Airport privatizations: the end of the golden age of subsidies for Ryanair?

Posted by airobserver on March 11, 2011 · 2 Comments 

European airports have made some waves recently. First, the French government announced it would start privatizing four of its largest airports (apart from Paris-Charles-de-Gaulle, which is already privately owned). Then the Spanish government declared it would sell 49% of its airport operator AENA – the authority in charge of airport and air traffic control.

This may sound like a good deal for low-costs companies operating in Europe. Particularly for one like Ryanair, after all the airline’s CEO, Michael O’Leary, has never been too shy about his hatred for government intervention and publicly owned services. Even though the company makes most of its money on public subsidies it gets through airport deals, Michael O’Leary has been whining against public authorities for years.

But there might be reasons to believe the privatization won’t be any good for the Irish low-cost. While airports were publicly owned their main goal was to justify their existence through increased traffic and turnover. They would get their funds from State-distributed subsidies and could be rather lenient with their expenses. French airports were even singled out for severe mismanagement in 2006 in a French internal audit conducted country-wide.

Now that these airports are about to be privatized, their strategy is bound to change. They will have to enter a yield-driven logic and aim for higher profits not higher traffic. Freed from goals set by governments they will have more room to maneuver. But they will also be more constrained financially, and will be held accountable by investors for any expenses they make. This might mean the end of the subsidy-godsend for Ryanair as airports will most-likely bee less incline to give out money when every penny spent must be explained. They will also be able to pit low-costs carriers against each others for contracts, leading to more advantageous contracts for airports, at the expense of carriers.

Yet, according to Miquel Ros of Allplane, that statement needs to be moderated by two thing: First, if airports are given more freedom, they might also compete against each other more aggressively; something that does not happen currently at Spanish airports. There are plans for partial privatization, but it is not clear yet how much control of pricing policies will the State keep for itself. Second, in some cases airports might retain funding from Chambers of Commerce and other local and regional institutions, which have always been very prone to subsidizing Ryanair.

Of course, less attractive destinations will still be less attractive and might struggle to find airlines willing to fly-in. However, if they fail to show profits to their investors, short of any public subsidies they’ll most probably have to close, or switch to a different business model. But, from Ryanair’s point of view, this privatization process could still spell the end of the free-money godsend. What irony for a company that made itself on the preceding wave of liberal reforms that swept Europe a few years ago.

[Edit: post updated to include insights from Miquel Ros of  Allplane.blogspot.com]

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Filed under AO Article · Tagged with AENA, airports, France, french government, Michael O'Leary, privatization, Ryanair, spain, spanish government, subsidies