nuove strategie di Aer Lingus

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Aer Lingus floats on 'open skies' promise

The state-owned Irish carrier needs to convince investors to take a leap of faith if its planned privatisation is to be successful

Oliver Morgan
Sunday September 3, 2006


At long last Aer Lingus, the state-owned Irish carrier, has done what many think it should have done several years ago and announced plans to float on the London Stock Exchange.

But for chief executive Dermot Mannion - like others who have floated their businesses this year, including Standard Life's Sandie Crombie and Qinetiq's John Chisholm - persuading investors that the time is right may prove difficult.

Mannion believes he can do it, not least because the trade unions, long opposed to privatisation, are behind the move - thanks partly to the fact that €100m of the float proceeds will go straight to the company pension fund.

'It is vitally important for Aer Lingus to grow,' Mannion says. 'We have a successful business model, combining short haul with long-haul full service, and everyone knows we need new equity to grow.' To that end, the float will raise some €2bn (£1.3bn).

Some will agree, saying flotation comes not a moment too soon. It is four years now since the post-9/11 turnaround of the airline made the name of previous chief executive Willie Walsh - propelling him to the top job at British Airways - and made Aer Lingus one of the most profitable carriers in Europe. Indeed, it was a row with the Irish government - an Aer Lingus shareholder - over the constraints of public ownership and the inability to raise investment cash that led Walsh and two senior colleagues to leave the Dublin-based carrier last year.

But others will question whether now is a good time: memories of the terrorist threat that shut down UK air travel last month will still be fresh at the float date, pencilled in for later this month.

Other factors include the credibility of Mannion's aim to expand the business profitably. Mannion is bullish. With costs slashed both under Walsh and since (there were 6,300 employees in 2001; last year there were 3,475), Mannion wants to double its Airbus long-haul fleet to 14 aircraft and add 15 Airbus A320s to its fleet of 28.

But the question for investors is: can the past be a guide to the future for Aer Lingus? In recent years fuel costs have spiralled and fares have been slashed, on both long- and short-haul routes, in bitter price wars. While Aer Lingus flew 8 million passengers in 2005 - a million more than the year before - its revenues and profits fell because yields (revenue per seat) dropped by 16.2 per cent on short haul and by 4.7 per cent on transatlantic routes.

Investors will, therefore, be very interested in the 'risk factors' section of the Aer Lingus prospectus. Stephen Furlong, analyst at Dublin-based Davy Stockbrokers , says: 'There will almost have to be a leap of faith.'

While there may be sound reasons behind what Mannion is proposing, Furlong says that some elements of it are highly risky, while the impact of others, such as the prospect of more competition from Ryanair at Dublin and an 'open skies' agreement freeing up transatlantic travel - important for Aer Lingus's longhaul operations - will not be in place by the time of the offer.

Ryanair is Aer Lingus's chief shorthaul rival at its Dublin base. It has lower costs, higher margins, a bigger market share and fuller planes on most of the routes where the two airlines compete out of Dublin.

On top of this, Ryanair chief executive Michael O'Leary has turned his guns directly on Dublin. For several years he has increased Ryanair capacity from other bases across Europe - to the point where the airline now operates a fleet of 107 Boeing 737 aircraft across the continent and has up to 179 more on order.

However, on 9 August, O'Leary announced announced a major expansion at Dublin, with 12 new routes and three new aircraft based there.

'It will be a hard fight,' Mannion says. 'We have competed successfully with Ryanair for a long number of years.' He adds that Aer Lingus has more prime early-morning slots than its rival, and will be able to maintain some of the current €20 premium it has over Ryanair even if yields are squeezed.

Though there are some doubts. Chris Avery, aviation analyst at JP Morgan, says: ' Aer Lingus has had a relatively high fare monopoly on routes to Madrid, Bologna and Seville for several years. That is now over. People might tend to forget about this because the financial impact will not be known by the time of the float: the new Ryanair planes do not arrive until December.'

Another central pillar of the Aer Lingus plan is the €1.2bn development of Dublin airport, which it hopes to use as a 'mini-hub'. Part of the expansion of the short-haul network - Aer Lingus says it flies to up to 68 destinations in the UK and Europe - will be to feed its long-haul services from Dublin. Furlong believes that the airport has the right geographical position, and advantages such as a high volume of passengers and a large catchment area. It has also secured permission from the US, Aer Lingus's chief long-haul destination, for passengers to clear US immigration in Ireland. All of these could help it succeed where other mini-hubs, such as Gatwick and Manchester, have failed.

He says Aer Lingus wants open skies because it will increase the number of US cities to which it can fly from four - New York, Boston, Chicago and Los Angeles - to perhaps 15. It also wants an end to the 'Shannon stopover' - every other flight between Dublin and the US has to stop at the west-of-Ireland airport.

Open skies agreement was hoped for in October this year, but has been delayed until March at the earliest. Some are sceptical about it ever happening.

This is the main leap of faith investors will have to make, says Furling. 'In many ways the strategy is ultimately dependent on open skies. Without it ... that would delay or possibly restrict the expansion they want.' Avery has other doubts: 'It remains to be seen if Dublin is big enough to justify these extra aircraft, particularly in the business market.'

But Mannion believes that even if a full deal is not reached, a bilateral one with the US could see Shannon restrictions diluted and a further three destinations permitted in advance. Open skies would also increase the value of Aer Lingus's 21 pairs of take-off and landing slots at Heathrow. These currently serve shuttles to Dublin, but could be used for transatlantic services, or even sold - although there are question marks over this because the Irish government, which will retain 25.1 per cent of the company, may block it.

Investors will be better informed when the prospectus is published. But it is their view on those unanswered questions - open skies, the battle with Ryanair, the future at Dublin and Heathrow - that will determine whether they have the faith to take the leap.


- The Observer -


Oltre a quanto riportato sopra, EI sta valutando l'apertura di una rotta Dublino Shanghai o Dublino-Hong Kong.

[AmikoFrizz]

"Mannion wants to double its Airbus long-haul fleet to 14 aircraft and add 15 Airbus A320s to its fleet of 28"... complimenti e buon lavoro! :-)

Aer Lingus in questi anni si è mossa molto bene: con la concorrenza di FR in casa e con il fiato sul collo di BA sul lungo raggio, molte altre compagnie europee, organizzate diversamente, sarebbero colate a picco!

ciao
af