Economics 20/05/2010: No comment needed

This is in just now from Ryanair:

Starts

IRELAND LOSES RYANAIR HANGAR AND UP TO 200 JOBS TO GERMANY AND FRANKFURT HAHN AIRPORT

(Thursday, 20th May 2010) ...At a press conference in Mainz today, hosted by Ryanair’s Michael O’Leary and Minister for Economics and Transport, Hendrik Hering, Ryanair announced that it would invest €25m in building a new two bay aircraft maintenance hangar including two aircraft simulators and a 16 room cabin crew training centre, in a move which will create up to 200 new Ryanair jobs at Frankfurt Hahn Airport.

...This new facility and jobs will replace those previously offered to the Irish Government earlier this year in the empty Hangar 6 at Dublin Airport. Ryanair regrets that even today, many months later, Hangar 6 remains unused for base maintenance, while up to 900 SRT Engineers remain unemployed, drawing the dole. Many of these people could have found skilled, well paid work, with Ryanair, had the Irish Government accepted the airline’s offer to buy or lease Hangar 6 and divert a significant proportion of Ryanair’s base maintenance to Dublin Airport.

Speaking today in Germany, Ryanair’s Michael O’Leary said:

“While we are pleased to announce this new investment in Germany and Frankfurt Hahn Airport, I regret that the Irish Government stood idly by and did nothing to win these new jobs for Ireland. The Irish Government talks a lot about competitiveness, but is short on action.

“At a time when traffic and tourism is collapsing in Ireland, the Irish Government prefers to impose tourist taxes, and order big increases in Dublin Airport’s fees, rather than work with the world’s largest airline to lower access costs, win investment in maintenance or create hundreds of well paid engineering jobs at Dublin Airport.

“Sadly in Ireland, we are stuck with a Government which likes talking about the “smart economy” but prefers implementing “dumb policy”. The sooner they reverse these tourist taxes and slash high costs at the Government owned DAA airports, then the sooner Irish airports and tourism can return to low cost access and traffic growth”.

Ends. Thursday, 20th May 2010

Economics 1/04/2010: Travel time? Not a chance.

Hat tip to the Machholtz's blog - the link to my participation on Wide Angle (Newstalk 106FM) here. Discussing Nama...

The thing is - when all sides of political spectrum agree that we have taken a wrong path to banks crisis solutions, why is the Government failing to listen? Is the answer boiling down to the 1,500 jobs still remaining in the Anglo? Is it all about projecting the optics, buying time at the expense of the future of this country?


On today's data release from CSO:

• Trips to Ireland by overseas residents in January 2010 - down 26% to 313,800 from January 2009, an overall decrease of 110,400
• Visitors from Great Britain - down by 31.6% to 142,400
  
• Visitors from 'other Europe' and North America down by 29.7% and 2.2% respectively
• Trips from residents of other areas rose by 4.2%
• The largest decreases from overseas visitors to Ireland were: Great Britain (-65,900), Poland (-7,800), France (-7,000), Italy (-5,700) and Germany (-5,200)
  

In the mean time, Irish residents made 448,900 overseas trips in January 2010 or 10.6% fewer than in January 2009.
Travel tax, as expected with all trade barriers, is not an effective measure of domestic industry protection. Instead, it is yet another quick fix revenue raising measure that hurts more than it delivers.

Don't believe me? Well, aside from several independent analysts reports, even Aer Lingus (our Government's cheerleader airline) and Bloxham Stockbrokers (not exactly known for their fortitude when it comes to criticising the Government) agree.

Economics 18/02/2010: Ryanair are releasing actual evidence

Another chapter in 500 jobs saga at Dublin Airport: remember that claim that RTE aired that Ryanair could have been planning to use Hangar 6 as a monopoly-busting Terminal 3?

Earlier today Ryanair released its letter to IDA, dated July 2, 2009 - which commits Ryanair to the specific, narrow use of Hangar 6 and suggests DAA can impose a clause that would restrict Ryanair use of Hangar 6 only to heavy maintenance work. Here is the letter:

At the very least, one has to be fair to Ryanair - they are the only party to the entire debacle who are backing their claims with real evidence. DETE or DAA might want to follow the lead... I am certainly going to give them space on this blog, if they need one.

