The next item on the agenda is a discussion with the Commission for Aviation Regulation. I welcome Mr. Cathal Guiomard, commissioner; Mr. John Spicer, head of economic affairs, and Mr. Kieran Baker, head of corporate affairs. I draw attention to the fact that while members of the committee have absolute privilege, this privilege does not apply to witnesses appearing before the committee. Members are also reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official, by name or in such a way as to make him or her identifiable. I call on the commissioner to make a presentation which will be followed by questions and answers. Is that agreed? Agreed.
Role and Functions: Discussion with Commission for Aviation Regulation
Mr. Cathal Guiomard
I thank the members of the committee for the invitation to engage with them. The commission welcomes the opportunity to do so at any time, whether personally, in writing or by appearance.
The commission was established by statute under the Aviation Regulation Act 2001 and assumed a number of functions previously performed by the Department of Public Enterprise, now in the main the Department of Transport. Certain other functions have since been assigned under EU legislation. The commission currently has seven functions: to determine the maximum level of airport charges at Dublin Airport; to determine the maximum level of certain charges levied by the Irish Aviation Authority at Shannon, Cork and Dublin Airports — air traffic control charges; to monitor and regulate slot allocation at Dublin Airport; to license all travel agents and tour operators in the State; to license all ground handlers and approve any changes in ground handling charges levied on them at Dublin, Cork or Shannon airports; to license Irish airlines; and to enforce certain air passenger rights under EU law.
A number of these functions are governed by EU legislation, for example, the licensing of airlines and ground handlers, enforcement of air passenger rights, and the scheduling regime at Dublin Airport. More recently, we have been pleased to be given the opportunity to advise the Department of Transport on the possible implications of a new EC airport charges directive which would relate to the setting of airport charges in the State and the European Union generally.
The commission is located in Alexandra House, Earlsfort Terrace, Dublin, and has a staffing complement of 21. Our annual expenditure varies, depending on where we are in the regulatory cycle, from approximately €3 million to approximately €4.5 million. Apart from staff and pay-related costs which will amount to less than €2 million this year, our principal expenditure relates to legal charges in defence of High Court challenges and, where necessary, the retention of external consultancy advice.
Given that the joint committee is dealing with economic regulatory affairs, it might be helpful if I elaborated on how the commission regulates airport charges at Dublin Airport. The methods used are similar to those used to regulate the charges levied by the Irish Aviation Authority at Cork, Dublin and Shannon airports. Under the 2001 Act, the commission initially set the maximum level of airport charges at the three airports by means of a five-year price cap set in advance. The State Airports Act 2004 which provided for the division of the former Aer Rianta into three State-owned companies removed Cork and Shannon airports from price regulation. The commission is now responsible for price regulation in respect of Dublin Airport only. It has three statutory objectives in setting the price cap — the efficient and economic development of Dublin Airport, the ability of the Dublin Airport Authority to operate in a financially viable manner and the protection of the interests of users and potential users of the airport.
The price cap regulatory regime is an example of incentive regulation. The regulatory regime, by capping airport charges in advance, gives an incentive to the airport to reduce its costs. If costs can be successfully reduced below the level of the cap, the airport operator keeps the value of those savings until the cap is reset, at which time the lower level of costs is taken into account in setting a new price cap. The price cap is the sum of a number of what are known as "building blocks". It is arrived at by adding together the return on an efficient capital stock, a depreciation charge on that capital stock and an estimate of efficiently incurred future operating expenditures and then, in a single till environment, subtracting an estimate of future commercial revenues. The figure arrived at is divided by a forecast of passenger traffic to give a per passenger price cap. The cap relates to the revenues of the airport from certain charges, including runway landing and take-off charges, aircraft parking charges, charges for the use of the airbridge and passenger processing charges. It does not cover certain other charges on the land side of the airport such as car parking charges.
I will discuss this country's experience of airport regulation. The agency which credit rates the bonds of the Dublin Airport Authority stated just before Christmas that "the regulatory environment has improved considerably since the creation of CAR in 2001". When the commission made its first regulatory decision in 2001, Aer Rianta indicated that it wanted to set a price cap of more than €10 per passenger, in today's money. Seven years later, the price cap is almost 25% less than the cap requested by Aer Rianta in 2001. In the absence of regulation, it seems likely that charges at Dublin Airport would be much higher than they are today. They are currently among the lowest in Europe. The incentives to improve efficiency at the airport seem to have worked. Operating costs per passenger fell from almost €10 per passenger in 2001 to less than €8 per passenger in 2007 in nominal terms — the decrease would be greater if inflation was taken into account.
