Takeover may end Cork and Shannon routes

The profitability of routes from Cork and Shannon airports to Heathrow is not strong enough at present to ensure their survival in the medium to long term, it has been claimed.

Shares in Aer Lingus rose slightly yesterday after the airline confirmed a third bid of €2.55 per share had been received from IAG.

The improved offer follows two failed bids for the Irish carrier in December, at €2.30 and €2.40 per share respectively.

The Aer Lingus board are now likely to engage with IAG and enter formal negotiations — something that would be required to prevent Willie Walsh’s group from walking away from the deal, according to Merrion Stockbrokers head of research David Holohan.

Mr Holohan said that while it’s too early to predict which routes could be affected by any takeover, the outlook for Cork and Shannon airports is more challenging than the situation faced by Dublin, and added that routes from the regional bases would need to become more profitable to ensure their future viability.

“I think the case for [Cork and Shannon airports] going forward is more challenging and I think it would be dependent on what IAG believe they can grow to and how they would go about growing passenger numbers… but ultimately for IAG [the routes] would need to become more profitable going forward, I would imagine, than they currently are.

“I think it’s too early to decide what routes would be changed or left unaltered but clearly going forward, IAG is going to want to maximise profits on all routes so that would entail leaving the existing routes in place for the foreseeable future but in the medium term obviously they would want to earn an economic return from all routes,” Mr Holohan said.

While IAG is prevented from treating shareholders differently on a financial basis, the airline group is free to discuss their plans for Aer Lingus — including the valuable Heathrow landing slots and the services connecting Ireland’s regional airports — with the Government.

The State will likely look to use its 25.1% stake in Aer Lingus to seek a guarantee on the routes to and from Heathrow before agreeing to any sale of its shareholding.

Impact trade union — which represents cabin crew, pilots and some ground staff at Aer Lingus —warned yesterday using the slots for transatlantic services from London could prove more profitable for IAG than existing London to Dublin routes and called on the Government to consider the strategic importance of retaining a stake in Aer Lingus.

Sources, however, indicated that Dublin-London routes would be unlikely to be scaled back but IAG could look to increase connectivity between the capitals with Dublin already funneling substantial traffic to IAG’s British Airways business.

Fine Gael TD Kieran O’Donnell, who met Transport Minister Paschal Donohoe, said connectivity must be central to any deal, describing the slots as “our ticket to global connectivity”.

Aer Lingus yesterday confirmed the board is considering the revised €2.55 per share proposal which comprises an all-cash offer of €2.50 per share and a cash dividend of €0.05 per share.

On the offer price, Mr Holohan said it was slightly below the €2.60 to €2.70 range he had anticipated but if formal negotiations take place, the price could be higher.


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