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George Kerevan: Fly in the ointment who puts passengers first

Michael O'Leary of Ryanair - a fly in the ointment? Picture: Getty

Michael O'Leary of Ryanair - a fly in the ointment? Picture: Getty

Often cast as the villain of the piece, Michael O’Leary’s stubborn stance could result in a transatlantic bonus for Scots, writes George Kerevan

MICHAEL Kevin O’Leary of Ryanair is many things. A showman who often contradicts himself. A martinet whose abrasiveness towards others frequently lands him in legal hot water. A risk-taker and (metaphorical) brawler in the best Irish tradition – he owns a racehorse called War of Attrition. Above all, O’Leary is a demon entrepreneur who has turned the world of air travel upside down, to the benefit of the fare-paying public as well as his shareholders.

This week Michael O’Leary is in big trouble – again. He is at war with Edinburgh airport, whose largest shareholder is the privately-owned Spanish infrastructure conglomerate, Ferrovial. If you only read the headlines, the story is that O’Leary has axed five Ryanair summer routes from the Scottish capital and is threatening to halve the winter service (with a potential loss of 300 local jobs) in a dispute over the landing fees charged by the airport.

There does seem to be an element of bluff in Mr O’Leary’s threats (as usual). The figure for job losses is O’Leary’s own guess at what the airport itself, allied ground handling firms and the Edinburgh tourist industry might lose from any Ryanair cutbacks. I suspect this is a back-of-the-envelope calculation designed to capture press and political attention, not a genuine number. It also seems to be the case that some of the scheduled routes O’Leary says he will cull don’t actually operate from Edinburgh.

However, all this is beside the point. Michael O’Leary is not planning a reduction in Edinburgh services, he is playing poker with Ferrovial and its BAA subsidiary that currently owns six UK airports, including and Heathrow. In this gladiatorial contest, never forget that Michael O’Leary is on the side of the angels and the passengers.

Ferrovial bought BAA, and with it an effective monopoly of the major UK airports, including Edinburgh, in 2006 for £10.3bn. It borrowed the cash at a time (pre-credit crunch and euro crisis) when Spanish banks were lending money to local companies as if they were printing it, which is a sense they were. After the deal, Ferrovial’s total debt was a staggering £22bn. BAA was itself in heavy debt as a result of massive investment in new shopping malls, otherwise known as terminals. All of which indicated Ferrovial/BAA would need to raise landing fees and ramp up profits from airport retailing in order to pay interest charges.

Landing charges at UK airports are independently regulated by the Civil Aviation Authority (CAA), supposedly in the interests of the passenger. But in 2008, the CAA approved massive increases in Ferrovial/BAA’s landing fees because it was worried about the company’s heavy debts.

O’Leary responded in characteristic style. He said he hoped the take-over of BAA by a foreign company would increase political pressure to split up the ownership of UK airports in order to encourage competition between airports (and hence lower fees). “It doesn’t matter whether it is a British highwayman, a Spanish highwayman or an American highwayman. You are still getting robbed and that won’t change until you break BAA’s monopoly up,” he argued.

Which is exactly what happened. After an inquiry by the Competition Commission, in 2009 Ferrovial/BAA was ordered to sell Gatwick, Stansted and either Edinburgh or Glasgow airports. Gatwick went first, which helped Ferrovial/BAA’s cash flow. But the Spanish company has dragged its feet on selling Stansted and Edinburgh/Glasgow. Last month, the courts forced its hand and BAA announced that Edinburgh would be the next up for disposal.

It is in Ferrovia/BAA’s interest to ensure Edinburgh airport’s revenue stream is maximised before the sale. And since any buyer wants their money back quickly, expect the new owner also to have an interest in squeezing more revenue from the airlines – which means dearer tickets. This is what worries Michael O’Leary and why he is playing hard ball over airport charges. Good for him.

Scotland has been here before. When Ferrovial sold Gatwick, the new owners, Global Infrastructure Partners (GIP), a US private equity firm, applied successfully to the CAA to raise landing charges. They went up a whopping 15.7 per cent for regional operators serving airports such as Inverness. This threatened connections with the north of Scotland. As a result, Highland Council has launched a campaign to defend Inverness airport.

Airlines are not an industry for the faint of heart. Who would want to run a business with high entry costs, volatile fuel prices, ever-increasing regulation, massive competition, and the constant threat of terrorism. It has been estimated that since the birth of passenger airlines the entire global airline business has made a net loss. Only a gambler like O’Leary thrives in this environment.

Brash Michael O’Leary brought low cost airlines to Europe and effectively created a new continent. In his own words: “Ryanair is responsible for the integration of Europe by bringing lots of different cultures to the beaches of Spain, Greece and Italy, where they couple and copulate in the interests of pan-European peace.”

He’s not intent on stopping there. Ryanair has plans to extend its low-cost model to the transatlantic market, with seats as cheap as ten euros. Only the long queue to purchase long-haul aircraft from Airbus and Boeing is holding O’Leary back.

Rather than bash Michael O’Leary for giving folk access to cheap international travel, why not encourage him to run his new transatlantic business from Prestwick, which needs a rationale for existence. At the same time, provide US customs and emigration clearance at Prestwick, so Ryanair’s ‘ten euro’ flights can land at domestic East Coast terminals rather than expensive international ones.

Finally, give Prestwick the same right as Northern Ireland airports have to charge a £12 passenger duty on flights to America instead of £60. Chocks away!

 

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