Ryanair redefines Communism

I note – probably with more amusement than Michael O’Leary intends – Ryanair’s recent defeat at the European Commission. I’m afraid I have never found it terribly surprising to see so-called entrepreneurs who complain about government distorting the markets do a 180 degree when it comes to their own subsidies, but O’Leary’s recent anti-EC tyrade should earn an award for doublethink.

I have never before heard a businessman scream about how the denial of government subsidies was “communist”, and I am hard pressed to understand how a decision to make Ryanair actually compete on the open market could be a “North Korean style” decision leading to a “communist valhalla” of high air travel prices. I realise that some folks set a very low bar for what sort of government intervention they consider legitimate, but this must set a record. Damn socialists, refusing to subsidise the free market! I should think this sort of discourse would have induced a reality check in Mr O’Leary.

This really brings new meaning to the old aphorism Socialism for the rich, capitalism for the poor.

For those new to this story, O’Leary’s operates discount airline Ryanair – one of the new generation of supercheap airlines. Of course, in the old days discount airlines cut costs by reducing on-board services, simplifying boarding and ticketing systems, and generally only operating a restricted service. O’Leary, however, came up with an alternative and complementary approach to lower prices even further.

First, he doesn’t fly anywhere than anyone would want to go. For example, Ryanair regularly advertises very cheap fares from various European cities to “Brussels.” What you have to work out on your own is that when Ryanair says “Brussels”, it means “Charleroi” – a second tier industrial city an hour and a half away from central Brussels. Once the additional transport costs are figured into the price, your ticket doesn’t seem so cheap, especially when compared to low-cost airlines like Virgin Express and SN Brussels that operate out of the much nearer Zaventem airport.

I gather service to Stockholm is even worse – that the airport he flies out of is 3 hours away from the city centre during rush hour.

Second, not only does he scam people into using distant, second level airports, but he also hits up airport owners – usually local government – for subsidies in return for bringing business to their areas.

The European Commission has ruled that the first strategy is legal, but that the second is not. EU anti-subsidies laws are designed to prevent local government from undertaking subsidies that might damage competition within the union. The whole idea is that you can’t use subsidies as indirect trade barriers, and you can’t use them to develop local business without the support of the European Commission. Thus, Ryanair can not accept subsidies from government-owned airports, only privately owned ones.

O’Leary, of course, says this is nonsense and that private airports are banging on his door, begging to give him their money in return for flying into their airports. However, considering the volume of his complaints, one wonders if he isn’t exagerating a mite bit? It seems unlikely that he will find an alternative private airport near Brussels, and he claims to be committed to continuing to use Charleroi.

Put up or shut up, Mr O’Leary. It’s not communism when the government refuses to help you sell airline tickets below cost.

This entry was posted in A Fistful Of Euros, Political issues by Scott Martens. Bookmark the permalink.

About Scott Martens

Scott is a US-raised Canadian living in Brussels with his American wife. His political background is well to the left of centre, even for Europe, and is very interested in immigration, cultural integration and language policy issues. He is presently working against a deadline on his doctorate in computational linguistics and is on hiatus. Wrote Pedantry, also on hiatus.

13 thoughts on “Ryanair redefines Communism

  1. O’Leary’s comments about ‘communism’ are amusing indeed. However, I’d contest your point that Ryanair flies ‘where nobody wants to go’. Sure, if I fly Ryanair from Frankfurt to London, I don’t really start in Frankfurt and I don’t really land in London. When I go to London on business, I’ll happily shell out umpteen squillion euros to fly from Frankfurt/Main to City. (Happily, because the client pays). Flying on my own account, though, a couple of extra hours and the relatively small extra transport costs stll don’t swing the equation in Lufthansa’s favour.

    O’Leary might be a sputtering gobshite, but Ryanair provides a valuable service for all that. If nothing else, consider the vast increase in cheap fast mobility it afforded the Irish expat community in Britain, who in the days before Ryanair had the choice between the boat train and signing over a year’s wages to Aer Lingus (and if it’s true North Korean communists you want, you need look no further than AL).

    Not that Ryanair should be allowed subsidies, mind you.

  2. I’m planning to fly Ryanair to Nyk?ping (“Stockholm”) this summer, in fact.

    An additional advantage of even crappy budget airlines (and the grapevine is unanimous that Ryanair is the crappiest of them all, by a country mile) is that they don’t insist on selling you a return ticket. I’m planning to come back via Easyjet (hoorah!) from Copenhagen, so this is a big win for me.

