London City Airport (LCA) and the value of Dublin Airport LCA is a private airport (formerly owned by Dermot Desmond) in Docklands 10 km from the City of London, 16 km from the West End. Dublin city centre is 9 km from Dublin Airport. LCA was sold for STG£750 million (€1.1 billion) on 11 October 2006, according to the Irish Times of 12 October 2006. LCA is a small (STOL) airport. Wikipedia http://en.wikipedia.org/wiki/London_City_Airport says LCA is a Short Take-Off and Landing (STOL) airport. It has one runway only 1.3 km long. It had 2 million passengers in 2005 - Dublin now has 20 million per annum. Operations are restricted to between 5:30 and 21:30 Monday to Friday, with an even more restricted service on Saturday and Sunday. In fact, restrictions require the airport be shut for at least 24 hours every weekend. Only emergency flights are allowed outside these hours. That shows the respect local authorities in London have for their citizens and contrasts with the care shown by most of our elected representatives. The size of the airport, constrained by the water-filled Royal Albert and King George V docks to the north and south respectively, means that there are no covered maintenance facilities for aircraft. This site shows it has virtually no land apart from the runway and a terminal - it is nearly surrounded by water! http://www.lcacc.org/operations/oip.html
http://www.lcacc.org/history/construction.html It is claimed LCA could double or treble passengers to a maximum of about 5 million per annum, because of the site's limitations. The maximum allowed aircraft movements are 73,000 per annum. The landing fee is now £700 (€1000) per aircraft at peak, £350, off-peak. http://www.lcacc.org/fees/fees06(1).pdf In 2005 they had 71,000 movements with 1.998 million passengers. http://www.lcacc.org/statistics/lcystat2.pdf That is 28 passengers per plane. There is no break-down for peak to off-peak usage, so per passenger charge is between €17.75 and €35.5, to give an average somewhere around: €26.6, compared to Dublin's €6.34! That is what a competitive market is willing to pay for the luxury to take-off and land 10 km from the centre of London. They assume 73,000 (the maximum allowed) movements could eventually deliver 5 million passengers, obviously needing to increase the load factor significantly. That would be to 68 passengers per plane. So the per passenger charge, on average, could more than halve, if they did not increase their per aircraft charge. They almost certainly would increase it, as the market would take it. They are not regulated - charge-wise, so they can charge what the competition will allow and that appears to be about €26 per passenger. Their current per plane charge is probably designed to get the load factor up, bringing more business through the airport shops. http://www.lcacc.org/future/index.htm The severe restrictions on airport use at night and at weekends lowers the commercial value of the airport compared to an unrestricted airport like Dublin. Comparative airport values. LCA is a small airport with a minimal amount of land, but it is worth nearly double Dublin Airport. The Commission for Aviation Regulation (CAR) valued all of Dublin Airport at €614 million in 2004. Yet LCA is a tiny airport with 1/10 the current capacity of Dublin with very restricted operation and limited scope for future development. Dublin property prices are nearly comparable to London. LCA has little alternative use-value because of its location. It is practically an island. It follows that even without including its vast land bank, Dublin Airport is seriously undervalued and its users are being subsidised, on these figures, by something like €20 per passenger. Privatisation This also gives an indication of the money that could be made if Dublin Airport were privatised. With no regulation and no, or negligible, competition (from Shannon/Cork), charges at Dublin Airport could be pushed up to €20-€30 per passenger, or more. If passenger numbers did not grow, or fall (where would they go?) that would be an income of some €500 million a year from their monopoly (assuming €25 per passenger). At present, operating costs at Dublin Airport are nearly covered by the net commercial revenue of the airport (shops etc), so this revenue of €500 million per annum would all be profit or a return to the fixed assets (there would also be a depreciation charge). If its new owners only pay what the regulator says the airport is worth, they get their money back in little over a year. It would amount to the biggest rip-off of public assets ever! Those are the stakes and that may be why some people will move hell and earth to build this runway. Who was it said, "Follow the money trail"? I am not philosophically opposed to privatisation, but I do strongly object to public assets being ripped off. That revenue of €500 million is derived from LCA charge of about €25 per passenger, but LCA has to