EconomyTransport

The future of Ireland’s airports

terminal-2-dublin

eolas examines the options for reforming the structure and funding of state and regional airports.

Neither Cork nor Shannon airports should be privatised, according to a leaked report currently being examined by Transport Minister Leo Varadkar.

While the McCarthy report into state assets recommended that Dublin, Cork and Shannon (all operated by the Dublin Airport Authority) be privatised, the leaked report, by Booz consultants, recommends that Shannon be separated from the DAA. The west of Ireland airport should be given a new ownership structure (e.g. a public holding company of local stakeholders such as Shannon Development Agency, local authorities and public bodies), the report suggests. Meanwhile, Cork Airport, which has debts of €200 million due to the construction of a new terminal in 2006, should remain within the DAA for the immediate future.

The 2004 State Airports Act permitted for the assets, liabilities and employees in Cork and Shannon to be in the ownership and employment of the DAA. All major strategic decisions are a matter for the DAA ‘parent’ board, while Shannon and Cork also have boards. In 2008, then Transport Minister Noel Dempsey postponed a decision on whether to separate the airports from the authority, until 2011.

Booz were tasked with studying the options for the future ownership and operation of Cork and Shannon airports in October 2011. The present “half-way house” situation “cannot continue indefinitely”, Varadkar has stated. In addition, the practice of losses at Cork and Shannon being absorbed by the profitable parts of the DAA must end, he believes.

Overall European passenger traffic increased by 3.4 per cent in 2010 but the DAA saw its passenger numbers decrease by 13 per cent to 22.6 million due to the economic downturn, the Icelandic volcano and freezing conditions during the winter.

Numbers at Dublin Airport had increased from 15.1 million to 23.2 million from 2007 to 2008, prompting the Government to give the go-ahead for Terminal 2, at a cost of €609 million. (It was the centre-piece of DAA’s €1.2 billion ‘transforming Dublin Airport’ investment programme.) However, passenger traffic began to tail off shortly after work on the terminal, which can cater for 12 to 15 million passengers annually, got under way. While Dublin Airport now has the capacity for 35 million passengers annually, it saw 18.4 million in 2010.

In 2007 the Commission for Aviation Regulation set three caveats for the DAA to recover the costs of this investment in Terminal 2, including if passenger numbers using the two terminals exceed 33 million passengers per annum. DAA’s Chairman David Dilger stated in the company’s 2010 annual report that the regulatory environment was “unsupportive” and its decision “unfairly penalises the company.”

The McCarthy report recommended that further dividends should not be expected until the authority starts making a profit (it paid dividends of €7.25 million in 2003, €6 million in 2004 and €19.4 million in 2009.)

Shannon dealt with 1.8 million passengers last year. Its passenger traffic is expected to further decrease as US military personnel, who used the airport for stop-overs, have pulled out of Iraq.

The Booz report recommends that Shannon Airport could expand its activities into areas such as cargo or private aircraft, and its land could be used for other aeronautical business. It claims that the airport has a high cost base, therefore a private sector concession, whereby a private sector firm obtains the right to provide a service from the Government, should be considered.

Cork airport saw passenger volumes decline by 3 per cent to just over 2.4 million last year. The report sees it as profitable on a day-to-day basis and believes it could be viable as a standalone entity in the future. Cork’s governance structure should be reviewed to allow greater autonomy, the report adds.

Ireland has six regional airports (Donegal, Sligo, Knock, Galway, Kerry and Waterford) which are privately owned but receive money from the state for operating costs. They will receive €5.3 million for their 2011 costs. After this year, Galway and Sligo will no longer receive this subvention (as they are the least profitable due to the overlap with other airports that can cater for bigger jets). The other four will be eligible for financial support up to the end of 2014, depending on the availability of funds. Following the comprehensive review of expenditure, the department intends to save €5 million in 2012 by reducing funding for regional airports. The three commercial airports are owned by, but do not receive money from, the state.

Passenger numbers

State airport 2008 2009 2010
Cork 3,258,639 2,769,048 2,425,131
Dublin 23,466,711 20,503,677 1,755,885
Shannon 3,169,529 2,794,563 1,755,885
Total 29,894,879 26,067,288 22,612,080
% annual decrease 0.6 12.8 13.3
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