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With the news this month Dublin Airport is building another runway comes the inevitable questions from airlines – how much is it going to cost and who is going to pay for it?
History suggests that getting all sides to agree on the answers to these questions will not be easy. Back in 2005, the decision to construct a second terminal at Dublin Airport led to a bitter and protracted dispute between Ryanair, daa (the owners of Dublin Airport), and the Irish airports regulator, the Commission for Aviation Regulation. A change in management at daa appears to have led to a closer working relationship between Ryanair and the airport in recent years. The construction of the northern runway will be a vital test of this new friendship.
First, the cost: daa has put the cost of constructing the new runway at €320m. Both Aer Lingus and Ryanair have already questioned this figure, which is almost 30% higher than the original estimate of €250m. Ryanair has previously suggested the runway could be built for as little as €50m although, like many Ryanair statements, a large pinch of salt is required.
So what’s the best way to ensure that the cost of the new runway is efficient and reasonable? The key is clear communication and a thorough consultation and negotiation process. Ignore the regulator for the moment. The airlines and airport are in a far better position than the regulator to decide what’s needed in the new runway. The Commission should only intervene to encourage effective consultation or, as a last resort arbitrator where there is significant conflict.
Agreeing the cost will be easy compared to resolving the issue of who’s going to pay. While Ryanair have expressed support for the extension, this is on the basis that it is not paid for through higher charges. This is optimistic thinking given the Commission has already agreed a €0.56 increase in Dublin Airport’s charges if passenger traffic is sufficient to trigger the building of a new runway. There is, however, scope to amend this decision.
It is inevitable that the airlines, and their passengers, will have to contribute towards at least some of the cost of the new runway. European rules on State aid limit the opportunity for public funding. Airlines’ preference for a single – rather than dual – till regulatory regime also limits the opportunity for the runway to be funded outside the regulatory regime using commercial revenues alone.
However, it should not just be a matter of shut up and cough up. Dublin Airport should be encouraged to think more like a commercial business rather than a regulated monopoly, and the risk associated with recovering the cost of building the new runway should be therefore shared between the airlines and the airport. For example, it is now common practice for regulators to use mechanisms for sharing any over or under-spends on large investment projects.
As the key to the success of the new runway at Dublin Airport will be attracting new passengers, why not include a risk-sharing mechanism for passenger growth? This already exists to some extent through the use of a per-passenger revenue cap, whereby lower (or higher) than forecast growth in passenger volumes results in Dublin Airport under (or over) recovering their costs. However, this balance could be strengthened.
This would have the added benefit of forcing Dublin Airport to think like a business that is in competition with other airports for market share as well as trying to grow the size of the market. As we discuss in this month’s Aviation Intelligence Reporter, competition between airports should be encouraged and is preferable to regulation.
One cost that might be worth looking at is the Dublin Airport Authority’s decision to brand itself using all lower-case letters. Perhaps it was an attempt to be more approachable and trendy, in the style of companies like facebook and ebay. No doubt expensive branding consultants were involved. The easier (and cheaper) thing to do might have been to take inspiration from clients such as and easyJet and oneWorld. What about dAa? We offer that suggestion at no charge…
