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Aer Lingus is fine - but foolish to think that won't change

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Aer Lingus

Aer Lingus

Aer Lingus

THE Government must now decide what to do with Aer Lingus. There will be a strong temptation to retain the status quo. We don't need the money, but we do need jobs at Dublin Airport and the best possible transport links with the rest of the world.

Many retain a sentimental attachment to the former flag carrier, and simply don't like change. Why upset the apple cart months before an election?

There are many reasons - but perhaps the best reason is that a takeover is the best way to retain an airline resembling Aer Lingus in the decades to come.

Aer Lingus won't be kept safe just because the Cabinet decides to protect the airline from takeovers. Aer Lingus will only be safe if it is also financially secure, and that can best be guaranteed by partnership with a big player in the industry.

Few industries are as cyclical as the airline business.

Like most airlines, Aer Lingus profits depend largely on the state of the broader economy.

Yo-yoing oil prices are another problem and can play havoc with a company's profitability. A low oil-price environment can help Aer Lingus, but it also increases competition as other carriers expand services.

Perhaps the biggest threat to Aer Lingus is the new business model.

A big chunk of its profits these days comes from strongly performing transatlantic routes. That sector is extremely competitive. Ireland's improved economy has encouraged Aer Lingus to launch additional services to the US and Canada, but has also promoted rival US and Canadian carriers to target Dublin, ratcheting up the competitive impact.

At present, Aer Lingus has a great advantage because of the availability of US immigration and customs pre-clearance at Dublin and Shannon. But how long will this advantage last? Or will it be extended elsewhere?

Increasing consolidation within Europe and the US, coupled with the rapidly-growing footprint of Gulf carriers such as Etihad and Emirates (Etihad owns almost 5pc of Aer Lingus and stakes in airlines around the world), points to Aer Lingus being better off as part of a bigger group - in this case, IAG (which also owns Spain's Iberia).

But this does not mean that we should not try to extract a good price with decent terms.

Willie Walsh said in Dublin this month that he wants the airlines that IAG buys to retain their own brands, as he has done with Spain's Vueling. That's important.

Aer Lingus is essential to Dublin airport and has acted as something like a university over the years. It has helped spur all sorts of other industries, such as the aircraft leasing industry, and been a nursery industry for figures such as Tullow Oil's Adrian Heavey.

Ireland needs new industries and figures such as these. It is also worth insisting that the Heathrow slots remain. Remember that IAG can easily accede to a demand that it retains the use of Aer Lingus slots at Heathrow to serve Ireland.

But if IAG buys Aer Lingus, it would free up the slots BA uses to fly between Dublin and London. BA could then re-allocate some or all of them to other, probably long-haul routes.

That would be bad news for Ireland Inc, and the Government needs to hammer out a deal to keep routes and competition open for the more than 1.6 million passengers who travel between Dublin and London Heathrow every year. But Aer Lingus is still best served by allowing the IAG bid go ahead - with strings attached.

Irish Independent