The end of the Shannon stopover may mean up to 400,000 fewer passengers annually, so the airport faces some tough decisions, writes Liam Meade.
If the short- and medium-term problems at Dublin Airport are about capacity and financial deficits, the same factors deeply influence Shannon's prospects for success under its new management but in markedly different ways. With its current cost profile and enjoying the considerable benefits of the traffic generated through the Ireland/US bilateral agreement, Shannon will still incur losses in the order of €3 million to €4 million in 2004.
The capacity situation at Shannon is the reverse of that at Dublin; Shannon has capacity for over twice the number of passengers it is processing today, and, superficially, it would seem there is a clear-cut opportunity to exploit this surplus to transform the financial picture. Unfortunately, things are never that simple; there are other forces at work in the Shannon equation.
The cost profile referred to above presents a major problem for anyone seeking to transform Shannon's fortunes. One of the outcomes of the sustained 20-year lobby on behalf of Shannon is that it allowed Aer Rianta the luxury of holding on to a bloated workforce because the conventional wisdom was that cutting back was politically unacceptable.
Shannon became a "hands-off" proposition as far as reducing staff numbers was concerned. The inevitable outcome is that there is now an urgent need to rationalise staff numbers. This will have to be achieved through a programme of voluntary redundancies that could cost in the region of €15 million.
On the assumption that this hurdle can be overcome, and operating costs brought into line, the further challenge will be to generate additional revenue through increased passenger numbers. The most obvious difficulty involves the Ireland/US bilateral deal and the impact on this of the proposed US/EU Open Skies policy.
It is generally accepted that there will be major changes for Shannon, the only question being "will they be sudden or gradual?".
It is likely the Shannon stopover will have ceased by 2007 and this could remove up to 400,000 passengers annually from Shannon. This is a massive loss given the high-value spend of the US traveller. It would take over a million low-cost UK/European passengers to replace the displaced US revenue - no easy task.
There is room to promote aggressively the UK/European traffic and this takes on more urgency with the loss of US business, but even if strenuous efforts resulted in overall passenger numbers growing modestly (2 to 3 per cent annually), Shannon would still be suffering an average annual cash deficit of about €3 million over the next several years.
This allows for staff restructuring costs, Shannon having free assets and a modest annual capital expenditure budget of about €8 million per annum, spent mostly on refurbishment and compliance items. In a normal business, this situation would be unsustainable and ways would have to be found to bridge the gap. This is where the politics of the situation comes into play and it is worth considering political motivations before we get too excited about large losses.
The local Shannon political lobby, fed by the ongoing political reality of a marginal Dáil seat in Clare, has been one of the most trenchant and effective influence bodies of our time. They have always sought freedom and independence of action and the major political parties readily subscribed to this notion.
In the past two or three years, as the multiple forces promoting Open Skies (including Aer Lingus) increased the pressure, the mandarins in the Department of Transport put their lateral thinking on display by rowing in enthusiastically behind their political masters in promoting the break-up of Aer Rianta, an event that would cut Shannon loose and install a board and management there that would have to pick up the pieces and make sense of it all when transatlantic traffic started to disappear.
This has now been achieved, but the problem is that it still doesn't work, or doesn't look like it will. So, what to do? The Tánaiste initiated studies to see how Shannon Development might be able to help by passing on their factory rent roll to the airport, a move that company saw as having "death warrant" written all over it. Discussions are understood to be ongoing in regard to this but no matter how it is solved or what spin is put on it, new Government money will have to be found to plug the Shannon hole, even if the hole eventually ends up three fields away (perhaps in the Department of Enterprise).
Shannon will be used in the future as an engine to drive economic activity through the local region and whether it makes money or not, doing this will not be the issue. Ways will be found to square the circle.
One plausible scenario would be for Shannon to put out the red carpet for Ryanair by providing it with unbeatable deals to concentrate large-scale operations at Shannon. Ryanair is very unlikely to get any deals in an over-crowded Dublin and "Fortress Ryanair" at Shannon could make a lot of sense.
If this were done, then truly the passenger profile at Shannon would be transformed. We would not be talking small incremental increases but quantum jumps in numbers, with huge benefits to the mid-west region. The only difficulty is that Shannon would probably lose more money than ever in processing more passengers for less revenue. No matter - the region's economy would be revitalised and Shannon would be playing its full part as a strategic access point for economic activity.
It is important that we understand the reality of the current situation. The mission that has been given to Shannon is not to make loads of money but to process loads of passengers at a reasonable cost (by being a well-managed enterprise) and to manage the discontinuity arising from the loss of the transatlantic business. If they can achieve this, they will deserve our thanks.
It has been alleged that all these convulsions have arisen because one political party was driving one major enterprise's agenda. That may be so, but if the results are beneficial, they will be forgiven. In sporting parlance, "only time will tell".
Liam Meade is a former director of Aer Rianta