The battle that Ryanair CEO Michael O'Leary has dubbed his Waterloo is drawing to a close. Any day now, the European Commission is expected to rule that the financial support the Irish no-frills carrier received from government-owned Brussels Charleroi Airport amounts to an illegal state subsidy. At issue: some $8.7 million in grants that Ryanair had collected since 2001 from the airport's owners, the Walloon regional government, for landing and handling charges and marketing costs. An unfavorable EC ruling will jeopardize the sweetheart deals the Irish discounter enjoys at other state-owned airports, which service 20% of the airline's 24 million passengers. "Bureaucrats in Brussels wish to prevent privately owned airlines [from] developing low-cost arrangements for the benefit of consumers, lower fares, growth, and jobs," fumes O'Leary.
This isn't just bluster. A ruling against the Irish carrier will be a crushing blow for European consumers, whose interests the competition watchdog in Brussels is supposed to safeguard. Until Ryanair pioneered low-cost air travel in Europe more than a decade ago, the region's flag carriers enjoyed virtual monopolies, enabling them to charge some of the world's highest fares on European routes. What's more, the big carriers provided almost no service to the smaller secondary airports favored by Ryanair. Thanks to the Irish airline -- and a slew of copycat rivals -- average fares on short-haul destinations across Europe have halved. If Ryanair is forced to pull out of state-owned airports, these destinations will have to put up with fewer flights, less competition, and higher fares. "It is completely unacceptable that we can be deprived of such a success and its positive impact on the local economy," says Alain Russel, managing director of Strasbourg International Airport. Ryanair was forced to withdraw from the Strasbourg airport in September, following a court challenge by Air France.
The EC's hard line on state aid is hypocritical. For years, it looked the other way as national governments pumped billions in state funds into ailing flag carriers, such as Belgium's now-defunct Sabena. Such aid is now banned under EC rules. Yet taxpayers still subsidize Air France's Paris-to-Corsica flights. And Brussels' primary airport, Zaventem, which brought the case against Ryanair to the EC, has received billions of euros worth of aid from the Belgian government during the past few decades.
In Ryanair, Europe has a profitable airline that is actually creating new markets. By flying to out-of-the-way airports, the carrier has helped steer tourism revenues to former backwaters. A survey commissioned by the development agency Scottish Enterprise concludes that Ryanair's use of Glasgow Prestwick International Airport is generating up to $153 million for the Scottish economy. If the carrier is forced to cease or curtail service to such areas, the damage will be considerable.
Ryanair, on the other hand, would probably come out relatively unscathed. The airline is already in discussions with both Brussels Charleroi and the Walloon government to explore the possibility of privatizing the airport and putting into place a similar long-term, low-cost arrangement. If neither is possible, then Ryanair will pull out of Brussels. A negative ruling from the EC would impede Ryanair's expansion in France and Spain, where nearly all airports are state-owned. But there's plenty of room for growth elsewhere: Europe has an estimated 450 commercial airports, including those in the 10 countries set to join the European Union next year.
Ryanair's rivals, meanwhile, are lobbying intensely behind the scenes. Rod Eddington, boss of British Airways PLC and chair of the European Airlines Assn., which represents traditional carriers, has urged the EC to stand firm against state aid. "No one should receive special treatment, no matter how loud they shout," he says. Fair enough. But the EC should take care that its well-intentioned efforts to promote competition don't end up having the opposite effect.
By Kerry Capell