Ryanair seeks uplift from turbulence Little about Ryanair should surprise us. This is the airline whose irrepressible chief executive, Michael O'Leary, once opined that "the customer is usually wrong." True to form, the statement that accompanied the budget airline's June 19 cash offer for rival Aer Lingus, the Irish flag carrier, contained a memorably impudent flourish. The Irish government, which owns a 25 per cent stake in Aer Lingus, stands to realise €174m if the acquisition goes ahead on Ryanair's terms at €1.30 a share, plus another €4m from an Aer Lingus dividend. "This," Ryanair observed sententiously, "is clearly beneficial in the context of the current recessionary environment and will make a valuable contribution towards budget spending in such important areas as health and education." Since when, one might ask, have airlines been advising governments how to raise money for social expenditure? The statement was a naked attempt to exploit the government's sense of financial vulnerability after Ireland's multibillion-euro rescue by its European partners and the International Monetary Fund. Mr O'Leary might as well have put all pretence aside and told the government: "You're stony broke. I'm in the money. Sell up now. From a different perspective, the statement's underlying purpose was to throw up a smokescreen to obscure the serious competition issues that surround Ryanair's bid. Europe's biggest low-fare carrier amassed a 29.8 per cent stake in Aer Lingus after the airline's 2006 privatisation. But that year European Union competition regulators prevented Ryanair from taking full control and now the UK's competition commission is investigating the market impact of Ryanair's holding. It is also misleading to dismiss Aer Lingus, as Ryanair does, as "a small and uncompetitive airline" that is "overly dependent on a deteriorating Irish economy." Such assertions sit oddly next to Ryanair's own acknowledgment that Aer Lingus made a €84.4m pre-tax profit in 2011. Moreover, Aer Lingus recorded higher revenues, passenger numbers and total yield per passenger last year on both long-haul and short-haul flights. At year's end, it had €895m in gross cash on its balance sheet. Undeniably, the European airline industry is experiencing severe turbulence. Air France, the French unit of Air France-KLM, says it must shed more than 5,000 jobs, or about 10 per cent of its workforce, by the end of next year. Malev and Spanair, the Hungarian and Catalan carriers, have gone belly up. More consolidation is necessary and probably not far away. But Aer Lingus does not deserve to be caricatured as a zombie airline. The competition concerns centre on the shared domination exerted by Aer Lingus and Ryanair over the Irish market. According to the Dublin airport authority, the two airlines had a combined 73 per cent of traffic there in 2007 but four years later it had risen to 80 per cent. This level of market concentration is hardly surprising for a small island nation on the edge of a densely populated continent. But they do at least ensure a reasonable degree of competition between Aer Lingus and Ryanair, keeping prices down for passengers. Unless the newly combined airline were to give up a substantial number of routes to new competitors, a merger would put this in jeopardy. Here a paradox comes into play. A recession-driven downturn in traffic at Dublin airport is increasing the availability of operating slots. But few airlines will be interested in acquiring these slots if recession means there are not enough passengers to justify the cost. This is Mr O'Leary's chance. In his eyes, the dark macroeconomic backdrop is one of two good reasons for reviving his pursuit of Aer Lingus. The second is the slow but steady reconfiguration of the European airline sector. For example, International Airlines Group, which unites British Airways with Spain's Iberia, has acquired BMI from Lufthansa, a step that may discourage new entrants from installing themselves at London's Heathrow airport. If British Airways can strengthen itself in such a fashion, why should Ryanair be deprived of the same opportunity? Of course, Europe's regulators may not see matters this way. But Mr O'Leary has nothing to lose by testing the waters. At worst, he drives up the Aer Lingus share price and smokes out potential bidders such as Etihad, the Abu Dhabi-based carrier. At best, he bags the elephant. Tony Barber is the Financial Times" Europe editor