Value for Money Review of Exchequer Expenditure on the Regional Airports Programme - DEPARTMENT OF TRANSPORT
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Value for Money Review of
Exchequer Expenditure on the
Regional Airports Programme
Revised
DEPARTMENT OF TRANSPORT
June 20102
TABLE OF CONTENTS
Page
Chapter 1 Executive Summary ………..………………………………………. 5
Chapter 2 Introduction ……..………………………………………………..….9
Chapter 3 Background to the Regional Airports and the Regional
Airports Programme …………...…………………………………..13
Chapter 4 Policy Objectives of the Regional Airports and the
Rationale for the Regional Airports Programme..…..…….……. 21
Chapter 5 Capital Expenditure in the Regional Airports………...…….……25
Chapter 6 Cost & Efficiency of the Regional Airports Programme…………29
Chapter 7 Key Indicators of Regional Airport Efficiency……………………45
Chapter 8 Effectiveness of the Regional Airports Programme………………53
Chapter 9 Conclusions………………………………………………………….63
Chapter 10 Recommendations ……………………………………………….…69
APPENDICES
Appendix 1 Terms of Reference …..…………………………………………….75
Appendix II Maps of Ireland……..………………………………………………79
Appendix III Sample OPEX Contract……………….……………………………87
Appendix IV Extract from Council Regulation 1008/2008 on common rules for
the operation of air services in the Community……..…………… 91
Appendix V Extract from an information note prepared by the EU
Commission on Regulation 1008/2008…………...…………………95
Appendix VI A summary of research conclusions on PSOs in Europe ……….101
34
Chapter 1 Executive Summary
The purpose of the value for money review of the Regional Airports Programme is to
evaluate past Exchequer expenditure against Programme objectives and to examine
the scope for achieving those objectives more efficiently and effectively in the future.
Background
There are six regional airports at Waterford, Kerry, Galway, Knock, Sligo and
Donegal. The Review focuses on a programme that consists of three Exchequer
support schemes for capital expenditure grants (Capex), operational expenditure
subvention (Opex) and a scheme for subventing PSO air services operating between
Kerry, Galway, Knock, Sligo, Donegal and Derry Airports and Dublin Airport.
Expenditure on the Programme amounted to €22.8m in 2009 which comprised Capex
(€4.7m), Opex (€3.4m) and PSO subvention (€14.7m).
This Review does not consider any PSO air services to the Aran Islands which are
under the remit of the Department of Community, Rural and Gaeltacht Affairs.
Policy Objectives of the Regional Airports Programme
Based on an examination of the Department‟s Statement of Strategy and other
relevant policies, the current policy objectives of the Programme can be best
summarised as follows:
The regional airports in Ireland should play a “complementary” role to Dublin
Airport as the major gateway for Ireland and to the other two State Airports.
Their role is also to connect the regions to Dublin Airport where alternative
adequate surface transport does not allow for easy access to Dublin Airport.
In addition, these current policies suggest that the regional airports should enable
better and quicker access to the regions to support inward tourism and inward
investment and allow for increased air service connectivity from the regions
particularly for business users.
In the light of the improved surface transport network of recent years, it is considered
that any future regional airports programme should take account of the prioritisation
of Exchequer funding of alternative sustainable transport modes (bus and rail) that
offer regional access; improved journey times on the road network arising from NDP/
Transport 21 investment; and air service connectivity from the State Airports that also
facilitate regional access.
Costs and Efficiency
There are a number of key trends that can be highlighted:
Kerry Airport and Knock Airport stand out from the other regional airports as
having good air services connectivity in their own right. They have jet runway
capacity, which means they can attract more airlines and serve more routes
than the other regional airports.
5Recent falling passenger numbers has lead to increasing subvention Costs per
Passenger on PSO services (e.g. €170 and €111 per passenger at Knock and
Derry respectively in 2009.)
Sligo and Donegal are reliant on PSO operations to survive.
Kerry had a much lower PSO cost per passenger of €17 per passenger in 2009.
The overall cost base at Galway and Waterford is excessive relative to the
revenues being generated. OPEX subvention to the regional airports amounted
to €3.345m in 2009, including €962,000 for Galway and €1.494m for
Waterford.
When compared to bus and rail travel over the last five years, the combined
subvention (Opex and PSO) per passenger of airport regional air services has
cost twice as much as rail travel and over ten times as much as bus travel.
Effectiveness
With regard to the effectiveness of the Programme the following key areas were
examined.
Access to the regions
The recent substantial investment in road and rail has meant that road journey times
from the regions to Dublin have markedly decreased while there has been improved
frequency and comfort in rail services. The regional airport catchment areas are now
much better connected by either road, rail or both to Dublin (e.g. Dublin/Galway is 2
hours by road and 3 hours by rail; Dublin/Killarney will be 3 hours 20 minutes by
road and 3 hours 20 minutes by rail). In Donegal‟s case the road journey time is 4.5
hours to Dublin, which means that it is relatively remote in Irish terms. There is
significant overlap between the catchment areas of a number of the Airports along the
West Coast (e.g. Galway city is 1 hour 15 mins by road from Knock and Shannon
respectively; Sligo is less than 1 hour from Knock).
Air service Connectivity to the regions
The State Airports offer a wider range of routes and services and make a greater
contribution to air service connectivity. The regional airports account for 5% of
passenger traffic in the State. Of this 5%, Kerry and Knock Airports accounted for
71% of the traffic in 2009.
Business impact of regional airport to the region/catchment area
The specific impact of the regional airports on inward investment is difficult to
quantify. The IDA takes the view that air access to the regions is important to such
investment. Multinationals are anxious to ensure that management are within a
reasonable distance from an airport that allows direct access to their destination or
enables efficient onward connection. An airport journey time of approximately an
hour is considered satisfactory.
