JOINT COMMITTEE ON TRANSPORT debate -
Tuesday, 15 Feb 2005

Open Skies Policy: Presentation.

Chairman

We will now have a presentation by The Chambers of Commerce of Ireland on the EU-US open skies policy. The report has been prepared by Mr. Frederik Sørensen and Mr. Alan Dukes and we are joined by Mr. John Dunne, chief executive of The Chambers of Commerce of Ireland.

I draw the attention of witnesses to the fact that while members of the joint committee have absolute privilege, 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 now call on Mr. John Dunne, chief executive of The Chambers of Commerce of Ireland, to make the presentation.

Mr. John Dunne

If the committee agrees, I would like to cede the floor to Mr. Tadhg Kearney as chairman of our sub-committee on air transportation. He will give an overview and set the context for the report.

Mr. Tadhg Kearney

We have copies of our press release. I gather copies of the report have already been circulated to the committee.

I thank the Chairman, Deputies and Senators for taking the time to allow us to brief the committee on this report today at such short notice. The report is entitled, EU-US Open Skies and the Impact on Ireland. The inspiration for its commissioning dates back to the period following the tragic events in New York, Washington and Pennsylvania on 11 September 2001. As well as the appalling loss of life of thousands of people, both in the air and on the ground, the events showed for the second time in a decade how vulnerable the air transport industry and air travel in general were to major shocks.

In the early 1990s the first Gulf War resulted in a huge fall-off in air traffic, particularly on the north Atlantic, and threatened bankruptcy for many airlines in both North America and Europe, including Aer Lingus. Less than a decade later an even greater calamity was to fall on the industry which was to change it forever. As a small peripheral country on the western coast of Europe with one of the most open economies in the world, Ireland is particularly dependent on good air access to underpin its economic development, its attractiveness as a location for American direct foreign investment and its tourism industry.

Twenty years ago the total throughput of passengers at Irish airports was five million. In the years since traffic has grown to 25 million, a fivefold increase in two decades. EU liberalisation of its air transport industry, started in the mid-1980s and completed in 1992, has made this possible. It can be argued that the results have been one of the pillars on which our current prosperity has been built. Ireland now has the most competitive air transport market in Europe. It is the home of two of the most popular airlines in the world, including Europe's largest low-cost carrier. Dublin-London is the busiest international air route in Europe. All this would not have been possible without liberalisation.

If Ireland's experience of EU liberalisation has been overwhelmingly positive, why have we been so hesitant about promoting EU-US liberalisation? For decades the debate in Ireland on this issue has been dominated by the debate on Dublin and Shannon Airports. The time has come to move beyond that debate.

Eighteen months ago CCI's Air Transport Users Council decided to commission a report that would seek to establish the impact in Ireland of liberalisation of the air transport industry between Europe and the United States. An EU-US open aviation area agreement, often incorrectly called "open skies", has the potential to create a single liberalised market of 750 million people. The European Union and the United States combined are responsible for 65% of civil aviation traffic in the world. If EU liberalisation was so beneficial for Ireland, could there not also be an opportunity for it to benefit from transatlantic liberalisation? As I said previously, all of the discussion of late has centred on the domestic debate between the east and west coasts. In this report we seek to position Ireland between Europe and the United States and move beyond that old debate.

I am joined by Mr. Frederik Sørensen, former head of air transport policy for the European Commission, and Mr. Alan Dukes. Both are distinguished aviation economists. Mr. Dukes is well known to the members of the committee. Twenty-six years ago two young officials in the European Commission of Mr. Dick Burke wrote the first ever document on EU liberalisation. They happened to be Mr. Dukes and Mr. Sørensen. It is appropriate that they should be here today as the authors of the first significant study of an EU-US open skies policy and its impact on Ireland.

Mr. Frederik Sørensen

The Council has given a mandate to the Commission to negotiate a liberal air transport agreement with the United States. These negotiations have advanced rather quickly. Late last year there was a proposal from the Commission to accept the result of the negotiations at first phase and, presumably, the second phase to follow. We have examined the first phase negotiations and believe that practically all of the elements which Ireland might desire are included. The two remaining issues are whether it is possible to have cabotage in the United States, meaning domestic services provided by foreign air carriers, European carriers, and the complete liberalisation of ownership, in respect of which the United States is only willing to go as far as we have gone in the European Union, namely, a 49% shareholding of foreign interests.

The first phase report was presented to the Council last year which turned it down. We believe it was turned down only because something more needed to be done regarding the two issues I mentioned. It was not necessary to go for the "big bang" but something more concrete had to be done. We believe Ireland has got all of the elements in the first phase report which was presented by the Commission but I do not think Ireland presented a separate stand in the Council in speaking more positively than any of the other member states.

Deputy O. Mitchell

When Mr. Sørensen refers to the Council, to which Council is he referring?

Mr. Sørensen

The Council of Ministers of the European Union.

We have looked at the effects of such a liberal air transport agreement between the European Union and the United States for Ireland and believe there will be only the normal effects in moving from a traditional bilateral agreement to an open skies policy. In the other situations where open skies agreements have been established with the United States there has been an increase in traffic of approximately 10% or perhaps more. For Ireland the effects could be more substantial because in the transatlantic market it is right in the middle, not peripheral. It will get a number of opportunities which other countries, except perhaps the United Kingdom, will not get because they are not in the middle to the same extent.

We also saw very clearly that a number of visitors to Ireland from the United States were coming via one of the big hubs, in particular, London. The traffic coming via these other hubs in Europe to Ireland is more or less the same as the traffic coming directly from the United States to Ireland. We do not believe one could divert all of this indirect traffic to direct US-Ireland traffic but perhaps about 30% or 40% could be. I cannot be more precise without more definitive market research analysis being carried out. It is our impression that there is large potential for traffic development lodged in that indirect traffic which could be converted into direct Irish-US traffic.

I am prepared to answer any questions the committee may have.

