Ryanair is a bit on the ropes because of threats from Norwegian Air and easyJet alike. It needs as few distractions as possible.
Speaking to the Irish Independent, Ryanair’s outgoing Deputy CEO Howard Millar described Ryanair’s failure to acquire Aer Lingus as probably “one of the best things that never happened” to the low-cost carrier.
The 29.8% stake that Ryanair holds in Aer Lingus originally cost the airline 407 Million Euros and is currently valued at 230.7 Million Euros “based on current market capitalisation,” the Independent reports.
The European Commission has repeatedly blocked takeover efforts by Ryanair, which the low-cost carrier has appealed without success. The UK’s Competition Commission last year told Ryanair that it must sell a 5% share of the 29.8% held, claiming that Ryanair has exerted “material influence” over the smaller national carrier.
One claim against Ryanair is that it has interefered with other airline’s interests in purchasing a larger share of Aer Lingus, which Ryanair denies. Speaking to the Independent, Millar said: “In the years that we’ve had the Aer Lingus stake, no-one has turned up and asked if they can buy it.”
The Irish government holds a 25.1% share of the national airline, and Etihad Airways in Abu-Dhabi, which recently took-on troubled Alitalia, owns less than 5%.
Ryanair has twice appealed the mandate to sell off the 5% share mandated, first to the Competition Appeal Tribunal which was denied and determined in favor of the UK Competition Commission’s findings. Ryanair’s second appeal at the UK’s Court of appeals is still pending a final decision, with a hearing scheduled sometime between September 2014 and February 2015.
But why would an airline, so focused on maintaining profitable operations appeal a mandate to shed a portion of its holdings in a losing operation so vehemently?
What It’s Good For
Part of its motivation, as Millar intimates in the Independent’s report, is to lend a kinder side to the aggressive persona of the no-frills carrier. Millar makes light of this, telling the Independent that the airline has now matched the services and culture Aer Lingus would have lent it. But Ryanair is still going through the process of softening its brash image, and enhancing its product to attract a greater base of business passengers.
The other factor which made Aer Lingus attractive was the potential for Ryanair to win control over and indirectly incorporate the national carrier’s long-haul routes into its network. In 2007, the European Commission blocked Ryanair’s attempt to purchase a controlling share of Aer Lingus. Ryanair tried again in 2012 and failed.
Without gaining full control and use of the national carrier’s infrastructure and routes, the benefit of ownership is diminished. This would account for Millar’s statement to the Independent earlier this year that “retaining the Aer Lingus stake is ‘not material’ to Ryanair’s future.” The material gains would come from full control.
A May 1, 2013 report by the Centre for Aviation (CAPA) points out Aer Lingus’ strong “open platform” partnerships with United and Jet Blue Airways, which it established after leaving the oneworld alliance. Such reciprocal code-sharing arrangements in the Americas might have made it easier for Ryanair to transition into trans-Atlantic service, under the Aer Lingus brand at first with a hybrid brand in future. Ryanair’s inability to gain a control share of Aer Lingus has made any such plans impossible, leaving the shares Ryanair holds of Aer Lingus immaterial to Ryanair’s future strategies–just as Millar tells the Independent.
None-the-less, Ryanair continues to fight against the mandate from the UK’s Competition Commission, which would force them to sell 5% of their holdings, if for no other reason than a matter of principle. Michael O’Leary is quoted by the Independent as referring to the decision against them as “bizarre and manifestly wrong.”
Millar admits defeat tell the Independent: “It’s difficult to see us not being forced down,” but plays down the importance saying: “It’s an investment, which will turn out how it turns out. It’s not serious one way or the other.”
The Norwegian Air Threat
But other matters in Ryanair’s market are serious, namely the appearance of Norwegian Air Shuttle as an Irish carrier. Despite Norwegian’s battle for open skies with the Americas, it has recently confirmed to the Irish Times that it “is considering launching a Dublin to Bangkok service next year, in a move that could make it the first airline to connect the Republic directly with the major tourist hub.”
This is not a move which Ryanair would have missed. Thailand is a popular destination for Northern European tourists on the whole. Sources tell Skift that it is just as popular a destination for Irish vacationers as it is for the English, Germans and Scandinavians. In fact, the same June 26 article in the Irish Times indicates that Irish Minister for Tourism, Leo Varadkar, “is keen to see airlines developing services to eastern Asia.”
Routes to Asia would not be limited to tourism, but would also be beneficial to Irish businesses, and to Irish families. The May 1, 2013 report by CAPA referred to the family factor of demand stating: “Asia and Australia are home to a large but diverse Irish diaspora, which Aer Lingus will actively target for the first time through its partnership with stakeholder Etihad Airways.”
The Eastern route is the path of least resistance in long-haul service for Norwegian. Long-haul low-cost service to Asia, the airline has asserted, is possible because of the advantages of their 787 Dreamliners. Arrangements already made in Bangkok for operating bases and flight crew help. This tactic could be beneficial for Ryanair as well, should the larger low-cost carrier choose to pursue any long-haul ambitions.
Ryanair’s focus away from the fight for Aer Lingus, the characterization by Millar of the matter as immaterial, could have more to do with a shift in focus to the Norwegian incursion than anything else.
Bjørn Kjos has previously taunted Ryanair, telling Flight Global in a 2013 interview: “We have a different product than Ryanair, but we can compete with Ryanair…If you cannot compete with everyone, you should stay out.”
O’Leary is likely to share those sentiments. Being rid of the distraction of a fight to hold-on to the losing Aer Lingus proposition, would allow Ryanair to focus on the market disruptions Norwegian represents. With a change in strategy necessitated by these new conditions, the Aer Lingus deal could very well be “the best thing that never happened” to Ryanair–just as Millar says.
Photo credit: A model airplane rests on a table during an announcement of the commitment for Ryanair to purchase aircraft from Boeing, in New York March 19, 2013. Lucas Jackson / Reuters