Business Irish

Saturday 24 August 2019

Irish airlines vs DAA: Battle lines drawn over price of progress at Dublin Airport

Ryanair and IAG CEOs Michael O’Leary and Willie Walsh
Ryanair and IAG CEOs Michael O’Leary and Willie Walsh
Regulator Cathy Mannion

Shawn Pogatchnik

COMMISSIONER for Aviation Regulation Cathy Mannion may require the wisdom of Solomon as she weighs the toughest decision of her tenure: the price of progress at Dublin Airport.

Battle lines have been starkly drawn this month between DAA on the one side and the main Irish airlines, Ryanair and Aer Lingus, on the other.

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Both camps are openly lobbying to win the argument over whether to raise or reduce the fees charged per passenger at Ireland's strategic travel hub, Dublin, where a record 31.5 million people arrived in 2018, and traffic is already running 6pc higher this year, pushing capacity ever nearer its limits.

Ms Mannion's commission in May proposed to cut the passenger charges that underpin the DAA budget from the current cap of €8.81 per head - among the lowest fees of any major European airport - to a maximum of €7.50, from 2020 to 2024. She is expected to give her final verdict in September, but emphasises she is open to persuasion and "expects that the proposed price will change".

Willie Walsh, CEO of Aer Lingus parent IAG, and Ryanair CEO Michael O'Leary have said over the past week they do not want the commission's proposed cap on what they pay DAA to change upward one cent.

They see their airlines as driving enviable economies of scale at Dublin Airport, with ever-increasing deliveries of passengers into Terminals 1 and 2 allowing the airport to finance its expansion through sheer volume, despite potentially tighter margins.

Both airlines face rising financial pressures of their own, with fuel costs growing and Ryanair, in particular, facing its first-ever overstaffing issues amid Boeing aircraft delays.

Speaking to reporters after IAG's second-quarter results showed Aer Lingus profits slumping by 27pc, Mr Walsh said he did not buy DAA claims that it cannot finance expansion at €7.50 a head.

"We could do it. What they're facing now is exactly what we've had to do," said Mr Walsh, who challenged DAA to match Aer Lingus's 18pc reduction in unit costs since 2015.

"We don't get anybody giving us money in advance to enable us to buy the aircraft we're investing in," he said, suggesting that DAA finance requirements were less challenging.

"We're making it easy for them because we're growing the passengers through Dublin Airport.

"They're getting more and more passengers, well in excess of what they have predicted. They'll continue to get more passengers, because we want to grow our business here."

But DAA argues that any cut in collected fees per head will sabotage its plans to support growth, particularly in T2.

In its July response to the regulator, DAA said its €2bn development plan presumes a 2020-24 price cap of at least €9.65, and merits a hike to €9.94.

DAA proposes to build a third runway and capacity to handle 40 million people annually, including a tranche of new gates, terminal extensions and more space for housing US pre-clearance, which is a key selling point for IAG's growing use of Dublin as a transatlantic hub.

DAA argues that cutting its per-capita cashflow would harm credit ratings and its ability to borrow cost- effectively, forcing the operator to shelve up to €1bn of its development plan. It called projected traffic increases "aggressively high".

DAA boss Dalton Philips has upped the ante, warning the Department of Transport, Tourism and Sport that the €7.50 cap would force the group to lay off hundreds of staff by January, and stop payment of dividends to the State currently forecast to run at €40m-€50m annually.

Irish Independent

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