Economics 17/02/2010: The Saga of 500 jobs

The story of 500 jobs at Ryanair maintenance facility continues with this:

Economics 16/02/2010: Aircarft Servicing Investment Letters

UPDATE below

Here are actual letters between Michael O'Leary and Mary Coughlan, TD that have made so much press recently.

15th February 2010

Mr. Michael O'Leary
Chief Executive Officer
Ryanair Limited
Dublin Airport
County Dublin

Dear Michael,

Thank you for your letter of 10th February 2010 which was received in my office by post today.

Needless to say I was very disappointed to learn of the decision of Ryanair to locate its new investment in Prestwick despite our best efforts, through IDA Ireland, to secure the investment for Dublin.

You will recall that there were two obstacles to progressing this matter. Firstly, your reluctance to talk to the DAA which owns Hangar 6 and secondly the fact that Hangar 6 was being occupied by another party. A number of options for developing facilities at Dublin Airport were put to you. Those options included the possibility of new hanger facilities being constructed at Dublin which seems also to be the basis on which the new facility at Prestwick is being accommodated.

I can assure you that the Government is most anxious to secure further investment from Ryanair at Dublin or indeed at another Irish Airport. The IDA, in the first instance, are available immediately, as are the DAA, to continue discussions with Ryanair. The IDA are satisfied to continue to act as broker and point of contact for Ryanair.

It has been possible in the very recent past to secure new investment in aircraft maintenance facilities at Dublin Airport and I would hope that with goodwill on all sides we can secure new investment here by Ryanair.

Yours sincerely

Mary Coughlan T.D.
Tánaiste and Minister for Enterprise, Trade and Employment

Nothing else to add here.


Except an update:

This is from Ryanair:

Ryanair, today (16 Feb 10) released photographs of what Hangar 6 is being used for today – precisely nothing. These photographs were taken at approx. 9am this morning and show no heavy maintenance work going on in the hangar, at a time of year when it should be full of aircraft undergoing heavy maintenance. This is why 800 SRT engineers are on the dole today.

Ryanair today made the point that Aer Lingus have a long-term heavy maintenance contract for their entire fleet of 35 aircraft in France and therefore has no requirement for the Hangar 6 facility. Ryanair believes that the DAA lease to Aer Lingus was designed solely to block Ryanair’s request for this facility which was submitted to the Tánaiste last September at a time when Ryanair was offering to create 500 maintenance jobs at Dublin Airport.

Ryanair also today released an extract from its DAA lease agreement for Hangar 1, which contains a standard clause in all DAA lease agreements allowing the DAA to terminate leases and relocate licensees (such as Aer Lingus in Hangar 6) should the DAA require the facility.

Ryanair’s Stephen McNamara said: “We are releasing these photographs and this extract from a DAA licence agreement to demonstrate two things:

1. that Hangar 6 is unused and Aer Lingus’ line engineers have no use for this large heavy maintenance building and,

2. to prove that the DAA has lied again when they claimed that Aer Lingus has a 20 year lease over Hangar 6 and cannot be moved.

“These photographs and this information proves yet again that the DAA has lied to the Govt and the public and has, we believe, misled the Tánaiste last September and again recently when they claimed that they had other parties interested in using the Hangar 6 facility for heavy maintenance. These false claims show why Ryanair cannot and will not deal with the DAA”.

Ends Tuesday, 16^th February 2010

Economics 28/12/2009: More evidence against Ireland's travel tax

Updated

My favorite topic is back... travel figures. RTE reports on industry estimates of 12% fall off in the number of foreign tourists (not visitors) to Ireland (here). More interesting data is courtesy of Ryanair release (these guys really should win a transparency award for publishing the data that some parts of the public sector do not want us - the public - to know).


Dublin Airport’s seat capacity has slumped from 10 to 17 ranked in a league of EU airports this winter. The report, by RDC Aviation, also shows that Dublin Airport has suffered the largest capacity cuts of any of Europe’s 25 largest airports. This slump proves that the Govt’s €10 tourist tax has devastated Irish traffic and tourism in 2009 and disproves the Dept of Transport’s false claims that Dublin Airport’s traffic collapse is “an international phenomenon” (per Ryanair statement).
Notice that table above (reproduced from the RDC raw data) clearly shows that Dublin Airport traffic fall off in 2009 relative to 2007 is also out of line with other leading airports. Table below stresses this point:
Notice airports that outperformed Dublin (in blue above) - all selected on the basis of their traffic similarity with Dublin - localized, regional traffic with smaller share of transit passengers for international connections.

