Government-Ryanair war: facts and comments
Open clash between the government and Ryanair after the decision to put a stop to the flame in the prices of flights connecting Italy with Sicily and Sardinia. Roundabout of opinions from economists and industry experts
The clash between the government and the airlines unleashed by the provision, contained in the Asset decree-law , with which the executive intends to curb the upward race in air ticket prices, shows no sign of abating. The decree-law prepared by the government sets ceilings on the prices of airline tickets for flights to the islands.
THE LAW AGAINST AIRLINES REVENUE MANAGEMENT
The intentions of the Minister of Enterprises, Adolfo Urso (Fratelli d'Italia), is to put a stop to "revenue management", the policy which plans to vary the prices of goods or services in order to maximize profits. Ryanair's CEO not only threatened to leave our country, where the Irish company is worth over 50 million passengers , but he recalled that rules of this type go against European legislation. “If the expensive flights were instead due to cartels between the airlines – wrote the economist and transport expert, Andrea Giuricin, in the Foglio – it is clear that the Antitrust can already intervene without this decree-law”. In fact, it will not be easy for the Italian law to find a support in favor of Brussels.
THE (DECOMPOSED) REACTION OF RYANAIR'S NUMBER ONE
The reaction of Ryanair's number one was certainly very limited. Eddie Wilson not only declared that there is no cartel "Because he doesn't make cartels with incompetent companies" but he labeled the statements of the president of the Sicily region on the alleged cartel to keep the prices of flights to the island high as "rubbish" . “He could not and should not have intervened – he told Repubblica of the decree -. The decree, I don't understand where it comes from, is in stark contrast to the European Union regulation 1008 which leaves the companies free to set prices. This is why Europe will wipe out the Italian rules, guilty of interfering with the market”. Ryanair's CEO added that our country's operation reminds him of "The Soviet Union in 1927".
THE PRICE POLICIES OF LOW COST AIRLINES LIKE RYANAIR
ENAC President Pierluigi Di Palma applauded the government's initiative. "The government did very well to intervene on the cost of flights – said Di Palma -, we have been asking for it for some time, it was necessary to legislate to stop the explosion in prices". The ENAC president also accused low-cost airlines of speculating on natural disasters (such as the floods in Emilia-Romagna) by raising ticket prices when people are unable to use private cars or trains to get around. “Something went wrong in the low cost airlines system – said Di Palma -: first they practiced deceptive prices to attract filling up the planes which then stopped, the planes reached a capacity of 80/85 per cent, the Ryanair O'Neil's founder's strategy was then to sell the remaining tickets at bargain prices, advertising himself for free. Today, however, there are fewer air connections than in 2019 and more passengers, the planes are fuller and prices are exploding, what we were asking was not to reduce revenues, but to change the dynamics: maybe raise the prices a little by lowering the prices subsequent. It is not possible, for example, that with the interruption of the high-speed line, the Linate-Rome prices have shot up from 100 to 500 euros in a few hours”. Wilson's response is more than piqued: "It is irresponsible for a government agency to make these comments when it should be dealing with airline safety."
INTRIERI, THE AERONAUTICAL MANAGER AGAINST WILSON
These over the top utterances have sparked the indignation of Gaetano Intrieri, a professor at La Sapienza University and manager of Aeroitalia . “Wilson in the heat of his reasoning forgets or rather pretends to forget that Ryanair built his fortune on the incompetence of the management of Alitalia, today Ita – wrote Intrieri -, perhaps he still forgets how many times in recent years Michael O'Leary has literally taken by the backs of politicians and the like of this country, succeeding with an extraordinary lobbing job combined with an equally extraordinary ability to control Ryanair's internal processes to colonize the air travel of the entire country”. Intrieri also has a clear position on ticket price increases. “The tariffs have risen because they have deliberately decided that the time had come to raise them and O'Leary himself anticipated it last autumn – recalls prof. Intrieri -. Ryanair has always used a high variance value on the average fare making it a cornerstone of its sales strategy and has been able to do so also thanks to an obsessive method of direct sales to the final consumer. If it is true as it is true that selling a ticket for a 1-hour flight for 500 euros is an anomaly , it is equally true to sell a seat on that same flight for 10 euros. So I wonder how Wilson can claim the free market theory today, when Ryanair's revenue management department uses dumping policies on a daily basis and when they were the first to distort the market by getting paid generously by Italian airports which in turn financed themselves with large sums of money that Alitalia was forced to pay to land at those same airports?”.
