Economic Impact of the development of Dublin Airport as a Hub

Reliance Restricted 07 September 2018 | Final

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Reliance Restricted 07 September 2018 Donal Moriarty Chief Corporate Affairs Officer Aer Lingus Hangar 6 Dublin Airport Dublin

Economic impact of the development of Dublin Airport as a Hub

Dear Donal In accordance with the terms of the engagement letter with you, we have assisted you in the assessment of the economic impact of the development of Dublin Airport as a Hub (“The Purpose”). This report sets out our assessment of these risks. Limitations of Scope We have not, except to such extent as you requested and we agreed in writing, sought to verify the accuracy of the data, information and explanations provided by yourselves, and you are solely responsible for this data, information and explanations. We have therefore relied on the information provided by you to be accurate and complete in all material respects. Use and distribution of this report Ernst & Young only accepts responsibility to the addressees of this letter on the basis of the engagement agreement and assumes no responsibility whatsoever in respect of or arising out of or in connection with the contents of this letter to parties other than yourselves. If other parties choose to rely in any way on the contents of this letter they do so entirely at their own risk. To the fullest extent permitted by law, Ernst & Young and its members, employees and agents do not accept or assume any responsibility or liability in respect of this report, or decisions based on it, to any reader of the report. EY reserve all rights in this report. We appreciate the opportunity to have provided EY’s services to Aer Lingus. Should you have any queries or comments regarding this report or if we may be of any further assistance, please do not hesitate to contact me on 01 221 2611. Yours sincerely

Simon MacAllister Partner

D Dennis, J Fenton, M Gageby, J Hannigan, S MacAllister, S MacSweeney, B McCarthy, D McSwiney, J Maher, A Meagher, I O’Brien, R O’Connor, F O’Dea, E O’Reilly, C Ryan, P Traynor, A Walsh, R Walsh.

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Dashboard 1 Executive Summary 2 Context and Rationale Table of contents 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub 5 Literature Review

Executive Context and Economic Impact of Qualitative Benefits Summary Rationale the Hub of the Hub 1 2 3 4 Page 3 Page 8 Page 25 Page 35

Literature Review

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07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 1 Page 2 07 September 2018 | Final 1 Executive Summary

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 3 Economic impact of the development of Dublin airport as a hub

€18.6bn 33,950 GDP additional jobs 2018 - 2033 in 2033 €6bn Additional Exchequer revenue 2018 - 2033 Tourism Aeronautical and Capital Tourism Aeronautical and €10.4bn non-aeronautical €317m 26,990 non-aeronautical €7.9bn 6,960 €3.3bn €784m €2.0bn

Payroll Profits Consumption

5m Extra Connectivity Exports to the Cargo traffic Tourism Employment Retail spend Passengers generated US generated increased by opportunities increased by in 2033 through increased through ‘stopover’ tourism in aviation greater dwell increased long through greater increased through the related time of and short-haul frequencies and widebody aircraft Dublin Gateway employment, connecting traffic services destinations to operation tourism and at Dublin airport US cities wider business activity

Page 4 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 1 Executive Summary 1 Executive Summary 2 Context and Rationale 33,950 jobs could be created by 2033 by the successful development of a 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub hub at Dublin Airport 5 Literature Review

Total additional Irish GDP Additional employment by Average additional Additional Exchequer 2033 employment - Capital revenues Investment

€18.6bn 33,950 jobs 1,147 jobs €6.0bn 2019 - 2033 2033 2019 - 2023 (annual average) 2019 – 2033

The hub will generate an In 2033, the hub would have During construction, an The Exchequer will benefit incremental €18.6bn of GDP accounted for an additional average of 1,147 jobs would be from increases in a variety of from the following sources: 33,950 jobs in the Irish created taxes including VAT, excise, economy, across the following corporation tax and payroll ► Tourism (2021-2033): areas: taxes, from the following areas: €10.4bn ► Tourism (2033): 26,990 jobs ► Tourism sector (2021- ► Aeronautical and non- 2033): €4.0bn aeronautical (2021-2033): ► Aeronautical and non- €7.9bn aeronautical (2033): 6,960 ► Aeronautical and non- jobs aeronautical expenditure ► Capital (2019-2023): €317m (2021-2033): €1.9bn

► Capital Investment (2019- 2023): €129m

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 5 1 Executive Summary 1 Executive Summary 2 Context and Rationale Dublin airport has an opportunity to develop significant traffic growth if it can 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub develop itself as a hub airport 5 Literature Review

Hub airports have been shown to have significant benefits: As Dublin Airport strengthens its position as a Hub so too will the associated qualitative benefits for FDI and indigenous firms. FDI has played a significant role in ► Reduced airline costs per passenger through economies of traffic density allows advancing Ireland’s economic development over the past number of decades and airlines to offer competitive fares, boosting demand for airlines evidence shows that there strong links between increased connectivity and ► Competitive fares, increased route frequencies and direct access to a wider harnessing inward and outward investment. selection of routes that would otherwise be feasible, offer benefits to all Airport hubs are shown to act as a facilitator for development and expansion. customers Schiphol Airport in Amsterdam, for example, has successfully developed an airport ► Airports benefit from hub and spoke models through higher retail revenue and business park of more than 1,000 firms across a wide range of sectors. There are freight opportunities created by the increased flow of passengers currently 37 FDI-backed firms within 5km of Dublin airport – some way off the level of development in Amsterdam but an indication of the importance certain Dublin airport has a number of advantages which would support it’s development as firms/sectors put on access to transatlantic connectivity. a hub: The Government recognises the growth occurring at Dublin Airport and the benefits 1. Strong network carriers already operating at the airport for the wider economy and has outlined, through its policy document, the National 2. A large route network (short and long haul) which support the aggregation and Aviation Policy, how it intends to develop Dublin Airport as a hub in Europe, utilising connection of passengers its natural advantage and dealing with capacity issues at the airport. 3. A geographic advantage to service the Transatlantic market As passenger numbers grow, Dublin Airport’s capacity has become strained. Numerous pinch points across the airport have been identified, including the Dublin Airport has recorded significant growth over the past number of years with runway, contact stands, immigration facilities and security. particularly strong growth in the Transatlantic market. Aer Lingus has delivered a significant element of this growth however growth has also come from existing Our analysis and identified economic benefits are based on a defined level of carriers, but importantly, also from new carriers such as Air Transat, WestJet and investment in infrastructure and passenger growth. Any investment in excess of Norwegian. these assumptions would drive additional growth and economic benefits which are not included in our analysis. Extra routes both short and long haul have contributed to Dublin Airport facilitating 1.6 million connecting passengers in 2018, with one third of all seats on Transatlantic routes occupied by connecting passengers. Another contributing factor has been Ireland’s status as the only country in Europe to have US pre- clearance. This service is particularly attractive to customers who wish to continue on a connecting flight once they arrive in the US and allows airlines to use domestic terminals.

Page 6 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 1 Executive Summary 1 Executive Summary 2 Context and Rationale 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub 5 Literature Review

This report assesses the economic impact on the Irish economy of the proposed enhancement of Dublin Airport as an international hub. The report is structured as follows:

► Section 2 sets the context and rationale for the development of a Hub at Dublin Airport. We outline the opportunity that exists, why Dublin can take advantage of the opportunity and what is required to do so.

► Section 3 contains findings from the Economic Impact Assessment. The primary purpose of the economic impact is to ascertain the contribution that a Hub at Dublin Airport would make to the Irish economy by way of additional GDP, employment and Exchequer revenues. Impacts are captured during the construction phase and subsequent operational phase of the development. Catalytic impacts, in the form of increased tourism revenue, are also reported.

► Section 4 assesses the qualitative economic benefits of a Hub development in Dublin and focuses on the positive impacts on trade and business investment associated with improved connectivity.

► Section 5 presents the findings of a literature review which establishes the academic or research based findings of the impact of hub airports.

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 7 2 Context and Rationale

Page 8 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 2 Context and Rationale 1 Executive Summary 2 Context and Rationale Hub and spoke models are an established concept for network carriers 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub around the world 5 Literature Review

European hub comparison - destinations ► In a hub and spoke network, the carrier organizes its network around one or a few central hub airports and outside Europe by region (w/c 21 Aug 2017) the flight schedule for this airport is organized in a number of daily waves of incoming and outgoing flights, in which all incoming flights can connect to outgoing flights 40 ► City-pair connections exist on a point to point basis where passenger demand justifies airline investment. 35 However by implementing a hub and spoke system, passenger demand can be pooled from a variety of 30 regions and generate a sufficiently dense flow of passenger demand

25 ► Seat mile costs benefit from economies of traffic density1. With a smooth functioning “wave system”, whereby 20 a hub airport can pool demand from the populations of incoming flights, airlines can maximise load factors on flights or increase aircraft size, reducing seat mile costs. The image on the left shows Helsinki as an example 15 of this system 10 ► The pooling of demand increases the sustainability of routes and helps justify airline investment, such as 5 increasing the frequency of flights. Cook and Goodwin (2008) outline how the addition of one new destination only adds a single new route, utilising existing hub infrastructure, but this destination will potentially be 0 available to every airport in the network

► As a result of the above, the economies of traffic density reduce the average cost per passenger. This allows Dublin Madrid Munich Helsinki

Frankfurt for competitive fares and should lead to a further increase in demand. An International Air Transport Heathrow Association (IATA) report found that the price elasticity of demand (i.e. the sensitivity of customers to a Africa Asia Pacific Latin America change in price) for passengers between Europe and North America is very high compared to other long haul Middle East North America destinations, primarily because it is such a well developed network and highly competitive2

► In the case of Dublin Airport, this research implies competitive fares will likely have a significant impact on Source: CAPA Centre of Aviation - https://centreforaviation.com/analysis/reports/air- europa-part-2-european-hub-airports-connectivity---how-do-they-compare-with-dubai- demand as European customers are highly responsive to changes in price 365103

1 Cook, G and Goodwin, J., Airline Networks: A comparison of Hub-and-Spoke and Point-to-Point Systems, (2008) 2 IATA Economic Briefing, Air Travel Demand, (2008), https://www.iata.org/whatwedo/Documents/economics/air_travel_demand.pdf

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 9 2 Context and Rationale 1 Executive Summary 2 Context and Rationale The National Aviation Policy and National Planning Framework outline the 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub Irish Government’s desire to develop Dublin Airport as a hub 5 Literature Review

National Aviation Policy recognises the National Aviation Policy opportunity at Dublin The National Aviation Policy (NAP) was published by the Department of Transport in August 2015. It’s purpose was to make a formal statement of government objectives for Irish aviation and was the first such statement in two decades. In relation to the development of Dublin Airport as a hub, it included the following key points. Hub development

► The policy outlines how the government wants Dublin Airport to develop as a hub3, competing with UK and other European airports in an expanding market. Utilise Natural Advantage

► It also believes that Ireland should utilise its natural advantage and existing high levels of Transatlantic flights to harness demand.

