Joint Committee on Transport and Communications debate -
Wednesday, 16 Nov 2022

Update on Issues in Aviation Sector: Engagement with Mr. Willie Walsh

Chairman

The purpose of today's meeting for the committee to discuss an update on the aviation sector. We are delighted to be joined by Mr. Willie Walsh, director general of the International Air Travel Association. He is very welcome.

With regard to privilege, witnesses are reminded of the long-standing parliamentary practice to the effect that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. If their statements are potentially defamatory in relation to any identified person or entity, they will be directed to discontinue their remarks and it is imperative that they comply with any such direction.

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. Members are also reminded of the constitutional requirement that they must be physically present within the confines of the Leinster House complex in order to participate in public meetings. Reluctantly, I will not permit a member to participate if they are not adhering to this constitutional requirement. Therefore, any member who attempts to participate from outside the precincts will be asked to leave the meeting. In this regard, I ask any members participating via MS Teams to confirm that they are on the grounds of Leinster House campus prior to making a contribution. All those present in the committee room are asked to exercise personal responsibility to protect themselves and others from the risk of contracting Covid-19.

I invite Mr. Walsh to make his opening statement.

Mr. Willie Walsh

I hope the committee has had the opportunity to read the update we sent. I will not go over it word for word, but I want to make some general comments. The airline industry has gone through an extremely difficult period in 2020-2021 and the first part of 2022. I am pleased to say it is now recovering and that recovery is strong and gaining momentum. Looking at international passenger traffic, which was the area hardest hit as a result of border closures, we are now operating at about 70% of where we were in 2019. Most domestic markets have recovered strongly. Globally the domestic markets are at 81%, but that is heavily impacted by ongoing disruption in China. The Chinese domestic market represented about one quarter of all domestic travel globally. With the ongoing pursuit of zero Covid and restrictions in China, it remains heavily impacted, and traffic in the domestic market is operating at about 40% of where it was in September 2019.

I am pleased to say Ireland is recovering strongly in line with, if not slightly stronger than, the rest of Europe. Obviously the first three months continued to be impacted by some border closures but the second half of this year has been strong. There has been strong performance on flights from Ireland to Europe and Ireland to North America. Flights from Ireland to the UK are gathering momentum but lagging behind the other major markets.

Globally we expect the market to recover to 2019 levels in 2024. We expect Ireland to be back to 2019 levels probably in 2023 given the pace of recovery, but certainly by 2024. In fact, our projections for Ireland in 2024 are for a strong recovery beyond where we were in 2019. That is despite the headwinds faced by the industry. We are seeing global GDP slow down. We are seeing very high fuel prices.

A particular concern for the industry is the high price of jet fuel. which has significantly increased. Even when we have seen a reduction in the price of Brent crude, we have seen jet fuel remain stubbornly high. Turning to figures for the first ten months of this year to the end of October, we see Brent average at about $104 per barrel, but jet fuel at $141 per barrel. What we call the crack spread, which is the price difference between jet and Brent, has widened to an average of 36% this year. Traditionally, that sits at around 17% to 18%. Despite some relaxation in the price of Brent, we have continued to see very high jet fuel prices.

For the airline industry fuel represents the single biggest cost. In the ten years between 2010 and 2019, which I would take as an average of a good period in the industry, fuel represented about 27% of an airline's cost base. That can vary widely, depending on the business model. However, the high prices of oil have had a big impact on airline cost bases this year. The war in Ukraine has had some impact, principally affecting the price of oil and the volatility associated with that. In terms of its impact on global traffic or on traffic into and out of Ireland, it has been very limited.

To summarise, it has been a very tough period for the industry, but we are seeing a strong recovery. Despite the headwinds that are obvious and evident, we continue to believe the industry will recover strongly for the rest of this year and through 2023.

Chairman

I thank Mr. Walsh. We look forward to the question and answer session. I ask members to limit themselves to eight minutes as we have a reduced timeframe of two hours. I call Deputy Cathal Crowe who is substituting for Deputy James O'Connor.

Deputy Cathal Crowe

I welcome Mr. Walsh whose opinions are always valued at this committee.

I thank him for his opening statement, which I have read. It is really great to hear that Mr. Walsh is anticipating a 100% recovery in 2023, and that by 2024 this will have gone to 119% on the 2019 flight figures. Mr. Walsh referred to this year, 2022, and if I read the figures correctly, he said that a 76% recovery has stagnated at some point this year. Was some of this down to the baggage handling fiasco around Europe, including our own in Dublin Airport? Was that a factor? Of course there is the war in Ukraine also, but could Mr. Walsh attribute something to that stagnation?

Mr. Willie Walsh

Yes. That is a great question. It did have some impact but it was very marginal. We have seen an impact on a number of airports around Europe, principally Heathrow in the UK and Schiphol in Amsterdam where caps for passenger numbers were introduced. The widespread coverage of disruption at the airports, including at Dublin Airport, clearly sent a worrying signal to consumers who were considering flying during the earlier part of this year. The three airports that received the most coverage globally, and certainly within Europe, were London Heathrow, Amsterdam Airport Schiphol, and Dublin Airport, for that period when there was significant disruption. It had a very marginal impact. We witnessed a slowdown in bookings for a short period, but then a strong recovery. The main reasons for the year-to-date figures being impacted in the way I expressed them earlier are due to the border closures and the restrictions that principally continued during the first quarter of this year. Most of those restrictions were relaxed from March onwards. The second half of this year, from July onwards, has seen a very strong recovery. That is evident here in Ireland where, in some cases, markets are already above where they were in 2019. I would say that the problems have largely been overcome at most airports but not so at Schiphol, and to a lesser degree at Heathrow. I have travelled in and out of Dublin Airport and I experienced a reasonable service. It is not where it was and what we have become used to, but I believe it is a reasonable service compared to where it had been during the period of disruption.

Deputy Cathal Crowe

Mr. Walsh mentioned Schiphol Airport. Four members of our committee are travelling there tomorrow to scrutinise Dutch aviation policy. Some of the genesis around the cap on passenger numbers that came in this year related to baggage handling and the capacity that Schiphol Airport was struggling to meet. Now it looks very much like being a permanent fixture and that more aircraft will be landing in the regional airports of the Netherlands. That model enthuses a lot of us here because we feel there is a huge volume of air traffic in and out of Dublin, with far less going to Shannon, Cork, and Knock airports. Hopefully our new national aviation policy can look at this for a number of reasons, including a more balanced regional development and for sustainability. What are Mr Walsh's views on that?

Mr. Willie Walsh

I would not necessarily agree that this measure will drive traffic to other airports in the Netherlands. When issues like this have happened before, we have seen that it tends to drive traffic away from the country. I appreciate the desire to see more balanced growth around the regions, and I believe it is something the Government should look at. Certainly, in terms of an aviation policy there is scope to look at that. Trying to create a situation where people are forced to fly to a destination because there is limited capacity at the destination they want to travel to, does not necessarily mean that people will fly there. In 2008, for example, when the Dutch introduced a tax in an effort to raise revenues, it actually drove traffic away from the Netherlands and into neighbouring countries where the tax did not exist. We need to be careful, when we introduce policies like this, that we think through fully the impact it will have.

Our assessment of the measures being taken by the Government in the Netherlands is that it is using a very blunt instrument. I do not believe they have thought it through carefully. They are still trying to work out how they will implement the policy. Had they considered all of the issues properly, they would have been able to communicate very clearly to everybody how this was going to work. The latest update, which I received early this morning, is still very vague on the ambition other than to reduce the number of flights operating into Schiphol and hope that it reduces noise and CO2. I personally do not believe it is going to have the impact they are aiming for. There is still a lot of work they need to do. Looking at these issues properly and working through all of the options is the sensible thing to do.

Deputy Cathal Crowe

I thank Mr. Walsh for that.

Brexit has really reminded us that Ireland is a peripheral nation in Europe. This is very much so along the west coast of Ireland, where we have three large airports. Knowing Irish aviation like he does, what role does Mr. Walsh envisage for the likes of Shannon Airport going forward, when we reconfigure our national aviation policy, and hopefully knock on the doors of some of Mr Walsh's International Air Travel Association, IATA, members to try to get them to fly in and out of there?

Mr. Willie Walsh

Shannon Airport has always been a good airport, and particularly from a transatlantic point of view. The promotion of the Wild Atlantic Way has been very successful. We need to continue, as a country, to continue to attract visitors into the country. The local base of the Shannon region is relatively small. Ireland therefore will have to depend on attracting traffic into the country, principally on the back of tourism, but also investment in industries that are based in the west of Ireland. There are opportunities for tourism certainly at Shannon. We have to put it into perspective. Shannon Airport is a relatively small airport. London City Airport, for example, carries three times the number of passengers as does Shannon Airport. In Geneva, where I am living now, Geneva Airport has ten times the number of passengers. The local population in Geneva is about 700,000, which is probably similar to the combined population of Clare, Limerick and Galway. What Geneva Airport has, and which it fully exploits, is proximity to skiing during the winter. A lot of people fly into Geneva Airport to travel into France and Italy, as well as Switzerland. There are some opportunities and I would not in any way try to inhibit ambition, because ambition is important. We need to be realistic, however, that the potential for growth at Shannon Airport is somewhat limited. Principally, Shannon Airport is a great airport to serve the west of Ireland from a US point of view, which has always been a strong market for Shannon Airport.

Deputy Cathal Crowe

I have two final quick questions and then I will wrap up. I met a lot of aviation leasing companies last week. Collectively they estimate that their sector will purchase 17,000 new aircraft within the next decade. Ireland has dominance in this area, as Mr. Walsh will be aware, and 50% of this trade will be through Ireland, with 8,500 aircraft going on Irish books. This is absolutely colossal. Does Mr. Walsh believe there is scope within our new national aviation policy in this regard? We have always had that really proud heading of aviation maintenance, repair and overhaul, MRO, with the likes of Lufthansa Technik, and we have been really good to them in attracting them and keeping them in Ireland. In the context of that number of aircraft going on Irish books, does Mr. Walsh believe that perhaps our new national aviation policy should dream a bit bigger and look at some degree - maybe not full on - of aviation manufacturing and aeroplane manufacturing in Ireland? A few years ago, Turkish Airlines, with a far lesser order was able to demand certain components be manufactured in certain facilities there. Does Mr. Walsh believe there is scope for Ireland to leverage something here, by suggesting that if a company is manufacturing some of these 8,500 aeroplanes, then that should happen here?

There will be a move to sustainable aviation fuels in 2025, comprising 2% of all fuels supplied at airports. Will we see a change in pricing? A lot of airlines and a lot of the IATA members have advance purchasing deals. When those have run out, they will be going into the rigours of the market next year. Will we see a fluctuation in air fare prices?

Mr. Willie Walsh

I believe that Ireland has done a fantastic job in attracting all of the major aircraft lessors to the country. The added benefit that derives as a result of that industry is fantastic. We should not take it for granted. I can tell the committee there are a lot of other countries who would see that as an opportunity for them to try to attract this business away from Ireland. We have a lot of advantages, including our history in that area, the legal system in Ireland, and the expertise we have here.

When it comes to manufacturing aircraft parts, we do not really have a history of it. There is a much bigger industry in Turkey, hence the reason they were able to insist on that. It is part of the government ambition there to be bigger in that field. There are some opportunities but trying to compete in the area of manufacturing parts for aircraft is extremely difficult, given the competition that already exists around the world.

