I draw witnesses' attention to the fact that while members of the committee have absolute privilege, the same privilege does not apply to witnesses appearing before it. Members are reminded of the long-standing parliamentary practice that they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable. The next item on the agenda is a discussion with Mr. Garry Cullen, managing director of Aer Arann and Mr. Fergal Barry, commercial director of Aer Arann. I welcome them and propose that we hear a short presentation from Mr. Cullen, after which we will have a question and answer session.
Air Services: Discussion with Aer Arann and Ryanair.
Mr. Garry Cullen
I thank the Chairman for the opportunity to address the committee this afternoon. By way of introduction I believe it is useful to reiterate Aer Arann's role and its key business goals. We are a niche airline in terms of routes and catchment area. The mission of the company is to provide a safe, reliable, customer focused and profitable air service to regional communities, our customers, partners and suppliers. We are positioned as a regional airline having a solid Irish heritage with a wide customer franchise in regional centres and communities offering the fly direct option to many of our regional airports. Aer Arann began with an island hopping service to the Aran Islands in the 1970s. It was purchased by Padraig O'Ceidigh in 1994, and 2002 saw the launch of widespread international services. Last year we carried more than 1.2 million passengers with a turnover in excess of €100 million. Our primary business now consists of domestic and international scheduled operations. We also lease aircraft, crew and technical support to other airlines, for example, EuroManx, Finncomm, Flybe and Air Jamaica. We have a charter business consisting primarily of weekend sporting events and we have a franchise agreement with Nex Aviation.
The PSOs are critical for Aer Arann's business. Successful PSO tenders in 2001 were the launch pad for the company's success and they continue to be an important part of our business. Currently ten EU member states have imposed a total of 226 PSOs. There are six Irish PSO contracts on offer and Aer Arann was awarded four of these in the recent tendering process for 2008 to 2011, linking the city of Derry, Donegal, Sligo and Galway with Dublin. Last year we unsuccessfully bid for a Welsh PSO and at the moment we are at a preparatory stage in looking at a bid for some Greek PSOs which go out to tender in January 2009. In addition to the PSOs, Aer Arann operates Cork to Dublin and Cork to Belfast services within Ireland. We commenced our Ireland to UK services in 2002 and now serve 18 UK routes from Donegal, Sligo, Galway, Kerry, Cork, Waterford and Dublin. We also have eight summer only routes to northern France and we have a further ten routes covered by a franchise agreement with Nex Aviation.
The key element behind the company's success to date is the PSO tender awards. In 2001 they represented 90% of our passengers. This has now fallen to 27%. The base of the PSO routes led to the launch of the expanded network of international services in 2002. Aer Arann is now successfully positioned as the airline focused on serving regional communities and providing a caring, personalised service. Our product includes allocated seating, 20 to 30 minute check-in times, SMS technology and web check-in. Our on-line sales account for 90% of sales. We have also entered into a franchise agreement with Nex Aviation. This has established links with Galway, Waterford and Amsterdam, Faro, Malaga and Bordeaux. Alliances are another developing part of our business and they will be more important in the future. We recently signed an interline deal with Aer Lingus, providing transatlantic feed on the Cork to Dublin service. Negotiations are taking place with Etihad, Emerites and Turkish airlines. In addition to our scheduled operations Aer Arann has fed its business to include bidding for long term lease contract for aircraft and crew through other carriers. This, and ad hoc charter activity, provides an additional revenue stream and enables us to spread our risk in these difficult times for the industry.
The airline industry is facing the greatest set of challenges since the 1974 oil crisis. These challenges include a combination of record fuel prices that has seen the price of aviation jet fuel increase by 100% in nine months, reduced demand from discretionary leisure travel due to the decline in consumer confidence allied to the credit crunch and the pending increase in taxation driven by the environmental proposals. A total of 25 airlines worldwide have ceased operations in the past six months. This is compared with only eight airlines failing in the months immediately following the 11 September 2001 US terrorist attacks. In coping with the challenges presented by very high fuel prices and pending environmental legislation, Aer Arann is fortunate to operate a fleet of ATR turboprop aircraft. These are highly fuel efficient, operate at lower speeds and contribute to a small fraction of aircraft attributable emissions. They operate at lower altitudes, have no effect on the ozone layer and upper atmosphere, and provide optimised capacity allowing us to adapt frequencies to discrete customer needs on a route specific basis. Regional aviation is vital for Ireland's infrastructural development. Safe, secure and reliable transport links are essential to ensure a vibrant future for our regional communities. They are critical for attracting inward investment and they improve the quality of life for those who live outside our main urban centres. They help contribute to ensuring that all citizens enjoy a high quality of life and are given the best opportunities to develop and contribute to the country's development no matter where they live. Ireland's aviation policy supports the development of the regional airports. Transport 21 recognises the importance of a vibrant aviation sector in Ireland. In 2007, €86 million was allocated for funding the six regional airports - Kerry, Donegal, Sligo, Knock, Waterford and Derry. In addition, five of these airports receive indirect support through tendering for PSO awards.
Apart from the PSO awards, Aer Arann's core business strategy has a twin track expansion approach. We will seek to grow our international connections to Ireland's regional airports in the immediate future, particularly focusing on Galway, Waterford and Cork but also seeking opportunities at other airports. We believe our "fly-direct, bypass Dublin" message has an increasingly strong resonance with both the business and the leisure market.
In addition we also hope to expand our interline and code share opportunities with Aer Lingus and other carriers at the Dublin hub. We believe there is significant long-term growth potential for this segment. It will accelerate when terminal 2 is completed and there is an increase in long haul services from Dublin. We are in dialogue with the DAA and Aer Lingus to improve the connecting facilities and processes at Dublin.
Our view is that Ireland is well serviced by having four home-based carriers each with its own characteristics and market focus. While Aer Arann is the smallest, it serves a crucial niche market whose needs will not be well served by any move towards consolidation of either airports or carriers. I thank the Chairman and the members of the committee for their time and courteous attention. Mr. Barry and I will be happy to answer any questions.
Thank you, Mr. Cullen. We are sorry that the chairman of the company, Mr. Padraig Ó Céidigh, could not be here. I understand he intended to be here but is ill today. As somebody from the west I have many positive things to say about Aer Arann, particularly the way in which the airline was taken over as a very small company serving the Aran Islands and then became a very significant player. The purpose of this set of hearings is to establish how we can have greater connectivity to the regions around the country and how we can deal with the imbalance between Dublin Airport, which is bursting at the seams, and the rest of the country's airports, which should be able to service much more of the outbound and inbound traffic.
Acknowledging the good work done in terms of connectivity, especially to the regional airports, PSO awards are critical to Aer Arann and funding for these will inevitably come under pressure in the future. Is it not curtains for Aer Arann if the PSO regime comes under pressure? Aer Arann lost a significant PSO award to Ryanair on the Kerry to Dublin route in recent times. Is it not possible, therefore, that Aer Arann will lose other PSO routes to the bigger carriers in other locations?
Aer Arann operates the ATR turboprop. Could Mr. Cullen give us an indication of the cost difference between flying the turboprop and the smaller jet about which we heard last week from CityJet and outline what the advantages are?
There is a very clear difference between Aer Arann's fares where there is competition and fares where it does not have competition. If I want to fly Aer Arann from Galway to Dublin it is likely to cost between €70 and more than €100, whereas, if I want to fly Aer Arann from Dublin to Cork I am likely to be able to get a ticket for €25, clearly because of the competition from Ryanair on that route. In view of that, should we be worried that oil prices will have a more significant impact on Aer Arann than on the bigger carriers?
Mr. Garry Cullen
I will first address the issue of the PSO awards. PSO awards have a finite life. They will not stay at the level they are at. They were reduced in value three years ago, not at the most recent award but at the previous one. Some of the routes as they develop, in many cases thanks to Aer Arann, reach a certain volume of business such that they can be self-sufficient and do not need the support afforded by PSO awards. The two routes most likely not to have PSO awards in the future are Kerry and Galway because they are the two busiest routes and there is a lot of activity in those airports. Aer Arann has been conscious that there is a time window for it to expand its business and reduce its dependence on PSO awards. That has been done very substantially in that PSO routes now have only 27% of Aer Arann's passenger numbers and represent approximately only 14% of its revenue. The belief that if funding for PSO awards were withdrawn Aer Arann would fold may have been true four or five years ago but that is no longer the case. They are a not insignificant piece of business but that is all they are. They are subject to open tender. It is open to any airline throughout Europe to bid for a PSO award. We do not regard them as anything other than a piece of commercial business. We bid for an award. If we have the best tender we win and if not, we lose. Three years ago we won the PSO award in Kerry by a narrow margin from Ryanair. This time Ryanair cut its bid by approximately 50% and it won.
What are the figures?
Mr. Garry Cullen
Mr. Barry has the figures.
Mr. Fergal Barry
In 2002 we won the contract by a margin of €200,000 on an annual basis, that is, Aer Arann was €200,000 a year cheaper than the next tenderer. In 2008, this round, the differential is €1.3 million less than the €3.2 million that was tendered in 2005. That is what Ryanair, the winner of the Kerry contract, tendered.
Aer Arann's tender price in 2002 was €3 million.
Mr. Fergal Barry
That is correct.
That was to provide four flights a day between Dublin and Kerry.
Mr. Fergal Barry
Yes. In 2008, this round, the Ryanair bid was €1.3 million less than the €3 million.
Aer Arann again tendered €3 million.
Mr. Fergal Barry
Aer Arann tendered roughly the same. We factored in the two major price movements the industry would have seen on that route between the two periods. One was the cost of charges to Kerry Airport which went up quite substantially reflecting increased security and regulations costs. The other was the increase in the cost of fuel which more than doubled in the same period. They were the two main cost items that were passed through to the PSO, even though we found further savings in other areas in the meantime.
What is Aer Arann paying per passenger out of Kerry Airport?
Mr. Fergal Barry
I can get those figures. It is just shy of €20 per passenger.
Aer Arann tendered €3 million in 2005 and won by €200,000, and tendered €3 million in 2008 and lost by €1.3 million.
Mr. Fergal Barry
That is correct.
Mr. Garry Cullen
Obviously there was a greater determination on the part of the other carrier to win it this time around.
Was that per annum or for the three years?
Mr. Garry Cullen
That is per annum over three years.
In other words, at the moment flights from Dublin to Kerry are subsidised to the tune of €1.7 million per annum.
Mr. Fergal Barry
They will be.
What is the subsidisation rate on the other flights, say, from Sligo to Dublin?
Mr. Fergal Barry
In the case of Sligo to Dublin, taking a full year from 2009 to 2010, it is €2.4 million.
Is that €2.4 million per annum?
Mr. Fergal Barry
That is correct. That is from Sligo. From Donegal it is €3.2 million. In the case of Galway it is €3.3 million.
How does that equate per passenger?
Mr. Fergal Barry
In the case of Galway it is €33 per passenger and it is much the same on the other routes.
Overall is it correct that PSOs are worth €100 per passenger?
Mr. Fergal Barry
A report was conducted on that matter which I think was specifically on the Dublin-Knock route which had half the number of passengers of the next smallest route. Essentially, that would drive up the per passenger composition. That the route is not getting the critical mass in volumes would drive up the per passenger composition required.
Will Mr. Barry continue on with the questions I asked before I move on to the members?
Mr. Barry has given the subsidisation figures per passenger from Donegal and Sligo, what is the amount per passenger from Kerry?
Mr. Fergal Barry
In Kerry, on the new basis of €1.7 million it would be in the region of about €17 per passenger. For the number of passengers we expect to carry, Ryanair might have an entirely different figure in terms of the number of passengers because of the additional seats it expects to carry on it.
What percentage of revenue is accounted for by PSO?
Mr. Fergal Barry
Some 11%.
Does it actually make up 11% of Aer Arann's total revenue?
Mr. Fergal Barry
Yes.
Mr. Garry Cullen
Of 226 PSOs, the Irish PSO subsidies are among the lowest in Europe although some people think they are extremely high. We operate two aircraft, the ATR-42 and the ATR-72, one is a 44 seater and the other has approximately 70 seats. They are considerably more economic to operate than a regional jet. On a seat basis they are about 30% cheaper to operate but they do not have the same range or the same speed as a regional jet. When one considers the four engine regional jets that operate on the shorter runways they are four jet engines so they burn a huge amount of fuel relative to a turboprop. In the past six months airlines are grounding many of the older four-engine jets because the fuel costs are hitting them more than any other aircraft. The aircraft leasing companies that control about 40% of the world's fleet jettisoned the smaller regional jets and are going back to turboprops, the Aer Arann ATRs or the Bombardier Dash 8s which had gone out of fashion when fuel was at a more affordable rate but are now coming back into fashion because of the fuel efficiency. They are ideally suited for maximum journeys of two hours. Turboprops are built for a certain purpose; they would be stretched for flights from Galway to Paris or Amsterdam but are ideal for anywhere in the UK.
The fitness for purpose issue applies vis-à-vis the network on which Aer Arann’s focuses. We had started a plan six months ago to look at introducing new regional jets in 2010 as a next step for Aer Arann going forward but we have shelved it for 12 months, but hopefully no longer. It makes no sense in the current environment for us to consider moving up with the jets so we have pushed out the plan to next year with a view to introducing the new regional jets in late 2010 or 2011.
Our plans for the regional airports are to build up frequency on the services to Luton and the main UK airports, Manchester, Birmingham, etc., and then to extend the next level to Paris and Amsterdam for which we would need regional jets.
We have a range of fares available on all our routes. A certain percentage of fares on any PSO route--
Mr. Fergal Barry
A total of 80% is regulated and for the remaining 20% of the contracted number of seats one can charge whatever one wishes. Up to 80% is regulated, subject to a maximum of €80 per sector.
Mr. Garry Cullen
On the Galway to Dublin route there is a variety of fares.
Mr. Fergal Barry
The fares range from €25, which includes tax, to just less than €100 per sector.
I have been flying for a long time from Galway to Dublin and I never yet got a €25 fare whereas I flew once from Cork to Dublin on a €25 fare. That is obviously as a result of competition.
Mr. Garry Cullen
The Chairman is correct. There is a higher percentage of lower fares on the Cork-Dublin route because of competition. The Cork-Dublin route was the most profitable and Aer Arann is losing money because of competition. We are hanging in there because we have a strong business customer base there. Approximately 65% of the business market flies on Aer Arann but only about 30% or 35% of the total market flies on Aer Arann. It is a feature of any airport that Ryanair goes into that it will be driven by volume and very low fares.
Is Ryanair trying to drive Aer Arann off the Cork-Dublin route?
Mr. Garry Cullen
I can only give my perception. My perception is that it wants--
When it gets into a mess it will throw it at everyone else.
Mr. Garry Cullen
- -a monopoly. Having spent 35 years in Aer Lingus I have put up with all the brickbats about having a monopoly but if there is anything worse than a State monopoly, it is a private monopoly. If Ryanair has its way it will dominate all the airports. It will close the small airports, dominate the others and buy Aer Lingus and then there will be a monopoly. Unfortunately, we are caught in the crossfire and are doing our best to survive. The owner of Aer Arann is not only driven by the profit motive but is very aware of the social responsibilities and is determined that Aer Arann will survive in order to ensure that the regional airports will stay open. Otherwise we would be left with a maximum of four airports and that is not good for Ireland Inc. which is already tilted towards Dublin. It would be a disaster. When market forces are left free, there is a real danger that can happen.
