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2013-10-22 07:59:48
Proposed EU rules aim to stem the flow of money from taxpayers pockets to
Ryanair s coffers. That could doom some small airports, and increase some fares
ANGOUL ME airport in south-west France, like many small provincial airports
across Europe, more closely resembles a motorway caf or a visitors centre at
a minor battlefield than an economic hub. And since scheduled flights ceased in
2010 it cannot even count on the trickle of visitors a second-tier historical
site might expect. Yet Angoul me is a battleground in a conflict that pits
European regional development against fair competition, and low-cost carriers
against full-service airlines.
Europe is peppered with over 450 airports, mostly small and loss-making. About
85% are publicly owned this week the Scottish government said it would buy
Prestwick airport near Glasgow, following the Welsh government s
nationalisation of Cardiff airport in March. Local politicians enthusiastic
sponsorship of airports, as a means to boost their regional economies, has in
turn contributed to the rapid growth of low-cost airlines, since the airports
have used their subsidies to offer cheap landing fees and other sweeteners to
persuade the cheap carriers to fly there.
Transport & Environment, a green lobbying group, reckons that about 3 billion
($4 billion) of taxpayers cash in EU-approved aid finds its way to airports
each year, and plenty more that is not sanctioned. But EU laws ban state aid if
it seriously distorts markets. Indeed, 60 airports, from tiny Angoul me to
Brussels Charleroi, which handles over 6.5m passengers a year, are under
investigation for providing aid that breaches the rules. None of the inquiries
has yet reached a conclusion.
Small airports deserve subsidies, argues ACI Europe, a trade body that
represents them, because their fixed costs from security and runway maintenance
to mopping floors are far higher per passenger than at bigger ones. Bigger
airports make so much money from parking charges and renting space to
restaurants and shops that they do not have to charge airlines so much for
landing fees and other services. Without subsidies, small airports would have
to charge airlines more for flying to out-of-the-way places, which the carriers
would be disinclined to do.
The low-cost airlines have plenty of airports to choose from, as do their
passengers: nearly two-thirds of Europeans are within two hours drive of at
least two airports. So in 2011, even as carriers opened up many new routes,
they closed 15% of existing ones.
Ryanair is the sole or dominant carrier at many of the airports under
investigation. The discounted landing and baggage-handling fees it gets, and
the payments it receives for promoting the airports on its website, are an
important part of its business model. Leipzig-Altenburg airport in Germany
another of those under inspection by the European Commission in effect pays
Ryanair a fee for each passenger it sends there. The commission has let it keep
the amount a commercial secret, but a report on Angoul me said it had been
paying Ryanair about 11 a passenger.
Guidelines on state aid introduced in 2005 let airports offer some inducements
to airlines to start up new routes. But by common agreement the rules are
cumbersome, inflexible and unenforceable, especially now that the power in the
relationship between airports and low-cost airlines has swung dramatically in
favour of the latter. Even Michael O Leary, Ryanair s boss, with customary
bluntness, calls the rules lunatic .
The full-service airlines, their businesses devastated by low-cost competition,
have filed complaints against Ryanair and its benefactors. But in the scramble
to win flights, local airports are continuing to seek ways to sidestep the
rules.
Changing course
To speed up a resolution of the cases, many of them years old, and to clarify
what would be acceptable in future deals between airports and airlines, in July
the commission proposed a new set of rules, for which the consultation period
has just ended. The new rules are likely to come in next year. The aim is to
reconcile the principle of fair competition with the airports role in boosting
small towns economies and keeping them connected to the outside world. State
subsidies towards operating costs at airports handling over 200,000 passengers
a year will be phased out over ten years, and charges to airlines must rise to
compensate. However, airports will be able to offer below-cost charges to
airlines for up to two years if they can show a business plan that eventually
allows them to turn a profit.
Mr O Leary, in a rare show of assent with the Eurocrats, says the new rules are
terrific . That may sound odd: their objective is to eliminate the state aid
that flows to his airline. But Mr O Leary is a realist, so he probably sees the
new rules as the best he could hope for, given the pressure on the commission
to ensure fairer competition. Besides, there may be tussles in Brussels as the
transport directorate, which is fond of subsidies, arm-wrestles the more
free-market directorate for competition into softening the new rules to let
more of the handouts to airlines continue.
The loudest complaints against subsidies have come from big airlines. Air
France is responsible for 20 cases against airports in its home market. But it
may be hard to find much sympathy for airlines that were themselves born and
bred from state coffers. Some taxpayers may not like lining Ryanair s pockets.
But as Olivier Jankovec of ACI Europe says, the local economy also benefits,
and these advantages are not protected by the new rules. One broad basis for
judging subsidies whether they would be paid in a free market is too narrowly
applied, he argues. An unsubsidised small airport would not pay several euros
to attract each passenger but local hotels, shops and other businesses might.
This, says Mr Jankovec, justifies taking a more relaxed attitude to state aid.
Spain s collection of white-elephant small airports shows what happens when
local politicians urge to splurge is unchecked. So it makes sense for the
commission to try to curb the subsidies. But if its new rules achieve this
objective, the result will be that some smaller airports will find it hard to
pay Ryanair and other low-cost carriers enough to keep them flying there. Many
of the 80-odd European airports with fewer than 1m passengers will be at risk
of closing, like Angoul me; in other cases passengers will face higher ticket
prices. And some of Europe s less-famous spots will see fewer tourists.