Inside the world of business
What if Etihad's interest in Aer Lingus takes off?
ETIHAD AIRWAYS’ interest in buying the Government’s 25 per cent stake in Aer Lingus is intriguing. It is hard to imagine that it would be happy just to be a passive investor. Yet, under EU rules, it cannot own a majority stake in Aer Lingus, which must be majority owned by Europeans.
Even if Ryanair were willing to do business on its 29.8 per cent holding, Etihad would not be permitted to buy it all alongside the Government’s shares. It would have to find a mechanism to sell on some of the combined holding or partner with a European entity to buy the stakes.
This is all feasible.
For sure, Etihad is not interested in Aer Lingus providing feeder traffic to its Abu Dhabi hub. It already does that profitably itself with 10 flights a week, and Etihad chief executive James Hogan has talked of his desire to go twice daily from Dublin.
Its interest in Aer Lingus is likely to centre on its 23 daily Heathrow slots. Etihad is a relatively small player at Heathrow and would like a crack at the transatlantic market from there. But it can’t do that as it is Abu Dhabi-owned and therefore outside the Open Skies agreement with the US.
Would the Government be willing to countenance some of the Heathrow slots being moved from Irish airports to serve routes from London to the US? Perhaps, if Etihad was to offer more long-haul connectivity or flights out of Dublin. The Government is keen to offer more direct long-haul services here as it seeks to attract more inward investment and tourism.
If nothing else, Etihad’s interest might flush out other potential acquirers.
Renting conundrum
ONE REGULAR criticism of the National Asset Management Agency is that State agencies should not be so involved in the private property market that it can distort it.
Nama has acquired land and development loans of €72.3 billion, making it possibly the largest global property fund. While its proposal to provide some level of protection against negative equity for buyers of the 5,000 apartments on its books has raised concerns among Coalition members, the State may already be distorting the property market significantly.
As revealed by this newspaper last week, the Government is considering saving €1 billion a year from the social welfare budget. While it is hoped that half of this can be achieved by a clampdown on fraud, a significant chunk will come from taking a hatchet to the rent supplement scheme. Through this scheme, the State paid €500 million to private landlords in 2009, making it the largest player in the private rental sector with about 50 per cent of the market.
This may help explain one of the quirks of the property market. While house prices have fallen by about 50 per cent since the peak, rents have fallen by just 25 per cent and have actually been stable for the past year. Clearly a significant portion of the buy-to-let mortgages issued during the boom are now being serviced with rent allowance. Reducing that €500 million bill would drive private rents down. But that may just create a similar-sized hole in the buy-to-let loan books of the State-backed banks.
Room for improvement
A GLANCE at PricewaterhouseCooper’s analysis of the European hotel business seems to show that things are looking up for Dublin’s hard-pressed hoteliers.
The firm predicts that occupancy rates will be up 6 per cent this year, while revenues per room will have increased by about double that amount. It expects further growth next year, with a 2.8 per cent increase in occupancy in 2011 and a jump of 5.5 per cent in revenues.
In brass-tack terms, the report says Dublin hotels will fill 71 per cent of their rooms at €82 a day this year and 73 per cent at €84 a day next year.
In 2010, Dublin hotels sold 67 per cent of their rooms at an average rate of €75.
Over the same period, the report’s estimates of revenue per available room – a measurement that tells you how much revenue a hotel is generating for all rooms rather than those it fills – run from €51.90 in 2010 to €58.20 this year and €61.40 in 2012.
The report does not tell you a whole lot more, but some interesting points do emerge. For instance, it shows that, in 2010, room rates fell 9.3 per cent on 2009. The increases in rates it predicts show that, broadly speaking, it will take until next year for rates to recover to their 2009 levels.
However, the revenue per available room estimates paint a slightly brighter picture. These fell 4.4 per cent in 2010. PricewaterhouseCoopers predicts that they will stage a dramatic recovery, jumping by more than 12 per cent this year and 5.5 per cent in 2012.
The reason for the rise in this measurement is that there are fewer hotel rooms in the capital – the number is down 300 this year.
The report only touches on the real problem in the business: oversupply. It makes no attempt to get a handle on how oversupplied the market actually is. Most importantly, it does not say whether hotels in Dublin are profitable at current room/occupancy rates and, if not, at what point they are likely to become profitable.
Without these facts, it’s hard to argue, one way or another, that the hotel business has turned the corner.
TODAY
Technology giants Apple and Intel both report quarterly figures after US markets close tonight.
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