IDEAS PAPER ON THE FUTURE OF SHANNON AIRPORT - PREPARED BY PROFESSOR JIM DEEGAN, UNIVERSITY OF LIMERICK
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IDEAS PAPER ON THE FUTURE OF SHANNON AIRPORT PREPARED BY PROFESSOR JIM DEEGAN, UNIVERSITY OF LIMERICK on behalf of The Shannon Airport Marketing Consultative Committee MAY 2014
Background
The Shannon Airport Marketing Consultative Committee was established by the Government in 1995
and met for the first time in January 1996. It was set up to act as a forum in which all aspects of
Shannon Airport's development and promotion could be discussed and analysed, thereby enabling a
broad range of sectors in the Mid-West and West Regions to have a voice in the overall thrust of Airport
initiatives and a role in reviewing their outcome.
It is the objective of the Shannon Airport Marketing Consultative Committee to ensure that all key
interests in the Western Regions, together with Government, should work in a positive and very
determined manner to ensure Shannon Airport becomes a bigger part of the answer to more balanced
economic development.
The Mid-West Regional Authority provides the Secretariat to the Shannon Airport Marketing
Consultative Committee. This Committee is very important for the Mid West Region as it supervises the
marketing of Shannon Airport but more importantly looks at the contributing factors to a successful
airport such as transport, tourism product, industry etc. and as such makes a valuable contribution to
the preparation of the various tourism, industrial and transportation policies in the Mid-West Region
and the West of Ireland generally.
The Shannon Airport Marketing Consultative Committee commissioned Professor Jim Deegan1, Head of
Department of Economics and Director of the National Centre for Tourism Policy Studies at the
University of Limerick, to prepare a briefing paper which would build on past experiences at Shannon
International Airport and provide guidance for future initiatives. The Ideas Report is based on growing
Shannon Airport into a sustainable transport hub for the Mid West region/West of Ireland while
simultaneously determining the Airport’s role in the region’s innovation system. The Ideas Paper
identifies the actions that are required by the public sector if the airport is to prosper and addresses
innovations by the newly established Shannon Airport Authority and other relevant stakeholders that
can contribute to a better performance for the Airport and region.
Members of Shannon Airport Marketing Consultative Committee:
Mr Frank Prendergast, Chairman
Mr Anthony Coleman (Secretary), Mid-West Regional Authority
Prof. Jim Deegan, University of Limerick
Mr. Patrick O’ Sullivan, Limerick Chamber of Commerce
Cllr. Tony McMahon, Shannon Town Council
Mr. Tony Carroll, SIPTU
Cllr. Peter Considine, Ennis Town Council
Ms. Mary Gleeson, Irish Hotels Federation
Mr. Gearoid Mannion, Irish Travel Agents Association
1
The author would like to express sincere gratitude to Declan Power of Shannon Airport who provided data and
insightful comment and also to the members of SAMCC for incisive and very useful comment on the original
draft, particularly Mr. Liam Conneally.
*The work on this document was completed in November 2013 and minor amendments were made in March
and May 2014. The author would like to acknowledge that the new management of the Airport has reduced car
parking charges in 2014, in line with a recommendation made in the report.
The usual disclaimer applies to content and the responsibility of the author.
1Preamble
In 2007, Shannon airport catered for more international terminal passengers (not counting transit
passengers) than any other time in its illustrious history. In that year a little over three million
passengers either embarked or disembarked at Shannon but in the subsequent years to 2012 the
passenger numbers plummeted every year and by 2012 had declined to 1.26 million. Importantly, the
more recent performance of the airport (growth every month since June 2013) and the recent
announcement by Ryanair of its decision to add 8 new routes from April of 2014 suggests that the
decline may now have been arrested. Moreover, the recent upturn in performance and the Ryanair
agreement suggest that the new institutional and management arrangements are beginning to provide
some dividends. Nonetheless, while welcome, it would be premature to see recent developments as
indicating that some short term initiatives will bring the airport back to the passenger numbers of 2007.
The future performance of the airport will be determined by domestic and international economic
conditions and by the ability of the new management team to react and to be innovative in the attempt
to compete for mobile business. At the time of writing, the Irish economy is stabilising after the ravages
of the international economic crisis yet it is clear the path to recovery will be very challenging.
This paper seeks to shed light on developments at Shannon by taking account of on-going structural
issues that have been important determinants of the airport’s performance. As such, the paper argues
that significant structural factors have and will continue to alter the trading environment for the airport.
From its inception as an airport in the 1940s, the various and successive management teams guiding the
airport’s development exhibited tremendous resilience and innovation. Through the development of
duty free shopping, Shannon Mail Order, the ingenious deal on fuel with the Russians in the 1980s and
the development at Shannon of what was to become AerRianta International, the management
demonstrated an unbounded capacity to respond to issues that threatened the future of the airport. All
of the foregoing initiatives and the additional development of tourism related attractions and an
industrial development infrastructure significantly enhanced the region as a location for industrial
development and tourism/leisure visitation. These initiatives ensured that the airport was a vital
element of the “innovation ecosystem” and was a significant contributor to regional development.
Innovative responses to challenges seem to have been far more muted in recent years and often the
argument was/is made that Shannon airport’s development was being stifled because of the
commercial imperatives of the parent company at the Dublin Airport Authority. In particular, it has been
argued that the State Airports Act 2004 immediately dis-incentivised any investment or innovation for
Shannon on the basis that the parent company would not get a return. Additionally, it must be
acknowledged that organisational growth over the years may have induced the same impediments that
affect all large organisations, public and private. Only history will tell us whether this is correct but
Shannon is now free again to pursue its own destiny and while an impediment (imagined or not) has
been removed it is clear that many other challenges present themselves to the new airport
management today. Not unlike the many challenges of the past it will be the ability to respond
innovatively that will determine future success. Being informed of how the airport got to where it is
today can inform the future. We can learn from the great successes of the past and also from some
failures to inform the future. This brief paper aims to provide some guidance for future initiatives at the
airport. It is informed by a vast array of data and reports but for the purposes of brevity the main issues
are summarised in point format and this is supplemented by appendices. Part one outlines
developments from the 1940s to 2004( emphasis on data for the period 1994 to 2004); part two details
the period of extraordinary growth from 2004 to 2007;part three outlines the spectacular decline in
2passenger traffic at the airport from 2007 to 2012. This is followed by a focus on the actions required by
the public sector if the airport is to prosper and the paper concludes with a focus on innovations by the
airport authority and various stakeholders that can contribute to a better performance for the airport
and the region.
