Low-cost carriers: European Subsidies, Alghero Airport Case Study

Thursday, 15 April 2010 11:00

In November 2009, Air France filed a complaint with the European Commission against Ryan air for unfair trading practices. Ryanair was accused of having received 660 million Euros worth of aid across Europe in 2008 in the form of reduced landing fees and airport taxes.

How did Air France reach this incredible amount of subsidies? In France, Ryanair has about 400 frequencies, while in Europe the carrier has about 7500 frequencies; that means France is 5.3% of Ryanairs traffic in Europe. Therefore, if Ryanair received 35 million Euros in 2008 in subsidies (read reports made by public authority La Cour des Comptes ) in France (5.3% of traffic), the carrier should have received 660 million Euros in Europe (100% of traffic).

But, if based only on French subsidies, this method of calculation could be disputed. That is why we took an Italian example, Alghero Airport, currently under European Commission investigations (PDF) for illegal State Aid, to check the validity of these amounts.

Ryanair organized its defense

Ryanair denied Air France claims about receiving State Aid or any subsidies. Clearly, the Irish carrier plays on words here. Indeed, the French government did not give them subsidies, but local authorities did. Therefore, money received does not come from the State, but from

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Low-cost carriers: European Subsidies, Alghero Airport Case Study

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Regions. The point remains the same: it comes from public money.

The second Ryanair's angle of defense is to point out that they always won cases regarding public subsidies: Dec 2008 European Court of First Instance (ECFI) Judgement which declared that Ryanairs long-term, low cost agreement at Brussels Charleroi Airport was lawful and so Ryanair did not receive either subsidy or State Aid . Once again, we must admit that Ryanair is not totally honest. In Charleroi, Ryanair won, but not specifically on subsidies, due to procedural error. Furthermore, there are cases lost by Ryanair, like Pau Aiport , Strasbourg Airport ( legal document ) or MP2 Airport in Marseille.

Alghero Airport, public management, public subsidies

Alghero Airport is 100% managed by public authorities . That means that money received by Ryanair from this airport is clearly public and therefore considered as subsidies that must be regulated under European Commission rules.

According to their description by the Italian authorities since 1996, the airport is managed jointly by the Sardinia Region and a company called SOGEAAL (hereinafter Sogeaal). The company was created by the Province of Sassari in order to promote socio-economic recovery and enhance the resources and local skills. Its capital, amounting to 7754000 EUR, is currently held by the Autonomous Region of Sardinia (18.43%), the Chamber of Commerce of Sassari (21.7%), the town of Alghero (10%) and Sassari (4.14%) from SFIRS SpA (the regional public financial) (30.43%) and the Province of Sassari (15%), the Sogeaal thus constitutes a 100% controlled by the state .

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Low-cost carriers: European Subsidies, Alghero Airport Case Study

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Ryanair receives at least 6 Euros of subsidies per passengers from Alghero Airport. These amounts are quite similar to those paid by French airports.

Therefore, between 2002 and 2006, Ryanair received 8 million Euros of public money to operate from Alghero Airport. Potential State aid to SOGEAAL (the airport operator) for the operation of the airport: The Sardinia Region appears to have financed the operation of the airport by reimbursing the latter for the losses totaling EUR 8 million in 2002-2006 it incurred in connection with its agreements with Ryanair .

Management of the airport pointed out

European Commission pointed out management of this airport for different reasons: -

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Low-cost carriers: European Subsidies, Alghero Airport Case Study

Thursday, 15 April 2010 11:00

These public subsidies lead to an unfair competition which is not in accordance with European regulations: Potential State aid to Ryanair: In the relationship between SOGEAAL and the low-cost airline Ryanair, the latter may have benefited from State aid in the form of unfair and/or discriminatory ground-handling charges, and a marketing arrangement. (...) In particular, the Commission notes that between 2003 and 2006 Ryanair has paid a lump sum of 129 Euros per rotation instead of the published rate of 930 Euros per rotation, which applies to the same type of aircraft . The European Commission also drew conclusion about terrible management of public money : In its letter of 17 June 2005, the Italian authorities have stressed that, because part of the grant system, the allocation of incentives or imposition of charges reduced to low-cost airlines cannot be compensated by other airport revenues, including those generated by purely commercial activities. Only if all the above operations were attributed to the company Sogeaal, the proceeds would be transferred by Sardinia airport operator, who would become sole owner . This kind of irresponsible management of some airports had also been highlighted many times in France by La Cour des Comptes , in charge of auditing public money spending.

State Aids received by Ryanair are not compliant

The conclusions of the European Commission are clear: State Aids received by Ryanair are not legal! Indeed, to be compatible with the common market, Ryanair must fulfill conditions set out in Article 87(3)(c), but the Commission doubts whether the following conditions are fulfilled : 1. Start-up aid has to be limited in time and be degressive in order to meet its objectives and

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Low-cost carriers: European Subsidies, Alghero Airport Case Study

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provide an incentive effect. The various agreements between Ryanair and SOGEAAL have either a duration which is not known to the Commission, or a duration of ten years, with the possibility of being renewed for a further ten years. The aid does not follow a downward trend . Ryanair has routes from/to Alghero Airport since January 2002, so clearly more than 3 years. However, Ryanair never declared this money as subsidies to the European Commission, so time is not running... 2. The positive effects of the aid do not outweigh the negative effects. The Commission notes that the aid could well have negative effects both for competing airlines and competing airports.

In conclusion, Alghero Airport is just another example to display Ryanairs legally borderline system with European regulations. French airports and Alghero cant be exceptions in Europe; they are common business for the Irish carrier. It also proves that amounts announced by Air France (660 million Euros of subsidies) are correct.

Ryanair has established the first efficient and industrialized public subsidies collector on a European scale. Its interesting to notice that Ryanair is among those which beneficiated the most of deregulation of the market, but meantime among those which obtain the most of subsidies...

--Matthias, WhichBudget Airline Market Analyst

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