DUBLIN AIRPORT – REVIEW OF EXPRESSIONS OF ... AIRPORT – REVIEW OF EXPRESSIONS OF INTEREST FOR AN INDEPENDENT TERMINAL CONTENTS 2 SECTION PAGE 1 Executive Summary 3 2 Background

DUBLIN AIRPORT – REVIEW OF EXPRESSIONS OF INTEREST FOR AN INDEPENDENT TERMINAL

PANEL REPORT TO MINISTER FOR TRANSPORT

February 2003


CONTENTS

2

SECTION PAGE

1 Executive Summary 3

2 Background & Terms of Reference 16

3 Context 19

4 Review of Expressions of Interest 37

5 Emerging Concepts 51

6 Stakeholder Implications 65

7 Conclusions 79

APPENDICES PAGE

1 Summary of organisations submitting expressions of interest 87

2 Summary of locations proposed for an independent terminal 89

DUBLIN AIRPORT – REVIEW OF EXPRESSIONS OF INTEREST FOR AN INDEPENDENT TERMINAL SECTION

EXECUTIVE SUMMARY 1

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1.1. Background

The Programme for Government provides for an examination of the concept of an independent/competing terminal at Dublin Airport. Accordingly, the Minister for Transport invited expressions of interest for such a concept. Thirteen expressions of interest were received from national and international companies and consortia.

A Panel was established to assess the responses and to advise the Minister on the viability of an independent terminal operation at Dublin Airport. The Panel’s terms of reference and material considered are outlined in Section 2.

1.2. Dublin Airport high level review

1.2.1. Dublin Airport is Ireland’s largest airport and primary international gateway, with 15.1 million passengers per annum (mppa) using the airport in 20021. This represents a 5.3 per cent increase over 2001. Dublin was one of only four major airports in Europe to grow traffic in 2001.

Traffic has grown strongly in line with economic growth coupled with the emergence of low cost airlines. This has produced a 46 per cent increase in passenger numbers since 1997. The UK market remains the most important in terms of overall passenger numbers, however the UK market as a percentage of overall traffic has declined from around 62 per cent in 1997 to 52 per cent in 2002. European traffic has grown from 28 per cent in 1997 to 37 per cent in 2002 while transatlantic traffic has remained static at circa 5 per cent in the period.

Aer Rianta’s expected Centreline forecast for traffic at Dublin Airport indicates circa 30 mppa in 2018 and 42 mppa by 2030.

Aer Rianta forecasts a further 1.5 million passengers in year one if additional quick turnaround aircraft were based at the Airport, assuming sufficient infrastructure capacity were in place.

1.2.2. Low cost versus hub - Low cost carriers contributed around 26 per cent of total passenger traffic at Dublin Airport in 2001. They also have the ability to significantly contribute to the future growth of the Airport. However for this to be achieved, a number of key business model factors would have to be present:

• Competitive airport charges.

• Sufficient facilities to ensure fast turnaround of aircraft.

• Sufficient profitable demand for their services, especially to new destinations.

1 Source for traffic statistics: Aer Rianta and Air Transport Intelligence.


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In its favour, Dublin has proved extremely popular for the low cost market to and from the UK. Low cost carriers have demonstrated that markets exist that traditional carriers have not been able to develop. There is every reason to believe that Dublin could be very successful in this market to many destinations in continental Europe, if the key business model factors are present.

Aer Lingus operates a relatively low level hub network from the Airport, with a limited number of connections available. Estimates of the current number of passengers transferring between flights at Dublin are around 5 per cent2 of total passenger throughput (circa 700,000 in 2001) compared to 30 per cent to 50 per cent at a main hub airport. The predominant operation at Dublin Airport caters for a wide range of point to point services.

A key change in the Irish aviation market since September 11th has been the restructuring of Aer Lingus. As part of this restructuring, the airline has adapted its operational model to increase overall levels of aircraft utilisation. In addition, the airline has launched services to a number of new destinations at relatively low frequency per week aimed at capturing a greater share of both the inbound and outbound leisure markets.

Increases in low cost services and further expansion of point to point services have infrastructure implications for Dublin Airport, such as increased demand for appropriately sized aircraft contact stands.

1.2.3. Emerging Dublin Airport master plan - Following the recent terminal redevelopment and expansion at Dublin, the Airport has a terminal capacity of up to 20 mppa3 depending on the level of service offered to passengers. However, aircraft parking stands, particularly contact stands adjacent to the terminal, are unlikely to provide sufficient capacity to meet demand up to 20 mppa. In addition, runway capacity, especially at peak periods, has become constrained and will limit future growth.

The existing aircraft contact stands currently achieve a high level of utilisation4. In order to achieve further growth, the Panel accepted (based upon the information provided) the case for additional contact stands to be provided at Dublin Airport.

If built, Aer Rianta’s proposals for a new Pier D would provide 12 stands (a net increase of 8 contact stands).

Aer Rianta’s plans for a new runway, scheduled to open around 2008, would significantly increase runway capacity, which is currently estimated to be around 42 movements per hour5.

2 Source: Aer Rianta. 3 Source: Aer Rianta master planning team. 4 Source: Aer Rianta, data based on actual aircraft operating times on 27 July 2001. 5 Source: Panel estimates.


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The Aer Rianta master plan currently being developed has the core objectives of planning for 30 mppa by 2018 and facilitating future growth to beyond 50 mppa thereafter.

Conclusion of the option and sub options review including costings, construction programmes and final recommendations is due by April 2003.

In addition, a number of shorter term measures have been identified by the Aer Rianta planning team to accommodate forecast growth through to 2007.

Pier D, to the north of the existing Pier A, has been designed as a quick turnaround facility. As planned, it could be adapted to provide capacity for other carriers and wide body operations. Completion is forecast for late Summer 2004, subject to the planning appeals process.

In the interim, a temporary forward coaching facility (a facility where passengers are coached to a remote “midfield” lounge prior to boarding their aircraft) had been proposed to provide relief for Summer 2003. The earliest forecast completion date is now late Summer 2003, again subject to the planning appeals process.

1.2.4. Doganis report findings - The 2002 Doganis report on the optimum strategy for the Government and Aer Rianta to follow reached a series of conclusions relevant to this review of independent terminal proposals at Dublin Airport. These were:

• Lower airport charges will not in themselves encourage the launching of new routes because they are not the main determining factor in an airline’s route planning decisions.

• Significantly lower airport charges for low cost carriers would not be cost-related and would therefore be discriminatory.

• Lower airport charges in themselves will not encourage significant additional incoming tourists since they represent such a small part of a total holiday cost.

• While the need for Pier D or a similar facility does not appear urgent because of existing spare capacity elsewhere, such capacity does not meet the very specific requirements of low cost carriers.

• A new Pier D would not have significantly lower unit operating costs than the existing piers. Therefore any reduction in airport charges would be quite limited.

1.2.5. Strategic options report findings – The 1999 Warburg Dillon Read report on the strategic options for the future of Aer Rianta contained a number of key findings relevant to the review of independent terminal proposals including:

• Aeronautical charges at Dublin Airport are low when compared to peer European airports.


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• Some capital expenditure projects might be conducive to third party financing where such projects would not jeopardise the efficient operation of the Airport and were based on commercial terms.

• Aer Rianta’s financial outlook is severely strained. If aeronautical charges are held back, and notwithstanding capital expenditure being cut back significantly, then the company would become financially strained in the years ahead and produce significantly lower returns than would be expected for similar companies.

• Competition, in an airport context, should be fair, open and reasonable, and should be effected on commercial terms without subsidy.

The report briefly examined the concept of an independently owned second terminal at Dublin Airport and concluded that international precedents were not favourable because of operational difficulties and that high levels of aeronautical charges would have to be levied to generate an adequate commercial return.

1.2.6. Regulation – The Panel noted that most observers have concurred that the level of charges at Dublin Airport is extremely competitive when compared to peer European airports. To further stimulate traffic, an innovative incentive scheme offering zero airport charges has been introduced for new routes out of Dublin Airport that fulfil published criteria. The Panel concluded that airport charges, at their current level, are not a barrier to airlines developing new routes out of Dublin.

1.2.7. Infrastructure requirements - The Panel concluded that if a new terminal were to be provided (regardless of which option was selected), the existing runway infrastructure would have insufficient capacity to accommodate the potential additional traffic.

Under a scenario of rapid growth in quick turnaround aircraft operations, runway movement constraints might prevent operators achieving the high aircraft utilisation that is critical to the success of their business model. The Panel therefore considered additional runway capacity as an essential element for a step change in the competitive environment at Dublin.

Such additional runway capacity could be achieved by implementing the new parallel runway proposals envisaged by Aer Rianta as referred to earlier. On the other hand, one of the expressions of interest proposed an extension to the existing short Northern Runway 29/11 at a much lower cost than the proposed new runway. The Panel believes that this alternative proposal should be carefully evaluated.

In common with many busy airports, road congestion is already a significant issue at Dublin Airport. In particular, access to the departures level ramp suffers from congestion at peak times. Based on the Panel’s experience elsewhere, the existing landside road system serving the airport is unlikely to provide sufficient


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capacity in the medium to long term. This is a key issue that the new Aer Rianta master plan is seeking to address.

1.3. Expressions of interest

The thirteen expressions of interest received ranged from highly developed proposals, including terminal layout plans, phasing details and indicative costs, to letters notifying the Department of Transport of interest in submitting a proposal should the decision be taken to proceed to a formal tendering process.

1.3.1. Concepts proposed - The majority of responses specified a terminal to serve a specific market on one of four sites. The Panel considered the main features of each proposal, both in terms of the market served and the location of the terminal. This was based upon the information provided within the submissions, which was further informed by a presentation by Aer Rianta’s master planning team.

The markets that the proposed terminal would seek to serve fell into three primary categories:

• Point to point traffic predominantly for low cost airlines.

• Point to point traffic predominantly for full service airlines.

• Integrated hub and spoke traffic for full service airlines.

It should be noted that hubs have specific requirements. Geographic position, close to large centres of population, a dominant based airline committed to a hubbing strategy, abundant runway capacity, and substantial local traffic with a significant proportion of high yield passengers are all necessary components. Having reviewed the nature of the Irish market, competition from other airports, as well as historic and forecast passenger segments, the Panel has concluded it is unlikely that Dublin will evolve into a recognised hub airport.

1.3.2. Sites identified - Many of the responses did not feel restricted to land within the Airport boundary or in the control of one of their consortium members.

From the responses, a number of preferred locations emerged:

• North of the existing old central terminal building, on the existing Hangar 1 site.

• South-east of the existing main terminal building in the vicinity of the cargo buildings.

• On the western boundary of the airfield and north of the main Runway 10/28.

• To the south of the main Runway 10/28.

The Panel’s report includes a high level review of these sites, which are broadly similar to a number of options being considered in the development of Aer Rianta’s master plan. The Panel’s understanding is that Aer Rianta’s master planning team has not dismissed any of these sites on operational grounds.


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If the concept of an independent terminal is to be progressed, the results of detailed site assessment studies, which the Aer Rianta’s planning team has already progressed to an advanced stage, will be required. In particular, information in relation to costs associated with landside and airside infrastructure and any necessary displacements of existing facilities will be critical in assessing potential sites.

In the Panel’s view, if the locations proposed have operational integrity for Aer Rianta, they should work for an independent terminal operator.

1.3.3. Benefits claimed for an independent terminal - Benefits claimed in the expressions of interest are summarised in the table in Section 4.7. The majority of the benefits relate to carriers and highlight improvement in facilities, operational capability, lower cost and choice between terminal operators.

From the Airport’s perspective, the main benefits claimed were increased capacity and a better match of facilities with airline requirements.

For the public, the main benefits claimed were improved facilities, choice of new routes and services provided by carriers in the new facility, a reduction in the cost of car parking and improved access (depending on location).

1.3.4. Financing and economic dimensions of the proposals - Few actual details were provided as to the envisaged levels of aeronautical charges, or the split between aeronautical and non-aeronautical revenue streams required to make the project financially viable. A number of organisations expressed the view that aeronautical revenues would account for the majority of revenue in the early years with more emphasis on non-aeronautical revenue as the operation matured.

A number of the proposals outlined broader economic benefits to Ireland that would be derived from an expansion of Dublin Airport. However there was little supporting evidence to underpin some of the claims of job creation and greater economic activity.

1.3.5. Regulatory implications - The regulatory implications of an independent terminal at Dublin Airport were highlighted by many of the organisations. The main points raised by the submissions were:

• The existing regulatory structure should be adequate provided that the costs of individual components of service delivery are properly separated out. This is currently not the case as Aer Rianta operates within an overall price cap. If this cannot be rectified, then separating common assets from competing assets has been suggested by a number of submissions.

• Concerns that Aer Rianta, as the owner/operator/regulator of airside facilities, would have control of access to taxiways and runways for airlines using an independent terminal.


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• The regulatory regime must be transparent such that revenue can be predicted with reasonable certainty and is not subject to significant change due to new regulation.

1.4. Emerging concept

1.4.1. Context - The Panel considered the expressions of interest within the context of Aer Rianta’s emerging master plan. Based upon information provided by Aer Rianta and its consultants, a number of basic assumptions have been made on how the Airport might develop in the future:

• Growth in line with Centreline forecasts that does not include a significant increase in the quick turnaround element of overall traffic growth.

• Aer Rianta would continue to develop their facilities incrementally at the Airport, providing capacity in line with forecast demand.

• Aer Rianta would develop Pier D to meet the short term needs of quick turnaround operators.

• Airlines would not base significant numbers of additional aircraft at Dublin without a major increase in quick turnaround facilities.

1.4.2. Emerging concept - The Panel considers that the key features of an emerging concept most likely to meet the strategic aviation objective outlined in the terms of reference are as follows:

• A terminal designed primarily to provide capacity for short haul UK and European flights based around a fast turnaround, point to point operation.

• A terminal developed in phases, with the first phase providing a capacity of up to 10 mppa, and future phases up to an overall capacity of 20 mppa.

• A terminal providing the step change in capacity and through competition, operational efficiency necessary to enable significant expansion of services from the Airport overall.

• The necessary provision of additional runway capacity.

In more detail, the components of the emerging concept would be to:

• Provide a significant increase in additional terminal and aircraft contact stand capacity at the Airport.

• Further improve service levels for airlines and passengers.

• Provide an environment to promote competition between terminal operators.

• Cater for short haul traffic that is likely to form the bulk of future growth at the Airport.


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• Incorporate principles and basic conditions regarding financing of directly related and shared infrastructure, competitive guidelines, etc. so as to inform third party development interest in the project.

• Incorporate revenue sharing principles, particularly in relation to potentially shared infrastructure such as car parks, airside infrastructure and aircraft fuelling.

1.5. Concept formulation

The foregoing concept was formulated having regard to a number of central concerns.

1.5.1. Airline users - The envisaged concept would not be built to serve a single user; it would accommodate the differentiated service levels and requirements of the wide range of airlines at Dublin Airport serving the short haul UK and European markets.

Although a mixed operation, i.e. both low cost and traditional airlines operating from a new terminal, was not directly promoted by any of the parties expressing interest, the Panel considered that the inherent features of the proposals do not preclude a mix of operators in any new facility. Indeed it is critical to the promotion of real competition that a new terminal should not be dedicated to one airline or a particular type of traffic.

It is more likely that current and future long haul traffic using Dublin would continue to be served by the existing terminal. The added complexities of serving long haul traffic would reduce some of the inherent benefits of the quick turnaround terminal concept.

Many of the organisations expressing an interest in the independent terminal concept appear convinced that the project is financially viable. In this context, the Panel feels that the level of aeronautical charges at the Airport is likely to increase for the following reasons:

• Charges appear to be at an uneconomically low level to allow for the significant investment in facilities required at the Airport.

• There is likely to be some dilution of Aer Rianta non-aeronautical revenues in the short term, and thus of available cross subsidy, if a significant number of passengers were to move to a new independent terminal. Even with efficiency measures, the average net cost to Aer Rianta of its services on a per passenger basis would rise in the short term.

The Panel’s view is that the attractiveness of an independent facility should not be viewed solely on the basis of lowest cost for airline users. Dublin Airport already has competitive charges and innovative incentives for new routes compared to peer airports. Operational effectiveness and quality of customer service, at a realistic cost, would be major aspects of competition between


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Airport terminals. This should provide a powerful incentive for airlines to develop services from the Airport.

1.5.2. Pier D and timing - An independent terminal development would be likely to remove the need to build Pier D in the short term, but would not remove the need to replace Pier A, and potentially redevelop Pier B in the existing terminal. An initial shift of a significant volume of traffic from the existing terminal into a new facility would provide Aer Rianta, in the short term, with spare capacity to facilitate redevelopment of their existing terminal facilities.

A key issue identified however, is the timing of the provision of a new independent terminal. Based on analysis undertaken by Aer Rianta’s master planning team, the existing airside facilities are already operating at or near capacity. A possible option prior to the introduction of any independent terminal would be to construct a temporary facility until such time as a new terminal would be operational. This proposal mirrors the Aer Rianta proposal for a temporary facility in advance of Pier D.

1.5.3. Surface access and displacements - The implications of providing additional terminal capacity of up to 20 mppa on the existing landside and airside infrastructure would be critical. Clearly the funding of additional infrastructure is a key issue and funding principles would have to be established reflecting the need for the new terminal to meet the full direct and indirect costs involved. The funding of airside and landside infrastructure and displacements should be addressed in overall project costings.

1.5.4. Location – As already noted, if the concept of an independent terminal were to be progressed, a detailed site assessment study would be necessary to ensure the selection of an optimum site that best integrated into the overall Airport operation. Much of this work has already been undertaken as part of the Aer Rianta master planning process. This should enable any assessment of an alternative site for a new terminal to be undertaken relatively quickly.

1.5.5. Competition and regulation - The Panel concluded that an independent terminal would stimulate, through increased capacity and quality of terminal services, effective competition at Dublin Airport. Such a terminal would give airlines a choice between terminal operators, provided that sufficient capacity was available in the new terminal from day one to enable airlines to switch some or all of their services.

Competition underpinned with appropriate regulatory structures should act as the incentive for operational and financial performance improvements as well as ensuring that levels of airport charges are not out of line with the relevant economic costs of service provision.

1.5.6 Meets current and forecast traffic requirements - Forecasts suggest that European routes will continue to be the key driver of growth in the short to


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medium term. Short haul UK and European traffic accounted for circa 90 per cent of all traffic at Dublin Airport in 2002.

Aer Rianta’s forecast growth in quick turnaround traffic suggests that an additional 1.5 mppa could be added within the first year of a facility catering for this type of traffic. The Panel concurs with this view.

1.5.7 Financial feasibility at a competitive cost - It is unlikely that the concept of a high volume fast turnaround facility would be financially feasible unless the following are achievable:

• Airline tenants, contracted to use the terminal for specific services for a minimum duration, and capable of providing volume passenger throughput.

• Appropriate levels of charges for the services provided.

• Opportunity to develop significant retail and property revenue streams.

• Opportunity to have a competitive cost base.

The financial aspects of the development of an independent terminal would require a realistic level of airport charges to provide an adequate level of return to a developer. Notwithstanding the undoubted commercial revenue potential, this on its own would not be sufficient to develop and operate a new terminal and associated landside and airside infrastructure.

The Panel believes that while airport charges should be reasonable when compared to other peer airports, the real benefits to airline users would arise from the operational efficiencies that come from having a high capacity facility developed to meet the needs of fast turnaround operations.

Transparent regulation of the shared activities would be critical to ensuring an equitable basis for competition. The Panel believes the required level of transparency can be achieved.

From the shareholder’s perspective, the Department of Finance would see short term diminution of shareholder value offset, to some degree, by potential receipts from an appropriate contractual relationship with the terminal developer. A medium term increase in shareholder value of an increasingly efficient and competitive Aer Rianta is also a realistic premise.

