Social capital is that set of reflexes we absorb from our culture, religion, families and our ancestors. It shapes how we react to crisis and opportunity.

In 19^th century Ireland, the Quakers were famously honest in their dealings, competitive in business, but fair to employees and customers, open to new ideas and encouraging of enterprise and social endeavour, and antagonistic to violence in all its forms. This benefitted them, by making it relatively easy to borrow, attract and retain the smartest and most reliable employees, reduce to the minimum the needs for contracts and lawyers, and be accepted by the majority of the population; they were also the most active group in helping mitigate the hugely malign effects of the 1845 potato famine. But their social capital also helped adorn the society of which they were such a positive part.  More generally, cultures that resist populist impulses, encourage innovation and enterprise, foster peace, make sometimes difficult choices informed by evidence, and take a long view (including protecting nature), will be rich in social capital and this is likely to enrich other forms of capital.

Aurora Colorado has been rich in at least one form of social capital.  It is well known for having one of the most sensible and progressive water charging systems in the world. Householders have been charged on the basis of increasing block prices, and provided with support for investing in water saving devices. And this has allowed the city to reduce its consumption considerably, save on investment and ensure that water is available to all and also meet the needs of a rapidly growing population.

Unfortunately, its stock of social capital stock has now been diminished; its  reputation will be coloured  in future by the tragedy of the shooting to death of 12 patrons in a cinema on July 20, 2012,  who were there to view the premier of the new Batman film, The Dark Knight Rises; over 50 others were injured, some critically. The suspect is a 24 year old neuroscience graduate student, who was arrested outside the theatre with a semiautomatic assault rifle and other weapons, all of which he purchased legally.

It is part of a sad tradition in the US, where shooting sprees periodically occur including (numbers killed in brackets): Austin, Texas in 1966 (16), Wilkes-Barre, Pennsylvania in 1982  (13), San Diego, California in 1984 (21), Edmund, Oklahoma in 1986 (14),  Killeen Texas in 1991 (23), Littleton, Colorado in 1999 (13), Blacksburg, Virginia in 2007 (32), Tucson, Arizona in 2011(6) – the latter was associated with an assassination attempt on then Congresswoman Gabrielle Giffords.

A few features are characteristic:

• The killings are undertaken mainly by Caucasian young men (an exception to the latter is Cho Seung-Hui, the killer in the Blacksburg Virginia case, who was born in South Korea)  typically acting alone, and with a history of aloneness –no girlfriends, few if any close friends;
• They do not have criminal records, and the shootings occur in relatively small cities and towns;
• They account for a tiny percentage of the total firearm related deaths – the majority of gun-related deaths in the United States are suicides –  17,352 (55.6%) of the total 31,224 firearm-related deaths in 2007 were due to suicide, while 12,632 (40.5%) were homicide deaths;
• They are not unique to the US – one year ago, Anders Behring Breivik killed 77 people in Norway – but the pattern in the US  is more enduring and pronounced;
• The control of the types of weapons that can be purchased in the US and by whom has loosened since 2004, supported by the public. The passage in 1994 of a ban on certain semi-automatic firearms  is said to have contributed to the electoral defeat of the Democratic Speaker of the House (Tom Foley) and the victory of Republicans in both houses in 1994; the 1994 law lapsed in 2004, and there is no prospect of its renewal;
• U.S. citizens own 270 million of the world’s 875 million known firearms, and about 4.5 million of the 8 million new guns manufactured worldwide each year are purchased in the United States. Teenage gang members cite the need to protect themselves as the reason for having and using guns. This raises the question: is the genie irreversibly out of the bottle?

Why are guns so freely available in the US, and would controlling of access make any difference?

Amongst the more spurious rationales for free access is the often expressed view that if people of malign intent can’t kill with guns, they will find other ways. But the solution is to also choke off as far as possible those other avenues, including bomb making equipment. And most other weapons are not as lethal as automatic firearms, and their equivalents.

An Irish example: an individual (male, 24) was arrested for stabbing a number of guests at a concert attended by 45,000 in Dublin’s Phoenix Park July 7, 2012. All but one of those injured have been discharged from hospital. If he had instead conducted the assault with a semiautomatic weapon, the outcome would probably have been orders of magnitude more lethal.

A more substantive argument is that it is allowed under the Second Amendment to the US Constitution which came into law in December 1791 as one of the 10 elements in the Bill of Rights:

A well-regulated militia being necessary to the security of a free state, the right of the people to keep and bear arms shall not be infringed.

