Low cost airline RyanAir is a subject that gets mixed feelings from this blog’s different contributors. Their latest problem is an EU ruling that affects their French and Belgian operations from the British Isles because the preferential rates offered to RyanAir amount to a state subsidy (funny how state subsidies to farmers do not seem to get the same response, eh?) because the airports in question are all state owned:
The airport is owned by the Walloon regional government, which approved grants worth an estimated £5 million a year to subsidise landing and handling charges and marketing costs. Ryanair pays a landing fee 85 per cent lower than the list price. However, since the airline’s arrival, the annual passenger “throughput” at Charleroi has risen eight-fold to nearly two million, sharply boosting the local economy.
[…]
Managers say they would adopt the same approach for other publicly-owned airports. Negotiations are already under way with a dozen private alternatives. Some European countries, such as Italy, Germany and Sweden, have a significant number of non-state airports, but not France.
The solution is screamingly obvious. Privatise all the frigging airports in Belgium and France and the problem goes away! Duh.
As if the politicians were known for simple, practical solutions…
Ryanair pulled out of Strasbourg two weeks after their appeal fell through. No messing about. How is it that continentals do not understand the concept of competition? Ryanair had contracted to bring 385,000 visitors to Strasbourg over five years in return for reduced airport fees and money for local marketing. But Air France had a heart attack – “it’s just not faaaair,” they whimpered. Of course, the French judges ruled for a bloated, over-priced, over-manned, state-subsidised pillar of the French establishment and Ryanair said, “Fine. Screw you.” Or, given Michael O’Leary’s penchant for direct language, maybe not quite that subtle. So now the other airports are under notice not to try anything funny, along the lines of Strasbourg, and make special deals with PRIVATE ENTERPRISE, because they will be slapped back, too.
Funny how the EU does not go after EuroDisney. Here is one large US company that was granted extremely generous state subsidies to set up its park where it is. (Anyone who has ever been to Marne-La-Vallee proper will agree there is nothing there of interest).
A train station was built, a commuter rail line extended, access roads added, and energy prices were hugely subsidized. Never mind the help to buy the land – Disney is cash-poor, as we know – and various tax deductions.
But RyanAir being based in a smaller corner of Europe, instead of being a rich, large US company, it is easier for the EU to bully it around. The company is small enough for that, yet big enough to make it into an example.
Or so the eurocrats think.
At least, their message to international investors is loud and clear : competitive success in these parts will eventually be punished, somehow, some day. Don’t succeed too much, too fast. We’re watching you.
Sylvain, You are correct. Ryanair was being held up as a lesson, but I think they chose the wrong CEO. I believe O’Leary is appealing the case again – although his airline has already pulled out of Strasbourg on its own terms. He is also considering pulling out of their 13 other destinations in France. The tourist revenue enhancement ultra-no-frills Ryanair brought to those towns will be missed by some in poor regions … but what the hey – at least we have saved France from capitalism.
Well, of course, but then that would be expecting common sense out of Wallonia, the region that makes even the rest of Belgium look like a libertarian utopia.
How is it legitimate to give taxpayers money to a private airline, as is the case with Ryanair? All Ryanair’s subsidies should be slashed to zero. Just because other carriers such as Air France are getting even more largesse does not mean that it is right for Ryanair to receive the same favouritism in smaller quantities.
Also I am interested in why normally pro-free-market posters are supporting state aid to one private company.
Cobden, I think what happened was that Ryanair negotiated lower rates. I don’t know how that turns into a subsidy.
Presumably it’s open to Air France et al to go and negotiate their rates too, so what’s stopping them? No doubt the airports would be happy enough if the volume of passengers were right. Michael O’Leary is on record as saying the airports should pay him, not the other way round, because of all the people he delivers to their captive pricey shops. It’s a point.
Better still, of course, as the original post says, there should not be any state ownership of airports, then there wouldn’t be a problem in any body’s terms.
None of this, of course, is of any interest to Air France. All they want is to shut down the competition. And they’ll probably succeed.
It is a ‘subsidy’ because the airports are state owned and thus because they are deemed to have offered their services as ‘below market rate’, that is judged to be a state subsidy.
Hence my solution… privatise the airports and then whatever deals the owners of the airports enter into with their various customers cannot be seen as a subsidy, as if it proves to have been a bad biz choice, the airport can actually go broke or at least take an actually loss… whereas if it is state owned, a bad choice is just underwritten by the hapless taxpayer.
