Aer Lingus predicts weaker 2010

Revenue at Aer Lingus will fall during 2010, the airline said today, warning that the first of the year will be "particularly weak".

Severe weather conditions experienced in January have hit bookings for the first quarter of the year, the airline said, with a lower level than expected.

"While it remains too early in the year to provide meaningful guidance for the group's 2010 full year financial performance, Aer Lingus anticipates that market conditions will remain extremely challenging in 2010," the company said in a statement.

Aer Lingus said it would maintain its focus on tight capacity management to improve yields in difficult market conditions. At an investor conference today, the airline said it would stop trying to undercut rival Ryanair's fares, and instead would concentrate on giving customers better services.

The company is planning a number of measures to try to boost revenue, including "unbundling paid product options" for passengers, offering customers "enhancements".

Chief executive Christoph Mueller said a review of the business led him to conclude that the low-cost model was limiting its ability to maximise revenue.

"The customer will decide where to position Aer Lingus on a particular flight," Mr Mueller told investors. "We offer the basics of transportation then we add what is needed, as opposed to a full-service carrier, where the extras are hard-wired."

Aer Lingus is also seeking to expand its routes into markets currently unserved by the airline, through measures such as the franchise agreements with Aer Arann announced today, and its existing partner network. The airline is particularly keen on improving long-haul connectivity to Asia.

"They're setting out their stall by offering something different to Ryanair," said Joe Gill, an analyst at Bloxham Stockbrokers in Dublin. "You could describe it as an EasyJet model for Ireland. That's going to be very challenging as the evidence suggests short-haul is a pretty commoditised product."

Shares in Aer Lingus rose 2.6 per cent to 69.8 cent by 1.20pm on the Dublin market, after hitting as much as 70 cent earlier. The stock has advanced 8.6 percent this year.

The airline reported a €400 million fall in gross cash, with a combination of the 2009 operating loss, restructuring costs relating to the cost-cutting programme in 2008, the repayment of debt and spending on aircrarft contributing to the decline.

However, the company insisted the balance sheet remained strong, with gross cash and deposits of €825 million, with €770 million unrestricted by lease obligations. Aer Lingus said it expects the charges associated with the cost reduction programme to be recovered in about 10 months.

The company expects to save about €44 million in the current financial year, with staff costs contributing €40 million in savings.

The company has been hit hard by the downturn, and has already been the subject of two takeover bids from rival Ryanair.

"The Irish market is just a basket case," Mr Mueller said. "We do expect the recession in Ireland to last longer than in the rest of the world."