Low-fare flights under threat

THE future of cheap flights and regional airports was cast into doubt last night after low-fares airlines braced themselves for a forthcoming EU ruling.

In the first major setback to his airline's soaring success story, Ryanair boss Michael O'Leary saw €70 million wiped off his personal shareholding in the company yesterday.

As Ryanair's value plummeted by almost €1.5 billion, Dr Tony Ryan, the airline's founder, lost €18m as company shares fell 25% on the day, fuelled by a profit warning.

While the 10% drop in profits was attributed to increased competition, the EU ruling could make matters worse.

But the implications of the EU ruling on airport subsidies for low-cost operators go way beyond Ryanair and could affect the future of the cheap flight culture which has revolutionised airline travel.

The new uncertainty was reflected yesterday by Transport Minister Seamus Brennan, who warned the future of low-cost travel could be adversely affected by a European Commission ruling expected to go against Ryanair next Tuesday.

The commission has investigated complaints from a number of airports that the Belgian state-owned airport at Charleroi, about 40 minutes south of Brussels, reduced charges and ground handling fees for Ryanair in breach of EU competition rules.

Next Tuesday, the commission is expected to ask Ryanair to repay between €3m and €13m, according to leaked reports of the ruling.

Responding to the media reports, Mr O'Leary said he had seen a draft of the commission decision which he said could mean an end to low-fares air travel in Europe.

But Minister Brennan is also concerned that the decision due out next week could affect Aer Lingus and the country's regional airports.

Cork, Shannon, Knock and Kerry airports receive marketing support from the State, together with help towards office accommodation, he said.

The minister fears the commission will find this is against EU competition rules.

As president of the EU Transport Council he will raise his concerns with the other EU members.

"I am concerned about the broader implications for low-cost travel and about the possible effects on Aer Lingus and Irish regional airports," he said yesterday in Brussels.

The commission is also likely to investigate Ryanair's deals with other regional airports throughout Europe where they could also be forced to repay illegal subsidies.

Mr Brennan raised his concerns with Transport Commissioner Loyola de Palacio yesterday in Brussels.

"I explained my concerns at the reports I was hearing about the Ryanair ruling and that it may be detrimental to airlines and countries across the board," he said.

Department of Transport officials have already approached Aer Lingus to ask them for an assessment on the likely impact an adverse ruling would have on them.

Aer Lingus said yesterday it does not expect the ruling to have any direct impact on them but they will examine it carefully once it is published.

Ryanair's optimism failed to pacify economic analysts, however, who said the share price dip had caused huge unease in the markets.

Stock market experts were particularly angered because a block of €44m worth of shares was sold two weeks ago at €6.90 a full €2.40 above yesterday's close price.

The buyers have now seen over €11m wiped off their investment in just two weeks.

Brokers said yesterday the timing of the block sale was regrettable but not illegal. Davy Stockbrokers conducted the share sale.

In Dublin yesterday, various fund managers and stockbrokers alike expressed "shock and dismay" that €44m worth of shares could be off-loaded two weeks prior to a profit warning, which no-one in the stock market had foreseen.

Bloxham Stockbrokers' head of research Kevin McConnell said the profit alert was the "first chink in the Ryanair business model".

The "profit warning" from the group was the first time the market has placed a serious question mark over the Ryanair success story.