicates that it would require that the website be operational from
day one. The reason for this is that during the summer, whilst Ryanair might start to
reorganise and reengineer the Divestment Business, Flybe would want to see
commercial sales coming in, so that when it took over the business (expected by
Flybe to take place in October 2013), it would do so off the back of a strong
commercial performance during the intervening period
1671
. The final Commitments
however only foresee website publicity measures after the Hive Down.
(1874) Therefore it is uncertain that the website publicity measures would significantly
contribute to a quick migration of Aer Lingus passengers to Flybe Ireland.
(1875) On balance, the Commission considers that the trademark arrangement and the Aer
Lingus website publicity measures would be likely to create confusion in the minds
of customers, as it would be likely that a significant proportion of customers would
not perceive Flybe Ireland as a separate entity from and competing with the merged
entity. Therefore, the Commission considers that the proposed commitments
consisting of a temporary licence and website publicity measures leave doubts as to
whether Flybe Ireland would succeed in establishing itself as an active competitor in
the market.
(1876) Flybe itself indicates that in order to be recognised as independent by its customers,
it has to "[follow] through on its planned level of marketing expenditure and
activities"
1672
. Flybe explains in this respect that it plans to put substantially more
money into advertising and promotion in the start-up phase of Flybe Ireland. It hopes
that, by feeding off the substantial presence it has in Great Britain and in Northern
Ireland, the Flybe brand would become very well known in Ireland and it could
transition through to Flybe being the predominant brand within a three year
timescale.
1673
(1877) The Commission acknowledges in this respect that the cash that would be injected
into Flybe Ireland
1674
could help Flybe to invest in the development of its brand and
website. The Commission nevertheless also notes that it is not excluded that Flybe
would use the cash for its main business rather than for investing in marketing in
Ireland. Flybe's incentive to compete on the 43 Flybe routes is further developed in
Section 10.4.2.7.
1671
Flybe, transcript of a conference call of 6 February 2013 with reference 97864301, page 20.
1672
Flybe, response to question 6 of the final market test.
1673
Flybe, transcript of a conference call of 6 February 2013 with reference 98267226, page 27.
1674
Forward sales cash and retained earnings will also be provided; see Flybe Ireland balance sheet as
prepared by Ryanair.
EN 407 EN
(1878) If Flybe did not follow through on its announced level of marketing expenditure and
activities, it would remain dependent on the Aer Lingus brand and on referrals
through the Aer Lingus website.
(1879) In view of the above, the Commission considers that, despite the proposed trademark
licence, website publicity measures, and capital injection in Flybe Ireland, it is
uncertain whether Flybe would be in a position to establish a sufficiently strong
brand, in particular as regards passengers originating from Ireland, which would
allow it to effectively constrain the merged entity so as to remove the competition
concerns identified by the Commission.
– Proposed base operations
(1880) Pursuant to Clause 14 of the final Commitments, Flybe would base the aircraft
necessary to operate the Flybe Routes Schedule at Dublin airport, provided that at
least one aircraft is based operationally at Cork airport.
(1881) According to Ryanair
1675
, Flybe would base thirteen of the aircraft used to operate
the Flybe Routes in Dublin Airport and one in Cork Airport. It considers that a one-
aircraft operation at Cork Airport would constitute a base in the special circumstance
where aircraft are overnighted all year-round. Where this occurs, the airline will –
according to Ryanair – accrue all of the benefits of having a small base (such as the
ability to offer early-morning flights, operational flexibility, the commitment to
servicing a particular route and the ability to build brand recognition). Ryanair
further claims that there are no economies of scale or scope as a function of the
number of aircraft based at a particular location and argues that many Union airlines
successfully operate bases with 5 aircraft or less.
(1882) In the Flybe Agreement, Flybe undertakes that "all aircraft applied by [Flybe] for
operating the [43 Flybe Routes] are operationally based at Dublin airport, except
for one such aircraft, which shall be operationally based at Cork."
(1883) The Commission notes that it is unclear what exactly is meant by "operationally
based". Moreover, no base is foreseen in the final Commitments for Shannon airport.
Flybe would only be taking over the Shannon-Manchester route. However, not
having at least one aircraft at Shannon airport might lead to a decrease in the service
level as Flybe would not be able to offer early morning departure flights from
Shannon to Manchester. Aer Lingus currently offers early morning flights to
Manchester on some days of the week.
(1884) In view of the above, the Commission considers that Flybe Ireland's ability to
effectively constrain the merged entity so as to remove the competition concerns
identified by the Commission is likely to be affected to some extent by the proposed
limited base operations.
1675
Form RM of 1 February 2013, paragraph 41 and following.
EN 408 EN
– Divested frequencies and capacity
(1885) Ryanair proposes that Flybe Ireland would serve the 43 Flybe Routes with at least
the equivalent of the lower of Aer Lingus' or Ryanair's frequencies on the route. The
frequencies that Flybe will take over and operate are referred to as the "Flybe Routes
Schedule".
(1886) Ryanair provided an overview of current (that is to say, pre-Transaction) and
divested frequencies per route for the summer and winter seasons. Ryanair explains
that the pre-Transaction frequencies have been adjusted to reflect jet equivalent
capacity for the Aer Arann frequencies (operated with turboprop aircraft with about
66 to 68 seats), in order "to reflect the fact that the UFBs will be operating jet
frequencies"
1676
. The Commission nevertheless notes that when calculating the jet
equivalents of the frequencies offered with smaller Aer Arann aircraft, there are
several routes on which rounding effects would likely lead to capacity reduction
1677
.
(1887) Ryanair also explains that frequency data are based on a week in September 2012
(for the summer season 2012) and on a week in November 2012 (for the winter
season 2012/13). Ryanair considers these weeks to be representative of the average
weekly frequencies per season as these weeks allegedly correspond to the normal
level of operation during a season (that is to say outside the peak
July/August/Christmas periods where capacity is often moved around between
routes)
1678
.
(1888) The Commission nevertheless considers that such approach fails to capture the
higher frequencies and the resulting capacities that are offered in peak periods
1679
.
For example Aer Lingus operated the Dublin-Palma route with five weekly
frequencies between 23 June and 15 September in Summer 2012
1680
.
.
The final
Commitments however foresee only 4 weekly frequencies to be divested. Ryanair
indicates that in peak season, capacity is often moved around between routes.
However, Flybe Ireland would only have a limited number of aircraft and, moreover,
it would be required to operate the Flybe Routes Schedule with these aircraft. This
1676
Form RM of 1 February 2013, paragraph 40.
1677
For instance, on the Dublin-Bristol route, where Aer Arann operates 14 weekly frequencies in the
summer 2012, Ryanair proposes to divest 5 "Aer Lingus jet equivalent" weekly frequencies. 14
frequencies on a 68 seat aircraft represent 5.47 Aer Lingus jet equivalent frequencies (with 174 seat
aircraft). This rounding would lead to a material capacity reduction of around 8%. It is however noted
that on one route, the Knock/Birmingham route, the rounding would led to more capacity being offered
in the final Commitments. Besides, Flybe Ireland would operate some more frequencies than the
increment brought about by the Transaction on a small number of routes (Dublin-Brussels, Dublin-
Berlin, Dublin-Glasgow (summer only), and Dublin-Stockholm (winter only). This latter issue cannot
compensate for the effects of the above-mentioned capacity reduction, where the assessment is made
route by route, and likely addressing different passengers.
1678
Form RM of 1 February 2013, footnote 23.
1679
The Commission made clear in the SO that it has used the frequencies for the week in July for assessing
the competitive interaction between Ryanair and Aer Lingus.
1680
Aer Lingus, response to the market test on commitments of 15 January 2013, page 20.
EN 409 EN
means that de facto Flybe Ireland would have only limited operational flexibility to
move aircraft around between routes.
(1889) Furthermore, Flybe Ireland would not have the ability to deploy aircraft with a higher
seat capacity in these peak periods such as Aer Lingus currently does (for example,
Aer Lingus operates an A330 aircraft with at least 267 passengers (up to 322) on the
Dublin-Malaga route during the summer season
1681
).
(1890) This means that Flybe Ireland would not be able, to the same extent as the merged
entity would be, to deploy additional frequencies on the routes in peak seasons or to
deploy aircraft with higher seat capacity on the routes in order to meet increased
demand. The competition constraint exercised by Flybe Ireland on the merged entity
in this regard would thus be limited.
(1891) Moreover, the final Commitments foresee that Flybe will be required to pay a
penalty in case it does not operate at least 85% of these frequencies
1682
. This de facto
gives the possibility to Flybe not to operate up to 15% of the frequencies on any
given route, without breaching the terms of the final Commitments and would imply
that de facto the increment in terms of frequencies resulting from the Transaction
would not be fully covered in case Flybe makes use of this facility.
(1892) It is finally noted that the divested frequencies are based on the assumption that
Flybe Ireland flies with Airbus A320 aircraft. Flybe Ireland is given the right to
replace the Airbus A320 aircraft with smaller aircraft (such as Flybe's regional jets)
provided that it then increases frequencies so that the offered capacity remains the
same
1683
. However, there is no clear mechanism in the final Commitments to
guarantee that the slots required for such increased frequencies would be provided to
Flybe Ireland
1684
. Moreover, a rounding provision is also offered in this regard,
implying an additional risk of capacity reduction.
(1893) Therefore, the Commission considers that Flybe Ireland's ability to effectively
constrain the merged entity so as to remove the competition concerns identified by
the Commission is likely to be affected to a material extent by the proposed number
of divested frequencies and implied capacities.
– Doubts as to whether Flybe Ireland could operate profitably on the 43
Flybe Routes
(1894) The Commission considers that an assessment of the viability of the Divestment
Business is important in deciding whether the Flybe Commitments are workable. A
complication in the case at hand is that due to the nature of the Transaction (it
consists of a hostile bid by Ryanair) Flybe and Ryanair do not have access to the
underlying data of Aer Lingus that would allow them to establish a credible business
1681
Aer Lingus, response to the market test on commitments of 15 January 2013, page 20; and Aer Lingus'
response to question 3 of the Commission's request for information of 3 October 2012.
1682
Final Commitments, paragraph 19.
1683
Final Commitments, Annex IV.
1684
The likelihood of obtaining the necessary slots for operating the additional frequencies of the regional
jets depends on the congestion status of the airports, at both ends of the routes. As analysed in Section
8.5.2.9, several relevant airports suffer from congestion, at least at certain periods of the day.
EN 410 EN
plan. Such limited availability of information in the context of a hostile public bid
and the risk attached thereto is recognised in the notice on remedies. Paragraph 34 of
the notice on remedies states that in cases involving a hostile bid, a commitment to
divest activities of the target company may, in such circumstances of limited
information available to the notifying parties about the business to be divested,
increase the risk that this business might not, after a divestiture, result in a viable
competitor which could effectively compete in the market on lasting basis. The
notice on remedies also states that it may therefore be more appropriate to propose to
divest activities of the acquiring company in such scenarios.
(1895) The fact that Ryanair, in order to find an upfront buyer, was required to give a
guarantee for the cost base and a EUR 100 million buffer for covering shortfalls in
revenues can be considered as a first indicator that the Divestment Business would
not be really viable from a profitability point of view.
(1896) The Commission nevertheless made an in-depth assessment of the likelihood that
Flybe Ireland's operations on the 43 Flybe Routes would be profitable. To this end,
the Commission has not limited itself to information received from Ryanair, but it
has also requested information it considered relevant from other parties, such as Aer
Lingus and Flybe. The Commission examined all available information at its
disposal, including route profitability data from Aer Lingus but also Flybe Ireland's
balance sheet and Profit and Loss account prepared by Ryanair, the high level
modelling prepared by Flybe and the terms in the final Commitments with respect to
the Divestment Business Asset Plan.
(1897) The following analysis discusses in particular the revenue and costs assumptions
underlying these plans.
Aer Lingus's route profitability on the 43 routes
(1898) […]*
1685
, Aer Lingus' operations on the Divestment Business routes are […]*.
(1899) Ryanair
1686
argues that the figures submitted by Aer Lingus should be treated with
extreme scepticism given that Aer Lingus would be a biased party. It claims that the
data are unsubstantiated and inconsistent with more detailed data in the case file.
Ryanair further argues that the 43 Flybe Routes represent a balanced package of Aer
Lingus' main short-haul routes […]*. It provides a number of examples of ways in
which Aer Lingus could have manipulated data […]*. It also argued that its own
model which is further discussed below in this Section, […]*Ryanair has estimated
this figure at EUR 350 million and conservatively assumed that Flybe Ireland would
achieve just slightly over EUR 300 million in the first year. It states that there is no
reason why […]*.
(1900) The Commission notes that the allegations made by Ryanair are vague and
imprecise. For example, Ryanair does not explain how the data submitted by Aer
Lingus would be inconsistent with more detailed data in the case file, nor does it
explain to which data it refers.
1685
[…]*.
1686
Letter of the legal representatives of Ryanair of 11 February 2013.
EN 411 EN
(1901) Furthermore, Ryanair considers that the allocation of costs by Aer Lingus would be a
key element in any assessment of Flybe Ireland
1687
. […]*. In addition, while Ryanair
now contests the Aer Lingus data, in the Flybe Agreement, Ryanair has agreed with
Flybe that, for the preparation of the one year business plan, "the Aer Lingus Group's
accounting policies, principles, determinations and judgements will be applied"
1688
.
Moreover, Aer Lingus confirmed that its costs are allocated using cost drivers
1689
, for
example aircraft ownership costs are allocated by elapsed time. Most costs are not
allocated with regard to passenger numbers.
(1902) Ryanair also mentions that the accounting of connecting passenger revenues and
costs is complex
1690
. However, the allocation of costs in Aer Lingus' accounts is not
related to whether passengers are connecting or non-connecting
1691
. Regarding
Ryanair's comment that Aer Lingus' profitability analysis is impacted by long haul
operations, the Commission considers in addition that the Divestment Business will
not benefit from this, at least not to the same extent as Aer Lingus.
(1903) The Commission finally notes that the turnover figure of EUR […]* million
represents the full frequencies operated by Aer Lingus, while the Divestment
Business will typically operate on the increment resulting from the Transaction (that
is to say the lower of Ryanair or Aer Lingus frequencies). This leads to a […]*
reduction in the Divestment Business turnover versus Aer Lingus' current turnover.
Moreover, a further reduction of turnover can be reasonably expected because of
lower load factors, lower fares, as a consequence of brand issues, possibly lower
frequencies, etc., as explained in recitals 1905 ff below. Therefore, there is no reason
to think that Ryanair's revenue hypotheses are particularly conservative.
(1904) On balance, the Commission considers that there is no reason to believe that the Aer
Lingus figures were manipulated and do not accurately represent Aer Lingus' results
on the routes.
(1905) Furthermore, the Commission notes that the Divestment Business is an artificially-
created business, to accommodate the Commission's competition concerns. Currently
Aer Lingus serves the 43 routes as part of an overall network, including long haul but
also many other short haul routes ex-Irish airports. Aer Arann's operations that would
be part of the Divestment Business also have relatively significant levels of
connectivity to Aer Lingus' network
1692
(see however Section 10.6, where the
Commission concludes that the commitments related to Aer Arann are not likely to
be implemented in a timely manner).
1687
Letter of the legal representatives of Ryanair of 11 February 2013.
1688
Final Commitments, Annex I paragraph 3.
1689
Aer Lingus' methodology for cost allocation is described in detail in Aer Lingus' email of 13 February
2013.
1690
Letter of the legal representatives of Ryanair of 11 February 2013.
1691
For the few costs, which are allocated by passenger numbers, there is no distinction made between
connecting and non-connecting passengers. A minor exception to this is for CRS/GDS and related costs
where costs are obviously higher where there is a higher profile of connecting passengers and therefore
may have a higher proportion of CRS fees. See Aer Lingus email of 13 February 2013.
1692
Agreed minutes of a meeting with Aer Arann of 29 January 2013.
EN 412 EN
Flybe Ireland's balance sheet and Profit and Loss account prepared by Ryanair
(1906) Ryanair has made an estimated balance sheet and profit and loss account for Flybe
Ireland
1693
. In its model, Ryanair estimates passenger numbers for the 43 routes,
using estimates of Aer Lingus' capacities and of Aer Lingus' load factors for the
summer season 2012 and winter season 2012/13. This leads to an estimate by
Ryanair of a total of around 4.32 million passengers for the two seasons together.
Using a flown average fare of EUR 108.12
1694
, as estimated by Ryanair, the revenues
generated on these routes would be EUR 467.5 million.
(1907) Ryanair also takes into account the fact that Flybe Ireland, under the Commitments,
would not operate the full frequency schedule of Aer Lingus. Applying the ratio of
the divested frequencies over Aer Lingus' current frequencies on these routes
1695
,
Ryanair's estimates indicate a number of around 3.47 million passengers for the two
seasons. The total revenue of such reduced scale of the operations on the 43 routes
would amount to around EUR 375 million (that is to say, in Ryanair's model, the
reduced number of frequencies alone would lead to a reduction of revenues of more
than EUR 90 million for the Divestment Business).
(1908) Then, Ryanair assumes that the Aer Lingus' load factor as initially estimated would
be reduced by 5 percentage points to "allow for FLYBE branding". The total number
of passengers for the 43 routes is consequently further adjusted down to 3.24 million
for the two seasons together. This passenger figure is used by Ryanair to estimate the
Divestment Business' turnover
1696
, using the same flown average fare of EUR
108.12
1697
. Total revenues of the Divestment Business would thus amount to EUR
350.5 million under the above assumptions.
(1909) Ryanair applies a further discount factor of 15% to the yield per passenger
1698
, still to
"allow for FLYBE branding", reaching revenues of EUR 304.8 million for the
Divestment Business. The operating expenses are estimated at EUR 286.5 million,
leading to an operating profit before interest and tax of EUR 19.5 million (that is to
say, a 6% operating profit margin).
(1910) According to Aer Lingus, Ryanair's model does not stand up to scrutiny
1699
. As a
general comment, Aer Lingus argues that Flybe Ireland would not benefit from the
economy of scale advantages currently enjoyed by Aer Lingus in its key bases such
as Dublin. Furthermore, according to Aer Lingus, the estimated operating costs set
1693
Ryanair provided in a batch of internal documents an Excel file called "FI accounts" which shows the
computations made by Ryanair. These detailed tables were submitted on 5 February 2013, very late in
the process.
1694
The amount is made of a yield per passenger of EUR 94.02 and of ancillary revenue per passenger of
EUR 14.10.
1695
For instance, on the Dublin-Munich route, Ryanair applies a ratio of 36%, corresponding to the
divestment of 4 weekly frequencies against 11 weekly frequencies operated by Aer Lingus in summer
season 2012.
1696
Flybe Ireland P+L, email of Ryanair of 5 February 2013, page 2.
1697
The amount is made up of a yield per passenger of EUR 94.02 and of ancillary revenue per passenger of
EUR 14.10.
1698
This also reduces the ancilliary revenue per passenger.
1699
Aer Lingus, response to final market test, page 31 and following.
EN 413 EN
out in the Ryanair model are significantly understated and the projected profit before
tax is overstated by a corresponding magnitude. Aer Lingus also questions the
assumptions on which the Ryanair model is based.
(1911) […]*
1700
.[…]*. Therefore, while insufficient details were made available to the
Commission by Ryanair, the Commission understands that very significant cost
reductions are envisaged in these draft financial statements – […]*. However,
Ryanair does not explain in any clearly substantiated manner the sources of such cost
reductions.
(1912) Indeed, the Commission notes that the balance sheet and profit and loss accounts as
prepared by Ryanair are vague and rely on broad assumptions which are not
verifiable
1701
. This is not surprising given that Ryanair does not have access to the
relevant Aer Lingus' information and has to rely to a large extent on less accurate
publicly available information for making its model. Furthermore, Ryanair's
estimates are sometimes even internally inconsistent.
1702
(1913) In addition, the Commission has doubts about the relevance of a number of
assumptions in the model. In particular, the Commission notes that the model is
based on the assumption that passenger numbers would decrease in proportion to the
reduction in frequencies operated by Flybe Ireland (in comparison to the frequencies
operated by Aer Lingus pre-Transaction) and any reduction to the number of
passengers would be due to the "brand effect"; such an assumption appears optimistic
as the decrease could be more than proportionate
1703
. Furthermore, the passenger
load factor used by Ryanair has been set at Aer Lingus' published average short haul
load factor of 76% (79% in Summer 2012 and 68% in Winter 2012/2013), reduced
by 5%. Ryanair does not explain how Flybe Ireland would be able to achieve the
projected load factors
1704
. Even if Flybe operated its current smaller aircraft on (part
of) the routes, it is unclear whether Flybe Ireland would indeed be able to achieve
such relatively high load factors. A difference in load factor has a significant impact
on profitability. Moreover, aggregate figures of Aer Lingus are taken into account by
Ryanair, whereas route specific fares (and load factors) would have been relevant
information for more accurate estimates. Also, by basing the model on aggregate
figures, it is very likely that there is an upward bias in the yield estimates for the
routes that are part of the Divestment Business, as the Commission expects, (as is
corroborated by the quantitative analysis), that in routes where Ryanair is also
1700
[…]*.
1701
The Commission also notes that there are also some unexplained inconsistencies in the cost
assumptions between the draft Profit and Loss statements provided by Ryanair on 24 January 2013, and
the final version submitted on 5 February 2013. For example, while the leasing costs in the former plan
were assumed to be USD 250 000 USD per aircraft/month, they are expected to be USD 200 000 USD
in the latter. Flybe Ireland P+L, email of Ryanair of 5 February 2013, page 3.
1702
In the excel sheet "FI Accounts" of 5 February 2013, Ryanair provided its calculations in various sheets.
For example, in the sheet "By Season" which is used to predict the current number of passengers and
fare for Aer Lingus, the estimated number of passengers for the route Dublin-Edinburgh is around 142
000. However, in sheet "Tracey" which provides the actual figures used in Ryanair's model, the number
of passengers is almost double this number (around 276 000). The difference in terms of revenues is
even greater.
1703
Some form of S-curve effect may take place, even on a route where a low cost carrier competes.
1704
Flybe currently has a load factor which is significantly lower (namely 62% according to Flybe's annual
report 2011/12, however on a different bundle of routes).
EN 414 EN
present, Aer Lingus fares are, ceteris paribus, lower. Besides, the fare reduction of
15% taken into account by Ryanair to "allow for FLYBE branding" is not supported
by sufficient evidence as to its adequacy. A difference in average fare has also a
significant impact on profitability.
(1914) Moreover, as set out in Section 10.6, the commitments related to Aer Arann are not
likely to be implemented in a timely manner as far as the franchise agreement is
concerned (see Section 10.6). Therefore, data related to Aer Arann should be
discounted from the analyses
1705
.
(1915) Furthermore, Flybe Ireland would operate with 12 Airbus A320 aircraft, while the
final Commitments and the Flybe Agreement foresee that Flybe Ireland would have
9 A320s and 5 E195s aircraft. Operations with regional jet aircraft are less cost
efficient and lead to a higher cost per seat. The fact that the model is prepared for a
different fleet of aircraft (with different operating costs attached to it) raises
significant uncertainties on its reliability and accuracy. Further examples are
provided in the analysis made in the sub-Section "Cost base" below.
(1916) By way of conclusion, the Commission considers that Flybe Ireland's balance sheet
and the Profit and Loss accounts prepared by Ryanair are based on a number of
broad assumptions, which are not supported by convincing evidence and which offer
an unrealistically high estimate of the profitability of the Divestment Business.
Therefore, the Commission does not consider that such financial statements can shed
much light on the viability prospects of the Divestment Business.
High level modelling prepared by Flybe
1706
(1917) Flybe has undertaken some own high level modelling on the bundle of the 43 routes,
showing a profitability of EUR 21 million. The assumption used by Flybe is that
operations would be as efficient as those of […]* (as an existing […]* operator),
taking into consideration some "prudency".
(1918) However, the Commission notes that there is no explanation of why Flybe Ireland
could be as efficient as […]*, even including some prudency, in particular given that
Flybe has no experience with […]* aircraft operations and would not have the same
scale of operations.
(1919) Furthermore, as another example of unsupported estimates, the 6 routes operated by
Aer Arann in Flybe's high level modelling would achieve a profit of more than EUR
[…]* million, thus accounting for much of the total EUR 21 million profit estimated
by the model. The profit margin on revenues for these 6 routes would amount to
around […]*%, which is a highly improbable ratio, considering for instance Aer
Arann's profitability
1707
. Moreover, as set out in Section 10.6, the commitments
1705
The conclusions of the Commission are however not materially affected by the inclusion of Aer Arann.
1706
Flybe, Dublin Project – high level modelling.
1707
Flybe explains however that the route specific results in the modelling are not particularly reliable due
to the use of average numbers for available seat-kilomters ("ASK"), load factor, and yield. Typically
ASK costs fall with increased sector length, but only an average ASK cost has been applied by Flybe.
Hence it is likely that the very long and very short sectors have distorted results. Flybe explains that
[…]*and […]* from Dublin are the extreme examples of this (Flybe's response to the Commission's
EN 415 EN
related to Aer Arann are not likely to be implemented in a timely manner as far as the
franchise agreement is concerned (see Section 10.6). Therefore, data related to Aer
Arann should be discounted from the analyses.
1708
(1920) The Commission considers that the Flybe's modelling does not demonstrate a
sufficient level of reliability. The Commission notes in this respect that Flybe's board
acknowledges that it does not have reliable data.
1709
Divestment Business Asset Plan
(1921) The final Commitments foresee that Ryanair will, in consultation with Flybe,
develop a one year business plan for Flybe Ireland.
(1922) According to paragraph 3 of Annex I of the final Commitments, the Divestment
Business Asset Plan delivered to Flybe under clause 2(c) will be prepared on the
basis that, applying the following presumptions:
(a) subject to (b) below, the costs of the Divestment Business shall be the predicted
costs for the operation by the Target Company of the Divestment Business for the 12
months following completion of the Hive-Down (the “Predicted Costs”);
(b) notwithstanding the provisions of (a) above, the Predicted Costs shall be
calculated on an operationally efficient basis assuming that the Divestment Business
were operated by a reasonably prudent operator and on the basis that the
Divestment Business is to be operated using 12 operating leased Airbus A320
aircraft;
(c) the Aer Lingus Group’s accounting policies, principles, determinations and
judgments will be applied; and
(d) it will be assumed that the Divestment Business earns the same revenue as it
would have earned in the […]* prior to the completion of the Hive-Down had it
flown the Divestment Business Routes,
((a) to (d) together, the “Presumptions”), the projected pre-tax profits of the
Divestment Business will be not less than €20 million in the first twelve months from
the date of completion of the Hive-Down."
(1923) It should be clarified that this business plan is not binding on Flybe except insofar as
it determines the amount of the cash contribution to be paid to Flybe for taking over
the Divestment Business. This business plan will be prepared on the basis that,
applying the above presumptions, the projected pre-tax profits of the Divestment
Business will be not less than EUR 20 million in the 12 months following the
request for information of 25 January 2013). The Commission is of the view that such distorted results
may also appear on the Aer Arann's routes as they have short sector length. However, this is just
another illustration of the lack of reliability of the modelling.
1708
The conclusions of the Commission are however not materially affected by the inclusion of Aer Arann.
1709
Minutes of the board of directors of Flybe, held on 1 February 2013.
EN 416 EN
transfer to Flybe
1710
. In the event that the business plan does not project EUR 20
million in pre-tax profits, there is an agreed adjustment mechanism as set out in
Annex I to the final Commitments
1711
.
(1924) It is unclear how and whether the profitability target would be met. Ryanair simply
refers to "steps that may be required to restructure the business"
1712
without any
further details regarding this.
(1925) In particular, it appears doubtful that such projected pre-tax profits can be achieved
even within the framework of the Divestment Business Asset Plan (even if optimistic
but binding presumptions on revenues are accepted) given Aer Lingus current
performance on the routes and given that Aer Lingus group's accounting policies and
principles will be applied. The only improvement on the performance could come
from Aer Lingus not being a "reasonably prudent operator"; however, the
Commission considers that a company that has withstood competition from Ryanair
is likely to be a "reasonably prudent operator".
(1926) Relying on a competitor to reduce one's cost base, even if there is a penalty involved,
does not appear credible. The Commission is of the view that the additional cash to
be provided to Flybe in the likely case where the projected pre-tax profits of the
Divestment Business are less than EUR 20 million, offers only a short term palliative
which does not ensure the long term viability of the Divestment Business. It should
also be noted that, despite the additional cash to be paid by Ryanair, Flybe's incentive
to operate the Divestment Business would be negatively affected. Indeed, a worse
performing Divestment Business would be less profitable and considering that the
closure cost would remain the same, Flybe's incentive to continue to operate the
Divestment Business is likely to decrease.
Cost base
(1927) The Commission notes that Ryanair did not provide any substantial and convincing
evidence to demonstrate how Flybe Ireland's cost base would actually be reduced.
For example in a letter of 11 February 2013, it was merely indicated that "[…]
Ryanair intends to structure a cast base for Flybe Ireland that is driven by its own
cost management skills, together with input from analysis of carriers such as easyJet
and Flybe( …) By leveraging its own skills in managing airports, labour, aircraft
ownership, etc., Ryanair is confident that it can provide a cost base that will provide
1710
Flybe indicated in this respect that "It will be a tortuous process to agree the detail in the business plan,
but the arbitrator mechanism is as good a method of achieving agreement as can be found in the
circumstances". Flybe, response to question 7.a) of the final market test.
1711
Pursuant to the final Commitments, if the one-year business plan projects profits which are less than
[…]*, Ryanair would pay in cash to Flybe Ireland […]*. However, the final Commitments provide also
an incentive to Ryanair to provide a low cost base; for instance, if the cost base handed to Flybe Ireland
after the hive down implies a profit before tax of […]*on prior two IATA season’s revenues, then Flybe
Ireland's cash equity receipt from Ryanair would be limited to […]*, being two times the excess target
profit above […]*. As explained in this Decision, the likelihood that a cost base would be low enough
to trigger this mechanism so as to reduce the initial equity injection into the Divestment Business is
very remote.
1712
Form RM of 1 February 2013, paragraph 8.
EN 417 EN
Flybe Ireland with margins at least as good as the 5% overall margin that Aer
Lingus achieves […]"
1713
.
(1928) Ryanair announced efficiencies related to the acquisition of the entirety of Aer
Lingus activities (see Section 9). While the Commission already concluded that the
criterion of verifiability of the alleged efficiencies was not met, Ryanair claimed that
a significant proportion of […]*efficiencies projected by Ryanair would be derived from
economies of scale, which would not be available to Aer Lingus
1714
. However, the
economies of scale which would be enjoyed by Flybe Ireland would be likely to be very
small, if indeed there were any such economies to be achieved, considering the fact that
Flybe Ireland represents only about one-third of Aer Lingus’ short haul capacity
1715
.
Other efficiencies, in relation to maintenance or distribution costs, if any, also appear
to be unlikely, and in any event very limited.
(1929) For airport and handling costs, Flybe has larger operations than Aer Lingus at several
airports (for example Edinburgh, Glasgow, Manchester, Birmingham); these would
be likely to yield savings. However, Aer Lingus currently has much larger operations
at Dublin airport than Flybe Ireland would have, where corresponding savings would
likely be lost for Flybe Ireland as regards all routes ex Dublin and Cork (while the
focus of the Divestment Business is on routes ex Dublin and Cork). Moreover, Aer
Lingus convincingly explains that airport charges estimated by Ryanair
1716
had been
substantially underestimated. Indeed, while Ryanair uses a broad number based on
Aer Lingus' average cost, Aer Lingus handles a substantial proportion of its ground
operations itself, including passenger handling services at Dublin airport. These
operations are not reported as airport charges by Aer Lingus but as staff costs. In
turn, staff costs estimated by Ryanair do not appear to include self-handling costs
(Ryanair assumes 6 crews made of 6 persons for each of the 12 aircraft). Moreover,
Flybe Ireland would need additional fixed structure, as it is not likely that Flybe
could provide such support functions without significant additional staff when
around 40% turnover would be added to its current operations. This does not appear
to be included in Ryanair's modelling.
(1930) The Commission notes that Aer Lingus already has a very efficient cost base, in
particular following actions undertaken in the context of its Greenfield cost cutting
plan. The Aer Lingus' 2012 Preliminary results announced on 6 February 2013 show
that Aer Lingus has exceeded its annualised cost savings target by 7.5% (EUR 104
million in annualised savings compared to targeted EUR 97 million). In addition, the
Commission is of the view that the generally lean cost structure of Aer Lingus is
further demonstrated by its ability to sustainably compete, and gain market shares,
against Ryanair on its large portfolio of routes.
(1931) […]*.
(1932) The Commission also emphasises that while some further cost cutting may be
possible, what is of relevance is "efficient" cost cutting, i.e. cost cutting that does not
1713
Letter from the legal representatives of Ryanair of 11 February 2013.
1714
Ryanair's response to the Statement of Objections, paragraph 59.
1715
Form RM of 1 February 2013, paragraph 8.
1716
Airport charges represent 35% of the total operating expenses estimated by Ryanair.
EN 418 EN
affect the willingness of consumers to pay for the services provided. If one assumes
generally a lower cost structure the implications on the revenue should also be
analysed.
(1933) Flybe expects Ryanair to deliver to Flybe Ireland a cost base that should allow the
latter to achieve EUR 20 million in pre-tax profits. Flybe indicates in this respect that
Ryanair has to undertake the transition and reorganisation of the Divestment
Business to bring it down to the shape, size and cost structure before Flybe takes
over Flybe Ireland
1717
.
(1934) Flybe itself does not propose any concrete actions as to how the cost base should or
could be reduced, but leaves it largely up to Ryanair to achieve a lower cost base.
(1935) As appears from the minutes of the Flybe board meeting held on 1 February 2013,
Ryanair has not provided supporting evidence to Flybe for its view that a profit
before tax of EUR 20 million would be achievable by Flybe Ireland. Acknowledging
the absence of reliable data, save for that which is publicly available and the terms of
the proposed agreement with Ryanair, Flybe's directors considered at their meeting
of 1 February 2013 various scenarios against a so called "base case" in which Flybe
Ireland would deliver revenues and costs in line with expectations (namely revenues
of EUR […]* million and costs of EUR […]* million, leading to a profit before tax
of EUR 20 million)
1718
(1936) Flybe's directors considered the most likely scenario to be that the costs would be
[…]* in the "base case" by EUR […]* million per annum in all three first years,
without however explaining the source of these […]* costs
1719
.
(1937) The Commission also notes that Flybe in practice will use 5 regional jets, whose
CASK is higher than CASK of Airbus A 320/ Boeing B737 aircraft, as used by Aer
Lingus and Ryanair respectively
1720
. Therefore, the Commission considers that the
real cost base of Flybe would likely be higher than the one used in these modelling
exercises.
(1938) The Commission having reviewed all the evidence collected in the investigation
concludes that it is unlikely that the cost predictions of Ryanair and Flybe for the
Flybe Ireland business would materialise. Ryanair and Flybe do not explain the
source of such cost reductions and do not discuss whether and to what extent – even
if achieved – such cost reductions would also affect revenues.
1717
Flybe, transcript of a conference call of 6 February 2013 with reference 97864301, pages 4 and 13.
1718
Flybe, "Ryanair / Aer Lingus, Cash and Profit Scenarios", 1 February 2013, page 8.
1719
Minutes of the meeting of the board of directors of Flybe held on 1 February 2013, page 2.
1720
See for example DAA, response to question 13 of the market test on remedies II who indicates that "We
have seen the significant cost per ASK disadvantage that Flybe is at compared to Aer Lingus and
Ryanair which is also impacted by Flybe’s use of regional jet and turboprop aircraft."
EN 419 EN
Estimated revenues
(1939) Flybe acknowledges that it would probably take time to get the revenues back to the
Aer Lingus level
1721
. At Flybe's board meeting of 1 February 2013, the most likely
scenario was considered to be […]*
1722
.
(1940) The Commission considers that Flybe Ireland would face a number of disadvantages
as compared to Aer Lingus with respect to the revenues it would achieve.
(1941) Firstly, Aer Lingus enjoys a well-established brand, in particular in Ireland. Ryanair
considers that the Divestment Business would be able to set […]*% lower fares than
those Aer Lingus currently charges, and would have […]*% lower load factor, at
least initially. As set out above, despite the proposed trademark licence, website
publicity measures, and capital injection in Flybe Ireland, it is uncertain whether
Flybe would be in a position to establish a sufficiently strong brand, in particular as
regards passengers originating from Ireland.
(1942) Secondly, Flybe Ireland would not be able to capture intra-company connecting
traffic as Aer Lingus/Aer Arann currently do. Also, it is unclear whether it would
succeed in achieving a similar level of connectivity with third parties as Aer Lingus
currently does thanks to its open network structure and numerous early morning
frequencies (which Flybe Ireland could likely not match)
1723
.
