ANALYSIS: EC puts regional airport deals under scrutiny

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There were few headlines when the European Commission last month announced a state aid probe into an Italian scheme giving financial support to carriers operating at Sardinian airports.

It is, after all, hardly the first European publicly-owned airport to come under such scrutiny from the regulator over support aid schemes aimed at helping securing new airline services. The Commission has launched a string of cases concerning airports across Europe. Indeed, one of the Sardinian airports facing scrutiny - Alghero - is already the subject of an earlier, still-open state aid probe by European regulators.

A common thread of most of these probes is the marketing support and assistance given to airlines, and whether they are in keeping with the EC guidelines drawn up in 2005. Most of these cases revolve around low-cost carriers, which have particularly driven traffic at formerly-empty secondary airports,

"I think one of the big things is the shift in the responsibility of enforcement in state aid cases from DG Move [Mobility and Transport] to DG Competition, which is used to going after the likes of Google and Microsoft and they don't really flinch from this," says Patrick Edmond, from Dublin-based E2consult.

The Commission's competition regulator says it is assessing over 60 cases, more than half of which are in-depth investigations. A number of them have put the spotlight on deals between publicly-owned regional airports and Ryanair. Of the airlines to benefit from the three Sardinian airports involved in the latest probe, the Irish carrier was the only operator the Commission mentioned by name. Two of the three airports, Alghero and Cagliari, are Ryanair bases.

It comes after the competition regulators opened state-aid probes covering arrangements at a string of European airports in 2012, which include Ryanair marketing support deals with Angouleme, Carcassone and Nimes in France, Charleroi in Belgium, Altenburg-Nobitz in Germany and Vasteras in Stockhlom. But in July it cleared Ryanair's deal with Tampere Pirkkala airport in Finland.

The Commission says there are currently 22 cases open with Ryanair involved.

Ryanair points to a key European court decision from 2008 which found the Irish carrier's agreements with Charleroi airport complied with EU competition rules.

"Ryanair is the lightning rod for this issue," says Ryanair director general Michael Cawley. "[The Commission] would rather airports were empty than [have them not] charge the market price. The reality is these are just skirmishes around the edges. There are hundreds of airports in Europe which are looking for traffic.

"They are important and relevant traffic for low-cost. [But] we are not going to have a high-cost business just because the EC says so. Low-cost carriers are so embedded across the whole of Europe - almost 200 million passengers - nobody in Brussels is going to write that off."

Cawley says the key is not discriminating in charges offered to airlines for the same level of service. With the large number of passengers Ryanair brings to these airports in mind, he says, a corner shop's buying a six-pack of beer could not be expected to pay the same price as a large supermarket's buying millions.

"All [these airports] are looking for is passenger activity," he adds. "Let them, as everyone does in the private sector, search around for what is the economic price they can charge - the economic price being one that we can pass on to our passengers at a profit - and we can all do well out of it.

"We can generate activity both for the airport, as well as profit, and drive our own business forward. And they can compete with private airports elsewhere."

Alongside the added scrutiny of the competition regulator into whether current deals are in line with the existing rules is a review of the overall guidelines. The Commission amended the guidelines for airport financing and start-up aid to airlines in 2005. But in April 2011 it launched a consultation over a fresh review.

It said the air transport market had "evolved dramatically" in recent years, noting low-cost carriers had developed new business models linked to regional airports, and gained substantial market shares. The EC said it was "particularly interested" in receiving information about the changes in these models and recent developments concerning infrastructure financing and start-up aid.

At the time the Commission hoped to decide whether proposals to change the guidelines were necessary. "After analysing the submissions, the Commission is currently reflecting on revised guidelines and will publish a draft text for public consultation in the coming months," says the EC.

Airport representative group ACI Europe is concerned at the prospect of changes. European competition commissioner Joaquin Almunia "wants to curb public financing" of airport infrastructure, particularly by preventing operating aid for the smallest regional airports, claims ACI Europe president Declan Collier.

Speaking at a recent event at the European Parliament, he said: "This would simply put many of these airports out of business, with very harsh consequences for regional economies."

Collier argues that the Commission's rationale suggests it believes there are too many airports in Europe, that charges should be on a full cost-recovery basis, and that private financing is the way forward.

"These assumptions fly in the face of reality," he says, noting Europe's current crunch means it will need more airport capacity.

"With regard to airport charges, I do not know of any airline that would ever pay charges reflecting actual airport costs," he adds. "Because they are structurally unable to achieve lasting profitability, small regional airports will rarely, if ever, be of interest to private investors.

"While we need to further incentivise private investment, we should avoid being dogmatic and closing the door to public funding."

E2consult's Edmond predicts a shift if local authorities' ability to subsidise out-of-town airports is not possible, adding: "I think it will be a bit like what we saw in the regional market."

What is clear, though, is that Ryanair - amid continued retrenching among struggling national carriers and the EU's expanding 'open skies' policies - sees little shortage of options in the private sector should airport deals in the public sector dry up.

"There are hundreds of airports in Europe which are looking [for traffic]," says Cawley, including those in capacity-constrained London. "[Stansted] is currently operating at 47% of its official capacity, so there is nothing to stop the new owners of Stansted doing a deal with Ryanair, or any other airline, at whatever price they want."