What has been the impact of oil prices on Aer Arann?
Mr. Garry Cullen
The impact of oil prices is severe. Our oil bill is double what it was two years ago. We are fortunate that our aircraft type is very economical.
Mr. Fergal Barry
It is about 17% of our total costs.
Mr. Garry Cullen
Long haul carriers such as Aer Lingus are particularly impacted upon by the oil prices. Proportionately it is a much higher element of costs.
Like Aer Lingus, did Aer Arann do any hedging for 2008 or 2009? Aer Lingus told us it hedged of the order of 28% in terms of fuel.
Mr. Garry Cullen
Aer Lingus has been fortunate. We have small hedging and have 10% in for the balance of the year. We put in the last hedge only about three months ago so that we did not get oil at €75 a barrel but at €120 a barrel whereas it costs about €130 a barrel. There are hedges and hedges. That is the hedge we have in until the end of the year.
As Mr. Cullen is probably aware I, like the Chairman, also come from Galway. We are extraordinarily proud of the progress made by Aer Arann. Having heard the tremendous problems it has to encounter in the big bad world of aviation it is clear the vultures are coming from all sides. Those of us who use the airport at Galway will be aware that the lack of problems encountered there compared to Dublin is heaven for people who have not witnessed it. Hopefully, many more people will want to use that airport.
Mr. Cullen speaks about what Ryanair will do but that is what private airline companies do. Aer Lingus is no angel either, having witnessed what it did at Shannon. For as long as I am alive, I will never forgive it but that is a personal matter. It will do what suits itself at a given time as all such organisations do. At Aer Arann's stage of development, is Mr. Cullen concerned that the competition will become unbearable? What would he like to see happen in aviation policy to ensure Aer Arann is not kicked off the pitch, so to speak?
Mr. Garry Cullen
It is difficult to know what can be done policy wise, given the environment in which we find ourselves. There is a real danger that an airline like Aer Arann could be squeezed out. We take up an extraordinary amount of the time of the chief executive of Ryanair in terms of predicting that we will go out of business. We welcome any publicity but I am not sure why he pays so much attention to that. It is a fact that our two most lucrative routes were targeted by him, one being the Cork-Dublin route, and when the tender process began it targeted the other, the Kerry one, which it won fair and square.
We have a strong, loyal customer base. We have a product and a service that in some ways is a throwback to the past. I realise some people regard that as a negative aspect because we are flying turboprops but the service element remains. We do not charge for bags or any of the ancillary services. Many of our customers are regulars and they are known by our excellent staff. We have a product and provide a service and I believe there will be enough customers to keep us in existence.
The vulnerability is probably more on the airport side. The airports must stay in business. There are development plans, and Transport 21 will be of great support if the current economic woes do not cause any delay in that regard. Developments such as those in Galway, Waterford, with the extended runway length, and in all the airports will help build the business in those airports and increase the support from the surrounding counties. That is where the future lies.
On the Cork situation, we will remain there as long as we do not lose cash but it is very difficult because there is a power battle going on between Cork Airport and Ryanair and we are caught in the middle of it, but the balance will change. If we are not operating there, Ryanair will dominate the airport but, unfortunately, there is nothing the Government or legislation can do about that because market forces are free to let loose.
Is Aer Arann paying more per passenger than Ryanair?
Mr. Garry Cullen
I do not believe we are but if we go Ryanair will put a great deal of pressure on Cork Airport to get better deals because it will then dominate the airport à la Shannon. That is my personal perception of what is happening.
I warmly welcome Mr. Cullen and the delegation and congratulate them on the achievements of the company, which are remarkable. The mission is a noble one in terms of regional connectivity.
To continue some of the points made about the general economic background, the chief executive of Ryanair yesterday announced 500 job losses because of the general downturn and fewer passengers as a result of the recession. First, does Mr. Cullen see the recession having a similar impact on Aer Arann and what can he do to try to counteract that, keep the aeroplanes flying and the business operating? Second, last week Mr. Mannion, the director of Aer Lingus, said that he anticipates that the emissions trading scheme the European Parliament has brought forward will cost the airline approximately €39 million by 2012. Mr. Cullen has told us about the ATR aircraft, of which we have experience. They are fuel efficient aircraft but both Aer Lingus and Ryanair have said that if the emissions trading scheme commences it will be a disaster for our country, being an island nation. Does Mr. Cullen expect the Government and the Minister for Transport to raise that issue in Brussels, indicate it is not acceptable and point out that we need a special regime for the two island countries, namely, Ireland and Malta?
Is Mr. Cullen of the view that the recent investment in Irish Rail, and the inter-urban project to be completed by middle of or late 2010, is impacting and will impact on the business? It is convenient to fly with Mr. Cullen's company but are the improvements being made under the other parts of Transport 21 having any impact?
I note one of Mr. Cullen's ambitions is to help regional business interests travel directly to Europe. Does Mr. Cullen have any views on a second airport in Dublin in terms of the smaller regional impact? I have a number of other questions but I will conclude on that.
Mr. Garry Cullen
Regarding Dublin Airport, we believe that the growth that has been experienced in Dublin Airport - I am aware the expansion plans are still in place - will continue once the economy picks up again. We believe there is a case for opening a second airport such as Weston Executive Airport for point to point feed, which would take the pressure off Dublin Airport. It is available for long haul, continental flights and connecting business. We would support that and if the opportunity arises, Aer Arann would use the airport.
The improvements in network surfaces, be it roads or rail, are impacting on the potential for domestic air travel. Sligo is a good example. It is noticeable that the vast improvement in Sligo is having an impact. It is the reason Aer Arann, with all possible speed, is trying to reduce its dependency on domestic and public service obligation, PSO, routes, which I mentioned earlier. It is inevitable, although I do not know how long it will take, that as road surfaces and CIE and Irish Rail networks improve, these will have an impact.
We see our future in serving a number of airports in the United Kingdom, continental Europe direct from the regional airports and, critically, feeding into Dublin Airport for long haul connections onwards. We have just started with one route, Cork-Dublin, with Aer Lingus feeding the transatlantic flights. We hope that will be seen as a success by Aer Lingus and that we can quickly offer the connections to Galway and Sligo.
From our point of view, and considering hub airports throughout the world, it is a standard feature that regional airlines feed into the long haul carriers. Aer Lingus has a huge amount on its plate, so to speak, but when terminal 2 opens and it adds 50% to its long haul operations, it will need more feeder services directly from the other Irish airports but also from the Isle of Man, Cardiff, etc., where Aer Arann, and other carriers, could feed across. That will help to counteract what I believe will be a fairly flat domestic position over ten years.
The emissions trading scheme will impact on us, although not to the same extent as Aer Lingus, because of the size of the operation and the fact that we have very economical turboprop aircraft. As a small carrier our lobbying would not carry much weight and therefore we work through the European Regions Airline Association, the ERAA, which has been successful in getting some of the more extreme measures in the Bill removed. While the Bill will be enacted, there is much to play on the international front between the United States of America and other countries opposed to this approach. There will be particular exposure for an island country like Ireland. The exposure for Aer Arann will probably be a few million euro rather than €50 million but for an airline of our size, €3 million or €4 million off the bottom line is the difference between staying in business or not.
Regarding the impact of the recession on our business, the Irish-UK market, particularly business originating in the UK, is down this year. We are feeling the impact of that downfall, of that there is no question. The pattern was not that different when I worked in Aer Lingus. It made its profits between mid-June and mid-September because of the peaking nature of the business. That is also the pattern in Aer Arann. The bookings in late June-July of this year are flat; they are a continuation of those for May. Therefore, it will be a difficult year.
Different airlines respond in different ways. Mr. Mannion spoke of withdrawing the flight to Los Angeles in the winter. We will cut back on some of our weaker routes and reduce the frequency of flights in the winter. We have ordered new aircraft which are due to come on stream this summer and we had planned to expand this winter. We are switching two of our aircraft to Kingston in Jamaica under a contract to fly for Air Jamaica between Kingston and Montego Bay between now and next spring. That is a release for us in that we can move those aircraft there with crew and engineering support. Hopefully, during the winter months we will see some upturn in the market and will be able to bring back those aircraft. There is no doubt our growth plans have been set back by at least 12 months as a result of the current environment.
I thank Mr. Cullen for his presentation and wish him well in this difficult period in the aviation sector. He spoke about the difficulties he is encountering, particularly in Cork Airport, because of the Ryanair's competitive practice there. In terms of the State's policy to separate the running of the airports, is Mr. Cullen concerned that in the event of the running of Cork and Shannon Airports being separated from Dublin Airport, this might allow Ryanair to exercise greater control over an independent airport and, therefore, create more difficulties for Aer Arann and other airlines?
Mr. Cullen spoke about a hub and spokes approach. Does he consider there is an opportunity to develop hub connectivity into Shannon Airport? I note that Aer Arann currently does not have any services out of Shannon Airport. Does he have any ideas in that regard? Would he consider using Shannon Airport as a hub for transatlantic business, considering the level of coverage Aer Arann has across the UK?
Mr. Cullen spoke about Weston Aerodrome. What is his view of Baldonnel being developed as a potential airport?
Mr. Gary Cullen
In response to the Deputy's first question on the control issue and the final separation of the running of Cork and Shannon Airports, the board and management of those airports must do what they believe is best. There is a great temptation to have Ryanair as a major customer in one's airport because of its ability to drive through volume. That is a fact of life and a positive. It is a good reason for having Ryanair operate out of an airport. The counterside to Ryanair's entry into an airport is that its sheer strength discourages other carriers operating out of that airport. A decision in this respect is a judgment as to what is best for the long-term future of an airport. It is well known within the industry that other carriers avoid those airports we refer to as Ryanair airports like the plague because they cannot earn a profit from operating out of them. We are aware of the exodus of at least six carriers out of Shannon Airport after Ryanair started flying in there. The seventh carrier to withdraw was Aer Lingus, which withdrew the Shannon-Heathrow route.
I am not privy to the books of Shannon Airport and I do not know whether that development is a good or a bad one. The same will apply to Cork Airport. One could argue that Shannon Airport has gone further down the road with Ryanair but it has the transatlantic business as a balance. If Cork Airport had Ryanair operating out of it to the same extent as Shannon Airport and did not have the balance of any transatlantic business, my view is that it would be in a vulnerable position. I cannot give an opinion beyond that because the contracts are private. One can observe that Ryanair is a highly successful airline at driving volume through an airport, of that there is no doubt. It is a major success and good luck to it. However, there are downsides and other implications.
With regard to Aer Arann operating out of Shannon Airport, this is linked to what I have just said. We are wary about beginning to operate any UK services out of Shannon because of the strength of Ryanair there. We continually talk to long-haul airlines and if we get an opportunity to provide a feeder service contract to a long-haul carrier, we certainly would be in the interested in doing that.
More specifically with regard to the Shannon-Dublin route, Aer Arann operated that route but withdrew from it because we could not make any money on it. If we could reach an agreement with Aer Lingus whereby it would operate the morning flight and we would operate the evening flight and we could code share in that way, we would do that, as that would make sense. We know that if we were to operate that route on our own without a link with another carrier and had to compete directly with Ryanair, that would not work.
I wish to clarify that Mr. Cullen said he would consider a code share with Aer Lingus on that route to operate the evening flight while Aer Lingus would operate the transatlantic routes.
Mr. Gary Cullen
Yes, otherwise the numbers would not add up. Even Ryanair tried to operate the Shannon-Dublin--
It did not work.
Mr. Gary Cullen
If carriers code-shared the morning and evening flights, they could make a go out it.
Aer Lingus told us last week that it does not want to code share with Aer Arann.
Mr. Gary Cullen
It is a question of timing. Aer Lingus has its priorities, as we have ours. We are not high on its list of priorities, nor is interlining yet. Aer Lingus will closely monitor the Cork-Dublin route and if it is seen to be a successful one, that might encourage it to operate on that route. In two year's time when terminal 2 will be open and Aer Lingus will be taking in more long haul aircraft, the attractiveness of having a feed agreement with a carrier such as Aer Arann or other carriers will make more sense to Aer Lingus, and it will move on such a proposal then. However, the Aer Arann tail will not wag the Aer Lingus dog.
Mr. Cullen would want to be careful in the current environment to ensure that Aer Arann will not be operating the morning flight as well as the evening flight.
Mr. Gary Cullen
We will not go there.
The development of Baldonnel Aerodrome was examined in the past and discussions took place on it. The late Tony Ryan had an interest in its development. The reason we mentioned Weston Executive Airport in particular is that we are aware of its development and the commercial activity there under Mr. Mansfield. He would welcome expanding the use of that airport. Given its runway size and the various planning restrictions, it would not be suitable for any more than a turboprop aircraft, which would be roughly the equivalent of the executive aircraft that fly in there. It would not be a good idea if both of them were developed commercially at the same time.
What would Mr. Cullen's view be of the development of one versus the other?
Mr. Gary Cullen
I have not considered the question of the development of Baldonnel Aerodrome in recent years. Weston Executive Airport would be attractive for commuters in south County Dublin, west Dublin and west of Dublin. That airport would definitely be an option. A route from Weston to London City Airport would be very attractive, of that there is no doubt.
More so than Baldonnel?
Mr. Gary Cullen
I think so, but I cannot be certain because I have not examined the numbers in regard to Baldonnel.
A number of the questions I intended to raise have been answered, therefore, I will not repeat them. I welcome the delegates from Aer Arann here and compliment them on the company's progress. From the figures Mr. Cullen has given us, significant growth in passenger numbers and revenue has occurred. That is to be welcomed. I have always held the view that Aer Arann fulfils an important obligation, particularly in terms of the social dimension, in flying to and from the regional airports. The aviation sector has become exceptionally competitive and aspects of that are disappointing. I spent a good deal of my life listening to Ryanair complain about the unfair practices of the dominant airline, Aer Lingus. It is unfortunate that Ryanair has turned into a predator on the Cork-Dublin route. To survive, a company must have a core business and that route is a core one for Aer Arann. This is an area that needs to be examined. It must have a certain element of freedom or a niche within the market and when that becomes threatened, it undermines all the activity of a company as small as Aer Arann.
With regard to flights to continental Europe, Aer Arann's routes from, for example, Waterford to Malaga and Galway to Bordeaux are relatively new. Are these routes viable? How long does it take to fly from Waterford to Malaga on one of Aer Arann's small aircraft? If one flies from Cork Airport, one can do so on a larger aircraft and one's journey would take less time. Is the size of Aer Arann's aircraft an impediment to the growth of the services it is offering?
Great strides have been made with regard to connectivity, in every way, with Belfast. Why is it not possible to have flights from Dublin to Belfast? In light of increased co-operation in the areas of commerce and industry and the new relationships that exist on this island, I would have thought that a connection between Dublin and Belfast would be necessary. I presume flights between the two have not been put in place as a result of the quality of the rail service on offer and the fact that there is no passenger demand for such flights. It is a chicken and egg situation in that if the services is not in place, no one can use it. Many business people lament the fact that there are no flights between Dublin and Belfast.
Mr. Garry Cullen
Prior to my joining the company, Aer Arann operated flights between Belfast and Dublin. I understand that the service was not a success. Rail and road routes between the two cities have improved dramatically. The only context in which Aer Arann would consider resuming the service - I would not rule out the latter - would be if it were able to piece together a number of contracts relating to long haul feeds, not just with Aer Lingus but also with, for example, Etihad. We only started examining the position in this regard six months ago and we are involved in discussions with a number of carriers.
