Dublin Airport’s new model for airport charges meets airline opposition

Airport trying to reduce regulatory scrutiny, airlines say

Dublin Airport claims the current model which fixes charges on a five-year basis is poorly suited to the level of uncertainty and volatility in the aviation industry. Photograph: iStock

Dublin Airport claims the current model which fixes charges on a five-year basis is poorly suited to the level of uncertainty and volatility in the aviation industry. Photograph: iStock

 

Airlines, including Aer Lingus and Ryanair, as well as the main representative body of Irish pilots, have opposed calls by Dublin Airport for a new regulatory model to be introduced to determine the level of airport charges.

The International Air Transport Association (IATA), which represents leading international airlines, said Dublin Airport was engaged in a “deliberate attempt” to reduce the level of scrutiny it receives from the Commission for Aviation Regulation (CAR).

Dublin Airport claims the current model – which fixes charges on a five-year basis – is poorly suited to the level of uncertainty and volatility in the aviation industry due to the Covid-19 pandemic, which is likely to persist for several more years.

It claims there is a need to review how regulatory forecasts are set and how risk is allocated between the airport operator and other airport users.

Dublin Airport argues there has never been a more opportune time to undertake “a fundamental rethink” of the regulatory model used for the airport.

It has recommended the introduction of a “shadow price cap”, or, alternatively, a price monitoring regulatory oversight arrangement rather than the existing model of price caps.

Under its shadow price proposal, Dublin Airport would seek to reach agreement on price, service quality and investment outcomes with airlines – individually or otherwise – as part of multiyear contracts.

The regulator would still have a role, setting a shadow price control that would apply where the airport and airlines could not reach agreement.

DAA’s returns

Ryanair claims virtually all the changes proposed by DAA, the operator of Dublin Airport, are for the company’s benefit and “aimed solely at increasing DAA’s returns and achieving a higher price cap”.

Ryanair’s head of competition and regulatory, Eoin Kealy, said the airport’s proposals ran contrary to national aviation policy, which aimed to create conditions for airlines to maximise connectivity for the benefit of the Irish economy.

Aer Lingus said it did not look at whether any of Dublin Airport’s suggestions could be implemented as it did not support them, given the significant market power held by the airport.

“Any attempt to move away from the current framework to a light-handed regime, such as a shadow price cap, would reduce the level of scrutiny required from the regulator,” said Aer Lingus’s infrastructure and planning manager, Valerie Ní Fhaoláin.

The IATA said it believed the current regulatory model at Dublin Airport worked well and does not need any radical change.

“Clearly Covid has posed challenges to the CAR on how to respond to the crisis, but to change a regulatory model on the basis of a highly extreme scenario, which is unlikely to reoccur, would be unwise and counterproductive,” the IATA said.

It said Dublin Airport was trying to make an argument that it was “somehow special”.

Irish Air Line Pilots’ Association, which represents pilots flying for Irish airlines, said there was no merit in Dublin Airport’s proposals.

Dublin Airport’s White Paper outlining new regulatory proposals was published in response to a consultation by the CAR on a second interim review of its 2019 determination of airport charges at Dublin for the period 2020-2024.

Second review

The regulator said a second review was desirable because of the ongoing uncertainty about activity levels in the aviation sector due to Covid-19.

However, the regulator has signalled it is likely to carry out a limited review, which would not involve a resetting of the base price cap or reviewing the building blocks used in fixing it.

Following its first review last year, the CAR replaced the per-passenger price cap for 2020 with a series of individual caps which reflected the individual airport charges applicable during the year, while retaining the original price cap of €7.50 per passenger for 2021.

It also now requires Dublin Airport to consult with airlines on all capital projects worth more than €4 million.

To progress such reports, the airport operator must get the backing of at least 50 per cent of all passengers as represented by airlines, or else demonstrate that a project is required for safety or regulatory compliance reasons.

In its White Paper, Dublin Airport suggested the introduction of a risk sharing mechanism between the airport operator and other airport users, while also calling for cargo traffic figures to be included in passenger number targets.

The airport has claimed that the current approach of agreeing investment plans for several years into the future does not provide enough flexibility given the unpredictability of the cost of capital projects.

The company also claims that the impact of Covid-19 has meant it is unable to earn sufficient revenue to match the depreciation of its assets.

Dublin Airport said a market power assessment of the airport was required to determine the appropriate level of regulation as it claimed a previous assessment carried out five years ago had failed to consider competition from airports outside of the Republic, while also not accurately assessing the bargaining power of airlines.