Europe Seeking to Reform Airport Subsidies

After many years of spending about $4 billion per year on subsidies to airports, the European Commission is seeking to reduce and reform this subsidy program. Within the EU are 460 nominally commercial airports, only about 15% of which are profitable. These are mostly the 15% that have been partially or fully privatized over the past two decades. Some 87% of the 460 airports get taxpayer subsidies, pretty much coinciding with being state-owned. Of the 460, 71 handle more than 5 million annual passengers. Another 33 handle between 3 and 5 million. Some 275 airports handle fewer than a million passengers a year, and 185 of those handle fewer than 200,000 a year.

The European Union has rules on state aid, which is not supposed to be used in ways that distort markets. But at least 60 airports are currently being investigated for breaking those rules, and legal loopholes abound. The Economist calls the overall array of regulations “cumbersome, inflexible, and unenforceable,” and even Ryanair CEO Michael O’Leary, whose airline has benefited extensively from subsidies to smaller regional airports, calls the current rules “lunatic” and has supported efforts to reform them.

The Commission last July proposed a significant overhaul and simplification. Airports with more than 5 million annual passengers (such as Ryanair base Charleroi in Belgium with 6.5 million annual passengers) would no longer get capital subsidies, on the grounds that such volume permits purely commercial finance. For smaller airports, the extent of aid will depend on passenger volume, with a higher fraction of capital costs eligible for subsidy at the smaller airports, and no capital subsidies for non-aeronautical facilities. And although operating subsidies are theoretically not allowed under current rules, they in fact are widespread. So the reform proposes to phase them out over a 10-year period, while restricting them to airports with less than 3 million annual passengers. The new rules would also permit airports under 3 million to give start-up aid to airlines for up to the first two years of new service.

The consultation period ended in October, and the final revised rules are due to be issued in the near future. Michael O’Leary, to many people’s surprise, calls them “terrific,” which may reflect his realization that the subsidization that has contributed to Ryanair’s success was not sustainable.

This article also appears in Robert Poole’s Airport Policy and Security News #97.