I welcome Mr. Willie Walsh, chief executive officer of Aer Lingus and chairman of the Federation of Aerospace Enterprises in Ireland - FAEI - Operators' Group. He is accompanied by Mr. Frank O'Hagan, Mr. Geoff White, Mr. David O'Brien, Mr. Peter McKenna and Mr. Tommy McCabe. I draw the attention of delegates to the fact that members of the committee enjoy absolute privilege, but this same privilege does not apply to witnesses appearing before the committee.
Aerospace Enterprises in Ireland: Presentation.
Mr. Willie Walsh
I thank the committee for the opportunity to make a presentation. We have put together a short presentation on a number of key issues affecting the industry at present.
The Federation of Aerospace Enterprises in Ireland Operators' Group consists of all the major airlines in Ireland. The group was formed to provide a forum for discussion and consideration, in the main of regulatory issues but also to provide a co-ordinated response on developments at the three State airports - Cork, Dublin and Shannon. It is fair to say that all of the operators present and represented, are concerned about the efficiency and cost of operation at airports and the absence of genuine consultation with the airlines, and these points have been made by individual airlines to this committee in the past.
Access to the rest of the world is vital to an island economy like Ireland. There has been much focus on passenger access and cost of access, but clearly it is equally important that there is cheap and efficient access for goods and services. Ireland has benefited significantly from strong competition among airlines and Ireland does have an aggressive and competitive aviation industry.
The industry has adapted to a very changed market environment over recent years. All of the airlines, present and represented, have reduced their costs and reduced their prices for the benefit of their customers, and that has been of significant benefit to the economy in the form of tourism and access for business.
We believe that airports need to respond positively to this new dynamic and to reduce their costs and charges. The recent increase in charges announced at Dublin, Cork and Shannon is yet another step in the wrong direction. For the benefit of the committee, in my presentation I demonstrate the increases in one particular charge, the passenger service charge. It is proposed to increase this charge by 13% at Dublin, by 160% at Cork and by 45% at Shannon.
These increases will force airlines to reconsider their schedules at these airports. The increases will have to be passed on to the customer and will therefore lead to higher fares. It is important to note that high access costs will have a significant negative effect on tourism, which is a critical issue for Ireland as an island nation.
The FAEI Operators' Group is unanimous in its support of the Government's decision to establish three fully independent and autonomous airport authorities for Dublin, Cork and Shannon. We believe that this decision represents a positive move and will have a positive effect on growth and development at the three airports. It is important for me to state at this stage that the group is not anti-Aer Rianta and this should not be seen as an anti-Aer Rianta comment, but we are very much in favour of competition between the airports.
Consultation with the key airport users needs to be improved significantly. The lack of proper consultation was a key factor in the Commission for Aviation Regulation's decision to severely restrict the recoverable capex - capital expenditure - programme of Aer Rianta. We believe firmly that the three independent and autonomous airport authorities will engage in more active and effective consultation with the airlines and the airport users. It is important that any capital expenditure programme at these airports must meet the requirements of users. Ultimately, it is the passengers who pay for these airport developments. The Cork Chamber of Commerce has noted that point and is proposing a significant increase there at present.
We must be satisfied that the existing infrastructure is efficiently used before any money is spent on new infrastructure. There is no doubt that capacity on the existing runway at Dublin airport can be increased. We must strive at all times for maximum efficiency in order to keep costs under control and before we engage in very expensive capital expenditure programmes.
The operators group unanimously supports the concept of competition between terminal facilities at Dublin airport. We believe that competing terminals will lead to lower costs, better services, cheaper airfares and to the creation of more jobs, directly and indirectly. Credible proposals for competing terminals have been identified and these proposals should be given careful consideration. We are unanimous in our view that competition should be encouraged in all aspects of the business. There is already active and aggressive competition in the air side. This competition can be replicated on the ground.
I have some questions to put to the witness. Charges have increased in Cork by 160%. What has the increase in charges been over the past three years in London, New York and Brussels?
The witness suggests that capacity can be increased. How long will it be before Dublin airport requires a second runway? This is something which we have considered for some time. How long will it be before a second terminal is provided at Dublin airport? What does the witness envisage as a timescale?
Mr. Walsh
Specific airport charges have increased and will increase at a number of airports. Equally, in response to the specific threat posed to the industry in the immediate aftermath of 11 September, many airports not only froze their charges but in many cases, reduced their charges because they recognised that costs were a critical issue. There are airports that have reduced charges, capped their charges and increased their charges.
As an island nation, the critical matter for Ireland is air access. Clearly, expensive access will be detrimental and will discourage tourism and business from arriving and locating in Ireland.
The group has considered the issue of the second runway in some detail. Today, we are presenting a consensus view to the committee on three issues. We are unanimous in our view that the Government decision to establish the autonomous airport authority is a positive move. We are also unanimous in our position that the existing infrastructure, runway and efficiencies at Dublin airport, can be improved before we engage in significant capital expenditure.
We have differing views on when the second runway will be required. We believe that detailed, tripartite consultation and discussions on the requirements for the new runway should take place between Aer Rianta, the Irish Aviation Authority, which has responsibility for the operation of air traffic control and the airlines. That way, a more coherent view can be established.
There is a clear opportunity to move forward and develop a second or further competing terminals at Dublin airport. There is no doubt that additional terminal capacity will be required. That capacity can best be met for the benefit and efficient operation of the airport if a competing terminal, or terminals, are considered. We do not know when exactly this will be but it would be possible to have competing terminals in place within two years.
