I thank the Chairman and members of the committee for inviting me to attend today's meeting. It has been a real privilege for me to serve as chairman of the daa since I was first appointed in January 2012 and then reappointed 18 months ago in February 2015. I am honoured that the Minister for Transport, Tourism and Sport, Deputy Ross, has asked me to attend this meeting today in respect of reappointment to the role for the next 18 months, which is a key period for the daa. I am conscious of the core importance to Ireland of Dublin and Cork Airports and it has been a great pleasure for me to work with the Minister’s predecessors, his Department and the daa board in defining the strategic direction for the daa in alignment with national policy, as well as in ensuring that that policy is implemented. I look forward to continuing to contribute to the daa as a key engine for Irish growth and to continue to help deliver on its potential for the economy and community as a whole.
Before turning my attention to the daa, it may be helpful to outline briefly my own background and experience. I am from Bishopstown in Cork and studied law at University College Cork to postgraduate level. I qualified as a barrister in King's Inns in Dublin and then moved to the United States, where I completed a master of laws degree at Harvard Law School. I qualified as an attorney in New York and began my career with a Wall Street law firm before joining the Irish law firm, Arthur Cox, to run its New York office. I returned home to Ireland with Arthur Cox after seven years in the US. I was elected managing partner of Arthur Cox, which effectively is its chief executive, in 2003 and was re-elected to the position for a second and final four-year term in 2007. I continue as a practising corporate partner in the firm, which now employs 700 people and is one of Ireland's largest law firms. I also am a non-executive director of Paddy Power Betfair plc, which is listed on the Irish and London Stock Exchanges and now employs more than 7,500 people, having joined the Paddy Power board in 2008.
Since I appeared before the Oireachtas Joint Committee on Transport and Communications in early 2015, there has been strong growth in the Irish economy, which the daa has both contributed to and benefitted from. Most notably, passenger numbers at Dublin Airport are at record highs with more than 25 million passengers in 2015, which surpasses the peak pre-crisis levels. This growth momentum continues with volumes up by 13% in the first six months and more seats on sale every week from 16 May to 2 October in 2016 than the peak week in the summer of 2015. Cork Airport, a key focus for the daa board over the past few years, has taken longer to recover but has now also returned to sustainable growth since the final quarter of 2015 and the prospects for Cork are good. I will elaborate further on the impact of this traffic growth at both Dublin and Cork a little later. Meanwhile, the daa’s international businesses have had a very successful year, winning significant new duty-free contracts in the new Abu Dhabi airport, Muscat and New Zealand. In Saudi Arabia, we have been appointed to manage the new Terminal 5 in Riyadh, the first big win for daa International, our fledgling airport management business.
The growth in our business has been achieved with the unstinting support of our staff who safely and securely run our airports and give a great passenger experience. The daa is a commercial semi-State company that pays its own way and does not receive any Exchequer funds directly or indirectly. The group finances all its investments from the cash it generates and from debt raised in the same way as normal commercial businesses. As a commercial State company, we are also - rightly - expected to pay dividends to our shareholder. Over the past four years, we have prudently managed our finances and structurally, the company’s debt levels are in a better position now with net debt €100 million lower and debt as a multiple of our earnings reduced from more than five times to just three times and we have improved our credit rating.
All of these have repositioned us well for the completion of a 12-year €400 million re-financing, which we completed in June on notably attractive terms. The long-standing pension problems, which created so much risk for employees and uncertainty for the company, were resolved during 2015 and a new pension scheme is in place since the beginning of the year.
We have announced plans to move forward with the new parallel runway at Dublin Airport, something I will return to in more detail later. The last 18 months have also been particularly important in respect of the developments in the environment in which the daa operates. These include the publication of the national aviation policy, the takeover of Aer Lingus by IAG and the review of the regulatory regime for airport charges currently under way. In this period, security, particularly in light of renewed terrorist attacks internationally, has been a central focus for us while other international developments such as Brexit have only begun to play out. Again, I will return to these themes.