3EXECUTIVE SUMMARY
SUMMARY 1944 TO 2004
From its earliest days Shannon Airport was unusual in that it had the advantage of a
geographic location that conferred a trading advantage in international aviation.
Essentially, the limits of aviation technology in the early 1950s dictated that planes
crossing the Atlantic had no choice but to stop at Shannon Airport to refuel.
The natural geographic advantage was reinforced by an earlier international aviation
agreement (1931 Ottawa Agreement) that dictated planes crossing the Atlantic
would have to take a “mandatory” stop at Shannon.
Faced with numerous, various and significant challenges from the 1950s to the early
1980s, the management at Shannon displayed a consistent ability to find
imaginative, innovative and commercial responses. So, while Shannon was originally
advantaged and enabled by its location to have transatlantic traffic (which is unusual
in international terms because of the low population base in the hinterland of the
airport) it was/is a significant achievement (not too often recognised) to maintain a
significant throughput of US traffic, an achievement not always recognised.
From 1994 to 2004 the traffic at the airport increased significantly. What is
important to note is the significant movement in the structure of the airport traffic,
with outgoing rather than incoming passengers being predominant from the late
1990s. This was driven primarily by the growth of disposable incomes in Ireland that
stimulated significant growth in outbound tourism. Additionally, the transfer in 1996
of airport marketing from Shannon Development to Aer Rianta led to a diminished
interest and focus on “inbound passengers” with, as a result, the direct and
longstanding link between the performance of the airport and regional development
being broken.
The increasing importance of Low Cost Carriers (LCCs) in international aviation in the
1990s significantly impacted on the profitability and viability of “Charter Airline”
companies. The confluence of declining inbound charter traffic and the increased
outbound demand associated with disposable income growth in Ireland reinforced
the structural move at the airport from inbound to outbound traffic.
4SUMMARY 2004 TO 2007
The State Airports Act 2004 led to a new airport authority for Shannon. This new airport
authority embarked on a new strategy which saw Ryanair establish its 12th European base at
Shannon in May of 2005. The airline promised to bring an additional 2 million passengers by
year 5.
From 2004 to 2007 international terminal passengers increased from 1.8million to 3.06
million. When transit passengers are included the total number of passengers using the
airport was 3.62 million in 2007 (see tables 1 and 2). The arrival of Ryanair thus seemed like
an inspired move as passengers on UK routes increased from 697,000 in 2004 to 1.1m in
2005 and in 2006 the number reached 1.29 million before falling back a little to 1.25 million
in 2007 (See tables 1 &2). Similarly, the European routes exhibited an equally stellar
performance with passenger numbers increasing from 442,000 in 2004 to peak at 1.06m in
2007. Meanwhile, on the transatlantic routes the passenger numbers increased from
693,000 in 2004 to 746,000 in 2007.
The initial European routes launched by Ryanair followed the traditional charter routes (that
were now in decline) but the marketing behind the routes was very poor. The poor
marketing support for the routes was somewhat attributable to the view of the new airport
board that “inbound tourism” marketing was the responsibility of other State agencies,
namely Tourism Ireland and Shannon Development. Unfortunately, Shannon Development
no longer had the resources for such activity and Tourism Ireland was very slow to move in
to the space vacated by the regional agency. Consequently, load factors on the routes were
poor and Ryanair had the perfect rationale to pull the routes in favour of outbound routes
demanded by and dominated by Irish citizens.
While all seemed good at the airport, the stellar performance disguised a most significant
transformation in passenger composition. In a relatively short period of time, Shannon
airport had been transformed from a “receiving” (export driven) airport to a “sending”
(import driven) airport. The changing nature of passenger composition at Shannon airport
should have sent shock waves through the tourism suppliers in the region but two
countervailing forces were at play that again ameliorated what should have been a serious
response. Firstly, a stable proportion of increased international tourism arrivals to Dublin (up
to 2007 when Irish tourism numbers peaked) were visiting the Shannon region and probably
more important was the surge in domestic tourism to the region occasioned by the growth
of such activity across Ireland during the boom years. So, all in all, structural issues that
should have signalled major alarm bells were ignored because of a general reluctance to
consider that the economic boom would end at some point. Unfortunately, the international
financial crisis, fiscal retrenchment by the Irish Government (significant declines in personal
disposable incomes in Ireland) and related developments would soon bring some very
unfortunate consequences for Shannon Airport and the Region.
5Summary 2007 to 2012
THE PERFECT STORM HITS SHANNON AIRPORT
The international economic and financial crisis that has beset Ireland since 2007 has
had a dramatic impact on the performance of Shannon airport. Terminal passenger
numbers declined from 3.066 million in 2007 to 1.26 million in 2012;
During the period UK traffic as a proportion of all traffic has increased from 35% to
53%; European traffic has declined from 29% to 17% and transatlantic traffic has
remained constant at 21%.
From 2005 to 2009 Ryanair routes accounted for an ever increasing proportion of
the passengers at Shannon Airport. Ryanair carried 1.048m passengers in 2005
before peaking at 1.84m in 2008. The Ryanair proportion of terminal traffic
increased from 41% in 2005 to 68% in 2008 and fell slightly to 67% in 2009.
Ryanair passenger numbers collapsed by 1 million from 2009 to 2010 and the share
fell to 32% in 2011 before recovering to register 37% in 2012.