I wish to ask about the break-up of Aer Rianta into three autonomous authorities for Dublin, Cork and Shannon airports. Has the Minister for Transport had discussions about this with the organisation represented by the witnesses? The organisation appears to be critical of the proposed development and the future potential of Cork and Shannon airports and I should like to ask the witness to elaborate on that.
My second question concerns an earlier presentation given by the Aer Rianta worker representatives on the break-up of Aer Rianta and the competing terminal. Their argument is in stark contrast to that of the witness. On the issue of the second terminal, the witnesses that came before us cited the Warburg Dillon Reid report and Professor Doganis' report - both Government commissioned studies - and recommended that there should not be a competing terminal at Dublin airport. Is a competing terminal or a new airport competing with Dublin airport the way forward?
My final question concerns charges at Dublin airport. The Warburg Dillon Reid report, The Hague consultants, the commission on aviation regulation, Doganis report and the Panel report have all said that the charges at Dublin and Irish airports are unrealistically low. That contrasts with the argument made by the witness today. Perhaps, at a later stage, the witness could furnish the committee with information about the rate of increase of the passenger service charge and comparisons with other international airports.
I welcome the group to the committee and I also welcome the formation of the group and wonder why it did not occur sooner. I assume that the group views itself as a lobby group. It is good to hear the voice of the airlines as a group rather than having to deal with each airline individually. I appreciate that the presentation was kept brief. On the assertion about charges the submission is lacking as it is somewhat general. We would like to hear of some specifics. Has the group schedules detailing charges at the Irish airports and at comparable European airports? Can the group supply us with them today and, if not, perhaps later?
The group makes a number of assertions. My concern lies with two particular ones about the current proposals of the Minister for Transport for the airports. The group stated:
We believe the decision to break up Aer Rianta will have a positive effect on growth and development and we are in favour of competition between the airports.
What potential does the group feel there is between the three Irish airports? What benefits will accrue from that competition? We would like to think there will be a great deal of competition; that margins are such that they can be trimmed back; that air travel can become even cheaper, with even greater demand; that we will see Shannon competing with Dublin and so on. Other people are more sceptical of the proposals. They say that there is really very little potential for all that, that there is a natural hinterland for Dublin. Obviously, for traffic to be increased in Shannon or Cork, a range of other factors would have to come into play, such as transport links to the airports, which are currently quite problematic. Will the group tease that out a little and tell us what potential they see there for competition between the airports?
On Mr. Walsh's assertion about competing terminals, he welcomes that development and believes it will be beneficial. Again I ask why. What benefit does he believe there is for the travelling public to have two competing terminals in Dublin Airport? What benefit is there for the group as a group of airlines operating out of Dublin Airport? Mr. Walsh also said that credible proposals for competing terminals have been identified. Is he suggesting that the group favours one of the proposals? Does the group think they are all credible, or has it a preferred option, or have any members of the group any business interest in any of those?
I welcome Mr. Walsh and his group. If all our witnesses who come before us were able to present their case as succinctly, clearly and quickly as Mr. Walsh did, we would get through a lot more business. He is to be greatly congratulated in that regard and, perhaps, it is a sign of the new efficiency seen in our national airline in recent times since Mr. Walsh became chief executive officer.
Following up on Deputy Shortall's point, the group is on one hand putting enormous emphasis on the benefits which will accrue to both the airports and the travelling public, and, presumably by extension, the airlines. That is based on the concept of access to the airports, which the group strongly emphasised. At the same time the group does not seem to co-relate that with the concept of competition. How is competition going to deliver access? I can put that in a more concrete form and I will take Shannon, my own area, as the example, because the group has been concentrating on Dublin. If, for example, the group of airlines decided tomorrow morning that it is simply not economic for competitive reasons to fly into Shannon Airport, how can the group make a direct connection between competition and the delivery of access to a particular airport? The group has not explained that clearly and I would like it to do so if possible.
Second - and forgive me again for being parochial but we have been concentrating on Dublin - could Mr. Walsh explain to the committee what is holding back the development of Shannon Airport? As representatives of a group of airlines, Mr. Walsh's colleagues might wish to comment. As far as I can see, Shannon has a current capacity of between six and eight million passengers. It has a throughput of two million passengers per annum. It therefore has a minimum spare capacity of four million passengers per annum, the sort of capacity that Dublin Airport would absolutely kill for, yet it is not making the sort of substantial gains that Dublin has made over recent years. Could Mr. Walsh set out in fairly clear terms what is holding back the airlines group from utilising that spare capacity to develop the business out of Shannon Airport?
Mr. Walsh
Deputy Naughten asked if the members of the group have had discussions with the Minister. The group has written to the Department of Transport expressing its support for the Government decision on the establishment of the autonomous and independent airport authorities. The group has also written to the three nominated chairmen of the airport authorities. The group believes that the particular calibre of the individuals involved clearly shows the significance being given to this development by the Minister and the Department of Transport. We are very pleased with this move and we believe it will provide us with an opportunity to enter into real, effective consultation with the airport authorities to get us working together to ensure that everyone can benefit from this.
