Aer Lingus has worked hard to reposition itself as a low-cost carrier, but one that still offers a few frills to passengers, writes Siobhan Creaton, Finance Correspondent.

In doing so, it is pursuing a different strategy to its nearest rival, Ryanair, and is enjoying commercial success.

This week, the national carrier announced that it had made €17 million in profits in the first half of 2003 and was on course to raise this to more than €75 million by year-end.

Chief executive Mr Willie Walsh says it is pursuing a very simple formula and has promised that, by driving costs down even further, its customers can look forward to much cheaper air fares in the future.

Low-cost carriers have tended to be modelled on Southwest Airlines, the Texas-based carrier that pioneered the low-fares, no-frills concept. Ryanair is acknowledged as being the European airline most closely reflecting the Southwest ethos and as having driven down the cost of air travel for Irish consumers.

Today Aer Lingus claims to match Ryanair fares on most routes, or to be in the ballpark where they are a bit higher.

But it also claims that, despite all of the cost-cutting, it has worked hard to protect its brand and that customers who travel with Aer Lingus enjoy cheap fares and a high level of customer service.

"It's a compelling package," says the airline's chief operations officer, Mr Séamus Kearney. "We are a customer service organisation. We are efficient, professional and friendly. We can be cheap without being cheap and nasty."

This is clearly a jibe at Ryanair and is a mantra that Aer Lingus may continue to embrace as it seeks to differentiate itself from its arch-rival.

The terrorist attacks in the US on September 11th, 2001, were the catalyst for the dramatic turnaround at Aer Lingus. Since then, the airline has trimmed its cost base by €300 million, which included the axing of one-third of its staff and half of its management team.

"We looked over the edge after September 11th and it wasn't pretty. We realised that if we didn't change we were going to be gobbled up by a competitor," Mr Kearney says.

"We have taken huge costs out of the business and there is still a long way to go."

Aer Lingus says it makes no apologies for saying that it is a low-fares airline.

Mr Kearney is quick to detail how much cheaper it would be to travel with Aer Lingus rather than Ryanair this weekend to London, Glasgow or Brussels. "Ryanair may have led the way but we are delivering on price," he says.

It's profits pale in comparison to the much bigger Ryanair, which on Monday reported a 4 per cent rise in pre-tax profits to €45.1 million in the three months to the end of June.

However, the Irish carriers are in the happy position to be firmly in the black at a time when most airlines are finding it hard to make ends meet.

Last week, British Airway's chief executive Mr Rod Eddington said the industry was going through the worst period in aviation history.

Mr Kearney says the two Irish-based airlines' stellar performances were based on high levels of efficiency and aggressive competition, which was yielding the cheapest air fares for Irish consumers.

It's taken a while for Aer Lingus to realise that its customers simply wanted lower fares.

"We now know our customers are price smart but they also expect a certain level of service," he says.

"Aer Lingus no longer offers a gold-plated service to customers but offers a more practical and appropriate service."

He says its service clearly differentiates Aer Lingus from no-frill carriers.

"We fly to main airports and not 50 miles away. We assign seats for passengers, we beat low-fares competitors on punctuality, even though we fly to more congested airports, and we always fulfil our commitments to customers - unlike no-frills carriers," he says.

By contrast with Ryanair, Aer Lingus allows passengers to connect to other flights and offers long-haul transatlantic flights. It also offers a business-class service on many flights, although this is currently under review and is likely to be cut back in the months ahead.

The airline is hugely encouraged by the surge in passenger numbers in response to its sharply reduced air fares and Mr Walsh has indicated that bookings for the rest of the year are very healthy.

Ms Deirdre Ashe, a strategic planner at consultancy firm Ogilvy Group, believes the airline will have to be careful not to squander the huge emotional attachment that Irish people have to the Aer Lingus brand during its transformation.

"The brand is what a customer experiences. It impacts on the way that customers view staff and indeed their safety," according to Ms Ashe.

Mr Kearney says that it is possible to take further costs in a way that will not affect the quality of service offered to customers.

The airline is currently preparing to move to a single type of aircraft - mirroring the move already made by its private sector rival - an initiative the airline argues has the potential to yield substantial long-term savings.

Aer Lingus is also championing its website seat reservation facility, which has the potential to shave another €40 million annually off its cost base.

Almost all Ryanair flights are booked over the internet, compared with 35 per cent at Aer Lingus. By year-end it is targeting that 50 per cent of bookings will be made in this way and believes this will rise to 70 per cent in 2004.

Mr Kearney says Mr Walsh and the entire management team are very happy with the airline's performance this year and believe they have found the appropriate model for Aer Lingus.

"We look after customers. We are not perfect. We have our bad days but we offer a better service than our no-frills competitors," he says.