Private sector investment in new infrastructure would also reduce, to a degree, short term pressures on Aer Rianta’s capital expenditure programme.

1.5.8 Timing and legislative issues - The development of an independent terminal is an extensive process. From the Panel’s experience, the period required from preparation of comprehensive tender documents to having facilities in operation is likely to take a number of years. A temporary facility as referred to earlier, developed and managed by Aer Rianta could ease the pressures on airlines and passengers in the short term.

The estimated duration of four to five years from a decision to develop tender documents for an independent terminal until a new facility becomes operational


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would depend on no significant delays being experienced at any of the key stages. The Panel is unaware of any specific environmental issues that could impact on future development at the Airport.

It is the Panel’s understanding that legislative changes to two important Acts - the Air Navigation and Transport (Amendment) Act 1998 and the Aviation Regulation Act 2001- would be required to allow the development of an independent terminal at Dublin Airport.

The time lag before any new independent terminal becomes operational would give Aer Rianta sufficient time to review its business plan so as to manage any necessary changes to enable it to compete effectively in the new environment.

1.6 Specific issues to be addressed

The Panel was directed to address a number of specific issues.

1.6.1 The Irish economy - The Irish economy is likely to see a number of impacts from an independent terminal. In the first instance, there are the benefits from the further development of a competitive and efficient Airport as a key element in the overall economic and business infrastructure of the country.

More specifically, tourism numbers have the potential to increase but the rising trend of outbound passengers from Ireland must also be recognised. The Panel agrees with the findings in the Doganis report that there is no compelling evidence that the net impact of an increase in quick turnaround service from Dublin Airport would result in a significant net tourism benefit. Thus, there are no clear grounds for any beneficial treatment of a particular section of the aviation industry on the basis of an unproven wider economic argument.

Airports are large economic generators in their own right, with the opportunity of continued strong growth translating into growth in the overall employment base. Growth of services at the Airport would increase the number of jobs. However given that the Airport is growing at a healthy rate in any event, the net incremental jobs benefit from an independent terminal would come from the commencement of additional services that would otherwise not have operated from Dublin Airport.

A competing terminal would of course promote overall operational efficiencies at the Airport. The features of the current regulatory structure ensure that Aer Rianta management and the Regulator also share this objective.

1.6.2 Effective and efficient operation of Dublin Airport - The Panel concluded that an independent terminal would stimulate, through increased capacity and quality of terminal services, effective competition at Dublin Airport. Such a terminal would give airlines a choice between terminal operators, provided that sufficient capacity was available in the new terminal from day one to enable airlines to switch some or all of their services. Such competition with appropriate regulatory structures should also ensure levels of airport charges that reflect the economic cost of service provision.


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A new terminal would allow Aer Rianta to focus on the retention of existing airline customers, either through offering charges competitive with the new terminal operator, or by offering value adding “service standards” to further improve the level of service in the areas they can influence. Such standards may relate to management of customer flows, guaranteed availability of check-in desks, aircraft stand availability and serviceability of key equipment such as baggage handling.

1.6.3 Project viability - The Panel concluded that the development of an independently funded and operated terminal is both operationally and technically feasible and that there is already significant preliminary support for such a concept from Dublin Airport’s principal airline operators.

The development of an independent terminal represents an attractive opportunity for an investor to participate in a fast growing international airport. However before any commitments are made to invest in new facilities, a number of issues would require clarification for potential developers:

• The terminal may not be financially viable on the basis of the existing level of aeronautical charges at Dublin Airport. However the Panel believes, supported by the Doganis report that increased charges, providing they are realistic, will not impact on the operational attractiveness of the facility for airlines. This is on the basis that there is sufficient demand for the potential range of new services from Dublin Airport.

• A key feature for any investor will be clarity and stability of the regulatory and pricing structure. Ambiguity from the Regulator on approaches to pricing or how particular assets are treated will provide uncertainty and represent risk for investors. To make this opportunity attractive, a clear operational and pricing regulatory structure is essential.

• The opportunity to develop commercial revenue streams will be a key requirement for any investor to ensure a balanced revenue profile. These are likely to include car parks, retail and catering facilities. Sufficient land may have to be included to allow hotel and commercial property development areas.

• The contractual structure of any agreement will be critical for an investor with areas such as duration, contract or concession structure, concession payment terms, and development obligations being important.

1.6.4 Market interest and further progression of the concept - The international experience of investors participating in airports has generally been positive with demand outstripping supply. There is a healthy market for the development of airport assets and this is confirmed by the number of organisations expressing an interest in an independent terminal at Dublin. Whilst the initial reaction from the market to the opportunity to develop an independent terminal was encouraging, and some of the organisations expressing


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interest provided detailed responses, this was a non-binding process with an open basis for inviting responses. To ensure a firm basis for testing the market with prospective developers, tender documentation would need to be specific on a number of areas including facilities specification, site location, available land for commercial development, and outline contract structure. Tender documents will take time to prepare to a comprehensive level to meet today’s changing aviation market along with the exacting standards required for public procurement.

1.6.5 Implications for Aer Rianta - Aer Rianta would be profoundly impacted with the changing competitive landscape requiring them to continue with their ongoing restructuring programme. Revenues and costs would come under pressure in the short term following the loss of any business to a new terminal. However the Panel believes that Aer Rianta would vigorously react to competition for the benefit of airlines and passengers at Dublin Airport. Aer Rianta should be able to capture a share of the forecast growth and grow their business in the medium term. This would require a quantum shift in company culture to react to a new competitive environment, a shift that would only be delivered through the combined efforts of staff and management.

1.7 Conclusion

The Panel has concluded that none of the issues identified are insurmountable and that an independent terminal is a viable strategic option for the development of Dublin Airport and would elicit considerable market interest. If this concept is to be progressed to the next stage of the tender process, it will require detailed consideration in the first instance of all of the issues discussed in this report.


BACKGROUND AND TERMS OF REFERENCE 2

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2.1 Background

The concept of an independent/competing terminal at Dublin Airport has been put forward by a number of interests in recent years, and has been the subject of public comment. The new Programme for Government provides for an examination of such a proposal. The Minister believed that the most practical way forward at this point was to explore the pros and cons involved and to test the viability of the concept by canvassing the market.

The Department of Transport invited expressions of interest for the possible provision of an independent terminal or terminals at Dublin Airport. The call for expressions of interest requested that the parties responding should provide information on a number of specific issues. The responses to these issues would help to inform the assessment as to whether there were one or more concepts relating to independent terminal provision at Dublin Airport that could be further developed. A closing date of October 31st 2002 was placed on lodging expressions of interest.

On November 26th 2002, the Minister announced that expressions of interest in relation to the possible provision of an independent terminal at Dublin Airport had been received from thirteen national and international companies and consortia. Minister Brennan published the details of the organisations responding to the call for expressions of interest and also announced the establishment of a Panel to assess the responses.

2.2 Assessment Panel

The Assessment Panel consisted of the following:

Mr Paddy Mullarkey, former Secretary General of the Department of Finance, who was appointed to chair the Assessment Panel assisted by two experts in the area of international aviation, Sir Gilbert Thompson, OBE and Mr Paul Gaines. The Panel was supported by AviaSolutions, a UK based independent air transport consultancy.

Sir Gilbert Thompson, OBE, who is most closely associated with the development and growth of Manchester Airport, which, under his leadership, developed from a small regional airport to become one of the world's top twenty international airports.

Mr Paul B. Gaines, who is a US expert and strategic adviser to the aviation industry on airport affairs both within the US and globally. He brings a US and international perspective to innovation and strategic planning in the airports area. Mr Gaines has advised on airport issues for both governments and private clients in the US, Europe, Middle East and Central America. Mr Gaines brings to the present assignment over 23 years experience as executive director of two large airports in the US, Salt Lake City and Houston. He is a former Chairman of the world board of Airports Council International (ACI) - the global consultative/representative body for international airports.

DUBLIN AIRPORT – REVIEW OF EXPRESSIONS OF INTEREST FOR AN INDEPENDENT SECOND TERMINAL

BACKGROUND & TERMS OF REFERENCE

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AviaSolutions were retained as independent air transport consultants to provide technical support and to produce papers for consideration by the Panel as well as contributing to the development of this report. The company focuses on serving the international aviation industry and comprises professionals from industry and consultancy. Clients include airports, airlines, aviation industry suppliers, aviation service providers, financial institutions and government bodies.

2.3 Expressions of interest received

Expressions of interests were received from a range of organisations consisting mainly of airport operators, construction companies, airlines, property developers and a range of consultants. Details of the organisations that responded are included at Appendix 1.

2.4 Material considered and the Panel’s terms of reference

The information provided by those organisations submitting expressions of interest, as well as supplemental information from other sources, has greatly assisted the Panel’s assessment of the potential viability of an independent terminal operation at Dublin Airport. The information provided was supplemented by the Panel’s many years experience in the finance, planning and operational sectors of the international aviation industry.

The Department of Transport’s strategic aviation objective, as stated in the terms of reference was to:

“ensure that the principal gateway airports of the State are in a position to provide the appropriate infrastructure to meet the current and prospective needs of airlines and other aviation companies, at the lowest cost to those users consistent with fully commercial airport operations”.

The terms of reference of the Panel were to consider, in the context of the above objective, whether the various expressions of interest received point to the likely viability of one or more concepts for an independent terminal and to outline the main features of any such concept(s).

Specific issues to be addressed in the Panel’s assessment were:

1. What are the potential benefits or disbenefits of such a project for the Irish economy, (in particular the Irish aviation and tourism sectors), such as for the volume and range of air services to Ireland and the effective operation of Dublin Airport?

2. Is there evidence of a viable project, from the operational and financial perspectives, from the point of view of the promoter(s) of the project?

3. Is market interest sufficiently strong to warrant the concepts emerging to be further progressed e.g. through a formal tender process?

4. What are the likely broad financial and operational implications for Aer Rianta?

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The Panel was also provided with information to enable consideration of the expressions of interest within the broader context of the development of Dublin Airport and Ireland’s air transport industry. This information included:

• Dublin Airport Masterplan (Scott Wilson Kirkpatrick, January 1999).

• Review of Strategic Options for the Future of Aer Rianta (Warburg Dillon Read, AIB Capital Markets, SH&E, December 1999).

• Consultancy Advice on Aviation Issues (Professor Rigas Doganis, 18 January 2002).

• Maximum Level of Airport Charges (Commission for Aviation Regulation, Commission Paper CP2/2002, February 2002).

• Draft Dublin Airport Masterplan (Status as at December 2002 – including proposals for a new Pier D and second runway).

• Other ad hoc information and press articles.

The Panel did not formally evaluate the existing or emerging Aer Rianta master plans, or any information other than the expressions of interest submitted. No further submissions or correspondence were considered beyond what was received by the closing date of October 31st 2002.

No meetings or correspondence were directly entered into between the Panel and Aer Rianta, or any of the airlines using Dublin Airport. Any information required was provided through the Department of Transport.

The Panel received a briefing from Aer Rianta’s technical consultants on the emerging Aer Rianta master plan. This provided invaluable background to support the Panel’s consideration of the key issues. This is discussed in more detail in Section 3 of this report. The Panel also conducted a site tour of Dublin Airport.

2.5 Report structure

The report develops the context in which the viability of an independent terminal at Dublin Airport is to be examined by the Panel. Key elements include the development of passenger traffic at the Airport; recent changes in the Irish aviation market; Aer Rianta’s emerging master plan options; and reviews a number of recent studies related to the Airport.

A number of key issues that will influence the viability of an independent terminal are examined. The expressions of interest are then reviewed at a high level and the Panel’s view of an emerging concept explored in more detail.

The implications of an independent terminal at Dublin Airport for a range of stakeholders are considered. Conclusions are then reached as to the viability of an independent terminal at Dublin Airport.


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3.1 Introduction

The context within which proposals for an independent terminal are reviewed will be critical in assessing whether there are one or more viable concepts. This section reviews a number of key areas including Dublin Airport’s recent traffic performance as well as future traffic forecasts. Infrastructure development plans are examined to understand how Aer Rianta plans to accommodate growth at the Airport. A number of other studies relevant to the independent terminal proposals are reviewed. The fundamental contextual issues surrounding the viability of an independent terminal concept are then considered. This provides a meaningful basis on which to then review the proposals submitted.

3.2 High level review of Dublin Airport

3.2.1 Traffic summary

Dublin Airport is Ireland’s largest airport, and primary international gateway, with over 14.3 million passengers per annum (mppa) using the airport in 20016. This represents a 3.5 per cent increase over 2000. Dublin was one of only four major airports in Europe to grow traffic in the year. This trend has continued with traffic in 2002 up by a further 5.3 per cent to 15.1 mppa.

Dublin Airport passenger traffic 1997 to 2002

Source: Aer Rianta Annual Report 2001 and Aer Rianta 2002 statistics.

6 Source for traffic statistics: Aer Rianta and Air Transport Intelligence.

0 2000 4000 6000 8000 10000 12000 14000 16000

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1998

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2000

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Transatlantic UK Europe Domestic


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Traffic has grown strongly in line with economic growth coupled with the emergence of low cost airlines, with a 46 per cent growth between 1997 and 2002. The UK market remains the most important in terms of overall passenger numbers; however the UK market as a percentage of overall traffic has declined from around 62 per cent in 1997 to 52 per cent in 2002. European traffic has grown from 28 per cent in 1997 to 37 per cent in 2002 while transatlantic traffic has remained static at circa 5 per cent in the period.

Dublin Airport traffic geographic segments 1997 to 2002

Source: Aer Rianta

Prospects for the future are positive with the Dublin-Washington (Baltimore) route, dropped by Aer Lingus following September 11th 2001, scheduled to be reinstated in Spring 2003. Air Canada launched a daily Summer only service to Toronto in Summer 2002 and US Air plans to commence a daily service to Philadelphia in May 2003.

The European markets were responsible for all of the growth in 2001, making up for decline in other geographic markets. Passengers in this region exceeded 5 mppa for the first time. Both scheduled and charter traffic enjoyed a significant increase with new services launched by Aer Lingus, Air France and Ryanair in 2002 and a new service to Oslo planned by Braathens in 2003. European traffic increased by a further 9 per cent in 2002.

UK passenger numbers were static at 7.4 mppa in 2001 with declines in the London market offset by increased growth in the UK regional markets. However

0% 20% 40% 60% 80% 100%

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1998

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% of Total Traffic

UK Europe Transatlantic Domestic


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UK traffic has recovered to increase by 6 per cent in 2002. Domestic traffic declined by 1 per cent in 2001 and a further 1 per cent in 2002.

Dublin Airport traffic trends 1997 - 2002

Source: Aer Rianta Recent historic growth at the Airport compares favourably with other peer European airports7.

Comparison of traffic growth at Dublin with peer European airports 1998 - 2001

Source ACI Europe Statistics

7 Source: AviaSolutions (ACI Europe Statistics).

-15%

-10%

-5%

0%

5%

10%

15%

20%

Dubl

in

Man

ches

ter

Birm

ingh

am

Zuric

h

Mun

ich

Cope

nhag

en

Brus

sels

1998 1999 2000 2001

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

1997 1998 1999 2000 2001 2002

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enge

rs (0

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Transatlantic UK Europe Domestic


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Source: ACI Europe Statistics

3.2.2 Forecast growth

Traffic at Dublin Airport is forecast by Aer Rianta to grow to circa 30 mppa in 2018 and 42 mppa by 20308. Air transport movements (an aircraft arriving or departing from the Airport) are forecast to increase from around 180,000 to 314,000 by 20209. This growth is predicated on the timely provision of additional runway capacity.

Four scenarios for expected Centreline growth, along with increases for additional quick turnaround aircraft (QTA), higher than assumed GDP growth, as well as lower GDP growth are illustrated.

Aer Rianta’s forecast difference between Centreline growth and an increase in quick turnaround aircraft activity is circa 3.5 mppa by 2030, with 1.5 mppa of this variance coming in one year (2003) assuming terminal capacity was in place.

The Panel has not developed independent forecasts but feels that the overall increase in quick turnaround operations could be higher than 3.5 mppa based on proposals in some of the expressions of interest and observed growth at other European airports.

8 Source: Forecast 2002, Aer Rianta Report, September 2002. 9 Source: Aer Rianta forecasts from master planning team.

5.5

10.5

15.5

20.5

25.5

1997 1998 1999 2000 2001

Pass

enge

rs (m

)

Dublin Manchester Birmingham Zurich

Munich Copenhagen Brussels


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Aer Rianta forecast traffic scenarios 2003 - 2030

Source: Aer Rianta

Aer Rianta forecast variance of QTA versus Centreline 2003 -2030

Source: Aer Rianta

3.2.3 Recent changes in the Irish aviation market

A key change in the Irish aviation market since September 11th has been the restructuring of Aer Lingus. As part of this restructuring, the airline has adapted

10,000

20,000

30,000

40,000

50,000

2002 2006 2010 2014 2018 2022 2026 2030

Pass

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00s)

Centreline High GDP GrowthLow GDP Growth QTA centreline growth

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1,000

1,500

2,000

2,500

3,000

3,500

4,000

2001 2005 2009 2013 2017 2021 2025 2029

Pass

enge

rs (0

00s)

Variance QTA versus Centreline


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its operational model to increase overall levels of aircraft utilisation. Turnaround times (the time between an aircraft landing and departing on its next service) have been reduced to achieve higher aircraft utilisation. Aer Lingus also expects to complete its fleet restructuring review in April 2002 after which it aims to make a decision on short haul fleet standardisation plans as soon as possible. This is driven by the need to reduce the number of aircraft types in its short haul fleet to cut costs. It is likely to standardise on one narrow body aircraft manufacturer, based on either Boeing or Airbus aircraft.

In addition, the airline has launched services to a number of new destinations at relatively low frequencies per week aimed at capturing a greater share of both the inbound and outbound leisure markets.

Changes such as these have infrastructure implications for Dublin Airport, such as increased demand for appropriately sized aircraft contact stands.

3.2.4 Low cost carriers

The success of low cost airlines in Europe has been well documented. Based on the business model of Southwest in the US, airlines such as Ryanair have been able to exploit Europe’s population density and the recently deregulated operating environment in order to undercut established carriers on short haul routes across Europe.

These airlines operate on a much lower cost structure than traditional carriers through reduced staff numbers, lower service levels and overhead costs. Operating under a different route network structure also delivers increased efficiency. There is less emphasis on the smooth operation of a hub network with the low cost network based on direct point to point services. The airline provides no guarantees about making connections, allowing faster aircraft turnaround times with considerably more aircraft flying time built into the network schedule. The resultant higher aircraft utilisation and increased seat density on each aircraft allows the reduced costs to be spread over a higher number of passengers per flight.

These cost savings have been the backbone of the low cost industry, providing an impressive track record of traffic and profit growth. The low cost revolution has now forced established airlines like Aer Lingus to re-think their cost structures and pricing models in order to compete effectively. Established airlines are responding strongly to the challenge and with fares now more affordable than ever before, passenger growth throughout the industry has increased significantly.

There is no single model of operation for the low cost industry. Ryanair, with the exception of Dublin Airport, prefers to serve secondary and less congested destinations where excess airport capacity (and lack of existing air services) ensures that airport charges can be extremely low. In these airports, the added costs of large infrastructure projects have not yet been felt so charges can be kept to a minimum. This is a very important factor, as the inevitable increase in


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charges through an airport having to recover investment for additional capacity has not yet been felt at many of the Ryanair secondary airport destinations. At airports such as London Stansted, operated by BAA, with a high proportion of low cost traffic, where significant expansion has been driven by high growth in the low cost market, charges to operators reflect the significant level of investment necessary to meet demand. If this were not the case, then airport operators such as BAA, with a number of other airports to invest in, as well as investors to satisfy, will invest where they get adequate levels of return.

