The soap opera that is the Irish airline war continues…
On one side is the lean mean low cost carrier Ryanair that has grown since 1991 to be Europe’s biggest low cost airline. Last year it carried more passenger’s than Air France-KLM on its 300 planes flying to 178 destinations in 30 countries. Their plane pictured above right has an Irish harp on the tail.
On the other is the 25 per cent Irish government owned Aer Lingus, the country’s flag carrier which has shrunk services, changed its European model to “low cost”, dropped Business Class on European routes and pulled out of the One World alliance. It’s 46 planes fly to 77 destinations sporting the Irish shamrock (as pictured on the tail on the left).
After chipping away at Aer Lingus route network and customer base for years, Ryanair then attempted to buy the whole airline. It built up a 29 per cent stake in Aer Lingus by 2006. Three times in the last six years, Ryanair has tried to use that stake to launch takeovers. Each and every time it has been blocked by the European authorities. For example, its last $US900 million bid was over ruled in February by the European Commission, after six months of deliberations. Ryanair even promised to sell routes between Ireland, the UK and continental Europe to British Airways and FlyBE to try and get the deal accepted. This was to no avail.
Ryanair then appealed the commission’s decision at the European Court of Justice. The outcome of this case could take years. In the meantime, Aer Lingus took Ryanair to court to stop another takeover bid before February 2014. They lost that bid today.
A new report by the British Competition Commission due to be published in August, will undoubtedly criticise Ryanair -particularly its Aer Lingus holding. This investment effectively blocks the Irish Government from selling to any other airline and the government definitely does not want to sell to Ryanair. Stalemate.
Ryanair announced this week, it will sell its Aer Lingus stake to another airline. But there is a double catch: the other airline must be a European Union airline and that airline must make a full take over bid for Aer Lingus which is accepted by 50.1% of its shareholders.
The reality is that this offer is yet another Ryanair CEO Michael O’Leary stunt. This is the man who threatens every year to charge customers to use the lavatory, promised standing class on his planes, criticised the sex life of Germans and offered ad space on its 737s.
There are no European airlines who would take Aer Lingus over.
International Airlines Group (British Airways/Iberia) might be interested in Aer Lingus’ valuable London Heathrow landing slots but not much else. IAG CEO Willlie Walsh, is on record for saying they are not interested and that Ryanair was the best option for Aer Lingus.
There are only two possible airline suitors. The first is United Arab Emirates carrier Etihad who own just under three percent of Aer Lingus. They have indicated a few times that they would buy more of Aer Lingus. This would allow them access at a relatively low cost to the trans-Atlantic air market and Aer Lingus’ valuable slots at London Heathrow.
The other possible is expansion hungry Turkish Airlines. They, however, were reported to be no longer interested in June 2012 with chief executive Temel Kotil saying that barriers in place by the EU hindered the non-EU carrier from buying Aer Lingus.
The specific statement by Ryanair that they will only sell to an EU carrier rules both these carriers out. Match point to Ryanair. Hence why this sale announcement is a joke. Ryanair only want one European airline to win Aer Lingus- themselves.
I believe, if successful, Ryanair would maintain Aer Lingus as a separate two class Europe to US carrier initially utilising the Aer Lingus slots at Dublin and Heathrow airports, Based on comments from Ryanair, Aer Lingus would offer a full priced quality business class and a “ridiculously cheap” Economy class. Knowing Ryanair, they would advertise tickets for twenty dollars a flight but with charges, taxes and bundles probably end up charging 150 dollars for the flights! Presumably, the Aer Lingus fleet would be reduced to one type of aircraft. The purchase of a brand new set of planes could easily be funded by Ryanair. As for Aer Lingus’ current short haul European slots? Good bye! I reckon Ryanair would take most of these over.
The Aer Lingus brand could expand Its US bound flights from many or all of the existing Ryanair base cities eg Milan-Bergamo, Brussels-Charleroi, Alicante. Barcelona, Marseille, Berlin-Schönefeld, Budapest, Edinburgh and London-Gatwick.
If Ryanair/Aer Lingus were successful, they would undoubtedly bring trans-Atlantic travel to a whole new market segment of Americans and Europeans. They would bring prices down on those routes. They may threaten the viability of some US and European carriers. Once established in the US -Europe market, there is no reason why a combined Ryanair/Aer Lingus couldn’t turn it’s attention to the Middle East, Far East or South America.
Ryanair have said they are prepared to wait for a few more years before their USA expansion plan takes effect. Ryanair can happily wait another couple of years before another takeover tilt in say 2015. The CEO of Ryanair is tenacious enough. Eventually they may wear down the Irish government, the European Commission and the court rooms of Europe. For Ryanair, the payoff is potentially huge.
One possible blockage is Etihad. If Etihad is keen enough for Atlantic expansion, they could pump money into Air Berlin of which they own href=”http://www.etihad.com/en/about-us/our-partners/airberlin/”>29 percent) and then use that airline to bid for Aer Lingus, it’s a long shot but possible.
Keep watching! The drama has a few more episodes to run!