"Irish airports break-up is good for consumers"

Wednesday, June 23, 2004

Commentary
Airports break-up is good for consumers
By Sean Barrett 
The Irish Independent


NO sector is ever willingly deregulated. The opposition of both airport
managers and trade unions to a more competitive airport sector is
therefore no surprise to those who have heard the same opposition to
airline deregulation, taxi deregulation, bus deregulation and truck
deregulation.

Competition smartens up incumbents in the protected sectors and does so
in the interests of the wider public, the consumer, and downstream
industries.

Twenty years ago this week a Dail revolt grounded legislation to prevent
airline competition. Emergency legislation to fine heavily, imprison and
withdraw the licences of travel agents selling discounted tickets was
refused a quick parliamentary passage by the then Fianna Fail chief
whip, Mr Bertie Ahern.

The parliamentary opposition was led by Des O'Malley, then an
independent, and drew support from some Fine Gael government deputies
and the Fianna Fail opposition deputies voiced both support for, and
opposition to, the Bill.

The 1984 parliamentary revolt brought airline competition just under two
years later. The Dublin-London air fare fell from GBP208 to GBP94.99 on
the first day. The GBP208 fare in 1986 is over 500 at today's prices,
that is more than six times the average return fare in 2003 of 80
charged by Ryanair, the market leader on the route. In August 1987, the
first full year of deregulation, passenger numbers on Dublin-London were
up 92pc on August 1985, the last full year of prederegulation policies.
Irish tourism, stuck at 2m visitors for almost twenty years before
deregulation, increased to over 6m when we deregulated access. A major
ingredient of the Celtic Tiger began with a pro-deregulation
parliamentary revolt which, to its credit, the government of the day
accepted.

The State Airports Bill, published yesterday, dismantles a 97pc monopoly
of the state's airport passengers. Aer Rianta is to be replaced by
Dublin Airport Authority, Cork Airport Authority and Shannon Airport
Authority.

When the private sector offers to build competing terminals at Dublin
are belatedly accepted my preference is for three terminals at Dublin,
ie run by the new Dublin Airport Authority and two private sector
competitors. Taken with the recent growth of Kerry, Knock, Galway and
Derry airports the State will then have a chain of competing airports in
the west and south and competing terminals at Dublin. Are there gains
from airport competition? Decidedly, the answer is "Yes". On Europe's
largest and longest deregulated route, Dublin-London, less than half the
passengers now use Heathrow which had a virtual monopoly before
deregulation.

In the northwest of England there is constant airport competition
between Manchester, Liverpool, Leeds-Bradford and Blackpool. Prestwick,
virtually closed before deregulation, is one of the fastest growing
airports in the UK, competing with Glasgow Abbotsinch. Throughout Europe
we have case studies in airport competition such as Oslo Torp, Stockholm
Skavsta, Paris Beauvais, Brussels Charleroi, Frankfurt Hahn,
Venice-Treviso, Rimini-Ancona and dozens more.

In a study of 13 European countries Dr Rodney Fewings of Cranfield found
over 400 airports in thirteen countries. There was typically one airport
per million population and the airports were within an hour surface
travelling time of a competing airport.

These airports were seriously underused before deregulation since the
high fare cartel airlines served hub airports where they colluded on
fares, interlined, and concentrated on so-called business travel. With
deregulation the new airlines, many excluded from hub airports by the
cartel airlines, began to seek out alternative airports. They negotiated
much better deals than the airlines at the hub airports and passed on
the savings in lower fares. The new competing airports also had to
attract passengers. It must have come as quite a surprise for the old
monopoly airports to see how rapidly passengers transferred to the new
airports.

The new airports brought lower fares to passengers, lower charges to the
airlines, less walking and confusion than at the hub airports, a more
pleasant atmosphere, and cheaper car parks. In retrospect, the only
surprise is that we ever thought we liked any of the old crowded hub
airports of Europe.

In Britain, the Department of Trade argued in 1976 for a national
airport monopoly under common ownership. It acknowledged "a degree of
local pride in the ownership and operation of regional airports" but
listed several "advantages of common ownership" such as concentration of
activity, no wasteful competition, regional development, consistency in
policy, less haphazard planning, and better staff career opportunities.
The advice was not accepted and strong independent regional airports
continued to thrive.

Why has it taken Ireland so long to wake up to the benefits of airport
competition? As we have seen the monopoly management and their trade
unions oppose all competition in transport. Not having transport
competition seems to be part of so-called "Social Partnership" in
Ireland. The evidence from the Commission for Aviation Regulation
indicated serious productivity problems in Shannon and Dublin and
serious investment appraisal problems at all three State airports. The
Commission also found serious problems in the relationships between the
airports and their major airline customers, a problem not confined to
Ryanair by any means.

None of this was any surprise to economists. State transport monopolies
are allowed by market protection to take their eye off costs. They are
invariably overmanned. They engage in "gold-plating" their investments.
Their managements enjoy their protection from a competitive market.

Airport managers under monopoly remind me strongly of airline managers
in the era of cartels. Old monopoly airport managers benchmark
themselves against other old monopoly airport managers just like the
airlines used to do before 1986. Airline fares fell by over 80pc since
deregulation. Airline managers tell me that they seek reductions of even
more than 80pc from Europe's high cost airports. Market forces will pass
on these savings to you in lower fares and lower costs for the national
economy. Those who have held up yesterday's Bill did the Irish national
economy no favours. Roll out competing airports and competing terminals
now!

Dr Sean Barrett is a lecturer in Economics at Trinity College Dublin.


 Do you have an opinion about this story?
Share it with other readers in our CAA Discussion Forums

http://www.californiaaviation.org/dcfp/dcboard.php


*****************************************