Now, ANOVA for the above: while Dublin numbers changes do belong in the sample for 2008, the same is not true for 2009. This tends to support the argument that changes in Dublin capacity are not consistent with overall deterioration in economic conditions internationally.
So here we have it - another source of evidence to support 'Gurdgiev-Ryanair' conjecture that airport taxes and charges are undermining Irish airlines and travel sectors. Note - the fact that airlines are being hurt is evidenced by the fact that all major airlines present at the Dublin Airport - not only Ryanair, but also Aer Lingus, EasyJet and BMI - have made such a claim to the Government.

Per Kevin's very incisive comment (see in comments section) several points worth addressing:

"First of all you have to consider the timing of the tax, to what extent does it coincide with the fall in numbers."

This is precisely what is addressed in 2007-2008 and 2008-2009 growth rates that I added to the data. Full impact of travel tax took place in 2009. Notice the discrepancy in the rates of decline at Dublin and the differences in the Anova table - they show that 2009 regime was completely different from the 2007 and 2008 regimes.

"Then you need to allow for any other taxes/charges in these other places and their change."

Actually, no - I do not need to do so. If other places had any change in their travel tax rates, there will be an effect on these airports in the first order, and on Dublin airport at the very best in the second order. The first order effect, I would assume, will be simply much larger. Furthermore, several airports on the list have lowered their charges and several governments have repealed their travel tax. I do not control for this precisely to err on the skeptics side. Re-weighting figures by removing from the sample those airports where charges and taxes were reduced in 2009 actually changes the Anova bands by less than 0.2 points, without altering the conclusions.

"And of course you need to control for any other factors that differentially impact on capacity which may or may not be correlated with the variable you are interested in."

True. But what these might be? Macro shocks are suggested. Ok, take the logic here - the figures are bi-lateral capacity. So, if, say, potential Italian tourists to Ireland were less adversely impacted by macro shocks, their propensity to travel to Ireland would be less adversely effected by income shocks. Since Ireland experienced the worst 'macro shocks' of the entire Eurozone, then the differences in macro shocks will act to improve traffic through Dublin Airport.

What other forces can be acting here? Higher airfares? Not really - Dublin offers some of the lowest airfares, net of taxes and charges in the EU15. And it is being compared against other full cost (not low cost) airports. So price effects, again, are acting to strengthen my argument, not to weaken it.

Optimally, an econometric exercise should be carried out, alas, two obstacles prevent this from being performed:

1. lack of coherent data across various airports; and
   
2. lack of time dimension post-tax introduction.

So we can wait for another 10 years to get the data sufficient to test causality (if we do get it - remember - Dublin Airport alongside Tourism Ireland and DofT are actively attempting to suppress public releases of data on tourism flows through Dublin). Or we can just settle for the second best - an Anova.

Finally, as in medicine, economic policy should always err on the side of upholding the principle of inflicting no harm. this means, that absent full analysis of economic feasibility, no tax policy change should take place. Can anyone point me to such analysis in the case of our travel tax?

Economics 15/11/2009: When Ryanair gets serious...

Per my continued opposition to absurd tax measures, see the following statement from Ryanair and my comment below:

Apart from landing another rainy cloud on Mrs Coughlan's fine parade (after all it does call Tanaiste out as being somewhat disingenuous in her claims), this statement is worth looking at a bit closer:

If the Irish economy is losing €600mln in tourism revenue, the VAT on this loss will likely be ca €80-100mln (as some services bear reduced VAT). This is the first round of losses to the Exchequer.

But every euro spent by a tourist in this country goes to pay for goods and services here, which in turn generates banks deposits and payments to suppliers. These payments are then used to generate new economic activity, thus triggering a second round of tax receipts. And the merry-go-round then goes on to the third round and so on. 

Given the average OECD private spending multiplier is approximately equal to the M1/M3 multiplier, which is roughly 3.8-6 (depending on the range of years chosen, with the lower number coincidentally referring to the years of the most recent global markets boom), then these losses are indeed much greater than those claimed in Ryanair note. 

Back of the envelope calculation suggests the Exchequer will be foregoing some €120-250 million more in revenue on top of the first round losses. And this is before we factor in income taxes and other taxes, such as charges on fuel that foreign motorists might pay while touring Ireland.