Deputy Shortall asked if we were a lobby group. We are using the opportunity of the formation of this group to lobby, but the intention was to be a bit more proactive in terms of the consultation around the development of aviation regulation, the establishment of the Commission for Aviation Regulation, and to provide a coherent lobby or forum for consultation with the airlines. I cannot remember which Deputy made the point, but there has been a problem in the past where it has been perceived that the airlines are all saying different things. We have formed this group to see where we can agree with each other, and therefore add effectively to this debate, rather than be seen to constantly disagree. The significance of the group in agreeing on these issues must be taken into account. Individually we all have views on aviation policy in Ireland. What we have tried to do in the formation of this group is to accelerate that debate to a position whereby we can reach a consensus view of the airline industry. That should be welcomed and be seen as a positive development, particularly by Aer Rianta.
As for the proposals for Aer Rianta, I can clearly understand that this is a very emotive issue, reflected in the words used by Deputy Naughten in referring to the "break-up" of Aer Rianta. We see this as the establishment of three independent authorities rather than a break-up, and we see the establishment as being positive. The group understands and acknowledges the uncertainty around this issue, and the concern created among staff representatives. That is why we believe that the debate, to which we can positively contribute, should be moved forward.
On the reports by Warburg Dillion Read and Douganis on airport charges, the view the group considers most relevant is that of the Commission for Aviation Regulation. The view it adopted was that airport charges need to be regulated. Following a very detailed and comprehensive consultation process it took the view that the desire of Aer Rianta at the time to double the charges at Dublin Airport, a desire clearly on record, was not justified. Having listened to all the submissions, the Commission for Aviation Regulation, while it allowed for some increases in charges, significantly reduced the recoverable Capex programme that Aer Rianta wanted to engage in.
The message is very simple. Some people take the view that charges should not increase at all or should be reduced. That is a view we will always express if we can get away with it, that if charges can go down, they should go down. It is important however to note that increases in charges need to be controlled. That was our point on the efficient use of infrastructure. We have a great deal of infrastructure available to us at Dublin Airport and at Shannon, as Deputy Power pointed out, as well as at Cork. We need to insist that the infrastructures there are being used in as efficient a manner as possible in order to keep charges down, before we embark on very expensive capital expenditure programmes which will lead to charge increases. The Commission asked if the capital expenditure programme proposed by Aer Rianta was relevant and whether it met the requirement of the users. Clearly, the commission's view was that this was not the case because a significant proportion - I think three quarters - of the capital expenditure programme was disallowed, as was some of the capital expenditure that had been spent on the development of pier C and the terminal building at Shannon.
We do not necessarily agree with the statement that charges are unnecessarily low, and I do not believe that the Commission for Aviation Regulation agreed with that. It is also important to note that the Commission for Aviation Regulation only specifies maximum charges. It gives total freedom to airports to charge anything less than the maximum and this can clearly best be adjudged if the airport authority is independent and operating in the interest of the particular airport. That would very much be the case if the Government's proposal on the establishment on the three independent authorities moves forward.
On Deputy Shortall's request for detailed information on charges, I do not have the information at present but we will certainly provide it to the committee. We do not have a preferred option in respect of the competing terminals. Perhaps one company represented, Ryanair, has an interest but none of the other companies represented here have an interest in any of the proposals, although I am on record as saying that Aer Lingus had discussions with three of the parties at their request. That included the Ryanair proposal.
Ryanair has no specific desire to own or operate a terminal at Dublin Airport. We have submitted our own version and our own model to stimulate this, and if it has to be our model, so be it, but we have no specific desire to own and operate a terminal.
Would Ryanair build it and hand it over, as Mr. O'Brien's boss said?
When Mr. Walsh finishes answering this set of questions we will give all of the other members of the panel an opportunity to answer any questions they wish. I should have said that before we started.
Mr. Walsh
In the interests of getting a consensus view, most of the members of the committee felt that I should address most of the answers, but if there are any other inputs which the members——
Yes, if there are questions anybody else wishes to deal with from their own view point they may do so.
Mr. Walsh
We have considered this but we have no preferred option and no specific interest——
Why does the group think it would be a good thing?
Mr. Walsh
It is relevant to point out that there is competition, for example, in the provision of terminal facilities for cargo operations, which works effectively. Competition does help to put pressure on the providers of those facilities to keep their costs and the quality of their service in line with the demands of the customer. Clearly, that is best done where there is competition. There is clear evidence of that in all other areas. We have moved to introduce competition in the form of the provision of ground handling activities under EU directives and statutory instruments.
We have moved to introduce significant competition into the airline industry, which has had major benefits for the consumers or passengers, the ultimate users of the airport. It is effective and positive and helps to keep service standards high and cost of delivery low because people have a vested interest in ensuring that their services are provided in a competitive fashion. That is the experience of all the members of the group in terms of——
It does not work with the airlines at Dublin Airport. The main public concerns about Dublin Airport relate to check-in and baggage retrieval. There is competition there but it has not worked in the interests of the passenger because there are delays——
Mr. Walsh
It certainly has worked——
Those are the two main complaints about Dublin Airport.
Mr. Walsh
Those are the two main areas of complaint specified by Aer Rianta in its presentation to this committee, from memory of having read its submission. I am not sure that any evidence was presented to support that position. As the suppliers of air transport it is clear to us that if we as individual airlines do not meet the demands of our customers they have the option of going elsewhere. The ultimate benefit of competition is that it gives the consumer choice. If Aer Lingus fails to deliver on the services we promise to our customers, those customers may go to any of my competitors here to get the service they demand. That is where competition has been truly effective.
