Ryanair-Proposed Monopoly

superhooper

Anyone catch the primetime gig with Jim Power(Friends First Economic guru) fighting in the Ryanair corner? Am I missing something here or are people really contemplating the creation of a monopoly? One of Power's main points is that based on Aer Lingus' monopolistic history it shouldn't be bad mouthing Ryanairs intentions. He also said that Ryanair don't abuse their monopoly positions on other routes. Fantastic arguments there Jimbo. Maybe we should give Ryanair control over the ESB as well. The hell with it. Give them a the banks too!!!!!!:D

Delta Kilo

superhooper wrote: »

Anyone catch the primetime gig with Jim Power(Friends First Economic guru) fighting in the Ryanair corner? Am I missing something here or are people really contemplating the creation of a monopoly? One of Power's main points is that based on Aer Lingus' monopolistic history it shouldn't be bad mouthing Ryanairs intentions. He also said that Ryanair don't abuse their monopoly positions on other routes. Fantastic arguments there Jimbo. Maybe we should give Ryanair control over the ESB as well. The hell with it. Give them a the banks too!!!!!!:D

It might not be a bad idea to give O Leary the banks, or the ESB. At least we might have a chance of breaking even if he was in charge. People dont realise how talented he is at what he does. He took an ailing airline to become one of the biggest and most successful and profitable in Europe. Maybe he could take an ailing country (ireland) and return it to its former glory?

Ryanair is in a completely different league to Aer Lingus. They have 168 aircraft whereas AL have ca.40. They are four times the size, yet have half the staff. There formula obviously works. I know somebody who works with AL and she said that it is full of administration and old friends of Bertie and FF from when it was state owned. Back then, it was never expected to make a profit (and never did afaik) I dont think that AL are major competitors to Ryanair anymore.

But one thing is for sure. There is a reason why O Leary is pressing down now. He is offering nearly 800 million to an airline which could seriously go bust and to a government who is strapped for cash. He knows how to and when to play his cards. It seems like a win win. But Ryanair being Ryanair, there is definitely more to it than meets the eye. What I don't know.

The aviation industry is extremely regulated and I do not think they would be able to exploit its monopoly position or take 100% of traffic in both major airports. competitors will always be there.

axer

Delta Kilo wrote: »

But Ryanair being Ryanair, there is definitely more to it than meets the eye. What I don't know.

Worst case scenario for Ryanair is they distract aerlingus from their day to day business putting even more pressure on them. They go bust and ryanair can still sweep in to save the day (and possibly get the airline even cheaper).

Économiste Monétaire

As opposed to a current oligopoly situation? "Monopoly" depends on your perspective. Monopoly in an Irish context, not a European one. Europe has been moving to a lower number of airlines, in recent time. The point of this is to keep regulation such that we can achieve, to the greatest degree possible, contestable markets in Europe--which may be difficult for us (small Island, few large airports) with large hubs dominated by one firm. I'd listen to Aisling as opposed to Jim Power; Aisling being someone who knows infinitely more about transport economics.

Time Magazine

"Contestability is a load of shit", slightly paraphrased, from Borenstein (c.1993, JEP).

I think the really interesting thing about this, and it's something that the EU Commission Merger Guidlines (1997) is useless at, is dynamics. The focus is very much static-based, though there are the usual "maybe if" conditions that facilitate dynamic analysis. Realistically, the "market for flights from Ireland to Britain" (or however you wish to define it), is of a HHI such that you simply could not justify a merger between FR and AL. Dynamically, however, it's very much in question whether AL have any future. Let's say, and this is quite plausible, that AL are facing bankruptcy in ~5 years. You could then be in a strange situation where the Commission would be completely against merging today (on the basis of HHIs) but very much in favour in 2015 on the basis of the death of AL meaning de facto monopoly anyway.

God love the poor fecker who has to make the call, mind

Économiste Monétaire

What's the threshold value for EU airline HHI when adjudicating mergers? I'd assume that would have altered if a move was made towards less competition, and more stability.

Time Magazine

Économiste Monétaire wrote: »

What's the threshold value for EU airline HHI when adjudicating mergers? I'd assume that would have altered if a move was made towards less competition, and more stability.

It's wrong to think of it in terms of "threshold" really because it's a guideline so there wouldn't really be a need to alter it. Typically the EC rely on the SSNIP test, which is a hypothetical test rather than a quantitative measure. However the Competition Authority's guidelines (PDF), which I presume (I can't quite recall) are broadly in line with the Commission's, state that a HHI between 1000-1800 is dodgy and anything above 1800 is serious. If we say (these are arbitrary, but reasonable figures) Ryanair have 50% market share and Aer Lingus 30%, then the HHI will be roughly twice the "serious" level of 1800.

Économiste Monétaire

Maybe I should have said something less rigid than threshold--engage brain, then type...

Time Magazine

Économiste Monétaire wrote: »

Maybe I should have said something less rigid than threshold--engage brain, then type...

At 2am it's forgiveable .

Transport is still a tricky subject and aviation is really something else. We talk about competition but that's fine until you have to deal with somebody in DAA. We talk about about contestability and then you think the limited airport capacity constraints, and really idiotic grandfather rights for slots at Heathrow. We talk about the HHI in 2009 but have no way to model what that will be like in 2014 (and even if we could there'd be an endogeneity problem as the agents incorporated it into their strategies!). We talk about SSNIP -- whether the merged firm could profitably raise prices a few percent -- but see Ryanair's prices probably below their profit-maximising level for a lot of flights. We talk about monopoly, but we're dealing with a market where marginal cost (arse on seats) is zero. Finally we talk about the presence of "rogue competitors" and "vigorous competition", but would anyone really trust the benevolence of Michael O'Leary with a whiff of monopolistic power?

