Comment: It was reported in December 2004 that the Minister for Transport, Mr Cullen, is expected to bring to Cabinet early in 2005 a proposal to approve the construction of a second terminal at Dublin Airport.

Any headway in relation to the second terminal is to be welcomed. No tangible progress has been made on the issue - at least in public - since the Department of Transport reviewed proposals in February 2003 from a number of parties that showed varying degrees of interest in building the terminal.

During 2004, the Government assigned higher priority to the separation of the management and ownership of Aer Rianta's three airports, as enacted in the State Airports Act, 2004. That statute did not refer to the issue of a second Dublin terminal.

The "debate" on the need for a new terminal has been driven in recent times by an increasingly vociferous Ryanair. The company ensures that an appeal for the construction of a new terminal finds its way regularly into the public domain - the latest depicted the Taoiseach proclaiming his love for IKEA from the prow of a Viking longboat.

Any delay on the part of the Government in authorising the construction of a second terminal at Dublin Airport may be attributed to the fact that, insofar as the new building will "compete" with the existing facility, the proposal is far more radical than it sounds.

The mode of competition that seems to have been assumed by commentators is the open-access model, in which there is no direct airline involvement in the operation of the two competing terminals, and each terminal is expected to bid against its rival for airline business.

Working examples of such an arrangement are extremely rare, and this may explain the reluctance of the Department of Transport to subject Ireland's main passenger gateway to what may be a risky economic experiment.

The well-resourced UK Civil Aviation Authority sought public views on the issue in 2001, but has not subsequently imposed terminal competition upon any of the airports under its jurisdiction.

Open-access terminal competition is based on the premise that a market price for terminal access will emerge from the interplay between competition between terminals for airline business - which will depress terminal access prices - and competition between airlines for scarce terminal space, which would tend to increase prices. To this extent, the model represents an intuitively appealing application of market forces and competitive discipline to the pricing of terminal services.

However, let's assume that the Dublin Airport Authority (DAA) is left to run its existing terminal.

A problem remains in that any aircraft using the new terminal would still need to gain access to and egress from the airport using the runway that would still be supplied, on a monopoly basis, by the DAA.

In the market for terminal services, the DAA would enjoy a privileged position vis-a-vis its independent competitor because it would, in theory, be able to make extremely low bids to supply terminal services and subsidise the resulting losses with the inflated proceeds from its monopoly runway business.

The operator of the new terminal would be likely to seek regulatory intervention to mitigate this type of behaviour, which would otherwise undermine the viability of the new facility. This intervention would be costly: the capping of runway prices at levels reflecting running costs would require a bundle of measures including regulation and review - and the legal, functional or accounting separation of DAA's runway business from its other activities.

Ryanair may be surprised to find that the introduction of terminal competition merely prolongs its tense relationship with the Commission for Aviation Regulation, the body that is currently responsible for the regulation of DAA pricing. This is but one of many issues that would need to be resolved as part of the design of a robust, open-access model of terminal competition.

For example, a mechanism for the future construction of further terminal capacity will need to be agreed "upfront" with the operator of the competing terminal, given that this party might otherwise prefer to profit from future shortages in terminal space in the event that demand to travel through Dublin Airport continues to increase.

Ryanair's rhetoric surrounding the construction of the new terminal makes a simplistic equation between terminal competition and increased consumer welfare, presumably through lower airport charges and an expanded range of destinations.

While Ryanair is to be commended for responding vigorously and successfully to aviation deregulation with a cost-sensitive business model based on aggressive price competition, lessons learnt from competition in the provision of air services cannot be applied directly to the design and management of terminal infrastructure due to the complex interactions with other airport operations that have to be taken into account.

Although "terminal competition" is a compelling slogan, its implementation is likely to present more problems than its supporters anticipate. It may be that conventional methods of structuring a new terminal building programme will better serve Dublin Airport and its customers in the long run.

Peter McLay is a PhD student in the department of economics at UCD.