Financial News: EU blocks Aegean/Olympic merger plan

Δημοσίευση 27 Ιανουαρίου 2011, 12:20 / Ανανεώθηκε 27 Ιουνίου 2013, 14:55
Financial News: EU blocks Aegean/Olympic merger plan
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The European Commission on Wednesday vetoed a proposed merger between Aegean Airlines and Olympic Air, saying a tie-up would have hurt competition in the Greek air transport market.

The European Commission on Wednesday vetoed a proposed merger between Aegean Airlines and Olympic Air, saying a tie-up would have hurt competition in the Greek air transport market.

A Commission statement said the merger between the two airlines would have led to higher prices for the four out of six million Greeks and European consumers travelling to and from Athens each year. The two airlines control more than 90 pct of the Greek air transport market, thus blocking the entry of new airlines in domestic flights.

“The merger between Aegean and Olympic would have led to a quasi-monopoly in Greece and thus to higher prices and lower quality of service for Greeks and tourists travelling between Athens and the islands,” EU Competition Commissioner Joaquin Almunia said.

Aegean, Olympic to examine 'next step' in merger plan

Aegean Airlines and MIG (owner of Olympic Air) will carefully analyse the text of European Commission’s decision and after consultation with their advisers will decide on any further actions within the country’s legal framework, the two companies said in a joint statement.

The merger agreement was pre-agreed by the main shareholders of the two companies in February 22, 2010. Following the Commission’s decision, the agreement is annulled.

Theodore Vasilakis, chairman of Aegean Airlines said both companies presented the benefits from the proposed merger for our companies, passengers and the country’s economy and offered significant reassurances over consumers protection and facilities for the entry of new competitors in the domestic market. “Unfortunately, the EU did not approve the merger. A significant opportunity is lost for a strong representation in the European airline market. We adjust to developments and move forward.”

Andreas Vgenopoulos, chairman of Marfin Investment Group, said the EU’s decision will have negative repercussions for both passengers and the country’s economy, while would benefit the two airlines' foreign competitors. “It is obvious that we will continue to do our best for our executives and staff, our shareholders and passengers,” he said.

Commission statement

The European Commission on Wednesday prohibited, on the basis of the EU Merger Regulation, the proposed merger between Aegean Airlines and Olympic Air, as it would have resulted in a quasi-monopoly on the Greek air transport market. This would have led to higher fares for four out of six million Greek and European consumers travelling on routes to and from Athens each year. Together the two carriers control more than 90% of the Greek domestic air transport market and the Commission's investigation showed no realistic prospects that a new airline of a sufficient size would enter the routes and restrain the merged entity's pricing. The companies offered to cede take-off and landing slots at Greek airports, but Greek airports do not suffer from the congestion observed at other European airports in previous mergers or alliances.

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

The European Commission has prohibited the merger between Aegean Airlines, a publicly-listed company, and Olympic Air, which is part of the bigger Olympic group of companies themselves owned by Greece's Marfin Investment Group. The deal was notified to the Commission for regulatory clearance under the European Union's Merger Regulation.

Aegean provides scheduled and charter air passenger transport as well as cargo transport in Greece and on international short-haul routes. It operates from Athens International Airport and serves around 45 short-haul destinations, including to the Greek islands. It has been part of the Star alliance since 2010.

Olympic consists of three legal entities: (i) Olympic Air, active since 1 October 2009, following the privatization of the former Olympic Airlines; (ii) Olympic Handling, which offers a full range of ground handling services at 39 Greek airports, serving both Olympic Air and third party airlines; and (iii) Olympic Engineering, which is currently in start-up mode and is active in the provision of maintenance, repair and overhaul services.

Both Aegean and Olympic Air operate on routes covered by public service obligations (PSOs). Aegean has PSOs on four routes. Olympic has PSOs on thirteen routes.

As with previous airline mergers, the Commission analysed the combined effects of the proposed merger on the individual routes on which both companies operate. It received views and complaints from a large number of market participants in Greece and internationally, including consumer associations, public authorities, travel agents, airport operators, ferry operators and other airlines.

Quasi-monopoly on nine routes

The proposed merger would have led to a quasi-monopoly between Athens and Thessaloniki, the country's second-biggest city, and between Athens and eight island airports, namely Herakleion and Chania, both in Crete, Rhodes, Santorini, Mytilini, Chios, Kos and Samos. None of these are routes covered by public service obligations.

The investigation showed that ferry services do not generally constitute a sufficiently close substitute to air services so as to discipline the merged entity's pricing behaviour post-merger. Their travel times are much longer and frequencies lower. The only domestic route where ferry services were considered a close substitute to air services is Athens-Mykonos for which the Commission concluded there were no competition problems.

The market investigation also showed that there is no prospect that any new player would enter the Greek market after the merger and challenge the new entity on a sufficient scale as concerns domestic flights to and from Athens.

Olympic Air and Aegean Airlines currently compete head-to-head on these routes and will continue to do so in the future.

The market investigation did not find significant competition problems on short haul international routes also operated by the parties, including, for example, on the Athens-Brussels route where they face competition from Brussels Airlines.

The companies offered to release slots at Athens and other Greek airports as well as other remedies such as access to their frequent flyer programmes and interlining agreements However, the nature and the scope of these remedies were insufficient to ensure that customers would not be harmed by the transaction. This is notably because the main problem in this case - unlike in many previous airline cases - was not the availability of slots, which are available at Athens airport and at most Greek airports. The market test also showed that the remedies were unlikely to entice a credible new player to create a base at the Athens airport and exert a credible competitive constraint on the affected routes.

The Commission, therefore, had no alternative but to conclude that the concentration "would significantly impede effective competition in the internal market or a substantial part of it" (Art 2.3 of the Merger Regulation) and prohibited the transaction. The elimination of competition which would have been associated with the merger would have been harmful for Greek customers, which need to be able to rely on competitive airlines.

The merger was notified for clearance on 24 June 2010. On 30 July the Commission started an in-depth investigation. The deadline for a ruling was extended twice to assess the remedies and to wait for information requested from the parties. The parties were warned in the Statement of Objections sent in October that the merger raised very serious concerns and could be prohibited.

Previous airline mergers

The Commission has examined 11 mergers and many alliances in this sector since 2004 and this is only the second negative prohibition. The first, in 2007, was a prohibition of the proposed acquisition of Aer Lingus by Ryanair, both Irish, which presented similarities with the Greek case. Both transactions amounted to a merger of two airlines based at the same "home" airport in the national capital.