JOINT COMMITTEE ON ECONOMIC REGULATORY AFFAIRS debate -
Tuesday, 26 May 2009

Value for Money: Discussion with Commission for Aviation Regulation.

Chairman

I welcome the Commissioner for Aviation Regulation, Mr. Cathal Guiomard, the head of legal affairs, Ms Patricia Lamb, and the head of licensing, Mr. Niall O'Connor. We will commence with an opening statement by the commissioner.

I draw the attention of witnesses to the fact that members of the committee have absolute privilege, but the same privilege does not apply to witnesses appearing before the committee. Members are 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, either by name or in such a way as to make him or her identifiable.

I propose to hear a short presentation by Mr. Guiomard which will be followed by questions and answers.

Mr. Cathal Guiomard

I thank the committee for its invitation to come here today. We are happy to appear at any time. In February last year we made a short presentation to the committee concentrating on the roles of the office then and giving airport price regulation as an example of one of the things we do. We are about to issue — in a few weeks time — a new draft decision on airport charges at Dublin Airport for the period 2010 to 2014 and as a result we will not be able to go into that part of our work this afternoon. We will be happy to take questions on all other issues.

The focus of today's meeting is value for money and we are looking at the issues today in that light. At last year's presentation, we pointed out to the committee that average revenue per passenger at Dublin Airport — which is one way of measuring charges — is among the lowest in Europe, that operating expenditure per passenger has fallen since the introduction of regulation, from almost €10 per passenger in 2001 to less than €8 per passenger in 2008. We also pointed out that while it is desirable to avoid excessive charges and to incentivise efficiency, we also support necessary investment, including, for example, the second terminal at Dublin Airport which is currently under construction.

This afternoon I would like to focus on two areas illustrating value for money. First, I want to mention some of the outputs or work of the office, using 2008 as an example. Then I will say a little about efforts we are making to keep our costs to a minimum, now and in the future. With regard to our work in 2008, an economics team of four economists prepared consultation papers and worked on other material for the new Dublin Airport price cap, which is due to be applied before the end of this year. One of their publications related to service quality at the airport, a second dealt with incentives for airport efficiency and a third surveyed the main issues we think will arise in discussions this year about the next airport price cap.

We have an air passenger rights enforcement team of two staff. In 2008, they dealt with some 400 complaints from passengers. They looked into the cases that were our direct responsibility and forwarded to foreign national enforcement bodies the cases that were the responsibility of those offices.

The team also carried out regular airport inspections during the course of the year and, from the middle of the year, took responsibility for the enforcement of a new set of rights for passengers with reduced mobility or disabilities. We have an airline licensing and ground handler approval team of two staff which, under weakening industry conditions, increased its oversight of the 18 companies with air carrier licences and monitored the compliance of the 53 approved ground handling firms. They also worked to implement a new regulation on air carrier licensing and to introduce a public awareness campaign.

We have a travel trade team of six full-time equivalent staff which, following an assessment of licence applications, granted or renewed a total of 356 licences to travel agencies or tour operators. I will have more to say about this team. We also have a legal team of two in-house lawyers who, as well as offering legal advice and support, assisted last year in the defence of two challenges to and appeals against our price regulatory decisions, in addition to court challenges on the travel trade licensing side. We also have four administrative staff and outsource some administrative support work.

In addition to each team's main responsibilities, a lot of cross-functional work takes place in the office. For example, we undertook a review of the travel trade licensing regime; we have an IT project and look to apply lessons from the work of one part of the office to another. Altogether, we have an average staffing complement of 21 persons, some of whom are on secondment from the Department of Transport.

I will return to the state of the travel industry. After a number of years of strong growth in Irish aviation, 2008 brought a sudden and sharp weakening in the air travel business. Five travel companies which participated in the bonding scheme operated by the commission closed down in the second half of 2008. The commission was informed — sometimes at a few hours' notice — that flights would not operate and that passengers expecting to return to Ireland would be left without transport. The travel trade staff of the commission, in addition to their normal work, organised a series of special flights in order to repatriate some 1,500 affected passengers. Subsequent to the repatriations, the commission processed nearly 2,000 claims for financial restitution in respect of booked flights and holidays that did not operate. This caused us more work in a six-month period than the office had conducted in the previous eight years and probably more than in the entire history of the licensing regime. I take the opportunity to thank my colleagues in the office, especially those on the travel trade side, for their dedication under these conditions. Many worked through the night once they were notified of companies closing down in order to put arrangements on our website for the inevitable call from "Morning Ireland" at 6 a.m. the next morning asking us to provide a spokesperson. Other colleagues worked through many successive weekends to process the applications in a timely way.