While it is desirable to avoid excessive prices and encourage cost savings, the commission has been and remains concerned that this should not be at the expense of necessary investment at the airport. While the commission does not have an anti-investment bias, it is opposed to allowing unjustified expenditure. In 2001 Aer Rianta sought funding for investment totalling €917 million, in today's money. It was unable to provide a business case, a cost-benefit analysis or any evidence of user support or consultation for such investment. Most of the proposals did not address the need to expand capacity at the airport. The commission, therefore, made an allowance in 2001 not of €917 million but of €292 million, of which just €217 million was spent at Dublin Airport.
Last year the commission was presented with a new investment plan that addressed the need to expand capacity, notably by proposing to build a second terminal. It decided that most of the proposed €1.2 billion cost of the plan would meet user needs. It indicated that it would allow the Dublin Airport Authority to recover the cost of the investment, with some caveats. The second terminal will need to be built before charges can increase. Therefore, current users will not be asked to pay for a facility that will benefit future users only. The profile of the charges to be imposed after the second terminal opens seeks to smooth the impact on users in order that all of them, at all stages in the long life of the terminal, make the same contribution towards its cost. This approach means that users in earlier years will not have to pay more than later users. The Dublin Airport Authority will bear the commercial risk that the capacity of the second terminal may prove to be too large.
The credit rating agency I mentioned, Standard and Poor's, described the interim review published last summer as "a transparent, well consulted process, with an outcome adequately supported by input from industry experts and key stakeholders". The decision of the commission is being challenged in the courts — I spent this morning in the High Court, where the challenge was initiated — even though it embraces certain principles. The decision is consistent with the user pays principle, the single till and price differentiation and avoids pre-financing. Such principles are among the demands of the European Low Fare Airlines Association. This is far from being the first time the commission's decisions have been challenged. Since its inception, its work and regulatory decisions have repeatedly been brought before the superior courts and other administrative fora established by the Minister for Transport at the request of aggrieved parties. I am pleased that the commission's decisions have withstood all such challenges, with one exception which is on appeal to the Supreme Court.
As the commission has just 21 staff across all functions — its staffing complement is minuscule in comparison with those of the regulated companies — its budget is materially affected by the costs of challenges of this nature. It is anticipated that its legal costs this year will account for more than 20% of its total expenditure. It ultimately expects to recover its legal costs in the cases of unsuccessful legal challenges. In the short term it has had to set a levy that allows it to collect enough money from the industry to fund its office. It receives no Exchequer funding and has no surplus funds from which it can draw. It believes it may be useful to explore alternative arrangements which would have the impact of a judicial judgment but in a non-judicial setting.
The commission is mindful of the costs of regulation. Just as it is keen to minimise its own costs, it understands the importance of minimising the compliance costs of the industries it regulates. It wishes to ensure its own work is of the highest standard. The need to ensure its costs are kept to a minimum and are not excessive is an element of the law that established it. The commission employs four economists, all of whom have postgraduate degrees, to undertake the full range of work on economic regulation. It has an in-house legal team of two people, whose familiarity with the work of the office is crucial, given the demonstrated propensity of parties to challenge the commission's decisions. Just two staff license the 17 Irish air carriers and 57 ground handlers. Similarly, the commission employs four people to license 74 tour operators and 290 travel agents. The enforcement of passenger rights is handled by two staff, one of whom is on a short-term temporary contract. I thank my 20 colleagues for their hard work in recent years. The commission has outsourced its back office functions such as travel planning, building services, payroll, internal audit, communications, cleaning, website protection, IT maintenance and printing. It has no assets other than office furniture and equipment. It leases its office accommodation.
Shortly after I took up this position in June 2006 the commission commenced a thorough review of its work. The review's initial focus on the commission's licensing and consumer protection roles gave rise to internal restructuring in 2007. This year the review has moved to administrative functions. The resulting changes are being implemented this year. The new arrangements have allowed the commission to reduce its administrative budget by €50,000 per annum, or between 4.5% and 5% of its administrative budget for this year. Both phases of the restructuring have reduced the commission's budget, compared to what it would otherwise have been. We will continue with this exercise as necessary.
