State aid dilemma for Europe

 

Airport departure, copyright EU Audiovisual Service42 % of European airports remain loss making despite a significant amount of state aid and subsidies granted to many of them by local authorities or governments in Europe. Closure or bankruptcy of such airports would imminently have an adverse effect on local communities and regional business. But at the same time state aid has the potential to seriously distort the level playing field in European aviation. A new set of European rules hopes to find the balance between the two.

On 20 February, the European Commission published a set of rules for state aid to airlines and airports, introducing more flexibility on operating aid for small and regional airports during a ten-year transitional phase. The rules shed light on the “do’s and don’ts” for state aid and differentiate between airports in Europe, e.g.:

  • The rules establish a transitional period of 10 years to allow regional unprofitable airports to adjust to market developments. After this they will have to cover their own operating costs by adjusting to the market conditions (e.g.  applying adequate airport charges,  attracting new airlines).  
  • Connectivity remains ensured– although the transitional period is the ultimate deadline for lifting state aid, some airports will still be eligible to apply if they have an important role in improving the regional connectivity of isolated, remote or peripheral regions of the EU.
  • Airlines will be able to receive start-up aid covering 50% of airport charges for new destinations or new schedules on routes during a three-year period.
  • State aid rules could also apply to arrangements between airports and airlines. Public authorities are often directly or indirectly involved in attracting airlines through marketing support, rebates or incentive schemes with the objective of increasing the connectivity of a region.

All in all, the rules limit state aid in volume and time. Yet, as long as subsidies are used to pay for investments, cover operating losses and attract low cost or price-sensitive airlines, they will seriously distort competition. As the Commission itself recognises, this mix often works against innovative competitor airlines and airports which do not receive subsidies. Other stakeholders have already strongly criticized the rules calling people flying Ryanair to pay their own tickets. Such a distortion of competition is therefore a controversial issue. Applying these rules will reveal whether the EU has found the right formula to balance distortion of competition versus regional connectivity. 

Further reading: EU Commission Policy Brief