During the period Ryanair routes were increasingly focused on passengers
originating in Ireland and this strategy became unstuck as the Irish economic crisis
unfolded and deepened. An obvious collapse occurred in relation to Irish residents
travelling abroad and this was reinforced by the permanent return of emigrants to
their home countries thus reducing load factors on many routes which led to the
cancellation of services (detail is in table 4)
Although the full introduction of “Open Skies” did not happen until March 2008 the
migration of airlines and the associated services infrastructure to Dublin began a
year earlier. In tandem with the deepening economic crisis across the world the
effects of these changes were devastating for Shannon airport. Transatlantic
passenger numbers dropped from 746,000 in 2007 to 287,000 in 2012. It is
important to note that the comparable number on the transatlantic route in 1994
was 432,000 passengers. Moreover, from a tourism perspective a far greater share
of the airport passengers originated in North America prior to the Celtic Tiger years.
The 14 month withdrawal of Aer Lingus from the Shannon/Heathrow route
beginning in January 2008 was a further body blow to the airport. Not only did this
affect Irish tourists and business but it also affected the 26,000 estimated
“backtracking” North Americans who came to the region via this route. Although re-
introduced in March 09 the frequency and passenger numbers are still below the
2007 figure of 330,000 (estimated to be 270,000 in 2013).
Throughout the period 2007-2012 the structural shift to reliance on “Irish
originating” passengers is manifest. On European routes it was 50% in 2005 but in
2011 was greater than 80%. On UK routes the average is about 55% Irish but the
tourism component is significantly tilted to VFRs whose spending is far less than
“pure tourists”. The transatlantic flights still remain the greatest force for “inbound
tourism” as about 60% of the passengers do not originate in Ireland.
Throughout the period it is clear that the institutional arrangements to support
routes and flights were sub-optimal. This may partly be attributable to the winding
down of Shannon Development and the slow response of Tourism Ireland in filling
the void but there was also poor co-ordination of effort among regional
“stakeholders”.
6SUMMARY
A NEW BEGINNING FOR SHANNON AIRPORT
THE ROLE OF THE PUBLIC SECTOR
Central and local Government must now provide a stable macroeconomic context that
engenders competiveness and allows business to thrive.
Recent budgetary announcements of plans to abolish the travel tax and maintain the 9%
VAT rate are welcomed and should be secured for a given period of time to provide
confidence to industry.
Ireland, for a small country has far too many airports. Regional airports receive significant
subsidies from the public purse that may actually exacerbate inefficiencies. In addition to
Public Service Obligation (PSO) contracts, the regional airports currently receive Capex and
Opex subsidies that confers an unfair advantage on them relative to Shannon, Cork and
Dublin airports. Against the backdrop of a vastly improved road network across most of
Ireland the argument for the retention for most of these subventions is weak on efficiency
grounds. A serious evaluation of these issues and bringing equity to Capex provision across
all airports is long overdue.
Shannon in 2009 was the first airport outside of the Americas to gain permission for
Customs and Border Preclearance (CBP). This allows Shannon to become a European
Gateway to the US. This significant breakthrough has been arrested due to various
constraints. The potential is enormous and the Irish Government must support the removal
of any barriers and the provision of necessary legislative and administrative supports if the
CBP potential is to be realised.
In Ireland, where all the economic evidence/indicators point to a major imbalance between
Dublin and the rest of the country it seems only sensible that a focus of regional
development could efficiently come through aviation policy. In this context, the new
Shannon entity should be prioritised for the award of 5th Freedom Rights.
As an island destination, “connectivity” by air is vitally important to Ireland. Notwithstanding
the international trend in aviation for airlines to “consolidate” it seems vitally important for
Ireland that competition on aviation services be retained. In this context any sale of Aer
Lingus to Ryanair or any other bidder must be informed by how this decision would affect
“connectivity” and competition in Ireland. Importantly, the protection of the “Heathrow
slots” to Ireland and Shannon must be a key consideration.
The separation of Shannon Airport from the DAA has opened up competition in Irish airports
and in normal circumstances airport services could be priced by the market. Dublin however
has a dominant position in the Irish market with more than 80% of all passenger traffic in
recent years. In order to avoid any abuse of dominance it is appropriate that price regulation
at Dublin be vigilant.
The completion of the Gort/Tuam road is important for connectivity on the West Coast of
Ireland and should be “fast-tracked” for completion”.
The Shannon Business Task Force Report identified the development of various cargo
services as a big opportunity for Shannon airport. In this respect it is important that the Irish
Government supports Shannon in obtaining US cargo and FDA preclearance.
The recommendations of the “Shannon Aviation Business Development Task Force” for the
development of an “International Aviation Services Centre” and other related activities are
meritorious and deserve Government support.
7SUMMARY
A NEW BEGINNING FOR SHANNON AIRPORT: THE ISSUES FOR STAKEHOLDERS
Irish economic activity is increasingly biased towards Dublin and as a result significant
imbalances in economic performance are being recorded across the country. Shannon
airport has been a beacon for regional development and innovation before and needs to be
so again if the region is to prosper.
As the structural crisis in Ireland unfolded over the period prior to and after 2007 the
response from all the “stakeholders” in the region was poor. It transpired that often there
were too many varied lobby groups and the region lacked one coherent and forceful voice.
There is an urgent need to establish one coherent and trusted “stakeholders group” to
represent and drive the best interests of Shannon Airport and the community it serves in the
region.
The “Ecosystem” for Innovation is weak in the region and “capacity building” for innovation
is required.
Shannon Airport must gain a national and international reputation as being best for all facets
of innovation and customer service in the aviation sector.
If Shannon airport is to prosper the “catchment area” in Ireland must be as large as possible
and secondly the “international catchment” must be increased to reduce the dependence on
the “home market”. The improvements to the national road infrastructure present an
opportunity to increase the critical mass of potential customers;
Innovative funding mechanisms for route development need to be explored and developed
by all stakeholders.