Mr. Alan Dukes

I have very little to add to what Mr. Sørensen has said. As he pointed out we expect an open agreement would increase the amount of transatlantic business available to Ireland. In a sense the longer such an agreement is delayed the longer that benefit to Ireland is delayed. When it happens — we think it is a question of when — the question will be who will be the major beneficiaries. It is important to make the point that such an agreement would mean that any European carrier could provide services from any point in the European Union to any point in the United States. Of course, any American carrier could provide services from any point in the United States to any point in Europe so that there is complete freedom to provide service on both sides. That means there will be an opportunity but that opportunity has to be turned into reality by both the airlines and the airports. Clearly, we would expect that Aer Lingus would be a substantial beneficiary of that increase in the overall size of the market. Other airlines wishing to participate would be free to do so and would have the right to participate in the market on an equal basis.

So far as airports are concerned, there will be a substantial benefit if the total traffic is increasing. We wold expect Dublin Airport to benefit substantially. It is an incumbent airport. It has existing services and clearly there will be a benefit. We expect also that Shannon could benefit, probably to a lesser extent, and other airports could participate. It would be open to other airports to participate in the business.

Apart from Dublin and Shannon it appears to us that other airports would have to make some investments in their capacity and facilities in order to be in a position to participate in the trade but that possibility would be open to them. We have not undertaken any examination of what else would be required in terms of regional impact in Ireland because that was beyond our remit but we would point out that the extent to which any airport will benefit will depend partly on ease of access over land to that airport and on the level of facilities at the airport itself. Those are matters of internal transport policy, regional policy, spatial policy, etc. The important point is that the opportunity for extra activity exists, arising from such an agreement.

Chairman

Before moving on I wish to clarify one point. The delegation estimate a 10% increase in the volumes of traffic. It would appear that the bulk of that 10% would use Dublin as its main stopover or main point of operation. In that case the delegation made a proposal that there could be a public service obligation in regard to Shannon. How does the delegation envisage the public service obligation from Shannon would be worked, given that if there is an open skies policy Dublin will be the prime location that everybody will want to use?

Mr. Sorensen

There are a couple of ways of envisaging such a PSO service. In all of the cases, naturally, there would be a cost to the public. It could be done in the traditional way which exists already inside the EU where the need to have service on a certain route is identified and it is seen whether it is possible to attract any airline on a normal commercial basis. If not, then it would be put out to public tender and the airline that would be willing to offer that service at the least cost to the public would be chosen. That is the way it is being done in many of the European states and also in Ireland. The other way is the example from Spain where such services are deemed necessary between the Canary islands and the mainland of Spain and where the tickets are being supported by the public with a certain amount for each passenger, irrespective of which airline would be operating the routes. It has the advantage of maintaining a competitive situation between the airlines and a level playing field. Both of those ways of setting it up could be imagined if it became a necessary service between Shannon and a US destination. It would be necessary to see what happens before starting to entertain ideas of a public service obligation because we believe there is a substantial market between Shannon and the US and that a catastrophe scenario is not likely to occur.

Chairman

Thank you. The delegation states also that Irish airports must review the structure of their charges and diversify their service offering. Do you envisage from that statement that Irish airports are not as competitive as some of their European counterparts?

Mr. Dukes

No. There are some Irish airports that are not equipped to the level required to deal with transatlantic traffic and there are some that do not have other facilities, apart from the normal instrument landing facilities, or the capacity to handle larger aircraft or larger volumes of passengers. The essential point is that there is business to be got and it is up to airports to bid for it.

Deputy O. Mitchell

I thank the delegation for the presentation. Unfortunately, as it was launched only this morning, we have not had an opportunity to read it. Nevertheless, I welcome the briefing. In his presentation, Mr. Kearney asked why we had not had a more liberal regime. I think he knows the answer — there are political reasons. On that issue, which has been touched on by the Chairman, it has been based on the perceived impact it would have on Shannon. I accept there is the potential for Ireland to benefit from an open skies policy and that Ireland incorporated overall will benefit. Perhaps what is not so clear, and my colleagues in the west of Ireland will want to know, is what are the prospects for Shannon. Mr. Sørensen said it will not be a catastrophic situation but most people would like to stop way short of a catastrophe. In the longer term the opportunities will be there and they will capitalise on them but in the short term what is the likely impact on Shannon and the number of flights into Shannon?

Where do we stand in terms of negotiations? I am aware bilaterals were taking place between the two governments prior to the EU negotiations and that they stopped because of those negotiations. There were some fears that the EU would negotiate a more liberal agreement than Ireland was ready for. More recently, it has been reported that the two governments were in negotiations again. Is that the case or have they decided to step back and let the EU do the negotiations for them? How close are we to an agreement? This will also have an impact on the airlines and our national airline is not well placed in terms of aircraft to avail of the opportunities. How soon is it likely to happen?

Mr. Dukes

To reply to the second part of Deputy Mitchell's question, on Tuesday of last week in another venue there was a discussion of these and related issues and the chief US negotiator who was there gave it as his opinion that the ball is now in the Commission's court.

The Commission brought a proposal to the EU Council of Ministers last year which was turned down. I think Mr. Sørensen was very charitable and benign in his interpretation of the reasons for that which need not detain us here. That was the last thing that happened in the negotiations. The chief American negotiator now says that the ball is in the Commission's court, in other words, it is up to the European Union to make the next move.

As far as a bilateral agreement between Ireland and the United States is concerned, there are doubts about the possibility of such an agreement. I do not detect any readiness in the United States to go for such an agreement. One cannot be entirely sure about this but there is a feeling that for a number of reasons relating to decisions of the European Court of Justice, the Commission would not look favourably on it. However, we think it is possible that in the context of an overall agreement between the European Union and the United States, some transitional measures could be envisaged that would deal with specific problems at national level.

I do not think there is a danger that an eventual agreement would be more liberal than Ireland would like to see. As Mr. Sørensen has said, we do not see anything in what was proposed to the Council of Ministers last year that is in any way inimical to Ireland's interests.

As far as Shannon Airport is concerned, it is impossible to forecast what would happen. I think it would be reasonable to assume that if nothing else changes, the initial effect on Shannon would be that there would be some drop in volume. It is in that context that a transitional arrangement in the context of an overall agreement would be important but the more important consideration in the long term is that business is there to be bid and competed for. One of the points we make in the report is that in order to be in a better position to bid for that business, Shannon Airport would need, among other things, better links with continental Europe. This has begun to happen in the time since the report was drafted because there has been an increase in such links. In a sense, things are already taking place that are preparing the ground for the possibility of Shannon participating more fully in an overall increase in traffic.