► With Heathrow nearing capacity, UK passengers are increasingly choosing Dublin over Schiphol as an alternative international hub to North America, partly due to the avoided time lost “backtracking” to mainland Europe4. Capacity Requirements

► It highlights the requirement for the development of Dublin Airport to achieve the capacity required, including the development of a second runway

► Dublin airport is nearing capacity and significant investment in areas such as taxiways, aircraft parking stands and rapid exits are required to facilitate future growth

► The Government’s policy on Dublin Airport was further outlined in the National Planning Framework, published in February 2018. This policy outlined the capital investments required as above as well as improved accessibility to the Airport across the island of Ireland, including the building of a Metro line and examining the feasibility of a high speed rail connecting between Belfast, Dublin and Cork

3 We note the policy uses the term “secondary hub”, which is not one which is recognised or defined in aviation or airline markets, nor academic research. We make no distinction between secondary or any other kind of hub in our analysis as the demand aggregation noted above works in the same way and produces the same benefits for all hubs. 4 The Telegraph, Dublin Airport “an alternate hub to Heathrow” (2013)

Page 10 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 2 Context and Rationale 1 Executive Summary 2 Context and Rationale The right infrastructure could enable Dublin Airport to become a successful 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub Hub 5 Literature Review

Successful airport hubs have the following Hub characteristics A hub airport is served by strong or multiple network carriers and airline alliances that provide scale in routes, aircraft, crew and passengers. A Network Carrier Large or sophisticated networks and strong passenger volumes are of little use unless the airport has the that bases sufficient requisite facilities to support hub operations. These facilities include the following: aircraft to operate a Hub ► Airport facilities required to enable Hub airlines

► Appropriate facilities to handle passenger flight connections and ensure short distances between gates for transfer passengers

► Appropriate facilities to handle efficient and expedited transfer of baggage

A large route ► Ability to deal with peak flows, high volume arrivals followed by distribution of passengers and bags prior to network that departure wave facilitates ► Adequate airfield and runway capacity including taxiway access, aprons and stands for airlines to operate connecting traffic waves of arrivals and departures These are key to minimising transfer times for passengers changing flights at the hub airport and enabling the maximum number of efficient connections for a given network. Dublin airport possesses many of these characteristics, to varying degrees, which we summarise below and discuss in greater detail on the following pages. Advantageous geographical location Dublin airport characteristics vs required hub characteristics

Network carrier Route networks Geographical advantage Hub infrastructure    The Hub infrastructure

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 11 2 Context and Rationale 1 Executive Summary 2 Context and Rationale Dublin is in a strong position to succeed as a hub 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub 5 Literature Review

North American Destinations (w/c 21/08/17) The table outlines Dublin’s key competitors in the European market. Heathrow, Frankfurt, Charles De Gaulle and Schiphol are global hubs, providing services to every major world market. Airports such as Munich, Zurich and Rome offer a similar scope of services however on a smaller scale. Reykjavik, similar to Dublin, is a niche Airports North American Destinations hub focused on connecting the European and North American markets and so is a key competitor Heathrow 34 Dublin Airport has a significant opportunity to increase its market share despite the intense competition in the Frankfurt 37 Transatlantic market. The primary reasons for the potential of Dublin as hub are:

Charles de Gaulle 25 ► Dublin Airport has a large existing network that will help enable the success of the hub. As will be outlined later in the report, Dublin has achieved high rates of passenger growth in recent years Reykjavik 24 ► As mentioned in the National Aviation Policy, Dublin Airport has an advantageous geographical location at Schiphol 23 the western edge of Europe. Using Dublin avoids “backtracking” to a mainland European airport, Dublin 19 particularly for UK passengers where Heathrow is capacity constrained

Munich 19 ► Ireland is the only country in Europe to currently offer Pre-Clearance to the United States, which is very Zurich 16 useful for connecting passengers and provides flexibility for airlines as they can use domestic US terminals Rome FCO 14 ► In Aer Lingus, Dublin Airport has a home based Network Carrier that bases sufficient aircraft to operate as Madrid 14 a Hub airline. Copenhagen 14 ► Aer Lingus currently has 17 Long Haul aircraft and intends to expand to 25 by 2022. The additional Source: CAPA - Centre of Aviation, OAG aircraft will include A321 Neo LR, a narrow body aircraft that will open new markets, increase value and increase flexibility on existing routes The forthcoming Capital Investment Programme for 2020-2024 presents the opportunity to invest appropriately in Hub infrastructure to address the existing capacity constraints.

Page 12 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 2 Context and Rationale 1 Executive Summary 2 Context and Rationale There are identifiable benefits for passengers and for Dublin Airport 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub 5 Literature Review

Irish Passenger Benefits The development of Dublin Airport as the hub of a network also holds numerous benefits for Irish passengers, including:

► The improved connectivity that comes with being a hub airport provides locals with direct routes to destinations that may not be justifiable without pooled demand5

► Increased load factors reduce the average cost per passenger, thus leading to cheaper fares. As mentioned above, customers between Europe and North America are highly price sensitive

► Pooled demand will lead to increased frequency and improved sustainability on existing routes. 1.3m connecting passengers used Dublin Airport in 2017, enabling the viability of 20 destinations in North America Dublin Airport Benefits Hub development holds numerous benefits for the airport, including:

► Increased connectivity will result in higher growth in point-to-point passengers. The airport will benefit from additional revenue from charges from these customers which would not materialise without the hub. These added point to point passengers are a key benefit arising from the hub infrastructure and development.

► Hub operations allow for increased frequencies or upgauge of aircraft size on connecting short haul flights offering Dublin Airport the opportunity to significantly increase its short haul seat capacity as well as long haul. These larger or additional aircraft result in additional revenues for the airport.

► Connecting passengers are likely to have significant dwell time at a hub airport providing significant retail opportunities. Per a GlobalData report in 2017 global airport retail spending hit $38bn in 2017 and is projected to grow to $49bn in the next four years. $10.1bn of 2017 spending was in European airports6. By expanding its market share of flights in Europe and on the North Atlantic corridor, Dublin Airport has scope to grow its retail business. Heathrow Airport, with over 30% of connecting passengers, shows the potential benefits of retail at hub airports. Despite being “at capacity” for a decade, retail continues to grow, fuelled by the redevelopments of terminals to include luxury brands, catering redevelopments and advertising growth7

5 Connectivity is a measure used by the IATA and is an index based on an airports number of destinations served directly, the relative importance of that destination to the global air network and estimates on total seat capacity and the frequencies of the service 6 GlobalData, Global Airport Retailing 2016-2021 Report, (2017), https://www.globaldata.com/store/report/vr0010ca--global-airport- retailing-2016-2021 7 Heathrow Financial Results, (2018) https://www.heathrow.com/company/investor-centre/results-and-performance/financial-results

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 13 2 Context and Rationale 1 Executive Summary 2 Context and Rationale Hub development will also significantly benefit the wider Irish Economy 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub 5 Literature Review

Dublin Airport Benefits (Cont’d)

► The increased routes and frequencies of flights provide significant freight opportunities for hub airports. A 2013 study commissioned by the UK Airports Commission sought to examine the link between aviation and trade (as well as FDI and tourism) using an econometric model with seat capacity across all UK airports as a proxy for aviation connectivity. It found that a 10% increase in seat capacity was associated with an increase in goods exports by 3.3% and goods imported by 1.7%8

Hub airports have been shown to have significant impacts on the wider economy. Hubs such as Dubai, Singapore and Iceland show the potential scope for these impacts. The Irish economy could benefit in the following ways:

► Employment: An increase in passengers will generate more jobs at Dublin Airport. As Ireland has a small domestic market, pooling demand from across Europe provides the opportunity for continued growth at Dublin Airport. The literature review shall outline how jobs created directly at the airport will create more jobs in the wider economy

► Trade: A larger route network and increased scope for wide body aircraft due to pooled demand will allow for increased freight capacity at Dublin Airport, providing Irish exporters increased opportunities – particularly in the US market where Ireland currently exports $35bn annually

► Tourism: The tourism industry currently generates over €5bn in revenue for Ireland every year, supporting 200,000 jobs and accounting for 4% of GDP. Increased connectivity at Dublin Airport will mean a larger market size for both direct and indirect traffic. The development of a hub also creates the possibility of “stopover tourism”, as can be seen in Iceland and Dubai, where an integrated approach from the aviation and tourism industries can encourage connecting passengers to extend their layover

► Investment: Many studies have shown a positive link between investment and increased connectivity. Ireland is a small, open economy which aims to attract foreign direct investment and the development of a hub airport will increase the quality of Ireland’s proposition to global companies. Additionally, airport- centred urban regions have been a growing trend around the world, for example the Zuidas district near Amsterdam Schiphol, and the development of a hub in Dublin will increase this type of investment

8 Airport Commission https://www.gov.uk/government/publications/airports-commission-interim-report

Page 14 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 2 Context and Rationale 1 Executive Summary 2 Context and Rationale Short haul growth in the form of new routes and additional capacity has 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub been significant in Dublin Airport in recent years 5 Literature Review

Short Haul Destination growth Dublin Airport’s summer season for 2018 consisted of 195 destinations in 42 countries operated by 56 airlines. 14 new routes were announced were announced for this schedule with the addition of 4 new airlines – Hainan Destination Airline Year Added airlines, Cathay Pacific, Croatia Airlines and Icelandair. An additional 391,000 seats were added on flights to Reykjavik Icelandair 2018 North America, a 14% increase from the previous year. European summer seat capacity has increased by 8% with an additional 1m seats Carlisle Loganair 2018 Short Haul & Asia Frankfurt Ryanair 2018 As can be seen on the table, numerous new routes have been added in recent years. There have also been Luxembourg Ryanair 2018 significant expansions from many of Dublin’s leading airlines: Porto Aer Lingus 2017 ► Lufthansa announced in 2018 that it was to introduce a 5th daily service to Frankfurt, increasing capacity by Split Aer Lingus 2017 20%. The group is now Dublin’s third largest carrier, also serving Cologne, Dusseldorf, Frankfurt, Geneva, Munich Transavia 2017 Munich and Zurich

London Southend Flybe 2017 ► Ryanair has increased frequency on 11 of its existing services in Dublin while also adding 7 new services, bringing the total number of services from the airport to 76 Stockholm Norwegian 2017

Hamburg Ryanair 2016 ► KLM has significantly increased capacity on its Dublin-Amsterdam route. Launched in November 2016 with two daily flights, the airline now operated 5 daily services between the cities resulting in a 161% increase in Murcia Aer Lingus 2017 capacity between winter 2016 and 2017 Amsterdam KLM 2016 ► Aer Lingus has added routes and capacity from Dublin in recent years. For the 2018 summer schedule, Nantes Aer Lingus 2015 there have been significant increases in capacity on existing routes from Dublin, to destinations such as Bordeaux (19,000 seats), Lyon (22,000), Prague (18,000) and Vienna (21,000) Hanover Aer Lingus 2014 ► There has also been steady growth in Aer Lingus Regional, a brand created in 2010 and operated by Source: Dublin Airport Stobart Air. This brand carries over 1 million passengers a year on lower demand routes using smaller ATR aircraft.

