August 28, 2008

Rising Fuel Costs Blamed for Airline’s EUR 22m Losses


AER Lingus today posted operating losses of more than EUR 22m for the first six months of this year - despite a boost in revenue and passenger numbers.

The airline blamed increasing fuel costs for the losses, saying that fuel costs had jumped by 48.7% year on year.

Aer Lingus said its pre-tax loss amounted to EUR 20.2m, compared with a pre-tax profit of EUR 11.5m for the same six months last year.

The operating loss of EUR 22.3m compares with an operating profit of EUR 2.6m for the same period in 2007.

The airline said that revenue had increased by 10.2% to EUR 632.9m while passenger numbers had shown an increase of 10.5% - with 460,000 more passengers carried this year.

The growth in passenger traffic was assisted by Aer Lingus' expansion into Northern Ireland, which took effect at the start of this year.

The airline now operates 10 routes from Belfast International and Dermot Mannion, the Aer Lingus chief executive, said they were showing satisfactory load factors of more than 70%.

Speaking about the results in general, Mr Mannion said that slowing economic growth, the euro-dollar exchange rate and the high cost of fuel all made conditions "extremely difficult" during the first six months of the year.

But he said the airline was making progress in rolling out a number of its key business objectives, with "strong growth" in ancillary revenue.

Mr Mannion said: "The seasonally weaker first half has been marked by extremely difficult market conditions in the form of unprecedented fuel costs, slowing economic growth in our main markets and a weakness in dollar and sterling.

"Fuel is the most significant cost within the business and the EUR 56.5m increase in our first half fuel costs contributed significantly to a loss of EUR 22.3m," he added.

"The company has 70% of its estimated fuel requirement for the remaining four months of 2008 hedged at a rate of $1,137 per tonne and 20% of its 2009 requirement hedged at a rate of $1,165 per tonne."

Mr Mannion said the airline's continued focus on reducing operating costs had been evidenced by progress on both maintenance and staff costs.

"We continue to drive value through actively managing our network portfolio and have taken prudent decisions with regard to phasing of fleet deliveries and deployment," the chief executive said.

"Long haul capacity for winter 2008/09 will decline by 11% year on year, compared to previous plans to grow by 1%, and short haul capacity in the same period will decline by 1% compared to a previous expectation of 2% growth."

Looking ahead, Mr Mannion said that fuel costs and the "difficult operating environment " would have a significant effect on the financial performance of the company, and said that "at best", Aer Lingus could expect to break even in the second half.

He said further "fundamental changes" in the airline's cost base would be required to minimise losses in 2009.

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