AFTER A few months spent mowing the lawn, leading aviation analyst Joe Gill hit the runway at pace in his first week at Dublin-based Bloxham Stockbrokers. On Tuesday, Gill, who quit Goodbody Stockbrokers earlier this year to take up his current role, recommended that Ryanair should suspend its share buyback programme.
Yesterday, he produced a hard-hitting analysis of the challenges facing Aer Lingus. He has predicted it could post an operating loss of €30 million for the first half of this year when its publishes its interims next Thursday.
This would translate into a €12 million pretax loss in what is always the quieter half-year period for Aer Lingus and other airlines. For the year as a whole, Gill expects the operating loss to land at €35 million, with the airline probably breaking even on its bottom line, although this could be affected by an exceptional item relating to restructuring costs.
In 2007, Aer Lingus produced an operating profit of €2.6 million in the first half of the year, which swelled to €87 million by the year end.
These are changed times, with fuel more expensive and consumers more cautious about how they spend their cash.
The picture for 2009 is even bleaker, according to Gill, who highlighted how fuel hedges are due to unwind. "If we punch in passenger growth of just 2 per cent, average fares rising in low single digits and unit fuel costs up over 15 per cent, our EBIT (earnings before interest and tax) loss comes out above €90 million," he states.
And the solution? Gill works through a few possible merger scenarios, including Ryanair and UK low-cost airline EasyJet. Neither seems likely for political and other reasons.
In which case, Gill suggests more restructuring for the cash-rich airline. For a mere €160 million, he reckons it would slash its costs per passenger from about €80 at present to €60. This would bring it closer to the Ryanair figure of €40 per passenger.
"Perhaps part of the existing cash should be used to fund another restructuring plan," Gill says. "Especially if fleet expansion is put on hold."