(1943) Thirdly, Flybe acknowledges that it cannot compete with Ryanair on prices
1724
and
argues that it would offer a different type of product with high frequencies. However,
often (and except for some routes where it would operate with regional jets, in which
case it would face a higher cost per seat), the number of frequencies offered by Flybe
Ireland would be at most equal to or less than the frequencies offered by the merged
entity. It can also not be excluded that Flybe Ireland would not obtain the necessary
slots to offer a business day-return on routes where Aer Lingus today does so and on
which it would continue to operate alongside Flybe post-Transaction. Annex II of the
final Commitments, 3
rd
indent provides in this respect that "where possible the
relevant Aer Lingus Group slots will be allocated so as to enable the Divestment
Business to fly a business day-return, as long as the remaining Aer Lingus schedule
remains reasonably attractive". (emphasis added)
(1944) In light of all the above, the Commission concludes that Flybe is unlikely to maintain
the same level of revenues as Aer Lingus currently has in the Divestment Business
even in the medium term.
1721
Flybe, transcript of a conference call of 6 February 2013 with reference 97864301, page 9.
1722
Minutes of a meeting of the board of directors of Flybe, held on 1 February 2013.
1723
Aer Lingus argues that its current schedule provides for nearly 22 early-morning departures per day on
the 43 Flybe Routes. Serving 22 early-morning departures with only 14 aircraft would not be possible.
Aer Lingus, response to final market test, footnote 50.
1724
Flybe, transcript of a conference call of 6 February 2013 with reference 97864301, page 16 .
EN 420 EN
Conclusion
(1945) Taking into account also the conclusion on the cost structure, and the current
profitability of Aer Lingus in the relevant routes, the Commission thus considers it
unlikely that Flybe Ireland would achieve sufficient revenues and such cost base to
achieve the targeted profits before tax of EUR 20 million.
(1946) More importantly, the Commission considers it unlikely that Flybe Ireland's
operations on the 43 Flybe Routes, considered altogether, could be profitable at all.
10.4.2.7. Flybe's incentive to continue to operate on a lasting basis on the 43 routes or on the
Irish market in general
(1947) The responses to the final market test show that a majority of respondents either
considers it unlikely that Flybe would continue to operate on the 43 Flybe Routes
beyond the compulsory period of 6 IATA seasons or indicates that this would depend
on the profitability of the operations
1725
.
(1948) Flybe's board considered a number of cash and profit scenarios
1726
. These cash and
profit scenarios were based on a number of assumptions, including that projected
revenues for the reference year would be in the amount of EUR […]* million. The
envisaged outcomes summarised at the end of each scenario are based on keeping the
business open, or closing it; no restructuring scenarios are considered in this high
level risk analysis.
(1949) In a majority of the various sensitivity scenarios, Flybe Ireland would be […]*
1727
.
(1950) In the "base case", Flybe Ireland would deliver revenues and costs […]*. In this
"base case", the Flybe Ireland business would generate revenues of EUR […]*
million and would incur costs of EUR […]* million. In the worst case scenario,
revenues would be down by […]*% and costs EUR […]* million higher than
expected. In such scenario, the business would be […]*.
(1951) Flybe's board minutes indicate that "(…) [The] Directors had a good understanding
of the range of potential results of entering into the proposed transaction and viewed
this as a long term commitment to the Irish market."
1728
(1952) However, the Commission finds several elements that do not corroborate the stated
long term commitment of Flybe to the Irish market.
(1953) First, the purchase price of EUR 1 million, compared to the initial capital provided
by Ryanair to the Divestment Business, is not indicative of a medium-long term
commitment by Flybe to the Irish business given that Flybe clearly indicated that it is
not prepared to take any financial risk with respect to the Flybe Ireland
acquisition
1729
. Because of its recently announced restructuring program and the low
1725
See responses to question 15 of the final Market Test on Commitments.
1726
Flybe, "Ryanair / Aer Lingus, Cash and Profit Scenarios", 1 February 2013.
1727
[…]*.
1728
Minutes of a meeting of the board of directors of Flybe, held on 1 February 2013, page 2.
1729
Agreed minutes of a meeting with Flybe held on 21 January 2013.
EN 421 EN
cash available to Flybe, it seems highly unlikely that Flybe would inject any
additional cash in the Flybe Ireland business in the likely case the EUR 100 million
would be fully utilised, in particular if it transpired that the Divestment Business was
not a viable business. This is corroborated by the described sensitivity scenario
analysis, whereby […]*.
(1954) Secondly, the Commission further notes that the penalty mechanism foreseen in the
final Commitments does not constitute a real deterrent for Flybe not to close routes.
Flybe itself indicates that, even though it is its intention to stay on the routes, "(…) if
push come to shove we would be able to terminate routes at a penalty that we think,
whilst a deterrent, is not an overriding deterrent – let's put it that way"
1730
. It also
indicated that while that is not the aspiration, "(…) legally [it] could withdraw from
anything at any time and pay penalties"
1731
. On the contrary the Commission notes
that according to Flybe's figures, closure costs would remain […]*. Therefore, the
Commission concludes that Flybe takes essentially no commercial risk in acquiring
the Divestment Business. Coupled with the significant concerns on the viability of
the Divestment Business, the risk of aggressive retaliation by Ryanair (see Section
8.5.2.6) and the limited cash resources available to Flybe, this raises very significant
concerns over Flybe's incentive to continue operating the Divestment Business on a
lasting basis.
(1955) Thirdly, the Flybe Board's expectations are for outcomes […]*.
(1956) In the "Sensitivity F" scenario, revenue would […]* while the costs would be
EUR[…]*million […]* by the "base case". In such scenario, […]*. The Flybe Board
thereby notes that […]*. Considering Flybe's aversion to taking any commercial risk
in relation to this transaction, the Commission considers it likely that Flybe would
close the Divestment Business even before the end of year 3 so as not to incur the
[…]*.
(1957) In the "Sensitivity G" scenario, revenue would […]* as compared to the reference
year. Costs would again be EUR […]* million […]*. In this scenario, Flybe Ireland
would be […]*. This scenario depends however on costs being lower from the outset
than projected by the "base case", but as noted above, the Commission considers it
unlikely that even the "base case" costs would materialise, far less that they could
immediately be reduced by a further EUR […]* million.
(1958) Therefore, even Flybe's Board […]*. This would be the case in one of the two
scenarios that it considers most likely and the other scenario depends on an
unsubstantiated projection of cost reductions.
(1959) Fourthly, and as already noted above, the EUR 100 million capital is not restricted or
ring-fenced to Flybe Ireland and could be used e.g. for Flybe’s main businesses in
the United Kingdom. Considering the cash position of Flybe Ireland and the prospect
of continued losses […]*, this might be an incentive for Flybe to exit Flybe Routes
(in part or entirely) before the EUR 100 million capital was exhausted.
1730
Flybe, transcript of a conference call of 6 February 2013 with reference 97864301, page 23.
1731
Flybe, transcript of a conference call of 6 February 2013 with reference 98267226, page 9.
EN 422 EN
(1960) The Commission notes that the sensitivity analysis made by Flybe's Board is a high
level risk analysis that is based on keeping the Divestment Business open or closing
it, and that […]*
1732
. The Commission cannot foresee the outcome of a possible
restructuring as it does not have any concrete business plan or scenario from Flybe.
However, given Flybe's current financial situation and its risk adversity, such a
restructuring would be likely to have a significant impact on the number of routes on
which Flybe would continue to operate. Such a restructuring would vitiate the
effectiveness of the remedy as a means to remove the identified significant
impediments to effective competition, and, thus, could not render the proposed
concentration compatible with the internal market.
(1961) Therefore, the Commission concludes that Flybe would not have a sufficient
incentive to continue to operate at least a substantial part of the 43 Flybe Routes on a
lasting basis.
10.4.2.8. Conclusion on the viability of the Divestment Business and suitability of Flybe as a
purchaser
(1962) The Commission therefore considers that Flybe is not a suitable purchaser in whose
hands the Divestment Business would become an active competitive force in the
market.
(1963) The Commission further considers that the remedy is insufficient to remove the
identified significant impediments to effective competition, and, thus, could not
render the Transaction compatible with the internal market.
10.4.3. Further relevant aspects as regards the final Commitments
10.4.3.1. Uncertainties as to the timely implementation of the final Commitments
(1964) The notice on remedies provides at paragraph 95 that commitments require
safeguards to ensure their effective and timely implementation. Furthermore, the
notice on remedies also provides at paragraphs 97 and 100 that the divestiture has to
be completed within a fixed time period agreed between the parties and the
Commission and that for fix-it-first solutions for which in general, a binding
agreement with the purchaser will already be entered into during the procedure, after
the Commission's decision, only a further period for the closing has to be foreseen.
Such period is according to the notice on remedies generally of 3 months.
(1965) The final Commitments provide that, under the Flybe Agreement, Ryanair shall sell
and Flybe shall acquire the Divestment Business "as soon as practicable after the
successful completion by Ryanair of the Offer." The Flybe Agreement for its part
foresees at clause 4.2. that as of the date upon which the Offer becomes effective,
Ryanair shall "as soon as reasonably practicable" (a) procure the incorporation of
the Divestment Business, (b) in connection with Flybe develop a one-year business
plan for the Divestment Business and (c) deliver to Flybe such business plan. The
Flybe Agreement further foresees certain additional steps which could possibly
further delay the acquisition of the Divestment Business by Flybe such as an
1732
Flybe states that "[…]*", "Ryanair / Aer Lingus, Cash and Profit Scenarios", 1 February 2013, page 4.
EN 423 EN
adjustment mechanism if Flybe believes that the business plan does not meet the
agreed profitability targets (clause 4.5 of the Flybe Agreement) or the involvement of
an independent expert should there be such disputes (clause 4.7 of the Flybe
Agreement). While there are indeed fixed timeframes for the adjustment and the
resolve of the independent expert, should a revised business plan be necessary, it will
be delivered by Ryanair to Flybe "as soon as reasonably practicable" (clause 4.8 of
the Flybe Agreement). Once all these hurdles have been passed, Ryanair will use its
"reasonable efforts to complete the Hive-Down" (clause 4.12 of the Flybe
Agreement).
(1966) As foreseen in the notice on remedies, in the a fix-it-first type of remedy the
implementation of commitments is expected to happen in a much swifter timeframe
than the implementation of other types of remedies because the identity of the buyer
is known and an agreement has already been reached. However, the proposed
Commitments set-up a framework in which there are no time limits for Ryanair to
sell the Divestment Business to Flybe beside "as soon as reasonably practicable" by
using "reasonable efforts".
(1967) In the light of the above, the Commission concludes that the final Commitments do
not sufficiently guarantee that they would be implemented in a timely manner and at
the very lease create uncertainties as to when the Divestment Business would be
acquired by Flybe and competition restored on the market.
10.4.3.2. Involvement of Ryanair post-Transaction
(1968) Paragraph 65 of the final Commitments provides that, as set out in the Flybe
Agreement, from the date the Offer becomes effective (Closing) until the sale and
purchase of the Divestment Business pursuant to the Flybe Agreement, Ryanair shall
preserve the economic viability, marketability and competitiveness of the Divestment
Business in accordance with good business practice.
(1969) Under paragraph 66 of the final Commitments, as soon as practicable following the
date the Offer becomes effective (Closing), Ryanair will carve-out the Divestment
Business form Aer Lingus and transfer it into a separate standalone company in a
manner that will allow and enable this company to operate as a separate independent
entity. Following this process and until the sale and purchase of the Divestment
Business pursuant to the Flybe Agreement, Ryanair will keep the Divestment
Business separate from the part of Aer Lingus which Ryanair is retaining and will
ensure that Key Personnel of the Divestment Business – including the Hold Separate
Manager – have no involvement in any business retained by Ryanair.
(1970) Furthermore, until the date the Offer becomes effective (Closing), Ryanair shall
assist the Monitoring Trustee in ensuring that the Divestment Business is managed as
a distinct and saleable entity separate from the business retained by Ryanair. In
addition, Ryanair shall appoint a Hold Separate Manager who shall be responsible
for the management of the Divestment Business under the supervision of the
Monitoring Trustee. The Hold Separate Manager shall manage the Divestment
Business independently and in the best interest of the business with a view of
ensuring its continued economic viability, marketability and competitiveness and its
independence from the business retained by Ryanair and Aer Lingus.
EN 424 EN
(1971) However, as appears from clause 4.4 of the Flybe Agreement, the Hold Separate
Manager would be appointed "no later than the date on which the Hive-Down is
completed". As explained above, under the Flybe Agreement, Ryanair shall use
reasonable efforts to complete the Hive-Down but the timing of this event (which
constitutes the trigger for the timetable for Completion of the Flybe Agreement) is
subject only to an obligation to use "reasonable efforts".There is high uncertainty as
to when precisely the Hold Separate Manager would be appointed and how the final
Commitments guarantee that the Divestment Business is managed independently
under the supervision of the Monitoring Trustee.
(1972) Furthermore, even if the Hold Separate Manager were to be appointed right after the
Offer is completed, Ryanair's commitment towards Flybe that it would itself develop
a business plan of the Divestment Business which would ensure that a certain level
of profitability is forecasted, casts serious doubts as to the question whether such
activities could be qualified as management of the "day-to-day business" of the
Divestment Business.
(1973) Lastly, contrary to the Commission's standard commitments model text, the proposed
Commitments do not provide for any ring-fencing mechanism which would ensure
that Ryanair does not obtain any business secrets, know-how, commercial
information, or any other information of a confidential or proprietary nature relating
to the Divestment Business. Quite to the contrary, as Ryanair itself committed
towards Flybe to develop the business plan of the Divestment Business, there is a
serious risk that confidential information of the Divestment Business would be made
available to Ryanair.
(1974) In the light of the above, the Commission considers that the final Commitments do
not sufficiently guarantee that the Divestment Business would be held separate from
Ryanair sufficiently promptly after Ryanair taking control over Aer Lingus.
10.4.3.3. Complex and not sufficiently clear-cut commitments
(1975) The final Commitments are complex and are not sufficiently clear-cut.
(1976) The Commission has in its previous decisional practice
1733
accepted commitments
which provided that the agreements which were concluded to implement the
commitments would provide for a fast-track dispute resolution procedure.
(1977) The final Commitments provide in paragraph 88 that "In the event that an Applicant
has reason to believe that Ryanair is failing to comply with the requirements of the
Commitments vis-à-vis a third party, the fast track dispute resolution procedure
described in [that] Section will apply". Considering the definition of "Applicants" in
the final Commitments, it would appear that the fast-track dispute resolution clause is
not applicable to any disputes which may arise with the identified entrants Flybe and
IAG.
(1978) Indeed the Flybe Agreement provides in Paragraph 26.2 that "Each Party agrees that
any proceeding, suit or action out of or in connection with this Agreement shall be
1733
See for example in case COMP/M.6447 - IAG/bmi, Clause 7.1 of the commitments.
EN 425 EN
subject to the non-exclusive jurisdiction of the English courts to which the Parties
hereby submit" and "Each Party waives (and agrees not to raise) any objection on
the ground of forum non conveniens or on any other ground to the taking of
Proceedings in any court in accordance with the provisions of this clause".
(1979) Ryanair for its part commits in Clause 2 of the final Commitments to enforce its
contractual rights under the Flybe Agreement "In the event of a breach by Flybe … of
the terms of the Flybe Agreement …" to ensure full compliance by Flybe with the
terms of the Flybe Agreement.
(1980) The rationale for including the same fast-track dispute resolution mechanism in the
Commitments and the respective agreements is that the Commission has to be
persuaded that – should disputes arise – there is a working mechanism to ensure that
these are resolved within a strict and tight timeframe. Commitments have to be
implemented in a timely manner to ensure that the significant impediment to
effective competition does not materialise.
(1981) In light of the complexity of the final Commitments, the settlement of disputes
arising from the implementation of the Flybe Agreement through litigation in English
Courts instead of a faster way of settlement raises doubts as to whether the final
Commitments would be implemented in a timely manner.
10.4.4. Conclusion on the divestiture to Flybe
(1982) The Commission considers that the final Commitments do not eliminate the
competition concerns entirely and are not comprehensive and effective from all
points of view. Furthermore, the Commission is not able to conclude with the
requisite degree of certainty that the new commercial structures resulting from them
will be sufficiently workable and lasting to ensure that the significant impediment to
effective competition will not materialise. Moreover, the Commission cannot clearly
determine that the final Commitments, once implemented, fully and unambiguously
resolve the competition concerns identified in this Decision.
10.5. Slot divestitures to IAG/BA on the three London routes (Dublin, Cork and
Shannon)
(1983) The Commission recalls that, exceptionally, it decided to examine the final
Commitments although these did not clearly resolve the competition concerns
previously identified and therefore required a further market test
1734
.
(1984) According to the notice on remedies, whilst divestiture is the remedy preferred by the
Commission, the Commission also may accept others. There may be situations where
divestiture of a business is impossible. However, divestitures are the benchmark for
other remedies in terms of effectiveness and efficiency
1735
. In such circumstances,
the Commission has to determine whether or not other types of remedy may have
sufficient effect on the market to restore effective competition (paragraphs 14 and 61
of the notice on remedies).
1734
See also Section 10.1.1. above.
1735
Notice on remedies, paragraph 61.
EN 426 EN
(1985) Slot commitments of the type proposed by Ryanair on the three routes between
London and Dublin, Cork and Shannon respectively, are based on the fact that the
availability of slots at Gatwick or Heathrow is a significant entry barrier
1736
.
(1986) The final Commitments for the three London to Ireland routes are without prejudice
to the question whether and when the so called Heathrow Transfer Condition is
satisfied.
(1987) In the Sections that follow, the Commission will first assess the question whether the
Heathrow Transfer Condition is likely to be satisfied (see Section 10.5.1 below). The
Commission will then show that the merged entity is unlikely to be sufficiently
constrained during and after the Minimum Period (Sections 10.5.2 and 10.5.2)
Lastly, the Commission will set out other concerns in relation to proposed
Commitments on the three London-Ireland routes (Section 10.5.4) and draw its
conclusions in Section 10.5.5.
10.5.1. Transfer of Heathrow Slots unlikely
10.5.1.1. Introduction
(1988) Under the notice on remedies, the requisite degree of certainty concerning the
implementation of proposed commitments may in particular be affected by risks
regarding the transfer of a business to be divested, such as third party rights in
relation to the business.
(1989) The Commission made clear on several occasions
1737
that the ability of Ryanair to
dispose of Aer Lingus' Heathrow slots post-Transaction would raise complex issues
and lead to uncertainties as to the implementation of such commitments, particularly
because of the restrictions in Article 10 of Aer Lingus' Articles of Association
("Article 10") and other relevant legal provisions.
(1990) It is incumbent on the Parties to remove any uncertainties as to the implementation of
the remedy when submitting it to the Commission
1738
. However Ryanair asserted that
obstacles to delivering the disposal of Heathrow slots were "unlikely" and insisted in
all its proposals that the disposal of Aer Lingus' slots at Heathrow did not raise any
legal issues and could be implemented. However, Ryanair's letter to the Commission
of 15 January 2013, accompanying the Commitments of 15 January 2013, simply
stated that Ryanair’s professed ability to overcome Article 10 "is addressed in a legal
opinion from Martin Hayden SC and Ross Aylward BL" provided to the Commission
(the "Ryanair opinion").
(1991) The question of Ryanair's ability to secure the disposal of the Heathrow slots has
indeed been the subject of extensive legal submissions by both Aer Lingus and
Ryanair, which have concentrated on (i) the interpretation of Article 10 and (ii)
whether minority shareholders in Aer Lingus could invoke other legal provisions to
1736
Section 8.9.5.4 describes the degree of congestion of London airports.
1737
See for instance Minutes of the meeting between the Commission and Ryanair of 27 September 2012
and Minutes of the State of Play meeting of 12 November 2012. See also the 2007 Decision, recital
1230.
1738
Notice on remedies, paragraph 12.
EN 427 EN
prevent the disposal of the Relevant Slots, even if they were unable to invoke Article
10 to do this.
(1992) In order to assess the validity of the arguments made in the Opinions submitted by
Aer Lingus and Ryanair, the Commission has obtained its own legal opinion from an
independent legal counsel Rossa Fanning BL ("the Fanning Opinion")
1739
. The
Commission's doubts as to the deliverability of a commitment involving Heathrow
slots are shared by the Fanning Opinion, which concludes (at paragraph 75) that "Aer
Lingus has a strong basis for contending that there is a domestic law impediment to
a LHR Commitment … arising out of Article 10".
(1993) In the final Commitments, Ryanair proposes to set-up a mechanism whereby IAG
would lease Gatwick slots to operate on the three London routes until the Heathrow
Transfer Condition is satisfied and IAG can take over Aer Lingus' Heathrow slots.
(1994) Therefore, the final Commitments still include the prospect of Aer Lingus' Heathrow
slots being disposed of.
10.5.1.2. Description of the Heathrow Transfer Condition
(1995) Under the final Commitments, Ryanair commits that IAG(BA) would provide
services on the Dublin-London, Cork-London and Shannon-London routes either
from Heathrow airport or from Gatwick airport. An entry by IAG(BA) at Heathrow
or Gatwick and the type of agreement which Ryanair would enter into with IAG(BA)
depends on whether and when the so called "Heathrow Transfer Condition" is
satisfied.
(1996) The final Commitments define the Heathrow Transfer Condition as "the
determination by each of Ryanair and IAG each acting in its reasonable discretion
that giving effect to the Heathrow Gatwick Tranfer Agreement would not violate
Article 10 of Aer Lingus' Articles of Association (or other successor provision) or
any applicable law or regulation".
(1997) Under paragraph 25 of the final Commitments, if two months before the IAG
Commencement Date
1740
the Heathrow Transfer Condition has not been satisfied,
IAG(BA) and Ryanair would enter into the Gatwick Lease Agreement. However,
paragraph 24 of the final Commitments provides that, during the term of the Gatwick
Lease Agreement, Ryanair will use its best efforts to achieve satisfaction of the
Heathrow Transfer Condition (including without limitation the exercise of any rights
it may hold as a shareholder in Aer Lingus and/or as a result of being able to control
the board of directors of Aer Lingus and/or seeking the agreement of the relevant
Irish governmental authorities and/or seeking declaratory judgment from a court of
competent jurisdiction.
1739
Opinion on the application of Irish company law to the proposal of Ryanair Holdings Plc in respect of
the Aer Lingus LHR Slots, 31 January 2013.
1740
Defined in the final Commitments as the first IATA season changeover following Closing or in the
event that such first changeover takes place less than 3 months following Closing, on the second IATA
Season changeover following Closing. Closing is defined as the date of the successful completion of the
Offer.
EN 428 EN
(1998) Under paragraph 26 of the final Commitments, if the Heathrow Transfer Condition
were to be satisfied prior to two months before the IAG Commencement Date
1741
,
IAG(BA) and Ryanair would enter into the Heathrow – Gatwick Transfer
Agreement. Paragraphs 28-29 of the final Commitments also provide that if the
Heathrow Transfer Condition were satisfied at any point prior to the termination of
the Gatwick Lease Agreement and IAG exercised its Call Option, the Heathrow –
Gatwick Transfer Agreement would also come into effect and the Gatwick Lease
Agreement and the Heathrow Lease Agreement (if in effect) would terminate
1742
.
(1999) The Commission considers that the final Commitments do not state in a sufficiently
clear manner the precise meaning of the Heathrow Transfer Condition. Considering
in particular the previous existing disputes and diverging views on the question of the
interpretation of Article 10 (and other legal provisions) it is likely that Ryanair would
itself "determine acting in its reasonable discretion" that there are no issues
involving Article 10 or other applicable laws or regulations, while minority
shareholders of Aer Lingus would disagree. Furthermore, what is actually in issue for
the Commission's assessment is not Ryanair's determination in its "reasonable
discretion" but whether Ryanair could in reality transfer the Heathrow slots.
(2000) The Sections which follow provide an assessment of the likelihood that the Heathrow
Transfer Condition would be satisfied.
10.5.1.3. Irish Government unlikely to sell its 25.11% stake in Aer Lingus
(2001) As the applicability of Article 10 is very likely to depend on the question whether the
Irish Government would sell its shares in Aer Lingus to Ryanair, it is relevant to first
assess the question of what is the most likely course of action by the Irish
Government before entering into the mechanics of Article 10 which will be described
in Section 10.5.1.4).
(2002) Ryanair argued that it is highly unlikely that the Irish Government's 25.11%
shareholding in Aer Lingus will be retained post-Transaction as the Irish
Government has decided to sell its stake in connection to the commitments made to
the Troika of the European Union, the European Central Bank and the International
Monetary Fund.
(2003) While it is true that a decision in principle has been taken by the Irish Government to
sell its shareholding in Aer Lingus, the timing of a possible sale and any conditions
for a sale have not yet been agreed
1743
. However, the Irish Government issued a
public statement on 18 December 2012
1744
and on 12 February 2013
1745
whereby it
1741
Defined in the final Commitments as the first IATA season changeover following Closing or in the
event that such first changeover takes place less than 3 months following Closing, on the second IATA
Season changeover following Closing. Closing is defined as the date of the successful completion of the
Offer.
1742
The revised IAG Agreement provides that, if in effect, both Heathrow Lease Agreements would
terminate.
1743
Email of the Department of Transport Tourism and Sport of 2 December 2012.
1744
Press-release of the Department of Transport, Tourism and Sport Press Office.
1745
"… As I have stated before, the Ryanair remedies package as reported has not satisfied the
Government’s concerns about connectivity, competition or employment."
EN 429 EN
confirmed that while it remains committed to the sale of the 25.11% stake in Aer
Lingus at the right time under the right conditions, it is not prepared to support any
offer that would significantly undermine connectivity or competitiveness for
Ireland
1746
. The Irish Government reiterated its position not to sell its shareholding in
Aer Lingus to Ryanair in response to the final market test: "This revised remedies
package [of 1 February 2013] does not satisfy the Irish Government's concerns about
connectivity, competition and employment in the Irish market. The Government has
recently indicated that it is not prepared to support any offer that would significantly
impact connectivity and competition in the Irish market."
1747
(2004) Even if Ryanair's Offer succeeds, it is likely that the position of the Irish Government
would remain the same, as the Irish Government would still be keen on maintaining
Aer Lingus' operations from London Heathrow for connectivity reasons. The Irish
Government reiterated that "While it retains its shareholding in Aer Lingus, the
Government will invoke its rights in the procedure in Article 10 of the Aer Lingus'
Articles of Association to protect access to Heathrow services from Ireland which
remains very important for Ireland's connectivity…"
1748
Therefore, Ryanair's
projection that, post Transaction, the Irish Government would eventually accept the
situation and allow Ryanair to sell the slots to IAG is simply not sufficiently certain
to materialise
1749
.
(2005) Furthermore, a sale by the Irish Government of its shares in Aer Lingus to a third
party also appears unlikely within the medium term. The Irish Government explained
that "while the Government has made a decision in principle to sell its shareholding,
the timing of a possible sale and any conditions for a sale have not yet been
considered. The context in which the Government has made this decision in principle
to sell its shareholding is its agreement with the EU/ECB/IMF Troika to reach a
target of €3 billion from a programme of State asset disposals. The Government
1746
The Department of Transport, Tourism and Sport also stated that "there is simply no reason to believe
that the arrangements envisaged in the Commitments [of 7 December 2012] will ensure continued
connectivity between Ireland and London Heathrow on a long-term basis." (response to question 4 of
the first market test and that "[…] DTTAS considers that the Irish Government should invoke its rights
under the procedure in Article 10 of the Aer Lingus Articles of Association, due to its concerns that the
proposed divestment to UBF1 would not be sufficient to guarantee the long-term connectivity of Ireland
to international air services through London Heathrow" (response to question 27 of the first market
test)." Considering the Commitments of 15 January 2013, the Irish Government confirmed that it
maintains its position that the remedies do not satisfy the Government's concerns about connectivity,
competitiveness or employment for Ireland and that it "is not prepared to support any Offer that would
significantly impact connectivity and competition in the market." (Department of Transport, Tourism
and Sport, response to Commission's request for information of 24 January 2013)
1747
DTTAS response to question 29, paragraph 18.
1748
DTTAS response to question 29, paragraph 20.
1749
Ryanair's opinion relies on the following argument "If Ryanair is successful in [its takeover bid] then
the entire landscape and context within which these decisions will be made would have changed" from
which the Ryanair opinion draws the conclusion that even if minority shareholders invoke their rights
under Article 10, "it is unlikely to prevent the implementation of the LHR Commitment". However, it is
a matter of commercial rather than legal judgment whether a successful bid by Ryanair would alter the
position of minority shareholders and the conclusion that Article 10 "is unlikely to prevent the
implementation of the LHR Commitment" therefore does not follow as a matter of legal analysis;
nowhere does the Ryanair Opinion explain how,,as a matter of law; Article 10 does not present an
obstacle to the disposal of the Heathrow slots, rather it relies on a benign view of the attitude of
minority shareholders.
EN 430 EN
identified a number of assets for disposal under the programme. The potential value
of the Government's shareholding in Aer Lingus is small relative to some of the other
assets identified and the Government is not committed to a set timetable in relation
to the sale of its shareholding. It has indicated that the shareholding will be sold at
an appropriate time but only when market conditions are favourable and at an
acceptable price to be agreed by Government."
1750
(2006) While Ryanair has an obligation under the final Commitments and the IAG
Agreement to "use its best efforts" to achieve satisfaction of the Heathrow Transfer
Condition, it appears that, as long as the Irish Government maintains its shareholding
in Aer Lingus, Ryanair would be unlikely to be in a position to dispose of Aer
Lingus' Heathrow slots. As mentioned above, the Irish Government clarified that
while it retains its shareholding in Aer Lingus, it would invoke its rights under
Article 10.
(2007) Therefore, it appears likely that the Irish Government would not sell its stake in Aer
Lingus to Ryanair. Even if the Irish Government were to sell its shareholding in Aer
Lingus to a third party, such sale would not be timely.
10.5.1.4. Article 10 of Aer Lingus' Articles of Association
(2008) In brief, Article 10 of Aer Lingus' Articles of Association ("Article 10") prevents a
"Disposal Transaction" in relation to Aer Lingus' Heathrow slots without first giving
minority shareholders the opportunity to call an Extraordinary General Meeting
("EGM") of Aer Lingus's shareholders
1751
. A "Disposal Transaction" is defined very
broadly as any transaction pursuant to which slots would be sold, transferred,
disposed of, leased, surrendered, mortgaged or otherwise alienated or
encumbered
1752
.It thus appears that the exchange of Aer Lingus' Heathrow slots as
proposed by Ryanair in the final Commitments would have to be notified to the
shareholders holding more than 10% of the share capital in Aer Lingus
1753
.
(2009) Under Article 10(c), shareholders holding at least 20% of Aer Lingus' issued share
capital can, within 28 days of receipt of such notification, request that an EGM is
convened to consider such proposed Heathrow slot disposal transaction. If no such
request for an EGM is made, the disposal of the Heathrow slots may be concluded
within 12 months of the expiry of the 28 day period without the need for shareholder
approval
1754
.
1750
DTTAS, Summary of DTTAS submission in response to the final market test, paragraph 19.
1751
Aer Lingus is required to formally notify by way of letter its intention to dispose of Aer Lingus'
Heathrow slots to each of its shareholders who at the date of such notification holds in excess of 10% of
its issued shares.
1752
Certain leases are however exempted, see Section 10.5.2.3.
1753
The Commitments of 17 October 2012, 7 December 2012 and 15 January 2013 also included
commitments which would have amounted to disposal transactions under Article 10.
1754
Section 10(c) of Aer Lingus' Articles of Association and Ryanair's response to Commission request of
October 3, 2012, paragraph 34.1.
EN 431 EN
(2010) The Irish Government is the only other Aer Lingus shareholder which has alone
more than 20% of Aer Lingus' shares
1755
, as it has decided not to sell its 25.11%
stake in Aer Lingus to Ryanair as explained above in Section 10.5.1.3. Therefore the
Irish Government is the only shareholder that could make such a request for an EGM
in a timely manner.
(2011) Pursuant to article 10(f), the Irish Minister for Finance would exercise its rights to
convene an EGM in accordance with the recommendations of the Minister for
Transport.
(2012) The Minister for Transport has set out the criteria by reference to which he intends to
make recommendations to the Minister for Finance as to whether to convene an
EGM
1756
. As a general principle and by assessing each case individually, the
Minister for Transport will only recommend to the Minister for Finance to convene
an EGM if the disposal would result in the slots at Heathrow falling below the
critical level for ensuring connectivity to and from Ireland
1757
.
(2013) The final Commitments cover an exchange of most of Aer Lingus' slots at London
Heathrow for slots at Gatwick
1758
which is significantly less suitable as a connecting
airport. As explained in Section 10.5.1.3 above, the Irish Government has publicly
stated that it would not sell its shareholding in Aer Lingus to Ryanair and further
expressed its concerns as regards the connectivity issue. The Commission is
therefore of the view that the disposal of Heathrow slots as proposed in the final
Commitments would raise sufficient issues for the Minister for Transport to
recommend to the Minister for Finance to convene an EGM
(2014) Indeed, the Irish Department of Transport, Tourism and Sport confirmed that while it
retains its shareholding in Aer Lingus, "the Government will invoke its rights in the
procedure in Article 10 of the Aer Lingus' Articles of Association to protect access to
Heathrow services from Ireland which remains very important for Ireland's
connectivity."
1759
1755
Ryanair's share is in this context irrelevant because Ryanair would not convene an EGM for the
disposal of the Heathrow slots.
1756
Minutes of conference call with the Irish Departments of Finance and Transport, Tourism and Sport of
15 November 2012. The latest recommendations date from 2 October 2006 (available at:
http://corporate.aerlingus.com/investorrelations/regulatorynews/2006pressreleases/minister_lhr.pdf).
1757
See also:
http://corporate.aerlingus.com/investorrelations/regulatorynews/2006pressreleases/minister lhr.pdf.
1758
The Heathrow Gatwick Transfer Agreement is an agreement to transfer certain IAG Gatwick slots to
Ryanair in exchange for a high number of Aer Lingus' Heathrow slots. See also Sections 10.5.2.2 and
10.5.3.1 below.
1759
DTTAS summary of response to final market test, paragraph 20. As regards the Commitments 7
December 2012, the DTTAS stated that it would "seriously consider that the Irish Government should
invoke its rights under the procedure in Article 10 of the Aer Lingus Articles of Association were the
slot divestment envisaged under the Commitments [of 7 December 2012] to be accepted by the
Commission." Furthermore, as regards the Commitments of 15 January 2013, the Department of
Transport, Tourism and Sport explained that it "has grave concerns that implementation of the
commitments could jeopardise Ireland’s connectivity to international air services. On this basis and
having regard to the current criteria under the Articles, the Minister for Finance as a shareholder in
the Company, acting on the advice of the Minister for Transport, Tourism and Sport would convene
such an EGM and would vote against such a proposal."
EN 432 EN
(2015) The Commission is therefore satisfied that the Irish Government would request that
an EGM is convened to decide on the disposal of the Heathrow slots under the final
Commitments and that it would vote against such proposal.
(2016) At the EGM, the resolution to dispose of LHR slots would have to be carried by a
"Specified Percentage", which is defined as 100% minus the shares held by the Irish
Government, as a percentage of the total issued shares, plus 5%. A vote in favour of
a resolution to dispose of Heathrow slots would have to be carried by the Specified
Percentage of the votes cast.
(2017) At present, the Irish Government holds 25.1%, so a blocking vote would be 25.1% +
5% = 30.1% of votes cast, plus one vote. Given the Irish Government's current
shareholding therefore, Article 10 implies that, to approve the disposal of Heathrow
slots at the EGM, a resolution must be passed by 69.89%
1760
of the votes cast by the
shareholders attending and voting at the EGM
1761
. Thus, if there were a 100%
turnout, the Irish Government would require support from holders of another 5% of
shares, but if the turnout were less than 100%, the Irish Government’s 25.1%
shareholding might be sufficient to constitute more than the Specified Percentage of
votes actually cast.
(2018) In Ryanair's view, the Irish Government's ability to block a Heathrow slot disposal
would depend on the number of Aer Lingus shares held by Ryanair after a successful
bid and the number of Aer Lingus' shareholders that attended an EGM to approve (or
block) such disposal.
(2019) Ryanair explained that, if a request for an EGM was to be made, taking a
hypothetical attendance figure of 71.98% (the turnout for voting on the resolution on
which most of Aer Lingus shareholders voted on at the last Aer Lingus' Annual
General Meeting) and if Ryanair’s bid was successful and it held for example, 51%
of Aer Lingus’ share capital
1762
, Ryanair would surpass the 69.89% approval
threshold required to pass a Heathrow slot disposal.