We have introduced competition in the form of ground handling provision. At one stage Aer Lingus was the only ground handler at Dublin Airport, and that was the case in a number of airports around Europe, where ground handling activity tended to be dominated either by the airport authority or the home carrier. Clearly, the introduction of competition there has been beneficial and has ultimately resulted in competitive standards in terms of service and cost. Everywhere we look in the airline industry we have seen how competition has made us better and more efficient and has ultimately benefited the passenger in the form of lower fares.
That is exactly what is happening. The fares being charged to passengers are going down on an annual basis, and that has to be welcomed. That is driven by competition, and the same can apply in the provision of terminal services at Dublin Airport. We are not trying to argue that it can work at every airport around the world because things differ from airport to airport, but it is in the interests of the consumer in Ireland and in the interests of the country in general because it will keep access costs——
Does Mr. Walsh have an example of an airport where it works well?
Other Deputies want to have their questions answered, so we should allow Mr. Walsh and the other witnesses to finish. We can then come back for supplementaries.
Mr. Walsh
In general, to respond to Deputy Power, the group here does not have any specific views on or has not had any specific discussions on the question he asked about specific growth around Shannon Airport. It is important to point out that often, the beneficiary of competition will not necessarily be the home based carriers and could be carriers based around Europe or elsewhere. Cork has attracted a number of carriers mainly because it offered a very attractive charging scheme.
Airport charges are a significant element of the total cost base of airline operations. If airports offer competitive pricing they will attract carriers. There is clear evidence of that, and I think Aer Rianta, in its own submissions, will point to where——
Where is the evidence for that?
Mr. Walsh
Look at CSA, for example, flying into Cork, or the attraction of US Airways and Air Canada into Shannon and Dublin by Aer Rianta. The chairman of Aer Rianta is on record as saying that those carriers were attracted into Ireland because Aer Rianta adopted an aggressive approach in the face of competition from airports such as Glasgow. It went out with very aggressive charging structures, so, clearly, airport charges have a major influence on airlines.
As airline operators, we can say that. Some of the academics who have expressed a view on that would differ, but if one asked all of us individually, and I can speak for us collectively, one will be told that airport charges are a significant factor when we consider what we are doing, what we are operating to, how often we will operate and when we will do so. There is evidence of how we have attracted carriers into Ireland because of what is effectively a free-of-charge regime under the route incentives scheme introduced by Aer Rianta. Equally, we have seen that when those route incentives disappear carriers choose to move elsewhere; so it is definitely a factor when airlines consider where to operate to.
Does Mr. O'Brien wish to comment on any other aspects of the questions asked?
As Mr. Walsh said, clear evidence of where incentives work, and what happens when they cease, can be seen in our operation from Frankfurt-Hahn to Shannon, which has now moved almost completely to Kerry. That is competition at work. We do indeed make our decisions based on airport charges. While I speak for Ryanair, it should not be assumed that any of the group is engaged in a static exercise. We all hope to grow and add to our fleets. The question is, where we are going to deploy these aircraft. I am sure the question applies to my colleagues' operations as much as it does to Ryanair.
A large part of this depends on where we are going to get attractive competitive deals. Dublin, Cork and Shannon are competing not just with each other but with airports all across Europe. Deregulation now allows us to deploy our aircraft anywhere in Europe and that is precisely what Ryanair is doing. Of our 70 aircraft flying today, ten are operating out of Ireland. We would like that figure to be 20 and we could make it so very quickly.
Cityjet is somewhat similar to Ryanair in that almost 90% of our operations take place throughout Europe. For the next four years, the growth area in Europe will be the EU accession states, where double growth is forecast on their networks. Ireland is in competition for this business. Those countries have the advantage of being on the mainland of Europe, being landlocked, and they have the advantage of benefiting from almost 90% of the EU transport budget of €38 billion, which is being spent on high-speed rail. Ireland does not have this advantage. It is an island and we need to recognise that. We should not be benchmarking with other European airports. For us to compete with these countries, we must recognise that we have to set higher targets. It is an important issue.
Mr. Peter McKenna
I have nothing more to add other than to emphasise the effect of airport charges on low fares. The lower the fare, the higher the percentage of the revenue that the airport charges will form. That puts a lot of pressure on the likes of us as a domestic carrier, going in and out of Dublin from all the regional airports. We have about 65 movements daily out of Dublin and we can currently fit only a certain number of passengers on our aircraft. We are categorised with bigger carriers, so airport charges form a huge percentage of the costs of our operation.
Mr. McKenna is saying that the airport charges for his operation are higher as a percentage than for Ryanair, Aer Lingus or Cityjet, because the operation is using smaller aircraft. Is there any concession provided for the size of aircraft used, or is it a standard charge, whether one has a 50-seater or a jumbo jet?
Mr. Walsh
Perhaps I could answer that. The charges are made up in a number of different ways. There is a charge based on the weight of the aircraft when landing; a charge based on the number of passengers and a security charge which applies to the number of passengers. Then there are charges for parking, which, regardless of aircraft size, tend to be the same, and the other charge at Dublin Airport applies where aircraft are parked at stands that use an air bridge. There is a combination of factors and from time-to-time the relationship between those charges changes. In some cases we have seen where the charge for landing the aircraft, the runway charge, has reduced, but the charge per passenger has significantly increased. It is not static.
Can Mr. Walsh envisage an airport ever paying an airline to come in?
Mr. Walsh
Yes, most definitely. A number of airports with which Aer Lingus has had discussions made it clear to us that not only would they be prepared to offer us nil charges, but would consider and are actively looking at whether they would pay airlines for bringing people to the airport. They recognise that they have an infrastructure with which they can generate revenue from these passengers when they arrive. Airports have looked at this issue and have expressed such views to us.
