Hop on the bus, Gus: time to jettison the regional airports?

Bus Eireann carries more passengers than all the regional airports combined. With roads improving, is there any point in subsidising the airports?, asks Róisín Burke

It's a question that can bitterly divide opinion along familiar rural-urban fault lines, particularly now that the country's coffers are bare: should taxpayers continue to heavily subsidise a string of smaller regional airports?

The powerful argument against it is the €55m estimated annual cost to the exchequer for the extremely poor value for money that regional air travel represents compared to other state-subsidised modes of transport.

Seven regional airports at Donegal, Galway, Kerry, Knock, Sligo, Waterford and Derry (which the state also funds) carry one million passengers a year combined. The state funds Public Service Obligation (PSO) flights at six of these airports to the tune of €15m, not to mention providing tens of millions more in development grants.

It's worth comparing those figures with the cost versus value for money of Bus Eireann. It has 90 million or so passengers and state subvention of just €36m. The higher-maintenance Iarnród Eireann carries 45.5 million passengers with a state subvention of €175m, but this includes rail line maintenance.

The airports survive on a mix of levies, landing charges and subsidies, including their heavy dependence on the PSO subvention that makes up 60% to 85% of their income, depending on the airport.

The state has almost trebled the money it pays out in PSO contracts in ten years, from €4.2m in 1999 to over €15m in 2007.

Any business traveller in the west or south will stress the importance of being able to fly to Dublin or Britain without being at the mercy of time-consuming and less reliable road or rail transit.

"It's not just about access to Dublin, it's about access to major international hubs from London to Hong Kong," adds Aer Arann corporate affairs manager Andrew Kelly. "That type of access is necessary for business and will continue to be required."

There is also the tourism and local employment argument.

Management at the privately-owned airports are constantly pushing their case for more funding and support, but in August last year transport minister Noel Dempsey well and truly marked their card, promising a review of the PSOs when current contracts end in 2011, in light of improved travel alternatives now available.

Worse still, the airports might even have to start shelling out to incentivise airlines to use them in the near future, according one expert.

"Airlines are extracting massive concessions out of regional airports in other countries," Bloxham's aviation analyst Joe Gill says. "In Singapore, Spain and Malaysia, some airports are offering 20%-25% rebates to airlines [as incentives to fly there]. It is an extremely challenging time for regional airports around the world."

Further challenges will follow, Gill predicts. "PSOs are likely to be phased out in two or three years. The €10 tax will crucify the regional airports in the winter." The per-passenger tax was introduced in the October budget, although Donegal and Sligo have now been made exempt.

Demand in regional airports in Britain is down 15%, according to the aviation authority's latest quarterly figures, but the effect of the recession on the airports here isn't fully known. Knock's passenger numbers are down 10% to 567,000 for the year to May, and Galway airport had a 13% drop to 270,000 in 2008. However, Kerry's passenger volume of 419,000 to the end of October 2008 was up 8% on the previous year and Waterford's increased 25% to 144,000 in the same year.

All of the airports just about break even. Kerry announced last week it made over €263,000 operating profit to the end of October last, a 16% drop on the previous period in spite of increased traffic.

Competition for the PSO routes is not fierce. Aer Arann runs the routes to Dublin from Galway, Derry, Sligo and Donegal and Knock while Ryanair runs the Dublin-Kerry service. Waterford does not have a PSO service but is state-funded via Transport 21 and the National Development Plan.

The real benefit to an airline based at these airports is having a presence from which to expand into commercial, non-PSO routes. One out of every four of Aer Arann flights is not PSO-subsidised, Kelly says. But would it be worth being at a regional airport at all without the PSO routes?

"We would obviously have to take a look at it commercially, but the PSO is a very small part of our business, just 16%," he said.

Ireland has Europe's third-highest number of airports per head of population, and the fifth-highest number per square kilometre, according to a Goodbody report. Catchment areas overlap, so that airports compete for the same fairly sparse customer base. Galway and Knock, for example, are jostling with each other and also with Shannon, as are Kerry, Cork and Shannon; Knock, Sligo and Donegal; and Donegal and Derry.