The cost of these operations, totalling approximately €3.8 million for refunds and repatriations, was mainly borne from the bonds which licensed travel companies are required to hold. However, there was one case in which the cost of the collapse exceeded the value of the firm's bond by some €1.5 million. This expenditure was financed from the travellers' protection fund, TPF, which was established to provide funds where a bond was insufficient. In order to recover the moneys owed to the TPF, the commission successfully petitioned the High Court last winter to appoint a liquidator to the company in question. Full details will be available in the commission's 2008 annual report which we expect to publish mid-year.

I will summarise the cost control measures which seek to balance the need to minimise regulatory and licensing costs with ensuring the work of the office is of the highest standard. The commission is funded by a levy on the industry but we also receive some income from licence fees on the client base of the office. In 2008 we participated in the Minister for Finance's public sector efficiency review, identifying and, by mid-2008, implementing economies deriving from changes to our internal administration. We also participated in the regulatory review of the Department of the Taoiseach and await publication of that report. Last year we agreed to accept a new function regarding passengers with reduced mobility on the basis of synergies within the existing air passenger rights team, without seeking additional staffing.

Last year we undertook a review of the travel trade licensing regime in Ireland, in part because this is the oldest regulatory regime for which we have responsibility, dating from 1982. We thought it would be timely to discover whether that regime was still fit for purpose, 30 years later. We prepared a report for the Minister for Transport which has been published on the Department's website and we look forward to hearing in due course the Department's views on these matters.

We improved our website to make it easier for the public and the companies we deal with to use and we have ambitions for further improvements in this area. We proposed to the Department of Transport that we might have a role with regard to ground-handling work we felt could be discontinued. This would allow us to reassign staff into more important work. We have other work in respect of pricing approvals at the airport which we thought could be simplified, making it easier for the industry while allowing the objectives of the legislation to be met at the same time.

In one area of our costs we are a long way from having full control, namely, legal challenges to the work of the office. Since our establishment in 2001 we have faced a continuous stream of legal actions. Rarely has there been a day when we have not faced at least one High Court challenge and there have been occasions when we have had up to three High Court judicial reviews in operation at the same time. This is all very costly. However, in line with the normal legal practice of the losing party paying for the costs we are able to recover the external legal costs when we win a case. So far we have won all but one of our cases. There are in-house costs, including legal costs, that are not recovered. Last year we recovered some €200,000 from Ryanair in respect of a case it had abandoned and another in which it had been unsuccessful in 2007. This year we are pursuing Ryanair for cost recovery in respect of other such cases it has lost.

I hope in this quick overview I have satisfied the committee about the work of the office and have shown we are doing a good job in dealing with our responsibilities and seeking to be effective and efficient. I hope members have enough high level information to allow them to form a judgment as to whether our work offers value for money. We would be pleased to answer any questions.

Chairman

I thank the commissioner. We turn now to questions from members and, as is normal practice, one member will have possession and can ask a number of questions with dialogue going back and forth before the next member's turn. I call on Deputy Leo Varadkar.

Deputy Leo Varadkar

I have one comment and some brief questions. A few of my constituents were repatriated from Cyprus and were very happy at the role played by the Commission for Aviation Regulation. It is worthwhile passing on their gratitude. It is important to know when a good job has been done and as good a job as possible was done in this case. I cannot remember whether an airline or a travel agent went under at the time.

Members have received some representations from individual travel agents requesting that the levy be reduced. The present rate is either 2% or 3% of turnover. What are the commissioner's views on that? Is it a viable proposition?

The commissioner mentioned some savings he proposed in his own right in his statement. Is there an estimate in actual figures of such savings? Concerning costs, is there any scope for a greater sharing of facilities among the different regulators, whether in website functions, HR, payroll, or anything else? Are there savings to be made by the different regulators coming together? This need not be in respect of their functions but perhaps might involve some of the back office operations.

I am not sure if the commissioner is permitted to comment on the following matter or whether he might have a view on it, necessarily. In Ireland all the airports are owned by the State and are controlled more or less by the DAA. Does the commissioner think there would be any benefit for consumers or in terms of costs, if one or more of the airports were to operate independently or even be privatised and set free to compete with Dublin Airport? Dublin Airport does not seem to have any competition and in my view what competition it has, if any, is from Belfast Airport.

Mr. Cathal Guiomard

The bonds I mentioned are a requirement on the travel companies in the industry. Travel agencies must have a bond equal to 4% of their turnover. The Deputy is correct that the industry was pressing last year to see if it could be reduced to 2% of turnover. If that could be done, it would be a reduction in their costs.

The report we sent to the Minister for Transport last December concluded that it would not be possible to be confident that the bond would be big enough to deal with these types of repatriation if it was lowered, as had been requested by the industry, but we proposed an alternative where we think economies might work. Each company in the industry typically takes out an individual bond and one could conceive of a situation where one might organise a collective bond for some or all of the industry which should work out more cheaply than each individual company making its own arrangements.