Mr. Frank O’Hagan
I have nothing else to add but I support those comments.
Mr. Tommy McCabe
In his presentation, the chairman made the point that this is not an Aer Rianta thrust as such. The FAEI is affiliated to IBEC, with which I am in direct employment, and the buzzword and key theme in all sectors of IBEC is competition. That is also reflected in the FAEI. In other elements of the federation, in which we include Aer Rianta in membership as well, the key thrust is greater efficiency to enable the particular sector to grow. Competition is the main thrust of the presentation to the committee today, and we are pleased to be present. Competition is also important for our members and the regulatory authorities, and it needs greater engagement and consultation for it to happen.
I am delighted the group has been formed and I welcome its representatives to the committee. I welcome the views it has expressed today on competition, the terminal and infrastructure at the airports, where it sees Aer Rianta going and on the breaking up of Aer Rianta.
On the increased passenger service charges, up by 13% to 160%, enormous by anyone's standards today when the group's costs are going down, can any or the entire group quantify the additional costs on a typical airfare? Obviously airfares differ, but can the group pick an example? Can the group also say what Aer Rianta is offering it? Obviously, in any business, before one increases a price or doubles or trebles it, the business has to offer something. What is Aer Rianta putting forward as a reason for this?
What the group said about a second terminal bringing down costs seems completely at variance with what previous witnesses attending this committee said. They said that a competing terminal would increase prices. I recall asking one delegation how it was, if Ryanair was saying it would provide and build the terminal and then offer it for operation, costs could possibly increase, since the capital was provided free. I ask the group to expand on that issue.
In part of its presentation the group said that consultations with key airport users needed to improve significantly. That is clearly a very significant statement. I imagine it is not just about infrastructure. The group is not referring only to charges but obviously has views on infrastructure and its use. What other areas has the group in mind?
The group stated that capital programmes need to be examined. What capital programmes would the group dispense with? Has the group an agreed view on capital programmes or have different airlines differing views?
My question follows on from Deputy Power's question about a statement from Mr. O'Brien of Ryanair that, "before money is spent on new infrastructure, we must be satisfied that the existing infrastructure is being efficiently used." As Deputy Power rightly said, we have a terminal in Shannon for 5.5 million people currently dealing with some 2.1 million passengers.
I congratulate Mr. O'Brien from Ryanair for opening a new route from Shannon to Glasgow, which will I think come into operation in December. I wish him well on that route. On the Frankfurt-Hahn route, he did not give us the difference in price between going to Kerry and Shannon, but that is a different matter. Mr. O'Leary did not give us the real story there either.
I welcome the formation of the group. There is no doubt that travel tax is a big issue. I booked a fare recently from Shannon to Dublin with Aer Lingus. We have no other service in my area, and this one is a limited service. Mr. Walsh or someone else might like to expand it. The fare was €62 and the tax was €37.50, giving a total of €99.50. As Mr. Walsh indicated, that charge was made up of travel tax, airport charges and security tax. When I was checking, I discovered that security tax is more expensive in Cork and Shannon Airports than in Dublin. It was about €510 for Shannon and Cork and about €380 for Dublin. I wonder why that is the case. While we all welcome competition, is there not a danger, if we start competing with lower charges, now that our three airports are becoming autonomous with independent boards, that capital investment could be impeded, particularly when Dublin Airport needs €100 million and Cork and Shannon €20 million?
I welcome the group. Following Deputy Breen, and coming as I do from Clare, I am concerned about Shannon Airport, and the points raised are relevant.
I would like you to comment on one or two elements. I am not so enthusiastic about the airline group coming together as some of the other speakers. I get a little concerned when all elements of any industry come together to lobby on a matter. At present, the group is coming together as a customer group of the airports, I assume largely to force down the price of landing. I am concerned that the group might start working together on other elements, such as the cost of flights. To what extent has the group discussed that? I am also concerned about forcing the cost of landing down to such an extent that it impedes the development of the airports.
I am not sure that it should be up to airlines to decide how airports use their assets. That is the role of the authorities, which are State-owned or controlled. It is therefore up to the Minister, and perhaps this committee, to investigate from time to time as is seen fit.
I am also rather concerned at the notion of transfer pricing, since, while it is beneficial - there is no doubt that the reduction in the price of flights has generated a huge amount of extra tourism for the country - one gets to a point when it is almost ridiculous. The price of a flight might be €3, €5 or €7. It no longer represents the true value of what one is receiving, but ultimately someone obviously has to pay. Something that irked me for a considerable time was the cost of car parking at Dublin Airport, which I used every week for about 12 months. I had to pay a much higher price than someone who decided to take the bus from the city and travel on Ryanair at €39 or €49 because he or she was able to use public transport between the desired points. I did not have the option, having to travel on a more expensive route. I was paying an expensive airfare and car parking. I would much prefer for people to pay for what they get. Transfer pricing will ultimately lead to more expensive car parking and services around the airport. I am not sure that that is the best way to deal with matters.
Several questions were raised on pricing, and I appreciate that Mr. Walsh may not have the figures with him. He has taken the passenger service charge out of the overall charges at airports. Is he in a position to say what percentage that represents of the general charge per passenger?
I join with my colleagues in welcoming the group, its formation and its presentation. I have a point of information, and I hope that you will forgive my ignorance. I am aware of Aer Lingus, Ryanair, CityJet and Aer Arann, but I am not aware of Air Contractors. Is that a composite group?
