Aer Lingus warns over fuel costs

Aer Lingus said it improved its position significantly last year despite difficult economic conditions in Ireland, but remained cautious for the year ahead due to ongoing economic weakness, rising airport charges and volatile fuel prices.

In its annual report published today, the airline said it had reversed a 2009 operating loss of €81 million to a profit before exceptional items of €57.6 million in 2010, despite flat revenues, and service interruptions due to the volcanic ash cloud and severe winter weather.

Aer Lingus said a cost reduction programme implemented by the airline was partly responsible for the turnaround, despite industrial action taken by the Impact trade union late in the year that continued into 2011.

"Aer Lingus is now on a much firmer footing than at the start of 2010. However, there is still a lot of work to be done inside the business in order to consolidate the progress achieved to date," chief executive Christoph Mueller said.

The report shows Mr Mueller was paid a basic salary of €475,000 and received a performance bonus of €483,000. He also benefited from a pension contribution of €119,000, and €55,000 in additional benefits, bringing his total remuneration package to more than €1.1 million for the year.

He said the airline was likely to face "significant challenges" over the rest of 2011 as capacity remained flat, and higher airport charges in Dublin and London Heathrow were more difficult to absorb.

"It is frustrating to be forced to bear these increased charges when our own employees have taken pay reductions and implemented productivity increases so as to ensure Aer Lingus’ cost competitiveness in other areas," Mr Mueller said.

He said the airline was also exposed to volatile fuel prices, and expected the fuel bill for the year to be "substantially higher" in 2011, although it had a reasonable level of hedging protection in place for the year.

Although the global airline environment was "more benign" in 2010, with passenger traffic growing by 8.2 per cent, Ireland did not benefit from that improvement, and traffic through Dublin Airport fell by 10 per cent during the year.

However, Aer Lingus said it cut its capacity to match demand, and increased load factor by 1.6 points, while average fares rose by 12 per cent.

"This demand-led approach to capacity deployment continues to generate positive results, with our focus being on maximising revenue per seat flown rather than on chasing passenger numbers," chairman Colm Barrington said.

The airline welcomed an investigation by the UK Office of Fair Trading into Ryanair’s shareholding in Aer Lingus, describing the rival airline's presence on the register as "damaging to the interests of the group and its shareholders" and "detrimental to the public interest".

"Ryanair is our most significant competitor and its presence as a major shareholder continues to inhibit our ability to run the group in the best interests of all our shareholders," Mr Barrington said.