This has not prevented Ryanair expanding at Stansted. Ryanair will be launching five new routes from the airport on April 30th 2003 with a total of 42 return flights weekly. Frequencies are also increasing on 11 other Stansted routes.

Other low cost operators such as easyJet prefer to serve more primary airports where they can offer a differentiated service through facilities at these airports. Inevitably airport charges are higher at these airports than at secondary airports.

To date, low cost carriers have not set out to compete with each other and where competition has existed, the response has been swift with one of the airlines dropping off the route. The Dublin-Edinburgh route is a good example of this with Ryanair being the only low cost carrier left on this route.

Low cost carriers contributed around 26 per cent of total passenger traffic at Dublin Airport in 2001. They also have the ability to significantly contribute to the future growth of the Airport. However for this to be achieved, a number of key business model factors would have to be present:

• Competitive airport charges.

• Sufficient facilities to ensure fast turnaround of aircraft.

• Sufficient profitable demand for their services, especially to new destinations.

The development of significant low cost operations out of Dublin Airport will be determined by a number of factors including passenger yield (driven by ticket price per passenger), sector length, and the opportunity cost of basing aircraft at Dublin as opposed to other airports. Due to its position on the edge of Europe, sector lengths from Dublin to continental Europe at over two hours are relatively long for low cost operators. This impacts on an airline’s ability to get high utilisation from aircraft based at the Airport compared to other continental bases with shorter sector lengths. This then leads to an opportunity cost review of the costs and revenues from new Dublin routes as opposed to other bases.

In its favour, Dublin has proved extremely popular for the low cost market to and from the UK. Low cost carriers have demonstrated that markets exist that traditional carriers have not been able to develop. There is every reason to


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believe that Dublin could be very successful in this market to many destinations in continental Europe, if the key business model factors are present.

3.2.5 Hubbing at Dublin Airport

Hub operations enable airlines to link greater numbers of points with greater frequency and fewer aircraft than by offering direct point to point services where demand may be insufficient to support high frequency services. Dublin is the base airport for Aer Lingus, however the airline operates a relatively low level hub network, with a limited number of connections available through the Airport. Estimates of the current number of passengers transferring between flights at Dublin are around 5 per cent10 of total passenger throughput (circa 700,000 in 2001) compared to 30 per cent to 50 per cent at a main hub airport. The predominant operation at Dublin Airport caters for a wide range of point to point services.

In Europe there are relatively few main hub airports. The primary hubs are Heathrow, Frankfurt, Paris and Amsterdam. Secondary hubs include Copenhagen, Munich and Zurich. Given the nature and profile of the Irish market and the competition with other established hub airports, the Panel does not consider that Dublin would develop into a significant hub in the foreseeable future. This is discussed further in Section 4 of this report.

3.2.6 Recent infrastructure developments

Following the recent terminal redevelopment and expansion at Dublin, the Airport has a terminal capacity of up to 20 mppa11 depending on the level of service offered to passengers. However aircraft parking stands, particularly contact stands adjacent to the terminal, are unlikely to provide sufficient capacity to meet demand up to 20 mppa.

The existing aircraft contact stands currently achieve a high level of utilisation12 with an average of 8.6 aircraft turnarounds per stand per day on Pier A (predominantly Ryanair and Aer Lingus short haul services); 8.4 turnarounds per stand on Pier B (predominantly long haul, charter and Aer Lingus European services) and 11.2 movements per stand on Pier C (predominantly short haul services to London, Paris and Scandinavia).

In order to achieve further growth, the Panel accepted (based upon the information provided) the case for additional contact stands to be provided at Dublin Airport.

If built, the redesigned Pier D proposal would provide 12 stands (a net increase of 8 contact stands). Aer Rianta’s plans for a new runway, scheduled to open

10 Source: Aer Rianta. 11 Source: Aer Rianta master planning team and Panel member experience. 12 Source: Aer Rianta, data based on actual aircraft operating times on 27 July 2001.


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around 2008, would significantly increase runway capacity, which is currently estimated to be around 42 movements per hour13.

3.3 High level review of other studies

3.3.1 Emerging Aer Rianta master plan

The Aer Rianta master plan currently being developed and due for completion in early 2003, has the core objectives of planning for 30 mppa by 2018 and facilitating future growth to beyond 50 mppa thereafter.

The master plan has a requirement to integrate with a number of other studies currently being carried out including Metro alignment, heavy rail, emerging Fingal master plan, Dublin Transportation Office (DTO) vision for public transport and National Roads Authority (NRA) plans for the road system.

When the Panel was briefed, the Aer Rianta planning team was evaluating short listed options. There was recognition of the urgent need for contact stands and airside capacity given the relatively high current utilisation of contact stands and piers.

The Aer Rianta planning team examined three business scenarios:

• Accelerated growth in quick turn operations.

• Continuation of current traffic profile.

• Accelerated growth in long haul traffic with increased hubbing operations.

The planning team developed a wide number of options and sub options with the short listed options broadly reflecting the following:

• Northern terminal option.

• Attached south-eastern terminal option.

• Remote western terminal option.

Conclusion of the option and sub options review including costings, construction programmes and final recommendations is due by April 2003.

In addition, a number of shorter term measures were identified to accommodate forecast growth through to 2007 including increased stand and pier capacity, increased pick-up and drop off kerb length and internal road network improvements, additional car parking capacity and increased terminal capacity. Beyond that, increased runway capacity was forecast to be required in 2008.

Pier D, to the north of the existing Pier A, has been designed as a quick turnaround facility. As planned it can be adapted to provide capacity for other carriers and wide body operations. Fingal County Council granted planning approval on October 7th 2002, however an airline operator as well as

13 Source: Panel estimates.


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Portmarnock residents has lodged appeals. Completion is forecast for late Summer 2004, subject to the planning appeals process.

In the interim, a temporary forward coaching facility (a facility where passengers are coached to a remote “midfield” lounge prior to boarding their aircraft) was proposed to provide relief for Summer 2003. Planning permission was received in early December 2002, however an airline operator submitted an appeal on December 19th 2002. The earliest forecast completion date is late Summer 2003, again subject to the planning appeals process.

In its consideration of the expressions of interest submitted, the Panel had to make a number of assumptions regarding Aer Rianta’s plans for the continued development of the Airport without an independent terminal. This relies upon the Panel’s understanding of the future forecasts for Dublin Airport and Aer Rianta’s emerging master plan proposals to cater for this growth.

The key features of the emerging proposals from Aer Rianta’s master planning team are:





3.3.2 Consultancy advice on aviation issues – Professor Rigas Doganis (January 2002)

The Doganis report on the optimum strategy for the Government and Aer Rianta to follow reached a series of conclusions relevant to this review of independent terminal proposals at Dublin Airport. These were:

• Lower airport charges will not in themselves encourage the launching of new routes because they are not the main determining factor in an airline’s route planning decisions.

• Significantly lower airport charges for low cost carriers would not be cost-related and would therefore be discriminatory. This would inevitably lead to higher charges for other airport users, if Aer Rianta were to continue to meet its statutory financial obligations.

• Lower airport charges in themselves will not encourage significant additional incoming tourists since they represent such a small part of a total holiday cost.


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• While the need for Pier D or a similar facility does not appear urgent because of existing spare capacity elsewhere, such capacity does not meet the very specific requirements of low cost carriers.

• A new Pier D would not have significantly lower unit operating costs than the existing piers. Therefore any reduction in airport charges would be quite limited.

3.3.3 Review of strategic options for the future of Aer Rianta – Warburg Dillon Read (December 1999)

In December 1999, the report on the strategic options for the future of Aer Rianta was published. A number of key findings relevant to the review of independent terminal proposals were incorporated including:

• Aeronautical charges at Dublin Airport are low when compared to peer European airports.

• Some capital expenditure projects may be conducive to third party financing where such projects do not jeopardise the efficient operation of the Airport and are based on commercial terms.

• Aer Rianta’s financial outlook is severely strained. If aeronautical charges are held back, notwithstanding capital expenditure being cut back significantly, then the company would become financially strained in the years ahead and produce significantly lower returns than would be expected for similar companies.

• Competition, in an airport context, should be fair, open and reasonable, and should be effected on commercial terms without subsidy. Analysis suggests that a competing private terminal at Dublin Airport would have to levy relatively high aeronautical charges in order to generate an adequate commercial return for its owners.

3.3.4 Emerging Fingal County master plan

Fingal County Council have recently engaged consultants to advise on a strategic vision for the development of South Fingal. An interim report (July 2002) outlines a vision whereby Dublin Airport can continue to optimise its contribution to Ireland’s economy and society. This requires a commitment to specific investments in accordance with an agreed Airport Action Plan. This Plan should reflect the long term development of the Airport, including a twin parallel runaway, two terminals within a Designated Airport Area, where airport development considerations take priority. The interim report describes this area as most of the land between two parallel alignments, west of the M1 and east of St Margaret’s.

Drawing up of the Action Plan as proposed by the consultants should involve close collaboration with Aer Rianta and local landowners. The consultants’ view is that Fingal County Council should actively encourage development of a


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second terminal on the western part of the Designated Area referred to in the preceding paragraph and situated between two parallel runways.

The study has now been suspended awaiting clarification of key issues including public transport routes and new thinking regarding terminal development at the Airport.

3.4 International context

Examples of independent terminals similar in nature to that under consideration in this report can be found in Canada, the US and Mexico. Not all examples are consistent but do provide evidence of terminal facilities financed, built and operated by an entity other than the owner and/or operator of the airport. Terminal 3 at Toronto represents a case where a third party developer (not an airline) financed, constructed and operated an independent terminal in competition with the airport authority. Transport Canada, the federal agency that owned and operated the major Canadian airports, awarded the project to a consortium led by Lockheed Air Terminal to obtain private sector capital for capacity enhancements at the airport. In 1998 after the airport was transferred from federal to local control, the Greater Toronto Airport Authority purchased the project to allow for development of the airport master plan. Since then a private airport operator for the Authority has managed Terminal 3.

New York’s JFK International Airport, operated by the Port Authority of New York and New Jersey (PANY&NJ), offers the oldest case of independent terminals. Here all passenger terminals have been designed, constructed and operated by entities other than the PANY&NJ, in all but one of the cases by an airline or group of airlines. The exception is the new International Airlines Terminal which is a third party non-airline organisation operating a multi-airline user terminal.

In the case of the airlines, the costs associated with the terminal (capital and operating) are treated as a cost of doing business. Competition between the terminals exists as the airline tenant can sublease any excess capacity to other airlines whose size of operation does not justify a dedicated terminal. The third party non-airline terminal operator at JFK competes with the airline operators for the business of the smaller airlines, in this case on the basis of superior space and handling as opposed to price. In the JFK example the PANY&NJ operates no terminal facilities but instead serves as provider/caretaker of the airfield, roadways and other common use systems. Revenue for these services is recovered by the PANY&NJ in the form of aeronautical charges.

Another airport, Islip, located on Long Island east of JFK serving the New York City Metropolitan area, provides an example where part of a terminal is operated by an airline. In this case, Southwest Airlines has financed and is constructing an eight-gate concourse for its own use. The airport authority operates the terminal (ticketing, baggage reclaim, etc. and other airline concourse), airfield and roadways and acts as the landlord to the other airlines. Southwest pays rent for


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terminal leased space and aeronautical charges for use of the airfield. Although Southwest has developed the project to meet its needs, it can, in competition with the airport authority sublease to other airlines should the demand exist.

At Bush Intercontinental Airport in Houston, Continental Airlines has designed, financed and is constructing the new Terminal E for its international operations. The airport authority will continue to operate Terminal D which is a common use facility serving the other international airlines at the airport, other terminals, the airfield, roadways, parking and other common use facilities. However, Continental can sublease to other international airlines in the new Terminal E.

Mexico has several examples of independent terminals (total and partial). Until the take over of Cancun by the private operator ASUR in 2000, the charter terminal was built and operated by a third party. However, the third party was prohibited from serving the domestic and international scheduled airlines, providing space only to passenger charters. In Mexico City, the most recent expansion to the international terminal was financed, built and is being operated by a third party. This expansion included additional gates, terminal ticketing and concession space and car parking. The operator competed directly with ASA, the airport authority, for tenants. Lesser examples of independent arrangements for terminals in Mexico can be found at Los Cabos and Guadalajara.

3.5 Fundamental issues for consideration

In considering the potential development of one or more independently operated terminals at Dublin Airport, a number of issues were identified by the Panel that are considered fundamental to successful introduction. These apply to all proposals, regardless of the scheme and/or funding mechanism proposed, and include:

• The regulatory and competition implications of such a development including the allocation of funding of and revenues from any shared infrastructure between Aer Rianta and a third part developer.

• The need to balance future terminal and overall Airport infrastructure capacities.

• The need to enhance surface access capacity.

3.5.1 Regulatory and competitive issues

The Commission for Aviation Regulation (the Regulator) sets maximum levels for aeronautical charges at Dublin Airport for a five year period. In the first regulatory year 2001/02, the average revenue per passenger (both arriving and departing) yielded by way of airport charges shall not exceed €5.38 (CPI −7.8 per cent in years two and three and CPI −4.4 per cent in years four and five of the regulatory period. This is set within a wider Aer Rianta group regulatory framework of maximum average revenue per passenger using Dublin, Shannon or Cork Airports of €6.34.


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To encourage more efficient use of capacity, the Regulator has introduced a sub-cap on charges at off peak times to facilitate the introduction of a peak/off peak charging structure at Dublin Airport. The impact of this is to allow Aer Rianta to charge more during the peak hours whilst still remaining within the overall average revenue per passenger set for the Airport.

Furthermore a range of incentive schemes has been offered to airlines to reduce aeronautical charges for a number of years for new routes from the Airport. The impact of this is to potentially increase charges paid by other users of the Airport, whilst remaining within the overall average charge limits at Dublin Airport.

In setting maximum average revenue from airport charges for each passenger passing through the Airport, the Regulator has not sought to impose caps for component elements of the overall service provided by Aer Rianta, including passenger service charges and airport security charges. Such caps would have been useful in order to understand the Regulator’s views of potential revenue streams that could be attributed to those elements of service on which an independently operated terminal would compete at Dublin Airport.

Average revenues are based on current Aer Rianta cost structures that are aggregated over all of the passengers at the Airport. Future charging structures, arising from costs relating to the regulated activities at the Airport, would have to be developed to get a clearer view on how costs and revenue could be allocated on an equitable basis in the event of an independently operated terminal.

If a significant number of passengers were to move to a new terminal, in the short term and in the light of Aer Rianta Centreline growth forecasts, the average net cost to Aer Rianta of its services on a per passenger basis would increase. Even with efficiency measures required as part of the regulatory mechanism, there may justification for the Regulator to review charges. Through short term reductions in passenger numbers, Aer Rianta’s non-aeronautical revenue would also reduce, and thus the cross subsidy of aeronautical charges from non-aeronautical revenue would also reduce. It is therefore considered likely that in the event of an independent terminal coming into operation, aeronautical charges would have to increase, at least in the short term. However such a change in the charging structure would be a matter for the Regulator to determine.

The Regulator will undoubtedly take into consideration the need to avoid predatory pricing. As a principle, it is likely that on a historic cost basis, the existing terminal would have lower overall costs than a new build facility. Aer Rianta could offer lower fees to airlines that did not necessarily reflect the true economic cost of providing terminal services. This could also arise through the policies of allocation of direct and indirect costs on those areas of Aer Rianta’s business that are competing with an independent terminal operator. The Panel


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considers that this would be an issue for the appropriate regulatory authority to address if it arises.

Most observers have concurred that the levels of charges at Dublin Airport are extremely competitive when compared to peer European airports. To further stimulate traffic, an incentive scheme offering zero airport charges has been introduced for new routes out of Dublin Airport that fulfil published criteria. As such, the Panel is not of the opinion that airport charges, at their current level, are a barrier to airlines developing new routes out of Dublin.

The Panel is of the opinion that the relatively low levels of airport charges, compared to peer European airports, may be a deterrent to Aer Rianta, or indeed to any prospective developer of an independent terminal, to bringing forward investment projects to ensure Dublin keeps pace with facilities and investment levels at competing European airports.

Regardless of how additional terminal capacity is provided, the airside infrastructure (runways and taxiways) and landside infrastructure (roads, car parks and public transport) will have to be significantly expanded to ensure that they are in balance with terminal capacity (both existing and proposed).

An independent developer would have to fund the direct terminal and adjacent apron costs, and would also have to fund an equitable share of costs, including displacement costs, associated with the shared infrastructure necessary to deliver the capacity to make such a development viable. This includes enhancements to on-airport access roads, and any upgrades to utilities. On the basis of the “user pays” principle, the third party terminal developer would have to accept a charging mechanism at Dublin Airport that reflects an equitable allocation of shared costs, as well as shared revenues where appropriate.

The current basis of economic regulation for Dublin Airport should ensure that the burden of infrastructure investment is shared appropriately between all airline users of the Airport. However the step change in charges from the marginal costs of using available airfield and terminal capacity to having to invest in new runway capacity, taxiways, and increased landside infrastructure, is likely to be significant.

The Panel did not have any detail of such costs, thus was unable to assess the potential impacts of shared infrastructure costs on an independently funded and developed terminal. However, the Aer Rianta master plan team is at an advanced stage in assessing potential infrastructure costs and these should better inform the decision making process regarding the location of any independent terminal, if the Minister decides to proceed.

What is clear is that the financial case for the developer of an independent terminal would have to include sustainable commercial revenues to ensure the project is viable for all parties, including prospective airline tenants.


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3.5.2 Balance of terminal and overall airport infrastructure capacities

Parts of the existing terminal have recently been extensively expanded and redeveloped to provide an estimated capacity of circa 20 mppa. This capacity is broadly consistent with the commercial capacity of the existing runway infrastructure. However additional terminal capacity beyond the existing level is likely to require a commensurate increase in runway, apron and surface access capacity. The Panel considered the main components of the broader capacity of the Airport, these being runway capacity and surface access capacity.

Runway capacity

Dublin Airport currently has an estimated runway capacity of around 42 movements (landings and take-offs) per hour. The majority of available slots during the peak hours are utilised. The peak hours are between approximately 07:00 and 09:00 and 17:00 and 19:00 when demand from passengers results in airlines seeking to operate flights in these hours, often at higher ticket prices than at off peak hours.

The Panel estimates that the maximum peak hour runway capacity at Dublin could reach 48 movements per hour, subject to the availability of rapid exit taxiways and an acceptance by airlines of a “planned delay” factor of around five to ten minutes per movement. This is consistent with the declared hourly slot availability at Manchester (pre Runway 2) and London Gatwick with a single runway operation.

However scheduling the use of the runway at this level of intensity would be inconsistent with the objectives of airlines to minimise delays and effect rapid turnarounds.

The Panel concluded that if a new terminal were to be provided (regardless of which option was selected), the existing runway infrastructure would have insufficient capacity to accommodate the potential additional traffic. This is particularly the case with those expressions of interest that suggest up to ten additional quick turnaround aircraft could be based at Dublin.

The Panel also concluded that under a scenario of rapid growth in quick turnaround aircraft operations, runway movement constraints might preclude operators achieving the high aircraft utilisation that is critical to the success of their business model. In its consideration of the proposed new terminal, the Panel therefore considered additional runway capacity as an essential element in a step change in the competitive environment at Dublin.

Such additional runway capacity could be achieved by implementing the new parallel runway proposals envisaged by Aer Rianta. On the other hand, one of the expressions of interest proposed an extension to the existing short northern Runway 29/11 at a much lower cost than the proposed new runway. The Runway 29/11 extension proposal did not provide any details of the feasibility of this option nor if the existing runway would be fit for purpose in terms of


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concrete strength for the likely types of aircraft that would use it. In light of this, the Panel did not feel that it could form a view, either way, with the level of information provided. However the Runway 29/11 option appears to be worthy of further consideration.

