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Why exclude State airports from public spending cuts?

Chairman of Ireland West Airport, Liam Scollan, argues that the McCarthy Report fails to put the spotlight on the considerable level of State largesse provided to the State’s own regional airports, Cork and Shannon, and focuses instead on the much less significant funding interventions made to the so called “regional airport” (Waterford, Kerry, Galway, IWA Knock, Sligo and Donegal).

He finds it incredible that a report charged with recommending cuts in public expenditure ignores the largest beneficiaries of State support when it comes to aviation.

While he wholeheartedly agrees with rationalisation of aviation expenditure, he argues the State’s own regional airports, Cork and Shannon, get free air traffic control worth over €2.5m per year respectively, c.€250m of capital funding, Government pressure on airlines to introduce new commercial air services worth millions per year in revenues, Government funding support to fight legal battles with airlines that challenge them, other state bodies like Bus Éireann supplying customers to their door and millions of additional support in tourism funding aimed specifically at promoting their  inbound routes from the UK and elsewhere.

By contrast, Ireland West Airport has received no operational aid from the Government in the last three years, pays from its own resources for all the services such as air traffic control, which the competing State airports get for free. Furthermore the region it serves (the West and North West) gets a tiny fraction of the overseas tourism marketing support provided into the southern region, while Bus Éireann, a state body, transports passengers from its region direct to Dublin Airport.

In fact the €2m per year of Core Operational Grant aid that the other so called ‘ regional airports’ get combined, is a miserable fraction of the largesse provided for decades to the States own airports.

Why Exclude Cork and Shannon Airports?

The McCarthy Report excludes two regional airports, Cork and Shannon from  its consideration of regional aviation and focuses mainly on an outdated distinction between what were traditionally viewed as “regional airports” (Waterford, Kerry, Galway, IWA Knock, Sligo and Donegal) and the two “Aer Rianta” airports Cork and Shannon. In fact all of these are regional airports.

Furthermore, IWA Knock now serves almost 600,000 passengers, operates services to 20 overseas destinations including four daily services to London with Ryanair and Aer Lingus and services to cities like Liverpool, Manchester, Nottingham East Midlands, Birmingham and Bristol all year round as well as having started scheduled services to Europe. In fact IWA Knock now accounts for 45% of all air services the UK market operated from Shannon up to Derry, returns €60m annually to the regional economy and its economic impact provides €8.5m annually to the Government in exchequer returns.

The real distinction between a State regional airport like Shannon and a non-state airport like IWA Knock is that the former receives the bulk of State support and intervention. The second distinction is that IWA Knock serves a market of c.800,000 people in the West, North West and Midlands while Cork, Shannon and Kerry serve a similar size but generally separate market in the South. The third distinction is that IWA Knock is the only airport with facilities large enough to serve international medium-haul jets in the West, North West and Midlands while in the south Cork, Kerry and Shannon each have these facilities.

Any rationalisation of Government expenditure must surely assess how all regions from the South East to the North West are served by air and include Cork and Shannon in that review, and it should take further account of the value for money which each airport offers when State funding is supplied.

Subsidies to State airports

Most people might perceive that airports like IWA Knock receive large state subsidies while airports such as Cork and Shannon operate commercially. Nothing could be further from the truth. Ireland West Airport Knock has not received any operational subsidy from the Government in the last three years and prior to that received very little operational aid. In fact it has to compete in a market where the State airports are given enormous competitive advantages from the State.

By contrast the two State airports, and particularly Shannon, benefit financially from a continuing level of State intervention which is not sustainable. They benefit from huge State-guaranteed loans for capital investment worth c.€250m which dwarfs that invested in other airports. Parts of their entire operations are funded by the taxpayer. For example free air traffic control services and facilities are provided by the State body, the Irish Aviation Authority (IAA), to Dublin, Cork and Shannon airports. Over 30 Air traffic controllers are employed at each of Shannon and Cork airports, with costs met by the State body the Irish Aviation Authority at an average cost per employee of almost €90,000 annually. By contrast Ireland West Airport trains and pays for its own. This one hidden subsidy alone is worth over €2.5m annually to each airport and the value to Dublin Airport is three times this amount. This one subsidy in one year dwarfs all operational aids provided to all the other airports combined over several years.

It gets even more unbalanced and unfair!

