Fare cuts on the way, promises Aer Lingus CEO

Airline is hit by increased fuel costs and adverse movements in foreign exchange

Aer Lingus says fares on its short-haul network will be cut in the second half of the year as it moves ahead with a "volume active" strategy to fill its planes through lower pricing.

Stephen Kavanagh, the airline's chief executive, said he expects fares to fall by "low single digits" in percentage terms, as it targets more business on the back of the improving economies of Ireland and the UK.

“We will be using price to drive volumes [ON SHORT HAUL]over the next six months. Passenger fares will be reduced - that’s the nature of competition,” he said.

Aer Lingus on Wednesday reported improved sales, although adverse currency movements and the strengthening US dollar wiped out the gains. Mr Kavanagh said the dollar will have a more positive effect in the second half.

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Mike Rutter, the chief commercial officer, said the airline's cargo business was up 19 per cent, an indicator of an improving economy. He said the first half was a "transition period", moving towards a demand-led strategy in the second half.

Aer Lingus will launch its new premium Aer Space offering of better seats and priority services for short haul flights later this year, which will be priced similarly to Ryanair’s Business Plus flexible fares.

The airline has also spent "tens of millions" on new technology infrastructure, enabling a relaunch of its website and apps in coming months. Mr Rutter said the website would include personalised offers for passengers based on their preferences, "like how Amazon does it", by next year.

Aer Lingus, which recently struck a sponsorship deal with Irish rugby, is also on the hunt for more sports sponsorships, particularly opportunities with an international dimension.

Mr Kavanagh said Aer Lingus is also hoping to renegotiate many of its third-party ground handling contracts. “We pay more” than Aer Lingus’s competitors, he said.

Operating profit at Aer Lingus fell almost 11 per cent in the second quarter of the year as costs rose, offsetting an increase in revenue.

The airline, which is currently the subject of an offer from IAG, said passenger revenue from its mainline operations was €2.8 million in the three months to June 30th, a 1 per cent rise compared with the same quarter in 2014. Overall revenue rose 7 per cent to almost €469 million during the three-month period. However, fuel costs rose by 14 per cent to €118 million, while the company was also hit by adverse foreign exchange movements.

Analysts at Davy noted that this distorted operating costs, which on a constant currency basis, excluding fuel, would have been 0.3 per cent lower.

Operating profit before exceptional items was down to €34.5 million, from €38.7 million a year earlier. Pretax profit was down more than 23 per cent to €27.8 million, from €36.3 million in the same quarter of 2014.

Its long haul revenue rose 24.4 per cent as capacity increased by almost 10 per cent. This was partly due to the introduction of the Dublin-Washington route in May 2015. However, there was a slight fall in the number of short haul passengers carried on Aer Lingus routes.

Mr Kavanagh said the company was well positioned to deliver improved performance in the third quarter of the year, and for the year as a whole.

“Passenger, retail and cargo revenues all grew strongly in the quarter,” he said. “The continued investment in our transatlantic business was rewarded with strong growth in unit revenues. The volume active strategy employed in our short haul business delivered stable unit revenue performance in an intensely competitive marketplace.”

Ciara O'Brien

Ciara O'Brien

Ciara O'Brien is an Irish Times business and technology journalist

Mark Paul

Mark Paul

Mark Paul is Business Affairs Correspondent of The Irish Times. He also writes the Caveat column