Aer Lingus launches savings program as fares, revenue continue to fall

Aer Lingus's third-quarter revenue fell 9.7% year-over-year on a 17.6% drop in average fare, it announced yesterday, adding that it has launched the "first phase" of a restructuring aimed at "reduc[ing] any costs within our control so that we can cope with continued falling fares, compete and maintain balance sheet strength."

The ailing airline was €73.9 million ($109.7 million) in the red through the half-year (ATWOnline, Aug. 28) and announced a comprehensive Transformation Plan last month designed to save €74 million in staff costs and €23 million in nonstaff costs per year (ATWOnline, Oct. 8). Yesterday it said that the plan's first stage "has commenced" and that EI management expects to conclude its consultation with union representatives around the middle of next week. Productivity enhancements and "changes in. . .pension arrangements" are being discussed, EI said.

Third-quarter passenger numbers rose 7% to 3.1 million, comprising a 10% increase on short-haul routes and a 13.2% drop on the long-haul network. Average revenue per passenger was down 14.8% as the average short-haul fare dropped 12.3% and long-haul fares plunged 17%. The decline was buffered slightly by an 8.5% increase in ancillary revenue per passenger. Short-haul capacity rose 10.5% year-over-year, long-haul was down 18% and overall load factor gained 1.3 points to 80.4%.

EI announced A330/A350 deferrals and lease terminations over the summer and yesterday said an October RFI for sale or sale/leaseback deals "on a number of its aircraft" has generated "a significant number of expressions of interest."

It said that while year-over-year yield decrease continues, "the pace of decline in average fares does not appear to be accelerating currently," although it sees "further expected GDP declines and unemployment increases in our major markets."

With that bleak outlook in mind, British Airways CEO and former EI CEO Willie Walsh last month said the Irish airline may need to merge to survive, but that its current ownership structure makes it "difficult to attract investors."

In a speech in Limerick, Walsh was quoted as saying, "Given what has happened to the economy here and given the way Aer Lingus has struggled in recent times, you could now make an argument that its future as an independent carrier is not that secure and maybe Aer Lingus does need to look at a relationship with some other carrier or a number of other carriers. . . With Ryanair a significant shareholder at 30% and the Irish government with 25%, plus the Employee Share Ownership Trust with 15%, I struggle to see how anyone would invest or would want to invest with that sort of structure."

Walsh said he always found it "a challenge" to understand why Ryanair would want to control EI, arguing that "there are serious competition issues and there is a very significant overlap between Aer Lingus and Ryanair and the competition regulators will always struggle with that. I wouldn't say a Ryanair-Aer Lingus merger is impossible, but it would be very difficult." Ryanair has said it is "highly unlikely" to make another offer full control (ATWOnline, Oct. 6).

by Brian Straus and Cathy Buyck

Originally published 11 Nov 2009 at: http://feeds.atwonline.com/~r/AtwDailyNews/~3/LKrNX5xsUeQ/story.html