Thursday 23 November 2017

Turbulence ahead for new DAA boss

The State airport firm faces massive challenges as Kevin Toland prepares to depart

'Brexit, Trump, terrorism and the potential for rising oil prices are all conspiring to ensure gathering storm clouds for the aviation sector in general' (stock image)
'Brexit, Trump, terrorism and the potential for rising oil prices are all conspiring to ensure gathering storm clouds for the aviation sector in general' (stock image)

Fearghal O'Connor

As any pilot will tell you, some of the worst turbulence can happen in a cloudless sky. Right now at DAA - Ireland's state airport company - the sun is shining brightly.

Yes, well-regarded chief executive Kevin Toland is stepping down to take up the top job at Aryzta, and, yes, Brexit, Trump, terrorism and the potential for rising oil prices are all conspiring to ensure gathering storm clouds for the aviation sector in general.

But Toland will leave a company that appears to be in fine fettle. Its recent financial results for 2016 showed profits-after-tax jumping 77pc to €108m, with 19 new routes launched last year at Dublin alone and positive performances at its Cork airport and international duty operations.

Nevertheless, massive challenges await the new chief executive - many of them, but not all, the problems of success.

For example, Toland's successor faces a serious headache around the development of a new €320m runway for the airport. Rapidly growing passenger numbers mean more planes and the main runway at the airport is operating close to capacity, particularly during the busy morning peak. DAA planned for its new runway to be operational in 2020 and work has been well underway for months in the north county Dublin countryside through which it will slice.

But there is one major problem: the planning permission for the runway severely limits night flights, which, in turn, means that the new runway would only provide limited relief in the early hours of the morning - just when it is needed most. Well-placed sources have told the Sunday Independent that work is likely to soon come to a halt and that the entire project faces a major delay because of this. For now, it is hoped that the delay will be not much more than a year but there is little certainty of that.

The runway project is already controversial with airlines. Aer Lingus and Ryanair have both raised fears that DAA will spend too much on the project and then look to drive up passenger charges to pay for it. Indeed, Aer Lingus recently wrote to the aviation regulator arguing that the runway was less important than the bottlenecks airlines faced with other key infrastructure such as taxiways and stands.

The booming passenger numbers are also bringing closer the time for another key decision: when to build a third terminal at Dublin Airport. Anyone who recalls the saga over the building of the second terminal as terminal one threatened to burst at the seams knows that such decision-making does not come easily.

Toland has said that a third terminal is not a priority for the company at the moment, but the planning permission granted for the second terminal capped the airport's capacity at 32 million. An analysis of just how rapidly traffic through Dublin Airport is rising suggests that it may soon become an issue of much greater importance to his successor.

Such an analysis also shows that the ability to predict passenger numbers has not improved from the Celtic Tiger days, when the company contemplated checking-in passengers in a marquee because of the failure to put in place infrastructure quickly enough. In 2014 the aviation regulator predicted passenger numbers would grow steadily from 21.5 million in 2014 to 24.8 million in 2019, an annual growth rate of 2.9pc. In reality the average growth rate in the last three years has been 10.4pc and just under 28 million passengers will pass through the airport this year.

If growth were to continue at 10pc for the next four years that would see the airport handle over 40 million passengers in 2020 - and even if rates halve to 5pc in each of the next four years that would see 34 million passengers use the airport by then, easily passing the maximum capacity.

Such an outcome might not immediately cause huge problems at most times of the day in Terminal 2 or in a refurbished Terminal 1, but morning time, when the airport is at its busiest, would once again become increasingly problematic.

Transport Minister Shane Ross has commissioned a review to look at these issues and businessman Ulick McEvaddy is reported to be contemplating another attempt at building his long-ago proposed private terminal at Dublin Airport.

McEvaddy owns a strategic site that sits right between the main runway and the line of the proposed new runway. He previously fought a determined but unsuccessful battle to build a privately-run terminal on the land and the return of congestion would undoubtedly help him make a renewed case.

Of course, there is another possibility. The worst fears around Brexit could come true and, as Michael O'Leary has warned, air travel between Britain and the EU, including Ireland, could be severely disrupted. That would likely have a massive negative impact on Dublin Airport. In such a scenario, a new runway and a new terminal would be relegated to the status of pipe dreams and Toland's successor would have a whole new set of problems to keep them busy as business shrank.

Either way, the new chief executive will face a much more immediate problem that is already festering in the break rooms at Dublin Airport. In recent months DAA attempted to deal with a growing clamour for increased pay and profit sharing for staff. The company had demanded a range of productivity measures in return for pay increases of up to 4pc. But, in a ballot, key groupings of staff rejected the process and relations have become increasingly adversarial. This newspaper understands that unions are preparing a much more ambitious pay claim that is likely to cause management a major headache.

"It will be a fairly serious pay claim. It could be as much as between 18pc and 20pc over a three-year period," said a well-informed trade union source. "Profits are healthy but morale is on the floor. It makes for tricky manoeuvring for management."

The pay claims are being driven by events elsewhere in the transport sector, it is understood.

"Dublin Bus workers, for example, have won similar pay awards as what was on offer to DAA staff. But Dublin Bus is paid a big subvention by government. By contrast, DAA is extremely profitable and paid the government a €29m dividend last year. Staff have taken enough austerity to get the company to where it is and now they want payback," said the source.

It all adds up to an interesting time ahead. Toland's successor will certainly need their seat belt safely fastened before take-off.

Sunday Indo Business

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