(2020) The Commission considers that past attendance rates can hardly provide a reliable
indicator of the likely attendance at an EGM post-Transaction, in particular as the
issue at stake would be very likely to crystallise diverging views on the future of Aer
1760
This percentage is reached after applying the formula in Aer Lingus' Articles of Association which
provides that the disposal may only proceed if the relevant resolution is passed by: (i) not less than X%
of the votes cast, where “X” = 100 – [the percentage of ordinary shares held by the Minister (currently
25.11%) plus 5%], that is to say 100-(25.11+5) = 69.89%. It is further provided that required majority
to approve a disposal should in no event exceed 75%.
1761
If the Irish Minister for Finance no longer held shares in Aer Lingus, a disposal of LHR slots would
require the positive vote of at least 75% of the votes cast under the current text of Article 10(d) of the
Articles. Given that the required majority cannot be greater than 75%, the percentage required to
approve a disposal would remain at 75% even if the Minister’s shareholding was to be reduced to a
figure below 20%. Consequently, the vote required to block a slot disposal can never be less than 25%
of the votes cast at the general meeting.
1762
It is worth recalling here that Ryanair's public bid announced on 19 June 2012 is conditional on the
acceptance by Aer Lingus Shareholders holding more than 50 percent of the issued and to be issued
share capital of Aer Lingus. It is difficult to form a firm view on the percentage of shares which would
be held by Ryanair after the Transaction.
EN 433 EN
Lingus and on more general transport issues, which may be seen as critical for Irish
people.
(2021) More fundamentally, while Ryanair's claim is true in that, if taking the hypothetical
attendance figure of 71.98%, a shareholding of 51% would give Ryanair 70.85% of
the votes cast
1763
, this scenario is only realistic if, before such a meeting, the Irish
Government had sold – quod non - its shareholding in Aer Lingus to Ryanair. As
explained above however, the more realistic scenario is that the Irish Government
would not sell its shareholding to Ryanair in which case the attendance rate at the
EGM (if it were to be attended by these two shareholders alone) would be
76.11%
1764
. Therefore, the Irish Government would be in a position to block the
disposal of the Heathrow slots (because with its 25.11% shareholding it would
represent more than 30.12% of the vote cast at an EGM with an attendance rate of
76.11%).
(2022) Ryanair confirmed that
1765
, considering the attendance rate at Aer Lingus' Annual
General Meetings, the Government shareholding as a percentage of votes cast was
higher than 30.1% in recent years. Therefore, on the basis of attendance rates at
previous Annual General Meetings, the Irish Government would be in a position to
prevent the disposal of Heathrow slots (as it would have the required 30.12% of
votes cast needed to block a disposal of Heathrow slots). Moreover, if attendance at
the EGM were lower than around 83%, the Irish Government with its 25.1%
shareholding would be in a position, acting alone, to block the disposal of Heathrow
slots
1766
.
(2023) Ryanair further contended that, if other shareholders' attendance rate is assumed at
only half of the average in previous years (i.e. assuming that attendance by
shareholders other than Ryanair and the Irish Government represents approximately
8% of the total number of shares in issue), and Ryanair holding as little as 51% of
Aer Lingus' shares, the EGM attendance rate would be approximately 84%. Ryanair
therefore concluded that the Government's 25% shareholding would not be sufficient
to block a Heathrow slot disposal
1767
.
(2024) It is true that the Irish Government alone could not block the disposal of the
Heathrow slots should the attendance rate be above 83% at an EGM. This means
that, absent the sale by the Irish Government of its shareholding to Ryanair (which is
the most likely scenario as explained above), attendance and voting at the EGM
would have to be above 83% for Ryanair to possibly be in a position to secure the
disposal of the Heathrow slots.
(2025) However, it is likely that at least some other shareholders (other than the Irish
Government) would also not support Ryanair's proposal to dispose of the Heathrow
slots.
1763
Ryanair's response to Commission request of October 3, 2012, paragraph 34.2.
1764
51% held by Ryanair and 25.11% held by the Irish Government.
1765
Ryanair's response to Commission request of October 3, 2012, paragraph 34.3.
1766
25.1% of 83% is 30.2%. It is clear that the Irish Government, which would have convened the EGM,
would also attend the EGM and vote.
1767
Ryanair's response to Commission request of October 3, 2012, paragraph 34.4.
EN 434 EN
(2026) The Commission is aware of shareholders who have decided not to sell their
shareholding in Aer Lingus to Ryanair. For instance, the Irish Airlines (Pilots)
Superannuation Scheme (the "Scheme") which holds around 2.25% of Aer Lingus'
shares stated that "The Board discussed the current Ryanair bid on Aer Lingus at a
Board meeting on 25 July 2012 and resolved not to sell its stake in Aer Lingus to
Ryanair"
1768
. Likewise, the O'Brien group of companies, holding around 3.8% of
shares in Aer Lingus, also confirmed that they would not sell their shares to
Ryanair
1769
.
(2027) It appears most likely that the shareholders who have decided not to sell their
shareholding in Aer Lingus to Ryanair would not favour the acquisition of Aer
Lingus and would be opposed to the Heathrow slot disposal
1770
. It also appears likely
that such shareholders would be more interested in participating or being represented
at the EGM than in the past.
(2028) Furthermore, the Commission is also aware that some shareholders such as the
O'Brien Group of companies would vote against a proposal to transfer the London
Heathrow slots to IAG (British Airways) if an EGM were convened pursuant to
Article 10 of Aer Lingus' Articles of Association. In addition, other shareholders like
Ethiad who has a share of 2.98% in Aer Lingus expressed their concerns to the
Commission as regards a commitment involving the sale of Heathrow slots to
IAG
1771
. Such shareholders would likely vote against the disposal of Heathrow slots
to IAG.
(2029) Therefore, the Commission considers that it is far more likely that the Irish
Government (either alone or with other shareholders representing at least 30.12% of
the shares of the votes cast) would be in a position to block a disposal of the
Heathrow slots than it is for Ryanair to obtain acceptance of such disposal.
(2030) In any event, even if the Heathrow Transfer Condition were satisfied during the
Minimum Period, the Commission considers that the merged entity would not be
sufficiently constrained (see Section 10.5.2). In addition if the Heathrow Transfer
Condition were satisfied after the end of the Minimum Period, the entry into force of
the Heathrow Gatwick Transfer Agreement no longer depends on Ryanair but on
IAG which would have to exercise its call option. Furthermore, even if IAG did
exercise its call option, it would be under no obligation to use the Heathrow slots on
routes to and from Ireland (contrary to IAG's obligation to operate the IAG Routes
schedule during the Minimum Period from Gatwick) and the merged entity would
not be sufficiently constrained post-Transaction (see Section 10.5.3).
1768
Irish Airlines (Pilots) Superannuation Scheme, response to Commission's request for information of 3
January 2013.
1769
The O'Brien group of companies, response to Commission's request for information of 3 January 2013.
1770
Ryanair explains that attendance from shareholders other than Ryanair and the Irish Government
represented around 16% of votes cast at previous shareholders' meetings. There is no specific reason
which would lead the Commission to consider that these 16% of shareholders would be more or less
likely to sell their shares to Ryanair in the Offer.
1771
Ethiad, Response to question 6 of the first market test, response to question 18 of the second market test
and response to question 18.a.(i) of the final market test.
EN 435 EN
(2031) It should also be pointed out that Ryanair also stated that Aer Lingus may alter its
Articles of Association post-Transaction by passing a special resolution of its
shareholders. The special resolution may be passed at an EGM, which can be called
by the board of Aer Lingus for this specific purpose. A special resolution would need
to be passed by at least 75% of the members of the company which are present and
entitled to vote at a general meeting
1772
.
(2032) Considering the Irish Government's share of 25.11%, Ryanair would probably not be
in a position to obtain 75% of the votes cast at such an EGM, even if all other
attending shareholders voted in favour of a change of Aer Lingus' Articles of
Association. In any event such an amendment of the Articles of Association could
not be secured in a timely manner.
(2033) Lastly, Aer Lingus also argued that a commitment by Ryanair to dispose of Aer
Lingus'Heathrow slots infringes other legal provisions such as Section 60 of the Irish
Companies Act 1963, which prohibits the provision of financial assistance by a
company in relation to the purchase of its shares and might also lead to further
corporate law breaches (oppression and disregard of the interests of minority
shareholders, breach of duty by Aer Lingus' directors or unlawful distribution of Aer
Lingus' assets)
1773
.
(2034) Considering the other uncertainties as described above and below, the Commission
does not find it necessary to take a position on these specific aspects of Irish
corporate law. The Commission notes however that the Irish Government informed
the Commission that it reserves all its rights to take legal action against a disposal of
Heathrow slots
1774
.
10.5.1.5. Conclusion
(2035) The Commission finds therefore that Ryanair has not demonstrated to a sufficient
degree that it is able to remove the uncertainties as to the implementation of the
remedy. Therefore, it does not appear to the Commission with the requisite degree of
certainty that the Heathrow Transfer Condition would be satisfied during the
Minimum Period and that Ryanair would be in a position to implement the final
Commitments in a timely manner insofar as they relate to an exchange of Aer
Lingus' Heathrow slots for the Gatwick slots. Therefore it is unlikely that that the
Heathrow Gatwick Transfer Agreement would enter into force during the Minimum
Period, or even after the Minimum Period.
(2036) If the Heathrow Transfer Condition were satisfied after the Minimum Period, the
implementation of this aspect of the final Commitments would lie in the hands of a
third party (IAG) and in fact might not have any impact on the three London to
Ireland routes as there is no obligation on IAG to operate on these routes.
1772
Ryanair's response to Commission request of October 3, 2012, paragraph 35.1.
1773
For example Joint opinion from Arthur Cox on the Issues arising out of Ryanair’s Commitments as
offered to the European Commission in its Application for Approval under the Merger Regulation of its
bid for Aer Lingus.
1774
DTTAS, response to Commission's request for information of 21 January 2013.
EN 436 EN
(2037) Even if the Heathrow Transfer Condition were fulfilled and the Heathrow Gatwick
Transfer Agreement did enter into force, such Commitment would in any event not
be sufficient as explained in Sections 10.5.2 and 10.5.3.
10.5.2. Merged entity unlikely to be constrained during the Minimum Period
10.5.2.1. Gatwick Lease Agreement
(2038) Under the final Commitments, if the Gatwick Lease Agreement is in effect, IAG
would operate 68 weekly frequencies on the Dublin-Gatwick route, 13 weekly
frequencies on the Cork-Gatwick route and 7 weekly frequencies on the Shannon-
Gatwick route using airport slot pairs owned by the Ryanair Group (the "Ryanair
Gatwick Slots") and an additional 2 weekly frequencies on the Dublin-Gatwick
Route, 1 weekly frequencies on the Cork-Gatwick Route and 7 weekly frequencies
on the Shannon-Gatwick Route using slots currently owned or to be acquired by IAG
(the "IAG Gatwick Slots" and, together with the Ryanair Gatwick Slots, the
"Gatwick Slots").
(2039) The majority of respondents to the final market test consider that IAG(BA) would
constrain the merged entity post-Transaction on the three routes to London
Gatwick
1775
.
(2040) Table 104 below provides an overview of the frequencies which are currently
operated and the frequencies which would be operated post-Transaction by each of
Ryanair, Aer Lingus, Aer Arann, IAG and Air France/Cityjet as applicable under the
Gatwick Lease Agreement on the Dublin – London, Cork – London and Shannon –
London routes:
1775
See responses to question 18.a.(i), 18.d.(i) and 18.e.(i) of the final market test.
EN 438 EN
(2043) Furthermore, under paragraph 22 of the final Commitments, IAG would use the 132-
seat Airbus A319 aircraft or equivalent to operate the IAG Routes Schedule (i.e. the
frequencies listed above). Aer Lingus is currently using a combination of 174 seat
Airbus A320 aircraft and 212 seat Airbus A321 aircraft to operate on these routes
while Aer Arann is using 68 seat turboprops ATR42-500. Therefore, the final
Commitments would lead to an overall decrease in capacity on Dublin-London and
Cork-London routes
1787
. However, on the Shannon-London route, there would be an
increase in capacity because of an increase in the total number of frequencies
1788
.
(2044) The merged entity would remain dominant in terms of capacity on these routes
1789
.
On the Dublin-London route, the Parties would maintain a significant share of
capacity of above 60% while IAG and Air France/City Jet would have a market share
of around 30% and 6% respectively
1790
. On the Cork-London route, the merged
entity would have a market share of around 80% and IAG(BA) would only have a
market share of around 20%. On the Shannon-London route, the merged entity
would have a market share of above 75% while IAG(BA) would have a market share
of around 25%
1791
.
(2045) The majority of respondents to the final market test pointed out that IAG(BA) has a
brand which is well known in the Irish market and would be a strong and well
established competitor
1792
. Other respondents on the other hand emphasized that
IAG(BA) has a business model which provides a higher quality & higher cost
product to consumers
1793
compared to the product offered by Ryanair and Aer
Lingus.
(2046) As explained in detail above in Section 8.9.5.3, IAG(BA) has a different business
model than Ryanair and Aer Lingus. Unlike Ryanair and Aer Lingus, IAG (BA) is a
1787
If the frequencies that IAG(BA) contributes itself were deducted from the merged entity's frequencies
post-Transaction, the merged entity would still have a significant frequency advantage of 176
frequencies on Dublin-London (or 155 frequencies if Aer Arann is not taken into account) and 43
frequencies on Cork-London.
1788
However, if the frequencies that IAG(BA) contributes itself were deducted from the merged entity's
frequencies post-Transaction, the merged entity would have 28 combined frequencies. Therefore, the
overall capacity on this route would be likely to decrease.
1789
Assuming frequencies as the ones listed in Table 104 and capacity on the basis of the following aircraft
seats (as relevant) for Aer Lingus 174, Aer Arann 68, Ryanair 189, IAG 132 and Air France/City 95.
The figure for Aer Lingus is conservative and likely to be underestimated because Aer Lingus uses a
combination of the 174 seat A320 aircraft and the 212 seat A321 aircraft on these routes.
1790
The figures would remain broadly similar even if Aer Arann's frequencies to Southend would not be
taken into account (as the market definition was left open in this respect, see Section 7.3.3.7).
Furthermore, a decrease by 2 frequencies by the merged entity post-Transaction (the number of
frequencies that IAG(BA) would operate by using its own slots) would only have a minor impact, not
affecting the overall conclusion of the Commission.
1791
If the merged entity decreased its frequencies by 1 frequency post-Transaction on Cork-London (the
number of frequencies that IAG(BA) would operate on Cork-London by using its own slots) or by 7
frequencies on Shannon-London (the number of frequencies that IAG(BA) would operate on Shannon-
London by using its own slots), the combined market shares would still remain significant. Therefore,
the Commission conclusion would remain unchanged.
1792
See responses to question 20 of the final market test.
1793
For instance, ACI, DTTAS, ebookers, Gatwick Airport, responses to question 19 of the final market test
and Aer Arann, TUI Travel plc, clickandgo.com, responses to question 18 of the final market test and
Aer Lingus' response to the final market test.
EN 439 EN
full service network airline operating a hub-and-spoke model. It offers both economy
and business class on the Dublin-London route and provides an integrated passenger
product with additional services such as ticket flexibility, complementary luggage
transport, access to airports lounges, frequent flyer programmes, board meals, seat
allocation. IAG (British Airways) operates a large network of medium and long-haul
services out of London Heathrow and uses short-haul routes including Dublin-
London to feed its hub at London Heathrow.
(2047) In addition, while both Ryanair and Aer Lingus operate a true one-way pricing
policy, IAG(BA) also sells return tickets and applies "fare fencing"
1794
. Bmi used to
operate a single cabin on this route (as do Ryanair and Aer Lingus); however,
IAG(BA) has now introduced a Club Europe cabin (business class) in line with its
other European routes
1795
. IAG itself considers that both Ryanair and Aer Lingus
"offer a practically identical service in terms of product (typical low cost product /
service). Both companies follow the same business model […]"
1796
.
(2048) More importantly, being more focused on business passengers, IAG(BA) could most
likely not offer "low-fares" services in competition to Ryanair and Aer Lingus that
would substitute the disappearing competitive pressure from Aer Lingus to a
sufficient extent. Although it cannot be excluded that IAG (BA) may offer "cheap
flights" to point-to-point customers to fill its capacity, it cannot be reasonably
expected that IAG(BA) would offer tickets at a price which is comparable to those of
Ryanair or Aer Lingus
1797
.
(2049) It is also notable that, while IAG(BA) has a strong brand recognition
1798
it has very
limited activities on routes out of Ireland (i.e. it only operates on Dublin-London,
while Dublin-Madrid is operated by Iberia). Both Ryanair and Aer Lingus have the
strongest "city presence" in Dublin and the other Irish routes and therefore an
advantage in winning Irish originating customers who still represent a significant
share on the three London routes route
1799
. Previous interaction between IAG(BA),
Aer Lingus and Ryanair also shows that IAG(BA) was unsuccessful in competing
with Aer Lingus and Ryanair on Dublin-London Gatwick
1800
. Indeed, IAG(BA)
exited this route in March 2009 upon entry of Aer Lingus on this route in October
2007.
1794
Agreed minutes of conference call of 11 October 2012 with IAG, IAG (British Airways) offers a variety
of fares. E.g., in Club Europe cabin IAG (British Airways) offers fully flex, Prem leisure (Saturday
night stay), prem redemptions fares. In Euro Traveller cabin, IAG (British Airways) offers fully flex,
semi-flex economy fares, long-haul transfer & late leisure return fares, group fares, and economy
redemptions. For Aer Lingus, the sales of Flexi-fares still represent an insignificant portion of overall
sales (Aer Lingus' response to the Commission's request for information of 3 July 2012, email of Aer
Lingus 23 July 2012 and Aer Lingus' response to the Commission's request for information of 20
September 2012.
1795
IAG's response to the Commission request for information of 24 October 2012.
1796
IAG, response to question 59 of questionnaire Q1 – Competitors..
1797
See for instance Section 8.4.2.3 for illustrative average fare levels of the relevant carriers.
1798
IAG, response to question 32 of questionnaire Q1 - Competitors and agreed minutes of conference call
of 10 October 2012with IAG, Section II.
1799
Annex 7.3(e) to the Form CO.
1800
IAG(BA) operated around 30 weekly frequencies to London Gatwick. See also 2007 Decision, recitals
791- 810 and in particular 796.
EN 440 EN
(2050) Lastly, Ryanair explained in the Form RM at paragraph 77 that, "IAG will simply
replace Aer Lingus on these routes and any associated schedules". However,
significant uncertainties exist as to how this is going to materialise in practice.
Nowhere do the final Commitments or the initial IAG Agreement specify which slots
are being made available to IAG(BA) by Ryanair and which slots IAG(BA)
contributes. The revised IAG Agreement contains a list of slots but in any event
some slots would still have to be procured or retimed by Ryanair. Further
uncertainties exist as to the precise schedule. IAG(BA) itself emphasized in relation
to the Commitments of 7 December 2012 and of the Commitments of 15 January
2013 that "The "base" which IAG envisages [in the Commitments of 7 December
2012 and in the Commitments fo 15 January 2013] that one of its operating airlines
(eg. BA) would set up at Dublin would reflect the operation needs of the LHR/DUB
schedule which envisages two early morning departures from Dublin. It is only by
having 2 aircraft based and overnighting in Dublin that this can be achieved
[…]."
1801
In the final Commitments, there is no commitment by IAG(BA) to at least
overnight additional aircraft at Dublin, Cork, or Shannon which might have an
impact on the service level.
(2051) Therefore, the Commission cannot conclude with the requisite degree of certainty
that, if the Gatwick Lease Agreement were in effect, IAG(BA) would constrain the
merged entity to a sufficient degree post-Transaction and therefore that the
significant impediment to effective competition would be removed.
10.5.2.2. Heathrow – Gatwick Transfer Agreement
(2052) Under the final Commitments, the Heathrow Gatwick Transfer Agreement is an
agreement to transfer the IAG Gatwick slots identified above (namely 2 weekly slots
for the Dublin-London route, 1 weekly slot for the Cork-London route and 7 weekly
slots for the Shannon-London route) and 7 weekly additional Gatwick slots for the
Dublin-London route
1802
to Ryanair in exchange for slots at Heathrow for IAG to
operate 70 weekly frequencies on the Dublin-Heathrow route, 14 weekly frequencies
on the Cork-Heathrow route and 14 weekly frequencies on the Shannon-Heathrow
route and the additional slots for the 7 weekly frequencies to operate the Dublin-
London Heathrow route.
(2053) Under paragraph 22 of the final Commitments, during the Minimum Period (6 IATA
Seasons), IAG will cause British Airways to operate 70 weekly frequencies on the
Dublin-Heathrow route, 14 weekly frequencies on the Cork-Heathrow route and 14
weekly frequencies on the Shannon-Heathrow route (the Heathrow Exchange
Slots)
1803
.
1801
IAG, response to Commission's request for information of 21 November 2012.
1802
The revised IAG Agreement no longer includes the obligation to give the 7 additional Gatwick slots to
Ryanair in this exchange.
1803
Paragraph 22 provides that IAG will cause British Airways to operate the IAG Routes Schedule using
A319 planes or equivalent aircraft using the Heathrow Lease Slots and/or the Gatwick Slots or the
Heathrow Exchange Slots. If the Heathrow Gatwick Transfer Agreement is in place, IAG would only
have the Exchange Slots.
EN 441 EN
(2054) The majority of respondents to the final market test considers that IAG(BA) would
constrain the merged entity post-Transaction if it were to operate on these routes to
Ireland from London Heathrow
1804
.
(2055) Ryanair explains in the Form RM that "in any event (even following the disposal of
the Heathrow Slots), during the Minimum Period (6 IATA Seasons), the merged
entity Ryanair/Aer Lingus will continue to operate 19 weekly frequencies on the
Dublin-London Heathrow, 14 weekly frequencies on the Cork-London Heathrow and
7 weekly frequencies on the Shannon-London Heathrow route".
(2056) Assuming that Ryanair will maintain Aer Lingus' frequencies on the Dublin –
London Gatwick route and its own frequencies on the other airports, the situation
post-Transaction would be similar to the one under the Gatwick Lease Agreement
described above.
(2057) In particular, post-Transaction, the merged entity would enjoy a significant
frequency advantage as it would have 176
1805
weekly frequencies compared to IAG
and Air France/CityJet who would have 107 and 31 weekly frequencies
respectively
1806
. Furthermore, the seat capacity on this route would also overall
decrease and the merged entity would maintain a significant share of capacity on this
route
1807
.
(2058) As regards the other two routes, on each of Cork – London and Shannon – London,
Ryanair proposes to divest 14 frequencies, which is significantly below the overlap
of 23 and 21 frequencies respectively
1808
. Furthermore, as already mentioned in
Section 10.5.2.1, IAG (BA) would operate lower capacity aircraft on these routes,
leading to an overall decrease in capacity on these routes and to the merged entity
continuing to enjoy a dominant position on these routes.
(2059) Furthermore, and as explained already in Section 10.5.2.1, in terms of business
model, IAG (BA) would not be likely to constrain the merged entity to a sufficient
degree. IAG(BA), which focusses on business- and connecting passengers
particularly for services at London Heathrow, could most likely not offer "low-fares"
services in competition to Ryanair that would substitute for the disappearing
competitive pressure from Aer Lingus to a sufficient extent
1809
.
(2060) The Commission notes that in its previous decisional practice
1810
, it accepted
remedies in which slots were made available to prospective new entrants who
1804
Responses to question 19 of the final market test.
1805
Ryanair explained that it would maintain 19 weekly Aer Lingus frequencies. The total number of
frequencies is calculated by assuming that the 37 Aer Lingus Gatwick frequencies, the 21 Aer Arann
frequencies and the 99 Ryanair frequencies are maintained. Even in a scenario in which Aer Arann's
frequencies would not be part of the same market, the merged entity would have frequency number
which is higher than the other competitors combined (155 compared with 138).
1806
Aer Lingus would have 56, Aer Arann 21, Ryanair 99.
1807
Merged entity would have a share of 64% of capacity, IAG would have 30% and Air France/City Jet
would have 6%.
1808
IATA Summer 2012 frequencies.
1809
See Section 8.9.5.3 above for a more detailed analysis of the closeness of competition.
1810
See for example Commission's Decision of 30 March 2012 in case M.6447 IAG/bmi.
EN 442 EN
intended to begin or increase regular operations on the routes on which the
Commission identified serious doubts or a significant impediment to effective
competition. However, as regards the final Commitments, it cannot be excluded that
IAG(BA) would actually replace some of its own current frequencies between
Dublin and London Heathrow with the slots it would obtain under the final
Commitments with the ultimate result that post-Transaction the total number of
frequencies on the Dublin-London city pair would further decrease.
(2061) IAG(BA) confirmed in a request for information concerning the Commitments of 7
December 2012 that it […]*
1811
. Given its business model, it is likely that these
frequencies (or a great majority of these) would be operated from London Heathrow.
IAG(BA) is operating, on average, 7 frequencies per day between Dublin and
London Heathrow in the current IATA Winter season 2012/13. While the
Commission acknowledges that, post-Transaction, there would be an increase in
IAG(BA)'s frequencies from 7 daily to around 10 daily, the final Commitments de
facto lead to a situation in which IAG would probably only operate Aer Lingus'
divested frequencies (70 weekly) and pull out its existing 7 frequencies per day from
the Dublin-London route. IAG confirmed that: […]*
1812
Overall this means that the
Transaction would lead to a drop in the total number of carriers from four (Ryanair,
Aer Lingus, IAG(BA) and Air France/City Jet) to three (the merged entity
Ryanair/Aer Lingus, IAG(BA) and Air France/City Jet), and a drop in the total
number of operated frequencies and capacities.
(2062) Therefore, the Commission cannot conclude with the requisite degree of certainty
that, if the Heathrow Gatwick Transfer Agreement were in effect, IAG(BA) would
constrain the merged entity to a sufficient degree post-Transaction such that the
significant impediment to effective competition would not materialise.
10.5.2.3. Heathrow Lease Agreement
(2063) Under paragraph 27 of the final Commitments, if at any point prior to Closing, the
Heathrow Lease Condition is satisfied, (i) Ryanair has to notify this fact to IAG
within 30 business days, (ii) within 15 business days of notification, Ryanair and
IAG procure that they would enter into the Heathrow Lease Agreement
1813
and (iii)
the Heathrow Lease Agreement will come into effect the first IATA seasons
following such notice
1814
.
(2064) The Heathrow Lease Condition is defined in the final Commitments as the
termination of the existing short term lease of airport slots at Heathrow by Aer
Lingus to a third party.
(2065) The revised IAG Agreement however provides for the possibility that two Heathrow
Lease Agreements are entered into and specific conditions apply to each agreement.
1811
IAG, response to Commission's request for information of 14 December 2012.
1812
IAG, response to request for information of 21 November 2012, Non-confidential version of 11
February 2013.
1813
There is an obvious mistake in paragraph 27 as in the actual draft it refers to the Heathrow Gatwick
Transfer Agreement but this can not be correct. This mistake was also signaled by IAG.
1814
In the event that such first changeover takes place less than 3 months following the date on which such
notice is given, on the second IATA Season changeover following Ryanair's notice to IAG.
EN 443 EN
(2066) As explained in Section 10.5.1, there is a certain procedure under Article 10 as
regards "Disposal Transactions"
1815
in relation to Aer Lingus' Heathrow slots.
However, "Short Term Leases" are exempted from this procedure according to
Article 10 (a)(i).
(2067) A Short Term Lease is defined as "a lease, temporary swap or temporary exchange
(whether or not in return for consideration) of a Slot or a pair of Slots the term of
which is no longer than 36 months provided that a series of such leases (whether in
favour of the same or different parties) in respect of [the same] Slot or pairs of Slots
shall not be regarded for purposes hereof as a Short Term Lease if in the aggregate
they exceed 36 months over a 4 year period in respect of the relevant Slot. Provided
further that if such a lease is to be put in place in relation to a Slot and there is
already a Short Term Lease in place in relation to a Slot, that lease should not be
considered to be a Short Term Lease. A proposal to renew a Short Term Lease which
has lasted for 36 months (whether continuous or discontinuous) shall be treated as a
Disposal Transaction and subject to the provisions hereof."
(2068) In such a case, Aer Lingus need not notify its shareholders of the Short Term Lease
or go through the shareholder approval process at all
1816
. However, as stipulated
above, Aer Lingus cannot have more than one short term lease at the same time so
that if Aer Lingus already has one Short Term Lease in place, any further lease of a
Heathrow slot(s) (even if it would last no longer than 36 months) will not be
considered as a Short Term Lease and will thus fall under the procedure set out in
Article 10
1817
. Furthermore, a renewal of a Short Term Lease which has lasted for 36
months would also be treated as a Disposal Transaction
1818
.
(2069) However, the text of the final Commitments and of the initial IAG Agreement did
not make it clear that the intention is only to enter into a Short Term Lease within the
meaning of Article 10. For example, the duration of such lease was not limited to a
maximum of 36 months and hence such a Heathrow Lease Agreement would a priori
not qualify as a "Short Term Lease" under Article 10. It therefore appeared likely
that Ryanair would not be in a position to enter into a Heathrow Lease Agreement
under the wording used in the initial IAG Agreement.
(2070) In any event, if Ryanair is proposing only a Short Term Lease, such an agreement
would be exempted from the definition of a "Disposal Transaction" under Article 10
of Aer Lingus' Articles of Association only once the existing Short Term Lease were
terminated and if it concerned a different slot or pair of slots. Aer Lingus explained
that it currently has a Slot Exchange Agreement in place with British Airways in
respect of a year-round daily slot pair which is due to terminate at the end of the
winter 2012/13 winter season in respect of the winter slot and the 2014 summer
season in respect of the summer slot
1819
.
1815
A "Disposal Transaction" is defined as any transaction pursuant to which slots would be sold,
transferred, disposed of, leased, surrendered, mortgaged or otherwise alienated or encumbered.
1816
Form RM of 17 October 2012, footnote 53.
1817
Article 10 (a) of Aer Lingus' Articles of Association and Minutes of conference call with with the Irish
Department of Finance and Department of Transport, Tourism and Sport of 15 November 2012.
1818
Article 10 (a) of Aer Lingus' Articles of Association.
1819
Aer Lingus, response to Commission's request for information of 4 February 2013.
EN 444 EN
(2071) The revised IAG Agreement seeks to clarify these points and limits both leases to 36
months with clear reference to Article 10 of Aer Lingus' Articles of Association.
(2072) The Commission concludes nevertheless that, even if Ryanair and IAG were in a
position to enter into the Heathrow Lease agreement (or the First Heathrow Lease
Agreement), it would not have a material impact as the merged entity would still
benefit from a frequency advantage, remain dominant in term of capacity on the
route and face a limited competition constraint from IAG (BA) post –Transaction as
explained in detail in Sections 10.5.2.1 and 10.5.2.2 above. The Second Heathrow
Lease Agreement does not appear to have an impact on any of the divested routes.
10.5.2.4. No proper misuse clause
(2073) The Commission has in its previous practice accepted commitments which included
misuse mechanisms, in order to guarantee that, if slots are misused, in particular in
the sense that they are not used on the routes of concern, these slots are given back to
the parties and made available to any other interested carrier.
(2074) However, the final Commitments do not provide for such a mechanism during the
Minimum Period should IAG decide to stop operating on these routes. The merged
entity therefore does not face the threat that if IAG(BA) were to decide to stop
operating, another carrier would be given the possibility (and means) to enter on
these routes and compete with the merged entity. As these slots would not be made
available to other carriers, IAG(BA) also does not face the pressure to operate on
these routes during the Minimum Period.
(2075) Under paragraphs 31 to 34 of the final Commitments, a situation of misuse would
arise where IAG(BA) during the 6 IATA seasons fails to fulfill its obligation to
operate on the three routes (with the frequencies and slots depending on which type
of agreement is in place), if it transfers, assigns, swaps, loses etc the Heathrow Slots
or the Gatwick Slots. The final Commitments further provide for a cure period.
However, the remedy if the misuse is not cured is simply that Ryanair has the right to
terminate the Gatwick Lease Agreement, the Heathrow Lease Agreement and if
completion of the sale and purchase of the Heathrow Slots had occurred under the
Heathrow Gatwick Transfer Agreement, IAG would hand back the Heathrow slots to
Ryanair.
(2076) The final Commitments therefore do not include any obligation on Ryanair to make
these slots available to other carriers nor do they specify what Ryanair would have to
do to ensure that the significant impediment to effective competition on these routes
would be removed.
10.5.2.5. No entrant identified
(2077) Paragraph 41 of the final Commitments provides that "During the Minimum Period
Ryanair commits to transfer, or to cause Aer Lingus to transfer, to any Applicant,
sufficient Slots to operate Frequencies with its own aircraft on the Dublin-London,
Cork-London and/or Shannon-London routes, provided that the number of slots
transferred does not exceed the Route Overlap Difference on the relevant route".
(emphasis added).
EN 445 EN
(2078) "Applicant" is defined in the final Commitments as "any EU licensed airline which
applies to acquire one or more of the Potential Competition Routes Slots from
Ryanair in accordance with these Commitments" while "Potential Competition
Routes Slots" are defined as the slots required by an Applicant to operate the
Potential Competition Routes which are listed in Annex VII as being Dublin-
Bologna, Dublin-Bordeaux, Cork-Birmingham, Cork-Munich, Cork-Paris and
Dublin-Newcastle.
(2079) The procedure that would be followed is set out in paragraphs 43 to 49 of the final
Commitments. Ryanair explains in the Form RM that it offers to divest to "any
European airline", 29 weekly frequencies on the London – Dublin route, 9 weekly
frequencies on the London – Cork route and 7 weekly frequencies on the London –
Shannon route.
(2080) As is clear from the notice on remedies, commitments shall fully specify the
substantive and implementing commitments entered into by the parties. This is
manifestly not the case here. As it appears from the final Commitments, Ryanair only
seems to commit to transfer or to cause Aer Lingus to transfer slots to an EU-
licensed airline which applies to acquire one or more of the Potential Competition
Routes Slots
1820
. Ryanair however explains in the Form RM that these additional
slots would be made available to "any European airline"
1821
and therefore there
would seem to be no requirement for a carrier interested in the London slots to have
also applied to acquire the Potential Competition Routes Slots. These types of
inconsistencies point to the lack of clarity as to what is precisely being offered as a
commitment by Ryanair. Furthermore, the final Commitments also do not specify at
which London airport slots would be made available.
(2081) In any event, the likelihood that slots would actually be taken up by interested
carriers is further reduced by the fact that slots are only available for 6 IATA seasons
only. During these 6 IATA seasons, a new entrant would be operating in competition
with the merged entity, IAG(BA) (who would be operating the divested frequencies)
and Air France/Cityjet.
(2082) Lastly, the Commission has not identified any sufficient, likely and timely entry on
these routes during its market investigation
1822
.
10.5.2.6. Conclusion
(2083) Therefore, the Commission is not able to conclude with the requisite degree of
certainty that the new commercial structures resulting from the final Commitments
are sufficiently workable and lasting to ensure that the significant impediment to
effective competition on the three London routes does not materialise during the
Minimum Period.
1820
See definition of "Applicant" in the final Commitments.
1821
Form RM of 1 February 2013, page 4, page 14 (point 34) or page 16 (point 39).
1822
See responses to question 22 of the final market test.
EN 446 EN
10.5.3. Merged entity unlikely to be constrained after the Minimum Period
10.5.3.1. No incentive for IAG to remain on the routes beyond the Minimum Period
(2084) The Commission has in its previous decisional practice
1823
accepted slot remedies
when it identified entry which was sufficient, likely and timely. Slots were made
available and granted to applicants which showed a sufficient interest in operating on
a specific route. To increase the likelihood of entry, slot commitments included the
possibility to obtain grandfathering rights only after the slots were used on the routes
of concern for a certain period (normally 6 IATA seasons). However obtaining
grandfathering rights is subject to Commission approval.
(2085) In the present case, the final Commitments set-up a mechanism whereby IAG would
cause British Airways to operate on the three London routes during the first six
IATA seasons (the Minimum Period). However, significant uncertainties exist as to
IAG's (BA's) commitment to stay on these routes after 6 IATA seasons. Although the
final Commitments identify IAG(BA) as the entrant and allegedly guarantee its
presence on the routes only for the first 6 IATA seasons, they make it rather unlikely
that IAG(BA) would stay on the routes after the Minimum Period, considering
IAG(BA)'s business model and its incentives.