The improvements in road infrastructure also mean that there is greater reliability in
travel times to the State Airports. All of the National Spatial Strategy Gateways are
within two hours road journey time to an Airport. In the case of the 4 provincial cities,
all will be 2 hours or less journey time from a State Airport when the inter-urban
motorways (MIU) are complete at end 2010. This will be further reduced as projects
are completed along the Atlantic Corridor.
6Tourism impact Benefits
Overall, with the exception of Knock and Kerry, the regional airports appear to make
a limited contribution to inbound tourism. At Donegal & Sligo Airports, only about
2% of overseas visitors to the two counties used the Airports in 2008. At Knock
(48%), Galway (5%), Kerry (9%) and Waterford (13%), the percentage of overseas
visitors to the respective counties using the airports varied. Kerry does have a
significant brand name as a tourist area in Europe and Germany in particular and it is
exploiting this through its air links with Frankfurt. The Airport hopes to develop this
market further through the opening of the Dusseldorf route. Knock Airport appears to
have created a market in overseas visitors with 12.5% of visitors accessing the region
via Knock Airport.
Conclusions
There is a strong case for rationalisation of the regional airports along the western
seaboard. There are substantial overlapping catchment areas between these airports,
while the improvements in road and rail means that access from the regions to Dublin,
Cork and Shannon is more speedy and reliable than ten years ago.
Knock and Kerry offer the greatest air service connectivity benefits among the
regional airports due mainly to their capacity to cater for jet aircraft. With the
exception of Kerry, regional airports are increasingly dependent on Opex subvention
even when PSO services are also provided. Arising from the improved surface
transport links to the regions and recognising the difficulties with the public finances,
there is significant scope for a more efficient and effective use of Exchequer funds on
the Programme, particularly as regards PSO air services.
Recommendations
Exchequer support for regional airports in Connaught should be focused on Knock
Airport, which can adequately serve both Galway and Sligo with a greater range
of services than offered by Galway or Sligo Airports. This focus on Knock should
also increase Knock‟s “critical mass” and enhance its finances. Galway city will
also have the benefit of improving journey times to Shannon Airport.
The Donegal-Dublin PSO service should be retained and the PSO services from
Dublin to Kerry, Galway, Sligo, Knock and Derry should be ended. Donegal is
relatively remote in Irish terms. The cost per passenger of subsidising PSO
services is difficult to justify at the other airports having regard to improved
public transport and/or road journey times to Dublin. A commercial service from
Dublin to Kerry may be feasible because of latent demand for the current service
(100,000 passengers per annum).
Continuing OPEX support at Donegal, Knock, Kerry and Waterford should be
provided subject to stringent assessment of annual requests for subvention and
encouragement of greater efficiency through the use of benchmarking/
performance indicators.
Opex support for Galway and Sligo should end.
Capex grants would be confined to essential safety and security work and would
be of the order of €10m in the next few years.
7The recommended retention of Opex support for Waterford is a finely balanced one. It
reflects a view that the Airport could contribute to developing tourism in the South
East and recognises that it is the only provincial city that would have a 2-hour surface
journey time to a State Airport (Cork and Dublin Airport will be about 2 hours away).
All of the other provincial cities will have an hour‟s journey time or less.
Implications
Without Opex support Sligo and Galway Airports are unlikely to operate scheduled
services but there is adequate airport capacity elsewhere in the hinterlands to
compensate for the ending of these services.
The withdrawal of PSO services to Kerry, Galway, Sligo, Knock and Derry will still
leave these regions with adequate air service connectivity at the State Airports and at
Knock, and Kerry. Both Knock and Kerry offer substantial non-PSO air services at
present which benefit the region.
The Irish Coast Guard (IRCG) operates one of its bases from Sligo Airport. The
IRCG has indicated that any reduction in operating hours at Sligo Airport as a result
of terminating the PSO route to Dublin should not impact on its ability to provide a
comprehensive service. There are no implications for the other bases located at
Dublin, Shannon and Waterford either.
If the recommendations are implemented in a full year, Exchequer current expenditure
would amount to €7m as compared to €18m in 2009.
There may also be positive environmental effects arising from these recommendations
as a result of passengers using more sustainable modes of transport.
8Chapter 2 Introduction
1. Introduction
Among other things, this chapter outlines the background to the Value for Money and
Policy Review process; the terms of reference for the Review; the scope of the
Review; and identifies the members of the steering committee established to guide the
Review.
2. Background to the Value for Money Review Process
The Expenditure Review Initiative (ERI), which commenced in 1997, is a systematic
process of evaluation conducted by Government Departments and Offices under the
guidance of the Expenditure Review Central Steering Committee and the Department
of Finance. Its objectives are to analyse Exchequer spending in a systematic manner
and to provide a basis on which informed decisions can be made on priorities within
& between programmes.
The Comptroller and Auditor General (Amendment) Act, 1993 and the Public Service
Management Act, 1997 set the context for expenditure reviews in terms of the
achievement of economy, efficiency and effectiveness, and the maintenance of
appropriate systems, practices and procedures for the purpose of evaluating
effectiveness1. Expenditure reviews are also consistent with the Strategic
Management Initiative (1996) as they encourage Government Departments and
Offices to move away from the traditional focus on inputs and concentrate more on
the achievement of results.
In June 2006, the ERI was enhanced and renewed as the Value for Money and Policy
Review Process. The Department of Transport (DoT) has conducted this Value for
Money (VfM) Review of the Regional Airports Programme under the Value for
Money and Policy Review Process.
