DAA a victim of its own success?

Following the more or less inevitable few weeks of controversy John Spicer, the aviation commissioner, finally decided on what the Dublin Airport Authority (DAA) can charge for passengers over the next five years.

This week he ruled that, starting next year until 2019, the cap on the airport’s passenger charges must fall by 4.2 per cent a year from its current rate of €10.68.

In 2015, the maximum the DAA will be able to charge will be €10.30, in 2016 it will be €9.87, and so on until it falls to €8.68 in 2019.

The 18.7 per cent reduction is less than the 22 per cent originally proposed by the Commission for Aviation Regulation (CAR) in May, but it is still a reduction.

Three factors are at the ruling’s heart. The first was that past experience shows the DAA has been comfortably able to beat previous targets for operating costs. Mr Spicer says this alone merits a reduction of €1.25 in the cap. The second is that the cost of raising capital has fallen since 2009, which is worth a further cut of €1. The third is that passenger numbers are growing, which means more people to share the airport’s cost burden and more scope for economies of scale, which is worth another €1.

He has offset those cuts against a need to provide the airport with €340 million for capital spending over the next five years, and to pay for past investments, specifically Terminal Two. Along with that, there is a further allowance to build a new runway, should the need arise.

In some ways, the ruling could be seen as being complimentary of the State-owned airport company.

In effect, what Mr Spicer is saying is that, thanks to savings and efficiencies the company itself introduced, it has easily beaten cost targets and can be expected to do so again. At the same time, it has a growing business that will make it easier to cover those costs.

The DAA’s view is that the cuts it is being asked to make in passenger charges are not sustainable. Perhaps it is a victim of its own success?