► Although long haul growth has mainly centred on North American markets, Dublin has added services to cities such as Beijing, Hong Kong and Doha in recent years, through Hainan Airlines, Cathay Pacific and Qatar Airways respectively. Beijing marks Ireland’s first direct flight to mainland China, offering significant opportunities to the Irish economy. In 2017, 70,000 Chinese tourists visited Ireland, a 16% increase year-on- year

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 15 2 Context and Rationale 1 Executive Summary 2 Context and Rationale The North American market has been significantly developed over the last 5 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub years in particular with both new entrants and new routes 5 Literature Review

Long Haul Developments Long Haul Destinations (North America) Dublin Airport has seen strong long haul growth, with a number of key factors:

► Dublin Airport is now the 5th best connected European airport to North America, trailing only the global hubs of Heathrow, Charles de Gaulle, Frankfurt and Schiphol. In 2018, Dublin Airport has a total of 10 airlines flying 446 flights per week to and from 16 destinations in the US and four destinations in Canada9

► Aer Lingus is among the chief contributors to this growth. In 2013, Aer Lingus only served New York, Boston, Chicago and Orlando. In 2018, the number of destinations had risen to 13 with a seat capacity of 2.75m

► There have also been significant increases in Aer Lingus’s capacity on existing and newly added routes, such as Dublin-Chicago now twice daily, increasing Los Angeles and San Francisco’s from 5 days per week to daily and operating a third daily service between Dublin-JFK during June, July and August. Capacity increases have also been achieved to Washington DC through the using of larger Airbus A330-300 for 4 out of the 7 days, adding additional capacity of 31%

► Norwegian Airlines has steadily increased services from Dublin Airport and plans to increase capacity to Providence by 40% in 2019, moving from 5 days a week to daily. The airline has already doubled services to Stewart Intl., launched in 2017 as a daily service. The airline has also announced it’s first Canadian route for summer 2019 to Hamilton, Ontario – an hours drive from Toronto

► Aer Lingus has also entered into wet leases (i.e. an aircraft lease where the lessor provides flight crew members, aircraft maintenance and insurance) with ASL for 4 Boeing 757’s to operate the Shannon-JFK, Shannon-Boston, Dublin- Hartford and Dublin-Toronto routes. This has allowed the larger A330 fleet to operate on the busier routes from Dublin, while also allowing Shannon operate year round daily services to New York and Boston, as opposed to alternating days as was the case when the A330 was based in Shannon Destination ► US and Canadian carriers have also delivered growth, including new routes such Seasonal Destination as Dallas FortWorth (American June 2019), Boston (Delta May 2017) and Destination from 2019 Montreal (Air Canada June 2018) and capacity increases Vancouver (Air Canada June 2019) and Toronto (Air Canada Rouge June 2019). 9 Routes Online, Dublin Airport Opens New Transfer Facility, (2018)

Page 16 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 2 Context and Rationale 1 Executive Summary 2 Context and Rationale Dublin is already developing as a hub, with the UK being a key source of 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub passengers 5 Literature Review

Connecting UK Passengers using Dublin Per the ACI Airport Connectivity Report 2018, Dublin Airport is one of the fastest growing hubs in Europe, in as a Transatlantic Hub by Airport terms of hub connectivity score10. Dublin’s score has increased by 273% since 2008 and in 2017 was ranked as the 19th airport in Europe in terms of hub connectivity and 18th in terms of direct connectivity (see pages 10 and 17 for explanations of these terms). UK traffic in particular has been important for short haul growth and for transfer passengers. This growth has been driven by a number of elements:

► As mentioned previously, Dublin’s unique geographical position has encouraged passengers to use the airport for connecting flights to North America. Plans to expand London’s passenger capacity (either at Heathrow or elsewhere) have stalled for over a decade, giving Dublin the opportunity to increase the amount of passengers who use it as a hub. The graph demonstrates the growth in UK passengers using Dublin Airport to connect with flights to the US from 2011 to 2015

► Stobart Air (operating as Aer Lingus Regional), with its smaller ATR aircraft, has been utilised to reach new markets, such as Newcastle. In 2015, the morning Newcastle departure from Dublin could connect with 5 inbound Trans-Atlantic flights. Similarly, the flight from Newcastle to Dublin could connect to 6 outbound flights to US cities.

► FlyBe, with Q400s of similar capacity to Stobart, provide important connectivity to regional airports such as Cardiff, Doncaster/Sheffield, Exeter and Southampton. New entrants such as LoganAir, with a brand strong Source: O’Connell JF, Connolly D, the Strategic Evolution of Aer Lingus (2016) in parts of Scotland and regional England, have routes to Carlisle and Inverness.

UK traffic aggregation ► Aer Lingus Regional has also been used to add the frequency required to operate a hub system without flooding routes with excess capacity. For example, Aer Lingus currently offer 4 flights to and from Manchester and Aer Lingus Regional offers an additional two flights. These flights increase frequency which makes connecting flights more convenient for passengers and results in reduced wait times.

► Ryanair provides significant capacity on routes to 12 UK destinations including key cities such as Birmingham, Liverpool and London-Luton, which have limited or no US services.

► There is no pre-clearance to the US at UK airports. The major transatlantic gateway is Heathrow and the multiple terminals for US traffic make pre-clearance difficult to operate, while other UK airports lack the traffic volume to justify the investment in pre-clearance. IAG is investing in Aer Lingus growth as a value carrier North America across the Atlantic and British Airways (another IAG company) has limited non-stop long haul flights from UK regional airports. Air France, Lufthansa, and KLM are all diverting traffic from the UK Regions to their hubs.

► In total, 6 airlines provide 868 flights every week to 25 UK destinations, the majority of which have no US services, and limited prospects of securing such routes.

10 Source: SRS Analyser, Flighglobal ACI Europe – Airport Industry connectivity Report 2018, (2018)

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 17 2 Context and Rationale 1 Executive Summary 2 Context and Rationale Immigration pre-clearance is a significant selling point 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub 5 Literature Review

US passengers at Dublin Airport The Impact of US Pre-Clearance 3,500 US Pre-clearance has been in place since 2008, allowing US bound flights from Dublin and Shannon to be fully cleared prior to landing. This allows for efficient boarding, avoids the lengthy entry process on US soil and allows 3,000 airlines use domestic terminals which enhances connectivity on arrival for onward air travel. Per the graph on the left, Transatlantic flights out of Dublin have been growing steadily since 2010, and although pre-clearance 2,500 isn’t the primary driver, it has helped facilitate growth in the following ways11:

2,000 ► Connecting Passengers: US pre-clearance has been cited as particularly beneficial in attracting passenger who intend on connecting in the US. The Centre for Aviation outlined in a 2016 conference report that there is 1,500 a much reduced risk of border delays causing them to miss their connection or have issues getting baggage 1,000 onto their connecting flight Passengers (‘000s) ► Flexibility: The Centre of Aviation report also discusses how pre-clearance allows greater flexibility for 500 airlines in where they operate routes. The CAPA report outlines how the next-generation narrow body aircraft 0 can open the Transatlantic market to airports that previously wouldn’t have been considered. These smaller airports may not have customs and immigration facilities, hence requiring pre-clearance Source: CSO 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Increasing competition

► Ireland is at risk of losing its status as the only country in Europe which offers pre-clearance facilities. The US Department of Homeland Security has approved 10 airports to provide pre-clearance, 8 of which are Airports approved for US preclearance European airports (see table)

London Heathrow Amsterdam Schiphol ► However, Dublin has a number of advantages over these airports, including the purpose building of Terminal Manchester Madrid-Barajas 2 with pre-clearance in mind. Heathrow for example has its Transatlantic flights spread across multiple Stockholm Arlanda Brussels terminals, making the introduction of pre clearance very expensive and logistically difficult. The CAPA report outlines that some of these airports may never introduce pre-clearance for these reasons Oslo Tokyo Narita Punta Cana Istanbul Ataturk ► Stockholm appears to be the first airport on the list to actually go ahead with the introduction of pre-clearance, and this will provide the first indication of the effect of this policy Source: CAPA centre of Aviation

11 CAPA Centre of Aviation, US immigration pre-clearance: Dublin Airport’s rapid growth has been supported by enhanced US access, (2016)

Page 18 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 2 Context and Rationale 1 Executive Summary 2 Context and Rationale Passenger growth at Dublin Airport has been significant and is continuing 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub throughout 2018 5 Literature Review

Dublin Airport passenger movements Passenger growth 30 Per the 2017 daa Annual Report, 29.6 million passengers went through Dublin Airport in 201712. This represents 27 a 6% increase from 2016. Passenger numbers for 2018 show that there are no signs of this growth easing and in fact ACI figures show Dublin’s passenger growth rate for May was 10.2%, making it the 4th fastest growing 24 large European airport13. 1.8 million passengers used the airport as a hub in 2017, a 32% increase on the previous year. Significant growth areas included the Middle East and Africa, with a 14% increase to 850,000 21 passengers.

Passengers (m) 18 As can be seen on the graphs, passenger Traffic increased to all major regions in 2017: ► Total passengers to Continental Europe increased to 15.2m, a year on year increase of 6.7%, following on 15 from high growth in the two previous years of 15% and 11%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 ► Growth in the UK market slowed in 2017 to 0.6%, for a total of almost 10m passengers Source: CSO ► Transatlantic grew rapidly in 2017, with a 20% year on year increase, totalling 3.3m Year on Year Passenger increase by Region ► Other destinations (primarily the UAE) remain a minor part of the airports total passenger numbers. Growth in 30% this market is volatile but is on an upward trend with passenger numbers up 64% from 2013 to 2017. 25% Dublin has also been developing as a hub for connecting passengers in recent years. The number of passengers transferring at Dublin Airport has increased from 550,000 in 2013 to almost 1.6m passengers in 20% 201714. This growth is continuing into 2018, with a further increase of 17%. 15% The growth has been considerably ahead of expectations, including those used in the most recent price 10% determinations, and approvals for capital investment. As noted on page 21, infrastructure in certain areas is limiting growth and impacting the passenger experience. Investment in this infrastructure, and the infrastructure 5% required to improve hub functionality, should position the airport for continued growth. 0% Europe UK Transatlantic Other -5% 2014 2015 2016 2017 Source: CSO Passenger mix Europe UK Transatlantic Other Pax (m) 15.2 10 3.3 0.9 12 DAA, DAA Annual Report 2017, (2018) 13 Dublin Airport, Dublin Airport Tops European Airports Growth League, (2018) % 52% 34% 11% 3% 14 Dublin Airport, Dublin Airport Opens New Transfer Facility, (2018)

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 19 2 Context and Rationale 1 Executive Summary 2 Context and Rationale Cargo Traffic is on an upward trend, albeit with a less consistent growth 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub pattern than passenger traffic 5 Literature Review

Total (Arriving and Departing) Freight ► As can be seen on the first graph, freight passing through Dublin Airport has experienced growth in the years 160 following the recession, although without the same consistency as passenger growth. It can also be seen that freight didn’t fall significantly as passenger numbers did during the recession 140 120 ► We also note the tightening gap between arriving and departing freight, with the absolute gap falling from 100 18,900 tonnes in 2008 (and still 8,200 in 2015) to just 2,700 tonnes in 2017 80 ► Both pie charts opposite show the significant change in recent years in both the destination of departing 60 freight and the country of origin of arriving freight. The UK, for example, accounted for 28.6% and 32.6% of departing and arriving Freight in 2013, respectively. These percentages have fallen to 21.8% and 26.8% in Tonnes (‘000s) Tonnes 40 2017 20 0 ► These changes in composition have been caused by growth in Transatlantic for departing freight (it comprised 29.6% of departing freight in 2013, growing to 37.11% in 2017) and other international for arriving

