Aer Lingus CEO fudges questions on Belfast Base

July 9th, 2008 - Pat Breen

Chairman:      I welcome Mr. Dermot Mannion, chief executive officer of Aer Lingus, and Mr. Laurence Gourley, legal adviser and director of corporate affairs. I draw witnesses’ attention to the fact that while members of the committee have absolute privilege, the same privilege does not apply to witnesses appearing before it. Members are reminded of the long-standing parliamentary practice that they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable.

Before I call on Mr. Mannion to make his opening submission I will bring him up to date with the hearings we have held so far. We began our hearings on aviation as a result of the decision by Aer Lingus to withdraw from the Shannon-Heathrow route. We were most anxious to broaden the debate so we held discussions with Shannon Airport Authority and Dublin Airport Authority. Cork Airport Authority was to come before the committee but has not done so yet. We propose to invite the other airport authorities, together with the four major Irish airlines, Aer Lingus, CityJet, Aer Arann and Ryanair.

While fuel prices have become the issue of the day we are also anxious to hear from Mr. Mannion on his future strategy for the development of Aer Lingus, mindful of the mergers taking place in the industry in Europe and the increasing competition arising from the increased fuel costs. Mr. Mannion has written to us in connection with the charges proposed by the EU and we also hope to discuss that issue.

Mr. Dermot Mannion:  I will begin by associating myself with the remarks made by the Chairman about Séamus Brennan. Séamus Brennan made a huge contribution to Irish aviation and was responsible for the liberalisation which the travelling public, both into and out of Ireland, has enjoyed for many years. As Minister for Transport, he was responsible for appointing the current chairman of Aer Lingus, Mr. John Sharman, and Mr. Sharman wishes to be associated with my comments. When I took up the post three years ago I received a letter of great kindness and encouragement from Séamus Brennan, which I will never forget. On behalf of everybody at Aer Lingus I express heartfelt sympathy to his family.

I will now move onto the issues under consideration. I thank the Chairman and members of the committee for the opportunity to update the committee on a number of issues pertaining to Aer Lingus and, in that context, future plans for the aviation industry in Ireland in general.

The rising cost of fuel presents an unprecedented challenge for the airline industry and will have serious implications across the sector. Fuel represented our largest change in operating costs in 2007, growing by 26%, or €52.7 million, to €253 million. Since then, the aggressive movement of fuel prices makes it even more imperative to identify and garner savings elsewhere. For some airlines this will be unsustainable but despite this challenge, Aer Lingus remains in a strong position, both in our robust balance sheet, especially following the IPO, and because we have a strong management team to steer us through this period of uncertainty.

We have a hedging policy on fuel which is comparable with other airlines in our sector, including Aer Berlin and British Airways. At present, we have hedged 28% of our fuel requirements for 2008. However, with fuel prices at $142 a barrel when we drafted this presentation two days ago and $136 today, the implications for fuel price in the full year 2009, with minimal hedging opportunities, poses a serious challenge for the entire airline industry.

The long-haul fuel surcharge, first introduced by the company in April 2006 and constantly reviewed in line with the change in the oil market, partially offsets volatility in the market and the resulting costs. However, the fuel surcharge accounts for less than 50% of the associated fuel cost per passenger. In that context, we will continue to monitor the fuel surcharge and will bring it into line with changes in the price of fuel. Aer Lingus does not currently impose a fuel surcharge on short-haul flights. In the current environment, it is imperative for Aer Lingus to retain our relentless focus on managing the cost base. We have no choice and I can make no apology for that.

On 28 April 2008, Aer Lingus celebrated a momentous milestone with the dawn of our 50th anniversary of transatlantic flights. Our evolution from a single route in 1958 to achieving global brand recognition that resonates across the North Atlantic is an Irish success story. With the advent of open skies last autumn, Aer Lingus was the first European carrier to take advantage of this agreement, giving the airline access to a further three gateways in North America, including Washington DC, San Francisco and Orlando. In that context, Aer Lingus intends to continue to operate a profitable long-haul operation.

Aer Lingus is also committed to our medium-term long-haul growth strategy. However, at a time of unprecedented high fuel prices and uncertain economic conditions, we will continue to focus on actively managing our capacity and reducing our operating costs. Our current position is that we have decided not to increase in 2009 our long-haul fleet beyond the current nine units. This will be achieved by using new deliveries to replace existing units with increased levels of passenger amenity as well as the added benefit of improved economics and fuel burn.

Following the peak summer season, Aer Lingus will suspend services on our Dublin-Los Angeles route from 2 November 2008 and will reduce long-haul capacity by 15% for the winter season 2008-09. However, the situation is being kept under constant review and we cannot rule out further changes in the schedule if volatile conditions continue. These actions are a direct consequence of the unprecedented increase in fuel prices, the weak US dollar and slowing economies generally.

Overall, despite the difficult prevailing conditions, Aer Lingus remains committed to investing in the long-haul product. Specifically, three of our current fleet of A330s will be refurbished this year, bringing the total number of new-refurbished aircraft in the fleet to seven out of a total of nine.

Aer Lingus has reviewed opportunities for viable connectivity with Aer Arann flights. As a result of this review, we identified that the volume of Aer Arann flights between Dublin and Cork, coupled with customer demand, facilitated a viable connecting product to our transatlantic flights from Dublin. To this end, we recently signed an interline agreement with Aer Arann that allows customers to connect directly to Aer Lingus transatlantic flights from Cork Airport. These are early days in the new arrangement with Aer Arann and we will keep the initiative under active review.

I would like to address the issue of the proposed EU emissions trading scheme, ETS. I recently wrote to members of the committee, MEPs, members of the Government, including the Taoiseach and the Ministers for Transport, Finance, Environment, Heritage and Local Government, and Deputy Power, outlining my concern with the current proposals. I draw the committee’s attention to the potentially disastrous effects on the Irish travelling public of the current draft of the proposal to include aviation in the EU emissions trading scheme.

May I put forward two propositions, which are broadly accepted in Ireland? First, aviation has been and will continue to be a positive force in the development of this island. Second, it is not inconsistent to be both pro-aviation and pro-environment. Aer Lingus is very conscious of our obligations to the environment. However, the entire airline industry contributes 1.8% of global carbon emissions. Carbon-based fuels are the only viable fuel source option available for the airline industry, now and for the foreseeable future.

Aer Lingus fully supports the aviation industry’s four pillar strategy towards tackling environmental emissions, which takes into account technology, infrastructure, operations and legislation. We have already improved our fuel efficiency by 50% in the period 1991 to 2007 and we have recently contracted to invest more than $2.33 billion dollars in the next generation of long-haul aircraft with “best in class” fuel emissions. We will continue to work closely with suppliers and partners to achieve whatever we can and, where possible, to be a leader in setting new standards for fuel and emissions saving measures.

However, for Aer Lingus we estimate the net cost of ETS will be €39 million in 2012 and this could jump to over €205 million in the period 2013-16. At a time of unprecedented oil prices and a very uncertain outlook for the aviation industry, it is inconceivable that such costs should be imposed. There will be no alternative but to recharge these costs to passengers with, again, no obvious benefit to the environment.

Overall, Ireland’s situation as an island-based economy means we are uniquely dependent on air transport links and no consideration has been given to the disproportionate effect of this scheme on passengers to and from this jurisdiction. Aer Lingus believes this ill-timed and ill-conceived proposal should be put on hold to allow for further deliberation, especially at a time when efforts are continuing by the International Air Transport Association, IATA, and the International Civil Aviation Organization, ICAO, to find a worldwide solution across the entire industry. A one-sided EU scheme which is not matched in the United States or other parts of the world is doomed to failure and will serve only to put European airlines at a significant disadvantage to carriers in other jurisdictions.

I thank you, Chairman, and members of the committee for your kind attention.

Chairman:      Thank you, Mr. Mannion. We would like to talk to you on a number of areas. We received your letter regarding the emissions trading scheme. My own initial reaction is to agree with you. A one-sided EU scheme which is not matched by the United States and other parts of the world would be most unfair to air commuters in this country and throughout Europe. I think this committee would give Aer Lingus its backing in opposing the devastating effects of such a proposal.

