Oireachtas Transport Meeting – Future of Shannon

July 21st, 2007 - Pat Breen

Oireachtas Transport Committee Meeting with Seamus Brennan and Willie Walsh on the Future of Aer Lingus – Wednesday 21st July

Deputy P. Breen: I will not consider the national issues as Mr. Walsh has answered on many of them, particularly in regard to the ESOP and the conflict of interest. The Minister told me that Aer Lingus needs Shannon. While Mr. Walsh cannot answer on the business plan which will be published on 26 July next, does Aer Lingus need Shannon? What commitment would Mr. Walsh give to the regions in the context of a privatised Aer Lingus?

Flight EI111 now flies from Dublin and Mr. Walsh did not provide the load factor figures which he was supposed to provide in this regard. In addition, there is no continental service from Shannon Airport. With regard to this downgrading of services at Shannon, it is clear Aer Lingus is going down the low cost route that Ryanair has taken. Has Mr. Walsh considered marketing the regions, including Shannon, in continental Europe?

Aer Lingus got rid of third party handling despite the fact that it was profitable. Will Mr. Walsh reconsider this decision? Aer Lingus management at Shannon proposes to do away with 24 hour cover, which was of significant benefit to the region in terms of hotel business when flights were diverted from Cork and Dublin. Why is this option being considered? Mr. Walsh often stated that Shannon has a much more expensive cost base than Dublin. Will he explain why this is so?

Mr. Walsh: In 2003, we carried 446,015 passengers from Shannon on transatlantic services compared to 657,684 passengers from Dublin, the split of passengers being 60% from Dublin and 40% from Shannon. The figure of 446,015 compares to other long haul markets on which previous speakers asked me to comment. For example, for Singapore, Sydney and Johannesburg, we estimate a market of 63,000, 55,000 and 47,000 passengers respectively. To put this into context, the Shannon market is a huge one and, therefore, we will definitely serve it. We have identified that a market exists at Shannon, we intend to serve that market and we have grown that market. We are committed to it because it makes commercial and financial sense to us.

As I said the last time I addressed the committee, our commitment is to ensure that we operate profitable routes. The market in Shannon is more seasonal than that of Dublin, with the vast majority of passengers travelling between the months of May and August, although there is year round traffic. The way we have served this profitably is to originate and terminate flights in Dublin, travelling through Shannon, to supplement the lower loads available directly from Shannon with traffic from Dublin. In doing so, we experienced significant growth of 19% in passenger numbers on the transatlantic route last year. This year, to the end of June, we have continued to experience a growth in our transatlantic passenger numbers, which are up by 11% overall, comprising growth in Dublin of 15% and 5% in Shannon. The market continues to grow. The transatlantic operations are profitable with fares significantly lower than in past and our intention is to continue to lower the fares.

Our commercial activity is focused on providing services where our customers want to go. The market which exists at Shannon is sizeable, although I believe the figure is somewhat inflated by the fact that services exists there. If there were services from Dublin only and it was decided to open a market into Shannon, it would be more difficult to grow the market. However, the market is sizeable and one we intend to service.

This is not the case with other carriers. Aer Lingus is criticised in regard to Shannon. It needs to go on record that Aer Lingus has maintained and grown services at Shannon while other carriers have stated that they do not wish to serve it and only do so because of the bilateral requirement to do so. We are on record as saying we intend to serve that market and to do so profitably. That is the commitment I express to Shannon. I ask Mr. Seamus Kearney to address other specific questions.

Mr. Seamus Kearney: With regard to Deputy Pat Breen’s questions, third-party handling at Shannon was inherently unprofitable. As part of the consultation exercise with local staff representatives, we opened the books on that decision to an independent financial expert nominated by SIPTU, who concurred that this business was inherently unprofitable to the tune of almost €2 million per annum. We were very keen for this exercise to take place. When it demonstrated that this is an inherently unprofitable business, we decided to exit from third party handling at Shannon. In line with that decision, there is now no need to have 24 hour cover at Shannon Airport to resource flights we do not handle. It would not make any sense to have staff on duty when no flights we deal with are entering or leaving. Both decisions emanate from a commercially based decision that third party handling was inherently unprofitable.

Mr. Walsh: With respect to the question on the privatisation of Aer Lingus, the commitment remains the same. I am pleased to confirm and it is important to record that the Minister has given us instructions to manage Aer Lingus in a commercial fashion and has not at any time during his term as Minister attempted to interfere with any of the commercial decisions made. The commitment I expressed today is one that holds regardless of the ownership of Aer Lingus. Our focus is on operating profitable routes not on serving unprofitable routes for public service reasons, because there is no future in that, as has been seen. Our future is solely dependent on our ability to generate profits and cash from the business to enable us to reinvest to allow the business to expand and prosper.

We will continue to focus on expanding services into and out of Ireland. I assure the committee that the focus of the business plan which will be presented to the board of Aer Lingus is on the growing of passenger numbers, route networks and profitability over the period of the plan.

Deputy P. Breen: Regarding third party handling, to where does Aer Lingus intend to divert airlines?

