Crisis at Aer Lingus - Slash costs or write the obituary

AER LINGUS yesterday published results that are unsustainable and unless the company can reverse its fortunes its long-term future must be questionable.

In the first six months of this year the company, once one of the brightest and most heavily subsidised symbols of a newly independent and ambitious Ireland, made an operating loss of €93m, a figure that represents 16.7% of sales. Those figures don’t tell the full story though, as they do not record that the business also lost money before paying for leased aircraft or charging for the depreciation of its own aircraft. Cash — the reassuring and long-trumpeted war chest — has been flittered away and reduced to €440m, 45% below last year’s comparable figure. If present trends continue the war chest will contain less than €300m before Christmas.

In the simplest of terms this means that the company lost nearly €20 — €18.80 to be exact — for every passenger it carried in the first six months of the year. This implosion has had an impact on the share price which has collapsed from over €1.40 to less than €0.50.

In the face of such losses Christopher Mueller, who will become the company’s chief executive on Tuesday, faces an unenviable task. He is not alone though as airlines are in serious trouble right across the world. In the last 18 months 80 airlines went out of business and scores more amalgamated.

A unique combination of being based in Europe’s fastest contracting economy and an uncompetitive cost structure lie behind the Aer Lingus crisis. Already there are suggestions that the airline may move to a more competitive economy on mainland Europe. This may be just a bit of posturing before talks with unions — hopefully — but it is certain that the airline’s cost structure will have to be radically reviewed if it is to have any long-term prospects. Aviation analysts have suggested a reduction of at least 20% in unit costs. There have been suggestions too that 1,000 of the approximately 3,500 jobs remaining at the airline will be lost in the medium term. They also point to the great expense of sustaining long-haul services.

Because of its origins Aer Lingus has had a culture involving powerful trade unions who have secured excellent working conditions for their members. This has left a legacy too expensive for today’s conditions. There have been far too many threats to services too. Staff have threatened to go on strike no fewer than four times in the last three years. That may have been possible before non-unionised airlines like Ryanair began to reshape the business but it is no longer an option for an airline that wants to stay in business.

This drama seems to be approaching a death scene and unless Mr Mueller gets the support he needs to reorder the business Aer Lingus cannot survive for very long.

There is a worrying subplot too, an inkling that the practices and privileges enjoyed at Aer Lingus are enjoyed right across other semi-state companies such as the ESB, Coillte, Bord na Mona, Córas Iompair Éireann, RTÉ, Bord Gáis Éireann, Horse Racing Ireland, the VHI and many, many more institutions.

How would they fare if a Ryanair shouldered its way into their comfortable world? We may not want a Ryanair public service or semi-state sector but yesterday’s figures prove that we can’t afford an Aer Lingus one either.