Bill, here is a perfect example of what is wrong with many of the economies of Europe. A new competitor hits the market, makes a big splash by coming up with a creative business model in a stagnant industry, then statism takes hold, and dreams up a way to "even the playing field".
I've ridden Ryan air three times now, and those guys have their stuff together. It's inexpensive, but not of low quality.
Europe's Ryanair Ordered to Return Millions of Dollars in Subsidies
Douglas Bakshian
Luxembourg
03 Feb 2004, 17:33 UTC
voanews.com.
European budget airline Ryanair has been ordered to pay back a portion of more than $18 million (15 million euros) in subsidies it received from a Belgian airport. The airline says the ruling is a disaster, but the reaction on stock markets indicates investors think the ruling could have been much worse.
The ruling from the European Commission orders Ryanair to pay back about 30 percent of the subsidies it received from Belgium's Charleroi Airport.
Loyola de Palacio
European Transportation Commissioner Loyola de Palacio says the airport charged Ryanair unfairly low handling fees for its flights, placing airlines that serve other airports at an unfair disadvantage.
"Ground handling tariffs were being applied that were rather special," she said. "One euro [$1.25] per passenger. Whereas the rate applied by Charleroi airport would normally be between eight and 10 euros."
The commission said Ryanair also received incentives to open new routes, and training and marketing help from the airport. But the commission said it considered extra income generated for the airport's shops and parking lots when deciding how much of the subsidies were unjustified.
Commissioner de Palacio said she hopes the ruling allowing Ryanair to keep most of the money will enable small airports and low-cost airlines to develop, as long as they play by fair rules.
"The decision today on Charleroi is a disaster for consumers," said Michael O'Leary, Chief Executive of Ryanair, echoing a different view. "You are going to pay higher fares. It is a disaster for publicly-owned airports because your hands are now tied behind your back. You can no longer compete with privately-owned airports. It is a disaster for European air travel generally."
Ryanair says it will appeal the ruling.
Financial markets appeared less concerned about the European Commission decision. The price of Ryanair stock went up when the decision was announced.
Mr. O'Leary and Ryanair revolutionized air travel in Europe in recent years by offering one-way fares for as little as little as $12. A large part of the airline's success came from choosing secondary airports in obscure European towns where it can operate more cheaply than it could at major airports.
Belgium's Charleroi airport, which is the subject of the ruling, is a perfect example, located 40 kilometers outside Brussels in a depressed region that has suffered high unemployment.
Rival, older airlines accused Ryanair of receiving unfair subsidies from such localities.
Analysts say the ruling can be seen as a guide for future contracts between low-cost airlines and small regional airports. Budget airlines in Europe have boomed in recent years, promoting tourism in areas that were not widely visited before.
For instance, Charleroi airport served about 1.8 million passengers in 2003, about seven times the number it served in 2000, before Ryanair operated there.
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Little support from Ryanair's rivals
By Kevin Done, Aerospace Correspondent
Published: February 3 2004 18:41 | Last Updated: February 3 2004 18:41
news.ft.com
Ryanair's angry reaction to the European Commission's ruling against its Charleroi airport deal won little support elsewhere in the aviation industry on Tuesday with both rival low-cost carriers and full service airlines welcoming the decision.
Investors, who fled the Ryanair stock last week when the airline issued its first ever profits warning and painted the blackest outlook for the Brussels ruling, also regained some of their nerve.
The Ryanair share price, which fell by 31 per cent in a single day's trading last week, rose by 6 per cent or 29 cents on Tuesday to close at €4.95.
Chris Avery, aviation analyst at JP Morgan, said the Brussels ruling did "not fundamentally challenge Ryanair's business model".
It would cut operating profit margins from 25 per cent to about 22 per cent, but Ryanair would "still be the most profitable airline in the world," he said.
Andrew Lobbenberg, ABN Amro aviation analyst, said he did not expect fares to rise as a result of the Charleroi ruling, but Ryanair profits would fall.
The airline was already trying, however, to rebuild its fares through "stealth taxes", he said, such as higher credit card fees and last week's 50p wheelchair surcharge, which Ryanair imposed after losing a court case in the UK over discrimination in charging for wheelchair services.
Michael O'Leary, Ryanair chief executive, claimed the Charleroi state aid ruling would "equally affect" many other deals across Europe such as EasyJet arrangements at Berlin Schönefeld, Toulouse and Marseille airports, Lufthansa at Leipzig and Munich and FlyBE at Perpignan, Bergerac and La Rochelle.
EasyJet immediately undermined the Ryanair case, however, by claiming that the Commission decision was "supportive" of the low-cost airline industry.
It said it believed the Commission's intention to use the ruling as a basis for uniform guidelines on airport landing charges and tariffs across the European Union would "help clarify arrangements between airports and airlines, be they low-cost, national flag carriers or charter".
It expressed support for Brussels' plan to "authorise variations to published tariffs at publicly owned airports providing the procedure is transparent and does not lead to any discrimination".
Ray Webster, EasyJet chief executive, said the ruling was "good news for Europe's airlines, as it removes a very substantial degree of uncertainty that has been hanging over European aviation for some time".
An EasyJet spokesman said the airline was "confident" that its 20-year deal with Berlin Schönefeld airport signed last November would "stand up to scrutiny".
Flights are due to start from the new base in May. EasyJet said it had taken legal advice on the deal and had consulted the Commission. "If anybody wants to complain about Schönefeld, bring it on. They know who to complain to. We don't see a problem with it."
FlyBE said it believed that none of its existing deals with French airports would fall under the Charleroi ruling.
The Association of European Airlines, which mainly represents the traditional flag carriers, said the Commission's judgement was "a first but important step towards a level playing field for European airlines".
AEA members have been under heavy attack from Ryanair for several years for charging what the Irish airline claims are extortionately high fares. The AEA took the opportunity on Tuesday to hit back.
Ulrich Schulte Strathaus, AEA secretary general, said the Brussels ruling showed that "the fact that taxpayers' money is being used to redirect business from one group of private companies - the airlines at Brussels National airport - to another private company, namely Ryanair, is simply unacceptable."
He said it was "incongruous" that a region could give that kind of "discriminatory financial support".
The Commission decision established that the regional government-owned Charleroi airport "did not act as any private investor would have done. The payments granted to Ryanair are therefore illegal according to European state aid rules.
"What has to happen now is that the illegal subsidies must be repaid, the rest must be integrated into a transparent non-discriminatory and controlled process." |
