Does Aer Lingus really wish to ‘own’ Dublin Airport’s Terminal 2?

Relations have deteriorated during the last year or so between Ireland’s national carrier Aer Lingus and the daa (Dublin Airport Authority) which owns and operates the country’s international gateway airport (Dublin) as well as Cork Airport.

Aer Lingus is the second largest carrier at Dublin in terms of seat capacity, marginally behind Ryanair. Between the two of them they have almost three quarters of all the seats and Aer Lingus will add eight new aircraft (seven A320s and one A330) to its base by 2020, at a cost of USD1 billion.

CHART – Ryanair and Aer Lingus dominate capacity at Dublin Airport as per schedules for week commencing 09-Oct-2017Source: CAPA – Centre for Aviation and OAG

The problem is capacity. Aer Lingus, which has benefitted from its absorption into International Airlines Group (IAG), aspires to be a significant North Atlantic carrier, operating to both primary and secondary airports in North America, and needs Dublin, accordingly, to be a major gateway airport. Further delays to the completion of an additional runway in London would add to its appeal to IAG but not while it is constrained as it is now.

While a second terminal was added in 2010, complete with a U.S. immigration pre-clearance station, dramatic passenger traffic growth in the last three years in particular has caused incidents of congestion, although growth has tailed off in 2017 to date and is running at a little over a half of the 2016 rate, slipping behind the growth rate at Cork, where the long haul low cost carrier Norwegian has increased capacity markedly.

CHART – The rate of traffic growth from Dublin Airport peaked in 2015 when passenger numbers rose 15.4%, slowing to a still generous 11.4% in 2016 and 6.2% for the first eight months of 2017Source: CAPA – Centre for Aviation and Dublin Airport reports

To put it simply, infrastructural growth is coming far too slowly now at Dublin for Aer Lingus’ liking. Chief Operating Officer Mike Rutter said recently, “I think it would be fair to say relationships with Dublin Airport have soured immensely over the last 12 months… it became apparent that the ambition that we have and (the government) has to prosecute an agenda of growth at Dublin has not been matched”. He previously intoned, “T2 is now full; the airport is now incredibly congested and constrained”. IAG’s Willie Walsh has said pretty much the same thing, complaining of “infrastructural bottlenecks”.

This is something of an about-turn. At the time of the last Commission for Aviation Regulation review of capacity at Dublin Airport, covering a five-year cycle from 2015 to 2019, Aer Lingus actually said that no investment was needed. The takeover by IAG and the focus on building Dublin’s reputation as a transatlantic hub put paid to that philosophy.

But as Mr Rutter has also pointed out since, Dublin really needs a new runway as well. The existing one operates at 87% of capacity between 0500 and 2400. The single runway is Ryanair’s main concern, as it is more concerned with movements and terminal comfort has never been its priority over fast turnarounds. Ultimately, it is a case of chicken and egg.

IMAGE – The site of the proposed new EUR320 million runway that has government consent but is being opposed in three legal challenges right now, mainly brought by local residents

Complicating the deliberations is the need for a fully functioning airport to try to take advantage of any decision by UK-based companies to move their operations to Ireland in the wake of the UK leaving the European Union in 2019. The largest opposition political party, Fianna Fáil, frequently makes this point.

Sometimes it appears as if passenger growth at Dublin came so quickly following the recession that it overtook the planning procedure and that the airport is now struggling to catch up. It is not alone in that; a similar situation occurs in Iceland at Keflavik Airport.

CHART – T1 remains the larger of the two terminals at Dublin ,as measured by seat capacity for the week commencing 09-Oct-2017, but can be hopelessly overcrowdedSource: CAPA – Centre for Aviation and OAG

In a new development, Aer Lingus has indicated its intention to “control” T2, its operational base at DUB, though just what “control” means is vague.

Mr Rutter has already said that part of a solution would be for Aer Lingus to have its own terminal and in response in 2016 the Department of Transport published a request for tenders to conduct a report entitled, ‘A review of future capacity needs at Ireland’s state airports’ with particular reference to the funding and operation of a Terminal 3 by the existing airport operator in comparison to it being operated on an independent basis.

A more likely outcome is that T2 be put up for sale, and in that case Mr Rutter has stated that Aer Lingus would “like to prosecute owning, in the sense of being the anchor tenant, or owning Terminal 2 and being the key player in that marketplace, as opposed to what happens today: every time a new player comes in, Aer Lingus gets squeezed”. If it actually acquired T2 it would be developed as the airport’s hub facility, leaving Ryanair to do its own thing (which now includes selective passenger self-connection, which doesn’t operate at Dublin) in T1.

Of course there is nothing new about this. Those with long memories will recall that at the back end of the previous decade Ryanair was consistently claiming it should be running airport terminals where it has large bases such as Dublin and London Stansted. It was particularly keen on Dublin’s T2, which was often dubbed a ‘Taj Mahal’ whilst under construction, a popular phrase at the time.

But time moves on. While Ryanair has made little progress in its modus operandi other than adding a few more primary airports as bases and a protracted agreement on connecting flights (not with Norwegian, the one it coveted), Aer Lingus has done so with its much enhanced North American offer.

As that offer is more representative of the future for Dublin Airport than point-to-point low cost operations, the likelihood of Aer Lingus moving to secure that future by acquiring T2 looks increasingly to be on the cards.