Aer Lingus primed for short-haul war

Aer Lingus is confident of its ability to rival Ryanair for short-haul passenger growth over the remainder of the year and to meet operational goals after the completion of its takeover by British Airways owner, IAG.

Aer Lingus primed for short-haul war

“We’ve been meeting the challenge head-on for the past 30 years and both airlines have benefited from the competition,” chief executive, Stephen Kavanagh said yesterday, regarding a mooted ‘price war’ this winter as Ryanair looks to stem increased competition from an Aer Lingus under new ownership.

“We expect nothing other than intense competition from Ryanair, but we have the ability to reduce our unit costs and price competitively. Consumers will see real value on the short haul travel experience,” he added.

Aer Lingus yesterday reported a 7.4% year-on-year increase in first half revenues, to €749m, but operating losses for the period — after net exceptional items — rose by nearly 10% to €13.5m. For the second quarter of the year, the airline noted a 7.1% rise in revenue to just under €469m.

The three months to the end of June saw underlying operating profit fall by 11% to €34.5m and post-exceptional operating losses amount to €28.4m, albeit down from a figure of €37.2m for the same period last year.

Second-quarter costs increased by nearly 9% to €434.4m, with currency headwinds representing more than €20m of that. Net exceptional costs, of €6m, related to professional and advisory fees linked to both the IAG takeover offer and the airline’s pensions issue.

The quarter saw long-haul revenues rise by 24.4%, but short haul revenues marginally decline, after reductions of some routes. Mr Kavanagh said both short- and long-haul capacity will expand into the peak season (by 3%-5% and 10%-15%, respectively) and that the airline is “well positioned to deliver on improved operating performance in the key third-quarter trading period and for the full year”.

He added that the adverse effects of foreign exchange movements, evident in the second quarter, will “moderate” in the second half, as a result of “a higher proportion of US dollar revenues”.

On the IAG bid — the deadline for full acceptance of which elapses tomorrow — Mr Kavanagh said the new ownership would strengthen Aer Lingus and positively affect Ireland’s economy and tourism sector.

“A key metric for Aer Lingus, going forward, in attracting competing IAG capital will be to be one of the airlines generating returns greater than 12% and margins in the 10%-14% range.

“It will be an interesting journey,” noted Stephen Furlong of Davy Stockbrokers.

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