Aer Lingus weighed partnerships with bigger rivals ahead of IAG approach

Chief executive designate, Stephen Kavanagh, said that before IAG’s approach, Aer Lingus was weighing the possibility of entering into joint ventures on transatlantic routes.

Outgoing Aer Lingus CEO Christoph Mueller said that 2014 was a “very successful for Aer Lingus, with strong performance across our businesses”. (Photograph: Bryan O’Brien/The Irish Times)

Outgoing Aer Lingus CEO Christoph Mueller said that 2014 was a “very successful for Aer Lingus, with strong performance across our businesses”. (Photograph: Bryan O’Brien/The Irish Times)

 

Aer Lingus considered joining forces with a bigger player to boost its transatlantic business before International Consolidated Airlines’ Group (IAG) first approached it last year, according to its incoming chief executive.

Chief executive designate, Stephen Kavanagh, said that before IAG’s approach in December, Aer Lingus was weighing the possibility of entering one or other of the joint ventures operated by the industry’s big players on transatlantic routes.

The airline’s management believes that a advantages of a sale to IAG would be that it would make Aer Lingus part of the group’s partnership with American Airlines, giving it access to the US carrier’s market and customers database.

Along with IAG and American, Lufthansa operates a similar arrangement with Air Canada and United Airlines, while Delta has a partnership with Air France-KLM.

Mr Kavanagh said that before the IAG approach, “ we were looking at gaining access to one of those joint ventures in order to really consolidate our growth”.

He added that Aer Lingus would pursue this if the IAG deal does not go ahead, but pointed out that in this situation, there could be difficulties with entering the group’s partnership with American Airline’s.

The airline, currently the subject of a €1.36 billion bid by IAG, reported pre-tax losses of €111.5 million on Tuesday.This compares with a profit of €39.6 million for 2013.

Before a €112.9 million exceptional, related to the funding of its pension scheme, operating profit for the group rose to €72 million, the highest since the financial crisis.

Revenues for the year to December 31st 2014 advanced by 9.2 per cent to €1.6 billion, as total passenger numbers surpassed 11 million for the first time in the airline’s history.

Average fare revenue per seat was € 98.93, up 9.4 per cent, as Aer Lingus’s long haul revenue grew by 28.4 per cent to € 490m, with passenger numbers up 20.6 per cent and load factor up 0.6 points to 83.7 per cent. Short haul performance was resilient in a highly competitive environment with average fare per seat up 2.5 per cent to € 69.60 on steady load factors. Short haul revenue in 2014 was € 791 million compared to € 789 million in the previous year.

The airline grew its cash by 29.9 per cent during the year to € 545.3 m, and has announced an increased dividend of 5 cent per share for 2014, up from 4 cent for 2013.

In his last set of results, outgoing chief executive Christoph Mueller, who will leave the airline at the end of this week handing over the reins to Stephen Kavanagh, said that 2014 proved the strength of its “value carrier” business model across both our short and long haul businesses.

“We profitably expanded our long haul network utilising our cost advantage and favourable geographic position and helped establish Dublin as the 7th largest European hub for transatlantic connections. Our short haul business continued to demonstrate its resilience despite a highly competitive market. Commercial initiatives, in addition to cost control, led to the highest operating profit since the financial crisis and 17.8 per cent above last year,” he said.

Reducing costs will be a focus of 2014, and Mr Mueller said that as the pension funding issues have been addresssed, the airline will re-launch its CORE programme, “starting with the introduction of a new voluntary severance scheme at the beginning of this year”

Aer Lingus chairman Colm Barrington reiterated the board’s support for the IAG offer.

“ In this combination Aer Lingus will operate as a separate business while gaining access to IAG’s extensive network and benefiting from its scale. These significantly positive benefits will de-risk Aer Lingus’ future, strengthen its operations and enhance the future success of the company,” he said .

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