But the right to provide conditions for access is also recognised in decisions of the Supreme Court, echoing George Washington’s observation:

A free people ought not only to be armed, but disciplined.

Based in the evidence we have, when indiscipline combines with ready access to lethal weapons, innocent people die in large numbers.

Is the US exceptional?

The data below are indicative only; they are derived from a variety of disparate sources, and some are old, relating to outcomes in the 1990s.  The US is in the second highest death rate cluster, together with Brazil, Panama, Mexico etc. The lowest group included Ireland, Scotland and England and Wales. There is a wide range of firearm related mortality rates in Europe, with Finland, France and Switzerland relatively high at over 60% of the US rate.

Table 1. Indicative data on Firearm Deaths per 100,000 Population in one year.

The Northern Ireland data are elevated by the killing during the troubles. The total deaths over the 1969-2010 period – 3568 – exceed the number killed on 9/11 in New York. Civilians in Ireland took the brunt of the Irish deaths, accounting for over half of the total (Table 2). Bombs and bullets account for most of the deaths, but in what proportion I don’t know.

Table 2. Number of Conflict related deaths in Northern Ireland, 1969-2010

Concluding Reflections

• Many Americans love guns. Love by its nature transcends logic. The irrational is rationalised, and the preposterous is defended.
• Passionate love affairs are often dangerous for the lovers. Unfortunately, the costs of this affair will continue to be borne in part by third parties – the unlucky innocents who happen to be the target of the next undisciplined shooter.
• There is no sign at Federal level that George Washington’s requirement for discipline to accompany the right to bear arms has been or is being taken on board at policy level. Until the love affair palls, this requirement is unlikely to be addressed.
• If attention is to be devoted specifically to the ‘shooting spree’ class of killing, the focus should be on young Caucasian men. If access to dangerous weaponry by this group could be dramatically reduced, this would help.
• Samuel Johnson commented (unfairly) about Scottish Highlanders: “

The inhabitants were for a long time perhaps not unhappy, but their content was a muddy mixture of pride and ignorance, an indifference for pleasures which they did not know, a blind veneration for their chiefs, and a strong conviction of their own importance”.

•  There are lessons to be learnt from other jurisdictions, but the muddy mixture of pride and ignorance that characterises much commentary makes learning difficult.
• One of the real successes of Irish freedom was the transition to peace from the guns and violence of the war of independence and civil war. An unarmed police force was established, and there was no infatuation by the public with gun ownership and all the rationalisations that it engenders. This was an important and enduring contribution to Ireland’s social capital. But it is endangered by the inheritance of the Northern Troubles, where access to guns and a willingness to use them for some became the norm. For a few, killing for political reasons has morphed into murdering for profit, often linked to controlling the sale and distribution of drugs, and with guns as the essential enforcer.
• Aurora needs to highlight what it does well in the public interest, keep doing it, and tell the world that it refuses to be typecast by the horrors of July 20, 2012, which were not of its making.

Download as a pdf - Aurora Colorado

Notes 

Data on past shooting spree incidents are drawn from:

‘US Shocked by cinema mass shooting’ by Shannon Bond and James Politi, Financial Times, July 21, 22, 2012, p. 8

Data on international comparisons – see:

http://en.wikipedia.org/wiki/List_of_countries_by_firearm-related_death_rate

Data on the stock of guns held – see

:http://www.reuters.com/article/2007/08/28/us-world-firearms-idUSL2834893820070828

Data on conflict-related deaths in Northern Ireland taken from:

http://www.guardian.co.uk/news/datablog/2010/jun/10/deaths-in-northern-ireland-conflict-data

Data on gun violence in the US – see:

http://en.wikipedia.org/wiki/Gun_violence_in_the_United_States

Data and references supporting the evidence are included in detailed notes at the end of the paper.

Introduction

For any country, easy and efficient access to others is an important contributor to its economy and quality of life. It is particularly so when the country is an island with no land or rail links to major trading partners or potential tourists.  In Ireland, this was recognised by earlier governments, who established and supported the establishment of State airline and shipping companies to ensure that such access was available. But these became State protected monopolies, with high costs and at times indifferent services. Some of us recall being frequent users of the Dublin to Brussels service offered by Aer Lingus in the 1970s and 80s, where flight availability was limited, and costs for a restricted economy ticket often fell in the range of €600-800 or even more.