Airport route supports must be weighted to those routes that bring additional visitors into
the region rather than bringing travellers out of the region and should not act to displace
existing routes;
Shannon can become an attractive airport for a variety of new international customers and
this will necessitate additional and innovative services at the airport. Shannon has the
advantage over other airports of having available space at low opportunity costs to develop
innovative products and services.
Shannon Airport must be designated as the Atlantic Way Airport.
8SUMMARY
SHANNON AIRPORT
ACTION POINTS
Develop a tourism/aviation Innovation Centre to support the development of the IASC, the
airport and all businesses in the region. Such a centre would provide expertise from all
University/Institute disciplines that could enhance the innovation capacity of new and
emerging firms. Such a centre would be capable of attracting significant EU funding.
The single voice of the Shannon Stakeholders Group recommended in this report should
work closely with the airport management to drive new initiatives and ensure that new
flights are supported by appropriate and adequately resourced marketing interventions. A
suitable and resourced structure should be put in place to facilitate this close engagement.
5th Freedom Rights and CBP should be actively negotiated as a central element of any
strategy for the airport.
Shannon Airport should be designated as the Atlantic Way Airport.
Shannon needs to provide a very competitive environment to attract airlines and every
effort must be made to ensure fuel and all other costs of doing business at Shannon are the
best available;
Shannon airport should again develop a world class reputation for all facets of the customer
experience. A Customer Service Development Strategy should be devised based on the new
focus on service and product development at Asian airports.
As a first step Shannon airport should introduce programmes that focus on friendliness for
all visitors and explore the introduction of innovative products such as pop up shops and
restaurants and pet drop off for departing passengers.
Chinese tourists are now the number one outbound market in the world. Shannon should
have a target to make the airport the “most welcoming in the world” for Chinese passengers
as part of its customer service strategy.
Parking charges at Shannon are uncompetitive and should be reduced significantly.
Recent changes which have increased parking restrictions and raised charges for those
dropping off passengers should be reversed.
The airport management should work closely with public and private transport providers to
ensure that public transport options for arriving and departing passengers are substantially
improved.
Shannon should capitalise on its rich history by developing a major attraction based on the
Disney model and relating to the history of international travel. A first step in this
programme should involve the development of a unique in house interactive visitor
attraction on the history of transatlantic aviation.
91. Understanding Past Performance at Shannon Airport: 1940s to 2004
Understanding the current situation at Shannon Airport requires an appreciation of why an airport with
such a small catchment population performed so well for many years from the late 1940s to 2004 and
why this performance boomed for a short few years to 2007 and then declined spectacularly thereafter
to 2012. The main issues and developments are outlined below:
International aviation agreements signed in the 1930s (particularly the 1931 Ottawa
Agreement) and subsequent variations thereof (until 2007) mandated that Shannon would be a
compulsory stopover point for planes crossing the Atlantic. Initially, this requirement was not at
variance with the actual technological necessity at the time as until the late 1950s most
transatlantic airliners required at least one refuelling stop of which Shannon and Gander
(Newfoundland) became the best established. During the early years of the 1950s, the
management at Shannon Airport developed the world’s first duty free shop to capitalise on the
potential expenditure opportunities provided by transit passengers. Additionally, tourism
infrastructure and innovative incentives were developed (such as free 24 hour tours for
example) to entice those in transit to disembark and to enjoy the attractions close to the
airport. From the outset it was clear that the airport management saw their role as being
inextricably linked with regional development;
Throughout the 1960s, technological advancements in aviation improved the efficiency of air
travel and very quickly the necessity for designated fuel stops was reduced and eventually
eliminated. This changed set of circumstances posed a major threat to the Shannon airport
business model. Nonetheless, the airport continued to benefit from the “mandatory stopover”
agreement that designated Shannon as the Irish gateway for all transatlantic flights. This
ensured that all transatlantic flights to and from Ireland still had to stop at Shannon. This
enforced provision was increasingly problematic for airlines in that it affected their commercial
viability as taking off and landing is expensive. It also proved increasingly inconvenient for
passengers. Nonetheless, it seems, more for geo-political reasons than anything else (Shannon
was geographically important for the US during the cold war period) the United States
government was reluctant to change the stopover arrangements. Throughout this period the
Irish Government lobbied to maintain the stopover;
By the mid-1970s the majority of “third country” transatlantic flights (those countries which
were not party to the original aviation agreement) were benefitting from technological
efficiencies and were overflying Shannon. This posed a major threat to the airport. The
management reacted in a most innovative manner by enticing Aeroflot to use the airport as a
transit stop for flights to the United States, Canada and the Caribbean. These arrangements led
to Russian crews staying in Shannon and Russian fuel being supplied by ship to Shannon’s fuel
depot. This ensured that Shannon could also provide very cheap fuel to international airlines.