The use of sustainable aviation fuels is a critical issue for our industry.

We are committed to achieving net zero in 2050. In 2050, we expect that approximately 65% of the contribution towards net zero to come from sustainable aviation fuels. The industry used every single drop of sustainable aviation fuel available to it last year and will do the same this year. That is despite the fact that, on average, a tonne of sustainable aviation fuel costs two and a half times as much as a tonne of jet kerosene. Despite the very significant premium, airlines are still buying it. In my opinion, sustainable fuel will always come at a premium until we get widespread production. At the moment, we are seeing low levels of production. As the Deputy has quite rightly highlighted, many airlines are hedged for their fuel requirements in 2022. Some, if not all, of that hedging will start to unwind in 2023 and more airlines will be exposed to the high spot price of jet kerosene we are seeing today. That will have an impact on prices. We need to be realistic. If the cost of fuel and the net cost airlines are paying, given that it is the single biggest element of an airline's cost base, both continue to rise, this will ultimately find its way through to the price of tickets. There is no way airlines can absorb the significant increase they have witnessed, particularly on the back of two to three years of very significant losses. The Deputy is right to highlight that as a potential headwind that could impact in 2023.

Deputy Duncan Smith

I welcome Mr. Walsh to the committee. I thank his organisation for its engagement, particularly during the pandemic when aviation was one of the primary focuses of the pandemic's impact. The engagement with his organisation was very helpful in giving us information to use in this committee and elsewhere. That is appreciated.

The rebounding of aviation this year has been deemed successful and quick. Did Mr. Walsh's organisation predict that? Some airlines have said they were prepared for it but that airports were not. There was a bit of back and forward there. Did Mr. Walsh predict this?

Mr. Willie Walsh

We did predict a recovery in 2022. The shape of the recovery is slightly different from what we had expected. Aviation recovered faster at the beginning and is now getting towards where we expected it to be. Looking at the effect over a full year, our projections were very close. What took everybody by surprise was just how strong the recovery was, particularly in April and May of this year. It caught airlines and airports out. Most airlines and airports were able to recover pretty quickly. I am sure that, as politicians, the members will be well aware that you should not believe everything you read in the newspapers but the headlines did reflect a difficult situation for a period of time. That was true at a number of airports, including Dublin Airport. To give credit to most airports and airlines, they got their act together reasonably quickly to be able to fulfil the demand that existed without too much disruption.

Deputy Duncan Smith

There has been a lot of talk about people's poor experiences of going through airports this year. Dublin Airport was a big example and made international headlines. People had a very poor experience there as a result of a number of high-profile issues. One of the main issues behind this, and one which continues, is the inability to hire staff at many different grades in many different jobs across the airport. I refer to, for example, baggage handlers and security personnel, which is a big one. We have also been hearing that airlines are having difficulty hiring cabin crew. I represent an constituency in which there is an airport and I know that there was traditionally never any trouble in hiring for any job in the airport at any time, even for seasonal work. Has the model of funding and how airports are operating gone too far towards low wages? Do we need a reset of our aviation strategy to ensure we have enough staff and that people are paid well enough to take up jobs and ultimately provide a good experience for people travelling through airports?

Mr. Willie Walsh

We clearly want to provide a good experience. When we look at how airports and airlines recovered, we can see that there were a number of factors involved. In countries where Government support for maintaining employment was strong, the sector recovered much more quickly. In Spain, for example, the system for supporting employers in maintaining their employees was particularly well structured and the sector has been able to recover and is now operating without any difficulties. The same is true of Switzerland. Geneva Airport has not experienced any problems. I use that airport on a very regular basis. What the Government here did to support employment was good but it was not quite at the same level as in other places. When we look at what happened, we see that a big factor was how employees and employers were supported through the crisis.

Deputy Duncan Smith

To clarify, the conditionality those states placed on state support with regard to ensuring employees were kept on was the main difference from Ireland. That helped the sector in those countries recover more quickly.

Mr. Willie Walsh

Yes, absolutely. That is the case. We did not see the same numbers leaving the industry. It is a great credit to everyone in Ireland that the Irish economy is doing extremely well. Employment levels remain very high. Relative to a lot of economies in Europe and globally, the outlook for the economy here remains very strong. We have to recognise that and give credit to the Government and the Ministers involved. Aviation is facing a new challenge in attracting employees. We have seen this in a couple of countries now, although it is not widespread across Europe. What we have seen is that the uncertainty around the airline industry witnessed during 2020 and 2021 caused people to look at alternative employment. In some cases, given the state of the economy, some people have been successful in finding jobs elsewhere and are therefore not attracted to come back to the industry. There is going to be greater competition for labour going forward and I believe that will be reflected in the measures that airlines and airports put in place. It is going to be a competitive market, certainly much more competitive than it has been in the past.

Deputy Duncan Smith

Absolutely. On airport charges, when it comes to the appropriate time the airlines and airports line up and have a row, a conclusion is reached and everyone moves on. Is that a sustainable way of coming up with charges when we are looking at long-term investment needs in Dublin Airport with regard to underground tunnels and new canopies along with the needs of Cork Airport, Shannon Airport and other airports? Do we need to look at different funding models or a different way of coming up with airport charges? What are Mr. Walsh's recommendations in that regard?

Mr. Willie Walsh

I recommend that we maintain the system we have. The Commission for Aviation Regulation is absolutely the right way to go. All you have to do is look at what Dublin Airport was looking for and what an independent regulator assessed was required, which I think is still rich. Airport charges are a very significant element of an airline's cost base. If you listen to airports, they will tell you that their charges are insignificant. That is complete and utter rubbish. Airport charges are a very critical part and a big factor when airlines are looking at where they are going to operate. The reality is that, in many cases, airports operate as monopolies or quasi-monopolies. If left unregulated, charges would significantly increase. The lack of competition must therefore be balanced with good economic regulation. While I do not always agree with what the Commission for Aviation Regulation has done, I believe the model here in Ireland is actually pretty good. It is a model we often point to when looking at other countries. I would not encourage looking at an alternative model. The reality is that there is very little scope for an airline to negotiate proper commercial terms with an airport because, in many cases, the airport has a captive market. Good economic regulation is the right way to go.

Chairman

I thank Deputy Smith for being bang on time.

Deputy Darren O'Rourke

I thank Mr. Walsh. I will pick up on one of those themes.

The area I want to focus on is the Irish landscape as a whole. Realising the potential of Dublin Airport as a hub picks up on that point of the need for capital investment at a time when it is not entirely sure what funds will be available in the medium term with regard to the decisions around charges. Would it be perceived among the Air Travel Association's members that there is a need for capital investment in Dublin Airport and that it should happen in a timely fashion? What are the potential implications if it does not happen? Mr. Walsh might comment on Dublin as a hub.

A related issue that comes up consistently at this committee is the challenge of regional balance and the dominance of Dublin compared with other regional and international airports we have in the State. Can Mr. Walsh reflect on the types of considerations that Government, in the first instance, and individual airports should be making at this time as we enter into a period of policy review?

Mr. Willie Walsh

Capital investment is clearly important. From an airline point of view, we always want the airport to target that investment in the areas most required to meet the demands of our customers. In the case of Dublin Airport, for example, we need more parking stands. We need direct service gates to the terminal building. We have the runway infrastructure and taxiway infrastructure in place but we now need to provide the service to customers. That is best provided by having stands available for the aircraft to park on when they arrive at the airport. Targeted investment is, therefore, important. If we look at the investment rating of the airport, it is still quite high. The last I saw, it was rated at A-, which is investment grade. Very few airlines have an investment grade rating. Despite the challenges airlines and airports went through, the capital markets continued to look at airports much more favourably than airlines. That should not be lost on people. Dublin Airport should not have any difficulty in raising the capital it requires to continue to invest sensibly and develop it as a hub airport.

Deputy Darren O'Rourke

Mr. Walsh would encourage it to do so.

Mr. Willie Walsh

Yes. Dublin has done extremely well. From memory, Dublin was the No. 10 or 11 airport in Europe in 2019 with approximately 33 million passengers. It does extremely well, particularly when one takes the population of Ireland into account. We might look at Switzerland, which has two principal airports, namely, Geneva and Zurich. Zurich is the hub airport, of which there is only one. Geneva is not a hub airport. Zurich is slightly bigger than Dublin in terms of passenger numbers. In 2019, it had approximately 33 million. Geneva had approximately 17 million. As I said, Geneva is ten times the size of Shannon. Shannon had approximately 1.7 million or 1.8 million. Zurich was similar in size to Dublin. The population of Switzerland is not far off the population of Ireland. Therefore, I see some similarities there. As I said, however, what Geneva has is very different from what Shannon has. We need to bear that in mind. Geneva is not a hub airport. It has very few long-haul services, for example. It has a couple of long-haul airlines flying in there but very limited long-haul services. Trying to create two hub airports in Ireland would be a big mistake. We have seen other countries and, indeed, cities where they have tried to do that. Investment in London Gatwick to create a hub to compete with London Heathrow was a complete failure, and a very expensive one, both for airlines and for the airport. There is certainly scope to encourage traffic to fly into the other airports in Ireland, particularly on the back of tourism and foreign investment that we have seen in the country.

Deputy Darren O'Rourke

Okay. I want to ask about the challenge of climate change. We touched on sustainable aviation. The high-profile report last week was very limited, I must say, but it identified the airports and a number of cement plants. Many other places probably should and could have been on that list but were not. That is more a reflection of the methodology than anything else, however. What has been the response of the industry with regard to that? Is there a role for Ireland being a leader in the sector on the transition to sustainable aviation fuel?

Mr. Willie Walsh

The environment is a critical issue for our industry. I am pleased to say that the airline industry last year committed to achieving net zero in 2050. Therefore, despite being in the depth of the worst crisis we have ever seen, the industry recognised that it had to align with the science and the global government ambition to achieve net zero in 2050.

The challenge for our industry is that decarbonising aviation is extremely difficult. In 2019, we represented as an industry approximately 2.5% of global CO2. That was clearly disrupted during 2021 and 2022 and, indeed, it will be slightly disrupted next year. However, we were at approximately 2.5%. The issue for our industry that we fully recognise is that going forward, as other industries decarbonise, our contribution will increase. What we have tried to do is identify a path to net zero in 2050. A number of things will contribute to that but we have been very careful not to base it on some new technology that may exist. There is much discussion in our industry about hydrogen-powered aircraft. Realistically, we are not going to see a commercial hydrogen-powered aircraft before 2035. At scale, it will be beyond 2050 before we see that. That is the reason we see sustainable aviation fuel as being the best option and of critical importance to our industry. The good thing about sustainable aviation fuel is that the science is proven. We have multiple pathways and fleet stocks that can be used to generate it and they are increasing. It is what we call a drop-in fuel. There is no investment required in infrastructure at airports or the aircraft. The aircraft that are flying today can fly, and are currently rated to fly, on a 50% mix of sustainable aviation fuel and traditional jet kerosene. Going forward, that will move to 100%. Sustainable aviation fuel is, therefore, a real option for us. Investment in new technology such as new aircraft is also of significant importance. We can see airlines doing that. New generation aircraft are typically 20%, 25% and sometimes 40% more efficient than the aircraft they will replace.