3. Terms of Reference
The Terms of Reference for the review of the regional airport PSO, OPEX and
CAPEX schemes were based on standard Terms of Reference which apply to all
reviews across the Civil Service, with appropriate modifications specific to this
review. The full terms of reference are at Appendix I and can be summarised as
follows:
a) Define the outputs associated with public expenditure on regional airports and
identify the level and trend of those outputs;
b) Examine the extent to which public policy objectives have been achieved and
comment on the effectiveness with which they have been achieved;
c) Identify the level and trend of costs associated with regional airport expenditure
and comment on the efficiency with which it has achieved it‟s objectives;
1
Expenditure Review Initiative First Formal Report to the Minister of Finance by the Expenditure
Review Central Steering Committee, for the period June 2002 - June 2004, page 41
9d) Evaluate the degree to which the objectives warrant the allocation of public
funding on a current and ongoing basis and examine the scope for alternative
policy of organisational approaches to achieving these objectives on a more
efficient and/or effective basis (e.g. through international comparison); and
e) Specify potential future performance indicators that might be better used to
monitor any future public expenditure on regional airports.
4. Research Methodology
This Review has been prepared based on the following:
Document analysis
Interviews with management teams in each of the regional airports
Consultation process with other interested stakeholders i.e. Aer Arann, Ryanair,
IDA, Enterprise Ireland, Failte Ireland, Tourism Ireland, Irish Aviation Authority
and the Irish Coast Guard
International comparison
5. Scope of the Review
The Review focuses on the Regional Airports Programme which consists of three
separate schemes as follows:
- Capital Expenditure Grant Scheme (CAPEX)
- Core Airport Management Operational Expenditure Subvention Scheme (OPEX)
- Essential Air Services Scheme – Public Service Obligations (PSO)2
6. Context of Review
This review has been carried out at a time when Government Departments have been
encouraged to make savings where possible across all programmes they support.
Further savings and cuts are expected in 2011.
The Government sanctioned a review of Public Sector spending in 2009, which was
published last year as the Report of the Special Group on Public Sector Numbers and
Expenditure Programmes. With regard to aviation expenditure, this group
recommended that the Public Sector Payments for Regional Air Support be
discontinued at a saving of €15m to the Exchequer and also a withdrawal of
Operational Grants for the Airports at a further saving of €2m.
7. Other Regional Development Programmes
The Regional Airports Programme aims to achieve regional development objectives.
There is a range of other current and capital measures which are also targeted at
regional development. These include transport, enterprise, local development, sports,
education and communications investments. Table 2.1 below illustrates some
examples of other regional development programmes and the related 2010 allocations.
2
This Review does not consider any PSO air services to the Aran Islands which are under the remit of
the Department of Community, Rural and Gaeltacht Affairs
10Table 2.1 Expenditure on regional development
Programmes, 2010
2010 Estimates –
Programme
€m
RAPID 5.7
Community Services Programme 46.0
Local and Community Development 67.5
Western Development Commission 1.7
Gaeltacht and Islands Development 62.9
Sports Programmes 48.0
County Enterprise Development 28.0
Regional Airports 19.9
Source: Revised Estimates Volume 2010
Note: Expenditure on some of these programmes encompasses some
spending in the more economically developed areas
This table does not include other types of national investments which have regional
development impacts, e.g.:
R&D funding for third level institutions in the regions
Inter urban road links between the major gateways and hubs
Improvement/maintenance of regional roads
IDA/EI grants to indigenous and multinational companies in regional areas
In addition to national funding, the EU has contributed substantial structural and
cohesion funding to boost regional and social development in Ireland. In the
programming period 2000 to 2006 alone, Ireland received €3.35 billion in structural
funds. This investment was directed at two designated regions: the Border, Midlands
and Western regions (BMW) and the Southern and Eastern Regions (S&E). For the
period, 2007 to 2103, a further €228m in European Regional and Development
Funding (ERDF) has been allocated.
As mentioned, the Regional Airports Programme is only one element in a set of
broader regional development measures. Within the transport sector alone, the
programme is less significant than the major public transport and road investments
e.g. investment in the regional roads was approximately €320m in 2009. Given the
variety and scale of State supports to promote regional objectives, the Regional
Airports Programme should not be viewed as the sole or even major driver of regional
development.
8. Steering Committee
Membership of the Steering Committee was drawn from the Department of Transport,
other relevant Government Departments and an independent expert. Details of the
membership are as follows:
Mr Martin Lynch, Chairperson
Mr Liam Daly, Principal Officer, Airports Division, Department of Transport
Ms Deirdre Hanlon / Mr Ronan Gallagher, Department of Finance
Mr Eoin Dormer, Department of Finance
Mr Derek McConnon, Assistant Principal, Finance Unit, Department of Transport
Ms Nicola Hayes, Administrative Officer, Airports Division, Department of Transport
Mr John Dowling, Financial Advisor, Department of Transport
1112
Chapter 3 Background to the Regional Airports and the Regional
Airports Programme
3.1 Introduction
This chapter provides a description of the six regional airports before outlining the
three schemes that, in combination, represent the Regional Airports Programme.
3.2 Regional Airports in Ireland
As well as the three State Airports, Dublin, Cork and Shannon, there are six regional
privately owned airports, Donegal, Sligo, Knock, Galway, Kerry and Waterford. In
Northern Ireland, there are a further three airports, Belfast, Belfast City and Derry.
The maps of Ireland in Appendix II show the geographic spread of the airports which
are primarily located along the western seaboard; the catchment areas of the State and
regional airports; and the Major Interurban Routes which link Dublin to Galway,
Limerick, Cork, Waterford and the Border.
The six regional airports are as follows:
3.2.1 Donegal Airport
The airport started operations in 1986 and is operated by Aerfort Dhun Na nGall.
This airport is located on the northwest coast of Ireland. The main population centre
nearest to it is Letterkenny, situated 57 km away. The airport has one runway of
1496m length. Currently, it serves Aer Arann operations to Dublin and Glasgow.
In 2009, passenger traffic at the airport amounted to 50,750 passengers. Currently,
two return PSO flights operate daily to Dublin.
3.2.2 Sligo Regional Airport (Sligo Airport)
Sligo Airport is operated by Sligo Northwest Airport Company. It is located at
Strandhill, approximately 8km to the west of Sligo town. Its first scheduled operation
was in 1983. The airport is owned 50% by the Local Authority and 50% by private
interests including the Chamber of Commerce, tourism and business interests. The
airport has a runway length of 1199 metres.