I will comment on policy and industry developments. I very much welcome the new national aviation policy which the Government has adopted. This is the first comprehensive and integrated strategy for the aviation sector published for over two decades and it provides a cohesive direction for growth. The daa will energetically play its central role in helping to deliver the benefits of this policy, not only through the development of the northern runway but in working with the Minister, the Department and all other stakeholders on the strategy.
I welcome the announcement by Government of the Metro North transport option as a frequent service with fast journey times connecting the centre of the airport to the city centre. I urge, however, for this project to be accelerated as delivery by 2026 loses many years of structural economic benefit to Dublin and the country. The most significant industry development of the last 18 months for the daa was the acquisition of Aer Lingus by IAG. This offers new potential for growth both in Dublin and Cork airports, not least the quickly emerging potential of Dublin to become a European transatlantic gateway, a topic to which I will return.
As I mentioned, last year Dublin Airport handled over 25 million passengers and this year we are potentially on path to break the 27 million mark. Traffic at Dublin has grown 33.7% in the four years since I joined the board of the daa. Dublin Airport is now the second fastest-growing airport in Europe. We are constantly expanding connectivity and service in Dublin with 39 new routes and nine new airline operators in 2015 and 2016. This expanded connectivity of Ireland to the world is at the core of the daa's economic contribution to the country and we consider it a central part of our mandate. The ongoing development of Dublin Airport as a gateway to and from the United States is central to the ongoing development of this connectivity as passengers transiting through Dublin strongly support the global network and frequency of routes available to those passengers whose origin or destination is Ireland. The key success factors in developing this potential include our US Customs and Borders Protection service in Dublin, the continuing development of Dublin Airport as a transatlantic gateway for European and US travellers and the increase in capacity through the northern runway.
The daa has focused significantly on the development of Cork Airport in recent years. The environment in Cork has been challenging since the financial crisis and the airport was also adversely affected by the terms offered by Shannon Airport since its separation. I am pleased to report, however, that it has now turned a corner. Cork has now achieved nine months of passenger growth and is back up to 2.15 million passengers, the second largest airport in the State. Although the CityJet Cork to London City route failed, there are seven new routes into Cork this year, as well as three summer routes that are becoming year-round services. The other core growth opportunity through Cork Airport for the Munster region, the Wild Atlantic Way and Ireland's Ancient East remains the proposed Norwegian three-times-a-week flight to Boston. The US authorities continue to delay granting Norwegian a foreign carrier permit. I urge all stakeholders to continue to work to urgently resolve this issue and the daa will play its part in this regard.
The development of a new parallel northern runway at Dublin Airport has been incorporated in county development plans since the 1970s. In contrast to airports like Heathrow, generations of previous boards and management of the company had the vision and foresight to assemble and preserve the lands and environs required to build it. Although planning permission was granted in 2007, it is only now that the economic pace of the country and the growth of passengers at Dublin Airport require the development of this key national infrastructure, and it a core part of the national aviation policy.
The development of a parallel runway is necessary not only to sustain passenger growth at Dublin Airport but, critically, also to realise the potential for Ireland's connectivity with the world. In addition to relieving ever-increasing congestion at the airport, the new runway, which will be 3,100 m in length, will facilitate new long-range routes from Ireland to cities such as Beijing, Hong Kong, Singapore, Tokyo and Sao Paulo.
To sustain the levels of growth I described earlier, the objective of the daa is to deliver the new northern runway by 2020, which is as soon as is feasible. The cost of the runway was estimated at €245 million in 2014 for the regulatory process and the actual cost is currently estimated at €320 million. The change in the estimate is due to a combination of factors, including cost inflation, more comprehensive scope items and the added expense of working on a far busier airfield. The project will, of course, be competitively tendered to ensure it is built at the lowest available actual cost. Until that is done we cannot confirm the final price. However, we can confirm that the project will be funded entirely by the daa without recourse to the taxpayer.