The fuel issue has dominated the aviation scene. Were it not for it, this discussion could have been quite different. We have to concentrate on the impact of that issue on Aer Lingus. Mr. Mannion has mentioned the “uncertain outlook for the aviation industry”. I would like to ask him about the airline’s future strategy in the context of the prediction that fuel will reach $200 a barrel, the merger between Air France and KLM, the possible merger between Lufthansa and Iberia Airlines, the current British Airways exercise, the possibility that Alitalia is about to go to the wall and Ryanair’s attempt to take over Aer Lingus. Is it not inevitable that Aer Lingus will have to examine the possibility of taking a strategic approach to mergers or takeovers in the future? I am aware that the European Commission rejected Ryanair’s attempt to take over Aer Lingus. Is it not inevitable that Aer Lingus, as a small airline that is operating successfully at the edge of Europe, will have to participate in some form of merger with Ryanair or some other European airline?

We are aware that there have been increases in fuel prices. I compliment Aer Lingus and its unions on the significant efforts they have made to try to save approximately €20 million by reducing staff costs and changing work practices. I understand that agreement has almost been reached in that regard. I commend the airline on its attempt to increase its competitiveness. Aer Lingus carries a fraction of the number of passengers carried by Ryanair. There is a belief in the regions that Aer Lingus has abandoned those parts of Ireland outside Dublin. Many people believe it is really only interested in Dublin.

Deputy Thomas P. Broughan:      I understand that, within the island of Ireland, Aer Lingus and Ryanair are pretty similar-sized operators. Ryanair is a European airline.

Chairman:      We will allow the chief executive to answer my questions when I am finished. Mr. Mannion mentioned Aer Lingus’s connection agreement with Aer Arann. Can a case be made for a significant code share arrangement with a company like Aer Arann, which serves regional airports in the rest of the country? If I travel from Galway to Dublin to take an Aer Lingus flight to Frankfurt, is it not ridiculous that I have to check in at Galway Airport, come through customs, etc., at Dublin Airport and then check in again at Dublin Airport to go to Frankfurt? Such difficulties discourage people in the regions from using Aer Lingus. In the absence of a code share arrangement, surely a better system can be developed at Dublin Airport to ensure that passengers who come from the regional airports, including Cork Airport, do not have to face the ridiculous scenario we are facing at present.

I would like to ask about the fuel price exercise in which Aer Lingus has been involved. To what extent has the airline availed of hedging opportunities? I understand that Air France-KLM has the best hedging position and Ryanair has one of the worst hedging positions. I would like to know where Aer Lingus stands in that respect.

Mr. Dermot Mannion:  I would like to begin with a general comment. High oil prices represent a double-edged sword. They have a serious effect on the industry. There are winners and casualties in that process. Aer Lingus is well placed to come through the current period of uncertainty, which is caused by fuel price increases, and come out significantly stronger when that period has come to an end. I do not accept the thesis that Aer Lingus must merge with, or be acquired by, another airline. The strategy that was made known to members of this committee and others in advance of the initial public offering remains intact. There was a target at that time of increasing the short-haul fleet by 50% and the long-haul fleet by 100%. We have made plans to do just that. We are acquiring the new long-haul aircraft needed to meet that target. We are not deviating from that strategy. As a sensible short-term tactic, we are adjusting the schedule where necessary to take account of current oil prices. We do not accept the thesis that Aer Lingus cannot continue as a strong independent carrier. We believe we will come through this crisis as a much stronger carrier, perhaps in a scaled-down industry across Europe and the world.

I disagree with the Chairman’s suggestion that Aer Lingus is not providing enough connectivity across the country. Aer Lingus will continue to offer significant services from airports other than Dublin. We are currently offering services from Cork, Shannon and Belfast airports. We have not deviated from that in recent times. We are doing our best.

Chairman:      There are no Aer Lingus services from Shannon Airport to European destinations.

Mr. Dermot Mannion:  Aer Lingus continues to have a significant operation at Shannon Airport.

Chairman:      The services provided are transatlantic only.

Mr. Dermot Mannion:  Our transatlantic operation is significant at a time when fuel prices are increasing quickly. We are doing everything possible to maintain those services. I do not think we have anything to apologise for in that regard. The Chairman mentioned that Aer Lingus has entered into an interline arrangement with Aer Arann on an experimental basis. Passengers on Aer Arann’s Cork to Dublin route can connect with transatlantic Aer Lingus services. It is early days. The service began operating last week. We will have to see how it goes.

I share the Chairman’s concern about passengers from Dublin, my home town of Sligo and other places who are being inconvenienced in the manner he describes. I ask the committee to understand that certain technical issues, which are outside the airline’s control, need to be resolved if we are to make progress in this regard. The airport needs to be involved in creating a mechanism whereby passengers in the arrivals area can check in their baggage for a further flight. Technical, security and other obstacles need to be surmounted before such a mechanism can be put in place. We will consider in a positive manner any proposal that will facilitate passengers who wish to make connections of the type described by the Chairman. As we are running a point-to-point business these days, however, we cannot offer a facility whereby passengers can get a single boarding card for a flight to Dublin with another airline and an Aer Lingus flight from Dublin to some other point. The problem with such a system is that huge issues would arise in the event of missed connections and weather delays, for example.

The system we have developed in Cork will work because there are frequent flights on the Dublin to Cork route and the various transatlantic routes. If a passenger misses a connection, he or she will have an opportunity to avail of a later flight. It is not quite as easy as that with the other Aer Arann destinations. We are being positive. We took a positive step last week. We will work with Aer Arann and the Dublin Airport Authority to devise a reasonable plan that will make it easier for passengers to connect from one flight to another.

Deputy Thomas P. Broughan:      I welcome Mr. Mannion to the meeting. I commend him on some of the initiatives he has taken to maintain the viability and strength of Aer Lingus into the future. They have been critically important for the north side of Dublin, which I represent in this House, and the rest of the greater Dublin area.

I would like to ask about the attitude of Aer Lingus in respect of the proposed emissions trading scheme. I accept the point, which was made well by Mr. Mannion, that aviation is critical for Ireland because, as an island nation, it is different from other EU member states. The Government has not made that point at European Parliament or European Commission level. Could it be argued that Aer Lingus is crying wolf in the case of the proposed emissions trading scheme? I understand that it is proposed to cap emissions at 97% of 2004-06 levels from 2012, rather than 2011. It seems that 15% of carbon permits will be auctioned off.I notice that Friends of the Earth states that could mean 85% of permits would be handed out free and that airlines would have some windfall profits. Is it as serious as Mr. Mannion suggested? When we met in private session, I asked that the committee hold a full scale hearing on fuel costs. All members are receiving e-mails and telephone calls from transport operators right across the board from carriers to bus companies and so. The figures are alarming and very upsetting. Is aviation not a little special because as I understand it, kerosene does not attract the 44 cent duty or VAT? Is the aviation industry not different from all the other transport sector operators which have been given help to some extent? I may be wrong, but those were my assumptions. Is the ETS proposal as scary a proposal for the Irish aviation industry as Mr. Mannion outlined?

I support some of the points made by Mr. Mannion on fuel costs. It is certainly alarming. The Chairman mentioned the $200 limit. I think Gazprom was talking about a figure of $250 a barrel. What will happen to our national aviation industry when fuel costs $250 a barrel? It would be disastrous for the world economy and lead to a depression, not a recession.

Hedging has been mentioned. We understand the great Michael O’Leary who will come before the committee next week did not hedge on this occasion and, to some extent, seems to have got it wrong. Mr. Mannion mentioned a figure of 28%. Why did Aer Lingus not opt for full coverage? Are people waiting to see if there will be a dip in the next number of months? I hope this incredible price of fuel and commodities will not continue. Is Aer Lingus waiting for an opportunity to hedge and protect the industry? It is very disappointing to hear about the Los Angeles route, as the airline took a number of initiatives in respect of long-haul flights. I know that in the case of Dubai, where Mr. Mannion worked, the service has been withdrawn. I thought the strategy was to create and develop a cheap long-haul hub. Is that strategy in tatters following the withdrawal of the service to Los Angeles and Dubai? It is frightening when one flicks on the Aer Lingus website which is very efficient to look at the surcharge for long haul flights. It is astonishing for travellers. I wonder what is the long-term plan?

