OPINION:Michael O'Leary has been proved correct about Dublin airport's T2. It is time for the airport authority to think outside the box, writes FRANK MAGEE
FOR MANY years, the Dublin Airport Authority and Michael O’Leary have differed, generally relating to costs. As an observer, I have been surprised at the authority’s aggressive approach towards one of its biggest customers.
Leo Varadkar is the first Minister for Transport in recent years to meet Ryanair, indicating a willingness to work with the company. He demonstrated, relatively quickly after his appointment, his desire to act on outstanding issues such as the visa waiver, VAT reduction, lowering staff costs and reducing the travel tax.
He has to feel some disappointment, however, at the apparent lack of response to the travel tax initiative. The travel tax cut deferral is due to airlines seeking further reductions in Irish airport usage costs. The visa waiver, on the other hand, will be a slow burn but has great potential to attract additional visitors to Ireland.
Where to from here for Varadkar?
Tourism in Ireland is experiencing a good year relative to 2010 but is coming off a very low base. Ireland still underperforms as a tourist destination and, despite the Queen Elizabeth and President Obama visits and their anticipated short- and medium-term tourism dividend, national tourism prospects are poor without major policy reform.
Our island status is one of our biggest attractions from a tourism perspective and one of our biggest challenges. People can only get here by sea or air so this access must be as efficient and easy as possible.
The huge investment in Cork and Dublin airports was made at the peak of the Celtic Tiger and during the most expensive period for capital development in the State’s history.
In fairness to O’Leary, he was one of the development’s biggest critics at the planning stage. He and the McEvaddy brothers both offered to build terminals, which would have cost Irish taxpayers significantly less than T2. The airport authority was then selected as operator of the terminal as it was decided that there was no other suitable operator available.
We can’t turn back the clock. O’Leary is correct in saying that there is not enough business for both terminals at present. Neither terminal is operating efficiently nor can any business or leisure traveller using either terminal fail to see the cracks in the operation.
The authority talks a lot about attracting additional traffic to Ireland. It appears to fail to recognise that it is airlines that decide where they fly to. Planes are mobile assets and O’Leary has proved that by moving these mobile assets around Europe to low-cost locations he can grow traffic and generate shareholder returns. Ryanair has an enviable aircraft stock that the Irish State can never aspire to access.
Given that half of all tourism spend reverts to the Irish exchequer as tax, if Ireland is to maximise its tourism return, we must reduce costs and grow inbound numbers. This must manifest itself in a robust, clinical and innovative approach to managing the State’s tourism assets, namely our airports.
Imprudent investment has crippled the airports with huge repayments and created a very significant economic overhang. This detrimentally affects Ireland’s tourism prospects and those of the wider Irish economy.
Airlines are already negatively affected by increased fuel costs and a global economic slowdown. The regulator has approved increased charges at Dublin airport, which will impose additional costs on airlines; their obligation is to make profits and can elect to transfer their mobile assets elsewhere.
With no sign of the current crisis abating, removing the economic overhang is an urgent priority. One proposal to consider is freezing the T2 development’s capital costs. We have precedent for such action.
This capital freezing programme would be subject to three key conditions: the airport authority focuses on its core function of making Dublin airport work efficiently, cuts its costs and offers meaningful reductions in charges to airlines.
O’Leary reportedly recently offered to buy either terminal. I have no doubt, if he were to do so, it would improve the airport visitor experience. However, the terminal costs are only one part of the airport landing costs. Traffic control, security and runway costs have to be factored in and would be outside the terminal operator’s control.
I would have to be convinced that should one terminal be privatised it would be sufficient for competition purposes. I do know that after all the expenditure on T2, it delivers a disappointing visitor experience and that T1 is suffering from service cutbacks due to reduced passenger numbers.
Varadkar can make a difference if he is prepared to cut through the issues that surround and affect the airport authority and, at the same time, look at the opportunities at Dublin airport to attract visitors to Ireland with an open mind by asking, “What if?”
Frank Magee was chief executive of Dublin Tourism for 21 years until 2010. He is managing director of International Tourism Consulting Partnership – itcp.ie