By invitation: Roman from AirObserver on Airport privatization in Spain. What impact for Ryanair?

From today Roman from AirObserver is going to be guestblogging in this blog.

Roman runs AirObserver, a blog which covers airline news and especially European low cost market. He cooperates  in Airpanorama project, a barometer which aims to offer the easiest way to compare most European low cost airline traffic figures.

He is also the author of an e-note about Ryanair business model.

Here is his first post in this space. Enjoy!

Airport privatization in Spain: What impact for Ryanair?

Spain's Prime Minister José Luis Rodríguez Zapatero has recently declared that his government plans to privatize 49% of AENA, the public authority in charge of Spanish airports. This privatization will start with two major airports in Spain: El Prat and Bajajas (other airports will come). Thus, probably in the hope to reduce public expenditure and to a certain extent, to improve airports management. Indeed, Zapatero’s government, who leads a struggling Spanish economy, hopes that the privatization would generate €9 billion.

A private management could impact Ryanair’s revenues:

In Spain, as all over Europe, Ryanair is massively subsidised. What I noticed in France is that each airport which gives money to Ryanair is actually managed by regional public bodies. Most of regional airports that are giving money to Ryanair are loss-making airports. Indeed, Ryanair always deals in the same way no matter the country: it brings in passengers, in return of important subsidies and free or lower airport fees. Consequently, small airport have more costs than revenues.

Moreover, most of the time, the airport also has to hire, train, and pay all the required ground personnel. If you take this into account, you’ll understand why it might not be that profitable. However, when they realise that they are no longer able to deal with these high costs, it is too late, as the Irish airline doesn’t allow for contract changes.

My point here is that this kind of deal is only possible thanks to public support. Without public support, the airport won’t be able to survive, and would not agree to such deal. A private airport will only focus on revenues. In the light of this, we can conclude that, if the Spanish government decides to extend the privatisation movement to other small regional airports, the type of deals that Ryanair was able to conclude until now won’t be possible any more. Newly privatized airports will look at revenues first and not hypothetical future tourism revenues.

Airlines such as Vueling and Spanair have already given their support to this privatization, however full details have not been disclosed yet. Cataluña government for instance is waiting more detailed precisions from the Spanish government and Zapatero's still has to find potential investors.