Charleroi, a grimy, working-class town in southwest Belgium, was big in the Industrial Revolution. Its mines once churned out 10 million tons of coal a year. All that's left of that heyday are 62 slag heaps. Even covered in grass, they're not what you'd call a tourist attraction. Yet approximately 2 million people a year come to this forgettable place — thanks to a revolution in Europe's airline industry. In 2000, Irish discount flyer Ryanair agreed to make an international hub of Charleroi's airport, when the town shaved standard landing charges from €7 to €1 per passenger and provided money for training and marketing. Though few visitors linger long before flying elsewhere or taking the 46-km bus trip north to Brussels, the Ryanair traffic created 1,800 jobs and breathed €40 million a year into the local economy, according to the Walloon regional government that owns the airport. But a European Commission ruling could clip Ryanair's wings and bring Charleroi's renaissance to an abrupt end.

Discounts of the kind offered to Ryanair are an industry commonplace that have helped the €3.6 billion European discount-airline business — and out-of-the-way airports — take off. But none of its rival airlines have had the clout to strike the bargains Ryanair has. If an airport is privately owned, discounts are not an issue. But since Charleroi is state-owned, the E.U. must decide whether the deal with Ryanair amounts to a breach of its rules on subsidies and set a code for all future deals. As much as 18% of Ryanair's business — the flyer had 2002 revenues of €843 million — depends on deals with state-owned airports. If the Commission comes down hard, Ryanair could either be forced to withdraw from those airports, particularly in France and Spain, or pay more. That could cut its operating margins from the present 30% or so to less than 20%, says Joe Gill, head of equity research at Dublin-based Goodbody Stockbrokers.

404 Not Found

---

nginx/1.14.0 (Ubuntu) Michael O'Leary, Ryanair's rambunctious CEO, claimed last week that the Commission, after a yearlong investigation, has already decided that the company's 15-year deal with Charleroi is illegal. He vowed that, pending an appeal, Ryanair would quit Charleroi, saying the decision "will benefit only one group: high-cost airlines and airports," and that the ruling was a "death sentence" for the low-cost model in Europe. But even in an industry where hot air is used to keep business aloft, O'Leary's words seem mostly designed to put last-minute pressure on the Commission. European Union transport spokesman Gilles Gantelet insists no decision has been reached, though it seems clear the Commission is weighing the sentence rather than the verdict. The big question, says Gantelet, is: "If we find certain parts of their arrangement to be illegal, how much will we ask them to reimburse?" According to E.U. figures, that could amount to €21 million — the net value of subsidies paid by Charleroi to Ryanair in 2001 and 2002. Worse could follow if the judgment leads to court actions over Ryanair's deals in France and elsewhere.

That outcome would be sweet revenge for Europe's battered traditional carriers like Air France and British Airways, who have seen their own businesses eaten away by the discounters. And if O'Leary's charge that Charleroi offered rivals Virgin Express and easyJet similar deals was an appeal for low-cost solidarity, the two airlines were having none of it. Both concentrate on major airports in major cities where the pickings are not so sweet, though O'Leary predicted that the deal easyJet announced two weeks ago for a new 11-route base at Berlin's Schönefeld Airport would also fall foul of the forthcoming judgment. Toby Nicol, easyJet's head of corporate affairs, dismisses that prospect: "What Michael is trying do is take a problem which is his and try and pretend that other low-cost airlines will be affected." If Ryanair quits Charleroi, says Will Whitehorn, Virgin's spokesman, "we'll fill our boots at Charleroi without requiring any subsidy at all."

"In the short term things could be quite messy, but none of this is going to destroy the Ryanair model," says Goodbody researcher Gill. Ryanair's six-monthly figures announced two weeks ago showed a 45% leap in passengers and 16% in profits. That success is due less to subsidies than to relentless cost control. Now the company is eyeing expensive trunk routes like Milan/Rome and Barcelona/Madrid, where the major airlines rule the roost. So don't put Ryanair on the slag heap just yet. The European Commission may make all discount airlines play by the same rules, but it hardly wants to ground them.

• MICHAEL BRUNTON
• An E.U. ruling could clip Ryanair's wings