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Thursday, 25th April 2024 |
| If we build it, they will come |
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| Ryanair would build a new terminal at Dublin for £12 million, paid for by more passengers on low fares, argues Michael Cawley. |
Ryanair's proposal for the development of a new terminal at Dublin Airport involves the construction of a low cost, no frills pier. Ryanair would fund this construction at a total cost of approximately £12m.
The design would be in the form of a straight pier extending from the old terminal building where gates A16, A17 and A18 currently operate. In this way, access can be had from both sides of the new pier. Up to 12 gates which can be operated simultaneously would be created giving capacity for over 3m passengers.
This approach is in stark contrast to the profligacy of Aer Rianta's construction at Pier C where British Midland and Cityjet currently operate. This terminal has cost £50m but, because it can be accessed from one side only, provides for a mere 5 gates. On a per gate basis therefore the cost of the Ryanair proposal is 10% of the current Aer Rianta construction.
BOLD SUB HEAD: Transfer to Aer Rianta
Ryanair's proposal is to transfer the ownership of this pier back to Aer Rianta as soon as it is completed and in return the airline would be granted a 20 year lease at a rate of £1.00 landing cost per departing passenger. For its part, Ryanair would guarantee and pay for an annual throughput of 1.5 million passengers, rising to 3 million departing passengers, by the third year. Ryanair guarantees to open at least 10 new European routes from Dublin in the first two years of operation and will guarantee 1m extra passengers through the airport. Any shortfall of this 1 million would be paid for at the full landing charges which Aer Rianta proposes to introduce now that EU duty free has gone. Aer Rianta would continue to have the benefit of all concessionary activity, effectively a 25% increase in airport capacity at zero cost and all these new passengers would continue to use Aer Rianta car parks, terminal and shopping concourses.
This proposal could be offered to Aer Lingus in respect of the existing Pier A or indeed any other airline if they meet the same growth and financing conditions. As a result, the plan meets EU regulatory requirements, since it is not discriminatory in favour of any particular airline.
The key attribute of this proposal is that it underpins the future growth at Dublin Airport on the same basis as its historic growth has occurred, i.e. a low cost base facilitating low fares and thereby generating substantial traffic growth.
Low flag carrier business
A striking feature of Dublin Airport has been its inability to attract any flag carrier presence of substance from Continental Europe. It is consistently serviced by Lufthansa, SAS, Finnair, Iberia and others at off-peak times in the middle of the day, invariably representing low yield routes which operationally are merely filling out a schedule from the airlines' point of view. This is a clear indication of the peripherality of Dublin and confirmation that, despite the background of a very successful economic environment, Dublin does not represent the kind of destination, nor does it carry the number of business passengers, which justify the investment of aircraft at peak times in the day by these flag carriers.
Dublin Airport's growth in the last 7-8 years has been based exclusively on low fares, which in turn have been based on a low cost regime, initiated by the Irish Government in the early 1990's. If passenger numbers are to continue to grow at Dublin Airport it needs a continuation of this low cost regime and an extension of low fares on to more routes in to Continental Europe above and beyond just Paris and Brussels which are currently served by Ryanair and others and whose fares alone among Continental European routes reflect that competition. For example, the cheapest fare to Paris and Brussels is currently £19.99 one way, whereas the cheapest economy, midweek fare to Frankfurt is £599.
Aer Rianta has long since argued that they need an adequate return on their investment. It is accepted in capital markets that the real value of an airport's business is reflective of passenger numbers and the growth of those passenger numbers. We believe the Ryanair proposal gives Dublin Airport the ability to generate both an acceptable return on capital employed and continuation of the massive growth of passenger numbers which Ryanair's low fares have already delivered to the airport. Fundamentally, an airport's business is not about making a profit on a static or declining number of passengers but, rather, substantially increasing passenger numbers over time and deriving a variety of income streams from this ever-increasing customer base. |
Michael Cawley is Chief Financial Officer of Ryanair plc.
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| Article appeared in the July 1999 issue.
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