Aer Lingus set to deliver €57m profit in 2011

AER LINGUS is on course to deliver an operating profit of €57 million for 2011 as it becomes the most restructured airline in Europe.

This is according to Davy Stockbrokers, which said that given the company’s commitment to its €97m cost reduction programme its era of cash burn will likely end. It forecasts that the airline’s cash position will be unchanged this year while €30m of free cash will be generated next year.

“Looking into 2011, the effects of the cost-cutting measures alone will offer an improved operating result with added upside potential due to the recovery in passenger traffic in continental Europe and the US,” Davy analysts Stephen Furlong and Joshua Goldman said.

Davy is upgrading its forecasts to an operating profit of €21.2m in 2010 from a previous forecast of a €4.8m loss. It also reiterated its “outperform” rating with a price target of €1.50.

The stockbrokers said Aer Lingus had a very strong first half with an operating loss of €19m pre-exceptionals, which is 80% better than last year’s half-year loss of €93m.

“The key to the company’s strong results was capacity rationalisation, which allowed for higher yields and cost-reduction measures,” they said. By the end of 2010, Aer Lingus has targeted staff and non-staff savings with an annual value of €50m and €4m respectively, which leaves a further €43m of annual savings to be implemented by the end of 2011 to deliver the targeted €97m savings, a process known as Greenfield.

“Helped by the Greenfield programme and the rationalisation of capacity, we see the company ending 2010 in a similar net cash position to that in 2009. This is a significant improvement over the €320m cash burn which occurred in 2009. As the cost-cutting measures gain traction and with limited capital expenditure, we see net cash on the balance sheet increasing by €30m in 2011,” the analysts said.