Wednesday 17 January 2018

What lies ahead on the Aer Lingus flight path?

We examine the best and worst case scenarios for Aer Lingus IAG ownership. Will Irish travellers enjoy the best air connectivity in the world - or will we see soaring transatlantic ticket prices and the closure of European leisure routes?

'One thing that may be reduced is Aer Lingus point-to-point travel. The days of providing routes based solely on Irish travellers’ needs are over...'
'One thing that may be reduced is Aer Lingus point-to-point travel. The days of providing routes based solely on Irish travellers’ needs are over...'
Sarah McCabe

Sarah McCabe

Best case scenario - Within weeks of taking control of Aer Lingus, Willie Walsh announces four new and long-desired transatlantic routes, from Dublin to Las Vegas, Dallas, Washington and Vancouver.

The airline is brought into the airline coalition One World Alliance as part of IAG, meaning 15 different airlines start to sell its tickets. It is also added to One World's hugely popular frequent flyer programme.

The airline maintains its commitment not to resort to outsourcing or redundancies in an effort to cut costs, thought a voluntary redundancy package is opened for those who are ready to leave.

In addition to new transatlantic flights, capacity is added on existing UK regional and other EU routes.

An aggressive marketing campaign is launched in Britain, pitching the airline as a transformative new option for UK transatlantic travellers.

The approach begins to pay off and Aer Lingus sees steady gains in passenger numbers. Most are transatlantic travellers as predicted, using Dublin, Cork and Shannon as a stopover point.

The US government doubles its allocation of immigration officials working in Ireland's airports as US immigration pre-clearance services at Dublin come under pressure.

New European routes are added to access a wider market of transatlantic travellers. They have the added benefit of giving Irish people access to an array of new European destinations.

Demand for staff grows. One year after the IAG deal, net jobs at the airline have grown by 150. By 2018 numbers have swelled by more than 600, two years earlier than predicted. Jet orders are placed for both short and long-haul aircraft while existing British Airways planes are transferred over to Aer Lingus.

Space at Dublin Airport is at a premium, with all available runway slots in use. Three-decade-old plans to build a second runway are resurrected.

The airport is firmly established as one of Europe's most important air travel hubs with Shannon and Cork not far behind.

What the experts say

"When it comes to connectivity, this doesn't just mean more transatlantic flights" said Conor McCarthy, CEO of Dublin Aerospace, director at Pegasus Airlines and Air Asia and former CEO of Aer Lingus Commuter. He joined the airline around the same time as a young Willie Walsh did.

"This will mean expanded services to the UK too, as the airline tries to funnel more travellers onto its US flights. Its the same kind of model that Emirates has operated so successfully.

"IAG is a great fit. Its history is to preserve and enhance brands. The other obvious buyer is Lufthansa and the Star Alliance but what they have tended to do is submerge purchased airlines into a group and make decisions centrally, which is not what is desired for Aer Lingus.

"Even smaller things like the importance of BA's frequent flyer programmes should not be underestimated. So many UK travellers allow that to influence their decisions, especially for long-haul flights when they can earn loads of miles. That will make it much easier to sell a route that passes through Ireland.

"The Government's deal is not a bad one either. The commitments on those Heathrow slots are a good win. When Aer Lingus moved Heathrow slots from Shannon to Belfast there was absolutely no government control. They have more now.

"Another benefit of this is that plans for the long-delayed construction of a second runway at Dublin Airport could be resurrected which can only be good for connectivity. Demand drives infrastructure. Dublin Airport has had plans for a second runway in mind for three decades. And unlike many other European cities, it has the land to do so."

Shaun Brogan is CEO of Stobart Air, which operates Aer Lingus Regional to a host of regional British airports under a franchise agreement. He thinks the deal with IAG could add up to 2m passengers to its routes as British flyers opt for Dublin over Heathrow when flying transatlantic.

"Last year, 4.3m people travelled to London Heathrow from Aberdeen, Edinburgh, Glasgow, Leeds Bradford, Manchester and Newcastle, cities we service. Of these, at least 1.2 million connected at Heathrow to other, mainly US destinations.

"Why would they continue to fly via busy Heathrow when they can now fly through Dublin, Cork and Shannon, with access to US pre-clearance facilities, and still earn miles as part of British Airway's frequent flyer programme?"

Best case scenario - After protracted tussles with Ryanair, IAG takes control of Aer Lingus in late 2016.

Willie Walsh's first move is to cut costs. In line with recommendations prepared by private consultancy group Nyras, it begins a restructuring programme targeting €60m in cuts within three months.

Ground handling jobs are slashed by a fifth, catering staff are cut by 40pc and maintenance workers are culled by a quarter. Airline workers strike repeatedly during key travelling periods but, as it did when implementing cuts at Iberia, their new owner holds firm.

IAG's strategy to turnAer Lingus into a stopover point for European transatlantic travellers begins with the closure of almost all of the airline's point-to-point routes to holiday destinations in Spain and Portugal, popular with Irish families.

The planes, staff and runway slots are redistributed onto routes popular with European business travellers. Ryanair gains a monopoly on Irish leisure travellers.

As the approach pays off and business travellers begin to flood onto the Aer Lingus network, the airline hikes the cost of transatlantic ticket prices. With no real competition from other airlines, the price for a family or student flying from Ireland to the US doubles between 2015 and 2017.

Growth in staff numbers is modest, with increased outsourcing addressing most of the airline's new business.

Dublin Airport comes under intense capacity pressure. Terminal Two, already considered too small by many, is unable to handle the surge in international passengers. Billion-Euro plans for a second runway and third terminal are tabled at taxpayers' expense, despite the fact that most of the travellers now using the airport merely do so as a stopover.

What the experts say

"The strategy when it comes to IAG is pretty clear - it's all about building up a transatlantic business, another transatlantic corridor," said Johannes Braun, transport analyst with Commerzbank.

"Dublin is an important hub for the Americas, especially North America. Heathrow is at capacity and there are not that many other European airports that offer what Dublin does. Lufthansa has control of Frankfurt, Air France in Paris, and Madrid is more of a feeder for South America than North America. Plus Aer Lingus has a serious presence in regional airways in the north of the UK that IAG can use to funnel British travellers through Ireland onto transatlantic flights.

"Transatlantic travel is a highly profitable market and the only thing holding IAG back is Heathrow. There is constant traffic across the Atlantic and it's a popular route with business travellers who pay more, it's a higher margin business.

"European leisure travel, point-to-point routes, are less profitable. Some of those routes may be closed."

McCarthy agrees. "One thing that may be reduced is Aer Lingus point to point travel today. Everything will be redirected to bring European passengers into Ireland and on to the US, and home again. The days of Aer Lingus providing routes based solely on Irish travellers' needs are over."

Aviation journalist Nick Trend says there is reason to be concerned about prices on currently-cheap transatlantic routes going up. "Should BA and IAG become more dominant on transatlantic routes, fares could creep up.

"The area to keep an eye on is long-haul and especially transatlantic fares. While Norwegian last year launched low-cost services from Gatwick to a handful of US cities, Ryanair recently abandoned plans to offer flights to the US."

Sunday Indo Business

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