Surface access issues

In common with many busy airports, road congestion is already a significant issue at Dublin Airport. In particular, access to the departures level ramp suffers from congestion at peak times. Based on the Panel’s experience elsewhere, the existing landside road system serving the Airport is unlikely to provide sufficient capacity in the medium to long term. This is a key issue that the new Aer Rianta master plan is seeking to address.

The Panel did not consider the existing capacity of the on-Airport road system in detail, nor did it have access to current and forecast surface access demand. However even without the introduction of a second terminal within the existing Airport terminal campus, the forecast levels of growth would inevitably result in additional surface access pressures.

The Panel understands that there are increasing demands for on-airport car parking facilities and that additional capacity is proposed in the near future.

In examining the existing and emerging master plans and taking cognisance of the proposals submitted, the Panel concluded that the existing road system would require redesigning and expanding to provide the additional (but unquantified) road capacity required.

The implications for public transport access to the Airport (for both staff and passengers) need to be considered. Currently schemes are being developed to link Dublin Airport with either a heavy rail or metro connection. The implementation of such major schemes, both in terms of funding, construction and design, would have to be taken into account when reviewing options for locating an additional terminal. In particular, if the terminal is constructed on a site remote from the existing terminal, the potential “market” may be split between two sites that could result in additional, or duplication of, public transport infrastructure, with associated costs.

The benefit of a public transport link connecting the Airport to the city centre would lead to some degree of modal shift from the private car. However experience from airports elsewhere would indicate that Dublin could expect at best between 10 per cent and 20 per cent of passengers to use public transport. The fundamental issue of surface access congestion remains. The Aer Rianta master planning team is developing costings for significant redevelopment of the landside road system, which would inform the work required to select the optimum location for any future independent terminal.


CONTEXT

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3.6 Overview of context

In considering expressions of interest to develop an independent terminal at Dublin Airport, the Panel identified a number of fundamental strategic issues regarding the provision, funding and regulation of the necessary supporting infrastructure. Significant growth at Dublin Airport is forecast, even without increases in quick turnaround operations, and the Panel considers that the existing infrastructure (runway, surface access and others) would be inadequate to meet forecast growth requirements.

The mechanisms for implementation and funding of supporting infrastructure are fundamental to the introduction of a competing independent terminal at Dublin Airport. Thus a key issue for consideration is the likely impact of further expansion of Dublin Airport on user charges. In order for an independent developer to achieve an adequate rate of return, it is likely that overall user costs would rise, at least in the short term. These costs would have had to rise in any event to fund the major capital investment programme required at the Airport.

Whether the likely increase in charges overall would be lower or higher if an independent terminal were provided would depend on the levels of capital investment, efficiencies achieved in providing and operating such a terminal and on its competitive impact on the Airport overall.

However, based on previous studies and various statements made by carriers specialising in quick turnaround operations, the Panel is convinced that facilities providing higher aircraft utilisation and overall operating efficiencies are more important to airline profitability than relatively limited differences in airport charges.

The provision of the right type of facilities, at a realistic level of charges, to serve the majority of current and forecast traffic at Dublin Airport, with resultant better quality of service for all customers, is the basis on which the Panel reviewed the submitted expressions of interest.


REVIEW OF EXPRESSIONS OF INTEREST 4

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4.1 Introduction

In this section, the criteria used to review the expressions of interest are outlined. The organisations that submitted expressions of interest are profiled and the broader aspects of the proposals including financial, economic and regulatory implications are explored. The overview outlines the key features of an emerging concept that are developed further in Section 5.

4.2 Criteria used to review expressions of interest

A number of questions were posed in the call for expressions of interest that formed the basis of the Panel’s review of proposals. These focused on the following areas:

• Precise nature of the proposed concept.

• Preferred location for the proposed facility.

• The emerging Fingal County Master Plan.

• Benefits to carriers, the Airport and the travelling public.

• Financing and economic dimensions of the proposal.

• Summary of regulatory or other actions required to give effect to the concept.

• Examples of other international airports where the concept is in operation.

4.3 Overview of organisations expressing interest

A total of thirteen organisations or consortia submitted expressions of interest in the development of an independent terminal at Dublin. These submissions ranged from highly developed proposals, including terminal layout plans, phasing details and indicative costs, to letters notifying the Department of Transport of interest in submitting a proposal should the decision be taken to proceed to a formal tendering process.

A number of submissions did not propose a definitive concept but indicated that they were in favour of one that enabled competition between terminals at the Airport. One of the expressions was submitted to ensure freight interests were considered in the decision making process.

A further expression of interest did not propose a concept but argued against a purely point to point carrier specific terminal.

The organisations that submitted expressions of interest are outlined at Appendix 1.

4.4 Summary of concepts proposed

The majority of responses specified a concept of a terminal to serve a specific market on one of four sites.


REVIEW OF EXPRESSIONS OF INTEREST

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The Panel considered the relative merits of each proposal, both in terms of the market served and the location of the terminal, based upon the information provided within the submissions, which was further informed by a presentation by Aer Rianta’s master planning team.

The markets that the proposed terminal would seek to serve fall into three primary categories:

• Point to point traffic predominantly for low cost airlines.

• Point to point traffic predominantly for full service airlines.

• Integrated hub and spoke traffic for full service airlines.

Where provided, estimates of phase 1 capacity for the new terminal at around 10 mppa were consistent. The number of additional aircraft stands in phase 1 varied depending on the type of operation. Up to an additional 24 stands serving single aisle aircraft were proposed. Ultimate capacity for the terminal ranged from 15 to 20 mppa. With existing terminal capacity, this would be sufficient to meet Aer Rianta’s Centreline forecasts to 2020.

4.4.1 The point to point market terminal concept

A point to point operation provides direct links between two locations without the need to transfer at an intermediate airport. Point to point services are the main type of airline operation at Dublin Airport. This is evidenced by the relatively low proportion (circa 5 per cent of total traffic) of passengers transferring at the Airport.

A number of proposals made the distinction between facilities that would be provided for low cost carriers and those provided for full service carriers. The implication was that a different type of facility would be provided, at a lower cost, for low cost carriers than for full service carriers.

However the principles for terminal design, where provided, were broadly similar. The areas of cost saving centred around the provision of perceived ‘extras,’ such as airbridges as opposed to passengers having to walk to and from aircraft.

Low cost operators prefer to walk their passengers on and off aircraft to minimise embarkation and disembarkation times. This contributes to the fast turnaround times on which their high aircraft utilisation operating model is based. When offering point to point services, all airlines (including full service carriers) require rapid turn around of aircraft and rapid passenger processing with minimal delay.

Airlines such as Aer Lingus that would previously have been regarded as full service are moving rapidly to a similar operational model as low cost carriers in that they are trying to maximise utilisation of their aircraft. This is evidenced by the ongoing changes to the Aer Lingus short haul operation at Dublin Airport.



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The main features of the proposals serving the low cost market were the large number of contact stands and the ability to have a high capacity, fast turnaround facility with good access to and from runways and taxiways. The size of the contact stands, primarily catering for single aisle aircraft, reflect the dominant aircraft types (mostly Boeing 737 and some Airbus 319/A320) currently favoured by low cost operators. As discussed in Section 3, Aer Lingus are likely to make a decision in April 2003 to standardise their short haul fleet around a single aisle Airbus or Boeing platform.

A number of expressions of interest highlighted that the quality of passenger facilities would be at a standard that is comparable to other international airports. Focus on generating non-aeronautical revenue streams from low cost passengers featured in a number of proposals as did the development of other commercial revenue streams from car parking, hotel and office facilities.

Within the context of the point to point market, different airlines may have some differing infrastructure requirements. A terminal designed for low cost operations may have lower standards of finish, a simplified baggage system, no air bridges or travelators (moving passenger walkways). Business lounges are not required by the low cost airlines. However within the overall scope of the project, these are not ‘big ticket’ items compared to the terminal building, aircraft stands, car parks and approach roads etc. Thus the developer of an independent terminal would have to provide broadly the same type of infrastructure regardless of whether the airline users were low cost or full service.

4.4.2 The full service hub terminal concept

Two proposals featured a full service operator as the principal tenant of a new terminal at the Airport. The vision was to provide facilities capable of serving a growing hub operation out of Dublin. The proposed quality of the facilities would be to the highest international levels. The proposals also featured a large number of contact stands that would provide the ability to integrate large and small aircraft in the same facility.

The proposals also stressed the requirement to generate non-aeronautical revenue streams from full service passengers, along with other commercial revenue from property related facilities such as airline lounges, hotel and office developments.

A hub airline has differing requirements, which are often more “infrastructure intensive”. Such an airline will schedule aircraft to operate in “waves” where a number of flights are scheduled to arrive and again to depart within a short time period. Typically a hub airport would have a morning, midday and evening wave pattern where a large number of aircraft are scheduled to arrive to allow passengers a minimum time to connect to another aircraft and then depart to maximise connection opportunities. This drives the need for sufficient aircraft stands to cope with peaks during the day and is in contrast to a high intensity



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point to point operation that spreads overall aircraft movements more evenly across the day (requiring fewer stands in the peak periods).

A terminal serving a hub airline requires additional space requirements over and above those serving point to point airlines only. Passengers transferring between flights tend to have longer dwell times than those on point to point services therefore larger terminal facilities are required. Hubs also require a more complicated baggage sortation and transfer operation to move people and bags between flights and require different passenger routes within the terminal for security, immigration and customs purposes. These requirements add to the overall size, complexity and cost of the terminal.

However in order for an airport to successfully develop as a hub, a number of factors need to be in place including:

• Geographic position - Most hub airports are located close to large centres of population or are strategically located in relation to the country or wider region they serve. Dublin has a relatively small population and is geographically peripheral in the overall context of the European aviation market. It lacks a large home market that is a key component upon which successful hubs develop.

• A hub “champion” - At each of Europe’s most successful hubs, there exists a dominant based airline committed to developing services from the airport to serve both the local market and to attract passengers from other markets by offering connections across its wider route network. For example, British Airways will compete with Air France in attracting passengers to connect from the Middle East over their respective hubs to the United States. Each of the major hub airports has a “hub champion”.

This extends to the secondary hubs that also have based airlines committed to developing a network that enables connections. At Dublin, Aer Lingus has sought to develop a limited range of connecting services, particularly from the UK regions via Dublin to the United States. However, the airline is unable to offer competitive connections from Europe via Dublin to the United States as it lacks the range and frequency of services to compete with larger airlines.

• Abundant runway capacity - A true hub airport will require abundant runway capacity to enable airlines to schedule their network to provide the maximum number of connecting opportunities. Airlines such as KLM and Air France operate “waves” of flights, whilst British Airways and Lufthansa operate from more constrained airports and are unable to achieve the wave pattern that makes a hub more competitive.

Dublin currently lacks the runway capacity to enable a hub operation, and even with a second runway would not be able to compete with airports such as Amsterdam (five runways) Paris (four runways) and Frankfurt (three runways with a fourth planned).



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• Substantial “local” traffic with a significant proportion of high yield passengers - In order for a hub to be successful, particularly in the European context where there are many airports competing for hub status, a substantial local catchment area with a significant proportion of high yield premium fare business passengers is required. Dublin offers a relatively small catchment area with a smaller proportion of high yield passengers14 (based on the number of business class seats offered on services) compared to London, Frankfurt or Paris.

Without this strong base, it is difficult for airlines to develop a network sufficiently dense to compete for connecting traffic. For example the market served by Manchester Airport (with a catchment area of circa 20 million people) does not generate a demand and ticket yield comparable with London, Paris or Frankfurt. Thus despite considerable efforts and investment by the airport operator, Manchester has to date been unable to secure the necessary commitment from any airline to develop a hub operation. It is unlikely that Dublin, with its much smaller home market, could succeed where other peer airports have failed.

4.4.3 Cargo

Although not specifically developed by any of the proposals, a number of expressions of interest included relocation of the cargo facilities at Dublin Airport. Relocation was mostly driven by the need to develop on the site of the existing cargo facilities. However the ability to develop the freight operation at the Airport was emphasised by one party in particular.

The Aer Rianta master planning team identified and developed options for relocation of the cargo facility to the south side of the existing main runway. This is consistent with a number of the proposals submitted.

The current level of freight handled at Dublin Airport (140,126 tonnes in 2001) is significant, but has not grown significantly in recent years. There may be opportunities to increase the freight operation through the development of dedicated facilities not impacting on passenger aircraft movements.

4.5 Sites identified for the proposed terminal

Many of the organisations submitting expressions of interest did not feel restricted to land within the Airport boundary or in the control of one of their consortium members.

From their responses, a number of preferred locations emerged: • North of the existing old central terminal building, on the existing Hangar 1

site.

14 Based on the number of premium seats offered from Dublin on key business routes.



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• South-east of the existing main terminal building in the vicinity of the cargo buildings.

• On the western boundary of the airfield and north of the main Runway 10/28.

• To the south of the main Runway 10/28.

The sites proposed by those submitting expressions of interest are illustrated below, outlined in turn, and summarised in more detail at Appendix 2. The sites are:

A. Adjacent Northern Site.

B. Adjacent Southern Site.

C. Remote Western Site.

D. Remote Southern Site.

Sites identified for a proposed independent terminal at Dublin Airport

Location A – Adjacent Northern Site

A number of organisations identified a site for development to the north of the existing terminal adjacent to the existing hangars and proposed threshold of Aer Rianta’s proposed new northern parallel runway. This site offers good integration with the existing and proposed airside infrastructure, but would require the demolition and re-provision of a number of facilities including hangars currently used for maintenance. The site is perhaps the most difficult in terms of providing adequate levels of landside surface access provision, given

A

B

D

C

D CA BRemote Southern Adjacent Northern Adjacent Southern Remote Western

A

B

D

C

D CA BRemote Southern Adjacent Northern Adjacent Southern Remote Western



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the constraints on the existing terminal’s road access, and would require extensive remodelling and expansion of the Airport’s road system.

Demolition of existing multi storey car parks would also be required to provide suitable surface access and traffic flows.

Location B – Adjacent Southern Site

A number of organisations identified a site for development to the south-east of the existing terminal adjacent to the existing Pier C and Cargo handling facilities. This site offers the opportunity for easier landside surface access provision than Location A, but requires the removal and re-provision of a number of key facilities including the cargo handling buildings and other support functions.

The location as proposed is more constrained on the “airside” given its proximity to the existing runway and aprons. This location would provide additional capacity in the short to medium term although it exacerbates the concentration of operations in one area of the airfield.

Location C – Remote Western Site

A site was identified to the west of the Airport on land inside and outside of the Airport perimeter, between the existing southern runway and the proposed new parallel northern runway. This site provides the opportunity for dedicated surface access links and could be easily integrated with the existing and proposed airfield infrastructure. This option is likely to be less disruptive to develop than locations A and B as few if any of the existing Airport facilities would require displacement.

The development of the site would be separated from the present Airport operation and result in higher operational costs and greater duplication of facilities. A separated site would be likely to give rise to significantly higher costs associated with the provision of surface access links, utilities, and public transport. However in the longer term, this site would be the logical location for the development of additional terminal capacity.

Location D – Remote Southern Site

One organisation identified a site to the south of the existing southern runway on land that is currently outside the perimeter of the Airport. This site would require the construction of a new parallel taxiway to the south of the existing runway, and would also necessitate aircraft crossing the existing runway to gain access to the existing apron areas as well as Aer Rianta’s proposed second runway. This would reduce overall runway capacity compared to a site situated between the two runways. The organisation proposing the site estimated that a terminal with a capacity of around 15 to 17 mppa could be developed.

The development of this site would split the Airport operation and potentially result in higher operational costs and greater duplication of facilities. In addition, there may be a significantly higher cost associated with the provision of surface



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access links and utilities. However, a key advantage of the site is its location relative to the M50 and the avoidance of displacement costs associated with locations A and B.

A potential alternative use of this site, identified by a number of organisations, is for a relocated and expanded cargo handling facility, thus enabling the existing cargo site to be developed as part of the “adjacent south” option.

Site Summary

The proposals received did not develop, to any level of detail, the operational merits or otherwise of each of the sites. Many of the proposals did not address the impact of terminal location on landside and airside infrastructure, or the operational implications of growth. The Aer Rianta master plan shortlist of options for development of the Airport included:

• North Option – similar in concept to the Adjacent Northern Site.

• East Side Option – similar in concept to the Adjacent Southern Site.

• West Side Option – similar in concept to the Remote Western Site.

• Relocation of the cargo facilities to the south of the existing runway – similar in location to the Remote Southern Site.

The Aer Rianta master plan team has examined each of these locations in detail and has not discounted any of them from an operational perspective.

Having reviewed all of the proposed sites at a high level, the Panel concluded that each had their advantages and disadvantages and, in the absence of the costing and other information indicated does not propose recommending one site over another. There may be alternative sites not identified by those submitting expressions of interest that may be a better overall strategic fit for Dublin Airport.

The Panel is satisfied that if the locations have operational integrity for Aer Rianta, they should work for an independent terminal operator.

4.6 The emerging Fingal County master plan

Many of the responses referred to the emerging Fingal County Master Plan, without going into detail as to the alignment or otherwise of their proposal with the emerging plan. This is not unexpected given the fluid nature of a number of key components including the emerging Fingal master plan, the emerging Aer Rianta master plan, as well as the public transport proposals for the Airport.

4.7 Claimed benefits to carriers, the Airport and the travelling public

Benefits claimed in the expressions of interest are summarised in the table below. The majority of the benefits relate to carriers and highlight improvement in facilities, operational capability, lower cost and choice between terminal operators.



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From the overall Airport’s perspective, the main benefits claimed were increased capacity and a better match of facilities with airline requirements.

For the public, the main benefits claimed were in improved facilities, choice of new routes and services provided by carriers in the new facility, a reduction in the cost of car parking and improved access (depending on location).

Summary of claimed benefits from an independent terminal

Carriers Airport Public

Improved operational capability. Increased Airport capacity. Improved facilities.

Improved facilities. Surplus capacity to provide options for users.

Choice from new services.

Better customer services. Better match of facilities with airline requirements.

Improved service levels.

Platform for new route stimulation. Additional capacity enables redevelopment of existing facilities on a more optimum basis.

Cost of Airport services choice.

Ability to increase number of based aircraft.

Improved access (depending on location).

Lower cost of operation.

Integration with existing terminal.

Competition.

Choice of services offered.

4.8 Financing and economic dimensions of the proposals

4.8.1 Financial dimensions

The more developed responses expressed a view that an independent competing terminal at Dublin Airport would be financially viable. Many of the organisations submitting expressions of interest have experience of investing in airports and understand the long term profile of airport investment. Various structures for financing the terminal were proposed including various combinations of equity, mezzanine debt and senior debt.

Some of the submissions proposed a concession type arrangement with payment being made on a performance basis and the facilities returned to the Irish Government at the end of a pre-defined concession period. This has been a favoured development route for aviation infrastructure in a number of other countries.



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For airport operators, the key areas of revenue generation are:

• Airport and traffic charges – referred to as aeronautical charges revenue.

• Retail – primarily revenue derived from shops, catering and car park facilities.

• Property – primarily rental revenue derived from hotels, offices and industrial premises.

Retail and property revenue streams are referred to as non-aeronautical revenue.

The balance of importance of revenue streams has changed over the last ten years from an over reliance on airport charges to retail and property streams now representing over 50 per cent of total revenue for successful operators. Aer Rianta had around 30 per cent of airport related turnover from aeronautical charges15 in 2001.

In the event of an independent terminal, the main areas of competition at the Airport would be in the provision of services related to the terminal building. In the main, the non-competitive areas of core monopoly services would be related to the runways, taxiways and common airport services and infrastructure such as surface access and perimeter security.