  3. I suppose I might have to concede that at least sometimes low budget airlines aren’t a scam. I used to fly Southwest in the States quite a lot, although it actually went places people might want to go.

    Actually, I am in sort of in favour of a somewhat less urban-centric air transport policy. Building airports near cities is a monstrous pain in the butt, and I object less to the time spent in transit when I’m going a long way. I think the EU should charge a monster surtax on any flight between two places that are less than 4 hours apart by train and use the revenue to subsidise high speed rail.

    I do appreciate knowing where I’m flying to and from and what additional costs I may incur before buying my ticket. Brussels Charleroi Airport is far from Brussels. Frankfurt Hahn is a long way from Frankfurt. If I’m going to fly into the Stockholm Ulan Batar International Airport, I’d like to know what the ride into the city will cost and how long it will take. Lack of access to complete information is as market distorting as subsidies.

    And, I too have never understood why a one-way ticket costs twice what a round trip does to the same place. In China – you know, the communist one – airlines work like railways. There is a scheduled flight from point A to point B. A one way ticket costs so-and-so many renminbi. A round trip ticket costs 2 x so-and-so many renminbi, although there might be a round trip discount on some routes, sometimes. If you show up at the airport 10 minutes before the flight and you have so-and-so many renminbi in your hand, and there is a seat available on the plane, you can fly. No 21 day advance purchase. No special stay-over-one-Saturday advertised rate. No “prices starting at $99 (but really circa $350).” Why this very simple form of ticketing is so difficult for major airlines is utterly unfathomable to me. Why does flying Amsterdam-Minneapolis have to work differently?

  4. Scott, surely all Ryanair passengers can’t be dupes?

    I believe that the subsidy issue is not all that cut and dried. Firstly nobody is forcing the airports to offer generous terms to budget airlines or Ryaniair rather than any of quite a large number of other airlines.

    The complaints seem to be prompted by airlines that have secured near monopolies at major airports or even simlar deals at equally small rivals. That is to say, nobody is complaining about the money being spent on , or rather not being charged, to Ryanair, only about the competition that Ryanair is providing. To defend Michael O’Leary’s argument it certainly looks like the historically massively cossetted “flag carrier” airline industry is the prime beneficiary from these decisions. The local governments running the airports are upset, Ryanair is upset, many potential passengers are upset (although the few that might have been scammed might be relieved), cui bono?

    Passengers are not bein allowed to choose, local governments are not being allowed to encourage travel to their regions, all to support an expensive and inefficient establishment. Clearly that happens under all sorts of regimes but it is clearly what is now associated with Communism.

    The budget airlines already have to put up with a tax regime that is frequently more than 100 per cent on their flights.

    Aside from this Ryanair and the like have certainly done a lot to bring Britain closer to Europe and to make direct connections between places that were never connected before. It is great to be able to get to places like Trier or Metz or Graz directly and at a reasonable price. If I want food on the flight I can pick it up at the Pret a Manger at the airport. I know that the authorities in Bosnia are desperate for Ryanair to start flights from the UK to places in Croatia and to Mostar.

    Finally, air travel does have unfair advantages over more capital intensive forms of transport but the first thing that needs to be fixed is the lack of tax on aviation fuel. I can understand the reasoning but it is a gross distortion.

  5. Jack, I think you misunderstand my problem with O’Leary.

    First, no, no one is forcing the Charleroi airport authority to offer Ryanair a subsidy. However, if the Belgian federal government were to offer a subsidy to SN Brussels, no one would be forcing them to do it either, and yet it would still be an illegal subsidy under EU law and would have the same effect on competition. Either the airports have to be private – which is simply not realistic in any very crowded country – or the courts and the government have to place some limits on how government subsidises airport use.

    Second, were O’Leary a less… colourful businessman, he would have deployed arguments like claiming that flag carriers benefit from a variety of hidden subsidies; he would say that the Walloon region has high unemployment and needs the business activity; or he might have said that his subsidised airfares have additional social benefits by enhancing mobility within the EU. Had he made those arguments, I still would have said that he was a hypocritical anti-labour robber-baron snake oil salesman trying to pass himself off as an innovative anti-establishmentarian entrepreneur, but I doubt his remarks would have been interesting enough to blog.

