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Ryanair takes on `evil empire'

A Ryanair jet sits on the tarmac at Belgium's Charleroi airport on Tuesday, as the European Commission ruled that the airline has to repay a part of an incentive package. PHOTO: EPA

Ryanair on Tuesday launched a fierce fightback against the European Commission's punitive ruling over its deal with Belgium's Charleroi airport, branding it a decision by an "evil empire" that would be overturned on appeal.

The Irish low-cost carrier's chief executive, Michael O'Leary, said he would ask the European court for an immediate stay of the ruling pending a full appeal.

The decision of the transport commissioner, Loyola de Palacio, capped a dreadful week for the airline, which on Tuesday revealed that load factors on its aircraft had fallen from 76 percent to 71 percent during this month.

Analysts on Tuesday raised fresh questions over whether the Irish carrier's business model would last in the long term. Industry experts insisted that although the ruling had implications on other airlines, it did not represent the death knell for low-cost travel that had been feared in some quarters.

The commission's ruling required Ryanair to pay back some 4 million euros (US$5 million) of an incentive package received from Charleroi. O'Leary dismissed this as "small change," boasting that his company had some ?860 million (US$1.58 billion) in the bank to cover it.

According to the judgment, Ryanair's controversial benefits from Charleroi included 1.92 million euros (US$2.41 million) in subsidies to launch new routes, 768,000 euros for pilot training, 250,000 euros toward hotel costs and a landing charge of only 1 euro per passenger, compared to the standard rate of 8 euros to 13 euros.

De Palacio ruled that because Charleroi is owned by the Wallonian regional government, much of the aid constituted an illegal state subsidy.

O'Leary described the decision as "unfair, bizarre, wrong, backward-looking, anti-competitive and very damaging."

"The European Commission are the bad guys. They're the evil empire if this is the decision they come up with," he said.

However, Ryanair's shares rallied by 6.5 percent -- up 0.3 euros to 4.96 euros -- as investors judged that the outcome had stopped short of their worst fears.

Dominic Edridge, a transport analyst at Commerzbank, said he expected the ruling to cause Ryanair's margins to "tick down."

But he played down the effect on the principle of low-cost travel: "Yes, there's an impact but is there really a lot in there that people can't fix?"

The European Low Fares Airline Association, which represents nine low-cost carriers, criticized a lack of consultation by the commission which it said had "resulted in much uncertainty."

However, the Association of European Airlines (AEA), which looks after traditional carriers such as British Airways and Air France, said it was a reality check for budget airlines flying to obscure out-of-town airports.

The AEA's secretary-general, Ulrich Schulte-Strathaus, said: "Are we expected to believe that there is a natural market at Charleroi that can support three Boeing 737 services a day to London, and two a day at Venice? The Charleroi routes only make economic sense if, firstly, they are represented as serving Brussels and, secondly, they are supported by subsidies."

EU sources say that O'Leary's aggressive style of lobbying worked against him, alienating commissioners who would otherwise have supported him.

Ryanair's upfront style will land it in more hot water today. The Advertising Standards Authority will reprimand the airline over an advertisement published in the Daily Telegraph just before bonfire night which trumpeted "Fawking great offers!" and was surrounded by pictures of fireworks exploding.

Meanwhile, the Irish authorities are understood to be looking into the sale of shares in Ryanair by two of the airline founder's sons, which occurred roughly two weeks before the company warned on profits.

Two of Tony Ryan's sons -- Shane and Cathal -- sold 6.4 million shares in the middle of last month, just before the company warned that if trends in fares continued its net profit for the year to end-March would fall by about 10 percent.

That profit warning saw the company's shares lose more than a quarter of their value.

The Irish Stock Exchange investigates any share dealings in the weeks preceding a profit warning as a matter of course.

Neither Shane nor Cathal is a director of the company, although the latter is a former non-executive.

A spokeswoman for the Ryan family said she believed the inquiry was nothing more than the run-of-the-mill investigation that takes place after any profit warning.

Shane and Cathal are believed to have sold their shares at roughly 6.90 euros each. After Tuesday's EU ruling over Charleroi airport, the shares closed in Dublin at 4.90 euros.
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