Why Brussels remains sceptical on airline mergers

Airline executives are no strangers to failed mergers in Europe.  Michael O’Leary, CE of Ryanair, notably made three failed bids to buy Aer Lingus in a campaign over nearly a decade. He finally gave up in 2015 after EU regulators insisted the deal would force up prices and cut choice. But O’Leary’s experience has done nothing to reduce the appetite for deals among big airline groups in Europe, with two of the region’s leading carriers under close scrutiny in Brussels over consolidation plans. Regulators have launched probes into deals by Germany’s Lufthansa and British Airways owner International Airlines Group (IAG), which were announced in the first half of last year. Lufthansa agreed to buy a 41% stake in ITA Airways, the successor to bankrupt Alitalia, for E325m, while IAG agreed to purchase the remaining 80% of Spain’s Air Europa it does not already own for about E400m. The main concern of watchdogs is that the airlines could use the acquisitions to boost already dominant positions, with passengers losing out because of higher fares and fewer airlines competing on routes. “Regulators have seen airline deals make matters worse for consumers,” said a person with knowledge of the EU’s thinking. “They lead to less competition on routes that it is impossible to restore, less frequency of flights and less quality of service.” Regulators, however, have not yet launched a probe into a third deal announced last October involving Air France-KLM. The carrier is to take a 20% stake in Scandinavian airline SAS in a rescue plan including private equity firm Castlelake and the Danish state. Luís Rodrigues, the boss of Portugal’s TAP, thinks Air France-KLM has received less scrutiny because it has been working as a minority investor in a wider consortium and not seeking a full takeover of SAS.<br/>