I wish to return to the question of compliance costs. The commission has been seeking to reduce such costs for the regulated sectors of its work by simplifying its application forms, computerising its records, improving its engagement with the regulated companies and exploring web-based licensing and acceptance of passenger complaints. It is intended that such initiatives will facilitate fully web based licensing applications and accounting data collection. The savings to regulated sectors have not been costed at this stage but they could be considerable vis-à-vis the internal administrative costs of the office.
Compliance is not a one sided process; the industry also has a role to play. The commission recently published a guidance paper on its website encouraging the main entities we regulate, the Dublin Airport Authority and Irish Aviation Authority, to consult their users, particularly about costly capital investment plans, prior to submitting them to the commission for consideration, given that if the bodies and users can agree on the nature and cost of investments, the commission will not generally need to undertake detailed and, at times, expensive reviews of such investment plans.
It is an often-stated truism that aviation is a cyclical industry, subject to regular fluctuations in fortunes, some of which derive from world events such as the tragic events of 11 September 2001, while others are occasioned by regular upheavals in the oil market and the economic slump that often follows. While the commission cannot be held responsible for these events, an organisation which does not have regard to a changing environment will ultimately fail or be subsumed. The growing multiplicity and complexity of regulatory bodies, as defined in the widest sense, have the potential to have a significantly negative effect on the ability of Ireland incorporated to develop to its fullest potential. There is scope to reassess the current regulatory structures to determine if a better result might be gained by reorganising on either functional or sectoral lines. Accordingly, the commission welcomes the initiatives undertaken by the Department of the Taoiseach to review the regulatory environment and I look forward to the conclusion of that work.
I thank the joint committee for the opportunity to address it. I hope I have given members a sense of what we do. I would be pleased to respond to questions.
I welcome the delegation from the Commission for Aviation Regulation and the commissioner's thoughts on the challenge of increasing regulation in the market. I was interested to learn that the commission had several economists employed on its staff. Will the commissioner comment on the impact of climate change on the aviation sector in the years ahead? I presume the commission will have had interacted with its European counterparts on the challenge of climate change for the sector, specifically in the context of regulation.
I welcome Mr. Guiomard's informative contribution. The aviation industry faces major challenges. The commissioner referred to a reassessment of current regulatory structures. Will he flesh out this comments?
I have a particular interest in the regional imbalance. Dublin Airport is increasingly becoming a bottleneck and one has little joy in using the facility. There appears to be a perceptible diminution in the role of Cork and Shannon airports which have lost slots or had certain slots changed. Does the Commission for Aviation Regulation have a role to play in addressing this imbalance or at least in seeking to encourage the use of slots beyond Dublin Airport and in the regions?
I am surprised, given the number of passengers who use Irish airports annually, that only two people deal with the rights of passengers, although I am open to correction on this. We have all subscribed in our habits to the low cost airline culture in that we engage in a contract with a low cost airline and are at its mercy and whims. One pays one fee, boards the flight and the devil takes the hindmost. Is there a case for increasing the rights of passengers? Does the current regime give proper and due recognition to the rights of passengers when delays occur or in terms of baggage charges and the application of more stringent rules by all airlines? Does the commission have a role in this regard? Should the joint committee make a case to the powers that be, namely, the Minister, that increased funding should be made available to employ more personnel to deal with the rights of passengers?
On slots, while it is important to protect the national interest, if we all subscribe to a market philosophy, airlines will find their own market. As an island nation, however, can a case be made for protecting certain slots? The loss of the Aer Lingus slots at Shannon Airport recently was a debacle. Given that London is a major hub and the Shannon region is a major economic hub, one could argue that the change of the slot resulted in a serious loss of comparative advantage for the region. Does the commission have a role in the context of our pursuit of a balanced regional economic policy aimed at preventing all investment going to the Pale?
I had an opportunity to speak to Mr. Guiomard at a previous meeting which proved a useful and interesting encounter. His presentation was good and adds to the debate we had at our previous meeting. It would have been useful to have heard it at that meeting, as it may have spared him having to deal with some of the awkward questions members' put to him on that occasion. We had a discussion on an efficient return on capital stock. I was under the impression that the Commission for Aviation Regulation would be placed under pressure to allow somebody to recuperate excessive costs. I now understand how this process works, as the presentation was very informative in this respect.
