Aer Lingus Profits Rise 14% To £52.4 Million (Eur 66.6m)

Aer Lingus Group plc made a profit before interest, tax and exceptional items of £52.4 million (Eur66.6m) in the 12 months to end-December 1998, an increase of 13.7% on the £46.1 million (Eur58.6m) made in 1997. This was achieved on a 12.4% increase in turnover over the same period to £901 million (Eur1,144.5m). Last year Aer Lingus carried a record 5.8 million passengers, an increase of 10% over 1997, reflecting market buoyancy and increased frequencies on many routes.


Commenting on the outturn today, April 15th, 1999, Group Chairman Mr Bernie Cahill said the 1998 outturn indicated “a welcome underlying robustness” now that the company was exclusively focused on its core business. The results, he added, were “a positive achievement in the face of increasing pressure on underlying air transport margins”.


However, he cautioned that “Good levels of profitability are essential at this stage in the airline business cycle, especially as the company is about to incur significant additional capital expenditure on essential fleet development. Care must be taken to control costs in order to maintain the level of profitability required to facilitate growth and protect the balance sheet” .


At an operating level Aer Lingus made a profit in 1998 on its core continuing activities of £50.7 million (Eur64.4m), up 12.4% on the corresponding profits in 1997. Related sales increased by 12.9% to £832 million (Eur1,055.9m), reflecting a slight reduction in margin. With strong growth in both passenger and cargo business, the company enjoyed a strong positive cash flow in 1998, with net cash at the year end of £70 million (Eur88.6m) representing a 40% increase on the 1997 figure.


The cash balances through the year generated net interest income of £4.7 million (Eur6.0m), compared to an interest charge of £0.3 million (Eur0.4m) in 1997, so that profits before allocation to staff under the employee share participation scheme and exceptional items amounted to £57.1 million (Eur72.6m) in 1998. Profits allocated under that scheme were £5.7 million (Eur7.2m).

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Exceptional items represented a net gain in 1998 of £3.4 million (Eur4.3m), compared to a loss in 1997 of £89.2 million (Eur113.3m) which was primarily the result of a significant provision against the costs of exiting from non-core activities.
The principal items in 1998 were a net profit on exit from non-core activities of £8.1 million (Eur10.3m), offset by a £4.7 million (Eur6.0m) write down on aircraft and flight equipment. A major factor was a £7.7 million (Eur9.8m) profit on the sale of three quarters of the Aer Lingus stake in GPA, now trading as AerFi, which had previously been fully written off.


After tax and minority interests the company made a profit for the year of £53.7 million (Eur68.3m), which compares with a 1997 loss of £45.9 million (Eur58.3m).


Group Chief Executive, Garry Cullen said that during 1998, the company had continued to reap the benefits of significant restructuring and a clearer focus on its core business. He added that “the future commercial viability and success is dependent on maintaining a sharp focus on the customer and the delivery of value”. The airline`s Programme for a Better Airline had once again played a vital role in helping the company focus on the customer issues important to its development as a good value, full service carrier.


Mr Cullen set out the broad business strategy of the airline. In particular, he said the future profitability of the airline would be based on continuing to provide value-added services, while effectively managing costs. He outlined four distinct strands which, he said, would underpin the achievement of the business objectives:
* Focus on business and value conscious leisure markets
* Successful implementation of efficiency and supplier relationship programmes
* Extension of the airline’s average sector length
* Increasing the airline’s reach through participation in a strategic alliance
The Group Chairman said the airline was a serious international player offering a consistent, reliable year-round service to business and leisure passengers as well as cargo customers, and noted the significant progress achieved on the transatlantic route group, with traffic more than doubling over the past six years. “This progress is continuing with the opening of a strategically important new US gateway in Los Angeles on the US West Coast in May 1999,” Mr Cahill said. “This will open up a large number of new onward connections, both within and beyond the US, putting Ireland just one stop away from all major global destinations.”


Aer Lingus has been mandated to enter into discussions with other airlines with a view to making recommendations to Government on possible alliances. Proposals have been received from a number of airlines and are currently being evaluated. Mr Cahill said that while Aer Lingus was a small player by international standards, it can bring benefits to and derive benefits from an appropriate alliance. It was of vital importance, he said, that any potential partner should represent a good cultural as well as commercial fit. “The Board of Aer Lingus is determined that the alternative chosen should be of intrinsic value to all stakeholders in the company - and most especially to its customers,” he said.


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