But then came the competition revolution.

At its best, competition gives consumers choice, drives down prices, and encourages innovation. This has proven true of air travel. Ireland was one of the first movers in Europe to move from protection of a monopoly – the traditional ‘legacy’ airline which was shielded from competition by government – to allowing new entrants. The payoff was dramatic, and was extended to the rest of Europe with the implementation of full deregulation from 1997 at EU level.

The outcome has been documented by Barrett (1997, p.67) <1>.

The deregulation of air transport between Britain and Ireland in 1986 brought reductions in fares of over 50% and a doubling of passenger numbers in contrast to high fare increases and market stagnation before deregulation.

In Ireland, Ryanair, established in 1985, took first mover advantage of deregulation, to the extent that it is now ranked as the largest airline in Europe judged in terms of passenger numbers – carrying over 76 million passengers in 2011.  It offers over 1,500 flights daily serving 170 airports across Europe with 294 Boeing 737-800 aircraft; Ryanair is now the seventh largest airline in the world. The incumbent monopoly airline in 1985 (Aer Lingus) continues to operate, and carried 9.8 million passengers in 2011, of whom 8.9 million are short haul (Europe).

Together, the two airlines dominate Europe-based traffic into and out of Ireland. They account for over 80% of traffic out of Dublin. On July 24, 2012, out of 66 routes by Aer Lingus from Dublin, 31 are also contested by Ryanair; the average price for a contested flight is €125.75, compared to €145.76 for an uncontested flight <2>.

Figure 1: Price Comparison on Contested Routes

Figure 2: Price of Flying with Aer Lingus on Uncontested Routes

Ryanair has purchased shares in Aer Lingus, now amounting to 29.8% of the total, and has made successive efforts to buy the airline outright, the latest announced on June 19, 2012. In this commentary, we review the earlier refusal by the European Commission to allow the earlier bid to proceed, and then examine the latest proposal. The stakes here for Ireland are very high; any decision that results in increasing cost or reduction in quality of access would have hugely negative effects on economic performance and quality of life.

The European Commission Decision In 2007

In rejecting the earlier bid in 2007, the European Commission argued that the acquisition of Aer Lingus would have eliminated Ryanair’s main competitor in Ireland.

To address the EU’s antitrust concerns, Ryanair offered to sell as many as two-thirds of Aer Lingus’s landing slots at Heathrow and provide space for new entrants at the London airport, Europe’s busiest. It also offered slots at London’s Stansted Airport and airports serving Frankfurt, Paris, Milan, Rome, Barcelona and Bratislava, Slovakia. The Commission rejected the offers.

Nelli Kroes, the Commissioner for Competition argued that

The slots were not enough. The airline would have about 80% of the market at Dublin’s airport. That is such a dominant position that a newcomer is not interested in joining that play.

The Commission said the Ryanair case was the first time the regulator reviewed a proposed merger of two primary airlines operating from the same airport in one country.

The number of overlapping routes is unprecedented compared with previous airline cases.

The Commissioner pointed out that the combined airline would have had a near monopoly at Dublin, with no competition on 22 out of 35 routes.

Ryanair has provided customers with more competition and more choice. But it cannot now take away that choice.

The 2012 Bid

The Ryanair case for acquisition is based on the following propositions:

• In an era when airlines are merging and becoming bigger, Aer Lingus, as a small stand-alone airline –the Ryanair CEO Michael O’Leary calls it ‘a small regional airline’ and in the Ryanair bid document it is called ‘a sub-scale peripheral  EU flag carrier which has been bypassed by ongoing EU-wide flag carrier consolidation’ – will not be able to compete. He highlights industry consolidation that is leaving Europe with five big airline groups – Air France-KLM, Easyjet, International Airlines Group, Lufthansa, and Ryanair.

The Financial Times notes

Apart from Ryanair, it is difficult to see who would pursue a takeover of Aer Lingus. Air France-KLM, IAG and Lufthansa are seen as unlikely suitors. Etihad, the fast-growing Abu Dhabi-based carrier that announced last month it had bought a 3% stake in Aer Lingus, has held talks about buying the Irish government’s shareholding. But foreign ownership rules are likely to prevent Etihad from having a controlling stake in Aer Lingus.