A very important issue for governments, and one that has been highlighted by our fellow countryman, Mr. Eamonn Brennan, director general of EUROCONTROL, is the achievement of the single European sky in Europe. It is estimated that could reduce CO2 from the industry by approximately 10% to 12%. There is no technological impediment and no investment required. The investment has already been made. What we need is the political will to move forward with the single European sky agenda, which has been around for years. That would make a big difference to CO2 emissions in Europe. Sustainable aviation fuel is critical, however. There is an opportunity in Ireland to generate and produce sustainable fuels through a number of pathways.

I would encourage the Government to look at those options. The beauty of it is that it will reduce the dependence on importing oil, generate jobs that are sustainable and make a huge improvement to the environment. This is a real win-win for everybody. There are challenges, of course, but it is definitely something we would encourage all governments to look at, particularly governments and countries that have not had a traditional source of oil in their country.

Chairman

I thank Deputy O'Rourke. I welcome my colleague, Councillor Sarah Kiely from Limerick city, and the esteemed group of gentlemen from well-known places like Drombanna, Ballyneety and Caherconlish. It is great to have them here. With that, I will move to our next contributor. Senator Horkan has eight minutes.

Senator Gerry Horkan

Ballyneety will be even better known after the Chairman's comment than it was before.

Chairman

It is quite well-known already. There is no need to say anything further.

Senator Gerry Horkan

It has worldwide reach. I thank Mr. Walsh for being here. He has an enormous level of expertise and involvement with not only Irish aviation but now world aviation.

Having someone such as Mr. Walsh, who represents 82% of the world’s airlines, here in person, and the fact he has travelled from Geneva for that, is very much appreciated by all the committee and particularly by me.

My time is limited and I wish to touch on the worldwide challenges, given we probably know enough about the Irish challenges. Whatever happens in the world affects Ireland. Where does Mr. Walsh see the greatest challenges in worldwide aviation? Is it the lack of capacity in aircraft manufacturing, airport slots or staffing, for example? I was talking to representatives of an airline who said they could operate a second flight a day if only they could get staff to handle the bags, cover the check-in and so on. He might comment on worldwide issues before speaking to the challenges in Ireland specifically and what we need to do to step up.

Mr. Willie Walsh

That is a good question. Some of the challenges the Senator highlighted, which are real, are temporary in nature. I do not think they will prevent us from achieving our ambitions in the medium to long term. I fully expect issues such as staffing to be resolved, and in many cases, they are being or have been resolved. I do not expect that to remain a problem for us.

It is a problem in some countries, however. The US, for example, faces a pilot shortage, but that is principally as a result of requirements for commercial pilots in the US that do not exist in other parts of the world. It has a structural issue that I do not see it overcoming in the short term, and that will certainly have an impact in the US for some years to come.

Senator Gerry Horkan

What is the nature of that issue?

Mr. Willie Walsh

As a result of an aircraft accident a number of years ago, the US specifies a minimum number of flying hours for pilots before they can operate on commercial aircraft, and that does not exist anywhere else. Quite honestly, while I can understand why politicians moved to make that decision, it has not really achieved its goal. It could have been better achieved through what we do in Europe, namely, a structured training programme, such as the one I went through, where pilots are trained from scratch through to flying a modern jet aircraft, with training structured around that. That has not tended to be the way it is done in the US. I foresee that continuing to impact on the US and it will have a significant impact on regional flying in the US.

Longer term, the main issue facing our industry is that of the environment. As an industry, we are committed to achieving net zero by 2050 and we have a credible pathway to get there, but it is going to be challenging and expensive. We have estimated that the total cost of transition will be of the order of $2 trillion, although there is probably some double counting in that and we will calculate a more refined cost base because that figure includes the cost of new-technology aircraft, something we would have faced in any event. It is going to be an expensive transition and it will clearly have an impact on how the industry operates. Outside of that, the skies are getting busier and, therefore, we need much more efficient air traffic systems. I am confident we can do that because the technology exists. We just need political will to take advantage of the technology.

Senator Gerry Horkan

Where are the blockages? Is it at an EU level or a world level?

Mr. Willie Walsh

The EU is the one we focus on mainly because that is where the skies are more crowded. Issues such as the closure of Russian and Ukrainian airspace are forcing a lot of traffic that would traditionally have passed through that airspace into the rest of European airspace, so that is getting even busier in the short term. The main issue over Europe relates to sovereignty in respect of airspace. Governments want to control the skies above their country. We do not see it with the Schengen agreement on the ground in most places, although I acknowledge Ireland and the UK are not in Schengen. I travel around Europe and live in Switzerland. It is a Schengen country without any border restrictions or passport controls, but in the air all these problems exist. There is a great opportunity to address that.

Senator Gerry Horkan

Is that through EUROCONTROL or is it a wider issue?

Mr. Willie Walsh

EUROCONTROL, to be fair, is keen to promote it, but individual countries need to get on board.

Senator Gerry Horkan

Does that need to be at the level of EU transport Ministers?

Mr. Willie Walsh

Yes, it needs to be at an EU Council and ministerial level.

Senator Gerry Horkan

As a committee, we will visit Schiphol, Rotterdam and The Hague airports tomorrow. What we are told is happening in Amsterdam is the Dutch Government has put a limit on what can happen at Schiphol Airprot and, therefore, Rotterdam, The Hague and presumably other airports in the Netherlands will pick up the additional capacity that just cannot now use Schiphol. Some people are talking about this as an idea for here, and I say this as somebody who is based in Dublin. What are Mr. Walsh's thoughts on that kind of concept for limiting Dublin Airport's capacity and forcing flights to go elsewhere? How would it work or not work?

Mr. Willie Walsh

It will not happen. Schiphol Airport is a global hub and it serves not just Amsterdam or the Netherlands but the world. If certain flights are prevented from going into Schiphol, they will not necessarily fly into The Hague or any other airport because they will not connect to any other flights when they do that. That transfer of traffic will go to another major hub airport, and it will significantly impact on the quality of the hub and the quality of the services that are available at Schiphol airport.

Senator Gerry Horkan

It is damaging not just to Schiphol Airport but to the Netherlands generally and to Europe.

Mr. Willie Walsh

Without question, it will damage Schiphol as an airport and the network of services that are available-----

Senator Gerry Horkan

To nobody's real benefit.

Mr. Willie Walsh

I think it is a very blunt instrument being used to address what the government says is an environmental issue, which could be better addressed in other ways. The economic impact it will have on Schiphol, Amsterdam and the Netherlands will be significant.

Senator Gerry Horkan

Dublin Airport is not just a base for Dublin but is the national hub, and more than 80% of the traffic that goes through Ireland and its seven international airports goes through Dublin. Where does Mr. Walsh foresee Dublin Airport's role in Irish aviation policy?

Mr. Willie Walsh

Dublin Airport will be the hub. There cannot be two hubs. If we try to develop a second hub or force the development of one, it will fail. There will not be growth in the traffic but rather a reduction. Dublin Airport succeeds because it has a strong point-to-point, or origin and destination, O&D, market, and a strong transfer market. The effect of Dublin Airport as a hub has been very positive for the growth of services into and out of Dublin and, therefore, into and out of Ireland. I acknowledge it does not benefit everyone as much as it does people in Dublin, but it means there are services into Ireland that we would not otherwise have.

Senator Gerry Horkan

I am conscious of the fact people are trying to develop other airports as well. What scope, if any, is there to develop them? I do not mean at the expense of Dublin Airport, but how can we grow them?

Mr. Willie Walsh

As I said, there are definitely opportunities for the other airports, such as in Kerry, Cork, Shannon or Knock. To be fair, all of them have been reasonably successful, but we are not going to develop a hub at those airports. That would be just impossible. There is not a large enough base from which to operate and there is not a sufficient frequency of services to feed the hub, which is very important. It would require massive investment in infrastructure, terminal building, stands and parking. It is-----

Senator Gerry Horkan

Manchester has a much larger catchment than we have and London has a huge catchment. Even if we did build the infrastructure, would the airlines come?

Mr. Willie Walsh

There has to be a reason for them to do so, and the principal reason relates to whether there is, first, a strong home market to serve. If there is a strong home market, a hub can be built on that.

Senator Gerry Horkan

The catchment is not large enough.

Mr. Willie Walsh

I do not think the catchment is large enough, and we have to be realistic about that. As I said, Geneva Airport, with 17 million passengers, is not a hub. It is just a big, stand-alone, point-to-point airport.

Senator Gerry Horkan

As for Germany, Berlin is a much larger city than Frankfurt, but Frankfurt Airport is the hub.

Mr. Willie Walsh

Yes, and that is where a hub has been developed. Germany is somewhat different with the federal structure-----

Senator Gerry Horkan

East, west and all the rest of it.

Mr. Willie Walsh

Yes, but Manchester Airport does not really operate as a hub. There is not much connecting traffic at that airport.

Senator Gerry Horkan

What else can the Government or State do to improve aviation in Ireland?

Mr. Willie Walsh

I give credit to the Minister for Finance. The measures he has taken over the years have been very positive in attracting, for example, the leasing business into Ireland and that has had an effect on other industries.

Trying to attract tourism has to be an opportunity for Ireland. It is unique in terms of what it is we offer as a country, when we look at the west of Ireland in particular, and it is still an incredibly welcoming country compared with other parts of Europe. There are great opportunities for us. I would focus on the leveraging of the fantastic job that has been done in terms of attracting foreign investment into Ireland and the opportunities for tourism.

Senator Gerry Horkan

Are there specific things we need to watch out for? Mr. Walsh mentioned the environment. Are there challenges for Ireland and what should we be watching out for?

Mr. Willie Walsh

As I said, I do not think Ireland can take what it has for granted. It will always have to work at it, particularly when it comes to the leasing industry. I travel around the world. I can tell the Senator there are many countries that would love to take that industry away from Ireland and they will be very active in trying to attract the lessors out of Ireland. We have to continue to work, and work hard, to retain what it is we have and to build on that. There are opportunities to build on that but do not take it for granted.

Senator Gerry Horkan

I thank Mr. Walsh.

Senator Jerry Buttimer

I thank the Chairman for inviting Mr. Walsh. I also join him in welcoming Councillor Sarah Kiely and the Chairman's other guests from Limerick. In fairness to Councillor Kiely, she has been a very strong advocate for that region, and I thank her for her work and welcome her.

I thank Mr. Walsh for his work. Dublin has a disproportionate share of the Irish aviation sector, and that is a challenge that is upsetting and frustrating to people like me in Cork. I know Mr. Walsh says we can only have one hub. In the context of aviation policy and the review that is forthcoming, how do we change or influence airlines to use Cork or Shannon? I know Mr. Walsh mentioned transatlantic as the Shannon selling point. In the context of Cork, we have seen the debacle this summer at the three airports, as mentioned by Mr. Walsh. That does not look good on international markets or on television or in newspaper coverage. How do we help to influence the Government and the aviation sector, including the airlines, to use places like Cork, as an example?

I thank Peter O'Broin and Simon McNamara in Mr. Walsh's office. They are wonderful people who liaise with us here, including with me personally. I thank them for that.

Mr. Willie Walsh

I thank the Deputy. I will certainly pass on the thanks. I know from talking to both of them that they enjoy interacting with everybody here.

These airports have to be attractive to airlines. There are certain countries which generate attractiveness through incentives to airlines. For example, I was talking to the Minister for tourism in Israel last week. We had a meeting in Istanbul. He was pointing out that what they do during the low season at some of their airports is provide financial incentives to airlines to continue to operate into their airports - as much as $75 per passenger at one airport. They do that because they recognise the value of those passengers to the tourism industry. They have the infrastructure there. It is principally busy at peak times during the year, and to try to create demand through the rest of the year, they provide financial incentives.