Incredibly, airports like IWA Knock are even forced to subsidise Dublin Airport Authority (DAA) costs. Ireland West Knock is charged annually by the Commission for Aviation Regulation (CAR) for services CAR exclusively supplies to the DAA such as fighting legal battles with Ryanair. CAR has actually no remit for IWA Knock but is forced to pay €60,000 per year to it. In addition to the IAA and CAR, other State bodies join in exclusively feeding, at taxpayer’s expense, the three State airports. Dublin, Cork and Shannon actually get passengers transported by other public services free of charge, but at the tax payer’s expense, to their door. Public bodies such as Bus Éireann provide fourteen daily direct services from Ireland West Knock’s catchment direct to Dublin Airport while ignoring Ireland West Knock itself for proportionate services.

IWA Knock strives to compete commercially across Europe with other regional airports to attract new flights and services but finds that on its own doorstep the Government intervenes, using taxpayer’s money to support the state airports that compete with it. Despite the fact that IWA Knock has proven its ability to handle transatlantic flights, the Government built free immigration facilities at Shannon Airport without giving IWA Knock the chance to compete for the facility. When the State airports lose huge revenue-raising routes, the Government fights to get them back, ignoring airports such as Ireland West Airport which fights commercially for the same routes. Recently, for example, the Taoiseach and two cabinet ministers intervened to pressurise Aer Lingus to re-open its Shannon-Heathrow services. Aer Lingus had closed these routes for commercial reasons when the economy was booming, and incredibly re-opens them in the midst of a severe economic depression. The result is that Aer Lingus operate three daily services from the Mid West region to Heathrow and none serving the entire West and North West. By contrast IWA Knock has never had Government intervention of any kind and yet has won back routes it has lost on purely commercial grounds – another example of State investment being used to support the State airports.

The Dublin Airport PSO Services

The airport that benefits most from the PSO (Public Service Order) services is Dublin Airport which receives all 14 services daily. The other misconception is that IWA Knock is dependent on the PSO service. In fact the PSO service to IWA Knock accounts for a mere 2.5% of Ireland West Knock’s traffic, while the vast bulk is operated commercially by Ryanair, bmibaby and Aer Lingus and a wide range of charter airlines to some 20 international destinations.

Mr. Scollan reveals that since 2002 Ireland West Knock has proposed consistently to Government that public funding to airlines operating the Dublin PSO route should be based on volumes of passengers and marketing performance. If that recommendation had been followed there would have been a much higher volume of passengers on all routes and much better value for money and exchequer returns. An example of the success of the commercial approach proposed by IWA Knock is at Cork Airport where the competition between Ryanair and Aer Arann has led to huge volumes of passengers using the service at no cost to the tax payer.

Ireland West Airport Knock agrees that the current structure of these PSO subsidies to airlines operating from Dublin to the regions should be radically reviewed and that such a review should take into account the increase in excellent rail and road services to the main cities as well as the need to reduce carbon emissions.  Taxpayer’s money should be focussed only where such services don’t exist and where vital high speed connections to the capital city from the South, West/North West are needed.

Secondly, a broader review should be taken on the matter by instead focusing on identifying where the market is being failed by the lack of air services. The Government might consider that these payments could be much better structured to establish and develop international connections from key regional airports across the country to hubs like Paris CDG and London Heathrow with the objective of supporting key business and tourism interconnectivity to major international hubs such as these?

Achieve More with Less

The McCarthy Report unfortunately accepts the status quo of State support for
State airports, a status quo which sees the State airports cushioned by tax payer handouts and by imposed levy payments from competing independent airports and thereby ensures that an inefficient, inequitable and ultimately tax payer-supported aviation system will continue.

In light of the proposals in the McCarthy Report, Ireland West Airport Knock wishes to call for a detailed assessment by Government of the viability of all regional airports including the former “Aer Rianta” airports prior to implementing sweeping changes. This they believe will result in more savings, more commercial viability within airports and  bring about a balanced approach to the achievement of the targeted savings and additional revenues, in addition to maintaining air access services to specific regions, and in particular the West and North West .

However, this is never going to happen until the Government reverses the interventions it is making to sustain its own State airports and allows IWA Knock to compete on level terms and in a manner where it can continue to provide international connectivity at minimal or even zero cost to the taxpayer in the decades ahead.