EU Blocks Ryanair Bid for Aer Lingus, Saying it Would Reduce Consumer Choice

BRUSSELS, Belgium - EU regulators blocked low-fare airline Ryanair Holdings PLC's hostile bid for Aer Lingus Group PLC on Wednesday, saying the deal would limit consumer choice and likely lead to higher prices.

Ryanair Chief Executive Michael O'Leary said the EU veto meant his bid, suspended since December, was now "officially dead." He has said he would appeal.

The European Commission refused to clear the deal because the two Irish airlines would control more than 80 percent of all European flights to and from Dublin.

New airlines were unlikely to try to muscle in because of Ryanair's reputation for "aggressive retaliation" and its ability to temporarily slash fares and launch new routes to protect its powerful market position, the EU said.

"What we are doing is preventing a monopoly from emerging," EU Competition Commissioner Neelie Kroes said. "Ireland, being an island, depends heavily on air transport."

This is only the second time since 2001 that the EU has blocked a deal.

The ?1.48 billion (US$1.9 billion) takeover already seemed doomed after nearly half of Aer Lingus shareholders vowed to block it and Ryanair's share offer found few takers.

But Ryanair vowed to take regulators to court, claiming they were wrong to block the deal when they had cleared others between Air France and KLM and between Lufthansa and Swissair.

O'Leary said Ryanair could not make any new bid now until the European Court of First Instance rules on his appeal - which could take 18 to 24 months.

Ryanair's only options were to sell its 25.2 percent stake in Aer Lingus - something O'Leary said would crash its share price - or hold on "and nurse our losses," he said.

Ryanair has complained that the EU decision was politically motivated and aimed at pleasing the Irish government, which owns a quarter of Aer Lingus.

Kroes said the decision was legally sound and would stand up in the EU courts.

Her officials said Ryanair's proposed deal was unprecedented because both airlines had such a large share of routes at one airport, Dublin, while other airlines like Air France and KLM had their main hubs in different cities.

Aer Lingus and Ryanair compete directly on 35 routes to and from Ireland, the EU said, and the combination would give them a monopoly on 22.

"This would have reduced choice and, most likely, led to higher prices for more than 14 million EU passengers using these routes to and from Ireland each year," the European Commission said.

Ryanair's offer to make changes to soothe these concerns were inadequate, it said, criticizing the limited number of airport landing slots the airline offered to give away to new rivals. This would not replace the competitive pressure in the market that would disappear if Ryanair swallowed Aer Lingus, it said.

A plan by Ryanair to reduce Aer Lingus short-haul fares by 10 percent in the first year was "almost impossible to monitor" and gave no assurances that prices wouldn't rise afterward or that Ryanair would not raise its own prices in the meantime, the EU said.

"What is certain is that Ryanair proposed to end the intense competition between Ryanair and Aer Lingus at Dublin airport that has pushed prices down and brought Irish consumers an increasing choice of direct flight connections from Dublin," it said.

"It is highly unlikely that Irish consumers would be better off with a near monopoly, even if it were sweetened by a temporary, hard-to-monitor price rebate."

Aer Lingus Chairman John Sharman said the decision was good news for the company and its customers: "The creation of one dominant player out of Ireland - despite the protestations of Ryanair - just cannot be in the interests of consumers," he said.

But Aer Lingus shares fell to ?2.55 (US$3.43) - well below Ryanair's bid price of ?2.80 (US$3.76). Ryanair's massive purchases of Aer Lingus shares and its surprise offer drove Aer Lingus over ?3 (US$4.03) at one point as investors wrongly gambled that O'Leary would raise his bid.

O'Leary warned Wednesday that Aer Lingus shares would plummet to ?1.50 (US$2.02) if Ryanair opted to dump its holding. Ryanair was ?0.04 (US$0.05) lower Wednesday at ?4.96 (US$6.67).

Growing rapidly from its Irish base into Europe's largest low-cost carrier, Ryanair has spearheaded the drive toward no-frills cheap flights that forced Aer Lingus - a former state-owned airline - to do the same.

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Associated Press Writer Shawn Pogatchnik in Dublin contributed to this report.

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