Irish flag carrier Aer Lingus has announced it returned to profit in 2010 following two years of operating losses. The airline recorded an operating profit before exceptional items of €57.6 million from an €81 million loss for the same period last year.
Christoph Mueller, chief executive of Aer Lingus called the results gratifying, which demonstrated all the corrective actions initiated by the airline in 2009 delivered results last year. “Aer Lingus is now on a much firmer footing than at the start of 2010,” he said, but added that there was still “a lot of work to be done inside the business in order to consolidate the progress achieved to date”.
This is good news? Well it is not all bad, that is a fact but in order to realise the damaged state of Aer Lingus you need only compare its performance in 2010 against that of its peers. Aer Lingus is, to a point, a victim of circumstance with the Irish economy having tanked and its Euro partners seemingly reluctant to give the country that bit of extra help to get out of trouble it is likely that the choice is pain on the present course or more pain by taking the lower interest rate offered by the ECB in return for losing its business rate/taxation edge. This means that Aer Lingus needs to tough out what is undoubtedly going to be a drawn out domestic downturn. It is therefore logical for the airline to try to ensure that it has as much as possible going on overseas in markets that are growing, alas when you look across the board for Aer Lingus there is no sliver lining to be found in the schedule either. Indeed, the carrier says in its 2010 annual report that its fleet of eight A330s is “larger than we currently require and it is intended that one aircraft will be sold in 2011″ indicating that business closer to home is the focus. The airline took delivery of a leased Airbus A320 in January and will take three more of the type in the first half of this year. It plans to return three A321s to lessors and one short-haul aircraft “is planned to be sold”. Meanwhile it’s A350-900s on order are not due until after 2018, four years later than the planned arrival of the A330s. So a return to core European routes is the business plan, in a market dominated by Ryanair and easyjet based in economies where the ticket purchasers are seeing income fall rapidly.
2011 has a toxic mix for Aer Lingus, ongoing collapse of core market mixed with fuel costs near two thirds higher than they were last year, add this factor in alone and Aer Lingus begins to move towards red ink.
If Aer Lingus can remain in the black for 2011 full year then Christoph Mueller would be confirmed as a CEO doing a sterling job worthy of an award. Watch this space. The airline does still retain all the aspects of Air Canada in many ways and could provide a mixed class long haul low cost model but the airline must go the full way on its A320 family operations and take the plunge into a full low cost model to make significant gains and look to Air Canada as a template for the A330 fleet model. While the airline is on the ropes changes can be made. The window for further change is open.
On the results the share price of Aer Lingus slid further into the abyss falling to €0.73 a share. The 52 week range for the stock shows a high of €1.17 and a low of €0.65.