Thursday, 4 March 2010

By invitation: The upcoming merger of Olympic Air and Aegean Air

The economic crisis has led to increasing efforts for concentration in the area. Olympic Airlines, the private re-incarnation of the defunct Olympic Airways, has competed talks with Greek rival Aegean Airlines for a proposed merger.

Olympic Air is mostly owned by Dubai sponsored MIG group, which has made substantial inroads in the Greek economy, with control of Marfin Laiki bank, OTE telecoms and Panathinaikos football team. The Dubai link is not apparently clear as Andreas Vgenopoulos, the CEO of MIG, has tried to disassociate his connection/dependence with Dubai sovereign funds, but such links where exposed when MIG took over the second largest bank in Cyprus, the Laiki Popular Bank. Olympic Air retained only the most lucrative lines of the old government-sponsored Olympic Airways, with Aegean Air picking up a substantial part of the remaining domestic flights.

The deal is still being worked out: some argue that the deal is typical of all MIG, whereby Olympic Air will issue new shares to take 55.3% of Aegean air. This deal seems only to be to the interest of the large shareholders who are the power behind Olympic (Vgenopoulos) and Aegan (Vasilakis / Laskarides).

The two companies still need to jump through many hoops to make this official: the Greek Competition Authority will look into this, followed by the European Competition Committee. The issues of concern to each authority will be different. The Greek competition authority is concerned that some rights given to Olympic air in relation rights owned by the government as the owner of the defunct Olympic airways will be threatened, while a large amount of domestic flights are at risk of cancellation, a great concern at country with the largest amount of islands in Europe. The European Competition authority is mostly concerned with the prohibition under the deal made between the EU and the Greek government that prevented the change of the share capital structure of the resurrected Olympic air, as well as regional competition issues.

What I am mostly concerned about is at the negative repercussion of South Eastern European passengers. As a passenger the merger will almost certainly lead to an increase in fares and in the reduction of routes in South-East Europe. Eletherios Venizelos airport in Athens is in the process of turning itself into a true regional hub for the area. Local carriers such as Olympic, Aegean, Cyprus Airways, Tarom and Jat Airways where linking the region with destinations such as Johannesburg, Singapore, New York, Tashkent and Bangkok through Athens. This was made possible by the reduction of regional flights due to the increased competition. The appearance of Aegean Air led to a substantial decrease in prices, with the price of a flight from Larnaca to Athens falling by as much as 100 euros, while the frequency of flights increased by a factor of four. The new company will almost certainly reduce the number of daily flights with the resulting increase in prices, forcing South-European intercontinental travelers to have to fly much further for their connections.

Alexander Apostolides


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