Instead of complaining about the EC ruling on illegal subsidies, Ryanair should ensure new guidelines work for the low-cost sector, not against it
The European Commission has ruled that Irish low-cost carrier Ryanair received illegal subsidies to operate its base at Brussels South Charleroi airport. The more xenophobic elements of the UK press immediately dusted off their "Brussels bans..." headlines and predicted the demise of low-fares airlines.
These fears are, however, wide of the mark. If, as expected, Ryanair appeals against the ruling, the airline could play an important role in shaping the regulation of the no-frills market.
In its ruling, the EC approved over three-quarters of the incentives Ryanair received from the government of Wallonia. In doing so, it authorised certain forms of aid which "permit genuine development of new routes under clearly defined conditions". The Commission is also promising, albeit hazily, to produce guidelines clarifying exactly how publicly owned airports can continue to offer incentives to airlines and stay within European Union competition laws. These should be welcomed.
Despite initial protestations by Ryanair's forthright chief executive Michael O'Leary that the ruling would be "catastrophic" for the low-fares industry, few other budget airline chiefs have lined up behind him. Ryanair's largest rival, the UK's EasyJet, has welcomed the decision, saying it removes uncertainty from the industry. Furthermore, far from shedding services from Charleroi, Ryanair is expanding from its Belgian base and is set to renegotiate contracts with other state-owned airports to ensure they comply with the law. Equally, battered Ryanair shares have rallied as investors have realised the ruling does not fundamentally challenge Ryanair's business case.
All low-fares airlines rely on deals with airports to a greater or lesser degree. Ryanair, however, is particularly sensitive to state-aid probes, since it flies to more publicly owned airports than its rivals. Provincial governments are only too keen to strike deals with Ryanair since the economic benefits of daily flights far outweigh any costs associated with discount airport deals. However, as the law stands, no taxpayers' money can be used to give unfair advantage to one airline or another. It is ironic that Ryanair should have fallen foul of a rule designed to prevent governments propping up cash-guzzling state flag carriers.
The EC was particularly critical of the secret nature of Ryanair's deal with Charleroi. This lack of transparency did give the airline an unfair advantage over others, like Virgin Express, that tried to broker similar deals with the airport. Ryanair retorts that secrecy is the industry norm, for large and small airlines.
Perhaps, but this distorts the market in favour of larger players. The EC's guidelines are sure to call for transparency when dealing with public bodies. Far from raising prices, this should lead to lower airport charges. Airport operators faced with clear information on neighbouring airports' deals will be forced to address efficiency issues at their own operations to match rivals, or risk losing business.
Charleroi is a shining example of how to run a low-cost airport. The airport's check-in staff process almost twice as many passengers per employee as those at Brussels National. Catering almost exclusively for low-fares carriers, Charleroi also uses a less- expensive airside infrastructure than other airports. As a result it is profitable five years ahead of target.
Charleroi offsets the hit it takes in discounted charges with income from non-aviation revenue streams, such as retailing and car parks. Small private airports have long found ways of turning a profit despite charging low landing fees, but it is an indication of how badly run many public airports are, that the "single till" approach should be considered revolutionary. In its ruling, the EC recognised the right for airports to use such loss leaders, common in other industries. Other public airports struggling with low-fares airline economics should use Charleroi as a case study, and new EC rules will allow this.
European legislation created the low-fares airline industry and by promising to produce guidelines for regional airports, it is attempting to prove its consumer-protection credentials. However, in the past the no-frills sector has suffered from poorly drafted EC legislation as a result of a lack of influence in Brussels. Ryanair must accept that increased regulation is an inevitable result of the market's increased size, and must work with the EC to ensure the new guidelines work for its interests not against them. Ryanair should channel its energy into shaping the rules for the next phase of low-fares travel in Europe rather than simply crying foul.
Source: Flight International