Deputy O. Mitchell

I return to my original question. Where do we stand now? Is Mr. Dukes saying that nothing is happening in terms of negotiations and that an agreement is not imminent? There are many efforts being made to try to circumvent the existing arrangements, such as the starting-up of these charter flights to Orlando. There is huge pressure to liberalise, yet nobody is talking to anybody which seems ridiculous.

Mr. Sørensen

I think it would be wrong to say that nothing is happening. There are contacts going on all the time, not only between the Commission and the US authorities but also between the Commission and the member states to see where it is possible to move it a little further forward in order to permit the approval of a first phase. I believe it is impossible for this to happen at the first Council of Ministers' meeting in the spring but it might perhaps be possible to bring it forward at the meeting in June.

Deputy O. Mitchell

To move to negotiations at that stage.

Mr. Sørensen

To bring forward a revised phase one proposal. That would be the earliest opportunity and if not then, possibly in October under the next Presidency. It has to be brought forward to a meeting of the Transport Ministers and they only meet twice during each Presidency.

Mr. Kearney

I draw Deputy Mitchell's attention to page 22 of the report which gives a good summary of the current state of negotiations. A number of issues have been agreed. It is not the case that they cannot agree on anything. Page 22 shows the agreed elements and the outstanding elements. There was a sense that they had come very close to agreement during the Irish Presidency. The chief European negotiator and the American negotiator were both in Dublin last week for the same meeting. The European negotiator indicated that perhaps the Commission had become slightly disconnected — these are my words, not his — from the member states because the Council of Ministers rejected the deal that was on the table. He suggested that the Commission should perhaps put more effort into ensuring that it was in step with the member states.

Deputy Mitchell also asked about Shannon Airport in the short term. I must declare an interest. Since the report was commissioned I have been appointed to the board of Shannon Airport Authority.

Deputy O. Mitchell

I offer my congratulations.

Mr. Kearney

Thank you. The chairman of the Shannon Airport Authority, Pat Shanahan, would have announced a number of things, including the fact that the airport authority is preparing a five-year business plan which envisages the unwinding of the present dual gateway status. There is a movement in the situation and the only question now is ——

Deputy O. Mitchell

It will happen eventually.

Mr. Kearney

It is commercially prudent in preparing a business plan to prepare for that event. It is a question of a transition and how that transition will be handled.

Deputy Shortall

I agree with the comments made by Deputy Mitchell that it is very difficult to grapple with this report which members were only handed on their way into the meeting. I would have preferred to have an opportunity to read it and then ask questions.

Chairman

The Deputy is probably aware that the committee received the report only this morning as it was only launched then.

Deputy Shortall

I am aware of that. It is a very unsatisfactory way of dealing with the issues.

Mr. Kearney

The report was launched this morning. Mr. Sørensen is going to Denmark today. We apologise for the short timescale.

Deputy Shortall

I suggest that some of the delegation could return for a further meeting to deal with questions. Today's presentation has not satisfied me that the report addresses the issues of concern to us at a political level and the concerns of those in the Shannon region. A lot of lip service has been paid to the need for balanced regional development. The Shannon stopover is probably the only instrument which, in real terms, assists balanced regional development. It is the only instrument the Government has used over the years. There are major implications for the Shannon region if the stopover ends. I do not know whether the delegation has teased out all those implications in this report. I certainly would like to hear the forecasts made by the report in respect of them.

The committee has had various meetings with various groups in the past year who are concerned at the prospect of the ending of the Shannon stopover. Their predictions are very grim for the Shannon region. They are fearful of the impact of the ending of the stopover on many of the multinational-based jobs in the region. Has the delegation examined that implication from the perspective of the need to maintain air access to the United States for senior multinational executives to their plants in the Shannon region and the need to maintain access for freight purposes to service those factories? What examination has the delegation undertaken? The report states that there could be benefits for Shannon but, on the other hand, that it could be catastrophic for Shannon. This is the nub of the issue.

We all accept the fact that open skies will benefit the country overall. However, from a policy perspective, we are concerned about the Shannon region and the impact such an open skies policy will have on the Shannon region. Will the delegation give the committee any detail about that area?

The point made by Mr. Dukes about some of the other airports not being ready for transatlantic traffic struck me as strange. Is he seriously suggesting investing substantial sums in infrastructure in all airports to facilitate transatlantic business? That does not appear to make sense. Does he accept that business will inevitably concentrate on the Dublin area, transatlantic carriers are unlikely to be interested in other airports and Shannon Airport will lose out significantly?

From their contacts in Brussels various groups which appeared before the joint committee were given to understand that a small bilateral agreement between Ireland and the United States was of little consequence and would not bother anybody else in the European context. Having spoken to officials in Brussels, they were adamant that maintaining a small bilateral agreement to secure the future of Shannon Airport would not create a difficulty. Will the delegation comment?

I had never heard of the Air Transport Users Council before Mr. Kearney spoke on radio and television. Does it have members? If so, who are they? Will Mr. Kearney forward some information about his organisation to the joint committee?

Mr. Dunne

In fairness to the authors of the report, the terms of reference given to them by the chambers focused on the implications for Ireland of the open aviation area agreement. This was deliberate because for too long the debate on this issue has hinged on regional balance. Although regional balance was one of the sub-objectives, the main question concerned Ireland.

Taking the logic of Deputy Shortall's position, its ultimate conclusion is a pure gravity model in which three major European and three major US carriers emerge, each moving into a single hub in Europe which would almost certainly be Paris, London and Frankfurt. Ireland would be altogether out of the picture. This was one of the scenarios we examined in the early stages of the report. I am relieved to be able to state that, based on the work done which involved considerable discussion with the authors in addition to them imparting their views, an open skies agreement offers opportunities to Shannon and Dublin airports. In case the message is coming across incorrectly, Shannon Airport was well represented at the launch this morning and its representatives left the room extremely pleased with the manner in which the report's conclusions were presented and with the fact that it was fair to the airport.

