We are being consistently told that the ongoing consolidation among European airlines is a good thing and needs to happen. It may be good for the airlines, but there has to be serious doubt about what benefits it will bring to consumers.
In a worst case scenario, the ongoing consolidation of the European airline market has the potential to create three regional monopolies, with the Lufthansa group taking the east, Air France/KLM taking the centre and AIG taking the western coastal European market. There is likely to be very little real competition between these groups and possibly no competition at all in each group’s new enlarged home market, as most or all the key carriers in each market will have merged, with the exceptions of Ryanair and easyJet – the only bright spot.
This might then squeeze out new entrants and small competitors by a bit of old-fashioned “abuse of a dominant position” and “predatory behaviour” and bring us back to a version of the bad old pre-liberalisation days, where the dominant airlines dictated where customers could fly to and the cost of getting there.
EU lawmakers need to revisit European competition law to ensure it is robust enough to deal with the new market situation emerging and, where necessary, update the law to make it fit for purpose and then strongly enforce it to keep the aviation market open to real competition.
Moving from the EU to the Irish context, where is the Government’s much-heralded national aviation policy?
In January 2014, the Department of Transport and the Irish Aviation Authority hosted a one-day conference with a view to developing a national aviation policy. Up to 400 attended, with leading speakers from Ireland and Europe. Then minister for transport, Leo Varadkar, gave the opening address and stayed for the entire proceedings, indicating the seriousness with which developing a national aviation policy was viewed at the highest level.
Draft policy
In May, a draft of an aviation policy was circulated in a consultation process by the Department of Transport and many submissions were received. There was an expectation that the final national aviation policy would be published in late summer or early autumn. Nothing has been heard of the document since the draft was published almost a year ago.
How are we to judge the merits of the IAG bid for Aer Lingus from a strategic perspective without that policy, as this bid has major consequences for competition, airports and access policy.
In the preliminary stages of this bid most attention from an Irish point of view, was on the Heathrow slots and access policy. However, as the story has evolved, the development of Dublin Airport by IAG’S subsidiary British Airways (BA) as a significant hub for transatlantic traffic out of UK regional airports began to loom ever larger.
All going well, this deal could be a real winner for Aer Lingus, and an even bigger winner for Dublin Airport, which could now market its growing eastbound services through the hubs of Abu Dhabi and Dubai to the same market out of the UK regions, as BA would be promoting its Dublin hub transatlantic services.
Relative to even much larger European countries, Ireland is highly unusual, and fortunate from a regional development perspective, in having two transatlantic bases at Dublin and Shannon.
This is especially unusual for such a small country with a low population density and a small home market.
Looking to what the future might hold for Ireland, it is interesting to look at BA’s approach to its English home market.
In England, BA has consolidated all its transatlantic services into its London airports, particularly Heathrow. It has done this by feeding all its UK regional passengers through Heathrow rather than providing transatlantic services from the other large English city airports.
BA appears content to leave this significant transatlantic business to its competitors in favour of a consolidated London-centric approach.
So, it would not be unreasonable to conclude that in a post-Aer Lingus takeover situation, IAG would over time consolidate all of Aer Lingus’s transatlantic traffic into Dublin with its US customs and border pre-clearance (CBP) facility.
This would clearly not be in Shannon Airport’s interest and would have the potential to undermine the entire viability of its CBP facility. Shannon’s continuous transatlantic service, developed over 60-plus years, has been critical to the development of both tourism and direct foreign investment by industry on the entire western seaboard.
Even in the event of a full withdrawal of Aer Lingus transatlantic services over time, Shannon would hope a number of US carriers would continue to service the airport, but without the critical mass of Aer Lingus transatlantic services, the viability of a year-round CBP service would be at significant risk and US authorities will not provide this facility on a seasonal basis only.
It is reasonable to conclude that any Irish airport that would not have CBP facilities would also have no scheduled year-round transatlantic services. This real possibility would clearly work in Dublin Airport’s interest.
Vulnerable
In the event of a successful IAG bid, Shannon is also vulnerable to cuts in or the outright loss over time of its Heathrow slots, as was proved by Aer Lingus previously. Its entire transatlantic service would also be vulnerable as a result of this merger. Of the three State airports – Cork, Dublin and Shannon – Shannon has the greatest risk of losing most from this deal.
Cork, with a much larger catchment population closer to its airport, is still vulnerable, but is likely to maintain at least some Heathrow connectivity and retain significant short-haul services.
All is still to play for. At this stage, the only parties likely to be in possession of the full details of IAG’s bid are the Aer Lingus board and the Government, as no formal bid document has yet been issued to the wider shareholder community.
It is only when the formal bid document is published that a proper assessment of the merits of the IAG bid can take place. We are unlikely to have long to wait.
Tadhg Kearney is chairman emeritus of the Air Transport Users Council of Chambers Ireland and a former director of Shannon Airport Authority. The views expressed in this article are his own.