Ireland’s Dublin Airport Authority (DAA) stated the 40% rise in passenger charges to be introduced before the end of the year will not be high enough to allow it to operate in a “sustainable and financially viable manner” (Irish Independent, 09-Jun-2010). DAA argued to the Commission for Aviation Regulation (CAR) that the new charges would not increase its funds from an operation-to-debt ratio to an investment-grade ratio until 2012. CAR last year decided to raise the maximum charge per passenger to be levied by the DAA at Dublin Airport from EUR7.39 to EUR10.44 next year. DAA, Ryanair and Aer Lingus all appealed the decision on different grounds. CAR also commented that the DAA’s 'BBB' credit rating was sufficient for it to operate. The Aviation Appeals Panel has also asked CAR to consider a means by which the recovery of increased overheads from the “over-specification” of retail space in Terminal 2 could be postponed until “commercially justified”. T2 is estimated to have approximately 40% more retail space than other international airports. Aer Lingus has also argued the retail space would not be used efficiently for the foreseeable future as passenger traffic is insufficient.
Dublin Airport Authority states 40% rise in passenger charges not sufficient
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For the first time ever in Europe, in 2016 a low cost airline carried more passengers than any other airline or airline group, as Ryanair's 117 million passengers pushed Lufthansa Group's 110 million into second place. Ryanair had beaten Lufthansa itself, but not the whole Lufthansa Group. IAG's first full year of including Aer Lingus helped it to take third place from Air France-KLM. Europe's number two LCC, easyJet, was ranked fifth.
The big five can be expanded into a big seven to include Turkish Airlines and the Aeroflot Group, although these two had contrasting growth rates in 2016. A chasing pack of middle sized airline groups includes three LCCs (Norwegian, Pegasus and Wizz Air) and three legacy airlines with varying challenges to establishing sustainable profitability (SAS, Air Berlin Group and Alitalia).
Most of the faster growing airline groups in the top 20 are LCCs and the main growth drivers for Europe's big three legacy groups are their LCC subsidiaries. Just outside the top 20 are some fast growing legacy airlines in Eastern Europe, demonstrating the potential there. Nevertheless, unless there is a big merger or acquisition, Ryanair looks set to remain at number one for some time.
Ryanair, easyJet, Norwegian, Wizz Air, Pegasus Airlines: Europe's top LCCs' collective margin drops
CAPA's previous analysis of the 3Q2016 results of Europe's big three legacy airline groups highlighted a fall in their collective operating margin, after growth in 1H2016. This report shows that Europe's five leading LCCs, in aggregate, also suffered a fall in profit and margin in the quarter.
Three of the five – Ryanair, Norwegian and Wizz Air – improved their profit margin in the quarter, but easyJet's drop in margin was heavy enough to bring down the collective result. Pegasus' margin also declined.
Nevertheless, the LCC five remain collectively far more profitable than the legacy three. Moreover Europe's two most profitable airlines, Ryanair and Wizz Air, look set to increase their margin lead this year. Even easyJet, which has had a bad year by its standards, achieved a higher margin for calendar 9M2016 than the most profitable of the big three legacy groups, which was IAG.
The divergence of results in the European sector suggest that not all airlines are following the same cycle. However the collective margin decline for the continent's leading LCCs, and its major legacy airline groups, at least gives reason to question whether or not the cyclical upswing may have run its course.