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 freight (17.5% in 2013, up to 21% in 2017). The increased trade with regions outside of the UK, Europe and Total Arrival Departure North America is driven almost entirely by trade with the UAE as services to the region have increased in recent years Source: CSO ► Trade with Europe has increased for both arrivals and departures but the relative share of total trade remains similar Departing Freight Destination, 2013 (Inside Arriving Freight Region of Origin, 2013 Ring) vs 2017 (Outside Ring) (Inside Ring) vs 2017 (Outside Ring) 4.3% 2.8% 21.8% 18.3% 21.0% 26.8% 5.0% 3.7%

17.5% 17.9% 28.6% 32.6%

23.2% 29.6% 18.8% 18.5% 23.0% 24.0% 25.3% 37.1%

Source: CSO UK Europe T-A Other Ireland Source: CSO UK Europe T-A Other Ireland Source: CSO Page 20 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 2 Context and Rationale 1 Executive Summary 2 Context and Rationale As a result of the rapid growth, Dublin Airport now faces significant capacity 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub constraints in a number of areas 5 Literature Review

Dublin Airport departure constraints Dublin Airport Capacity Review ► In March 2018, Helios produced a capacity assessment for Dublin Airport for the purpose of setting slot coordination parameters15. This report gives an insight into the capacity of the airports runways, taxiways, aircraft stands, airspace capacity and terminals and identifies the most significant pinch points

► The maximum throughput of the main runway (10/28) is 24 arrivals/hour, 41 departures/hour, and 48 movements/hour in mixed mode. This has been specified as a significant pinch point, with numerous hours during the day forecast to be at or above capacity in 2018

► The capacities of the taxiways can cope with current demand, although there are some delays at peak periods. This is subject to efficient Air Traffic Control and stand planning procedures. The report outlines there is a pinch point in the area where Runway 28 joins Runway 34 due to multiple runway entry points and converging taxiways

► The report does not believe the current airspace structure causes any capacity constraints on Dublin Airport

► There are 61 contact and 31 remote turnaround stands for passenger services and an additional 36 remote stands used for long term parking, general aviation or cargo operations. Stands are at capacity during the peak morning period and so are also considered a pinch point

► Terminal 1 and 2 departure throughputs are limited by the security process and the report suggest the maximum capacities are 4,600 and 3,700 passengers per rolling hour, respectively. Similarly for arrival throughputs, to guarantee reasonable waiting times at immigration, the report suggests a maximum of 4,100 and 3,050 passengers per rolling hour, respectively.

► The report also estimates the US Preclearance Area has capacity for 1,080 passengers per hour. Terminal 2 is considered to have insufficient resources in the check-in halls. Both of these have also been identified as Source: IAA pinch points

► In summary, the key airside constraints are Runway 10/28, dual runway threshold with its entry points and stand capacity while in the terminals the pinch points are identified as being the check-in hall in T2, the security control areas in T1 and T2, the US Preclearance area in Pier 4 and the immigration desks in T1 and T2

Source: daa Interim CIP proposal (25 Oct 2017)

15 Helios, Capacity assessment at Dublin Airport for the purpose of setting slot coordination parameters, (2018)

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 21 2 Context and Rationale 1 Executive Summary 2 Context and Rationale daa have development plans in place to combat some of the identified 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub constraints 5 Literature Review

Selected Dublin Airport expansion projects Planned Investment Dublin Airport undertook €174m of investment during 201716. The largest projects included a total resurfacing of Project €m SC* Purpose the main runway, a new boarding gate area with five boarding gates serving nine aircraft parking stands, the Efficiency T1 and T2 extension of Pier 1 adding four new boarding gates and upgrade of Pier 2 for improved passenger experience 5.5 Q2 2018 and capacity CUSS Check-in @ Check-in Due to accelerated passenger growth in the 2015 - 2019 regulatory period, daa submitted infrastructure T1 and T2 Higher development plans to the Commission for Aviation Regulation (CAR) in order for the airport to handle 32m 17 Immigration 11.1 Q3 2019 immigration passengers per annum without reducing service quality . In June 2018, CAR approved a capital expenditure Facilities capacity allowance of €269.3m for 23 projects including additional boarding gates, additional aircraft parking stands and . Additional taxiway improvements for improved efficiency on the airfield One such project that has been completed is a T2 Level 15 gates for new €16m transfer facility built adjacent to Pier 4, specifically designed to improve the flow of connecting 5.9 Q4 2020 Bus Gates remote passengers through the airport. The facility is 3 storeys high and comprises of airline information desks, stands boarding card checkpoints and immigration and customs facilities18. Apron 5H and Additional Long Term Capacity Planning Taxiway 49.1 Q2 2020 aircraft Rehabilitation parking As mentioned above, daa is currently undertaking €269.3m of investment in capital infrastructure however this stands, which are only forms part of the airport masterplan to allow for capacity to increase to 40m passengers by mid-2020’s and Upgrade and 50m by mid 2040’s. To reach these goals, daa has outlined a number of key steps including: Realignment of 4.8 Q2 2018 required to Stands 101-104 meet demand ► Delivery of the Northern Parallel Runway while maintaining the use of the crosswind runway. Originally granted in 2007, planning permission for the airport’s second runway was extended by An Bord Pleanála to Realignment of 5.3 Q1 2021 Improved 2022, with all pre-construction work completed. daa are seeking changes to the restrictive conditions imposed Taxiway A efficiency on by An Bord Pleanála with regard to night flights and sound management Dual Taxiway F 37.3 Q1 2021 airfield ► Both terminals to be expanded with new boarding gates added and the addition of new aircraft parking stands Source: CAR * Scheduled Completion ► Allowance of space for the building of a Metro station

► Continued discussion with An Bord Pleanála regarding the lifting of the current limit of 32m terminal passengers imposed in the planning permission for Terminal 2. This condition was put in place due to anticipated private car traffic outside the airport, however daa outline in their 2017 Annual Report that there has been a shift away from using personal cars to access the airport

16 DAA, DAA Annual Report 2017, (2018) 17 Commission for Aviation Regulation, Decision on the Second Interim Review of the 2014 determination in relation to a Supplementary Capital Expenditure Allowance for Dublin airport, (2018) 18 Dublin Airport, Dublin Airport Opens New Transfer Facility, (2018)

Page 22 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 2 Context and Rationale 1 Executive Summary 2 Context and Rationale The Development of Dublin as a Hub airport requires more than just 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub additional capacity 5 Literature Review

Potential hub enhancements Airport Facility Requirements To enable hub airlines to operate efficiently, airports must have certain facilities in place, including:

► Facilities to handle passenger flight connections and ensure short distances between gates for transfer passengers, as well as facilities to handle efficient and expedited transfer of baggage.

► Ability to deal with peak flows, high volume arrivals followed by distribution of passengers and bags prior to departure wave.

► Adequate runway capacity including taxiway access and apron size for airlines to operate waves of arrivals and departures. Proposed infrastructure to support Hub development

► Development of new Pier 5 in the South Apron to develop and expand Terminal 2 operating capability.

► Improved Dual Code Taxiway access to South Apron.

► A new larger centralised US Customs and Border Protection (CBP) facility with double the peak hour passenger processing capability.

► Enable departure of US CBP/TSA processed flights from remote stands, Pier 3, Pier 4 and the new Pier 5.

► Increase in additional Narrow Body Equivalent stands (including both contact and remote stands) to total 17 additional stands compared to the current South Apron capacity

► Development of new baggage transfer infrastructure to support connections.

► Optimisation of runway capacity We understand the daa is considering proposing infrastructure development of the above approximate scale within the Capital Investment Programme for the next regulatory period 2020-2024

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 23 2 Context and Rationale 1 Executive Summary 2 Context and Rationale The Aer Lingus strategy has been informed by the National Aviation Policy, 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub its objectives and the opportunity at Dublin Airport 5 Literature Review

Vision and Strategy A clearly articulated strategy ► Aer Lingus’ stated mission is to be the leading value carrier across the North Atlantic. Enabled by a profitable and sustainable short-haul network, supported by a guest focused, brand and digitally enabled value proposition

► Leveraging Dublin as a hub

► Management of network and partnerships

► Creating a compelling connecting proposition

Demonstrable growth Building the Dublin Hub ► In 2017, Aer Lingus commenced operations to Miami and added capacity to Chicago, Orlando and Los Angeles and added 100,000 seats to their Short Haul network.

► Following the commencement of new routes to Seattle and Philadelphia, Aer Lingus will operate 115 weekly frequencies to 13 North American destinations in 2018.

► With their Airline partners, Aer Lingus connects to over 100 destinations in North America and to over 70 across Europe.

Next generation aircraft

► Aer Lingus announced long haul fleet growth plans at the IAG capital markets day in November 2017.

► Key to this was the introduction of the A321 Neo Long Range aircraft in 2019 - a narrow body aircraft with long haul economics. Future Growth ► This aircraft offers deployment flexibility for the airline as can fly long and short-haul improving network reach. In particular, the total number of seats means it can profitably and efficiently serve long haul routes to destinations which would not sustain widebody aircraft.

Page 24 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 3 Economic Impact of the Hub

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 25 3 Economic Impact of the Hub 1 Executive Summary 2 Context and Rationale We have calculated the economic impact of a Hub at Dublin Airport using 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub client data, CSO Input-Output tables and our Economic Impact Model. 5 Literature Review

Background to Input-Output (IO) Tables

1. Direct 2. Indirect 3. Induced The IO tables are produced by the CSO and show the relationships between every sector in the economy. They show the value of goods and services in each industry and which industry’s inputs are used to produce them. Using these tables, we can calculate the multiplier impacts for an increase in demand for one sector on the other Economic Economic Economic sectors of the economy. activities of the activities of activities 1. Direct impacts firm the firms Irish generated by suppliers income spent The direct economic effect of any activity on its local economy can be quantified as: by direct and ► The number of individuals directly employed by the activity indirect employees ► The wages and salaries those workers are paid and the profits generated Measuring only the direct impacts captures only part of the economic significance of a given activity, and excludes the linkages with other sectors of the economy. These linkages can be described in terms of indirect and induced economic impacts and constitute the upstream and downstream economic effects which generate business, support jobs, and provide wages in other sectors of the economy. The additional 2. Indirect impacts benefit from an additional euro of Indirect impacts result primarily from the value of purchases made by the firm in the economy, and the related the firms economic activities conducted by suppliers of goods and services the firm. The distinguishing feature of indirect production impacts is that the activity can be attributed to the presence and operations of the firm, even though the actual activity is conducted outside of the company (in the supply chain). Total multiplier 3. Induced impacts Induced impacts result from the spending of incomes generated from activities directly and indirectly related to the firms activities. Induced impacts are the knock-on impacts which occur as the firm employees, contractors and its suppliers’ employees spend their incomes, creating further impacts through the economy. 4. Catalytic impacts The catalytic impact is the way a firm facilitates the business of other sectors of the economy. Tourism is assumed to be the key catalytic impact in relation to the operation of the Hub as increased connectivity increases tourism opportunities for a region.

