GDC Kiel airport fees low-cost carriers unlawful

13 November 2006

Dr Jörg Witting, Christian Schwedler

In a landmark decision on 8 August the German District Court of Kiel held that Ryanair received illegal subsidies from the small airport of Lübeck. This decision could present a blow to the business model of low-cost carriers in Germany, which regularly obtain low fees at smaller airports.

The decision is based on a claim brought by Air Berlin against the regional airport of Lübeck. The airline had to terminate its own Hamburg-London service because of the strong competition of the Ryanair-route from the nearby airport of Lübeck to Stansted near London. Air Berlin was not able to compete with the prices of Ryanair, as the Irish competitor only paid cut-rate airport fees in Lübeck. Relationships like this are not unusual between so-called low-cost carriers and small airports that try to boost their travel business. As a result, the airports incur losses which are compensated by the municipalities that own these airports. The judgment of Kiel now found that this practice presents unlawful state-aid and therefore does not comply with European law.

In the year 2003, Ryanair paid only half the airport fees that were usual in Lübeck, totalling to a discount of approx. €1 million. The District Court of Kiel has held that the fee regulation of the airport is not valid on basis of German civil law as it unduly discriminates against other airlines. Furthermore, the court considered that all the allowances the airport made to Ryanair since the year 2000 was illegal state aid and ordered the airport, on this basis, to disclose all respective allowances to enable the complainant, Air Berlin, to specify its claim for recovery of illegal state aid.

The court clearly followed the line of the German Federal Court according to which agreements containing illegal (i.e. non-notified) state aid are null and void. Furthermore, the court underlined its competence to take all necessary steps to protect the complainant from illegal state aid granted to its competitor Ryanair. As a consequence, it can be expected that the court will order the airport, in a second part of the proceeding, to recover the allowances in question granted to Ryanair.

The decision could have a significant impact on the low-cost carrier business in Germany. The cheap prices these airlines offer depend substantially on the cooperation with smaller airports and the advantageous conditions these airports agree on. Because of the importance and the landmark character of the decision, the airport of Lübeck is expected to lodge an appeal against the judgment.

The judgment of Kiel was not the first such decision in respect to the business model of Ryanair. In 2003 Ryanair was ordered to return illegal subsidies from the airport of Strasbourg in France. In the year 2004 Ryanair had to return three-quarters of the subsidies it received in Charleroi in Belgium. Now Ryanair has suffered the first set-back in Germany, too. The judgment of Kiel requires the German airports to treat all airlines equally, which counts to the disadvantage of low-cost carriers as well as of the smaller regional airports. In fact, it could present a significant change in the low-cost carrier business model and the role of small airports in Germany. Last but not least the judgment highlights the increasing importance of private enforcement in EU state aid law, encouraging undertakings affected by illegal state aid granted to their competitiors to seek protection not only by complaining before the EU Commission but also by initiating court proceedings under national German law.