Oslo Rygge: life after death?

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Oslo Rygge Airport

Oslo Rygge Airport is a success story with a tragic ending
Opinion by Hans Jørgen Elnæs

Political decisions have their tolls, as it was for Oslo Rygge Airport, located 60 kilometres south of Oslo, for which it paid the ultimate price.

Norway’s politicians are known to be hard-headed towards airlines and have been seeking ways to curb passenger volumes travelling on domestic and international flights with taxation and high targets on cutting emissions from planes flying in Norwegian airspace.

Trains, buses (electric), cars (electric) and ships (electric) are to be used to get around the country, say the politicians. Later also planes will be electric with zero emissions, they predict.

Rygge was used only by the air force and served as a NATO airbase, but on October 17, 2007, the first civil commercial route departed – a Norwegian flight bound for the Canary Islands.

Trouble arose for newly opened airport as the Department of Transportation limited the number of passengers travelling to and from it to a maximum of 774,000 a year, making it very complicated for private investors funding the airport – Olav Thon Gruppen, Orkla ASA, Borregaard Industrier Ltd, Østfold Fylkeskommune and Østfold energi AS – to make a profit.

They had invested NOK 1 billion (€100 million) in building and developing civil airport facilities.

The primary reason behind the capacity cap was to protect airport operator Avinor and Oslo’s main Gardermoen Airport from traffic and passengers leaking down to Rygge.

Though the left-wing government led by Jens Stoltenberg (currently NATO secretary general) removed the limit on passengers in 2009, it kept the maximum number of aircraft movements at 15,000 a year.

Ryanair moves in
On September 30, 2009, Irish low-cost airline Ryanair commenced its first flight from Rygge and within two months it had opened another seven new routes from the airport.

Ryanair was a great success and by offering very low fares on routes from Rygge, traffic volumes quickly soared and in 2011 total traffic reached 1,667,000 passengers, surpassing the nearby competing airport Oslo Torp, located on the west side of the Oslofjord, which reached 1,350,000.

Norwegian moved out from Rygge in 2011 after Ryanair rapidly increased its operations.
The reason behind the strong growth at Rygge was Ryanair establishing a base with four Boeing 737s.

Passenger numbers continued to climb, peaked at 1,900,000 in 2013. Fuelling this, Rygge was ranked in 2013 to offer the lowest priced tickets of any airport in Scandinavia, and third lowest in Europe.

This is the definition of the ‘Ryanair effect’: the low-cost giant moves into secondary airports and by offering a number of routes with very low fares and attractive destinations, the market quickly responds.

Turbulence ahead
The success of Ryanair basing aircraft, pilots and crew at Rygge triggered interest by trade unions in Norway, in particular the fact that all staff were employed on Irish contracts, terms and conditions while based in Norway.

The unions went on the warpath against Ryanair with massive pressure in the media and lobbying towards politicians and regulators to try to force the airline to accept having its staff employed under Norwegian contracts, terms and conditions.

But Ryanair never yielded and maintained its position.

In November 2015, Norway’s coalition government agreed on a new air passenger tax, NOK 80 (€8) per passenger, to be applied from 2016. The idea was to reduce travel with airlines on both domestic and international flights.

The tax was heavily opposed by the airlines, and with Ryanair out in front of the airline industry.

During a meeting in December 2015 between Minister of Finance Siv Jensen and Ryanair’s Chief Commercial Officer David O’Brien, he warned that Ryanair would close down its Rygge base and move the four 737s to other airports in Europe if the new tax came into force.

The new tax would not be possible to add on top of the ticket fare, making the airline’s only option to absorb the tax, with an annual price-tag of €7.5 million.

From January to May 2016, a media battle between the government and Ryanair involved a number of politicians, including Prime Minister Erna Solberg. Not to forget the grand involvement by the Norwegian people, the majority of whom were not in favour of the new tax.

End of an airport
On June 1, Ryanair called a press conference in Oslo on the same day the new passenger tax was implemented.

O’Brien informed the media that Ryanair would shut down its base at Rygge on October 30, 2016, and that all aircraft, pilots and crew would be relocated to other bases in Europe.

Ryanair would continue to fly to and from Rygge but without basing planes there, under a reduced route program that would cut the number of passengers per year from 1,300,000 to 500,000.

Due to the reduced passenger numbers, the airport’s owners decided to close operations and lay off all 500 staff, effective October 30.

This news created widespread frustration among the people of Norway and the air passenger tax went into the history books as one of the most controversial taxes ever imposed in Norway.

On October 29 at 21:21, the last commercial flight departed from Rygge, Ryanair route FR8591 to Wroclaw in Poland, after making the final honour to the airport. On October 30 Rygge Airport was closed down for commercial operations and all staff were laid off.

Life after death?
Shortly after Rygge was closed, a group of investors by the name of Rygge Airport AS surfaced with the intention of reopening it, creating a lot of noise in the media and positive vibrations among many of the laid-off employees.

Ambitions were high but realities did not follow suit and the owners of the airport did not give their support to this group.

Behind the scenes a private equity company approached the owners, Jotunfjell Partners AS, a company already involved in airports by running tax-free sales at the airports Oslo Torp and Stockholm Skavsta, and which had also run tax-free stores at Rygge.

Negotiations have been ongoing during 2017 and Jotunfjell succeeded in negotiating deals with the previous airport owners and the air force resulting in it recently confirming it had taken over the terminal and parking buildings on the civilian side.

A deal with the air force on airport operations was signed, securing a limited cost to keep the airport in operational status to handle commercial flights.

The plan is to have Rygge ready for commencing commercial operations from April 1, 2019.

Will Ryanair return to Rygge – and can the politicians get Rygge closed down again?
Jotunfjell, the new owner, has stated there is only one airline that can make a business case at Rygge profitable – Ryanair.

It is the only airline with the capacity and technology to drive volumes to the minimum 700,000 passengers a year in a short period of time – the volume needed to make the business case work.

One key item in the business plan is tax-free shopping, as Jotunfjell Partners AS has based much of its revenue to come from Norwegians’ and foreigners’ interest in purchasing reasonably priced tax-free goods at Rygge.

However, the politicians may make a ‘new Rygge’ short lived, as plans are in an early phase to have the state-owned national alcohol monopolist Vinmonopolet to take over all tax-free sales at airports in Norway from 2022.

If this tax-free law is passed in the parliament, it’s the end of the story at Rygge in 2022, even if Ryanair re-enters in 2019.

May the force be with Rygge and Jotunfjell Partners AS. It’s a tough life being a privately owned airport in Norway.

Hans Jørgen Elnæs is an independent aviation advisor, analyst and executive and expert on commercial aviation and market intelligence.

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