(2086) According to Annex 1, clause 2(c) of the initial IAG Agreement, the termination date
of the Gatwick Lease Agreement is the earlier of the following two dates (i) the date
on which the Heathrow Lease Agreements Slots and the Heathrow Exchange Slots
are transferred to British Airways pursuant to the Heathrow-Gatwick Transfer
Agreement (meaning that the Heathrow Transfer Condition has been satisfied) or (ii)
a date nominated by IAG subject to prior written notice to Ryanair which can
however not occur before the end of the Minimum Period (6 IATA Seasons). As
explained in detail in Section 10.5.1 above, the Commission considers that it is
unlikely that the Heathrow Transfer Condition would be satisfied during the
Minimum Period
1824
. If, by the end of the Minimum Period, the Heathrow Transfer
Condition is not satisfied, IAG can decide whether it wants to collect the break fee of
EUR […]* or instead maintains its lease of the Gatwick slots
1825
. If IAG decides to
collect the Break Fee, this leads to the termination of the Gatwick Lease Agreement
and of the Heathrow Lease Agreement(s) if in effect.
1823
For example Commission's Decision of 30 March 2012 in case M.6447 IAG/bmi.
1824
During the Minimum Period, the Gatwick Lease Agreement can only be terminated if the Heathrow
Transfer Condition is satisfied and IAG exercises its option to terminate the Gatwick Lease Agreement
and give effect to the Heathrow Gatwick Transfer Agreement (the so called "IAG Call Option")
(paragraphs 28 and 29 of the Commitments). In this case IAG would be operating the slots to Heathrow
as explained in Section 10.5.4 for the remainder of the Minimum Period.
1825
Ryanair shall pay a so called "Break Fee" to IAG of EUR […]* if by the final day of the Minimum
Period (i) the Heathrow Transfer Condition is not satisfied and (ii) within […]* IAG serves a written
notice on Ryanair requiring such payment. On payment of the Break Fee the Gatwick Lease Agreement,
and if it is in effect, the Heathrow Lease Agreement shall terminate and IAG will transfer the Ryanair
Gatwick Slots back to Ryanair. However, if IAG does not serve the notice within […]*, the Gatwick
Lease Agreement and if it is or comes in effect, the Heathrow Lease Agreement will continue in effect
for a total term of no more than […]* from the first IATA changeover date (Paragraph 5.4 of the IAG
Agreement). If such termination occurs beyond the […]*, the Ryanair Gatwick Slots will be transferred
to British Airways.
EN 447 EN
(2087) IAG(BA) considered that "LON/DUB is the single largest O&D market in Europe
and 24% bigger than AMS. There is significant transfer potential for BA here […]*.
Therefore, BA would be interested in serving this route […]*. Similarly both Cork
and Shannon are both routes with similar profiles to routes already on the BA
network from LHR […]*. These routes are predominantly p2p with less transfer
potential, but both would be worth serving with access to the EI slots."
1826
(2088) Several respondents to the Commission's final market test pointed to the interest of
IAG(BA) to secure Heathrow slots rather than to operate on the Irish routes on a
lasting basis
1827
.
(2089) As appears from the final Commitments (and the history of the earlier versions of the
Commitments), the IAG Agreement and the Form RM, IAG's interest lies in the
conclusion of the Heathrow - Gatwick Transfer Agreement which would give
IAG(BA) access to Aer Lingus' valuable Heathrow slots. There are a number of
provisions to ensure that Ryanair uses its best efforts to enable that the Heathrow
Transfer Condition is satisfied as soon as possible
1828
. Indeed, while the Heathrow
Gatwick Transfer Agreement would lead to a permanent transfer of the Heathrow
slots to IAG(BA), the Gatwick Lease Agreement would only be an interim solution
whereby IAG(BA) would lease the slots and have the option to decide later on
whether it is interested in keeping the slots (and not necessarily for the Irish routes).
(2090) If (as seems most likely) the Heathrow Transfer Condition were not satisfied during
the Minimum Period, the Gatwick Lease Agreement could come to an end after 6
IATA seasons. From that moment, as IAG(BA) would no longer have any obligation
to operate on the three routes from Gatwick, IAG would consider its own
commercial benefit and its own network in its decision as to whether or not to keep
these routes from Gatwick or the Gatwick slots. Furthermore, as the final
Commitments do not set out precisely which slots would be made available to IAG,
uncertainties also exist as to value of these slots and the real interest of IAG in
acquiring these slots at the end of the Minimum Period. IAG and Ryanair seem to
have tried to address this issue in the revised IAG Agreement which does specify a
number of slots, however, a considerable number of slots would still need to be
"procured" or retimed by Ryanair.
(2091) Even if IAG(BA) did decide to maintain the lease of these slots and forego the Break
Fee of […]* (which appears to the contrary as an incentive on IAG(BA) to terminate
the Gatwick Lease Agreement), there is no commitment and incentive for IAG(BA)
to continue to use the Gatwick slots on the Irish routes. The Irish routes do not seem
to have been of significant interest for IAG(BA) in the past. IAG(BA) used to
operate on the London Gatwick – Dublin route but decided to exit from this route in
1826
IAG(BA), response to question 3 of Commission's request for information of 14 December 2012.
1827
See Clickandgo.com, DTTAS, ACI, DAA or Gatwick Airport responses to question 18 of the final
market test.
1828
See for example Form RM of 1 February 2013, "As soon as practicable, IAG/BA intends to operate
these frequencies using Aer Lingus slots at Heathrow Airport", "Until IAG/BA is able to acquire
sufficient slots at London Heathrow to operate the remaining frequencies, IAG/BA will lease slots from
Ryanair at Gatwick airport", "If and when disposal of Aer Lingus’ remaining London Heathrow slots is
permitted under Article 10 of the Aer Lingus Articles of Association and applicable laws, IAG/BA will
have an option to acquire slots…".
EN 448 EN
March 2009 upon entry by Aer Lingus on London Gatwick - Dublin and only
recently entered on the London Heathrow-Dublin by operating London Heathrow –
Dublin continuing the operation of bmi.
(2092) If IAG(BA) were to be able to exchange its Gatwick slots with Aer Lingus' Heathrow
slots under the Heathrow Gatwick Transfer Agreement, IAG's incentive to remain on
the routes from Heathrow after the Minimum Period decreases even more.
(2093) Slots at London Heathrow, one of the most congested airports in Europe are
extremely valuable, in particular to IAG(BA) which has its main operations at
London Heathrow. If IAG(BA) were to obtain the scarce slots from Aer Lingus, it
would be free to reallocate these slots to routes which it would find more profitable
at the end of the Minimum Period. Indeed, there is a high likelihood that IAG would
decide that these slots should be allocated to long-haul routes which are much more
profitable than the short-haul routes.
(2094) While it can be expected that IAG(BA) would maintain a certain number of
frequencies on the London Heathrow – Dublin route, it can be expected that overall it
would decrease the number of frequencies.
(2095) Furthermore, as IAG(BA) considers that the Cork and Shannon routes have less
transfer potential, it can reasonably be expected that IAG(BA) would significantly
scale back the operations on these routes and reallocate the slots to routes with more
transfer potential or to the more profitable long-haul routes. In addition, under the
Commitments of 17 October 2012, IAG(BA) would not have entered with its own
operations on Cork and Shannon but only through BSAs. IAG(BA) explained that, to
start operating with its own aircraft on these two routes, "current market and demand
conditions in the Irish market would have to improve […]*."
1829
Without the
prospect of obtaining the prized Heathrow slots, IAG(BA) would not seem to have
been interested in these two routes. This casts serious doubts as to IAG(BA)'s actual
commitment to these routes.
(2096) Therefore, the Commission does not consider that IAG(BA) has an incentive to stay
on these three routes at the end of the Minimum Period, irrespective of whether the
Gatwick Lease Agreement or the Heathrow Gatwick Transfer Agreement were in
force. It is therefore most likely that IAG would exit these three routes from Gatwick
and at least significantly scale back the operations on these three routes from
Heathrow at the end of the Minimum Period.
10.5.3.2. No mechanism for entry at the end of the Minimum Period
(2097) As mentioned above in Section 10.5.3.1, grandfathering rights are normally included
in slot remedies as a further incentive for new entrants to pick up the slots and start
operating on the routes in competition with the merged entity. In the final
Commitments, if IAG(BA) decides not to continue operating on these routes at the
end of the Minimum Period, there is no mechanism in the final Commitments to
ensure that another carrier could obtain the slots.
1829
IAG, response to question 22 of Commission's request for information of 21 November 2012.
EN 449 EN
(2098) A difference between the Commission's previous practice in airline mergers and the
final Commitments is in their treatment of grandfathering rights (i.e. the possibility
of carriers to use the slots obtained in a remedies framework to operate on other
routes than the ones for which the slots were initially allocated). If a carrier applies
for slots to operate on a certain route, it means that it is interested in that particular
route and it has to submit sufficient evidence to demonstrate its interest. Slots made
available as part of a remedies package should therefore enable entry of a carrier on a
particular route and help that carrier in exercising a competitive constraint against the
merged entity. The Commission's practice has been that, once the slots have been
used for a given timeframe (which is decided on a case-by-case basis but is normally
6 IATA seasons), on the basis of the information available, the Commission decides
whether that carrier should obtain grandfathering rights. Furthermore, obtaining
grandfathering rights does not mean that that carrier would actually exit the routes of
concern.
(2099) However in the final Commitments, it is clear that the obligation on IAG(BA) is to
stay on the route for only 6 IATA seasons. At the end of this period, the Commission
has no influence over the fate of the Heathrow or Gatwick slots. As explained above,
the Commission considers that it is likely that these slots (or at least a part of these)
would be reallocated to other more profitable routes. Therefore, the final
Commitments are not sufficiently workable and lasting to ensure that the impairment
of effective competition does not materialise on the three London routes.
10.5.3.3. Conclusion
(2100) Therefore, the Commission is not able to conclude with the requisite degree of
certainty that the new commercial structures resulting from them are sufficiently
workable and lasting to ensure that the significant impediment to effective
competition on the three London routes does not materialise after the Minimum
Period.
10.5.4. Complex and not sufficiently clear-cut commitments regarding the three London
routes
(2101) The final Commitments raise significant concerns as to their complexity. They set up
a framework of conditions which would lead to one or the other agreement being
entered into. Furthermore, there are inconsistencies between the text of the final
Commitments and the IAG Agreement which were also pointed out by IAG
1830
. For
example paragraph 27 of the final Commitments refers to "Closing" which is defined
as the date of completion of the Offer whereas the corresponding clause 4.4. of the
initial IAG Agreement refers to the "Date of Completion" which is defined as the
completion of the sale and purchase of the Heathrow Slots under the Heathrow
Gatwick Transfer Agreement. Also, while the IAG Agreement also includes an
obligation in clause 6.2 on Ryanair to operate the Heathrow slots in such a manner as
1830
IAG corrected certain paragraphs in the Commitments which were covered by the IAG Agreement,
such as for example the "Additional Gatwick slots" which would in fact be transferred to Ryanair if the
Heathrow Lease Agreement was in effect at the time of the Heathrow Gatwick Transfer Agreement
(according to recital E of the IAG Agreement). Ryanair submitted a revised IAG agreement which
covered these changes but which are not reflected in the text of the final Commitments.
EN 450 EN
to maintain their historic precedence, paragraph 23 of the final Commitments text
only refers to an obligation on IAG to maintain the precedence of the Heathrow Slots
and the Gatwick Slots.
(2102) Furthermore, in some places the final Commitments contain what are plainly
mistakes and are not clear as to their precise meaning. For example in paragraph 27
the reference under point (ii) should be to "the Heathrow Lease Agreement" and not
to the "Heathrow Gatwick Transfer Agreement". It is also not clear what is the
definition of "Applicant" as in the final Commitments text this is referred to as an EU
carrier which applied for Potential Competition Routes Slots, whereas the Form RM
only refers to "an European carrier".
(2103) The revised IAG Agreement seeks to clarify some of the points. However, the
Commission notes these revisions came at a very late stage in the procedure. These
changes also create further inconsistencies between the text of the final
Commitments and the text of the IAG agreement as revised.
(2104) Considering the complexity of the framework, such inconsistencies, mistakes and
vague language, and a revised IAG agreement received at a very late stage, would be
likely to lead to disputes at the implementation stage of the final Commitments
therefore giving rise to serious uncertainties as to the likelihood of an efficient and
timely implementation of the final Commitments.
(2105) The Commission therefore considers that the final Commitments are not sufficiently
clear to be implemented in an efficient and timely manner post-Transaction.
(2106) Furthermore, as with the Flybe Agreement, the fast track dispute resolution
mechanism in the Commitments does not apply to the IAG Agreement (See Section
10.4.3.3).
(2107) The complexity of the final Commitments, the inconsistencies between the final
Commitments, the Form RM and the IAG Agreement and the settlement of disputes
arising from the implementation of the IAG Agreement ultimately through litigation
in English Courts raise doubts as to whether the final Commitments would be
implemented in a timely manner.
10.5.5. Overall conclusion on the slot divestiture on the three London routes
(2108) The Commission considers that the final Commitments do not eliminate the
competition concerns entirely and are not comprehensive and effective from all
points of view. Furthermore, the Commission is not able to conclude with the
requisite degree of certainty that it will be possible to implement them and that it will
be likely that the new commercial structures resulting from them will be sufficiently
workable and lasting to ensure that the significant impediment to effective
competition will not materialise. Moreover, the Commission cannot clearly
determine that the final Commitments, once implemented, fully and unambiguously
resolve the competition concerns identified in this Decision.
EN 451 EN
10.6. Commitments relating to overlap routes where Aer Arann operates
10.6.1. Description of the commitments
(2109) According to the final Commitments
1831
, Flybe would be able to satisfy its obligation
to operate on the Flybe routes currently operated by Aer Arann
1832
by assuming the
Aer Arann franchise or by entering into a new franchise agreement with Aer Arann
providing for Aer Arann to operate the same number of frequencies on those routes
and on terms no less favourable to Aer Arann than the Aer Arann franchise, in each
case subject to agreement with Aer Arann. In that case, Ryanair will use reasonable
endeavours to enable Flybe to assume or enter into such franchise agreement,
including by terminating the Aer Arann franchise or assigning it to Flybe.
(2110) In addition, Ryanair commits to allow Aer Arann to be hosted, upon Aer Arann's
request, in Aer Lingus' Frequent Flyer Programme
1833
.
10.6.2. Ryanair's views
(2111) Despite the fact that Ryanair contests that its services overlap with those of Aer
Arann, Ryanair commits to use reasonable endeavours to enable Flybe to assume or
enter into such franchise agreement, including by terminating the Aer Arann
franchise or assigning it to Flybe so that Aer Arann would become a franchisee of
Flybe. According to Ryanair
1834
, the final Commitments preserve the viability of Aer
Arann as an independent competitive force in Ireland.
10.6.3. The Commission's assessment
10.6.3.1. The final Commitments are unclear
(2112) The final Commitments as regards the six routes currently operated by Aer Arann are
unclear and ambiguous. While Ryanair acknowledges that assigning or terminating
the franchise agreement are "in each case subject to agreement with Aer Arann",
Ryanair commits only that it will "use reasonable endeavours" for this commitment
to happen by "terminating the Aer Arann Franchise or assigning it to Flybe."
1835
The
Flybe Agreement is also equally unclear in this respect as it states that: "With respect
to the [routes] that fall within the Aer Arann Franchise, in connection with the Hive-
Down, [Ryanair] undertakes to use reasonable endeavours to enable [Flybe Ireland]
to operate on those routes by (at [Flybe's option] acceding to the Aer Arann
Franchise or entering into an equivalent franchise agreement with Aer Arann…"
1836
(2113) Such unclear drafting raises concerns as to whether Flybe actually commits to enter
on these routes with its own operations or whether it only commits to taking over the
Aer Arann franchise, should Aer Arann agree to it.
1831
Final Commitments, paragraph 3.
1832
Dublin-Edinburgh, Dublin-Glasgow, Dublin-Bristol, Cork-Manchester, Shannon-Manchester and
Knock-Birmingham.
1833
Final Commitments, paragraph 35.
1834
Form RM of 1 February 2013, paragraph 66.
1835
Final Commitments, paragraph 3.
1836
Flybe Agreement, clause 9.7.
EN 452 EN
10.6.3.2. Ryanair cannot modify, terminate or assign the Aer Arann franchise agreement in a
timely manner
(2114) The term of the franchise agreement between Aer Lingus and Aer Arann is 10 years.
Subject to a one-off termination right in 2018, the franchise agreement would be in
effect until 31 December 2022
1837
.
(2115) Furthermore, Ryanair would not be entitled to modify or terminate unilaterally the
scope of the franchise agreement post-Transaction as any changes to or amendments
of the franchise services are subject to mutual agreement of Aer Lingus and Aer
Arann
1838
. This is acknowledged by Ryanair itself when it states that assigning or
terminating is "in each case subject to agreement with Aer Arann."
1839
(2116) Specifically, Appendix A to the franchise agreement provides the list of routes which
the franchise agreement covers and Aer Arann or Aer Lingus cannot unilaterally
change/terminate them: "There can be no changes made to this Appendix A and/or
the flights the subject matter of the Services set out herein unless such change is
evidenced in writing and agreed by both Aer Lingus and Aer Arann in advance of
such change."
1840
(2117) Similarly, an assignment of the franchise agreement to Flybe also cannot occur
without Aer Arann’s consent. Indeed, Clause 12 of the franchise agreement provides
that: "Neither party may assign or otherwise transfer all or any of its rights and/or
obligations hereunder without the prior written consent of the other party (such
consent not to be unreasonably withheld)."
1841
(2118) Aer Arann has also confirmed to the Commission that the franchise agreement is non
assignable and in any event that Flybe Ireland or Ryanair would not be a realistic
substitute due to their different distribution model
1842
.
(2119) Finally, Aer Arann has clearly indicated that it will not consent to any form of
termination or the removal of routes as the franchise agreement is fundamental to its
anticipated return on investment
1843
. These routes include Aer Arann’s most
important services
1844
.
(2120) In conclusion, the final Commitments are not likely to be implemented in a timely
manner as far as the franchise agreement is concerned (either by way of termination
1837
Aer Lingus, response to final market test.
1838
Aer Arann also confirmed that the franchise agreement does not allow for the unilateral termination or
removal of routes assigned to Aer Arann and that Ryanair's intention to terminate that agreement is not
therefore legally possible and any purported termination would be in breach of contractually binding
and legally enforceable covenants. Agreed minutes of meeting of 29 January 2013 with Aer Arann.
1839
Final Commitments, paragraph 3.
1840
Aer Lingus, response to final market test.
1841
Aer Lingus, response to final market test.
1842
Agreed minutes of meeting of 29 January 2013 with Aer Arann.
1843
Agreed minutes of meeting of 29 January 2013 with Aer Arann.
1844
Dublin- Edinburgh, Dublin-Glasgow, Dublin- Bristol, Cork-Manchester, and Shannon-Manchester are
five of Aer Arann's most important routes in terms of passenger numbers. For example, the passenger
numbers on these five routes represent (for the IATA summer season 2011) around [30-40] % of Aer
Arann's total passenger number on routes to and from Dublin, Cork and Shannon.
EN 453 EN
or assignment). Moreover, the Commission cannot clearly determine that the final
Commitments, once implemented, fully and unambiguously resolve the competition
concerns identified in this Decision as regards the Aer Arann routes.
10.7. Commitments relating to potential competition routes
(2121) The Commission notes that it decided to exceptionally examine the final
Commitments although these did not clearly resolve the competition concerns
previously identified and there was a need for a further market test
1845
.
10.7.1. Description of the commitments
(2122) According to the final Commitments
1846
, during the first 6 IATA seasons and at all
times thereafter, Ryanair commits to transfer, or to cause Aer Lingus to transfer, slots
for the potential competition routes to any Applicant
1847
, to enable the relevant
Applicant to operate frequencies with its own aircraft on any of the potential
competition routes, up to a maximum number of frequencies as identified on a route-
by-route basis in Annex VII. Applicants shall comply with the procedure for slot
divestiture to obtain the slots.
10.7.2. Ryanair's views
(2123) According to Ryanair and, notwithstanding their view that the Commission’s
concerns regarding non-overlap routes are not valid
1848
, Ryanair’s revised remedies
package addresses these potential competition concerns in two ways
1849
.
(2124) First, Flybe Ireland, as a strong competitor with base operations in Ireland, will be
well placed to enter any routes that will be operated by the merged entity, including
those identified by the Commission as giving rise to potential competition concerns.
This remedy ensures that, at the very least, the pre- Transaction likelihood of entry
on these routes is maintained.
(2125) Secondly, Ryanair offers slot divestitures to any third party on the 6 non-overlap
routes with regard to which the Commission maintains its potential competition
concerns.
(2126) Ryanair considers that Flybe, able to rely on its fleet of 97 aircraft (in addition to
those added as part of the remedies package), aircraft leases or aircraft purchases,
will be exceptionally well placed to launch services in competition with Ryanair/Aer
Lingus.
1850
Flybe will continue to exert the same competitive constraint that Aer
Lingus provides today on all 6 potential competition routes.
1851
1845
See also Section 10.1.1. above.
1846
Final Commitments, paragraphs 39 and 40.
1847
Ryanair routes of potential competition are the following: Dublin-Bologna, Dublin-Bordeaux, Cork-
Paris/Beauvais, Cork-Munich/Memmingen, Cork-Birmingham. Aer Lingus route of potential
competition is Dublin – Newcastle.
1848
Form RM of 1 February 2013, paragraphs 56 to 58.
1849
Form RM of 1 February 2013, paragraph 55.
1850
Form RM of 1 February 2013, paragraphs 3 and 8.
1851
Form RM of 1 February 2013, paragraph 4.
EN 454 EN
(2127) In addition, Ryanair considers that it addresses the Commission’s remaining potential
competition concerns on 6 non-overlap routes by offering slot divestitures to any
third party.
1852
Ryanair will offer slot divestments on these routes for an indefinite
period of time, enabling new entrants (including the Divestment Business) to operate
up to the same number of frequencies as are currently operated by Aer Lingus or
Ryanair.
1853
10.7.3. The Commission's assessment
(2128) First, taking also into account the previous assessment of Flybe, the Commission
considers that Flybe Ireland would not exert a sufficient competition constraint on
the merged entity, at least on a significant number of the Divestment Business routes.
Therefore, despite having a base at Dublin and one aircraft based operationally at
Cork airport, Flybe is unlikely to be able to exert a sufficient competition constraint
on the merged entity on the potential competition routes.
(2129) Secondly, the evidence collected in the market investigation indicates that no entry or
expansion projects of competing carriers can be considered as timely, likely and
sufficient enough to constitute a competitive constraint on the merged entity on the
six routes of potential competition
1854
.
(2130) Therefore, the Commission concludes that the proposed commitments with respect to
the potential competition routes are not able to remove the identified significant
impediment to effective competition, and, thus, could not render the proposed
concentration compatible with the internal market.
10.8. Conclusion on the final Commitments
(2131) Based on all available evidence, including the results of the final market test, the
Commission considers that the final Commitments would not likely lead to the entry
of new competitors able to exert sufficient competitive constraint on the merged
entity.
(2132) The final Commitments do not allow the Commission to conclude, with the requisite
degree of certainty, that it would be possible to implement them in a timely manner
and that they would be sufficiently workable and lasting to ensure that the
impairment of effective competition which those Commitments is intended to
remove would not be likely to materialise in the relatively near future.
(2133) The Commission cannot clearly determine that the final Commitments, once
implemented, fully and unambiguously resolve the competition concerns identified
in this Decision.
(2134) It is concluded that the final Commitments offered by Ryanair are not able to remedy
the identified significant impediment to effective competition, and, thus, cannot
render the Transaction compatible with the internal market.
1852
Form RM of 1 February 2013, paragraph 35.
1853
Form RM of 1 February 2013, paragraph 3 and 8.
1854
See responses to question 24 of the final market test.
EN 455 EN
11. CONCLUSION
(2135) The Commission concludes that the Transaction is likely to significantly impede
effective competition in the internal market or in a substantial part thereof within the
meaning of Article 2(3) of the Merger Regulation as a result of the creation of a
dominant position of Ryanair and Aer Lingus on 46 routes from and to Dublin,
Shannon, Cork and Knock.
(2136) For those markets where other scheduled carriers operate and where charter
companies operate, the Transaction is likely to significantly impede effective
competition in the internal market or in a substantial part thereof within the meaning
of Article 2(3) of the Merger Regulation as a result of the elimination of the
particularly close competitive relationship between Ryanair and Aer Lingus and thus
of the important competitive constraints that both airlines exert on each other pre-
Transaction.
(2137) In addition, the Transaction is likely to significantly impede effective competition in
the internal market or in a substantial part thereof within the meaning of Article 2(3)
of the Merger Regulation by the elimination of a credible potential entrant on 6
routes from and to Dublin and Cork.
(2138) The concentration must, therefore, be declared incompatible with the internal market
and the EEA Agreement pursuant to Article 8(3) of the Merger Regulation and
Article 57 of the EEA Agreement.
EN 456 EN
HAS ADOPTED THIS DECISION:
Article 1
The notified operation whereby Ryanair would acquire sole control of Aer Lingus within the
meaning of Article 3(1)(b) of the Merger Regulation is hereby declared incompatible with the
internal market and the EEA Agreement.
Article 2
This Decision is addressed to:
Ryanair Holdings plc
Ryanair Corporate Headquarters
Dublin Airport
Ireland - County Dublin
Done at Brussels, 27.2.2013
For the Commission
(signed)
Joaquín ALMUNIA
Vice-President
EN 457 EN
Annex I - Price Correlation Analysis
(1) This Annex provides quantitative support for the conclusions reached by the
Commission on market definition, and in particular concerning the substitutability of
close-by airports.
(2) In the first section the Commission explains the relevance of the price correlation
analysis for the present case and in the second the Commission discusses the
limitations of the price correlation technique for the purposes of market definition.
The third section explains the methodology followed by the Commission and
discusses how this methodology addresses the general limitations of price correlation
analysis. The results of the analysis are provided in the fourth section and the final
section contains the conclusions of the Commission.
Explanation of price correlation and relevance in the present case
(3) The Commission has undertaken a price correlation analysis.
1
(4) The correlation analysis was performed on the average monthly fares across a
number of routes between Dublin, Cork and Shannon (as well as Knock and
Belfast/Derry) on one hand and European destinations with potential horizontal
overlaps on the other, for the purposes of market definition.
(5) Price correlation analysis measures the contemporaneous adjustments in the price
changes. If the prices of the two airport pairs move perfectly in line with each other,
the correlation coefficient is equal to one and if there is no relationship the
correlation is equal to zero. The higher the correlation coefficient between two
airport pairs the higher the degree of co-movement between them.
(6) Price correlation analysis is based on the idea that in the absence of common
demand- or supply-side shocks the extent of co-movement in the prices in different
airport pairs will provide information about the substitutability amongst them. This is
because price competition results in an alignment of prices in the two airport pairs if
they belong to the same relevant geographic market. The economic intuition is a
simple arbitrage argument. For example for two airport pairs that were to belong to
the same market, if an airport pair specific cost shock were to lead to a price rise in
the airport pair i, then consumers would substitute their purchases away from this
airport route and travel instead in airport pair j. As a result of the increase of the
demand in airport pair j the price in this route should increase and so a co-movement
(measured by a positive correlation) between the changes in the prices in the two
airport pairs is expected.
(7) Hence, if two airport pairs are considered to be part of the same market then the price
movements are expected to be correlated. However, absolute price convergence is
not necessary for products or services to belong to the same geographical market.
1
The price correlation analysis in the present case is in line with the methodology followed in the 2007
Decision as described in detail in that decision, Annex III.
EN 458 EN
Limitations
(8) The Commission acknowledges that price correlation analysis is not a perfect
measure for the purposes of market definition and the results of this analysis should
be interpreted with caution and in parallel with the qualitative evidence collected
during the market investigation.
(9) Price correlation may lead to false positives (that is to say, correlation coefficients
indicating a single market while the underlying series do not belong to the same
market). A main caveat of correlation analysis is that common shocks (such as
changes in the fuel price) can induce spurious correlation and therefore high
correlations could be driven by factors which can cause a co-movement but are still
unrelated to consumer and producer substitution. Similarly, two price series may be
found to be correlated only because each of them has a trend (again, leading to
spurious correlation). Correlation techniques are spurious in case they are applied to
time series that are non-stationary (that is to say, a series in which when a shock
occurs at a certain point in time has a persistent effect in the following periods while
in a stationary series a shock does not have such a persistent effect). Also if the price
series are serially correlated the resulting correlation between the two series will be
affected by the relation of each of the price series with their past values and may lead
to erroneous results (notably in case of non-stationary series). To address these
concerns, correlation analysis is performed on the following: i) the first difference of
the prices and ii) on series that are stationary and iii) by including lagged values of
the revenues in the estimations.
(10) At the same time, price correlation may also lead to false negatives. This outcome
may arise as price correlation only measures contemporaneous correlation (while
price changes may take longer to materialise). It is unlikely though that such effect
would be material for airline cases, especially in cases where correlation is measured
at monthly average fares (that is to say, relatively long period).
(11) Another critique of correlation analysis is that there is no generally agreed level for
the threshold which defines whether the series are sufficiently correlated to belong to
the same geographical market. To assess whether the prices are sufficiently
correlated, it is typical to use as a benchmark some other correlations for which one
has strong (a priori) indications that they belong to the same market. As in the 2007
Decision, the Commission has taken as a first benchmark the average correlation on
the routes where both Aer Lingus and Ryanair fly to the same airport, as for these
routes there is a strong presumption that they belong to the same market. If the
correlation lies above the benchmark this is an indication that the two products lie in
the same relevant market. Therefore, the most useful source of information from this
correlation analysis comes from a comparison of correlations among different pairs.
Methodology
(12) For the purpose of this Decision, correlation analysis has been carried out on the data
provided by Ryanair and Aer Lingus on average monthly prices across a number of
airport pairs between Dublin, Cork and Shannon (as well as Knock and
EN 459 EN
Belfast/Derry) on one hand and European destinations with the horizontal overlaps as
identified in the Decision opening the proceedings on the other.
2
These horizontal
overlaps arise either because the Parties fly to the same airport or because they fly to
different airports in the same geographic area. The purpose of the analysis is to test
whether for the airport-pairs where the two companies do not fly in the same
geographic area the correlation of prices does not differ from the instances where
both Parties fly to the same airport.
(13) Given that the analysis is performed on a monthly basis, for a number of routes in
which both Parties did not operate for a sufficient number of months simultaneously,
there are not sufficient observations. For example, this is the case for the Dublin-
Stockholm and Dublin-Warsaw/Warsaw Modlin routes.
(14) The Commission has followed a number of steps (similar to the methodology
followed in 2007) to ensure that the limitations of the correlation analysis are
addressed in the case at hand.
Stationarity tests
(15) Correlation analysis can be meaningfully performed only on stationary series (as
discussed above). When instead the series are non-stationary, correlation analysis
would result in spuriously high correlation (that is to say, false positive). When price
series are non-stationary (of order one) correlation analysis can be performed on the
first price difference of the price series,
1it it it
p p p
.
(16) When performing the analysis on the first difference of the price series the
correlation analysis shows that the price changes themselves, rather than the price
levels, are potentially correlated, and therefore relative convergence is tested. A
“high” correlation of price changes across products or services for different
geographical areas still indicates that these prices co-vary and hence suggests
products belong to the same geographical market.
(17) To statistically test whether the series are stationary or not the Commission has
computed the Augmented Dickey-Fuller ("ADF") test for each price series to see
whether each price series is non-stationary. Appendix A reports the finding of the
individual raw price series but also of the residuals of the partial correlation analysis
(for ease of reading the ADF results of only the raw series and of the FD-2 strategy
described below are reported in Appendix A).
3
2
In the following analysis, and the only exception to the potential city pairs as considered in the Decision
opening proceedings, the Commission has not tested whether the fares of the Parties co-move in the pair
Edinburgh- Glasgow.
3
The Commission has used the AIC criterion to select the optimal lags of the auxiliary regression.
However in Toulouse/Carcassonne the optimal lags reduced the degrees of freedom of the auxiliary
regression to below 20. Using an alternative approach to select the optimal number of lags, Q-test, a
smaller number of optimal lags was selected. For this route the results presented refer to the procedure
on the basis of the Q-test (shown in the Table of Appendix A in bold).
EN 460 EN
Controlling for seasonality, common input costs (fuel price) and trend – Partial correlation
(18) As explained above, if common shocks exist they may cause a false positive and the
products may appear more correlated than they really are and therefore the
Commission would run the risk of drawing erroneous conclusions about the size of
the relevant market.
(19) For stationary time series, a better reflection of whether there is a co-movement of
prices is the partial correlation coefficient, not the ordinary correlation coefficient.
The partial correlation coefficient differs from the ordinary correlation coefficients,
as the former, but not the latter, has been purged of the influence of common factors.
(20) In the present case, the partial correlation coefficient is calculated by regressing each
price series on time series of the price of fuel using Ordinary Least Squares ("OLS")
and seasonal dummies and then measuring the correlation of the regression residuals.
(21) As both Ryanair and Aer Lingus monitor the Jet Kerosene Cargoes CIF NWE
4
this
series was used as a proxy for common fuel cost. The Commission also corrects for
seasonality by introducing quarterly dummies in the regression. This is done in order
to account for possible seasonal variation in the data. It may have been relevant to
include several other factors, but due to lack of such data an extended analysis is
omitted in the present exposition. In general, the partial correlation coefficients
should be preferred to the standard simple correlations.
(22) The residuals from the regression of the price series on the fuel price and the
quarterly dummies are considered as a measure of prices purged of common factors.
The partial correlation coefficient is the ordinary correlation coefficient between the
residuals from two such regressions.
(23) Furthermore, in the Commission's analysis is the Statement of Objections some
series in question have been identified as trend stationary or trend non-stationary. In
the present analysis the Commission has also included a trend in the partial
correlation regression to control for this trend, addressing a comment raised by
Ryanair (see Ryanair's comments on Commission's analysis).
5
Serial correlation
(24) The Q test shows that in some instances the residuals of the regression of the price
series on fuel price and the quarterly dummies are serially correlated, that is to say,
past value of the price series influence the current level. By including lagged values
of the prices in the estimation (see partial regression in the correlation on price
levels), the Commission addresses the serial correlation issue.
4
For Aer Lingus, see Aer Lingus' response to the Commissions' request of information of 3 October
2012.
5
Oxera, "Assessment of the Commission's analysis in the Annexes I, II, and III of the SO," page 3-5. The
Commission notes that the results of the analysis including trend are largely similar to the ones without
a trend.
EN 461 EN
Steps in the analysis
(25) As in the 2007 Decision, the Commission followed two complementary approaches
in the present case. Both approaches generate similar results and do not affect the
conclusions.
I. Correlations on price levels
Plot the candidate price series
Run the ADF test of stationarity on individual price series (results reported in
Appendix A)
Compute the raw price correlation coefficient (RAW in Appendix B)
Regress the price series on the common influence variables (fuel costs and seasonal
dummies) and a trend
Run the ADF test of stationarity on the residuals of the above regression
Correlate the residuals from the above regressions (SC in Appendix B)
Regress the price series on the common influence variables (fuel costs and seasonal
dummies), on the lag of prices and a trend
Run the ADF test of stationarity on the residuals of the above regression
Correlate the residuals from the above regressions (SCL in Appendix B)
II. Correlations on first differences
First strategy
Take the first difference of the price series and the common costs
Run the ADF test of stationarity on the first difference of the price series
Correlate the first difference of the price series (RAWFD in Appendix B)
Regress the first difference of the price series on the first difference of the common
costs, seasonal dummies and a trend
Run the ADF test of stationarity on the residuals from the regression above
Correlate the residuals from the above regression (FD1 in Appendix B)
Second Strategy
Regress the price series on the common influence variables (fuel costs and seasonal
dummies) and a trend
Take the first difference of the residuals from the regression above
EN 462 EN
Run the AD test of stationarity on the residuals of the above regression
Compute the correlation coefficient of the first differences of the residuals (results in
column FD2 in Appendix B)
(26) The analysis was performed on the net fare revenues from Aer Lingus and the gross
revenue of Ryanair (with the baggage fees included).
6
Results
(27) Overall, it is concluded that the correlation analysis is consistent with the qualitative
evidence collected during the market investigation. Also, the results were remarkably
similar to the results obtained in the 2007 Decision. The scope of the analysis in the
present case, however, is much larger than in the 2007 Decision as there are many
more overlap routes during the period under consideration (that is to say, from
November 2004 to July 2012). Many of the routes for which correlations could be
measured are not actual overlaps, but were overlaps at some moment in time during
this period.
(28) The correlation coefficients provided are all the estimates obtained from the data that
the Commission collected from Ryanair and Aer Lingus. This relates to all related
airport-pairs where sufficient time series data was available. However in a significant
number of cases the number of observations is very small (typically cases with less
than 20 observations). In these cases no large significance should be attached to the
correlation coefficients.