So we are now back to the old equation: put a €10 tax in place, lose some €100-230 million in revenue. Good luck running the country with these mathematics...

Note: that article attacking my and Ryanair analysis of the travel figures that predicted the yet-to-materialise substitution effects of Irish travel tax is available from the Irish Times site (here).

Economics 06/10/2009: Ryanair in sight

I know, you've told me that few care, but I just have to highlight the obvious - love it or hate, but Ryanair is a real flag carrier for Ireland's can do culture in business. Here is a cumulative total of the facts (without any of my interpretation):

• Traffic figures for August 2009:
• “Ryanair’s August traffic grew by 19% or 1.1million passengers thanks to our lower fares and no fuel surcharges while traffic at Dublin Airport collapsed by 15%, a loss of 364,000 passengers in just one month. Dublin Airport is now on track to lose 3million passengers this year."

• Above, Ryanair September numbers.

Now some brilliant phraseology:
and

I will stop there...

Economics 02/08/2009: An idiot's guide to tax policy

Remember that senile reply that the Irish Times has published to my conjecture that higher taxes in Irish airports will hurt Irish tourism and ultimately will cost the Exchequer? Feel free to refresh this case here and here - the original piece that caused the Irish Times editorial page implosion).

Well, don't take my word for it, or CSO's figures - these are not sufficient for our wise ex-IMF Directors. Here are the hard jobs...

"Ryanair, the World’s favourite airline, today (30 July 09) announced 20% flight cuts at its Dublin base for the coming winter schedule (09/10). Compared to winter 2008/09, when Ryanair based 18 aircraft, and operated 1,200 weekly flights, Ryanair’s Dublin schedule this winter will be cut by 22% to 14 based aircraft with 20% fewer flights at less than 1,000 each week. Ryanair estimates that its Dublin traffic this winter will decline by a further 250,000 passengers compared to last winter’s figures, as Dublin Airport loses over 2m passengers overall in 2009.

Ryanair’s decision to cut based aircraft flights at Dublin Airport is for the following reasons:
a) Dublin is one of Ryanair’s two most expensive base airports (Stansted is the other).
b) Costs at the DAA monopoly continue to increase at above inflation rates.
c) The Aviation Regulator continues to rubber stamp unjustified Dublin Airport cost increases while costs at most other UK and European airports are falling.
d) The Irish Govts €10 tourist tax makes Ireland an uncompetitive tourist destination at a time when other European Governments have scrapped their tourist taxes.
e) Traffic at Dublin airport is collapsing (down 11% or 1m fewer pax in the first half of 2009) under the weight of these high airport fees and this stupid tourist tax.

The fact that the DAA monopoly are proposing further price increases at a time when most other UK and European airports are reducing their prices, highlights the damage being done to Irish aviation and tourism by this high cost, inefficient, badly run airport monopoly. Ryanair has repeatedly called on the Government to scrap the €10 tourist tax which has had an equally devastating impact on Irish tourism. Ireland cannot grow tourism by taxing tourists. The Belgian and Dutch Governments have recently scrapped their tourist taxes, and the Spanish and Greek Governments have reduced their airport fees in some cases to zero this winter in order to reverse traffic declines.

Ryanair’s Michael O’Leary said: “...The high and rising costs at Dublin Airport, combined with an insanely stupid €10 tourist tax, are devastating tourism here in Ireland. These cuts come just one day after Ryanair announced 39 new routes to the Canaries this Winter where the Spanish Government has reduced airport fees to zero. Last week Ryanair announced 11 new routes to Oslo airports this winter where again airport fees have been substantially reduced. The response of the Government owned DAA monopoly to this 11% traffic collapse is to seek yet further price increases! The incompetent Irish Aviation Regulator has already proposed that Dublin airport charges for 2010 onwards will be “18% higher” than they would be if the DAA’s traffic was not declining. Sadly the DAA gets rewarded by the regulator with price increases for its abject failure to grow and stimulate traffic."

So how much revenue to the economy and the Irish Exchequer is being lost? May be Michael O'Leary can sum it up.

I have nothing to add, other than perhaps to ask the Irish Times editorial team to filter economically illiterate arguments out of its pages in the future - just because someone writing an article signed 'ex-director of IMF and career ex-civil servant from Ireland' doesn't mean that they actually have much to say that is valid. Quite likely, it means the opposite...