The planning permission for the new runway, as granted, contains 31 conditions, two of which are particularly onerous and would restrict the usage of the airport to a degree that would largely obviate the purpose of the new runway. Should these two conditions remain, building the new runway would materially reduce the current capacity of Dublin Airport rather than increase it during the hours of 11 p.m. and 7 a.m. Specifically, the planning conditions provide that if the new runway is built there can be no more than 65 movements on the existing runways between 11 p.m. and 7 a.m. in contrast with approximately 100 such movements currently and they would also require that the new runway would have to be entirely closed during those hours. These two planning conditions were designed and included many years ago at a single point in time and without any in-built mechanism to respond to changing conditions. Such changing conditions in the intervening years have included the development of far quieter aircraft, which now account for 95% of all flights to and from Dublin. As a result, the daa will apply to the planning authorities to have these conditions removed. In doing so, we are centrally conscious at board level and throughout the executive management of our place in the community and the potential impacts on our neighbours.
We are committed to approaching these issues in a transparent and helpful way, listening to the concerns of neighbours and addressing them to the extent that we can in an open, constructive and objective manner. We have already commenced this process of actively engaging with the community. An environmental impact study will be undertaken for review by the relevant authorities and a comprehensive study of noise contours from the new runway will be completed to European standards. We do not intend using compulsory purchase orders for any houses and we intend to go beyond what is required of us in the planning permission in terms of mitigating the impact of noise as we seek to find balanced constructive and responsive ways of addressing concerns.
The current system of regulation of airport charges has been in place since 2001 and, as noted in the national aviation policy, involves more onerous regulatory intervention than is required by European law. Although the approach to regulation has evolved little during those 15 years, the industry it relates to in Ireland has changed dramatically, as have its competitive dynamics. In that period, Ryanair has gone from being a small, primarily Irish and UK based airline to a world leader and Aer Lingus is now owned by IAG, one of the largest and most successful global aviation players. These are our two major customers. We value them decidedly and both have tremendous competitive power. They can move aircraft, the most mobile of assets, from Dublin or Cork with ease and deploy them elsewhere in their international networks if the financial conditions in our airports are not appealing.
The regulatory system continues to ignore these realities. It is costly, overly complex and disproportionate to the market position of the airport. It has been striking to me during the past four years the level of distortion this system can cause. It seems the regulator rather than the board determines the nature, level and timing of the daa's investment strategy for the airport. In doing so, it often prioritises short-term considerations over long-term strategic investment in the airport, which is what is needed in Ireland's primary gateway. Dividend return to the State, as the daa's shareholder, is de-prioritised in favour of increased return to the airlines and there appears to be little alignment between the regulator's mandate and the goals of the national aviation policy.
Last year, the Department of Transport, Tourism and Sport commenced a process of reviewing the regulatory regime in the aviation sector, a process we very much welcomed.
The Department has now commenced a public consultation on future policy, inviting submissions on a recently published report by Indecon that is assisting the Department. It is of concern that this report recommends reinforcing the current regulatory approach or making it even more onerous while making no reference in its analysis to Dublin's two nearest potential competitor airports in Belfast, both less than 180 km away, or to the goals of the national aviation policy. The daa will be making submissions to the Department on this report in the coming weeks. Central to our submission will be the theme that Dublin Airport needs to operate within a regulatory system that equips it to develop the right infrastructure for long-term national economic development within an environment of competitive airport charges and adequate return to the shareholder.
In addition to the daa's two airports in Ireland, the daa Group also operates a successful international travel retail business, Aer Rianta International, ARI. This business is truly global, operating in the Middle East, Asia, India, New Zealand and North America, and continues to expand its footprint. Group turnover reported for 2015 in our international business was in the order of €180 million, generating €22 million in profit. We have developed a new international business in recent years, daa International, daai, which provides international airport management advisory services and aviation training services. Earlier this year, daai won a contract to manage and operate the new Terminal 5 facility in Riyadh, Saudi Arabia. This terminal is now up and running. We see promise in this business and will continue to work to expand it into a contributor of scale to the group.
