Tuesday, 14 February 2012

Dublin Airport A Stimulus Plan ©

Dublin Airport Terminal 1 Pier B on a Sunday Afternoon

The Irish Financial crisis of 2008 and subsequent recession which caused an economic contraction of 14% has an adverse impact on air travel demand coped with cost inflation from the €3 Air Travel Tax & the increased DAA pricing introduced in 2009 to fund airport develpments. Since the downturn began in 2008 traffic at Dublin Airport has collapsed from its peak at 23.5 million passengers to 18.8 million passengers in 2011, with corresponding loss of 4,500 direct jobs at the airport.
The loss of 4,500 jobs can be directly correlated to the loss of passenger traffic as 1 million passengers =  1,000 jobs (ACI ) accordingly per 1 million passenger decline would lead to the loss of 1,000 jobs.The closure of SR Technics Ireland Ltd operation in 2009 with the loss of 1,200 jobs although some of these have been recovered through new jobs in Aer Lingus Ireland, Dublin Aerospace, Eirtech, M50 Limited.

Therefore a new stimulus plan is now required to restore Dublin Airport to drive economic growth and jobs for Dublin and the wider economy.

Dublin Airport Terminal 1 Pier D on a Sunday Afternoon

Dublin Airport traffic growth of 1% in 2011 is well below that of all four ACI Group Airport categories which all recorded growth in excess of 10%, therefore greater emphasis needs to be placed on these airports for benching marking competitive purposes by the Commission for Aviation Regulation.

Dublin Airport Terminal 1 Departures on a Saturday Evening


The Dublin Airport situation is compounded by the fact that two terminals are operating well below their optimum levels of efficiency, which results in higher unit costs per passenger, as the fixed costs are spread across a lower passenger volume base. Therefore to reduce unit costs in real terms a stimulus plan is required to increase passenger volumes to reduce unit costs per pax.

Terminal 2 is well placed for future growth with Aer Lingus leveraging its network for connections and the expansion of Etihad Airways is expected to increase to double daily next year from 10 to 14 weekly flights, and Emirates Airlines is to increase capacity on the route from an Airbus A330-200 to a Boeing 777-300ER from the 1st of July.United Airlines is to launch a new daily service to Washington Dulles from the 9th of June, and US Airways increasing its service to Philadelphia to double daily at the weekends.  

Dublin Airport Mezzaine Level on a Saturday Evening
However the situation with Terminal 1 requires a radical strategy due to the loss of airlines Air Southwest, Luxair, Malev Airlines and Spanair.Air Baltic plan to resume a seasonal service, Ryanair has indicated that it is likely to remove more aircraft from its Dublin Base this year.  

                                                           Market Trends:

-The Airport regulatory framework is changing in Europe opening up to competitive market forces, as the BAA is to sell Edinburgh Airport & loses appeal against the sale of London Stansted & in Poland Warsaw Modlin Airport has received approval to set its own level of charges creating a competitive environment between Warsaw Chopin and Warsaw Modlin airports .

-The increasing trend of seasonality to a summer peak business of T1 customers (Blue Air, Iberia Airlines, Lufthansa, SAS Airlines, THY Turkish Airlines) (Summer Peak/Winter Valley) , the opposite of MRO Model (Winter Peak/Summer Valley). Implications for T1 efficiency & model of operation.

-The Trend of customers moving from IT package to Hybird & LCC Carriers for summer breaks. Thomas Cook reported a 33% decline in Summer bookings.

-Airline conslidation BMI Airlines currently using T1 is to be acquired by IAG subject to EU Commission approval a decision expected on the 16th of March.

-The growing trend of airlines to use mobile device for check-in and boarding process (Infrastructure).

-The Aer Lingus CEO Christoph Muller noted in a conference call last year a 60% difference between peak and valley business.

-The cost pressure on legacy carriers in the short-haul market (Air France, Iberia Airlines,Lufthansa).

-The growing trend of EU Carriers evolving their short-haul model (Cimber Sterling Outsouricng B737-700 operations to Jet Time & Finnair seeking a joint-venture partner for its EU operations).

-Legacy carriers in short-haul markets downsize to Embraer E-Jets (Air Europa/Belavia/Estonia Air)

                                                        Dublin Airport T1 & T2 Options:

-To examine T1 differential pricing.

-The creation of a new DAA company to run Terminal 1-A new business model.

-To launch new off-peak discounting charges for T1 & T2.

-Introduce new incentives to extend Seasonal routes into the winter schedule in collobration with Tourism Ireland.

-To Launch an new long-term route incentive scheme for base deals to existing and new airlines in excess of 3/5 year agreements for short & long-haul routes currently on offer.

-The re-development of Terminal 1 into a dedicated low-cost facility to reflect market segmentation as is the case with primary airports across Europe i.e. Amsterdam, Barcelona & Paris CDG T3.

-The participation of Joint-Venture partners to manage and operate T1 & T2.

-The Commission for Aviation Regulation should undertake a mid-term review of the existing CAR 2010-2014 price-contol period.

-The Commission for Aviation Regulation should be re-directed by the Department of Transport to engage with stakeholders in aviation industry to grow passenger volume at the airport to drive GDP Growth.

-The Dublin City Mayor should be given a greater role in the economic development of Dublin Airport reflecting best practice of airports in Europe and the United States as the airport becomes a key tool to drive economic growth in Dublin and the wider economy.

-Transfer the DAA lands to the Fingal County Council and put out to tender operation or sale of T1 & T2.  

-The development of the Cargo market segment to leverage the export lead recovery.

-Mandate Fingal County Council & Enterprise Ireland/IDA to develop ancillary business at the airport aircraft developing market segments: FBO Operations, Aircraft Leasing, MRO operations, Aviation R&D and the establish of an small business micro center to encourage business activity.  

-Establish of a new tax-free zone at the airport to develop an 'Aviation center of excellence' for existing and new start-up aviation companies.

The status quo cannot continue at Dublin Airport as passenger traffic levels will be challenged by the rapid pace of airline consolidation and weak economic conditions, as driving lower unit costs will take centre stage for airlines in a increasingly competitive environment, the airport is an integral part of the supply chain needs to adjust accordingly.

                            "When their is competition there is evolution"-Seth Godin

An interesting report from Anna.Aero puts Dublin into prospective: European airports passengers up 7% in 2011 to over 1.6 billion: which countries and airports saw the highest growth?


Irish Aviation Research Institute © 14th Feburary 2012 All Rights Reserved.