As Dublin Airport expands as a mini-hub - that would be a mini-hub relative to Heathrow - and the number of long haul services operating out of it increases, there will be a role for an airline such as Aer Arann to offer feeder services from all airports throughout Ireland and some in the UK. Belfast would be covered in this regard. Belfast would need that underpinning. On purely local, point-to-point flights, the business to and from Belfast is not there because of the improved surface connections available by rail and road.
Some four or five years ago, airlines stopped the process of interlining. This was done in the interest of making cost savings. For people on long haul flights, the facility of having their bags checked right through is of real value. There are indications of a swing back towards interlining in various markets. Aer Arann changed its computer system in order that it could no longer interline and thereby save some money. This was a short-sighted move and it is being reversed. Flights between Belfast and Dublin could be reintroduced in that context.
NEX Aviation, which is owned by Nicholas Fewer and Daniel Browne, owns the regional jet aircraft used on flights out of Galway and Waterford to Faro, Malaga, Bordeaux and Amsterdam. They have a franchise with us and the service operates under our name. We did this for two reasons. First, we make some money because we collect the revenue and take a commission. The service operates under Aer Arann's name. We sell and distribute tickets and give NEX Aviation a net amount from this activity. However, it is NEX Aviation's operation. The second reason for our becoming involved was because it was a low-cost way for us to see if it would make sense for us to use regional jets.
As I informed the Chairman earlier, we had planned to carry out a detailed study this year on the regional jet aircraft that it would be suitable for Aer Arann to introduce in late 2009 or early 2010. Part of the learning experience in respect of this matter comes from our operations with NEX Aviation. However, we shelved our study for at least 12 months as a result of increases in fuel prices, etc.
Three of the routes in question - Faro, Malaga and Bordeaux - only operate during the summer. These routes are doing well but only over a relatively short period. Business on them dies a death in late September or early October. These routes do not offer year-round sustainability. Amsterdam is the only route on which there is such sustainability. The flight times on these routes are quite good. For example, the flight time to Malaga is just over three hours. Perhaps Mr. Barry will indicate the difference in flight times between our service and those of Ryanair.
Mr. Fergal Barry
The difference is less than 30 minutes.
Mr. Garry Cullen
The question that will arise in the winter is whether the Amsterdam service can be sustained and whether NEX Aviation wants to maintain it during that period. We will be meeting representatives of NEX Aviation in the next fortnight. If they wish to pull the service, we will examine the alternative of keeping the route open using one of our aircraft. We could sell the service to people, because Amsterdam is within the range of our turboprop aircraft, but it would not be ideal. Taking this option would keep the route alive for next summer.
I am interested in competition on regional routes. I wish to focus first on Cork Airport. Mr. Cullen referred to the type of aircraft used by Aer Arann. Ryanair - his company's main competitor - mostly uses Boeing 737-800s. Such aircraft are not suitable for internal flights, particularly when one considers that profits are governed by load factors. Aer Arann uses ATR aircraft, which are extremely efficient and, given that they only take 50 to 70 passengers, which are much easier to fill. In addition, there are no stipulations with regard to where people wish to sit on the aircraft and there are no baggage charges. In such circumstances, does Aer Arann not have a major advantage in respect of domestic flights? Most airline companies are reducing the size of aircraft they use, particularly on short haul routes.
Mr. Cullen stated that Aer Arann would be prepared to talk to other airlines - Irish or otherwise - in respect of offering feeder air services. Deputy Dooley inquired about Shannon and Mr. Cullen stated that it was not profitable for Aer Arann to operate there because it was obliged to compete with Aer Lingus's transatlantic service. The fact that Aer Arann did not base an aircraft at Shannon meant that its flights arrived at a much earlier time. This did not suit people who wanted to connect to European flights or people who wanted to fly late at night to Dublin and spend an entire day here doing business.
Would Aer Arann be prepared to engage in discussions with some of the American airlines - Continental, Delta and US Air - which serve Shannon? In light of increases in fuel prices and in the context of the open skies policy, these carriers would not be prepared to serve airports at two destinations. It would be a worthwhile exercise for Aer Arann to discuss with these airlines the possibility of offering hub-to-hub air feeder services into Shannon Airport. Shannon has a great deal going for it, particularly since the facilities there were upgraded. Charges at the airport were reviewed and operations there have been streamlined.
Aer Arann offered services out of Shannon on two previous occasions. In light of the additional costs involved with basing aircraft at the airport, its efforts did not prove successful. It might enjoy greater success if it became involved in an arrangement to provide air feeder services to one of the American airlines.
Mr. Cullen referred to the success of some of Aer Arann's European operations. Some of the routes in question terminate in holiday destinations and the business relating to them is seasonal in nature. Mr. Cullen indicated that the company is satisfied with the success of its flights to Amsterdam, which is a hub for KLM and Air France. Would Aer Arann be prepared to consider offering services between Shannon and Amsterdam, particularly in the context that CityJet's service between Shannon and Paris - on which smaller aircraft are used - has proven extremely successful?
Mr. Garry Cullen
We cannot provide a clear answer in respect of Amsterdam because of the unique arrangement that exists on the route. The aircraft on the Amsterdam route are owned and operated by another company. We merely sell the tickets. They operate the route and we sell the seats. Until we understand their disposition and whether they will keep the aircraft operating, we cannot make a decision. Last winter they leased the aircraft to operators in Scandinavia. We do not know if they will be available. A Shannon-Amsterdam service with the turbo-prop aircraft would not be a good product. In our medium term plans to use jet aircraft, now pushed out two years, the Shannon-Amsterdam route would have some attractions.
We will certainly talk to the US carriers. In the last couple of months we made a number of significant changes to our reservations and distribution systems which can now be linked to other airlines' systems in order to allow transfers of bags and passengers. We needed this for the Aer Lingus link in Cork but would also need it for a link with Continental, Delta or any other airline. One of the first questions a US airline will ask is, "Can one do an automated link?" Previously, our answer would have been no. Now that we can do it we will certainly talk to US airlines and explore opportunities. If there is an opportunity to make some margin for us, we are up for it.
The ATR72-8, the turbo-prop aircraft, is particularly designed for short routes such as Cork to Dublin. That is how it is used throughout the world. It is rare to see an aircraft of the size of a Boeing 737-800 operating on one of these routes. I have no doubt that it is a major loss maker for the carrier which operates it. It sells a smaller proportion of the seats than we do but has more seats in the market. It, therefore, has a market share of approximately 65%, while we have 35%. However, we sell approximately 65% of our seats and it sells about 60% of its seats. We have most of the business market. However, it is hurting us because one cannot make a profit on load factors of 60%. There is a significant mismatch between capacity and demand, given the strong rail option on the route. This cannot continue indefinitely because both carriers are losing money.
Something has got to give.
Mr. Garry Cullen
I believe so, fortunately or unfortunately. Someone is going to give.
I welcome Mr. Cullen and Mr. Barry and congratulate them on the success of Aer Arann. Their presentation crystalises their enormous contribution to the aviation industry in Ireland and the range of flight options they offer throughout the country. I commend them on the different customer experience of Aer Arann passengers. In time, there will be a trend back in that direction, something I would welcome.
As a Cork-based Deputy, I am concerned about some of their comments regarding the Cork-Dublin route. It sounds ominous. It sounds as if one carrier will have to move off the route and that will probably not be the carrier with the deepest pockets. That is of grave concern to me. Is Aer Arann in discussions with the DAA or the Cork board on what sounds like an impending threat to its business on the route? A 60% load factor is not sustainable. This seems to be an urgent issue which needs to be addressed.
I am conscious of the comments about Ryanair and Shannon Airport. It seems Shannon Airport is over-reliant on Ryanair, for which it may well pay a price. I would not like to see Cork Airport go down that road, although Ryanair's business is also very welcome. Will Mr. Cullen or Mr. Barry say what moves are being made to save the Aer Arann Cork-Dublin service which is very important for the business community and commuters.
Where does Aer Arann see fares going in the next 12 to 18 months, given the weakness of sterling and the incessant growth in the cost of fuel? I accept that its fuel efficient aircraft provide a degree of shelter from rising fuel prices. Does it see a significant fare increase and can the industry sustain it? Will customers respond or are they increasingly price insensitive?
How competitive are Irish airports compared with airports in the United Kingdom and elsewhere in Europe where Aer Arann operates? How do Irish airport charges compare with those at other airports?
I welcome the interline transfer facility with Aer Lingus for transatlantic passengers from Cork. Will it work or will people take the view that driving to Shannon from Cork only takes an hour or two? Will the new facility work? I hope it does.
I welcome the representatives of Aer Arann. As a Galway person, I am proud of the airline's achievements. I am particularly proud that my father launched Aer Arann and was on the first flight from Galway to Inishmore. We just need it to come to Weston and we will have completed the picture.
I share Deputy McGrath's anxiety about the number of passengers using an airline to connect with Shannon Airport, given the improvements in road and rail travel.
I also welcome the representatives of Aer Arann. I have always been fond of what Ryanair has done for the aviation industry and consumers. However, one must accept that it is bullying small airports and some of the smaller companies. We had a very successful EasyJet service between Knock and Gatwick airports. Ryanair competed on the route but when EasyJet withdrew, so also did Ryanair. It took Knock Airport almost two years to persuade Excel Airways to provide a service to Gatwick Airport. I do not know how successful that service is. People in south London was denied access from the west of Ireland for some time. Ryanair's behaviour was despicable and nothing could be done about it.
Questions have been asked about public service obligations, PSOs, which have an element of smoke and mirrors. What determines a PSO budget? Is it distance or numbers of passengers using the service? What safety checks are in place? If I had a small airline company with every passenger subsidised to the tune of €40, what would there be to stop a team of five or six taking the aeroplane to Dublin and back again? What machinations are taking place?
Does Aer Arann use leased aircraft on some of its routes?
Mr. Garry Cullen
Yes, in the short term, during maintenance.
What effect is the upgrading of the road network having on regional airports? The road journey from Dublin to Galway is 35 minutes shorter today than it was yesterday because of the new Westmeath bypass. I live an hour from both Sligo and Knock airports and one hour and 50 minutes from Dublin Airport. Are people like me going to drive to Sligo Airport from where there are two flights a day or will they drive to Dublin Airport which offers a full international service? I fear for the regional airports because the more the road and rail networks develop, the more people will be attracted to the major centres. I wonder whether the support system will need to be increased to such a level that we may have to pay people to take flights from regional airports because they will be flying from Dublin, Cork or Shannon airports.
Is it correct to say the necklace of airports on the west coast which includes Donegal, Sligo, Knock, Galway, Shannon and Farranfore airports, shows there are too many and that this number of airports close to each other is not sustainable?
Ask Deputy O'Dea to sort it out.
Mr. Garry Cullen
I will answer the Chairman's question with Senator Ellis's question.
My sister-in-law lives in Athlone where she would love to have an airport. I live in Bray and would prefer if the airport was located in County Wicklow or County Wexford rather than have to drive to Dublin Airport every day. I take a pragmatic view. These airports will be in place for the foreseeable future. They are part of our infrastructure. In 25 years' time there may be a western rail link which would have an impact on them. I believe they can be viable. The purely domestic market to Dublin will not grow very much, as it has been affected by the vastly improved surface options available. However, the attraction of flying direct from one's local airport to the more popular destinations with all the convenience this entails referred to by Deputy Michael McGrath and being able to interline for long-haul flights and check through from Dublin Airport will support the sustainability of the regional airports. That is my firm belief. I cannot say this will be forever but certainly it will be the case for the foreseeable future.
I do not believe the PSOs, as we know them, will last indefinitely. I suspect they will be reduced significantly in three years' time but think they will survive beyond that. It should be borne in mind that there are approximately 220 PSOs in Europe and the number is increasing. Ireland should not readily give up something that may help its infrastructure. Ours are among the least subsidised in Europe. Many are not aware of this fact.
Other modes of transport have been subsidised during the years.
Mr. Garry Cullen
That is true. It is very easy to fall into the trap of saying PSOs are subsidised, that they are bad news and we that should not be dealing with them. They perform a vital role, as is recognised.
I spent a lifetime working in Aer Lingus but would be the first to acknowledge that Ryanair has done an outstanding job in aviation. It is a great credit to Ireland that we have one of the biggest airlines in the world. Ryanair is very good at what it does. However, like everything, the story is not perfect and there is a real downside and risk. I hope the more, so to speak, in your face bully boy tactics will evolve over time as they become more mature. However, Ryanair does a significant amount of good and I am not knocking this. I acknowledge that many Irish people have benefited from cheap travel with it. However, when it is doing something that is blatantly unfair and against the common good, it cannot be ignored.
With regard to transatlantic routes, I understand the main reason Aer Lingus wanted to do the Cork-Dublin interline deal with Aer Arann was they had identified a business market among those using their London-Cork flights. People were flying with US carriers into London and then flying with Aer Lingus to Cork. Aer Lingus wants a bigger slice of that pie by getting those passengers to fly into Dublin and onwards to Cork with Aer Arann. Alternatively, they could fly to Shannon and travel to Cork from there. That is the particular target market which Aer Lingus sought.
On the competitiveness of Irish airports, the charges at the much vilified Dublin Airport compare favourably with those at other significant airports elsewhere in Europe, including the United Kingdom. One can always make a comparison with Hahn Airport or somewhere similar but that is not comparing apples with apples. Dublin Airport earns a lot of money from ancillary charges. I might have a view on the car-parking charges but this helps to reduce the charges to airlines and I do not believe its charges are outrageous.
Mr. Cullen did not answer Deputy McGrath's question about better connectivity. It should not be beyond the bounds of possibility to organise it such that passengers arriving into Dublin from the regional airports on an Aer Arann flight are not forced to check in again, especially given the crazy situation at Dublin Airport.
Mr. Garry Cullen
I agree completely with the Chairman. The set-up is far from satisfactory. The Dublin Airport Authority is aware of our views. We have been promised that when the building of the new terminal is finished, issues will be dealt with. There is patching between now and then. In order to sell a proper connecting service and product, the current set-up is very unsatisfactory. Even on a domestic flight such as from Galway to Dublin, one must go through a Garda checkpoint and show one's ticket. This is nonsense. It takes away from the value of using air travel as a means of domestic travel. The security checks would have been carried out in Galway or wherever the flight originated. We are having discussions on this issue.
Will Aer Arann be in profit this year?
Mr. Garry Cullen
If what I believe is going to happen in the remainder of the year happens, we will be just about in the black. Given the environment in which we are operating, I am somewhat cautious.
It would be better if Mr. Cullen were to leave it in good condition.
Mr. Garry Cullen
I will not be able to face Mr. Ó Céidigh if I do not leave it in the black.
I asked a question about the measures in place to ensure the PSOs were not abused.
Mr. Garry Cullen
I apologise, I meant to answer that question. Our expert in PSOs, Mr. Barry, has been dealing with the rules for the past six or seven years.
Mr. Fergal Barry
In the first instance, PSOs are tendered at arm's length by the Department of Transport. Therefore, in terms of competition this forces airlines to ensure they are only allocating the real costs which will apply to the PSO, otherwise one would be pricing oneself out of the competition at the earliest stage.