The report specifically highlights that circumstances could be envisaged in which, for example, given the opportunity, Aer Lingus would withdraw its services from Shannon Airport and consolidate them in Dublin. Equally, however, Continental Airlines, to take one example, could well choose to consolidate its operations in Ireland in Shannon Airport. There are, therefore, numerous opportunities. The message is that the report is not a blueprint for action but simply an attempt to provide everybody with an informed basis on which they can shape up and refine their respective policies. In the context of Shannon Airport, its representatives were pleased with what we said and asked us to take the exercise a step further in partnership with the airport.

Deputy Shortall

The problem is that it is not clear what the report is saying.

Mr. Dukes

The production of the report was supported by Aer Lingus, Aer Rianta as it was known when we commenced work, the Irish Hotels Federation, Shannon Development and the South West Regional Authority. The content of the report is entirely the responsibility of Mr. Frederik Sørensen and me. The other bodies to which I referred were interested in commissioning the report.

Although our terms of reference were restricted, in the summary of conclusions on page 51 we point to a number of issues which need to be examined to round out consideration of the report. The joint committee should regard quantified forecasts of what would be the effect of an open skies agreement on Shannon, Dublin or any other airport with the greatest of suspicion because such forecasts would be entirely spurious. While nobody knows what will happen, our best guess is that, as a result of an open skies agreement, we would experience growth in the volume of transatlantic traffic in excess of 10%. To break it down further than that would be entirely false. During one discussion on aviation I attended last week, the audience was assured that five years is a long time in the life of an airline. With so many factors open to change, forecasts are of limited value.

We are not suggesting that other airports should engage in large-scale investment to participate in transatlantic traffic. Rather, we argue that if other airports were disposed to getting involved in transatlantic traffic, a number of them would have to make substantial investments. We were asked specifically if we would examine the positions of Cork and Kerry airports and they are addressed in the report. For example, we note that Kerry would need to make a substantial investment in runway lighting and instrument landing systems to be in a position to bid for transatlantic business. We do not recommend that the airport makes such investment but state simply that if it wants to participate in this area it must take a number of measures.

I can see the starting point of Deputy Shortall's question regarding Shannon Airport. However, if the airport's long-term survival were to depend on the maintenance of a bilateral arrangement and an obligation of the type we are discussing, it would amount to an acceptance that it does not really have a positive economic role. If one puts forward the proposition that an economic unit cannot survive without permanent economic support, as is the case here, one is arguing for maintaining an extra cost to the Exchequer or the travelling public. In this context, Shannon Airport would be an uneconomic operation.

Looking at the other elements adduced, namely, the need, as Deputy Shortall noted, to maintain Shannon Airport so that US multinational executives and freight can have access to transatlantic flights, while this matter is not addressed in detail in the report, there is no evidence to suggest that either the bulk or even a large proportion of these kinds of movements of people or goods go through Shannon Airport. There is no evidence that business originating from local multinationals forms a significant part of the airport's operations. Undoubtedly, it is an element of the airport's business but it is also an element of business originating in Dublin. This does not appear to be an adequate base on which to posit the future development of Shannon Airport. On the other hand, the advantages available under an open skies agreement appear to be able to generate sufficient additional business to make it worthwhile for Shannon Airport to try to participate in such business. However, we have not quantified its volume and any attempt to do so would be largely spurious. Mr. Sørensen is a planner by profession, while I am an economist by training and we are both sceptical of each other's professions. Nevertheless, neither of us would accept predictions of this nature.

In terms of the proposition that there would be no major objection to a continuing small bilateral agreement between Ireland and the United States, that may be the case. The current position is that a small bilateral agreement between Ireland and the United States will continue for as long as the two countries do not have an open aviation agreement. There is no great disposition on the part of the United States authorities to do anything about this in the sense of improving the terms for Ireland for as long as it continues to be the case. My reading — Mr.Sørensen shares my view — is that the United States authorities want an open aviation agreement between the European Union and the United States. I do not know how to read the reactions of various groups which have come back from Brussels with the impressions as reported by members. The continuation of a small bilateral agreement between Ireland and the United States is stasis. In that situation we will always experience the difficulties we currently have and there will be uncertainty for Shannon and Dublin Airports. For as long as we do not have an open aviation agreement, the bilateral agreement will continue. I do not see any disposition to change it substantially because the two main actors want to bring about the other situation.

The reason the Commission proposal to the Council failed last year was — this is my view — that some member states which had entered an open agreement with the United States did not feel obliged to create a situation where the benefit of such an agreement was extended to other member states. The United States takes the view which I think is reasonable that it does not want to negotiate a series of one-to-one agreements with EU member states but an open agreement with the European Union. That would be more efficient all round.

Mr. Sørensen

Deputy Shortall is right in saying those who visited Brussels were hearing positive noises on the proposed policy as there was a good feeling between the Commission and the Irish Government on the way the negotiations with the United States were proceeding. The Commission was prepared to incorporate an Irish negotiated open skies agreement with the United States into an EU-US agreement. However, last year the Council of Ministers, including Ireland, said no to the Commission's proposals. I think if Ireland had stood up and said it could accept the first phase, possibly the Commission would have maintained that positive attitude to Ireland but as Ireland had also said no to the Commission's efforts, there was a Catch 22, where Ireland was saying it needed an open skies policy in order to develop its bilateral position because the EU-US negotiations were not succeeding but had said no to what was on offer. My feeling — I have had some indications from Brussels — is that the Commission did not appreciate this.

One can see clearly from the figures that Shannon Airport has a market of approximately 600,000 passengers travelling between the west and the United States. When the restriction is removed, it may not be possible for Shannon Airport to maintain this market, as some may travel from Dublin and Cork Airport, if Cork Airport is successful in establishing services to the United States. We do not believe, however, that the figure will fall below 400,000. A market of 400,000 passengers would support two, three or perhaps four destinations in the United States. We believe Continental will remain at Shannon Airport and ensure a good service to the United States.

