Aer Lingus losses treble as low-cost tactic backfires

Aer Lingus losses treble as low-cost tactic backfires

Losses at troubled Aer Lingus have more than trebled over the first half of 2009 as its attempts to reinvent itself as a low-cost carrier appear to have backfired.

The former state-owned carrier reported a loss of €73.9m in the six months to the end of June, compared to €21.6m it lost a year earlier. Revenue fell to €555m euros, down 12.2% on the €632m it made a year ago.

The main reasons for the drop in revenue were a 17% fall in average fares and an increase in fuel costs. Short-haul fares fall 13.1% and long-haul prices down 18.5%.

“Aer Lingus expects that the continuation of the current market trends in Ireland will lead to further sustained and significant fare pressure,” the company said in a statement.

“This dynamic and very challenging environment contributes to a highly uncertain outlook.”

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“Clearly, there is only an additional premium that customers will pay with Aer Lingus (relative to Ryanair),” Coyle told Dow Jones Newswires in a telephone interview.
He also said Aer Lingus must prevent further cash burn during the current difficult economic climate.

Net cash at the end of the first half was €440m, down from €654m at the end of last year and €802.6 million in the same period a year earlier.

New Chief Executive Christophe Mueller, due to take up the post on 1 September, will aim to return the troubled airline to profitability and bolster its cash reserves, Aer Lingus has hinted.

Colm Barrington, the chairman of Aer Lingus, said: ”This revenue environment, coupled with an uncompetitive cost base, means that we must now take difficult but necessary steps to address our business model and cost base so that we ensure Aer Lingus is viable over the long term.”

According to company sources, Mueller’s first brief is to identify ways to trim costs from both staff and non-staff operations before presenting the plan to trade unions.

Analysts believe Aer Lingus needs to find €130 million euros to take out of the business - about 10 percent of the cost-base.