What is the current valuation of the company in the light of the shocks to the stock market in recent weeks? I note that one major investor, a Dublin property developer, engaged in a fire-sale which resulted in further decline in the valuation of the company. Is that a matter of concern for Aer Lingus?

Mr. Dermot Mannion:  I will take the second point on the cost of fuel first. As has been pointed out, we have hedged on 28% of our fuel requirements for this year. Across the industry that is good. One or two airlines are doing better. The Chairman has pointed out that Air France and KLM probably have a better hedging position for the rest of the year. Other airlines are not as good. The real challenge is not presented by what will happen this year. It is almost universal that very few carriers have hedged for 2009. That is where the challenge will lie for the entire industry. Far from discussing oil at $200 a barrel and above, the industry will struggle if the price remains in the region of $150 a barrel for 2009 with no hedging. Having said that, at some point, sense must prevail. If a strong airline such as Aer Lingus is to be adversely affected in 2009, if oil prices stay at that level, the repercussions in other parts of the industry will be worse and in other industries, separate from aviation, even worse. At some point that must create downward momentum on fuel prices. Who knows when that will happen?

I was asked about the strategy behind hedging. It is a balancing game. What one does not want to do is get caught on the wrong side by hedging to a very significant amount in terms of one’s exposure for the year and when prices fall, unlike other airlines, one is unable to take advantage. That would be a worse position to be in. The position in which we find ourselves is that we are about average across the industry – no better and no worse than most.

The first question from Deputy Broughan was on the ETS scheme. I thank him for the detail because it gives me an opportunity to clarify the position. The figures I have quoted allow for the issue he addressed, that 85% of the credits will be given out free, that one has to purchase up to 15% of the credits, that is, the gap between that figure and the average amount consumed in 1995, 1996 and 1997. The problem is that in respect of any growth in passenger traffic and fuel emissions beyond the average figure for those three years – as members know, Aer Lingus has grown significantly in the past two years – we will have to pay for credits. We will have to pay for any growth in traffic between now and 2012 and beyond. That will present a significant problem in going to financial institutions to finance new aircraft. When seeking finance, we must tell the bankers that for every extra passenger we will carry, in addition to paying their charges, we will have to come up with approximately €50 per passenger in extra charges. That is the problem and it will become difficult to sustain and support the huge capital investment programme we have put in place. This brings us back to the time of the IPOA. We said then, as we are now, that the €400 million in equity would be invested in new aircraft. We are doing this, but, to put it mildly, the imposition of ETS will cause difficulties for us and others in the marketplace in financing new aircraft.

One of the issues unique to Ireland is that there is no opportunity to substitute other forms of transportation. Right across the European Union, I understand the figure is approximately 15% to replace aviation travel with other forms of travel, including bus, rail and so on. That opportunity is not available in Ireland. None of this has been taken into consideration in these proposals. We are not crying “Wolf”. In fact, we have done a great deal of work, more probably than any other airline in the European Union, to make a detailed analysis of the numbers. If anything, they are at the minimum end of the scale in terms of what we and the travelling public might have to pay.

Let me emphasise that the US carriers have stated they will challenge this in the courts. They will not pay. Other jurisdictions outside the European Union have stated the same thing. For example, the United Arab Emirates has stated its airlines will not pay this charge because the European Union has no right to levy it on airlines outside its jurisdiction. Here we are doing our best to establish a viable long-haul product. I note Deputy Broughan’s disappointment that services on some routes have been suspended in recent times. However, it gives an indication of the challenges presented. Other visiting carriers from other parts of the world will be able to carry long-haul passengers to and from Ireland without incurring ETS charges which is hugely discriminatory. For that reason, even at this late stage, I call again on the Minister for the Environment, Heritage and Local Government, Deputy Gormley, at the Council of Ministers to put a stop to this nonsense. Let us get back to the drawing board.

Chairman:      We endorse Mr. Mannion’s position. Perhaps a member might formally make such a proposal.

Deputy Timmy Dooley:      I propose that we deal with the issue at the committee and invite representatives of the Government, perhaps the Minister and his officials, to discuss it.

Chairman:      We can do that but I feel we should endorse the Aer Lingus position and support its position on ETS. It believes it is having a devastating impact on Irish aviation in particular, especially as it does not apply to American or eastern airlines.

Deputy Thomas P. Broughan:      It is likely that in January, irrespective of whether the Democrats or Republicans win the election, the new President will be committed to some form of world emissions trading scheme. It is likely that the American situation may change.

Mr. Dermot Mannion:  I acknowledge that point. The letter to the committee noted that discussions are happening. They may be stalled in the US due to the election but IATA and ICAO, the two industry bodies, wish to have a global scheme. Aer Lingus will play its part. It is the original green airline and intends to remain so. It will stay at the forefront of this debate. I reject some recent comments from the environmental lobby stating it is inconsistent to be pro-aviation and pro-environment. I do not accept that. Aer Lingus is capable of being positive in both directions. We support a worldwide solution but given the recent unilateral action by the European Parliament, it will be more difficult to achieve.

Let us look at the third strand. There was a question regarding the stock price. It is disappointing to see the share price down. This is happening not just to Aer Lingus but right across the Irish market. The identity of those who sold shares in recent days is unknown. I cannot comment on that specifically. I believe in the adoption of a sensible long-term strategy for Aer Lingus. We will come through this, more sensible share valuations will prevail and ultimately those who have remained loyal and invested in the shares will be rewarded.

Chairman:      Before I come to Deputy Dooley, Deputy Broughan had a question concerning Dubai. Why did Aer Lingus pull out of Dubai? You have told the committee that Aer Lingus proposed a 100% increase in long-haul business. Surely Dubai, as the Mecca of long-haul aviation would be a strategic development, particularly with India, China and “down under”? If one has an aspiration to grow long-haul services by 100% and then pulls out of Dubai, there would be a conflict with one’s objectives.

Mr. Dermot Mannion:  Aer Lingus has aspirations to grow eastbound. We are not ruling out operations to China. We do not need to stop at an intermediate point to China. With the advent of new aircraft we are able to go non-stop to those destinations. All the decisions we make are a function of the situation at the time. Even with a soft market in the United States, Aer Lingus is keen to develop as many sustainable long-term routes as possible to the US. The greatest potential volume of traffic to and from Ireland is always the United States. Our first priority concerning open skies is to use our capacity in that direction.

The current situation in the US is challenging. However, even in a tough market in the first six months of this year, we have grown passenger traffic to the US by over 10%. We will stay in the US market despite difficulties; there may be some juggling of routes.

Chairman:      We will come to the issue of the United States shortly but you are evading my question. The reality is Aer Lingus was unable to compete with Emirates and Etihad. The new route to Dubai was announced with great gusto and we were all delighted with it. Suddenly it just disappeared. Why was that?

Mr. Dermot Mannion:  No, Chairman, it did not suddenly disappear. Aer Lingus operated the route to Dubai for two years.

Chairman:      Why did you cancel it?

Mr. Dermot Mannion:  We operated at seat factors in excess of 70%. The Dubai route was fine in the circumstances of the time. Aer Lingus made a tactical statement at the time, which I stand over now, that in an open skies environment it is better to deploy scarce aircraft capacity in the United States rather than other parts of the world. That is the strategy that was enunciated.

Chairman:      Over to Deputy Dooley and Deputy Breen. I am sure he has something to say about that.

Deputy Pat Breen:      Thank you, Chairman. I thank Mr. Mannion and Mr. Gourley for their attendance and presentation. Mr. Mannion concentrated on the ETS and the impacts he believes it will have on Aer Lingus. I suggest to the Chairman that the committee involve itself in a proactive way to assist Aer Lingus and other carriers in dealing with what I think is a considerable problem for the development of this country.

