Ryanair profits boosted by subsidies, say rivals

 

Ryanair receives huge subsidies from European airports – and has won its latest battle to retain them – but the EU continues to investigate the practice

TO THE FURY of Lufthansa, and the delight of Ryanair, the citizens of the north German city of Lübeck last weekend voted almost two to one in favour of continuing taxpayer subsidies to keep their airport (called Hamburg by Ryanair), open for at least another two years. The German airline had exhorted cash-strapped Lübeckians to put creches, classrooms and hospital beds before wealthy Irish carriers. As far as Lufthansa is concerned, the airport is just one of 200 regional EU airfields which Ryanair relies upon to funnel hundreds of millions of what Lufthansa calls “questionable subsidies” direct to its balance sheet.

Lufthansa says that if Ryanair was stripped of free or subsidised airport services in addition to cash, in the form of “marketing support”, it would lose money. “If all the airport subsidies and support paid to Ryanair were taken away, its economic situation would be very different,” says the Thomas Kropp, a spokesman for the German airline.

French newspapers recently cited figures ranging between €35 million for France alone, and €660 million across the EU, as the value to Ryanair of the subsidies it receives. Until EU investigations into several alleged illegal subsidies are concluded, as well as a case being taken in the European Court by Air France/KLM, only one figure can be relied upon. That is the €35 million of Ryanair subsidies uncovered by audits conducted on several French airports controlled by local authorities. The audits, carried out by France’s cour des comptes (its version of our Comptroller and Auditor General), are representative, say Lufthansa and Air France/KLM, of what Ryanair enjoys at many of Europe’s 200 or so regional airports.

In the audits it conducted in 2008, mostly on 2006 accounts, the cour highlighted €35 million of subsidies paid to Ryanair which it said were very poor value for the French taxpayer. Airports funded by municipal and regional taxpayers provided so many subsidies and free services that the net cash flow was usually all in Ryanair’s direction.

Not only were some airports providing free staff for Ryanair check-in desks, they also cleaned the planes for nothing. Ryanair aircraft often landed free of charge, and where fees were charged they were offset by the massive “marketing support” demanded by the airline. This marketing money meant that, in return for cash running into many millions, the airports and their regions were promised publicity on Ryanair’s website and in its in-flight magazine.

But, pointed out the cour, a half-decent ad agency would have spent that money far more productively. The auditor concluded that most of the cash went straight into boosting Ryanair’s profits.

In some cases, net subsidies amounted to as much as €32 per passenger carried, as with Rodez, a French airport where Ryanair benefited to the tune of at least €3.2 million between 2004 and 2006 for just three flights per route per week. At Brest, subsidies totalled €23 per passenger. At busier Beauvais (Ryanair’s Paris), the subsidy per passenger between 2001 and 2006 was a more modest €9, but total aid in cash and benefits still amounted to €28.6 million.

Some airports can barely afford these subventions. At Bergerac, the cour found that Ryanair gained €2.3 million worth of subsidy from an airport which itself needed annual local government subsidies of €500,000 to stave off bankruptcy.

Subsidies for new routes are perfectly legal – Dublin airport offers them all the time – but according to EU guidelines they should be for a limited period (usually three to five years) and should decline in value year on year. The intention is that they end when a route is starting to become profitable.

The general council of Charentes, which operates Angoulême Airport, in 2008 agreed to pay Ryanair almost €1 million in three annual payments, but as it raised the final €225,000 due for this year it was hit out of the blue by a Ryanair demand for a further €175,000. The alternative to paying up was a Ryanair pull-out. Other European airports have reported similar tactics as Ryanair seeks not just to continue subsidies but to increase them.

At present, airports which refuse to pay up can have their Ryanair services cancelled almost overnight, to be started up again within days at a neighbouring airfield. The company is able to do this because there is no limit to the subsidies a company can claim in any one region, and because there is no obligation to repay subsidies when a service is withdrawn. Critics say this loophole could be plugged by outlawing further subsidies to the same airline within, say, a 50-mile radius.

Not all airports submit to these demands. When Manchester Airport’s subsidised arrangements ended last October, its chief executive said he would not “prostitute” himself any further. O’Leary decamped with most of his planes to nearby Leeds-Bradford, where subsidies were available.

When a three-year deal at just €1 per passenger failed to deliver the two million passengers O’Leary had promised Shannon, the airport refused a further contract promising just 600,000 passengers for fees of 50 cent a head.

Efforts to limit subsidy shopping by Ryanair and other low-cost airlines were dealt a blow when, in 2008, Ryanair won an appeal against an EU Commission decision that the generous subsidies it enjoyed at Charleroi (near Brussels) were illegal. The airline insists that this means all its other subsidised services are, by default, also legal, but Commission insiders advise caution. They suggest that the Charleroi decision was thrown out as much for serious procedural errors as for the righteousness of Ryanair’s subsidy demands.

Until the new EU Commission took office this spring, airline competition and state aid issues were largely handled within the Transport Directorate. Last week a Brussels functionary admitted that, all things being equal, the Transport Commissioner has always tended to arrive at decisions which favoured increased air access to the regions over competition issues.

That attitude is now expected to change dramatically as the European Commissioner for Competition has assumed authority over all competition and state aid complaints, irrespective of sector. Lufthansa insiders say this will mean that the half-dozen or so surviving complaints about Ryanair subsidies, which have languished for years, will now be fast-tracked and decisions handed down in the near future.

In response to questions for this article, Ryanair released the following statement: “As you are undoubtedly aware the European Court of First Instance in December 2008 has already dismissed these claims (and the EU guidelines which were based on the original unlawful Charleroi decision) when it found, in the Charleroi case, that Ryanair’s airport agreements fully complied with EU competition rules and were NOT therefore either state aid or subsidy. The European Commission also confirmed these findings when in January 2010 they dismissed similar claims in the case of Bratislava airport.”

In the meantime, there is alarm in airline circles at the Ryanair proposal to appoint Charlie McCreevy to its board. As a former EU commissioner for the internal market, he has an almost unrivalled understanding of how Europe’s economy functions. He could be in a superb position to suggest strategies to continue its subsidy regime. The Commission is probing the proposed appointment, but so far there is no indication that it will outlaw it.

Low-cost airline?

-€35 million in subsidies were paid to Ryanair by various French airports in 2006.

-Subsidies to Ryanair amounted to €32 per passenger at Rodez Airport, in France, where the airline benefited to the tune of at least €3.2 million between 2004 and 2006 for just three flights per route per week

-At Bergerac, Ryanair gained €2.3 million worth of subsidy from an airport which itself needed annual local government subsidies of €500,000 to stave off bankruptcy