Wednesday 18 September 2019

Fearghal O'Connor: 'Is a €2 drop in the price of your plane ticket really worthwhile?'

Dublin Airport fees have become a hot topic. Photo: Bloomberg
Dublin Airport fees have become a hot topic. Photo: Bloomberg

Fearghal O'Connor

What do we want from our main airport? That is the question that the aviation regulator must answer in the coming weeks on our behalf. So far - based on the regulator's draft determination for a maximum price cap on airport charges for the next five years - it would appear that, regardless of what we want, what we are going to get is a price cut so that the airlines can keep growing at Dublin Airport.

The regulator - supported by Ryanair and Aer Lingus - has proposed a €2 cut in the maximum price that the airport authority, DAA, can charge passengers for using the facilities at the site. The airlines insist that this €2 cut will help them fly more and more traffic in and out of the booming airport, as it grows toward 40 million passengers a year.

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But is this really a desirable or sensible approach? What do you, as a potential passenger, but also as a citizen, actually get?

Well, if an airline passes on the cut - a very big if - then you, the passenger, will get €2 off your flight. Will that be the deciding factor as to whether you take that next flight?

So, as a citizen, what will you get if the €2 cut goes ahead? Viewed on the macro level, you will take a hit. DAA, a State-owned company, could stop paying a €40m to €50m annual dividend into the Exchequer.

DAA boss Dalton Philips last week told the Sunday Independent that the cut would mean the group would likely not pay up to €250m in dividends. That's a lot of social housing or hospital beds.

Ryanair in particular has insisted that savings can be made by DAA in operating costs. What that means in reality is a couple of hundred redundancies and a further grinding down of airport wages to the yellow-pack, outsourced model that many airlines have implemented over the past three decades.

Is a further whittling away of employment standards at the country's biggest airport a price worth paying for a small fee cut that may or may not find its way to passengers?

And, of course, none of this takes into account the damage that aviation is doing to our climate. It is certainly not the only sector that needs to get its act together on emissions. But there is no doubt that, as the climate worsens, there will be as yet unknown impacts on the aviation sector as it is forced to adapt.

In that context, is it really wise for the regulator here to build in cheaper costs to our aviation model? Should passengers not in fact begin to pay more so that the damage aviation causes to our climate can be mitigated? Perhaps that is an argument for carbon taxes rather than passenger charges, but the fundamental point remains: a cut in prices for passengers and airlines is not necessarily a positive for citizens and the country as a whole.

Is your gut telling you that the world is changing at a speed that is making it hard to keep pace?

You're not alone. Kerry Group CEO Edmond Scanlon told a press briefing for the company's interim financial results last week that the marketplace is changing at a rate that is unprecedented.

Products such as cheese tea or a coconut and lemongrass protein beverage are a long way from the simple dairy farms around Listowel from which the company originally sprung all those decades ago.

And if the old adage that 'you are what you eat' is true then Scanlon and his colleagues have a front-row seat to observe the rapidly changing tastes and mores of societies and cultures around the world.

The growing demand for plant-based protein is presenting Kerry with huge opportunities. But for a company like Kerry, the really stomach-churning changes are much closer to home. Scanlon insisted that Kerry is well-positioned to cope with the fallout from a no-deal Brexit. He clarified that when he said back in February the impact from a no-deal Brexit would be "extreme" that he was actually speaking about the wider food sector, rather than Kerry itself.

The company, he said, is well-prepared, having spent €5m this year alone on Brexit preparations, mainly on internal restructuring to cope with customs, and on storage facilities in the event of supply disruption.

But with 25 manufacturing plants in the UK - half of its total number of plants in Europe - the company is far from just an observer. Scanlon will hope that this in- country presence will allow its UK arm to become self-sufficient within Britain itself, meaning it will carry on with minimal disruption on the basis that, Brexit or no Brexit, British people who enjoy Cheestrings will continue to eat Cheestrings.

But, of course, any big hit to the British economy is going to impact spending power. The interim results showed that growth in Kerry's consumer foods division - Kerry Foods - is already stagnant. A big downturn in the UK market will certainly not increase the appetite for the kind of value-added food in which the company prides itself, not least if a non-EU Britain begins to do trade deals that allow in a flood of cheap goods.

And it is the largely Britain and Ireland focused Kerry Foods division that looks most vulnerable to Brexit. Of the 25 Kerry Group manufacturing plants in the UK, about half of them are for Kerry Foods. Two thirds of the consumer division's staff are based there and the remainder are in Ireland.

Kerry Foods' customers for private-label goods - a big money-spinner - are, apart from Dunnes, Aldi and Lidl, a who's who of Britain's big supermarket chains.

Scanlon may be confident that the company's Brexit preparations are adequate but he will know that political and economic developments also have the potential to leave a bad taste in the mouth.

The company has always insisted that the more localised Kerry Foods is the bedrock upon which the success of its globalised ingredients business is built.

But with all of its growth and opportunity happening in places like China, could a Brexit bellyache be enough for it to finally start considering an often speculated upon offload of its consumer foods division?

Sunday Indo Business

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