Mr. O’Hagan
Air Contractors is a cargo airline based in Swords, County Dublin, and we provide cargo services to such companies as Federal Express, DHL and other freight companies throughout Europe.
Thank you. Perhaps I might continue in this parochial vein. I noted Mr. Walsh's comment regarding the tripartite consultative process necessary for the second runway. I suggest that there might be a fourth party with an interest, namely, the local authority. As the group will be aware, it is currently a matter of significant public comment. I am very struck by the comment on the efficiency of existing infrastructure. I would be interested to hear the views of the group on the percentage of maximum capacity at which the current runways are being operated. We have heard statistics on that from other groups that have appeared before us, but I would be very interested in the views of those present. Reference was made to the lack of consultation with key airport users. Is there a formal consultative mechanism in place, and, if so, to what extent has it been used? The group might elaborate on the degree of consultation between the principal users and the airport authorities.
I believe that Deputy Shortall has a supplementary question.
There are two aspects of the Government's proposals that the group might comment on. The group has stated that it would favour competing terminals at Dublin Airport. From the experience of those present, perhaps they might give an example of another city airport where that works well. I also asked about the potential for competition between the three Irish airports and I should be obliged if the group would comment on that.
Mr. Walsh
There are many questions there and I will attempt to answer them. The passenger service charge increase at Cork represents, from memory - I may have it slightly wrong - an increase of €5 per passenger. That is a significant increase. To put that into context, if Aer Lingus could get another €5 per passenger, we would make another €35 million per annum. It is very significant, and in the context of airfares going down, we must highlight anything that increases the charges.
On the issue of whether competing terminals would increase prices, that is not a view on which the committee would agree. We cannot look at that in isolation, however. There is no doubt that additional terminal facilities will be required, and money will therefore need to be spent on them. That capital expenditure will clearly have to be recovered, and the argument is sensible that charges will increase as a result. I accept that logic.
However, one must ask, in the absence of competition, if the capital expenditure programme is appropriate and being done in the most efficient way. Might it be done better? Can the charges be recovered at a lower rate? That is the issue. Aer Rianta is on record as saying that it wished to double the charges. I firmly believe that, even if charges are to increase - and I do not accept that they necessarily must - they will not increase by that factor if competing terminals are introduced. That is clearly the important issue here. Where competition is introduced, it adds to the efficiency. I am not for one moment suggesting that people waste money. However, competition forces one to look much more carefully at what one is doing. It makes people more efficient. That is the evidence that we have all seen. It will therefore ultimately lead to better pricing, and it also leads to better services.
We were asked what we would dispense with regarding capital expenditure. We do not have a collective view on that, but individually we have all made submissions to the Commission for Aviation Regulation on the significant capital expenditure programme that was proposed. It is generally accepted that we all came to the same view that the vast bulk of the capital expenditure programme proposed for Dublin Airport should be dispensed with. We did not believe that it would lead to efficient capital expenditure or meet the requirements of the users. Our views were taken into account when the Commission for Aviation Regulation issued its determination. That issue will form part of the commission's mid-term review, which will take place in the near future.
Deputy Breen quite correctly referred to the difference in charges for various services at Cork, Dublin and Shannon. It is correct that the security charges at Cork and Shannon are higher than at Dublin. Equally, some of the other charges also vary at the three airports. We believe that there must be greater investigation of and debate on those issues. Is it appropriate that the charges at Cork Airport are significantly higher than those at Dublin? Everyone here realises what will happen if the charges at Shannon or Cork are doubled while those at Dublin Airport remain the same. That will lead to people transferring services from those airports. That answers Deputy Shortall's question about the potential for competition.
One will only get competition, and it will only achieve its genuine potential, where the airports are free to do what is in their best interest. I gave evidence that Cork Airport has been successful in attracting airlines into the city because of the charging scheme in place there. Shannon Airport has been successful for the same reason. In general, the discount or incentive schemes were applied equally between the three airports. We would see a much more dynamic situation if the airports were competing with one other. That will not necessarily be of direct benefit to the carriers represented today, but it will clearly be of interest to carriers based outside Ireland which, as we have all made clear, will be examining airport charges and what they can do to reduce them. They will look at those airports that offer the best value. There is very real potential for airports, not only to attract more services from the home carriers represented but, even more so, from carriers based outside Ireland.
On Senator Dooley's point, this group would welcome any independent person to sit in with the group at any of its meetings. I can assure him that no anti-competitive issues are discussed. We do not in any way consider fares, unless it is to slag one another about various issues. Our concern and concentration is genuine in trying to provide a more comprehensive and cohesive response from the airlines. We have taken on board criticisms levelled at us that Aer Lingus says one thing, Ryanair another, CityJet another, Aer Arann and Air Contractors something else. We try to take on board such criticism, which has been valid in the past, to see where we can reach agreement. If we have reached consensus on three matters, we will have failed to reach it on many other issues.
We have not debated all of the issues that members have raised with us, particularly those applying to Shannon, in which I know several committee members are interested. We will certainly debate that and consider it at a future meeting. Our focus has been on trying to generate a consensus view so that we can move the debate on. The criticism that Aer Rianta has levelled at us is that it is getting conflicting views from the carriers. We are trying to send a single, simple message to assist in this process. I accept the comment that it is not our job to ensure that infrastructure issues are dealt with, but someone has to do it. If we see that it is not being used sufficiently, we will flag that. It is not our responsibility, but we will certainly not be quiet where we believe there is a need for greater efficiency. It is in everyone's interest that we highlight such issues.
