European State Aid: Passing-on relevant for the calculation of the financial advantage

In a recent judgment (T-500/12, Ryanair), the General Court specified the calculation of the financial advantage in European Staid Aid Law and confirmed the application of the so-called more economic approach in this area of EU Competition Law. The background to the judgment was the Irish air travel tax which provided for a levy of 10 Euros per passenger for flights from Irish airports with the exception of short-haul flights to a destination no more than 300 km from Dublin airport. The difference of 8 Euros was regarded by the EU Commission as an illegal aid in favour of the domestic airlines.

While the General Court  confirmed the Commission in the assumption of an incompatible staid aid, it annulled the recovery order. The Luxembourg judges did not approve the Commission’s calculation of the financial benefit simply by the nominal difference between the usual and reduced levy if the national legislation provided that the levy was ultimately to be passed on to the passengers. In calculating the actual benefit, the Commission must also take into account the extent to which the individual airlines used the lower charge to increase their ticket prices without tax (i. e. plus 8 Euros with full use of the difference). Only in that case was the benefit not ultimately passed on to the customers but remained solely with the airlines.

The judgment underlines that a precise analysis of the relevant market conditions is decisive in the subvention context, both for the public sector and for the participating companies. By taking account of the passing-on effect, the analysis is, as in the case of cartel damage claim context of passing-on effects, likely to become  more complex although. Still, one should not confuse that aspect with the question under with the actual of the aid on the competitive structure of the market.