Areas for competition would include aircraft parking, terminal related services including check in, departure areas, baggage handling equipment, car parking and retail concessions.

Few actual details were provided about the envisaged levels of charges that would be required, or the split between aeronautical and non-aeronautical revenue streams to make the project financially viable. A number of organisations expressed the view that aeronautical revenues would make up the majority of revenue in the early years with more emphasis on non-aeronautical revenue as the operation matures.

The levels of aeronautical charges at Dublin Airport are well publicised. The inference from the expressions of interest is that aeronautical charges at Dublin Airport would have to reach a more realistic level, compared to peer international airports, to finance the new facilities. There were no references as to whether the current level of aeronautical charges would be sufficient to provide an adequate level of return on investment.

In addition, few details were provided about forecast construction costs. Where details were provided, it was not clear as to what these included. It would appear that some of the costs, when benchmarked against the Panel’s experience of other terminal developments, are optimistic and do not appear to include contributions to shared infrastructure and displacement costs, which are likely to be significant.

15 Source – Aer Rianta Annual Report 2001



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Based on information provided by Aer Rianta, the table below indicates the proportion of aeronautical revenue generated by key segments in the regulatory year ending September 23rd 2002.

Aer Rianta aeronautical revenue for the regulatory year to 23rd September 2002

Aeronautical Charges Component % of Total Aeronautical Revenue

Runway 32

Aircraft Parking 8

Airbridge 1

Passenger Charges (Terminal & Piers) 32

Security Charges 27 Source: Aer Rianta

The information provides some basis for potential investors in an independent terminal to forecast aeronautical revenue streams based on the facilities they would provide and shared infrastructure costs that would have to be met. The basic assumption from a number of expressions of interest was that the proportionality of charges, and cross subsidy from commercial non-aeronautical revenue streams, would in the future be broadly similar to existing levels.

The level of detail needed to undertake meaningful financial modelling would require much more information on the matching of costs to services provided; particularly those shared cost areas such as security charges. It would appear that the independent terminal operator could expect to receive between 41 per cent (aircraft parking, airbridge and passenger charges) and 68 per cent (plus an element of security charges depending on the allocation to a specific terminal and the rest of the Airport) of the capped aeronautical charge depending on how security charges are allocated.

In any event, in developing the financial case for an independent terminal, the developer would have to generate sustainable commercial revenue to ensure the project is viable.

This represents the emerging model for airport operators, particularly in Europe, in the post September 11th aviation industry. For perhaps the first time, airlines have examined every aspect of their cost base and have demanded that airports take some of the financial pain. This has resulted in new deals on airport charges, especially for new routes started from airports. Further pressures have



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come from the airlines to have permanently lower charges, not just incentives for new routes.

The result is that when charges are at an uneconomically low level, the funds available for airport operators to invest in new facilities are diminished. This leads to a patch and mend mentality and an avoidance of investment where possible. Whilst this may be sustainable in the short term, the result is likely to be a diminished competitive position, poor operating performance and reduced customer service.

4.8.2 Broader economic dimensions

A number of the proposals outlined the broader economic benefits to Ireland that would flow from an expansion of Dublin Airport. However there was little supporting evidence to underpin some of the claims of job creation and greater economic activity. Undoubtedly there is a link between economic productivity, growth and integration with the global economy and the provision of air services, which in turn requires that adequate airport capacity be provided.

A number of international studies have sought to establish the link between growth in air transport and its contribution to the broader economy. The Panel asked whether any such studies had been undertaken in Ireland and were informed that none were available.

The Panel considered these issues within the context of studies undertaken elsewhere in Europe. These are outlined in more detail in Section 6.3.8.

4.9 Regulatory implications

The regulatory environment at Dublin Airport has been discussed in Section 3. The regulatory implications of an independent terminal at Dublin Airport were highlighted by many of the organisations. The main points raised by the proposals were:

• The existing regulatory structure should be adequate provided that the costs of individual components of service delivery are properly separated out. This is currently not the case as Aer Rianta operate within an overall price cap. If this cannot be rectified then separating common assets from competing assets has been suggested by a number of submissions.

• Ensure transparent and fair pricing at the Aer Rianta terminal (no recouping of losses at the Aer Rianta terminal - especially to captive freight operators).

• There was concern around conflicts of interest from Aer Rianta as the owner/operator/regulator of airside facilities. Concerns centred on Aer Rianta having control of access to taxiways and runways for airlines using an independent terminal.



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• The Commissioner for Aviation Regulation should be responsible for regulating and determining costs for use, maintenance, and upkeep of runways, taxiways and ramp areas – suggestion that this should be charged on a per aircraft movement basis.

• Aer Rianta to be restructured to enable the formation of a new Dublin Airport Authority that would be independent from the competing operators of terminals. The Authority would have planning and procurement powers, allocate slots, encourage full use of capacity, and promote co-operation. The Authority would regulate the operations of all terminals.

• The Irish Aviation Authority (IAA) to assume ownership of the runways and taxiways with management and development responsibility. Aer Rianta would be a separate economic operating unit on the same basis as the proposed new terminal operator.

• The best form of regulation is competition. Transparency of fees to reflect actual costs is a definite requirement. There would also be a requirement that the current balance of landing charges versus passenger handling charges is maintained.

• The regulatory regime must be transparent such that revenue can be predicted with reasonable certainty and is not subject to significant change due to new regulation.

• A strong Regulator would be an alternative to competition, broadening the scope of the Regulator would be supported.

4.10 International examples

Airports in the US were the most common examples cited of multi terminal environments with different airlines owning and operating terminal and other airport infrastructure. The most common example given was New York JFK. Examples were also given of numerous domestic terminals throughout Australia owned and managed by Qantas. Auckland’s domestic terminal was stated as being owned and operated by Air New Zealand.

None of the proposals cited any clear examples of an independently developed and operated terminal competing with the incumbent airport operator.

4.11 Overview of expressions of interest

The expressions of interest were mainly based around the type of market that an independent terminal at Dublin Airport might serve. From the information provided and the profile of current and likely traffic at the Airport, the Panel concluded that the differences in facilities required for the range of point to point operators were minimal. The developer of an independent terminal would have to provide broadly the same type of infrastructure regardless of whether the carriers were low cost or more traditional airlines moving towards the low cost model.



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The Panel does not believe that Dublin’s future is linked to the development of a significant hubbing operation.

Each of the sites proposed has a number of advantages and disadvantages. The Panel’s view is that a site assessment study would be required if the independent terminal concept were to be progressed. However the proposed locations are broadly similar to the locations shortlisted by the Aer Rianta master planning team. If the locations have operational integrity for Aer Rianta then they should work for an independent terminal operator.

Many of the organisations expressing an interest in the independent terminal concept appear convinced that the project is financially viable. However the Panel feels that the levels of aeronautical charges at the Airport are likely to increase for the following reasons:

• Charges appear to be at an uneconomically low level to allow the significant investment in facilities required at the Airport.


The Panel’s view is that realistic levels of aeronautical charges are not that significant for carriers compared to the operational and service level benefits of a high capacity quick turnaround facility. The undoubted commercial revenue potential, on its own would not be sufficient to develop and operate a new terminal and associated landside and airside infrastructure.

Increases in air services out of Ireland are likely to provide wider economic benefits including better connections for business travellers, access to new markets and the support of foreign direct investment both into and out of the country.

One of the main expectations from the provision of quick turnaround services has been a significant net tourism benefit for Ireland. The Panel has not seen compelling evidence to substantiate these expectations and cannot see justification for applying unrealistic economic charges for such services.

No identical precedent for the independent competing terminal has been presented. Nevertheless the Panel concluded that this should not prevent the development of an emerging concept based on a high volume quick turnaround facility, with varying levels of service, which would have the capacity to serve the majority of carriers in the point to point market at Dublin Airport. This concept is developed in more detail in Section 5.


EMERGING CONCEPT 5

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5.1 Introduction

The Panel has considered the various options for an independent terminal at Dublin Airport contained within the expressions of interest. The review has been undertaken within the framework of Section 3, context, and the emerging Aer Rianta short listed master plan options for the Airport. In this section the features of an emerging concept that could form the basis of an independent terminal at the Airport are developed, together with the Panel’s views on how such a concept could be delivered.

As a reminder, the Department of Transport’s Statement of Strategy for 2003 to 2005, in relation to airports policy, has the following objective:

To ensure that the principal gateway airports of the State are in a position to provide cost competitive and appropriate infrastructure to meet the current and prospective needs of airline and other aviation companies, consistent with a commercial mandate.

The emerging concept most likely to meet the airports policy objective is:

• A terminal designed primarily for short haul UK and European flights based around a fast turnaround, point to point operation.

• A terminal developed in phases, with the first phase providing a capacity of up to 10 mppa, and future phases up to 20 mppa.

• A terminal providing the step change in capacity and, through competition, operational efficiency necessary to enable significant expansion of services from the Airport.


Such a development is also likely to remove the need to build Pier D in the short term, but does not remove the need to replace Pier A, and potentially redevelop Pier B in the existing terminal. Relocating a significant volume of traffic from the existing terminal into the new facility would provide Aer Rianta with the spare capacity to facilitate redevelopment of their existing terminal facilities.

A key issue identified however, is the timing of providing a new independent terminal. Based on analysis undertaken by Aer Rianta’s master planning team, the existing airside facilities are already operating at or near capacity. A possible option prior to the introduction of any independent terminal is to proceed with the construction of a temporary facility until a new terminal would be operational. This proposal mirrors the Aer Rianta proposal for a temporary facility in advance of Pier D.

5.2 Context

The Panel has considered the expressions of interest described in Section 4 within the context of Aer Rianta’s emerging master plan. Based upon the


EMERGING CONCEPT

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information provided by Aer Rianta and its master planning team, a number of basic assumptions have been made on how the Airport might develop in the future:





5.3 The emerging concept and location proposed

Regardless of market served, any terminal developed by a third party would be designed such that as much flexibility as possible was incorporated (within the context of cost implications) to enable it to adapt to changes in market requirements over time.

Although a mixed operation, i.e. both low cost and traditional full service airlines operating from a new terminal, was not directly promoted by any of the parties expressing interest, the Panel considered that the inherent features of the proposals do not preclude a mix of operators in any new facility. Indeed it is critical to the promotion of real competition that a new terminal should not be dedicated to one airline or a particular type of traffic; this level of specialism could reduce the level of effective competition between the terminal operators.

As noted earlier, the expressions of interest submitted did not consider the implications of providing additional terminal capacity of up to 20 mppa on the existing road and airside infrastructure, nor how any increase in infrastructure capacity to serve the terminal could be constructed or funded. Clearly the funding of additional infrastructure is a key issue and funding principles would have to be established.

The displacements of existing facilities necessary to enable the construction of a new terminal were not considered in detail in the expressions of interest. The Panel’s experience is that displacements are critical considerations, both in terms of operational impact as well as cost. Funding of such displacements is usually associated with the overall development cost of the facility requiring the displacement, and as such should be included in overall project costings.

The Panel’s view of an emerging concept is a terminal with the ability to handle a large volume of point to point short haul services with sufficient airside infrastructure and contact stands to meet the needs of fast turnaround operators. The envisaged concept would not be built to serve a single user and the terminal could accommodate the differentiated service levels and requirements of the


EMERGING CONCEPT

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wide range of airlines at Dublin Airport serving the short haul UK and European market.

It is more likely that current and future long haul traffic using Dublin would continue to be served by the existing terminal due to the added complexities of serving long haul traffic reducing some of the inherent benefits of the quick turnaround terminal concept. These include rapid loading and unloading of customers and baggage, time taken for refuelling of a larger aircraft, cleaning the aircraft as well as a requirement to stock up on catering which is more important on a longer duration flight.

The airlines would be able to compete within the terminal on varying customer service levels such as airline lounges or airbridge access to the aircraft. This ensures that the terminal would not be tied to any one airline and would promote competition both between terminals and between carriers within the same terminal, across a range of services.

The Panel’s opinion of the key features of the emerging concept would be to:

• Provide a significant increase in terminal and aircraft contact stand capacity at the Airport.




• Incorporate principles and basic conditions regarding financing of directly related and shared infrastructure, competitive guidelines, etc. so as to inform third party development interest in the project.


5.3.1 Locations proposed

As discussed in Section 4, a number of sites proposed by those organisations submitting expressions of interest have advantages and disadvantages and the Panel does not propose recommending one site over another. There may also be alternative sites not identified by those submitting expressions of interest that could be a better overall strategic fit for Dublin Airport.

It is worth noting that the Aer Rianta master plan shortlist of options was similar in many respects to a number of the expressions of interest. It follows that if the locations have operational integrity for Aer Rianta, then there does not appear to be a good reason why they could not work for an independent terminal operator.


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If the concept of an independent terminal were to be progressed, a site assessment study would be necessary to ensure the selection of an optimum site that best integrated into the overall Airport operation. Much of this work has already been undertaken as part of the Aer Rianta master planning process which, when completed, will include detailed costing of the various sites they have identified. This should enable any site assessment of an alternative site for a new terminal to be undertaken relatively quickly.

5.4 Encouraging competition

The Panel has reviewed a recent consultation where the principle of encouraging greater competition through the provision of a competing terminal has been considered and consulted upon.

The UK Civil Aviation Authority (CAA), the UK’s airport economic Regulator has recently explored the issue of competition between terminals at an airport. In its consultation paper16, the CAA was in principle, in favour of competition to lighten the regulatory burden but conceded that where there were terminal capacity constraints, the basis for competition was likely to be minimised.

The view was that competition between terminals would be most effective where unused terminal capacity is available. This is in contrast to a monopoly provider which might have incentives to set prices above the level necessary to optimise capacity utilisation (if it were free to do so).

The CAA also felt that competition between terminals might take place on the grounds of service quality. Competing terminals may supply different products based on differentiated service standards, reflecting differences in user requirements. With different ownership of airport terminals, there may be further specialisation within terminals to serve distinct user groups than currently occurs (e.g. low cost, short haul, long haul). Given the different operational requirements for aircraft, further specialisation may lead to operational efficiency gains at the terminal level. However, greater operational specialisation between terminals may also reduce the scope for effective inter-terminal competition.

The CAA also reflected that there might be operational and financial drawbacks to having more than one terminal operator at an airport.

In their responses to the CAA’s consultation paper, the airlines were in favour of more competition in the provision of terminal services. However, they were also

16 Source: Competitive Provision of Infrastructure and Services Within Airports, Consultation Paper, CAA, February 2001.


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concerned that the operational effectiveness of the airport should not be compromised.

Some concern was raised where an airline, or group of airlines, would be a member of the terminal consortium. The airlines expressed the view that one airline should not be granted exclusive use of the terminal, but rather that the terminal operator should be obliged to grant access to other (non-contracting) airlines on ‘reasonable’ terms and conditions.

The airlines further expected the Regulator to monitor the terms and conditions upon which access is made available, in order to minimise the incentive for an airline or a group of airlines to distort ticket prices by inflating the airport charges for its competitors. A similar argument could be made for one airline receiving preferential treatment and a lower cost base than other airlines operating at the same airport.

In the context of competition at Dublin Airport, Ryanair submitted a detailed expression of interest. However in their submission Ryanair indicated that it was not their intention to become either a terminal developer or operator. In the absence of interest from other terminal operators, Ryanair indicated that they might guarantee funding of the terminal, however they would not wish to manage and/or operate the facility but would seek a third party operator to do this on their behalf. Their position is described further in Section 5.9.1.

BAA, the UK airport operator, in its response as an airport operator, was not in favour of competing terminals. They pointed to the fact that different terminals at Heathrow serve different markets. BAA’s ability to co-ordinate demand and manage utilisation across the terminals would be lost, as would the economies the airlines enjoy from BAA’s airport-wide deployment of staff and other resources. Furthermore, it was their view that airlines gain very considerable network benefits from co-locating their services within a single terminal; airlines would suffer additional costs from fragmentation between terminals. Finally, separate terminal operators would not be able to negotiate wide ranging environmental safeguards with local planning authorities that are a precondition for the approval of incremental schemes.

In light of these conflicting views, the Panel considered the competition issues arising from the provision of a new terminal. The Panel took into consideration the information provided in the expressions of interest (including outline commitments from airlines to base additional aircraft at Dublin), other relevant studies and the particular features of the existing and forecast traffic at Dublin.

The Panel therefore concluded that an independent terminal provided by an independent operator would stimulate, through increased capacity and quality of terminal services, effective competition at Dublin Airport. Such a terminal would give airlines a choice between terminal operators, provided that sufficient capacity was available in the new terminal from day one to enable individual airlines to switch some or all of their services. Such competition with


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appropriate regulatory structures should also guard against levels of airport charges out of line with the relevant economic costs of service provision.

A new terminal would allow Aer Rianta to focus on the retention of existing airline customers, either through offering charges competitive with the new terminal operator, or by offering value added “service standards” to further improve the overall level of service offered in the areas they can influence. Such standards may relate to better management of customer flows, guaranteed availability of check-in desks, aircraft stand availability and serviceability of key equipment such as baggage handling.

Whilst there is no direct corollary for the independent terminal concept, the Panel considered that the airport industry is moving toward encouraging more competition and private sector participation in the provision of terminal infrastructure.

5.5 Providing a level playing field with enhanced service levels

A new terminal is likely to help provide a more level playing field for all of the airlines at Dublin Airport. The need to replace the existing Pier A has already been recognised by Aer Rianta, with plans to replace it with Pier D. However Pier D in itself does not deliver the step change in capacity or operational effectiveness that some carriers demand. Pier D provides a net increase of only eight contact stands. However, it would provide sufficient incremental capacity to enable Pier A operations to be relocated into Pier D. This would enable the redevelopment of Pier B and other facilities in the short to medium term.

Pier A is, by international standards, inadequate for the level of traffic handled, whereas airlines using Pier B and particularly Pier C are able to provide their passengers with a significantly higher quality of service than those using Pier A.

A new terminal would be able to meet the needs of short haul airlines and provide sufficient capacity to enable a step change in the quality of service and operational effectiveness at Dublin Airport. Ryanair, one of the potential airlines using an independent facility, has indicated that it would base up to ten additional aircraft at Dublin if an independent terminal were available. This increase in operation is unlikely to be achievable if Pier D is built, as the facility does not provide the incremental stand capacity increase indicated by that particular airline. Significant additional capacity would also allow the other carriers in the short haul market to increase their operations from the Airport, assuming that additional runway capacity was in place.

A new terminal would have to provide all carriers with a facility that matches or exceeds standards available elsewhere at Dublin Airport, both in terms of the quality of infrastructure provided, and the capacity to grow their respective


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businesses. New terminal capacity would give Aer Rianta the opportunity to redevelop Piers A and B up to comparable levels of service of a new terminal.

5.6 Caters for traffic that is likely to form the majority of growth at Dublin

As discussed in Section 3 and as shown in the table below, the main driver of traffic growth at Dublin Airport in recent years has been European short haul services contributing some 58 per cent of total growth since 1997. The European market has grown by almost 100 per cent in the period compared to 24 per cent for the main UK market. After good growth, the transatlantic market suffered in the business realignment of airlines post September 11th but is expected to recover in 2003.

Relative to the UK market, forecasts suggest that European routes will continue to be the key driver of growth in the short to medium term, with growth in all markets served by Dublin expected to continue.

Dublin airport passengers by geographic market 1997 to 2002 (000s)

1997 1998 1999 2000 2001 2002

Growth (000s) 1997 – 2002

Growth (%)

1997 – 2002)

Transatlantic 535 674 830 966 939 799 264 49%

UK 6361 6919 7226 7419 7438 7,884 1,523 24%

Europe 2850 3385 3990 4645 5169 5,628 2,778 97%

Domestic 488 539 611 661 657 651 163 33%

Transit 98 123 144 152 129 123 25 26%

Total 10332 11640 12801 13843 14332 15085 4,753

Source: Aer Rianta statistics

The emerging concept identified by the Panel is a high volume, quick turnaround facility that would serve all of the airlines in UK and European short haul market. Ireland is poorly served by low cost carriers to Europe. If low cost carriers were to develop major networks of services to Europe, it is likely that this could only be achieved by a significant enhancement of both terminal and particularly airside infrastructure. The Ryanair European network17 from a number of its hub airports is compared to Dublin in the table below and illustrates the potential for growth in terms of destinations served.