In 2009, passenger traffic at Sligo Airport amounted to 26,706 passengers. Currently,
two return PSO flights operate daily to Dublin.
3.2.3 Galway Airport
Galway Airport is operated by Corrib Airport Limited and Galway Chamber of
Commerce and Industry is the major shareholder. The airport has a runway length of
1289 metres. The airport is situated 9 km from Galway city.
In 2009, passenger traffic at Galway Airport amounted to 194,158 passengers.
Currently, three return PSO flights operate daily to Dublin.
3.2.4 Ireland West Airport Knock (Knock Airport)
Knock Airport (IWAK) is located in County Mayo, 46km away from the nearest large
population centre, Castlebar. It has been in operation since 1986. It is operated by
13Connaught Airport Development Company Ltd. The airport has a runway length of
2300 metres.
In 2009, traffic at Knock Airport amounted to 607,228 passengers. Currently, one
return PSO flight operates daily to Dublin.
3.2.5 Kerry Airport
Kerry Airport was incorporated in 1968 and the main shareholders include the Kerry
Group and Kerry County Council. It received its first scheduled flight in 1981. Kerry
Airport is currently used as a base by Ryanair. It is situated 18 kms from both Tralee
and Killarney and has a runway length of 2000 metres.
In 2009, traffic at Kerry Airport amounted to 356,247 passengers. Currently, three
return PSO flights operate daily to Dublin.
3.2.6 Waterford Airport
Waterford Airport, (operated by Waterford Regional Airport plc) was established by
Waterford Corporation in 1980. It is located 10kms from Waterford City and has a
1200 metre runway. The Pilot Training College of Ireland established their training
base in Waterford Airport in 2003.
In 2009, traffic at Waterford Airport amounted to 111,837 passengers. Currently, no
PSO flights operate to Dublin.
3.3 Overview of Regional Airport Programme
Exchequer support is provided to the six regional airports at Waterford, Kerry,
Galway, Knock, Sligo and Donegal under two separate schemes for capital and
operational expenditure. In addition, under the Department‟s Essential Air Services
Scheme, support is provided for PSO air links between Dublin and all the regional
airports with the exception of Waterford. PSO flights to Derry are also Exchequer
supported.
3.3.1 Capital Expenditure Grant Scheme (Capex)
Prior to 2006/7, capital grants for the regional airports were confined to
safety/security projects. However, in the light of the substantial growth in traffic at
these airports, the Government decided that in addition to support for necessary
safety/security upgrades, Transport 21 funds should be made available for
economically justifiable developmental projects designed to cater for projected
growth at these airports and thereby underpin the commercial viability of their
operations. Following an assessment of the projects submitted by the airports by the
Department‟s advisers, Indecon, the Government approved an €86 million package of
grants for specific projects at the regional airports in early 2007. The grants were
allocated in respect of the period up to the end of 2010, covering both safety/security
(€39 million) and developmental (€47 million) projects.
Safety/security projects (Measure 1 in the approved scheme, with 90% grant rate)
were considered in the light of the requirements of the Irish Aviation Authority (IAA),
the International Civil Aviation Organisation (ICAO) and the Department‟s Aviation
Security Division. In the case of developmental projects (Measure 2, with 75% grant
14rate), Indecon assessed, inter alia, the current and projected capacity and the demand
for the proposed capacity enhancement based on projected passenger traffic.
The current difficulties with the public finances effectively halted the rollout of the
scheme, as originally envisaged. The downturn in the aviation market and the
recession in the Irish economy have also affected the airports‟ growth prospects. In
July 2008, the Minister for Transport decided to restrict capital expenditure to those
projects that were contractually committed at that date. Some exceptions have also
been made for urgent safety related works that have had to be prioritised because of
IAA requirements.
The stated output target for the scheme is identified in the 2009 Department of
Transport Output Statement published on the Department‟s website, which refers to
the output target of implementation of the capital grant scheme for regional airports
by ensuring that claims are paid on a timely basis and within the agreed budget profile
(see page 37 of the Output Statement). It is noted that this output statement by the
Department does not describe a policy outcome as such but deals with target progress
on the administration of the scheme in 2009.
Further details on spending of capital expenditure is set out in Chapter 5.
3.3.2 Core Airport Management Operational Expenditure Subvention Scheme
(Opex)
Prior to 2006, grants were provided for certain eligible expenditure for
marketing/promotion and for safety and security measures for the regional airports.
However, in the context of the 2005 EU Guidelines on State aid to Airports3, a change
in the approach to funding of regional airports was required. The Guidelines require
that payments be underpinned by a formal PSO contract with the airports concerned.
The contract would identify the PSO being performed at the regional airport and this
would entitle the airport to apply for subvention under the OPEX scheme in respect of
the PSO concerned – see sample contract at Appendix III.
The EU Guidelines clarify the circumstances under which the Department of
Transport would be allowed to provide direct financial assistance to regional airports.
Certain activities carried out by regional airports can be considered as constituting a
service of general economic interest to the State. In such cases, the Department of
Transport can impose on a regional airport certain public service obligations in order
to ensure that the general public interest is appropriately served. However, financial
support must be limited to an analysis of reasonable costs, relevant revenues and a
reasonable profit for discharging that contractual role.
Furthermore, non-core activities not directly linked to the airport‟s core activities such
as the provision or operation of shops, restaurants or car parks, would not be regarded
as eligible for State subvention as part of a public service obligation arrangement.
3
Commission Communication of 9 December 2005 "Community guidelines on financing of airports
and start-up aid to airlines departing from regional airports”
15However, subsidisation of core airport operations from such commercial activities
would be encouraged to promote the airport‟s financial sustainability. Consequently,
under this scheme, financial support is only available towards core airport operations.
