An Aer Lingus board meeting last Friday was dominated by the realisation that yet another exercise in restructuring and cost-reduction is inevitable. The company is running out of customers, out of money and most importantly out of time. Only months ago, the airline announced that it had put in place annual cost-savings of some €25 million through the voluntary redundancy of nearly 200 staff. For a medium-sized airline such as Aer Lingus this represents a considerable saving but, given the further deterioration of the industry, it is nowhere near enough.
From predicting a profit for 2009 when it was fending off the advances of Ryanair for the second time, Aer Lingus is now forecasting a loss of more than €100 million. The number of passengers it flies are down, the yield per passenger has fallen and its prized cash reserves are dwindling. Added to that, the company has again reshuffled its senior management and yet again it is on the hunt for a chief executive.
It would appear that the airline’s trans-Atlantic services will be the focus of the management’s drive for further cost-cuts. Services to New York, Boston and Chicago would seem to be safe but the flights to Florida, Washington and San Francisco may be discontinued. A service to Los Angeles was ended last year. In retrospect, such a huge expansion in long-haul flights – where the costs are high and the passengers scarce – was incautious.
The closures of long-haul routes is a relatively straightforward step in reducing expenditure but the worry for staff must be that trimming routes will not be enough to align the cost base with current and predicted revenues. The voluntary redundancy schemes will have reduced payroll numbers but not necessarily by the amount needed across all divisions. Also, despite considerable recent concessions, it is debateable that the staff’s terms and conditions of employment fully reflect the changed finances of the industry.
Despite seeing off two Ryanair bids, it is a given that Aer Lingus could look forward to a more prosperous future if it could enter into a merger with a larger, stronger airline. Aer Lingus management used to be wholly opposed to a merger on the basis that it would amount to a takeover. The company can no longer afford the luxury of such a stance. Chairman Colm Barrington has much to do but high on his list of priorities must be linking up with an airline which can help Aer Lingus return to profits and prosperity.