On the runway capacity at Dublin Airport, there is clear evidence that shows that it can be improved by between 10% and 20%. That is a significant increase. The Commission for Aviation Regulation has tried to spread the capacity, something that can be done if economic pricing and incentives are used to encourage people to move capacity away from the peak into the off-peak areas. That can mean better utilisation of the existing infrastructure. We believe that all those issues must be considered in more detail. I know that Aer Rianta has made reference to making Dublin Airport fully co-ordinated. When that was discussed, the carriers were of the view that that should not happen. There was an independent survey into it by SH&E, which had been commissioned by the Commission for Aviation Regulation. That may happen at some stage in the future, and that will clearly lead to the demand being better spread over the available capacity.
There is much more that can be done. As a group we will try to reach consensus on when a second runway should be considered. Our primary concern at this stage is that everything be done to ensure that we can operate the existing infrastructure efficiently, therefore keeping costs under control and prices pushed down.
Is it fair to say that the group does not view the matter as urgently as Aer Rianta?
Mr. Walsh
That is correct. We have expressed that view individually as well as collectively. We do not see it as being as immediate an issue as Aer Rianta does. We have different views on that. There is a view that passenger numbers at Dublin Airport will significantly increase, and we agree, but there is no direct relation between the increase in passenger numbers and the increase in aircraft movements, since all the carriers here - certainly the two main ones, Ryanair and Aer Lingus - are moving to increase the average unit size of their aircraft. We can therefore achieve a significant increase in the number of passengers without seeing a proportionate increase in the number of aircraft movements; those, rather than the number of passengers, being what dictates the capacity of the runway.
Deputy Power has a question. I wish to give all the members a chance to come back on anything that they want.
All members of the group made reference to the fact that the most significant factor in deciding on one airport over another were the landing charges. What are the other determining factors in choosing one airport over another? I ask because, as far as I can see, anyone I speak to outside the immediate hinterland of Dublin says that he or she hates going into Dublin Airport. First one must drive in; then drive about six miles away to park one's car; then wait for a bus to come round in hail, sleet or snow; then go into the airport; get one's flight; return; travel six miles out to a huge car park in the middle of nowhere, and go home. I am not being parochial for the sake of it but to make a serious contrast.
Declare an interest.
That is Shannon.
The contrast is that one can practically drive onto the aeroplane. One can go out and walk across a very small roadway, and then one is in the airport. What are the determining factors, other than handling, price and landing charges that encourage the airlines to choose one airport over another? It comes back to this point. The consensus is that Dublin is creaking and bursting at the seams. It is working at overcapacity while other airports are at under capacity. Why are the airlines represented at the meeting not using the other airports? That is not an accusation. What are the factors in that decision?
We will have two short supplementary questions from Deputy Shortall and Senator Dooley.
I would like to ask once again for examples of airports where there are competing terminals that work well.
Mr. Walsh
Perhaps I might answer that directly. One example that I can give of which Aer Lingus has experience is JFK, where different owners operate competing terminals. The true benefit of that will only become more apparent in the future, since the airport has been significantly developed in recent times. The available access to the number of different terminals has not been as great as it will be. That is one airport where there are competing terminals. When our current contract expires, Aer Lingus has the opportunity to move its business from its existing terminal to another. We will be actively involved in the different terminal providers. The decision that we will take here will clearly be influenced by the price offered. I can assure the committee that the prices differ from terminal to terminal, as do the services that can be provided. That is one example.
It is a very unusual arrangement, though.
Mr. Walsh
Several years ago one would have thought it unusual to see the development of all the airlines that have sprung up over recent years. It is definitely the way that things will develop in future, and it is an area of which we have direct experience. It will be looked at in other airports.
On the transfer pricing which I raised, there is also some concern in the mid-west and Shannon region that, if one has open competition in airports, it will ultimately be better for airlines such as Aer Lingus to consolidate their position and concentrate on just one airport, whether it be Dublin or another. That would obviously have an effect on passengers in some areas. I should like to ask the group to comment on that.
On the consultative process that I mentioned, it was stated that it needed to improve significantly. In what areas? Perhaps the grouup might spell out for us what it means.
Mr. Walsh
Deputy Power asked about airport charges. They are clearly a significant factor. Another factor is demand. There is no point in flying to a destination to which no one wishes to go, though there are people who believe that one can stimulate demand, and there is very clear evidence of that, not only from the perspective of Ryanair but from that of Aer Lingus. We can point to several examples where, by providing the service to the airport for a specific destination, one can generate very significant demand. However, we consider the underlying demand on a specific route. We consider such things as on-route charges, the efficiency of the aircraft and ground handling, the charges associated with the handling of passengers and other aircraft-related charges. All those factors would be taken into account.
I wish to make it clear - it is an important point to make, since several people have dismissed it in the past - that airport charges are a very significant element and becoming an even greater one. We have been very successful, collectively and individually, in reducing our costs in all major areas. In some areas, we are dealing with monopoly suppliers, and one cannot force those suppliers to reduce their charges and become more efficient, since there are no competitive alternatives. However, where there has been a competitive alternative, we have been successful in reducing the airport costs, which form a significant part of all our costs. That is why we take such an interest in them.
