Takeover at Aer Lingus ‘logical’

A TAKEOVER of Aer Lingus makes more sense than the airline joining an alliance.

This is according to Merrion Stockbrokers which said consolidation in the European airline industry is showing no signs of abating in recent times as operators look to co-ordinate capacity levels and cost structures.

It said it sees logic in major European or American airlines in acquiring Aer Lingus.

“Overall, we see few incremental advantages for Aer Lingus in joining an alliance, but the rationale for a takeover is still there. Moreover, by not joining an alliance, Aer Lingus can be easily courted by all acquisitive airlines,” said Merrion stockbroker Gerard Moore.

He said one of the major decisions facing Aer Lingus this year will be whether or not it will join an international airline alliance such as OneWorld, Sky Team or Star Alliance. Around two thirds of the world’s airlines belongs to an international alliance. Typically, the main rational to join an alliance is to boost passenger numbers.

“We believe, it is logical and correct for management to fully weigh up the pros and cons of joining an international alliance, before making the necessary investment of around €20m to 40m in technology, business lounges, service upgrades etc,” Mr Moore said.

Aer Lingus already has code sharing agreements with British Airways, Air France/KLM and United Airlines and if the company was to join a single alliance it may be required to abandon some of these partnerships.

Merrion also said higher oil prices should enable Aer Lingus to price up accordingly and it is factoring in average annual yield growth of 2.1% out to 2013.

It said further growth in long haul business class, which increased from 16% to 21% of revenue between 2009 and 2010, will strengthen long haul yields.

Aer Lingus is looking to increase onboard sales and this year is expected to introduce credit/debit card payment machines.

Aer Lingus has a pension deficit of €400m and the airline has no legal obligation to fund this deficit, but management and employees are looking to find a solution.

Overall Merrion expects operating profit to decline from €58m in 2010 to €19m in 2011.