I am not suggesting Ireland does that. I am sure the Minister for Finance would have a long list of other things he would want to do but, realistically, what has to be done is to make sure the airport is attractive. Airlines will not be attracted into an airport that has high charges, where the infrastructure is poor or unless they can be clear the services they get at that airport will be consistently of the standard they expect.

Senator Jerry Buttimer

To go back to Mr. Walsh’s comment about balanced regional development, we surely have an obligation as a State, in the case of the Cork and Dublin airport authorities, to make it attractive. It makes no sense to have people from Cork, Tipperary, Waterford and Laois driving to Dublin Airport.

Mr. Willie Walsh

What the Senator wants to do, I am sure, is to attract inbound activity.

Senator Jerry Buttimer

And to have choice outbound.

Mr. Willie Walsh

The value to the Irish economy that aviation generates is access for business, access for tourism and, clearly, access for Irish business to be able to get to the world and for Irish people to be able to travel in a convenient way. However, the economic value it gets is the value created by tourism and investment in Ireland. To do that, the airports have to be efficient and attractive from a cost point of view.

Senator Jerry Buttimer

We had that in Cork, I am sure Mr. Walsh will agree.

Mr. Willie Walsh

Yes, Cork has done reasonably well, but we are not going to recreate what we have at Dublin in Cork. We just have to be realistic.

Senator Jerry Buttimer

I agree. At the same time, there is enough in the pie to ensure there is an increase in growth in airports like Cork, as an example.

Mr. Willie Walsh

Yes. What can be done is to ensure all of the industries that benefit from Cork Airport recognise the value that is created there. I am sure the tourism industry in the regions the Senator has talked about would love to see more inbound tourists. It is not the responsibility of the airline industry to find the tourists, bring them to the destination and provide them with the services. It is the responsibility of everybody to do that. I can guarantee that the airlines will operate where the market exists and where the market is supported. That is why I think there are definitely opportunities for the airports in Ireland, but I have to be blunt. You are not going to be able to recreate what you have in Dublin at the other airports. It is just not going to happen.

Senator Jerry Buttimer

That is a fair point. I accept that and I agree with Mr. Walsh on that. In the context of the decision of the US Secretary of Transportation, Pete Buttigieg, this week to impose fines on airlines in terms of customer refunds and cancelled flights - I think $7.5 million or €7.5 million was imposed on the airlines - does Mr. Walsh think that is something we should look at here in Europe?

Mr. Willie Walsh

It does it already through Regulation (EC) 261/2004. They do not have similar regulation or legislation in the US, although they have debated introducing it. Consumers are already protected in Ireland through the EU regulation that was introduced in 2004.

Senator Jerry Buttimer

I thank Mr. Walsh for being here today. I think it is important, if we are going to review aviation policy, to invite Mr. Walsh back. I thank the Chairman for letting me in.

Chairman

Mr. Walsh is aware we are doing a specific module and we thought he would be the obvious person to start the process. We are doing a body of work and we are delighted to have him here today.

Mr. Willie Walsh

I thank the Chairman. Both personally and on behalf of IATA, we would be delighted to support the committee in any way we can.

Chairman

Thank you. I call Senator Dooley.

Senator Timmy Dooley

I join others in welcoming Mr. Walsh to the table. It is probably a long time since he first came to this committee, and I was on the committee then. Things have improved considerably for Mr. Walsh over that period of time.

Chairman

The ebbs and flows.

Senator Timmy Dooley

I will get into the questioning on today's issue shortly. When we are doing a piece of work on the future of aviation in this country, it would be remiss of us not to use the very considerable expertise Mr. Walsh has. I know of his interest in Ireland and Irish aviation generally, notwithstanding his current role. It would be useful to get his insight on a range of issues, and perhaps we could do that in private some day, where we can have an open conversation to assist us in developing policy.

Mr. Walsh said at the outset that he lives in Geneva, and that while Geneva is not a hub, it has 17 million passengers. I want to concentrate on Shannon, as I have often done in the past. If we had 17 million passengers going through Shannon, I do not think they would care what it is called, whether hub, spoke, wheelbarrow or otherwise. From my point of view, I never expect Cork, Shannon or anywhere else to be a hub. We are at 1.7 million passengers at the moment. If we could get that to 3 million passengers, it would make a massive change in the workforce around the airport, the support structures and all of that employment, and it would lead to very considerable economic development, which in itself would have a snowball effect. I want to concentrate on that.

There have been references to Schiphol and elsewhere. Shannon needs one thing at the moment. It needs another connection to an international hub, and Schiphol would probably be the best option, although Frankfurt would be a good second choice. We have access to Heathrow. It has been vexed and fraught, and we had our issues with that, but we have retained it and it is there. What advice would Mr. Walsh give, in his current position and with his intimate knowledge of the Irish aviation sector?

I do not think anybody in Ireland has greater expertise in aviation than him. With that cap on, what could the likes of Shannon Airport do to get that piece of connectivity in place?

Mr. Willie Walsh

It is extremely difficult, mainly because of the slot restrictions at the international hub airports. Senator Dooley mentioned Amsterdam and Frankfurt. It is almost impossible at Amsterdam given the measures that are now being put in place by the government there to reduce the number of flights that can operate at Schipol. Airlines are already concerned about the impact that will have on the slots it has currently. If someone wants to connect to Amsterdam, it is really KLM that needs to be convinced, not solely but mainly KLM. It is going to be extremely difficult. It is the same with Frankfurt where slots are at a premium. What must be recognised is that being connected to Heathrow does have significant value and maintaining that connection is clearly important. Senator Dooley is quite correct that if Shannon is a spoke in this case being connected to a hub, an international hub is very important for the region because it does provide access to a global network. We get a lot of that in Dublin but then there is no direct flight from Shannon to Dublin. Flying to another major European hub airport will be a challenge.

It is important to look beyond the traditional hubs in Europe. I was in Istanbul last week. Turkish Airlines is one of the fastest growing airlines. It is a true global operator. It is looking to expand its network and it is very ambitious. While you would not fly to Istanbul to connect to everywhere, it does provide a lot of connections to the east. There are opportunities to attract airlines like that, which currently operate into Dublin and that know the Irish market. The traditional hub airports in Europe are slot-constrained and getting access to them is becoming more and more difficult.

Senator Timmy Dooley

It is obvious that a lot of deals are done between airports and airlines but is there a role for bilateral agreements between governments on issues such as this? Is it possible for the Taoiseach, Deputy Martin, and the Prime Minister of the Netherlands, Mark Rutte, to reach an agreement on important links like this? Is the political process able to provide it?

Mr. Willie Walsh

I suggest not to the traditional hub airports.

Senator Timmy Dooley

Okay, so that is the advice there. I will focus on Dublin Airport. Mr. Walsh has a lot of knowledge and previous experience of it. Issues arose there with security delays. Has the airport stood the test of time in terms of design? There was much criticism of it at the time. It was said that it was done to a golden standard; that it was iconic and built to be a beacon of what Ireland was becoming. Is it as functional as other airports that are around for a bit longer?

Mr. Willie Walsh

No, it clearly is not, but many of these issues were highlighted at the design stage of Dublin Airport. Airlines are not really interested in iconic terminal buildings. I understand what they were trying to do, but from an airline point of view we want it to be as efficient as possible and it is not the most efficient. The real issue is that part of the problem we face at airports is the poor use of technology. We know, for example, that technology exists, and it operates at some airports. At Bahrain airport, for example, you do not have to take anything out of your bag. You do not have to do all the unpacking, which from a customer point of view is very inconvenient, and clearly takes a lot of time. When you go through the new Bahrain International Airport and put your bag on the belt they have the most modern equipment and it is incredibly efficient. The system is being tested at a number of European airports. There is one at Geneva airport, for example. We can see that regular users know where the good machine is and aim for it because they do not have to unpack their bags. Technology like that should be used. It has been around for years. This stuff can tell the difference between a good bottle of Irish whiskey and a poor Scotch. We do not need to start unpacking everything.

Senator Timmy Dooley

That is more than a lot of us could do.

Chairman

Transparency on its own merits.

Mr. Willie Walsh

There is a lot that we can do, and a lot the committee as politicians and the Government can do to influence this. Let us be honest, the procedures we have in place at airports today were addressing a risk that existed more than 20 years ago. Technology has developed that enables us to manage that risk in a much better way. That is where we should be going.

Senator Timmy Dooley

Are we doing things just for the sake of it or because that is the way it was always done?

Mr. Willie Walsh

It is because that is what the regulation requires. The regulation needs to be changed.

Senator Timmy Dooley

That is interesting. Mr. Walsh might provide us with a short paper on that, because it would be helpful to feed it in.

Other speakers have reflected already on this, but I want to go back to a conversation Mr. Walsh and I had concerning synthetic fuels and the opportunity that is there. It is very important in terms of climate change. Those who want to batter agriculture or aviation say the world has turned its face away from aviation as a contributor to global emissions, but there is a lot of work going on behind the scenes. Trinity College is doing some work with the support of Ryanair. Colleges in Limerick - the University of Limerick and the Technological University of the Shannon, TUS - and others are focusing on it. A project is under way, led by the ESB, on the generation of green hydrogen from offshore wind, which is expected to be coming ashore, hopefully, by the end of the decade. Could Mr. Walsh talk to us about the importance of that and the future for it, not just for the aviation sector and the positive benefit it would have from an emissions perspective but the potential in terms of the volumes and what that would do for job creation in the mid-west, which in itself could hopefully drive demand for more flights?

Mr. Willie Walsh

Yes. It is of huge significance. Anything that can be done, in particular on the development of green hydrogen is important because that will be the key that unlocks the answer for the airline industry. If we can produce green hydrogen at reasonable cost to produce e-kerosene, it is a fantastic opportunity, but it must be green. There is no point in us using hydrogen to produce a liquid fuel if it is using huge amounts of energy and generating carbon and CO2 as a result of that. I give full credit to Ryanair and Michael O'Leary for the investment in Trinity College to pursue these developments. That is a great opportunity for Ireland to reduce its imported fuel, in particular when we look at what we are currently facing with the huge spike in energy costs. Anything we can do to generate greater energy independence is a real positive. If green hydrogen is an option for Ireland, I would strongly support it.

Senator Timmy Dooley

I thank Mr. Walsh very much. I look forward to his ongoing engagement with us, in particular on the aviation policy piece and how that might assist us in our work. I thank him again for his assistance.

Chairman

In his statement Mr. Walsh indicated that the recovery in Irish aviation appears to be ahead of Europe and the rest of the world. Why has that been the case?

The question for people at the moment is the cost of air travel. What will we see happening in the next six months to a year in terms of the cost of travel? I invite Mr. Walsh to make a general comment and then I will come back with a few other questions. Why has the Irish aviation sector recovered? Mr. Walsh says it will be 100% of 2019 levels next year while worldwide it is approximately at 75% of 2019 levels. Could he make a general comment on that? Where does he see the price of air travel going?

Mr. Willie Walsh

In the case of Ireland, we have to give credit to Ryanair, and to Aer Lingus, but the pace at which Ryanair has recovered its network, and in fact grown it, is part of the reason, given the strong presence it has here in Ireland. Ryanair is not a member of IATA but we do reflect what it does when we are looking at the projected recovery levels.

