EC Adopts New Aid Limits for Regional Airports and Airlines

 - February 21, 2014, 9:27 AM
Passengers traveling on low-fare carriers such as Ryanair now account for 46 percent of all traffic in the EU. (Photo: Boeing)

The European Commission on Thursday adopted new guidelines for limiting state aid to regional airports and airlines, a move the EC claims will reduce competitive distortion by discouraging overcapacity at small, unprofitable facilities. The new limits will require states to end operating aid within 10 years to airports that handle fewer than three million passengers annually and allow for infrastructure investment only in cases of “genuine” need to ensure regional accessibility. For regional airlines, the new guidelines now limit the duration of state aid for launching new routes to three years.

The guidelines define maximum allowable aid “intensities” depending on the size of the airport to ensure what the EC deems “the right mix” between public and private investment. For example, maximum levels of aid intensity will range from 75 percent to 25 percent of eligible costs depending on the size of the airport. Furthermore, the new guidelines do not impose a 10-year transitional period on airports that serve fewer than 700,000 passengers per year. Originally, the commission proposed a threshold of 300,000, but raised the level following pressure from lobbying groups. The commission expects the new language to take effect next month.

“The new state aid guidelines are a key ingredient for a successful and competitive European aviation industry,” said Joaquin Almunia, commission vice president in charge of competition policy. “They will ensure fair competition regardless of the business model—from flag carriers to low-cost airlines and from regional airports to major hubs.”

The changes come largely in reaction to complaints from flag carriers that subsidies to smaller airports indirectly and unfairly support their low-fare rivals. During a February 20 press conference in Brussels, Almunia noted that 20 years ago low-fare carriers controlled a 1.5-percent share of the intra-European market; today, he said, that share has risen to 46 percent.

“Many local and regional airports do play an important role in meeting the transport needs of citizens,” he added. “But at the same time there are problems of congestion in large hubs, and overcapacity of some regional airports. Clearly, we needed to update our rules to fully take into account this new and complex market reality.”

Reaction from industry trade groups, while generally positive, wasn’t unequivocal. “The new text is a step forward in that it does recognize, more than the original EC proposal, that state funding, when fairly allocated, is essential to regional development,” said European Regions Airline Association director general Simon McNamara. “But the Commission has not proposed enough requirements for increased transparency and the issue of inconsistent enforcement of the rules across Europe has not been adequately addressed. This means that distortions in the market are still likely to occur.”

The ERA had called for a more efficient complaint-handling procedure to allow operators to challenge breaches of the rules. “When an operator has a complaint, the means of raising it is cumbersome, protracted and complicated,” said McNamara. “The process needs to be simplified and the rules need to be consistently applied across Europe if distortions in the market are to be avoided.”

Meanwhile, Airports Council International-Europe welcomed what it called “fresh clarity” on the new EU rules, but it also expressed concern over their “medium-term impact” on regional airports and connectivity. “Today, European airports are operating in a highly competitive market, yet smaller airports are structurally unable to sustain themselves,” it said in a statement. “This is due to a combination of high fixed costs, limited access to non-aeronautical (commercial) revenues and lower yields compared to larger airports. As a result, clearer rules have long been needed to allow these airports to receive support where really necessary – particularly given it was widely acknowledged that the preceding guidelines could not be enforced effectively.”