(29) There are four types of price correlations. The first category is when both Aer Lingus
and Ryanair serve the same airport. The second when Ryanair serves two airports
within the same city pair (for example in London where Ryanair serves London
Gatwick, London Stansted and London Luton). The third when Aer Lingus serves
two airports within the same city pair (similarly in London Aer Lingus serves both
London Heathrow and London Gatwick). The fourth category refers to situations
where Ryanair and Aer Lingus serve different airports within the same city pair (for
example Ryanair serves Bratislava airport while Aer Lingus serves Vienna airport).
(30) The results of the correlation analysis are provided in Appendix B, Table 1.
7
The first
column indicates the city pair (the main city close to the airports that are in the same
area). The two next columns refer to the two series whose correlation in reported in
the last 6 columns (columns 5-10). In the first row of the table, "EIFAO" in column 2
and "FRFAO" in column 3 indicate that the correlations provided in columns 5-10
are the correlations between Aer Lingus' fares to Faro and Ryanairs' fares to Faro
(from Belfast/Derry). The number of observations for the given pair is also provided
6
A robustness check was performed on Aer Lingus total gross revenue and Ryanair sum of total
gross/net revenue and total other revenues. These two metrics reflect for both companies the total
revenue generated from its passengers on the given route (see also section on the description of data). A
further robustness check was performed using only Aer Lingus non-connecting passengers. However
any analysis with non-connecting passengers would have to be constraint to the time period post June
2008. The results overall remain robust.
7
The rows in bold indicate the first type of correlation i.e. when both Aer Lingus and Ryanair serve the
same airport.
EN 463 EN
in column 4. The correlations are provided in the same sequence as explained above.
Therefore column 5 ("raw") shows the raw correlations of the two price series.
Column 6 reports the partial correlation coefficients after controlling for seasonality
and the fuel price ("sc") and column 7 the partial is the partial correlation taking also
into account a lagged dependent variable ("scl"). The last three columns relate to the
raw correlation of the first difference of the price series ("rawfd"), the correlation
coefficients of the first difference of the price series after regressing on the first
difference of fuel price and seasonal dummies ("fd1") and the partial correlations
from the second strategy ("fd2") respectively.
(31) The results of the correlation analysis indicate that the correlations are relatively
stable in the different specifications. This finding implies that the amount of
correlation observed in the raw data is not explained by common variation in the fuel
costs and seasonal dummies. In cases with very few observations, there are not
sufficient degrees of freedom to consistently compute the correlations and therefore
for some of these cases there is a significant difference in the correlations computed
across specifications. There are some exceptions to this, especially in cases of very
few observations. As mentioned above, the results obtained bear great similarity to
the correlations obtained in the 2007 Decision – and this applies to both relatively
high correlations as well as to low correlations. Notably, as in the 2007 Decision, the
correlation between Ryanair's fares to Charleroi and Aer Lingus' fares to Brussels is
very low (and in some specifications not significant). Routes with very high
correlations between the fares of the two air carriers (that is to say, either type 1 or
type 4 correlations) across all specifications include the Dublin-Krakow, Dublin-
Faro, Dublin-Poznan and Dublin-Warsaw routes.
8
(32) In what follows the Commission will refer to the correlations in the last column of
Table 1 in Appendix B, namely the correlation in first differences controlling for
common costs, seasonality and trend. The Commission follows this approach as for
this specification there are the smallest number of non-stationary fares (the fares for
this last specification are non-stationary for only a few series as shown in Appendix
A, column 5).
(33) Following the same approach as in 2007 the Commission uses as a first benchmark
the average correlation on the routes where both Aer Lingus and Ryanair fly to the
same airport. This benchmark has been useful for routes where no better benchmark
could be used. A better benchmark has been used in cases where within one city pair
both carriers fly to the same airport in addition to other airport(s), which arises for
example for routes to London or Manchester, as explained below).
(34) There are 30 instances in which both carriers fly to the same airport. However, for
Dublin-Fuerteventure, Dublin-Gatwick, Dublin-Bristol, Dublin-Nice and Dublin-
Prague at least one of the series is non-stationary and therefore these pairs are
dropped from the analysis. Among the remaining 26 such pairs, the correlation
coefficients range from 0.29 in the Dublin-Liverpool route to 0.96 in the Dublin-
Poznan route. The average correlation in these routes is around 0.79.
9
Most
8
These routes are not necessarily actual overlaps.
9
The simple average of the highest and lowest correlations is around 0.63. The Commission has not
considered in its computations airport pairs with less than 20 observations.
EN 464 EN
importantly the weighted average of the correlations (that is to say, each correlation
coefficient is weighted by the revenues that were generated by both carriers in a
given route) is 0.66. This weighted average is lower than the simple average as
routes with significant traffic (such as Dublin-Birmingham and Dublin Manchester
routes) have relatively low correlation. Therefore, one would expect that for thicker
routes lower correlation threshold applies.
(35) Concerning routes in which Ryanair contests the market definition the Commission
notes the following: in the case of Toulouse-Carcassonne, Bilbao-Santander,
Barcelona-Reus, Barcelona-Girona, Alicante-Murcia,
10
Rome Fiumicino- Rome
Ciampino, Milan Bergamo-Milan Linate, Milan Bergamo-Milan Malpensa, Vienna-
Bratislava the correlations are higher than even the simple average (that is to say,
higher than 0.79). The pair Venice-Treviso also has correlation above this threshold.
(36) In one other route, Paris Charles De Gaulle- Paris Beauvais, the correlation is
between the weighted and simple average benchmarks of 0.66 and 0.79. As this is a
relatively thick route it is useful to compare the computed correlation with the
weighted average of the routes where both Parties fly to the same airport (as they are
more likely to be similar to such thick routes).
(37) The Dublin- Glasgow/Glasgow Prestwick route is slightly below the 0.66
benchmark; but only marginally at 0.64. Finally, the Frankfurt-Frankfurt Hahn pair
has a correlation of 0.59. As these figures are significant, and not significantly lower
than the 0.66 benchmark the Commission considers that a conclusion can only be
taken after taking into account other qualitative evidence.
(38) The analysis does not provide any significant information on the Stockholm airport's
substitutability as there are only 5 observations in the given route.
(39) Similarly, for the Belfast-Derry routes (that is to say to Faro and to London) the
Commission considers that the quantitative analysis does not provide any significant
evidence to conclude either that Belfast and Derry belong to the same market or not,
given the relatively small number of observations in the relevant routes.
11
(40) As regards London, Manchester and Birmingham “within route” benchmarks can be
obtained. Such benchmarks arise as in these cities both carriers fly to the same
airport. However, for Dublin-London this is not possible as the series of Aer Lingus'
fare to London Gatwick is non-stationary.
(41) Concerning Manchester, the relevant benchmark is relatively low as both Aer Lingus
and Ryanair fly to both Liverpool and Manchester with relatively weak correlations
of (non-significant) 0.29 and 0.43 respectively. The correlation between Ryanair's
Liverpool fares and Aer Lingus' Manchester fares is slightly weaker, with a
correlation of 0.34. At the same time, the within carrier correlation between these
10
The pair Alicante-Murcia is not crucial for the purposes of the quantitative analysis as both Parties fly
to Alicante from Dublin and Cork.
11
Even if there is a significant number of observations to London for one airport pair (London Heathrow
and London Stansted), there is no within route benchmark (i.e. instance where both Parties fly to the
same airport) as in the other routes to London ex-Dublin, Cork and Shannon. The correlation of this pair
is not significantly different from the correlation of these two airports ex-Dublin, Cork or Shannon.
EN 465 EN
two airports is very high. Ryanair's Manchester and Ryanair's Liverpool fares have
correlation of 0.92 and Aer Lingus fares' correlation in these two airports is 0.74.
Therefore both air carriers appear to view the two airports as substitutable. If the two
airports were not related one would not expect even Ryanair's/Aer Lingus' own
prices to be highly correlated across the two different airports as even Ryanair/Aer
Lingus would price independently in each of these airports.
12
Concerning Leeds
Bradford, the evidence is not conclusive as amongst the Parties' fares the correlation
is much weaker and non significant (-0.11 for Leeds-Liverpool and 0.17 for Leeds-
Manchester). However the correlation of Ryanair's fares between Leeds Bradford and
i) Manchester and ii) Liverpool is much higher, both at 0.74.
(42) Concerning Birmingham, the relevant benchmark is between Aer Lingus and
Ryanair's fares in Birmingham airport, whose correlation is 0.45. Ryanair's own fares
between Birmingham and East Midlands is very high at 0.86 implying that at least
Ryanair is likely to consider these two airports as substitutable. The correlation
between Aer Lingus fares in Birmingham and Ryanair's fares in East Midlands is
lower at 0.35.
(43) Concerning London (ex-Cork) the quantitative evidence is not conclusive on the
substitutability of all London airports. Both carriers fly to London Gatwick with
correlation of 0.60, which is the within route benchmark. The correlation of fares of
the two air carriers flying in different airport pairs are somewhat lower (for example
between Aer Lingus' Gatwick fares and Ryanair's Stansted fares is 0.51 ). At the
same time Ryanair's fares amongst different airport pairs, namely Gatwick and
Stansted is very high (above 0.89) and therefore at least Ryanair regards these
airports as substitutable. The correlation of Aer Lingus' London Gatwick and London
Heathrow fares is also slightly higher than the benchmark in the London case (0.63
vs. benchmark of 0.60) High correlations amongst Ryanair's Gatwick and i) Luton
and ii) Stansted fares are also seen ex-Shannon (0.85 and 0.9 respectively). Finally,
ex-Knock the picture changes slightly as even the between air carrier's correlations
are higher. The correlation between Aer Lingus London Gatwick and Ryanair's fares
in Luton and Stansted are much higher (0.72 and 0.74 respectively for Knock). This
lends support to the view that ex-Knock it is more likely that destination airports that
may be further away would be considered substitutable.
(44) As in 2007 the data for the route Dublin-Brussels/Charleroi is odd as the
Commission obtains a non-significant (and negative) correlation. This is also
inconsistent with the results of the market investigation and the qualitative analysis
on this airport pair.
(45) The Commission notes that as at least one of the series for Dublin-London, Dublin-
Munich/Memmingen, and Dublin-Bristol/Cardiff
13
is non-stationary the correlations
obtained for these pairs may be biased and the Commission cannot, therefore,
comment on their magnitude.
12
The Commission however notes that it is possible that certain common factors may induce a higher
correlation amongst routes of the same air carrier.
13
The pair Bristol-Cardiff is not crucial for the purposes of the quantitative analysis as both Parties fly to
Bristol from Dublin.
EN 466 EN
(46) The Commission has also confirmed that the results carry forward when computing
the correlation between the Ryanair fares and the Aer Lingus fares for non-
connecting passengers.
Ryanair's comments on Commission's analysis
(47) Ryanair raises several criticisms on the correlation analysis performed by the
Commission.
(48) The first criticism is that the model lacks robust economic underpinning and neglects
a range of relevant factors such as the nature of competition, the quality of service,
the impact of different passenger types notably in terms of connecting vs. non-
connecting passengers, and the presence of competitors. According to Ryanair, as
certain variables are shown to influence prices in the regression analysis (as shown in
Annex III to this Decision), the Commission's correlation analysis should have
included such variables (notably, the presence of other airlines).
14
(49) The Commission has employed a standard procedure for undertaking correlation
analysis. The Commission has recognised that the correlation analysis is not a
flawless exercise, as discussed in detail in the Commission's analysis above,
however, the Commission's procedure takes steps to address the shortcomings of the
correlation technique.
(50) The rationale behind price correlation is to test how the fares of one company
respond to the changes in fares of another company. To avoid the issue of spurious
correlation the source of information that identifies the correlation coefficients
should be provided by asymmetric shocks (that is to say, it should not be common
shocks that drive the correlation). For this reason the Commission has controlled for
common shocks in the partial correlation analysis. The Commission's analysis has
controlled for common cost shocks (fuel price) and common demand shocks
(seasonal dummies). In a correlation analysis asymmetric shocks should not be
stripped from the analysis – contrary to a regression analysis that has a different
scope (that is to say, to identify the relationship between two variables controlling for
all possible other factors). For example, it is not obvious whether the entry of a third
carrier would constitute a common shock to both companies, as it may affect the two
carriers differently (as shown also in the regression analysis). To confirm the
robustness of its correlation analysis against this criticism of Ryanair, the
Commission has introduced in the regressions of the partial correlations the total
frequencies offered by all airlines at the destination airport (a further control for
common demand shocks that may influence Aer Lingus' and Ryanair's average
fares). The results of the stationarity analysis are presented in column 6 of the Table
in Appendix A and the correlations are presented in Appendix B, Table 2. The results
remain largely unaffected. On the stationarity of the series, the only significant
difference is that Aer Lingus' fares in London Gatwick become stationary and
therefore an analysis of the London routes is meaningful.
15
14
Oxera, "Assessment of the Commission's analysis in the Annexes I, II, and III of the SO," page 3.
15
For completeness the Commission also notes that Ryanair's Knock-Stansted series is now also non-
stationary. However, Ryanair's Knock-Luton is stationary and therefore the analysis above holds.
EN 467 EN
(51) On the correlation analysis, the average arithmetic benchmark is 0.76 and the
weighted benchmark 0.63.
16
Overall, the results are similar. However the
Commission notes that for Dublin- Glasgow/Glasgow Prestwick the correlation is
above the weighted benchmark (0.64 vs 0.63) and the correlation in
Frankfurt/Franfkurt Hahn is very close to the benchmark (0.61). Last, the correlation
in Toulouse/Carcasonne is 0.73 and while slightly below the arithmetic average it is
well above the weighted average.
(52) Concerning London (ex-Dublin), the quantitative evidence in this specification
provides some evidence on the substitutability of London airports. On the Dublin-
London route, both carriers fly to London-Gatwick with correlation of 0.37, which is
the within route benchmark. The correlation between Aer Lingus' fares in Gatwick
and Ryanair's Stansted fares is higher at 0.40. The other pair correlations are
somewhat lower than 0.37 (for example, Aer Lingu's fares in Heathrow and Ryanair's
in Gatwick is 0.3). At the same time Ryanair's fares amongst different airport pairs,
namely Gatwick, Stansted and Luton, is very high (above 0.85) and therefore it
appers that at least Ryanair regards these airports as substitutable. The correlation of
Aer Lingus' London Gatwick and London Heathrow fares is also higher than the
benchmark in the London case (0.48 vs. benchmark of 0.37).
(53) Furthermore, the Commission notes that Ryanair erroneously states that the
Commission has failed to distinguish between passengers types, notably connecting
vs. non-connecting. On the contrary, the Commission undertook such a robustness
check to confirm the findings of its correlation analysis.
17
In particular, the
Commission replicated its analysis considering the correlation between Aer Lingus'
non-connecting passengers and Ryanair's passengers (which are considered non-
connecting).
18
Also, the Commission analysed the correlation between Ryanair's
gross average fares and Aer Lingus' gross average fares. These results were available
to Ryanair and Aer Lingus in the data room and the results confirmed the
Commission's findings.
(54) Second, Ryanair argues that the correlation results presented in the SO are biased for
several routes, unless the differenced residuals of both routes are stationary. They
provide a table with the 29 series (corresponding to 19 routes) that are either trend
stationary or non-stationary (with or without a trend). They argue that correlations of
these series would be biased.
(55) The Commission agrees with Ryanair that correlation analysis should be performed
on stationary series. An overview of the series that are not 'stationary' (that is to say,
either trend stationary or (trend) non-stationary) indicates that the majority of these
routes are trend-stationary. An obvious approach is then to include in the partial
correlation a time trend that would ensure that the correlation measured is not driven
by any such trend. By definition, the introduction of a time trend in the regression
rules out the possibility that the residuals are trend-stationary. The Commission has
included this in the main presentation of its results. As reported in Table 1 in
Appendix B, the correlation figures of this robustness check are substantially similar
16
These average as above relate to airport pairs where both series are stationary..
17
See for instance paragraph 45 of Annex I of the Statement of Objections.
18
See paragraph 45 of Annex I of the Statement of Objections.
EN 468 EN
to the ones of the Commission's previous analysis, and the vast majority of the fare
series on which the Commission makes inferences are stationary, as shown in
Appendix A. The Commission notes that this change has not affected its conclusions
from the correlation analysis compared to the preliminary conclusions reached in the
SO, with the exception of the route Dublin-Munich/Memmingen for which the
results has to be considered inconclusive since one of the fare series is non-
stationary.
19
(56) Ryanair also, erroneously, claims that results are also likely to be biased as there is
divergence of costs (fuel price) and fares, providing a specific route as an example.
20
However, the Commission notes that, contrary to Ryanair’s finding the correlation
between fares and fuel price is positive for the route in question. More generally,
even if fuel prices and average fares do not move in the same direction all the time,
this does not invalidate the analysis. The aim of the exercise is not to explain the
movement of the average fare but to determine the co-movement of prices taking into
account common factors.
(57) Third, Ryanair claims that some correlations are counterintuitive. For example,
Ryanair notes that in some instances when both carriers fly to the same airport the
fares correlation is relatively low while for some pairs such as Toulouse/Carcassonne
the correlation is relatively high. The Commission notes that the results of the
analysis are very similar to the findings in the 2007 Decision. It appears that not
significant changes in market circumstances have taken place for the airport/city
pairs which were also operated during the timeframe analysed in the 2007 Decision.
Notably, for Toulouse/Carcassonne similar results were obtained in the 2007 analysis
(price correlation of 0.95, albeit for a relatively small number of observations). The
robustness of the results provides confidence on the reliability of the results.
21
Conclusion
(58) The results of the analysis provide support for the conclusions reached by the
Commission for the purposes of market definition. Overall, the results lend support
for wide market definitions for most of the airport pairs while for Frankfurt/Frankfurt
Hahn, Glasgow/Glasgow Prestwick a conclusion can only be taken after taking into
account other qualitative evidence. In the case of London airports, Leeds Bradford,
Bristol/Cardiff, Munich/Memmingen and Brussels/Charleroi the results are
inconclusive.
.
19
For Dublin-London, the results are inconclusive as the series of Aer Lingus' fares in Gatwick is non
stationary. However, under the specification including the destination frequencies the series becomes
stationary as discussed above.
20
Oxera, "Assessment of the Commission's analysis in the Annexes I, II, and III of the SO," page 5; see
also email correspondence between the Commission and the Notifying Party's economic consultants of
17 and 18 December 2012.
21
Also Ryanair makes an erroneous claim that it is unclear how the Commission has calculated the
correlation coefficient for Liverpool as Aer Lingus does not fly to Liverpool airport (see Oxera,
"Assessment of the Commission's analysis in Annexes I, II and III of the SO", footnote 10 ). The
Commission notes that Aer Lingus currently does not fly to Liverpool but it did during the period of the
analysis (and in particular during the November 2004 to June 2006 period).
EN 469 EN
Appendix A: Serial Correlation (Q test) and Stationarity (ADF test) Table
Table 1: Augmented Dickey Fuller tests of the underlying series
City Pair
Carrier (EI
or FR) and
airport
Serial
correlation
ADF of Raw
Series
ADF of FD2
residuals
(trend)
ADF of FD2 residuals
(trend and destination
frequencies)
BELFAST/DERRY-FARO
EIFAO
Not Serially
Correlated
Stationary
Stationary
Stationary
BELFAST/DERRY-LONDONALL
EILHR
Serially
Correlated
Non-
Stationary
Non-
Stationary
Stationary
FRSTN
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
CORK-LONDON ALL
EI LGW
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
EILHR
Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRLGW
Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRSTN
Serially
Correlated
Non-
Stationary
Stationary
Stationary
CORK-MALAGA
EIAGP
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRAGP
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
EN 470 EN
CORK-MAN/LIV/LEEDS
EIMAN
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRLPL
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
DUBLIN-ALICANTE/MURCIA
EIALC
Not Serially
Correlated
Stationary
Stationary
Stationary
FRALC
Not Serially
Correlated
Stationary
Stationary
Stationary
FRMJV
Not Serially
Correlated
Stationary
Stationary
Stationary
DUBLIN-
BARCELONA/GIRONA/REUS
EIBCN
Not Serially
Correlated
Stationary
Stationary
Stationary
FRBCN
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRGRO
Not Serially
Correlated
Stationary
Stationary
Stationary
FRREU
Not Serially
Correlated
Stationary
Stationary
Stationary
DUBLIN-BERLIN
EISXF
Not Serially
Correlated
Stationary
Stationary
Stationary
FRSXF
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
DUBLIN-BILBAO/SANTANDER
EIBIO
Not Serially
Correlated
Stationary
Stationary
Stationary
FRSDR
Not Serially
Correlated
Stationary
Stationary
Stationary
EN 471 EN
DUBLIN-BIR/EMIDLANDS
EIBHX
Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRBHX
Serially
Correlated
Non-
Stationary
Stationary
Stationary
FREMA
Serially
Correlated
Non-
Stationary
Stationary
Stationary
DUBLIN-BOLOGNA
EIBLQ
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRBLQ
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
DUBLIN-
BRISTOL/CARDIFF/EXETER
EIBRS
Not Serially
Correlated
Non-
Stationary
Non-
Stationary
Non-Stationary
FRBRS
Not Serially
Correlated
Non-
Stationary
Non-
Stationary
Non-Stationary
DUBLIN-BRUSSELS/CHARLEROI
EIBRU
Serially
Correlated
Stationary
Stationary
Stationary
FRCRL
Serially
Correlated
Non-
Stationary
Stationary
Stationary
DUBLIN-BUDAPEST
EIBUD
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRBUD
Not Serially
Correlated
Stationary
Stationary
Stationary
DUBLIN-EDINBURGH
EIEDI
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
FREDI
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
EN 472 EN
DUBLIN-FARO
EIFAO
Not Serially
Correlated
Stationary
Stationary
Stationary
FRFAO
Not Serially
Correlated
Stationary
Stationary
Stationary
DUBLIN-FRANKFURT/HAHN
EIFRA
Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRHHN
Serially
Correlated
Non-
Stationary
Stationary
Stationary
DUBLIN-FUERTEVENTURA
EIFUE
Not Serially
Correlated
Non-
Stationary
Non-
Stationary
Non-Stationary
FRFUE
Not Serially
Correlated
Non-
Stationary
Non-
Stationary
Non-Stationary
DUBLIN-GLASGOW/PRESTWICK
EIGLA
Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRPIK
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
DUBLIN-HAMBURG
EIHAM
Not Serially
Correlated
Stationary
Non-
Stationary
Non-Stationary
FRLBC
Not Serially
Correlated
Non-
Stationary
Non-
Stationary
Non-Stationary
DUBLIN-KRAKOW
EIKRK
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRKRK
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
DUBLIN-LANZAROTE
EIACE
Not Serially
Correlated
Stationary
Stationary
Stationary
EN 473 EN
FRACE
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
DUBLIN-LASPALMAS
EILPA
Serially
Correlated
Stationary
Stationary
Stationary
FRLPA
Not Serially
Correlated
Stationary
Stationary
Stationary
DUBLIN-LONDONALL
EILGW
Not Serially
Correlated
Non-
Stationary
Non-
Stationary
Stationary
EILHR
Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRLGW
Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRLTN
Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRSTN
Serially
Correlated
Non-
Stationary
Stationary
Stationary
DUBLIN-MADRID
EIMAD
Not Serially
Correlated
Stationary
Stationary
Stationary
FRMAD
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
DUBLIN-MALAGA
EIAGP
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRAGP
Not Serially
Correlated
Stationary
Stationary
Stationary
DUBLIN-MAN/LIV/LEEDS
EIMAN
Serially
Correlated
Stationary
Stationary
Stationary
EN 474 EN
FRLBA
Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRLPL
Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRMAN
Serially
Correlated
Non-
Stationary
Stationary
Stationary
DUBLIN-MARSEILLE
EIMRS
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRMRS
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
DUBLIN-MILAN/BERGAMO
EILIN
Not Serially
Correlated
Stationary
Stationary
Stationary
EIMXP
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRBGY
Not Serially
Correlated
Stationary
Stationary
Stationary
DUBLIN-MUNICH/MEMMINGEN
EIMUC
Not Serially
Correlated
Stationary
Stationary
Stationary
FRFMM
Serially
Correlated
Non-
Stationary
Non-
Stationary
Non-Stationary
DUBLIN-NEWCASTLE
EINCL
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRNCL
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
DUBLIN-NICE
EINCE
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
EN 475 EN
FRNCE
Not Serially
Correlated
Stationary
Non-
Stationary
Non-Stationary
DUBLIN-PALMA
EIPMI
Not Serially
Correlated
Stationary
Stationary
Stationary
FRPMI
Not Serially
Correlated
Stationary
Stationary
Stationary
DUBLIN-
PARISCDG/BEAUVAIS/ORLY
EICDG
Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRBVA
Serially
Correlated
Non-
Stationary
Stationary
Stationary
DUBLIN-POZNAN
EIPOZ
Not Serially
Correlated
Stationary
Stationary
Stationary
FRPOZ
Not Serially
Correlated
Stationary
Stationary
Stationary
DUBLIN-PRAGUE
EIPRG
Not Serially
Correlated
Stationary
Non-
Stationary
Non-Stationary
FRPRG
Not Serially
Correlated
Non-
Stationary
Non-
Stationary
Non-Stationary
DUBLIN-RIGA
EIRIX
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRRIX
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
DUBLIN-ROMEALL
EIFCO
Not Serially
Correlated
Stationary
Stationary
Stationary
FRCIA
Not Serially
Correlated
Stationary
Stationary
Stationary
EN 476 EN
DUBLIN-TENERIFENORTH/SOUTH
EITFS
Not Serially
Correlated
Stationary
Stationary
Stationary
FRTFS
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
DUBLIN-TOULOUSE/CARCASSONE
EITLS
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRCCF
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
DUBLIN-VENICE/TREVISO
EIVCE
Not Serially
Correlated
Stationary
Stationary
Stationary
FRTSF
Not Serially
Correlated
Stationary
Stationary
Stationary
DUBLIN-VIENNA/BRATISLAVA
EIVIE
Not Serially
Correlated
Stationary
Stationary
Stationary
FRBTS
Serially
Correlated
Stationary
Stationary
Stationary
DUBLIN-WARSAW/MODLIN
EIWAW
Not Serially
Correlated
Stationary
Stationary
Stationary
FRWAW
Not Serially
Correlated
Stationary
Stationary
Stationary
KNOCK-ESTMIDLANDS
FREMA
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
KNOCK-LONDONALL
EILGW
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRLTN
Not Serially
Correlated
Non-
Stationary
Stationary
Stationary
EN 477 EN
FRSTN
Not Serially
Correlated
Non-
Stationary
Stationary
Non-Stationary
SHANNON-LONDONALL
EILHR
Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRLGW
Serially
Correlated
Non-
Stationary
Stationary
Stationary
FRSTN
Serially
Correlated
Stationary
Stationary
Stationary
EN 478 EN
Appendix B: Correlation Coefficients Table
Table 1: Correlation Coefficient Results with trend
City Pair
first
second
ob
raw
sc
scl
rawfd
fd1
fd2
BELFAST/DERRY-FARO
EIFAO
FRFAO
8
0.94***
0.63*
-0.01
0.88**
0.77*
0.69
BELFAST/DERRY-LONDONALL
EILHR
FRLTN
18
0.47*
0.33
0.22
0.43*
0.24
0.31
EILHR
FRSTN
39
0.25
0.37**
0.36**
0.40**
0.30*
0.37**
FRLTN
FRSTN
18
0.83***
0.84***
0.69***
0.85***
0.78***
0.88***
CORK-ALICANTE/MURCIA
EIALC
FRALC
8
0.91***
0.88***
0.97***
0.98***
0.98***
0.84*
CORK-BARCELONA/GIRONA/REUS
EIBCN
FRGRO
5
0.88**
-0.41
0.99***
0.74
0.04
0.27
EIBCN
FRREU
8
0.63*
0.57
0.24
0.93**
0.87*
0.77
FRGRO
FRREU
2
1
-1
0.00***
0.00***
0.00***
0.00***
CORK-BIR/EMIDLANDS
EIBHX
FREMA
11
-0.03
0.55*
0.23
-0.04
0.56*
0.44
CORK-FARO
EIFAO
FRFAO
16
0.96***
0.97***
0.98***
0.94***
0.96***
0.97***
CORK-LANZAROTE
EIACE
FRACE
19
0.92***
0.92***
0.80***
0.85***
0.86***
0.88***
CORK-LONDONALL
EILGW
FRLGW
29
0.37*
0.33*
0.44**
0.66***
0.67***
0.60***
EILGW
EILHR
29
0.72***
0.54***
0.50***
0.72***
0.68***
0.63***
EILGW
FRSTN
29
0.27
0.17
0.33*
0.61***
0.61***
0.51***
FRLGW
EILHR
81
0.30***
0.20*
0.41***
0.48***
0.47***
0.42***
FRLGW
FRSTN
81
0.90***
0.89***
0.88***
0.90***
0.89***
0.89***
EILHR
FRSTN
93
0.45***
0.46***
0.50***
0.53***
0.53***
0.47***
CORK-MALAGA
EIAGP
FRAGP
24
0.96***
0.92***
0.92***
0.89***
0.90***
0.91***
EN 479 EN
CORK-MAN/LIV/LEEDS
FRLPL
EIMAN
41
0.42***
0.31**
0.37**
0.34**
0.35**
0.36**
CORK-PALMA
EIPMI
FRPMI
3
1.00***
-0.5
.
1
1
-1
CORK-TENERIFENORTH/SOUTH
EITFS
FRTFS
15
0.72***
0.48*
0.64**
0.49*
0.35
0.53*
DUBLIN-ALICANTE/MURCIA
EIALC
FRALC
63
0.93***
0.86***
0.83***
0.92***
0.91***
0.93***
EIALC
FRMJV
93
0.93***
0.87***
0.87***
0.91***
0.91***
0.91***
FRALC
FRMJV
63
0.98***
0.89***
0.86***
0.96***
0.95***
0.96***
DUBLIN-BARCELONA/GIRONA/REUS
EIBCN
FRBCN
23
0.89***
0.89***
0.83***
0.92***
0.90***
0.94***
EIBCN
FRGRO
88
0.92***
0.85***
0.87***
0.91***
0.90***
0.91***
EIBCN
FRREU
82
0.82***
0.80***
0.83***
0.87***
0.84***
0.89***
FRBCN
FRGRO
18
0.96***
0.82***
0.75***
0.89***
0.86***
0.93***
FRBCN
FRREU
16
0.86***
0.66***
0.58**
0.71***
0.73***
0.84***
FRGRO
FRREU
80
0.90***
0.84***
0.86***
0.91***
0.90***
0.91***
DUBLIN-BERLIN
EISXF
FRSXF
74
0.61***
0.65***
0.75***
0.86***
0.87***
0.83***
DUBLIN-BILBAO/SANTANDER
EIBIO
FRSDR
32
0.90***
0.91***
0.81***
0.97***
0.97***
0.95***
DUBLIN-BIR/EMIDLANDS
EIBHX
FRBHX
93
0.78***
0.58***
0.46***
0.53***
0.40***
0.45***
EIBHX
FREMA
93
0.59***
0.28***
0.31***
0.41***
0.25**
0.35***
FRBHX
FREMA
93
0.90***
0.86***
0.81***
0.84***
0.78***
0.86***
DUBLIN-BOLOGNA
EIBLQ
FRBLQ
24
0.82***
0.78***
0.80***
0.88***
0.89***
0.85***
DUBLIN-BRISTOL/CARDIFF/EXETER
EIBRS
FRBRS
29
0.60***
0.53***
0.61***
0.70***
0.73***
0.71***
EIBRS
FRCWL
18
0.64***
0.53**
0.57**
0.77***
0.80***
0.72***
FRBRS
FRCWL
18
0.83***
0.76***
0.72***
0.84***
0.79***
0.80***
EN 480 EN
DUBLIN-BRUSSELS/CHARLEROI
EIBRU
FRCRL
93
0.18*
0.18*
0.01
-0.06
-0.09
-0.07
DUBLIN-BUDAPEST
EIBUD
FRBUD
43
0.89***
0.82***
0.86***
0.93***
0.95***
0.90***
DUBLIN-EDINBURGH
EIEDI
FREDI
89
0.69***
0.46***
0.64***
0.71***
0.74***
0.71***
DUBLIN-FARO
EIFAO
FRFAO
93
0.91***
0.87***
0.87***
0.90***
0.90***
0.92***
DUBLIN-FRANKFURT/HAHN
EIFRA
FRHHN
87
0.59***
0.59***
0.56***
0.60***
0.63***
0.59***
DUBLIN-FUERTEVENTURA
EIFUE
FRFUE
33
0.60***
0.76***
0.72***
0.71***
0.74***
0.72***
DUBLIN-GLASGOW/PRESTWICK
EIGLA
FRPIK
65
0.71***
0.45***
0.56***
0.63***
0.68***
0.64***
DUBLIN-HAMBURG
EIHAM
FRLBC
36
0.64***
0.59***
0.70***
0.53***
0.60***
0.59***
DUBLIN-IBIZA
EIIBZ
FRIBZ
8
0.98***
0.98***
0.98***
0.96***
0.87**
0.98***
DUBLIN-KRAKOW
EIKRK
FRKRK
76
0.87***
0.86***
0.88***
0.92***
0.91***
0.91***
DUBLIN-LANZAROTE
EIACE
FRACE
34
0.75***
0.64***
0.70***
0.76***
0.79***
0.76***
DUBLIN-LASPALMAS
EILPA
FRLPA
34
0.76***
0.68***
0.67***
0.80***
0.84***
0.77***
DUBLIN-LONDONALL
EILGW
FRLGW
58
0.61***
0.1
0.40***
0.55***
0.56***
0.55***
EILGW
EILHR
58
0.81***
0.46***
0.50***
0.57***
0.60***
0.58***
EILGW
FRLTN
58
0.38***
-0.11
0.24*
0.42***
0.43***
0.40***
EILGW
FRSTN
58
0.42***
-0.06
0.26**
0.46***
0.51***
0.45***
FRLGW
EILHR
93
0.67***
0.60***
0.46***
0.40***
0.42***
0.39***
FRLGW
FRLTN
93
0.94***
0.91***
0.93***
0.93***
0.94***
0.94***
FRLGW
FRSTN
93
0.93***
0.92***
0.93***
0.93***
0.93***
0.93***
EILHR
FRLTN
93
0.56***
0.43***
0.38***
0.33***
0.36***
0.31***
EILHR
FRSTN
93
0.55***
0.43***
0.40***
0.35***
0.40***
0.33***
EN 481 EN
FRLTN
FRSTN
93
0.97***
0.98***
0.97***
0.96***
0.96***
0.96***
DUBLIN-MADRID
EIMAD
FRMAD
68
0.85***
0.82***
0.80***
0.89***
0.90***
0.87***
DUBLIN-MALAGA
EIAGP
FRAGP
93
0.88***
0.84***
0.85***
0.86***
0.85***
0.87***
DUBLIN-MAN/LIV/LEEDS
FRLBA
EILPL
20
0.24
0.02
0.05
0.17
-0.02
-0.11
FRLBA
FRLPL
93
0.78***
0.61***
0.66***
0.73***
0.64***
0.74***
FRLBA
EIMAN
93
0.50***
0.18*
0.14
0.19*
0.06
0.17
FRLBA
FRMAN
93
0.86***
0.74***
0.68***
0.75***
0.66***
0.74***
EILPL
FRLPL
20
0.60***
0.36
0.41*
0.48**
0.40*
0.29
EILPL
EIMAN
20
0.70***
0.51**
0.78***
0.63***
0.68***
0.74***
EILPL
FRMAN
20
0.51**
0.24
0.35
0.40*
0.3
0.23
FRLPL
EIMAN
93
0.55***
0.27***
0.30***
0.34***
0.26**
0.34***
FRLPL
FRMAN
93
0.94***
0.89***
0.86***
0.89***
0.84***
0.92***
EIMAN
FRMAN
93
0.64***
0.39***
0.38***
0.41***
0.35***
0.43***
DUBLIN-MARSEILLE
EIMRS
FRMRS
27
0.80***
0.82***
0.90***
0.83***
0.84***
0.84***
DUBLIN-MILAN/BERGAMO
EIBGY
FRBGY
7
0.95***
0.37
0.58
0.98***
0.49
0.19
EIBGY
EILIN
7
0.99***
0.36
0.58
0.98***
0.51
0.2
EIBGY
EIMXP
0
0.00***
0.00***
0.00***
0.00***
0.00***
0.00***
FRBGY
EILIN
76
0.89***
0.87***
0.86***
0.89***
0.89***
0.88***
FRBGY
EIMXP
62
0.84***
0.78***
0.76***
0.83***
0.83***
0.79***
EILIN
EIMXP
62
0.96***
0.89***
0.90***
0.90***
0.90***
0.88***
DUBLIN-MUNICH/MEMMINGEN
FRFMM
EIMUC
39
0.70***
0.51***
0.61***
0.73***
0.76***
0.67***
EN 482 EN
DUBLIN-NEWCASTLE
EINCL
FRNCL
25
0.66***
0.49**
0.69***
0.52**
0.49**
0.63***
DUBLIN-NICE
EINCE
FRNCE
45
0.87***
0.75***
0.77***
0.83***
0.82***
0.84***
DUBLIN-PALMA
EIPMI
FRPMI
30
0.93***
0.95***
0.94***
0.96***
0.94***
0.95***
DUBLIN-
PARISCDG/BEAUVAIS/ORLY
FRBVA
EICDG
93
0.81***
0.78***
0.79***
0.75***
0.79***
0.76***
DUBLIN-POZNAN
EIPOZ
FRPOZ
24
0.91***
0.95***
0.94***
0.95***
0.96***
0.96***
DUBLIN-PRAGUE
EIPRG
FRPRG
36
0.92***
0.90***
0.91***
0.92***
0.92***
0.91***
DUBLIN-RIGA
EIRIX
FRRIX
34
0.89***
0.85***
0.90***
0.85***
0.86***
0.87***
DUBLIN-ROMEALL
FRCIA
EIFCO
88
0.90***
0.81***
0.82***
0.88***
0.89***
0.86***
DUBLIN-SALZBURG
EISZG
FRSZG
22
0.68***
0.68***
0.79***
0.82***
0.84***
0.76***
DUBLIN-SEVILLE
EISVQ
FRSVQ
10
0.82***
0.77***
0.84***
0.80***
0.84***
0.76**
DUBLIN-STOCKHOLMARL/SKAV
EIARN
FRNYO
5
0.41
-0.41
0.17
0.38
.
