Political mood may limit Aer Lingus job cuts

ANALYSIS: As unions and the Minister for Transport set out their oppostion to compulsory job losses at Aer Lingus, management will have to proceed cautiously, writes Emmet Oliver

Traditionally, cost-cutting programmes at Aer Lingus take place amid despondency and gloom as the airline teeters on the brink of insolvency.

In the early 1990s, when then chairman Bernie Cahill put together his famous rescue plan, the idea of a profitable Aer Lingus was unthinkable. The idea of the national carrier making swingeing cuts while also chasing operating profits of €95 million would have been unimaginable.

But that is precisely what the airline's board of directors discussed at Dublin Airport yesterday. On the face of it, Aer Lingus would appear to have little reason to cut staff: the airline is expecting record profits for 2004; its operating margins are among the highest in Europe; it has shed 2,000 jobs in almost three years; it has successfully negotiated a short-haul fleet renewal programme with Airbus; and it has cut €344 million (30 per cent) from its cost base since September 11th, 2001.

This is hardly the record of a bloated inefficient airline creeping towards the commercial graveyard.

Even the airline's chief financial officer, Brian Dunne, described its last results for 2003 as "the strongest balance sheet in its history".

But Willie Walsh and his management team hold the view that when things are going well that is precisely the moment to cut costs further.

The calculation is a simple one: reducing costs is the easiest way to bring fares down.

This view was supported by the Minister for Transport, Mr Brennan, yesterday who said: "The right time to make changes is when you are doing well."

While Mr Brennan was giving his political imprimatur to the cost-cutting plan, he emphasised that compulsory redundancies were not something he wished to see.

Based on these comments, the airline's management team will have to proceed cautiously.

The Government and unions, such as SIPTU and IMPACT, would appear to oppose any compulsory redundancies and, to be fair to Mr Walsh and his colleagues, this has not been the tradition at Aer Lingus.

Once the redundancies proceed along the voluntary path, the chances of major industrial strife at the airline should be avoided, but this is not guaranteed. Many staff have become tired of the endless cost-cutting at the airline and wonder, not unreasonably, why an airline with the "strongest balance sheet in its history" must enter another round of widespread cuts in staffing levels.

Although the cost-cutting plan is entirely separate from the "investment proposal" broached with Government by Mr Walsh and colleagues recently, many staff are uneasy at the two events coming so close together.

Some of them believe the airline is being slimmed down ahead of a possible flotation, private placement or management buyout.

But Aer Lingus management claims the business plan has been in gestation for some time and is entirely unrelated to the ownership question.

As Mr Walsh explained last week, Aer Lingus needs to take more cost out of its business, regardless of who owns the airline.

For example, figures released a few months ago by Goodbody Stockbrokers show that Aer Lingus has one employee for every 1,378 passengers; easyJet has one staff member for every 5,000 passengers, while Ryanair has an astounding one employee per 9,000 passengers.

As these figures show, Aer Lingus is still some distance behind Ryanair in the ratio of staff to passengers.

Mr Walsh is unapologetic in his espousal of further job cuts, saying that Aer Lingus must get its overall costs in line with Ryanair's.

Aer Lingus is also gearing up to transfer its low-cost model to the trans-Atlantic route, a feat achieved by very few carriers in the past decade.

Either way, the current management appears determined to trim costs and move Aer Lingus closer and closer to the Ryanair model.

In cold strategic and financial terms, this makes some sense. Low-cost operators now control about 40 per cent of the European aviation market, so why not copy them?

But with the political climate in north Dublin changing fast, the appetite among politicians and the Government for large-scale job losses at Aer Lingus may be limited.