Page 26 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 3 Economic Impact of the Hub 1 Executive Summary 2 Context and Rationale The three key outputs of our modelling are categorised under GDP, 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub employment and Exchequer impacts 5 Literature Review

GDP contributions Employment contributions Exchequer contributions

A sector’s contribution to national GDP can be The employment impact shows the number of The main Exchequer contributions from the Hub’s measured in terms of the additional payroll and people employed throughout the economy in order activities are in the form of profits taxes, payroll profits generated throughout the economy as a to support the Hub’s activities. As with GDP taxes and social insurance contributions, result of its activities. It is the additional value contributions, we are concerned here with: consumption taxes – most importantly VAT, and added in the economy attributable to the Hub. dividends to the State. ► The number of people employed by the firm GDP contributions arise at three levels: (direct contribution) and its contractors (treated As with the economic and employment ► Direct – generated in the business directly here as direct contribution) contributions, we can analyse the Exchequer undertaking the economic activity. This contribution in terms of the: ► Employment in the supply chain serving the comprises wages and profits firm (indirect contribution) ► Direct – taxes paid by the firm and its ► Indirect – generated in Irish firms supplying employees ► The employment generated as the direct and goods and services to the firm, back through indirect wages are spent throughout the wider ► Indirect – taxes paid by the Irish suppliers of the Irish supply chain economy (induced contribution) the firm and their employees by virtue of their ► Induced – generated as a result of the business with the firm Any increase in employment opportunities, in additional incomes from the direct and indirect terms of aviation related employment and in the ► Induced – additional taxes paid in the wider contributions being spent in the wider wider economy e.g. tourism, will result in economy by virtue of the additional economy i.e. the wages of the firm’s increased tax revenue and wider business expenditure by employees of the firm and their employees, contractors and employees in the opportunities for the economy. Irish suppliers supply chain being spent in the economy ► Catalytic – consumption taxes paid by There are also catalytic impacts, generated as a additional connecting passengers in the hub, result of increased stopover tourism from greater who have a greater dwell time and potential to connectivity to North America, UK and Europe. spend than point to point traffic, and additional This increase in tourism will have a direct impact, tourists, including ‘stopover tourism’ in the though accommodation, food and retail etc., and wider economy indirect and induced impacts via the supply chain and additional incomes.

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 27 3 Economic Impact of the Hub 1 Executive Summary 2 Context and Rationale Direct, indirect and induced impacts on GDP, employment and the 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub Exchequer are based on revenues and expenditure 5 Literature Review

GDP EMPLOYMENT EXCHEQUER

VAT & Revenues & Excise Capital Expenditure VAT & Employment in Excise Profits & payroll of the Profits & payroll taxes, firm, impacts relating the firm and Excl. other taxes to capital expenditure construction firms DIRECT

Profits & payroll Employment in Profits & payroll taxes, back through Irish firms in the Irish other taxes INDIRECT supply chain supply chain

Profits & payroll in Employment Profits & payroll taxes, wider economy as generated as VAT & excise on direct & indirect direct & indirect consumption, INDUCED Leakage to Imports incomes spent incomes spent other taxes & CATALYTIC

Page 28 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 3 Economic Impact of the Hub 1 Executive Summary 2 Context and Rationale 33,950 jobs could be created by 2033 by the successful development of a 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub hub at Dublin Airport 5 Literature Review

Total additional Irish GDP Additional employment by Average additional Additional Exchequer 2033 employment - Capital revenues Investment

€18.6bn 33,950 jobs 1,147 jobs €6.0bn 2019 – 2033 2033 2018 - 2023 (annual average) 2019 - 2033

The hub will generate an In 2033, the hub would have During construction, an The Exchequer will benefit incremental €18.6bn of GDP accounted for an additional average of 1,147 jobs would from increases in a variety of from the following sources: 33,950 jobs in the Irish be created taxes including VAT, excise, economy, across the following corporation tax and payroll ► Tourism (2021-2033): areas: taxes, from the following areas: €10.4bn ► Tourism (2033): 26,990 jobs ► Tourism sector (2021- ► Aeronautical and non- 2033): €4.0bn aeronautical (2021-2033): ► Aeronautical and non- €7.9bn aeronautical (2033): 6,960 ► Aeronautical and non- jobs aeronautical expenditure ► Capital (2019-2023): €317m (2021-2033): €1.9bn

► Capital Investment (2019- 2023): €129m

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 29 3 Economic Impact of the Hub 1 Executive Summary 2 Context and Rationale Passenger numbers across a number of categories are expected to grow 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub as a result of the hub development 5 Literature Review

Additional passenger numbers are estimated based on the two scenarios of Hub development and no Hub Dublin Airport passengers with hub development. development ► We base our calculations and impact assessment on transatlantic traffic from all carriers and short haul traffic 45 from Aer Lingus.

40 ► In the event the Hub is developed there will be an additional 2 million passengers in the Airport by 2023, compared to a scenario of no Hub development. 35 ► Additional passenger numbers grow to 5 million by 2033 on the basis that the Hub is developed. 30 ► These passenger numbers underlie assumptions made for each of aeronautical, non-aeronautical and tourism 25 impacts. We have made further assumptions for these passengers to determine the origin and makeup of

traffic passengers, such as:

20 Relevant

Passengers (m) Passengers ► Passengers are split short haul/long 74:26 15 ► Transfer passengers are assumed to rise to 24% of passengers by 2033 10 ► Of transfer passengers, 15% are assumed to make an overnight stay in Dublin

5

0 20171 20332

Page 30 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 3 Economic Impact of the Hub 1 Executive Summary 2 Context and Rationale Tourism activity and expenditure will lead to an incremental 26,990 jobs by 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub 2033 5 Literature Review

Total additional GDP 2021 - 2033 Tourism activity

€m The overall GDP impact of tourism expenditure from 2021 to 2033 is estimated to be €10.4 billion. Direct 6,480 For every €1 in additional tourism expenditure, approximately €1 of GDP is generated in the economy. Indirect 1,840 By 2033 an additional 21,410 people will be employed directly in the tourism sector. Through supply chain Induced 2,130 activities and employees’ wages being spent, an additional 5,580 jobs are supported in the economy, with an overall employment impact of 27,000 additional jobs in 2033. Total 10,450 For every 100 people directly employed in tourism activities and suppliers during the period 2021-2033, an Additional jobs by 2033 average of 26 additional jobs will be supported in the wider economy.

Jobs The Exchequer impact takes the form of payroll, through staff directly employed in the tourism sector in 2021- 2033, through the supply chain and in the wider economy. Direct 21,410 For every €1 spent through tourism activities, €0.40 is generated in Exchequer revenue. Indirect 2,220 The activities captured here include the enhanced levels of tourists and their associated expenditure from the Induced 3,360 improved levels of connectivity provide by new point to point traffic and the stopover tourism potential from Total 26,990 transfer passengers. Tourism is highly important to the overall economy, but is especially impactful in rural areas, where the wider Additional Exchequer Impact 2021- 2033 base of services and sectors seen in larger cities are not available and diversification options are more limited. The tourism benefits would result in significant new jobs and over €4bn of additional taxes for the Exchequer. €m

Direct 2,610

Indirect 360 Key Model Assumptions Induced 1,040 ► Operational period is 2021-2033 Total 4,010 ► All expenditure by Short Haul tourists is assume to be subject to Irish consumption taxes (VAT and * Including consumption taxes on expenditure by tourists excise) whereas all expenditure by Long Haul tourists is assumed to be not subject to Irish consumption taxes (i.e. duty free)

► All point-to-point tourists are assumed to have the typical expenditure pattern of their country of origin

► 15% of connecting passengers stopover in Ireland, for an average of 1.5 nights

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 31 3 Economic Impact of the Hub 1 Executive Summary 2 Context and Rationale Operational expenditure by the airport and airlines generates €7.9b in 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub additional GDP 5 Literature Review

Total additional GDP 2021 - 2033 Operational Expenditure

€m The overall GDP impact of operational expenditure on the Hub from 2021 to 2033 is estimated to be €7.9 billion. Direct 4,790 For every €1 in operational expenditure by aeronautical and non-aeronautical activities, €0.66 of GDP is Indirect 1,900 generated in the economy.

Induced 1,230 Close to 3,000 will be employed directly by aeronautical and non-aeronautical activities in 2033. Through supply chain activities and employees’ wages being spent, an additional 4,020 jobs are supported in the economy, with Total 7,920 an overall employment impact of 6,960 additional jobs in 2033. For every 100 people employed by aeronautical and non-aeronautical activities and suppliers during the period Additional jobs by 2033 2021-2033, an average of 140 additional jobs will be supported in the wider economy. Jobs The Exchequer impact takes the form of payroll, through staff directly employed in aeronautical and non- Direct 2,940 aeronautical activities during the operational phase and through suppliers down through the supply chain Indirect 2,110 For every €1 spent through aeronautical and non-aeronautical activities, €0.22 is generated in Exchequer Induced 1,910 revenue.

Total 6,960 The benefits captured in this category include additional retail spending by passengers, new employment to service the additional routes and passengers, expenditures to support the activities of the airport and airlines, Additional Exchequer Impact 2021 - 2033 incremental cargo activities and exports. Each of these areas is notable in their own right and all are enabled by the hub and associated traffic that would result. €m

Direct 980

Indirect 340 Key Model Assumptions

Induced 570 ► Operational period is 2021-2033

Total 1,890 ► Expenditure by Short Haul passengers is subject to Irish consumption taxes while expenditure by Long Haul passengers is duty free. * Including consumption taxes on expenditure by passengers ► Passenger growth and connecting passengers and point-to-point passenger split is as per as provided by Aer Lingus.

► Non-aeronautical (retail) revenue within the airport as per daa and http://www.thejournal.ie/dublin-airport- retail-spend-2-4185587-Aug2018/

► Non-aeronautical (retail) expenditure within the airport per passenger is the same, regardless of origin

Page 32 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 3 Economic Impact of the Hub 1 Executive Summary 2 Context and Rationale The total economic impact of capital expenditure during development is 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub €317m 5 Literature Review

Total additional GDP 2018 - 2023 Capital Expenditure Impact

€m The overall GDP impact of capital expenditure on the Hub from 2018 to 2023 is estimated to be €317 million. Direct GDP 133 For every €1 in capital expenditure for the construction of the Hub between 2018 and 2023, €0.77 of GDP will be Indirect GDP 87 generated in the economy

Induced GDP 97 Including the supply chain activities of the airport and wages of employees being spent, an estimated total of 1,147 jobs will be supported on average each year between 2018 and 2023. This figure will fluctuate depending Total 317 on the total capital spend in that year. For every 100 people employed during the construction of the Hub an average of 70 additional jobs will be Additional jobs supported 2018 - 2023 (annual supported in the economy each year average) The Exchequer impact takes the form of payroll, through staff directly employed by daa during the capital investment phase and through suppliers down through the supply chain. Direct, Indirect and Induced profits as Jobs well as consumption are also factored into the model. Direct 670 For every €1 spent in the development of the Hub, €0.30 is generated directly and indirectly in Exchequer Indirect 249 income. Induced 228

Total 1,147

Additional Exchequer Impacts 2018 - 2023 Model inputs and methodology

► The basis for the capital impact IO analysis is total capex spend from 2018-2023 of €410m. The capital €m spend is allocated into appropriate spending categories based on projections from the airport authority Direct 58 and modelled to calculate the overall GDP, employment and exchequer impacts.

Indirect 23 ► The basis for the direct taxation calculation is the actual Exchequer payments made. The outputs from Induced 48 the IO analysis are also used to calculate the indirect and induced taxation. Typical taxation rates on payroll, profits and consumption are applied to model the overall Exchequer impact of capital Total 129 expenditure. This analysis takes all of the GDP, wages, profits and consumption generated by the airport directly, in the supply chain, and as wages are spent in the wider economy, to calculate an overall impact.