• Since their last failed bid, the world has changed in terms of competition – “The most significant of these consolidations is the recent IAG (BA and Iberia) takeover of BMI, where the No.1 airline at Heathrow was allowed to acquire the No.2” and there are no barriers to new entrants at Dublin airport, which is operating at only 50% capacity.  Ryanair would keep the two airlines separate and competing subsidiaries of Ryanair Holdings.
• By lowering Aer Lingus unit costs and fares, growing its fleet and traffic at some of Europe’s major airports, and competing with high fare incumbents, Ryanair can significantly increase Aer Lingus’ profitability, and boost Aer Lingus passenger numbers from 9.5 million to 14 million over the next 5 years.
• Sale to a non-Irish investor would ‘lead to the inevitable break up of Aer Lingus on the basis that they are only interested in the Heathrow slots and the profitable US routes.
• Competition concerns can be addressed.

Ryanair believes that

any competition concerns which the European Commission may have can be addressed by Ryanair making appropriate remedies prior to the completion of this Offer and by significant synergies and cost efficiencies resulting from this combination.

Issues & Conclusions

Since the late 1908′s, consumers in Ireland, and especially in Dublin, have experienced a golden age of air travel, with expanding services and low prices, attributable mainly to competition.

Maintaining this competitive environment is critically important, and we should not take it for granted. (Access costs by air do not feature in the National Competitiveness Council’s otherwise very comprehensive Ireland’s Competitiveness Scorecard 2011.)

No definitive conclusions can be drawn from the data on all flights out of Dublin on one day. But it does not allow us to reject the hypothesis that competition is good for consumers, and reduced competition would be bad.

There are some issues arising from the most recent bid by Ryanair for Aer Lingus which require clarity and verification.

• As mentioned by the Financial Times, “foreign ownership rules are likely to prevent Etihad from having a controlling stake in Aer Lingus”. These rules are based on European regulations and are a hindrance to competition.  That the airline business should be run on the basis of nationality runs contra to its international nature.
• It is argued that there are now large economies of scale in airlines, hence the emergence of the ‘big 5’. What has changed since Ryanair started out with one plane in 1985? In what elements of the cost base – costs of capital, planes, fuel, people, marketing, access – are there significant disadvantages, and is the only solution a merger? This has now become part of the conventional wisdom, but Ryanair has demonstrated that the conventional wisdom is often wrong. Are there other means of driving down costs in some or all of these areas that would retain autonomy?
• Michael O’Leary argues that the European routes flown by Aer Lingus are unprofitable, that the main interest by prospective purchasers are the Heathrow slots and the US routes, and that the airline would be broken up by any purchaser. Evidence?
• If Ryanair take over Aer Lingus, will contestability problems arise?  In her 2007 judgment, Nelli Kroes thinks so: “That (80% of the Dublin market) is such a dominant position that a newcomer is not interested in joining that play”.

Whatever the choice that is made, we must not return to the monopoly that prevailed before 1986.

To quote Commission Kroes again

Ryanair has provided customers with more competition and more choice. But it cannot now take away that choice.

Notes

1. Barrett, Sean, 1997. The Implications of Ireland/UK Airline Deregulation for an EU Internal Market, Journal of Air Transport Management, Vol. 3, No.2, 1997.
2. The prices used here refer to the cost of a one-way ticket from Dublin airport on Tuesday, 24 July 2012 or the closest available flight if there were no flights on the 24th. Where there were multiple flights on the same day, the cheapest flight was chosen. The price data was taken from http://www.aerlingus.com and http://www.ryanair.com on 2nd and 3rd of July. Prices are inclusive of taxes but do not include opt-in fees such as charges for luggage. The routes were deemed to be competing if they serviced the same area e.g. Aer Lingus flights to Brussels National Airport compete with Ryanair flights to Charleroi Airfield.

Download this blog as a pdf - Airline competition in Ireland

Air Travel and Managing Climate Change

With the rapid expansion of air travel, flying has accounted for an increasing share of greenhouse gas emissions. However, since 2012, air transport has been included in the European Union Emissions Trading Scheme, which sets a declining cap on emissions up to 2020 and thereafter. This produces a price for CO₂ which will be passed through to travellers, with the extent of the pass through depending on the cost of CO₂ allowances, the load factor, and the efficiency of planes and how they are flown. This will penalise those airlines that use relatively fuel inefficient planes, fly them inefficiently, and have low load factors.

Annex 1 – Aer Lingus Prices

Annex 2 – Ryanair Prices