    The EU is not preventing passengers from choosing. It is not preventing Ryanair from flying. It has not shut Ryanair down, nor stopped it from operating in Charleroi. Passengers remain free to choose Ryanair. However, it comes as a surprise to me to learn that it is communist to think that consumers’ choices should be paid for by consumers when they buy tickets. I can understand a socialist public transit advocate like me demanding that my right to choose to take the train requires a public subsidy. But for Michael O’Leary to preach anti-goverment and anti-regulatory free market doctrines and then complain when the government says it shouldn’t subsidise him is awfully rich.

  6. In China – you know, the communist one – airlines work like railways.

    Meanwhile, in the UK railways work like airlines – the cheapest “single” available on the day of travel is a return, and there are some impressively baroque complications on times and days of travel.

  7. I too have never understood why a one-way ticket costs twice what a round trip does to the same place.

    A One-way ticket is more likely to be bought by a business traveler. Round-trip tickets are more likely bought by tourists, most of whose budgets are more limited.

    Although, one would have to wonder about the business-savy of Business travelers who don’t buy round-trip tickets and throw away the unwanted portion, if the one-way ticket IS twice the cost of the round-trip ticket.

  8. Scott,
    I’m sure he speaks very highly of you too. Do you seriously believe that he is materially worse on any of hte scores that you mention than any of his rivals. Airlines that are in some cases still receiving direct payments from central government rather than being alledgedly undercharged by local authorities?

    Michael O’Leary has used the kinds of argument you outline above, see for example todays coverage in teh Financial Times. Unfortunately people don’t take as much notice of obscure competition tribunals as they do of the use of four letter words. It would be wrong to mistake what gets reported for being Ryanair’s whole case. In this and the case in France I believe there were no payments to Ryanair, just a dispute about airline pricing, so no-one is paying Ryanair to fly people places.

    It just is not obvious that the arrangements made actually are subsidies in the sense that you make out. If they are not, and the fact that commercially run airports have made equivalent arrangements suggests they are not, then all that is happening is that someone is fixing prices outside market conditions. With a the same sort of hype that makes out that Ryanair’s arrangements are subsidies that is communism.

    It does look like Ryanair is being judged to be on the wrong end of some pretty arbitrary rules in a way that only benefits expensive and inflexible airlines. O’Leary has made a fairly outrageous statement to draw attention to that. It is, however, less important that this claim might be hype than that he might have a point. I think the personal abuse is more or less as overdone as the claims of communism.

    In the Charleroi case it will not necessarily prevent Ryanair flying although it will change the costs but in the similar French case they might actually be prevented from flying by an airline that had an arrangement with neighbouring airport.

  9. Scott,

    “I suppose I might have to concede that at least sometimes low budget airlines aren’t a scam. I used to fly Southwest in the States quite a lot, although it actually went places people might want to go.”

    It’s actually part of Southwest’s secret. They fly where you want to go…directly. By ditching hub&spoke and only doing direct flights to and from locations with adequate demand, they manage to lop a great deal of complexity and cost off of the traditional model.

    And I’d have to agree with you generally on the undesirability of subsidies (practically a first, that), though I have to wonder about the implicit subsidy available to flag carriers via their hammer-lock on slots at major airports.

    ?Dream delivers us to dream, and there is no end to illusion.? – Ralph Waldo Emerson

  10. Patrick (G):

    “Although, one would have to wonder about the business-savy of Business travelers who don’t buy round-trip tickets and throw away the unwanted portion, if the one-way ticket IS twice the cost of the round-trip ticket.”

    I seem to recall that, in the US, the fine print on the ticket bans that, and that some airlines were checking on that with their computer systems. The end result was that the business traveler might find that the second round-trip ticket wouldn’t be honored.

  11. For what it’s worth, Scott, there already is a massive tax on flights between cities that are, say, less than four hours apart by train. It’s a temporal tax: the hour it takes to get to the airport, the hour in advance that you have to arrive to check in and clear security, the half hour it takes to get out of the plane and pick up your bags, and the hour it takes to get to the city center from the destination airport. Plus, if it’s a business trip, you can work on a train much more easily than on a plane.

    If you value your time, you’re already being heavily taxed on short flights.

  12. SCOTT.
    Why so hard on low fare airlines,in particular RYYANAIR? I think RYANAIR/EASYJET have done a lot for public travel in Europe, Fares are down on all airlines and there is more choice for the public. As for Charleroi I think you will find that what Ryanair were offered was also available to any other carrier who wished to use the airport, why should Ryanair be slated for what was a very good deal.

Comments are closed.