Thursday 29 September 2016

Jettisoning airline is as good as clipping public's wings

A sale of Aer Lingus could signal the end of low-cost fares for Irish travellers, writes Kevin O'Rourke

Published 19/04/2015 | 02:30

Kevin O'Rourke
Kevin O'Rourke

It may not be obvious to you if you're, say, 40 or under, but this is a golden age for Irish air travellers. Those of us who are of a certain age remember the days before Ryanair opened up the Irish market to competition.

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It wasn't just the exorbitant fares that passengers had to pay - there was also the inconvenience of constantly having to fly through London or some other hub in order to get to some moderately out-of-the way destination. What could have been a one or two hour flight regularly became a whole day affair.

Nowadays, we are spoiled for choice. There are direct flights from Ireland to destinations all across Europe, and further afield, and a lot of the flights are very cheap. Thanks to competition between Aer Lingus and British Airways, the Dublin-Heathrow route, which is one of the busiest in the world, is also extremely cheap to fly, if you know what you are doing.

Book early and you can travel for a pound or two plus taxes and airport charges. I should know: I do it all the time.

There are a lot of factors behind this success story, notably competition and Ryanair, as well as Dublin Airport's getting US pre-clearance facilities. But Aer Lingus has played an important part too.

Economics comes in for a lot of stick, and a lot of it is justified, but Irish air travellers have learned through experience that monopoly is bad for them, and competition is good, just as the textbooks predict. Where there is competition on routes, airfares are low, where there is none, they are high.

This is why getting to so many out-of-the-way US destinations is so expensive. It is also why last minute ticket purchases by customers with no alternatives cost so much (recall Michael O'Leary's quip about how funerals are great for his business).

Like any rational company, Aer Lingus charged high fares in the pre-competition days, dividing up markets such as the Dublin-London route with foreign partners such as British Airways. But Aer Lingus adapted to competition extremely well, certainly much better than many other flag carriers. On routes such as Dublin-Heathrow, where there is competition, it is de facto a low cost airline - you can't get much cheaper than 99c plus taxes and charges.

Of course, those taxes and airport charges can add up, depending on the destination. An airport like Heathrow is expensive, and so my 99c ticket ends up being a lot more expensive than that. But if you have to fly to Heathrow, or Charles de Gaulle, or some other centrally-located major airport, and some people do, then you're going to have to pay those charges no matter who you fly with.

But low cost doesn't mean low quality. Aer Lingus will sell you a cheap ticket, but it also provides things that frequent fliers like, and that low cost carriers tend not to offer - a frequent flier programme, lounges, the possibility of upgrades on transatlantic flights, and so on.

These things matter if you travel all the time. The service is terrific, and I suspect the fact that this is a small Irish airline has a lot to do with that.

And while this is a purely personal consideration, I also like the fact the staff whose faces I have come to recognise are still treated relatively well by their employer.

In summary: Aer Lingus is cheap (because of competition) but doesn't feel cheap, it serves lots and lots of destinations directly from Ireland (and if it doesn't fly somewhere in Europe, the chances are Ryanair does), it has good service, it pays decent wages, and it's Irish. What's not to like?

If things are good for Irish air travellers now, this is because two excellent Irish airlines are competing, both against each other and against foreign airlines, for traffic into and out of the island. We should preserve this extremely competitive market environment, not just because of the benefits to consumers, but because of the strategic importance to the economy of being able to travel cheaply and directly between Ireland and as many other destinations as possible.

If the Irish State acquiesces in the sale of Aer Lingus to one of its main competitors, this will immediately weaken competition on routes across the Irish Sea. It will eliminate direct competition on the strategic Heathrow route, unless someone else steps in. (Ryanair comes to mind, but then they would need Heathrow slots.)

In the longer run, who knows what may happen?

IAG is obliged to do what's best for its shareholders, not what's best for Ireland, and temporary guarantees are merely temporary. Willie Walsh says, probably correctly, that it would be "commercial madness" to guarantee direct flights to Heathrow for more than five years: we should listen to him.

And will it be as much of a priority for IAG as it is for Aer Lingus to provide direct flights from Ireland to the rest of Europe?

The money that the sale would bring is peanuts in the global scheme of things: a one-off payment that has to be set against the risk of a flow of costs that might have to be borne, annually, by the economy in the years ahead.

If it ain't broke, don't fix it.

Kevin Hjortshoj O'Rourke FBA MRIA is Chichele Professor of Economic History, University of Oxford and Fellow of All Souls College

Sunday Independent

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