The Case of Ryanair – EU State Aid Policy on the Wrong Runway

Friedrich Gröteke () and Wolfgang Kerber ()
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Friedrich Gröteke: Faculty of Business Administration and Economics, Philipps Universitaet Marburg
Wolfgang Kerber: Faculty of Business Administration and Economics, Philipps Universitaet Marburg

No 200413, Marburg Working Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: For the European Commission the case of Ryanair is a precedence decision about the application of state aid policy on agreements between regional airports and airlines. In a long-term contract with the regional airport of Charleroi (near Brussels), the Irish lowcost airline Ryanair received better conditions than other airlines. In return, it committed itself to transport a certain number of passengers to this airport for a period of fifteen years. This alleviates considerably the entry of the so far non-established Charleroi Airport into the market for international airports. The Commission interprets these better conditions as a discrimination, which distorts competition among airlines. Contrary to that, a thorough economic analysis shows that these conditions must be regarded as a normal form of price differentiation in effective competition. Any airlines would have received similar conditions, if they have offered similar advantages to the airport. Consequently, the decision of the Commission in the Ryanair case is wrong. Additionally, the principles of the Commission, which entail the danger of an all-encompassing regulation of prices for airport services, are misleading from an economic point of view, because they tend to impede effective competition in the aviation sector. The real state aid problem is, however, whether and under what conditions the public funding of airports leads to a distortion of competition among airports. This problem remains unsolved. This is also true for the problem of the slot-allocation on airports.

Pages: 27 pages
Date: 2004
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Citations: View citations in EconPapers (2)

Forthcoming in ORDO – Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, Lucius & Lucius, Stuttgart, Bd. 55

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