I will describe how the PSO works. The Department of Transport invites tenders in respect of a certain frequency of flights. This will determine the aircraft costs an airline will be required to attach to that route. The operating economics and expected costs of the PSO route are studied and one applies a margin to the total cost. This is what one expects one will need to provide the service. The expected revenue to be generated in an annual period over the three years of the contract is calculated. The formula gives rise to the expected PSO compensation amount. The tendering process involves a significant level of vetting. An airline must supply all of its financial information, whether it is a public or private company. The Department requires at least three years' audited accounts which it examines. It also requires management accounts - the forecasts which the airline will apply over the three-year period on a route basis for every revenue and cost line item. The airline's auditors are required to make an annual audit against these projections which will supply a set amount of PSO compensation which the airline will require. Even if costs are incurred over and above or if revenues are lower, this will push out the amount required. It is up to the airline to make a correct calculation. The actual PSO amount an airline is given is the maximum the Department will allocate during the PSO term.
I understand that CityJet has indicated that it will not provide a service from Knock Airport even though a PSO has just been granted in that regard. In light of the figure of €100 per head, which was mentioned, would Aer Arann be interested in availing of that PSO? It is a high subsidy per passenger and relates to an airport that is quite close to Sligo and Galway.
Mr. Fergal Barry
It is quite high. If the Department of Transport were to approach Aer Arann to ask us to submit a tender in respect of the route, we would consider doing so as long as it made financial sense for us to get involved. If one examines the viability of a PSO as a single figure, as a per passenger amount, the difficulty is that one might not focus on the fact that PSOs are put in place to promote economic development in the regions outside Dublin. Those who are involved in multinational companies outside Dublin want to be able to connect to a hub from which they can fly to other destinations. We would consider availing of a PSO of the type mentioned by the Chairman. The social aspect of PSOs must also be considered. Many people travel on Aer Arann's PSO routes to get to Dublin for critical medical care, for example.
We will leave it at that.
Are any initiatives being taken to save the Cork to Dublin route?
Mr. Garry Cullen
I am glad to clarify the matter. I did not wish to give the impression that I am starting to write the obituary for Aer Arann's Cork to Dublin route. We have had a number of constructive meetings with the board of Cork Airport. We get great support from the Cork Chamber of Commerce. That is why the lion's share - approximately 66% - of business passengers who travel on the Cork to Dublin route fly with Aer Arann. We have a major level of commitment to that market. We feel that we are indebted to it. That is why we are hanging in there. We have improved our market share since January. If I had been addressing the committee last November, I would have looked much more worried than I do now. We have won back business on the Cork to Dublin route since February. It is looking a little more hopeful. Something has to budge. I was hopeful when I read in the newspaper this morning about major cutbacks at Dublin Airport. Cork Airport did not feature in the report, unfortunately.
We will draw this discussion to a conclusion. It is fair to say that Aer Arann, as a small airline, enjoys the goodwill of all members of the committee and the public in general in Ireland. We made similar comments last week to representatives of CityJet, which is a small airline that is surviving in a difficult climate. In the submission we received from Ryanair today, that airline suggests that it competes while Aer Arann complains. We will challenge the representatives of Ryanair on some of the issues that have been raised today by the representatives of Aer Arann. Mr. Cullen and Mr. Barry are more than welcome to sit in the Public Gallery if they want to hear what Ryanair's officials have to say.
Mr. Garry Cullen
I look forward to that. I thank the members of the committee.
I welcome Mr. Michael O'Leary, chief executive of Ryanair, to this meeting. Mr. Jim Callaghan of Ryanair is not present. I draw Mr. O'Leary's attention to the fact that while members of the committee have absolute privilege, the same privilege does not apply to witnesses appearing before the committee. Members are reminded of the long-standing parliamentary practice that they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable. I invite Mr. O'Leary to make his presentation.
Mr. Michael O’Leary
I thank the Chairman. The joint committee will be delighted to hear that I intend to make a brief presentation. Before I do so, I would like to pay tribute to the former Minister for Transport, the great Séamus Brennan, who sadly passed away in recent weeks. He was this country's best ever transport Minister. Without his work, neither Ryanair nor the European low-fares sector as a whole would exist. I am sad that Séamus Brennan was not around for long enough to implement his policy of providing for competing terminals at Dublin Airport, which would have done a great deal to relieve the difficulties at the airport.
It is important to put the role of Ryanair in context. It is not often understood in this country that Ryanair is the world's largest international airline. Ryanair is different because it offers the lowest fares and has the lowest seat costs in Europe. It has guaranteed that it will never introduce a fuel surcharge. It will carry between 58 and 59 million passengers this year. The average fare paid by each of the 50 million passengers who flew with Ryanair last year was €44. That represented a reduction of 1% on the previous year's average fare. By contrast, the average short-haul fare paid by Aer Lingus passengers last year was €94, which represented an annual increase of 3%. Aer Lingus's average fare is more than twice Ryanair's average fare.
Nobody delivers customer service as well as Ryanair. Ryanair flights are more likely to arrive on time than those of any other major European airline. We lose the fewest bags and cancel the fewest flights. As a result, the number of passengers carried by Ryanair has increased over the past ten years. We carried just 4 million passengers ten years ago, whereas we carried 51 million passengers last year and we expect to carry approximately 59 million passengers this year. Those figures indicate that Ryanair is the world's favourite airline. I am glad to say we took that title from British Airways in recent years. Ryanair carries twice as many international passengers as British Airways. It carries significantly more international passengers than any other airline in any part of the world.
I would like to comment on the spread of Ryanair's business. Ryanair is not really an Irish airline any more. We see Ryanair as much more of a European airline. Having said that, no airline is doing more than Ryanair to develop air access to and from this country's regions. We have four bases in the Republic of Ireland - Dublin, Shannon, Kerry and Cork airports. Ryanair is the largest airline in both Shannon Airport and Dublin Airport. It is essentially the only airline in Kerry Airport. We are running neck and neck with Aer Lingus as the largest airline in Cork Airport. Shannon Airport is an interesting case - it is of interest to some of the members of the joint committee. Last year, Ryanair made a loss on just two of its 28 bases - Shannon Airport and a new base in continental Europe which it had just started to develop. Ryanair gets no credit for the effort it has made to develop Shannon Airport over recent years. There is no recognition of the fact that we are losing money by trying to develop Shannon Airport at a time when many other airlines are running out of the airport.
Last year, 12 million of Ryanair's 51 million passengers travelled on flights to and from Ireland. Each of them saved a minimum of €50 by comparison with the average fare charged by Aer Lingus. The overall passenger saving was €600 million. The 4 million visitors we bring to this country each year spend approximately €1.2 billion in Ireland. Many of them could not afford to come to this country without Ryanair's low fares. Ryanair's 5,000 direct employees who are on Irish contracts pay €120 million a year in tax. A further 12,000 indirect employees are sustained by the 12 million passengers who travel to and from this country with Ryanair each year. They generate taxes of approximately €150 million a year. Ryanair is Ireland's only indigenous world leading company. It is the only Irish company that is a world leader in its field. Ryanair will carry 60 million passengers this year. It will carry the annual traffic of Aer Lingus every eight weeks. It will carry the annual traffic of Aer Arann every week. Ryanair is in a totally different orbit from such small regional Irish airlines.
I would like to comment on some issues which seem to be of interest to the committee, on the basis of its invitation letter and a report in last week's The Sunday Business Post. I agree with the committee that the Dublin Airport monopoly is damaging Ireland, that this country’s regulatory regime is hopelessly inadequate and that high oil prices will have a significant impact on air access to and from Ireland. I am aware that the Chairman has suggested that Ryanair is attempting to push Aer Arann off the Cork to Dublin route. I will respond to that claim. I will also respond to the member of the committee who asked about Ryanair’s plans for Aer Lingus.
It is widely known that Dublin Airport is the second most expensive of Ryanair's 28 bases. It is a regulated Government-owned monopoly. The costs associated with the airport are escalating rapidly. Charges have increased by 40%, or more than ten times the rate of inflation, over the past four years, at a time when costs at most other European airports are falling. In the meantime, while other European airports are developing low cost facilities to attract low fare airlines, Dublin is developing very high cost facilities. To our mind that seems to simply antagonise or discourage low fares airlines from developing facilities here. Not alone has the Dublin Airport monopoly raised €800 million from the sales proceeds of Great Southern Hotels in Birmingham, Dusseldorf and Hamburg, not content with that it has jacked up the passenger charges by 100% in four years. The car parking charges have gone up by 200% in four years. Check-in desk rentals have recently gone up by 200% and the Aviation Regulator has confirmed the airport authority is double charging for check-in desks and kiosks because we already pay for the terminal space through terminal charges.
The next item is a comparison. Dublin Airport would have one believe it is a sophisticated capital city airport whereas Ryanair just flies to fields somewhere else in Europe. Dublin is more expensive than main city airports in Rome, Valencia, Madrid, Alicante, Milan, Pisa and Marseilles. There is no justification for a small airport in a small peripheral country like Ireland having such an expensive airport infrastructure. We do not need it.
The regulatory regime in this country is sadly a mirror of the UK regulatory regime, which has recently been found by the UK Competition Commission to be inadequate and to have adversely affected competition. We believe the Commission for Aviation Regulation has had a similar effect here. It is simply rubber-stamping massive cost increases and it is not protecting consumers, which is what it was appointed to do. It runs a very inefficient office and operation.
Fuel prices have doubled in the past 12 months and Ryanair has almost no hedging in place. Our response, unlike the ESB and many of the other unregulated monopolies, is that we pick up the tab. We are the only airline in Europe to guarantee no fuel surcharges, not today and not tomorrow. If fuel prices rise to $250 a barrel, there will be no fuel surcharges in Ryanair. We will absorb the increase. As a result of that we are unlikely to make any money this year. That will be the first time in 20 years that Ryanair has not made any money but we are not passing on fuel surcharges to our customers in the same way as many of our competitors do.
I gave the committee a brief summary of fuel surcharges in the past two days so the information in the presentation has become irrelevant as Air France increased the surcharge on the short-haul flights again yesterday to €25. Aer Lingus has an interesting approach to fuel surcharges in that it does not impose them on the short-haul routes but on the long-haul routes it now adds a surcharge of €100 a ticket. We do not understand the reason for that. Its explanation is that somehow long-haul flying is different from short-haul flying because on short-haul one is flying on Coca-Cola or something whereas on long-haul one is flying on jet kerosene. That is nonsense. The reality is Aer Lingus cannot put up fuel surcharges on short-haul flights because we refuse to impose surcharges.
Aer Arann has been on a campaign in recent weeks - I presume borne out of desperation - to the effect that Ryanair is trying to put Aer Arann out of business. I assure the committee that Ryanair does not think about Aer Arann from 1 January to 31 December in any given year. It is too small for us to worry about. We operate over 700 routes in Europe while Aer Arann operates 40 routes. We compete against each other on one route. Apparently, that is enough for us to damage Aer Arann or put it out of business. If Aer Arann is going out of business - sadly with current high oil prices that may well be the case this winter, and we do not know its financial position because it does not publish accounts - it is not because of Ryanair's entry on the Dublin to Cork route, it is because the 39 other routes it operates do not make money.
We entered the Dublin to Cork route specifically to compete with CIE, which we think runs a very high cost service and has a practical monopoly on that route. We have created an entirely new traffic and doubled the traffic on the Dublin to Cork route in the past three years. We believe Aer Arann cannot survive without PSO subsidies. One of the scandals of connections between Irish regional airports is the PSO subsidies, which are a joke. I have listed them for the committee. Approximately, €108 million has been paid to regional airlines in the past six years from 2002 to 2008. That is a complete waste of money. The day the Government turns off the PSO subsidy tap those services will disappear. The Government is just pouring money down the drain. We oppose PSO subsidies. I accept we applied for them on the Kerry route and we got them. If somebody is going to give out stupid subsidies we may as well apply for them when other airlines are allowed to avail of them, but they are a complete waste of time. In terms of matching Aer Arann on the Cork route, Ryanair would have to treble its fares on the Dublin to Cork route just to match Aer Arann's fares, and we would not be able to do that.
Ryanair has not tried it yet.
Mr. Michael O’Leary
No. We operate a 189-seat aircraft and if we tried to treble our fares to match Aer Arann our load factor would be approximately 25%. The people of Cork, of whom my parents mercifully are two, have more sense than to fly to Dublin on expensively high air fares on flights that almost never leave on time.
Aer Arann and Aer Lingus were competing on the Cork route from 2000 to 2005. In 2005, which was in effect the last year before Ryanair entered the route, there was a high fare Aer Arann monopoly and traffic was in decline. It would have fallen by approximately 11% in 2005 if we had not entered the route in November. Cork Airport asked us to go on the route as it was concerned about the decline in traffic. The traffic prior to our entry in 2005 was 238,000. Last year, after three years, the traffic was 480,000. The only beneficiaries of Ryanair's entry on the Dublin to Cork route have been the people of Cork and the occasional person from Dublin who wants to go down to see how hurling and football should be played. There is no way of turning that clock back. I am sorry if Aer Arann does not like the fact that Europe's largest low fares airline is operating on the route but it should just get over it. If Aer Arann has a problem it is because its other 39 routes do not make money, it is not due to us.
It is worthwhile to give a brief update on Aer Lingus. In October 2006 Ryanair offered €2.80 per share for Aer Lingus and in the whole midst of the kerfuffle many of the sensible things we guaranteed to consumers were lost by the people of the Dublin North-Central constituency who did not care what sensible proposals we were making. We offered to keep Aer Lingus as a separate airline, preserve the brand as well as the slots and the routes. We also offered to increase the competition with Ryanair because we undertook and guaranteed to cut Aer Lingus's short-haul fares by 10%, a saving of €65 million to Aer Lingus's passengers, and we offered to immediately eliminate Aer Lingus's fuel surcharges. At today's level of fuel surcharge that is worth €135 million annually to Aer Lingus's passengers.
We said it would form one strong Irish airline group and that is the way the industry in Europe is developing. There will be five large airlines in Europe in the next three to four years; Ryanair, BA, Lufthansa, Air France and possibly EasyJet. Nobody else will survive as an independent airline. Unfortunately, however, the European Commission, aided and abetted by the Irish Government, rejected our sensible and visionary proposal. Since the prohibition 18 months ago Aer Lingus has increased short-haul fares while we have reduced them. It has increased fuel surcharges on the transatlantic routes five times - we offered to get rid of them - and it has pulled out of the Shannon to Heathrow route, such was its commitment to Ireland. I am happy to say that in the 18 months since we offered €2.80 a share, Aer Lingus's shares have fallen to €1.20, which is a fairly accurate--
It is a good job that Ryanair was up seven points this morning.
Mr. Michael O’Leary
I do not worry about our share price as we are a long-term project. In the meantime, European airline consolidation continues. Vueling and Clickair, which is an Iberia subsidiary, are merging. EasyJet has recently merged with GB Airways. Air France-KLM will probably take over Alitalia and Lufthansa-Swiss has plans to buy Austrian, BMI and SAS.
The next slide is a beauty. On the left hand side are all the airline mergers approved by the European Union or national competition organisations in the past 20 years while on the right hand side is the extensive list of EU airline mergers that have been rejected and prohibited by the European Union. That is astonishing. Do not tell me the EU has it in for us, but I think it has it in for us in spite of the fact that this was the only airline merger in 20 years that offered to reduce fares, eliminate fuel surcharges and deliver real benefits to the travelling public.