On transfer pricing, Senator Dooley made a very valid point, and several other interested parties have expressed it. The group has not taken a view on it, but it is clearly of significance to us regarding charges not regulated by the Commission for Aviation Regulation. We have seen extremely significant increases in them. The commission regulates some aspects of airport operating charges, while others, such as those that the committee highlighted, are not. The airport operator is therefore free to do whatever it pleases. We have concerns, since those charges clearly have a direct impact on our business. If they add to the overall cost of access, we are very much against them.
There are several consultative bodies and groups. In time spent, there is much interaction between individual airlines and Aer Rianta, for example. We are saying that we have got together to provide a better structure to that so that we can debate the issues between ourselves and put forward a consensus view and, instead of sitting down with Aer Rianta and giving five different views, have the debate among ourselves, arguing the various pros and cons of different issues, and move the consultation process forward.
I made the point at the beginning that I am not sitting here trying to attack Aer Rianta. We are saying that consultation has not been effective. There has been plenty of interaction, but that has been ineffective and can be improved. We will accept some of the blame for that and try to address the problem and express a more coherent view. However, our main concern is that there be genuine consultation. For that to take place, one must have access to more and more information, just as the committee has asked us for a great deal of information today that we have probably not presented to it. However, we will certainly do so. A more open process where the information is freely available, particularly as it relates to charges and the spending of money and how that will ultimately relate to airport charges, is a matter on which we must get into much greater detail with the airport suppliers.
Mr. Walsh has covered those issues very ably. Our criteria for route selection in Ryanair are cost, cost and cost. We believe, and the evidence has shown to date, that we add capacity. This year we have added 50% capacity. The passengers will go wherever the low fares will take them. As Mr. Walsh has pointed out in his advertisements every so often, we fly to places that are not immediately recognisable. However, they work, and our load factors demonstrate that. The cost is in the absolute charges and the efficiency that the airport can deliver for us in turnarounds. Can we get our aircraft in and out in 25 minutes?
There is also the cost of growth. We look at every route to see if we can develop it. If it remains at one flight a day forever, it will not last. That is the Ryanair position. I reiterate that we will take delivery of 30 extra aircraft in the next year, and we plan to take 30 more aircraft for each of the next three or four years. The question is where we can put them. We will operate them on routes that give us the lowest cost. It would be very nice to be able to do that in Ireland, where there is pent-up inbound potential on which we can deliver. I am sure that my colleagues here have the same view.
I was present at the so-called consultation meetings at Dublin and Cork recently on the airport charges. I say "so-called" because the Dublin presenter at one point to his credit candidly stated that the reason the charges were going up to an average of €527 was that the regulator had said that the airport could. There was no particular reason. He was effectively acknowledging that he was treating the cap as a target. I will not attack Aer Rianta for that, for it is a monopoly, and that is what monopolies do. This is a very subjective submission from me on Cork. I was present there and detected deep unhappiness among the Cork people about what they were obliged to say at that consultation. We are not talking about breaking anything up, but about independent and autonomous airports. If Cork were independent and autonomous, those people would not have been presenting a 160% increase in charges. They would have been telling us what they were going to do to attract more routes. They would also have been telling us how they were not going to spend €140 million on developing capacity to a level that has been achieved at one of the airports to which we fly in Germany for €11 million. I am quite convinced that, in an independent, autonomous Cork Airport, that would not happen. I did not have the benefit of attending the Shannon consultation, since I was not invited, but I intend to look at it. I think that it was a mistake.
Does that mean that the airline will increase its once-a-week service to Frankfurt Hahn soon?
I am saying that we do not view once-a-week services as particularly sustainable. Something has to happen.
Does the group honestly believe that three totally autonomous airports will be much better for the operators and the passengers travelling on them than the present system, whereby, as far as we can see, Aer Rianta dominates the smaller players?
I believe that 100%. As a group, that is what we are saying.
Ultimately, it subsidises them.
I do not have anything more to offer, except perhaps on the issue of efficiency at Dublin Airport. The average queuing time for security is seven minutes. That is the target set by Aer Rianta. It is not a target that we or the passengers want. It will not and cannot be changed because it is just difficult to do so.
Mr. McKenna
To reiterate the point on costs, low fares will stimulate traffic and these are achieved by low costs. Low costs, in turn, will be achieved by competition. Not engaging in Aer Rianta bashing, but there are huge inefficiencies in the passenger flow process at Dublin Airport. An average passenger will queue five to six times on a round trip even when taking a taxi. There are several hundred taxis within half a mile of the airport. However, it is becoming a user-unfriendly environment.
Mr. McCabe
Going back to the point raised about pricing, IBEC is conscious of the role of the Competition Authority and anti-competitive practices. Anything that arises that we would consider anti-competitive, we demand that the meeting be stopped. There have been no instances when this has been required.
I was not suggesting that. I was clearing the air; it is on record. It was also to give the witnesses the opportunity to say something about it.
No cosy cartels, then?
Mr. McCabe
No.
I thank Messrs Walsh, O'Brien, White, McKenna, O'Hagan and McCabe for attending the committee and being so forthright. We understand that IBEC are looking forward to competition between the airports, which can reduce charges to passengers, and business. I apologise that the chairman, Deputy Eoin Ryan, was unavoidably absent.
Will the three airports now have to set up a federation to negotiate?
Is Senator Dooley suggesting that we have a cosy cartel again?
Certainly not.
The joint committee adjourned at 4.15 p.m. until 9.30 a.m. on Wednesday, 5 November 2003.