EC ruling on airport subsidy may impact low-cost carriers
Decision on legality of subsidies to Ryanair at Belgian hub due next month

(BRUSSELS) A landmark European Commission ruling next month on subsidies to regional airports can profoundly affect the business model of low-cost airline Ryanair and other bargain carriers, EU officials say.

State aid?: Charleroi airport charges Ryanair one euro per passenger in landing rights, half the normal charge, and one euro for ground-handling, one-tenth the official rate

The Irish airline lost a legal battle in France last week when an appeals court upheld a ban on a subsidy by the local chamber of commerce to help it start a Strasbourg-London route, after a challenge by an Air France subsidiary.

But EU officials and industry analysts say a Commission decision in late October on the legality of regional subsidies to Ryanair at its Belgian hub in Charleroi, south of Brussels, will set a wider precedent for the industry that could be as important as the 1994 liberalisation of European air transport.

"This decision will lead to setting European rules for regional aid of this kind and subsidies to airports," a Commission official said.

Ryanair chief executive Michael O'Leary sounded upbeat after talks with EU Transport Commissioner Loyola de Palacio earlier this month. "I am confident the Commission will not demand any change in the contract with Charleroi."

Ryanair transports 1.7 million passengers a year through the small airport, which was virtually deserted until the airline set up there in 1997.

But Commission officials take a different view. "The basic problem is that public money is going to airlines," said one official.

Several EU sources said the Commission was likely to conclude that the contract between Ryanair and Brussels South Charleroi Airport, in which the Wallonia regional government holds an 80 per cent stake, contained illegal state aid.

The EC spelled out its suspicion in a letter it sent the Belgian government on Jan 25 requesting an explanation for the 15-year agreement between the Wallonia region and Ryanair signed in November 2001.

Charleroi is Ryanair's biggest base in continental Europe, with routes to London, Liverpool, Dublin, Shannin, Stockholm, Bergamo, Pisa, Venice, Barcelona-Girona, Rome, Glasgow and Carcassone for fares as low as 12.01 euros (S$23.7).

The airport charges the airline only one euro per passenger in landing rights - half the normal charge - and one euro per passenger for ground-handling - one-tenth the official rate.

The Wallonia regional government has also provided one-off assistance of 250,000 euros for hotel accommodation and subsistence for Ryanair staff and contributed 768,000 euros towards recruitment and training of pilots and cabin staff. It spent 3.8 million euros in 2002 on funding advertising and super low-cost tickets for Ryanair flights from Charleroi.

The EC letter said this aid enabled Ryanair to cut its operating costs. It disputed the argument that Manchester Airport received approval for similar aid. While the British airport's benefits were open to all airlines, Charleroi's were granted only to Ryanair in a bilateral deal, it said.

The EC rejected the Walloon government's contention that it was acting like any private investor, since the airport company makes a loss. Nor could the subsidies be justified in terms of wider economic benefits for a depressed region.

"By carrying some of the operating costs of the carrier, the airport management company has effectively put Ryanair in a more favourable position than its competitors," it said. - Reuters

(Buisiness Times vom 22.09.2003)