Members will be glad to hear this is the last slide. It shows the current ranking of the top 50 IATA airlines. Ryanair is No. 1 in terms of passengers, Lufthansa is No. 2, Air France is No. 3, EasyJet is No. 4 and British Airways is No. 5. They are the top five. I do not know of any other industry in Ireland where the Irish have an indigenous company that leads the world. I boxed the other mid-tier European carriers, KLM, SAS, Alitalia, Iberia, Swiss, Aer Lingus and Austrian. In the next five years those that are not already subsidiaries of the top five will become subsidiaries. KLM is already a subsidiary of Air France. SAS is in discussions as we speak to merge with Lufthansa. Austrian is in discussions as we speak to merge with Lufthansa. Iberia is not currently in discussions although it is rumoured that there are take-over talks. It is in a tripartite alliance with BA and American. Swiss is already a subsidiary of Lufthansa and Austrian is in discussions to be taken over by Lufthansa, yet Aer Lingus would have one believe that it has a bright new future as an independent European airline. There will be no independent airlines in Europe in the next five years, there will be five large carriers. The issue for the committee and the country is who it wants to own Aer Lingus in five years. It can be owned by somebody in Frankfurt, London or Paris, in which case there will be much bigger fuel surcharges and absolutely no commitment to this country or, in my humble opinion, it can be owned by somebody who at least lives in Mullingar, has a commitment to this country, has guaranteed no fuel surcharges and promises to reduce air fares.
Ryanair is Europe's only lowest cost carrier and the only Irish company that leads the world in its field. We have long-term strength and will be a long-term survivor. There will be short-term pressures. We are making cutbacks in staffing and pay freezes and we recently announced significant cutbacks in the Dublin Airport schedule this winter. We continue to deliver industry-leading customer service. We have new airports and bases ready to enable us to grow. We plan to double traffic and profits in the next five years. Happily, for members' constituents, the lowest costs and lowest fares will always win in this industry, which is why Ryanair will be with us for a very long time.
That was an impressive presentation and well done.
Mr. Michael O’Leary
It is just the way I tell it.
Ryanair is a success story and Mr. O'Leary is to be congratulated on his leadership of the airline. The 28 bases that Ryanair has throughout Europe and to become the largest international scheduled airline in 24 years is impressive. It is also impressive, if it is correct, that Ryanair is the most successful indigenous company.
It is always a pleasure to fly with Ryanair. The airline has introduced air travel for many people across Ireland and Europe who otherwise would not have had the opportunity to fly. As I said to Mr. Dermot Mannion, chief executive of Aer Lingus, last week, if it were not for Ryanair entering the market 24 years ago, Aer Lingus would have gone in the same direction of Sabena, Swiss Air and Alitalia. It was Ryanair's competition that led Aer Lingus to become more competitive than it was in the past and more successful, despite what Mr. O'Leary says.
My one difficulty with Ryanair is given that it is so driven by competition and being the world's favourite and lowest cost airline, why has it been necessary on many occasions to do away with the competition? For instance, in 2006 EasyJet started services from Shannon, Cork and Knock to Gatwick. Ryanair decided to enter those routes, priced it competitively and put EasyJet off them. Shortly afterwards, Ryanair gave up the Knock route and reduced the frequency of flights on other routes. As Deputy Feighan stated, it took Knock Airport some time to recover from this.
Another instance was in 2006 when Cardiff Airport, as part of its deal with Ryanair, increased its charges by £2 per passenger. As a result Ryanair decided to withdraw its route from there. Another chestnut that has been discussed at the committee concerns Aer Arann. Mr. O'Leary stated Ryanair carries more people in one week than Aer Arann in a year. It would amount to a fly on a bullock's back, but why is it necessary for Ryanair to put them off the Cork route? I have examined Ryanair's fares on the Cork route on its website and I could get flights for nothing. The airline cannot be making money on that route. When I checked the Kerry route, which will begin on 22 July, fares were much higher, given that the company has been given a PSO for its Kerry service. There is a dichotomy between the fine presentation just made and these events.
Three years ago Ryanair tendered €3 million for the Kerry service. This year it tendered €1.3 million, at a time when fuel prices are up. There does not seem to be much good economic sense in this kind of approach. If there is, will Ryanair provide the four flights per day that were available in the past? Will it provide the key strategic time schedules to connect with Dublin Airport?
I take the point that Ryanair has been successful in Shannon Airport. Coming from the west, the service provided out of Shannon is very significant to the region. I hope the service continues to grow. Given Mr. O'Leary's abhorrence of the way he has been treated by Dublin Airport, is it not in Ryanair's interest to develop a greater service out of Shannon. I know of an individual who drove from Mullingar to Dublin Airport for a flight when it takes less time to drive to Shannon Airport. Taking an arc from Sligo to Mullingar to Clonmel, would it not be in Ryanair's interest to develop its main hub out of Ireland at Shannon as opposed to Dublin?
Dublin Airport is very poor. I arrived into it on a flight recently at 12.30 a.m. and it was like a railway station. If one gets a flight at 5.30 a.m., one cannot even walk around the place. There is a serious imbalance between Dublin Airport and the others. Perhaps Mr. O'Leary will be the saviour of the other airports where there is a desperate need for low cost access. Rather than playing games with a small outfit like Aer Arann, there is great potential for Ryanair to move the balance away from Dublin Airport and put more international flights into Shannon, Cork and Knock.
I do not understand the logic in Ryanair wanting to take over Aer Lingus. I take Mr. O'Leary's points but the committee put it to Mr. Dermot Mannion last week that there will be rationalisation of airlines throughout Europe in the coming years. However, Mr. Dermot Mannion assured the committee that Ryanair will not be able to take over Aer Lingus. It is confident it will continue to operate as an independent airline. Why does Mr. O'Leary not get off that track and concentrate on his own formula which is extremely successful?
Mr. Michael O’Leary
Ryanair has been a phenomenal success despite my leadership. That would be a more appropriate interpretation. Is Ryanair's big issue to do away with competition? No. The committee needs to have a more pan-European view of the airline industry. The competition for Ryanair and for Ireland is British Airways, Lufthansa and Air France. With the greatest respect, it is not Aer Lingus or Aer Arann. It is not Nestor airlink bus in Galway. We are a small regional airline on the periphery of Europe. Either we will drive this forward and the Irish will dominate one of the five major airlines or we will not. We should not worry too much about the small operators in this country.We are not trying to put them out of business. Aer Arann will survive or go out of business not because of what happens on the Dublin-Cork route but because it makes or loses money on its 39 other routes. Ryanair entered the Dublin-Cork route at the request of Cork Airport because traffic was in decline after Aer Lingus had pulled out. I fail to understand why when it is all right for Aer Lingus and Aer Arann to compete on the Dublin-Cork route with high fares there is a concern that Ryanair doubles the traffic with fares that are on average--
It is clear from the fares on the website that they are below cost.
Mr. Michael O’Leary
Trust me, Chairman, we do not do many things below cost. The only operation in this country that is below cost is our base in Shannon. Aer Arann has made these complaints to the Competition Authority but we have shown the authority that we make money on the Dublin-Cork route. These claims are simply untrue. Aer Arann will survive on the route based on its own finances. We have no interest in its business. The business we are catering for is the 300,000 new passengers we have created, most of whom used CIE's trains. If one wants an early, reliable, quick flight to Dublin in the morning, rather than being stuck on a train, one flies with Ryanair, so it is a different marketplace. We have no interest in Aer Arann's business. If Aer Arann was to go bust this winter, it would have no impact whatsoever on Ryanair and we frankly could not care less.
Why then does it cost so much more to travel from Kerry than from Cork, even though Ryanair has been given a PSO out of Kerry?
Would Ryanair still not tender for the other PSOs if there were no Aer Arann?
Mr. Michael O’Leary
We cannot because the planes will not get into the other regional airports. Most of the other airports do not have a jet runway, Kerry is the only one. Our aircraft will not fit in Donegal, Sligo, Galway or Waterford, so clearly we cannot do so.
What about Knock?
Mr. Michael O’Leary
We wrote to the Department of Transport in recent days because we understand that whoever won the Dublin-Knock tender will not now operate the route. We have again stepped into the breach to rescue the regions of Ireland by informing the Department of Transport that we will operate the Dublin-Knock route, but as a mid-day service. If the Department wants it, it can have it. In the past we said we would operate the Dublin-Kerry route, with no subsidies, and make money doing it. However, the pricing on Kerry is different. There is a dispute with Kerry Airport, which wants to levy very high costs on us. This is part of the problem with the PSO subsidy regime. We have low costs out of Kerry for our routes to London and Frankfurt, but they want to impose artificially high costs on us on the Dublin route because we get a PSO subsidy for it. That is the scam of the PSO subsidies.
What is the difference in charges for PSO passengers and passengers to mainland Europe?
Mr. Michael O’Leary
To the best of my knowledge - I shall be happy to give the committee an accurate figure in writing - the charges from Kerry Airport on the Dublin PSO route are 12 times what we pay on the London and Frankfurt routes, which are unsubsidised. If the committee wants to know to where all the PSO subsidy money is disappearing, it is down a rat hole in Kerry.
How does Mr. O'Leary see the future for regional airports over the next five years?
Mr. Michael O’Leary
Does the Deputy want the politically correct answer or an honest one?
I want a Michael O'Leary answer.
I do not believe Mr. O'Leary can be politically correct at this stage, whatever else he does.
Mr. Michael O’Leary
We are in the Houses of the Oireachtas. There is no future for Donegal, Galway or Waterford, and Knock, despite the fact that we fly there, is flaky as well. One cannot get away from the fundamental economics of this country. While Bristol has 10 million people and only one airport, we have 4 million people and 11 airports, seven of which would not survive without massive subsidies. We subsidise everybody on the Knock-Dublin route to the tune of €120 each. At a time when schools and hospitals are crying out for funding, we are subsidising the rich to fly between Knock and Dublin. It is insane. Ireland has more than a sufficient number of airports with Dublin, Cork and Shannon. Kerry, because of the road infrastructure, can probably survive with some services. However, the services are not to Dublin. The future for Kerry, Cork, Knock and Shannon lies in developing services directly into the UK and Europe, whereby visitors may be stimulated into coming here.
That was one of the Chairman's questions on why we do not develop flights to Dublin from the regions. That is not where the business is.
We are anxious to address the imbalance of everybody going through Dublin, with more people going through Shannon in particular, but also Cork and Knock.
Mr. Michael O’Leary
The only way to address that imbalance is what we are doing at Shannon and to a lesser extent in Cork and Kerry, namely, developing direct services into those airports from the UK and continental Europe. Forget Dublin, it is a waste of time.
That is my point. Will Mr. O'Leary elaborate on how more of the traffic that is going through Dublin might be diverted to Shannon, for the sake of argument?
Mr. Michael O’Leary
With lower prices, but it is very difficult. One cannot get away from the reality. When one is trying to market Ireland in Europe, probably 75% of European passengers want to go to Dublin. One cannot force them. It is somewhat like the old Shannon transatlantic stopover. We forced them to go to Shannon, despite the fact that they wanted to go to Dublin, and sent them around the island by bus.
Those of us who travel regularly have to go to Dublin, invariably, to get many of the flights, even Ryanair flights, because we do not have the services. That is why I am saying, as regards the outbound traffic, every person who lives on the Sligo-Mullingar-Tullamore arc should be able to fly from an airport other than Dublin, if we had the services.
Mr. Michael O’Leary
If the Chairman really considered that arc, there would only be one airport in Ireland. I will go back to the Bristol example. It is a city of 10 million and has one airport. Ireland is a country of 4 million people and should have only one airport.
We live in different places, however.
Mr. Michael O’Leary
I live in Mullingar so I bow to nobody as regards trying to develop the regions, but Ireland is a tiny country.
It does not look like it from the way Mr. O'Leary is talking.
Mr. Michael O’Leary
We have developed a base in Shannon in recent years on which we lose money. We have a five-year commitment there and Shannon gives a very low cost base. We have developed 31 routes into Shannon. People have no idea how difficult it is to fill flights from Frankfurt into Shannon in the middle of November. I challenge the committee to come up with an advertising slogan that would extol the attractions of Shannon and Clare in November, although I am sure Deputy Dooley would be able to do so. The only way we can fill those flights in the middle of December is with free seats, including taxes, fees and charges. We pay Shannon Airport out of those. We get nothing from the passenger. We try to live off sandwich sales and baggage charges.
What will be the situation after 2010?
Mr. Michael O’Leary
If there is any increase in the Shannon cost base in 2010, our base there will be devastated. We have said that openly to Shannon as well.
Ryanair has 60% of the business in Shannon at present.
Mr. Michael O’Leary
We have 60% of the business in Shannon because we have doubled the business in the past five years. It is not as if we went in and took it off somebody else. We created that business. One of the great things the late Minister for Transport, Deputy Séamus Brennan advocated a couple of years ago was freeing Cork and Shannon from the dead shackles of Dublin Airport. That initiative has not been completed yet, but the only future for Shannon and Cork is to have their airports run locally in their respective interests, not in the interest of Dublin Airport.
I have a final question. In so far as spatial strategy is concerned, is this a fairy tale in Mr. O'Leary's world?
Mr. Michael O’Leary
In the airline industry there is only one spatial strategy in this country. Ireland has 4 million people and should, by rights, have one airport. We have at least three or four jet runways, therefore three or four possible airports that could be sustainable. The non-jet runways, Waterford, Galway, Sligo and Donegal, are a waste of time. Stop giving them PSO subsidies because they are going nowhere. We are investing--
We did the same for the trains and the roads. We subsidised them for a very good reason. We would only have little boreens going to Galway now if it were not for the subsidies.
Mr. Michael O’Leary
I can solve the air access problems. The Government will have to solve the road and rail problems on its own.
To come back to the Chairman's other questions, we are not trying to do away with competition, rather we are creating it. Whether Aer Arann stays in Cork or goes is entirely up to itself and has nothing to do with Ryanair. Ryanair will continue to fly there and deliver those passengers with very cheap fares. As regards Cardiff increasing charges by agreement, it did not do so. We came to the end of the agreement, when we had a five-year discount arrangement. Cardiff wanted to increase the charge and we said if that happened we would switch the flights to Bristol, which we did. We are a one-trick pony. If an airport wants to increase its charges, if we have a competitive alternative, such as Bristol, which is just across the Severn bridge, we shall move to Bristol. Cardiff's Dublin traffic - Aer Arann went on the route after us - declined by 50% post-Ryanair. However, it was Cardiff's decision, not ours.
As regards whether we want Aer Arann off the Cork route, we do not. We wish it well on that route. Apart from the fact that it makes Ryanair look very low-cost and low-fare, that is Aer Arann's only achievement on the Cork route. Ryanair is more reliable and offers much lower fares. This is a matter of passenger choice. Every day a couple of thousand passengers choose how they want to travel between Cork and Dublin, CIE, buses, Aer Arann or Ryanair. I cannot help it if two thirds of the passengers choose Ryanair over Aer Arann. I believe they are good, sensible people, but I would say that.
On the PSO of three years ago we put in a tender of €3 million, but only because in the previous competition Aer Arann had put in a tender of €5 million. Remarkably, Aer Arann, which is incredibly prescient, put in a tender that was about €100,000 lower than our €3 million. All its other tenders had gone up, but on Kerry it came in €100,000 below us.
It is of no concern to us that Aer Arann got the second PSO for that second three-year period. It came around this time and we lobbed in a bid of €1.7 million, nearly all of which will go to our bottom line. We could operate the Kerry-Dublin route profitably.
Will Ryanair operate four routes a day at the necessary strategic times?