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 33 3 Economic Impact of the Hub 1 Executive Summary 2 Context and Rationale The results of our analysis indicate significant economic and Exchequer 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub benefits from the hub 5 Literature Review

Total additional GDP 2021 - 2033 Additional jobs by 2033 Additional Exchequer Impact 2021- 2033

€m Jobs €m

Tourism 10,450 Tourism 26,990 Tourism* 4,010

Aeronautical and non-aeronautical 7,920 Aeronautical and non-aeronautical 6,960 Aeronautical and non-aeronautical 1,890

Capital 317 Total 33,950 Capital 129

Total 18,690 Total 6,029

* Including consumption taxes on expenditure by tourists/ passengers

Over the 15 year period an additional €6.0bn Over the 15 year period an additional €18.7bn By 2033 approximately 34,000 additional jobs will be generated for the Exchequer through will be generated through tourism expenditure, will be created, directly and through the supply tourism expenditure, aeronautical and non- aeronautical and non-aeronautical and capital. chain, in the economy aeronautical and capital.

Page 34 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 4 Qualitative Benefits of the hub

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 35 4 Qualitative Benefits of the hub 1 Executive Summary 2 Context and Rationale Benefits from hub services are not limited to the “hard” economic benefits 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub 5 Literature Review

In addition to the quantitative benefits outlined in Section 3, we have also assessed the wider qualitative economic benefits from having a hub service the North American market. The benefits of a hub in enhancing Ireland’s reputation as a trading and business base are considered in this section along with the potential to increase the likelihood of businesses locating in Ireland due to increased frequency and additional routes the larger Dublin hub will provide. Dublin Airport is currently the fifth largest European Airport for connectivity to North America19 which is noteworthy considering that in 2013 Aer Lingus only serviced four US destinations, and considering the low population of Ireland relative to other European countries. In the past five years the number of destinations serviced by Aer Lingus has increased to 13 with an increase in the capacity on each route. Furthermore, Dublin Airport has a total of 10 airlines flying 446 flights per week to and from 20 US/Canadian destinations. A Global Connectivity Ranking conducted by Rome2Rio ranks all cities globally that operate international airports. It interprets the number of direct flights as a reflection of the importance of the relationship between two locations. The 2016 report20 ranked Dublin just inside the Top 20 most connected cities globally in 19th position with 148 connections. Between the UK and Ireland, Dublin is the third most connected city, after London (351 connections) and Manchester (162 connections). While specific examples of the benefits from having a European hub service to the North American market are limited, this section will outline some of the key qualitative benefits, including increased inward and outward investment, higher revenue, and wider supply base, associated with an airport hub and increased air connectivity for businesses and FDI.

19 https://www.dubplus.ie/dublin-fifth-largest-european-airport-connectivity-north-america/ 20 https://www.rome2rio.com/labs/global-connectivity-ranking/

Page 36 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 4 Qualitative Benefits of the hub 1 Executive Summary 2 Context and Rationale Improved connectivity has a number of qualitative benefits for FDI and 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub indigenous business 5 Literature Review

Qualitative benefits of hub service and In a recent Airport Industry Connectivity Report21 Dublin was identified as one of six ‘niche and smaller’ hubs to increased connectivity on business have recorded impressive gains in hub connectivity with growth of 273% in 2018. In this instance hub connectivity is measured as the number of connecting flights that can be facilitated by the airport. This increase in connectivity opens up the Irish market to a larger customer base and facilitates greater opportunities for FDI.22 There are many qualitative benefits associated with the development of hubs. As outlined in the Literature Qualitative benefits Review these benefits cover aspects such as trade, FDI and tourism. In the area of trade and FDI the literature of hub service/air is broadly similar in terms of the benefits – broadens the available market, leading to increased revenue and connectivity investment opportunities; leads to greater competitiveness as a result of increased inward and outward investment and improves efficiency. We identify the following key benefits Widens the Foster greater Efficiency ► Widens the available market available competitiveness improvements market ► Foster greater competitiveness

► Facilitate efficiency improvements Access to new Increase Higher production inward and revenue / techniques outward investment & wider investment base of suppliers

Source: IATA (2007). Aviation Economic Benefits https://www.iata.org/whatwedo/Documents/economics/aviation_economic_benefits.pdf

21 http://www.seo.nl/uploads/media/2018-61_Airport_Industry_Conductivity_Report_2018_01.pdf 22 Airport Commission (Prepared by PwC) (2013) econometric analysis to develop evidence on links between aviation and the economy https://www.gov.uk/government/publications/airports-commission-interim-report

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 37 4 Qualitative Benefits of the hub 1 Executive Summary 2 Context and Rationale New markets and enhanced access to existing markets are enabled by hub 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub services 5 Literature Review

Widens the available market Higher Revenue: As identified in the Literature Review there are extensive studies showing the link between connectivity and productivity and investment. Across of range of methodologies and markets it is found that a 10% increase in connectivity, relative to GDP, can boost productivity by between 0.7% and 1.3%. The United States is one of Irelands most important markets, with exports valued at $35bn. Air freight departures to North America are growing rapidly – in 2013, 29.6% of freight departing Dublin Airport was destined for North America; in 2017, this figure rose to 37.1% The development of a hub at Dublin will provide further scope for trade with the North American market, as Ireland increases its direct connectivity to a wider range of regions. Additionally, pooled demand from the UK and Europe will allow for more widebody planes being used at Dublin Airport Higher potential investment: Similar studies reported on in the Literature Review also found a link between connectivity and the level of investment. For example, a 10% increase in productivity, relative to GDP, is reported to increase investment by between 0.06% and 1.6%. Broadens Tourism Market: Ireland welcomed 9m overseas tourists in 2017 - this represents a huge growth since 2013, when 6.7m overseas tourists visited Ireland. In that period of time, tourist from North America has increased by almost 1m people and tourist expenditure for North American’s reached 1.3bn in 2017. This has coincided with huge growth in passenger seat capacity to the region. As the literature review outlined, there is a strong positive correlation between connectivity and tourism – a UK study showed that for a 10% increase in seat capacity there is a 4% increase in inbound tourism. Additionally countries such as Dubai and Iceland have shown how connecting passengers can be converted into tourists, through integrated efforts from the aviation and tourism industries. Ireland would be in a strong position to increase stopover tourism as it can build on its existing large tourism economy

Page 38 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 4 Qualitative Benefits of the hub 1 Executive Summary 2 Context and Rationale Air connectivity is an acknowledged factor in location decisions by 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub multinational firms 5 Literature Review

FDI-backed firms within 5km of Dublin Airport Foster Greater Competitiveness

Nationaliity FDI-backed Increase inward and outward investment: As established in the Literature Review access to extensive air links firms allows domestic firms to identify and manage investments in foreign-based assets and encourages foreign firms to invest in the domestic economy. United States 19

United Kingdom 3 IDA’s submission to the Department of Transport, Tourism and Sport on its Statement of Strategy 2017-2019 highlighted the availability of international and regional air connectivity as a factor in the location decision- Japan 3 making process for FDI. In order to increase Ireland’s attractiveness as an investment location the IDA called for Germany 2 enhanced services to the US and Europe as a key priority.

Switzerland 1 The importance of the link between the US and Ireland is highlighted by the American Chamber of Commerce in Ireland, identifying that 67% of all FDI investment in Ireland in 2017 came from the US, and that currently there China 1 are 155,000 people currently directly employed across 700 US firms. In all, Ireland attracted 12% of all US FDI Sweden 1 to Europe in 2016. Ireland 1 In terms of the potential business likely to locate close to Dublin airport on foot of increased connectivity, data Other 6 from IDA Ireland indicates that the 19 US FDI-backed firms are currently located within 5km of the Airport – more than the total number firms from all other countries. Total 37

Source: IDA Ireland As noted in the literature review Schiphol Airport in Amsterdam has successfully developed an airport business park – Amsterdam Aerotropolis – with more than 1,000 firms. Areas near Heathrow such as Slough and the M4 FDI-backed firms within 5km of Dublin Airport corridor have attracted significant developments and company offices. Examples include GSK, Merck, Schenker, Hasbro and Canon. Sector FDI-backed firms With 37 FDI-backed firms currently located within 5km of Dublin Airport there is scope for further development ICT, Hardware, Software, Internet 13 and expansion. In Dublin Airport Logistic Park, for example, there is over 40 acres of prime undeveloped lands Bio Pharma 3 located immediately next to the airport. Engineering 2 While there is a high concentration of ICT related FDI-backed firms operating within 5km of the airport other Financial & Business services 2 sectors are also attracted to the synergies provided by the airport including bio-pharma, engineering and financial and business services. Medical Technology 1

Other 16

Total 37

Source: IDA Ireland

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 39 4 Qualitative Benefits of the hub 1 Executive Summary 2 Context and Rationale Air connectivity is an acknowledged factor in location decisions by 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub multinational firms 5 Literature Review

Overseas trips to Ireland by non-residents (inside ring) and overseas trips by Irish Data reinforces the economic importance of the connectivity between the US and Ireland. In 2016, 19% of residents (outside ring) passengers making overseas trips to Ireland resided in the US and Canada. In 2017, this had increased to 21%. No breakdown is available for the proportion of these passengers traveling for business, leisure etc. but 3% 11% additional data shows that 15% of overseas trips to Ireland (by non-residents) were for business purposes compared to 11% of overseas trips by Irish residents. 12% 15% Further data from the CSO provides some indication on the trend observed in recent years in business travel between Ireland and the US. In 2017, for example, the average US business traveller spent seven nights in 22% Ireland with a total spend by US business travellers of approximately €150 million. This represents a 134% 26% increase on the €64m spent in 2011.

47% 23 64% Belderbos, Du and Goerzen (2017) reviewed the growing importance of regional headquarters (RHQs) for multinational corporations (MNC) and note that well connected cities are in a better position to attract MNCs RHQs. In their 2017 analysis they note that Dublin (3rd), along with Amsterdam (2nd) and London (1st) were the Business Visit to friends/relatives top three cities in Europe to receive foreign investment. Between 2003 and 2012 Dublin attracted 38 RHQ investments of which 22 were entrepreneurial (opportunity seeking) and 16 were administrative (coordination Holiday/leisure/recreation Other reason for journey and control). Source: CSO Bel & Fageda (2008)24 found that the supply of direct intercontinental flights is effectively a major determination Overseas trips to Ireland by non-residents by on the location choices of large firms’ headquarters, with a 10% increase in the supply of non-stop area of residence 2016 (inside ring) and 2017 intercontinental flights found to result in a 4% increase in the number of headquarters of large firms located in (outside ring) the associated urban area.