Cobden – Ryanair had no state subsidy and did not ask for a state subsidy. Their CEO is not crazy. He negotiated with the Chamber of Commerce of Strasbourg to get airport charges lowered by something around 80% to enable the airline to sell its seats at rock bottom prices. (He also negotiated a payment from the CoC to spend on local marketing – i.e. marketing Strasbourg flights to people in Ireland and the UK.) They know that if the fares are low enough, their flights will fly full, which enabled them to give a guarantee to Strasbourg on the number of visitors they would deliver over a five-year period. In other words, O’Leary struck a business deal with the Chamber of Commerce, who saw it as a good deal for their local merchants and hospitality industry. At no point was the French government involved, until Air France went whining to the courts. It was a private deal between the commercants of Strasbourg and Ryanair.
“Cobden, I think what happened was that Ryanair negotiated lower rates. I don’t know how that turns into a subsidy.”
The case is based on allegations that the low-cost deal was not just a result of hard negotiation, but that it was sweetened by direct state-aid i.e. a loss-leading government subsidy to the airport. There are also allegations that the local government – not the airport – pay for fire and security staff, airport and runway maintenance, and financing of airport infrastructure.
“Presumably it’s open to Air France et al to go and negotiate their rates too, so what’s stopping them?”
They would have to negotiate similar state aid from the local government to be able to compete on price, exposing them to fines and/or loss of their investment in the route if the alleged subsidy is ruled illegal. Virgin Express for example (admittedly a competitor so maybe biased) estimates that the Charleroi subsidy (including indirect state aid to the airport) gives Ryanair a cost advantage in Belgium of up to 30 Euros per passenger.
“None of this, of course, is of any interest to Air France. All they want is to shut down the competition. And they’ll probably succeed.”
Equally Ryanair want to shut down the competition, hence why they negotiated a state subsidy that allows them to fly for far lower fares than other budget competitors such as Easyjet, and budget arms of BMI, Virgin etc.
The posts above do not mention several key allegations raised in this case, yet at the same time portray Ryanair as some kind of champion of free markets. Very few businessmen believe in free markets. Most believe in profit and do not care if that is earned freely or via the extortion by proxy that is state subsidy.
I’ve just seen Perry’s post and would like to add: I don’t think Ryanair tried to negotiate over airport tax, as tax is a government matter. It was peripheral airport charges that they got reduced. I don’t know whether this is in the gift of individual airports or is part of the French government, though. Certainly, the city of Strasbourg was under the impression they had a right to negotiate charges, though. Anyway, even if it were previously a matter solely for the airport in question, Air France will have made sure that that little loophole is now firmly fermé.
Verity wrote – “Cobden – Ryanair had no state subsidy and did not ask for a state subsidy.”
Ryanair competitors (not just Air France), the press, and now the courts have all concluded that Ryanair is receiving a state subsidy. If you wish to claim otherwise then it would seem reasonable to provide some supporting evidence.
Cobden – Ryanair’s competitors, the notoriously fair minded French press and the famously neutral French courts have concluded that Ryanair is receiving a state subsidy? Why are you asking *me* for proof that they aren’t? Where’s the proof that they are?
Are you seriously suggesting that a French court would otherwise have found for Ryanair? Against a pillar of the French establishment, a source of France’s amour propre and France’s public face around the world?
I’m not an apologist for Ryanair but nor am I a friend of using the cudgel of state in the cause of protectionism and against the interests of the consumer.
Verity: As fr as I understand it, it is nothing to do with tax per se, it is that if a state owned business (i.e. the airports in question) give a lower rate to a client than it gives to others, that is seen as a subsidy, given that they are tax underwritten businesses. That is the issue at hand. The issue is simply solved by privatising the airports as I do not think anyone is suggesting the private owner of an airport cannot charge whatever they think is in their commercial interests.
Perry – I’m not certain airports should be privatised because their operation encompasses matters of critical national security – to my mind, one of the few legitimate concerns of government.
I think this case is more complex than it appears. Were it not, why did Air France have to go to court? If the airport wasn’t allowed to negotiate rates, why didn’t the airports authority simply send Strasbourg an email ordering them to stop it? No French fonctionaire would have argued, I assure you. That they had to go to court and that there has been one appeal and another one upcoming tells me this is not cut and dried.
I’m not certain airports should be privatised because their operation encompasses matters of critical national security – to my mind, one of the few legitimate concerns of government.
How so? How does putting a commercial operation under the control of the state make it safer? By only employing un-sackable public sector drones to do the security? The world is filled with privatley owned airports protected by sackable private security companies!