Ryanair's proposal to build and operate a low-cost terminal at Dublin Airport has been rejected in a report prepared for the Government by an international aviation expert. In a confidential report for the Department of the Taoiseach, London-based Prof Rigas Doganis also argues: "Lower airport charges should not be used as the prime instrument for stimulating new air services and incoming tourism ."

He says charges have "little impact on airlines' route planning decisions", have "only minimal impact on total holiday costs" and will lead to Aer Rianta having to compensate by charging higher fees for other services. Low airport charges for low fare airlines may be "discriminatory and may even be considered as illegal 'state aid' by the European Commission".

Instead, Prof Doganis argues that funds should be made available by the tourist authorities and Aer Rianta to provide marketing support for new services to Shannon and Cork.

"Greater efforts should be made to reduce accommodation and other related holiday costs for incoming tourists. Special low-price promotions should be developed for the 2002 summer season."

The report, if adopted, is a major setback for Ryanair's campaign to build and run a new Pier D at Dublin Airport. It also questions Ryanair claims that it would increase services significantly if it had lower charges. The report, a copy of which has been seen by The Irish Times, says Aer Rianta has very low charges at Dublin compared to other major European airports and Ryanair already enjoyed bigger discounts on airport charges at Dublin and Shannon than other major airlines.

The average charge per passenger paid by Ryanair at Dublin airport was £4.08p last year (up to October), compared to £4.65p for Aer Lingus and British Midland, and £5.26p for Lufthansa. At Shannon, Ryanair was charged £3.23p, compared with £4.56p for Aer Lingus.

The fact that low-cost airlines tend to operate on short haul routes with more frequent turnarounds also boosts their airport costs. But Prof Doganis says low-cost carriers themselves "argue that they are not demand-led but create demand by offering very low fares. They sell their services primarily on the basis of the low fares they can offer. In their publicity and on their websites, advertised fares do not include airport charges and taxes. So the level of the latter does not impinge on the airlines' marketing".

"Only during seat sales, when fares drop to very low levels, are airport charges sometimes included in the advertised fare." Prof Doganis found a wide variation in taxes, fees and charges, on the Ryanair website, from a high of £13.09 sterling at Gatwick and Stansted to £6.44p (sterling equivalent) at Charleroi.

"The high add-ons have not stopped Ryanair from launching services to several high-cost airports. Stansted's add-on is the highest, yet Stansted is Ryanair's major base outside Dublin."

The add-on at Frankfurt-Hahn of £8.19p sterling was only £1.42p sterling less than those Ryanair had to pay in Dublin, but Prof Doganis said this had not prevented Ryanair choosing it as its second European base. Of its other European hub at Charleroi, Prof Doganis said: "According to Ryanair's own figures, the charge it pays at Charleroi [Brussels south] is only 15 per cent of the charge at Dublin and therefore the add-on should be around £1.44p sterling. The fact that Ryanair is charging passengers more than four times as much indicates that demand is not that sensitive to the level of airport charges."

On Pier D, Prof Doganis said only £2.17p out of £8.82p per passenger on each return journey related to passenger-related terminal and pier costs at Dublin. Even this relatively small saving, if not purely cost based, could break competition agreements.

The fall-off in revenue to Aer Rianta would also create an estimated fall in revenue of "close to £6 million" in the first year. "These revenue shortfalls would have to be covered by increased charges for other users. This is clearly inequitable and might lead to the closure of marginal routes by other airlines."

It would be more effective to improve turnaround facilities for all low-cost operators and ensure high daily utilisation of aircraft at Irish airports. But he adds that low-cost airlines will become increasingly dominant on some intra-European routes.