Ryan Air vs Easyjet: the battle to control French low-cost routes

31 August 2006 (Last Updated August 31st, 2006 18:30)

A battle has been brewing over low-cost routes in France, as Ryanair attempts to base aircraft in Marseille. Air France, meanwhile, is raising objections. Jim Banks says the animosity between the carriers shows just how intense the competition for European air routes has become.

Ryan Air vs Easyjet: the battle to control French low-cost routes

There is a war going on in the skies above Europe between budget airlines and the major carriers whose business they threaten. Since their inception, low-cost carriers have been a thorn in the side of major airlines, while many passengers and smaller airports see them as a godsend. The battle lines are clearly drawn.

National carriers want to safeguard their business while budget carriers want to open more routes, expand their fleets and carve out a larger chunk of Europe's airline market. Price is a powerful weapon and major carriers that offer quality of service are resorting to protectionist tactics to fight competition.

THE BATTLE FOR MARSEILLE PROVENCE AIRPORT

"Budget carriers want to open more routes, expand their fleets and carve out a larger chunk of Europe's airline market."

The ongoing dispute between low-cost carrier Ryanair and established national carrier Air France-KLM, the world's largest airline by revenue, epitomises all of the bitterness and brash tactics that have emerged in the war over Europe's skies.

In May, Ryanair announced that it would be operating two new aircraft from Marseille Provence Airport, serving 13 routes including flights to three cities in Morocco, which would appeal to the large North African community in Provence.

By operating two 733-800s from Marseille, where the airport has invested over $19m in redeveloping its freight facility into a new low-cost terminal, Ryanair also intends to link the UK, Germany and Norway to the south of France.

Ryanair believes that such a deal would not only be beneficial to passengers by potentially saving French consumers and visitors to France up to €100m, but also to the airport, to which it expects to bring over one million new passengers each year. Marseille Provence Airport welcomed the move by Ryanair, pointing out that it had offered the low-cost terminal to Air France first.

CLAIMS AND COUNTERCLAIMS

Unhappy at the thought of Ryanair pulling passengers away from its routes, Air France has retaliated by filing an action in the Conseil d'Etat against Marseille Airport to prevent Ryanair from using the low-cost terminal.

In response, Ryanair, which has made it clear that the tariff for using this terminal has been agreed by the French civil aviation authority, lodged a new complaint with the European Commission in June claiming that Air France's actions are a clear attempt to eliminate competition from low-cost carriers.

In a statement to the London Stock Exchange, Jim Callaghan, Ryanair's head of regulatory affairs, said: "Ryanair has submitted a further complaint to the European Commission against Air France on the basis of an abuse of dominance under the European competition rules. In no other European state does the national airline hold such a dominant position and engage in such abusive practices to block competition."

Callaghan also pointed out that Air France's successful attempt to block competition from Ryanair on routes between London and Strasbourg have had negative results: "Air France is again ripping off consumers with €800 return fares, and passenger numbers have plummeted from 20,000 per month to just over 2,000."

Ryanair's latest complaint centres on what it sees as unfair subsidies paid to Air France. Ryanair has: "filed a complaint regarding approximately €1bn worth of state aid that Air France has received from the French Government in the form of subsidised domestic landing and passenger fees. This illegal state aid has enabled Air France to dominate the French market and force smaller competitors out."

"Spinetta claims that the €1.2 charge per budget terminal passenger is unjustifiable when compared to the €6 charged to major carriers."

Meanwhile, Air France and its president, Jean-Cyril Spinetta, have complained about the difference in fees that would be charged by Marseille Airport for Ryanair and Air France. Spinetta claims that the €1.2 per passenger charge for budget terminal passengers is unjustifiable when compared to the €6 per passenger charged to major carriers.

His claim that this is a kind of subsidy for budget carriers is countered by Ryanair and Marseille Airport on the grounds that these fees would have been applicable to Air France had it chosen to use the low-cost terminal, and that the rates have received official approval.

Ryanair responded with more fighting talk, with Callaghan countering that: "If Jean-Cyril Spinetta is truly concerned about 'equality', then he should have accepted Marseille Airport's offer of lower costs and have efficient facilities instead of abusing the French court system to prevent competition.

"He should stop ripping off French consumers and start charging the same fares as Ryanair, and start paying the same landing fees instead of receiving illegal subsidies."

PORTENTS FOR THE FUTURE

It is hard to say who will emerge victorious from this latest battle, but it is certain that
Ryanair will continue to fight for its right to operate cheap flights to and from France. The airline will take heart from the fact that EU regulators have recently approved a subsidy to Ryanair to facilitate its operations between Toulon and London.

Given its criticism of what it sees as 'illegal' subsidies to Air France, this may seem ironic, but Ryanair is keen to do business in the most advantageous way possible and will take all the help it can get.

The subsidy will see the chamber of commerce and industry of Var, which owns Toulon Hyeres Airport, pay half of Ryanair’s ‘additional costs’, up to a ceiling of €500,000, for the next three years, with the possibility of extending the deal for a further two years.

The justification for the subsidy, according to the EU, is that it is consistent with guidelines it has laid down to prevent state funds from giving any single company an unfair advantage over its competitors, and that it would help the region develop a year-round tourism industry.

BUDGET AIRLINES BATTLE IN COURT

It seems that this war between national carriers and budget airlines will not be decided by one major conflict, but will consist of a series of pitched battles, with the European Commission in the middle trying to keep order.

Budget airlines have been involved in many court battles in recent years, and the current conflict in France is merely the latest instalment in the row over fees, subsidies and rights. The battle also centres on public service obligations (PSOs) in France, which low-cost carriers feel are exploited to benefit the national carrier, blocking competitors from taking on some international routes.

However, France is not the only battlefield in the low-cost carriers' war against the monopolies. The EC has said that it will re-examine the rules for PSOs, partly in response to the conflict between Ryanair and the Italian Government over routes between mainland Italy and Sardinia.

Ryanair has petitioned the EC to look at what it sees as abuses of PSOs in Italy after Alitalia was cleared to fly on this PSO route, despite not having applied for it. The Italian civil aviation authority blocked moves by both Ryanair and easyJet from operating low-cost flights on this route, leading to claims that it was protecting its national carrier.

Whatever emerges from the re-evaluation of PSO rules and the battles for rights to Europe's skies, continued conflict between budget airlines and majors will be the norm for many years to come.