For a period of time this arrangement paid great dividends for the airport as cheaper Russian
fuel improved the attraction of Shannon for refuelling. Unfortunately, the Aeroflot
arrangement was significantly diluted when the need for a technical stop was no longer
required (Aeroflot acquired longer-range aircraft) and after the collapse of the USSR;
10 In the mid- 1980s, the management at Shannon airport were faced yet again with three specific
and impending challenges: Firstly, the European debate on the future abolition of “duty free
shopping” began in earnest; secondly, the threat of the “overfly” of Shannon was gaining
momentum due to increased consumer resistance(“why do we have to stop in Shannon when
we don’t want to be there”) and lobbying by airlines and thirdly, it was realised that market
trends would soon see the demise of the very profitable “Shannon Mail Order” business. The
loss of one or all of these three vital revenue sources was recognised as being potentially
disastrous for the airport. Therefore, the same management team that had delivered the
Aeroflot deal set about establishing an airport retailing and operational management
consultancy company that would provide advice to airports across the world. This company
became known as Aer Rianta International and it did indeed succeed in delivering a major
revenue stream to cover future anticipated revenue losses. While this was an innovation
developed in Shannon Airport, it appears that the Airport did not retain the benefits of this
great innovation while the airport operated under the DAA umbrella. This, very profitable
company is now completely owned by the DAA;
Throughout the 1980s the business lobby in Dublin continually argued that the compulsory
‘stopover’/dual gateway policy was obstructing the development of additional business for the
country. In essence, it was argued that if the Shannon stopover was abandoned there would be
an overall increase in net North American traffic to Ireland. This vocal campaign was supported
by the airlines and consumer groups. Moreover, the collapse of the former USSR induced a
more positive approach from the US authorities to changing the compulsory Stopover as the
geo-political role of Shannon Airport became less critical. In response to the changed
circumstances and the demands of influential lobby groups the Irish Government in 1993
relaxed the dual gateway rule, allowing airlines more direct access to Dublin. The rules changed
from 1:1 to 3:1 in favour of Dublin. This decision did impact on Shannon but the major impact
was to come later with the complete elimination of the stopover as a result of the 2007 EU/US
Open Skies Agreement. This agreement allowed airlines to serve Dublin directly and
contributed to an increase in both the volume and the types of Ireland-US air services. This
significantly affected Shannon;
In 1996, the promotion of the Airport was transferred from Shannon Development to Aer
Rianta. The airport’s role in Regional Development would now happen at arm’s length from the
economic development agency. Under this new arrangement the airport management saw
their primary responsibility being to operate the airport and the only area they would promote,
if any, would be ‘outbound tourism’. The management believed that it was the responsibility of
Bord Fáilte (at that time) or Shannon Development to promote inbound tourism. Such a change
in approach was extremely significant and undoubtedly contributed to the subsequent
outcomes.
In the latter part of the 1990s the phenomenon of Low Cost Carriers (LCCs) began to displace a
portion of the traditional charter traffic across Europe. The LCC model worked/works best with
a population base of over 1 million people on either side of the route. In this context the
increased level of competition caused some charter companies to collapse and moreover the
economics of LCCs dictated that large city airports would dominate traffic movements. As a
result, Shannon airport became subject to declining charter traffic. .This resulted in a decrease
11in traffic to the Shannon Region which was exacerbated by the advent of LCCs which
significantly eroded arrivals by sea. This latter development was particularly problematic for
regional development as sea passenger arrivals had traditionally travelled extensively in Ireland
but those arriving in Dublin with an LCC tended to travel far less outside the Greater Dublin
Area. Moreover, trends to shorter stays and the fashion of visiting/large cities such as Dublin
militated against Shannon airport and tourism activity in the region;
In June 1999 the abolition of Duty Free shopping came in to effect. Fortuitously, the immediate
impact at Shannon was less than anticipated as economic conditions in Ireland were more
positive than at any other time in the history of the state. Additionally, international economic
conditions were very favourable so aviation, tourism and general business were booming. As a
result, the loss of duty free income was important but was mitigated by the general economic
climate;
The buoyancy of the economy in the late 1990s had one important consequence that was not
beneficial for Shannon. The improved economic performance of Ireland had stimulated a rise in
car ownership and road congestion and traffic delays significantly increased commuting times.
In this context the rather bizarre policy of supporting various regional airports in Ireland was
accelerated through the provision of public subsidies so that those living in Munster soon had a
choice of 5 international airports within a 90 minute drive. So, while the LCC model was
dictating large population bases to be a vital component of a vibrant business model it was ever
more evident that national aviation policy (or a lack thereof) was actually contributing to the
dissipation of critical mass. In this context, each airport has some services but no airport had a
viable business. Ultimately, in this environment, consumers lose out because the actual levels
of services that can be offered by individual airports is sub-optimal;
Data provided in tables1 and 2 (in the appendix) sheds light on the profile of passengers at
Shannon airport from 1994 to 2004. Over the period, international terminal passengers
increased from 951,000 to 1.8 million. When account is taken of transit passengers, the total
number increased from 1.5 million in 1994 to 2.39 million in 2004. Shannon is unusual for an
airport with such a small catchment area in that it has traditionally had a disproportionate
number of transatlantic and transit passengers (Bristol with a catchment area of 5 million
people within I hour’s drive secured its first transatlantic flight in 2005).While evaluating the
components in table 1 it is important to note that in each category the changes in arrival
numbers may mask large shifts in passenger composition. Airports provide a vital mechanism
for people to arrive from abroad (which can be considered as exports from Ireland and the
region) and to depart the country (which is equivalent to imports since it involves Irish people
going abroad to spend money). As such, activity at an airport may signify economic prosperity
in the region/country itself (a growth of imports which signifies a net subtraction of disposable
incomes for a region often generated by economic prosperity) rather than an increase in
exports (additions to regional disposable incomes);
A review of the data in table 1 shows a more or less consistent increase in transatlantic traffic
from 1994(432,000 passengers) through to 2004(693,000 passengers). Undoubtedly, for many
years the passengers on the transatlantic route were predominantly Americans but in the late
1990s and early 2000 the profile began to change and was driven primarily by the growth of
12disposable incomes in Ireland. These were the days of the ‘Celtic Tiger’ when borrowing (from
excess savings in Germany and elsewhere) in a very poorly regulated banking sector in Ireland
led to an unsustainable consumption boom, of which outbound travel was a major component.
An example of this trend is that data from reliable retail sources in New York showed that by
around 2004, Irish Christmas shoppers numbered more than 120,000.
UK traffic to Shannon has traditionally been the second most important component of
international terminal traffic. Again, the data in table 1 shows that in 1994 UK arrivals of
331,000 passengers ( the vast bulk “visiting friends and relatives” and business) were far less
than arrivals from the US of 432,000 passengers (mostly Americans or Irish Americans) but by
1998 that equalised and the outcome was similar in 2004 with circa 690,000 passengers from
both markets;
European arrivals to Shannon (see table 1) actually fell between 1994 and 1998 but began a
swift acceleration (more or less uninterrupted) to 2003 whereby numbers had increased from
187,000 in 1994 to 442,000 in 2004. Again, the new found prosperity of the Irish was playing a
major role in this development and inbound tourist growth was more muted;
Domestic passenger movements accounted for 117,000 passengers in 1994 and at the end of
the period to 2004 the figure was 106,000 passengers;
The final important component of traffic is transit traffic which with some periodic changes was
more or less the same in 2004 as 1994 with 454,859 transit passengers. Of course the
composition of transit passengers had altered due to changes in the ‘stopover’ and the
throughput of military flights en route to and from the middle east;
International terminal traffic (not including transit passengers) increased from 951,131 in 1994
to 1.833 million (see table 1) in 2004 and the biggest component of the increase in the latter
years was attributable to “outbound” Irish traffic.
