I thank the committee for the opportunity to discuss our business and the various challenges and opportunities which lie ahead for the Dublin Airport Authority. With the committee's agreement I propose to outline the context in which the Dublin Airport Authority came into being and its evolving relationship with Shannon and Cork Airport Authorities under the State Airports Act 2004. I will also present some details on current operations and business issues at Dublin Airport. Mr. Pat Shanahan and Mr. Joe Gantly, chairmen of Shannon and Cork Airport Authorities, respectively, will speak about their operations and business issues.
I wish to begin by stating something that to some degree may be self evident but which is still worth emphasising. Dublin, Shannon and Cork Airports are vital strategic assets for an island nation whose economic well-being depends on the broadest possible range of cost effective transport links with people and markets worldwide. In this context, 2004 may have proved to be an historic year in the strategic development of these airports and in national aviation policy in general.
The State Airports Act launched a new era in which the three airports may be able to assume a maximum possible level of responsibility for their growth and development. This should enable them to service their specific regional economies and customer bases more effectively and, by requiring each to develop its own self-sustaining business model, stimulate a higher level of business activity and operational efficiency. The Act provides for the creation of new airport authorities and new boards at the three airports to replace the existing Aer Rianta group structure and board. Under the Act, all Aer Rianta's assets, liabilities and contractual arrangements remain initially with the Dublin Airport Authority but the Act also mandates each of the new boards to do everything necessary to give effect to the restructuring of Aer Rianta and to submit business plans to the Ministers for Transport and Finance that may serve as the financial blueprints for full separation of the three airports.
Progress has been made in implementing the principal requirements of the State Airports Act. The three new boards took office last autumn under the chairmanship of Mr. Pat Shanahan in Shannon, Mr. Joe Gantly in Cork and Mr. Garry McGann in Dublin. The new boards have been co-operating closely since then to tackle the many operational, legal and financial complexities involved in restructuring a long established fully operational airports group sharing a common corporate structure. The Shannon and Cork Airport Authorities still have no assets or liabilities vested in them, but subject to budgetary parameters agreed with the Dublin Airport Authority have begun to assume much greater responsibility for their airports under delegated authority. Each authority is actively engaged in the formulation of strategic business plans. These must establish the platform necessary to secure the viability of the airports as stand-alone commercial entities and to generate the capital required to support investment in infrastructure and profitable business activity. While these plans are now close to completion, they have not yet been finalised nor approved by the relevant boards. On that basis, as it is the responsibility of the Dublin Airport Authority to present approved business plans to the Ministers for Transport and Finance, it would be inappropriate to address any specific details of the emerging draft plans at this stage. By their nature, these plans will involve many challenges for all. They will also require positive engagement by the shareholder and many stakeholders, including employees and their trade union representatives, if they are to deliver the objectives of the State Airports Act. I am hopeful the Dublin Airport Authority will get positive engagement and that it can rely on appropriate support from members of the Oireachtas when the time comes to implement its plans, subject to ministerial approval.
The Dublin Airport Authority and Dublin Airport are the principal responsibilities of my board looking forward. At one level, Dublin Airport has been a tremendous success story in recent years, particularly in terms of its operational growth. Passenger numbers for instance have been rising by more than one million per annum in recent years. This reflects principally the vibrancy of the Irish economy in the past decade, but also the dynamic business models operated by Dublin Airport's two principal airline customers, Aer Lingus and Ryanair. With current airport charges at less than half the average European airport charge rate, it is fair to say that good value on offer for its various services has also helped. Close to 17.2 million passengers used Dublin Airport last year, an increase of 8% on the previous year. This year we expect these numbers to move closer to 18.5 million passengers. The airport opened 35 new routes and services and welcomed ten new airline customers last year, bringing to 150 the number of scheduled and charter destinations served from Dublin at the end of the year and to 88 the number of airlines operating from it. Passenger numbers rose on services to all the airport's major geographical markets, though growth at 13% was particularly strong on continental European routes.
A feature of Dublin Airport's traffic patterns last year was the continued expansion of the wider low cost aviation sector. New European airlines such as Transavia, Hapag Lloyd Express and Germanwings all launched services during 2004, while Aer Lingus and Ryanair continued to grow their market shares. The airport experienced an increase of one third in VIP traffic last year and received very positive feedback on the way the air travel requirements of those involved in Ireland's Presidency of the European Union were managed during the first six months.
The capital expenditure focus has been to spend only what the existing approved airport charges will support. On that basis capital expenditure amounted to €10 million at Dublin Airport and was tightly constrained during 2004 and focused exclusively on maintaining existing infrastructure. Dublin Airport Authority has an obligation to plan effectively and efficiently for the future strategic development of a key national asset. In this context further significant planning work was carried out to prepare for the airport's future needs. A planning application was lodged with Fingal County Council in December 2004 for a new parallel runway, based on current traffic forecasts and it is believed this could be needed in full operational mode by 2012. The authority has assured the airlines that it will not begin to build it until it has derived maximum efficiencies in all respects from the existing runway network. In this context it is essential that Dublin Airport moves from its current voluntary status, where the airlines can effectively decide themselves at what times of the day they will operate their schedules to the type of fully co-ordinated status that is the norm at other major European airports and where flight times are allotted to them in the best interests of the overall operation of the airport. Only through an early change in the status can Dublin Airport extract the maximum use from its existing runways. Preparations have been also set in motion to revisit plans for a new pier to provide additional context stands for aircraft and to cater for growing passenger traffic. Strong passenger and traffic growth is very welcome but clearly presents challenges to all users of the airport.