Mr. Michael O’Leary
No, we shall operate three routes a day at the strategic times, morning, mid-day and evening. There is no fourth strategic time. If one looks at Aer Arann's reliability on the Kerry route, frankly it very rarely ran three flights a day during the winter of last year. In most cases, as it has a problem on the Cork route, it had frequent cancellations and a very unreliable service. Our aeroplanes will operate three times a day. It should be remembered that we are operating 189-seat aircraft three times a day compared to Aer Arann which was operating with 70 seats three or four, but sometimes twice, a day. Capacity on the Dublin-Kerry route will increase and traffic will rise.
Shannon services will continue to grow, although it is incredibly difficult to develop at the airport. It has a catchment of 300,000 and even that is split between two airports, Cork and Shannon. We are trying to drive 2 million people into an area with a local catchment of 300,000. It is almost impossible. Some 78% of Ryanair's traffic on the Shannon base is accounted for by inbound visitors. It is not the good people of Ennis or Newmarket-on-Fergus going on frequent trips to Alicante, Paris, Frankfurt or anywhere else. We are bringing hundreds of thousands of Germans, Spaniards, Italians and French people into the west and using Shannon Airport as our gateway. That is the only future for it.
The problem for people on the west coast is that we invariably have to go to Dublin if we want to get the flights we require. We often have to go there to get Ryanair flights. The problem is a simple one. I appreciate Ryanair has improved the situation, despite the fact others have left. Is it not possible to consider a further increase at Shannon Airport to divert much of the traffic from the west and south west which is going via Dublin?
Mr. Michael O’Leary
No. Much of that traffic is no longer going via Dublin. I live in the midlands and the Chairman lives in the west. Sometimes one just has to get over the fact that we live in a lightly populated BMW region that cannot support international air services.
Three years ago when Ryanair began operating at Shannon, it serviced about nine international routes. Today, it alone offers 31 international routes to Shannon Airport which is doing phenomenally well. It offers more international connections than Cork Airport. Cork Airport has a bigger local catchment area than Shannon Airport. In future years Shannon Airport will be lucky to hang on to all of those services because some of them lose money. Ryanair operates 28 bases and is a publicly quoted company. I am not known for hanging around, losing money. Shannon Airport is one of only two bases where we lost money and we have lost money every year for the past three years we have operated that base. Why do we do it? It is part of our commitment to Ireland.
Why did Ryanair put EasyJet off Knock, Shannon and Cork airports?
Mr. Michael O’Leary
We did not put it off Knock, Shannon and Cork airports. It arrived in Ireland, as Go had before it, because Ireland was the mother lode of high fares and profitability for Ryanair. We were already operating on the Cork-London route; we operated on the Cork-Gatwick route and remained on Cork-Gatwick route after EasyJet went. When it operated on the Gatwick-Knock route, we were already operating on the Stansted-Knock route. We added to our Knock Airport services by adding a Gatwick and Luton service. We operated the Gatwick service from Knock Airport when EasyJet went. We have not taken away flights. When EasyJet left, we replaced the flights. We have sustained traffic, the level of which has not fallen but has increased since EasyJet left.
When it operated to Knock Airport, Ryanair put a boot into the airport. As soon as it had left, Ryanair pulled out. According to my schedule, Ryanair has reduced the number of flights it operates to Gatwick Airport from the other two airports.
Mr. Michael O’Leary
No. Before EasyJet operated into Knock Airport, we were flying on the Knock-Stansted route twice daily. Today, we fly on that route twice daily and the Knock-Luton route once daily. We took the Gatwick aircraft and opened up two new routes from Knock Airport into the UK regions - I understand to Leeds-Bradford and Liverpool. We have since increased our frequencies, partly at the request of Knock Airport which did not want us to operate just four flights a day into London. We now operate three flights a day into London and two into the UK midlands to try to broaden the traffic at Knock Airport, which is what we are doing at Shannon and Kerry airports.
Ours is the only airline that does not cut and run. When Aer Lingus left Shannon Airport, we increased the number of flights and saved the traffic; when EasyJet left Cork Airport, we increased the number of flights on the Cork-London route; when it left Knock Airport, we increased the number of flights by adding new destinations - Leeds-Bradford and Liverpool, although I may have them wrong. In every Irish airport at which we operate, we have increased traffic in the past five to ten years, as some of the other flakes have come and gone.
This brings us back again to the whole Aer Lingus discussion. Who does one ultimately want to own Aer Lingus? Is it some of the continental flakes which will come and go, or someone in Ireland who has a commitment to at least developing routes and frequencies, not just to Dublin but the regions also?
The people owned Aer Lingus.
Mr. Michael O’Leary
I am not sure they ever actually owned Aer Lingus. They never got a dividend and sure as hell did not see any of the money from the sale of Aer Lingus. We can have a philosophical debate as to who owns it. The Government now owns about 25% and the unions about 20%. We own 29%.
How long before Mr. O'Leary owns it all?
Mr. Michael O’Leary
I have no desire to own Aer Lingus. I would be happy to own 50.1% of it because that would give us the power, tomorrow morning, to eliminate the fuel surcharges and reduce its fares. It is remarkable that Aer Lingus is controlled by the Government and the unions, yet they seem remarkably quiet every time it jacks up fuel surcharges and fares.
By how much could Aer Lingus fares be reduced if Ryanair had control of it and it was run as a separate company?
Mr. Michael O’Leary
We gave a written commitment to both the Government and the European Union that we would reduce its short haul fares, which are currently about €94, by 10%. They would immediately fall to about €85, which would save Aer Lingus's passengers about €65 million in the first 12 months. Test us. We said we would remove its fuel surcharges tomorrow, whereas it has increased them four times in the past 12 months. It would save Aer Lingus's passengers €135 million a year, yet the Government and the European Commission rejected Ryanair's offer for Aer Lingus because it would be bad for consumers.
Customers vote with their feet. Anyone who is travelling goes for the cheapest price, within reason.
Mr. Michael O’Leary
Thankfully. That is why we are so successful.
Yes, but surely--
We will finish with this round of questions.
I welcome Mr O'Leary and thank him for a comprehensive and entertaining presentation. He said yesterday Dublin Airport and its region would lose 500 jobs, based I presume on the recession or downturn. Is some of this not due to the operation of the airline, Ryanair's load factor and the normal winter blues? Mr. O'Leary says it is related to the operation of the airport and the Dublin Airport Authority.
On a related point, Mr. O'Leary has given a list of airports but it does not include prominent airports such as Charles de Gaulle, Heathrow and Stockholm-Arlanda. Is it fair to make the comparison between the DAA and those other places? Is it not the case that a number of other airports, at least, were giving state aid to Ryanair to enable the base to be developed? In any case, the news on losing 500 jobs is disappointing for the area I represent and the north Leinster region.
On fuel surcharges, Mr. O'Leary referred to a price of $200, while Gazprom spoke of $250. Is there a price at which even Ryanair, the No. 1 airline, would begin to run into difficulties?
On a related point, under the emissions trading proposal which has been passed by the Parliament and begins in 2012, emissions will be capped at 97% of 2004-06 levels. Does Mr. O'Leary have a figure for the likely cost to Ryanair of emissions trading? Mr. Mannion made a strong case that it would be a disaster for the Irish aviation industry if it proceeded in its current form, although Friends of the Earth and others claim it is the minimum required.
With regard to the ownership of Aer Lingus, Mr. O'Leary claims Ryanair control would be best. My party certainly considered that having a national, State airline, owned by the people, and a dynamic private company was the most advantageous position for the country.
Mr. O'Leary provided me with a helpful briefing when I was Labour Party spokesperson. Are Aer Lingus and Ryanair not similar size companies in terms of Aer Lingus's Dublin and Belfast bases and Ryanair's bases? Are they not roughly the same size?
Mr. O'Leary expects Ryanair to be one of the survivors to emerge from the concentration of European airline numbers he predicts. However, Aer Lingus and Ryanair are of similar size and both are operating out of Ireland. Therefore, is it not better to have another independent Irish company in the marketplace to compete with them?
Mr. O'Leary made a strong case on fuel surcharges which most of us agree are outrageous. However, an examination of Ryanair's website shows that while fares are low, a range of other charges apply. For example, flights to Paris-Beauvais are currently available on the website for €16.95. However, in addition to this, taxes, fees, insurance, wheelchair levy and aviation insurance add an additional €22.99 to the cost of the outbound flight and €23.22 to the cost of the return flight. In the case of a flight to Edinburgh, to take another example, the fare is low but the greater part of the total cost is accounted for by taxes and fees. I understood that under a recent European Union initiative, airline websites had to make clear to customers from the beginning of the transaction process the total cost of the flight, inclusive of all charges. That is the bottom line. Consumers desire that clarity.
Mr. Michael O’Leary
The projected job losses are regrettable. They arise because we have cut back the winter schedule, with 18% of the aircraft based in Dublin to be grounded this winter and a 13% reduction in the number of flights. This means we will deliver 500,000 fewer passengers to Dublin Airport this winter. I expect this to be a feature in the next several winters because of Dublin Airport's high cost base. Every 100,000 passengers equates to approximately 100 jobs, according to the Airports Council International, ACI, figure. Therefore, if we reduce our traffic at Dublin Airport by some 500,000 passengers, as we plan to do this winter, there will be 100 fewer jobs. Some of these losses will involve our own check-in and baggage staff. That is an inevitability.
Deputy Broughan is correct that Charles de Gaulle and Heathrow airports are not on the schedule. We would never fly anywhere near those places. Dublin Airport is not the same as Charles de Gaulle or Heathrow Airport, much as the Dublin Airport Authority would like us to believe it is. Dublin Airport is no different from the other major airports we fly into, including Rome, Madrid, Valencia and Alicante. Why are these much larger airports cheaper than Dublin Airport? The DAA did not even have to pay for the land, which it received as a gift from the Government. It is making €50 million to €100 million per week from renting car parking spaces, charges for which have trebled in the last four years.
The DAA is building the new airport out of its own resources. Will Mr. O'Leary not even give it credit for this?
Mr. Michael O’Leary
It is building the new airport out of our resources. Nothing is coming out of the DAA's resources.
The funding is not coming from the Exchequer.
Mr. O'Leary should be allowed to continue without interruption.
Mr. Michael O’Leary
On fuel prices, even if the price of oil rises to €250 a barrel, we will still not levy a fuel surcharge. However, in those circumstances, Ryanair will probably be the only airline still flying in Europe and a one-way fare to Paris will be €22 instead of €16.
On emissions trading, I am mystified by the massive disconnect evident in the environmental debate on air travel, much of which is entirely misguided and inaccurate. The Stern report, the European Environmental Agency and the Intergovernmental Panel on Climate Change have confirmed that aviation accounts for less than 2% of CO2 emissions, compared with a figure of 5% for marine transport, yet there is support for taxation on air travel.
The Irish figure is much higher.
Mr. Michael O’Leary
No, it is not.
It is.
Air travel accounts for 4% of the damage.
Mr. Michael O’Leary
We will be here for the next 20 weeks if we seek to establish what the damage is.
It is a case of double the damage.
Mr. Michael O’Leary
May I answer the question? Nobody yet knows what the damage is. That brings us into a debate on global warming and climate change. These are not my figures. The European Environmental Agency has stated aviation accounts for less than 2% of European CO2 emissions. The Stern report has confirmed that aviation accounts for less than 2% of greenhouse gas emissions.
I would be in favour of taxing air travel if I were satisfied that increasing Government taxation would have any effect on global warming. The reality is it will have no effect because the volume of air travel will continue to grow. We have been taxing the crap out of car travel for many years, yet motor travel accounts for 18% of European CO2 emissions. The energy generating industry accounts for 26% of CO2 emissions. However, the airlines are the poster boy for the environmental movement, partly because it does not want to address the issue of nuclear power. Replacing most of the coal and oil-fired power stations which are owned and run by EU governments would have a far greater effect on reducing CO2 and greenhouse gas emissions than taxing air travel. This is one of the few islands in Europe and we do not have the option of cycling to the Continent. Under emissions trading arrangements, Irish people will pay far more in the future for air travel. That money will end up in the Government's hands but it will not be used by the Government to protect the environment.
I understand the Labour Party is of the view that national state airlines were advantageous. Unfortunately - I hate to disabuse the Labour Party of its views - there is no evidence anywhere in the world that a state owned airline was advantageous. They have all been complete and utter failures. Recent developments in the industry mean there are now only two and a bit state airlines remaining in Europe. These are Olympic, Alitalia and the bit of Aer Lingus the Government owns. Air France, Lufthansa, Iberia and British Airways have all been privatised and are being run significantly better by airline managements than by - with the greatest of respect - unions and politicians, as is the tendency with state airlines.
I grew up in Dublin in the early 1980s when it cost £208 to fly to London. If Ryanair did not exist, that figure would now be somewhere between £500 and £600 and we would all still be crossing the Irish Sea by ferry.
A Deputy
What about EasyJet?
Mr. Michael O’Leary
If the state airlines were still in existence, Ryanair and EasyJet would not exist. The evidence is overwhelming. Even the French have privatised their flag-carrier airline. One must accept that private ownership and management of airlines allow for a more effective delivery of cheap and affordable air transport.
How do Aer Lingus and Ryanair compare in terms of their operations out of Ireland?
Mr. Michael O’Leary
It depends what one defines as "Ireland"? It was a clever device for Aer Lingus to include Belfast in its figures for Ireland, although some of the population in the North might disagree with that description. Last year we carried 12 million passengers to and from the Republic, while Aer Lingus's total traffic out of Ireland was some 9 million. Therefore, our traffic is some 33% greater in and out of Ireland and we are still growing, primarily at Shannon Airport. The two airlines are not similar. We carry approximately one third more passengers than Aer Lingus at less than half of its average air fare.
I am not on a rabid quest to own Aer Lingus in order that civilisation as we know it does not end. The International Air Transport Association list at the back of the information packs I have circulated shows that all the second tier airlines in Europe will be bought, merged or owned by one of the five major players in the next five years. The only issue for us as a country and for the Government is whether we want Aer Lingus to be owned and run by a company which operates out of Dublin Airport or whether we want to be talking to Fritz in Frankfurt, Sir Henry - or perhaps Sir Willie at that stage - in London or Jacques in Paris and where all we get is increasing air fares, much higher fuel surcharges and capacity being pulled out of Ireland at a rate of knots.
I consider fuel surcharges to be an offence. Aer Lingus has failed to explain why there are no fuel surcharges on short haul flights but massive charges on transatlantic routes. Yes, Ryanair charges for bags, check-in and credit card payments. The difference is that these charges are all avoidable. We encourage our customers to travel with hand luggage only, pay by debit card and use the on-line check-in facility. If they do, they can avail of a €1 fare, 1 million of which are on sale today at www.ryanair.com.
I welcome Mr. O'Leary. I wish to discuss airport charges at Cork Airport. Mr. O'Leary states in his report that Dublin Airport is the most expensive airport. I assume Cork Airport is the second most expensive.
Mr. Michael O’Leary
Stansted Airport is the second most expensive.
Will Mr. O'Leary indicate how competitive Cork Airport is and why, given the catchment area it enjoys, Ryanair operates only seven routes out of Cork Airport compared with 31 out of Shannon Airport? Is Ryanair engaged in any discussions to expand the service? How does Mr. O'Leary see Cork Airport developing?
Mr. Michael O’Leary
We are in weekly discussions with the management of Cork Airport on its development. All these discussions centre on our wish to go back to the old terminal which was cheap and cheerful and which would allow us to establish a large base and launch a range of routes to Europe destinations. However, the management keeps telling us that the Dublin Airport Authority insists we must fly out of the marble palace. If Ryanair were to operate from the old portakabin terminal, the marble palace would be empty.