The data in table 2 shows that in 1994 the international terminal accounted for 62% of all traffic
movements at the airport with transit and domestic passenger movements of 30 and 8 per cent
respectively making up the balance. By 2004 the relative importance of transit traffic had
declined (to 19%) because of the significant increases in passengers on transatlantic, UK and
European routes. A good deal of the growth in numbers outlined in table 1 for all three main
routes was due to a significant shift away from foreign demand to Irish demand.
13SUMMARY 1944 TO 2004
From its earliest days Shannon Airport was unusual in that it had the advantage of a
geographic location that conferred a trading advantage in international aviation.
Essentially, the limits of aviation technology in the early 1950s dictated that planes
crossing the Atlantic had no choice but to stop at Shannon Airport to refuel.
The natural geographic advantage was reinforced by an earlier international aviation
agreement (1931 Ottawa Agreement) that dictated planes crossing the Atlantic
would have to take a “mandatory” stop at Shannon.
Faced with numerous, various and significant challenges from the 1950s to the early
1980s, the management at Shannon displayed a consistent ability to find
imaginative, innovative and commercial responses. So, while Shannon was originally
advantaged and enabled by its location to have transatlantic traffic (which is unusual
in international terms because of the low population base in the hinterland of the
airport) it was/is a significant achievement (not too often recognised) to maintain a
significant throughput of US traffic, an achievement not always recognised.
From 1994 to 2004 the traffic at the airport increased significantly. What is
important to note is the significant movement in the structure of the airport traffic,
with outgoing rather than incoming passengers being predominant from the late
1990s. This was driven primarily by the growth of disposable incomes in Ireland that
stimulated significant growth in outbound tourism. Additionally, the transfer in 1996
of airport marketing from Shannon Development to Aer Rianta led to a diminished
interest and focus on “inbound passengers” with, as a result, the direct and
longstanding link between the performance of the airport and regional development
being broken.
The increasing importance of Low Cost Carriers (LCCs) in international aviation in the
1990s significantly impacted on the profitability and viability of “Charter Airline”
companies. The confluence of declining inbound charter traffic and the increased
outbound demand associated with disposable income growth in Ireland reinforced
the structural move at the airport from inbound to outbound traffic.
142. The Period of Sudden Growth: 2004 to 2007
In anticipation of the impending introduction of “Open Skies” and the envisaged loss of business,
Shannon’s new Airport Authority (arising from the State Airports Act, 2004) embarked on a new
strategy. In May 2005, Shannon became Ryanair’s 12th European base with promises to deliver in excess
of 1m passengers in its first year, rising to 2m by year 5.
In the announcement of Ryanair’s new base, Michael O’Leary stated
“this new base will make Shannon Airport the low cost gateway to Ireland and promote (sic) tourism
access to Ireland’s western seaboard for UK and European visitors…to attract hundreds of thousands of
tourists to the west of Ireland on a year round basis” .
What actually transpired at the airport and the region over the next 4 years is outlined below in
summary form:
From 2004 to 2007 international terminal passengers increased from 1.8million to 3.06 million.
When transit passengers are included the total number of passengers using the airport was 3.62
million in 2007 (see tables 1 and 2). The arrival of Ryanair thus seemed like an inspired move as
passengers on UK routes increased from 697,000 in 2004 to 1.1m in 2005 and in 2006 the
number reached 1.29 million before falling back a little to 1.25 million in 2007 (See tables 1 &2).
Similarly, the European routes exhibited an equally stellar performance with passenger
numbers increasing from 442,000 in 2004 to peak at 1.06m in 2007. Meanwhile, on the
transatlantic routes the passenger numbers increased from 693,000 in 2004 to 746,000 in 2007.
The arrival of Ryanair coincided with a period when the decline of charters to Shannon
accelerated. As demonstrated in table 3, inbound charter passengers numbered 56,198 in 2002
but this declined to 20,000 in 2007 and in 2012 the figure was 18,197. The loss of these
passengers constituted a major loss for the airport and the region as these inbound charter
passengers were “pure tourists”. Nonetheless, with the arrival of Ryanair it was not
unreasonable to assume that the loss of passengers from charters would be more than
compensated for by the growth of Ryanair routes from Europe. What actually occurred was very
different;
The initial routes launched by Ryanair reflected the traditionally strong tourism markets for the
west of Ireland: Frankfurt, Dusseldorf, Hamburg (all previously charter cities to Shannon) and in
2005 Ryanair also had routes to Brussels, Paris, Stockholm, Barcelona and Milan. Many of these
new routes were expected to be popular with inbound and outbound tourists alike.
Unfortunately, the traditional routes from Germany did not perform as well as expected. This
may have been due to the economic circumstances in Germany but it is also clear that the
marketing effort to support these routes was virtually non-existent. Very quickly, Ryanair
decided to drop some German routes. More generally, Ryanair realised that there was far more
demand in the Irish outbound market so very quickly the emphasis shifted to replace poorly
performing inbound routes by those catering for Irish outbound demand. One facet of this
outbound demand was the development of routes to Eastern Europe and by 2007 Ryanair’s
route network included 5 Central and Eastern European destinations. In general, these routes
catered for the significant numbers of immigrants working in the region and as such the traffic
15movements were very much linked to the buoyant macroeconomic conditions in Ireland at the
time.
During the period 2004 to 2007 the transatlantic routes went from accounting for 29% of traffic
to 21% while, for the UK the respective figures were 29% to 35% and for Europe 18% to 29%.