Ireland is an island nation. Alternative ground-based transport available in other member states are not available here. It will have a significant impact on Ireland’s capacity to grow and develop. It would be wrong, in straitened economic times, to encumber ourselves in a way that might restrain our abilities to refocus on growth and development. I also recognise what Mr. Mannion said about Aer Lingus having a significant operation in Shannon. I welcome his decision on routes out of Shannon and the work done with the airport authority in Shannon. I was going to comment on the eastbound long-haul strategy but the Chairman has dealt with that.

Mr. Mannion spoke previously to this committee about Ryanair’s presence on the Aer Lingus share register, and stated the company was looking at a methodology to deal with that. Concerns were expressed at the time and Mr. Mannion might update the committee on this matter.

A year on from the decision to exit Shannon and establish a base in Belfast could Mr. Mannion tell the committee if the move has resulted in significant growth in profits in comparison with business done in Shannon? Could he talk to us about loads and yields in Belfast? Can he also provide the short-haul proposals for Shannon and outline if consideration has been given to re-establishing flights out of there? Has consideration been given to establishing a link between Shannon and Heathrow?

Mr. Dermot Mannion:  Regarding Ryanair, matters are before the European Court in Luxembourg. Aer Lingus has indicated that it would like to see a reduction of the Ryanair shareholding below the current level. That strategy is being pursued through the European Court and will take its own course.

I am unable to comment on the second question on the establishment of the Belfast base, and its loads and yields. I am sure the committee will understand Aer Lingus is a public company and that is sensitive information. I can comment on what is in the public domain. For example, the traffic statistics for June released recently include the ten routes operated to and from Belfast. The short-haul load factors held up well at 81.1% versus 81.6% last year. Belfast is off to a good start. Market conditions are challenging in every market, but Belfast is more than holding its own.

The third point related to short-haul opportunities from Shannon. I said last year, and I repeat now, that we have ruled out future short-haul operations from Shannon. On an iterative basis as additional short-haul aircraft are acquired for the fleet, due consideration is given to the best manner in which those aircraft can be deployed. I can assure the committee that Shannon, and the potential of Shannon routes, are given every consideration in those deliberations. The deployment of long and short-haul aircraft requires similar analyses to determine the optimal deployment between Shannon, Dublin and other potential destinations. Just as we deploy long-haul aircraft we are doing a similar exercise in terms of determining the optimal deployment between Shannon, Dublin and other potential destinations.

Deputy Timmy Dooley:      I ask the chief executive to consider taking his holidays on the August bank holiday this year rather than wait around and issue any negative press releases that caused us all so much grief last summer.

I welcome the chief executive’s comments in regard to a proactive approach to Shannon. There is little point at this remove in me, Deputy Breen or others, getting into a banter over what happened previously. We have had all that. It is my wish to work with the chief executive and I have had discussions on a regular basis with his executive team whom I found to be open and understanding in regard to the issues and difficulties. It would be remiss of the committee not to try to put more pressure on Aer Lingus, as a national airline, albeit a private company, to give greater consideration to providing access to the regions. It is rather like being pro-development and pro-environment – they are not mutually exclusive. Neither is it mutually exclusive to suggest that one can be pro the regions and still be a private company and supportive of the notion of making profit.

In terms of the review within the company, from a strategic point of view, particularly in light of the changed circumstances surrounding the current economic climate and the price of oil, I ask the chief executive to look at the Shannon-Heathrow route which was strong in terms of demand. I appreciate there were issues about the cost base which the company is in the process of successfully addressing. From what we hear on the grapevine, the yield out of Belfast would not compare with that out of Shannon. It would appear that Shannon was providing a much strong return to Aer Lingus. However, I am speaking without the facts. I ask the chief executive to give continued consideration to, and continue his engagement with, the airport authority in that regard.

Chairman:      That the chief executive has not ruled out short haul to Shannon is a welcome statement.

Deputy Pat Breen:      Like Deputy Dooley, my interests lie in the mid-west. In his presentation, the chief executive said Ireland is an island nation. Malta, Cyprus and Ireland are very dependent on air travel. The Chairman and I, who are members of the Council of Europe, can see this for ourselves where the TGV has entered from Charles de Gaulle international airport and the centre of Paris to Strasbourg. Air France regional is reducing its services on that route given that people are taking up that service. Unfortunately we do not and will not have that facility in Ireland.

Reference was made to the link with Aer Arann which is still in the early stages in regard to a transatlantic route. As the Chairman rightly pointed out we do not have a link to the east with Aer Lingus since we lost the London route, nor do we have European routes with Aer Lingus. The chief executive has said he may consider a proposal with Aer Arann for evening and night time flights from Dublin to Shannon given that Aer Lingus transatlantic flights from Chicago operate via Dublin to Shannon in the morning. Sometimes that flight arrives late from the US and it is unpredictable.

I appreciate that Ryanair and Aer Arann have been on the route but they are competing with Aer Lingus for the morning service and that is a problem. Since Aer Lingus has a close relationship with Aer Arann, I ask the chief executive to consider an evening or late night connection with Aer Arann? Aer Lingus used to operate a late night flight from Dublin to Shannon which was very successful and the load factor was very good. If it were to link up with some of Aer Lingus’s continental flights from mainland Europe in the evening that would give Shannon a reasonable link to Dublin Airport, particularly on the European routes which are very attractive to business people who travel to Europe. I ask the chief executive to take that consideration on board given that Aer Lingus has a relationship with Aer Arann.

May I ask one direct question? Does Aer Lingus regret leaving Shannon? We regret its departure. It has inconvenienced many business people with whom I speak regularly. While I welcome CityJet, which has two scheduled flights daily to Charles de Gaulle, it operates only on a 50-seat aircraft and does not have regular flights throughout the day, whereas under Aer Lingus there were four flights throughout the day to London-Heathrow. People can say what they like about it but London-Heathrow is a fantastic hub. Like Deputy Dooley, I would like to know if Aer Lingus is serious about coming back to Shannon? The people were there for the flight and the service was profitable which is what airlines are all about.

I was not very convinced about the chief executive’s reply to Deputy Dooley who asked about the Belfast route which is not yet a year in operation. He said it was “holding its own”. The chief executive said he was keeping the situation under constant review and could not rule out any further changes to the schedule as volatile conditions evolve particularly in relation to transatlantic business. Given the importance of transatlantic services I would hope the mid-west region would not be the victim of any further cutbacks, particularly if the extension of the customs and border facility is put in place. That will be another magnet of attraction for the airport. I hope Shannon will not be the victim of further cutbacks as Aer Lingus tries to service the US from the two transatlantic bases in Ireland.

The chief executive mentioned that three aircraft will be out of service for the winter for upgrading purposes. What effect will this have on the transatlantic business? Are there plans to operate a direct Chicago service to Shannon?

In regard to the emissions trading statement, the chief executive said Aer Lingus would invest €2.3 billion on the new long-haul aircraft which is best in the class for fuel emissions. Have any orders been placed with Airbus for the new generation A350 or Boeing’s new 787? How many aircraft are on order? If so, I presume they will not be in service until 2014 or 2015? Is it intended that they will replace the A330 and some of the A320 aircraft which are used on short-haul routes?

Mr. Dermot Mannion:  I will take the questions in reverse order. We have orders in place for the Airbus A350. There was a competition between the Airbus A350 and the Boeing 787 and we selected the Airbus A350. We have placed an order for six and we have options on a further six aircraft. The objective is to do as the Deputy has said, namely, to replace all of our A330 aircraft with a fleet of at least 12, and possibly more, A350 aircraft. In terms of the positive effect that will have on fuel burn and fuel emissions, the A350 aircraft, if delivered as promised, will be at least 15% more fuel efficient per passenger than any of the aircraft we operate today. That goes to the heart of our position on ETS. We are taking our environmental issues extremely seriously. We are making a huge contribution by putting our shareholders’ money where our mouth is on this. That is why we feel so aggrieved—

Chairman:      Will the A350 be more fuel efficient than the 787, which I thought that was to be the dream liner?