In the second half of this year, it is also down to the strong recovery in the transatlantic market, which has been particularly encouraging because it is not just an important market but it is a growing one given the strength of the dollar and the opportunity that represents for US-based tourists, which has been particularly strong. A number of factors have benefitted Ireland directly.

It is also significant that the pace of recovery in Ireland is running ahead of that in the rest of Europe, particularly when one considers the amount of traffic between Ireland and the UK, which has been recovering slowly. The recovery between Ireland and the UK has accelerated in recent months, but the recovery in the first seven months of this year was lagging behind-----

Chairman

Why is that?

Mr. Willie Walsh

I have to be honest. It has probably more to do with the UK than with Ireland, but, given the amount of traffic between the two countries-----

Chairman

Is that related to Brexit?

Mr. Willie Walsh

Yes, it probably is Brexit-related as well. I think there are Brexit issues-----

Chairman

Mr. Walsh is saying that the flow of traffic from the UK to Ireland has come back more than the flow of traffic from Ireland to the UK.

Mr. Willie Walsh

I do not have the full split. It would be interesting to do a deeper analysis of it.

Chairman

That is Mr. Walsh's instinct.

Mr. Willie Walsh

Yes, but, without question, the UK is recovering more slowly than the rest of Europe.

Chairman

That is having a knock-on effect.

Mr. Willie Walsh

It is having a knock-on effect. Given the size of the UK-Ireland market-----

Chairman

Where would Mr. Walsh say that recovery is percentage-wise?

Mr. Willie Walsh

Looking at the most recent figures, it is now getting close to 90%. For the first seven or eight months of this year, it was probably averaging 75% or 77%. It was lagging behind the recovery we were seeing in the rest of Europe.

Chairman

Tell us about the prices for people travelling-----

Mr. Willie Walsh

We have to recognise, as I said, not only the significant increase in the price of oil but, more particularly, for the airline industry, namely, the price of jet fuel.

Chairman

Will Mr. Walsh explain the difference in that regard and give us his observations? He referred earlier to the price of Brent crude being way out of line with the price of jet fuel. Will he explain that? Mr. Walsh referred to that, but will he tell us what is happening there and the impact it is having? Obviously, that will feed into the price for customers. I do not want to-----

Mr. Willie Walsh

Typically, Brent is crude oil. It is then refined. The margin the refineries take, what we call the crack spread, is the difference in that regard. We measure that in tonnes, so the price of a tonne of Brent versus the price of a tonne of jet kerosene, or a barrel of Brent and a barrel of jet-----

Chairman

Mr. Walsh said it is about 17%.

Mr. Willie Walsh

Historically, it has operated at about 17%, 18% or maybe 20%. We have seen it as high as 60% this year. It is currently-----

Chairman

Why?

Mr. Willie Walsh

Initially, it was because of the lack of refining capacity. Given the low demand for jet fuel, refineries had switched to producing other products. It is not easy to switch production at a refinery back to jet fuel. The recovery in the airline industry probably caught the refineries by surprise as well. What we are seeing, without question, is they are milking that now. The margins the refineries are making are way in excess of what they would traditionally-----

Chairman

We are looking at 36% now.

Mr. Willie Walsh

It averaged 36% thorough this year. It has been as high as 60%. Last week, from memory, it was around 38%.

Chairman

That is still of the order of 2.5 times-----

Mr. Willie Walsh

Yes. It is much higher than we have seen.

Chairman

Where does Mr. Walsh see that going? How will it feed it into the price for consumers?

Mr. Willie Walsh

I will be honest. If I could predict that, I would not be sitting here; I would be on my island somewhere.

Chairman

Mr. Walsh is as good an expert on this area as anyone.

Mr. Willie Walsh

I would have thought that, at the margin, the spread would have reduced. We see some evidence of that. It should come back closer to what we have traditionally seen. If that happens, it will be some relief for the industry. The problem the industry will then face is that it had a lot of hedging in place for this year. They had bought their fuel-----

Chairman

At a fixed price.

Mr. Willie Walsh

That will start winding down, or has been winding down. Therefore, they will get more exposed to the spot price.

Chairman

When does Mr. Walsh anticipate we will see increases in the cost as-----

Mr. Willie Walsh

The net cost of jet fuel for the industry will increase next year, even if we see a reduction in that spread. As I said, fuel is the single biggest element of an airline's cost base. It can, for some airlines, be over 50% of their cost base.

Chairman

That is very high.

Mr. Willie Walsh

Therefore, when there is an increase of the nature we have seen, it will immediately have to be-----

Chairman

When will most of Mr. Walsh's members coming off hedging? When will they come off fixed price?

Mr. Willie Walsh

It is winding down as we go through this year.

Chairman

Does Mr. Walsh anticipate that next year they will be into a variable market, an open market in terms of price-----

Mr. Willie Walsh

They would have been putting new hedges in place in some cases but they will have-----

Chairman

Are they able to do that?

Mr. Willie Walsh

Yes. If they have the balance sheet strength, they will have done so, but they will have hedged at much higher prices. The net impact of that, I think, leads ultimately to a higher oil price that we will see next year.

Chairman

Have most of his members hedged for next year as well?

Mr. Willie Walsh

Not all airlines hedge. For example, the US airlines typically do not do so. Another factor in the oil price that we need to reflect on is the strength of the dollar. The dollar has significantly appreciated versus most currencies. Given that fuel is priced in dollars, there has been the added impact of the strength of the US dollar, so there are a number of headwinds there that will impact airlines' cost base.

Chairman

Does Mr. Walsh expect there will be a significant increase in the cost for passengers flying next year?

Mr. Willie Walsh

There will be an increase; I do not think it will be significant. Given everything I see at the moment, I cannot see how prices will be able to come down because airlines do not have the financial power or financial strength-----

Chairman

Will Mr. Walsh give us an indication of what he believes that minimum increase would be?

Mr. Willie Walsh

It is impossible to put a figure on it, but I think less than 10%.

Chairman

Mr. Walsh will appreciate that I am a Deputy for Limerick City and Limerick west, including Shannon Airport. I want to pick up on his observation that where there are airports that are dominant, a lack of competition must have good regulation. Ireland is a small island. We are not that unlike Holland in one sense. We are going over to Schiphol tomorrow. It diverts flights to Rotterdam. We are going to both airports to see how they work. We want to see what is happening there. Here, the percentage of all traffic coming through one airport on the eastern seaboard is in the high 80s. We have four other airports with maybe up to about 30% of the traffic volume coming through. Mr. Walsh said that if there were two hubs here, it would be a bad mistake. Why would that be the case? Shannon has a capacity of about 4.5 million passengers, so we are not looking for a huge number. Obviously, we very much welcome that transatlantic flights are back, Heathrow is back and Chicago is coming on stream in the US market, but I am talking about that prized hub. Mr. Walsh referred to the slots in the likes of Schiphol being highly prized. I presume he would include Frankfurt in that as well.

Mr. Willie Walsh

Yes.

Chairman

The question is what if Shannon had a European hub. Mr. Walsh spoke about charges and if there were supports on a route for a period, which is allowed under European Commission rules if the passenger numbers are less than 3 million. He will be aware of that. Will airlines use Shannon as a hub? Hypothetically speaking, let us say we had a link to Frankfurt or Schiphol. Would airlines look around and say that they can fly people into Shannon, where there is new, state-of-the-art scanning equipment? I do not know if it is at the same level as Bahrain, but it is very good - far better than Dublin. That is the question. I know it is a hard one, but it is the sum of this. We had representatives from Dublin Airport before us over the summer. That was at a time when there was chaos at the airport. In fairness, the representatives took on board a lot of the points and the situation has improved considerably. Obviously, we are coming from a different perspective from that of the airlines. They have to make money. Mr. Walsh should tell us what we need to do. He should be utterly frank, as he has been so far. Hypothetically speaking, if Shannon had that European hub, would that be enough?

Mr. Willie Walsh

I think that what Shannon needs to do is to be attractive to point-to-point traffic. Rather than looking at-----

Chairman

Why does Mr. Walsh dismiss the hub outright?

Mr. Willie Walsh

Because hub airports, in order to be efficient, have to have what we call waves of traffic, that is, they have to have flights coming in that will connect to flights departing. Then they have to have the flights available when the aircraft arrive-----

Chairman

How many of the passengers on a typical flight to, say, Schiphol or Dublin, would be people from Ireland? What percentage would be connecting flights from elsewhere?

Mr. Willie Walsh

It varies. In Schiphol it is as high as 70% of the passengers.

Chairman

That means that departing flights could have 70% connecting passengers coming in from other airports.

Mr. Willie Walsh

At Heathrow, the percentage connecting is about 30% to 35%. It is 60% at Madrid and around 50% at Paris.

Chairman

Do you think that cannot happen at Shannon?

Mr. Willie Walsh

Let us take, for example, connecting to a transatlantic flight. Those flights typically arrive early in the morning. If people are to connect, they will want a departing flight that is ready to be boarded in order to go to the European destination. Such an aircraft would have to be on the ground at Shannon. To be there early in the morning, it would have to arrive either the night before or leave very early in the morning from its European destination. That would not make sense timing wise. If the aircraft has to be there the night before, it would start adding significant costs.

Chairman

It is a volume game.

Mr. Willie Walsh

It is a complex model. The flight has to be there to meet the arriving aircraft. Passengers also have to be brought in to meet with the departing aircraft.

Chairman

Therefore, what model would attract your members to come into Shannon Airport?

Mr. Willie Walsh

Point to point. It is to make it attractive for people who want to fly to the west of Ireland for tourism and industry.

Chairman

What would be the attractiveness for your members?

Mr. Willie Walsh

There would have to be a good market. For most of them, they are bringing inbound people into Ireland. There is some outbound market as well, but I see it as a predominately inbound market. They would be coming in because something is on offer there, be it tourism, business or industry.

Chairman

Would you ever see an airport such as Shannon Airport, with its excess capacity, being able to fulfil a hub role?

Mr. Willie Walsh

No, I do not think so. One could have a great conversation with the airports in Holland and they would all be very positive. One would have a completely different conversation talking to the airlines. It is a Government decision and people will respect the fact that the Government-----

Chairman

However, if we as politicians for our areas, in the context of balanced regional development, see a huge over-concentration in one airport on the eastern seaboard, we will speak about it and be serious about it. Surely, on an island as small as Ireland, a way must be found to rebalance all forms of travel and infrastructure along the western seaboard. Part of that must include aviation.

Mr. Willie Walsh

Yes, and that is why I looked at what other countries do. Some provide incentives to attract business. If the committee got Michael O'Leary in here, I am sure he would tell you how to do it.

Chairman

We are looking for him to come in.

Mr. Willie Walsh

He would give plenty of examples of where he gets that support in other regions. Ireland has the advantage of having the likes of Michael O'Leary and Ryanair based here. There is an opportunity to attract airlines to fly into Shannon. I love ambition, but I would be misleading committee members if I told them that Shannon could aspire to be developed as a hub airport. It is just too complex and expensive, and I cannot see how it would work given the volume of passenger numbers with which it would likely operate.

Chairman

We are going to Schiphol tomorrow as part of our review. We in the region believe we need European hub connectivity and, obviously, we have a journey to go on in that regard. I can agree to disagree with Mr. Walsh. Shannon and the region have this ambition. If we did not, we would not get to that endpoint.

Mr. Willie Walsh

What the Chair is highlighting supports what I am saying. Shannon is the spoke and Amsterdam is the hub. Connecting to the hub is very different from creating a hub. That is the role for Shannon. It is to be attractive to airlines flying to the region, but not to develop Shannon as a hub that would connect passengers.