Mr. Kearney

Deputy Shortall asked about the Air Transport Users Council. The Chambers of Commerce of Ireland has a membership of 12,000 companies in 59 chambers and a number of councils which cover particular policy issues. The Air Transport Users Council is the oldest within The Chambers of Commerce of Ireland, set up almost 20 years ago, because The Chambers of Commerce of Ireland took a contrary view to the traditional perception that business was always represented as a provider, not a consumer of air transport services. In its view, it not only applies to business travellers but is in the interests of hoteliers to have efficient and low cost air transport services into Ireland.

Chairman

We will take Deputies Glennon and Connaughton together as Deputies Shortall and Olivia Mitchell must leave early.

Deputy Glennon

I join my colleagues in welcoming the delegation and thanking it for the presentation. I congratulate The Chambers of Commerce of Ireland and its Air Transport Users Council on its initiative in presenting such a worthwhile report. I thank those who made such a study possible and have no doubt it will be a major contribution to the debate on the forthcoming infrastructural requirements for transport in general as well as air transport in the future.

The projected growth rate in Ireland's economic activity is 10% but I notice that the level of growth is not set in a timeframe. Will the delegates who have an eminent economist on board enlighten the committee on the timeframe for this economic growth?

Our geographical location, in the central position of the new EU-US bloc, presents significant potential. Has The Chambers of Commerce of Ireland given any consideration to the exploitation of this location in the context of long-haul traffic from outside the new bloc and will it comment on it?

In the press release Mr. Dunne states: "The onus is now on all parties in Ireland, Government, business and unions, to prepare to seize this opportunity for the benefit of our economy in the future by building a business and regulatory environment that actively supports this vision". I agree wholeheartedly but does the forum exist and, if so, can it be identified? If it does not exist, how should we go about creating it? If the projection of 10% growth in the economy over a reasonable time period proves to be accurate, it behoves us to exploit to the maximum the advantages that will accrue.

Deputy Connaughton

I congratulate everybody involved. Mr. Dukes will know that I have spent a lifetime putting the case for regional development. Whereas I am a new member of the Joint Committee on Transport, I am well aware of regional imbalances, a matter on which I will not dwell because Deputy Shortall touched on a few of the relevant points. Is it correct that approximately 20 million passengers will soon pass through Dublin Airport every year?

Mr. Kearney

Yes.

Deputy Connaughton

This is commercially driven as no American carrier will decide to come to Ireland out of sentimentality or because it likes the colour of the shamrock. This is also why these carriers prefer Dublin Airport to Heathrow Airport. While delighted that the country will not miss out, I am sceptical as to how this will pan out for the other airports. The 10% increase in passenger volumes equates to 2 million extra passengers for Dublin Airport. However, according to the delegation, the number of passengers going through Shannon Airport will drop from 600,000 to 400,000. All of a sudden, the disparity becomes wider. Mr. Dukes pointed out that he is not in a position to advise any authority what to do. However, it goes without saying that airports, such as Shannon and Knock, will have to receive large investments. It will not be helicopters that will be landing at the end of those journeys. Airplanes will become larger anyway.

Mr. Dukes

Helicopters are more complicated than that.

Deputy Connaughton

We tend to get more helicopters than jumbo jets. In order for the regional airports to catch up, more investment will have to be made. Even with that, they are only likely to reach the existing status quo. Hopefully, there will be internal and intercontinental traffic for Knock Airport.

If nothing else happens other than what Mr. Sørensen and Mr. Dukes believe, and considering Shannon Airport is seen as a driver for regional development, I am sceptical that these developments will be good for the regions. If one looks at the dynamics of regional business, according to the last population census, 2 million of the State's 4 million inhabitants live in the greater Dublin area. With such a population, the resources for sustaining economic development in this area will always be available. However, it is a different story for Shannon or Cork airports as it will always be argued that they do not have the throughput. It is the chicken and egg argument: with no throughput, there will be no investment and vice versa. Dublin Airport will be the premier landing spot for American carriers. As nothing else counts in this big bad world but commercial circumstances, why would US carriers want to land at Shannon Airport, if it will be more profitable to land at Dublin Airport?

Mr. Sørensen

Regarding the timing of the 10% rise in passenger numbers, I expect it to occur over a three year period. That growth rate is over and above normal. It is in that order of magnitude.

How should the central position of Ireland in the transatlantic market be exploited? Dublin Airport presents the best possibilities as it services the most connections to the rest of Europe. These connections are used by Aer Lingus and other continental airlines. They have better services out of Dublin Airport than in the other airports. Shannon Airport has recently improved this situation, with Ryanair taking up more connections to Europe from there. While not a quantum leap, the added number of European destinations is still significant. However, one problem arises as Ryanair does not accept interlining. Interlining is necessary if one wants to exploit a central position in the transatlantic market. It will be necessary to see if Ryanair can be brought into an interlining system, not necessarily a traditional one, where it can offer an interline service between Shannon and the rest of the Europe.

Mr. Dunne

A system by which one could check one's bag through.

Mr. Sørensen

Continental Airlines is interested in maintaining its use of Shannon Airport. If it were to move to Dublin Airport, it would have to compete against Aer Lingus, American Airlines and Delta. By keeping Shannon Airport as its main Irish access point, it will avoid damaging competition from those airlines and develop its own market to serve its hubs in the US. While American Airlines continues to use Shannon, we do not know if it will follow in the steps of Continental. However, from speaking to individuals in the airline, I understand it is not a short-term initiative but one it expects to maintain.

Mr. Dukes

I understand Deputy Connaughton's scepticism. However, if that was all there was to it, there would never have been any economic development west of the River Shannon. To be dismissive of the prospects for any economic venture to be attractive is a little unjustified. No one will provide an air service to Shannon Airport for reasons of sentiment. It will be provided because there is money to be made from it. Mr. Sørensen has already dealt with some of these considerations.

Our report is not recommending large amounts of investment just to stand still or let gaps widen. As we were asked to consider the position of airports, other than Shannon and Dublin, we observed that if they were to participate in this business, they would need further investment. Both Shannon and Dublin Airports will continue to need investment in the future, a normal feature of this business. Apart from growth in business volume, other considerations, such as aircraft size, will make demands on airports.