In the scheme published in June 2006, the purpose of the scheme is stated as follows:
“to provide, where appropriate the regional airports with financial assistance towards
eligible operational expenditure, to the extent that such expenditure cannot be fully
recovered from the normal revenue streams otherwise available to the airports”
The scheme goes on to state as follows: “the Department considers that as a matter of
course, all of the regional airports should maximise their ability to operate on a self-
financing basis. The new scheme, therefore, should not be regarded as a substitute for
sources of income that would be pursued by a commercial undertaking in the absence
of the subvention scheme”.
The scheme points out that that Opex funding does not constitute State aid if it is
“compensation for public services allocated for management of the airport in
accordance with the conditions established by the Altmark judgement”.
The scheme points out that the award of public service missions to the airport must in
particular specify the
precise nature of the public service obligation;
airport operators and the territory in question;
nature of any special or exclusive rights granted to the airport;
arrangements for calculating, monitoring and reviewing compensation;
means of preventing and correcting any over or under compensation
The scheme requires that there should be a transparent accounting system linked to
performance of the service of general economic interest. In line with the requirements
of EU law (the Altmark judgement), the following four criteria must be met:
(1) The recipient undertaking must actually have public service obligations to
discharge and the obligations must be clearly defined;
(2) The parameters on the basis of which the compensation is calculated must be
established in advance in an objective and transparent manner;
(3) the compensation cannot exceed what is necessary to cover all or part of the costs
incurred in the discharge of public service obligations, taking into account the
relevant receipts and a reasonable profit for discharging those obligations; and
(4) where the undertaking which is to discharge public service obligations, in a
specific case, is not chosen pursuant to a public procurement procedure which would
allow for the selection of the tenderer capable of providing those services at the least
cost to the community, the level of compensation needed must be determined on the
basis of an analysis of the costs which a typical undertaking, well run and adequately
provided with means of transport so as to be able to meet the necessary public service
requirements, would have incurred in discharging those obligations, taking into
account the relevant revenues and a reasonable profit for discharging the obligations.
16Payments in 2006, 2007 and 2008 aimed at fully covering subventible losses
amounted to €1.66 million, €2.264 million and €2.74 million, respectively. In 2008,
only Waterford and Galway received payments.
In 2009, the regional airports initially received a pro rata allocation of €2.146 million
rather than full amounts necessary to achieve a breakeven result. However, a
balancing amount of €1.199 million was made available to the airports following an
internal reallocation of unspent funds in December 2009. A total of €3.345 million in
OPEX funding was therefore paid out in 2009. All regional airports except Kerry
Airport received Opex subvention.
Only €1.69 million will be available to the regional airports to fund the OPEX scheme
in 2010.
Similar to the capex scheme above, the 2009 Department of Transport Output
Statement does not describe a policy outcome for the opex scheme as such but deals
with target progress on the administration of the scheme in 2009. The 2009 Output
Statement identifies the implementation target of the opex scheme as ensuring that
claims are paid on a timely basis and within the agreed budget profile (see page 37 of
the Output Statement).
3.3.3 Essential Air Services Scheme - Public Service Obligations (PSO)
A Public Service Obligation is a form of service of general interest in which a state
can subsidise an air connection. The reasons are social and economical. Services of
general interest are also recognised by other forms of transport and sectors like water,
gas, postal services etc. In the US, subsidised air connections are quite common, they
are called Essential Air Service (EAS). In the EU, a Council Regulation governs
PSO‟s – see below.
EU Member States have the legal authority to impose a PSO in respect of scheduled
services on routes serving peripheral or development regions within their jurisdiction.
PSO‟s can also be imposed on cross-border routes. However, this is an unusual
occurrence.
The PSO tender usually covers:
The minimum service level in terms of capacity, frequency and scheduling
which an air carrier would need to satisfy;
Any limits on the level of fares or specific fare types and rules, which must
be adhered to; and
Rules concerning any amendments, in particular termination of a contract as
a result of unforeseeable changes in costs and demand.
The history of the current scheme in Ireland is set out in more detail in the DKM
Study4 published in 2003. Prior to the EU regulated PSO scheme, there was a
4
Review of Air Services Supported by the Public Service Obligation Programme, (2003) DKM
Economic Consultants Ltd.
17Government policy of boosting tourism and balanced regional development through
the regional airports.
According to the DKM Study, the background to the current scheme was the
contraction in scheduled services connecting the regional airports with Dublin and the
UK in the early nineties. Liberalisation of air transport in Europe was a major factor
in the loss of business. Airlines concentrated their efforts on the busier routes and
withdrew from regional services.
The new scheme was established in 1994 at a number of airports (Kerry and Galway)
under EU Council Regulation (EEC) No. 2408/92 of 23rd July 1992. This EU
Regulation empowered Ireland to establish and subvent PSOs in respect of scheduled
air services serving a peripheral or development region.
In 1995, the services involved connected Kerry and Galway to Dublin but by 2001
there were additional services operating from Sligo, Donegal, Knock, and Derry to
Dublin. In 2003, costs of operating the scheme had escalated to 17 times the 1995
level. The DKM Study recommended a number of changes to the specification of
PSO services with a view to reducing costs. Included among the cost saving changes
recommended and adopted in the 36 month 2005-2008 PSO competition (extending
from July 2005 to July 2008) was the dropping of the early morning “red eye”
requirement and the use of combined tenders for some of the regional airport PSOs.
Currently, Ryanair are contracted to operate the Kerry service and Aer Arann are
contracted to operate the Galway, Knock, Donegal, Sligo and Derry services. The
services for (a) Sligo/Donegal and (b) Knock/Derry are provided under combined
contracts in each case. (There was no service on the Knock route from 21 July to 1
October 2008, as the original preferred bidder was unable to operate the flights).