Actually forget about the poor economist who has to make the call when this finally comes to a head, may the merciful Allah take pity on the poor sod on the bench when this ends up in court.

Lower41

The Economist wrote: »

Dynamically, however, it's very much in question whether AL have any future. Let's say, and this is quite plausible, that AL are facing bankruptcy in ~5 years. You could then be in a strange situation where the Commission would be completely against merging today (on the basis of HHIs) but very much in favour in 2015 on the basis of the death of AL meaning de facto monopoly anyway.

God love the poor fecker who has to make the call, mind

Economist, don't buy into the O'Leary myth that Aer Lingus is 'about to go bust'. As for what happens in 5 years - who can tell. Ryanair might not exist in 5 years if O'Leary doesn't sort out his looming over capacity problem.

As to the EU - the simple fact is they'll always 'leave themselves an out'. In other words, they'll never explicitly ban Ryanair from a takeover of Aer Lingus - they'll just keep putting difficult (but theoretically surmountable) obstacles in his way to slow or stop him.

Time Magazine

Lower41 wrote: »

Economist, don't buy into the O'Leary myth that Aer Lingus is 'about to go bust'. As for what happens in 5 years - who can tell. Ryanair might not exist in 5 years if O'Leary doesn't sort out his looming over capacity problem.

I'm not basing it on MOL's analysis. It's pure and utter scepticism at the viability of a non-state airline with a state union who, when facing losses of €100m, threatened to go on strike.

As to the EU - the simple fact is they'll always 'leave themselves an out'. In other words, they'll never explicitly ban Ryanair from a takeover of Aer Lingus - they'll just keep putting difficult (but theoretically surmountable) obstacles in his way to slow or stop him.

Given the consequences of the merger for inter-state trade it may very well fall outside the Competition Authority's remit. (I'm not sure how much the two companies' revenues though.) If that's the case the European Commission must either approve the merger or not. Of course they may suggest changes to the merger that would make it acceptable to them, but ultimately it'd be the EC's call to approve or block.

Edited to add that here is the Commission's (500 page!) decision blocking the 2007 merger attempt.

atr209

An alternative view point. Have a good read. Michael o leary once said he would leave ryanair when "he starts to believe his own bull****"

Check this out.

www.snotam.com

lordhawhaw

Monopoly? 4 airlines to london, Paris and amsterdam, not sure if this monopoly thing pans out. BMI, airfrance, cityjet,BA, KLM, easy Jet, ... all plenty of competiton

Time Magazine

lordhawhaw wrote: »

Monopoly? 4 airlines to london, Paris and amsterdam, not sure if this monopoly thing pans out. BMI, airfrance, cityjet,BA, KLM, easy Jet, ... all plenty of competiton

What are their market shares though? For analysis, you should look at market power rather than whether or not it's a true monopoly.

If you're saying they could subsequently enter the market, you're discussing contestability, which is a slightly different thing.

lostinsuperfunk

MO'L would like you to believe that Ryanair is some kind of unstoppable profit-making machine while Aer Lingus is fighting the bailiffs from the door.

However, Ryanair currently appears to be losing money hand over fist. MO'L himself predicted an almost €100 million loss for the second half of the fiscal year 2008 (first half profit was €200 million, full year prediction €100 million).

Meanwhile Aer Lingus predicted it would break even during the second half of 2008.

Time Magazine

lostinsuperfunk wrote: »

MO'L would like you to believe that Ryanair is some kind of unstoppable profit-making machine while Aer Lingus is fighting the bailiffs from the door.

However, Ryanair currently appears to be losing money hand over fist. MO'L himself predicted an almost €100 million loss for the second half of the fiscal year 2008 (first half profit was €200 million, full year prediction €100 million).

Meanwhile Aer Lingus predicted it would break even during the second half of 2008.

Not to be rude, but so what?

Delta Kilo

lostinsuperfunk wrote: »

MO'L would like you to believe that Ryanair is some kind of unstoppable profit-making machine while Aer Lingus is fighting the bailiffs from the door.

However, Ryanair currently appears to be losing money hand over fist. MO'L himself predicted an almost €100 million loss for the second half of the fiscal year 2008 (first half profit was €200 million, full year prediction €100 million).

Meanwhile Aer Lingus predicted it would break even during the second half of 2008.

The're playing games with each other. If Aer Lingus predict they are going to break even then why is it imperative that they can get the cost-cutting measures through the unions? The unions have AL over a barrell.

There is not a fear of ryanair going under. They will be the last airline to go if they do. Maybe the 100 million loss is what is going to be lost on the 400 million they have invested in AL! Oleary called this 400 million "small change", which it is relative to ryanairs wealth. Ryanair losing 100 million is like you losing 100 on a horse.

Notice how it is their own predictions. Nobody else has seen their accounts books.

lostinsuperfunk

Yep, all will be revealed when the accounts actually come out. Aer Lingus are probably spinning us a line as well.

I could be wrong but I think Aer Lingus have cash in the bank, not sure about Ryanair.

so what?

I was responding to a poster above who seems to buy MO'L's line that Aer Lingus needs to be 'saved' by Ryanair.

All a bit off-topic. I personally believe a merger/buyout would lead to a monopoly in many markets. I also think it will probably go through in the end.