17 Source: Ryanair website, January 2003.


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Ryanair timetable Winter 2003/03

Dublin18 London Stansted19

Brussels Charleroi

Frankfurt Hahn

Milan Bergamo

International Destinations Served

2 35 10 15 7

Source: Ryanair website, January 2003.

However, the fundamental business requirements remain of having sufficient passenger demand at a reasonable yield when compared to other opportunities for the particular aircraft.

5.7 Principles for financing of infrastructure

The expressions of interest provided few details of costs or revenues associated with the independent terminal concept. Where costs were included, the Panel felt that these could not be relied upon to form a view of the realistic costs of developing such a facility. A number of variables including size, location, surface access requirements, realistic displacement costs and level of service would have to be developed in much more detail. However the Panel was able to develop high level principles related to the financing of the emerging concept. These are:

• Direct costs of development and operation of a new terminal including displacement costs, to be met by the independent terminal developer.

• Indirect costs related to the development and operation of a new terminal such as enhancements to surface access, contributions to common use utilities, etc. to be shared with Aer Rianta on an equitable basis.

Recovery of capital investment and operational costs through charges to airlines would be subject to whatever economic regulation regime was in place. Revenue allocation principles would also have to be agreed with Aer Rianta and the Regulator.

5.8 Implementation

Any independent development of a new terminal at Dublin Airport would have to be undertaken within the broader operational, financial and regulatory context of the existing operation. Clearly the terminal could not operate in isolation from the existing Airport infrastructure, and key to the success of any such development would be its integration within the overall operation and development of the Airport.

18 Excludes services to the United Kingdom. 19 Excludes services to Ireland.


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Also it is critical that any procurement process and tender documentation conform to principles that allow the developer to obtain financing in the open market. Key points include the duration of any lease or concession, role of the economic Regulator, future overall Airport development strategy, ongoing relationship with Aer Rianta, commercial revenue opportunities, and equitable shared cost structures.

5.8.1 Integration with landside infrastructure

Existing landside infrastructure (primarily roads, terminal drop-off and pick-up zones, car parks and bus and coach parking) has been identified as a constraint to the long term development of Dublin Airport. Congestion on the existing road system during peak hours is already experienced.

Aer Rianta and its consultants are currently studying surface access improvements to identify those schemes required to enable further development of the Airport. These include the possible provision of a new public transport interchange, including a rail link to Dublin.

A new independent terminal would have to be developed such that it would be integrated into an overall surface access strategy for the Airport. Consideration of the additional road traffic that such a terminal would generate will be critical, together with the incremental car parking capacity necessary. In particular, detailed analysis of the impact of an independent terminal on access to the main terminal will be necessary.

Another consideration is disruption during construction. Any terminal built adjacent to the existing facility would need to be planned and implemented such that the capacity of existing roads and car parks is not diminished. The Panel was unable to consider construction impacts in detail, and therefore in depth analysis and planning would have to be undertaken to ensure that the existing operation is maintained during construction of any new terminal.

Those sites identified that are remote from the existing terminal location present fewer challenges in terms of construction, operational disruption and displacement and would provide higher overall capacity in terms of the surface access links. However due to the requirement to provide additional surface access and airside infrastructure, such sites are likely to require high levels of investment.

Any concept brought forward also needs to take into consideration plans for a rail link to the Airport. A new terminal on a site adjacent to the main terminal presents a better opportunity to provide an integrated public transport interchange that could serve both terminals. At remote sites, a duplication of facilities would be required. Indeed it may not be financially viable to provide rail links to both terminals, which would result in one facility being at a competitive disadvantage to the other.


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5.8.2 Airside infrastructure

A number of the submissions included details of additional aircraft parking areas to serve the new terminal. However limited information was provided on how these would be integrated with the overall airfield infrastructure. Given the similarities of the proposed locations with options being reviewed by the Aer Rianta master planning team, many of the issues related to operational integration will have been considered.

The emerging concept, with careful planning, can be integrated with the existing airfield. However due regard must be given to the integration of existing and future aircraft ground movement flows to ensure conflicts do not arise on the taxiway system. In addition the success of the emerging concept is contingent on the provision of additional runway capacity at Dublin Airport. One of the expressions of interest proposed upgrading the existing short northern runway, however the Panel considered that more work was required to determine whether this was technically, operationally and financially feasible.

Other integration issues will include the additional airfield lighting, signage, drainage and the aircraft fuelling system. Upgrade of the Airport fuel farm is likely to be required, together with an appraisal of other services and utilities. In addition, the Airport’s air traffic control tower may require either raising or relocating to ensure adequate sight lines are maintained across any new aprons, taxiways and the runway system.

Any site chosen for a new terminal would have to be integrated into an overall master plan for the Airport’s airfield and air traffic control infrastructure. This infrastructure would be utilised by aircraft using both terminals. Thus funding and charging mechanisms would have to be developed that accurately reflects equitable allocation of costs and revenue.

5.9 Financial feasibility

It is unlikely that the concept of a high volume fast turnaround facility would be financially feasible unless the following criteria are achieved:





5.9.1 Airline tenants

The development of a new terminal would be contingent on the developer having secured airline tenants in order to obtain long term financing. Letters included with a number of submissions indicated support from the principal


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airlines at Dublin Airport for the concept of development and operation of a second independent terminal.

In August 2002, at their first quarter results briefing, Ryanair stated that they would consider putting in a bid to build and operate the terminal. They envisioned a new low cost airline terminal with the capacity for 12-15 million passengers per annum with the potential of being a major base for the airline. Ryanair stated that they could base from five to ten aircraft at the new terminal and open 10-15 new routes to continental Europe on top of its existing services. Ryanair subsequently submitted an expression of interest, which reiterated their commitment to support an independent terminal at the Airport. However they did not see themselves as the terminal operator but indicated that they would be willing to fund the terminal if other investors could not be found.

Aer Lingus support in principle to the development of an independent terminal was also included in a number of the expressions of interest reviewed.

The two main airlines operating at Dublin Airport have indicated their support for an independent terminal. The logical conclusion is that, subject to agreement on the operational and commercial requirements, there is likely to be airline community support for the development of an independent terminal concept.

5.9.2 Appropriate levels of charges

Airport terminals are long term infrastructure investments usually funded by long term debt. To secure this long term debt, lenders would have to be satisfied that the revenue streams are secure and are likely to be sufficient to meet debt commitments. This requires commitments from airlines at realistic levels of charges to reflect the level of capital investment in new facilities.

The level of charges at Dublin Airport is generally considered to be low, compared to peer European airports. The conclusion from the Doganis report as outlined in Section 3 is that with significant operational benefits arising from a new terminal, a level of Airport charges, which reflects the capital investment in new facilities, should not deter new routes being developed from Dublin. The Panel agrees with this conclusion. The main determinant is that sustainable market demand exists for the route.

Even with significant revenue streams from commercial activities, the current level of Airport charges is likely to have to increase to allow for an adequate return on investment. Otherwise it may be unattractive for developers to invest in an independent terminal.

5.9.3 Commercial income streams

Commercial revenue for an independent terminal will vary depending on the profile of passengers using the facility. Some passenger profiles, such as outbound tourists, have been proven to contribute more commercial revenue than others. Commercial success would also be heavily dependent on the quality


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and range of the retail facilities and how successfully the terminal operator designs facilities that maximise commercial returns.

The modern trend in airport design is to minimise the amount of time passengers remain landside in order to maximise their ‘dwell’ time airside before they board their aircraft. This allows passengers to become orientated to their surroundings, reducing the stress associated with travelling, which in turn helps them to relax as well as creating the right frame of mind to shop.

The developer of a new terminal would have the opportunity to optimise design around functional passenger processes and commercial revenue offers. The main sources of passenger related commercial revenue are car parking, food and beverage concessions, retail concessions, advertising and other sundry revenue generating activities such as taxi charges, pay phones, etc.

With the abolition of intra EU duty free on July 1st 1999, airports have had to become more innovative in the range and pricing of their retail offers. With a likely profile for any new terminal being heavily UK and EU biased, the terminal developer would have to ensure that there was an adequate range and choice of retail offers to attract customers. The big advantage is that with a new build facility, the developer should be able to properly integrate the commercial elements from the start.

Revenue from the provision of car parking is likely to be a major component of overall revenue generated. Since the abolition of intra EU duty free, car parking revenues have become an increasing important element of overall revenue. Indeed at a number of airports, particularly those with a high proportion of domestic and EU traffic, revenue from car parking has become one of the most important revenue streams. Sufficient allocation of space for the development of car parks would be required to contribute to the overall financial viability of an independent terminal.

The opportunity also exists to exploit a growing area of airport operator revenue through property related revenue streams. A number of organisations expressing interest indicated that they would wish to integrate hotel and office facilities to generate property related revenue. Sufficient allocation of space would have to be included in any tender process to provide property related development opportunities.

5.9.4 Competitive cost base

With a new terminal facility, the developer would be able to develop the organisational structure that ensures the lowest cost base. The trend in airport management is to only undertake those activities that are critical to delivery of core services and to outsource the remainder. Some activities traditionally considered as core activities such as security and maintenance have been outsourced at many European airports.


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Efficiencies from operating in a new facility would also help to reduce operating costs. An airport has to provide a minimum level of resources to carry out the tasks required as part of its obligations as an airport operator. These resources must be provided irrespective of the number of passengers using the airport. In that sense, these are fixed costs. With a lower number of passengers using an airport, the unit costs to service these passengers will be relatively high. As passenger numbers increase, unit costs decrease as economies of scale are achieved. Above a certain threshold level of aircraft movements and/or passenger throughput, costs move from being fixed to being more variable and volume related.

The cost challenge for an independent terminal operator would be to generate sufficient volume of passenger throughput to allow the benefits of economies of scale to be realised.

5.10 Regulatory structure and price control

The expressions of interest covered a range of economic and operational regulatory issues. Many of these issues have been discussed in Sections 3 and 4. The Panel has identified a number of fundamental regulatory pre-requisites for an independent terminal operation. These are:

• Operational regulation to ensure fair and equitable access to shared infrastructure.

• Transparency of costs for individual components of the services provided is necessary to ensure that shared activities are not cross subsidising competing terminal related activities.

5.11 Concept overview

The Panel concluded that the development of an independently funded and operated terminal is both operationally and technically feasible and that there is already significant preliminary support for such a concept from Dublin Airport’s principal airline operators.

The emerging concept most likely to meet the overall objectives of the Government’s aviation policy is a terminal designed primarily for short haul operations, based around a fast turnaround, point to point operation. The terminal would be developed in phases, with the first phase providing a capacity of up to 10 mppa. This would provide the step change in capacity necessary to enable significant expansion of services from the Airport. It would also necessitate the provision of additional runway capacity.

Such a development is also likely to remove the need to build Pier D in the short term, but does not remove the need to replace Pier A, and potentially redevelop Pier B in the existing terminal. However relocating a significant volume of traffic from the existing terminal into the new facility would provide Aer Rianta


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with the spare capacity to facilitate redevelopment of their existing terminal facilities.

A key issue identified, however, is the timing of provision of such facilities. Based on analysis undertaken by Aer Rianta’s master planning team, the airside facilities are already operating at or near capacity. A possible solution is to proceed with the construction of a temporary facility until such time as a new terminal would be operational. This proposal mirrors the proposal for a temporary facility in advance of Pier D.

The financial aspects of the development of an independent terminal would require a realistic level of charges at the Airport in order to provide an adequate level of return to an investor. Notwithstanding the undoubted commercial revenue potential, this on its own would not be sufficient to develop and operate a new terminal and the associated landside and airside infrastructure. The Panel believes that while airport charges have to be reasonable when compared to peer Airports, the real benefits to airline users would be the operational efficiencies that come from having a high capacity facility developed to meet the needs of a fast turnaround operation.

Transparent regulation of the shared activities would be critical to ensuring an equitable basis for competition. The Panel believes the required level of transparency can be achieved. If this concept moves to the next stage of a procurement process, it would require detailed consideration of all of the issues discussed in this report. However the Panel has concluded that none of the issues identified are insurmountable and that an independent terminal is a viable strategic option for the development of Dublin Airport.


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6.1 Introduction

As discussed in Section 5.4, the Panel’s view is that competition between terminal operators would provide the necessary stimulus to further promote management focus on customer service and the provision of best practice Airport facilities.

On the basis that realistic levels of Airport charges can be achieved, and coupled with the opportunity to develop commercial revenue streams that support the overall financial viability of the concept, the Panel has concluded that the concept of an independent terminal at Dublin Airport should be viable.

This is on the basis that the independent terminal has the ability to compete for the business of all of the airlines in the short haul fast turnaround market, with appropriate levels of service. There are no obvious operational barriers to competing terminals at the Airport provided an appropriate regulatory mechanism is in place. The independent terminal concept is not site specific and location would depend on the financial and operational implications of a site selection process.

Such a development would have considerable implications, both positive and negative. This section builds on Section 5 and examines the impacts an independent terminal could have on a range of key stakeholders. It outlines the Panel’s consideration of the wider implications of the concept, within the context of the terms of reference. The independent terminal concept is assessed against the Panel’s assumptions of the key features of the Aer Rianta emerging master plan for the Airport without an independent terminal, as outlined in Section 5.

6.2 Aer Rianta emerging master plan and independent terminal key features

As previously outlined, the key features of the proposals from Aer Rianta’s master planning team are:





The key features of an independent terminal have been developed around a similar set of assumptions:


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• The quick turnaround Centreline growth forecasts assume a year one increase of circa 1.5 mppa and incremental rather than step change growth thereafter.

• The independent terminal would be developed and brought on line in a relatively short timeframe with an initial capacity of circa 10mppa.

• A temporary facility would be developed to cater for the period until the new terminal was operational.

• Airlines would base additional aircraft at Dublin in the short term.

6.3 Stakeholder implications

6.3.1 Passengers

Customer service at the airport

The level of service provided to passengers at Dublin Airport varies considerably. The terminal has recently expanded its check-in, baggage handling and landside catering facilities. However access to the terminal is difficult at peak times of the day with inadequate drop off and pick up kerb length. Airside areas remain constrained and often over crowded. In particular Pier A is now inadequate for the level of traffic using the facility. Passengers also have a considerable distance to walk to reach Pier A, both in terms of distance and in perception as the route to the pier is convoluted and requires a number of changes of level. Pier B also requires upgrading to bring it up to standards in Pier C.

The Panel acknowledges that Aer Rianta has already identified many of the problems. Based upon a presentation by their master planning consultants, the Pier D proposal would facilitate the relocation of traffic from Pier A, thus releasing capacity to enable a phased redevelopment and expansion of the existing Piers and Terminal.

Competition between terminal operators would ensure an increased management focus on customer service levels and the provision of improved facilities.

The competition provided by a new terminal and the resultant improvement in overall facilities and customer service at the Airport would provide all passengers with a significantly enhanced level of service.

Passengers using the new terminal should look forward to improved flows through the terminal. Simplified baggage handling systems should reduce delays due to the point to point nature of the traffic. Overall customer experience should be enhanced. Customer service levels may vary depending on the needs of a particular airline and through differentiation in the services offered to passengers.



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Passengers using the existing terminal could look forward to reduced levels of overcrowding, and in particular capacity would be released to enable the decommissioning and replacement of Pier A.

Customer choice

A new terminal would enable passengers to choose between airlines using the different terminals (where the same or similar routes were operated from both). More importantly a new independent terminal designed to provide quick turnarounds would create an environment that encourages carriers to develop services to a wide range of destinations in Europe. The operational benefits of a dedicated quick turnaround facility should provide an efficient cost base for airlines to develop such services.

With sufficient demand from customers both from within Ireland for new destinations as well as demand at the other end for new destinations into Ireland, Dublin Airport would be able to increase the range and frequency of destinations served. As discussed in Section 5, whilst there is significant choice on routes to the United Kingdom, Irish passengers do not enjoy the wide range of low cost services to Europe (services are currently provided to Brussels and Paris only) that are enjoyed by passengers in the UK and other parts of Europe. Nor do customers from Europe into Ireland have the choice of affordable flights from a wide range of destinations.

Assuming there is sufficient customer demand, increased competition is likely to result in greater choice for consumers of both destinations and operators, maintain pressure on fares and significantly increase overall levels of traffic to and from Dublin.

6.3.2 Airlines

Letters of support from the principal airlines at Dublin Airport were included in a number of expressions of interest leading the Panel to conclude that the main airlines broadly welcomed the concept of an independent terminal that provides a significant capacity quick turnaround facility at the Airport.

Evidence suggests that at key European airports, low cost and traditional airlines can co-exist. Whilst a major expansion of low cost services into Europe would have some impact on Aer Lingus and other carriers, the markets each serve are markedly different. When Ryanair expanded rapidly on the Dublin-UK market, Aer Lingus experienced some impact on passenger volumes and withdrew from some of the “thinner routes” such as Liverpool and Leeds. However the carrier remained a major operator on the primary routes to London, Manchester and Birmingham. In overall terms the market between Ireland and UK has grown significantly by 1.5 mppa (24 per cent) between 1997 and 2002.

On services to Europe from Ireland, a similar pattern is expected to emerge. Ryanair already competes with Aer Lingus and City Jet (Air France) to Paris but uses a secondary airport. Whilst the overall Paris market has grown



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significantly, Aer Lingus and City Jet have maintained, and indeed grown, their presence on the route.

Based on previous experience, it is likely that low cost services would develop from Dublin to a number of destinations. This may impact existing carriers out of Dublin on existing European routes. However whilst there may be some pressure on yields for existing carriers on these routes, the overall impact is likely to be to stimulate and expand the overall market on these routes.

Traditional airlines are taking steps to reduce costs and increase aircraft utilisation to narrow the cost per seat gap with low cost carriers. The importance of operational optimisation is critical as airlines adapt their models to maximise aircraft utilisation. The airlines are now better placed to compete with low cost carriers than at any previous time.

A key advantage to all airlines would be choice in the terminal they use – provided there is sufficient spare capacity in both. The introduction of a second terminal in competition with Aer Rianta should ensure a competitive response from the incumbent operator and raise overall levels of customer service and operational effectiveness offered to all airlines across the Airport. For all carriers, the new terminal should provide a platform for significant growth and improvement in service levels and performance at Dublin Airport.

6.3.3 Aer Rianta

The Panel recognised that an independent terminal would have a profound impact on every area of Aer Rianta’s business. The introduction of a competitive environment would be likely to impact on the following key areas:

Area Impacted Likely Consequences

Revenue streams Loss of revenue in the short term but tempered by the opportunity to win a share of forecast growth business.

Cost base Unit costs would increase in the short term as the costs are spread over fewer passengers, however overall growth in passenger numbers in the medium to long term should help to mitigate unit cost increases.

Operational control Overall control of the Airport is optimum for planning and development. Operationally this is not critical in that terminal and airfield management are separate functional units.

Culture change Moving from single operator status to competitive environment requires a quantum change in company culture.

People issues Competition would pose significant issues for management and staff, at least initially. Strong forecast growth provides opportunity in the medium term to safeguard existing employees and generate further employment opportunities.



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The future for Dublin Airport is not static. A dynamic competitive environment with strong underlying forecast growth, presents Aer Rianta with as many opportunities as challenges. The response by Aer Rianta to this new competitive landscape would determine the impact of an independent terminal on their business. The Panel reviewed likely impacts on key areas of Aer Rianta’s performance.

