September 28, 2003
Forget O'Rourke,Ryanair now faces its biggest foe - EuropePosted in · 2 comments ·
Once upon a time, when all air hostesses were terribly glamorous, rich people flew a certain way, holidayed in set destinations,wore certain types of clothes and always ate in upmarket places.
Nowadays, a couple will go to Paris for the weekend, flying on Ryanair yet staying at the Crillon. They might wear Prada yet eat in McDonalds. He may read the sport section of the Star while she browses Vanity Fair.
A lot of Ryanair’s success has come from spotting this change in consumer behaviour and giving people the cheap part of that deal. Clearly there are thousands of Ryanair passengers who do not fit this bill. But one of Ryanair’s achievements has been changing the perception of flying – it used to be seen as an exclusive experience, now it’s like being on the 46A in the sky.The Ryanair story, as we all know, has been startling and simple. Give passengers the cheapest seats and they will come again and again.
An implicit part of offering low fares is keeping costs low and Ryanair has done this by locating itself in socalled secondary markets, doing hard deals with cash-strapped airports and saving enormously as a consequence. For example, 21 per cent of Ryanair’s cost advantage over the likes of Aer Lingus comes from cheaper handling and landing charges. When you are flying close to 25 million passengers, this is a serious saving.
In addition, NCB Stockbrokers estimates that the difference in turnaround time – 25 m i nutes at uncongested airports and 60 minutes at the likes of Heathrow – is worth €4.4 million in annual revenue per aircraft to Ryanair.Stansted in Essex was the first of these airports to catch Ryanair’s eye and now 61 per cent of its fleet is based there.
Ryanair is currently in talks with over 40 more airports, which displays both the company’s ambitions and the fact that the deals are not one-sided affairs, as many detractors claim.The fact that small European airports are queuing upto talkto Michael O’Leary indicates that everyone’s a winner. For example, 200,000 customers trooped through Charleroi in 1998.This year there will be 1.8 million people using the airport.
The growth has been immense, not just for the airport but for the local economy, its traders, taxi drivers and hoteliers. The impact on the weekend break market to Brussels and Bruges must be equally impressive. Ryanair has 114 new aircraft to place over the coming five years and there is little doubt that many regions around Europe are dying to get a piece of the `no frills’ action. But there is a problem.
If Stansted was O’Leary’s Austerlitz,Charleroi could be, by his own admission, his Waterloo. Ryanair is on a collision course with the European establishment, both directly and indirectly. Over the next two months, many argue, Ryanair’s business model of expanding in secondary airports around Europe will be sorely tested.
Ryanair faces four separate cases. The first is an appeal against the recent decision of a French court which deemed that the deal Ryanair struck with Strasbourg Airport constituted an illegal state aid.The second is with the EU Commission over Charleroi Airport in Belgium. The two other cases are lesser affairs in Sweden and Denmark that are expected to be resolved quickly.
The battle with the French authorities must be particularly galling as this country just this week bailed out the loss-making Alstom train maker and over the past few years, has spent huge sums of state money to bail out France Telecom. Unfortunately for Ryanair, the Strasbourg affair may well be a test case in France’s increasingly bitter battle with the EU Commission.
The French elite has begun to question where it is that the EU Commission’s heart lies. There was a time when French functionaries ruled the corridors of power in Brussels but as the EU has enlarged, particularly with Scandinavian influence, a more assertive commission has emerged.
This is notably the case with respect to competition and the single market, leading to problems with France. Not a week goes by without the mainstream French press, Le Monde for example, complaining about the Americanisation of the EU. This conflict has manifested itself in a number of critical cases which France has won each time. Maybe unwittingly Ryanair has become a pawn in a bigger battle.
In Strasbourg, Ryanair claims the deal it struck is simply normal market practice. When the French court tore up the contract, Ryanair immediately moved its business across the border to a private airport in Baden-Baden. Normal service resumed. However, a quick glance at the map of France and Ryanair’s 19 French destinations suggests that the friendly alternative of a private German airport is not always feasible from the likes of Montpellier or Beauvais.
Almost all secondary airports in France are state-owned, so this is an appeal Ryanair must win. O’Leary retorts that Ryanair will continue with or without the French government and he points out, with some validity, that Ryanair’s history is dotted with battles with monopolistic governments. That may be so, but it would be much easier for Ryanair if the case had never arisen.
The second case concerns Charleroi and could be even more crucial for the group. It looks at whether the deal struck with Ryanair was unfair – not only because the Charleroi region was arguably excessively generous to Ryanair, thus constituting state aid, but also because it was not offered to other carriers. This is important for Ryanair as any decision from the commission would be binding on its business throughout the EU.
Ryanair points out that other carriers were offered the same deal. Its press release indicates it is confident that the EU will consider the positive impact Ryanair has had on the local economy in reaching its decision but, of course, it has to say that.
However, there is a greater issue here, which is why we should all be hoping that Ryanair wins both cases. Ryanair alone has brought down the cost of air travel in Europe.There have been imitators, but O’Leary was the pioneer. There is no doubt that the fares between Dublin and London would be considerably higher without him. Cheap travel has encouraged the development of tourism, business, investing, travelling to see relatives and a host of other advantages.
Granted,there are many who argue that Ryanair is now the biggest predator on the landscape and is squeezing smaller carriers and airports. This is undoubtedly the case and all industries display this sort of evolution where full liberalisation leads to a concentration, rather than a proliferation, of market power. But what’s the alternative?
Only more competition will keep prices down and open up new routes. However, in contrast to many of his battles in the past,O’Leary faces a formidable foe in Europe. Let’s just say that the French establishment is a very different kettle of fish to the likes of Noel Hanlon and Mary O’Rourke.
Is O’Leary worried? I didn’t think so until I read the last line of the Ryanair press release this week which stated in true European gobbledegook that Ryanair was “playing a leading role in advancing the integration of people all over the EU”. With toadyism like that it could be inferred, as they might say down on the farm, that Mick “is shitting himself”.