Aer Lingus Group plc made a profit before interest, tax and exceptional items of £46.1 million in the 12 months to end-December 1997, an increase of 10% on the £41.8 million made in 1996. This was achieved on a turnover of £802 million, up 15% on comparable 1996 levels.
Exceptional items - principally estimated losses on the Group`s exit from the aircraft maintenance businesses - reduced 1997 profits by £89.2 million. This mainly comprises £55 million relating to the employee exit package for TEAM and a £30 million write-down of assets associated with the exit from the maintenance businesses. This was partly offset by a reduction in the provision for deferred tax, resulting from the acquisition of new aircraft, which left the net loss for the year at £45.9 million.
Profit for 1997, after the allocation of profits through the Group`s Employee Share Participation Scheme, was £41.2 million up 13% on 1996. Net interest charges fell by £1 million to £0.3 million. On the back of the improved trading performance, profits distributed to 6,400 staff through the scheme increased by £0.6 million to £4.6 million with the total allocation to staff rising to £11.9 million since its inception in 1995.
Commenting on the results today, July 23rd, Executive Chairman Mr Bernie Cahill said the strong operational performance was the result of much hard work during 1997 and puts the Group in good shape for the future.
“The 1997 trading performance is strong, given the exceptionally competitive airline marketplace in which Aer Lingus operates”, he said. He added that a provision against the costs associated with exiting aircraft maintenance was made in the 1997 accounts, but described this as “a necessary investment in the future of the Group.”
Mr Cahill said he was pleased by the good progress achieved on a number of fronts. The Programme for a Better Airline, introduced in 1997, was a clear expression of the tangible ways in which Aer Lingus was putting the customer at the centre of the Group`s business plans, he said. It was step one in an evolving process of continuous improvement and both market research and sales growth showed that it was making a real difference to customers.
Mr Cahill remarked that in areas of professional delivery standards such as punctuality, the airline had made very positive gains and was consistently better than competitors on the key London and UK routes in 1997 and among the most punctual of all European airlines.
The Executive Chairman noted that the Group continued to generate strong cash flow from operations. Net cash and liquid resources at the year end was £49.7 million, despite additions to fixed assets of £83.9 million. The Group also continued its policy of disposing of non-core businesses and surplus assets, which generated cash of £27.8 million during 1997.
A proactive programme of fleet renewal and expansion was progressing. This plan, designed to ensure that the airline provides consistently high standards of service for all its passengers and also to provide adequate capacity to meet current and expected market growth saw Aer Lingus invest a total £72.2 million in new aircraft in 1997.
Last year Aer Lingus carried 5.3 million passengers, an increase of 10% on the 1996 figure. This growth reflects market buoyancy and the expansion of the airline`s services, including the introduction of new destinations and greater frequencies on many routes. Passenger load factors rose to 75%, up two points on 1996, while the load factors on European routes was the highest among the members of the Association of European Airlines (AEA) in 1997.
On the North Atlantic, Aer Lingus opened a fourth “gateway” last year, at Newark Airport, New Jersey, and increased the frequency of services into Chicago, New York and Boston. Traffic on the London routes increased by 8% and additional frequencies were added to a range of UK destinations including Stansted. Continental European traffic rose by 14%, again with expanded frequencies on key routes. Cargo revenues were also strong, up 14%, facilitated by the introduction of new state-of-the-art aircraft on many routes, including the transatlantic.
“We are pursuing a policy of profitable growth, in the UK, Continental Europe and the US,” Mr Cahill commented. “This is being achieved, in many instances, in partnership with other appropriate carriers. Our focus is on providing high quality, differentiated services which deliver enhanced customer value and to succeed in that we must be able to offer a comprehensive network of destinations by working in alliance with other service quality conscious airlines.”
Mr Cahill emphasised that it was important that the Group`s positive financial performance be seen in a broader context. “The air transport industry is a low margin business, which means our profitability is sensitive to even apparently small percentage changes in many cost areas. The good progress achieved would be quickly put in jeopardy if we failed to remain vigilant in this area.”
On the issue of strategic alliances, Mr Cahill said that there are many airlines developing strategic alliances which would be compatible with Aer Lingus but warned that alliances are not a panacea for unresolved issues and “cannot be used to camouflage inefficiencies”. Mr Cahill indicated that the Group’s report on strategic alliances would be submitted to Government soon.
He pointed out that Aer Lingus must achieve its targeted savings of £50 million over the next five years if it is to remain competitive and that a joint partnership framework had been established with the trade unions in order to meet this objective.