While it is not Cork's fault, the Dublin Airport Authority wasted €200 million building a terminal in Cork for 4 million passengers. Terminals have been built more recently in Bremen and Marseilles for less than €20 million. It wasted ten times the amount of money that was necessary, despite the opposition at the time of Ryanair and, in fairness to it, Aer Lingus. We all opposed building a white elephant there. The problem is that Cork Airport's cost base has been destroyed forever. Ryanair has told Cork Airport that if it gives us a discount, we will launch new routes. We have two new routes from Cork Airport into the UK midlands that were launched in the past 12 months, one of which was from Liverpool and--
Carcassonne.
Mr. Michael O’Leary
I thank the Deputy. Carcassonne is in the south of France, rather than in the midlands of the United Kingdom. The reason there are these routes is Ryanair receives a discount of 100% on the charges at Cork Airport during the first 12 months of operation. In our discussions with the people in Cork, with whom we get on very well, we stated that if they jack up the charges at the end of that 12-month period, they will lose the routes. However, Ryanair will open such routes if it gets a discount of 100%. This crazy discount scheme will then encourage us, if the charges are increased after 12 months, to switch from Carcassonne to Biarritz, for example. We will get a 100% discount for Biarritz for 12 months and will close Carcassonne. While this is a nutty system, the people in Cork Airport should not have been saddled with the debt by the DAA. It was not their debt as it was the gentlemen in the DAA who designed, built, over-specified and overpaid for what went up at Cork Airport.
Ryanair is on record as stating that Dublin Airport should have paid the debt for Cork and Shannon airports. It should have done so from the massive proceeds of €800 million it received from the sale of the Great Southern Hotel group and its stakes in Hamburg, Birmingham and Düsseldorf airports. Although the DAA would have one believe it needs that money to pay for the new facilities at Dublin Airport, it goes to the regulator every three weeks seeking further increases in car parking and passenger charges and every other charge to pay for the new facilities. Moreover, when Terminal 2 opens, it will be allowed to impose a 100% increase in the charges at Dublin Airport. This already has been approved by Ireland's genius of an aviation regulator. Consequently, the charges at Dublin Airport will double again.
While I am unsure what the parliamentary word is for "screwed", Cork Airport got done by the Dublin Airport monopoly, which is the reason Séamus Brennan was absolutely correct. Neither Cork nor Shannon airports should be run by Dublin Airport. However, they are stuck with the leftovers from the DAA's running of Cork Airport. Cork Airport only has a bright future if it somehow can rid itself of the dreadful cost base that has been imposed on it by Dublin Airport.
As a matter of interest, given Ryanair's €1 billion in reserves, what if it was given an option to take over Cork Airport? Obviously, the costs incurred there were much higher than they should have been. Would this interest Ryanair? Obviously, one would be obliged to take out that cost. However, would Ryanair consider taking control of something like Cork Airport?
Mr. Michael O’Leary
No, because we run Europe's largest airline. I cannot be running around and it would cause too much difficulty. Were Ryanair to get into the business of airport ownership, approximately 20 French and 20 Spanish regional airports would be throwing themselves at us tomorrow morning. Our job is to run an airline. However, if one got hold of Cork Airport, its only future is to become something like Shannon Airport. It must come up with a very low cost base and incentivise airlines, not simply Ryanair but Aer Lingus, Aer Arann and anyone else who will fly to Cork, with very cheap charges. While it has a big white elephant of a terminal building, the only way to pay for it is to increase the traffic at Cork Airport from its present level of 2 million or 3 million to approximately 5 million passengers. There is only one way to do that, namely, cheap air fares from Europe. The difficulty for Cork Airport is that when trying to attract people into Cork from Europe, one automatically is in competition with the 31 routes Ryanair operates in and out of Shannon Airport from Europe. The two airports really are only an hour apart from each other. Cork Airport weakens Shannon Airport and Shannon Airport will weaken Cork Airport over time because--
Does Mr. O'Leary intend to play one against the other?
Mr. Michael O’Leary
Absolutely.
I welcome Mr. Michael O'Leary before the joint committee again. He has appeared before it a number of times and always gives a good and entertaining presentation.
As members are supposed to vacate the room by 2.45 p.m., I ask the Deputy to be brief.
Lest he is under a misconception that he is not recognised for doing a good job in Shannon, I assure him that he is. I welcome, as I have a number of times, the efforts he has made to grow traffic through Shannon. He will accept there was a downside to this for Shannon Airport in that Ryanair's dominance certainly affected Aer Lingus's position and people have been obliged to deal with this loss. However, one must move on.
Has Mr. O'Leary considered using Shannon Airport as a transatlantic hub? I noted a press release or some comments he made in Germany recently about a service he intends to provide from Europe to the United States.
And further.
The report I read suggested it would be a particularly good service. He should comment on whether consideration has been given to using Shannon as a collection point or hub from other parts of Europe and onwards.
Mr. O'Leary spoke of the DAA's charges, which is a debate members may reconsider to ascertain how they might assist him in this regard. However, I am somewhat confused as to how he perceives further separation of Shannon Airport from the DAA might benefit Ryanair. There is a concern in Shannon and perhaps in Cork as well that one airport would be played off against the other. Shannon Airport will have a difficulty in respect of the amount of money it must invest to upgrade its facilities and services and it will not be able to do so on the back of the kind of charges Ryanair intends to pay them. My long-term concern is that if Ryanair is embedded to the extent it is at present, Shannon Airport may not be attractive for other airlines, particularly in respect of European business. I wish to ascertain what Ryanair can do in respect of west-bound traffic.
Mr. O'Leary also should expand on his comments on 78% of Ryanair's traffic into Shannon being inbound. I was not aware of this as I had thought it was considerably less. There seems to be a lot of outbound traffic from Shannon. Mr. O'Leary should comment further in this regard.
Mr. Michael O’Leary
I do not mean to be a chip on the shoulder. Ryanair receives great recognition and support in the Shannon region for what it has done in Shannon. We receive zero support or recognition from the Department of Transport or the Government in general for the fact that Ryanair is losing money by sustaining Shannon Airport and the west. While the Government is quite happy for us to keep the place going, when we look for some support from it in the lunatic vote for emissions trading by 2012, for example, it remains mute. Members should imagine what emissions trading will do for the Shannon base's losses. The Government is not defending the interests of either Shannon Airport or the west.
As for the downside arising from Aer Lingus's departure, it depends on one's view whether Aer Lingus's leaving constitutes a downside. I would not regard a high fare airline disappearing from Shannon to be a downside and it probably was inevitable. I have made the point to the authorities at Shannon Airport that I would be much more concerned that it might lose the transatlantic services there within the next two or three years. It may even lose some this winter. As recently as this week, we spoke to the people in Shannon who have been assured by the American airlines and Aer Lingus that all those transatlantic services are secure this winter. However, I would not hold my breath. Shannon needs those services.
As for our transatlantic plans, Ryanair will never fly transatlantic. We are working on a plan, that I hope will emerge out of a major downturn, to set up a transatlantic low fares airline. As the Deputy correctly observed, it would provide a premium service in business class. As to whether it would fly from Shannon, that is a possibility. However, its focus would not be to operate an Irish-American transatlantic route for the blue rinse grannies. We are contemplating opening up transatlantic services from day one from major airports in Rome, Barcelona, Frankfurt, Brussels, Paris and perhaps somewhere in Ireland. I would be delighted to operate out of Shannon, if only to irritate the DAA monopoly. However, it would be on a much larger scale than simply trying to operate transatlantic services out of Ireland.
When are we likely to see something definite regarding this new airline?
Mr. Michael O’Leary
When the value of aircraft collapses, as we suspect it may do this winter or next spring, if oil remains at $140 a barrel. It will be approximately 18 months to two years after such a collapse in aircraft values. Aircraft values are high. Ryanair is selling seven and eight year old second-hand aircraft for more than we are buying new aircraft. That is because our aircraft orders were placed five years ago in the aftermath of the attacks on 11 September 2001. It probably is at least two years away.
As for the need for Shannon Airport to upgrade its facilities and services, poor old Pat Shanahan is blue in the ear from listening to me stating he should stop upgrading Shannon Airport's facilities and services. They are absolutely fine and one should stop wasting money on the place.
I was talking about runways, taxiways and similar facilities.
Mr. Michael O’Leary
The runway is fine. There is nothing wrong with it. Airports have a compulsion to spend money to upgrade facilities. They become nervous unless they are wasting money doing so. The airport is fine. There is a brand new terminal there and now its management wishes to upgrade something else. It is perfect as it is and one should stop wasting money. As I stated publicly at the time, Ryanair has a major problem with Shannon Airport. It paid out between €30 million and €50 million in voluntary redundancies to people who had not been very busy in Shannon Airport in recent years. While there is a human element to that, someone must pay for such €100,000 redundancy packages. Unfortunately, it will fall back on Shannon Airport because the cost should have been picked up by the DAA. Shannon does not need the level of upgrade of facilities and services that it thinks it needs. It simply needs low costs and more routes from Ryanair and other airlines in there. Unfortunately, 78% of the traffic is inbound. I appreciate that the Deputy would have been a frequent user of Shannon Airport but when he is there on a Tuesday in November on the Frankfurt flight, it is almost all Germans. The good people of Ennis are not going to Frankfurt in November. It is generally German, French and Italian people coming back in there. It is logical with the demographics of Shannon. The hinterland of Shannon, which takes in Ennis, has a population of approximately 150,000 people. I have friends in Nenagh who will always drive to Dublin rather than go to Shannon Airport.
Why?
Mr. Michael O’Leary
The road connections to Dublin are so much better.
That is the point we put to Mr. O'Leary. The road connections with the Atlantic corridor are now being built, with motorways coming west as well as going east. There is a great opportunity to change that.
Mr. Michael O’Leary
I cannot change the habits of the people who live in Nenagh. I can put cheap fares--
Mr. O'Leary did in most parts of the country.
Mr. Michael O’Leary
I can put cheap fares into Shannon and have put cheap fares into Dublin. The fares in Shannon are lower. They will still drive to bloody Dublin.
We believe Mr. O'Leary is the one man who can change that kind of mindset and develop all of the western seaboard, particularly Shannon so that it becomes the main hub instead of having to come to Dublin.
Mr. Michael O’Leary
It will never become the main hub. One cannot get away from the reality that 70% of European visitors and probably 85% of--
We are talking about people from places like Nenagh and Galway.
Mr. Michael O’Leary
There are not enough people in Nenagh to sustain seven day per week year-round services to--
The point is that, by and large, we are all going to Dublin.
Mr. Michael O’Leary
This is because there are one or two from Nenagh, one or two from Mullingar and one or two from Sligo who all converge on Dublin. The Government has done a spectacular job in recent years in improving the motorways from Nenagh and everywhere else to Dublin. The focus will still be on Dublin.
However, they are also coming west on the same motorways.
Mr. Michael O’Leary
We are putting the flights and infrastructure into Shannon. We offer 31 routes out of Shannon. Almost all of those routes are also on offer out of Dublin. I cannot just close the routes in Dublin and tell everyone "sorry lads, you've got to go to Shannon if you want to fly to those 31 destinations". We must service both.
Is it possible to offer cheaper flights out of Shannon than it is to Dublin to encourage more people from, say, Mullingar? Why would one wish to go from Mullingar to Dublin when it would be quicker to go to Shannon to a much more comfortable airport than the crowds up in Dublin?
The parking is cheaper.
Car parking is cheaper.
Mr. Michael O’Leary
The committee has the wrong person in here. It needs to get the SAA and the DAA if that is the issue. We will simply put in the services and allow people to choose--
Mr. O'Leary has been hammering Dublin Airport for all the right reasons and we fully agree with him but is there not an opportunity to develop Shannon?
Mr. Michael O’Leary
We are the people who are developing Shannon. We operate 31 routes and it loses money. Would I take all my Dublin routes and operate them from bloody Shannon? Yes, I would if the people would move to Shannon.
That is clearly the issue. I live in Cashel in Tipperary but most people automatically go to Dublin. They will simply tell one that the reason they go to Dublin rather than Shannon is because the flights are not there. Any time they go through their tour operator for their holidays, they are orientated towards Dublin, so there is an issue to be dealt with.
Would Mr. O'Leary look at that for us?
Mr. Michael O’Leary
No, the Deputy's constituents are wrong. There are flights.
I will tell Mr. O'Leary that they are travelling.
Mr. Michael O’Leary
I know that. They are just wrong about the flights. The flights are in Shannon but the people will not drive through Limerick to go to Shannon.
I accept that. That is not the point. The people will tell one, regardless of whether they are wrong, that the issue is that the flights are not there.
There is a point made by Mr. O'Leary in respect of Limerick, namely, the fact that the tunnel is not yet open. I have no doubt that when it is opened, even though it is a surface transportation issue, Mr. O'Leary will find some way to highlight the access that it will provide to Shannon and from Galway to Ennis.
Mr. Michael O’Leary
When I go to Shannon, I cross over in Castlebar and go down that way because it is much better than going through Birr or Nenagh. All those things will help Shannon but I cannot get away from the reality. I have been in Shannon with a big base for three years. It is the only base I have that loses money. Deputy Tom Hayes's constituents will tell him that there are no flights but they will also tell him that they will vote for him at election time and one cannot always rely on what one's constituents tell one.
I also welcome Mr. O'Leary to the meeting and acknowledge what he has done for the Irish consumer in respect of air travel. My question relates to the flights out of Dublin Airport that Ryanair has cut back. Is the demand there? The number of customers is obviously falling because Ryanair is not just going to pull those flights because of the charges.
Mr. Michael O’Leary
No. The demand is there if we create it. One of the difficulties we have at Dublin Airport and one of the reasons Shannon struggles is we cannot have a cheaper flight from Shannon than we have at Dublin. We have 1 million free seats for sale out of Dublin and Shannon on the website today for travel in October, November and December. Of those 1 million free seats, I will have to pay Dublin Airport €15. I will have to pay Shannon Airport significantly less but we must pay those airports--
How much?
Mr. Michael O’Leary
We must pay those airports significantly less. It is an open secret. If it is not published, there is a published scheme in Shannon that has us paying about €1 per departing passenger. It is 15 times cheaper than Dublin Airport. Last year, when we made €480 million profit, we were willing to sell seats on Tuesdays and Wednesdays in Dublin and Shannon for free or for 99 cent and pay Dublin Airport €15. We are not bloody willing to do--
Are charges and taxes attached to those seats offered by Ryanair at €1. Does Ryanair add on taxes?
Mr. Michael O’Leary
They include all taxes, fees and charges. Whatever fare we advertise, and there is continuous claptrap from the consumer agencies, that is the fare. As long as one does not have to check in a bag or check in on the website, one can get that fare if one wants it.
The demand is there as long we offer very cheap seats but we cannot keep offering cheap seats to an airport monopoly like the DAA which is trying to screw us for €15 per passenger. We wrote to it in the past month and told it that we will maintain these flights and deliver this traffic if it gave us a discount on those flights and that traffic for this winter period. It wrote back, as most monopolies do, and said the second word was "off".
I also welcome Mr. O'Leary. The last time I met him, he was giving away free flights at the end of the Shannon-Heathrow service last year at Shannon Airport. It is quite obvious that he has begun his strategy to make sure Pat Shanahan is listening. Mr. O'Leary is looking at his negotiations for 2010 and creating an unfortunate picture for Shannon. He is saying that it is one of Ryanair's two loss-making bases in Europe. Ryanair flies to 31 destinations from there.
