Aer Lingus to launch no-frills battle for transatlantic trade

IAG dismisses newcomer Norwegian Air’s low fares on US flights as media stunt

Aer Lingus may offer special no-frills fares on transatlantic flights to combat Norwegian's entry into the market, according to its chief executive, Stephen Kavanagh.

Results published by the Irish carrier's parent, International Airlines Group (IAG), show that Aer Lingus earned operating profits of €233 million last year, an improvement of €109 million on 2015.

Speaking after their release on Friday, Mr Kavanagh confirmed that Aer Lingus is considering offering fares that exclude some extras on its US flights in response to Norwegian Air International's arrival into the transatlantic market.

Aer Lingus’s current fares include a bag, a meal and extras such as films. Mr Kavanagh explained that it could sell tickets that allowed passengers to save by opting out of some of these features and paying simply for a seat and a meal.

“That will also allow us to get more transparency on what Norwegian is offering,” he said. Mr Kavanagh argued that Aer Lingus’s transatlantic fares were the most competitive on the market and pointed out that it flew to primary airports.

Knock-down prices

Norwegian announced services to secondary gateways in the northeastern US this week with prices beginning at €69 one-way, although many of these disappeared shortly after tickets went on sale.

IAG chief executive Willie Walsh claimed the low fares that Norwegian offered were a stunt to grab media coverage and were unsustainable.

“I’ve always said we’ll compete with Norwegian. The difference between Norwegian and us is we’re profitable,” he said. “The fares that they’ve launched are clearly just designed to get some headline media coverage. They’re not sustainable.”

Norwegian said it had sold more than 5,000 flights within hours of announcing services to the US from Irish airports – Belfast, Cork, Dublin and Shannon – on Thursday.

Mr Walsh said that, across IAG, he expected 2.5 per cent capacity growth in 2017, with Aer Lingus expected to expand more quickly than fellow group carrier British Airways.

Mr Kavanagh confirmed that Aer Lingus was "kicking the tyres" on a possible service from Dublin to Las Vegas. It is adding Miami to its roster this year.

The addition of two Airbus A330s to support long-haul expansion boosted the Irish airline's capacity by 9.6 per cent last year. It added flights from Dublin to Los Angeles, Newark, and Connecticut in the US.

However, due to what IAG described as “significant industry pressure”, Aer Lingus’s passenger yields – the amount it earns from each customer – were down last year. The increase in operating profit reflected lower fuel prices and cost savings, IAG said.

IAG, which also owns Spanish carriers Iberia and Vueling, reported an 8.6 per cent rise in operating profit on Friday and pledged to increase returns to shareholders through a €500 million share buyback this year.

Operating profit before exceptional items rose to €2.5 billion in 2016 despite a 1.3 per cent fall in revenue to €22.57 billion. A slump in sterling that followed the UK’s vote to leave the EU cost the group €460 million.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times

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