On the airport charge per passenger which has been reduced to €8 from €10 in 2001, I am aware this income covers operating expenditure, rather than fixed costs. Has the reduction been due to the commission's efforts or to greater economies of scale at the airport? It would be great for the commission to be able to claim it was partially responsible for this reduction. It is interesting to note Aer Rianta sought funding for an investment of €917 million, whereas the commission permitted expenditure of only €292 million.
At our previous meeting members expressed concern that the company was going too far with terminal 2. The presentation states the DAA will bear the commercial risks if the facility is too large. Is this because the commission will not allow the DAA to recuperate its full costs? Will Mr. Guiomard elaborate?
I note from the reports submitted to the joint committee by the commission that it has incurred high legal fees. Are these solely due to High Court challenges? Mr. Guiomard has referred to ways in which the position will be changed. How will this be done? Is it a matter for the Houses to amend regulations or legislation or can it be worked out with the other operators?
On levy receipts and licences, how do the commission's charges apply? Travel agents and tour operators repeatedly indicate to members that they are under significant pressure to cut costs and corners. I presume the cost involved is not significant. What is the fee for them? Travel agents in rural areas, in particular, are beginning to go out of business. I accept that agents in the major towns are not under the same pressure. This is due in part to the way airlines are selling tickets on the Internet. Is there anything we can do to help?
I join my colleagues in welcoming the members of the commission. It is useful to have an exchange with them.
I wish to focus on the investment decision making of the Dublin Airport Authority. I am surprised at the extent of the commission's powers in this matter. I take it that an investment strategic plan was put to the commission which was rejected and that it was a case of the board of the DAA going back to the drawing board to reconfigure its investment plan. Does the commission have an oversight role or a veto in decision making, especially on investments? It appears that co-ordination generally is important. I question the approach of the commission in telling a State body on the submission of its investment and strategic plans for a number of years that cost a lot of money to prepare that it may go back to the drawing board. There may be some justification for having an alternative approach involving consultation with the commission at least at a preliminary stage before it would reject a plan.
I welcome the delegation. I am somewhat confused about the role of the commission in Dublin, Shannon and Cork airports. Is it more directly involved at Dublin Airport? Is it a case of being once removed from the other two, or that it has less influence there?
I do not wish to mention old controversies, but did the commission have any involvement in slot allocation, or was it consulted about the Shannon-Aer Lingus debacle? Aer Lingus ceased to operate a profitable venture and transferred it to Belfast where it does not seem to be as profitable and deprived a whole community of an essential service. Was that part of the commission's brief and was it able to influence the issue in any way?
I note with pleasure the reference in the submission to the fact that the price cap figure requested by Aer Rianta is 25% less than what was requested in 2001. That is a tribute to good regulation and shows how important it is. That is repeated elsewhere. I am stunned, however, at the statement that in 2001 Aer Rianta sought funding of €917 million but was unable to provide a business case, a cost-benefit analysis or any evidence of user support in support of the request. The mind boggles as to the attitude that pertained and the thought process involved in making such a submission. Is it like the case of the local football club which wants approximately €100,000 to provide an all-weather track and makes a request for €300,000 knowing that the figure will be reduced? Is it that simplistic or ridiculous?
I note that the regulator has a small staff, of which we approve. Does the commissioner believe he has enough staff? The implication appears to be that the existing staff are probably overworked and possibly under-resourced.
I agree with what Deputy Sherlock said on the broader remit of regulation in terms of customer backup and the treatment of customers by airlines. Where air travel was once regarded as something glamorous, it is now an absolute nightmare, something one avoids if possible. At the best of times it is madness. The regulator obviously has a function in this matter. Is it possible to have cheaper flights with more humane treatment of customers? For example, airlines overbook flights and then tell people who paid months in advance that they are sorry but that the flight is overbooked, that an alternative flight will be organised the next day and that they will be accommodated overnight in a Holiday Inn. Is that a reasonable way to treat customers? I had that experience recently when the bride at a family wedding was even treated in such a manner by a major airline. Are some airlines worse offenders than others? I am interested to know the answer.