As far as Shannon, Cork and Dublin Airports are concerned, the central point is that an open aviation agreement will certainly produce conditions in which the total volume of traffic between Ireland and the United States will increase. Where it goes depends on the carriers interested in it — there is enough business in the Irish market to keep carriers interested — and on how the airports adapt to meet the needs of carriers interested in providing this service. There is no objective reason Shannon Airport should not participate and there may be opportunities for Cork Airport to do so. However, it will be up to the owners and operators of the airports to make it happen.

Mr. Kearney

One of the issues to come from the report to which Mr. Dunne referred was the fear of massive consolidation, with only three gateways in Europe and three in the United States. We discovered to our pleasant surprise that Ireland had the seventh largest transatlantic market of the 25 EU countries. Therefore, it is disproportionately well served with transatlantic services and better served than larger markets such as those of England, France, Spain, Germany and Italy — countries with populations of 50 million plus. Ireland has a disproportionately large market for a number of reasons, including the level of direct foreign investment by American companies, tourism and links to the east coast of America. There is a view on the part of the consultants that there is a definite market of approximately 400,000 for Shannon Airport which they believe would be served.

The open skies policy is not the only issue undermining Shannon Airport because others such as the infrastructural deficit arise. For example, a motorway from Shannon Airport to Galway would make it the airport of Galway in the same way it is currently the airport of Limerick. The completion of the downriver crossing in Limerick would add back the passenger numbers lost in an open skies scenario. However, traffic is choked at Ennis and Limerick.

Cost issues also arise in regard to Shannon Airport. It was only by addressing such cost issues that the Ryanair deal was recently announced which will add two million passengers and double the airport's business in five years.

Deputy Shortall

Will it cost Dublin Airport a fortune?

Mr. Kearney

No, the Ryanair deal is cash positive. My point and that of the consultants is that Shannon Airport faces not just the issue of open skies but many others.

With regard to congestion in Dublin Airport, I was recently told that a person who travels regularly from Boston to his family in County Leitrim would find it far faster to use Dublin Airport, although it is only 20 kilometres further to Shannon Airport. Infrastructural issues arise. We would be confident and the consultants have indicated that there would be particular business at Shannon Airport that would be served by American carriers, if not by Aer Lingus.

Mr. Dunne

There is no easy answer to the specific question on institutions. There is no institution and we are not looking for one to solve it. A new Minister and a new senior official in the aviation policy area have been appointed and dialogue is continuing. The process is based on dialogue. We commissioned the report because we were of the view that more heat than light was being generated around the discussion. We are making progress on a shared understanding. Everybody can unite behind the idea that this is, first, very important for Ireland and, second, potentially a benefit for it. Everybody can agree that what we need to do is maximise the benefit to Ireland. That is not to take away from the sub-national or regional issues but a first headline.

The second matter on which we all agree is that the days of approaching this issue from a protectionist perspective are gone. We need to consider it in terms of opportunities and maximise their realisation. That is a substantial step forward in debating the issue from our position of just two years ago. If one allows for the posturing involved as part of the game of politics — we all know and love it——

Senator Dooley

Posturing is the game in business also.

Mr. Dunne

I accept that. When I refer to politics, I mean politics broadly; I am not just talking about politicians. We engage in politics also.

Chairman

All politics is local.

Mr. Dunne

However, behind this is a growing shared understanding. While nobody will rush to concede ground, there is a growing consensus which we see as positive.

The opportunities are not inevitable, a point I was at pains to emphasise. There are opportunities at Shannon Airport and also at Cork Airport, although to some extent this issue will pitch them against each other. For example, Continental Airlines would want Shannon Airport to be a hub for the same reasons it would want Newark rather than JFK to be a hub, namely, it suits its economic model and works for it. There is no reason it could not work for Shannon Airport which has particular competitive options and possibilities compared to Dublin Airport in regard to pricing and operational restrictions it can use to maximise its business. There is potential. People need to get behind this vision and try to work for it.

Beyond this, the question of timing arises. The clock has been ticking for a couple of years. We must recognise that Europe and the world will not stop for us. We also need flexibility around this issue. We need to recognise that there must be openness to change.

The report highlights a point to which Mr. Dukes referred. We gave narrow terms of reference simply because potentially this was a huge exercise. However, inevitably, bouncing on the edges, the lesson is that one cannot look at aviation policy without looking at the totality of integrated transport policy. Some of this is concerned with aspects of aviation such as the essential air services programme which, on the face of it, has nothing to do with transatlantic services but in another way has an impact on the development of airports in Ireland. Road and rail infrastructure are also important while we cannot ignore the wider context of EU policy-making. There are constraints on our ability to interact bilaterally simply because there is a European-US political dynamic in play which is definitely impacting at present.

The overall message we want to bring is positive. There is great potential and a growing consensus to move towards it. We would like to think this report will be a resource that will reinforce the issue from everybody's perspective.

Chairman

Mr. Dunne referred to a 10% growth figure. Is that on top of natural growth during the next ten years? If so, it is phenomenal.

Deputy O. Mitchell

Is it 10% growth in passenger numbers?

Deputy Glennon

It is 10% growth in the economy.

Chairman

It is phenomenal. While we can all be parochial and I can be as parochial as anyone else, the message that needs to be sold more than any other is that if this economic growth can result from an open skies policy, people will be very open to supporting it.

Senator Dooley

Like other members, I did not have a chance to read the report but I am sure it is comprehensive, knowing the background of the authors and the work put into it. It seems clear from Mr. Dunne's contribution that The Chambers of Commerce of Ireland has decided to support the ending of dual gateway status. Was there any input from the mid-west in the making of that decision or any contact with the chambers of commerce in the general mid-west region? How did Mr. Dunne come to that conclusion?

With regard to the beneficial effects, Mr. Dunne referred to a figure of 10% but qualified it with the word "perhaps", which tends to weaken the argument. He might explain the methodology used in arriving at that figure. While I am sure this information is included in the report, will he briefly outline the process to us? Some 10% growth over three years would mean a doubling of the current growth rate, which would be phenomenal. He might explain further.

Mr. Kearney stated he was a member of the board of the Shannon Airport Authority. Does he support The Chambers of Commerce of Ireland's contention that dual gateway status should be ended? If so, how would he marry the two?

Chairman

That was a loaded question.

