The frustrated merger Olympic-Aegean and the competitive situation in the Greek air travel market

The Olympic-Aegean merger, unlikely to happen anytime soon

The Greek aviation industry has been flying through turbulent times in recent years and one of the consequences has been the proposed merger between the country's two main airlines: Olympic Airlines and Aegean Airlines.

But it looks like industry consolidation will have to wait, since this merger has recently been blocked by the European Union on the basis that such a merger would bring about a virtual monopoly on Greece's domestic air routes. The people at Anna Aero have been doing some research on the competitive environment in the Greek aviation market. In a couple of articles (beware if you click on the links from work, as they contain some animations and sounds!) they have assessed what the market share of the merged airline would be, it would account for nearly 95% of the Greek domestic routes, but the situation would be significantly different on European routes, were it would be competing with foreign airlines in practically all city pairs.

They have also looked at what is the market concentration at other European markets. Greece would be at the top of the table after the merger, but France is, already now, not far behind. Although it is also true that overland communications might be easier in France, that has a well developed high-speed rail network and that Greece's many islands lack a fast transportation alternative.



The Greek aviation sector has been transformed and has got a face-lift recently but the islands remain dependent on the same old links to the mainland

When reading these articles other considerations come to my mind, maybe material for further analysis, for example, when considering the long-haul market. There is currently no Greek airline flying long-haul (these were large loss-makers for the old Olympic) and there aren't many international airlines flying long-haul into Athens either, so the offer is quite limited. A merged Greek airline would possibly have a better chance to do them, increasing capacity on this market segment.

Another point to consider is whether the resulting airline would join Star Alliance, of which Aegean is already a member, or Sky Team, as Olympic was on track to do. So how the competitive analysis in European routes would vary once taking into account code-sharing agreements and the alliance's partners routes?

In any case, the latest news is the an appeal has been filed regarding the blocking of the merger, so this story might go on for still quite a while...

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