Is it right that one should have two queues to board an aeroplane? Is it socially acceptable that if one pays €6 extra, one has priority in queuing over other passengers who probably do not even know there is such a facility? This is not good practice. Is it right that passengers whose baggage is overweight should be treated as if they are criminals and made jump through hoops and go from one desk to another? Paying money is one thing but the way in which people are treated needs to be examined. It is evident that there are poor customer relations. Most airlines seem to regard their customers as the enemy instead of the ones who are paying their wage packets.
On the management of airports, the vast majority of passengers are completely stressed out in running here, there and everywhere. The commission has to set the charges implemented at airports. What is its direct involvement in the chaos that ensues at some airports? People contact their public representatives about bad experiences connected with a family occasion, as indicated by Senator O'Sullivan, but especially sad occasions connected with funerals. What is the commission's input in this regard? Is it the governing body which regulates such issues? If members have any other comments or questions, they can ask them later.
Mr. Cathal Guiomard
Turning first to the question on the environment, the role of the office, as members will have seen on the first page of the comments I provided, does not currently include the need to have regard to environmental issues as such. One might read something into the question of future users but in terms of explicit responsibilities, it is not included. That partly reflects the fact that the legislation was passed in 2001 when the priority accorded to environmental issues was somewhat lower than it might be today. We would certainly be interested in discussing the involvement of other parties involved in this area, particularly the Departments of the Environment, Heritage and Local Government and Transport. If they wished, we would be quite interested in discussing with them what form action to minimise damage to the environment caused by aviation transport might take. What I have read on the matter as an economist is that many economists suggest many activities give rise to carbon emissions and that a policy which sought to dampen carbon emissions across all activities would be a sensible approach to take, rather than something specific to one sector in response to which people might do more of something else that might prove to be even more damaging. An economy-wide, activity-wide response would seem logical.
The only policy instrument available to the commission is the price cap. Supposing that environmental objectives were one of our objectives, it would be open to us to set charges higher, presumably to discourage travel, but the proceeds would accrue to the Dublin Airport Authority. It must be asked whether that should be the final resting point. I agree with the Deputy that that is a very important question. In the medium term it will entirely dwarf airport price capping in terms of the consequences but we are certainly keen to engage in discussions. The question of who should be given responsibilities in this regard would be decided by others.
Deputy Sherlock asked about regional issues. When we were regulating charges at Cork and Shannon airports, we had an explicit objective to have regard to regional impacts. However, this provision was removed from the legislation when the reference to regional airport price regulation was removed. Many offices such as ours might adopt the position that a regulatory office should be neutral in respect of regions and airports and that deciding on how to make interventions to assist particular regions should be more of a political responsibility.
On the question of whether passenger rights are sufficient, the relevant law is an EU law. All such laws are to be reviewed after they have been in effect for five years. My understanding is that the law in question will fall to be reconsidered in 2009. The Commission for Aviation Regulation, as the enforcement body, would certainly be very happy to draw on its experience thereof and to participate in what I presume will be an EU-wide review. If airlines are required to provide more insurance cover for passengers against unhelpful occurrences, they will ultimately seek to recover the cost from passengers. Some proportion between stiffening the air passenger rights regime and setting the cost to meet general passenger needs to be achieved.
Deputy English asked about economies of scale which are widely recognised to be very important in airports. If one doubles passenger numbers, one typically does not double costs. One would expect economies of scale in this regard. The price cap and incentive regulation reinforce the effect and reward a company for pursuing the economies offered by scale. Economies of scale would presumably feature but the reward for pursuing them and finding them might be somewhat weaker.
On the risk the Dublin Airport Authority is bearing in the case of the second terminal at Dublin Airport, an argument was put to us that the terminal would prove to be too large vis-à-vis the volume of traffic handled. We have divided the cost of the terminal proper — the box rather than the pier — into one fraction of three quarters and one fraction of one quarter. The company will recover for certain the cost of the three quarters from the time of opening but will only recover with certainty the remaining one quarter when traffic exceeds 33 million passengers per annum. As long as traffic evolves in line with the company’s forecasts, the full capacity of the building will eventually be used and all the money will be recovered. If traffic does not evolve in line with the forecast, the company will not recover the full cost. There is, therefore, a threshold and a sum of money at risk. That is how the system is being implemented.
