Yahoo Finance Ryanair shouldn’t expect a fair fight from the EU – the sad truth is Brussels doesn’t care
It was at least a victory of sorts for Ryanair, and for its pugnacious boss Michael O’Leary. Last week, it won a victory against the established giants of the aviation industry when the European Court of Justice ruled that the billions offered by the German government to Lufthansa during the height of the Covid pandemic were effectively illegal.
In the wake of that, you might be tempted to imagine that the trend towards more state control in the European airline industry might finally be reversed. Heck, who knows, perhaps even Britain’s IAG, owner of British Airways, Iberia and easyJet, might get a fairer crack at the markets across the rest of the Continent.
The trouble is, Ryanair is kidding itself if it expects the drift back towards state control is going to be reversed any time soon, and certainly not by anything as toothless as the European courts. France and Germany have both taken back effective control of their flag-carrier airlines, and will soon be adding control of Italy’s ITA to their combinations as well.
The days of free competition and lower fares for travellers are in the past. In reality, Germany and France have set their sights on a return to a state-dominated industry. They are not about to let anything stand in the way of that now – and certainly not an irritating budget airline based in Ireland.
The EU is very keen on imposing rules on everyone else, but, funnily enough, it is not usually so keen on following them itself.
After many of its endless fines on the American tech giants were eventually ruled illegal in its own courts, it now turns out that its decision to approve state aid to the airlines during the Covid pandemic broke its own rules as well.
This week, the EU’s General Court agreed that the German government’s €6bn (£5bn) bailout of Lufthansa, which included taking a 20pc stake in the airline, violated its own rules, and that the Commission should not have approved it.
The airline could have potentially raised the money elsewhere, even if not on such favourable terms, or else it could have sold off assets to keep itself afloat instead. In effect, as anyone could see at the time, it was state aid, and the Commission simply turned a blind eye to it.
Ryanair immediately argued that it was vindicated by the decision, and that it showed “the Commission must act as guardian of a level playing field in aviation”. As so often with O’Leary’s airline, it is impossible not to admire the chutzpah. But, seriously, good luck with that. In reality, there are two big problems with imagining that judgment will lead to a freer, more competitive market in air travel anytime soon.
The first is that it may well be overturned by a higher court. The General Court is only the second highest legal authority within the EU. On appeal, it may simply be overruled. Even if that doesn’t happen, the EU’s Commission may simply ignore it, or change the laws.
It is not as if there are any real penalties for not following its rulings. Even worse, it is too late to do anything about it now. The money was given to Lufthansa, and eventually repaid, but it still prevented the airline from going bust, or else being forced to slim down. The damage to free competition has already been done, and the German airline clearly gained an unfair advantage over its rivals. No one is planning to unwind that now.
Next, and more importantly, Germany and France don’t care anymore. Germany may have sold back its share in Lufthansa into the private market, but it has become clear that the government in Berlin regards itself as a major long-term stakeholder, and it is not about to allow the airline to operate on its own according to normal commercial rules.
Lufthansa is expected to buy a controlling stake in ITA, the Italian airline that replaced Alitalia, perhaps as early as this month, again with Brussels likely to wave through a major reduction in competition. It will soon be the dominant force right across the European market, with access to major international airports sewn up.
Likewise, under President Emmanuel Macron, Air France-KLM has been turned into a “national champion” of the sort the French government is always pushing for. In a recapitalisation in 2021, it sunk an extra €4bn (£3.5bn) into the airline, taking the government stake to 29pc.
Again, there wasn’t a murmur of opposition from the Commission, even though it is hard to see how that can possibly be compatible with the rules that are meant to prevent state aid. It has already gobbled the Dutch airline, and may well have its sights set on other European carriers as well.
It has hardly been a great deal for French taxpayers – the shares are down by 20pc over the last year – but it is unlikely that anyone in the Elysee Palace cares about that. Making money on the equity investment is not the point. It is about France’s prestige.
In reality, the EU has given up on a free market in aviation. A 20-year experiment in open competition, which dramatically reduced prices, and generated lots more routes has been abandoned in favour of a return to the days of big, state-backed carriers charging premium prices and making bumper profits.
Increased taxes on jet fuel to combat climate change will only accelerate that. The number of routes will be cut back, and customers will be forced to pay higher and higher prices.
Sure, Ryanair and the other low-cost carriers such as easyJet and Wizz Air will be allowed to serve the budget market so long as they know their place and don’t get too uppity. But if the airline thinks competition will ever be fair again it is kidding itself – it is not going to happen now, no matter what a few judges say.
