Euro-Error

9 February 2004


Ryanair Has to Repay Some Perks

Ryanair is a discount airline based in Ireland that has tried desperately over the years to bring down the ridiculously high cost of European air travel. Ryanair and consumers took a big knock last week when the European Commission decided that some of the discounts Belgium's Charleroi airport granted were inappropriate. This decision encapsulates what's wrong with the Commission.

Charleroi is a publicly owned airport, and it gave Ryanair Euro 15 million in reduced fees, discounts and other sweeteners to use Charleroi. The Commission decided that around three-quarters of that money was acceptable, but Ryanair will have to repay the rest because the Wallonia regional government in Belgium shouldn't have handed out the rest of it. "Illegal state aid" was the Commission's term for it -- incentives that go beyond what a private airport could offer (a hypothetical if there ever were one).

Yet, if Charleroi had been privately owned, the incentives would have been perfectly legal according to Eurolaw experts -- and there's no reason for the ownership to matter as a matter of economic sense. Airports compete with one another for flights. In the smaller airport market segment of Europe (away from the Heathrow, Charles DeGaulle, Templehof crowd) getting some flights in, even at a discount, matters to the bottom line. Wallonia, not the boomingest part of the Continent, has gained an estimated Euro 30 million in revenue from Ryanair's presence.

The winners here are the flag carriers like British Airways, Lufthansa and Air France, as well as the private airports, who can offer whatever discounts they like knowing that their publicly owned competitors can't match them -- after all, what airport authority would offer a discount that could later be called illegal? The losers are the shareholders of Ryanair, possibly the French-speaking part of Belgium, and of course, every European who would like to pay fares that are more like those in America on a per kilometre basis.

While it is true that the American system would benefit from better regulation that is not to say that it would benefit from more regulation. As the European Commission has just proved, bureaucracies make decisions on principal to the detriment of those they are supposed to serve. Flexibility here was the right move -- not what was decided.

Home