Our legal fees are colossal and extraordinary. The Department of the Taoiseach engaged in an exercise to review appeal mechanisms and systems across all bodies and offices in the State. They turned out to be tremendously varied and each sector seems to have different features. I expect those engaged in the exercise will, in due course, recommend a standardised appeals regime that will offer a non-judicial avenue and, therefore, an avenue that will probably be cheaper and faster. It will be a question of determining the powers of the appeal body. One option would be to quash a decision made by a regulator and ask it to decide again. Another would involve quashing the decision and substituting the appeal panel's judgment. In this case, the appeal panel would becomes the ultimate regulator. People would then ask whether there should not be some further means of recourse if one did not like the appeal panel's decision. An important, substantive decision would, therefore, need to be made on the extent of the powers of the appeal body.
Centralising appeals in one office represents an attractive course of action and is essentially the approach adopted in the United Kingdom. It certainly reduces costs by comparison with those associated with the legal course of action and also affords a better chance of achieving consistency over time. This is because submitting all the appeals to the one office leads to an accrual of expertise and allows one to compare the decisions of different regulators.
If a travel agent or tour operator applies for a travel trade licence on time and submits all the relevant documentation, the cost amounts to €300, which is economical.
Deputy Kirk is correct to assume that a price cap on a company is a constraint. It is an important feature for the company once it is in place. It will certainly have a bearing on what it can do and on its profits when it is contemplating a major investment. I am not sure whether the full implications were really understood by everybody when my office was first established. This is perhaps normal in the early stages of regulation. Recent experience with the revised investment plan is much more encouraging. Regulatory powers in influencing the price and revenue of a company have a very important bearing on what it is capable of doing.
On the basis of the commission's experience to date, is there any advice to be dispensed to the committee on this subject? It seems there is scope for streamlining the decision-making process in the corporate structure of the company. Having regard to the role of the regulator, be it in respect of the oversight function or decision making, how are the company's difficulties anticipated? Ultimately, if it hires consultants to prepare an expensive strategic plan and the Commission for Aviation Regulation, on seeing that plan, states it should go back to the drawing board, it imposes an additional cost on the company.
Mr. Cathal Guiomard
We published a consultation document on our website some weeks ago in which we suggested it would be desirable for a regulated firm such as the Irish Aviation Authority or the Dublin Airport Authority to seek to reach agreement with its own customers on investments, particularly costly ones, to the extent that the operator could agree with customers on what was needed, on what would be a reasonable budget and on the timeframe. In such circumstances more emphasis would be placed on the oversight role in the regulatory regime. The problem arises when large customers are in flat disagreement with the operator on what is to be provided and the budget therefor. This undoubtedly leaves the regulator's office in a difficult position. When some parties state a particular investment is essential, while others state a much smaller investment would be sufficient, the regulator finds itself adjudicating on a matter in respect of which the airport operator and the big customers ought to have much more expertise. They surely have more expertise than the regulator's office. It is a significant challenge to make progress in achieving further agreement. It makes things easier on the regulatory side.
The major topic was the terminal but that has been dealt with, more or less. What is the next big issue on which airlines will disagree?
Mr. Cathal Guiomard
There are two further sizeable investments which will fall for discussion next year. There are already serious disagreements on the budget that should be spent upgrading terminal one after terminal two has been opened and second is the budget for the building of a second runway, which will be less controversial. We are not out of the woods yet.
The Jacob's report published in 2006 analysed the capacity. Is a different picture emerging for Dublin? Is the commissioner satisfied that projected capacity is adequate for five or ten years hence? I do not have an economic analysis to hand but common sense suggests that airline traffic will grow unbelievably. Will the commissioner seek a further expansion? I appreciate the commissioner's remarks about his responsibilities in respect of regional policy, but people will ask this question.
The commissioner's staff of 21, with four economists and two legal people, seems minuscule given the size and volume of the industry and that we live in a litigious environment. Will the commissioner elaborate a little on the nature of the litigation? Could it be argued that the aviation regulator will spend a great deal of time and resources, unfairly perhaps, staving off challenges from various airlines and that the Government must consider this in respect of funding?
Mr. Cathal Guiomard
When we do a large project we rely on consultancy support on economic matters. When we defend a decision in court we use outside lawyers. A staff complement of 21, with the responsibilities and the calibre of the people we have is just sufficient to allow us to do our work, although it is tight.
