Wednesday 20 March 2019

STORY OF THE WEEK : Aer Lingus flight from Shannon leaves turbulence in its wake

Laura Noonan

AER Lingus's plan to launch a new base in Belfast was one of the worst-kept secrets in the company's history.

So when rumours began circulating late last week about an impending announcement, there was, predictably, little interest. What no one saw coming, however, was Aer Lingus's decision to switch its Heathrow route from Shannon to Belfast.

To name Belfast as Aer Lingus's new base makes considerable business sense. Belfast's aviation scene is massively under-served, so Aer Lingus will find an abundance of route opportunities.

The advent of political stability means Belfast's economy is now eyeing up rapid growth, so demand for flights is sure to jump in coming years. Crucially, Belfast has no dominant airline, so there's nothing to stop Aer Lingus playing for the prized position of the region's 'national airline'.

While the move into Belfast makes sense, the logic of wrenching that treasured Heathrow route from Shannon and gifting it to Belfast is considerably murkier.

At Shannon, Aer Lingus had an exclusive run at Heathrow - at Belfast, Aer Lingus's 3 to 4 services a day will compete with the 8 daily flights already on offer from incumbent BMI.

Aer Lingus should make a good stab at attracting passengers who want to use Heathrow as a gateway to the rest of the world. The Irish airline's Belfast/Heathrow service is a 'code share' with British Airways, so it allows passengers to connect seamlessly from the Belfast route to BA's unrivalled services out of Heathrow. BMI's passengers can also effortlessly connect through Heathrow - but only through BMI's network of long-haul destinations, which is far, far smaller than BA's.

The problem for Aer Lingus is that just 33pc of the passengers who used its Shannon/Heathrow service were connecting to the wider world. So it's very unlikely that the airline can rely on transiting passengers to provide the bulk of its Belfast numbers.

In the realm of non-transiting passengers, or passengers who just want to fly to the London area, Aer Lingus may find making up the numbers a more challenging proposition.

In Shannon, Aer Lingus's only London competition was four daily services from Ryanair, split between Stansted and Gatwick. At Belfast, Aer Lingus will have to compete with CityJet's 3 daily flights to London's City Airport and easyJet's 14 flights split between Stansted, Luton and Gatwick as well as the 8 BMI dailies.

The existing airlines have all built up solid markets based on unique offerings. CityJet's hook is the convenience of City Airport, BMI's is frequency and easyJet's is price.

The Irish airline can't offer the convenience of City Airport and it hasn't the resources to offer the frequency of BMI, so price is likely to be the battleground.

Fighting on price at Belfast has its own complexities, thanks to the UK's Air Passenger Duty (APD). Introduced as a measure to combat environmental pollution, the much-bemoaned APD levies a £10 charge on all passengers taking off from UK airports. So if an airline knocks its prices down to what a customer will recognise as £30 all-in, the airline gets less than £20 of this money. Costs at Belfast will undoubtedly be lower than those in Shannon, which are understood to be among the highest in Aer Lingus's network.

But it's still hard to see how slogging it out on the hugely competitive APD-ridden Belfast/London route is going to be a more profitable enterprise than enjoying a near-monopoly on Shannon/London.

Which makes Aer Lingus's decision to switch Heathrow services from Shannon to Belfast a little hard to fathom.

Some argue that Aer Lingus couldn't set up a viable Belfast base without a Heathrow slot. But why not? As shown above, clearly there are already plenty of flights between Belfast and Heathrow, as well as an abundance of flights between Belfast and the London region.

The other possible explanations are more complex. Some suggest that Aer Lingus was keen to extract itself from Shannon, given the huge level of support that Shannon has given Ryanair in recent years. The argument runs Aer Lingus thought its Shannon fees were essentially subsidising Ryanair's supercheap deal, which is linked to the huge volumes of Ryanair traffic that go through the Co Clare airport.

Another argument suggests that Aer Lingus is using the Shannon/Belfast switch to cast a warning shot ahead of the upcoming negotiations with unions on a broader cost-cutting plan. If Aer Lingus wanted to prove its seriousness about cost cuts, then moving flights from Shannon to Belfast certainly accomplishes that aim.

And then there's the political argument. Aer Lingus has all but been accused of treason for switching from Shannon to Belfast, and while no one likes to be at the receiving end of that level of venom, it's hard to think of a better way for Aer Lingus to exert its new-found independence from government.

Sadly, the intricacies of the decision-making process are unlikely to ever see the light of day. What is clear, however, is that Aer Lingus is not open to reversing its choice.

So now the Belfast market is theirs for the taking and the Heathrow link is theirs for the proving.

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