Senator Dooley

It is a question which I am sure Mr. Kearney is more than able to answer. He has not been involved in this business for 20 years without being able to get out of that one.

Mr. Dukes

He answered it about 10 minutes ago.

Senator Dooley

I would like to hear the answer again.

With regard to the concerns which the authors have rightly raised about Shannon Airport, Mr. Kearney stated the main beneficiaries were Aer Lingus and Dublin Airport. I would add the case of the east coast. I do not wish to repeat the argument made by Deputy Shortall concerning the east coast and the need for balanced regional development, but whenever I have mentioned the topic of Shannon in this committee the importance of that balance has been addressed. The need for active and forceful supporting activities was referred to and in this context I ask Mr. Kearney to outline the status of the dual gateway. Is the issue being moved to another forum, organisation or agency? Perhaps Mr. Kearney could clarify his thoughts on who will provide these supporting activities. He has spoken about the road programme of the NRA. It has a clear vision of where it is going. What else can be done, who will do it and who will fund it?

Senator Morrissey

I welcome Mr. Dukes and Mr. Sørensen as their presence comes hot on the heels of the presentation of their report this morning. The report will provide the framework for all future discussions on this topic over the coming years. In reply to a previous question regarding a possible increase in passenger numbers, the figure of 10% over a three year period was referred to but I doubt it is 10% starting next year. It might be 10% once this happens, but it will only occur over the course of a series of agreements.

Mr. Sørensen

Yes.

Senator Morrissey

I draw your attention to the outstanding elements on page 23 of the report. Some of these appear to be technical, for example, with regard to licensing, establishment and state aid. While we know what state aid for airlines means in the United States, could the authors of the report explain what they mean here?

It is remarkable that a report could envisage a growth in passenger numbers of 10% in the context of the performance of the Irish economy. We receive presentations from the airline industry about how increases in passenger and tourism numbers will result in the creation of thousands of jobs. Have the authors tried to quantify what a 10% increase in passenger numbers will mean to the tourism industry, which will benefit most? It would be a large figure in terms of employment for a country that has already achieved full employment. This is a good report and I would like to tease out this aspect.

Senator P. Burke

I welcome the delegation. Those who fly to Shannon Airport would probably remain in the region between Cork, Kerry, Limerick, Shannon and Galway while some may travel further north to counties Mayo or Donegal. I am surprised to learn that half of those who travel to Ireland from America do so via London. Has any analysis been done on this? I have spoken to some people who came to Dublin from America through London and they usually stay in the eastern region, for example Wicklow.

How will an open skies agreement affect Belfast and, in turn, how will that affect Dublin? The report mentions that a certain amount of cross-Border activity could ensue. It has not specifically said if this would help Dublin but I presume that is what is envisaged. I also presume that people will fly from Belfast directly to destinations in the US under such an agreement. How will this affect US flights in the southern part of Ireland?

Mr. Dunne

I will take the questions in the order they were asked. The Chambers of Commerce of Ireland have decided to support the ending of the dual gateway only in the sense we have decided to support the sun coming up tomorrow. It is inevitable. In the context of an open aviation agreement everybody accepts the dual gateway will have to go. The real issue is how to structure a policy for an era beyond that.

As it is the second time this has been said, I must challenge the belief that the dual gateway is the linchpin of our mid-west industrial strategy. It is not and has never been. Everything from the Shannon tax rezoning to the dedicated industrial development region was based on an economic development model that reinforces, by building expertise in clusters based on the principle that an established industrial base attracts other bases. Some people do not realise how much some of our recent developments — such as our trade deficit with China — are driven by the amount imported by Dell for its manufacturing plant in Shannon. The plant is one of its most efficient in the world, a reason for which is its competitive sourcing of its sub-supply. This represents a changed economic model, which was not an issue ten years ago because models change as time passes. We do not perceive the dual gateway as being critical to the future of the mid-west region and its removal is not equivalent to abandoning the mid-west.

Senator Dooley

Has the organisation had any discussions with Dell or companies like it on their concerns about the potential lack of direct daily services?

Mr. Dunne

Yes.

Mr. Kearney

There were two days of public hearings in 2004 and we received approximately 40 submissions from different bodies. I refer the committee to page 67 of the report and the list of submissions from Clare County Council, the Ennis Chamber of Commerce, members of the Irish Hotels Federation, the Mid-West Region Authority, SFADCo — was partner in the report — the Signal Workers Group and SIPTU. Consultation did take place.

I reiterate John Dunne's point that this is not a question of supporting the ending of the dual gateway status. The report is not about that status. It is about an EU-US open skies agreement and the impact on Ireland. There is an inevitability to the emergence of such an agreement. Up until now the only debate has been about Shannon and Dublin. There have been no debates about how Ireland will position itself in the context of an open market covering the massive US and European landmasses, which between them have a combined population of 750 million. The report was written in that context.

Senator Dooley

There is no reference to Dell in the report.

Mr. Kearney

We would have spoken to chambers representing companies in the region, for example, and the importance of the gateway to those companies has been articulated previously to this committee, for example, by SFADCo. It is a partner in this report.

With regard to the countervailing measures that will be taken, for example, in the context of Shannon Airport, the airport is repositioning its business model. In the past it has been disproportionately dependent on one type of business which has undermined the model. The announcement of the agreement with Ryanair, which is expected to generate 2 million passengers through the airport, is one example of how the model is being repositioned. From an economic development standpoint, there is a generally accepted view that each additional million passengers produces 1,000 jobs in the region. I believe I have answered the questions regarding infrastructure, in particular the road infrastructure.

Senator Dooley

Anybody who works in the technology sector knows that two of the great technology regions in the United States are Austin, Texas and the bay area around San Francisco in California. Neither of these have direct flights to Shannon. Given that there are only five routes into America from Dublin as currently agreed, travelling from Austin to Chicago or New York is a very significant flight, let alone across the Atlantic. In the context of linking Dell management in these regions to Dell management in Limerick the issue does not directly pertain.

Mr. Dunne

That tends to be the way some of them go.