Chairman

Shannon could have a direct flight to Amsterdam with KLM. It could have a role where it becomes a major feeder to a hub.

Mr. Willie Walsh

Yes, where you are feeding into the hub.

Chairman

We may be at cross purposes. Our view in the region is that we want a connection into the likes of Schiphol or Frankfurt. The question is how we encourage the airlines to provide flights that link to the major hub from the start.

Mr. Willie Walsh

It would be very difficult, given the reduction in slots in Schiphol, to convince KLM to serve Shannon when it would have to look at which destinations it currently serves and whether it would have to stop serving them.

Chairman

That is a discussion we will obviously have. I thank Mr. Walsh for his contribution. I now call Deputy Ó Murchú.

Deputy Ruairí Ó Murchú

I apologise as I will probably repeat a lot of what has been said already, some of which I have been in the room for but most of which I have not.

Mr. Walsh has provided a general idea of modelling where the industry will be. We all know we are in an energy crisis meets cost-of-living crisis. Mr. Walsh has already talked about some of the specific issues with refineries, yada-yada-yada. Has any modelling taken into account that we could be heading into an absolute disaster? I hope it does not happen. I refer to electricity markets outside of this. People at a European and domestic levels, including in the Government, were slow to consider the decoupling of gas prices etc. We are now in the age of caps and windfall taxes and trying to catch the market at every point along the supply change where somebody is trying to make money, which is the nature of business. One has to take hedging into account also. I have two questions. What modelling is involved in that, and what moves are being made to regulate the price, as best as can be done?

Mr. Willie Walsh

I do not see any option for price regulation. On energy, part of the problem is access to gas from the Russian market.

Deputy Ruairí Ó Murchú

Sorry, I had that point written down and I probably should have mentioned it. There is the impact of price but there are also supply issues caused by the Russian invasion.

Mr. Willie Walsh

The impact on the supply of oil has not been the same as the impact on the supply of gas. From an airline point of view, we have seen volatility in oil price. Some Russian oil was refined to jet fuel. It has had an impact but not to the same degree as the impact of the supply of Russian gas to many counties. I do not think we are facing a similar crisis of the availability of jet kerosene as is being experienced with gas supply and, therefore, electricity that has been dependent on gas or heating. That has been prevalent.

Deputy Ruairí Ó Murchú

Does Mr. Walsh foresee the price regulating itself - for want of a better term - without the interference of external factors?

Mr. Willie Walsh

The price of Brent has been more stable in recent months. What will impact on that, however, is if we start seeing a recovery in China. The lack of activity in China has reduced the demand for oil. If China starts opening up and there is greater demand for oil there, it could have an impact on the price of oil. There are so many moving parts, it is difficult to see.

Deputy Ruairí Ó Murchú

I get it and I imagine Mr. Walsh has multiple models.

Mr. Willie Walsh

Yes. We have modelled all of this. Our most recent update of the model was done two months ago. We took into account most of these issues, including the ongoing war in Ukraine and the impact this is having, as well as the slowdown in global GDP. However, we still expect global GDP to be positive. We are not expecting a recession. It is a slightly different picture. Ireland is clearly doing well. We are going into a potential recession in Europe with employment at a very high level. It is not like the dynamics we have seen before. There are different dynamics at play.

Deputy Ruairí Ó Murchú

The problem is maintaining that, but I do not know how we can.

Mr. Willie Walsh

It is clearly a challenge. I refer to what happened in 2008-2009.

Deputy Ruairí Ó Murchú

It was different.

Mr. Willie Walsh

There were many warning signs, throughout 2008, before the collapse of Lehman Brothers, in September 2008, and the impact that had in 2009. If I narrow it down to just the airline industry, these recessions do not tend to have a big impact on the number of passengers flying. In 2009, for example, passenger numbers increased globally versus 2008. Many airlines were stimulating demand by reducing their prices, therefore, it had an impact on airline profitability.

Deputy Ruairí Ó Murchú

There was probably an element of emigration from places, such as Ireland.

Mr. Willie Walsh

It was very small. I have looked back over 30 years, trying to model what happens during recessions.

It is not often the recession will lead to a reduction in global passenger numbers.

Deputy Ruairí Ó Murchú

People still need to travel.

Mr. Willie Walsh

Yes. People still travel. We are still projecting slow but positive GDP growth. That could change very quickly and it is clearly a challenge some European countries are facing at the moment.

Deputy Ruairí Ó Murchú

I get that. There is an element of what I will loosely term the western world having to get its act together on that. It is not completely applicable but there is the argument that after 11 September 2001, America ensured the free flow of credit because it did not want the attack to lead to a global recession.

Mr. Willie Walsh

Yes.

Deputy Ruairí Ó Murchú

That said, the money all went into the wrong products based on property. Somebody, I think it was Bill Clinton, lamented that the money had not gone into renewables but we are where we are. I do not expect Mr. Walsh to answer on what the western world needs to do but let us get on with it quickly. As I think I have said before, it is one of the only weapons Vladimir Putin has that is working for him so we must ensure we cut that off. However, that is a different kettle of fish.

Let us move on to global emissions and synthetic fuels. When I hear about fuel for heavy goods vehicles, I almost feel I am in that VHS versus Betamax moment.

Mr. Willie Walsh

Yes.

Deputy Ruairí Ó Murchú

People are talking about green hydrogen but also about hydrotreated vegetable oil, HVO, and biogas. I am not sure because anybody who is going to come and have a conversation generally has skin in the game and they are going to sell you the best story.

Mr. Willie Walsh

But it is very different for aviation.

Deputy Ruairí Ó Murchú

Yes, and that is what I was going to ask.

Mr. Willie Walsh

We will continue to depend on a liquid-based fuel-----

Deputy Ruairí Ó Murchú

I get that.

Mr. Willie Walsh

-----for years to come because the aircraft design is going to have to change radically if we are to power our aircraft using hydrogen. That is why we are very clear sustainable aviation fuels make a lot of sense for the airline industry. It is less so with road transport where there are a number of options available and we already have electric-powered vehicles.

Deputy Ruairí Ó Murchú

I suppose the smaller it is, the better, with batteries and so on.

Mr. Willie Walsh

Yes. I will put this into context. Very good research is done by Eamonn Brennan's team at EUROCONTROL. In continental Europe, especially France, there is a debate around whether we should stop short-haul flying and force people to travel by train instead of plane. If you stopped every flight in Europe of fewer than 500 km, which would include flights from Ireland, it would account for 24% of the flights, which only generates 3.8% of the CO2. Most of the CO2 produced by the airline industry is from flights of greater than 1,500 km. They account for 75% to 80% of the CO2. We will not see an electric or hybrid electric aircraft capable of flying those distances maybe ever, but certainly not in the timeframe out to 2050. That is why when we model our industry we can see the best option for it is the development of sustainable aviation fuels, through multiple pathways and feedstocks. Those could include e-kerosene produced from green hydrogen at some stage. Beyond 2050, maybe there will be hydrogen-powered aircraft. However, we are very different from road transport, where there are many options.

Deputy Ruairí Ó Murchú

I accept that. It probably sounded like I was oversimplifying. I just mean that is the sphere we are in. Who knows what research is going to pay off? That is the reality but we have no choice but to do it, given the circumstances. That is a fair point when you start looking at the figures properly. When you get down to it it is like every problem in that people try to aim at the middle of the spectrum whereas the issue is usually the 2% or 3% at either end where it is difficult to deal with.

Mr. Willie Walsh

That is where the data is important. Stopping all short-haul flying in Europe would save less than 4%, whereas introducing the Single European Sky could save 10% to 12%.

Deputy Ruairí Ó Murchú

That is a different kettle of fish.

Mr. Willie Walsh

That is an option available to us today. The technology exists. We just need to implement the procedures that have been debated for years and years, but it is a political decision rather than a technological one and does not require any investment.

Deputy Ruairí Ó Murchú

How could that be operated tomorrow?

Mr. Willie Walsh

We need to move to a fully-integrated sky over Europe. We did it during the depths of the pandemic when there were so few aircraft in the air. In effect, a flight takes the most efficient route available to it. The technology exists there. If you fly to Heathrow, you are flying exactly the way we flew when I started flying a 737 back in 1980. You go across the Irish Sea to Liverpool, turn right, go down over Birmingham and continue down towards London, instead of flying directly from Dublin to London. Instead, you would take a direct line, depending on the weather conditions. We are flying pathways developed 50 years ago when aircraft were dependent on ground-based navigation that we do not require anymore.

Deputy Ruairí Ó Murchú

We are doing it because it is what we always did.

Mr. Willie Walsh

Exactly, and there is no need for it, from a technology point of view.

Deputy Ruairí Ó Murchú

We need the EU-plus to sit around the table and come to a decision on it.

Mr. Willie Walsh

It is why you guys get the big bucks.

Deputy Ruairí Ó Murchú

Yes.

The Chair dealt with my final point. We often have conversations in this forum on Shannon Airport. People talk about the regional imbalances and all the rest of it. Some of it could be down to where certain of the Deputies come from but occasionally there has been decent enough over-and-back, which IATA has probably added to. People generally say unless aviation policy changes we can talk about new routes but it is never going to happen on any major level. Mr. Walsh, and also the Chair in fairness, dealt with some of this stuff about the sense that this works if Shannon can feed into a hub and piggyback on that. However, becoming Dublin's hub-plus or whatever would take a huge amount of interaction and is probably largely impossible.

Mr. Willie Walsh

Largely if not completely impossible.

Deputy Ruairí Ó Murchú

Yes. Then in the best-case scenario what could be done and what would it take? In very general terms, I cannot count the number of people who have sat where Mr. Walsh is and said Shannon and the regional airports must be built into a new aviation policy. However, I am not sure anybody has specified what that would look like in order to deliver what people would like to see in the sense of a regional service. In fairness, all of us are looking for a regional service, but it must make sense.

Mr. Willie Walsh

Yes. I love the ambition of Shannon but its ambition should be to attract more flights directly into Shannon.

Deputy Ruairí Ó Murchú

That is it.

Mr. Willie Walsh

As we talked about-----

Chairman

Mr. Walsh will appreciate Shannon Airport was built at a time when we had the Shannon stopover.

Mr. Willie Walsh

Yes.

Chairman

We have a phenomenal tourism offering and built on the back of the transatlantic routes we have a serious FDI sector-----

Mr. Willie Walsh

In the region, yes.

Chairman

-----boxing way above our weight in population terms.

Mr. Willie Walsh

Yes.

Chairman

We have this phenomenal asset on our doorstep. Shannon cannot exist on tourism alone. It cannot function in that way because we just do not have that. I take Mr. Walsh's points and admit this is outside the box. Shannon in its early years was completely outside the box. Brendan O'Regan was a pioneer in what he did.

Mr. Willie Walsh

Yes.

Chairman

The question is whether there is a willingness within the airline industry to look outside the box itself to see whether a model can be arrived at in Ireland. We are very interested to see what is happening in Holland at the moment and in any way of going back. Deputy Ó Murchú asked if there could be a relationship between Dublin and Shannon and Mr. Walsh said "No". Why not? In Limerick I can go down to the Hurlers Bar in Castletroy and get a bus directly to Dublin Airport. No one questions that. This is tied up and not straightforward. Why can we not have a model with relatively short distances, or is it that the consumer will not put up with any form of delay? Are people so busy that it must be a connection where you fly in, you do not hang around too long and you fly out?