In the current 36-month contract period July 2008 to July 2011, the scheme will cost
some €45 million and covers PSO services connecting Knock, Sligo, Donegal,
Galway, Kerry and Derry to Dublin. Despite rising costs in the aviation sector, this is
about €1 million less than the cost in respect of the 2005-2008 Programme. Table 3.1
below, summarises the current PSO service arrangements
Table 3.1 - Current PSO Services (July 2008 – July 2011)
Route Package Airline Cost Frequency
(rotations daily
PSO Flights)
Kerry - Dublin Ryanair €5.2m 3
Galway - Dublin Aer Arann €10m 3
Knock/Derry - Dublin Aer Arann €12.7m 1 Knock
combined 2 Derry
Sligo/Donegal - Dublin Aer Arann €16.9m 2 Sligo
combined 2 Donegal
TOTAL €44.8m
Source: Department of Transport
18There is no PSO service to Waterford. In the past, the EU Commission refused to
sanction a PSO service because of the relatively short route and because Waterford
was already adequately served by other transport modes.
In common with the other schemes, the Department‟s 2009 Output Statement
identifies an administrative output target for the scheme viz., “Effective operation of
PSO services within agreed budget and in accordance with contracts”
EU Regulation 2408/92 was updated in 2008 with EU Regulation 1008/2008 (see
extract at Appendix IV) on common rules for the operation of air services in the
Community. The new regulation recognises the need to maintain the possibility to
recourse to PSOs when the economic development of a remote region or an island
depends on it. The basic principles with regard to PSOs are unchanged in comparison
with the previous regulation. However, in some cases more stringent conditions will
apply, having regard for example, to the availability of other transport connections
and especially rail services with a travelling time of three hours or less.
The new Regulation obliges Member States to assess the adequacy of PSOs regularly.
Key requirements under Articles 16 of the new Regulation are that the necessity and
adequacy of an envisaged public service obligation shall be assessed by the Member
State(s) having regard to “proportionality” and the impact of other modes of transport
and in particular rail services on the route with a travel time of less than three hours
that have “sufficient frequencies, connections and timings”. Under Article 18(1), the
Commission may request a member state to communicate within two months a socio-
economic analysis justifying the need for the PSO and demonstrating its compliance
with Article 16 criteria, including an analysis of other modes of transport that could
be considered a substitute for the envisaged PSO.
The EU Commission’s information note on the regulation (see extract at Appendix
V) clarifies that for PSO routes under exclusive concession, such as ours, they will
expect that the assessment should be carried out in the last year of the concession
period and certainly before the launch of a new tender - which should take place at
least 6 months before the end of the concession period. The Commission has
indicated that this may require the provision of a detailed socio-economic report as
described in Article 18(1) of the Regulation. The Commission has stated that it
intends to seek such a report before the end of each PSO concession period for PSO
routes “conceded to one single air carrier”.
In the new Regulation, the maximum concession period for a PSO route (after a call
for tender) has been increased from three to four years to attract more tenderers. In
addition, the longer concession periods aim to reduce the administrative burden on the
Member States.
3.4 Conclusion
The above background information on the regional airports and the Regional Airports
Programme explains the three schemes under which Exchequer funding has been
provided to support Regional Airport Services.
19The following chapter will explore the rationale for the Regional Airports Programme
and the policy behind the Regional Airports Programme as it has evolved in recent
years.
20Chapter 4 Policy Objectives of the Regional Airports and the
Rationale for the Regional Airports Programme
4.1 Policy Objectives
On a macro level, a number of the Department of Transport‟s objectives are relevant
to the Regional Airports Programme. Among the most significant are the following
selected objectives taken from the Departments Statement of Strategy 2008-2010.
1. Integration & Sustainability
To deliver a quality transport system which underpins Ireland’s sustainable
development
Objectives
To ensure that travel and transport trends become more sustainable
To align transport, spatial and land use policies
To develop a more integrated transport system so that the different transport
modes complement each other through improved interfacing of infrastructure,
services, information and payment systems
2. Safety & Security
To ensure that transport infrastructure and services are provided, regulated, secured,
managed and used in a manner that protects people from death and injury
Objective
To ensure that Irish aviation safety and security policies and practices meet the
highest international standards
3. Investment
To improve accessibility, expand capacity, improve utilisation and enhance quality of
the transport system by delivering a value-for-money public investment programme
and facilitating private investment.
Objective
To ensure the sustainable development of the State and regional airports
4. Competition, Regulation and Reform
To enhance the efficiency and effectiveness of the delivery of transport services
through competition, economic regulation, institutional reform and corporate
governance of State agencies.
Objective
To facilitate the continued creation and sustainable growth of competitive air
links, in order to promote the development of Irish business and tourism
The Department of Transport‟s Statement of Strategy 2008-2010 also states that “the
six regional airports, with the aid of Exchequer support, complement the role of the
21three State airports by helping to ensure that the benefits arising from their success as
international gateways are widely distributed throughout the country”.
In addition, the Department of Transport has pointed out that the Regional Airports‟
Programme is a component of the overall transport objective of Transport 21, which is
the ongoing delivery of a modern, state of the art transport network within the time
frames set out under Transport 21. A core aspect of the approach in Transport 21 is
the enhancement of connectivity at national, regional and local level. Among the
priorities of Transport 21 is capital investment in the six regional airports.
Smarter Travel - A Sustainable Transport Future
The document, “Smarter Travel - A Sustainable Transport Future”, prepared by the
Department of Transport which sets out „A New Transport Policy for Ireland 2009-
2020‟, comments on aviation policy (Actions No. 26 and 27).
More relevant to this review are the comments made regarding PSO subsidies in
Action 27 which states that, “ we will review the public service obligation (PSO)
subsidies which are due for renewal in 2011 having regard to progress being made
on expanding bus and rail services so as to ensure that the most sustainable travel
option receives priority support. By 2011, the Transport 21 intercity rail programme
will be complete and we will ensure good connectivity between airports and public
transport services."
4.2 Broader Government Policy
A number of other Government policy reports mention the role that aviation plays in
achieving policy aims.
