Posted on: 27 July 2011 by Mark Howells
Ryanair has instructed its lawyers to file a complaint with both the CAA and Competition Commission in the UK, demanding that they revise the current price cap at Stansted to eliminate what Ryanair believes are monopoly abuses and overcharging of Stansted’s airlines over the past five years (2007-2011).
Ryanair chief executive Michael O’Leary noted that the Competition Commission, when coming to its latest recommendation that BAA should sell Stansted, had helped in getting the Regulatory Accounts for the airport into the public domain. Those figures, O’Leary commented, have confirmed what Ryanair believed about Stansted’s monopoly abuse.
O’Leary began by highlighting that during the period Stansted’s traffic fell by 24% from 24 million to 18.3 million (from 2007-2010, with this year’s figure expected to be around 17 million); airport charges doubled from €3.30 per passenger to €6.60 per passenger; and that Stansted’s costs rose by 16% from £155 million to £180 million, despite that 24% fall in traffic.
The case Ryanair has built provides examples of where the airline believes monopoly abuse by BAA Stansted has taken place against airlines and passengers using the airport over the past five years.
The first key point is that Ryanair believes that Stansted’s RAB (Regulatory Asset Base) of £1,250 million is overstated by £270 million of inflation adjustments. “While non-regulated companies depreciate their fixed assets, BAA Stansted inflates them by the retail price index (RPI) each year,” O’Leary remarked.
According to Ryanair, Stansted’s RAB is further overstated by at least £194.2 million, being the vast sums wasted by BAA Stansted on its (now abandoned) second runway project, including unnecessary blight costs, head office fees and charges. “These were costs which BAA Stansted was not obliged to incur, and which the Stansted airlines opposed,” O’Leary recalled. “If BAA Stansted chose to waste £200 million on a second runway project that doesn’t proceed, then Ferrovial and the BAA head office should write off these losses and not pass them on to Stansted’s airlines and passengers.
“And any company that has suffered a 30% decline in business over the past five years would respond by cutting its prices. Instead, BAA Stansted monopoly’s response has been to double its passenger charges, making Stansted Airport uncompetitive, but generating monopoly profits for the BAA,” O’Leary added. “When this is put to them they often claim that it’s the CAA which sets their charges, but what the CAA sets is simply the maximum.”
He then pointed out a number of airlines which have announced further route and traffic cuts at Stansted so far this year, including: Air Berlin (Hannover and Nuremburg); Astraeus/Iceland Express(Reykjavik); Air Asia X (Kuala Lumpur); Cyprus Airways (Larnaca & Paphos); easyJet (a 3 based aircraft switched to Southend); Ryanair itself with a winter schedule cut by 20%; Star One (Vilnius); Thomas Cook (Larnaca & Monastere); and Thomson (Bodrum, Monastere & Reus).
“There’s so much of BAA Stansted’s regulatory accounts which show inter-group padding which is unexplained,” O’Leary continued. “These unexplained costs being transferred to Stansted by BAA HQ and Heathrow inflate Stansted’s costs and lead to understatement of Stansted’s profits.
“BAA knows it’ll have to sell Stansted, so it’s inflating the airport’s RAB to drive up the price,” O’Leary stated. He then listed some examples of how Ryanair believes the process is being carried out.
“In 2008 a £28.4 million ‘intra-group cost’ was charged to BAA Stansted. These unexplained ‘intra-group costs’ have exceeded £70 million over the past four years, despite the fact that BAA Stansted is managed and run from Stansted Airport,” O’Leary began.
“Then there are ‘Other costs’ at Stansted, which trebled from £7.7 million in 2008 to £25.3 million in 2009 without any explanation. In 2010 these costs were explained as ‘a combination of supply chain initiatives and cost bundling, less marketing spend and reduced insurance premiums’. Can anybody tell me exactly what that means, because to me it’s gobbledegook,” he queried.
“Stansted’s ‘utility costs’ increased 80% from £13 million in 2009 to £23.4 million in 2010 due to a ‘revised allocation’ of electricity charges between Heathrow and Stansted. The BAA has failed to explain why Stansted’s electricity bill increased by 80% in 2010, even as Stansted’s traffic declined by 9%.
“In 2010 Stansted Airport suffered a £39m ‘exceptional charge’ which was referred to as ‘Stansted’s share of the actuarial deficit in the BAA Groups defined pension benefit scheme”. Stansted airlines and passengers shouldn’t be paying for this,” O’Leary declared.
“Finally, if Stansted’s expenditure of £155 million in 2007 had mirrored its traffic decline, and fallen by 24%, to 2011, then its total costs in 2011 would be £116 million and not £180 million. This indicates that Stansted’s current profitability is around £100 million a year, but the profits are being understated with these unexplained inter-group charges, revised cost allocations and exceptional charges from BAA Group and Heathrow,” he claimed.
“So we believe from Stansted’s regulatory accounts that airlines and passengers are being overcharged by at least £50 million a year. And as Ryanair accounts for 70% of Stansted’s traffic, Ryanair is being overcharged by at least £35 million a year. Ultimately, via the courts if necessary,“ O’Leary explained, “we want the airport charges brought down by £50 million a year and we’d look to get the money back that we have been overcharges, which at £35 million a year over five years is £175 million.
“It is a matter of great regret to the airlines at Stansted that three years after the Competition Commission first recommended the sale of Stansted, the BAA continues to delay and frustrate this sale. BAA is now considering whether to ask for judicial review of the Commission’s recent upholding of its 2008 recommendation. But even if the court orders a review it will just go back to the Competition Commission,” O’Leary exclaimed. “What’s more, if BAA goes for a judicial review, then we’ll enter this complaint we are now starting now as evidence. And that could affect the sale price of the airport.”
Asked if there was a possibility of “the nuclear option” of Ryanair leaving Stansted, O’Leary said no. “We can’t not serve the London market. And though BAA’s chief executive has said in interviews that we could go somewhere else, Heathrow and Gatwick are full and Luton is almost full, City is full and our aircraft cannot go there, and Southend – if you class it as a London airport – may have space but it’s runway is not long enough for our aircraft to take off with maximum payload.
“Remember too, that Stansted is the only London airport to have its passenger figures fall in the last five years. And 2007 had been the 15th year of consecutive traffic growth there. This with an airport that can handle approaching 40 million passengers a year,” he observed.
O’Leary confirmed that Ryanair has been approached some potential buyers of Stansted to discuss ideas on operations should a sale be made.
“The sooner Stansted is sold, the sooner it will be run efficiently to meet the needs of its low-fare airlines and enable them to stimulate traffic and tourism growth, to promote choice and competition. Competition can provide Stansted’s airlines and passengers with better service, at a fair price, whereas in recent years we have suffered atrocious service at rapacious prices, because in our opinion the BAA is an abusive monopoly and the CAA has been an incompetent regulator,” O’Leary concluded.
Bernie Baldwin, editor, Low-Fare & Regional Airlines/LARAnews.net