'The Irish market is just a basket case." It probably wasn't what Aer Lingus investors expected to hear in their first meeting with the airline's new chief executive, Christoph Mueller. The recession in Ireland, which has hit demand for travel hard, will "last longer than in the rest of the world", he added.

Despite narrowly avoiding industrial dispute with staff over cost cuts, the departure of top executives, the lurking presence of Ryanair and the downbeat economic message, Mueller impressed his investors last week.

In a lengthy presentation in London on Tuesday – the Powerpoint slides ran to 51 pages – Mueller outlined his vision for the future of the former state-owned airline. He plans to chart a course that steers clear of fighting with budget carriers on price and avoids the upper end of the market that includes the likes of British Airways and Air France that need to fill business and first-class seats to make a profit. It isn't a radical shift by the new chief executive, analysts said. It may, however, bring stability to the airline.

According to Mueller, Aer Lingus will "offer the basics of transportation" at a reasonable price. After that, passengers will pay for whatever services they choose, such as seat selection. Mueller hopes those extras will eventually increase revenues, which he forecast will fall again in 2010 because demand for travel hasn't picked up.

"The strategy they are putting out there is a hybrid. They are looking to be a value carrier; they're not going to be a purely low-frills airline and they are not a going back to a full-service carrier," Merrion Capital aviation analyst John Mattimoe says.

Goodbody Stockbrokers' analyst Eamonn Hughes said investors "will have gained confidence from a CEO with a clear strategy and enhanced visibility on the delivery of the restructuring programme".

Mueller's plan will reverse some of the changes made by his immediate predecessors, Dermot Mannion and Willie Walsh.

Under Mannion, Aer Lingus rapidly expanded its long-haul routes, flying directly from Dublin to Dubai, Washington, San Francisco and Orlando. That expansion has been largely unwound as the expected demand for flights didn't materialise. The airline will now focus on increasing connectivity with other carriers, delivering passengers to transport hubs such as Heathrow, Paris and Frankfurt so they can continue to other long-haul destinations on Aer Lingus tickets. Mueller highlighted destinations in Asia, India and Australia in his presentation.

"There isn't enough of a market in Ireland to fly direct to Sydney but it can bring people to other airlines. Sometimes you find that people might fly to Heathrow with BMI or Charles De Gaulle [in Paris] with Air France so Aer Lingus doesn't even get [the revenue from the] short-haul leg," Mattimoe said.

Mattimoe says rejoining one of the major global airline alliances is unlikely. Aer Lingus exited the OneWorld grouping in 2006.

"There was a lot of cost associated with being involved with these alliances. If they stayed in One World, they would never have been able to go for a single-class-only offering."

Mueller will also look to maximise Aer Lingus's existing transatlantic business out of Ireland through a franchise arrangement with Aer Arann that was sealed last week. Under the agreement, Aer Lingus will get a fee for selling seats on Aer Arann flights through its website and also hopes that the passengers flying in from regional airports in Ireland and Britain will hop on to one of its long-haul flights out of Dublin.

Dublin's attraction as a long-haul hub has been given a boost as the new terminal, to be opened this November, allows passengers to pre-clear US customs and immigration, the only airport in Europe to do so.

Competition at the airport will also ease somewhat this year with Ryanair and BMI cutting back on their operations. Ryanair plans to cut capacity in Dublin by 20% this summer and more cuts are on the way for its winter schedule, while BMI is reducing the frequency on the lucrative Dublin to Heathrow route from six to four flights.

Direct expansion outside Ireland, championed by Mannion with the opening of bases in Belfast and Gatwick, is also on hold with flights and aircraft numbers at the London airport being cut back.

On the cost front, Mueller looks to have achieved the full savings he promised last October when Aer Lingus announced it would cut more than 670 jobs. Analysts pointed out that, while the full benefits of the savings won't be seen until the end of 2012 (a little later than some had expected), the airline won't be shelling out huge sums in advance, unlike previous redundancy rounds.

The drain on the company's balance sheet will also ease with cash burn decreasing, even allowing for the projected losses in 2009 and 2010 thanks to deferring delivery of new aircraft. Mueller also says it may sell surplus planes to keep its expenditure down. Still, analysts expect the company to lose money in 2010, about €36m at operating level on top of a €88m loss in 2009, according to Goodbody's Hughes.

While the market was impressed by Mueller's display, the chances of the airline returning to profitability and remaining independent – largest shareholder Ryanair is now free to make a third bid – look to be outside his control. Last year was the worst ever for the global travel industry, according to industry body IATA. And 2010 will not be a major improvement.

Mueller: hoping to succeed where others have failed

Christoph Mueller came to the chief executive's post in Aer Lingus with direct experience of running airlines, after stints with Lufthansa, Sabena and the aviation arm of travel giant TUI. As the fourth full-time chief executive in less than a decade, he will need that experience if he is to manage the airline out of the worst aviation crisis in decades.

Since 2000 Aer Lingus has parted with CEOs at an alarming rate. Michael Foley, the high-flying Heineken executive head-hunted in 2000, lasted just months. He departed after allegations of sexually harassing colleagues. A legal action he took for unfair dismissal was settled in 2008.

Foley was succeeded in 2001 by former pilot Willie Walsh. Walsh set about radically changing Aer Lingus by axing thousands of jobs and doing away with frills such as free meals on short flights. His ambition to turn the airline into another Ryanair was thwarted after a failed attempt at a management buyout. Walsh now runs British Airways.

Dermot Mannion became CEO in 2005, having been lured from Emirates. Mannion wanted to expand the airline's long-haul operations and open new hubs but he was hampered by the slowdown in travel and spent much of his tenure fighting off two bids from Ryanair. His legacy was leading the airline through its stock market listing in 2006.