Scrutineer: Air-to-ground missile strike

Published on Monday 17 August 2009 21:54

Ryanair 3.06 -0.06

RYANAIR boss Michael O'Leary is a natural populist who is seldom averse to playing hardball with rival airlines or airport operators when he deems it politic.

The budget airline played the macho card yesterday. The drama involving flights at Manchester airport, with its major implication for jobs, seemed not a thousand miles shy of emotional blackmail.

Annoyed at the airport's refusal to cut its charges to reflect the lower fares being paid by passengers in the recession, Ryanair said it would switch or close nine of its ten Manchester routes to lower cost regional airports.

In the past O'Leary has been most associated with vitriolic attacks on the airports semi-monopoly of BAA (now owned by the Spanish group Ferrovial).

Yesterday Ryanair also showed it was prepared to use its muscle with a single-airport business as well.

There is likely to be a human cost asso-ciated with the Manchester decision. Ryanair reckons its decision will cost 600 local jobs, split evenly between the airport and supporting businesses from the surrounding area.

The move will result in the loss of 44 weekly Manchester flights and 600,000 passengers a year.

Industry rule of thumb, the airline says, is that every million passengers a year gained or lost by an airport equates to 1,000 jobs gained or lost.

In addition, the airline claims Manchester airport's intransigence on costs has also put the kibosh on 400 new jobs that would have been created by an extra 28 weekly flights that Ryanair had offered.

In a recession, this sort of jobs-battering is akin to accusing Manchester airport of having cloven hoofs.

The airport responds that it does not believe airport charges as low as 3 per passenger are unreasonable, particularly as it is also fighting the economic downturn and extra security costs, as all airports are.

Ryanair, which has its own legitimate trading challenges that sparked a profits warning last month, has shown before that it will use the I'm-leaving-this-place-on-a-jet-plane strategy strongly when it considers its interests threatened.

There was a swingeing 20 per cent cut to its winter schedule at Dublin airport – also last month – and similar cuts at Stansted.

Both sides battle for the public relations high ground when such combativeness takes centre-stage.

But the truth is the airline industry is in the same dire straits as the likes of car manufacturing and steel at present (check British Airways for guidance as to the degree of turbulence).

Everybody is having to cut costs, and everybody is trying to pass on some of the pain.

Banking

THE European Commission is already investigating the extent of state aid to Lloyds Banking Group and Royal Bank of Scotland. There is speculation as to which assets both banks may have to sell to satisfy the European regulators that the so-called level playing field hasn't been churned up.

Now Britain's building societies have complained to the European Commission that Northern Rock – which has no real assets to sell – should still suffer financial penalties for the tailwind state-owned Rock has in the competition field.

The Building Societies Association (BSA) is particularly concerned at the government-backed restructuring plan for Rock.

This involves the former mutual splitting itself into a "good" bank and "bad" bank. The former would be an operating company made up of the Rock's deposits and lending activities.

The bad bank would be a new asset company containing the Rock's mortgage book, which has been badly scarred by bad debts and negative equity.

The BSA has told the European Commission that allowing the bank to lend without the burden of bad loans would give it an unfair advantage.

It is difficult to argue with. It would be the same with any bank allowed to put its problems to one side while it goes head-to-head against competitors in other lending activities.

The BSA says a solution would be for the Rock to have to pay an annual premium to the government to cover the cost of setting up the bad bank.

The mutuals also want the removal of the government's guarantee on the Rock's retail and wholesale deposits as it says this skews the general market to obtain bank funding in its favour.

These are ticklish suggestions for the government, but they appear to be practical avenues to redress Rock's state-owned advantages.