A less talked-about consideration for the airports is their environmental sustainability. Air travel is a massive carbon footprint generator and Ireland has European emission reduction targets to meet by 2020. All of these factors though, have to be juxtaposed against local interests in business, tourism, employment and politics.

"The real question," Kelly suggests, "is not how much does it cost to keep them open, but how much does it cost to close them?"

THE cost OF REGIONAL AIRPORTS

PSO route subsidy: €15.72m year

Donegal/Sligo: €5.4m

Galway: €3.04m

Kerry: €3m

Knock/Derry: €4.28m

Waterford: No PSO

National Development Plan: €100m is earmarked across the regional airports for 2007-2013. Whatever is unspent is likely to be reviewed in light of the recession.

Transport 21: €47m between six airports for safety and development measures 2008-2010. Also subject to review.

Total annual cost of circa €55m

June 21, 2009

Comments

#1 Joe commented, on June 22, 2009 at 11:53 a.m.:

Aer Arann will fly you from Sligo to Dublin this week for as little as 27 Euro. But while the passenger pays 27 Euro, the taxpayer subsidises the seat by to 70 - 100 Euro. It was never value for money for the taxpayer but in these strained times it is madness.

#2 James commented, on June 22, 2009 at 6:17 p.m.:

Most of the PSO routes should remain, as there is a clear case for the airports to retain access to not only international hubs, but the capital itself. There must be some alternative to the car, but at the moment with the way the train and bus networks are going, its hardly the alternative you can force on those who rely on air services to get to and beyond Dublin.

I do think though that 2 PSO routes at least should be scrapped - Sligo and Donegal. With the situation in the North now and there being no border control, Donegal can easily be served by Derry Airport which has several routes to the UK and Europe. Apart from the Dublin PSO service, Donegal only has 1 other route to Glasgow which is also operated by Ryanair from Derry. So why have 2 airports so close to each other competing with each other for the same routes? It never made sense in the good times, and it doesn't make sense in a depression(nevermind a recession!).
The Sligo PSO should also be gotten rid of because even in the good times Aer Arann could barely fill their smallest plane on the route, and the only other route to Manchester only ran a few times a week and was never full, and that service has since been scrapped. So why should the taxpayer continue to prop up such a non-viable airport just so Sligo locals, who themselves have viciously campaigned against expanding the airport and are the main reason why it only relies on the Dublin route now, can say they have their own airport? Sligo is right beside Mayo and can be easily served by Knock Airport, which has several routes to the UK and Europe. And in times like these, it makes sense for less airports to be financially viable than more airports to be financially struggling.

As for the other regional airports, they have shown that they can be commerically viable so there is a case for their PSO's to continue. But going by the figures above, scrapping the Sligo and Donegal PSOs would instantly save the taxpayer €5.4m and reduce the airports to what they should be - flying clubs!

#3 Joe commented, on June 24, 2009 at 3:33 p.m.:

I agree with all of what James says above about scrapping the Public Service Obligation (PSO) grants to Donegal & Sligo immediately. To continue to spend scarce public funds on these routes is economically and morally unacceptable.

However I would go further. There has never been a clear-cut case (social or economic) made to justify subsidising any of the regional airports.

I have looked for, but have never been able to find any data or studies that show that grants on Regional Airports and associated PSOs provide a net benefit to the taxpayer or even the regions they serve.

The only report I can find on this topic is the DKN Consultants Report on Air Transport Services for the Dept of Transport is available at this link.

http://www.transport.ie/upload/genera...

The report provided to the Dept Of Transport in May 2003 cast major doubt on the the PSO for regional airports but that was advice that various Ministers of Transport have not taken on board.

Perhaps when the country was awash with money in the Celtic Tiger years it didn't matter.

But it matters now and we need the Minister to act now.

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