Business Irish

Thursday 17 October 2019

Spiralling costs threaten to ground airline for good

Peter O'Donovan

AER Lingus yesterday claimed its very survival was at stake as the company unveiled its radical plan to slash costs.

While Aer Lingus unions reacted with fury to the company's dramatic cost-cutting programme, the reality is that the airline's staff costs per passenger are currently running at seven times those of Ryanair; while losses for 2009 are set to hit €100m. Meanwhile, unions are opposed to the company's plans to outsource catering and baggage handling operations as well as hiring cheaper American crew for its transatlantic flights. But the company claims this just shows how out of touch the unions are with economic reality.

When Aer Lingus published its half-year results in late August, the airline revealed that it had lost over €20m in the six months to the end of June. However, it was what chief executive Dermot Mannion had to say about the airline's future prospects that really spooked investors. If things continue as they have been then Aer Lingus expects to lose up to €100m in 2009. This year's rapid escalation in oil prices and falling passenger demand has left Aer Lingus with no place to hide.

The airline expects to spend €390m on fuel this year, an increase of €140m on 2007. The outlook for 2009 is even bleaker with the airline forecasting a fuel bill of €463m.

With fuel costs set to rise by almost 90pc within the space of just two years, Aer Lingus and the unions can no longer put off dealing with the former semi-state's cost base.

Last year Aer Lingus paid its 3,700 staff €307m, an average of almost €83,000 per head. The staff processed eight million passengers. That works out at 2,160 passengers per employee. To put it another way, staff costs at Aer Lingus average over €38 per passenger, almost as much as Ryanair's average fare per passenger of €44. Compare this to the situation at Ryanair where its 5,300 staff handled almost 51 million passengers last year, over 9,600 passengers per staff member. Ryanair's total wage bill last year was €285m. That works out at under €54,000 per head or just €5.60 per passenger carried.

While these comparisons are slightly skewed by the fact that, unlike Ryanair, Aer Lingus operates long-haul flights, there is little doubt but that Michael O'Leary's outfit enjoys an enormous cost advantage over its main Irish competitor.

Aer Lingus needs to address this gap in costs urgently. If it doesn't then it won't be flying in a year or two, no matter what the trade unions say.

Eoghan Corry: Page 25

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