Aer Lingus may reduce business class to cut costs

Aer Lingus is reviewing whether it is necessary to offer a business class service on its British and continental routes. It may abandon the service as part of a new cost-cutting drive, writes Emmet Oliver

The company said offering premier class seating and tickets was becoming an increasing drain on its operations and the review would examine two options: cancelling all premier class travel or just offering it on selected flights.

The company yesterday reported an operating profit of €64 million for 2002, compared to a loss of €52 million the year before. Chief executive Mr Willie Walsh cited a wide-ranging cost-cutting programme and lower fares as the two factors behind the return to profit.

He said that, while several US airlines were struggling to remain in business, Aer Lingus believed reducing costs and fares was the only way to maintain profitability. He also said Aer Lingus was well-prepared for any downturn arising from events in Iraq and had built up cash reserves of €367 million.

The State-owned airline has, over the past year, emulated its no-frills rival Ryanair by concentrating on ticket sales via the internet. However, the review of business class travel could make Aer Lingus even more similar to Ryanair, which does not offer any business travel.

A spokesman said the review would be completed within weeks and the airline would introduce the changes soon after. The company believes there is less need for business class travel to Britain or Europe now than a decade ago, with the majority of Irish firms asking their staff to fly economy.

Providing business travel can be costly for small airlines like Aer Lingus because separate check-in space has to be provided and additional staff are needed on board. In recent years, the airline has started to lose revenue on some flights because of the presence of premier class.

The big advantage that business fares had in the past is now gone. Previously only business tickets were flexible in relation to changing flights, but Aer Lingus now offers flexible economy fares. A spokesman said there were no plans to alter the policy on long-haul flights to the US.

Mr Walsh said the company had spent 2002 creating a "more efficient and relevant business model" based on low fares combined with good service. He said the success of the aerlingus.com site had helped reduce distribution costs and it was possible by next year that 60 per cent of tickets would be sold online.

However, he said costs had to be reduced further and he indicated that payment of increases under the new national pay deal, Sustaining Progress, could be a problem.

The airline produced an after- tax profit of €35 million on turnover of €959 million. There were €31 million of exceptional items in 2002, mainly related to fleet rationalisation, and a contribution to the Employee Share Option Plan.

The company produced operating cashflow for the year of €168 million, compared €42 million in 2001. Its closing net cash position for the year was €155 million. The cost of its restructuring was €83 million.

A key issue for the company over the next few months will be the overhaul of its short haul fleet. Mr Walsh said €367 million was potentially available for the purchase or lease of new aircraft and he said the company was currently talking to Airbus and Boeing about a deal. In relation to its future, chairman Mr Tom Mulcahy said, based on the current problems besetting US airlines, now would not seem a good time to bring any airline to the market.