Approximately 70 acres of uniquely located lands within Dublin Airport are suitable for development. Dublin Airport central is about developing modern, sustainable office development on that footprint. Members may have noticed the redevelopment of the former Aer Lingus head office building on the site over the past 12 months. This is now a modern office building that will shortly be occupied by ESB International. We plan to develop the site further commercially in the coming years, potentially in partnership with others, subject to obtaining the requisite planning permissions.
The daa is a service-led business and we have a great and dedicated staff who deliver continuous excellent service on a 24-7 basis. The daa Group offers more than 3,300 full-time equivalent jobs, of which 2,500 are based at our Irish airports. In 2012 when I became chairman, our airports were ranked among the lowest for customer services against comparable European airports. That situation has changed dramatically and both Cork and Dublin Airports are now ranked among the highest for customer service. I am particularly proud of the efforts of all staff in achieving the best customer service standards among peer airports, most especially while meeting the demands of a fast-growing business. Equally, I am conscious of the need to deliver to staff and to create a cohesive, evolutionary employment environment that can flex and grow with the ever-changing needs of the business while creating a fair, forward-looking workplace in which our staff can thrive. To achieve these goals, we have embarked on a transformation programme aimed at changing how all levels of the company work together, how employees are rewarded and build careers and how the company manages change in a fast-moving, dynamic airport environment. I am happy to report that there is active engagement between management and staff representatives on these matters.
I mentioned a number of international developments that are likely to have an impact on our business. In particular, we will be closely monitoring the impact of the UK leaving the EU. At a national level, we see the importance of the UK-Ireland economic and tourism links, with Dublin-London the largest international route in the world. In 2016, we expect just over 11 million passengers to travel to and from the UK through Dublin and Cork Airports. Any change to the operation of the common travel area through the reintroduction of border controls between Ireland, Northern Ireland and Great Britain would make travel between the countries more difficult and could have negative impacts on trade and tourism apart from the significant cost and complexity implications at airports. Equally, we are conscious that there may be opportunities related to Brexit and we are focused on identifying these at the earliest possible stage.
Before concluding, I wish to say a word about security, which in all of its aspects continues to be perhaps the key priority area for the company. The terrorist attacks in recent months in Europe are disturbing and, as a company, we have studied each as it has occurred. The safety and security of passengers and staff are primary board priorities and we continue to review actively our security arrangements and keep in regular contact with the Garda and other relevant State agencies regarding airport security matters.
I wish to highlight the work of my colleagues on the daa board who have worked well and cohesively with me over the past four years to formulate a pragmatic but ambitious strategy for the group that is aligned with national priorities and customer expectations. In particular, I wish to acknowledge Mr. Kevin Toland, our CEO, who has done an exceptional job, not just for the daa, but in helping it to reach its potential as a key source of growth for the economy as a whole. Under his stewardship, the business is performing strikingly well, with record traffic and profit levels, continued expansion abroad and ever-increasing connectivity. I have made this point a number of times previously but I am certain that the yawning pay gap between what a CEO of Mr. Toland's ability is paid in the public sector and what he would be paid for doing the same job in the private sector is the most false of all economies for the country. The positive impact that he has made in igniting Dublin and Cork Airports as key Irish assets speaks for itself. I urge the committee to take the urgently required remuneration steps necessary to enable boards like mine to retain exceptional people of Mr. Toland's calibre within the public system where their energies are dedicated to advancing the economic interests of Ireland as a whole.
I thank the staff of the daa for their hard work, dedication and commitment to making our airports the best in Europe. I thank the Minister for Transport, Tourism and Sport, Deputy Ross, and his officials, with whom we have good professional relationships, for their commitment and their ongoing support for all aspects of our business. Thanks also to the group's shareholder, the Minister for Public Expenditure and Reform, Deputy Donohoe, whom I also worked with as Minister for Transport, Tourism and Sport, and the former Minister, Deputy Howlin, and his officials for their support over the past 18 months.
It would be a privilege to rededicate my own efforts to the daa over the next 18 months and to continue to fulfil the role of chairman of the company for that period. I thank the Chairman and the members of the committee for the invitation to appear before them today and I am happy to address whatever questions they may have.