Mr. Willie Walsh

Yes, and that is how a hub operates. If you are going to fly from point A to point B over point C you are looking for the most efficient connection you can get. It is not always the shortest time though. For example, I flew to Bahrain over Frankfurt and the connection time was two hours. Coming back from Bahrain I could have connected for one hour but I knew I would not be able to make that connection flying into terminal 2 and connecting out of terminal 1. Instead I flew back over Heathrow where my connection time was two and a half hours.

I did that because I am familiar with the system. If a person is looking solely at the shortest time, he or she might end up doing the wrong thing.

I have often been accused of being unfair to Shannon Airport. I have huge respect for what Shannon Airport has done. What needs to be recognised, and it is important in the context of aviation policy, is that Ireland needs Shannon Airport because Dublin Airport cannot function properly without it. Shannon Airport is used as the alternate airport for Dublin Airport. From a flight planning point of view, we must have Shannon Airport, otherwise we will be diverting aircraft into Belfast or the UK. Ireland needs a proper Shannon Airport.

Chairman

It cannot just be an emergency landing place for Dublin Airport.

Mr. Willie Walsh

No, it cannot. I fully agree with the Chairman. If Shannon Airport was not there, however, there would be a much bigger problem in the context of Irish aviation. It is in everybody's interests to ensure Shannon Airport continues to operate and function properly.

Deputy Ruairí Ó Murchú

It has to survive on its own, however. It has to go out and sell itself. It is not going to be the Dublin plus or whatever.

Mr. Willie Walsh

It will be interesting. I am sure the committee will come back from the Netherlands thinking this is great. I guarantee------

Chairman

We are quite discerning.

Mr. Willie Walsh

I am not usually a betting man but if, ten years from now, we look at what the Netherlands has done, it will have been a mistake and will not have achieved what it is believed will be achieved in transferring-----

Chairman

We will put the questions Mr. Walsh is raising with us to the representatives of Schiphol Airport and the other authorities with whom we will meet tomorrow. That is where we are going.

Mr. Willie Walsh

Interestingly, what they tried to do in the Netherlands last year was to implement a slot policy whereby the Dutch Government would decide which airport an airline flew into based on its assessment of the economic value of the route. For example, Dublin would have been assigned to Eindhoven because the Dutch Government did not assign an economic value to the connection between Dublin and Amsterdam Airport Schiphol.

Chairman

What happened in that regard?

Mr. Willie Walsh

It was challenged legally. We in IATA challenged it and we won. It was deemed to be an illegal-----

Chairman

On what grounds?

Mr. Willie Walsh

There were several grounds.

Chairman

Will IATA fight what is currently under way in Holland?

Mr. Willie Walsh

Yes, we will. The reason, however-----

Chairman

Is IATA going to fight that?

Mr. Willie Walsh

Yes, absolutely. Our members want us to fight it, and they wanted us to fight the previous one.

Chairman

To where does IATA take a case to fights that decision?

Mr. Willie Walsh

It will go to the courts in the Netherlands first. We succeeded------

Chairman

Is that process under way?

Mr. Willie Walsh

It has not started. We are looking at the legal options. The Dutch Government has not dictated how it is going to do it. It has made a grand announcement but everybody is waiting to see how it is going to implement this.

Chairman

We are going there in good time.

Mr. Willie Walsh

Yes. I am happy to send the committee details-----

Chairman

We would like that.

Mr. Willie Walsh

-----of what happened when the Dutch Government tried to assign flights to certain airports.

Chairman

IATA is going to fight the measures Holland is seeking to bring in.

Mr. Willie Walsh

We are fighting it because our members want us to do so. They do not believe that what the Dutch Government is doing will achieve the objective. If they believed in it, they would not have asked us to fight the previous case. They would have decided to fly into Eindhoven. We fought that decision on the basis that it did not make sense and that airlines would not move their flights that were scheduled to go into Amsterdam to another airport. It was clear they would not do that. They asked us to fight that decision and we did so. I am happy to send the committee details on that.

Chairman

We would appreciate that. Does Deputy Ó Murchú wish to come back in?

Mr. Willie Walsh

My apologies.

Chairman

It was my fault, actually.

Deputy Ruairí Ó Murchú

In fairness, the discussion followed on from the points I was making. It was a useful conversation. The big point Mr. Walsh has made is that the European open sky needs to happen as quickly as possible.

Mr. Willie Walsh

Yes. The single European sky initiative is critical.

Deputy Joe Carey

Mr. Walsh is very welcome. I have listened to most of the meeting. I have a deep interest in Shannon Airport and the Shannon area. I note his comments in respect of the airport and the hope is to progress. He is aware of the chaos we all witnessed at Dublin Airport and other airports across Europe, particularly where there was a dominant airport. That chaos stemmed from a lack of staff, with people queuing, significant frustration and cancelled flights. The mask slipped in respect of aviation policy in this country. Ordinary people were saying we need to sweat the assets we have, whether that is Cork Airport or Shannon Airport. Obviously, I will be making a case for Shannon Airport. It has capacity for 4.5 million passengers.

One of the major asks of the Shannon Group is for the airport to have a connection to a major European hub. It is not that Shannon Airport would become a hub. Mr. Walsh has stated that there are pitfalls in that regard. Shannon Group has identified Schipol, Frankfurt and Paris airports. Mr. Walsh mentioned Istanbul. That opportunity was highlighted in work carried out by Copenhagen Economics on behalf of Limerick Chamber of Commerce. It identified the opportunities relating to Istanbul.

What can the Oireachtas, Deputies, Ministers and the Government do to convince airlines? Mr. Walsh is saying the airports are a different kettle of fish from the airlines. I will be part of the delegation that will visit the Netherlands tomorrow. We will be meeting people involved in aviation there in the airport. What should we, as stakeholders, be doing to engage with the likes of IATA to ensure we get that vital hub connectivity for Shannon Airport? Post Brexit, we do not have that connectivity and that is a major failing for Shannon Airport. It makes the airport less attractive even though we have 40% of US foreign direct investment, FDI, located within the Shannon catchment area. Mr. Walsh is saying to make it attractive on a point-to-point basis. We have all that stuff there. We have a massive tourism opportunity, with the great scenery all along the west coast. We have something to sell. We have the Wild Atlantic Way, for example. It is about working together. Dublin Airport cannot be allowed to suck in 90% of the traffic while everyone else fights for the crumbs. There must be a better way to do it. That is the point I am making.

Mr. Willie Walsh

The question I have is: what is Shannon Airport trying to achieve? If it is trying to achieve connections globally, and to do that over hub airports, first and foremost it must be recognised that hub airports compete with each other. Schiphol competes with Heathrow, Paris and Frankfurt airports. Shannon Airport has a connection over a global hub airport, namely, Heathrow. One must be careful that any measures taken to try to attract connections to another hub airport are additional and supplementary rather than competing. One does not want to put at risk the connectivity the airport already has. That happened previously. There were previously connections to Paris but they did not sustain, principally because they were not financially viable. Shannon Airport needs to be clear in terms of what it is trying to do. Is it trying to attract tourism, investment and business from the world or is it trying to attract it from certain parts of the world? It needs to define where it is we need that connectivity. One then pursues the connectivity. Just saying we want to connect over Schipol is not the correct approach. What will Schiphol give Shannon Airport that Heathrow does not give it? Schiphol used to have a much bigger network into China, but China is closed so that is currently of no value. Other than China, there were very limited options available at Schiphol that one could not get at Heathrow. Frankfurt Airport did the same in terms of a bigger network into China. Asia was better served from some of these hub airports than it was from Heathrow. Heathrow was growing its connectivity into China and was catching up in that regard prior to the pandemic. Shannon needs to be clear on what it is trying to do and from where is it trying to attract traffic, and then map out the best place to get that connectivity. Otherwise, as I stated, it can get more connectivity from Europe on a point-to-point basis. That is where there is a real opportunity. There are opportunities there, particularly in light of the increasing competition between low-cost carriers.

Deputy Joe Carey

Mr. Walsh will be aware of Shannon Airport's proposal that a public service obligation, PSO, route be established from Shannon to another European hub.

Is Mr. Walsh aware of any other European country that has a PSO in place?

Mr. Willie Walsh

Not an international one; it is domestic. The challenge is that if a PSO is issued to connect to another hub, you have to ask what it means for the service you have for Heathrow. Would Aer Lingus say it is fine? If providing funding to take traffic that would have flown over Heathrow over Amsterdam, would Aer Lingus continue to operate? It would not. That is why we need to be crystal clear about what we are trying to achieve. It may be that an increased number of connections to hub airports are needed, because there is an opportunity to grow the overall traffic rather than transfer it from one hub airport to another.

Deputy Joe Carey

Sustainable aviation fuels, as opposed to hydrogen, which is the ultimate, look like they are the way forward for the next ten or 20 years. Does Mr. Walsh believe there is an opportunity for Shannon in the servicing of planes with sustainable aviation fuel?

Mr. Willie Walsh

There is an opportunity for Ireland. The fuel does not necessarily have to be located at an airport because it could be distributed to Dublin, Cork and Shannon. The most efficient way of doing it to avoid CO2 emissions from road transport, would be to have the fuel close to the airport. There is sufficient activity at Shannon to take up every single drop of sustainable fuel that could be produced. It is definitely an opportunity.

Deputy Joe Carey

Another interesting point concerns the flying-taxi concept. Avolon has 500 VX4 aircraft. What does Mr. Walsh think of the concept?

Mr. Willie Walsh

I wish it luck. I do not see it competing with the airline industry. There are challenges. There is a shortage of pilots in the US but not in Europe. If a qualified pilot is required in each of the aircraft, there will be a struggle. I am not so sure that the aviation regulators are going to be happy to allow just anybody to transport people, particularly where paying customers are being transported. Considerable debate is required before a successful business model can be envisaged.

Deputy Joe Carey

Mr. Walsh touched on the availability of pilots. What is the scene around Europe?

Mr. Willie Walsh

There is no issue around Europe. Plenty of pilots are available around Europe. Following Brexit, the UK might have a little bit of a challenge; however, given that Europe has a single market and that someone is qualified to fly with an IASA licence, I do not foresee any supply issues in Europe.

Deputy Joe Carey

Have we a good academy in Ireland for the training of pilots?

Mr. Willie Walsh

There is definitely an opportunity here. It is expensive in Ireland. That is part of the problem. The conditions make it a lot cheaper in other countries. However, it is good to see training in Ireland. The quality of the training here is perfectly good. It is top class.

Chairman

Could I just go back on a couple of issues? Mr. Walsh mentioned that the landing charges may not comprise a considerable proportion of the cost of operating a plane but that they are important. Could he flesh that out? We hear about airports competing on landing charges and so forth. Why is it so critical?

Mr. Willie Walsh

At industry level between 2010 and 2019 – the most profitable ten-year period in the history of aviation and the only ten-year period in which airlines at industry level made a profit in each of the ten years – the average operating margin was 5.5%.

Chairman

Net?

Mr. Willie Walsh

That was the operating margin; the net margin was lower and, therefore, when people say airport charges are insignificant, they should note that where there are margins like those in question, every single penny of the cost base is important. This is where airports need to be realistic.

Chairman

If fuel and salaries were stripped out, what would-----

Mr. Willie Walsh

In the ten-year period, the combination of fuel and wages represented 52% of the cost base. Therefore, 48% of the cost base is accounted for by everything else.