The airport, then Aer Rianta, launched a significant legal challenge to our first decision. The case, which ran from autumn 2001 to June 2003, was one of the largest judicial reviews heard by the High Court, including the exchange of 49 substantive affidavits. Aer Rianta was unsuccessful and has not subsequently sued.
Since then Ryanair has sought five judicial reviews. It disputed our price decisions of 2005 and 2007, desk rental charges and, twice, the runway slots regime. Of those five cases two are still in court, we won two and one is on appeal to the Supreme Court. It is an astonishing state of affairs because our colleagues in Britain have never in 25 years faced a judicial review. They do not employ in-house solicitors. In Britain there is a regulatory settlement whereby people work the regime and although they are sometimes unhappy with parts of a decision they do not rely on the courts. Their system continues on a particular track, but we have not reached that point.
Senator O'Sullivan asked about our involvement with Cork and Shannon. The airport charges proper are regulated only in Dublin. Cork and Shannon are free to set their charges without constraint. The clearest example of ground-handling charges is desk rental. As a result of an unforeseen decision of a European court, a ground-handling directive requires the three DAA owned airports to apply to the Commission for approval of desk rental charges. That is our only pricing involvement in Cork and Shannon. They set the primary aeronautical charge at their discretion.
Does the Commissioner regard it as reasonable that one airport should be treated in a different manner from the others?
Mr. Cathal Guiomard
We were involved in all three airports and a striking feature of that involvement was that we set a cap at each airport. In Dublin the company priced up to the cap, whereas Cork and Shannon charged approximately half of that level. It was reasonable to conclude that the bargaining position of those airports and their customers was such that, although they were legally entitled to charge more, they would have lost too many customers by exercising that right. It seemed there was little risk of passengers being overcharged and consequently the Department of Transport abolished regulation for those two airports and we did not object.
What about the other points Senator O'Sullivan raised?
Mr. Cathal Guiomard
The Senator also asked if we are involved in Shannon. Barring desk rentals, we have no involvement with Shannon and Cork. We were not involved in the Aer Lingus decision.
Is the Commissioner involved in customer service offered at some airports?
Mr. Cathal Guiomard
Our role on air passenger rights is in respect of airlines, delays, cancellations and so on. It is open to us to deal with the congestion at Dublin Airport only through the price cap that gives the company the moneys to build extra capacity and resolve the problem. We have no direct involvement.
I thank the Chairman for allowing me to speak again. I am learning as I go. When companies are litigious the regulator has to use resources on going into court every other day, which is a cost burden. It affects how one defends the rights of passengers. It diminishes the commission's role in defending passengers because it cannot expend resources in that regard.
In its submission the commission referred to alternative arrangements which would have the impact of a judicial judgment but in a non-judicial setting. What role is envisaged for legislators in that regard?
I am tired of reading newspaper headlines of airlines taking challenges every other day of the week. I wonder if it really is for the common good. I can understand a company trying to protect a competitive advantage which is sound economics, but we must be cognisant of the rights of passengers.
Mr. Cathal Guiomard
One possibility is that when the Department of the Taoiseach concludes its review of the appeals system, the legislation of all relevant offices might be modified to establish a common procedure. It could attempt to tilt the legal arrangement so as to encourage complaints to be made through the avenue of a specialised body to evaluate complaints and legal decisions. This would tilt people away from going to court as the first recourse. There would be a requirement to amend existing legislation to substitute this new arrangement. The Department's analysis, however, has to be concluded first.
I am glad to hear discussions have been ongoing with the Department of the Taoiseach. As he is quite an expert in the law, I am sure there will be developments in this area. The said airline has taken to the courts five times but has not done so in other countries. Does it believe it can secure a quick win because the commission is relatively new and one of the more recently established offices in Europe? Has an airline ever won in another country?
Insurance costs for the regulator are high at €85,000. Do they cover buildings or are the commission's decisions insured? Is it open to being sued if it gets a decision wrong? Must the State or the commission pay in the event of a party winning a case and an award in court?
