The also the Commission’s future decisions on mergers.

The European deregulation and liberalization process in the airline industry has radically reshaped the conditions that carriers operate in the market since 1993. The number of routes has increased and the process encouraged successful entry of low cost carriers. Traditional full-service airlines have been challenged and they have been under pressure to adapt their business strategies and models to the new market condition (Weitbrecht, 2008). Therefore, for incumbent airlines, mergers have been one of the ways to reduce costs, improve aircraft utilization, and benefit from the economies of scale. 15 mergers in the airline industry fall within the jurisdiction of the European Commission under the European Merger Regulation Guidelines (EUMR).¬†par On Jun. 27th, 2007, the Commission prohibited the merger between Ryanair and Aer Lingus, the two largest companies serving in Irish airline industry. The Commission has dealt with airline mergers in the past years mainly regarding two carriers having their main centers of operations at different airports, often in different countries; they raised concerns on a limited number of overlapping routes. However, the Ryanair-Aer Lingus merger was different in that concerned the two main airlines in Ireland with a significant base at the same airport, Dublin Airport (European Commission, 2007). It was the Commission’s first prohibition decision since 2004, and the first decision for the Commission to deal with a merger that should have taken placed between two point-to-point carriers (Weitbrecht, 2008). It was also the first attempt by a low cost carrier to acquire a traditional carrier. This merger raised concerns on a significant number of overlap routes, all having common point of origin. All of the affected routes in the present case were from or to Ireland. The judgment on the planned merge influenced not only the involved parties but also the Commission’s future decisions on mergers.¬†subsection{The European Airline Industry}par A large heterogeneous group of airlines are offering scheduled passenger air transport services in the European Economic Area (EEA). These airlines have significant differences between each others related to operating models and the level of services that is offered to passengers (European Commission, 2007). There are mainly two operating models: the “hub-and-spoke” model and the point-to-point model. Network carriers that use the hub-and-spoke model are mainly former national flag carriers or full-service airlines such as Air France and British Airways. Network carriers direct traffic into their specific hub airports. From these hub airports, network carriers disperse passengers via connections to numerous other destinations. By this way, network carriers can limit its number of routes while making sure a connection from every origin to every destination. As we discussed in class, the hub-and-spoke model requires a significant level of coordination among airlines on compatibility and standards, and the property makes the hub-and-spoke model more inflexible and complex than a simple point-to-point connection. Moreover, full-service airlines usually provide complimentary services such as drinks, food, seat reservation, different luggage transport and so on.par Another type of airlines “point-to-point” carriers mainly focus on providing point-to-point services. Each individual route is independent from the others. Point-to-point airlines are more flexible to maximize aircraft utilization and fix schedules and destinations, since they do not need to connect flights within the network. Although point-to-point carriers do not use the hub-and-spoke operating model, most of them also concentrate their traffic and base their aircraft at certain airports, so-called bases, and they mainly offer flights from and to these base airports (ibid). This strategy allows flexibility of assets and also encourages economies of scale and economies of scope, since it makes possible for carriers to spread fixed costs over many routes. Point-to-point carriers are usually “low frills” or “no frills” airlines such as Ryanair and easyJet. They are able to offer cheaper fares than full-service airlines, since they reduce the level of complimentary services significantly.par Some airlines can be categorized clearly as network carriers or pure point-to-point airlines, but others such as Aer Lingus use an intermediate model, referred as some-frills model, which combine features of both models (ibid).par Table 1 shows the market share of different carrier types on intra-Europe routes. It indicates that the market share of low cost carriers, which adopt low-frills or no-frills models, has increased between 2005 and 2012, while the market share of full-service carriers has decreased.