Is KLM/Air France merger a EU-turn?

KLM’s merger with Air France to create the continent’s biggest airline is further proof of the changes continuing to impact across Europe’s skies.

Speculation about the move has been around for some time and its clearance by the EU raises further questions about competition after the Ryanair ruling. Will it mean cheaper or dearer fares given that two of Europe’s airlines are ceasing to compete.

And for Brussels to sanction a deal of such proportions suggests the mighty EU is talking out of both sides of its mouth.

Take the Ryanair ruling for instance. Its deal with Charleroi was knocked on the head because it was ruled uncompetitive.

If the contract that rejuvenated Charleroi airport and the Walloon Region in Belgium was knocked on grounds of being anti competition how can the EU, weeks later, justify allowing two of Europe’s national airlines to merge? These are flagship airlines and bringing them together must surely be far more anti competitive that anything Ryanair has ever done in the name of low fares.

Unlike Ryanair these two slumbering giants of the skies will not be penalised and they are free to set up their own cosy cartel giving them enormous clout.

The implications for the traveller could be quite serious.

Those with holiday homes in rural Europe served by low fares carriers may find that service knocked on cost grounds.

Perhaps of greater significance is that other regions, hoping for a low cost service will have their ambitions frustrated due to the EU’s distorted notion of competition.

This is a complex issue and where deals are working to the benefit of the consumer, the region and an airline, its difficult to resist asking why it ought not be allowed continue.

If open skies and more competition is what the mandarins in the EU want, attacking Ryanair’s Charleroi deal looks to be the complete opposite to that. EasyJet and others direct competitors of the Irish group have welcomed the ruling however. Jealousy perhaps! For its indiscretion the airline faces having to pay back up to e5m of the subsidies it was paid by the Walloon Government in Belgium.

The decision to allow KLM and Air France to merge looks to be totally anti consumer.

Allowing two major national airlines to merge in Europe removes competition from the market. Anyone who says otherwise is involved in self deception.

And it certainly seems to be the end of the “national airline” concept.

Without doubt the two rulings look contradictory to say the least.

It proves the point that when bureaucracy is on a roll all laws, from basic common sense to commercial law, are subject to nothing less than the whims of the European bureaucrats.

Is Europe the best judge of what is and isn’t competitive? Ryanair thinks not.

The EU tangle Ryanair finds itself in could spell the end of the low fares regime and land the Irish airline in serious trouble.

After its shock profits warningit looks as if the glory days of rapid expansion for the Irish company are over. It may have expanded faster than was prudent, with the financial implications of that decision starting to show through.

Some of the reaction to the profit warning has been quite savage. Credit Suisse First Boston, which had valued the shares at over e8 by the end 2004 has slashed its price target almost in half.

The shares have recovered some ground but much of the 30% share slump still has to be regained. From a consumer perspective the entire industry needs to get more people using their aircraft and that pressure in itself ought to bring about cheaper airline travel, in spite the muddled interference of the EU.