6% Equally, Irish investment in the US continues to grow, with the American Chamber of Commerce identifying €3.4 billion of investments by Enterprise Ireland companies in 2016 and total employment by Irish affiliated entities in 21% 6% 35% the US is over 100,000. 19% 34%

41%

38% 23 Belderbos, Du and Goerzen (2017). Global cities, connectivity, and the location choice of MNC regional headquarters. Europe (17) Great Britain https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3076851 24 Bel and Fageda (2008). Getting there fast: globalisation, intercontinental flights and location of headquarters. United States and Canada Other countries (20) https://academic.oup.com/joeg/article-abstract/8/4/471/918085?redirectedFrom=fulltext Source: CSO

Page 40 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 4 Qualitative Benefits of the hub 1 Executive Summary 2 Context and Rationale A variety of efficiency improvements are enabled through better hub 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub connectivity 5 Literature Review

Facilitates efficiency Improvements Access to new production techniques: Cushman & Wakefield’s Winning in Growth Cities (2017)25 provides ongoing evidence on the importance of international connectivity, citing that knowledge, a primary form of information exchange during innovation, requires interaction with others. As such, connectivity between locations is key in enabling entrepreneurial culture and supporting productivity. According to research from Britain’s Independent Transport Commission (2015)26 firms that are part of a multinational enterprise, either as a parent or a subsidiary, are more productive and innovative than firms that simply export, this means that there are significant benefits from being able to attract and retain international investment. Access to wider base of suppliers: Britain’s Independent Transport Commission (2015) also finds that significant reductions in the cost of air freight has made it easier for companies to take advantage of suppliers in other markets. In this regard, connectivity is important because delays in supplying inventory can be costly. It has also been established in the Literature Review that several industries rely on air transport to operate their ‘just-in-time’ production operations, providing greater flexibility within the supply chain and reducing costs by minimising the need to hold stocks of supplies. As outlined in the Literature review section, Changi Airport in Singapore has facilitated the growth of industries such as pharmaceuticals and medtech, The ability of the airport to efficiently handle high value manufactured goods and the development of logistical hubs at the airport are a very important factor in the success of the industry. This highly skilled employment serves to boost the productivity of labour in the city

25 https://cushmanwakefield.turtl.co/story/59d48cf5d1c76a6148cabb4f.pdf?teaser=true 26 http://www.theitc.org.uk/wp-content/uploads/2015/06/ITC-Economics-airport-inaction-Dr-R-Driver-June-2015.pdf

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 41 5 Literature Review

Page 42 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 5 Literature Review 1 Executive Summary 2 Context and Rationale The local economy benefits from Hub Airports, both quantitatively and 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub qualitatively 5 Literature Review

Core Impact The primary findings when undertaking an economic impact of a company or a business activity is to determine its direct, indirect and induced impacts. These elements shall be dealt with in greater detail later in the report but each concept can be briefly described as such: DIRECT; At airport and airport related ► Direct – Economic activity associated with the operation and management of activities at the airport, e.g. businesses Airport operator, the airlines, air traffic control, or activities closely connected to the airport that would be unlikely to exist without the airport, e.g. Aircraft maintenance, logistics operators ; supplying INDIRECT ► Indirect – Economic Activity generated by industries that supply and support the activities at the airport e.g. and supporting businesses fuel refining and supply, catering supplier, retail outlet suppliers ► Induced – Economic Activity generated by the employees directly or indirectly connected to the airport INDUCED; employees spending their income e.g. Employees spending money on groceries, restaurants, child care etc., thus spending in economy generating employment

CATALYTIC; The Direct, Indirect and Induced economic activity can be considered the Core impacts as they are the result of facilitating tourism, the direct impacts of the activities of an airport. trade, investment, productivity Catalytic Impact The catalytic impact is the way an airport facilitates the business of other sectors of the economy. Although the Core activities of an airport can have a significant impact on the economy, with many hub airports it’s the spillover or catalytic effects that can have the largest impact, e.g. In 2016 Dublin Airport employed 46,000 people through its core activities however it was estimated to support a further 71,100 jobs through its catalytic impact. Hub airports can facilitate employments and economic development through mechanisms such as

► Trade & Factor Productivity – Hub airports provide increased opportunities for freight and allow high value industries to prosper in a region which boosts productivity

► Investment – Companies that are active in the global economy are morel likely to locate in a region that has high levels of aviation connectivity

► Tourism – Increasing connectivity increases tourism opportunities for a region as a larger amount of people can reach there. This requires an integrated effort from the aviation and tourism sectors

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 43 5 Literature Review 1 Executive Summary 2 Context and Rationale Economic impact assessments are used to examine the quantitative 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub impacts of hub airports, looking at domestic and international airports 5 Literature Review

Economic impacts at a sample of airports Dublin Airport

GDP as % of ► Dublin Airport is a key piece of national infrastructure for the Irish economy, supporting a large amount of Impact No. of Jobs GDP ($b) National GDP jobs while also facilitating trade, investment and tourism. 29m passengers passed through the airport in 2017, Dublin (2016 – 28m passengers) following successive years of high growth

Direct 19,200 1.8 0.6% ► The Dublin Airport Authority (daa) conducted an Economic Impact Assessment for 2016 to determine the economic impact of the airport. The airport’s direct activities supported 19,200 jobs and directly added $1.8bn Indirect 11,700 1 0.3% (€1.5bn) GDP to the economy27. Indirect activities accounted for a further 11,700 jobs and generated $0.9bn Induced 14,700 1.1 0.4% GDP. The economic activity generated by the wages of these direct and indirect workers (i.e. induced) Total 45,600 3.9 1.3% accounts for a further 14,700 jobs and generates $1.1bn (€1bn) GDP. Therefore the total core impact of Dublin Airport supported 45,600 jobs and represented 1.3% of Irish GDP in 2016. Dubai (2013 - 66m passengers) ► Additionally, the catalytic impact at Dublin Airport supported a further 71,700 jobs and $5.7bn (€5bn) meaning Direct 120,300 9.6 6.1% the airport’s overall economic impact was 117,700 jobs and $9.5bn (€8.3bn) or 3.1% of Irish GDP Indirect 76,100 4.2 3.8% International Airports Induced 63,000 2.7 3.2% ► Dubai Airport has experienced a dramatic growth in passenger numbers in recent years, as it has developed Total 259,400 17 13.1% into the largest international passenger airport in the world. This growth has been driven by connecting Iceland (2011 - 2.5m passengers) passengers as Dubai connects the large North American and European markets with the fast growing Asian markets. As recently as 2010 the airport handled 47m passengers a year. In 2017, this number had risen to Direct 2,800 0.4 2.8% 88m passengers. Per an Institute of Air Transport and Air Research paper (2015), almost 50% of the airport’s Indirect 4,000 0.3 2.4% passengers are connecting passengers using Dubai as a hub, making it one of the leading hubs between 28 Induced 2,400 0.2 1.4% Asia and the west

Total 9,200 1 6.6% ► In 1998 Iceland created a hub and spoke model with Keflavik Airport as the hub and this has facilitated significant growth in the Icelandic tourism sector. An estimated 33% of passengers passing through Keflavik San Francisco (2016 - 51m passengers) are connecting passengers, with this forecasted to grow to 43% by 2040. 8.7m passengers passed through Direct 68,906 8.4 n/a Keflavik in 2017, a continuation of it’s impressive growth from around 2m in 201029 Indirect 35,422 3.1 n/a ► San Francisco International Airport (SFO) is the 7th largest airport in the United States and facilitates Induced 57,714 3.9 n/a domestic and international trade. The San Francisco Bay Area (known as the Bay Area) is home to some of the largest and fastest growing companies in the country, particularly in the areas of technology and high Total 162,042 15 value manufacturing Source: Dublin Airport Authority (Intervistas), Dublin Airport Economic Impact Study, 2017; Oxford Economics, Quantifying the Economic Impact of Aviation in Dubai, (2014); Oxford 27 Economics, Economic Benefits from Air transport in Iceland, (2011); Economic Dublin Airport Authority (conducted by Intervistas), Dublin airport Economic Impact Study, 2017 Development Research Group, 2017 Economic Impact Study Update SFO, (2017) 28 Institute for Air transport and Air Research, how to Assess the percentage of transfer passengers at airports?, (2015) 29 Keflavik Airport, https://www.keflavikairport.net/passenger-statistics.shtml , (2018)

Page 44 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 5 Literature Review 1 Executive Summary 2 Context and Rationale Economic impact assessments are used to examine the quantitative 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub impacts of hub airports, looking at domestic and international airports 5 Literature Review

Economic Impact of European Airports Impact of Hub Development on Core Economic Activity ► In the Airport Council International’s (ACI) Economic Impact of European Airports 2015, the report sought to Airport size/traffic Finding show how direct employment generated by airports is affected by the size of the airport and the mix of traffic Less than 1 million Each increase of 10,000 traffic units handled30 traffic units increases employment by 10.2 jobs ► The report outlines that connecting passengers create roughly 3% less direct jobs than point-to-point 1 - 10 million traffic Each increase of 10,000 traffic units passengers do, with this small difference reflecting how connecting passengers generally do not consume units increases employment by 9.5 jobs certain services that point-to-point passengers do, such as car rental and parking Over 10 million Each increase of 10,000 traffic units traffic units increases employment by 8.5 jobs ► The report also outlines that direct employment generated by airports increases at a rate of 8.5 labour units per 10,000 increase in traffic units for airports with 10m passenger or over (where a traffic unit is one Connecting Connecting passengers generate 3% less passengers direct jobs that origin/destination passenger or 100kgs of cargo) passengers ► This compares to a rate of 9.5 increase in labour units per 10,000 increase in traffic units for airports below Source: ACI Europe Economic Impact of Airports (2015) 10m. Increases in labour productivity as a result of the economies of scale are to be expected however this difference is quite small

► Even though connecting passengers don’t create quite as many direct jobs as point to point passengers, in areas with a small local population, such as Ireland, Iceland and Dubai, it may only be possible to greatly increase traffic through hub development. Many airports in countries with small populations (and hence low domestic demand) have grown to become world leading hub airports, such as Dubai (with 88m passengers, 50% of which are connecting), Abu Dhabi (24m and 66%) and Doha (37m and 68%)31. As can be seen on the previous slide in the case of Dubai, these hub airports can become pillars of these countries economies

► This research therefore suggests the core economic impact of passenger increases driven by connecting passengers would still be very significant

30 ACI Europe (conducted by Intervistas), Economic Impact of European Airports, (2015) 31 Institute for Air transport and Air Research, how to Assess the percentage of transfer passengers at airports?, (2015)

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 45 5 Literature Review 1 Executive Summary 2 Context and Rationale The catalytic impact of hubs is very significant and has been established by 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub a number of studies 5 Literature Review