4.2.1 The National Spatial Strategy (NSS) for Ireland 2002 - 2020
The NSS emphasises that for Ireland to have a globally competitive but regionally
integrated economy, effective connections to the world are vital and that Ireland needs
good national and regional airports and associated air services.
It then states that the economies of scale needed to support effective international
access require a focussed approach. This will support access from the regions, by
ensuring that connections to and interchanges at nationally strategic access points are
quick, straightforward and reliable.
It also highlights that:
“expanding the level of services available from Dublin Airport to an even wider range
of destinations is essential in the interests of underpinning Ireland’s future
international competitiveness. However, in a liberalised aviation market, route
planning decisions of airlines depend primarily on the anticipated level of demand.
The national and regional benefits of expanded services from Dublin Airport can be
enhanced through improved connections with (i) the integrated public transport
network proposed by the Dublin Transport Office in “A Platform for Change”, (ii)
the national roads network, and (iii) regional airports.”
The NSS concludes that:
22“Shannon and Cork Airports are strategically located close to significant population
bases and serve particular functions. These airports will continue to have an
important role in the future by facilitating linkages to as many commercially viable
international destinations as possible, as well as linkages to Dublin. In the case of
each of these airports, expanding its range of air services will require an
enhancement of the population base they serve. This will also require effective
public and private transport, in order to bring additional large centres of population
within approximately one hours travel time or less of the airport.”
The NSS also adds that some regional airports have limited direct international
connections on a commercial basis, some have links to Dublin Airport in a “hub and
spoke” arrangement, or offer local access in remoter areas for passengers and air
freight.5
4.2.2 The National Development Plan (NDP) 2007-2013
The National Development Plan (NDP) 2007-2013 states that the key role of the
regional airports is to complement the role of State Airports and to help promote
regional development. It also indicates that in principle, the objective should be to
promote as far as possible, commercially viable routes from and to the regional
airports.
4.2.3 Renewed Programme for Government, October 2009
In the Renewed Programme for Government”, it states that:
“ We will ensure maximum aviation connectivity and maximum competition amongst
airline operators in the interests of consumers”
4.3 Recent research relevant to the objectives of the Regional Airports
Programme
In his paper, "Sustaining air services to Peripheral Regions”, Dr George Williams at
the Centre for Air Transport in Remoter Regions at Cranfield University in the UK
sets forward the following situations where a PSO could be imposed:
To link small or remote communities and / or islands to economic and
administrative centres;
To connect small or remote communities and / or island to the TEN-T Networks
and hub airports;
To reduce peripherality and maintain social and/ or political cohesion and
integration;
To sustain and develop economic activity and promote inward investment to
development regions; and
To promote tourism and develop domestic as well as international transport.
These identified situations for imposing a PSO provide a useful basis for analysing
the effectiveness of PSOs operated under the Programme.
5
See pages 62 and 63 of the National Spatial Strategy
23Further research on PSOs operating in Europe indicates that in some countries such as
Sweden, PSO services are provided to very remote and island locations (See
Appendix VI). This contrasts with the situation in Ireland where the surface transport
journey times from the regional airport to Dublin is between approximately two and
four hours. Only Kerry and Donegal Airports will have surface journey times in
excess of three hours to Dublin once the major inter-urban (MIU) route programme is
complete.
4.4 Conclusion
The role envisaged for the Regional Airports Programme which emerges from the
above stated policies can be summarised as follows:
The regional airports in Ireland should play a “complementary” role to Dublin
Airport as the major gateway for Ireland and to the other two State Airports.
Their role is also to connect the regions to Dublin Airport where alternative
adequate surface transport does not allow for easy access to Dublin Airport.
In addition, the regional airports should:
Enable better and quicker access to the regions to support inward tourism and
inward investment.
Allow for increased air service connectivity from the regions particularly for
business users.
It is also considered that any future regional airports programme should take account
of
The prioritisation of exchequer funding of alternative sustainable transport
modes (bus and rail) that offer regional access
Improved journey times on the road network arising from NDP/ Transport 21
investment
Air service connectivity from the State Airports that also facilitate regional
access.
24Chapter 5 Capital Grants to Regional Airports since 2000
5.1 Introduction
This chapter examines the trends in capital expenditure on the regional airports
between 2000 and 2009 and shows how changes in Government policy influenced the
levels of capital expenditure.
Table 5.1 provides details of the distribution of the cumulative €30.6m capital funding
to each of the regional airports since 2000.
Table 5.1- Distribution of CAPEX grants by regional airport – 2000-2009 in €’s
2009 2008 2007 2006 2005 2004 2003 2002 2001 2000
Donegal 33,536 992,610 299,524 49,490 112,575 0 717,595 252,779 0 0
Sligo 84,989 112,580 303,911 124,000 55,852 9,441 238,694 470,060 181,759 0
Knock 3,874,017 4,626,956 699,465 529,365 321,218 0 2,030,996 0 302,610 0
Galway 453,624 1,049,691 673,892 0 692,015 1,276,421 944,712 728,065 287,807 258,646
Kerry 45,000 334,393 189,074 98,107 394,650 0 854,876 838,809 0 0
Waterford 223,607 1,907,729 1,174,489 0 123,690 998,084 586,753 0 55,138 0
Total 4,714,773 9,023,959 3,340,355 800,962 1,700,000 2,283,946 5,373,626 2,289,713 827,314 258,646
Source: Department of Transport
5.2 Spending 2000 to 2006
In the period between 2000 and 2006, National Development Plan (NDP) investment
in the regional airports amounted to €13.5 million, i.e. an average of about €2 million
per annum. Spending was related to safety projects and was paid to the six regional
airports in respect of a range of infrastructural projects under the BMW Regional
Operational Programme and the S&E Regional Operational Programme. The primary
objective of this NDP measure was to facilitate continued safe and viable operations
at the regional airports. The measure played a significant role in ensuring that the
airports were in a position to meet international standards for aviation security and
safety, such as Baggage Screening facilities and Fire Rescue Services.