IT'S THE MARKET, BEAUTY!
The aggressive dynamics of prices does not surprise, however, Paolo Rubino, former manager of Alitalia. “Europe is clogged with flights, high-speed rail has developed an impressive and efficient network – he writes -. The annual growth of low cost at an average rate of 15% per year has ended. The European medium-distance travel market is controlled by former low-cost airlines and railway companies. Only the naive can be surprised if, in times of high demand, the protagonists of transport raise prices to "exorbitant" levels. On the other hand, for those who profess to be liberal and laissez-faire, the concept of exorbitant prices should only come about when planes and trains remain half-empty. Today it is not like this, they are packed and it is hard to find a place. Minister Urso should be told: beauty is the law of supply and demand!”
THE PRIVILEGED CONDITIONS WHICH LOW COST AIRLINES ENJOY
According to Ugo Arrigo , professor of political economy at the University of Milan Bicocca and transport expert, low-cost airlines have little to complain about. “Low cost companies enjoy an absolutely privileged position. At peak times they make greater profits, as the difference between the high tariffs and the low costs with which they operate. This is possible because they receive subsidies from airport managers and from local bodies and institutions for the development of routes which, according to them, would not be economically sustainable and therefore would not be covered in the absence of public contributions", explained Arrigo to the newspaper La Verità . According to the newspaper founded and directed by Maurizio Belpietro, the low-cost companies would receive subsidies between 350 and 500 million a year. “ Who controls whether public contributions really go towards developing marginal routes – asks Professor Arrigo -? And, above all, who checks that the margins made on subsidized routes are not used to charge anti-competitive fares on unsubsidised and covered routes in competition with traditional carriers that do not enjoy equivalent benefits?”. Arrigo – former board member of Ita Airways – also puts forward a proposal that can help to add fairness to the economic logics that work on the determination of prices since those who are willing to pay more for airline tickets do not necessarily coincide with those who have more need. “Perhaps the companies could adopt a special, contained voluntary tariff, to be applied, for example, to those who have to move urgently for medical treatment, to assist a family member and similar cases – wrote the economist in the Subsidiary -. And if they don't do it on their own initiative, they could be induced through government moral suasion". It is much less useful, however, according to prof. Arrigo introduce mandatory tools and block the use of algorithms. “If fares on a certain destination are driven up by demand, then airlines will be induced to add flights and seats on that route, perhaps taking them off low-demand summer routes or by flying more aircraft and adding additional flights to the dawn or late in the evening, finally moving more capacious aircraft to these routes – he writes -. This adaptation could be done on domestic routes more easily by the flag carrier, which has a larger short- and medium-haul fleet."
THE “WAR ON THE ALGORITHM” COULD DO MORE HURT THAN GOOD FOR THE COMPETITION
Andrea Giuricin sul Foglio is also skeptical about the "war on the algorithm", which would risk not reducing competition with the removal of Ryanair. “Speaking of competition and the air market, the possible reduction of flights would not be good for the consumer, nor for workers in the sector, precisely when in the same omnibus decree the government decided to extend the extraordinary redundancy fund for Alitalia employees to payable by the taxpayer until the end of October 2024 – writes Giuricin -. It should be emphasized that the minister stated that in the context of the conversion into law by the Parliament of the dear flight decree, there could be changes to the text, to have some improvements”. Giuricin also has some suggestions to help increase competition for domestic and international flights from Italy. “First of all, the taxation of the sector could be reduced and in particular the municipal surcharge for the embarkation of passengers, which in some cases reaches up to 9 euros per passenger (i.e. more than 20 per cent of the average price of the ticket of a low cost) – it reads – . It could also be thought of introducing different legislation towards the islands for flights under public service obligations, with generalized discounts for residents as happens, for example, in Spain. In this way, demand would be pushed and the result would be to help residents in times of peak demand".
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/guerra-governo-ryanair-fatti-e-commenti/ on Sun, 13 Aug 2023 06:13:35 +0000.