Guidelines on state aid to airports and airlines

In 2014 the EU published its guidelines on state aid to airports and airlines. It is tightening up the rules and regulations on state aid:  Guidelines on State aid to airports and airlines.

By John Stewart

 

We want to make the following points:

State aid to airports and airlines should be very limited indeed

There may be social and equity reasons for state aid in some very limited circumstances. For example in the UK, there may be a case for state aid to support services to the remote islands off the coast of Scotland. A service like this must fit under the definition of a Public Service Obligation (PSO) where: ‘part of the area potentially served by the airport would be, without the airport, isolated from the rest of the EU to an extent that would prejudge its social and economic development. Such an assessment should take due account of other modes of transport’. Such decisions should be reviewed regularly.

The presumption that aviation growth will help the economic regeneration of an area should cease

There is no proven connection between airport growth and improved connectivity. See the CE Delft Report HACAN commissioned and the press release. State aid should only be given to aviation after a full Cost Benefit Analysis including consideration of other transport modes and environmental harms.

It is risky for regions to base their economic development on aviation

When state aid is reduced or when a local government looks to exercise its right to tax the local airport, the airline benefiting from the low airport fees will threaten to pull-out entirely. Therefore, it would be unwise for regions to base their future economic development plans on subsidized services of aircraft operators who have highly movable assets and a long track record of exploiting the subsidies regime for their own ends.

The current system is being abused

Airlines are using subsidies to harm their competitors and boost profits. For example, Charleroi Airport is referred to as being in an economically depressed region but Ryanair’s subsidized operations there were never intended to serve the local community but to siphon traffic from Zaventem to Charleroi by offering cheap air fares subsidized by the local authorities through direct subsidies per passenger and reduced landing fees etc. Only proper oversight and control can justify a limited continuation of state aid.

The aviation industry, even without state aid, is heavily subsidized

A report from Transport & Environment estimated that VAT zero rating of airline tickets results in a revenue shortfall for Member States of about €10bn a year and the lack of fuel tax revenues is worth a further €20 to €32 billion to the industry.

  • The claims of the aviation industry that it, unlike rail, pays for its entire infrastructure are not true. An analysis by Transport & Environment gives the details.
  • The cost of the emissions, noise and airport pollution caused by aviation is
    costing the EU billions of euros.

We believe these reasons add up to a powerful argument to end state aid for economic reasons. If ever this situation is sorted out, state aid can be revisited but for now state aid to airports and airlines for economic reasons should end.