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Europe's Ryanair Ordered to Return Millions of Dollars in Subsidies - 2004-02-03

European budget airline Ryanair has been ordered to pay back a portion of more than $18 million (15 million euros) in subsidies it received from a Belgian airport. The airline says the ruling is a disaster, but the reaction on stock markets indicates investors think the ruling could have been much worse.

The ruling from the European Commission orders Ryanair to pay back about 30 percent of the subsidies it received from Belgium's Charleroi Airport.

European Transportation Commissioner Loyola de Palacio says the airport charged Ryanair unfairly low handling fees for its flights, placing airlines that serve other airports at an unfair disadvantage.

"Ground handling tariffs were being applied that were rather special," she said. "One euro [$1.25] per passenger. Whereas the rate applied by Charleroi airport would normally be between eight and 10 euros."

The commission said Ryanair also received incentives to open new routes, and training and marketing help from the airport. But the commission said it considered extra income generated for the airport's shops and parking lots when deciding how much of the subsidies were unjustified.

Commissioner de Palacio said she hopes the ruling allowing Ryanair to keep most of the money will enable small airports and low-cost airlines to develop, as long as they play by fair rules.

"The decision today on Charleroi is a disaster for consumers," said Michael O'Leary, Chief Executive of Ryanair, echoing a different view. "You are going to pay higher fares. It is a disaster for publicly-owned airports because your hands are now tied behind your back. You can no longer compete with privately-owned airports. It is a disaster for European air travel generally."

Ryanair says it will appeal the ruling.

Financial markets appeared less concerned about the European Commission decision. The price of Ryanair stock went up when the decision was announced.

Mr. O'Leary and Ryanair revolutionized air travel in Europe in recent years by offering one-way fares for as little as little as $12. A large part of the airline's success came from choosing secondary airports in obscure European towns where it can operate more cheaply than it could at major airports.

Belgium's Charleroi airport, which is the subject of the ruling, is a perfect example, located 40 kilometers outside Brussels in a depressed region that has suffered high unemployment.

Rival, older airlines accused Ryanair of receiving unfair subsidies from such localities.

Analysts say the ruling can be seen as a guide for future contracts between low-cost airlines and small regional airports. Budget airlines in Europe have boomed in recent years, promoting tourism in areas that were not widely visited before.

For instance, Charleroi airport served about 1.8 million passengers in 2003, about seven times the number it served in 2000, before Ryanair operated there.