“RyanAer’s” combination in Dublin would have far less impact than Lufthansa’s dominance of Frankfurt

Image: Nein Danke
Our analysis of potential duopolies at European airports shows Ryanair’s merger with Aer Lingus would produce the biggest combination at 83% of capacity. But this is only single crude measure. For instance the existing dominance of Frankfurt by Lufthansa – currently 62% of capacity and growing – is a much bigger position by volume (32.9m versus 19.9m passengers) and has far greater economic impact for far more EU consumers.
Dublin Airport and Ireland (pop. 4m) is an origin and destination market – more so since Aer Lingus started shrinking its long haul. In contrast Frankfurt is a US-style hub where Lufthansa’s long haul routes are fed from across Germany (pop. 82m) and many other parts of its fast-growing European network (after buying Austrian Airlines last week Lufthansa is on course to become Europe’s largest airline).
Indeed Frankfurt’s catchment, including feed, could be up to 100m and covers the wealthiest part of Europe. airberlin (and to a lesser extent TUIfly) have made progress in offering an alternative to Lufthansa at many major German airports, but are conspicuous by their near complete absence at Frankfurt where the next biggest carrier – Condor – has a narrow business model and just 3% of capacity.
The EU’s standing objection to Ryanair gobbling up Aer Lingus is because new market entry will be hard structurally due to slots scarcity and, although there’s plenty of precedent for forcing a merged airline to surrender a generous slab of slots – would anyone even want them? Because indeed the EU’s second concern is Ryanair’s record of defending Dublin by making competition impossible by charging nothing for air fares. Ryanair will certainly do this, but then will that really be so bad for consumers? Or just bad for other airlines?
Love-them-or-hate-them, it is hard to get away from the conclusion that Ryanair’s overwhelming dominance of Dublin would have a fraction of the economic significance of the existing positions of the dominant carriers at Frankfurt, Amsterdam or Paris, or the big US airlines’ airport dominance which became a feature of the main cities after Deregulation.

As Ryanair launches another audacious bid for Aer Lingus, anna.aero this week looks at how dominant (or otherwise) the top two airlines are at the major airports serving the capitals of the biggest EU countries. The EU has already expressed its concerns about such a merger/takeover due to the fact that between them Ryanair and Aer Lingus control over 80% of all scheduled capacity at Dublin, Ireland’s biggest airport. Only Oslo, where SAS and Norwegian also account for over 80% of seat capacity, is there a similar situation.

Chart: Top 20 European “Capital” airports
Source: OAG Max Online for w/c 1 December 2008

The top two airlines account for between 40% and 83% of scheduled seat capacity at the 20 capital airports examined. In three cases the leading airline alone operates over 60% of scheduled seats; TAP has 64.4% in Lisbon, Lufthansa has 61.9% in Frankfurt and Helsinki has 61.2% in Helsinki.

Where is Lufthansa’s competition at Frankfurt?

It could be argued that Lufthansa is the most dominant airline as it has over 20 times more capacity at Frankfurt than its nearest rival Condor, which has just 3% of the market. Air France is also in a powerful position at Paris CDG with 13 times more capacity than its closest competitor easyJet.

Athens, Dublin and Oslo could be considered the most competitive airports as in each case the second biggest carrier is at least half as large as the biggest. British Airways is just about the least dominant major European flag carrier with just 40% of seat capacity at Heathrow. While the integration of Air One into the new Alitalia raises questions about dominance in some Italian domestic markets, the two airlines will only share around 55% of capacity at Italy’s biggest airport, Rome Fiumicino.

Image: Continental
Spooky coincidence? Continental has around 85% of traffic at Houston, a bit like Ryanair/Aer Lingus would at Dublin. Such dominance of a US major city by a single carrier is commonplace. See this week’s Airport Analysis.

LCCs proving growing competition at major airports

While Dublin is the only example of where a low-cost carrier has become the leading carrier, at 10 other airports the biggest competitor to the national flag-carrier comes from a low-cost or charter type carrier. Norwegian (at Oslo and Stockholm Arlanda), easyJet (at Lisbon and Paris CDG), Wizz Air (at Budapest and Warsaw), SkyEurope (in Prague), Niki (in Vienna), Condor (in Frankfurt) and airberlin (at Zurich) have each moved into second place behind the country’s more established ‘legacy’ airline.

The Dublin duopoly dilemma

If Dublin had spare runway and terminal capacity then the idea of one airline controlling over 80% of capacity might be considered less of an issue, but with 23.3 million passengers passing through the airport last year on a single runway, the airport already suffers from congestion issues. A new Terminal 2 is due to open for use in April 2010 while a second runway is scheduled for 2012.

Ryanair has indicated that it is happy to keep Aer Lingus as a separate airline with a differentiated product. However, from Dublin the two airlines compete head-to-head this winter on 17 routes while also overlapping on a further 12 routes where the two airlines serve different airports. It seems inevitable that a takeover would result in some significant rationalisation of the networks leading possibly to an increase in available slots in Dublin. However, given the track record of airlines (e.g. easyJet, Go, MyTravel Lite, Thomsonfly) who have tried (and failed) to compete with Ryanair in their back yard, it seems unlikely that there will be a stampede to grab them.


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