Mr. Dermot Mannion:  One hears different arguments from different manufacturers. We assessed all of that in the evaluation process. In terms of the route network and operation we have, the A350 is a better aircraft overall in terms of fuel burn, passenger capacity and all of those issues. We took the fuel differential between the two into account.

On whether we have plans for a direct Shannon to Chicago service, the answer is not at this time. I regret the damage that was caused to our reputation in the Shannon area during three or four months of last year. I would say, and Deputy Dooley acknowledged it, that a huge effort has gone in recently to rebuilding confidence, rebuilding the reputation of the Aer Lingus brand at Shannon and, although it is early days, we are beginning to see some positive effect from that.

My comment about holding our own on the Belfast route was not glibly made. The truth is that fuel on every route, short haul and long haul, is twice as expensive today as it was this time 12 months ago. Any route that is holding its own in the circumstances prevailing in June 2008 is performing pretty decently. There is no lack of confidence on the part of Aer Lingus management regarding the kind of return it can deliver in Belfast. However, things have changed now. Fuel is twice as expensive as it was but Belfast is still very much holding its own.

The comment on Aer Arann is noted. These are early days. The new arrangement on Cork went into effect only last week. I would emphasise that it is not just within the gift of the airlines. Some restructuring work would be required at Dublin Airport to provide passengers with an opportunity to connect from one flight to another without having to go all the way back out and back in through the departure area. That is something on which we are working with Dublin Airport Authority. To be fair to the authority, space is very constrained at the moment. The good news, although it will take a little time, is that terminal 2 is under construction. We are a strong supporter of terminal 2 at Dublin Airport. There will be additional space. There is the prospect of additional facilities. It may not be ready for another 12 to 18 months, but we are prepared, in good faith, to have discussions with Dublin Airport Authority and others about creating connecting opportunities between multiple airlines at Dublin Airport by providing some kind of facility in the area of the arrivals hall that passengers could use without having to go all the way out and all the way back in again. We are positively disposed to that. We will work on it and we will see where we go.

Deputy Pat Breen:      May I ask a brief supplementary on that? On the comment regarding Aer Lingus holding its own, would Mr. Mannion agree that it takes time for an airline to build up a new route? How long has Aer Lingus been in Belfast?

Mr. Dermot Mannion:  Since last January.

Deputy Pat Breen:      That is only five or six months. I appreciate that Aer Lingus cannot comment on load factors at this stage. However, I would be surprised if it had huge load factors during the first three or four months. We have been told that the load factors on the Belfast to Heathrow route in the first few months were not large because it takes time to start a route off and 12 months is a very short time. It took two years in the case of Dubai. However, is it the case that the load factors on that route are not as good as Aer Lingus expected?

Mr. Dermot Mannion:  I am not sure I can comment further. The Deputy’s point that it takes time to develop is well made. We understand that. Aer Lingus does not make decisions precipitately. We give sufficient time to see how routes are developing and performing. I emphasise that there are big challenges for all routes, long haul and short haul, at a time when fuel costs at least twice as much as it did this time last year.

Chairman:      You have not given us very much by way of specifics. We asked about the possibility of developing better access into the regions. Does Mr. Mannion accept that at 5.30 a.m. or 12.30 a.m. Dublin Airport is chock-a-block? Everybody in the country must travel to Dublin with the possible exception of people in Cork. They are flying or driving to Dublin to access eastward aviation. There must be a case for Aer Lingus to re-examine this issue.

Mr. Mannion said Aer Lingus has not ruled out the possibility of short-haul flights to Shannon. There must be possibilities for Aer Lingus to develop services from the rest of the country, outside Dublin, given that the vast majority of people who travel from the west and the north west travel through Dublin because they have no other option. It is crazy that they have to go to Dublin to access flights which could be picked up at Shannon or Knock. I accept Aer Lingus’s good will towards the idea of some form of connectivity with Aer Arann.

On the future of long-haul flights, can you give the committee and assurance that the open skies policy will not result in Aer Lingus’s services out of Shannon Airport being downgraded? Aer Lingus has stated that its decision to switch from Shannon to Belfast was based purely on economic reasons. That must mean that some of the slots Aer Lingus currently operates out of Dublin or Cork to Heathrow would be much more economic and profitable if they were operating from one of the big international airports such as JFK. If the objective is to operate the most profitable routes into Heathrow Airport, is it not the case that they would not be from Cork or Dublin but from JFK or elsewhere? In light of the decision of British Airways to establish a new airline, could you be more specific in regard to Aer Lingus’s strategic approach to long-haul flights?

Mr. Dermot Mannion:  There was a reference to congestion at Dublin Airport. There is one very positive matter I would like to bring to the committee’s attention. Following the recent negotiations with the unions and the successful implementation of what we call an agenda of flexibility and mobility, one of the significant new aspects to that is that the check-in facility at Dublin Airport is now open earlier than it used to be. We now have a full check-in service operating from 4 a.m., which means that the kinds of queues and delays to which the Chairman referred will soon be a thing of the past. The check-in experience for passengers at Dublin Airport will get significantly better. Even in the first couple of weeks of implementing the flexibility agenda the situation has got better and I want to pay tribute to the unions that were involved with us in that partnership process.

On the question of connectivity, I can only state the case as it is. We took the first steps with Aer Arann last week. We are positive towards moving that agenda forward. It must, however, be borne in mind – and we cannot apologise for this – that we need to keep our Dublin operation as efficient as possible. We need to keep the 35 minute turnarounds that we have established in recent times because if we lose that we do not have the ability to drive a low fares product. We will, therefore, facilitate the debate, we will talk with Dublin Airport Authority and Aer Arann. This is not just about Aer Arann; there are other airlines operating through Dublin that may be interested in a similar facility. We will work on that. However, it is true that I do not have a specific definitive recommendation to bring to the committee today. Members will have to accept my bona fides in that regard.

On the question of whether we can give an absolute guarantee to Shannon in regard to long-haul services, the honest answer is “No”, just as we cannot give a guarantee to Dublin on long-haul services or to Belfast or any other place on short-haul services. We must make decisions that are commercially focused. To put it mildly, we are very aware of the socio-economic factors associated with long-haul routes, especially given the loyalty of the Irish-American community in the United States to the Shannon route. We are very aware of that and it will weigh heavily on our deliberations on the Shannon routes, as it will on other long-haul routes.

The third question was whether we had a plan to develop more profitable long-haul opportunities outside the island of Ireland, perhaps including one from Heathrow to the United States. We have no such plan. The economic and profit-making interests of the company are still best served by deploying the Heathrow slots in the way we do, namely, to and from the island of Ireland. That situation will be kept under active review. Members will be aware that one of the conditions of the privatisation of Aer Lingus was that the Government would retain the ability, if supported by another 5% shareholder, to block the sale of a Heathrow slot and that will continue into the future.

Chairman:      What was the total number of passengers carried by Aer Lingus in 2007?

Mr. Dermot Mannion:  In 2007 we carried 8 million passengers.

Chairman:      How does that compare with Ryanair?

Mr. Dermot Mannion:  Some 7 million of the total were short-haul passengers. In the worldwide league table of low-cost carriers – of which Aer Lingus is now one – we are in the top five along with Ryanair.

Deputy Thomas P. Broughan:      Ryanair’s figure was between 40 million and 50 million in 2006 or 2007 but it is a much smaller operation in terms of passengers originating in Ireland. Are the two companies similar in terms of their Irish operation?

Mr. Dermot Mannion:  It is difficult to judge from the statistics but I think the answer is “Yes”. We have more than 50% of slots at Dublin Airport and that is a good way of judging it. We are and will remain the dominant short-haul carrier from Dublin to other jurisdictions.

Deputy Pat Breen:      Has Aer Lingus any proposals for the two Heathrow slots it had on lease, given the fact that it had a ready-made market of 350,000 passengers coming through Shannon en route to Heathrow?

