CEO says pandemic inflicted ‘profound and lasting damage’
THE Covid pandemic has inflicted “profound and lasting damage” on the DAA’s finances, the outgoing chief executive of the Dublin and Cork airports operator has warned.
In a submission to the Commission for Aviation Regulation as it plans for passenger charges that will be implemented between 2023 and 2026, Dalton Philips said that the DAA’s net debt has doubled to a record €1bn and its balance sheet is now “materially impacted”.
“Delivering a high-quality airport experience through an ultra-low passenger charge is an unsustainable permutation,” he has warned the Commission, which sets the maximum charges the airport operator can levy on passengers.
Mr Philips has argued that a 15pc hike in charges is needed just to restore Dublin Airport’s charging position as it was in 2019.
“Regrettably, Dublin Airport entered the pandemic with unsustainably low airport charges, reduced allowed earnings and limited financial headroom to withstand downside risks or external shocks,” Mr Philips said in the DAA’s submission.
Airports saw their passenger numbers collapse during the pandemic and about 1,000 of the DAA’s Ireland-based staff – a third of its total in the country – left the business.
The post-pandemic recovery in air travel has left airport operators and airlines in Europe reeling in their efforts to cope with demand. Some airlines have had to cancel flights because of staffing issues, while airports including Dublin have struggled with security staff shortages that have led to passengers waiting hours for clearance.
“The entire aviation value chain will experience service delivery challenges this summer,” Mr Philips has cautioned. “Frontline functions reduced their coverage throughout 2020/1 and are now baseline resourced to only support a gradual recovery out to 2025, as opposed to a surge in holiday activity this summer.”
He added: “Covid-19 has exposed certain gaps in overall airport resilience. Recent experiences have highlighted that passengers are generally expecting a swift return to pre-pandemic service levels. Unfortunately, it will take time, cost and additional human resources to improve standards from the current minimum levels in place.”
The Commission for Aviation Regulation sets passenger charges for Dublin Airport – the only airport in the country that has regulated charges.
It attempts to set a charging range that applies over a number of years that takes into account expected passenger numbers as well as capital expenditure required at Dublin Airport. It also attempts to ensure that efficiencies are achieved to help mitigate charges for passengers.
“Price competitiveness has always been at the core of Dublin Airport’s business strategy, but a charging reset is now required to allow the airport to appropriately invest in resilience, efficiency and to provide a good experience for passengers,” Mr Philips insisted.
He said the DAA faces “some real choices” over the developments it plans for the next five to 10 years. The DAA plans €2.5bn of capital investment at Dublin Airport in order to help it cater for 40 million passengers a year. Before the pandemic, it was handling about 33 million a year.
Mr Philips said that Dublin Airport’s funding capability has been “severely compromised” and that it also needs €400m in additional investment to meet national carbon reduction targets by 2030.
“Record levels of capital expenditure are required for consecutive years from 2024-2026,” he added, pointing out that the DAA’s “escalating debt” means it needs to be able to generate higher earnings to maintain credit metrics.
“Difficult trade-offs are required in the parallel pursuit of growth, efficiency, sustainability and affordability,” said Mr Philips. “Post pandemic, the reality is that the ‘value’ proposition consumers and airlines require, cannot be delivered under the current artificially low price caps.”