While all seemed good at the airport the excellent performance disguised a most significant
transformation in passenger composition (see figure 1 for the changing composition). In a
relatively short period of time, Shannon airport had been transformed from a ‘receiving’ (export
driven) airport to a ‘sending’ (import driven) airport. The changing nature of passenger
composition at Shannon airport should have sent shock waves through the tourism suppliers in
the region but two countervailing forces were at play that again ameliorated what should have
been identified as concerns. Firstly, a stable proportion of increased arrivals to Dublin (up to
2007 when Irish tourism numbers peaked) were visiting the Shannon region; probably more
important, however, was the surge in domestic tourism to the region occasioned by the growth
of such activity across Ireland. So, all in all structural issues that should have signalled major
concerns were ignored because of a general reluctance to recognise that the economic boom
would end at some point. Unfortunately, the international financial crisis and related
developments would soon bring some very unfortunate consequences for Shannon Airport and
the Region.
16SUMMARY 2004 TO 2007
The State Airports Act 2004 led to a new airport authority for Shannon. This new airport
authority embarked on a new strategy which saw Ryanair establish its 12th European base at
Shannon in May of 2005. The airline promised to bring an additional 2 million passengers by
year 5.
From 2004 to 2007 international terminal passengers increased from 1.8million to 3.06
million. When transit passengers are included the total number of passengers using the
airport was 3.62 million in 2007 (see tables 1 and 2). The arrival of Ryanair thus seemed like
an inspired move as passengers on UK routes increased from 697,000 in 2004 to 1.1m in
2005 and in 2006 the number reached 1.29 million before falling back a little to 1.25 million
in 2007 (See tables 1 &2). Similarly, the European routes exhibited an equally stellar
performance with passenger numbers increasing from 442,000 in 2004 to peak at 1.06m in
2007. Meanwhile, on the transatlantic routes the passenger numbers increased from
693,000 in 2004 to 746,000 in 2007.
The initial European routes launched by Ryanair followed the traditional charter routes (that
were now in decline) but the marketing behind the routes was very poor. The poor
marketing support for the routes was somewhat attributable to the view of the new airport
board that “inbound tourism” marketing was the responsibility of other State agencies,
namely Tourism Ireland and Shannon Development. Unfortunately, Shannon Development
no longer had the resources for such activity and Tourism Ireland was very slow to move in
to the space vacated by the regional agency. Consequently, load factors on the routes were
poor and Ryanair had the perfect rationale to pull the routes in favour of outbound routes
demanded by and dominated by Irish citizens.
While all seemed good at the airport, the stellar performance disguised a most significant
transformation in passenger composition. In a relatively short period of time, Shannon
airport had been transformed from a ‘receiving’ (export driven) airport to a ‘sending’ (import
driven) airport. The changing nature of passenger composition at Shannon airport should
have sent shock waves through the tourism suppliers in the region but two countervailing
forces were at play that again ameliorated what should have been a serious response.
Firstly, a stable proportion of increased international tourism arrivals to Dublin (up to 2007
when Irish tourism numbers peaked) were visiting the Shannon region and probably more
important was the surge in domestic tourism to the region occasioned by the growth of such
activity across Ireland during the boom years. So, all in all, structural issues that should have
signalled major alarm bells were ignored because of a general reluctance to consider that
the economic boom would end at some point. Unfortunately, the international financial
crisis, fiscal retrenchment by the Irish Government (significant declines in personal
disposable incomes in Ireland) and related developments would soon bring some very
unfortunate consequences for Shannon Airport and the Region
173. THE PERFECT STORM HITS SHANNON AIRPORT: 2007 TO 2012
The period 2007 to 2012 was definitely the most difficult yet in the long history of Shannon Airport. A
confluence of negative factors came together to bring a “perfect storm” to the airport and as a result
the passenger figures plummeted. A summary overview of determining factors and airport performance
is set out below.
The international financial crisis caused initially by the sub-prime crisis in the US in 2006 began
to have a serious impact in Ireland in the second half of 2007. As a forerunner of things to come
the ISEQ index peaked in April and a steady decline of lead economic indicators became
manifest as 2007 came to an end. By mid-2008 it was clear the Irish economy was contracting
very quickly and in September 2008 Ireland was the first Eurozone country to enter recession.
By late September the extent of the Irish banking crisis became clear when the Irish
Government felt the need to nationalise a number of banks on the night of September 30th.
Subsequently, the deteriorating international economy and the drastically changed fortunes of
the Irish banking system all contrived to drive Irish Government borrowing costs to exorbitant
levels. What seemed inevitable became a reality in November 2010 when the Irish Government
was forced to request the financial assistance of the IMF and the EU;
From 2007 to 2012 Irish GNP has declined by 20 per cent and is now back at the level of 2000.
This decline in GNP represents a seismic shock to the economy and resulted in domestic
consumer expenditure being in serious retreat in the ensuing years. Moreover, the significant
personal debt of many households has and will continue to curtail personal consumption in the
years ahead. unless there is a significant and sustained growth in the international economy
(now looking less and less likely), Ireland will have to rely on outperforming other countries in
all our export markets (including tourism) if the economy is to improve. As a result, it is difficult
to see anything other than rather anaemic growth in personal domestic consumption in the
immediate years ahead.
