Aer Lingus losses prompt review

Aer Lingus is planning a review of its business after reporting a sharp increase in losses due to downward pressure on fares and a highly uncertain outlook with no sign of consumer confidence returning.

Aer Lingus said its loss after tax in the six months to the end of June had widened 242 per cent to €73.9 million on revenue down 12.2 per cent at €555 million.

Its operating loss of €93 million compared with a shortfall of €23.4 million a year earlier, the carrier said in a statement.

"Aer Lingus expects that the continuation of the current market trends in Ireland and its other key markets will lead to further sustained and significant fare pressure," it said. "This dynamic and very challenging environment contributes to a highly uncertain outlook."

The carrier cut non-fuel costs by 5.1 per cent through a pay freeze for workers and by cutting some services. It has also deferred delivery of aircraft and is trying to boost revenue by establishing a second base at London’s Gatwick airport.

Ryanair issued a statement today criticising the reliability of Aer Lingus' earnings forecasts.

It said Aer Lingus chairman Colm Barrington issued a statement in December 2008 saying “Aer Lingus is and will be profitable” but that eight months later it was loss-making.

Ryanair said it had asked the Irish Stock Exchange and the Irish Takeover Panel to explain why they allowed the Board of Aer Lingus to mislead shareholders and the markets when they published their defence document.

Ryanair said Aer Lingus shareholders were entitled to know why a Ryanair offer of €1.40 per share was rejected by the Board of Aer Lingus just 8 months ago, on the basis of misleading claims about growth and profitability.

At 4.45pm Aer Lingus shares were trading at 50 cent, down 0.5 per cent on the day.

Aer Lingus' net cash position declined by almost 33 per cent since the end of last year to €439.6 million. That appeared faster than the pace of cash burn signalled in March when management said net cash would remain above €400 million by the end of 2009.

Chief financial officer Sean Coyle said the airline had to devise a cost plan to stablise the company.

“Our fares in the first half of the year are down by about 17 per cent. So while it’s good news for consumers it is unfortunately not good news for the airline,” he told RTÉ’s Morning Ireland.

“Clearly we cannot sustain operating losses of these levels, we cannot sustain the kind of cash-burn we have had in the first half of the year and we need to rebase our cost-structure to live with the lower fares that passengers are prepared to pay.”

He also said the airline was finding it difficult to raise money. “No bank is prepared to lend money to an airline that is burning through €400 million of net cash in a 12 month period, as we have done.”

In a note to investors Davy stockbrokers said the trading outlook for the airline remains “highly uncertain and very challenging”.

“The company comments that while traffic volumes have stabilised, average fare yields continue to be significantly down year-on-year. Forward visibility on revenue expectations remains poor.”

"This revenue environment, coupled with an uncompetitive cost base, means that we must now take difficult but necessary steps to address our business model and cost base so that we ensure Aer Lingus is viable over the long term," chairman Colm Barrington said in a statement.

“While traffic volumes have stabilized, consumer confidence remains weak and we see no sign of any improvement in the near term,” Mr Barrington said.

“We must now take difficult but necessary steps to address our business model and cost base.”

The airline said it will undertake a “wide-ranging examination” of its operations to help return it to profit. Average fares on short-haul routes fell 13 per cent, with long-haul fares dropping 19 per cent.

Fuel costs rose 10 per cent.

Aer Lingus announced July 17th that it had hired Christoph Mueller as chief executive officer, replacing Dermot Mannion, who left in April. Mueller (47) is the airline’s first non-Irish chief and will join the company on October 1st.

Ryanair, Europe's biggest budget carrier and the holder of a 29 per cent stake in Aer Lingus after two failed takeover bids, last month trimmed its own full-year profit forecast as it was forced to cut fares to fill aircraft.

Additional reporting Reuters/Bloomberg