-0.5
DUBLIN-TENERIFENORTH/SOUTH
FRTFN
EITFS
11
0.84***
0.78***
0.08
0.93***
0.86***
0.91***
FRTFN
FRTFS
0
0.00***
0.00***
0.00***
0.00***
0.00***
0.00***
EITFS
FRTFS
58
0.82***
0.79***
0.70***
0.88***
0.91***
0.89***
DUBLIN-TOULOUSEC/ARCASSONE
FRCCF
EITLS
60
0.87***
0.79***
0.90***
0.82***
0.79***
0.80***
DUBLIN-TURIN
EITRN
FRTRN
4
-0.29
.
-0.5
-0.56
.
.
DUBLIN-VALENCIA
EIVLC
FRVLC
7
0.97***
0.98***
-0.2
0.99***
1
0.97***
DUBLIN-VENICE/TREVISO
FRTSF
EIVCE
71
0.85***
0.81***
0.79***
0.84***
0.84***
0.85***
DUBLIN-VERONA
EIVRN
FRVRN
5
0.99***
-0.41
.
1.00***
-0.58
0.33
DUBLIN-VIENNA/BRATISLAVA
FRBTS
EIVIE
76
0.70***
0.72***
0.77***
0.81***
0.82***
0.79***
DUBLIN-VILNIUS
EIVNO
FRVNO
15
0.96***
0.93***
0.91***
0.93***
0.94***
0.91***
EN 483 EN
DUBLIN-WARSAW/MODLIN
EIWAW
FRWAW
21
0.94***
0.95***
0.96***
0.94***
0.95***
0.94***
KNOCK-LONDONALL
EILGW
FRLTN
24
0.53***
0.51**
0.54***
0.76***
0.79***
0.76***
EILGW
FRSTN
24
0.66***
0.55***
0.53***
0.78***
0.76***
0.75***
FRLTN
FRSTN
39
0.92***
0.94***
0.94***
0.92***
0.93***
0.93***
SHANNON-LONDONALL
EILGW
FRLGW
7
-0.82
-0.49
-0.49
-0.81
-0.59
-0.68
EILGW
EILHR
7
-0.21
0.42
0.57
0.34
0.67
0.42
EILGW
FRLTN
0
0.00***
0.00***
0.00***
0.00***
0.00***
0.00***
EILGW
FRSTN
7
-0.62
-0.35
-0.44
-0.73
-0.51
-0.58
FRLGW
EILHR
74
0.30***
0.60***
0.48***
0.49***
0.50***
0.36***
FRLGW
FRLTN
22
0.92***
0.45**
0.55**
0.94***
0.79***
0.92***
FRLGW
FRSTN
74
0.95***
0.93***
0.91***
0.90***
0.90***
0.91***
EILHR
FRLTN
22
0.04
0.38*
0.06
0.17
0.40*
0.08
EILHR
FRSTN
80
0.41***
0.67***
0.57***
0.53***
0.60***
0.41***
FRLTN
FRSTN
22
0.92***
0.53**
0.60***
0.78***
0.46**
0.73***
EN 484 EN
Table 2: Correlation Coefficient Results with trend and destination frequencies
City Pair
first
second
ob
raw
sc
scl
rawfd
fd1
fd2
BELFAST/DERRY-FARO
EIFAO
FRFAO
8
0.94***
0.14
-0.25
0.88**
0.12
0.03
BELFAST/DERRY-LONDONALL
EILHR
FRLTN
18
0.47*
0.36
0.34
0.43*
0.24
0.34
EILHR
FRSTN
39
0.25
0.33**
0.35**
0.40**
0.31*
0.36**
FRLTN
FRSTN
18
0.83***
0.85***
0.71***
0.85***
0.77***
0.89***
CORK-ALICANTE/MURCIA
EIALC
FRALC
8
0.91***
0.69*
-0.79
0.98***
1.00***
0.73
CORK-BARCELONA/GIRONA/REUS
EIBCN
FRGRO
5
0.88**
-0.19
-0.32
0.74
-0.64
-0.42
EIBCN
FRREU
8
0.63*
-0.28
0.83*
0.93**
0.17
-0.43
FRGRO
FRREU
2
1
-1
0.00***
0.00***
0.00***
0.00***
CORK-BIR/EMIDLANDS
EIBHX
FREMA
11
-0.03
0.53*
0.19
-0.04
0.56*
0.45
CORK-FARO
EIFAO
FRFAO
16
0.96***
0.95***
0.69***
0.94***
0.95***
0.96***
CORK-LANZAROTE
EIACE
FRACE
19
0.92***
0.93***
0.83***
0.85***
0.85***
0.89***
CORK-LONDONALL
EILGW
FRLGW
29
0.37*
0.34*
0.44**
0.66***
0.67***
0.61***
EILGW
EILHR
29
0.72***
0.51***
0.54***
0.72***
0.68***
0.50***
EILGW
FRSTN
29
0.27
0.19
0.33*
0.61***
0.61***
0.41**
FRLGW
EILHR
81
0.30***
0.15
0.40***
0.48***
0.47***
0.38***
FRLGW
FRSTN
81
0.90***
0.78***
0.86***
0.90***
0.90***
0.73***
EILHR
FRSTN
93
0.45***
0.48***
0.50***
0.53***
0.53***
0.38***
CORK-MALAGA
EIAGP
FRAGP
24
0.96***
0.93***
0.89***
0.89***
0.90***
0.91***
CORK-MAN/LIV/LEEDS
FRLPL
EIMAN
41
0.42***
0.28*
0.32**
0.34**
0.30*
0.27*
EN 485 EN
CORK-PALMA
EIPMI
FRPMI
3
1.00***
-0.5
.
1
.
-1
CORK-TENERIFENORTH/SOUTH
EITFS
FRTFS
15
0.72***
0.48*
0.71***
0.49*
0.34
0.55**
DUBLIN-ALICANTE/MURCIA
EIALC
FRALC
63
0.93***
0.86***
0.82***
0.92***
0.92***
0.92***
EIALC
FRMJV
93
0.93***
0.88***
0.87***
0.91***
0.91***
0.91***
FRALC
FRMJV
63
0.98***
0.83***
0.80***
0.96***
0.94***
0.92***
DUBLIN-BARCELONA/GIRONA/REUS
EIBCN
FRBCN
23
0.89***
0.80***
0.73***
0.92***
0.91***
0.82***
EIBCN
FRGRO
88
0.92***
0.86***
0.87***
0.91***
0.90***
0.91***
EIBCN
FRREU
82
0.82***
0.78***
0.81***
0.87***
0.84***
0.89***
FRBCN
FRGRO
18
0.96***
0.76***
0.63***
0.89***
0.86***
0.88***
FRBCN
FRREU
16
0.86***
0.63**
0.41
0.71***
0.73***
0.79***
FRGRO
FRREU
80
0.90***
0.85***
0.87***
0.91***
0.90***
0.91***
DUBLIN-BERLIN
EISXF
FRSXF
74
0.61***
0.62***
0.70***
0.86***
0.87***
0.83***
DUBLIN-BILBAO/SANTANDER
EIBIO
FRSDR
32
0.90***
0.90***
0.62***
0.97***
0.95***
0.91***
DUBLIN-BIR/EMIDLANDS
EIBHX
FRBHX
93
0.78***
0.57***
0.45***
0.53***
0.39***
0.49***
EIBHX
FREMA
93
0.59***
0.30***
0.30***
0.41***
0.25**
0.37***
FRBHX
FREMA
93
0.90***
0.86***
0.79***
0.84***
0.78***
0.85***
DUBLIN-BOLOGNA
EIBLQ
FRBLQ
24
0.82***
0.74***
0.77***
0.88***
0.91***
0.81***
DUBLIN-BRISTOL/CARDIFF/EXETER
EIBRS
FRBRS
29
0.60***
0.53***
0.60***
0.70***
0.73***
0.71***
EIBRS
FRCWL
18
0.64***
0.54**
0.51**
0.77***
0.81***
0.76***
FRBRS
FRCWL
18
0.83***
0.67***
0.62***
0.84***
0.79***
0.72***
DUBLIN-BRUSSELS/CHARLEROI
EIBRU
FRCRL
93
0.18*
0.12
0.01
-0.06
-0.05
-0.09
EN 486 EN
DUBLIN-BUDAPEST
EIBUD
FRBUD
43
0.89***
0.82***
0.85***
0.93***
0.95***
0.91***
DUBLIN-EDINBURGH
EIEDI
FREDI
89
0.69***
0.46***
0.63***
0.71***
0.74***
0.70***
DUBLIN-FARO
EIFAO
FRFAO
93
0.91***
0.87***
0.86***
0.90***
0.90***
0.90***
DUBLIN-FRANKFURT/HAHN
EIFRA
FRHHN
87
0.59***
0.47***
0.51***
0.60***
0.63***
0.61***
DUBLIN-FUERTEVENTURA
EIFUE
FRFUE
33
0.60***
0.79***
0.76***
0.71***
0.74***
0.74***
DUBLIN-GLASGOW/PRESTWICK
EIGLA
FRPIK
65
0.71***
0.48***
0.58***
0.63***
0.68***
0.64***
DUBLIN-HAMBURG
EIHAM
FRLBC
36
0.64***
0.57***
0.68***
0.53***
0.63***
0.56***
DUBLIN-IBIZA
EIIBZ
FRIBZ
8
0.98***
1.00***
0.13
0.96***
1.00***
1.00***
DUBLIN-KRAKOW
EIKRK
FRKRK
76
0.87***
0.87***
0.89***
0.92***
0.91***
0.90***
DUBLIN-LANZAROTE
EIACE
FRACE
34
0.75***
0.62***
0.70***
0.76***
0.79***
0.74***
DUBLIN-LASPALMAS
EILPA
FRLPA
34
0.76***
0.68***
0.67***
0.80***
0.85***
0.77***
DUBLINL-ONDONALL
EILGW
FRLGW
58
0.61***
0.11
0.38***
0.55***
0.54***
0.37***
EILGW
EILHR
58
0.81***
0.38***
0.46***
0.57***
0.60***
0.48***
EILGW
FRLTN
58
0.38***
-0.12
0.23*
0.42***
0.41***
0.33**
EILGW
FRSTN
58
0.42***
-0.04
0.25*
0.46***
0.48***
0.40***
FRLGW
EILHR
93
0.67***
0.37***
0.43***
0.40***
0.41***
0.30***
FRLGW
FRLTN
93
0.94***
0.83***
0.93***
0.93***
0.94***
0.88***
FRLGW
FRSTN
93
0.93***
0.85***
0.93***
0.93***
0.93***
0.85***
EILHR
FRLTN
93
0.56***
0.32***
0.36***
0.33***
0.36***
0.30***
EILHR
FRSTN
93
0.55***
0.34***
0.37***
0.35***
0.39***
0.30***
FRLTN
FRSTN
93
0.97***
0.97***
0.97***
0.96***
0.96***
0.96***
EN 487 EN
DUBLIN-MADRID
EIMAD
FRMAD
68
0.85***
0.82***
0.80***
0.89***
0.90***
0.87***
DUBLIN-MALAGA
EIAGP
FRAGP
93
0.88***
0.84***
0.85***
0.86***
0.85***
0.84***
DUBLIN-MAN/LIV/LEEDS
FRLBA
EILPL
20
0.24
0.04
0.03
0.17
-0.04
-0.08
FRLBA
FRLPL
93
0.78***
0.61***
0.66***
0.73***
0.64***
0.71***
FRLBA
EIMAN
93
0.50***
0.22**
0.13
0.19*
0.04
0.17
FRLBA
FRMAN
93
0.86***
0.71***
0.67***
0.75***
0.66***
0.63***
EILPL
FRLPL
20
0.60***
0.28
0.32
0.48**
0.43*
0.24
EILPL
EIMAN
20
0.70***
0.3
0.72***
0.63***
0.67***
0.71***
EILPL
FRMAN
20
0.51**
0.19
0.31
0.40*
0.3
0.18
FRLPL
EIMAN
93
0.55***
0.27***
0.30***
0.34***
0.23**
0.34***
FRLPL
FRMAN
93
0.94***
0.84***
0.86***
0.89***
0.84***
0.90***
EIMAN
FRMAN
93
0.64***
0.40***
0.38***
0.41***
0.35***
0.42***
DUBLIN-MARSEILLE
EIMRS
FRMRS
27
0.80***
0.81***
0.91***
0.83***
0.83***
0.85***
DUBLIN-MILAN/BERGAMO
EIBGY
FRBGY
7
0.95***
0.07
0.06
0.98***
0.19
0.34
EIBGY
EILIN
7
0.99***
0.18
-0.08
0.98***
0.34
0.41
EIBGY
EIMXP
0
0.00***
0.00***
0.00***
0.00***
0.00***
0.00***
FRBGY
EILIN
76
0.89***
0.84***
0.81***
0.89***
0.90***
0.86***
FRBGY
EIMXP
62
0.84***
0.73***
0.69***
0.83***
0.83***
0.78***
EILIN
EIMXP
62
0.96***
0.88***
0.88***
0.90***
0.88***
0.88***
DUBLIN-MUNICH/MEMMINGEN
FRFMM
EIMUC
39
0.70***
0.53***
0.60***
0.73***
0.71***
0.74***
DUBLIN-NEWCASTLE
EINCL
FRNCL
25
0.66***
0.49**
0.71***
0.52**
0.49**
0.62***
EN 488 EN
DUBLIN-NICE
EINCE
FRNCE
45
0.87***
0.75***
0.75***
0.83***
0.84***
0.84***
DUBLIN-PALMA
EIPMI
FRPMI
30
0.93***
0.89***
0.94***
0.96***
0.94***
0.91***
DUBLIN-
PARISCDG/BEAUVAIS/ORLY
FRBVA
EICDG
93
0.81***
0.79***
0.79***
0.75***
0.79***
0.76***
DUBLIN-POZNAN
EIPOZ
FRPOZ
24
0.91***
0.96***
0.94***
0.95***
0.96***
0.96***
DUBLIN-PRAGUE
EIPRG
FRPRG
36
0.92***
0.91***
0.92***
0.92***
0.93***
0.92***
DUBLIN-RIGA
EIRIX
FRRIX
34
0.89***
0.87***
0.91***
0.85***
0.86***
0.89***
DUBLIN-ROMEALL
FRCIA
EIFCO
88
0.90***
0.79***
0.75***
0.88***
0.89***
0.85***
DUBLIN-SALZBURG
EISZG
FRSZG
22
0.68***
0.70***
0.80***
0.82***
0.79***
0.77***
DUBLIN-SEVILLE
EISVQ
FRSVQ
10
0.82***
0.49
0.47
0.80***
0.84***
0.54
DUBLIN-STOCKHOLMARL/SKAV
EIARN
FRNYO
5
0.41
-0.53
.
0.38
0.71
-0.58
DUBLIN-TENERIFENORTH/SOUTH
FRTFN
EITFS
11
0.84***
0.59*
-0.01
0.93***
0.64**
0.66**
FRTFN
FRTFS
0
0.00***
0.00***
0.00***
0.00***
0.00***
0.00***
EITFS
FRTFS
58
0.82***
0.79***
0.70***
0.88***
0.91***
0.89***
DUBLIN-TOULOUSE/CARCASSONE
FRCCF
EITLS
60
0.87***
0.71***
0.83***
0.82***
0.77***
0.73***
DUBLIN-TURIN
EITRN
FRTRN
4
-0.29
.
.
-0.56
-0.5
.
DUBLIN-VALENCIA
EIVLC
FRVLC
7
0.97***
1.00***
-0.61
0.99***
0
1.00***
DUBLIN-VENICE/TREVISO
FRTSF
EIVCE
71
0.85***
0.79***
0.74***
0.84***
0.84***
0.84***
DUBLIN-VERONA
EIVRN
FRVRN
5
0.99***
0.61
0.93*
1.00***
.
0.82
DUBLIN-VIENNA/BRATISLAVA
FRBTS
EIVIE
76
0.70***
0.73***
0.77***
0.81***
0.82***
0.79***
DUBLIN-VILNIUS
EIVNO
FRVNO
15
0.96***
0.94***
0.92***
0.93***
0.95***
0.91***
DUBLIN-WARSAW/MODLIN
EIWAW
FRWAW
21
0.94***
0.95***
0.96***
0.94***
0.95***
0.94***
EN 489 EN
KNOCK-LONDONALL
EILGW
FRLTN
24
0.53***
0.53***
0.56***
0.76***
0.79***
0.79***
EILGW
FRSTN
24
0.66***
0.55***
0.52**
0.78***
0.76***
0.78***
FRLTN
FRSTN
39
0.92***
0.94***
0.94***
0.92***
0.93***
0.94***
SHANNON-LONDONALL
EILGW
FRLGW
7
-0.82
-0.48
-0.52
-0.81
-0.59
-0.73
EILGW
EILHR
7
-0.21
0.22
0.05
0.34
0.64
0.02
EILGW
FRLTN
0
0.00***
0.00***
0.00***
0.00***
0.00***
0.00***
EILGW
FRSTN
7
-0.62
-0.29
-0.55
-0.73
-0.49
-0.42
FRLGW
EILHR
74
0.30***
0.50***
0.46***
0.49***
0.50***
0.38***
FRLGW
FRLTN
22
0.92***
0.39*
0.43*
0.94***
0.71***
0.63***
FRLGW
FRSTN
74
0.95***
0.81***
0.87***
0.90***
0.90***
0.68***
EILHR
FRLTN
22
0.04
0.02
-0.03
0.17
0.38
0.05
EILHR
FRSTN
80
0.41***
0.57***
0.53***
0.53***
0.59***
0.35***
FRLTN
FRSTN
22
0.92***
0.54***
0.51**
0.78***
0.36
0.74***
EN 490 EN
Annex II - Ryanair IPR analysis
Description of Ryanair's analysis
(1) Ryanair has submitted a study based on Illustrative Price Rises (Methodology for
Map-Based Analysis), annexed in Ryanair's response to the decision opening the
proceedings. This analysis, according to Ryanair relates to the substitutability of
airports within O&D pairs, as defined by the Commission in the decision opening the
proceedings.
(2) The analysis was performed on 5 city pairs (from Dublin to Paris, Frankfurt, Munich,
Stockholm and Vienna) where Aer Lingus and Ryanair operate to different
destination airports, and uses customer location data from Ryanair's booking system.
The first goal of the analysis is to determine to what extent the catchment areas of
Ryanair and Aer Lingus overlap in these city pairs on the basis of these booking data.
(3) The analysis only looks at passengers at the non-Irish side of the route (that is to say,
includes bookings where the outbound leg started at the non-Irish end of the route as
the aim of the analysis is to look at the catchment areas around the non-Irish
airports).
(4) The analysis assumes that there is symmetry between Ryanair and Aer Lingus
passenger responses and therefore Aer Lingus passengers are assumed to be equally
willing to switch between airports as Ryanair's. In particular, the analysis assumes
that every Ryanair passenger from within 100km of the Aer Lingus airport, who
previously purchased a Ryanair ticket, would switch between airlines and airports
whereas no-one outside 100km of the Aer Lingus airport is willing to do so.
(5) On the basis of the post code data extracted from Ryanair's reservation system and
the above assumptions. Ryanair estimates the percentage of Ryanair's passengers that
are within 100km of the Aer Lingus airport. This share is between [10-20]*% (in the
case of FMM and MUC in Munich) and [50-60]*% (in the case of CDG and BVA in
Paris). Based on these figures, Ryanair concludes that "the bulk of Ryanair
passengers are located well away from the airport which Aer Lingus serves, with a
low proportion of the Ryanair passengers located within 100km of the Aer Lingus
airport"
1
.
(6) Ryanair further assumes that in routes with a third competitor there is a need to
divide up the individuals living within 100km of the Aer Lingus airport between the
various airlines operating Dublin services. Ryanair performs this splitting on the
basis of weekly frequencies offered by competitors in that airport. Therefore the
estimated percentage of Ryanair passengers switching to Aer Lingus is between [10-
20]*% in Frankfurt and [30-40]*% in Vienna. These figures, according to Ryanair,
reflect the "actual" diversion ratio between Ryanair and Aer Lingus for these airport
pairs.
1
Annex 2(b) of Draft Form RM of 17 August 2012.
EN 491 EN
(7) Ryanair then calculates a critical diversion ratio which is required to generate an
indicative price rise of […]*% by making further assumptions on the Aer Lingus and
Ryanair gross margins as well as the relative prices of Ryanair and Aer Lingus. The
analysis uses average gross margins across all routes (for Ryanair between […]*%
and […]*% for Aer Lingus and a price ratio of […]* (with Aer Lingus being almost
twice as expensive as Ryanair).
(8) The formula for critical diversion ratio, which assumes symmetric diversion and
linear demand, yields a critical diversion ratio for Ryanair of approximately 30%.
Therefore if the actual diversion between Ryanair and Aer Lingus is lower than this
30% threshold then a price increase for the hypothetical monopolist is not profitable
and jointly they do not constitute a relevant market.
(9) Ryanair concludes that for example in the case of Frankfurt that "The estimated
critical diversion ratio for Ryanair is […]*%. However, Oxera estimates that only
approximately […]*% of all of Ryanair's HHA-Dublin passengers who would switch
away from Ryanair following a price increase would actually switch to Aer Lingus.
Since this number is smaller than the critical diversion ratio, it follows that the
illustrative post-merger price rise by Ryanair would be lower than 5%. This analysis
therefore indicates that Aer Lingus' services from FRA place little competitive
pressure on Ryanair's services from HHA".
2
Shortfalls of the analysis
(10) The Commission notes several shortcomings of the analysis.
3
The Commission
considers that these shortcomings affect both the reliability of the analysis but also
show that a different, more likely interpretation of the results exists under which the
two airports in each relevant airport pair belong to the same market:
(a) The Commission notes that the assumptions made by Ryanair for the purpose
of estimating the actual diversion ratio on the willingness of passengers to
switch airport are arbitrary and do not necessarily reflect the true diversion
patterns due to a small but significant non-transitory price increase ("SSNIP").
First, the assumption that everyone within 100km around the Aer Lingus
airport will be willing to switch and the others will not is a very strong one that
is likely to bias the result. Large proportions of Ryanair's passengers have a
credit card address that is further than 100 km from Ryanair's airport. For
example, for Paris the change in the proportions of Ryanair passengers located
within 100km of the Ryanair airport compared to the Aer Lingus airport is very
small […]*. Therefore, this raises the issue of how the Ryanair passengers
whose credit card address is outside 100km are treated, as these passengers
represent a significant proportion of the passengers on most routes. Table 1
2
See Ryanair's observations on the decision opening the proceedings.
3
Ryanair's analysis itself acknowledges that it is based on some assumptions and the interpretation of the
results would depend on these assumptions ("In reality, neither of these assumptions will be true in
most cases […]. Whether the analysis under- or over-represents the true number of switchers will
depend upon the balance between these two groups"), Annex 2(b) of Draft Form RM of 17 August
2012.
EN 492 EN
below shows that a significant proportion of passengers are located outside
100km from both Ryanair and Aer Lingus airports and that the proportion of
Ryanair passengers within 100km of a Ryanair and of a Aer Lingus airport are
very similar in several of these examples.Secondly, Ryanair's analysis excludes
the Irish passengers for whom the distance between the Ryanair and Aer
Lingus airports could be less important than the distance between the city
center and the airports.
Table 1
City Pair
Ryanair passengers
within 100km of Aer
Lingus airport
Ryanair passengers
within 100km of
Ryanair airport
Vienna- Bratislava
[30-40]*%
[40-50]*%
Paris
[50-60]*%
[60-40]*%
Stockholm
[40-50]*%
[50-60]*%
Munich
[10-20]*%
[30-40]*%
Frankfurt
[20-30]*%
[50-60]*%
Source Ryanair
(b) The Commission also considers that it is arbitrary to allocate passengers across
competitors on the routes where there is a competitor. Ryanair's analysis splits
passengers in the Aer Lingus' airport on the basis of the number of frequencies
of different competitors in that airport. First, the Commission notes that the
actual point-to-point passengers flown should more closely reflect the market
position of each competitor. Also, Aer Lingus would be the closest competitor
of Ryanair on at least some of these routes (see for instance Section 8.9.5) and
therefore a greater share of Ryanair's passengers is likely to switch to Aer
Lingus than to the other competitors (operating in the Aer Lingus' airport) in
the relevant routes. Properly accounting for these would lead to a higher actual
diversion reflecting the greater constraint that Aer Lingus imposes on Ryanair.
The different actual diversion ratios according to Ryanair are provided in Table
2 below.
EN 493 EN
Table 2
City Pair
Actual diversion
to the Aer Lingus
airport
Actual diversion
to Aer Lingus
(based on
frequencies)
Actual diversion
to Aer Lingus
(based on
passengers)
Vienna-
Bratislava
[30-40]*%
[30-40]*%
[30-40]*%
Paris
[50-60]*%
[10-20]*%
[30-40]*%
Stockholm
[40-50]*%
[20-30]*%
[20-30]*%
Munich
[10-20]*%
[10-20]*%
[10-20]*%
Frankfurt
[20-30]*%
[10-20]*%
[10-20]*%
4
Source Ryanair
(c) The Commission notes that the analysis provided by Ryanair computes critical
diversion ratios (that would make a 5% price increase profitable for the Parties)
for market definition instead of calculating the likely illustrative price increase
from a merger. Using the "actual" diversion ratios between the Parties one can
compute the illustrative price rises ("IPR") due to the Transaction (that
Ryanair's analysis does not report). However, even a finding that the price
effect is relatively small (less than 5%) could also indicate that the Parties'
services do not constitute a relevant market on their own before the
Transaction, other rivals also constrain them and the market definition should
include these other rivals as well.
(d) The Commission using the assumptions of Ryanair on the diversion ratios,
computed the predicted IPR and performed several robustness checks of the
analysis. Ryanair's diversion ratios predict a price increase between 1% and 7%
for Ryanair and a 1% to 4% price increase for Aer Lingus.
– However, the formula used by Aer Lingus (notably the linear demand
assumption) limits the magnitude of the price increase. Under other
typically used demand functions the magnitude of predicted price
increases are usually larger (and the predicted critical diversion ratios are
smaller). The Commission tested whether the results are robust assuming
a different demand function for the purposes of computing the critical
4
The Commission notes that Ryanair has not properly distributed the […]*% across competitors on the
basis of market shares on passengers as following Ryanair data (Annex 7.3(b) as updated on 22 August
2011) in Summer 2011 and in Winter 2011/2012 Aer Lingus represented 42% and 59% of all
passengers on the route (compared to 35% and 21% for Lufthansa respectively). Therefore the correct
actual diversion as the basis of Ryanair's computations would be closer to 20% rather than […]*%
(16% for Summer 2011 and 21% for Winter 2011/2012).
EN 494 EN
diversion ratio. The Commission notes that assuming a log-linear
demand function the critical diversion ratio ranges from […]*% to
[…]*% for Aer Lingus and […]*% to […]*% for Ryanair. Sensitivity
analysis for the log-linear demand function is provided in Appendix I of
this Annex. More precisely, under the […]*% margin assumption for Aer
Lingus and the […]*% margin assumption for Ryanair (the assumptions
made in Ryanair's analysis), critical diversion under log-linear demand
function falls to 20% for Ryanair and to 13% for Aer Lingus. Therefore
comparing these benchmarks with the actual diversion to Aer Lingus, on
all routes (in Munich and Frankfurt price increases would be profitable
only at the Aer Lingus airport) the price effect would be greater than 5%
(that is to say, greater than the 5% indicative price rise as set by Ryanair's
analysis). The predicted price increase under the log-linear demand
assumption ranges from 1% to 19 % for Ryanair and from 3% to 22% for
Aer Lingus (depending on the airport).
5
The analysis for the illustrative
price increases is provided in Appendix II of this Annex.
– Furthermore, the way margins are computed may well affect the
robustness of any results. Typically in the airline industry computing
gross margins is a very complex exercise. It is likely that the relevant
margin in the setting of the IPR relates to the margins for the marginal
units, which are likely to be significantly higher than the average margins
in a given route. Ryanair's analysis has used gross margins of […]*% for
Aer Lingus and […]*% for Ryanair. Increasing gross margins implies
that the critical diversion ratio decreases. In particular assuming […]*%
gross margins for Aer Lingus, the critical diversion ratio falls (under log-
linear specification) to around […]*% and therefore the prediction of
Ryanair's analysis would indicate that all airport pairs (including Munich
and Frankfurt under the proper passenger-based allocation as shown in
Table 2 above) significantly constrain each other and belong to the same
market.
(e) Regarding the representativeness of the dataset, the Commission notes that the
analysis is made only on a relatively very small number of observations. For
the Vienna, Paris, Stockholm, Munich and Frankfurt route, respectively […]*
and […]* observations were used in the analysis. This is contrasted with more
than 13 000 passengers that flew on the route Dublin-Paris in March 2012
(while 13 000 passengers actually flew in March 2012 the number of bookings
provided by Ryanair refer to bookings made in March 2012 and not to the
actual flights in March 2012). Based on Ryanair's own data there were more
than […]* booked passengers on the respective routes in March 2012.
Therefore the dataset used by Ryanair typically represents less than […]* % of
the actual number of total passengers on these routes in March 2012. Ryanair
claims that all booking information has been included in the original dataset.
5
The IPR methodology does not take into account the feedback effects between the other rivals (these
factors typically increase the magnitude of the predicted prices increases) and does not attempt to
account for efficiencies, which typically decreases the predicted price increases.
EN 495 EN
Ryanair further explains that each booking may represent more than one
passenger (a single booking may refer to a group of passengers)
6
. However, in
any case Ryanair acknowledges that at least the passengers booking from
Ireland are not included in the dataset. Therefore, the Commission considers
that there are concerns regarding the representativeness of the sample.
Ryanair's comments
(11) Ryanair has also commented on the Commission's views on the IPR analysis. While
acknowledging that the IPR analysis' assumptions may bias the diversion estimates,
Ryanair claims that the assumption on diversion does not necessarily lead to a
downwards bias of the diversion estimates.
(12) Ryanair further suggests that the Commission has considered a 'worst case scenario'
rather than a balanced assessment. It claims that the Commission has not recognised
that a range of conservative assumptions have been made in the IPR analysis and that
the Commission has applied in a cumulative fashion several layers of cautious
assumptions to consider a worst-case scenario to compare against Oxera's original
results.
(13) The Commission does not agree with Ryanair's views for the following reasons.
(14) First, Ryanair has not addressed the Commission's concerns that the assumptions
made in the IPR analysis for the purposes of estimating the actual diversion ration
are arbitrary. The Commission can have no basis for considering that this metric
reflects the actual diversion. The actual diversion as computed by Ryanair appears to
be an arbitrary "assumed" diversion. Ryanair argues that this assumption does not
necessarily lead to downward bias. However, Ryanair has not replied to the question
of why a significant proportion of passengers are located outside 100km from both
Ryanair and Aer Lingus airports and that the proportion of Ryanair passengers within
100km of a Ryanair and of an Aer Lingus airport are very similar in several of the
examples.
(15) Secondly, the Commission does not consider it has used a worst case scenario. The
Commission has first raised very serious doubts regarding the reliability of the actual
diversion ratios, as computed by Ryanair. Also, Ryanair has not addressed the
Commission's point that it does not take into account the closeness of competition
(Aer Lingus being the closest competitor of Ryanair) when it allocates passengers
across competitors in the route (point b above). The Commission has further argued
that the analysis is not well suited for market definition purposes (point c). A finding
that the price effect is relatively small (less than 5%) is not informative on whether
Ryanair would be in a position to increase fares for flights to its own airport (and
6
Ryanair explains that "each "booking" of a Ryanair flight typically corresponds to around 3 one-way
flights (or sectors) (while only one billing address will be associated with each booking). The exact
bookings/sectors ratio may vary from route to route. In addition, as you [the Commission] noted, the
"bookings" observations used for the mapping analysis relate to flights from one end of the route only
(i.e., the non-Irish end), which further understates "bookings" in relation to total passengers on a route",
see Ryanair's reply to Commission's Request of Information of 26 October 2012.
EN 496 EN
therefore them being in the same market) and similarly a small price effect only
indicates that the Parties' services may not constitute a relevant market on their own
(but together with other rivals they may). Ryanair again does not comment on this.
Last, Ryanair has remained silent on the fact that the IPR analysis is made only on
the basis of a relatively small number of observations which does not include
passengers originating ex-Ireland (point e).
(16) Notwithstanding all these fundamental flaws in Ryanair’s analysis, the Commission
has tested the robustness of the IPR analysis. The Commission also notes that
Ryanair does not explain why any of the assumptions put forward by the
Commission are more unrealistic than the one put forwards by Ryanair.
(17) The Commission also notes that the assumptions made by Ryanair are not
conservative, for the following reasons:
– The Commission notes a stark contradiction in Ryanair's IPR analysis and on
its reply to the SO. Ryanair has claimed that "Passengers who purchase flights
on Ryanair typically do so because they are highly price sensitive (that is to
say, will chose the cheapest ticket available), because Ryanair’s flight schedule
is more convenient, or because Ryanair flies to the most convenient airport for
the actual travel origin/destination. These passengers will not switch to Aer
Lingus in response to a 5-10% price increase by Ryanair because the schedule
and destination will not change, and Ryanair will generally still be (by a wide
margin) the cheapest available option (Ryanair’s average short-haul fares are
half those of Aer Lingus)".
7
In the IPR analysis, as Ryanair had no access to
booking data of Aer Lingus, it has assumed that there is symmetry between
Ryanair and Aer Lingus passenger responses (that is to say, they have assumed
that Aer Lingus' passengers are equally willing to switch between airports as
Ryanair's passengers). Ryanair considers this "to be a conservative assumption
since Ryanair's passengers are generally likely to be more price-sensitive, and
hence more willing to switch between airlines and airports than Aer Lingus'
passengers"
8
, that is to say, the exact opposite of what is claimed in the reply to
the Statement of Objections. Besides, the Commission's regression analysis
shows that both airlines significantly constrain each other.
– In routes with competitors, for the computation of actual diversion ratios the
Commission cannot regard the allocation on the basis of frequencies rather
than passengers as a conservative assumption. The underlying figures for
actual diversion change significantly from [10-20]*% to [30-40]*% for Paris
and from [10-20]*% to [10-20]*% for Frankfurt. Furthermore, Ryanair does
not explain why a measure of closeness of competition is not taken into
account. The Commission cannot consider the assumption made by Ryanair as
a conservative assumption.
– Furthermore, Ryanair criticises the Commission for using a log-linear demand
assumption on the demand function, claiming it generates unrealistic results
7
See Ryanair's Response to Statement of Objections, page 6.
8
See "Methodology for Map-Based analysis", Annex 2(b) of Draft Form RM of 17 August 2012.
EN 497 EN
with weak theoretical foundation for the IPR. Also, the Commission's
robustness analysis has shown that under the log-linear specification the critical
diversion ratios are much lower (and the expected price effects significantly
higher).
