Business Irish

Monday 19 August 2019

Fuel bill headwinds push profits lower at Aer Lingus

New US routes to Minneapolis, Philadelphia and Seattle boost transatlantic growth

Aer Lingus CEO Sean Doyle
Aer Lingus CEO Sean Doyle
IAG's CEO Willie Walsh

Shawn Pogatchnik

Revenues rose but profits fell at Aer Lingus in the first half of 2019 as higher fuel bills increased costs throughout parent company IAG.

In its first-half 2019 statement published yesterday, IAG said Aer Lingus generated operating profit of €78m in January to June, down 27pc from the first half of last year.

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Profits fell despite 8pc revenue growth at Aer Lingus to €971m, including an 8.3pc gain in passenger-generated income to €939m. Operating margins declined from 11.8pc to 8pc.

IAG's CEO Willie Walsh said rising fuel prices had sapped profits throughout the group, which includes British Airways and Spanish airlines Iberia and Vueling. As a whole, IAG said its group operating profit fell by 11.7pc to €1.1bn. Passenger-generated revenues rose 7.2pc.

"Despite fuel cost headwinds, we delivered a good performance," he said. "At constant currency, fuel unit costs were up 6.3pc, while passenger unit revenue increased 1.1pc, benefiting from the timing of Easter."

In its trading outlook, IAG said it expects full-year operating profit "to be in line" with 2018 results, presuming no significant deviation from current fuel prices and exchange rates. It expects passenger revenues to improve and non-fuel costs to decrease. In the six months to June 30, IAG carried more than 55 million passengers, up 6pc, as load factor - the percentage of sold seats - rose by 0.6pc to 83pc. Aer Lingus did not fare as well, achieving a load factor of 79.2pc, up just 0.1pc.

Fuel costs across IAG rose 20.5pc, in part because hedging profits achieved in 2018 have not been repeated this year. Higher fuel prices were partially offset by deployment of new aircraft with more efficient engines. But the fleet also grew in size, from 565 to 588 aircraft.

Mr Walsh and new Aer Lingus CEO Sean Doyle said Aer Lingus was benefiting from new transatlantic routes to Philadelphia and Seattle launched last year, and reported strong early figures from the new Minneapolis route. He said British Airways and other parts of IAG had experienced no drop-off in bookings or any other evidence that Brexit was affecting business. "We've not seen any Brexit impact," he told reporters.

Mr Walsh said he was not surprised to see "the surplus of pilots" at Ryanair, which earlier this week confirmed it will cut staff - potentially 500 pilots and 400 cabin crew - for the first time since becoming a publicly listed company in 1997.

He suggested pilots, in particular, were not a scarce commodity and would likely find the job market increasingly competitive.

He said airlines that expanded too quickly were "betting the business on short-term glory". "When I joined Aer Lingus 40 years ago in 1979, there was supposed to be a shortage of pilots. I was in the airline about two months when there was a worldwide surplus of pilots. And ever since then, we've been hearing about shortages of pilots. I've never seen one," said Mr Walsh.

He said British Airways recruited about 250 pilots in the past year. "We get at least four applications for every job we'd fill, and these are from qualified pilots. The environment has changed," he said. "You've got to be conscious of the number of airlines out there that are particularly weak at the moment.

"I would expect some of those weaker airlines to start shrinking rapidly or disappear entirely. It's a rapidly changing environment."

When asked about complaints from Ireland's regional airports that IAG was too focused on Dublin, he suggested they were exaggerating the business risks they faced.

"Has an airport ever gone out of business anywhere in the world? I can think of hundreds of airlines. But not one airport," he said.

"It's not unusual for an airport to say they're finding it tough. But quite honestly, they're not. There's plenty of scope for them."

Irish Independent

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