Mr. Cathal Guiomard
There are only two dedicated airport regulators in the European Union, in Ireland and Britain. A new EU directive will require similar arrangements to be made in the other 25 member states. In Britain the High Court sets a high threshold before it will consider legal challenges. A person must demonstrate a substantial case to be allowed to proceed to court. In Ireland the number of such cases indicates the threshold is at a different level, which may be a contributory factor.
Mr. Kieran Baker
Even though €85,000 as the cost of insurance appears to be a large sum, it covers four classes. If a court finds against the commission and makes an award for damages, we are covered against part of those damages. The other elements cover office insurance risks, liability and staff on overseas travel, but there is nothing extraordinary.
To what figure are damages covered?
Mr. Kieran Baker
To a figure of €255,000 exactly. If an award of damages was made—
What about an award above that figure?
Mr. Kieran Baker
Any sum above that amount would be borne by the office. I could pay a premium of umpteen thousands of euro to be covered for everything. However, I must strike a balance between what the office can afford and the ultimate cost of damages.
I accept that. It is interesting but €255,000 is not much.
Mr. Kieran Baker
It is not.
It shows Mr. Baker's confidence in his work.
Mr. Kieran Baker
It also indicates that I operate within a tight budget.
Mr. Baker must be under much stress.
Regarding my question on how certain airlines treat their customers, is it a matter for the commissioner? If not, perhaps the delegation can inform us whose business it is to enforce standards of fair play for airline customers? The practice of charging passengers on three-hour flights for water is unacceptable. Is it acceptable to the regulator? Is it a growing practice by major airlines to maximise their profits on long-haul flights to overbook, ensuring they will not lose out on cancellations? In cases where there have been no cancellations, the airlines calmly tell a customer that they are sorry but that they are overbooked. The passenger may have paid many months in advance for a trip to, say, South America, as in my case. He or she may have been at the airport three hours ahead of check-in but the rest of the passengers were there three and a half hours beforehand. He or she will be booked into a little hotel, even though he or she might have been booked into a five-star hotel somewhere else. This practice is objectionable and maddening. It gives customers no confidence in airlines. Who should be taking a hands-on approach to this reprehensible behaviour?
Mr. Cathal Guiomard
Air passenger rights regulations in the European Union provide for entitlements of passengers in the case of delays and cancellations and also overbooking. If a passenger makes a claim in respect of an overbooking and does not receive a satisfactory response from the airline, the commission is the enforcement body. I will send Senator O'Sullivan the details on air passenger rights which are also to be found on our website.
In airports airlines are required at their check-in desks to have a statement indicating that if a passenger has a complaint to make under these headings, he or she can request details from the airline as to his or her entitlements. The airlines are required to give this information to the passenger and allow him or her to take up the complaint in the first place with the airline and subsequently with the commission if not satisfied with the airline's response.
With the commission's experience of the industry, will the fines and compensation to be introduced by the EU directive deter the airlines from engaging in this practice? Compensation is no good if a passenger's flight to attend a family function is cancelled due to overbooking.
Will the commission confirm that overbooking is a growing practice and becoming more widespread with airlines? Is it receiving more complaints on this matter?
Mr. Cathal Guiomard
Before Christmas, we published for the first time the statistics for complaints we had received, the ones we had to forward to other EU offices and the nature of those complaints. We aim to publish such statistics quarterly. The United States introduced compensation in cases involving overbooking in the late 1980s. It revised the scheme just last year and overbooking rates fell once airlines had a obligation to compensate the passengers affected. There seemed to be a direct response on the part of the airlines to the fact that payments would have to be made. I have not seen information for the European Union, but it would be reasonable to believe that if compensation was set at the right level, airlines would reduce the number of overbookings. To answer the specific question as to whether the problem is growing, there appear to be relatively few complaints in the case of short-haul flights. I shall have to check the position as regards long-haul flights, but I shall do my best to send the committee further information on the matter.
That is appreciated.
I thank the Commissioner for Aviation Regulation, Mr. Spicer and Mr. Baker for coming and compliment them on the work they are doing. Often we hear complaints as regards different groups being involved in the regulation of certain sectors and the fact that such bodies are nearly out of control themselves. However, the Office of the Commissioner for Aviation Regulation appears to be running a tight ship and is very much on the ball. There are issues as regards advancing its powers in relation to customer service and so forth that the committee will be pursuing. At our next meeting on 4 March the Taxi Regulator will be present to make a presentation to the committee.