The special place Aer Lingus has enjoyed in Irish hearts may turn out to be a business disadvantage, writes John McManus.
Shortly after 10 a.m. on September 29th, 1979 the Aer Lingus flagship St Patrick, call-sign EI-ASI, touched down at Dublin Airport. On board the Boeing 747 that sunny but windy Saturday morning was the pontiff, Pope John Paul II, making the first-ever papal visit to Ireland.
Before landing, the jumbo jet, in its emerald green livery, had flown over Phoenix Park to cheers from the thousands of people gathering to hear the Pope say Mass. For many, the fly-by marked the apogee of the Irish people's remarkable relationship with their national carrier. It was a love affair that blossomed in the dark and dreary post-war years when protectionism and isolation drove government policy. Despite being a product of economic protectionism the State-owned airline became a symbol of a more modern and outward-looking Ireland.
The relationship was fostered throughout the 1960s as the jet age was ushered in. Trips to the airport were sufficiently exciting to qualify as a Holy Communion treat, while the Coca-Cola dispensing machines in the terminal added a touch of transatlantic glamour.
Aer Lingus's symbolic status continued on into the 1970s, with 20,000 people turning up at the airport to see the delivery of the St Patrick from Boeing in 1971. And it is still alive in the third millennium, as shown by the vocal public opposition to any talk of selling the airline and the reaction to the decision - now reversed - to stop flying coffins home from Europe.
There is nothing surprising about any of this, believes Cathal Mullen, who was chief executive of the airline between 1988 and 1993.
"In the early days it [Aer Lingus] was seen as technologically advanced, international and glamorous. But it was also associated with emotional events such as emigration," he says.
But the extent to which the attachment continued into the 1990s surprised the younger breed of executives who came after Mullen. Research conducted as part of the major rebranding carried out in the middle of that decade confirmed its continued existence, as did the controversy about the decision to alter the shape of the shamrock painted on the tail-fins of the planes that was part of the rebranding.
"It came across very strongly. It was not a rational thing. It was not just from the people you would expect it from," comments one former executive. "People who ran their own businesses in a clinical and focused way would tell you that when they arrived at the terminal at JFK and saw the green bird on the runway they knew they were home."
Not everybody, however, subscribes to the view that the special place enjoyed by the airline has its roots in misty-eyed sentimentality. The explanation is much more prosaic, argues Kieran Allen, of University College Dublin's Department of Sociology.
Fundamentally the airline is seen as a "traditional provider of well-paid, stable employment in north Dublin", he argues, pointing out that in the pre-social partnership days the pay rises given to Aer Lingus employees set the benchmarks for other sectors.
Allen also believes that the groundswell of opposition to the sale of the airline is driven primarily by "the deep sense of unease in Ireland about privatisation and its consequences" rather than mere residual affection for Aer Lingus. Far from living off its past status as an icon of modernity, "Aer Lingus is seen as a symbol that transporting people is not just about profit", he claims.
Another perspective is offered by designer Paul Costello, who designed uniforms for the airline in the 1990s.
"We are quite nationalistic, in a nice way. It is a tradition, we can't get away from that," he says.
Whatever the explanation for it may be, the nation's love affair with Aer Lingus does not automatically translate into bums on seats, and that is the real issue, argues Brian Dunne, the airline's chief financial officer and one of the trio of senior executives who approached the Government this summer seeking permission to put an investment proposal together.
Ryanair has been the biggest carrier on the Dublin to London route for several years. It now handles 50 per cent of the traffic, compared to Aer Lingus's 30 per cent. A similar pattern is found on the other routes to the UK, with Ryanair having 60 per cent of provincial traffic and Aer Lingus 22 per cent, according to Dunne.
The airline's own research shows, he says, that the disparity between general sentiment and actual ticket purchases is greatest among young travellers.
"When we looked at this we found there was a huge number of sub-24 people who never flew Aer Lingus because they thought we were too expensive," Dunne says. "There is a lot of positive sentiment amongst older passengers, but on a long-term basis the demographics are going to catch up with you."
