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

ORDO, Vol. 55, pp. 313-332, 2004

13 Pages Posted: 9 Jan 2008

See all articles by Wolfgang Kerber

Wolfgang Kerber

University of Marburg - School of Business & Economics

Friedrich Gröteke

affiliation not provided to SSRN

Abstract

For the European Commission the case of Ryanair is a precedence decision about the application of state aid policy to agreements between regional airports and airlines. In a long-term contract with the regional airport of Charleroi (near by Brussels), the Irish low-cost 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 aviator sector. The real state aid problem is, however, whether and under what conditions the public funding of airport 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.

JEL Classification: F 15, H 71, L 93

Suggested Citation

Kerber, Wolfgang and Gröteke, Friedrich, The Case of Ryanair - EU State Aid Policy on the Wrong Runway. ORDO, Vol. 55, pp. 313-332, 2004. Available at SSRN: https://ssrn.com/abstract=1081942

Wolfgang Kerber (Contact Author)

University of Marburg - School of Business & Economics ( email )

Am Plan 2
Marburg, D-35037
Germany
+49 6421 2823921 (Phone)

Friedrich Gröteke

affiliation not provided to SSRN

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