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Dublin Airport Terminal 2 Operating Cost Assessment R01000

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Dublin Airport Terminal 2 Operating Cost Assessment R01000 Booz & Company Dublin, 2009 Report Dublin Airport Terminal 2 Operating Cost Assessment R01000 6th November 2009 This document is confidential and is intended solely for the use and information of the client to whom it is addressed. This report was commissioned by, and prepared for, the Commission of Aviation Regulation (CAR) by Booz & Company (“The Consultant”). The findings and conclusions set forth in the report represent the best professional judgment of the Consultant based on information made available to it by the CAR and others. The Consultant has relied on, and not independently verified, data provided to it by such sources and on secondary sources of information cited in the report. We note that if the information provided to us by such sources or obtained from secondary sources proves to be incorrect, the conclusions stated in our report could also be incorrect. The report states a number of assumptions made during our analysis. While we have no reason to believe any of these assumptions are unreasonable, we note that if any prove incorrect, actual results could vary from those we have projected. Third parties to whom CAR may make this report available should not rely on the findings or conclusions set forth in this report without obtaining independent professional advice and undertaking their own due diligence. Any reliance on this report by a third party or any decisions made by any such third party based on this report, are the sole responsibility of such third party. The Consultants have not had and do not acknowledge any duty of care to any such third party with respect to the report, and shall have no financial or other liability to any such party with respect to any matter related to any decisions made by any such party, in whole or in part, on this report. Booz & Company R01000 CAR Dublin T2 Opex 6 Nov.ppt Prepared for Commission for Aviation Regulation 06 November 2009 1 Terms of Reference & Scope Summary of Work Programme Overview of Terminal 2 Opex Dublin Airport Traffic Analysis Terminal 2 Operating Concept Terminal 2 Operating Costs Terminal 1 Cost Impact Overall Summary Appendix Booz & Company R01000 CAR Dublin T2 Opex 6 Nov.ppt Prepared for Commission for Aviation Regulation 06 November 2009 2 Booz & Company was appointed to assess the impacts on operating expenditure of opening Dublin Airport’s Terminal 2 Regulated Charges at Dublin Airport Regulatory Building Blocks Used to derive price cap The CAR regulates the following charges at Dublin Airport (other airport functions are either regulated elsewhere or provided by a competitive market): regulatory asset base – Runway landing and take-off charges – Aircraft parking charges return on an efficient – Charges for the use of an air bridge capital stock – Passenger processing charges The Commission uses price cap regulation based on the ‘Single Till’ approach depreciation charge on This requires the CAR capital stock to take a view on DAA’s CAR’s Statutory Objectives in Setting the Cap Operating Costs estimate of efficiently – Terminal 1: The efficient and economic development of Dublin incurred future assessment previously Airport operating expenditures conducted; impact of opening T2 on T1 to be The ability of the Dublin Airport Authority to operate in determined a financially viable manner estimate of future – Terminal 2: assessment The protection of the interests of users and potential commercial revenues required users of the airport Booz & Company R01000 CAR Dublin T2 Opex 6 Nov.ppt Prepared for Commission for Aviation Regulation 06 November 2009 3 Booz & Company developed a project plan and robust methodology to meet the CAR’s requirements for this project Our Understanding Terms of Reference A detailed examination of Dublin Airport To forecast the efficient operating costs that will be incurred by the operating expenditure (opex) has been DAA as a result of opening a new passenger processing terminal and conducted, almost exclusively focused on the pier at Dublin Airport. The assessment should determine the following: existing terminal. Detailed coverage of Terminal – The costs of the ‘non-tendered services’ in Terminal 2 and the 2 opex is now required impact in terms of costs, if any, on the wider airport (i.e. current Government policy originally planned for the facilities) once Terminal 2 commences operations (where the tender operation of Terminal 2 to be competitively refers to the tender for an operator of certain terminal facilities as tendered and therefore excluded from the currently being conducted by the Department of Transport and its determination advisors) – The costs of the ‘tendered services’ in Terminal 2 and the