Econometric Studies examining the impact of Catalytic Impact of Hub Development aviation on productivity, investment and GDP ► When considering the impact of developing a hub at Dublin Airport, it is important to consider the existing literature relating to hub development and if it will have a wider impact than simply increasing jobs directly Source Finding linked to airport activities. The table on the left outlines a number of studies which have attempted to quantify Aviation Economic A 10% rise in connectivity, relative to the economic impact of air connectivity on investment and productivity in the wider economy Benefits (2007), IATA GDP, will boost labour productivity by 0.07% ► These studies all include econometric models outlining the benefits arising from connectivity. The models measuring labour productivity use GDP divided by total hours worked, using data across different time Airline Network A 10% rise in air connectivity, periods and sets of countries. The models controls for a variety of factors, but these tend to include R&D and Benefits (2006), IATA relative to GDP, will increase investment by 0.06% and boost long education spending amongst others run total factor productivity by 0.9% with a total increase in GDP of 1.2% ► As mentioned above under the heading Dublin Airport Benefits, the Airports Commission of the UK, commissioned a study in 2013 which sought to examine the impact of connectivity on trade, tourism and Getting There Fast A 10% increase in supply of Foreign Direct Investment (FDI)32. Using seat capacity as a proxy for aviation connectivity, the analysis found (2008) Bel & Fageda intercontinental flights at an airport is associated with a 4% increase in the the following results: number of large firms headquartered ► Trade: The study examined UK imports and exports with 164 countries over an 11 year period (2001-11) nearby and controlled for factors such as UK GDP, trading partner GDP, colonial links, and distance between The Economic A 10% rise in air connectivity, capitals amongst other variables. The model showed that a 10% increase in seat capacity resulted in a Catalytic Effects of Air relative to GDP, will increase 1.7 % increase in UK goods imports and a 3.3% increase in UK goods exports; and a 6.6% increase in Transport in Europe investment by 1.6% and boost total (2005), factor productivity by 1.3% with a UK imports of services and a 2.5% increase in UK exports of services EUROCONTROL total increase in GDP of 1.9% (Long- ► Tourism: The impact of aviation on tourism used a data set comprising 11 years of data (2002-12) on Run) inbound and outbound tourism with 44 countries. The model controlled for GDP in the origin country, relative prices and distance between capitals amongst other variables. The model found that a 10% increase in seat capacity is associated with a 4% increase in tourist arrivals in the UK and a 3% increase in UK tourists abroad

► FDI: The model analysed data over 7 years (2005-11) of National FDI inflows and outflows, controlling for FDI-origin country GDP, productivity and distance between capitals amongst other variables. The model found that 10% increase in seat capacity is associated with a 4.7% increase in UK FDI inflows and a 1.9% increase in UK FDI outflows. Given the relatively lower importance of FDI in the UK economy, this finding might be considered a lower bound for the position in Ireland

► These studies empirically show the wide ranging catalytic impacts improved connectivity can bring to an economy 32 Airport Commission (Prepared by PwC) (2013) econometric analysis to develop evidence on links between aviation and the economy https://www.gov.uk/government/publications/ airports-commission-interim-report

Page 46 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 5 Literature Review 1 Executive Summary 2 Context and Rationale For examples of how hub airports increase labour productivity, Singapore is 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub a strong example through cargo connectivity 5 Literature Review

Changi Airport (Singapore) Freight volumes ► Air cargo is an increasingly important element of modern economies. Air cargo tends to be very high value to weight goods. In Ireland, for example, although air cargo contributes to just 1% of total freight exports it is estimated to account for 35% of value33 2.5 ► A 2006 IATA report, “Airline Network Benefits”, surveyed 625 firms in five different countries who outlined the importance of connectivity for facilitating trade, boosting productivity (through economies of scale), improving 2 efficiency of supply chain (Just-In-Time Production, reducing costs), enabling investment and acting as a spur to innovation (collaboration, R&D opportunities)34 1.5 ► Labour productivity is among the chief drivers of increased living standards and so is an important 1 consideration when deciding policy. As previously outlined, air connectivity has been shown to boost labour

Tonnes (m) productivity 0.5 Case study - Singapore

► Singapore's Changi Airport is one of the busiest hubs in the world, catering for 62.2m passengers and 2.13m 0 tonnes of freight per year, as can be seen on the graph and serving as a vital gateway to the growing south- 2014 2015 2016 2017 east Asian market. Changi Airport has facilitated the growth of high value industries in Singapore, such as Source: Changi Airport, http://www.changiairport.com/corporate/about-us/traffic- pharmaceuticals and medical technologies (medtech) statistics.html ► Pharmaceuticals is a growing industry in Singapore, with manufacturing and R&D hubs for over 30 of the global leaders located there35. In 2017, exports in the pharmaceutical and medtech industry were worth US$23.5bn36. The partnership between airport and cargo operators has developed a trusted and reliable air freight hub. These industries are being facilitated by world leading logistics firms developing modern warehouses near the airport which have facilities designed to cater for pharmaceutical products, such as advanced chilled storage

► The presence of an airport with premium global freight operations encourages valuable industries such as pharmaceuticals and medtech to invest in a region, adding highly skilled employment, boosting labour productivity and raising living standards

33 Dublin Airport Authority (conducted by Intervistas), Dublin airport Economic Impact Study, 2017 34 IATA, Airline Network Benefits, 2006, https://www.iata.org/whatwedo/Documents/economics/airline_network_benefits.pdf 35 GlobalData, CountryFocus: Healthcare, Regulatory and Reimbursement Landscape - Singapore, (2017) 36 Worlds Top Exports, Singapore’s Top 10 Exports, (2018)

Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final Page 47 5 Literature Review 1 Executive Summary 2 Context and Rationale San Francisco is a good example of a virtuous circle of benefits – the 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub airport benefits the economy which benefits the airport. 5 Literature Review

San Francisco

► The Bay Area is one of the fasted growing economies in the world, with a growth rate almost twice as fast as the rest of the United States37. Unlike hub airports such as Singapore and Dubai, SFO is not the primary instigator of economic activity in the region. However it does facilitate high growth industries in a number of ways:

► Products manufactured in the Bay Area are typically high value, delicate and time sensitive, which are characteristics supportive of air freight. In 2016, SFO catered for $26.8bn in exports, with growth in sectors such as aircraft and spacecraft and remains one of the most important gateways to Asia for the US38. As can be seen from the graph opposite, outbound air shipments from SFO tend to be technology- related products, precision manufacturing and pharmaceuticals

► Products can be heavy but carry a large return on transportation costs invested. For example, many electronic goods produced in the area will have global supply chains. To minimise costs, just-in-time manufacturing is often practised. This process involves holding the minimum possible amount of inventory and aligning raw material orders with production schedules and this may necessitate the additional speed of air freight. The additional costs of using air freight are justified by optimising the supply chain

► SFO also helps to boost productivity by facilitating the provision of services. Business and professional services depend on the sale of professional expertise and often requires travel to meet with clients and make presentations

► Many companies in the Bay Area tend to be global or nationwide in scale, requiring frequent travel between offices thus requiring an airport with high connectivity

37 San Francisco Chronicle, Bay Area economy growing nearly twice as fast as the rest of the US, (2018) 38 San Francisco International Airport, 2017 Economic Impact Study Update, (2017)

Page 48 Economic Impact of the development of Dublin Airport as a Hub 07 September 2018 | Final 5 Literature Review 1 Executive Summary 2 Context and Rationale There are also numerous examples of cities which have attracted significant 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub Investment due to the presence of a hub airport 5 Literature Review

There is a strong link between air connectivity and investment. Increases in air connectivity are shown to increase overall investment, increase FDI and help attract company headquarters. Airport World compiled a report in 2013 about the rise of the airport city (or Aerotropolis) – airport-centred urban economic regions39.

► Among the most prominent examples of an Aerotropolis is the Zuidas district in Amsterdam, which is adjacent to Schiphol Airport. Schiphol has the second highest hub connectivity score globally per ACI Europe, behind Frankfurt40. More than 1,000 firms have located to the Amsterdam Aerotropolis, including the world headquarters of international banks, and the Airport World report cites high quality connectivity among the leading reasons for locating here

► The Airport World report also cites Paris Charles de Gaulle as having a significant Aerotropolis. The airport has the 4th highest hub connectivity score globally and is home to over 700 firms, employing a total of 87,000 people, with an additional 770,000m2 of office space in the immediate vicinity

► Frankfurt is the worlds highest ranked airport for global connectivity and Airport World lists it as a developing business hub, primarily through its landmark complex The Squaire. This building is over 2,000ft long and nine stories high with 140,000m2 of office and hotel space. The building is an 8 minute walk via covered walkway to the airports international check-in counters

► Las Colinas, adjacent to Dallas-Fort Worth International Airport (DFW), is a master planned mix development community and contains 2,100,000m2 of office space and contains over 2,000 corporations, including the headquarters of 4 Fortune 500 companies41. DFW is the fourth busiest airport in the US and is a hub for American Airlines. In 2017 it served 223 destinations, including 56 international and 167 domestic destinations42

39 Airport World, Special Report: Airport Cities, (2013) 40 ACI Europe – Airport Industry connectivity Report 2018, (2018) 41 Las Colinas, History of Las Colinas, https://lascolinas.org/history/ 42 Dallas business Journal, DFW Airport landing more global destinations, (2017)

07 September 2018 | Final Economic Impact of the development of Dublin Airport as a Hub Page 49 5 Literature Review 1 Executive Summary 2 Context and Rationale Iceland have developed a tourism product using the hub and stopover time 3 Economic Impact of the Hub 4 Qualitative Benefits of the Hub to enable short breaks to Reykjavik 5 Literature Review

Iceland tourism revenues Iceland

5,000 ► International tourism to Iceland has achieved significant growth in recent years, with tourism revenues 4,500 reaching $4.3bn in 2016, (see graph)43. Iceland’s growth as a tourism destination has been facilitated by the 4,000 presence of a hub airport. 95% of all Iceland’s international tourists enter via Keflavik Airport, 50km from the 3,500 capital Reykjavik. Iceland has the highest connectivity to GDP ratio in the world, allowing a wider potential 44 3,000 market who can access Iceland directly 2,500 $m ► There are integrated efforts from Icelandair, Iceland's leading airline, and the tourism board to increase 2,000 tourism amongst passengers flying through Iceland on the way to another destination. Icelandair offer free 1,500 stopovers to passengers for up to 7 days and has employed initiatives such as a “buddy system” whereby 1,000 visitors meet a local who helps them discover the country45. The table on the left shows the results of tourist 500 surveys conducted by the Icelandic Tourist Board and highlights the percentage of respondents who cited a 0 stopover opportunity as being a major contribution in their decision to visit Iceland46 2012 2013 2014 2015 2016 Dubai Source: Icelandic Tourist Board ► Dubai also takes an integrated approach to tourism, with the Emirates Group (encompassing the Emirates airline, hotels, destination companies and others) coordinating the “Dubai Stopover” Programme, offering % of tourists in Iceland citing “Stopover discounted prices to connecting passengers on hotels, car rentals and safaris. Dubai has developed a 47 Opportunity” as a factor in their travel decision reputation of being a shopping “paradise” for tourists . The United Arab Emirates has also introduced a free 48 hour visa for all passengers to make it more attractive for connecting passengers to visit Dubai48 Period Impact of stopover opportunity ► An economic impact study of Dubai’s aviation industry in 2013 estimated that aviation is the catalyst for 157,000 jobs (7.9% of total jobs in the Dubai economy), which contributes $10.2b in GDP49 Summer ’16 13%

Winter ’15’-’16 13.5%

Summer ’14 13.6%

Winter ’13-’14 9.2%

Winter ’11’12 8.2% 43 Icelandic Tourist Board, Tourism in Iceland in figures, (2017) Summer ’11 11.8% 44 Oxford Economics, Economic Benefits from Air Transport in Iceland, (2011) 45 Icelandair.com – Icelandair stopover Source: Icelandic Tourist Board, International Visitors in Iceland Summer 2016, 46 (2016) Icelandic Tourist Board, International Visitors in Iceland Summer 2016, (2016) 47 Lohmann et al., From hub to tourist destination – an explorative study of Singapore and Dubai’s aviation based transformation, Journal of Air transport Management, (2009) 48 News 18, Explore Dubai, Abu Dhabi During Stopover as UAE Government pave way for Free 48 Hour Transit Visa 49 Oxford Economics, Qualifying the Economic Impact of Aviation in Dubai, (2014)

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