The trend was one of the factors behind the decision of Willie Walsh, who became chief executive in late 2001, to reinvent the airline as a low-cost carrier. Walsh, along with chief operations officer Séamus Kearney, completes the threesome behind last summer's approach to the Government.
Ryanair, with its very low cost base, legendary meanness and incendiary chief executive Michael O'Leary, is the yardstick by which Europe's low-cost carriers are measured and was the inspiration for Walsh's decision.
Aer Lingus believes it has avoided the worst excesses of Ryanair's approach, which is based on the premise that passengers will tolerate just about anything if fares are low enough. But Aer Lingus has aped many of the practices pioneered by its rival, such as charging for food and drink and paying cabin staff a commission on in-flight sales.
Walsh attempted to explain the difference between the two airlines during his appearance before the Oireachtas Transport Committee this week. No-frills airlines such as Ryanair were characterised as "cranky, basic, unapologetic and tolerable", he said, while Aer Lingus, a "few-frills" airline - is "friendly, practical, fair and relevant". Overall it was "cheap and cheerful" as against the "cheap and nasty" proposition offered by no-frills airlines, said Walsh.
The model is now being rolled out on the transatlantic routes where Aer Lingus still enjoys dominance, with 65 per cent of the market, although it argues that when flights via hubs such as London and Amsterdam are taken into account, this figure drops to around 50 per cent. The airline is now offering one-way flights across the Atlantic for €211.
Barring some hiccups, such as the controversy over carrying coffins, the changes have been well-received and have been an outstanding success in financial terms. The airline, which was facing into operational losses of €152 million in 2002 in the economic slump that followed the September 11th attacks in New York, made a profit of €69 million last year. This year the figure could be closer to €90 million.
But the turnaround came at a cost. Some 2,000 employees left under a voluntary redundancy scheme and the airline is now looking for another 1,300 redundancies from the 4,000 remaining staff. Management claims the redundancies are needed to cement the turnaround ahead of another bout of turbulence in the aviation industry. Rising oil prices, which are driving costs and slowing economic growth, could tip the airline sector into another downturn, it is argued. The unions say that cuts of this magnitude are unnecessary in such a profitable company, and incompatible with the wider obligations of a State-owned company.
Wrapped around this debate is the wider issue of the future ownership of the airline and its need for fresh capital to fund new aircraft, an issue highlighted by the moves of Walsh and his colleagues over the summer.
The three men may have withdrawn their request to be allowed put a proposal together, but a process is now in train.
This week a Cabinet sub- committee set up to review the alternatives received a report from Goldman Sachs, the US merchant bank, which set out the options. The bank concluded that the airline would need fresh capital to fund its expansion and ensure its survival. If the Government did not want to put up the €200 million required, then a stake would have to be sold to outside investors.
"It comes down to whether the State should be investing in aircraft or schools and hospitals," says Joe Gill, head of research at Goodbody Stockbrokers.
Other European governments have faced similar choices and, in most cases, have opted to bring in outside investors while retaining a sufficiently large stake to influence strategic issues. Significant stakes in Air France/KLM, Iberia, Lufthansa and SAS are now owned by outside investors. In the case of Aer Lingus, the Government would seek to ensure that direct flights to London Heathrow and US destinations are maintained, says Gill.
The Tánaiste, Mary Harney, maintains that the Government has an open mind on the issue, but the consensus is that Bertie Ahern is opposed to a sale. The Taoiseach's comments this week that he did not believe a management buyout (MBO) was appropriate for Aer Lingus are seen as having a wider significance.
"There was more to it than knocking the MBO on the head. It was an insight into his thinking," according to one Aer Lingus insider.
With public opinion neutral at best on the issue, and the powerful Aer Lingus unions opposed to privatisation, the ever-cautious Taoiseach will be tempted to kick the issue into touch. Even a partial investment by long-term institutional investors or by another airline may be deemed a step too far as the Government begins the run-up to the next election.
The danger then is that if the airline does get into trouble as the cycle turns the Government will not be allowed to rescue it under EU laws on state aid. No amount of affection will save the airline then.