Celtic Comeback: Darkness Gives Way to Light in Ireland

Oct 21 2013Ryanair wields perhaps the harshest stick in the entire global airline industry. But the carrot can be just as dramatic.

Last week the ultra-low-cost carrier announced that beginning in April, it will bring more than a million new passengers through Ireland’s airports. Why April? Because that’s when, according to a national budget released just a day before Ryanair’s announcement, the country will scrap a €3 ($4) “travel tax.” Never mind that the airline hasn’t yet worked out how it’ll increase traffic by that much—it’s now discussing that with the country’s major airports in a series of hastily arranged meetings. Ryanair knows some of its customers are price sensitive enough that they really will travel just because a fare has dropped by a few euros. It’s also smart enough to realize the value of adding service even beyond what a strict supply-and-demand curve might dictate. What other European government wouldn’t love what Ryanair says will be 1,000 new airport jobs (plus lots of other less direct travel industry employment) to serve the million new passengers? The airline didn’t have to say that in its announcement. Everyone understands.

But actually, Ryanair’s April big bang won’t be the start of an Irish air travel rebound. Rather, it will be just the most visible example yet of what is already perhaps the world’s most impressive post-global financial crisis turnaround story. As the chart on page six shows, Ireland’s ASK capacity has declined more than that of any other major country during the past five years—more even than Greece. Yet very much unlike Greece, Ireland has surged during the past two years. In fact, the 11% total five-year decline conceals an unbelievable 21% drop during the first two years of that period, followed by a rebound that has been accelerating and, with Ryanair’s announcement, will now shift into fifth gear.

The decline and rise in Irish air traffic is no surprise considering the similar trajectory of the country’s economy. But the air traffic roller coaster has probably varied more in both directions than it would have without the travel tax, which a cash-strapped government launched at €10 back in 2009. Reasonable economists can disagree about the net effects of Ireland’s extreme austerity. But no one reasonable disagrees that the big new tax—just as both Irish consumers and inbound travelers from the rest of Europe saw their disposable incomes shrink—caused capacity and traffic to decline beyond what otherwise would have been the case. Sure, Ryanair—that time wielding the stick to make its point—might have cut beyond what…

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