'Impressive' summer for Aer Lingus but sterling weighs on IAG parent
Published 29/10/2016 | 02:30
Aer Lingus remains on track to launch a new transatlantic service in time for next summer and to rejoin the Oneworld alliance in 2017, according to IAG chief executive Willie Walsh.
Third-quarter results released by IAG show the Irish carrier, which IAG acquired for €1.36bn in 2015, continues to post strong profitability during its peak summer months.
IAG, which also owns British Airways, Iberia and Vueling, didn't reveal the actual third-quarter profit figure for Aer Lingus, but Mr Walsh pointed to the fact that it had a 29.7pc operating margin in the period.
That was significantly more than the 18.6pc reported by British Airways, the 17.4pc at Vueling and the 15.9pc at Iberia.
IAG's third-quarter operating profit fell to €1.2bn from €1.25bn in the corresponding period in 2015, dented by the fall in sterling, as well as other issues such as air traffic control strikes.
The group also cut its full-year profit forecast. It now expects to make a profit of about €2.5bn, compared to a previous estimate of €3.2bn.
The return on invested capital at Aer Lingus was 20.6pc over the past four quarters. That's the strongest in the group, and well above the grow-wide target of 15pc set by IAG.
"The Aer Lingus performance is very impressive and we expect that to continue," said Mr Walsh.
"Aer Lingus is trading very much in line with what we would have expected when we acquired the business. It's probably slightly better than we would have expected, but not significantly out of line with our expectations."
Mr Walsh added that for the full-year at IAG, British Airways will continue to be the biggest contributor to profitability, but that Aer Lingus, which is headed by Stephen Kavanagh, will tussle with Iberia for second place. IAG is 20pc-owned by Qatar Airways.
Mr Walsh also said that negotiations that will see Aer Lingus join a joint venture that includes British Airways and American Airlines and operates across the North Atlantic, are "progressing well". The joint venture sees American and British Airways share revenue.
The model helps them to deepen their network penetration, and coordinate schedules and pricing.
Mr Walsh said Aer Lingus will initially do more code-sharing with American before joining the venture.
"Then it's how we bring them [Aer Lingus] into the joint business," he said.
"Aer Lingus is unique in terms of how it operates and can operate on the transatlantic, and therefore we need to ensure that flexibility is retained and not in any way inhibited by being part of the joint business.
"We don't want a straitjacket placed on Aer Lingus," the chief executive said.
Mr Walsh said that American previously "didn't fully understand the Aer Lingus model", and that it now "better understands" the opportunity that Aer Lingus presents, both as a standalone entity and as part of an alliance.
Mr Walsh also insisted that a third runway at Heathrow Airport is "by no means a done deal" and that the next 12 months will determine whether it goes ahead or not.
The UK government has just selected Heathrow as the preferred location for a third runway to serve London.