State-owned Irish airline Aer Lingus will see a drop in profits next year if oil prices continue at current levels, chief executive Mr Willie Walsh said today.
Aer Lingus is fully hedged for this year and 68 per cent hedged for 2005. However, the remaining exposure will hurt earnings if oil prices remain high.
"We had been projecting growth in profitability (for 2005)," Mr Walsh said in an interview. "At this stage I would think that would be highly unlikely."
Aer Lingus is forecasting operating profits of €95 million ($119 million) this year - up from €83 million in 2003 - but that could drop to €80 million next year given the effect of rocketing fuel prices, Mr Walsh said.
"There will be a financial impact (from fuel price rises) in 2004 but we've been able to offset that with other cost reductions," Mr Walsh said, adding the group would try to hedge its remaining fuel requirements for 2005 if the opportunity arose.
"Even looking at that, it will impact on our profitability if it continues at current spot prices," he added.
But the former pilot, appointed CEO exactly three years ago to spearhead a revival of the carrier's fortunes, ruled out any fuel surcharges. "I don't see (that) as an option," he said.
Mr Walsh has been repositioning Aer Lingus as a low-fare carrier since its brush with bankruptcy in 2001. He slashed costs by a refocus on using the Internet to sell flights and returned the firm to profitability in 2002.
Some 2,000 jobs have gone and another 1,600 have applied for 1,300 redundancy packages on offer with the airline.
Aer Lingus, whose business is concentrated in the short-haul market, hopes the cost cuts will allow it to drop ticket prices further and so lift its passenger numbers. This will help offset what it expects to be a 10 to 20 percent fall in yield next year.