Five-year Heathrow slots promise on the table

IN the run up to Willie Walsh’s appearance at the Oireachtas Joint Committee on Transport and Communications it was noticeable that while IAG were offering to guarantee that the Aer Lingus Heathrow slots would be used on Irish routes, they were making no commitments to serve Shannon or Cork.

However that changed last Thursday, as after a little pressure, Mr Walsh confirmed that he was offering guarantees of five years of connectivity for the two airports.

Mr Walsh also said that as it stands Shannon or Cork have no such guarantees, and that a takeover actually gives them greater certainty.

While some of the Committee members asked him about giving an even longer guarantee, he insisted there is absolutely no way that he will do so.

Early in the sitting Mr Walsh rubbished claims that any guarantees on connectivity would not be enforceable. “I have heard people say they are not worth the paper they are not worth the paper on which they are written. I can assure the committee that we have smart lawyers who have been able to identify a structure that will secure them in a legally binding way.”

He claimed that there are very valid business reasons for retaining the links between the two airports and Heathrow.

“I would genuinely be very shocked if I discovered the operation of the Shannon-Heathrow and Cork-Heathrow services was not profitable for Aer Lingus. I know Dublin is profitable because we operate on the route. I know from my history with Aer Lingus what the situation was in the airline, but that was a long time ago and many things have changed in the interim. The services are profitable.”

The level of business between Shannon and Heathrow is good, he claimed, even though it is not doing as well as Cork-Heathrow.

“When I look at the traffic flows between Cork and Heathrow, and Shannon and Heathrow, I note the flows from both Cork and Shannon airports are what I have described as very god. This is especially the case with Cork, where the volume of traffic has remained steady through the recession. This was unique given what happened everywhere else during that period. The traffic out of Shannon to Heathrow has declined in recent years. I am not clear whether there is something in the scheduling behind it. It is a matter we can certainly examine in much closer detail. The routes are sustainable in isolation and I assume they continue to be very profitable for Aer Lingus. We would want to retain them but also we would want to examine opportunities to feed additional traffic on to them, thereby continuing to enhance not only the profitability and viability but also the attractiveness of the destinations.”

Following a question from Limerick TD Patrick O’Donovan, Mr Walsh said he was prepared to offer a five-year guarantee.

“My advisor might not allow me to say this but that is something that I would be prepared to do. I see no reason why we would not operate services from Shannon and Cork to Heathrow, maintaining daily services from Cork and the three daily services from Shannon. I have not heard anyone express concern about Dublin. Dublin-London is the busiest international route in the world so of course we are going to be there. I can understand the concern but I genuinely think the concern is misplaced.”

He said there was no real need to give guarantees for what are routes that perform well anyway, but if they were wanted there was no problem giving them.

“If people believe it would be better for me to say ‘Yes, we will continue for a period to operate Shannon-Heathrow and Cork-Heathrow with the three from Shannon and the four from Cork’, yes I would be prepared to do that.”

While there were some demands for him to issue a guarantee for longer than five years, he ruled that out.

Galway TD Brian Walsh probed him about the possibility of getting a longer guarantee.

“In terms of the five-year guarantee, Mr Walsh did not become one of the pre-eminent airline executives in the world without having some strong negotiating skills. His opening gambit is a five-year guarantee. Would he be prepared to consider something further? He said he had exhaustive conversations with his board about this, but would he be prepared to consider extending that and come back to on it?”

Responding to him, Mr Walsh was absolutely adamant that IAG won’t be offering a longer guarantee.

“It is not my opening gambit. Let me be honest; I am not prepared to go beyond five years. People who have negotiated with me have sometimes come to realise that when I make an opening offer my second offer is actually worse than the first one. Do not believe that because I make a proposal I am ready to improve it. If my proposal is rejected I may remove the proposal or I may reduce it, but I can tell you for definite that I am not prepared to increase it.”

He also explained why he wouldn’t give an open-ended guarantee.

“We would be crazy to give an unlimited guarantee about the operation of slots because it would restrict our ability to negotiate with suppliers, including the airport. Nobody operating in a commercial would say ‘I guarantee to give you all of my work regardless of the quality of service you give me and regardless of the cost of the access you provide me with’. That would be mad and anybody in business would say that giving all one’s bargaining power over to a supplier would be a crazy thing to do.”

The IAG CEO pointed out that neither Shannon or Cork have anything like the security he is offering. “I do not need to remind the members that this is a commitment that does not exist. There is no commitment on the hubs today. Aer Lingus has never been prepared to give a commitment on them. I would question whether the board of Aer Lingus could give a commitment.”
The performance of the Heathrow-Shannon route over the five years should make the case for retaining and perhaps extending them, he added, “In those five years I would expect to see the people in Shannon give a commitment to the service that is being provided. It is there to be used and we want to make it work. The more people that fly on it, the more successful it will be. It would be great to see that there was demand that exceeded the capacity in order that we would have to look at putting on additional services.”
Talk of the Government retaining Heathrow slots for strategic national use was rubbished by him.

Governments cannot own slots. Only airlines can own slots. Technically even the airlines do not own the slots; they have the right to operate them. This is known as grandfather rights. A non-airline cannot hold slots, so it has to be an airline entity.”

He also denied that IAG was looking to hoover up Aer Lingus’ slots at Heathrow before transferring them to serve long haul destinations.

“We have more than enough slots to expand British Airway’s long-haul operations. Our competitors cannot do that. In terms of the UK plc, it is a restriction on the development of the British economy; it is not any restriction on BA. We have loads of slots. We can expand our long haul network for the foreseeable future without any issue from the slot pool we have. A total of 27% of our slots are used for long haul and 73% for short haul. We have tonnes of them. We have the slots available within BA to expand our long-haul network as and when we want.”

Owen Ryan