compete with other London airports, Heathrow, Stanstead and Gatwick. Dublin would have no serious competition. Its charge can be pushed up to the maximum and could be higher than those LCA charges. That is where marginal revenue equals marginal cost and is the point where price pressure will drive customers to use the feeble competition. One would expect that with many low fare airlines now using Dublin Airport the pressure would be great to build another competing airport. But if any competitor tried to build a new airport in the Dublin region, the monopolist would simply drop, or threaten to drop, its charges to discourage such investment. That means that the monopolist might maintain a more modest charge level to put off the prospect of such competition. On the evidence of LCA, it could be in the range of €20 to €30, as assumed above. In a competitive market an asset is worth what the value of its future net income is in today's terms. In a monopolistic market its value is still the present value of its higher monopoly net income. There is a rule of thumb that says asset value is given by multiplying annual income by 20. That puts the value of Dublin Airport, to a (cautious) monopolist, at about €10 billion assuming a charge of €25 per passengers, commercial revenue covering operating costs, and a steady 20 million passengers per annum. As this is based on a competitive LCA charge, it is understating the charge a monopoly Dublin Airport might get away with. Based on competitive land prices of about €3 million an acre (Cargobridge land sold for €2.5 million an acre in 2000), the airport is worth about €8 billion which just about confirms the above €10 billion figure. We know Aer Rianta management asked consultant's to look at privatisation and the 1999 report Arthur Andersen, et al, "Future Strategic Direction" proposed a 50% privatisation of Aer Rianta. There is no reason why, in today's climate and the privatisation of Aer Lingus, a 50% sale would be the final outcome. But how would such individuals really gain from privatisation? It could be that they would see themselves being treated as high-powered private-sector executives with much bigger salaries, bonuses, and share options that than they can expect as public servants. That attitude is not confined to senior management either. Staff can see share options as very attractive. As a private airport they would not be subject to the CAR. That is not certain, but with a minority public share (as for Aer Lingus) a part privatised Dublin Airport would probably not be subject to regulation. There would be difficulty privatising it if that were the case. Consequently they could set passenger charges to what they can get away with. And, if they get their runway there will be no likely competition to prevent them exploiting an effective monopolistic position. The airport is worth €8 - €10 billion rather than the €600 million the regulator says. If it is privatised at the CAR's valuation (which values all Dublin Airport land at only €20 million in total) they will get a public asset at fire-sale value and then be able to milk that asset with higher charges because of their monopoly. Nobody, public or private, could compete with their super airport capacity. Big salaries and bonuses quickly follow. Some say that opposing this runway will encourage a second airport and that will lead to competition and lost jobs. That is nonsense on a number of grounds. First, this runway at Dublin Airport is a recipe for rip-off because it makes it ripe for privatisation in a manner that is not in the public interest because it will create a monopoly. A second Dublin airport would prevent either airport, public or private, ripping people off, because it would avoid that monopoly position. A second airport would be a real engine for job creation where jobs are needed, and without all the pollution and traffic problems, if it is well sited. That cannot happen if this runway goes ahead in congested Fingal. Privatisation, if it encourages competition, is good for jobs and preventing exploitation. Look at what Aer Lingus was doing to Irish air travellers for 50 years! But bad privatisation, followed by rip-offs of taxpayers who owned the assets and travellers who will pay monopolistic charges, are more likely if this runway goes ahead, because there will be no possibility of real competition. Aer Lingus privatisation may just be a precursor to the big one: the privatisation of Dublin Airport. With Aer Lingus, the national flag-ship, privatised, what is there now to stop the privatisation of Dublin Airport? That is where the real killing will be. The airline business is highly competitive now and Aer Lingus will only survive in competition with sharks like Ryanair. Some executives may do well, but modestly in comparison to the Dublin Airport bonanza, if it is privatised. Follow the money trail and watch carefully those who stand to gain. Matt
Harley |