Mr. Dermot Mannion:  That is a very fair question. The problem with those slots is the fact that they are not at the right time of day, being in the middle of the day. Deputy Breen and Deputy Dooley will agree that the community in Shannon needs an early morning departure and a late evening return. I pay tribute to CityJet for what it has delivered in that regard.

Deputy Pat Breen:      One vital difference is that Aer Lingus had an aircraft based in Shannon which it could use early in the morning and CityJet does not have that.

Mr. Dermot Mannion:  The specific question concerned the two slots, which were midday slots and, to put it mildly, were suboptimal from a short-haul perspective.

Deputy Pat Breen:      Aer Lingus had a ready-made market.

Chairman:      We will draw the meeting to a close as delegates from CityJet are waiting.

Deputy Timmy Dooley:      We would be delighted if Aer Lingus would use the leased slots for Belfast so that Shannon could regain others.

Deputy Pat Breen:      Aer Lingus had a ready-made market of 350,000 passengers. It does not need to build up a market in that respect.

Chairman:      We appreciate Mr. Mannion’s excellent contribution. Coming from the west of Ireland, we all feel we have a part to play in making a return to Shannon a viable proposition for Aer Lingus. We urge Mr. Mannion to look again at the statement, having said he would not rule out such a move. Hopefully, in the next 12 months Aer Lingus might look positively at coming back to Shannon.

Aer Lingus undoubtedly projects a very positive image of Ireland. It does great credit to both the management and the unions that it has made the changes it has made in the past number of years. In light of what has happened to some national airlines, such as Alitalia or the Belgian airline that went into liquidation, the fact that Aer Lingus is thriving does great credit to both the staff and management, notwithstanding the threats that exist.

Mr. Michael O’Leary will appear before the committee next week and it is ironic that, had it not been for the advent of Ryanair and the competition thus created, Aer Lingus might be a basket case at this stage. I acknowledge the great leadership of both unions and management which has turned the airline around and made it a low-cost operation. Although it is a private company, it is a national carrier of which everybody in the country can be very proud.

Mr. Dermot Mannion:  On a point of information, I will correct one figure. The total passenger numbers in 2007 were 9.4 million, 8.4 million of which were short-haul passengers and 1 million of which were long-haul.

Chairman:      I welcome delegates from CityJet. They have had the benefit of hearing the contribution of Aer Lingus. I draw their attention to the fact that while members of the committee have absolute privilege, the same privilege does not apply to witnesses appearing before it. Members are reminded of the long-standing parliamentary practice that they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable.

I welcome Mr. Geoffrey O’Byrne White, chief executive of CityJet, Mr. Patrick Edmond, head of commerce, and Mr. Hugh Rodgers, general manager of corporate affairs. I would like to hear more about CityJet as I do not know as much about the airline as I do about the other three main carriers. The fact that it stepped into the breach in Shannon was very welcome. I have travelled on the route on a number of occasions recently and found it to be a very efficient connection.

Mr. Geoffrey O’Byrne White:  On behalf of CityJet, I express sympathy to the Brennan family on the untimely death of Séamus Brennan. I was a constituent of his and received great support from him when he was Minister for Transport. History will judge him to be one of the great innovators in creating the Celtic tiger, especially in the transport sector. I express our sympathy to his brother Eamon and the family.

I have prepared a brief and concise note and I am sure members will have many questions. I have tried to address the issues under the headings suggested by the committee. In collaboration with Air France, CityJet has recently opened hub access for Shannon. This initiative was in response to the sudden withdrawal of the long-standing London Heathrow connections. The Shannon-Paris Charles de Gaulle route was opened using a wet leased 50-seat jet aircraft allocated on short notice from our sister company, Régional. The route is developing well and we plan to increase capacity by introducing 100-seat jet aircraft – our own Avro aircraft – as soon as they are available. We anticipate that will be in October this year. Other than increasing capacity and frequency on this route there are no immediate plans to extend hub access to other regional airports in the near future.

The next issue relates to the imbalance of Dublin vis-à-vis regional airports. This is a matter for Government policy but the current imbalance reflects a State policy of monopoly control of major airports. It is noteworthy that Dublin dominates the eastern half – many would say the whole country – and that five airports are left to compete for the rest of the non-Dublin focused business. It may be necessary to avoid further fragmentation by developing a major western gateway to compete effectively with it.

The massive increase in the variable cost of fuel has been well publicised and dominating the headlines in recent weeks. It will lead to a trend of scheduled airlines restricting scheduled frequency and only operating peak profitable flights. With the proposed introduction of the draconian emissions trading scheme by the European Union, this may well mean that we have reached the high tide mark in air travel in the European Union. As market demand increases, regions and economies will find themselves competing for diminishing capacity.

The small population base in Ireland means that without boosting feed from other regions, the possibilities are limited. Ireland has benefited, for historical reasons, from the transatlantic long-haul route to the United States. This has created an expectation, unreasonable in my view, that other long-haul markets can easily be served directly from Ireland.

Chairman:      Before I invite members’ questions, can Mr. O’Byrne White tell us more about CityJet and the relationship with Air France, for example.

Mr. Geoffrey O’Byrne White:  CityJet is an Irish airline which has been in existence for 15 years. We are not “the” national airline but like to think of ourselves as “an” Irish airline. We are Irish managed, operate an Irish air operator’s certificate and fly Irish registered aircraft. We have a fleet of 27 Avro RJ aircraft which were all recently purchased. They are all 100 seater jet aircraft.

Deputy Pat Breen:      Are they the 146s?

Mr. Geoffrey O’Byrne White:  Yes. They are the newer version of the 146 aircraft. Their purchase was a major investment by our shareholder.

Chairman:      Does the airline have a private shareholder or shareholders?

Mr. Geoffrey O’Byrne White:  Air France is a 100% shareholder of CityJet.

Chairman:      The airline is owned by Air France.

Mr. Geoffrey O’Byrne White:  Yes. We are 100% owned by Air France. We have about 750 employees in the company and a turnover of close to €300 million. In the last 12 months not only have we invested in a new fleet but also in a hangar and simulator at Dublin Airport. These are important fundamentals for an airline or our size. We are the first, apart from Aer Lingus, to have provided a simulator.

We recently purchased a Belgian airline, VLM Airlines, which operates a fleet of 18 Fokker 50 aircraft. VLM is a specialist London City Airport operator. We have developed a big network at London City Airport in recent times, which is one of the reasons we struggled a little to open the service at Shannon Airport.

While we are an Irish airline, we have had to go abroad to find markets to allow ourselves to grow and develop. Since the Air France investment ten years ago, we have had a very successful partnership.

Chairman:      The airline is a success story.

Mr. Geoffrey O’Byrne White:  We would like to think so, although in Ireland we are not that visible. We account for less than 5% of the traffic at Dublin Airport, whereas at London City Airport we account for 50%.

Chairman:      Can Mr. O’Byrne White tell us something about the concept of the smaller 100 seater aircraft and the use of point-to-point traffic to strategic locations such as London City Airport? Is there a lesson in this? It is said it may be necessary to avoid further fragmentation by developing a major western gateway to compete effectively with Dublin Airport. Does Mr. O’Byrne White have some ideas for such a development?

Mr. Geoffrey O’Byrne White:  That would be the normal development for a hub feed operation, the classic connectivity operation. We operate into Charles de Gaulle Airport from Birmingham, Edinburgh, Gothenburg, Florence and Zurich airports on behalf of Air France. Normal progress would be to start off with a minimum of two frequencies per day and build up to as many as eight. The more frequencies one has the greater the connectivity one has. The large hub airports have six major banks of long-haul flights coming in during the day from various destinations throughout the world. Flights leaving destinations such as Shannon and Edinburgh airports are timed to allow for connections to the rest of the world.

