Value for Money Review of

Exchequer Expenditure on the

Regional Airports Programme

Revised

DEPARTMENT OF TRANSPORT June 2010

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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 Programme29

Chapter 7 Key Indicators of Regional Airport Efficiency45

Chapter 8 Effectiveness of the Regional Airports Programme53

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

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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 Departments 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.

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Recent 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 Donegals 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.

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Tourism 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 Knocks 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 shou