Airports discount death of shopping

In just under three weeks the duty-free shop at Dublin Airport is likely to be a tense place, as angry and perplexed customers wave receipts in the faces of staff and exclaim that, surely, there has been some mistake. But there will be no mistake and the duties included in the bill will be real, even if some travellers have tried to ignore the news from Europe that from June 30th the duty-free party is over.

While almost all travellers will mourn the passing of cheap booze and cigarettes, few have considered the headache, in the form of higher fares, which is likely to follow the ending of the party.

Some observers have said that only the EU Commission could dream up a scheme which denies the public a right to purchase their favourite tipple on the cheap and instead asks them to pay higher air and sea fares.

Whatever about the populism of the proposal, from June 30th the hangover kicks in. Aer Rianta will have a major role in deciding how severe it will be. As the owner of the State's airports and duty-free shops it will suffer the biggest shock as £30 million is taken off its bottom-line profit.

The company, due to be floated on the Stock Exchange later this year, is expected to increase its landing charges to recover at least some of this. The charges will be applied to all airlines operating out of Irish airports, and it is anticipated that the airlines will pass it on to consumers.

With airlines operating on increasingly tight margins, it is unlikely they will be absorbing the cost themselves, and the era of cheap flights may be over. Predictably, Aer Rianta is not keen to be drawn on the likely increases, but has commissioned consultants PriceWaterhouseCoopers to do a report on what increases might be necessary.

The arithmetic from the company's point of view is simple: it will lose £3.24p per passenger because of the abolition. If it wants to retain profits at current levels, which is likely considering its plans to take a listing on the Stock Exchange, ways to compensate will be needed.

That it has not increased its landing charges since 1987 means the eventual increases could be punitive, although the establishment of an airports regulator next year should mean some modicum of protection for the consumer.

Whatever Aer Rianta decides, the company's recent decision to put up car-parking charges at the short-term car-park at Dublin Airport from £7 to £12 is for many a taste of things to come. Not surprisingly, the airlines are not very forthcoming about what fare increases they might consider.

A spokesman for Aer Lingus said the company doubts whether consumers would accept the 10 per cent average fare increase predicted by the duty-free lobby and ACI Europe, the organisation which represents airport authorities.

"Consumers vote very quickly with their feet in the airline business," he said, adding that fierce competition should mean that any increases are small. In addition, airlines are likely to oppose strongly any landing charge increases from airport authorities around Europe, who will all be affected.

British Midland, Ryanair and, more discreetly, Aer Lingus are likely to tell Aer Rianta it will have to face the reality of having its profits trimmed.

As Ryanair's chief executive, Mr Michael O'Leary, said before: "All airlines have had their margins squeezed. Now the time has come for airport operators to face competitive pressures."

He has not been shy to predict hell and damnation if Aer Rianta increases charges at Dublin, Shannon and Cork. He openly admits that if it does, Ryanair's cheap flights to the UK and France could be seriously jeopardised.

As a further warning, he has threatened to pull the company's operations out of Dublin Airport completely, although Aer Rianta has dismissed the threat.

The figure of 10 per cent is described as conservative by many people in the aviation business, and suggestions for raising alternative revenue from the airport authorities have been dismissed as too small-scale.

For example, Aer Rianta is planning a range of "concession shops" (outlets which sell products under one brand name) at Dublin Airport, with the Harrods boss, Mohammed al-Fayed, expressing an interest in such an idea.

However, sales of Harrods trinkets and Manchester United jerseys are not expected to make up the shortfall.

The situation with sea travel is likely to be worse for consumers, as the two companies operating routes from the Republic, Stena Line and Irish Ferries, depend heavily on duty-free sales for their profits. Irish Continental Group, which owns Irish Ferries, generates 20 per cent (£5 million) of its current operating profits from duty-free sales.

A spokesman said that "in anticipation" of the abolition of duty-free, it increased its prices by an average of 10 per cent earlier in the year. As if that did not hurt enough, he said the company cannot rule out a further increase.

It said the ending of duty-free does not mean the end of shopping and it will continue to offer "some kind of shopping experience". Prices are likely to be lower than those in town, but the revenue is not expected to cover all the duty-free losses.

Mr Eamonn Hewitt, spokesman for Stena, said the company is prepared "to take a hit" on duty-free for the time being, waiting instead to see how the abolition affects its business in the next year.

However, he points out that the company implemented price increases of between seven and 10 per cent earlier in the year. "There is no doubt the abolition will mean a revenue loss, and the increases next year may be reasonably hefty," he said.