Mr. Kearney: In terms of our own operations, we can organise either Dublin or Shannon depending on the timing. However, the provision of 24 hour cover is a matter for Aer Rianta not for the airline.

Mr. Walsh: It is important to highlight the difference between diversions caused by technical failures and those necessitated by commercial considerations. In the case of the former, the requirement under law is that a diversion must be taken to the closest airport, rather than the closest airport which has Aer Lingus staff. That could be Shannon, Cork, Belfast or an airline in the United Kingdom. With regard to diversions necessitated by weather conditions, the 24 hour cover which used to exist was minimal and we must consider the appropriateness of different airports. From time to time, and if such action does not interfere with the safe operation of the aircraft, the aircraft diverting is distributed to different airports to ensure an even allocation of the workload.

Deputy P. Breen: I believe there is a conflict of interest with regard to the chief executive, but the Minister has replied on that matter.

The Minister said that he told Mr. Willie Walsh that he should join the queue. Has the Minister received expressions of interest from other people interested in buying the company and are there proposals from other interest groups in this regard? He also said that Aer Lingus needs Shannon. I wonder if this is the real world because I do not believe Aer Lingus has an iota of interest in Shannon Airport. The statistics speak for themselves. Shannon Airport lost most after the events of 11 September 2001. It does not have a direct trans-Atlantic service to New York. The Minister spoke about developing a continental service, but Shannon has no continental service with Aer Lingus. On 27 February Aer Lingus sought to reduce the workforce in Shannon Airport by half. How can the Minister say then that Aer Lingus has an interest in the airport? Five months later only four staff members have left. It was an ill-thought out plan.

The Minister said he believed Aer Lingus should concentrate on viable profits. However, although third-party handling produced a profitable income in Shannon Airport, when Lufthansa cargo operators pleaded with Aer Lingus to handle their service it said “No” despite the fact it would produce a profit of €200,000 a month. Yet the Minister tells me Aer Lingus needs Shannon.

The 24-hour operational service which existed throughout the lifetime of Shannon Airport, where airlines from Dublin, Cork, England or America etc. that ran into trouble were directed to Shannon is now threatened as Aer Lingus management proposes to end the service. How can the Minister say therefore that Aer Lingus needs Shannon? The Minister must learn to live in the real world and know that staff in Shannon do not know whether they are coming or going. They have been ringing my office to know their future or what commitment Aer Lingus has made to the future of Shannon.

The business plan for Aer Lingus is to be prepared on 26 July. Has the Minister instructed Aer Lingus to include Shannon in the business plan? The Minister knows that Mr. Willie Walsh is not interested in Shannon but only interested in consolidating his business in Dublin. If the Minister presides over and allows this to happen, he will be known as the modern day Cromwell of Ireland for plundering our assets.

The Minister appointed a new board for Shannon Airport but if we are to have balanced regional development, I urge the him to ensure Mr. Walsh includes Shannon in the Aer Lingus business plan. I believe Mr. Walsh has no business plan for Shannon on his agenda.

Deputy S. Brennan: I will get a chance to ask Mr. Walsh the question shortly.

Deputy P. Breen: You are the Minister.

Chairman: I thought the questions were more appropriate to Mr. Walsh but I did not wish to interfere.

Deputy S. Brennan: My view is that Mr. Walsh, the management and the board are interested in Shannon. I stand over my statement that Shannon is important for Aer Lingus which can do real business from Shannon. There has already been talk of low-cost trans-Atlantic flights which would also serve Shannon and of more low-cost EU and UK business.

Aer Lingus has shown its interest in Shannon Airport for many years. It is for the chief executive to say, but I believe its upcoming business plan will deal with Shannon Airport. The committee may wish to ask him that question.

On the question of joining the queue, the pilots’ group is the only other group that has indicated a broad interest but no proposal has been submitted. They have broadly indicated their interest in a shared ownership or a transaction. It is also well known that many financial institutions in the country would be interested in investing in Aer Lingus as part of a broader portfolio but I have not received any proposals. I have no proposals from anybody to buy a single share in the airline. What I have received are one or two expressions of interest which I detect from the request to make a proposal from the management and from the pilots’ group.

Deputy P. Breen: Does the Minister honestly believe that Aer Lingus is interested in Shannon Airport, considering what I read out?

Deputy Brennan: The chief executive is present and he will explain what the company’s plans are for Shannon Airport. My policy view is that Aer Lingus can do a lot of business out of Shannon. I have asked the company to do the best it can in broad policy terms for Shannon Airport and to use it as much as possible. The company is doing that. In order for the company to continue to do that in the future it must sit down and work that out with the airport. I want to see Aer Lingus fully committed to Shannon Airport and I have made that clear to the board on many occasions.

I was asked a question about pensions and I have a note about it which I will read:

I am advised that the last actuarial valuation was carried out at March 31st 2003 and the scheme satisfied the minimum funding standard included in the Pensions Act 1990. The next full actuarial valuation is due as at 31st March 2006 but interim assessment of the ability of the scheme to pay pensions increases will take place at the end of March in each of the intervening years.

Is it necessary for me to deny that I have anything to do with Cromwell? I will deny it for the record.