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Aer Lingus renews attack on Ryanair

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Aer Lingus intensified its conflict with Ryanair, its leading shareholder, on Thursday and said that actions its rival was proposing to Aer Lingus shareholders were "anti-competitive" and would "destroy shareholder value".

Aer Lingus, which reported lower profits for the first half, fought off a takeover bid last year from Europe's leading budget airline, but earlier this month Ryanair increased its stake to 29.4 per cent strengthening its call for an extraordinary meeting of Aer Lingus shareholders.

Ryanair is seeking to block Aer Lingus's proposal to withdraw of its service from Shannon to London Heathrow and instead use the Heathrow landing slots for a service from its new operating base at Belfast International airport.

Greg O'Sullivan, Aer Lingus chief financial officer, said the airline was taking legal advice on Ryanair's reuqest for an EGM, which raised "serious competition issues." Ryanair, its biggest competitor, was seeking to influence how it used its aircraft and its route network, he said. Aer Lingus said it would respond to shareholders early next week.

The Aer Lingus move to abandon the Shannon/Heathrow route has provoked fierce opposition in the west of Ireland from business and trade union interests, and has become a severe political embarrassment for the Irish government, which remains the second largest shareholder in Aer Lingus with a stake of 25.4 per cent.

Ministers have expressed disappointment at the move but have ruled out interfering in commercial decisions.

The Ryanair takeover bid was blocked by European competition authorities in June. Aer Lingus disclosed on Thursday, that it had run up costs of €7.8m in the first half of the year opposing the bid in addition to costs of €16.2m incurred in the second half of 2006.

The airline said the recent threat of a two-day strike by its 480 pilots in protest at the pay and conditions being proposed for new pilots to be recruited at its Belfast base had cost €3.5m this month. The strike was narrowly avoided but not before contingency measures had been put in place. Some flights were still cancelled.

The two sides are due to hold more talks at the Labour Relations Commission on Friday to resolve the dispute, but the airline warned on Thursday that the outlook for the industrial action was "not yet clear."

The group faces tough labour relations issues, as it seeks to implement a cost-cutting programme aimed at making savings of €20m a year by 2008, at the same as undertaking the most ambitious expansion in its history in the wake of its privatisation last autumn and an initial public offering.

It is increasing capacity by 14 per cent this year as it takes delivery of new short-haul and long-haul aircraft and a similar rise is expected in 2008.

After staving off the attempted Ryanair takeover, it is under pressure to show that it can improve its profitability, while remaining independent.

Ryanair is also stepping up the commercial challenge to Aer Lingus with a big expansion from its Dublin base, Aer Lingus said Ryanair accounted for most of the 45 per cent increase in capacity by rivals on routes from Ireland to continental Europe in the first half of the year.

Dermot Mannion, Aer Lingus chief executive, said on Thursday: "We continue to operate in a highly competitive environment, where a continuing and unrelenting focus on cost reduction, efficiency and change is necessary for our success."

The airline said that its operating profit, before employee profit share, had fallen in the first six months of the year from €10.6m to €2.6m (£1.76m), despite a 12.9 per cent increase in revenues from €508.3m to €574.1m. Underlying pre-tax profits fell from €19.8m to €11.5m.

Profits came under pressure in the first half from higher fuel and staff costs as well as rising airport charges and maintenance costs.

The airline achieves the majority of its profits in the second half of the year, and Mr Mannion said "early indications of our performance in the second six months of the year are encouraging."

He confirmed the group's full-year guidance that trading was "in line with expectations for mid-teen operating profit growth," adding that the underlying performance to the end of July "remained strong and in line with that guidance."

 Printable Version  | published Aug 31, 2007