UK regulators have provisionally concluded that budget carrier Ryanair must cut its stake in Aer Lingus owing to avoid adverse effects on competition.

The Competition Commission says Ryanair's shareholding gives it the ability to "influence" the Irish flag-carrier's commercial policies and strategy.

It is proposing various potential remedies, including the sale of "all or part" of Ryanair's 29.8% stake.

Full sale would probably be an "effective" measure, the regulator says, but it is seeking views as to whether a partial sale - accompanied by other behavioural changes, depending on the size of the disposal - would be equally acceptable. But it is not proposing any solution which relies solely on behavioural measures.

In its inquiry the Competition Commission has ruled that Ryanair's shareholding "obstructs" Aer Lingus's ability to tie up with other airlines, in order to achieve synergy benefits and economies of scale.

It adds that Ryanair is able to "hinder" plans for Aer Lingus to issue shares and raise capital, and could also prevent the carrier from disposing of slots at London Heathrow.

Potential remedies, it states, include cutting Ryanair's effective voting power to less than 25%.

"While not giving it control over the day-to-day running of its rival, Ryanair's minority shareholding can influence the major strategic decisions that could be crucial to Aer Lingus's future as a competitive airline on these and other routes," says Competition Commission deputy chairman Simon Polito.

"We were particularly concerned about Ryanair's influence over Aer Lingus's ability to be acquired by, merge with, or acquire another airline."

Without Ryanair's shareholding, the regulator says, competition with Aer Lingus "might have been more intense", notably on routes between the UK and Ireland.

The Competition Commission is inviting comments before publishing its final report on 11 July.

Aer Lingus says it "welcomes" the decision while Ryanair, predictably, has attacked the regulator's ruling, describing the inquiry as "bogus and baseless" and insisting that the claim of influence contradicts other findings by the European Commission.

Ryanair says it will appeal to the UK Competition Appeals Tribunal and, if necessary, the courts. Chief executive Michael O'Leary says the decision is "bizarre and manifestly wrong". He cites Etihad Airways' shareholding in Aer Lingus as evidence that Ryanair is not a barrier to tie-ups.

Source: Air Transport Intelligence news