CityJet uses 100 seater aircraft. With more frequencies one needs smaller aircraft. Very big aircraft such as low cost carriers operate have too much capacity. Low cost carriers operate much shorter frequencies and sometimes services to destinations two or three times per week. This is no good for the business community or connectivity. We are a specialised hub feed operation. The London City Airport operation, on the other hand, is a business focused network. It is not designed to offer connectivity but to provide point-to-point access to the city of London.

Chairman:      How do the running and fuel costs of the Avro RJ compare with those for Boeing 737s, for example? It is a small jet with four engines.

Mr. Geoffrey O’Byrne White:  On a per seat cost, it would be a little more expensive. On the other hand, we are a specialist operator of this aircraft. We need a 100 seat aircraft for our frequencies. There are very few 100 seat aircraft which can match the efficiency of the Avro RJ.

Chairman:      Are there no worries on fuel costs?

Mr. Geoffrey O’Byrne White:  We do, for sure.

Chairman:      But no more than the rest of them.

Mr. Geoffrey O’Byrne White:  Fuel hikes are having a devastating impact.

Chairman:      In comparison with the bigger jets operated by Aer Lingus and Ryanair.

Mr. Geoffrey O’Byrne White:  Relatively speaking, we can compete. For example, out of Dublin Airport we compete with Ryanair and Aer Lingus to Paris to where we fly more passengers than either of them. Not many people know that but it is a fact. We offer eights flights a day.

Chairman:      How does the airline compare cost-wise? When I was checking in for a the CityJet flight to Charles de Gaulle Airport, the Ryanair flight to Charlerois Airport was also checking in. Very small numbers were checking in with CityJet and very large numbers with Ryanair.

Mr. Geoffrey O’Byrne White:  Many of those passengers might be travelling with Ryanair point to point, while 50% of ours might not be travelling to Paris, but taking a connecting flight. They would be paying a pro rata rate for that leg of the journey. That is our normal operation.

Mr. Patrick Edmond:  On the inaugural flight from Shannon Airpoprt to Charles de Gaulle Airport we looked at the itineraries of the passengers travelling with us. More than 60% were connecting with flights to places such as Shanghai, Havana and Johannesburg. They were travelling all over the world. That connectivity, which Mr. O’Bryne White has mentioned, is a big part of what we do.

Chairman:      Is there a code share with Air France?

Mr. Patrick Edmond:  Strictly speaking, it is not a code share. All our flights are under the AF code and have an Air France flight number. That is the only code that appears on our scheduled flights.

Mr. Geoffrey O’Byrne White:  However, we take the economic risk on any route we operate.

With regard to connectivity, people the world over tend to think in terms of getting from a local region. The actual point concerns how people from the rest of the world get into the local region. Only by connectivity through the hub can one provide global connectivity to a smaller destination. That is the whole idea behind the hub system.

Chairman:      It has been mentioned that Dublin imbalance with the regional airports is a matter for Government policy. Can the delegates advise us how CityJet might look at the possibility of having a major western gateway? How can one move away from the problem, which I mentioned to Aer Lingus, of having the whole country going to Dublin to access short haul services to Europe?

Mr. Geoffrey O’Byrne White:  It may take a little time. Historically, the perception was that Shannon Airport was facing west as opposed to east. There were very few connections to the rest of Europe. When we mentioned Shannon Airport to our colleagues in the Air France planning department, they did not know where it was. They looked up Shannon on the Internet and asked if I was mad because nobody lives there. They were not aware of it. It is not on the globe as far as the rest of Europe is concerned. We may find that hard to believe, but it is a fact. There are 500 million people in Europe who know about Connemara, but who do not know about Shannon. There is need, therefore, for a significant marketing and branding exercise.

Infrastructure is incredibly important. Shannon has benefited from the investment in road infrastructure and should be seen as a gateway, not just for the Shannon region, but also for Galway. If the work can be completed on the Gort bypass, that would be a great step forward. Such initiatives are very important. A rail network is also significant. I do not see any reason Shannon should not have a rail network that would bring people in from all along the western seaboard. That would be a positive development and it is that sort of work on the ground that is required to deliver services in the air.

Chairman:      Does Mr. O’Byrne White see Shannon as the major western gateway?

Mr. Geoffrey O’Byrne White:  Yes.

Chairman:      Does he see CityJet’s 100-seater aircraft having the potential to link Shannon to various cities in Europe?

Mr. Geoffrey O’Byrne White:  In order to offer the best service and make it possible for people from the rest of the world to get to Shannon, one must understand the hub system. The more frequent flights we can offer, the more people can get access to Shannon. Sending flights to single destinations is more the area of point-to-point low-cost operators, and there are quite good point-to-point services out of Shannon. However, it is the rest of the world we want to service. The global reach is only achievable through a co-ordinated hub operation. That is what we have in Charles de Gaulle and, potentially, in Amsterdam. There is another group within the Air France-KLM group in Schipol. Therefore, we would have fantastic connections if we had both.

Deputy Pat Breen:      I welcome the delegates from CityJet. I am a regular user of CityJet, as is the Chairman. We are both on the Council of Europe and use CityJet services on a regular basis. I know how important the Charles de Gaulle hub is to CityJet.

I have tried using CityJet from Shannon on a number of occasions to link up with a number of destinations, but unfortunately my flight arrives half an hour too late or the flight does not go until too late in the evening. I noticed this particularly when travelling to Strasbourg, where the flight arrives into Charles de Gaulle at 12.25 p.m. but the flight leaving for Strasbourg is at 1 p.m. and one cannot make the connection because of the long approach to the terminal. Does CityJet have any plans to base an aircraft in Shannon overnight? This would be the answer to many of our problems. As it is, the flight leaves Shannon too late in the morning, 9.30 a.m. If it left earlier, people could make connections with many destinations.

Mr. Geoffrey O’Byrne White:  We are acutely aware of that issue. The solution we had to cobble together rather quickly during the summer is not the ideal solution.

Deputy Pat Breen:      I understand that.

Mr. Geoffrey O’Byrne White:  I am glad to hear what the Deputy is saying, because the market reflects the same situation. We will have a Shannon-based aircraft in October.

Deputy Pat Breen:      If it is based in Shannon, will flights leave earlier?

Mr. Geoffrey O’Byrne White:  Yes.

Deputy Pat Breen:      That is a welcome statement, because 9.30 a.m. is much too late and it is lunchtime by the time one gets to Charles de Gaulle and the morning flights have gone. How is the Shannon-Charles de Gaulle route performing currently?

Mr. Geoffrey O’Byrne White:  It is performing very well, perhaps much to the surprise of some of our colleagues in Air France, who initially did not know Shannon existed.

Deputy Pat Breen:      I suppose one cannot really gauge success when CityJet currently only carries 50 passengers twice a day. The service between Dublin and Charles de Gaulle is excellent, because there are seven or eight flights a day. I hope that if CityJet is to increase the size of its aircraft, it will also have at least three to four flights a day from Shannon.

I note the statement Mr. O’Byrne White made about getting the world into Shannon rather than getting out to the world. That important statement reflects CityJet’s commitment to Shannon Airport. We are delighted to have CityJet in Shannon. Are there any plans to link Shannon with London City Airport? That would be an exciting project, although I know it would only be a point-to-point service. However, since CityJet has a business class service, that could be an important route.

Mr. Geoffrey O’Byrne White:  We conducted some studies in that regard on account of Aer Lingus pulling out of the Heathrow route and were encouraged by our analysis. We have a Shannon-London City Airport connection under active consideration. It would also be possible if flying Shannon to London City to connect with flights to Strasbourg, because we have three flights a day from London City to Strasbourg. It would be nice to have that facility. Although Shannon to London City is a point-to-point flight, one could make that connection.

Deputy Pat Breen:      Mr. O’Byrne White said marketing was important. What kind of marketing does CityJet do in conjunction with Air France to promote Ireland, both Dublin and Shannon? Does it try to get tourists as well as business customers? It is obvious that as CityJet currently only uses small aircraft, it cannot bring in large tour groups. However, what kind of plans and funding does it have for marketing and has it any plans to link Shannon and Dublin?

