Wednesday, July 04, 2012

The Ryanair Crisis - What's the Real Story?

Back on Thursday June 28th Ryanair announced it was going to cut  a number of flights to Morocco. According to the airline's website the reason was a dispute over airport charges flights in row over charges. The carrier claimed the Moroccan government’s airports authority ONDA had “reneged” on an agreement “by imposing a new monopoly handling company on Ryanair which would have resulted in a massive increase in charges for the airline”.

Ryanair said it would cut a total of 34 weekly flights (adding up to 250,000 passengers per year) from October 1. Routes which will be cancelled include Stansted to Fez and Valencia to Marrakech, while flights between Luton and Marrakech will be reduced to twice weekly.

It is interesting to note that the move comes just days after it emerged that the Association of European Airlines had compiled a report alleging Ryanair has benefited from state subsidies worth hundreds of millions of euros. The AEA document reportedly alleges Ryanair would have lost €305 million (£250 million) in the last financial year without government support.

Ryanair reported a profit of €503 million (£406 million) in the 12 months to the end of March. The budget carrier’s chief executive Michael O’Leary denied the carrier received any state aid.

Ryanair Press Release


Ryanair, Europe’s only ultra low cost airline, today (28 June) announced the cancellation of 34 weekly flights (250,000 annual passengers) to/from Morocco because ONDA, the Moroccan Govt’s airports authority, has reneged on its agreement with the airline by imposing a new monopoly handling company on Ryanair which would have resulted in a massive increase in charges for the airline. ONDA has refused to guarantee Ryanair the continuation of the cost levels of its original agreement. Consequently, Ryanair has no alternative but to announce substantial reductions to its flight programme to Moroccan airports which will include reductions of 8 weekly frequencies at Nador, 6 at Fez, 8 at Marrakesh, 4 at Tangier and the complete closure of its operation at Oujda Airport (8 weekly frequencies).

Announcing the reductions, Ryanair’s Deputy Chief Executive, Michael Cawley said;

“Ryanair entered into long term agreements with the Moroccan Tourism Authority and ONDA, as part of the Moroccan Govt’s 5 year plan to grow tourism. Ryanair has spectacularly over-delivered on all its undertakings under these agreements, becoming Morocco’s second largest airline and ensuring the Moroccan Govt achieved its 5 year targets within an earlier timescale. It is regrettable that ONDA has now lost sight of the key to the success of our partnership, offering low fares based on low costs. Ryanair cannot accept cost increases as it seeks to deliver more growth to Morocco. It is completely unacceptable for ONDA to increase the cost of Ryanair’s operation in Morocco and unrealistic for them to expect us to continue to grow our business in that context.

Consequently I regret to announce that we are making these substantial reductions which will result in up to 100,000 less tourists annually and an annual loss in tourism expenditure and job losses for the Moroccan economy of €50m. Ryanair will now allocate this capacity elsewhere to the many markets earnestly seeking Ryanair’s growth and that are offering long term, sustainable cost bases to underpin Ryanair’s guaranteed low fares. ”

Following the Press Release issued Ryanair the Moroccan National Airport countered with a statement they said was a matter of "clarification".

ONDA Press Release

There is no monopoly of handling in Morocco and has been since 2004, when the liberalization process of handling the activity began. In this context, relations ONDA / Handlers are governed by the laws and regulations that set the conditions for providing ground handling services. The exercise of these benefits are provided under market objects international tender launched by ONDA.

The open tender for selection and international operators handling culminated in 2012 with the selection of two operators, reference and international dimension.

The purpose of this strategic restructuring of the handling activity revolves around three main principles:
- The Establishment of competition at all airports: There is indeed today: two handlers in North and South 2 (RAM Handling and Swissport), and 3 handlers in Casablanca (Globalia RAM Handling and Swissport );
- The establishment of an optimum quality of service meets the highest international standards and measured by specific indicators;
- Improving the financial attractiveness, guaranteeing for airlines ground handling services at all price ceilings and very competitive in the concession agreement between the ONDA and handlers;

The pricing of handling services are not the responsibility of the ONDA who has no authority to interfere in trade negotiations between airlines and handlers. As mentioned in the point above, only a price ceiling may be fixed in order to secure the airlines.

ONDA has always been a major player in support of Government policies to assist and encourage airlines to serve Moroccan platforms, through the best quality and cost. Indeed, apart from the incentives granted since 2007 and have been extended until the end of 2013, the latest revision of the grid incentive tariff has increased significantly the attractiveness of Moroccan airports, which measures the low cost airlines are among the main beneficiaries, because of the nature of their traffic.

ONDA invites all airlines continue to be part of the regulatory process initiated by the Moroccan government as part of its policy of liberalization of ground handling activities while improving the quality of service worked with passengers.

Cancelled Routes
The following flights have been cancelled effective October 1st.
Nador - Girona 4 flights
Nador - Madrid 4 flights
Oujda – Marseille 4 flights
Oujda – Brussels Charleroi 4 flights
Fez – London Stansted 4 flights
Marrakesh - Valencia 6 flights

Route Reductions
As of October 1st weekly flights between the following destinations have been reduced to...
Tangier - Madrid 4 per week
Fez-Brussels-Charleroi 2 per week
Marrakech-London Luton 2 per week

Reaction in Morocco
This is not the first time that Ryanair have arm wrestled with the Moroccan authorities over pricing. The last time the flights from Britain were cut the economic impact on tourism was serious. However, this time local tourism operators appear to be more sanguine.  One reason for this appears to because from October on the number of tourist drops naturally due to the low season in Morocco and the ski season in Europe.

Guesthouse owners have been carrying on a lively discussion via Facebook with one contributor saying that the "Moroccan authorities need to do whatever they can to keep Ryanair onboard, legal or non-legal, cos there's nothing to replace them and it will have a devastating affect on the economy of Fes."

Others think that this is a game of brinkmanship and that Morocco will be the first to blink because like it or not, they need Ryanair. As another contributor suggested, "Ryanair won't take off any route thats making a profit..the last time it happened it was reported the dispute was about the cost of landing planes in Fes...And why would the ONDA be extending Fes airport? And also the speculation last year that Ryanair were going to base themselves at the new airport in Fes."

There is a lot of negotiating still to be done and what we see now may only be the first ambit claims in a much longer game. As they say - watch this space.

And a footnote
Sensing an window of opportunity, the airport Montpellier-Méditerranée has announced that the Air Arabia Morocco will increase the frequency of its flights to Casablanca,  Fez and Nador.

This increase is already effective for online bookings from Montpellier - Fez: since May 21, a third flight was added every Friday, in addition to flights on Wednesdays and Saturdays.

From July, Nador benefits from a third flight on Friday in addition to flights already scheduled on Tuesdays and Fridays.

Finally, Casablanca is now connected four times a week, Tuesday, Wednesday, Friday and Saturday.

The fare to these destinations are offered from 69 € one way.


No comments: