Summary of Commission Decision of 27 June 2007 Declaring A

20.2.2008 EN Official Journal of the European Union C 47/9 Summary of Commission Decision of 27 June 2007 declaring a concentration to be incompatible with the common market and the EEA Agreement (Case COMP/M.4439 — Ryanair/Aer Lingus) (Only the English text is authentic) (Text with EEA relevance) (2008/C 47/05) On 27 June 2007, the Commission adopted a Decision in a merger case under Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regu- lation) (1), and in particular Article 8(3) of that Regulation. A non-confidential version of the full Decision can be found in the authentic language of the case on the website of the Directorate-General for Competition, at the following address: http://ec.europa.eu/comm/competiton/index_en.html I. SUMMARY 1. The case concerned the proposed acquisition by the Irish-based airline Ryanair of its competitor Aer Lingus. Both companies offer scheduled air transport services. Their operations overlap in particular at Dublin airport. 2. The proposed acquisition, whereby Ryanair acquires sole control over Aer Lingus, constitutes a concentration within the meaning of Article 3(l)(b) of the Merger Regulation.The concentration has a Com- munity dimension under Article 1(3) of the Merger Regulation. 3. The decision sets out, in line with previous cases in the air transport sector, that the relevant product market includes point-to-point scheduled air transport services whereby each route between a point-of- origin and point-of-destination is defined as a separate market (O & D approach). The market investigation also concluded that certain airports serving similar catchment areas (e.g. primary airports served by Aer Lingus and secondary airports served by Ryanair) belong to the same relevant product market. 4. The decision highlights that the merger would combine two low-frills airlines with a significant presence at in particular Dublin Airport, where they would account for approximately 80 % of European short-haul traffic post-merger. The decision identifies in total 35 routes on which the parties' activities overlap. Out of these routes, the transaction would lead to monopoly positions on 22 routes and very high combined market shares above 60 % on an additional 13 routes. Ryanair and Aer Lingus are also each other's most likely potential competitor on those routes that are presently served by only one of the merging parties. 5. The Commission's investigation confirmed that there are substantial barriers to entry which would make difficult any new entry to the routes where the activities of the merging parties overlap. 6. Commitments submitted by Ryanair were found to fall significantly short of remedying the significant impediment to effective competition identified by the Commission. 7. Hence, the decision concludes that the notified concentration would significantly impede effective competition on the identified routes to/from of Ireland and declares the concentration incompatible with the Common Market and the EEA Agreement. II. THE PARTIES 8. Ryanair is an airline offering point-to-point scheduled air transport services on more than 400 routes across 24 European countries. Ryanair operates more than 75 routes between Ireland (mainly Dublin, but also Shannon, Cork, Kerry and Knock) and other European countries. The company has a fleet of currently around 120 aircraft and 19 bases across Europe, the most important ones being London-Stansted and Dublin. (1) OJ L 24, 29.1.2004, p. 1. C 47/10EN Official Journal of the European Union 20.2.2008 9. Aer Lingus is a Dublin-based airline. Like Ryanair, it offers point-to point scheduled air transport services on more than 70 routes connecting the Irish airports of Dublin, Shannon and Cork with a number of European and several non-European destinations. In addition Aer Lingus offers long-haul flights, mainly to the Unites States, and cargo transport services and seats to tour operators. Aer Lingus is based principally at Dublin Airport (and to a smaller extent in Cork and Shannon) with a total fleet of 28 short-haul and 7 long-haul aircraft. III. THE OPERATION 10. The transaction concerns an acquisition of sole control by Ryanair of Aer Lingus by way of a public bid for all outstanding shares. Ryanair started to acquire a substantial number of shares, amounting to 25,17 % of Aer Lingus' share capital, between September and November 2006. On 5 October 2006, Ryanair also announced a public bid for the entire share capital of Aer Lingus with a deadline for accep- tance until 13 November 2006, which was subsequently extended by Ryanair first until 4 December 2006 and then until 22 December 2006. Because Ryanair's share purchases and the public bid are closely connected in terms of timing and ultimate economic objective, the acquisition of shares before and during the public offer period