5.3 Spending from 2007 to date under Transport 21
The Transport 21 Programme included an allocation of €100 million for capital
expenditure at the six regional airports. In July 2006, having secured State Aid
approval from the European Commission, the Minister launched a new capital grants
scheme for the regional airports in respect of funding to 2010. The objectives of the
new scheme were to:
ensure compliance with aviation safety standards and enhanced security at
airports;
assist in optimising the contribution of the country‟s network of regional
airports to balanced regional development, in line with the National Spatial
Strategy (NSS) and the Transport 21 framework; and
25assist the regional airports‟ capital expenditure programmes where demand for
additional air services can be demonstrated and where an economic case can
be made to justify increased investment.
The scheme provided for a 90% grant rate in the case of Measure 1 (safety and
security) projects, which would continue to have priority, and a 75% grant rate in the
case of Measure 2 (developmental) projects.
Proposals amounting to €150 million were received from the airports and were
appraised and evaluated by a consortium led by Indecon, with additional input from
the Irish Aviation Authority (IAA) and the Department of Transport in relation to
safety and security aspects, respectively. The Indecon task was to prioritise the
proposed projects having regard to:
An assessment of the projects required for safety/security;
The merit of individual plans;
The coherence and consistency of the plans considering the network of
regional airports and the State airports; and
The need to maximise the overall returns on the investment by the Exchequer.
In February 2007, the Minister for Transport announced funding amounting to €86
million under the new Scheme. As in the case of the previous National Development
Plan, the new scheme maintained a priority focus on improving safety and security at
the regional airports. A total of €38.7 million was approved for projects in this
category, involving Exchequer grants at the 90% rate. In addition, grant aid of €47
million was provided for developmental projects aimed to accommodate future
growth.
The beneficiaries earmarked for future funding under the scheme were:
Knock Airport to receive €27 million, including €17 million for a major
apron and terminal building extension.
Kerry Airport to receive almost €17.7 million. Included in this sum was a
maximum amount of €13.1 million for terminal and related facilities to cater
for a substantial projected increase in tourist business
Waterford Airport to receive €22.3 million, including €13 million for a
runway extension and widening.
Donegal, Sligo and Galway regional airports to receive €3.8 million, €8.5
million and €6.3 million respectively for projects aimed at providing enhanced
levels of safety and security.
Essential runway end safety (RESA) projects were included in all cases.
5.4 Difficulties with Public Finances and downturn in the Economy
The current difficulties with the public finances and the economic downturn have had
a significant impact on the rollout of the 2007 approved scheme. Since July 2008,
grant aid has been limited mainly to those projects or project elements, which were
already contractually committed. As explained below, approval was also given in
2010 to urgent safety works at Donegal and Knock.
26Because of this and a slower than anticipated commencement of projects by the
regional airports in the first years of the scheme, a total of €17.1m has been paid out
in grant aid since 2007. The main beneficiaries have been:
Knock (€9m): The main projects funded were Phase 1 of the RESA works,
installation of an Instrument Landing System, a perimeter fence and extension
of the Terminal.
Galway (€2m): Various items of safety/security equipment and vehicles,
runway works, lighting and reconfiguration of the terminal building.
Waterford (€3m): Apron works, safety equipment and ATC landing
equipment.
A recent development was the announcement by the Minister on 13 April 2010 that he
had decided, based on the funds currently available, to provide grant aid for urgent
and essential safety works at Donegal Airport and Ireland West Airport Knock as
follows:
Donegal Airport is to receive €2.46 million grant aid for funding in respect of
an Instrument Landing System and for reconfiguration and overlay of the
runway.
Knock Airport is to receive €495,000 towards repair and upgrade of the
passenger apron.
The Minister also indicated that later this year he intended to give further
consideration to the overall capital funding of the regional airports in future years.
2728
Chapter 6 Cost & Efficiency of the Regional Airports Programme
6.1 Introduction
This chapter identifies the level and trend of the costs associated with the Regional
Airport Programme and comments on the efficiency with which the programme has
achieved its objectives.
Initially, an overall review of the funding provided to the airports under each of the
schemes will be provided. This will be followed by an analysis of the passenger
numbers at the regional airports, separated into an analysis of total passenger numbers
and PSO passenger numbers.
Finally, an individual analysis of each airport will follow. This will include an
analysis of funding on an individual airport level as well as a review of passenger
number trends. An assessment of relevant financial information will also be
conducted.
6.2 Cost to the Exchequer of the Regional Airports since 2000
As discussed in Chapter 3, the Regional Airport Programme is broken into 3 different
schemes. Two of the schemes (OPEX & CAPEX schemes) require that funding be
paid directly to the airports themselves. The third scheme (PSO) entails direct
subvention of specified air services. Table 6.1 shows the total funding paid by the
Exchequer under these schemes.
Table 6.1 - Exchequer Funding to Regional Airport Programme 2000 – 2009 (€m)
2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 Total
PSO 14.7 15.3 15.5 15.5 18.2 21.3 19.9 18.5 16.2 4.2
159.3
OPEX 3.4 2.7 2.3 1.7 2.2 2.2 2.2 1.9 1.9 1.9
22.4
CAPEX 4.7 9.0 3.3 .8 1.7 2.3 5.4 2.3 0.8 0.3
30.6
Total 22.8 27.1 21.1 17.9 22.1 25.8 27.5 22.7 18.9 6.3
212.4
Source: Department of Transport
In total, the Exchequer has given in excess of €200m in funding to the regional
airports and to supporting the PSO routes over the last decade.
In terms of receipt of this funding, the next table 6.2 and figure 6.1 shows the OPEX
received by the regional airports, while figure 6.2 shows CAPEX funding received.
Figure 6.3 illustrates the routes that received PSO funding and the amount of funding
per route since 2006.
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