Gatwick proposal a surprise remedy for Aer Lingus deal

As a harbinger of things to come, it couldn't have been more obvious. IAG and Aer Lingus released identical statements to the markets yesterday evening.

Both airlines welcomed the European Commission’s approval for IAG’s €1.36 billion takeover of Aer Lingus. The rest of their statements, including five bullet points explaining the conditions the commission attached to its approval, were word-for-word the same. Already, IAG and Aer Lingus are in lock step.

It was flagged by Irish politicians late last week that the commission was preparing to conditionally approve the deal, so the announcement from the competition commissioner Margrethe Vestager confirming it was no surprise.

The specific details of the competition remedies that the commission has extracted from IAG, however, will raise a few metaphorical eyebrows. It was almost a certainty that IAG would commit to maintaining the route linkages that exist between Aer Lingus's short-haul network and the long-haul networks of IAG's rivals, such as Virgin Atlantic.

It was also speculated last week that IAG had given the commission a commitment to relinquish some London landing slots to its rivals.

Most observers, however, presumed that these slots would be at Heathrow, where Aer Lingus has 23 valuable slots and the merged entity will be by far the biggest slot owner. The commission sprung a surprise by stipulating last night that IAG must hand over five pairs of slots at London Gatwick.

"The commission has taken its standard approach to airline mergers focusing on routes where BA and Aer Lingus would have combined high shares, and looking for slot remedies to give other carriers access," said Ian Giles, a competition partner at international legal practice Norton Rose Fulbright.

“The BA offer of slots at Gatwick may be surprising as one of the concerns with the deal was that it strengthened BA’s position at Heathrow.”

Clearly, the commission views flights from Ireland to Gatwick and Heathrow as being in the same market for competition purposes.

Vestager is clearly unconcerned about the strong grip that IAG will now have on Heathrow landing slots. Whoever buys the slots must commit to use them for flights to Belfast and Dublin, adding competition to Aer Lingus and IAG's British Airways on these routes.

Aer Lingus owns 10 pairs of Gatwick slots. It uses three for flights to Belfast, six to Dublin and one connecting London with Knock airport in Mayo. It is understood that the slots to be sold will not necessarily be Aer Lingus slots.

Sources speculate that Aer Lingus intends to maintain at least five Gatwick flights to Dublin and one Knock flight to London, although it is unclear if this will be a Gatwick flight. Ryanair, which already flies to Gatwick, is an obvious bidder of the five Gatwick slots. It could not be reached for comment last night.

Aer Lingus is also thought to be in the market for additional Gatwick slots, if any become available. It obviously cannot buy them from its soon-to-be-parent IAG.

The competition remedies appear to have no effect on the commitments IAG has given the State to maintaining Aer Lingus’s connectivity with Heathrow.

Paschal Donohoe, the Minister for Transport, last night welcomed the commission’s approval. He suggested that once it was confirmed it would have no effect on the connectivity commitments, the State would formally accept IAG’s offer.