Aer Lingus facing most difficult period in its history, chairman tells AGM

Aer Lingus chairman Colm Barrington believes the airline is facing the toughest period in its history and cannot currently provide guidance on its 2009 financial outcome.

Speaking at the company’s Annual General Meeting in Dublin, Barrington said, “Even against the backdrop of extremely challenging trading conditions throughout 2008, the economic environment deteriorated significantly during the first quarter of 2009 and there are no near-term indications of improvement. The impact of a deteriorating economic environment has been felt across the industry, resulting in many airlines reporting significant losses and revising their profit guidance substantially downwards.

“In December 2008, IATA forecast that airline losses, worldwide, would be $2.5 billion for 2009. In March 2009, the expected loss rose to $4.7 billion and on 4 June 2009, IATA indicated that they expected global industry losses to be “substantially worse” forecasting an industry loss of $8.5 billion for the 2009 full year.

“Trading conditions in each of Aer Lingus’s key markets are exceptionally challenging. The Irish air travel market is being impacted by rapidly growing unemployment, rising tax rates and declining consumer confidence and demand. These conditions have been further compounded by the imposition of an air travel tax of €10 per departing passenger from Ireland. Overall, demand for air travel is considerably weaker than in 2008, which has led to reduced passenger numbers and lower fares. Demand in Aer Lingus’s other key markets, the UK and US, is also weak and market conditions there have also been hit by declines in the value of the dollar and sterling relative to the euro.

“As outlined in our interim management statement of 28 April, in the first quarter of 2009 total passenger numbers for the Group declined by 6.5% while total yields declined by 14.5% when compared to the same period in 2008. Yields in all of our markets have continued to decline and against that backdrop most carriers, including Aer Lingus, have focused on managing capacity to maximise load factors and reduce costs to reflect this difficult demand environment.

“Over the past number of years, Aer Lingus has delivered significant incremental improvements in its cost base to meet the needs of an increasingly competitive and challenging environment. However, the Group is now facing the most difficult period in its 73-year history.

“The Board and management are now finalising a fundamental evaluation of the overall business including the structure of the organisation, current fleet capacity, future fleet commitments, route network, work practices and costs, profitability and cash conservation. The objective of this programme is to determine the appropriate business model, organisation structure and cost base for current and expected market conditions and which can deliver long-term value for our shareholders and provide a stable and vibrant environment for our employees. To achieve this, Aer Lingus must deliver efficiencies, enhance productivity and eliminate outdated legacy work practices.

“Aer Lingus is focused on optimising its fleet capacity and capital expenditure plans to match current market needs and to protect the Group’s strong balance sheet. On the short-haul network, Aer Lingus has already taken steps to reduce winter capacity in Belfast and Dublin. The Group is also announcing the addition of a fifth aircraft at its growing Gatwick base. On long haul, the Group has agreed the early termination of one aircraft lease and is working with Airbus to reduce near-term fleet commitments. Aer Lingus will provide further detail when the Group’s 2009-10 winter schedule is announced.

“The trading environment and outlook remain highly uncertain and it is not possible to accurately forecast demand and yield for the remainder of 2009 and beyond. As a consequence, Aer Lingus is not in a position to provide further guidance on the 2009 financial outcome,” Barrington concluded.