Friday 20 October 2017

Aer Lingus to drop Ryanair strategy

Steven Rothwell and Louisa Fahy

Aer Lingus will stop trying to undercut Ryanair and offer enhancements including better food and faster check-in times to attract customers willing to pay more.

In a switch that brings it closer to EasyJet, which attracts a higher proportion of business flyers, Aer Lingus will adopt a hybrid model somewhere between a discount and full-service carrier, new Chief Executive Officer Christoph Mueller said today at an investor briefing in London.

Aer Lingus will also add more short-haul routes through a franchise deal with Aer Arann, while seeking to boost long-haul connections by increasing the number of code-share partners.

Mueller, who became CEO in September, said a review of the company had led him to conclude that the low-cost model was limiting its ability to maximize revenue.

“They’re setting out their stall by offering something different to Ryanair,” said Joe Gill, an analyst at Bloxham Stockbrokers in Dublin.

“You could describe it as an EasyJet model for Ireland. That’s going to be very challenging as the evidence suggests short-haul is a pretty commoditised product.”

Aer Lingus rose as much as 2.9pc to 70 cents and was trading at 69.5 cents as of 11:03am in Dublin. The stock has advanced 8.6pc this year.

“The customer will decide where to position Aer Lingus on a particular flight,” Mueller told investors. “We offer the basics of transportation then we add what is needed, as opposed to a full-service carrier, where the extras are hard-wired.”

New routes

The agreement with Aer Arann will cover 12 routes, giving Aer Lingus new services to Bristol, Blackpool, Cardiff, Durham and Doncaster/Sheffield in England, together with Glasgow and Edinburgh in Scotland.

While the flights will use Aer Arann ATR 72 turboprop planes, they’ll be branded “Aer Lingus Regional,” with tickets sold through the larger carrier’s website.

EasyJet attracts more time-sensitive flyers than Ryanair by operating to airports that are generally closer to major cities than those used by its rival.

Aer Lingus is already reducing wages and slashing its workforce by almost a fifth, and more jobs may have to go as the airline braces for a decline in sales in what will be an “extremely challenging” year, Mueller said.

Airlines probably lost $11bn in 2009, according to estimates from the International Air Transport Association (IATA). Aer Lingus, targeted by Ryanair in two takeover bids, has been hit harder than most as the country struggles to emerge from the worst recession since World War II.

“The Irish market is just a basket case,” Mueller said. “We do expect the recession in Ireland to last longer than in the rest of the world.”

Bloomberg

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