Aer Lingus said today in an Interim Management Statement, that it expects the financial outcome for the second half will be close to break even resulting in a full year operating loss which will be close to €20 million. The airline also said that it expects to report an operating loss for 2009.

Total revenues increased by 8.5% during the first nine months of 2008 compared to the same period in 2007.  Flown passenger numbers increased by 9.7% year-on-year to 7.7 million. This comprised a 10.2% increase in passengers on short-haul and a 6.6% increase on long-haul. Average passenger revenue in the period fell by 1.1% year on year.

Capacity, measured in available seat kilometres (ASKs), increased significantly in the period. In the nine months to 30 September, short-haul capacity increased by 17.5% and long haul-capacity increased by 20.2%. Short-haul performed strongly in the period with load factor only 1.1 points behind 2007. Short-haul average fare fell by 6.1% year on year, and was largely offset by the strong 28.2% increase in ancillary revenue per passenger.  

Long haul load factor fell by 5.8 points in the period versus 2007 as a result of the increased capacity introduced on three new routes which commenced in late 2007. Long-haul average fare increased by 2.9% in the period, including the benefit of an increased fuel surcharge.  

Aer Lingus says it maintains a strong balance sheet with net cash of €766.7 million. This represents a decrease of 4.5% since 30 June, 2008 (€802.6m) and a 1.3% decrease since 31 December, 2007.  

It said that the airline industry is facing an exceptionally tough trading environment which has progressively deteriorated throughout 2008. Falling consumer demand in Aer Lingus' key markets is, and will continue to contribute to sustained and significant fare pressure. Against that backdrop, Aer Lingus expects the average fare trend for full year 2008 to be in line with previous guidance for a 6% to 7% year on year reduction on short-haul and a marginal increase on long-haul. 

Fuel & Fuel Hedging

The airline said that while fuel prices have declined recently, price reductions are being offset by a strengthening of the US Dollar, which has appreciated 18% relative to the euro since mid-July. On 28 August 2008, Aer Lingus indicated that it had hedged 70% of its fuel requirements for the remaining months of 2008 at US$1,137 per tonne, and 20% of 2009 at US$1,165 per tonne. The airline has extended its hedging for the three months to December 2008 to 97%, at a rate of US$1,086 per tonne and for the full year 2009 to 64% at a rate of US$995. In addition, Aer Lingus has hedged 18% of its 2010 fuel requirements at US$936.  

Operating Cost Reduction

Aer Lingus says that in a deteriorating operating environment characterised by weak demand and intense competitive pressure, it is focused on managing the factors within its control to ensure that the business is viable over the long-term. It said that it is imperative that the operating cost base is re-aligned with the current and expected revenue stream to provide the basis for a sustainable business in the future. There is no choice but to address legacy work practices, pay rates and pay inflation which are inappropriate to the business model and the competitive environment in which Aer Lingus competes, the airline said.

Outlook

Aer Lingus said it previously guided to operating losses of between €20 million to €30 million for the 2008 full year. Aer Lingus now expects that the financial outcome for the second half will be close to break even resulting in a full year operating loss which will be closer to the €20 million end of the stated range.  

The airline said that the new Irish Airport Travel tax of €10 per departing passenger will have a direct bottom-line impact of €30 million as Aer Lingus expects to have to absorb this tax on 75% of bookings from its introduction on 30 March 2009. In the context of the overall harsh economic and competitive environment, which is expected to deteriorate further in 2009, the airline currently expects to report an operating loss for 2009. Operating at a financial loss is not sustainable. Aer Lingus says it must now deliver the required level of cost saving measures to ensure the airline is well positioned to grow revenue and profitability into the future.