Friday 9 December 2016

Weaker pound will hit smaller airlines' profits, warns Walsh

Published 01/11/2016 | 02:30

IAG CEO Willie Walsh. Photo: Niall Carson/PA Wire
IAG CEO Willie Walsh. Photo: Niall Carson/PA Wire

Smaller airlines operating in the UK will find it "increasingly tough" this winter as they feel the chill wind of sterling's slump coupled with the effects of the slower season, according to IAG chief executive Willie Walsh.

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Stobart Air, which operates the Aer Lingus Regional service on a franchise basis for Aer Lingus, is likely to be among those affected.

Aer Lingus is owned by IAG. Stobart Air, which is in the process of being sold to CityJet, generates about half its revenue in sterling. Both airlines are based in Dublin, but Stobart Air is in the process of applying for a new air operator's certificate in the UK, it's understood.

The pound dropped to a 31-year low against the US dollar in early October. Airlines buy fuel in US dollars, but when they generate a big chunk of their revenue in sterling, the negative impact on the fuel cost can be significant. Those increased costs, at a time of intense competition could make operating conditions extremely difficult for smaller airlines.

"The weak pound is clearly stretching some of the smaller, generally weaker UK carriers," said Mr Walsh.

"They're going to find it increasingly tough as we go through the winter period. The competitive landscape for some of those carriers with their obvious overlap with the likes of Ryanair and Easyjet will be even tougher still."

He added that there are no small airlines in the frame from an acquisition point of view. "There's nothing there that piques our interest," he said.

IAG has itself felt the impact of weaker sterling.

Last week, the group, which also owns British Airways, Iberia and Vueling, said third-quarter results had been hit by €162m because of currency fluctuations, primarily related to sterling. It also downgraded its full-year profit forecast.

The latest publicly-available accounts for Everdeal, the company behind Stobart Air, show that it generated revenue of €102.8m in 2013.

That included €52.9m generated in Ireland, with the rest "international".

Virtually all that international revenue, which is translated into euro for Everdeal's accounts, has been sourced as sterling from UK-originating passengers.

CityJet is also likely to feel some pain, with much of its revenue derived from sterling, but much of its cost base in euro.

CityJet's acquisition of Stobart Air is set to be sealed any day, with Stobart Air already readied for the transaction.

Irish Independent

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