9
The Commission agrees that some of the log-linear demand
predictions may not hold for large price increases as it assumes a constant
elasticity of demand which is not likely to hold for very large price increases.
However, for the IPR analysis provided by Ryanair, the Commission does not
agree that the linear approximation is necessarily a better specification than the
log-linear.
10
A standard approach in the literature is to consider both
specifications.
11
Conclusions
(18) The analysis provided by Ryanair for the Map-Based analysis relies on several strong
and arbitrary assumptions. First, the Commission does not consider that the
assumptions made by Ryanair (notably the 100km benchmark and the assumptions
on routes with competitors) provide a sufficiently meaningful comparator for
measuring actual diversion ratios for the purposes of market definition and effects
based analysis. Secondly, the results of the analysis are not robust to changes in the
assumptions of the computation of the critical diversion ratio. Thirdly, the
Commission cannot exclude that the sample provided is not a representative sample.
The Commission does not consider that the results of this analysis provide any
evidence that the relevant airports belong to different markets; on the contrary, even
under the strong assumptions made by Ryanair in several robustness checks the
results indicate the opposite.
9
The Commission also notes that it has tested, as a robustness check, the results of the analysis when Aer
Lingus' gross margin is […]* instead […]* points increase/decrease).
10
Ryanair also claims that the Commission has incorrectly assumed that the average Ryanair fares are as
expensive as those of Aer Lingus' in the computation for the log-linear demand. The Commission first
notes that Ryanair does not provide these calculations. More importantly, for example in Shapiro
(2010), "Unilateral Effects Calculations", the computations of illustrative price changes under constant
elasticity of demand are not dependent on the price ratio (contrary to the linear demand where the price
ratio affects the IPR). Therefore the Commission does not consider correct Ryanair's claim (which in
any case does not even change the figures substantially (from 20% to 14% for Ryanair and from 13% to
22% for Aer Lingus).
11
See Shapiro, C (2010) "Unilateral Effects Calculations" and Parker, D (2009)"Illustrative Price Rises
from Mergers in Differentiated Products Markets", GCP. Ryanair provides no evidence that the own
elasticity of demand changes for relatively small price changes in this particular case.
EN 498 EN
Appendix I: Sensitivity analysis of critical diversion analysis of Ryanair (under log-linear
demand)
Loglinear demand
For Ryanair
margin Ryanair
margin Aer Lingus
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
For Aer Lingus
margin Ryanair
margin Aer Lingus
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
EN 499 EN
Appendix II: Illustrative Price Rises (IPR) computed with Ryanair's assumptions on the
diversion ratios, different assumptions on the value of the margins of Ryanair and Aer
Lingus and with linear and log-linear demand curves.
[…]*
EN 500 EN
Annex III - Regression analysis.
Introduction
(1) The Commission has used regression analysis technique, as in the 2007 Decision, to
test the competitive interaction between the Parties. Regression analysis is a
statistical tool for understanding the relationship between two or more variables.
Using this regression analysis the Commission has investigated whether the presence
of one of the Parties has an impact on the fares of the other, to quantify the
magnitude of such an effect and to help predict the average increase in fares post-
Transaction (if any). The Commission in the 2007 Decision used different regression
techniques but concluded that the fixed-effects analysis provides the most
appropriate approach in the case at hand. The principal advantage of the fixed-effects
analysis is that it takes into account important but unobserved (or unmeasured)
influences on price that do not vary over time on any single route. Therefore the
Commission in the present case has followed the same fixed-effects methodology.
(2) A regression analysis with route specific fixed-effects accounts for specificities on
given routes. When an analysis does not control for such specificities the results of
the analysis may be biased due to the so-called omitted variable bias (that affects
alternative regression analysis techniques, namely cross-sectional regressions). By
controlling for route specificities the omitted variable bias risk is mitigated because
unobservable cost or demand factors, whose variation across routes would be likely
to affect fares, are more likely not to vary over time on any single route. The
Commission regards this methodology as the most suitable to assess the competitive
constraint exerted by Ryanair on Aer Lingus.
Data Description
(3) The Commission has requested data from DAA, Ryanair and Aer Lingus.
DAA data
(4) The DAA has provided in its first submission (3 August 2012) a dataset containing
information on all the routes out of Dublin, Cork and Shannon for the period between
November 2004 to July 2012. The information provided was for each carrier (split
between its scheduled and charter flights), month and route:
– Total monthly frequencies (movements);
– Total number of passengers, split between point-to-point passengers and
connecting passengers;
– Total number of seats offered.
(5) A number of clarification emails were exchanged between the Commission and DAA
with a view to understanding the nature of some observations (see for example email
from the Commission to DAA of 09 October 2012). On 12 October 2012 DAA
provided a final dataset.
EN 501 EN
Aer Lingus Data
(6) Aer Lingus submitted in various stages the reply to the data request sent by the
Commission on 30 August ("Company data on the City Pair of Reference").
(7) Aer Lingus raised several issues on data availability (see Aer Lingus' email of 10 and
12 September).
1
(8) Aer Lingus' main difficulty has been to provide disaggregated data as their data is
only stored and available from June 2008 to the present day. This difficulty relates to
data disaggregated on the basis of connecting vs. non-connecting passengers as well
as for different fare types. Aer Lingus also explained that it does not have revenue
data from Aer Arann operations.
(9) The dataset provided by Aer Lingus included data on short-haul routes out of Dublin,
Cork and Shannon to non-Irish destinations. Aer Lingus provided aggregate data on
21 September 2012. The variables included the following:
– Number of passengers: which relates to the number of total flown passengers;
– Total capacity;
– Number of sectors (movements);
– Load factors;
– Gross revenue: which is the sum of the net revenue, recoverable charges
(which includes airport taxes, change fees, FFP etc), administration and excess
baggage fees and total other revenues;
– Net revenue; which includes the pure passenger revenue;
– Total administration and excess baggage fees: includes baggage fees, excess
baggage fees, online booking fees and telesales fees;
– Recoverable charges: includes recoverable airport charges but also revenues
from insurance/security charges;
– Total other revenues: includes change/cancellation fees, baggage fees, seat
selection, retail proportion of Plus fare, inflight sales and commissions. Cargo
and mail revenues are not included;
– Total fuel costs.
(10) Aer Lingus also provided data (passengers, net and gross revenues) on passenger
origination (where sales made within the sales region of Ireland have been attributed
as passengers originating at an Irish airport) on 26 September 2012 (for period June
1
Aer Lingus' Comments to Request for Information 8.
EN 502 EN
2008 to July 2012). Gross revenue is allocated to Irish-originating passengers in the
same proportions as applies to net revenues.
(11) Aer Lingus also provided information on the business class passengers on its flights
before March 2005 (28 September 2012).
(12) Aer Lingus further submitted data (on passengers and net revenues) on connecting
vs. non-connecting passengers but only as of June 2008 (see Aer Lingus' submission
of 8 October 2012).
(13) Aer Lingus provided information on when Flex fares and Plus fares were introduced
on a route-by-route basis in their submission of 8 October 2012 and has confirmed
that following the phasing out of business class tickets in March 2005 there were not
different fare types on Aer Lingus flights until the introduction of Flex fares and Plus
fares.
2
(14) The Commission also asked Aer Lingus data for the following routes (9 October
2012):
– Knock-Birmingham (including EMA);
– Knock-London (all airports);
– Belfast/Derry (both Belfast airports and Derry) – Faro;
– Belfast/Derry (both Belfast airports and Derry) – London (all airports).
(15) Aer Lingus provided these data on 16 October 2012, with the exception of Knock-
Birmingham (as this is operated by Aer Arann).
(16) Another data request was sent to Aer Lingus on 30 August 2012 requesting data on
airport distances as well as Schedule Reference Service data ("SRS data").
(17) The distance dataset included the following variables:
– Distance of an airport to the city center;
– Travelling time to city center.
(18) Aer Lingus also submitted SRS data (submitted on 11 September and a more
extended dataset including more airports on 8 October) which provide information
on airport use by carrier. The information included the number of outbound
scheduled flights per week to destinations that either Aer Lingus or Ryanair
(requested on 03 October 2012) had served (during the period November 2004-July
2012). This dataset has been used to assess the degree of presence of each of the
competitors at the destination airport for each route/city pair.
2
Aer Lingus' response to the Commission's request of information of 8 October 2012. Aer Lingus has
further provided data with a split between Flex and other fares for the Dublin, Cork and Shannon routes
(25 October 2012).
EN 503 EN
(19) The Commission also requested (3 October 2012) from Aer Lingus the fuel price
they most closely monitor. Aer Lingus has provided (8 October 2012) the time
series:
– Jet Kerosene Cargoes CIF NWE for the EU (in $/MT); and
– Jet 54 USGC pipeline for the US (in $cent/gal).
Ryanair Data
(20) Several data requests were sent to Ryanair.
(21) A data request ("Company data on the City Pair of Reference") was sent on 30
August. Ryanair provided data on all city-pair routes operated by Ryanair and
departing from Dublin, Cork or Shannon during November 2004-July 2012. Data
were requested for each regularly operated flight on a monthly basis.
(22) Ryanair submitted the first reply on September 11 (and revised versions on October 3
and October 8) and provided the following variables:
– Number of booked passengers: Ryanair confirmed that it cannot provide data
on the flown number of passengers (see email from Ryanair of 11 October
2012);
– Total capacity;
– Number of sectors (movements);
– Load factors;
– Total (gross/net) revenue: this includes all revenues generated from the sale of
the ticket and includes published airport charges, check-in fee, insurance levy,
ETS levy and EU 261 levy, other miscellaneous revenues. It excludes
government taxes as Ryanair acts as a tax collector;
– Total administration and excess baggage fees: these are calculated by reference
to the total administration and excess baggage fees generated during the
particular month, divided by the total number of passengers booked during the
month (and then multiplied by the number of passengers on each route);
– Total other revenues: includes bag fees, administration and baggage fee, on
board sales, and commissions;
– Total airport taxes: the charges that were paid by Ryanair to the airports;
– Total fuel costs: are calculated by taking the total fuel costs incurred during the
month and dividing the total flight hours for the month (which is then
multiplied by the total flight hours on each route).
(23) Ryanair also submitted data by passenger origination since April 2005 on 17 October
2012.
EN 504 EN
(24) The data request ("Airport data") was sent on 30 August 2012 and asked Ryanair to
provide distance data between airports.
(25) Ryanair submitted further disaggregation of the baggage fee on 29 September 2012.
This was only submitted for the United Kingdom routes. On 8 October 2012, Ryanair
submitted data on all routes which includes:
– Total (gross/net) revenue: This excludes baggage fees.
– Total other revenue: This includes baggage fees, administration and excess
baggage fees, on-board sales, car hire and hotel revenues, and other ancillary
revenues. The revenue generated is divided by the total number of passengers
during the month (then multiplied by the number of passengers who travelled
on each route).
(26) Further clarification questions were sent to Ryanair on 8 October 2012 and 9 October
2012. The Commission has asked why Ryanair cannot provide data for actual flown
passengers (rather than booked) and why they cannot provide data origination.
(27) The Commission also requested data on the fuel price time series that Ryanair
monitors (at a monthly level), as well as data for the following routes:
– Knock-Birmingham (including EMA);
– Knock-London (all airports);
– Belfast/Derry (both Belfast airports and Derry) – Faro;
– Belfast/Derry (both Belfast airports and Derry) – London (all airports).
(28) Ryanair provided this data on 11 and 17 October 2012.
(29) A separate request was sent to Ryanair on airport data on 30 August 2012. Ryanair
submitted data on September 11. Ryanair provided data regarding the following:
– Distance of an airport to the city center;
– Travelling time to city center;
– Closest Aer Lingus airport;
– Distance to the closest airport to which Aer Lingus operates (whenever the
distance is below 150km).
(30) Ryanair computed these distance and travelling time data on the basis of Google
Maps.
(31) The Commission has also requested from Ryanair (3 October 2012) the fuel price
they most closely monitor. Ryanair has provided (8 October 2012) the
– Jet Kerosene Cargoes CIF NEW.
EN 505 EN
Econometric methodology
(32) The Commission have followed the empirical strategy employed in the 2007
Decision and considered a reduced-form specification. The basic idea is to estimate
the effect of the entry or exit of one of the merging parties on the competitive
behaviour of the fares of the other. In the Commission's analysis the dependent
variable is the price of one merging party and the explanatory variable of interest is
whether the other is present on the route (city of airport depending on the
specification). Other variables are added to “control” for other possible systematic
influences on fares, which refer to route characteristics that may affect demand or
supply on that route.
(33) The Commission’s (merged) panel data tracks the prices set by both Ryanair and Aer
Lingus on individual routes over time. The data includes observations on the average
price charged by each airline per month from November 2004 to July 2012 both on
routes to the same airport and on routes to the same city but a different airport. The
Commission has considered in its analysis the average monthly fares. The
Commission computed the average net fares based on total net revenue
3
on a
passenger basis. In the case of Ryanair the booked passengers and in the case of Aer
Lingus the flown passenger numbers were available and used for the computations.
(34) Data in this format makes it possible to use an empirical strategy, the so-called fixed-
effects regressions, to assess the extent to which the merging firms exert a
competitive constraint on each other (holding constant other factors such as
competition from other airlines).The fixed-effects regression analysis with panel
data, exploits the variation in market structure at individual routes over time.
(35) The advantage of using a fixed-effect approach is that it is possible to control for
important but unobserved or unmeasured influences on price that vary from route to
route (or month to month as this approach controls for route specific effects as well
as month specific effects). When important variables affecting price on different
routes (or months) are unobserved and correlated with the explanatory variables
included in the regression, the estimated coefficients can be subject to bias. This
problem is often referred to as omitted variable bias. For example, prices may be
higher in monopoly routes not because there is no competition but because on this
particular route, demand is relatively low or costs are relatively high (for example
when high entry barriers are correlated with high operation costs). The opposite is
also true, prices on monopoly routes may be relatively low because demand is weak
(or very elastic) on such routes.
(36) Fixed effect regressions exploit the variation in market structure on individual routes
over time. This approach, introducing appropriate assumptions on the distribution of
the error term, uses information on changes in the market structure within a route
over time. For example, the entry of Ryanair on a route dominated by Aer Lingus
may affect the latter’s price (after controlling for observable changes in other
variables such as entry by other rivals). Effectively the method compares the level of
3
For Ryanair this includes the published airport taxes, while for Aer Lingus this only refers to the net
fare.
EN 506 EN
Aer Lingus prices on a route after Ryanair entered, with the level before Ryanair
entered. This before-and-after comparison is done systematically for all routes where
Aer Lingus operates and thereby generates the average effect of Ryanair’s presence
on Aer Lingus fares.
(37) This before-and-after comparison (for a given route) can mitigate the omitted
variable bias. It is more likely that unobservable or non-measurable cost or demand
factors affecting fares and varying across routes do not vary over time within a given
route (such as the type of destination, the popularity of the route according to
purpose of travel, customer awareness, destination airport characteristics, number of
alternative airports at destination, safety considerations, total duration of travel, air
traffic regulations at country of destination). Thus, the primary advantage of fixed-
effects regressions comes where most unobservable or non-measurable factors
affecting price are unlikely to vary much during the sample period.
(38) Fixed-effects regressions are suitable if there is sufficient time series variation in the
data to permit precise estimates of the relationship between price and presence of a
rival. When the time series variation in the data is limited, fixed effect estimates of
the price effects of market structure may be very imprecise.
(39) The fixed-effect approach is suitable if there are sufficient entry and exit events to
allow for identification of the relevant events. Notably, there has been consistent
entry and exit of Ryanair on routes where Aer Lingus already operates and similarly,
there have been a number of events of Aer Lingus' entry and exit on routes where
Ryanair has been present. The entry and exit events are shown in Appendix A and B
of this Annex. Entry and exit events of Ryanair provide useful information for the
regression of Aer Lingus' fares and similarly entry and exit events of Aer Lingus
provide the necessary variation in the data for Ryanair's regression.
(40) Fixed effect models also exacerbate the bias that may result from imprecisely
measuring the explanatory variables. This is often referred to as “errors-in-variables”
bias, which is the difficulty in detecting the influence of an explanatory variable
when that variable is measured with error. Where errors in measuring the explanatory
variable of interest are random this will attenuate the estimated magnitude of the
coefficient estimate towards zero (that is any such errors would lead to an
underestimate of the coefficient).
(41) Similarly to the 2007 Decision, four hypotheses were tested. If Ryanair were
competitively constrained by the presence of Aer Lingus, it can be expected that
Ryanair would have to offer lower fares on average when Aer Lingus is on the same
airport or city pair. Conversely, if Ryanair imposes a competitive constraint on Aer
Lingus one should expect that Aer Lingus fares are negatively affected by Ryanair’s
continued presence. This line of argument gives rise to the following testable
hypothesis:
EN 507 EN
– Hypothesis I: Ryanair’s (Aer Lingus) presence is associated with a statistically
4
and economically significant reduction in Aer Lingus' (Ryanair's) fares in the
various short-haul routes where they overlap.
– Hypothesis II: Ryanair (Air Lingus) exerts a stronger competitive constraint on
Aer Lingus’ (Ryanair's) fares than any other actual or potential competitor
does.
– Hypothesis III: The existence of an actual or potential competitor operating
from a base at the destination airport on a route originating in Dublin has a
limited impact on the Parties' prices.
– Hypothesis IV: The stronger the presence of Ryanair (Aer Lingus) on the route
the more pronounced the effect on Aer Lingus (Ryanair) fares.
(42) It should be noted that the estimated effects of Ryanair on Aer Lingus prices (and of
Aer Lingus on Ryanair's prices) are likely to be underestimated as the presence of
Ryanair/Aer Lingus in Dublin exerts a potential competitive constraint on Aer
Lingus/Ryanair. For example, on routes out of Dublin where Ryanair is the only
carrier, it can be expected that it sets prices which are lower than what it would
charge if Aer Lingus had no Dublin base (as there is the threat that Aer Lingus can
enter such a route). Since the regression analysis considers only fares' overtime
variations within each route and only captures price reductions subsequent to Aer
Lingus' entry, this potential competition constraint does not show up in the empirical
results.
(43) In summary, the results suggest (i) that the entry of Ryanair leads to a significant
[…]* % lower Aer Lingus prices when considering airport-pairs and around […]*%
lower prices when considering city-pairs. The entry of Aer Lingus leads to around 3-
[…]* % lower Ryanair prices when considering airport-pairs and around […]*%
lower prices when considering city-pairs (ii) that Ryanair (Air Lingus) exerts
stronger constraint on Aer Lingus (Ryanair) prices than other competitors whose
constraining effect is significantly lower or non-existent (iii) that bases of
competitors at the destination airport have a small or even a positive effect on the
Parties' fares and finally, according to the Commission's regressions, and (iv) that a 1
% increase in frequencies of Ryanair decreases the fare of Aer Lingus by
approximately a significant […]*%. A 1 % increase in frequencies of Aer Lingus
decreases the fare of Ryanair by approximately a significant […]* %.
Fixed-effects regression analysis
(44) The Commission considered the basic fixed–effect specification, as done in the 2007
Decision as the approach remains relevant for the present case. In this specification
the route fixed-effects capture all factors affecting prices that differ across routes but
do not vary over time. Thus such factors can be omitted from the regression
specification without any risk that this might lead to omitted variable bias. In
contrast, in the case of cross-section regressions if an important variable, say flight
4
Statistical significance is a formal way of assessing whether observed associations are likely to be
explained by chance alone.
EN 508 EN
duration, was omitted but this variable was correlated with any of the explanatory
variables this would lead to biased estimates
5
.
(45) The Commission’s empirical strategy focuses on the impact of Ryanair’s “presence”
and “strength of presence” on Aer Lingus’ average net monthly fares and vice versa.
(46) The baseline fixed-effects regression is as follows:
ln ( )
it i t t j it it
t
p f competition D X e
Where:
– The dependent variable is the average net monthly fares of first Aer Lingus and
then Ryanair.
– α
i
is the route fixed effect (time invariant dummy variables =1 for the route and
0 otherwise). The α
i
dummy accounts for systematic but unobserved or non-
measurable differences in costs or demand within that route.
– f(.) is a function of competitor variables. These are the explanatory variables of
interest. In certain specifications these are the Ryanair and then Aer Lingus
"presence" dummies. In other specifications these are the number of
frequencies flown on the given route to indicate the "strength of presence."
Similar variables included for flag and non-flag carriers, Cityjet and Aer Arann
(before the introduction of the franchise agreement on a route-by-route basis.
6
)
This information is typically provided from the DAA dataset, described above.
– D
t
is a dummy for each time period (a month). The month dummies allows for
controlling for cost shocks that affected all routes during the same time period.
– X
it
is a vector of cost and demand controls added in certain specifications
(47) Similarly to the 2007 case, the Commission has constructed two data sets. The first is
consistent with the city-pairs market definition adopted in the SO. The second tests
the relationship for airport-pairs thereby implicitly assuming that each airport close
to the destination city is a separate market. All specifications, if appropriate, are
performed on both data sets and relevant differences are pointed out.
(48) The Commission has tested a number of alternative specifications that essentially
differ in the competitor variables included. The Commission first tests the presence
specification where a dummy variable for the other merging firm and for other rivals
present on the route is included. Then the Commission tests the frequencies
specification where the frequencies of the other merging firm and that of other rivals
is included in logarithmic form (in addition to absence dummies). This specification
5
If the unobserved variables are expected to be uncorrelated with the other explanatory variables an
alternative approach known as “random-effects” is likely to be more efficient than the fixed-effects
method.
6
Aer Arann franchise agreement with Aer Lingus, details were provided by Aer Arann, see Aer Arann's
reply to Commission's request for information of 17 October 2012.
EN 509 EN
allows measuring the sensitivity of each firm’s fares to the strength of its various
rivals on the route.
(49) The Commission first starts with the simplest possible specification (or baseline) and
gradually include relevant controls, paying particular attention to the statistical
robustness and economic significance of the explanatory variables of interest. All
results are presented in tables below that allow for direct comparison of coefficients
in alternative, slightly more general, specifications.
(50) The Commission employs “robust regression” and “weighted regression” techniques
that control for the influence of outliers (essentially it drops some outliers and
assigns less weight to others). Robust and weighted regressions assign weights to
individual observations. In the robust regression, the weights are assigned based on a
mathematical formula while in the weighted regression the Commission has
weighted the observations on the basis of the net revenues generated for each
observation, to control for the relative importance of the observations. We start by
reporting the results from fixed-effects regressions on Aer Lingus price. We
consistently find that Ryanair exerts a competitive constraint on Aer Lingus’ prices.
Next, we turn to describing our efforts in applying the fixed-effects procedure to test
the influence of Aer Lingus on Ryanair prices, which indicated that Aer Lingus also
constrains Ryanair, especially when they compete head-to-head on the same route.
Regressions with Aer Lingus’ monthly average net fares as the dependent variable
Presence Specification
Airport-pairs database
(51) The presence specification investigates the effects of Ryanair entry on Aer
Lingus'monthly average net fares controlling for the presence of other carriers and
time and route specific fixed-effects. The regressions include dummy variables for
the following: (i) the presence of Ryanair (r_FR), (ii) the presence of one or more
flag carriers (r_flag_scheduled) and (iii) the presence of one or more non-flag
carriers (r_nonflag_scheduled). Furthermore, in the 2007 Decision, Ryanair argued
that besides Ryanair and Aer Lingus, other carriers, in particular Aer Arann (r_RE)
and Cityjet (r_WX) have a base at Dublin airport. Allegedly, these carriers could
exert a significant competitive constraint on the Parties
7
. Dummy variables were
introduced for these two carriers separately from that of other non-flag carriers. This
allows the Commission to compare directly the effect of their presence both in
absolute terms and relative to that of Ryanair. The regressions also includes Aer
Lingus’ log of capacity (ln_seats_air_lingus) as a scale factor. Furthemore, Aer
Lingus’ had two main restructuring events in the time period used for the estimation.
The first dummy (r_business_EI) captures the phasing out of business type tickets on
Aer Lingus routes that was completed in March 2005. The second dummy
7
This refers to the activities of Aer Arann before the introduction of the franchise agreement. Once a
franchise agreement is reached for each route then the Commission has treated Aer Arann's operations
as part of Aer Lingus operations. See in Section 8.2 of this Decision, where the Commission considers
in particular that Aer Arann is a competitor of Ryanair, but not of Aer Lingus.
EN 510 EN
(r_newfareEI) captures the effect of Aer Lingus's introduction of flexible fares on a
route-by-route basis, which started in November 2008.
8
(52) The specification reported in Table 1 in columns (3) to (8), also includes a variable to
control for the total frequencies offered by all carriers at the destination airport
(ldest_frequency). This variable controls for the traffic at the destination airport and
is therefore a good proxy for variations in demand at the airport-pair level
(anticipated at least at the time that carriers set their schedule). These destination-
related variables were constructed on the basis of the SRS data submitted by Aer
Lingus. The specifications reported in columns (5) to (6) of Table 1 include a dummy
to capture the effect of the joint presence of flag carriers and Ryanair. The
specifications reported in columns (7) to (8) of Table 1 include dummies to capture
the effect of the presence of at least one flag (base_route_flag) or at least one non-
flag carrier (base_route_noflag) with a base at the destination airport.
9
The results of
these regressions are presented in Table 1 below.
TABLE 1 –PRESENCE SPECIFICATION – BASELINE- AIRPORT PAIRS
- AER LINGUS
[…]*
(53) The coefficients of the regressions are robust to many alternative specifications and
estimation techniques. The coefficient of most interest is that of Ryanair’s presence,
"r_FR". It is between […]* and […]* and significant even at the 1% level. It means
that over the period considered and across all routes, on average, Aer Lingus prices,
depending on the specification, are […]*% lower when Ryanair is also present on the
route after controlling for Aer Lingus’ own capacity and the presence of other
competitors. These estimates are higher than the […]*% that was found in the 2007
Decision in similar specifications.
(54) Similarly to the findings in the 2007 Decision, no other rival has a negative and
robustly, statistically significant effect on Aer Lingus’ fares. The flag carrier dummy
is significant and positive in the robust regressions. However, it seems that this effect
is mostly due to the joint presence of Ryanair and the flag carriers. This is shown by
the results of the regression in columns (5) and (6) of Table 1. These specifications
include a dummy that controls for this (by interacting the effect of Ryanair's presence
with flag's presence, r_FR_flag). In these results the flag carrier effect becomes
insignificant. Aer Arann’s presence is associated with an increase in Aer Lingus
prices, which appears counterintuitive. Since Ryanair’s presence is associated with
lower Aer Lingus’ prices and Aer Arann tended to be present on routes where
Ryanair was not, Aer Arann’s presence would then be generally associated with
8
See Aer Lingus' response to the Commissions' request of information of 8 October 2012.
9
A carrier is considered to have a base at the destination airport if it operates more than 100 flights a
week from that airport to any other short-haul destination. This roughly corresponds to operating 2-3
planes with a turnover slightly above 3 return flights per day for every day of the week. The base
variable however, is not necessarily able to capture separately the effect of a new base at the destination
airport and it may also reflect partially some variation such as seasonality. Hence, the parameter
estimates of the base variables should be interpreted with some caution.
EN 511 EN
higher Aer Lingus’ prices. Similarly the results for the presence of CityJet indicate
that its presence does not constrain the pricing of Aer Lingus
10
.
(55) The r_newfareEI dummy is significant both statistically and economically. It
indicates that after the introduction of flexible fares the average fare of Aer Lingus
was about […]*% lower than before this period. This result could possibly indicate
the general reduction in the average fares that may have been associated with Aer
Lingus’ fares restructuring. Such a dummy corrects for the risk that the regression
would assign such an impact to Ryanair’s (or other competitors') presence.
(56) Results in columns (7) and (8) in Table 1 indicate that the presence of flag carrier or
non-flag carrier with a base at destination has a positive and statistically significant
effect (for flag carriers only in specification shown in column (8)) on Aer Lingus’
prices. This finding indicates that the fares of Aer Lingus are not constrained when a
carrier at the destination airports increases its overall activities.
(57) Finally the Commission notes that Aer Lingus' capacity has a significant and positive
relationship with average fares (that is to say, on average, more capacity is planned
on routes with higher expected demand, and therefore higher average fares).
(58) In all our regressions, the R-squared is high (above 0.8), which implies that the
model fits adequately. This is largely due to the route and date fixed-effects. The
route fixed-effects capture all time-invariant differences across the route, for example
distance or thickness of the route that might affect prices. The date dummies capture
unobserved sources of variation over time, including seasonal peaks in demand.
(59) Table 2 reports the results from adding a number of additional controls to the
baseline specification. In this set of regressions, we introduce a dummy to control for
the presence of charter flights (r_charter) and use a direct measure of total costs on
the route (lfuel). Both variables turn out to be highly significant in all specifications
but there is little variation in the coefficients of the presence variables. In particular,
Ryanair’s presence remains statistically highly significant and its negative impact is
of similar magnitude (8-13%). Non-flag carriers do not appear to constrain Aer
Lingus (their presence is associated if anything with higher prices for Aer Lingus, as
in most specification the coefficient is positive or statistically insignificant). The
impact of flag carriers is typically negative; however once their impact is interacted
with Ryanair's presence (columns (3) and (4) of Table 1) flag carrier presence's
impact is even positive (and non-significant). The coefficient of the charter presence
variable also indicates that charters' presence does not impose any competitive
constraint on Aer Lingus' pricing (and on the contrary across routes in which charter
companies entered Aer Lingus has since then set higher fares).
(60) Again, the presence of a non-flag carrier based at the destination has a positive effect
on Aer Lingus prices whereas the presence of a flag carrier with a base has a positive
but not robust effect (significant only in the weighted regressions), as shown in
10
The City Jet presence was adjusted relative to the DAA data. The dummy takes into account that Air
France's routes ex-Dublin, except Paris-Dublin are marketed by CityJet.
EN 512 EN
columns (5) and (6)). It should be noted that this variable aggregates the effect of all
non-flag carriers with a base.
11
(61) The Commission has tested whether the results are robust for an alternative way to
control for seasonality. As seasonality may differ between routes this could
potentially bias the results. The specifications in columns (7) and (8) controls for
route level seasonality by introducing route level month dummy variables. The
results remain largely robust. The fuel and capacity variables lost most of their
significance due to the extra controls, as expected, but Ryanair still have a
statistically significant negative […]*% effect on Aer Lingus' average fares.
12
TABLE 2 –PRESENCE SPECIFICATION – ADDITIONAL CONTROLS -
AIRPORT PAIRS - AER LINGUS
[…]*
City-pairs database
(62) The Commission tested the presence specification also in the city-pairs database. In
this case, the tested hypothesis is that if Ryanair serves a different airport to a given
city it does not compete at all with Aer Lingus. In this specification all variables are
defined at the city pair level (that is to say, the c_ln_seats_air_lingus variable
controls for the capacity of Aer Lingus on the given city pair including all airports
and similarly the compc_flag_scheduled variable controls for all competing flag
carriers on the given citypair). In specifications (7) and (8) the Ryanair effects were
separated into airport (EI_FR) versus citypair overlaps (ryan_diff_route).
Specifications (9) and (10) control for the potential route level seasonalities. The
results of these regressions are presented in Table 3 below.
TABLE 3 –PRESENCE SPECIFICATION – CITYPAIRS – AER LINGUS
[…]*
(63) Ryanair continues to be the carrier that mostly constrains Aer Lingus. Its presence
leads to approximately a […]*% reduction in Aer Lingus’ fares. The flag carrier
dummy now is also significantly negative with values ranging from […]*. However,
as discussed above flag carriers have an effect on Aer Lingus prices only when they
appear on the citypair together with Ryanair, as the inclusion of the comp_FR_flag
dummy variable indicates in specifications (3) and (4). Therefore, it is likely that this
effect captures the competitive constraint of Ryanair on Aer Lingus (especially in
light of the result of Ryanair's presence coefficient which is not significantly affected
by the introduction of the interaction dummy). Furthermore, these values should be
interpreted jointly with the flag carrier base dummy at the destination citypair. In
specifications (5) and (6) where the base dummies are included the base_compc_flag
11
Aer Lingus' capacity (ln_seats_air_lingus), now has a significant and negative coefficient since the lfuel
variable controls for any possible endogeneity of the capacity variable. Given frequencies, higher
supplied capacity results in lower average fares.
12
Charter's presence remains positive but is now smaller at 4-5%. Aer Arann's presence has no significant
effect on Aer Lingus' average fares.
EN 513 EN
variable's values ranges from […]*% to […]*%. Therefore in these specifications the
cumulative effect of the flag carriers is negligible. The non-flag carrier with a base at
the destination variable also appears to have a significant but positive effect.
(64) Specifications (7) and (8) separate the effect of the head-to-head airport from the
city-pair competitive effect of the presence of Ryanair. The estimates indicate that
while Ryanair has a much higher effect on Aer Lingus prices when competing head-
to-head to the same airport ([…]*%), Ryanair also constrains Aer Lingus on the city-
pair overlaps where the effect is a significant […]*% reduction in Aer Lingus
average fares. However, the Commission notes that these figures should be
interpreted with caution (in particular for instances where entry took place at a
different airport within a given city pair) as they relate to a much smaller number of
entry and exit events (see Appendix A).
13
Frequency specification
(65) The frequency specification is intended to test the hypothesis that the stronger the
presence of one of the merging parties the more pronounced the effect on fares of the
other.
(66) The hypothesis is difficult to test because to measure the strength of a carrier on a
route it is necessary to use some capacity variable, such as the number of frequencies
on the route. However, any capacity variable is likely, to some extent, to be
determined simultaneously with fares and the frequency levels of rival carriers (this
is the so-called endogeneity problem which could bias the results of the regression
analysis).
(67) The frequency specification includes variables for the logarithms of the total number
of frequencies of (i) Ryanair (ln_cfreq_ryanair), (ii) the flag carriers (ln_cfreq_flag)
and (iii) the non-flag carriers (ln_cfreq_nonflag). The Commission also includes
dummy variables to control for the absence
14
of (i) Ryanair (c_absence_ryanair), (ii)
the flag carriers (c_absence_flag) and (iii) the non-flag carriers (c_absence_nonflag).
The regressions also includes Aer Lingus’ log of capacity (ln_seats_air_lingus) or
Aer Lingus’ log of frequencies (ln_cfreq_aerlingus) as a scale factor. We include
demand and cost variables (ldest_frequency, lfuel and lfuelperseat) to limit the
endogeneity problem and dummy variables for the bases of flag and non-flag
carriers.
(68) Specification (5) to (8) separates the airport (ln_rfreq_ryanair) versus citypair but
different airport (ln_cdiff_freq_ryanair) frequencies of Ryanair. Finally, specification
(7) and (8) introduce the destination city-pair flag (base_compc_flag) and non-flag
(base_compc_noflag) dummies.
(69) The results of the baseline frequency specification are reported in the first column in
Table 4 below.
13
The rows in bold indicate a city pair in which the entry/exit event took place in different airports.
14
The absence dummies are needed since the logarithm of 0 is undefined and therefore these observations
would be dropped.
EN 514 EN
TABLE 4 –FREQUENCY SPECIFICATION – CITYPAIRS – AER LINGUS
[…]*
(70) As anticipated the log frequencies of Ryanair has a significant and negative effect on
Aer Lingus’ prices. On average a 1% increase in Ryanair frequencies decreases Aer
Lingus prices by […]*%. This effect is robust to the inclusion in the regression of
base destination dummies and demand controls.
(71) In this set of regressions the frequencies of flag carriers (ln_cfreq_flag) also have a
significant negative […]* effect on Aer Lingus’ fares but smaller in magnitude than
that of Ryanair (typically around half). Moreover, similarly to the presence
specification, the presence of a flag carrier base at the destination dummy
(base_compc_flag) also has a significant but positive effect on Aer Lingus' fares. The
demand control (ldest_freq_total) is highly significant, as in the presence
specification.
Regressions with Ryanair’s monthly average net fares as the dependent variable
(72) In the 2007 Decision the regressions on Ryanair's fare were given less weight due to
the low number of entry or exit events of Aer Lingus on Ryanair's routes. Since then
Aer Lingus has entered or exited from numerous routes where Ryanair operates so
the Commission can meaningfully apply the fixed-effects method also on Ryanair’s
prices.
(73) The Commission has estimated similar regressions on Ryanair fares as on Aer
Lingus fares.
TABLE 5 –PRESENCE SPECIFICATION – BASELINE- AIRPORT PAIRS -
RYANAIR
[…]*
(74) As shown in Table 5 Aer Lingus’ presence (r_EI) appears to have a significant
negative […]*effect on Ryanair’s prices. Flag carriers, Aer Arran and City Jet do not
appear to constrain Ryanair in any way (the coefficients on Aer Arann are even
positive). Non-flag carriers, on the other hand, in the robust regression specifications
appear to constrain Ryanair as well as Aer Lingus. This effect however is not present
in the weighted regressions. This suggests that the non-flag carrier effect does not
arise once the routes are weighted in terms of the revenues generated on each route.