and the public bid itself constitute a single concentration within the meaning of Article 3 of the Merger Regulation. The fact that Ryanair's bid has technically lapsed in the meantime does not remove the Commission's jurisdiction, since Ryanair has already announced to make a new bid should the Commission clear the transaction (1). IV. COMMUNITY DIMENSION 11. The concentration has a Community dimension under Article 1(3) of the Merger Regulation. The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 2,500 million and both Ryanair and Aer Lingus have a Community-wide turnover in excess of EUR 100 million. The conditions of Article 1(3)(a) and (d) are therefore met. Furthermore, it is clear that Ryanair and Aer Lingus do not achieve more than two-thirds of their aggregate Community-wide turnover within one and the same Member State. Whether or not both Ryanair and Aer Lingus achieve a combined aggregate turnover of more than EUR 100 million in at least three Member States and each of them achieves at least EUR 25 million in these Member States, as required under Article 1(3)(b) and (c) of the Merger Regulation, depends on the geographical allocation of the turnover of these undertakings. 12. The decision considers a number of methodologies for allocating turnover from ticket sales for flights between different Member States for which the location of the customer at the time of purchase cannot be identified. It concludes that, in such scenario and in the case at hand, from the possible alternative methodologies, in particular a ‘50/50’ methodology and a methodology based on place of departure for each ticket (both parties sell for European flights the one-way tickets only) even if the tickets for both outbound and returning inbound leg of the journey are bought at the same time seem to be the most appropriate methodologies, especially in case of point-to-point airlines such as Ryanair or Aer Lingus. V. RELEVANT MARKETS 13. The activities of Ryanair and Aer Lingus overlap in the field of scheduled passenger air transport services within the EEA. Ryanair argues that due to the specificity of its business model and its extre- mely low cost basis, its pricing is not constrained by any airline but rather by consumers' overall discre- tionary spending. The decision acknowledges that scheduled air transport services form indeed a differ- entiated market with a number of operational and business models and different levels of airline services. While both Ryanair and Aer Lingus can be considered low-frills carriers for their European operations, Ryanair is a clear-cut no-frills carrier, whereas Aer Lingus product is positioned somewhat higher, i.e. it provides some additional quality which Ryanair does not have (for instance it flies into more expensive main airports while Ryanair flies into secondary ones). This is reflected in the fact that Aer Lingus' average fares are higher than Ryanair's. However, despite this level of product differentiation, the decision sets out that Ryanair and Aer Lingus compete in the provision of these services. (1) See Article 4(1) of the Merger Regulation. 20.2.2008 EN Official Journal of the European Union C 47/11 14. Ryanair submits that the relevant product market includes point-to-point scheduled air transport services whereby each route between a point-of-origin and point-of-destination is defined as a separate market. The decision explains that this is in line with the previous decision-making practice of the Commission (1) and that this approach was also confirmed by the in-depth market investigation. The other option, namely to define an overall market for short-haul flights from/to Ireland, which would have been based in particular on the supply-side substitutability between different routes from the common base of the parties in Dublin, was not upheld. The supply-side substitution would not be suffi- ciently immediate and effective. Further, this market definition would disregard the demand-side substitution between different routes, which is practically non-existent for a large majority of customers. 15. Therefore, the O & D approach was confirmed by the Commission's market investigation. However, the relevant supply side considerations are not disregarded but are addressed within the framework of the competitive assessment. 16. Ryanair further argues that the relevant O & D markets should be limited to airport-to-airport pairs as, according to Ryanair, even in cases where there are more airports in or in the vicinity of a particular city, the customer do not regard these airports as substitutable. By contrast, the Commission's investigation showed that a large number of these airports are regarded by the customers as substitutable and that the relevant O & D pairs should for many routes rather be defined on a city-to-city basis.

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