Chairman

If Mr. Walsh was Minister for Transport, what aviation changes would he like to see, looking at the matter from every level? He started out as a pilot, became CEO of an airline and then became CEO of an enormous airline. He has tried every area of the aviation sector and is Irish. If he had the power, what would he like to do?

Mr. Willie Walsh

Ireland punches way above its weight in aviation. We do so because Government policies have been positive and helpful. However, we need to continue in this regard. I fully recognise that every country and individual is conscious of the environmental impact of aviation. We need to put it into context. Admittedly, aviation contributes significantly to man-made CO2 emissions, the proportion being 2.5% globally, and there are non- CO2-related impacts on the environment, but our industry will achieve net zero in 2050 and, therefore, in Ireland we need to ensure we continue to protect what we have, exploit it and grow it, remaining confident that the environmental challenges we face will be overcome.

We should note the connectivity we have as a small country. Dublin Airport was ranked tenth or eleventh in Europe in 2019. That does not come about without hard work, nor does it come about overnight; it comes about because, as a country, we worked hard and recognised the economic contribution of aviation – not just the direct impact but also the significant impact on Ireland as a result of connectivity. There would not be foreign direct investment at the level we have if we were not globally connected in the way we are and, therefore, it is important that we value what we have and do not put it at risk. We must also continue to build and look for an opportunity to further exploit everything we have in Ireland.

Senator Gerry Horkan

The Chairman acknowledged that Mr. Walsh was the chief executive of an airline and then of a bigger one. I recall when he was the boss of Futura. I am around that long. He went from Futura to Aer Lingus to British Airways to IAG, and now he is here. The point he made on Irish aviation generally, which I have made before, was that between himself and Mr. Michael O’Leary, Mr. Alan Joyce, Mr. Eamonn Brennan and many others, including pioneers such as Mr. Tony Ryan in his day, along with Shannon Airport, the contribution was enormous.

Mr. Willie Walsh

Duty free.

Senator Gerry Horkan

With duty free, Irish coffee and even fuel farms involving countries we do not talk about anymore, the country has been very innovative. It has punched way above its weight and I would like to see us continue in that regard. Good news tends not to be news. I do not believe anyone appreciates just how large the contribution was. I am puzzled as to why Ryanair, having so many passengers and so on, is not a member of IATA. Maybe it is because it does not want to pay the fee or whatever. I do not know.

Mr. Willie Walsh

To be fair, it does use some of our services, which we provide to it at-----

Senator Gerry Horkan

Aer Lingus was a better company because of the competition from Ryanair.

Mr. Willie Walsh

I agree.

Senator Gerry Horkan

Mr. Walsh was a part of that. Aer Lingus may have had to up its game. Competition makes us all a little more competitive, leaner and meaner, and more aggressive in pursuing markets.

I was interested in the figure on the margin. I am aware that a small margin on a gigantic amount is still quite a lot of money. Maybe that is the reason the margin is low. What is to stop an airline from improving its margin? Is it competition from other airlines that are happy to live with low margins?

Mr. Willie Walsh

It is a brutally competitive industry. In many cases, it was because the market was distorted by state-owned couriers that were not competitive and continue to operate at a loss. It is well documented.

Senator Gerry Horkan

Do they exist anymore, not so much in the EU but outside it?

Mr. Willie Walsh

Yes, they do, including within the EU. Some airlines are state-owned and still profitable.

Senator Gerry Horkan

Do the state aid rules not affect them?

Mr. Willie Walsh

They do apply but the Senator should not forget that many of the state aid rules were set aside during the period in question, and sensibly so.

It is important to recognise that.

Senator Gerry Horkan

Of the European government-owned flag carriers that are losing money and that governments keep throwing money at, which ones are left?

Mr. Willie Walsh

ITA Airways, which used to be Alitalia, is receiving another significant investment from the Italian Government. There has been significant state support, especially in France, Germany, Italy-----

Senator Gerry Horkan

Mr. Walsh is referring to the likes of Sabena, Malev and Olympic, but they are all gone.

Mr. Willie Walsh

Yes.

Senator Gerry Horkan

Even Swissair went and came back as SWISS.

Mr. Willie Walsh

Exactly. The most profitable ten-year period in the history of the industry was 2010 to 2019. A profit was made every year, but the margin was 5.5%. The industry did not return its costs of capital during a number of those years.

Chairman

Was that 5.5% before interest costs were taken into account?

Mr. Willie Walsh

Some of the interest was positive. One feature of the industry is that it generates a lot of cash.

Chairman

What were the expenses? These airlines operate on a net margin, after taking into account servicing costs and so on.

Mr. Willie Walsh

Yes, but I was just highlighting that the interest is not always a negative.

Senator Gerry Horkan

Airlines may become more profitable into the future based on the interest rates.

Mr. Willie Walsh

Yes.

Chairman

What was typically the net margin?

Mr. Willie Walsh

From memory, it was about 4%.

Chairman

The differential was a low margin.

Mr. Willie Walsh

Yes, it is a low-margin industry.

Senator Gerry Horkan

With high volumes.

Mr. Willie Walsh

Yes.

Chairman

To reach that operating level, what would airlines need to do capacity-wise on a typical aeroplane?

Mr. Willie Walsh

I think that during that period, average seat factors were at about 82% or 83%.

Chairman

It is a volume game.

Mr. Willie Walsh

Yes.

Senator Gerry Horkan

I again thank Mr. Walsh for all he has done for both Irish and world aviation and for coming here today from Geneva. I hope to see him here again.

Chairman

I thank Mr. Walsh. I hope he will get to visit relatives while he is home.

Deputy Ruairí Ó Murchú

I might just come in there, if I may.

Chairman

Briefly.

Deputy Ruairí Ó Murchú

Most of the issues have been dealt with. A few issues arose in recent years, such as the disaster of people starting to fly again more quickly than had been modelled for and so on. Does Mr. Walsh expect that the majority of those issues we have been dealing with will not arise again next summer?

Mr. Willie Walsh

Yes, and if they do, heads should roll. I do not think any defence will be available.

Deputy Ruairí Ó Murchú

That is the sort of answer and brevity I was looking for. Mr. Walsh referred to training pilots. I am taking up this clientelist issue on the basis that somebody raised it with me. A young fella in Dundalk wants to be a pilot but is worried about the expense and so on. What are the means by which somebody can go about that? What is the cheapest, best and fastest route, for want of a better term?

Mr. Willie Walsh

First and foremost, we have to attract more women to be pilots. That is one of the main challenges our industry faces. We are still at less than 10% globally. It is one of the main issues the airline industry faces. The cost of training for pilots is expensive and that issue should be examined. While I am not saying the State should pay for it, there may be opportunities to provide some form of support for people. It should not be that only rich people can afford to undertake the training and get into the industry.

Deputy Ruairí Ó Murchú

Are enough people being trained?

Mr. Willie Walsh

Yes. That is surprising, given the cost of training in Europe. The industry is supporting people in getting trained. There are many schemes where trainees are either fully or partially sponsored by airlines, which recognise that to get the supply they require, they will have to get involved in providing some financial support.

Deputy Ruairí Ó Murchú

How would somebody get connected to one of those schemes?

Mr. Willie Walsh

Normally, the airlines advertise for them.

Chairman

The figure of 10% for female pilots is very low.

Mr. Willie Walsh

Yes, it is terrible. Aer Lingus recruited its first female pilot in 1977, Gráinne Cronin, and it was well ahead of other airlines.

Chairman

What does Mr. Walsh put the low figure down to?

Mr. Willie Walsh

We need as an industry to persuade girls at a young age to consider aviation as an opportunity.

Chairman

Typically, what does it cost to train as a pilot?

Mr. Willie Walsh

The cheapest training globally is probably of the order of €70,000 to €80,000 and the average cost would be well above that.

Chairman

We are contacted by many young pilots who have borrowed heavily in order to train. Why has the industry worldwide not come up with an academy system, such as the IATA's members collectively coming up with one, to fund this? Are scholarships available for women or people who are not as well off?

Mr. Willie Walsh

Yes, there are scholarships. I became a pilot because I was on a sponsored Aer Lingus programme. Globally, it is seen as a competitive issue, so I do not think the industry will come together to do it. A lot of airlines do not have any issue recruiting pilots.

Chairman

Are we getting to a point within the sector where there should be gender quotas?

Mr. Willie Walsh

I have never been a fan of quotas. As an industry, we are encouraging people. We have an initiative at IATA called 25by2025, whereby we are trying to get to 25% of leaders in the industry being female. We are seeing more and more-----

Chairman

They will not necessarily be pilots.

Mr. Willie Walsh

No, but we face the problem of not having female CEOs, female senior managers or female-----

Chairman

At the moment, what percentage of the leaders are female?

Mr. Willie Walsh

That figure recently increased by a significant degree. We are probably at about 9% of CEOs being female.

Chairman

That is lower than the figure for female pilots.

Mr. Willie Walsh

Yes.

Chairman

Does the industry not have a responsibility, in the modern world, to promote female pilots as well as male ones? The cost must be a factor.

Mr. Willie Walsh

The industry is doing that. Let me put this into context, however, because it is important. I again give credit to Aer Lingus, which went through a detailed programme to encourage more female applicants. Where we are failing is in getting applicants.

I may have these figures slightly wrong but they are more or less correct. In 2018, Aer Lingus ran a scheme to recruit 18 pilots. It had 7,600 applicants, 8% of whom were female. Why was that not a 50-50 split, given that our population is roughly 50-50? We need to get into schools at an early age. When we talk about careers, we need to be clear that a girl can do everything and all the same jobs.

Chairman

Is work being done by the industry in that regard?

Mr. Willie Walsh

Yes, a lot of work is going on.

Chairman

This is an issue we might return to as a committee. Compared with other sectors, it is a stark figure that only 10% of pilots are female and that less than 10% are leaders within the sector.

Mr. Willie Walsh

Yes, although Ireland is better than most countries.

Chairman

What are the figures for Ireland?

Mr. Willie Walsh

The number of female pilots is more than 10%. In fact, the average globally is less than 10%, although it is thereabouts. India is the best country for this, where 12% of pilots are female.

Chairman

We will follow up on this as a committee. The figure is stark, as Mr. Walsh will appreciate.

Mr. Willie Walsh

I agree, but it is a challenge not just for this industry and it is not just about pilots. We face the same issue in respect of many jobs that have traditionally been seen as male dominated. We need to encourage women in science, technology, engineering and mathematics, STEM, studies, for example, where the proportion is still far too low. I see it as a societal issue.

Chairman

We will follow up on that.

I thank Mr. Walsh for attending. We are now undertaking our work on the national aviation policy. As was noted, we will travel to Schiphol airport tomorrow, flying out at an early hour, compliments of Ryanair, and coming back with Aer Lingus on Friday. Both airlines fly to Schiphol. We thank Mr. Walsh for indicating he will assist us in our continuing review and we look forward to continuing our work with him. I hope he will enjoy his stay in Ireland before he returns to Geneva.

Mr. Willie Walsh

I certainly will. I thank the Chairman. We will be very happy to assist in any way we can.

Chairman

The committee will now adjourn. The next meeting of the joint committee will be a private session on MS Teams at 4 p.m. next Tuesday, 22 November.

The joint committee adjourned at 4.39 p.m. until 5 p.m. on Tuesday, 29 November 2022.