Mr. Patrick Edmond:  In terms of marketing, we have had significant support since launching the Shannon route from Tourism Ireland and Shannon Development and they have contributed to a marketing campaign for overseas markets, particularly France. In addition, Air France has a global reach and operates in all major worldwide markets. The Air France websites and sales teams in all of those countries can and have been selling Shannon as a destination, which is one of the strengths of the connectivity to which we referred. From that point of view, we have already seen a number of groups coming from quite far afield. I saw a group from Japan on our books a few weeks ago for Shannon.

The Deputy is correct that the 50-seat aircraft is a limiting factor on the size of groups. That is one of the reasons we have put one of our own 100-seat aircraft onto supplementary Shannon services for Saturdays and Sundays during the summer period, which are going well and why we are keen to get a 100-seater aircraft operating every day from October onwards.

Chairman:      Does the size of the aircraft affect the number of French visitors?

Mr. Patrick Edmond:  It affects French and other overseas visitors. Overall, the direction balance of the route is predominantly outgoing, from Shannon. Committee members may have noticed when flying on the route that the morning departure from Shannon to Charles de Gaulle tends to be very full. The biggest single complaint currently is that people cannot easily get a seat on those flights. As Mr. O’Byrne White said, we scrambled to find a solution when Aer Lingus pulled out of the route. We recognise that what we put in place was an interim solution and are glad to be able to get to a longer-term higher capacity solution.

Deputy Pat Breen:      Will there be any increase in frequency?

Mr. Patrick Edmond:  We will initially stay at twice daily because we will be using a larger aircraft. However, let me use the example of the route from Edinburgh to Charles de Gaulle, a route we launched a few years back at twice daily. It then went to three times daily and this summer it is four times daily. This is the way these services progress. As we said earlier, as frequency increases, the number of good connections available as a result also increases. We must take it in stages. From the point of view of Air France, three times daily is a reasonable starting point. We will move to the 100-seat aircraft twice daily and hope to move forward from there.

Chairman:      From my limited experience, it is a pleasure to transit via Charles de Gaulle as opposed to Heathrow. Does Charles de Gaulle Airport suffer from similar delay problems to those experienced by Heathrow in recent times?

Mr. Geoffrey O’Byrne White:  No. This is important. While Heathrow is referred to as a hub, I often wonder why, when we want to see the rest of the world, we fly to the next island. Perhaps this is a result of our colonial past. When one flies to Charles de Gaulle, one has a global infrastructural network available – mention was made of the TGV – and a hub that has four runways. It will also open a regional terminal in October and two further terminals in the next 12 months. It is growing and, therefore, has the capacity to allow regionals to develop their connectivity, a situation which would be quite impossible in Heathrow. Nothing is going to grow in Heathrow.

Mr. Patrick Edmond:  Heathrow has two runways and is, therefore, extremely constrained. Charles de Gaulle currently has four runways, which allows the Air France and CityJet schedulers to plan the arrival and departure times in banks in six different waves through the day to optimise connections.

Some months ago we calculated, theoretically, how many good connections would be possible through Heathrow Airport compared to Charles de Gaulle Airport. By a good connection I mean that when passengers arrive, they have a minimum of 45 minutes and a maximum of two and a half hours to wait for their flight. Clearly, if they wait all day, they have more connections, but I am concerned about good connections within a timeframe. We calculated that, travelling through Heathrow Airport, there would be 6,300 such connection opportunities per week. Travelling through Charles de Gaulle Airport, with the same window and conditions, there would be 20,300, approximately three times the number of good connections at Heathrow Airport. In terms of the number of destinations, Charles de Gaulle Airport offers a higher number of destinations. We recognise that, for historical reasons Heathrow Airport has been the dominant hub, but it is important to point to the particular qualities of Charles de Gaulle Airport as a connecting hub.

Deputy Pat Breen:      It also has very good rail services.

Deputy Timmy Dooley:      I welcome the opportunity to compliment Mr. O’Byrne White and his team on their presentation. I recognise the efforts made by CityJet, in association with Shannon Development, the Shannon Airport Authority, the Irish tourist board and the Government to fill the vacuum created by another airline. I compliment CityJet on the efforts it has made. The interim solution is clearly not ideal, as CityJet would be the first to admit. I welcome the indication from it that from October it will have 100 seater aircraft and may move towards greater frequency on the route.

What more assistance does CityJet need to develop the route? Could more be done, whether through the development agency, the airport authority or the tourist board, to assist it with marketing? The company has indicated a preference to see a shift in Government policy to identify a gateway in the west. I would support such a move and believe Shannon Airport would be the ideal base. Government decisions on investment in infrastructure support that notion, with the tunnel in Limerick opening in 2011 and the commitment of the Government to continue the roadworks between Ennis and Galway which are under way and part of the national development plan. We all want to see this happen without delay. The opening of the section of the western rail corridor that will connect Galway with Ennis is critical. In that regard, there is a proposal to open the train station at Sixmilebridge which will provide good access to the airport. In addition to these infrastructural elements, does CityJet have any further ideas?

Has CityJet given any consideration to using Schipol Airport as an access point? Deputy Breen has suggested London City Airport. Has CityJet considered a connection to Heathrow Airport? I am aware that slots are available to CityJet through Air France. Has it considered providing such access?

Mr. Geoffrey O’Byrne White:  Deputy Dooley’s question on what steps the Government can take is very useful and probably the most important in this interaction. What concerns me most is the cost of air transport. We have seen the impact of fuel price increases. Throughout the winter I expect we will continue to see significant cutbacks in schedules.

We are involved in introducing an environmental trading scheme on which there has been no research as to its social or economic impact. The rest of Europe is 20 years ahead of us in developing high speed rail services and road infrastructure. If we sleepwalk along behind the rest of the Europe on this matter and lobby groups are allowed to dictate on the impact on aviation policy, Ireland will suffer seriously economically in the near future, unless a separate policy is developed for the islands, because clearly we are not going to benefit from rail transport or rail transport links to the rest of Europe for a considerable time. This will have a major impact. The cost of access to Ireland will be a major issue because everybody else in Europe can get to places because they have alternative methods. No such policy has been put in place here. That is what I consider to be the most important issue, although the Deputy’s question was probably more focused on marketing. Marketing and the assistance from Shannon Airport have been excellent. I could not ask for more.

We will not be looking at Heathrow Airport in respect of short-haul trips. Everywhere in Europe will lose short-haul links with it. It is possible we may consider using Schipol Airport, but that may take time.

Chairman:      Mr. O’Byrne White has made one of the best contributions we have heard at this committee, on which I congratulate him. CityJet is a good news story that has been hiding its light under a bushel. Mr. O’Byrne White made a number of interesting comments. He mentioned connectivity to the west, the Atlantic corridor and the Gort bypass, etc. I have a vested interest in the issue. Galway has two international airports within an hour of each side of it. It also has a regional airport, but does that airport have a future? Would it be of interest to CityJet?

Mr. Patrick Edmond:  Galway Airport is too small for the aircraft we use. However, that does not mean that as a niche airport, it does not have a future. For example, on the Continent, Schipol Airport is the big hub close to Rotterdam Airport involved in point-to-point flights. To compete with Dublin Airport, we need to concentrate all our resources in one airport.

Chairman:      Would it be better for us, therefore, to concentrate on Shannon and Knock airports rather than try to develop Galway Airport further?

Mr. Geoffrey O’Byrne White:  Yes, that would be my view.

Deputy Timmy Dooley:      Perhaps we need to reduce our efforts at developing Knock Airport and target Shannon Airport.

Mr. Geoffrey O’Byrne White:  It is not the airports or the runways that matter, but access to them. Access by road is key, as well as investment in facilities around an airport.

Deputy Timmy Dooley:      Yes.

Chairman:      We appreciate CityJet’s contribution. If our meeting helps to highlight its success in the west and mid-west, we will be pleased. We welcome the proposed use of bigger aircraft in October. I hope we will see three and four flights per day out of Shannon Airport, which would be significant for the region.

The joint committee adjourned at 2.10 p.m until noon on Wednesday, 16 July 2008.