Shannon Group falls short of targets set five years ago

It took a long time, but five years ago the Government unshackled Shannon Airport from Dublin and set it free, promising that it would be a much-needed engine of growth for the midwest.

The plan, approved by Taoiseach Leo Varadkar when he was minister for transport, appeared simple. Merge the airport, its properties and the development company into a new State entity, Shannon Group, which was charged with growing the airport, developing the properties and creating an international aviation services centre.

Its €110 million debt was transferred to the Dublin Airport Authority, now DAA, which got control of Aer Rianta International, the global duty free business begun in Shannon Airport. Nevertheless, independence meant that the new company got to start again with no liabilities.

Shannon set a series of targets. Rose Hynes, who chairs the group, said in December 2012 that the plan was based around growing passenger numbers to 2.5 million annually within five years from the 1.39 million who travelled through the midwestern gateway that year.

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Developing the aviation services centre would create a “cluster” of 40 companies in Shannon and add 3,500 new jobs, over the same time span.

Shannon Airport intended to grow passengers across both short-haul and long-distance services. On British and European routes, it aimed to hold existing flights and win back traffic lost to Knock and Kerry in the years preceding independence.

The other strands of this strategy were that it would add a daily service to a new European hub from 2013 and introduce other scheduled operators on a phased basis.

On transatlantic services, Shannon would again maintain existing services, but it would boost this business by getting existing carriers to add new routes on a phased basis from 2013.

The airport’s US pre-clearance facilities, which allows passengers through border security and customs before embarking, so that they are treated as domestic travellers once they land Stateside, were to aid this growth. The original strategy also highlighted that pre-clearance could help attract business jet travel to and from the airport.

Shannon’s first year was good. Early in 2014, the group reported that it made a profit in 2013, prompting Varadkar to say that it was doing better than he expected. Passenger numbers rose slightly to 1.4 million. Hynes pointed out that this disguised strong growth in the second half of the year. Traffic had actually fallen in the first six months of 2013.

The following year looked better. Early in 2014, Ryanair announced that it would launch nine new routes from Shannon, while its old rival, Aer Lingus, added two. This followed Aer Lingus's decision to fly year-round to New York and Boston, and maintain services to Chicago and Newark.

Extra capacity

Better than expected US tourist numbers prompted other carriers to increase the number of seats on their Shannon services. This seemed to align neatly with the airport’s own strategy for growing its transatlantic business. It seemed as if the split with Dublin was allowing Shannon to flourish.

Industry figures pointed out that, as it had its own board and management, the airport could do its own deals, giving it the scope to grow.

There was another factor at play. In 2014, the Government axed the 3 per cent tax on departing air travellers imposed in the wake of the financial crisis. This sparked an immediate response from airlines, led by Ryanair and Aer Lingus, both of which expanded their Irish operations that year.

Ryanair made it clear that the company was delivering on promises to expand significantly in its home country if the tax went. The airline also pointed out that that it would not grow at Cork Airport because it argued that charges there were too high. Instead, it moved services from Cork to Shannon,which also got the benefit of extra capacity that Ryanair added outside Dublin.

Shannon’s passenger numbers grew to 1.64 million in 2014 and then to 1.714 million the following year. However, that is where it began to level off. Many of the new services announced by Ryanair and Aer Lingus on the back of the tax cut in 2014 were year round. They began in the summer of that year and fed through to the beginning of 2015.

With no similarly big jumps in growth, when the 2016 figures came out, they showed that 1.75 million people travelled through Shannon that year. Numbers for 2017 show 1.74 million. The airport gained new transatlantic services courtesy of Norwegian Air International last year.

Shannon has added close to 27 per cent new passengers over five years, but fell short of the 2.5 million for which the airport was aiming. Most of the growth occurred between the beginning of 2014 and the end of 2015, the period that benefitted from the tax cut.

Dublin Airport traffic grew by 33 per cent over the same period to 29.6 million last year from 19.1 million in 2012. Cork’s passenger numbers declined from 2.3 million in 2012 to almost 2.1 million in 2014, but they climbed back to 2.3 million last year.

Cork airport, which remains part of DAA, won its first transatlantic service when Norwegian began flying from there to Providence, Rhode Island, in July.

Rapid growth

In round figures, 11 million more passengers travelled through the three State-owned airports in 2017 than in 2012. More than 10 million of those went to Dublin, whose current period of rapid growth began the same year that Shannon became independent.

Shannon’s spokesman points out that, over the period, 95 per cent of all passenger growth to and from the State, including regional airports such as Knock, has been through Dublin. He agrees that the capital’s airport needs to perform well.

“However, there is a real risk that the dominance of Dublin Airport will limit the growth in connectivity in the regions, which, in turn, will limit the ability of their regions to grow, a key plank in the National Planning Framework,” the spokesman argues.

Shannon says that it has grown numbers on its continental European routes by 80 per cent since independence, including new routes to various sunspots and to Poland. It got its first flights to a second European hub last year when Lufthansa began a seasonal service to Frankfurt. The airport hopes to develop this as a year-round business.

Ryanair announced new services to Bristol and Liverpool yesterday, along with a boost to its Manchester flights. Shannon's spokesman acknowledges that there is still more to be done with its short-haul business.

On the transatlantic front, he says that the airport now has the largest number of destinations that it has had in 17 years.

"This year, six airlines will provide transatlantic services from Shannon to seven North American destinations, including the launch of new services with Air Canada to Toronto, American Airlines expanding its Philadelphia service and Norwegian doubling its capacity in Shannon," the spokesman points out.

The aviation services centre has grown to 60 companies from 45 and employment there stands at 2,600, which includes 1,000 new positions announced since the start of 2013. By the end of this year, Shannon Group will have spent €40 million on adding 500,000 sq ft to its commercial properties.

Nevertheless, Shannon Group has fallen short of the targets set out publicly ahead of its formation five years ago. Along with those, the group aimed to have earnings before tax and write offs – Ebitda, a measure the cash a company generates – of €13.3 million in 2016. The published figure for that year was €7.2 million.

Dissenting voices

There were few dissenting voices when Shannon broke from DAA to go its own way, but trade union Siptu did warn that the new State company's targets were too ambitious. A report by accountants Mazars for the Irish Congress of Trade Unions echoed this point.

The accounts warned that without a substantial increase in the airport’s earnings over the short term, the overall plan would fail. Mazars highlighted that the airport’s project growth depended on luring new passengers at a rate faster than that of the overall Irish market.

“This growth must happen if the plan is to succeed,” the report said.

While the Irish air travel market expanded faster than Mazars appeared to expect – it was more than a third bigger last year – Shannon’s passenger target would have required growth closer to 50 per cent. Given that it has fallen short of that, it looks like both the trade unionists and accountants were right, Shannon may have aimed too high.