Revenue streams

Initially there will inevitably be a significant reduction in revenue, depending on the number of airlines and the amount of traffic that moves to the new terminal. The impact would be felt both in terms of reduced aeronautical revenue, and of commercial revenues as those passengers in the new terminal would not be using Aer Rianta’s terminal facilities, car parks or retail facilities. It has not been possible to accurately assess the amount of lost revenue, as the Panel has not had access to Aer Rianta’s accounts for Dublin Airport.

Aer Rianta’s core Irish airport revenue streams in 2001 are outlined in the table below.

Aer Rianta revenue streams 2001

Revenue Area Revenue

(€) % of Total Revenue

Revenue per Passenger (€)

Aeronautical 104,750 29.7% 5.66

Commercial 248,081 70.3% 13.40

Total 352,831 100% 19.06

Source: Aer Rianta Annual Report 2001.

The Panel’s high level view is that aeronautical revenue per passenger lost to a new terminal is likely to reduce by around 50 per cent to represent loss in terminal related charges net of shared activities such as runway, taxiway, security etc. Commercial revenues are more difficult to assess as they include retailing, concessions, property, aviation fuel sales and car parking.

Against this, the Panel has recognised the strong traffic forecasts at Dublin, which, assuming Aer Rianta won a share of new business, would offset potential revenue reduction from traffic lost to an independent terminal.

As previously discussed, if the new independent terminal concept were to be progressed, realistic and sustainable levels of aeronautical charges at Dublin Airport would have to be agreed. This could lead to overall increases in the level of aeronautical charges to the benefit of Aer Rianta.

Cost base

Initial reductions in traffic throughput would lead to an increase in unit costs as the cost base is spread over fewer passengers. The Panel believes this would be a



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short term adjustment within the context of a growing market and a competitive Aer Rianta winning a share of that growth.

Aer Rianta has recognised the need to meet future challenges and introduced a company restructuring programme in 2001, with some 200 voluntary redundancies in 2002. However the operational efficiencies required to effectively compete with an independent terminal would require a major review of the structure of the organisation and operation at Dublin Airport. What would be done depends very much on how Aer Rianta would react to the challenge from an independent terminal and how successful they would be in retaining existing customers and capturing new business.

A new independent terminal would present Aer Rianta with the opportunity to redevelop facilities to meet future requirements without the constant pressure of having to juggle airlines and to provide expensive temporary and displacement facilities.

This would also allow the restructuring of the emerging capital development plan to focus on areas of effective competition as well as developing facilities for existing airline customers.

Operational control

Airport operators internationally have raised the loss of unified airport control as one the key reasons against competition at an airport. They highlight the advantages of a single entity being able to more effectively develop a strategic master plan for the airport as a whole. However effective communication between the parties should produce agreement on the allocation of infrastructure funding and revenue generation. We therefore do not attach undue importance to this perceived difficulty.

Many airports around the world have different terminal and airfield operators and there is no conclusive evidence that this is not an effective model. With appropriate operational protocols and agreement on how shared infrastructure is funded, and revenue allocated, the Panel does not believe this to be a valid argument.

The Panel’s experience is that even where one operator controls a multi-terminal airport, the degree of rotation of staff is minimal due to the frequent specialisations in terminals to serve specific markets such as long haul, short haul international or domestic traffic. Furthermore, the terminal operations and airfield operations teams are usually separate functional units. Accordingly, the Panel is satisfied that different organisations should not impact on the operational effectiveness of the Airport.

Culture change Moving from single operator status to a competitive environment would require a quantum shift in company culture that could only be delivered through the combined efforts of staff and management. Whilst Aer Rianta, like many other airport companies, has an ongoing change programme, this is unlikely to be



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sufficient in itself to reflect the fundamental changes that will impact all aspects of their business in a new competitive environment.

The time lag before any new independent terminal becomes operational would give Aer Rianta sufficient time to review its business plan so as to manage any necessary changes to enable it to compete effectively in the new environment.

People issues

One view of the impact of a competing independent terminal would be negative in that loss of traffic would inevitably produce pressures to reduce staff and cut the level of services. The Panel did not fully subscribe to that view for two main reasons:

• Aer Rianta’s Centreline forecast growth does not assume large increases in quick turnaround operations. Nevertheless significant additional growth from the current mix of traffic at the Airport is anticipated. Aer Rianta would be well placed to compete for this growth.

• Aer Rianta will be able to compete by further improving levels of service to airlines and passengers rather than only through downward pressures on pricing.

Positioning Aer Rianta for effective competition in a growing market or striving to improve service levels cannot be done with dramatic reductions in staff levels. This builds very much on the culture issues of whether, in the event of an independent terminal, Aer Rianta focuses on the negatives or develop the areas on which it could effectively compete.

The Panel’s view is that Aer Rianta has the strengths essential for successful growth through the provision of good quality services fully aligned with changing airline customer requirements and at a realistic cost.

6.3.4 Airport Regulator

The main areas for the Regulator have been discussed at length in previous sections, these are:

• The degree of regulation on areas where operators are competing could be relaxed with more focus on the non-competing core monopoly activities.

• Predatory pricing by either party on the competing service activities. Many of the issues are similar to those faced in the deregulation of public utilities such as telecommunications, gas and electricity both in Ireland and internationally.

• The Regulator would have to ensure that there was equitable access for the independent terminal operator to the shared infrastructure.



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6.3.5 Potential developers of an independent terminal

The development of an independent terminal represents an attractive opportunity for an investor to participate in a fast growing international Airport. However, before any commitments are made to invest in new facilities, a number of issues would require clarification for potential developers:

• The terminal may not be financially viable with the existing level of aeronautical charges at Dublin Airport. However, the Panel believes, supported by the Doganis report, that increased charges, providing they are realistic, will not impact on the operational attractiveness of the facility for airlines. This is on the basis that there is sufficient demand for the potential range of new services from Dublin Airport.



• The contractual structure of any agreement will be critical for an investor with areas such as duration, contract or concession structure, payment terms, and development obligations being important.

The international experience of investors participating in airports has generally been positive with demand outstripping supply. There is a healthy market for the development of airport assets with the number of organisations expressing an interest in an independent terminal at Dublin confirming the initial market appetite for potential investors.

To enable a firm basis for testing the market with prospective developers, any tender documentation will need to be specific on a number of areas including facilities specification, site location, available land for commercial development, and outline contract structure. Tender documents will take time to prepare to a comprehensive level to meet today’s changing aviation market along with the exacting standards for public procurement.

6.3.6 Department of Transport

The Department of Transport has a requirement to ensure the transport infrastructure is in place to support the continued development of the Irish economy. Ireland is an open economy with wide trading links. Improved air transport connections and efficient airport infrastructure will be critical in



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ensuring the country’s continued international competitiveness. To facilitate this, the Department’s Statement of Strategy for 2003 to 2005, relating to airports policy, has the objective to:

ensure that the principal gateway airports of the State are in a position to provide cost competitive and appropriate infrastructure to meet the current and prospective needs of airline and other aviation companies, consistent with a commercial mandate.

This report contributes to the Department of Transport’s requirement to examine proposals for a new independent terminal at Dublin Airport. The Panel’s view is that competition introduced by an independent terminal operator, as discussed at length in this report, is likely to stimulate a significant degree of cost competition at Dublin Airport. Moreover, the provision of significant additional terminal capacity would help to meet the aspirations of airlines at the Airport to develop new short haul services.

The Panel’s view is that Aer Rianta would respond vigorously to the new competitive environment to ensure they could effectively compete with an independent operator. This would be to the benefit of all users of Dublin Airport.

However the development of an independent terminal is an extensive process. As discussed, a site assessment study will be required as well as a wide range other pre tender activities. From the Panel’s experience, the time required from preparation of comprehensive tender documents to having facilities in operation is likely to take a number of years. As previously discussed, a temporary facility could ease the pressures on airlines and passengers in the short term. On the basis that Aer Rianta develops and manages the temporary facility, this could be brought on stream relatively quickly. If this were not possible, then a temporary facility could not be progressed until a preferred bidder was selected.

The estimated duration of four to five years from a decision to develop tender documents for an independent terminal would depend on no significant delays being experienced at any of the key stages. The Panel is unaware of any specific environmental issues that could impact on future development at the Airport.

In addition, it is the Panel’s understanding that legislative changes to two important Acts - the Air Navigation and Transport (Amendment) Act 1998 and the Aviation Regulation Act 2001- would be required to allow the development of an independent terminal at Dublin Airport.



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Estimated procurement and construction programme for an independent terminal

6.3.7 Department of Finance

The implications for the Department of Finance are complex.

Financial

The Panel recognised that loss of revenue to an independent terminal operator would lead to a short term diminution in the shareholder value of Aer Rianta.

However, there are also likely to be financial benefits for the Department of Finance. A common structure for the development of airport infrastructure is through a concession agreement. A third party would contract with the Government to develop specific facilities such as a terminal building and related infrastructure, and pay a concession fee to the Government. The fee is usually on the basis of an agreed measure such as percentage of turnover or on a per passenger basis. A recent example of this in the UK is at Luton Airport. A long term concession contract was let on the basis that the developer paid the local authority owner of the airport a concession fee for each passenger that used the airport. In the contract, the developer had specific infrastructure obligations, including the development of a new terminal building. In return, the developer was granted the rights to operate the airport and retain all aeronautical and commercial revenue streams for duration of the concession.

At the end of the concession period, or at contractual break points, the Government would have the option to renegotiate the concession or go through another tender process. Renegotiation is common where there is a requirement for further significant investment in infrastructure.

Competition would also act as an incentive for Aer Rianta to continue with their restructuring programme to become more efficient and further improve

Pre-Tender, Tender and Negotiation

Design and Planning Approval

Initial Phase Construction

Temporary Facility

Construction

Quarters1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Terminal Operational

Commissioning New Terminal

Terminal FacilityOperational




Temporary Facility

Construction

Quarters1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18






Temporary Facility

Construction

Quarters1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18



Terminal FacilityOperational



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operating performance. Aer Rianta should be able to improve medium term profitability by winning a share of the forecast growth in traffic at the Airport. Any increases in aeronautical charges would have a positive impact on performance, as would efficiencies driven by competition at the Airport.

Recent examples of increased shareholder value from improved operating performance have been seen in the UK regional airport market. A number of airports including Belfast, Bristol, and East Midlands have changed hands at significant premiums following capital investment and major financial and operational performance improvements.

The market demand for airport assets shows no signs of diminishing. The Panel does not believe that the short term negative impact on value will significantly exceed the positive aspects of potential concession revenue and further performance improvements by Aer Rianta.

Third Party Investment

A benefit to the Department of Finance would arise from private sector investment in new facilities. The 1999 Warburg Dillon Read review of strategic options for Aer Rianta highlighted the view that the financial outlook was severely strained. This view was driven by the major capital expenditure requirements, reduction in commercial revenue following the abolition of intra EU duty free sales and low aeronautical charges.

An independently funded terminal would relieve some of the pressure on capital expenditure. The 1999 report stated that some parts of the capital programme might be conducive to third party financing where such investment does not jeopardise the efficient operation of the Airport and are based on fair commercial terms.

The Panel believes that the benefits to the Department of Finance from concession revenue, third party financing of necessary capital facilities and a competitive incentive for Aer Rianta to improve performance would outweigh any short term diminution in shareholder value from competition at the Airport.

Over and above the narrower financial aspects, the Department of Finance would have a vital interest in the wider benefits from the further development of a competitive and efficient Airport as a key element in the overall economic and business infrastructure of the country.

6.3.8 Irish economy

Ireland is an extremely marketable destination. The opening up of new routes will provide an attractive window of opportunity to connect Ireland to new markets that previously were not directly accessible.

Implications for the Irish economy are difficult to prove. Much has been made of the benefits to Irish tourism from expansion of services from Dublin Airport. However, in common with the Doganis report, the Panel is not convinced that



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there will be a significant net benefit as Irish tourists are as likely to use these services to visit other countries rather than holiday at home.

The Panel believes that particularly where no significant economic benefit can be demonstrated, there is no basis for aeronautical charges to be set below economic costs on any long term basis.


An increase in additional quick turnaround aircraft based at the Airport would provide incremental jobs. However until aircraft numbers and destinations served are increased, and additional jobs created, it is difficult to quantify the incremental effect. The number of incremental jobs will depend on the nature of transfer of traffic to a new terminal, and whether the profile of this traffic is heavily outbound from, or inbound to Ireland.

In 1999 the UK’s aviation industry and Department for Transport jointly commissioned a study on the contribution of aviation to the UK economy20. This analysis was established by, amongst others, the UK Treasury as a benchmark for proving the link between aviation and economic contribution.

The study estimated that in 1998, the UK aviation industry contributed £10.2 billion of GDP, 1.4 per cent of the total. It is likely that the air transport sector in Ireland, given its size relative to the overall population of the country, accounts for a greater proportion of GDP than is the case in the UK. Indeed Aer Rianta quote a contribution of 2.1 per cent of GDP, based upon studies referred to in their consultation material on the second runway.

As part of this contribution, the aviation industry is an important employer, supporting a large number of jobs, both directly in airport related activities and indirectly in other activities. Aer Rianta estimates that the aviation industry directly supports 13,000 jobs at Dublin Airport alone. These jobs provide direct social benefits to the areas surrounding the Airport. This is particularly so if they are accessible to people in areas, and times of high unemployment.

As noted earlier, the economic effects of air transport extend beyond the direct contribution of the aviation and aerospace industries. Air transport links are vital to many businesses, whether for transporting goods, for business travel or for inbound tourism, as well as outbound tourism.

Good air transport links have the potential to contribute to national productivity and aviation is of particular importance to the financial, IT and communications

20 Source: Contribution of Aviation to the UK Economy, Oxford Economic Forecasting, 1999.



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sectors as well as to tourism, some of Ireland’s most significant economic generators. Air transport links also support foreign direct investment into and out of Ireland.

Airports are a key factor for attracting inward investment and have been found to encourage clustering of economic activities. A number of studies have found that national level improvements in transport infrastructure improves economic performance across a broad range of industries through allowing companies to serve a wider market, encouraging trade over longer distances, stimulating competition, and so on. These effects are important at regional and sub-regional levels, too, but it becomes increasingly hard to quantify as a specific area of study becomes smaller.

In particular the Irish tourism industry relies heavily on visitors arriving by air. In 2001 there were almost 6 million foreign visitors with an estimated 78 per cent arriving by air. In its Tourism and Travel Second Quarter 2002 report, the Central statistics Office (CSO) indicated that visitor numbers to Ireland fell by 0.7 per cent in the second quarter of 200221.

The pattern for Irish visitors going abroad increased by 6 per cent in the second quarter of 2002 over the 2001 level, with Continental Europe seeing the largest increase with 12 per cent growth on the previous year.

Visitor expenditure figures for the second quarter of 2002 show a net inflow of €104m. Earnings from visitors to Ireland in the quarter accounted for €1,081m while expenditure by Irish visitors abroad amounted to €977m.

The Irish tourism industry directly and indirectly employs a significant number of people. Much has been made of the increase in inbound tourism numbers that a new independent terminal at Dublin Airport would provide. The Panel’s view is that this case has not been proven. As demonstrated by the CSO data, there is already an increasing trend for outbound tourism from Ireland. From evidence of the quick turnaround market elsewhere, the success of Ireland in attracting a net increase in inbound over outbound tourist will depend on many factors, including potential destinations and marketing channels in the respective countries. For example established holiday destinations are more likely to have a higher proportion of outbound tourists from Ireland than inbound tourists to the country.

However this presents a challenge to Bord Failte to focus their marketing efforts on the catchment areas of new destinations to capture a higher proportion of inbound tourism to Ireland.

Quick turnaround carriers principally market their tickets via the Internet. If they do not have a base in a particular country, with associated marketing campaigns to raise awareness of their services, the likely passenger profile is a higher proportion of outbound tourists from Ireland than inbound.

21 Source: Central Statistics Office, Tourism and Travel Report, Second Quarter 2002, December 2002.



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The objectives of the parties at the other end of any route will be broadly similar to those of Ireland, in terms of stimulating growth in tourism as an enabler for wider economic growth. Depending on the profile of any new routes out of Dublin, the case for clear net increases in tourism numbers and revenue may be marginal. As noted earlier, the Panel is of the opinion that there is no compelling evidence to date for any beneficial treatment of a particular section of the aviation industry on the basis of an unproven wider economic argument.

6.4 Overview of impacts

The foregoing review of stakeholder implications reflects the Panel’s conclusion that the concept of an independent terminal at Dublin should be viable given a realistic charging mechanism and sustainable customer demand. By its nature and given the lack of empirical information, many of the aspects and implications of an independent terminal cannot be quantified. There are many examples around the world of airlines owning and operating terminals in a multi-terminal airport environment. The Panel acknowledges that an independent terminal at Dublin Airport is not without risks. However, with robust operational protocols in place as well as agreement on financial aspects of shared infrastructure, the Panel’s view is that the concept should be viable.

There are a number of fundamental issues that would have to be dealt with including the selection of a final site that integrates with the emerging Aer Rianta master plan, understanding the surface access costs, and achieving a realistic charges structure. The details of the likely contractual structure would have to be clearly defined in any tender documents including duration, pricing mechanism, available land etc.


CONCLUSIONS 7

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7.1 Introduction

The Department of Transport’s strategic aviation objective as stated in the terms of reference of the Panel, was to:

“ensure that the principal gateway airports of the State are in a position to provide the appropriate infrastructure to meet the current and prospective needs of airlines and other aviation companies, at the lowest cost to those users consistent with fully commercial airport operations”

The terms of reference were to consider, in the context of the above objective, whether the various “expressions of interest” received point to the likely viability of one or more concepts for an independent terminal and to outline the main features of any such concept(s).

7.2 The emerging concept

The Panel considers that the key features of an emerging concept most likely to meet the strategic aviation objective are as follows:

• A terminal designed primarily to provide capacity for short haul UK and European flights based around a fast turnaround, point to point operation.

• A terminal developed in phases, with the first phase providing a capacity of up to 10 mppa, and future phases up to an overall capacity of 20 mppa.

• A terminal providing the step change in capacity and through competition, operational efficiency necessary to enable significant expansion of services from the Airport overall.


In more detail, the components of the emerging concept would be to:

• Provide a significant increase in additional terminal and aircraft contact stand capacity at the Airport.




• Incorporate principles and basic conditions regarding financing of directly related and shared infrastructure, competitive guidelines, etc., so as to inform third party development interest in the project.



CONCLUSIONS

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7.2.1 Airline users

The envisaged concept would not be built to serve a single user. The terminal could accommodate the differentiated service levels and requirements of the wide range of airlines at Dublin Airport serving the short haul UK and European markets.

Although such a mixed operation, i.e. both low cost and traditional airlines operating from a new terminal, was not directly promoted by any of the parties expressing interest, the Panel considered that the inherent features of the proposals do not preclude a mix of operators in any new facility. Indeed it is critical to the promotion of real competition, that a new terminal should not be dedicated to one airline or a particular type of traffic.

It is more likely that current and future long haul traffic using Dublin would continue to be served by the existing terminal. The added complexities of serving long haul traffic would reduce some of the inherent benefits of the quick turnaround terminal concept.

The Panel’s view is that the attractiveness of an independent facility should not be viewed solely on the basis of lowest cost for airline operators. Dublin Airport already has competitive charges and innovative incentives for new routes compared to peer airports. Operational effectiveness and quality of customer service at a realistic cost would be major aspects of competition between terminals at the Airport. This should provide a powerful incentive for airlines to develop services from the Airport.

7.2.2 Pier D and timing

An independent terminal development would be likely to remove the need to build Pier D in the short term, but would not remove the need to replace Pier A, and potentially redevelop Pier B in the existing terminal. Relocating a significant volume of traffic from the existing terminal into the new facility would provide Aer Rianta with the spare capacity to facilitate redevelopment of their existing terminal facilities.