impact in Recent uncertainty over which Terminal 2 terms of costs, if any, on the wider airport (i.e. current facilities) operations will be included within a tender once Terminal 2 commences operations process means that T2 operational costs must – The transitional and one-off costs that DAA may incur in opening now be included in the determination Terminal 2 Without a firm understanding of how the opex – Economies/diseconomies of scale/scope that may arise from the for the whole airport will be affected by the opening of a second terminal at the airport. The Commission opening of Terminal 2, the Commission cannot requires an analysis of the efficient operating costs for DAA’s reliably determine an appropriate price cap for Terminal 2 and its effect on the operating costs for the existing the DAA terminal The Commission needs to make a determination CAR also required consideration of two ‘mothballing’ scenarios, the during December 2009, with sufficient time result of which is included as an Appendix to this document. On the during November for stakeholders to review the basis of this, CAR requested Booz to proceed on the basis of T2 being new Draft Determination fully operational with 40% of Dublin Airport’s traffic Booz & Company R01000 CAR Dublin T2 Opex 6 Nov.ppt Prepared for Commission for Aviation Regulation 06 November 2009 4 Terms of Reference & Scope Summary of Work Programme Overview of Terminal 2 Opex Dublin Airport Traffic Analysis Terminal 2 Operating Concept Terminal 2 Operating Costs Terminal 1 Cost Impact Overall Summary Appendix Booz & Company R01000 CAR Dublin T2 Opex 6 Nov.ppt Prepared for Commission for Aviation Regulation 06 November 2009 5 Our work programme used a bottom-up methodology to evaluate operational costs, validating them against comparable airport data ILLUSTRATIVE EXAMPLE Operating Cost Methodology Data Analysis & Develop independent Concept of Operations Data Gathering Drivers Assessment Outcomes cost estimate 100 Example drivers of competitive cost position 50% 90 • Customer requirements • Infrastructure layout Early/Day/Late Operational 80 • Regulatory requirements Inherent • Geographic location Sub Function FTE Driver Shift Cycle** Night Shift Total FTE • Equipment age and reliability Costs • Environmental conditions shift Nos. FTE • Technology 40% 70 Terminal Management Fixed* Office Hours 1 1.0 1 60 Duty Management Fixed 3 1 1 4.2 5 33% Administration Fixed Office Hours 2 2.0 2 50 • Scale • Sourcing strategy 30% • Capacity utilisation Structural • Performance/quality Operations Control Centre Facility Related 3 3.5 2 12.6 15 T2 40 • Operational complexity Costs requirements At this stage STN has Information Desk/PAVA Fixed 2 2.5 7.0 8 30 no sensible benchmark Passenger Flow Management Passenger Related 2 4 11.2 13 20 20% CIP/Events/Lounges Fixed 2 3 8.4 10 EfficiencyEfficiency savingsaving • Organisational structure • Support and indirect labour 16% Trolleys Passenger Related 3 4 2 14.0 17 Trolley demand per agent on duty duty on on agent agent per per demand demand Trolley Trolley 10 • Management processes Systemic 14% • Operational processes Costs 0 • Operating systems General Forecourt Management Fixed 2 1 2.8 3 10% 10% 00 Taxi Queue Marshalling Fixed 2 2 5.6 7 00:00 02: 04:00 06:00 08:00 10:00 12:00 14:00 16:00 18:00 20:00 22:00 Time of day Total 68.8 81 • Productivity • Labour rates 1% • Occupancy costs Realised • Materials costs 0% 0% 0% 0% Sun Mon Tues Wed Costs • Utilities costs • Taxes and duties LHR T1 LHR T2 LHR T3 LHR T4 LGW NT LGW ST STN MAN DUB Thurs Fri Sat Terminal The project …and developed a We independently We examined how …and analysed the …to report the costs reviewed the flight schedule based developed a set of costs would ramp relative positions of of an efficient operator concept of on historic pax costs for payroll and up in 2010, which DAA and Booz to inform CAR’s operations for numbers. non-payroll items will not be a full forecasts regulatory Terminal 2… We held meetings for the first full year year of operation determination with airport users and of operation (2011) …and specified the DAA… drivers for and identified relevant subsequent years benchmarks where available Booz & Company R01000 CAR Dublin T2 Opex 6 Nov.ppt Prepared for Commission for Aviation Regulation 06 November 2009 6 A combination of approaches was used to establish efficient operating costs Benchmark data often consolidates FTEs and costs across a broad range of functions – Maintenance often includes airfield maintenance such as runway lighting and surface repairs A number of functions are almost always outsourced at airports and therefore only contract cost data is available: – Secondary maintenance, such as specialised Baggage System maintenance – Security equipment servicing – Cleaning and waste disposal Some functions are highly dependent
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