Also the presence of a non-flag base at the destination airport has a positive effect.
Flag carriers do not appear to constrain Ryanair's average fares.
(75) To further investigate route level effects of Aer Lingus entries and exits on Ryanair
average fares the Commission considered adding a number of additional controls to
the baseline specification (reported in Table 6). These set of regressions introduce a
dummy to control for the presence of charter flights (r_charter), use a direct measure
of total costs on the route (lfuel) and include dummies to capture the effect of the
presence of at least one flag (base_route_flag) and one non-flag carrier
(base_route_noflag) with a base at the destination airport. All these control variables
EN 515 EN
turn out to be highly significant in all specifications but there is little change in the
magnitude of the parameters of interest.
(76) Finally, the specifications in columns (7) and (8) include controls for route level
seasonality by introducing route level month dummy variables. Route level
seasonality seems to matter a lot more in the Ryanair regression, possibly because
Ryanair may target relatively more leisure passengers. The effect of Aer Lingus entry
increases significantly from […]*% in both the robust and the weighted regressions.
The non-flag carriers' effect remains similar in the robust but becomes significant in
the route level seasonally adjusted weighted regressions. Based on these results, non-
flag carriers seem to have an effect on Ryanair prices but these effects are about half
as large as an Aer Lingus entry on the airport pair.
TABLE 6 –PRESENCE SPECIFICATION – ADDITIONAL CONTROLS -
AIRPORT PAIRS - RYANAIR
[…]*
(77) The first eight columns of the citypair level regressions (Table 7) show similar
effects. The Aer Lingus dummy has a significant 3-4% negative effect in each
specification. Regressions (7) and (8) suggest that most of this effect can be
attributed to the route level competition and on the citypair level
(aerlingus_diff_route) this negative effect is not statistically significant. However,
the Commission notes that these figures should be interpreted with caution (in
particular for instances where entry took place at a different airport within a given
city pair) as they relate to a much smaller number of entry and exit events (see
Appendix B). In the specifications with route specific seasonal dummies, column (9)
and (10), Aer Lingus' impact on Ryanair's average fares is even more significant and
rises to […]*%.
(78) Non-flag carriers' presence at the citypair level appears to constrain Ryanair prices to
a similar extent to Aer Lingus. However, non-flag carriers' presence has a lower
impact than Aer Lingus in the specifications with route specific seasonal dummies
(column (9) and (10)). Furthermore, the presence of a non-flag carrier base has a
positive effect, counteracting the negative impact of the non-flag carrier presence.
(79) The flag carriers, Aer Arann, CityJet presence dummies are either non-significant or
has positive effects. The only exception is CityJet's impact in the last two
specifications (where, however, its impact is less than half the impact of Aer Lingus).
TABLE 7 –PRESENCE SPECIFICATION – CITYPAIRS - RYANAIR
[…]*
(80) In the frequency specifications (Table 8) Aer Lingus is the only carrier that has a
negative and significant influence on Ryanair. A 1% increase in frequencies of
Ryanair decreases Aer Lingus prices by around […]*%. Interestingly, in the
frequency specifications the increase in the frequencies of the non-flag carriers in
fact significantly increases Ryanair average fares. Furthermore, the Commission
notes that the coefficient of Aer Lingus' frequencies in different airports have
significant negative effect on Ryanair's prices (one could interpret the results as
indicating that it is not the mere presence of Aer Lingus in different airports within a
EN 516 EN
city-pair that constrains Ryanair but the frequencies it operates).
15
Non-flag carriers'
frequencies do not appear to constraint Ryanair's pricing and in some specifications
their impact is positive (this is in contrast with the findings in the presence
regression).
TABLE 8 –FREQUENCY SPECIFICATION – CITYPAIRS – RYANAIR
[…]*
The Parties' comments on the Commission's regressions analysis following the
Statement of Objections
(81) This section reports and responds to the Parties' assessment of the Commission's
analysis in Annex III of the SO
16
. The economic experts of both Ryanair and Aer
Lingus had separate access to the data and the Commission's computer codes in the
data room and they have replicated, commented on and criticized the Commission's
analysis and interpretation of the results.
The comments and analysis of Ryanair's experts
(82) According to Ryanair the Commission's regression analysis is not robust to different
model specifications and does not support the view that Aer Lingus and Ryanair
constrain each other. Ryanair raises three criticisms to the Commission's regression
analysis.
(83) Firstly, the price impacts estimated by the Commission are much lower if the
analysis is restricted to city-pairs where Ryanair and Aer Lingus fly to different
airports (different airport analysis).
(84) Secondly, the Commission's regressions are based on a static model, contrary to the
analysis in Annex I, and the results are not robust to dynamic model specifications.
(85) Thirdly, the Commission’s specifications suffer from an omitted variable bias in that
they fail to control appropriately for route specific demand conditions and/or fail to
account for endogenously determined fares and frequencies.
(86) Ryanair concludes that the Commission's analysis "suffer from serious
shortcomings." The Commission disagrees with this conclusion. In this section the
Commission addresses the criticisms raised by Ryanair.
Different airports analysis
(87) Ryanair argues that "the Commission baseline model predicts that Aer Lingus'
presence does not have a statistically significant impact on Ryanair's fares" on
routes between city-pairs where Ryanair and Aer Lingus fly to different airports.
Moreover, “the Commission's baseline model predicts that Ryanair's presence may
15
Furthermore, in the frequency specification there is greater identification power as there is greater
variation in the frequency variable of Aer Lingus compared to the entry/exit of Aer Lingus in these
airports (different airports within the same city pair) .
16
Oxera, "Assessment of the Commission's analysis in the Annexes I, II, and III of the SO,"
EN 517 EN
not have a statistically significant impact on Aer Lingus' fares on routes between city
pairs where Ryanair and Aer Lingus fly to different airports, as suggested by the
results of the analysis in scenario (5) […]".
17
Ryanair bases these arguments on
model estimations where the estimation sample is restricted to those city pairs where
the two carriers fly to different airports.
(88) The Commission disagrees with this statement and observes that Ryanair has
misinterpreted their own findings, has applied the wrong methodology to the wrong
data, and when the Commission applied their suggestions properly the effects are still
significant.
(89) Firstly, the Commission does not consider reliable such estimates given the small
sample size. In the Aer Lingus citypair regressions provided in above Table 3 the
Commission noted that "Ryanair also constrains Aer Lingus on the city-pair
overlaps where the effect is a significant […]*% reduction in Aer Lingus average
fares. However, the Commission notes that these figures should be interpreted with
caution (in particular for instances where entry took place at different airport within
a given city pair) as they relate to a much smaller number of entry/exit events (see
Appendix A)." Furthermore in the Ryanair citypair regressions provided in above
Table 7 the Commission observes that "Regressions (7) and (8) suggest that most of
this effect [i.e. of Aer Lingus's entry on Ryanair prices] can be attributed to the route
level competition and on the city-pair level (aerlingus_diff_route) this negative effect
is not statistically significant. However, the Commission notes that these figures
should be interpreted with caution (in particular for instances where entry took place
at different airport within a given city pair) as they relate to a much smaller number
of entry/exit events (see Appendix B)." In particular there are only seven entry and
exit events in each of the regressions.
(90) Also, Ryanair suggested estimating the regressions only on those limited number of
city-pairs where entry (of either Ryanair or Aer Lingus respectively) took place at
different airports within the given city-pair. Due to the limited number of entry/exit
events, the estimations are much less reliable. The results of Ryanair show that Aer
Lingus had a non-significant […]*% impact in most of the robust regressions and a
non-significant […]*% impact in the weighted regressions on Ryanair's prices. On
the other hand, they have found that relative to the SO's estimates the impacts of
Ryanair on Aer Lingus prices are much larger. In 6 specifications out of 7 reported in
table 4.2 of Ryanair's submission
18
the impact is significant and between […]*%. In
the remaining specification, the "direct" effect is a non-significant […]*% but the
effect on routes where both Ryanair and a flag carrier are present increases to
(significant) […]*%. Given that the flag carriers' "direct" impacts are always non-
significant (and in one specification significantly positive) this effect could be safely
assigned to Ryanair's entry. Therefore, at least to what concerns the impact of
Ryanair on Aer Lingus' fare Ryanair has largely misinterpreted its own findings.
Interpreted correctly, these results show that Ryanair indeed has an economically and
statistically significant effect of Aer Lingus' prices.
17
Oxera, "Assessment of the Commission's analysis in the Annexes I, II, and III of the SO,", page8
18
Oxera, "Assessment of the Commission's analysis in the Annexes I, II, and III of the SO,"
EN 518 EN
(91) Secondly, Ryanair has applied the wrong methodology to the wrong data set. As
already explained, Ryanair has restricted the sample to city pairs where the Parties
fly to different airports. Ryanair used the Commission's airport pairs specification
with this sample. The Commission notes that there is a clear contradiction in doing
so, as the Commission's airport pairs specification is meaningful only when both
Parties fly to the same airport. For example, in the Aer Lingus' airport pairs
regression the explanatory variable of interest (r_FR, a dummy variable equal to one
when Ryanair is present on a route and zero otherwise) captures the effect of the
presence of Ryanair on Aer Lingus' fares when both carriers fly to the same airport.
If the sample is restricted to city pairs where the Parties fly to different airports, as
the Notifying Party has done, r_FR will be constant and equal to zero in the whole
subsample. Any meaningful coefficient estimate of r_FR will be therefore
impossible. The Commission notes that Ryanair manages to estimate the coefficient
by restricting the sample to the wrong data set. Ryanair has arbitrarily limited the
sample to some city pairs which appears to reflect the instances where the Parties fly
to the same city pair but not to the same airport today, that is, in the last observed
time period of the sample. However, there are instances that within these selected
pairs while currently the two air carriers do not fly to the same airport, they might
have flown to the same airport in the past. For example, Ryanair restricts the sample
to (among others) the city pair Dublin-Malpensa/Linate/Bergamo. Currently Ryanair
flies to Bergamo, whereas Aer Lingus flies to Malpensa and Linate (i.e. they fly to
different airports within the city pair). However Aer Lingus (as well as Ryanair) flew
to Bergamo from April 2006 to October 2006, and this event is the only one taken
into account by Ryanair's regression on this city pair. In short, Ryanair's
methodology measures the impact that the presence of one carrier has on the other
carrier's fares when they both fly to the same airport, unreasonably restricting the
sample to some city pairs. Therefore, the Commission finds these regressions
irrelevant and meaningless for the scope of this analysis.
(92) The Commission applied Ryanair's suggested model to the right data (that is to say,
excluding the city pairs in which in at least one period Ryanair and Aer Lingus flew
to the same airport). Table 9 below reports the Ryanair results and Table 10 reports
the Aer Lingus results.
TABLE 9 –PRESENCE SPECIFICATION – CITYPAIRS-DIFFERENT AIRPORTS –
RYANAIR
[…]*
TABLE 10 –PRESENCE SPECIFICATION – CITYPAIRS-DIFFERENT AIRPORTS –
AER LINGUS
[…]*
(93) While the impact of Aer Lingus' entry on Ryanair's fares when the entry occurs in a
different airport is significant only in the robust regressions, Ryanair's impact on Aer
Lingus's fares is significant in all specification and in magnitude similar to what was
reported in the baseline analysis above. All specifications confirm the findings that
neither destination-based flag nor non-flag carriers exert a significant constraint on
Aer Lingus. Table 9 indicates that non-flag carriers seem to constrain Ryanair by
about the same magnitude as Are Lingus does.
EN 519 EN
Dynamic model
(94) Ryanair argues that "The static nature of the model may further bias the
Commission's results. Failure to specify a dynamic model when the true data
generating process exhibits intertemporal dependence is likely to bias the coefficient
estimates … downward." Furthermore, "if a dynamic model is applied to the data
used by the Commission, the estimated constraint that the airlines pose on each other
may be smaller compared to the Commission's static model and the constrain is
statistically insignificant in some model specifications."
19
(95) Ryanair proposed seven different dynamic models that included the lagged fares of
Ryanair to control for the serial correlation. Ryanair reports that "for example, the
estimated long-run impact of Ryanair's presence on Aer Lingus fares is […]*% in
model (2) in table 4.3, which is less that then […]*% range estimated by the
Commission. The long-run estimates obtained in the various model specifications in
table 4.3 are between […]*%."
20
(96) The Commission believes that this criticism is inconsequential. The Commission
acknowledges that just as in the analysis of the 2007 Decision serial correlation is
present in Ryanair's prices. Serial correlation arises when the prices charged in the
past could affect the level of prices today. As it was stated also in the 2007 Decision,
serial correlation does generally not affect the consistency of the estimation results
(provided that there is no lagged dependent variable included on the right hand side
of the regression, as is the case in the Commission's regressions).
(97) In any case, the Commission has tested the specifications proposed by Ryanair and
found that the results remain robust. The fact that the average fare charged by
Ryanair on a certain route at a given point in time could to some extent depend on
past values of the fare for that route has no effect on the coefficient for variables
assessing competition, given the setting of the Commission model.
(98) Firstly, in four of Ryanair's specifications the long-run effects of Ryanair entry were
significant and similar to those found by the Commission ([…]*% versus […]*%
found by the Commission). This clearly implies that irrespective of the estimation
procedure the competitive constraint that Ryanair exerts on Aer Lingus is
economically significant. Even in specification (4) of Table 11 where Ryanair's
"direct" effect is non-significant, the effect on routes where both Ryanair and a flag
carrier are present increases to a significant […]*%. Since the same estimation finds
19
Oxera, "Assessment of the Commission's analysis in the Annexes I, II, and III of the SO," page10.
20
In its reply, Ryanair refers to the Kennedy adjustment. Namely, if b is the estimated coefficient on a
dummy variable and V(b) is the estimated variance of b then: g = 100 (exp(b - V(b)/2) - 1) gives an
estimate of the percentage impact of the dummy variable on the variable being explained. See for
example Van Garderen, Kees Jan and Shah, Chandra, "Exact Interpretation of Dummy Variables in
Semilogarithmic Equations". The Econometrics Journal, Vol. 5, pp. 149-159, 2002. This adjustment is
necessary when the coefficient on a dummy variable suggests a relatively large proportionate change in
the level of the dependent variable. When the coefficient is relatively small the difference between the
approximate and the exact interpretation is minimal. In the regressions reported in this annex, the
coefficients of interests are relatively small, mostly below 0.20, so the difference do not change the
results significantly neither qualitatively nor quantitatively.
EN 520 EN
significant positive effect for flag carriers this negative impact is very likely to be
caused by Ryanair's entry.
(99) Secondly, in the two specifications provided by Ryanair where Ryanair's impact was
not significantRyanair did not use the estimation command properly
21
. The
specifications where the Ryanair entry impact is not significant are implemented
using the xtabond2 STATA command. However, Ryanair failed to specify the
instruments properly. Ryanair has not specified the time and route dummies as
included instruments.
22
Ryanair's experts responded that "even if it were the case that
all variables are treated as endogenous (and therefore instrumented by their lags),
this would not impede the consistency of the obtained results, but it would reduce the
efficiency of the gmm estimator."
23
While this statement is true, the efficiency or the
bias of the estimates can be rather substantial especially if the instruments are weak
in the statistical sense. Moreover, it has to be noted that the implication of applying a
less efficient statistical estimator can result in finding statistically non-significant
price effects, even when there are significant such effects.
24
Hence, using an
inefficient statistical estimator (as admitted by Rynair) is not a sound practice when
one argues, as Rynair does, that the price effects are statistically non-significant. The
Commission has re-estimated the model with the proper instrumental variables
specifications and found that Ryanair's impact remained significant and negative
(shown in table 11 below).
(100) To correct for the presence of serial correlation and the heteroskedasticity, another
possible approach, also used in the 2007 Decision, is to use the estimation method
proposed by Newey/West (implemented via the newey2 command in STATA). This
correction allows the error term to be heteroskedastic and/or correlated within each
route. The only limiting assumption imposed by this method is that the serial
correlation decays relatively fast overtime within each route. This hypothesis is
reasonable in the present case.
(101) Table 11 below presents the results for the Commission's implementation of the
model suggested by Ryanair and the Newey correction model applied to the main
21
There was one specification where standard errors were not reported due to "nonsymmetric or highly
singular variance matrix."
22
Roodman (2006) "How to Do xtabond2: An introduction to "Difference" and "System" GMM in Stata"
explains clearly (p.39):"The most important thing to understand about the xtabond2 syntax is that
unlike most Stata estimation commands, including xtabond, the variable list before the comma
communicates no identification information. The first variable defines Y and the remaining ones define
X. None of them say anything about Z even though X and Z may share columns. Designing the
instrument matrix is the job of the ivstyle() and gmmstyle() options after the comma".
23
Email correspondence between the Commission and Notifying Party's economic consultants of 5
December 2012.
24
Efficiency is a measure of the precision of the estimator of a parameter. An estimator which is more
efficient than another has a lower variance, that is, it has a smaller statistical uncertainty surrounding it.
The more efficient estimators are preferred to the less efficient ones because they allow more precise,
accurate statistical inference. When a test based on an efficient estimator shows that the parameter
estimate is non-significant, this can be a strong indication that the true parameter value is indeed not
different from zero. When, however, a test based on a less efficient estimator shows non-significance,
there is a higher likelihood (compared to the case of the test based on the efficient estimator) that this
result reflects only the statistical uncertainty of the estimator and not that the true parameter value is
zero.
EN 521 EN
specifications. The results reported are fully consistent with the results of the
Commission's analysis.
(102) The first four specifications report estimation results of the specification used by
Ryanair with proper instrumental variable definitions. The last 3 models include the
specification used by the Commission in the 2007 Decision to control for serial
correlation. The direct long run effect ranges between […]*% and […]*% in the
specifications suggested by Ryanair. The effect is larger when flag carriers are also
present on the route. In the specification used by the Commission in 2007, the direct
effect ranges were between […]*% and […]*%. In each specification, the findings
that neither destination-based flag nor non-flag carriers exert a constraint on Aer
Lingus are confirmed.
TABLE 11 –DYNAMIC PRESENCE SPECIFICATION – AIRPORTS – AER LINGUS
[…]*
EN 522 EN
Risk of omitted variable bias and endogeneity
(103) Ryanair also raises concerns that "while the Commission recognises the importance
of accounting for unobserved or unmeasured factors in the analysis (see para 13 of
Annex III), its modelling approach only controls for unobserved or unmeasured
factors that do not vary across time. Regional demand drivers which tend to vary
over time – such as unemployment – are therefore not captured by the analysis."
Furthermore, "the competitor variables used in the Commission's analysis (see para
57c) are assumed to be independent of other variables in the model, such as demand
conditions. However, it is likely that this assumption is violated." Finally, "the
capacity variable used in the Commission's analysis may also violate the
independence assumption with respect to other variables in the model."
(104) Firstly, the Commission acknowledges, as it also did in the 2007 Decision, that all
entry and capacity variables could indeed depend on other variables, such as demand
conditions. However, the chosen estimation methodology mitigates this risk. Carriers
generally have to determine the level of capacity well before they observe demand
and hence the level of capacity is predetermined relative to demand. Furthermore,
despite the potential methodological difficulties arising from such dependencies
across variables, the coefficients of Ryanair' and Aer Lingus' presence are robust to
the use of different estimation methodologies (including the instrumental variables
estimations presented above in Table 11).
(105) Secondly, by including route and time fixed-effects the Commission controlled for
unobserved route or time invariant characteristics that could correlate with entry and
capacity variables. This correlation could bias the results if the fixed effects were not
included. The parameters of interest are estimated from the changes in the relevant
variable on a particular route, and not from the changes in the variable across routes
or across time in general. In other words, unobserved or unmeasured route or time
specific factors do not bias the estimation results.
(106) Furthermore, the Commission has estimated different specifications with different
time dummies. The Commission's regressions include both route and time dummy
variables to control for route and also time varying fixed effects. In particular the
specifications with time varying fixed effects (specification (7) and (8) in Table 2
and Table 6) capture all time varying effects that are route specific, for example,
regional demand drivers such as unemployment. The results remain robust.
Aer Lingus' comments
(107) Aer Lingus agrees with the Commission's focus on fixed-effects regression analysis,
which "mirrors" the quantitative analysis Aer Lingus has also undertaken (see
above). Aer Lingus makes a number of comments broadly in support of the
conclusion reached by the Commission from its own fixed-effects regressions that
Ryanair exercises a strong competitive constraint on Aer Lingus' prices. Aer Lingus
examined the robustness of the Commission's findings adopting the Commission's
methodology on different samples.
(108) Firstly, Aer Lingus restricts the sample considering a more recent period, from 2009
to 2012. In the airport pairs specification, Aer Lingus' fares decrease by 7-9% when
Ryanair is present on the route. These results are confirmed in the city pairs
EN 523 EN
specification, where Aer Lingus' fares decrease by 6-8% when Ryanair is present.
Additionally, Aer Lingus finds that for the period 2009-2012, Aer Lingus' fares were
not constrained by the presence of any carriers other than Ryanair.
(109) Secondly, Aer Lingus considers only Aer Lingus' "key routes", identified by either:
– Excluding the routes where Aer Lingus operated for less than 12 months;
– Considering only the routes where Aer Lingus operated for 4 or more years;
– Considering the routes where Aer Lingus operated for the whole period.
(110) In all subsamples, the presence of Ryanair is associated with a (statistically
significant) drop in Aer Lingus' fares. In particular, Aer Lingus' fares fall by 10-15%
when Ryanair is present in the same airport (airport pairs specification) and 9-13%
when Ryanair is present in the same city pair (city pairs specification).
(111) Thirdly, Aer Lingus further examined the robustness of the Commission's findings
by eliminating from the airlines presence variables what Aer Lingus considered
"spurious entry and exit events". The results by adopting these modified presence
variables are similar to the ones mentioned above.
(112) In conclusion, according to Aer Lingus the Commission thus finds clear evidence
that Ryanair significantly constrains Aer Lingus' pricing behaviour. They also note
that the results of the Commission's fixed-effect regressions are in line with those
submitted by Aer Lingus. This pertains to both the magnitudes of the estimated
coefficients, and the conclusion that the Commission reached.
(113) The Commission has carefully considered the comments and criticisms made by both
Ryanair and Aer Lingus with regard to the Commission’s regression analysis. Most
of the criticisms were similar to those made in the 2007 Decision. The Commission's
further analysis confirms that the findings that the presence of Ryanair has a
statistically and economically significant effect on Aer Lingus’ prices (and vice
versa) are very robust.
Conclusion
(114) The Commission's price regression analysis tests the following hypothesis:
– the presence of one of the Parties on the route is associated with a statistically
and economically significant reduction in the fares of the other;
– the Parties exert on each other a stronger competitive constraint than any other
existing competitor;
– the existence of an actual or potential competitor with a significant presence at
the destination airport on a route originating in Dublin, Cork and Shannon has
an impact on the Parties' prices;
– a stronger presence of one of the Parties (in terms of number of frequencies)
has a more pronounced effect on the other's fares.
EN 524 EN
(115) The fixed-effects regressions with Aer Lingus's fares as the dependent variable show
that Ryanair exerts a significant competitive constraint on Aer Lingus's fares. In
particular the Commission's analysis finds the following results:
– First depending on the specification, Ryanair's presence is associated with Aer
Lingus charging around 9-14 % lower prices when considering airport-pair and
around 7 - 11% lower prices when considering city-pairs. This effect is
economically and statistically significant in all tested regressions. This result is
also robust, correcting for the presence of outliers, heteroskedasticity and serial
correlation. It is also highly robust to the use of alternative specifications
including alternative demand and supply controls. Notably, in practically all
cases the control variables in the different regressions have the expected signs
and are statistically significant. The explanatory power of the regression (that is
to say, the fit of the model) is also high with R2 consistently around 80%.
Ryanair also appears to impose a more significant constraint on Aer Lingus
when it serves the same airport;
– Secondly, comparing the coefficients of Ryanair with that of flag-carriers and
non-flag carriers, as well as Aer Arann and CityJet, Ryanair's presence or
number of frequencies have a much stronger economic impact than that of any
other type of carrier. This also holds true for charter carriers. In fact, in most
cases the regressions indicate that the presence of other carriers has no
economic or statistically significant effect on Aer Lingus fares. The presence of
flag carriers has a negative effect on the average fares of Aer Lingus but at the
same time this effect seems to be significant only if Ryanair is also present on
the route and is typically significantly smaller than the effect of Ryanair;
– Thirdly, neither destination-based flag carriers nor destination-based flag
carriers exert a significant constraint. Moreover a flag carrier base at the
destination airport has a significant positive effect on Aer Lingus prices,
limiting the effect of flag carriers. Thus it cannot be expected that the merged
entity would be effectively constrained by flag or other non-flag carriers post-
Transaction;
– Fourthly, measuring the strength of Ryanair's presence using the number of
frequencies on the route as a proxy provides further confirmation that Ryanair
constrains Aer Lingus. Depending on the specification, the price effect of a 1
% increase in frequencies of Ryanair on Aer Lingus prices is negative at
around 5-6 %. This adds to the robustness of the results derived from the
presence specifications.
(116) The fixed-effects regressions with Ryanair's prices as the dependent variable also
support the same conclusion. Aer Lingus exerts a competitive constraint on Ryanair's
prices.
– Firstly the presence of Aer Lingus is associated with Ryanair charging around
3-7 % lower prices when considering airport-pair and around 3-4 % lower
prices when considering city-pairs. This effect is economically and statistically
significant in all tested regressions. This result is also robust, correcting for the
presence of outliers, heteroskedasticity and serial correlation. It is also highly
robust to the use of alternative specifications including alternative demand and
EN 525 EN
supply controls. The explanatory power of the regression is also high with R2
consistently above 80%. On the city pair analysis, Aer Lingus appears to
impose a statistically significant constraint on Ryanair only when it serves the
same airport (however there is a limited number of entry/exit events when they
fly to different airports).
– Secondly, comparing the coefficients of Aer Lingus with that of flag-carriers
and non-flag carriers, as well as Aer Arann and CityJet, Aer Lingus's presence
or number of frequencies have stronger economic impact than that of any other
type of carrier. In fact, in most cases the regressions indicate that the presence
of flag-carriers, as well as Aer Arann and CityJet, has no economic or
statistically significant effect on Ryanair fares. The presence of non-flag
carriers has a significant negative effect on Ryanair's prices but this effect is
not robust in the different specifications.
– Thirdly, neither destination-based flag nor non-flag carriers exert a constraint
on Ryanair. Moreover a non-flag carrier base at the destination airport has a
significant positive effect on Aer Lingus prices, limiting the effect of non-flag
carriers. Thus it cannot be expected that the merged entity would be effectively
constrained by flag or other non-flag carriers post-Transaction.
– Fourthly, measuring the strength of the presence of Aer Lingus using the
number of frequencies on the route as a proxy provides further confirmation
that Aer Lingus constrains Ryanair. The price effect of a 1 % increase in Aer
Lingus' frequencies on Ryanair prices implied by the Commission’s frequency
regressions is around a 2 % decrease. This adds to the robustness of the results
derived from the presence specifications. Also, the frequencies of non-flag
carriers do not appear to constrain Ryanair's pricing.
(117) The Commission's regression analysis confirms and complements the conclusions set
in the Decision on the basis of qualitative evidence regarding the closeness of
competition between Ryanair and Aer Lingus (for routes from Dublin, Cork and
Shannon). The results indicate that Aer Lingus prices are currently constrained by
competition from Ryanair and vice versa.
(118) Furthermore, post-Transaction as predicted by standard ''non-coordinated effects"
analysis, both carriers would internalise the effects of setting higher fares on each
other. In particular, the merged entity would have the incentive to set higher fares for
Aer Lingus as most of the customers lost would be captured by Ryanair (and
similarly set higher prices for Ryanair as most of its customers would be captured by
Aer Lingus).
EN 526 EN
Appendix A: Entry/Exit Events of Ryanair
Airport Pairs
date
route
city pair
2011m11
DUB-ABZ
DUBLIN-ABERDEEN
2009m10
DUB-ACE
DUBLIN-LANZAROTE
2007m5
DUB-ALC
DUBLIN-ALICANTE/MURCIA
2007m6
DUB-ATH
DUBLIN-ATHENS
2010m9
DUB-BCN
DUBLIN-BARCELONA/GIRONA/REUS
2006m4
DUB-BGY
DUBLIN-MILAN/BERGAMO
2012m5
DUB-BLK
DUBLIN-BLACKPOOL
2008m10
DUB-BLQ
DUBLIN-BOLOGNA
2012m4
DUB-BOD
DUBLIN-BORDEAUX
2007m9
DUB-BUD
DUBLIN-BUDAPEST
2005m4
DUB-FCO
DUBLIN-ROMEALL
2006m12
DUB-FUE
DUBLIN-FUERTEVENTURA
2006m4
DUB-KRK
DUBLIN-KRAKOW
2009m10
DUB-LPA
DUBLIN-LAS PALMAS
2006m11
DUB-MAD
DUBLIN-MADRID
2006m4
DUB-MRS
DUBLIN-MARSEILLE
2007m11
DUB-NCE
DUBLIN-NICE
2007m11
DUB-PRG
DUBLIN-PRAGUE
2006m1
DUB-RIX
DUBLIN-RIGA
2007m1
DUB-SVQ
DUBLIN-SEVILLE
2006m6
DUBSXF
DUBLIN-BERLIN
2006m4
DUB-SZG
DUBLIN-SALZBURG
2007m10
DUB-TFS
DUBLIN-TENERIFENORTH/SOUTH
EN 527 EN
2011m6
DUB-VCE
DUBLIN-VENICE/TREVISO
2011m5
DUB-VNO
DUBLIN-VILNIUS
2006m11
DUB-WAW
DUBLIN-WARSAW/MODLIN
2010m6
ORK-ACE
CORK-LANZAROTE
2010m6
ORK-AGP
CORK-MALAGA
2010m6
ORK-ALC
CORK-ALICANTE/MURCIA
2010m6
ORK-FAO
CORK-FARO
2011m11
ORK-LPA
CORK-LAS PALMAS
2011m2
ORK-TFS
CORK-TENERIFENORTH/SOUTH
City Pairs
date
city pair
2010m6
CORK-ALICANTE/MURCIA
2010m6
CORK-BARCELONA/GIRONA/REUS
2007m12
CORKB-IRMINGHAM/EASTMIDLANDS
2010m6
CORK-FARO
2010m6
CORK-LA ROCHELLE
2011m11
CORK-LAS PALMAS
2010m6
CORK-MALAGA
2011m2
CORK-TENERIFENORTH/SOUTH
2011m11
DUBLIN-ABERDEEN
2007m6
DUBLIN-ATHENS
2006m6
DUBLIN-BERLIN
2011m10
DUBLIN-BILBAO/SANTANDER
2012m5
DUBLIN-BLACKPOOL
2008m10
DUBLIN-BOLOGNA
EN 528 EN
2012m4
DUBLIN-BORDEAUX
2007m9
DUBLIN-BUDAPEST
2005m5
DUBLIN-FRANKFURT/HAHN
2006m12
DUBLIN-FUERTEVENTURA
2006m4
DUBLIN-HAMBURG
2006m4
DUBLIN-KRAKOW
2009m10
DUBLIN-LANZAROTE
2009m10
DUBLIN-LAS PALMAS
2006m11
DUBLIN-MADRID
2006m4
DUBLIN-MARSEILLE
2006m4
DUBLIN-MILAN/BERGAMO
2009m5
DUBLIN-MUNICH/MEMMINGEN
2007m11
DUBLIN-NICE
2007m11
DUBLIN-PRAGUE
2006m1
DUBLIN-RIGA
2005m2
DUBLIN-ROMEALL
2006m4
DUBLIN-SALZBURG
2007m1
DUBLIN-SEVILLE
2006m12
DUBLIN-TENERIFENORTH/SOUTH
2005m4
DUBLIN-TOULOUSE/CARCASSONE
2006m4
DUBLIN-VENICE/TREVISO
2006m4
DUBLIN-VIENNA/BRATISLAVA
2011m5
DUBLIN-VILNIUS
2006m11
DUBLIN-WARSAW/MODLIN
EN 529 EN
Appendix B: Entry/Exit events of Aer Lingus
Airport Pairs
date
route
city pair
2011m4
DUB-ABZ
DUBLIN-ABERDEEN
2006m11
DUB-BGY
DUBLIN-MILAN/BERGAMO
2008m11
DUB-BLQ
DUBLIN-BOLOGNA
2007m4
DUB-BRS
DUBLIN-BRISTOL/CARDIFF/EXETER
2007m4
DUB-FUE
DUBLIN-FUERTEVENTURA
2012m1
DUB-GNB
DUBLIN-GRENOBLE
2006m7
DUB-GRO
DUBLIN-BARCELONA/GIRONA/REUS
2011m5
DUB-IBZ
DUBLIN-IBIZA
2007m10
DUB-LGW
DUBLIN-LONDONALL
2006m7
DUB-LPL
DUBLIN-
MANCHESTER/LIVERPOOL/LEEDS
2008m7
DUB-LTN
DUBLIN-LONDONALL
2006m11
DUB-MRS
DUBLIN-MARSEILLE
2006m10
DUB-NCL
DUBLIN-NEWCASTLE
2011m10
DUB-NTE
DUBLIN-NANTES
2006m3
DUB-PIK
DUBLIN-GLASGOW/PRESTWICK
2008m4
DUB-PMI
DUBLIN-PALMA
2008m4
DUB-POZ
DUBLIN-POZNAN
2008m11
DUB-RIX
DUBLIN-RIGA
2009m6
DUB-STN
DUBLIN-LONDONALL
2011m11
DUB-SVQ
DUBLIN-SEVILLE
2006m5
DUB-SZG
DUBLIN-SALZBURG
2007m4
DUB-TRN
DUBLIN-TURIN
2006m11
DUB-VLC
DUBLIN-VALENCIA
EN 530 EN
2008m7
ORK-EMA
CORK-BIRMINGHAM/EASTMIDLANDS
2011m3
ORK-FAO
CORK-FARO
2010m3
ORK-LGW
CORK-LONDONALL
2011m10
ORK-LPA
CORK-LAS PALMAS
2012m5
ORK-PMI
CORK-PALMA
2012m5
ORK-TFS
CORK-TENERIFENORTH/SOUTH
2011m2
SNN-ACE
SHANNON-LANZAROTE
2006m8
SNN-BRS
SHANNON-BRISTOL/CARDIFF/EXETER
2005m9
SNN-EMA
SHANNON-
BIRMINGHAM/EASTMIDLANDS
2006m5
SNN-LGW
SHANNON-LONDONALL
2005m12
SNN-LTN
SHANNON-LONDONALL
2007m10
SNN-MAD
SHANNON-MADRID
2006m8
SNN-STN
SHANNON-LONDONALL
City Pairs
date
city pair
2011m3
CORK-FARO
2011m10
CORK-LAS PALMAS
2007m3
CORK-MANCHESTER/LIVERPOOL/LEEDS
2012m5
CORK-PALMA
2012m5
CORK-TENERIFENORTH/SOUTH
2011m4
DUBLIN-ABERDEEN
2008m4
DUBLIN-BILBAO/SANTANDER
2008m11
DUBLIN-BOLOGNA
2007m4
DUBLIN-BRISTOL/CARDIFF/EXETER
2007m4
DUBLIN-FUERTEVENTURA
EN 531 EN
2012m1
DUBLIN-GRENOBLE
2007m11
DUBLIN-HAMBURG
2011m5
DUBLIN-IBIZA
2006m11
DUBLIN-MARSEILLE
2011m10
DUBLIN-NANTES
2006m10
DUBLIN-NEWCASTLE
2008m4
DUBLIN-PALMA
2008m4
DUBLIN-POZNAN
2008m11
DUBLIN-RIGA
2006m5
DUBLIN-SALZBURG
2011m11
DUBLIN-SEVILLE
2012m3
DUBLIN-STOCKHOLMARL/SKAV
2005m11
DUBLIN-TOULOUSE/CARCASSONE
2007m4
DUBLIN-TURIN
2006m11
DUBLIN-VALENCIA
2005m9
SHANNON-BIRMINGHAM/EASTMIDLANDS
2006m8
SHANNON-BRISTOL/CARDIFF/EXETER
2011m2
SHANNON-LANZAROTE
2008m2
SHANNON-LONDONALL
2007m10
SHANNON-MADRID
2010m7
SHANNON-MANCHESTER/LIVERPOOL/LEEDS
2008m8
SHANNON-PARISCDG/BEAUVAIS/ORLY