A key issue identified however, is the timing of providing a new independent terminal. Based on analysis undertaken by Aer Rianta’s master planning team, the existing airside facilities are already operating at or near capacity. A possible option prior to the introduction of any independent terminal is to proceed with the construction of a temporary facility until such time as a new terminal would be operational. This proposal mirrors the Aer Rianta proposal for a temporary facility in advance of Pier D.

7.2.3 Surface access and displacements

The implications of providing additional terminal capacity of up to 20 mppa on the existing landside road and airside infrastructure would be critical. Clearly the funding of additional infrastructure is a key issue and funding principles would


CONCLUSIONS

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have to be established. The funding of displacements related to a new terminal should be included in overall project costings.

7.2.4 Location

The report identifies a number of potential sites and includes a high level review of their main features. However, if the concept of an independent terminal is to be progressed, a detailed site assessment study would be necessary to ensure the selection of an optimum site that best integrated into the overall Airport operation. Much of this work has already been undertaken as part of the Aer Rianta master planning process which, when completed, will include detailed costing of the various sites identified. This should enable any site assessment of an alternative site for a new terminal to be undertaken relatively quickly.

7.2.5 Competition and regulation

The Panel concluded that an independent terminal provided by an independent operator would stimulate, through increased capacity and quality of terminal services, effective competition at Dublin Airport. Such a terminal would give airlines a choice between terminal operators, provided that sufficient capacity was available in the new terminal from day one to enable airlines to switch some or all of their services.

Competition underpinned with appropriate regulatory structures should also act as the incentive for operational and financial performance improvements as well as ensure that levels of airport charges are not out of line with the relevant economic costs of service provision.

7.2.6 Enhanced service levels

A new terminal would have to provide carriers with a facility that matches or exceeds the standards available elsewhere at Dublin Airport, both in terms of the quality of infrastructure provided, and in the ability to grow their respective businesses. As discussed, this would give Aer Rianta the opportunity to bring Piers A and B up to comparable levels of service.

7.2.7 Meets current and forecast traffic requirements

Forecasts suggest that European routes will continue to be the key driver of growth in the short to medium term. Short haul UK and European traffic accounted for 90 per cent of all traffic at Dublin Airport in 2002.

Aer Rianta’s forecast growth in quick turnaround traffic suggests that an additional 1.5 mppa could be added within the first year of a facility catering for this type of traffic. The Panel concurs with this view.

7.2.8 Financial feasibility at a competitive cost

It is unlikely that the concept of a high volume fast turnaround facility would be financially feasible unless the following criteria are achievable:


CONCLUSIONS

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Many of the organisations expressing an interest in the independent terminal concept appear convinced that the project is financially viable. Whilst few details were provided on the level of aeronautical charges required, the Panel believes that the level of charges at the Airport is likely to increase for the following reasons:

• Charges appear to be at an uneconomically low level to allow the significant investment in facilities required at the Airport.


The Panel’s view is that realistic levels of aeronautical charges are not that significant for carriers compared to the operational and service level benefits of a high capacity quick turnaround facility. The undoubted commercial revenue potential on its own would not be sufficient to develop and operate a new terminal and associated landside and airside infrastructure.

The Panel believes that while Airport charges should be realistic when compared to other peer airports, the real benefits to airline users would arise from the operational efficiencies that come from having a high capacity facility developed to meet the needs of a fast turnaround operation.

Transparent regulation of the shared activities would be critical to ensuring an equitable basis for competition. The Panel believes the required level of transparency can be achieved.

From the shareholder’s perspective, the Department of Finance would see short term diminution of shareholder value offset, to some degree, by potential receipts from an appropriate contractual relationship with the terminal developer. A medium term increase in shareholder value of an increasingly efficient and competitive Aer Rianta is also a realistic premise.

Private sector investment in new infrastructure would also reduce, to a degree, short term pressures on Aer Rianta’s capital expenditure programme.

The market demand for airport assets shows no signs of diminishing. The Panel believes that the short term negative impact on value will not significantly exceed the positive aspects of potential concession revenue and performance improvements by Aer Rianta.


CONCLUSIONS

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7.2.9 Timing and legislative issues

The development of an independent terminal is an extensive process. From the Panel’s experience, the time required from preparation of comprehensive tender documents to having facilities in operation is likely to take a number of years. A temporary facility as referred to earlier, developed and managed by Aer Rianta could ease the pressures on airlines and passengers in the short term.

The estimated duration of four to five years from a decision to develop tender documents for an independent terminal until a new facility becomes operational would depend on no significant delays being experienced at any of the key stages. The Panel is unaware of any specific environmental issues that could impact on future development at the Airport.

It is the Panel’s understanding that legislative changes to two important Acts - the Air Navigation and Transport (Amendment) Act 1998 and the Aviation Regulation Act 2001- would be required to allow the development of an independent terminal at Dublin Airport.

7.3 Specific issues to be addressed

The terms of reference required a number of specific issues to be addressed in the Panel’s assessment.

7.3.1 The Irish economy

The Irish economy is likely to see a number of impacts from an independent terminal. In the first instance, there are the benefits from the further development of a competitive and efficient Airport as a key element in the overall economic and business infrastructure of the country.

More specifically, tourism numbers have the potential to increase but the rising trend of outbound passengers from Ireland must also be recognised. The Panel agrees with the findings in the Doganis report that there is no compelling evidence that the net impact of an increase in quick turnaround services from Dublin Airport would result in a significant net tourism benefit. Thus there are no clear grounds for any beneficial treatment of a particular section of the aviation industry on the basis of an unproven wider economic argument.


A competing terminal would of course promote overall operational efficiencies at the Airport. The features of the current regulatory structure ensure that Aer Rianta management and the Regulator also share this objective.


CONCLUSIONS

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7.3.2 Effective and efficient operation of Dublin Airport

The Panel concluded that an independent terminal would stimulate, through increased capacity and quality of terminal services, effective competition at Dublin Airport. Such a terminal would give airlines a choice between terminal operators, provided that sufficient capacity was available in the new terminal from day one to enable airlines to switch some or all of their services. Such competition with appropriate regulatory structures should also ensure levels of Airport charges that reflect the economic cost of service provision.

A new terminal would allow Aer Rianta to focus on the retention of existing airline customers, either through offering charges competitive with the new terminal operator, or by offering value added “service standards” to further improve the level of service in the areas they can influence. Such standards may relate to management of customer flows, guaranteed availability of check-in desks, aircraft stand availability and serviceability of key equipment such as baggage handling.

7.3.3 Project viability

The Panel concluded that the development of an independently funded and operated terminal is both operationally and technically feasible and that there is already significant preliminary support for such a concept from Dublin Airport’s principal airline operators.

The development of an independent terminal represents an attractive opportunity for an investor to participate in a fast growing international airport. However before any commitments are made to invest in new facilities, a number of issues would require clarification for potential developers:

• The terminal may not be financially viable on the basis of the existing level of aeronautical charges at Dublin Airport. However the Panel believes, supported by the Doganis report, that increased charges, providing they are realistic, will not impact on the operational attractiveness of the facility for airlines. This is on the basis that there is sufficient demand for the potential range of new services from Dublin Airport.




CONCLUSIONS

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• The contractual structure of any agreement will be critical for an investor with areas such as duration, contract or concession structure, concession payment terms, and development obligations being important.

7.3.4 Market interest and further progression of the concept

The international experience of investors participating in airports has generally been positive with demand outstripping supply. There is a healthy market for the development of airport assets and this is confirmed by the number of organisations expressing an interest in an independent terminal at Dublin.

Whilst the initial reaction from the market to the opportunity to develop an independent terminal was encouraging, and some of the organisations expressing interest provided detailed responses, this was a non-binding process with an open basis for inviting responses. To ensure a firm basis for testing the market with prospective developers, tender documentation would need to be specific on a number of areas including facilities specification, site location, available land for commercial development, and outline contract structure. Tender documents will take time to prepare to a comprehensive level to meet today’s changing aviation market along with the exacting standards required for public procurement.

7.3.5 Implications for Aer Rianta

Aer Rianta would be profoundly impacted with the changing competitive landscape requiring them to continue with their ongoing restructuring programme. Revenues and costs would come under pressure in the short term following the loss of any business to a new terminal. However the Panel believes that Aer Rianta would vigorously react to competition for the benefit of airlines and passengers at Dublin Airport. Aer Rianta should be able to capture a share of the forecast growth and grow their business in the medium term. This would require a quantum shift in company culture to react to a new competitive environment, a shift that would only be delivered through the combined efforts of staff and management.

7.4 Conclusion

The Panel has concluded that none of the issues identified are insurmountable and that an independent terminal is a viable strategic option for the development of Dublin Airport and would elicit considerable market interest. If this concept is to be progressed to the next stage of the tender process, it will require detailed consideration in the first instance of all of the issues discussed in this report.


APPENDICES APP

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APPENDICES PAGE

1 Summary of organisations submitting expressions of interest 87

2 Summary of locations proposed for an independent terminal 89


APPENDIX 1

Summary of Organisations Submitting Expression of Interest

87

A total of thirteen organisations or consortia submitted expressions of interest in the development of a second terminal at Dublin. These submissions ranged from highly developed proposals, including terminal layout plans, phasing details and indicative costs to letters notifying the Department of Transport of interest in submitting a proposal should the decision be taken to proceed to a formal tendering process. The organisations or consortia are list below.

Ambac Assurance UK Limited

Describes itself as one of the world's largest insurance companies, providing AAA rated guarantees to facilitate financing of large transport and infrastructure projects.

Alterra Partners Ltd.

Alterra is a joint venture between Bechtel Enterprises (global engineering and construction organisation) and Singapore Changi International Airport. The company specialises in the development and operation of airports and related infrastructure.

Cityjet Ltd.

Irish based airline, closely associated with Air France.

Dublin Airport Terminal 2 Ltd.

Includes Huntstown Airpark and Omega Air in association with Gannon Properties Ltd, an Irish property development company.

Fichtner Airports GMBH; URS Ireland (Consortium)

A German engineering company specialising in airport and aviation development projects and URS Ireland, the local arm of a global engineering services firm.

HBG Ascon Ltd.; Grupo Dragados; Metropark Ltd. (Consortium)

HBG Ascon, an engineering and construction company in consortium with Dragados, a Spanish group with interests in airports in Mexico; and Metropark, a property development company that owns land near Dublin Airport. Metropark is also part of another consortium.

H.R.L. Morrison & Co. Ltd.

Morrison has a majority shareholding in Glasgow Prestwick Airport, and in Wellington International Airport. It also has a stake in Perth International Airport, Darwin and Alice Springs Airport in Australia.


APPENDIX 1

Summary of Organisations Submitting Expression of Interest

88

Hochtief Airport GMBH; Shelbourne Development Ltd. (Consortium)

German airport management company in association with Irish based Shelbourne Development Ltd. Hochtief are partners with Aer Rianta International in a number of airport investments abroad.

Irish Association of International Express Carriers

Representative body for international express cargo operators.

Laing O'Rourke; Metropark Ltd. (Consortium)

Irish development and construction consortium, with involvement in a number of airport projects overseas. Metropark is also part of another consortium.

Peel Airports Ltd.

Operators of Liverpool's John Lennon Airport, and has a 50 per cent shareholding in Sheffield City Airport.

Ryanair Ltd.

One of Europe's major air carriers.

Vinci Park Services Ireland Ltd.

Local subsidiary of French based conglomerate which specialises in design, financing, building and managing of major infrastructure projects and facilities (car parks, airports, motorways, bridges, tunnels etc.)


APPENDIX 2

Summary* of Locations Proposed for an Independent Terminal

2

89

LANDSIDE ISSUES

Landside Adjacent North Adjacent South Remote West Remote South

Surface Access Upgrade to Central Terminal Area (CTA) roads necessary – site could result in severe bottlenecks between and adjacent to existing MSCP (Multi Story Car Park).

Likely requirement to demolish existing MSCP to provide sufficient space to develop road system and forecourts.

Need to provide separate access to existing Terminal 1 and Terminal 2 (new).

Site would require detailed surface access studies to ensure overall capacity of CTA roads of circa 40 mppa over time.

Remodeling/redevelopment of CTA roads would be expensive and disruptive – particularly if MSCP has to be demolished. Reprovision of displaced car parking spaces would be an issue

Historic listing of “original” terminal buildings and gardens will be a major constraint on what can be developed as well as ease of integration with the existing terminal facilities. Visual impact of a new terminal on original terminal is a major consideration.

Upgrade to CTA roads necessary – however site much better from this respect than Adjacent North.

Access/egress to new terminal past existing terminal not necessary. However access to existing terminal will require shared road links with new terminal.

Site would require detail surface access studies to ensure overall capacity of CTA roads of circa 40 mppa over time.

Remodeling/redevelopment of CTA roads would be expensive and disruptive. May be necessary to demolish existing MSCP to provide sufficient road lanes.

Potentially excellent with purpose built road links to M50. However new link roads and junctions on existing roads require major funding.

However cost of road links to site may be less costly (and less disruptive) than a major remodelling of CTA roads.

Potentially excellent with purpose built road links to M50. However new link roads and junctions on existing roads require major funding.

Distance from site to existing motorway network less than the Remote West option – thus likely to be lower cost.

However cost of road links to site may be less costly (and less disruptive) than a major remodelling of CTA roads.


APPENDIX 2 – Summary* of Locations Proposed for an Independent Terminal

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LANDSIDE ISSUES (continued)


Car parking Access issues as above, space/ capacity adequate. However if existing MSCP has to be re-provided – where would it go and at what cost? Opportunity to integrate car parking provision with existing car parks.

Access better (than north), capacity appears to be adequate.

Opportunity to integrate car parking provision with existing car parks.

Assumed that the site is large enough to enable construction of adequate car parking capacity – potential for surface level parking only (less costly than MSCP).

As site is remote from existing car parks, little opportunity for “shared use” of car parks by both terminals – potential duplication of infrastructure.

Assumed that the site is large enough to enable construction of adequate car parking capacity – however site smaller than the Remote West site, which may necessitate multi-deck parking solution.

As the site is remote from existing car parks, little opportunity for “shared use” car parks by both terminals – potential duplication of infrastructure

Public Transport Opportunity to provide an integrated public transport interchange convenient to existing and new terminal (potentially on site of existing MSCP) as part of an overall development of CTA roads and public transport strategy. Cost sharing mechanisms required.

As with Adjacent North option Option as proposed will split passengers between two sites resulting in a potential lack of “critical mass” to sustain a centralised public transport interchange.

In addition the site may result in issues with integration into the public transport network – both current and future and a potential duplication of services/costs etc.

Option as proposed will split passengers between two sites resulting in a potential lack of “critical mass” to sustain a centralised public transport interchange.

In addition the site may result in issues with integration into the public transport network – both current and future and a potential duplication of services/costs etc.



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LANDSIDE ISSUES (continued)


Expansion Potential

Site may not be able to accommodate circa 20 mppa (long term projection) unless surface access constraints described above are dealt with, and significant adjacent infrastructure relocated. The listed “original” terminal buildings will be a consideration.

Layout proposed in expressions of interest not optimum for phased development. However with modification to the layout and orientation of the terminal, the site offers potential for phased development up to 20mppa.

Site offers potential to enable expansion up to and beyond 20 mppa.

Site more limited than Remote West and may not offer sufficient landside development opportunities in the medium term.

Displacements Aer Lingus Tech building and small hanger need to be relocated in Phase 1, significant hangar displacements in Phase 2.

Cargo and a number of other relocations required. Opportunity to relocate many of the activities to the Metropark site to the south of the current site.

No significant displacements identified. No significant displacements identified.

Integration/ Transfers

Long walking distances between new terminal and existing (as well as within building) would offer poor customer service.

Restrictions on listed terminal may result in high cost walkway option (similar to Pier D access concept)

Scheme proposed is workable for transfer flows.

Alternative options could provide for better integration between existing and proposed terminal, enabling easy walking access between the two.

Split operations – less integration to enable passengers to transfer easily between terminals. Shuttle bus services would be necessary, with potential increased minimum connect times and costs associated with bus/coach transfer operations.

Split operations – less integration to enable passengers to transfer easily between terminals. Shuttle bus services would be necessary, with potential increased minimum connect times and costs associated with bus/coach transfer operations.



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AIRSIDE ISSUES

Airside Adjacent North Adjacent South Remote West Remote South

Aprons Good location offers opportunity for efficient integration with existing aprons.

Location as proposed is constrained on the airside due to restrictions on areas adjacent to runways and Public safety Zones (PSZ). Cargo apron would have to be relocated – unlikely that the site as proposed could provide sufficient space to enable the required number of aircraft stands as illustrated.

However a re-alignment of the landside/airside boundary (to create more space airside) may overcome many of these problems. Under these circumstances the location has the potential to provide an integrated airside solution.

Good location - but aprons might need to expand towards the crosswind runway (Runway 16) and may necessitate its closure in the medium to long term.

Submission suggests sufficient space for required apron areas.

Runways There is a mismatch between existing runway capacity and proposed terminal capacity. Current runway estimated to have existing capacity of circa 42 movements per hour - lack of peak hour slots.

Option proposed to extend existing short northern runway – could provide a short term solution, but would existing pavement be in adequate condition/strength to enable extension? Separation from new terminal aprons results in constrained taxiway and runway holds layout – not ideal for maximizing capacity. How much, who pays, how long and when?

Extension to existing short northern runway as an interim solution?

There is a mismatch between existing runway capacity and proposed terminal capacity. Current runway estimated to have existing capacity of circa 42 movements per hour - lack of peak hour slots.

Additional runway capacity likely to be provided on the northern edge of the airport site – thus this site “concentrates” airside flows in the south east part of airfield.

This could result in airfield congestion for aircraft accessing the existing southern runway Hold. To reach a new northern runway would potentially require a long taxi time – this reduces overall efficiency and ability to schedule quick turnarounds.

Optimum location for terminal in relation to runways - between runways and at their mid-point.

Possible need to close crosswind runway at some point in the future due to potential crossing conflicts.

Site necessitates aircraft to cross the existing southern runway if taxiing to new northern runway capacity, or to stands in the CTA.

This would reduce runway capacity on the existing runway, as air traffic control (ATC) would have to create gaps in traffic for runway crossings.



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AIRSIDE ISSUES (continued)

Airside Adjacent North Adjacent South Remote West Remote South

Runways (cont)

Alternative (and preferred Aer Rianta option) to build new parallel northern runway. This is currently out for consultation and would be subject to a planning application.

Significant increases in passenger numbers will accelerate runway capacity investment.

New northern parallel runway provides greater separation from the proposed new terminal site – opportunity for more runway holds/taxiway infrastructure

Potential restrictions on areas adjacent to the main runway as illustrated in the option submitted – these likely to be overcome by realignment of this option.

Likely requirement to improve sight lines for ATC tower.

Likely requirement to improve sight lines for ATC tower.

Taxiways Parallel taxiing may not be possible due to convergence issues with short northern runway.

Short taxiing distance to either runway option for departures.

As submitted, potential for concentration of airside operations in south east of airfield with poor taxiway flows, potential for conflicting flows at Runway 28L hold, layout sub optimal and restricts future options.

With detailed planning of airside taxiways and re-orientation of airside/landside boundary these issues could be overcome

Upgrade to taxiway required as well as holds for the existing southern runway.

Site requires provision of a new parallel taxiway to the south of the existing runway. This would not be necessary for other site options.

* Based on the existing location for the main terminal building.

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Documents

DUBLIN AIRPORT – REVIEW OF EXPRESSIONS OF ... AIRPORT – REVIEW OF EXPRESSIONS OF INTEREST FOR AN INDEPENDENT TERMINAL CONTENTS 2 SECTION PAGE 1 Executive Summary 3 2 Background