Wednesday, August 22, 2012

Ryanair, Aer Lingus And The Slots of Heathrow

Heathrow from Google Earth

This week saw another twist in that seemingly never-ending mating dance Ryanair has been doing to woo Aer Lingus. It seems that Michael O’ Leary and his airline are flinging everything but the kitchen sink of ideas in their attempt to acquire their fellow Irish carrier and rival. It must be desperate times because this proposal seems to be the oddest and probably one of the most controversial. Ryanair are fully aware that their major obstacle in taking over Aer Lingus is on competition grounds. A merged airline of the two would have a virtual monopoly on many routes from Ireland but especially on one of the busiest routes in Europe, that between Dublin and London. Only two other airlines fly between London and Dublin, the tiny, premium and businessman-orientated Cityjet flying in to London City Airport and British Airways, which recently took over the mantle from BMI, the airline they acquired last year.

In their apparent delusion, Ryanair this week stated that to alleviate competition fears, a potentially merged Aer Lingus and Ryanair would sell lucrative take-off and landing slots owned by the former at Heathrow to other airlines such as Virgin Airlines. Virgin Airlines has been developing a stronger emphasis of feeding passengers through its Heathrow hub for long haul destinations, announcing new routes from the London airport to Manchester this week and would with relish snapping up the slots if they were to come up for sale. It is probably the opinion of Ryanair that this may incentivize Virgin to open a new route to Dublin as it has done with Manchester and allow the Aer Lingus Ryanair hybrid to concentrate on the low cost model both Irish airlines espouse and alleviate fears of a monopoly on the Dublin London route.

The problem with this proposal is that it ignores the strategic value for the country and the state as major shareholder in Aer Lingus of owning slots, the third most of any airline in one of the world’s most important airports. Indeed in the preliminary process of privatizing the former state airline, the Fianna Fail led government at the time even considered creating a separate holding company to keep the landing slots in state hands, such was the importance of the landing slots considered at the time. With Heathrow running close to 99% capacity and debates about its expansion, landing slots at Heathrow coming on the market are extremely rare. The only few times in the past few years that slots have been up for trading have been due to competition rulings to prevent a dominance of one carrier in the international hub. This has been the case with IAG, British Airway’s parent company and largest owner of slots after the airport’s acquisition of BMI, the second largest last year. For this reason, the importance and value of the slots and the effect of selling them should be considered off the table.

Ryanair has consistently stated that it intends to run the two airlines as separate entities with Aer Lingus concentrating on long haul and certain short haul routes. If that is the case, it seems to be at odds with selling slots at an airport primarily dedicated to that. Just as Virgin and other airlines use Heathrow to feed passengers through it on long haul routes, there is a compelling business opportunity for Aer Lingus to keep the slots, whether or not it is acquired by Ryanair. It is also vital at retaining that feed for international business people who would balk at switching airports in London to get to Ireland. While Ryanair has said it does not intend to sell all the slots, reducing capacity in an increasingly globalized world in which hub airports like Heathrow are vital routers does not make sense.

This could all be a game by Ryanair for ulterior motives. Ryanair also this week mooted taking a controlling stake or buying out totally its London hub Stansted. Stansted is finally coming on to the market after BAA, who also own Heathrow gave up its three year legal battle to retain it. It was forced to sell it, ironically for Ryanair by a ruling from the Competition Commission who found that BAA had an unfair monopoly on airports in the London area. Ryanair will have rivals in its mooted plan to take control of the airport in the shape of Qatar Holding and Manchester Airport Group. It seems that both issues are based around a desire to concentrate on its own existing hub of Stansted at the expense of Heathrow, which it finds quite rightly an obscenely expensive airport to operate from.

The selling of slots at Heathrow seems to be a misguided offering for one of the entities that holds the biggest obstacle to Ryanair acquiring Aer Lingus, the UK Competition Commission who have been investigating  Ryanair for quite some time. The selling of the slots, even a few would be a bad decision for the future of a merged company and the country. It smacks of exasperation from Ryanair in its third attempt at acquiring its Irish rival. 

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