Given the dramatic declines in personal consumption in Ireland from 2007 it was to be expected
that Shannon Airport would be seriously affected. In the changed circumstances in which
passenger composition at the airport was tilted much more to ‘outbound’ rather than ‘inbound’
passengers, the increased reliance on Irish originating passengers that began in the late 1990s
was to prove to be a major problem for the airport. Not only was there an international crisis
which would have impacted on the airports in any event, but the decline in the Irish economy
was commensurate with the previous levels of growth so that the effects were immediate and
brutal;
In tandem with the massive decline in outbound traffic from the domestic based Irish
population, the economic crisis also hit the immigrant community very hard. As a result, traffic
on these European routes began to decline rapidly as emigrants returned home for good so that
regular visitations fell. Soon, the Ryanair strategy that was significantly based on the fortunes of
the Irish economy became unsustainable. It is beyond the scope of this paper to review the
process of the withdrawal of the Ryanair base from Shannon but suffice to say that once this
happened the airport traffic collapsed;
18 Table 4 in the appendix provides comprehensive details of Ryanair routes and passenger
numbers since 2005. The total number of passengers carried by Ryanair in 2005 was 1.048m
and this increased steadily to peak at 1.84 million in 2008 before declining to 1.6 million in
2009. The seismic change came in 2010 when passenger numbers collapsed by 1 million to
637,000 before dropping to 448,000 in 2011 and 460,000 in 2012. As outlined earlier the
dependence of Shannon on the Irish economy to generate passenger growth became ever
more pronounced from 2006 onwards and once the economy crashed a serious decline in
passenger traffic was inevitable;
The increasing dependence of the airport on Ryanair from 2005 to 2009 is shown by the fact
that during these years the Ryanair share of overall terminal traffic was 41, 50, 54, 68, and 67
per cent respectively. By 2010 the share was 44% and this declined to 32% in 2011 before
increasing to 37% in 2012. It should be noted that the increasing share in 2012 is attributable to
a relatively small increase in traffic signifying the poor performance of other airlines at Shannon;
While the airport was battling with various threats of route cancelations with Ryanair from late
2006, a further blow came when Aer Lingus announced in August 2007 that it would cease the
long standing route from Shannon to London Heathrow(4 daily departures) that catered for
330,000 passengers in that calendar year. Again, it is beyond the scope of this paper to address
all the issues involved in this decision other than to say the route did indeed close for 14 months
from January 2008 to March 2009. At resumption, two daily departures were introduced. The
cancellation of the Aer Lingus service was a major difficulty for the airport coming on top of the
continuing decline of European routes and the impact of the final implementation of “Open
Skies” in 2007;
For some time it had been known that the introduction of ‘Open Skies’ would have a
significantly negative impact on Shannon Airport and the overall region. Nonetheless, the rather
spectacular performance of the economy and the regional economy in the first decade of the
new millennium and the seemingly major upturn in passenger numbers at the airport,
particularly from 2005, had induced a certain resigned acceptance. The general feeling seemed
to be that it would be a blow, particularly for tourism but that the overall picture would still be
positive. As the downturn unfolded it became very clear that the introduction of “Open Skies”
was indeed a significant structural change from which the airport has failed to recover, at least
to date;
In anticipation of the introduction of full ‘Open Skies’ in March 2008 the transatlantic carriers
began to move capacity from Shannon to Dublin in the Autumn of 2007. This was no surprise as
a study by the Air Traffic Users Committee had forecasted that this would be an immediate
consequence of Open Skies. Significantly, the same report did indicate that Shannon would be
affected but failed to specify the extent of the impact. Subsequently, the tourism authorities did
manage to get some marketing funding to ameliorate some of the effects but this was short-
lived and certainly was not commensurate with the loss of business endured at the airport and
in the Shannon region;
19 As the capacity on the transatlantic shifted to Dublin there was a simultaneous movement of
the tour operator infrastructure from Shannon which had a further impact on the region. The
loss of North American routes was particularly hard felt in the region as this came on top of the
loss of the Heathrow service that was estimated to carry 26,000 ‘backtracking’ passengers at
the time. What made a bad situation worse for Shannon was the introduction of two new
competing routes from Boston and New York in to Knock Airport 2007.
It is worthwhile to emphasise that the transatlantic passenger numbers at Shannon in 2012
came to 287, 000 and while there has been some positive recent performance and
announcements the figure is still substantially below the equivalent figure of 432,000 recorded
in 1994 (see table 1);
The return of the Aer Lingus London service to Shannon in March 2009 was hailed as a
vindication of the arguments made by various lobby groups in Shannon. While obviously
welcome the numbers carried on the route in 2013 are projected to be 270,000, still well below
the numbers carried in 2007;
The data presented in tables 1 & 2 shows the dramatic decline in the fortunes of Shannon
Airport from 2007 to 2012. The data shows that international terminal passengers declined
from 3.066 million in 2007 to 1.26 million in 2012 (minus 59%). During this time the numbers on
the transatlantic declined from 746,000 to 287,000 (minus 62%). On UK routes the respective
decline was from 1.253 million to 736,000 (minus 41%). Transit traffic, which had often helped
to offset market fluctuations in previous periods of difficulty, was also declining significantly
during these years (mainly because of a serious fall off in US troop movements). The respective
figures were 464,000 in 2007 and 132,000 in 2012.
During the period 2007 to 2012 the UK traffic as a proportion of overall terminal traffic
increased from 35% to 53% while the respective European proportions fell from 29 to 17 per
cent and the transatlantic share remained static at 21%.
It has been stressed previously that the structural composition of the airport’s passenger base
had been changing since the late 1990s with far more passengers originating in Ireland. The
magnitude of this change in circumstance is shown clearly in figure 2 in the appendix. Figure 2
shows that in 2005 the Irish originating passengers on European routes was circa 50% but this
increased steadily to more than 80% in 2008 and in 2011 was even higher. This suggests the
European routes cater predominantly for Irish people going on ‘sun holidays’. On UK routes the
proportion of Irish originating passengers has been relatively stable at circa 50 to 55 per cent
but the remaining 45% are made up of “business” and those Visiting Friends and Relatives
(VFRs). From a tourism perspective the very high dependence on VFRs on UK routes means the
economic impact in the region is not as great as would be the case if the routes could attract
more ‘pure tourists’.
As explained earlier the tourism performance of the region became somewhat divorced from
the performance of Shannon airport in the 2000s as increased arrivals to Dublin
counterbalanced some of the changes to arrivals at Shannon. Although the Fáilte Ireland
regional tourism data is rather erratic and somewhat unreliable for decision-making the data
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