Mr. Sørensen

I will elaborate on two of the questions raised. A clear indication of the volume of the indirect traffic into Ireland is provided by the Irish tourism authority. It indicates from where such passengers come and how they tavel. We also know that such passengers travel mainly for tourism purposes. However, we do not know why passengers have chosen to travel, first, to the United Kingdom and on to Ireland. To get to the bottom of the question and establish how realistic it is for Ireland to divert to direct services a market research analysis would need to be carried out. I have not seen one and nobody has offered any such analysis to us during our work.

It is possible that tourists travel to see places in the United Kingdom and then do a circuit of Ireland. If the economic conditions for air transport were sufficiently attractive, they might be convinced to travel to Ireland first and then the United Kingdom. If they were to travel to Ireland first, it is likely they would spend more money here than they otherwise would do. Statistics from the Irish tourism authority show that visitors from the United States spend more money here than visitors from continental Europe. Therefore, as stated in the report, the more one can encourage visitors from the United States to come to Ireland the better.

With regard to the 10% figure, I refer to a report prepared for the European Commission, the so-called Brattle Group report, on the effects of an EU-US liberalisation agreement. The report is available on the Internet on the Commission's website. We have included in our report the executive summary which is italicised. We have also examined the work of the group. It examined how such an agreement would affect economic areas, including tourism. It examined this question in a general way such that it would apply to Ireland, Spain and the United Kingdom and came up with an estimate of only 10%. We are satisfied that this figure, if anything, is on the small side because the group did not take into account the importance of tourism to Ireland. When one examines the purposes for which people visit Ireland, tourism far exceeds business in importance in transatlantic traffic. Nothwithstanding this, it is also important to note that air traffic to Ireland is mainly by scheduled as opposed to chartered services. Chartered services account for 2% to 5% of the market. This is rather unusual when there is such strong tourism traffic. The pattern may change in the future but it all depends on how strongly the scheduled carriers react.

I said it would take three years for the 10% figure to be realised but it could take longer. Given the situation that prevails with the economic crisis in air transport continuing to persist, it will probably take a greater number of years to realise this figure. However, if we return to a position where air transport develops — this may happen before such an EU-US agreement tales effect — three or four years would be a realistic estimate for achieving the figure.

Senator Morrissey

That relates to my question. Page 23 of the reports deals with the outstanding elements. Would they have to be resolved and how complex, technically, would it be to do so?

Mr. Sørensen

I do not believe the outstanding issues are of real importance. They might be carried over into the phase two negotations. The only important issues that remain to be addressed in the phase one negotiations to be accepted by the Council of Ministers are the ones I mentioned which include cabotage. The United States has a proposal on the table that one can offer, market and sell one's services under one's name in the United States but those services will have to be operated by a US carrier. One cannot code-share but this condition may have to be removed. However, it is highly unlikely — any European carrier would agree with this — that a European carrier would offer its services using its aircraft in the United States for cabotage because it would have to station aeroplanes and crews in the United States which would be expensive. With the competitive conditions prevailing in the United States, that would not be economically realistic. However, if one could approach the United States with a view to selling one's services and request two competing carriers to operate one's services, that would be a much more viable economic option.

The other issue is that of ownership. The United States has not been willing to promise much beyond saying it will discuss in the future moving from the figure of 49% to a higher one. It is a matter of trying to formulate a proposal in such a way that the United States will seriously enter into negotiations with Europe about the possibility of moving beyond the figure of 49%. The approach should not be one of stating this will be achieved but one of examining how it can be achieved.

Mr. Dukes

I wish to pick up on a number of the outstanding issues. Reference was made to Belfast. If we have an open agreement with the United States, certainly Belfast will be a competitor. If it proves economic, there will be a service commencing next summer from Belfast to Kennedy airport. If such a service turns out to be economic, comparatively that will be good news for Shannon Airport because if a service from Belfast to Kennedy airport is economic, a service from Shannon Airport to Kennedy airport will be economic.

On the issue of backtracking from London, many of those involved in the debate tend to forget the size of the United States. We have services from Chicago, Kennedy airport, Newark and Los Angeles while Delta services Orlando. A geat deal of the United States is not covered by these services. If a person wants to travel from the mid-west of the United States to Dublin, he or she has two options. He or she can fly from his or her home city, be it Kansas City or St. Louis, to one of the gateway points in North America for Ireland — Chicago, Los Angeles, Kennedy airport, New York or Boston — and on to Dublin. That flight from his or her home town to one of these gateways can be quite long. The other option is to take a flight from near where he or she lives to London and then take a short flight to Dublin. This is often more attractive. It is an element of backtracking, although we do not know how important it is. It leads us to the conclusion that if we had more access points in the United States, we would capture more of that business. If people want to fly from Los Angeles to Dublin, they can get a direct flight. Previously, they had to fly to an east coast airport or London. Clearly, there are people now flying directly to Dublin who previously would have flown to London and on to Dublin. Securing more access points in North America would help us to recoup some of that traffic but it is difficult to say how much.

Reference was made to the east coast. Half of the population of the State live in the greater Dublin area and it is obvious that any development will take place substantially in that area. This does not mean, however, that we should stop looking for development because if it does not take place there, it will not happen anywhere else.

There is a separate issue which at another time I would have entered — how we pursue an effective regional policy or spatial strategy. I have resisted the temptation to become involved in that argument since it appears the Government has decided not to indulge in it.

Mr. Sørensen

As Mr. Dukes said, he is an economist, not a planner.

Senator P. Burke

Would it be possible for charter flights to use the regional airports that can take transatlantic aircraft because of an open skies policy?

Mr. Dukes

There are questions about the ability of some of the airports to handle that traffic in terms of landing aids and runway lengths. Essentially, charter traffic is more freely available and requires different negotiation. Unless there are heavily used routes, charter traffic is incapable of sustaining a major airport operation, unless it happens to be a major year-round destination.

Senator P. Burke

Would there be problems with slots at airports?

Mr. Dukes

No.

Chairman

I thank Mr. Dunne, Mr. Sørensen, Mr. Dukes and Mr. Kearney for coming before us and giving us a summary of their report which poses many questions. People must accept that there must be major change in the aviation sector sooner rather than later. Parochialism will have to be parked in some cases.

Deputy Glennon

Is there a Sligo stopover?