I thank the Vice Chairman. I welcome the opportunity to appear before the committee to discuss this very important topic, namely, the impact of rising fuel prices on the transport sector. I am pleased to note that since the committee's invitation on 25 July to the Minister, Deputy Noel Dempsey, who unfortunately cannot be here today, fuel costs, while remaining high, have moderated considerably. This is an area in which we are not alone. I am afraid that we, in common with all other economies in the world, will have to adjust to the reality that high fuel costs are here to stay.
There have been substantial increases in fuel prices since the beginning of the year. Petrol has risen by approximately 12% and diesel by 21%. These increases, which are outside the Government's control, have been driven by a number of international factors, including geopolitical uncertainty, supply disruptions, strong economic growth in China, exchange rate volatility, market speculation and production and refining costs.
Fortunately, the price of crude oil in international markets has eased in recent weeks with crude now trading at a price between $100 and $110 per barrel as opposed to its highest level of $147 per barrel in early July. Production levels are also fluctuating. Nevertheless, the uncertainty in the price of oil is affecting our economy, eroding competitiveness and the potential for growth. It makes the business planning process difficult for manufacturers and producers of goods and services. It is important, therefore, that suppliers and retailers move quickly to pass on such reductions in the price at the pumps. The quicker the lower costs feed through to the ultimate consumer, the better it is for our national competitiveness and Ireland's market position.
While the cost of fuel is a significant determinant of the cost of transport for the marine, aviation, road haulage and public transport sectors, a further complicating factor in the price of fuel in the transport sector is the loss of fuel duty rebate for bus operators from 1 November next. Arising from the energy tax directive and pursuant to a request from the European Commission, it has been necessary to end specific fuel excise reliefs, including those applicable to public transport. This currently stands at around 30 cent per litre. The Finance Act 2008 provides for the removal of these excise duty reliefs with effect from 1 November 2008. In the face of rising oil prices we can expect to see the price of transport services, especially in the bus sector, continue to rise over the coming months arising from the loss of the fuel duty rebate.
While EU law requires transport markets to operate on a commercial basis, there is recognition that some aspects of the public transport market require subvention under the rules on public service obligations, and the Government has taken the first steps in this regard. The Dublin Transport Authority Act 2008 gives the Dublin Transport Authority, DTA, the power to procure public passenger transport services from private operators as well as from Dublin Bus and Bus Éireann on a contract basis involving payment of a subvention for loss-making services. The Act establishes for the first time in Irish law a comprehensive statutory framework involving public service obligations for private operators and which is in line with EU law. The necessary measures to prepare contracts to implement this new framework have commenced and this work will be assumed by the DTA when it is established. The target date for establishment of the authority is 1 January 2009.
As regards outside the greater Dublin area, the forthcoming public transport regulation Bill will include provisions relating to the provision of services by private operators in the subvented bus market outside the greater Dublin area that are consistent with the EU PSO regulation. At present the CIE bus companies are the only ones mandated under statute to provide a network of socially and economically viable services but, as I mentioned earlier, this position changes with the DTA Act.
In the case of the road haulage industry, my colleague, the Minister, Deputy Noel Dempsey, has set up a task force comprising the Garda Síochána, the Revenue Commissioners, Customs and Excise, the Department of Justice, Equality and Law Reform and the Department of Finance to assist the Irish Road Haulage Association in addressing its concerns in a number of areas such as enforcement, illegal haulage and consignors engaging illegal haulage. Good progress is being made. It is vital to our economy that we have a vibrant and professional haulage industry.
On aviation, sustained high fuel prices are also having a negative impact on airlines. Fuel accounts for a high proportion of total costs in the airline industry compared with other transport modes. Fuel now accounts for more than 26% of total costs at Aer Lingus and almost 50% at Ryanair.
Aer Lingus suffered an operating loss of more than €22 million in the first six months of this year. This loss was driven by fuel costs, which have increased by €56 million — almost 30% — at the airline. Management at the airline is undertaking a root-and-branch review of its entire cost base.
Ryanair is also feeling the effect of increased fuel costs which have contributed to the airline suffering a fall of 85% in profits in the first quarter of its current financial year. Ryanair's profits are down €21 million from €118 million. In the wider air travel trade-tour operator industry, three Irish companies have recently gone out of business and Futura Ireland, a charter airline, has also folded.
With regard to the marine sector, fuel can account for as much as 30% of the variable daily operating costs of some ship owners and operators. The spot price of a tonne of bunker fuel has risen by 105% between June 2007 and June 2008 and by more than 400% since 2000. The surge in oil prices has continually forced owners operating in all modes of the sector to seek additional methods and means to maximise their efficiency and minimise their exposure to the potentially crippling cost on their day to day operations. Simply passing the cost back to the customer is generally accepted by the industry as not the answer. There is an elasticity and competitive resistance to constant price changes which forces owners to use other means to rationalise their operations.
Some feeder and short sea operators have reduced the speed of their vessels to reduce fuel costs. For some vessels slowing steaming by five knots is equivalent to a 30% saving in fuel costs. Other operators have reduced the frequency of their services or have replaced two smaller vessels with one larger ship to minimise operational costs.
There have been calls for artificial supports to mitigate the effect of high fuel costs. However, such measures would not be in the interests of either the consumer or the transport sector and would only serve to postpone and make more difficult the choices we will all have to make in terms of how we use and develop our transport systems in the future.
In so far as calls for reduced taxes at EU level are concerned, given the impact high oil prices can have on growth rates, ECOFIN considered the issue of an appropriate policy response to the price increases at its meeting on 3 June 2008. It confirmed the agreement reached in Manchester in 2005 that distortional fiscal and other policy interventions that prevent the necessary adjustments by economic agents should be avoided. The Department of Finance position is that this continues to be the appropriate policy response. Reducing taxes on fuels would send the wrong signal to consumers and to oil producers. We must therefore be careful not to exacerbate an already difficult situation. The high price of fuel illustrates the need for energy efficiency and alternative fuel sources.
All in all the rise in fuel prices requires us all to look at how we use what is a finite fuel source which has implications for the climate and to adjust our lifestyles to use fuel more efficiently and develop alternative fuel sources. The price of private and public transport must increase but the challenge is to use our transport options more efficiently with the emphasis on increased use of public transport. Ireland is not unique in this regard.
I look forward to a productive and positive discussion on this issue.
