Ryanair’s jaw-dropping market update released today raised some serious questions over the legitimacy of airline bailouts. The low-cost carrier slammed EU governments for bailing out inefficient airlines, while others (such as itself) who went into the crisis with a healthy bank balance will walk away with nothing. Are such bailouts fair?
State aid doping
As part of Ryanair’s market update released today, the low-cost carrier has blasted government bailouts issued to EU airlines as a result of the COVID-19 crisis. In the announcement, the airline called the measures “State Aid doping,” calling out the billions pledged in government support for being unfair. In the statement, Ryanair said,
“Ryanair expects that its return to scheduled services will be rendered more difficult by competing with flag carrier airlines, who will be financing below cost selling with the benefit of over €30 billion in unlawful State Aid, in breach of both EU State Aid and competition rules.”
While Ryanair has, in the past, been subject to some subsidy disputes of its own concerning the small airports it often serves. However, the point the airline is making today is that money is being showered on inefficient, unprofitable airlines, while those who went into the crisis better equipped will not be afforded the same privilege.
The bailout problem
It’s not the first time Ryanair has complained about governments helping their airlines. Outspoken CEO Michael O’Leary previously threatened to take France to court to force them to distribute rescue money more evenly. Last week, he told Sky News that Lufthansa was behaving like a ‘crack cocaine junkie’ after requesting €10bn ($10.8bn) of bailout cash.
The issue now, as Ryanair sees it, is that its well-managed business has allowed it to survive the COVID crisis thus far without asking for a bailout. It believes it is unfair and illegal that less efficient airlines are getting handouts from their governments to survive the crisis. In today’s report, it said,
“Ryanair entered this unprecedented Covid-19 crisis with almost €4bn in cash, and we continue to actively manage these cash resources to ensure that we can survive this Covid-19 pandemic, and more importantly the return to lower fare flight schedules as soon as possible, when our customers can look forward to more low air fares as we are forced to compete with flag carrier airlines who have received €30 billion in State Aid “doping” to allow them to sustain below cost selling for months after this Covid-19 crisis has passed, as it certainly will over the coming months.”
Ryanair further issued a breakdown of this €30bn in aid to highlight its point:
Of course, not all of this money has been agreed or paid out. Virgin Atlantic’s request for €500m from the UK government is not expected to have a positive outcome. However, billions in aid is still being thrown around, and billions more will likely be committed before the crisis is over.
Is state aid fair and legal?
Ryanair called the aid being offered to airlines’ illegal’, but that’s not entirely the case. According to the European Commission, the pandemic is classed as an ‘exceptional occurrence,’ meaning Member States are allowed to provide support to airlines and airports affected. Usually, any government support requires the Commission to approve the move, but since the outbreak, it has moved to relax these rules to allow states to act quickly.
The issue of whether it is fair is a different kettle of fish. It’s easy to see Ryanair’s point; that airlines which were already poorly managed or inefficient will likely be on the receiving end of a substantial bailout, whereas those, like itself, who went into the crisis with a healthy bank balance will not be asking for anything.
And it’s not just Ryanair that is losing out on state aid right now. British Airways owner IAG hasn’t yet asked for a bailout, and if it does, it will likely get much less than its French and German rivals, thanks to it being a more profitable company.
While there are lots of solid arguments for providing support to airlines in these unprecedented times, the piecemeal approach of European nations is threatening to distort the market long after the threat has passed. The effect of this completely destroys Ryanair’s strategy of driving down fares to put more expensive rivals out of business, as it is those precise rivals who are benefitting the most.
What do you think about European airline bailouts? Fair or not? Let us know in the comments.