This winter the Dublin Airport Authority will face an extremely challenging winter as it's customer base become increasingly focused on demand-lead capacity management as they battle violate demand and fuel costs. At the height of the Celtic Tiger in 2008, Dublin Airport handled 23.5 million, now in 2011 the airport will handle 18 million passengers.
The DAA will have the challenge of operating two terminals for the first time this winter, since Terminal 2 became operational in January this year, with both terminals operating well below their optimum levels of capacity and efficiency, thus the unit cost per passenger will be reflect this, with T1 passengers continuing to cross subsidize T2 passengers.
The December Budget will no doubt have an impact on air travel demand, through the air travel tax or increased taxes, reducing disposable income for leisure travel, accordingly capacity will have to be managed to match the expected levels of demand.
The customer base of the DAA will decline this winter with Air Baltic to cease the Riga route on the 1st of September (Schedule to resume in March 2012), and Air Southwest on the 26th of September, with the airline ceasing operations to due to financial difficulties.
American Airlines will cease the Chicago route on the 30th of October, having reversed an earlier decision to operate all year round, Cimber Sterling is to terminate the Billund route on the 30th of October (Schedule to resume in March 2012), while Luxair is to cease the Luxembourg route on the 6th of November due to heavy losses sustained on the route. Air Canada will cease its service for the winter at the end of September.
The loss of capacity will benefit Aer Lingus and Ryanair on the Riga route, and Aer Lingus on the Chicago route, while Ryanair will benefit on the Frankfurt Hahn route, as Luxembourg in the catchment area of Hahn. These capacity reductions by non-based carriers will give the home based carriers better yield control on the routes.
The US Carriers will seasonally adjust capacity for the winter schedule with United Continental Airlines reducing from double daily to an daily Boeing 757-200.
It will be interesting to see how capacity is managed on the Dublin route in March 2012, when the merger integration is completed, this has seen the carrier re-deploy capacity between Continental Airlines (B757s) and United Airlines (B767-300s) out of it's Washington Dulles base for summer 2011.
Delta Airlines is reducing the Atlanta route, from daily with the A330-300, to five times weekly with Boeing 767-300ER's effective from the 30th of October, while it keep the Boeing 757-200 on the New York JFK route reversing an earlier plan to operate an Boeing 767-300ER on the route.
The Delta Airlines Atlanta capacity reduction reflects the shift in demand out of Ireland, with the carrier having operated an daily service for many years, with the carrier now protecting the yield on the route, by taking out excess capacity out of the system.
US Airways will terminate the Charlotte route for the winter, on the positive it will operate an Boeing 767-200 to Philadelphia in the winter schedule.
A significant structural shift in domestic traffic will take full effect with the winter schedule, with the termination of the four PSO routes from Dublin to Derry, Ireland West Knock, Galway and Sligo , as a result of improved road and rail infrastructure reducing journey times to Dublin, and Ryanair having terminated its daily services to Cork and Kerry airports citing an combination of factors.
This market segment delivered record growth during the Celtic Tiger, with over 100,000 passengers using the Aer Arann service to Galway at it‘s peak, and Ryanair operated five daily services to Cork, and three times to Kerry, prior to a dispute over the PSO contract costs, and Shannon twice daily, now this market segment will now effectively disappear because of the collapse.
The IT Market has collapsed from its peak in 2007/8 at 450,000 seats to 150,000 seats in 2011 due to a shift in consumer behaviour to using schedule services of Aer Lingus and Ryanair, which are now operating schedule services on traditional IT routes, and the collapse of an number IT operators due to industry consolidation and the effects of the financial crisis of 2008.
The pace of European consolidation is far from the end game with an number of carriers serving Dublin, still in play for strategic partners, and in the interim are re-structuring their business, to become demand-lead to restore profitability, as austerity spreads to key EU markets in France, Italy and Spain.
The Aer Lingus strategic decision in due course to join an global alliance or retain existing airline partnerships, will impact significantly on the future development of Dublin Airport.
Aer Lingus is progressively reducing average seat size, to focus on yield, rather than volume, with the expansion of Aer Lingus Regional ATR72 fleet, the introduction of the Airbus A319 for Summer 2012 schedule, and the carrier plans to use a new fleet of regional jets as a feeder network in the next three years.
The carrier is returning to the charter market leveraging the cost base savings from Project Greenfield, by the end of the year, it’s cost base will be equal to that of Easyjet, making it highly competitive relative to other European carriers.
A Stronger Aer Lingus in the charter market will put increasing pressure on the Dublin Airport Authority, as it will erode the third party business revenue from the charter carriers, therefore Aer Lingus market share will continue to grow at Dublin, at the expense of other carriers.
A key turning point in the history of Ryanair at it’s Dublin Base will occur this winter when the carrier reduces the base fleet from 16 to 11 Boeing 737-800s, therefore Dublin will become a smaller base than Brussels South Charleroi (Launched 2001) and Barcelona Base (Launched 2010), for the first time. The reduction reinforces the Ryanair policy of operating routes where it can earn the highest rate of return at the lowest cost.
The carrier has yet to offical announce the Dublin Base reduction but signalled the reduction at a press conference a number of weeks ago.
The carrier has been progessively reducing the Dublin base since at its peak in 2008, when it had 24 Boeing 737-800s based in Dublin. The loss of the five aircraft from Dublin this winter will see 155 direct job loss (Cabin Crew, Engineers, Pilots) Source (Nasdaq 2O-F Filing 31 crew per a/c). ACI data states for every 1 million passengers through an airport creates 1,000 jobs in the wider economy.
The business case for Runway 28R no longer exists as Aer Lingus as the anchor tenant for T2, clearly stated it see no demand for the runway for at least 10 to 15 years, and is shifting focus to smaller average size aircraft, together with the airline industry shifting to global alliances and consolidation will see the market pie get smaller, being dominated by a smaller number of global players.
The Dublin Authority should now prudently withdraw the business plan for the second runway, instead focus on delivering efficiencies from the existing runway operation, by extending the runway in due course, as the Irish Aviation Authority is to re-structure Dublin airspace in 2012, which will further enhance the efficiency of operations.
The DAA needs to review the value of the designation as a coordinated airport under the EU slot regulation, as the need for the coordination in the present environment will only apply to early morning departures and late evening arrivals for the Dublin based aircraft.
This should now be frozen in off-peak hours together with reduced off-peak pricing to stimulate demand, as ample terminal capacity is available to utilize the assets in the wider interest of the economy.
The new DAA route incentive scheme should now be immediately scrapped, with the available cost savings from the scheme should be used to reduce existing landing charges to existing customers, as to protect existing routes in terms of capacity and frequency.
The Dublin Airport Authority must grasp the industry is heading towards a tipping point with radical structural change, being driven by external factors, it must become responsive to customers, driven by global alliances and strategic partners, in terms of operations and pricing policy.
The DAA should be actively developing it's ancillary revenue streams by developing its cargo facilities as exports from Ireland continue to grow strongly, it should develop viewing facilities within the airport complex and the perimeter road in association with Fingal County Council following the trend of other European and UK airports, and the establishment of an FBO to cater for executive jet traffic.
The DAA must begin to collaborate with customers and stakeholders alike to keep Dublin Airport on the radar of airlines, it will require the Department of Transport and the DAA to become more creative and innovative to arrest the continuing decline in Dublin Airport's traffic.
Irish Aviation Research Institute © 24th August 2011 All Rights Reserved.
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