When the Shannon-Heathrow service ceased last year, Mr. O'Leary said that he would fill the void. The figures published this week by the SAA show that there are 57,000 fewer passengers on the London routes, which represents a 16% reduction. In light of these figures, does Mr. O'Leary think he has fulfilled his commitment to fill the seats on the London route?
After 11 September 2001, Ryanair bought a considerable amount of aircraft cheaply. Mr. O'Leary is now saying that Ryanair is grounding much of this aircraft, particularly in Dublin. Will Ryanair ground 18 aircraft for the winter?
Mr. Michael O’Leary
We will ground four in Dublin and more will be announced for Stansted tomorrow.
What will Ryanair do with those aircraft? Has it sold any of it or any aircraft it bought since 11 September 2001? Has it more orders in for more aircraft, particularly in light of the fact that it is grounding these aircraft? Has it sold any of these aircraft to other airlines along the way? Will it just leave them parked for the winter period or when things improve again in the near future?
Mr. O'Leary has said that Shannon is loss-making and has talked about "bloody Shannon". He also said that Shannon is Ryanair's base for the west. He does not paint a great picture for the regional airports. He is saying that there is probably no future for them. Does he not think that Ryanair could then have an enlarged catchment area for his hub on the west coast of Ireland which would be much larger than the 150,000 or 300,000 catchment area he is talking about at the moment? Ryanair can extend it right up to Donegal. I know Mr. O'Leary said that roads infrastructure is outside his control but he could make a bigger catchment area. Is Ryanair engaging in huge marketing for Shannon Airport at the moment? What are Ryanair's post-2010 plans? It is committed to Shannon Airport until that time. To be fair, it has brought many passengers from across Europe to the region, but it is not seen as the business airline. People are considering CityJet's Charles de Gaulle International Airport route because there is greater connectivity with other areas whereas Ryanair remains a point-to-point airline. However, Ryanair has fulfilled its five-year promise to bring more than 2 million passengers to the airport. When Mr. O'Leary last appeared before this committee, he stated that Shannon Airport was an attractive base.
Mr. Michael O’Leary
I have no agenda with Pat Shanahan. The committee can ask him. I have stated nothing today that I have not stated--
Mr. O'Leary hopes that Mr. Shanahan is listening.
Mr. Michael O’Leary
I have stated nothing today that I have not told him directly during the past six to 12 months. We have an open agenda and a good relationship with him and he and his team at Shannon Airport do a great job, but they know as well as Ryanair does that if costs there rise in two years' time, the scenario will be different. That is not to say that we will close the base, but we will not run a bundle of loss-making flights if costs are rising.
Ryanair is switching and changing within the five-year contract.
Mr. Michael O’Leary
Absolutely. At Shannon we have developed many Spanish and southern French summer holiday destinations. When they die in the winter, we replace them with UK private escape, PE, destinations which serve more ethnic and football traffic. We are desperately trying to find ways to minimise losses at Shannon Airport.
We fulfilled our commitment to take up seats to London. While Aer Lingus pulled three flights during the winter, we added three flights. The lower flights have gone down steadily, but the overall traffic at Shannon Airport and with Ryanair has increased. The airport has lost what it was always going to lose, namely, some of the traffic that connects at Heathrow, which now has no way of getting to Shannon Airport. Cork Airport-Heathrow traffic has increased slightly, as has Dublin Airport-Heathrow traffic. While that traffic can find a way to get on and off the island, it cannot go through Heathrow. We have met our commitment.
In a bizarre situation, it will be cheaper to ground up to 20 aircraft at Dublin Airport next winter than it will be to fly them.
How many are already on the ground?
Will Ryanair sell them?
Mr. Michael O’Leary
They are not for sale. We will fly them again. As I stated at yesterday's press conference, Ryanair will fly them next summer. The average Ryanair fare during winter is less than €20, but we are paying €15 per departing passenger at Dublin Airport. In the summer, the average fare is approximately €45, which we can sustain.
How many aeroplanes does Ryanair have sitting on the ground?
Mr. Michael O’Leary
None. They all fly during the summer. Last winter, we grounded approximately seven aircraft at Stansted. Next winter, we will ground up to 20 aircraft. We have announced the first four of those, which will be based at Dublin Airport. Stansted will get its announcement tomorrow. They are the two most expensive airports from which we operate. They are also the only two regulated monopolies from which we operate - QED.
Has Ryanair placed an order for new Boeing aircraft?
Mr. Michael O’Leary
Approximately 123 aircraft will be delivered to us during the next three years at a cost of just over $10 billion. During the coming weeks, we will announce new airports, bases and routes. Tomorrow, I will announce seven new UK routes. We are not suddenly grounding aeroplanes because oil is at $130 per barrel. Rather, we are cutting back winter capacity at expensive airports, such as Dublin and Stansted. Some of the aircraft will fly at cheaper airports, but those at Dublin Airport will sit on the ground until they start flying again next April.
Are all Ryanair's orders for the 737s or has it considered the Dreamliner, the 787?
Mr. Michael O’Leary
We are a 737 operation. The 787 would not operate in our economics in that one cannot undertake 25-minute turnarounds with it. One could not get people off of the aeroplane. It is a long aircraft.
Buying aeroplanes after 11 September 2001 was a masterstroke.
Mr. Michael O’Leary
I would not have thought so. I grew up on a farm in Mullingar and farmers start buying when everyone else is selling. We are all planting wheat because the price of grain increased.
It is looked upon as one of the great aviation deals as Ryanair was able to save Boeing while getting aeroplanes for half of nothing. Was it as good as that?
Mr. Michael O’Leary
It was probably one of the best aircraft purchase deals ever done, but one did not need to be a genius to work it out immediately after 11 September 2001 when airlines were cancelling orders left, right and centre and Boeing and Airbus had no order books. Three months after 11 September 2001, we showed up and were able to write a cheque. We bet the shop by writing a cheque for $500 million, but it was a calculated bet as the industry is cyclical and the time to buy aircraft is always during a down time. I am sitting on €2.2 billion in--
We are running out of time. As they say in the west, Mr. O'Leary is some operator. There is no question about it.
Mr. Michael O’Leary
It is an Irish trait. It is why we have dominated transport. We built most of the roads and railways and, shortly, we will own all the airlines.
Mr. O'Leary has frightened me by stating that, after the new terminal at Dublin Airport has been built, charges will double. What effect will this have on passenger numbers and the airlines that operate out of Dublin Airport? Will Belfast, which is only one hour and ten minutes from Dublin, become a competitor, thereby forcing the Dublin Airport Authority to take a realistic view? That must be done if air transport out of the country is to be developed.
Mr. Michael O’Leary
Belfast will never be an alternative as people will not fly to Dublin through Belfast when Dublin Airport is already available. The DAA and the Dublin Airport monopoly in the Department of Transport are set for a difficult couple of years. They are planning to waste approximately €2 billion on facilities that should cost one tenth of that sum and they have a regulator that rubber stamps cost increases as if they were going out of fashion. Taking the Commission for Energy Regulation as an example, ESB charges have increased by 17% because oil prices have risen. In a competitive market such as airlines, however, fares are not increasing. Competition removes some of the costs whereas regulators just rubber stamp cost-plus increases. It is our worst system and it will never work.
Tourism in Ireland could be heading towards a difficult couple of years if there is a confluence of high oil prices and the DAA tries to double charge people. Dublin Airport will become a high cost airport. Other than Aer Lingus and Ryanair, no other airline wants to fly to Ireland. Dublin is not a significant destination on the international airline registry. By 2012, the Irish could be saddled with potentially penal emissions trading taxes. Instead of being a low cost destination, Ireland will suddenly become a high cost destination. Members should not doubt that while it may take some years, airport charge increases will be passed on to passengers.
In the coming years, even Aer Lingus and Ryanair will cut back capacity at Dublin Airport - this may occur during winter time only - and fares will increase. The sole reason for the latter is a high-cost Government-owned and regulated rip-off, namely, Dublin Airport. Local management at Shannon and Cork airports will eventually lead to their costs being much less, thereby better securing their future development. Dublin Airport is sitting on a timebomb.
Why is there an alleged planning cap of 32 million passengers per annum at Dublin Airport?
Mr. Michael O’Leary
It is an insanity. Dublin Airport will never serve 32 million passengers per annum.
It is already at 23 million a year. I welcome Mr. O'Leary, but I would like to put a Dublin perspective on this. Despite Mr. O'Leary's criticism, Dublin Airport is one of the finest airports in the world. May I suggest--
Mr. Michael O’Leary
The Deputy must not have gone through it often.
I have gone through it. I have also gone through airports from which Ryanair operates, such as Beauvais and Liverpool. In another forum, I described the latter as a cow shed. I had the pleasure of being delayed at Beauvais for five hours. It was not a pleasant experience. I could not even buy a bar of chocolate. Mr. O'Leary has acknowledged that situation.
Mr. O'Leary stated that 70% of visitors to the country want to use Dublin Airport. They expect modern facilities at every airport, particularly when they are delayed. Those delays may not necessarily be the fault of airlines. When there is a long connection time, people expect to be able to get a bite to eat, get a drink in a bar or relax, use the Internet or so on in a lounge. The facilities at Dublin Airport are reasonable and are improving. It does not behove us as a nation to be so critical. I would like Mr. O'Leary to acknowledge that.
We had a spat about the metro before. Mr. O'Leary is critical of those who say there is a need for a metro. I have made the case that it does not just provide transport to the airport but it is a transportation system for the eastern region of Dublin. As a country developing its tourism business, which generates income of €6 billion, employs 250,000 people and is the second biggest after agriculture, we need modern facilities. We need people like Mr. O'Leary to drive the infrastructural situation, much as he has driven cheap fares, and a good service. Everyone acknowledges the contribution of Mr. O'Leary to the airline business in Ireland.
Mr. Michael O’Leary
I could not agree more that people expect modern facilities at Dublin Airport. We support that and I have spent $10 billion in the past seven years providing the most modern aircraft facilities in the world. The facilities at Dublin Airport are not modern and do not meet people's expectations. I disagree with Deputy Kennedy - people do not expect to waste time at airports. People want to get through them as fast as humanly possible. In the next year or two, people will check in on the website, arrive at Dublin Airport 20 minutes before departure, get through security quickly and be out of the bloody place. Two years ago, the Dublin Airport Authority announced that Pier 2 would be built at a cost of €170 million-€200 million. We supported that development. What they are currently building are two buildings, one of which is for deep queuing check-in spaces for people who have already checked in on the website. The second building is five storeys high, three storeys higher than one will ever need in an airport terminal building, and the cost is €850 million. We object and resent paying for semi-State waste, which will not provide the facilities that people want - quick access and egress through an airport - and which is boosting the cost base and income stream. This is because the regulator rewards them by granting a 6% return on whatever is spent.
I do not want to get into a tangle with Mr. O'Leary but there is a long haul business that Dublin needs to target which requires services at that level and will require people to remain at the airport for a longer period of time. Mr. O'Leary is well catered for at Terminal D. It is almost like walking to Baldonnel to get there but it suits Mr. O'Leary and the fares are right.
Mr. Michael O’Leary
Trust me, we oppose Terminal D. It should not be in place, it is in the wrong place.
The only time one appreciates it is when one is hanging around the airport.
Mr. Michael O’Leary
Deputy Dooley may be right. There is a transatlantic business at Dublin Airport, it is about 1 million passengers per year.
To grow that in the same way as we need to grow Mr. O'Leary's business, it needs to look to the east. As a significant shareholder, Mr. O'Leary knows the situation Aer Lingus was in when it tried to put on a service to Dubai. It did not meet the expectations of the people who generally travel on that route. They expect a five star service and Pier D will not provide that.
We have to finish.
Mr. Michael O’Leary
The difficulty is that people flying on €10 fares from Dublin to Cork or the other 12 million passengers I carry around Europe on cheap fares will have to see the Dublin Airport charge rise from €15 to €30 in about three years time in order to pay for the €800 million white elephant that is Terminal 2. Low cost passengers should not cross-subsidise the fat cats travelling the Atlantic but that is what we will end up with.
I am glad someone raised the matter of the metro, which is a complete waste of time and money. It is a €6 billion white elephant that should never be built. If there is one good thing to take from a restraint in Government spending or a recession, it is that the white elephant that is metro north to Dublin Airport might be scrapped. It would be the best saving that this Government would ever make.
It is the Dublin North county metro, to be exact.
Mr. Michael O’Leary
It will have no function whatsoever for the airport. Let us consider the biggest airports in the world, for example, the London airports. Less than 18% of the traffic arrives at the London airports using public service transport, the tube. Some 90% of people travel to and from airports from their homes. No one in Foxrock, Mullingar or Kildare will get up and drive into St. Stephen's Green at 5 a.m. to connect onto a white elephant that will lose money forever in order to connect to Dublin Airport. Inbound passengers are perfectly well served by competitive bus services and a quality bus corridor that runs the whole way in.
It is a commuter system, not an airport system.
Mr. Michael O’Leary
Deputy Kennedy should not put some badge on it and say it is a commuter system. It is a €6 billion hole in the ground. The Government should not waste taxpayers' money.
I have to disagree.
Would Mr. O'Leary have built the Luas, railways or any fixed line?
Mr. Michael O’Leary
In a low density city of 1.5 million people, I would not have.
There are more than 2 million people in the region.
Mr. Michael O’Leary
Unless there are high density population bases, white elephants like the Luas and the metro do not work. It is a subsidised operation that loses money all the time. There is a very good bus system to and from Dublin Airport. Tourists travel on competitive buses run by CIE and Aircoach. We do not need to waste €6 billion on a metro connecting Dublin Airport to the city centre.
We will bring the meeting to a conclusion. We hope the Cork and Kerry fares will be approximately the same. If so, we will be happy enough.
Mr. O'Leary has heard much comment about Shannon. We appreciate what he is doing in Shannon. There is much potential there and we would like to work with Mr. O'Leary in exploiting that.
I note the Chairman is not wearing a tie today. The chief executive raised a number of matters such as the role of the regulators and other competitive airports. Mr. O'Leary made a number of contentions but we do not have the technical resources to decide whether he was making a presentation or telling us facts. Would it be possible to follow up with the chief executive in respect of the regulator, the Dublin Airport Authority and the Department of Transport? Many people feel that the Minister for aviation is sitting in this room, the chief executive of Ryanair, and he has decided what will happen in this country for the next ten or 15 years. Perhaps the man who is nominally Minister for Transport, Deputy Dempsey, could respond to some issues such as regional development and national issues generally.
Mr. Michael O’Leary
If I were the Minister for aviation, the Dublin Airport monopoly would not bloody exist. It would be gone 30 seconds after I took office.
We have a meeting next week to present an action plan for bus services to Dublin to the Minister for Transport.
What time is it at, Chairman?
It is at 1 p.m. I ask members to travel on the new Bus Éireann double decker coach which, in line with what Mr. O'Leary has been saying, will go straight to the front gate.
The next meeting is in Galway next week.
There will be a meeting in Galway but that will not be recorded. I thank Mr. O'Leary for attending. We are impressed with his set-up and hope it continues to go well.
Mr. Michael O’Leary
I thank the Chairman and members.
The joint committee adjourned at 3.10 p.m. until 3.45 p.m. on Wednesday, 10 September 2008.