Aer Lingus chief warns of further cost-cutting
High fuel costs, low winter demand and hard-pressed consumers have prompted Aer Lingus to caution that additional cost-cutting measures may be required at the airline to ensure that it maintains a profit trajectory.
Aer Lingus chief executive Christoph Mueller delivered the warning yesterday as the company posted a first quarter pre-exceptional operating loss of €53.7m -- nearly 42pc worse than it reported in the first three months of 2010. A €2.2m spend on IT systems during the latest period drove the total operating loss to almost €56m.
Mr Mueller said the airline still expects to post a pre-exceptional operating profit in 2011, but at a "much lower" level than in 2010, when the figure was €57.6m.
Analyst Stephen Furlong at Davy reckons the 2011 operating profit will be around €17m. He added that while management are "doing the right things", external impacts have undermined some of their efforts.
Union official Niall Shanahan of IMPACT slammed Mr Mueller's threat to cut more costs, saying that members have now been left in the dark amid an "information vacuum" regarding management plans.
Aer Lingus, which holds its AGM today, said the first quarter performance had been adversely affected by industrial action taken by IMPACT cabin crew, as well as the fact that Easter fell later this year. It estimated that the strike action earlier this year cost the company €15m, reflecting lost passenger and ancillary revenues. The company was forced to spend €7.3m hiring aircraft and crews during the strike.
First quarter revenue at the airline was 5.6pc lower year on year at €217.9m despite capacity having been cut by 11pc, with short-haul revenues down 3.4pc to €132.2m and long-haul revenue 4.1pc lower at €42.3m. However, it noted that it is "encouraged" by early indications for second and third quarter revenues.
Aer Lingus also incurred a €29.5m charge due to a settlement with the Revenue Commissioners over a so-called leave-and-return scheme for some staff in 2008. An internal investigation into the scheme's implementation has not yet concluded, said a spokesman.
Aer Lingus generated savings of nearly €72m in the year to end March as part of its controversial Greenfield cost-cutting programme. But Mr Mueller stressed that the plan may be insufficient in light of the current trading environment.
"We are assessing whether the Greenfield cost reduction programme is sufficient to protect profitability for the future or whether further measures are required," he said.
The airline added it is examining proposals to address the "significant seasonality" inherent in the Aer Lingus business model. That could entail further grounding of aircraft and crews during winter months and leasing out aircraft during that season.
Shares in the airline closed 1.2pc lower at 82.5 cent.