With a new board and new chief executive in place at Dublin Airport Authority it is essential we renew our focus on the key actions required to manage, operate and develop Dublin Airport in the best interests of all of our existing and prospective customers. Our primary objective in this context is to anticipate and to meet the reasonable expectations and requirements of our various customers. For our passengers this means at a minimum we must ensure they have a safe, friendly and comfortable passage through our facilities. We must ensure for our part that we address more rigorously and creatively the challenges posed for us by increasingly stringent international security procedures and the physical limitations of our existing terminal facilities. In light of recent findings, we will fundamentally review our processes and procedures and training in the security area. We must also work constructively with the airlines and other service providers to offer as seamless a travel experience as possible to the travelling public. Airports and airlines share a responsibility for the well being of their passengers and for providing them with cost effective transport facilities but the other business goals do not always dovetail neatly. Airports have the specific responsibility to plan for longer business horizons and to anticipate up to ten years or more in advance the likely timing of demand by airlines and passengers for additional infrastructure or the upgrading of existing facilities. In the interests of all our customers and in the national interest we must now strive to create an environment where our sometimes differing perspectives can be debated openly and objectively and where meaningful consultation processes result in acceptable solutions and plans of action. Dublin Airport is fully committed to such an approach and to the maximum utilisation of our existing assets before bringing new resources into play in a timely manner.
I am hopeful that in partnership with our airline customers we can map out an acceptable cost effective approach to the major infrastructural challenges faced by Dublin Airport as it continues to grow. One such requirement is for significant additional terminal facilities at the airport. The need is clear. Current forecasts predict that more than 22 million passengers could be using Dublin Airport every year before any new terminal facilities become fully operational. Dublin Airport Authority is committed to implementing fully whatever decision its shareholder, the Government, takes regarding this critical national resource. The decision is for the Government. Dublin Airport urgently needs additional capacity to meet the reasonable expectations of its growing number of passengers. Given the long lead time for planning, building and commissioning, it is vital these decisions are taken as quickly as possible. If Dublin Airport Authority is asked to build and operate a new terminal, it will only progress this if it can do so at least as cost effectively as any other potential developer and operator and if it is remunerated appropriately for its investment. Funding by Dublin Airport Authority of a terminal and other capital projects will require a combination of interrelated measures which include achieving optimal levels of operational efficiency and flexibility, maximising the contribution it makes from commercial activities and stopping the haemorrhage from loss-making activities whether in the airports or subsidiary and associated businesses. It has been and will continue to co-operate fully with the regulator, the Commission for Aviation Regulation, to persuade him to allow it the required level of airport charges necessary to sustain productive investment and to operate the airport effectively and efficiently to meet the needs of its customers.
Dublin Airport is a fully commercial entity and receives no direct subvention from taxpayers. If it is not in a position to complement its commercial revenues with an appropriate level of airport charges and cost efficiencies it will not be in a position to build the facilities needed at the airport during the next ten years. It is as simple as that. The authority is currently engaging with customers and other stakeholders in assisting the regulator to decide his determination on airport charges for the new regulatory period and beyond. This determination will be made in the next few months and will have very significant implications for the strategic development of the vital national resource that is Dublin Airport. Failure to adequately remunerate Dublin Airport will directly impact on its capacity to meet its customers' needs and the requirements of the State itself at Dublin Airport.
I will now focus briefly on Dublin Airport Authority's two principal subsidiary companies, Aer Rianta International and Great Southern Hotels Group, both of which are also completing strategic business plans. ARI manages airport retail operations in North America, the former CIS and the Middle East. It also holds minority shareholding in Birmingham International Airport in the UK and in Dusseldorf and Hamburg Airports in Germany. The emerging business plan at ARI will focus principally on how the company can continue to leverage cost-effectively off its strong retail brand and reputation overseas, while optimising potential synergies with the retail operations at the three Irish airports. The plan will also assess how best to maximise the value of the overseas airport shareholding.
GSH continues to experience very difficult trading conditions and has now suffered four consecutive years of trading losses. The combination of flat occupancy rates, a decline in higher margin beverage sales in line with industry trends, continuously rising costs from an already excessively high cost base and an increasingly competitive hotels sector leave the financial and operational position faced by GSH very bleak. Payroll costs at GSH, which currently represent more than 45% of overall turnover, are significantly out of line with peer hotel operations where the average payroll to turnover ratio is approximately 35%. The business plan currently being finalised at GSH will demonstrate clearly that the status quo is not an option. A swift resolution of this issue is critical for GSH as well as for the Dublin Airport Authority.
Progress has been made in implementing the principal objectives of the State Airports Act. Business plans are close to completion at the three airports and other subsidiary companies, which will outline the decisions and actions required to ensure full commercial viability throughout Dublin Airport Authority's existing asset base. Aviation and passenger traffic continues to grow strongly at Dublin Airport and we are working closely with the airlines and other service providers to prioritise customer service standards in sometimes difficult conditions.
Major decisions require to be taken urgently regarding critical infrastructure at Dublin Airport and how it is provided and funded. Dublin Airport Authority is committed to implementing whatever decision the Government takes on this matter but needs the support of the regulatory authorities and other stakeholders to ensure adequate funding is available going forward.
I thank the committee for its time and attention. I will be happy to respond to questions on Dublin Airport Authority and to pass them on to my colleagues if necessary.