The legislation that sets up this regime does not allow that collective bond and we stated to the Minister that if the Department of Transport revised the legislation to allow for that possibility, we would explore it. We might in that way be able to offer the industry a situation where the public would still have the protection that it has today but the cost of offering the insurance would be cheaper for the industry. That is not the form that the industry looked for a change, but it——

Deputy Leo Varadkar

Is it refundable in any way? Is it gone once it is paid?

Mr. Cathal Guiomard

One pays a fee, which is non-refundable to secure a bond equal to 4% of the turnover. The fee is related to the percentage of the turnover to be bonded and we think the fee element should be lower in the aggregate if the bonds were pooled together. That would require more flexibility in the legislation than is there. We made some other suggestions in the report to the Department, where we think the regime could continue but offering a less expensive form of insurance for the industry.

On sharing facilities between offices, for a small office of our size it is a challenge to provide all the administrative resources internally that one would like to have without raising the cost of the office to a point where it would seem excessive. In principle there could surely be some centralisation of administrative and back office facilities where, no different from pooling the bonds, we would pool staffing across a series of offices in a way that would economise on cost and, in principle, allow the individual offices to have HR functions and administrative central support and so on at a lower cost than is available, rather than duplicating that across each institution. One could imagine that there may be difficulties achieving a smooth functioning but in principle we would be open to pursuing the matter.

In regard to airports, I will not dwell on the policy responsibilities of the Department of Transport, which might not welcome me doing so, but clearly it is innocuous to say that there is a general presumption that competition is beneficial for the public. In line with that, one might draw certain conclusions about what might be possible in airport organisation in Ireland.

Senator Ned O’Sullivan

I welcome the commissioner and his associates. I am impressed by their work and found the presentation quite clear. My question was to be in connection with the bond system but Deputy Varadkar asked about that issue and a thorough answer was given. It is very unsatisfactory when a company disappears overnight, leaving the commission to work through the night to sort things out for people. I am sure Mr. Guiomard has examined every way to provide an early warning of a situation as it is about to happen. Is there any way the situation can be improved so that people are not left adrift while they are on their holidays?

I compliment the commission on its recent successes in court, especially as regards one of their more litigious adversaries. Are any other cases coming down the line involving Ryanair? That company seems to have an inexhaustible energy for court cases but it has lost a few recently.

Some airlines, Ryanair among them, are moving towards compulsory on-line check-in with swingeing penalties for those who do not comply. A friend of mine was charged €40 extra for not having checked in on-line for a flight from Kerry Airport to Dublin but there were no queues at the airport at the time. I used Dublin Airport recently and people tell me they have to walk very long distances to access the new boarding gates. Will that be the case when the new terminal is completed or will the process be quicker?

Mr. Cathal Guiomard

The Senator asked about passengers being left on short notice when a firm closes. We try to put ourselves in the shoes of the companies, which typically make great efforts at the last moment to ensure their survival, only to discover they do not have enough cash and have to close down. They lose control of the situation at the last minute and, accordingly, have to contact us at short notice. If firms could informally tell us a few days in advance that there were difficulties we could make preparatory arrangements without making anything public and that would make matters easier if closure transpired. We would welcome advice if companies felt there was such a risk because if we are told at 5 p.m. that a flight at 8.30 p.m. from Dublin Airport will not travel we do not have enough time to deal with the situation.

We are in the happy position of not having a High Court judicial review before us at the moment and we will not complain if that continues. However, we cannot say what the future holds in that regard.

The Senator also asked about on-line check-in but we have relatively modest responsibilities on airport charges. Everything else concerning the airline business is a matter for the companies involved. One expects innovation and changes over time, some of which prove to be successful while others are reversed. It is sensible to leave companies to find their own innovations because if they succeed there should be economies for the customer.

On walking distances, I expect that when the second terminal opens it will be adjacent to Pier E, to which it is connected. For people checking in at the existing terminal, the distances there today will probably continue to apply in the future.

Chairman

Mr. Guiomard stated in his presentation that the commission participated in the Taoiseach's regulatory review. Has any copy of that review been circulated to the regulator, or to the commissioner or to the office?

Mr. Cathal Guiomard

No. We were shown a small piece of factual information about the office and were able to confirm that the staffing and numbers were exact. Otherwise we have not seen materials from that exercise.

Chairman

The commission must be doing a very good job. I thank Mr. Guiomard for attending. We will be in contact with him again.

I propose to adjourn the committee until 4 p.m. on Tuesday, 9 June when the Commission for Communications Regulation will attend.

The joint committee adjourned at 4.35 p.m. until 4 p.m. on Tuesday, 9 June 2009.