sunday tribune logo
 
go button spacer This Issue spacer spacer Archive spacer

In This Issue title image
spacer
News   spacer
spacer
spacer
Sport   spacer
spacer
spacer
Business   spacer
spacer
spacer
Property   spacer
spacer
spacer
Tribune Review   spacer
spacer
spacer
Tribune Magazine   spacer
spacer

 

spacer
Tribune Archive
spacer

Awaiting clearance for take-off
Aine Coffey



IN PUBLIC, it was turning into the kind of Mexican stand-off that keeps spinners happily spinning and is the stuff of trade union dreams.

First came the declaration by Aer Lingus chief executive Dermot Mannion, at an opportune results briefing called at short notice on Tuesday, that work on the airline sale must start within three weeks if all is not to be lost.

Siptu was quickly making strike noises over the sale, and transport minister Martin Cullen was placating unions by promising cabinet attention to their concerns.

Small wonder, though, that Mannion and chairman John Sharman were looking upbeat on Tuesday. Behind the scenes, a long-awaited proposal to resolve the impasse over the airline pension fund was being hammered out. Government has now agreed in principle the airline's proposal for a 200m back-up pension fund out of the proceeds of a flotation.

Everyone who had interrogated Sharman last year about the lacuna at the top must understand now why he was waiting to appoint a chief executive, the chairman said, looking positively fondly at his appointee.

There is no quibble about their view that the airline turned in good numbers by comparison with its European flag-carrier peers. What the investment community is awaiting is a detailed business plan. But the problem, Mannion emphasises, is that plans depend on planes.

Mannion duly repeated the message that no more planes can be ordered without the funding a sale would bring.

"Uncertainty arises for the period 2008-2010. Clearly orders need to be placed for new aircraft, but we can't do anything until we have certainty."

So far, though, so soaraway.

Last week, Aer Lingus reported a pre-tax profit of 82.6m on turnover of 883m.

Though down by 2.6% on a good 2004, that turnover figure was greeted as strong.

The airline delivered an operating margin of 8.2%, which puts it at the top of the league of European flag carriers, ahead of its nearest rival, British Airways. Mannion said he would like to get that margin back into double figures, but that this will be "challenging" given fuel costs. He plans to stick to the no fuel surcharge policy, and is keeping a "watching brief" on fuel hedging for 2007.

Passenger numbers were up by 15.6% to eight million, and the passenger load factor was 81%. Turnover and profit is currently split roughly 60:40 short-haul/long-haul, and Mannion envisages that this will remain the case for the "foreseeable future". He says he believes it "enhances the investment appeal of Aer Lingus that we don't have all our eggs in one basket".

That being said, long-haul isn't exactly steaming ahead.

The driver of last year's growth was continental Europe, with passenger numbers up by 34% and transatlantic numbers remaining unchanged at 1.2 million. But the airline has big plans.

The target is to double the long-haul fleet from seven to 14 by 2010. Two long-haul planes will arrive next year at a cost of 190m. "If we could get our hands on a third aircraft in 2007, we would probably take it, " Mannion said in an interview.

Planes permitting, there will be future extra capacity into the US. More flights eastward are also planned, in the wake of launch of the Dubai route this summer. "Ultra long-haul won't be before 2007 because we don't have the aircraft, " Mannion said.

On the short-haul side, the plan is to grow capacity by 60% by 2010. Fifteen shorthaul routes have been added in the past 18 months, and Mannion says the airline is now pinned to its collar.

"We're operating at very high aircraft utilisation levels at the moment, so it is very difficult to squeeze additional capacity out of the planes."

Only one new short-haul aircraft is coming on stream in 2006, and Mannion said "a chronic shortage of availability means the position for 2007 and beyond remains uncertain". He said the airline "will confirm additional short-haul units as soon as we can get them".

Mannion pooh-poohs the idea that Aer Lingus's real future value as a flag carrier could be in linking Ireland directly to long-haul destinations, leaving short hops to the likes of Easyjet and Ryanair.

"The travelling public is very keen for us to play a role short haul, " he says. "The competition will continue to compete only on price, but there are other dimensions to the service and product offering." Aer Lingus, he offers, has "a very high reputation for safety and excellence", adding that "it's up to others to speak to their reputation".

Mannion concedes that yields and prices are coming under pressure, but says the volume of forward booking is "well up on the levels we achieved last year". Pressure on yields is "not a significant factor" at this stage, he says.

The pressures are there, though.

Last year, Aer Lingus's average fare on European routes dropped over 16% to 66.81, while average transatlantic fares dropped by 5% to 240.78. Transatlantic competition is heating up, with American Airlines bringing on extra capacity from Boston and Chicago.

European competition will intensify from April when Ryanair launches its expanded network from Dublin.

The airline will need to keep an eye on costs if it is to keep competing on price, and there has been some disappointment there. Sharman volunteered last week that progress in cost-cutting had not been as fast as had been hoped in 2005, though distribution costs fell by 40%.

Mannion, who would need a rush of blood to the head to make controversial cost-cutting noises at this time, focuses on the "different scenario" into which the airline is moving. "The real challenge is to create a situation where Aer Lingus has the critical mass that the operation becomes scaleable."

That mechanism is in place, he says. "When we add new destinations, we are not adding new staff. We can grow the operation without adding additional resources except in front-line staff." Last year, the airline cut 15m out of distribution costs. "There is still some further mileage in that, " Mannion says.

Key to the cost-cutting plan is aerlingus. com. Last year, 71% of bookings were done through the website, and there is scope to bring that to over 90%. Mannion is also mulling opportunities to grow ancillary revenue. The organisational revamp announced on Friday gave new deputy chief executive Niall Walsh ultimate responsibility for "non-passenger revenue".

This line of business is being taken out of the commercial division, which Mannion describes as "under a lot of pressure", and which will now focus on ticket sales.

The change, Mannion says, will bring a "freshened level of focus and attention" on ancillary revenue. "These days you can sell everything over the internet."

One option he is considering is linking up with property companies with activities in Dubai through aerlingus. com.

The impression is left that he might be thinking about more than Dubai. "Irish investors are known the world over, in all the markets in the world."

In the immediate future, the issue for Mannion is when government will get the sale away. Mannion says he always expected that the heat would be turned up as the time to make a decision came closer. "We are hopeful that in the end there will be some further clarity and that we will allay the concerns of unions."

The March deadline now being talked about would still allow for a June sale, he said.

"That is still at the outer edge of the envelope. If we go beyond June, we will probably have to wait until September or October."

If that's the case, the company might as well forget about wooing investors for now, he says. They have short attention spans.




Back To Top >>


spacer

 

         
spacer
contact icon Contact
spacer spacer
home icon Home
spacer spacer
search icon Search


advertisment




 

   
  Contact Us spacer Terms & Conditions spacer Copyright Notice spacer 2007 Archive spacer 2006 Archive