The size of the task awaiting new Aer Lingus
chief executive Christoph Mueller has been made abundantly clear after the struggling Irish carrier revealed operating losses at the halfway stage of the year quadrupled to €93 million ($133 million).
Mueller, the former Sabena and TUI Travel airlines head, takes up the new role at the start of September - succeeding Dermot Mannion who stepped down from Aer Lingus in April. The carrier, which made an operating loss of €17.6 million last year, had already warned of a heavier loss for this year and has begun taking cost-cutting measures.
First half results show a sharp 12% fall in revenues to €555 million, outpacing its 5% reduction of costs excluding fuel, and the 10% rise in its fuel costs in the first half. Consequently interim operating losses before exceptionals widened from €23.4 million to €93 million.
"The scale of the operating loss clearly illustrates the extent of the challenges facing Aer Lingus in the current environment," says Aer Lingus chairman Colm Barrington. "While traffic volumes have stabilised, consumer confidence remains weak and we see no sign of any improvement in the near term. We continue to experience a significant reduction in average fares, which are down 17.1% in the period.
"This revenue environment, coupled with an uncompetitive cost base, means that we must now take difficult but necessary steps to address our business model and cost base so that we ensure Aer Lingus is viable over the long term," he adds.
The airline has already adjusted its capacity, removing 9% of total Irish seats this winter, and recently announced it was deferring delivery of its first two Airbus A350s and three A330s, and returning other leased A330s early, in order to ease its long-haul capacity pressure. Aer Lingus long-haul revenues were down nearly 28% to €126 million and average fares 18% in the first half, outstripping the falls of 10% and 13% respectively on its short-haul operations. The carrier plans to cut its winter long-haul capacity by around a quarter.
Aer Lingus has begun work on an "exhaustive and wide-ranging examination" of its costs base and commercial strategy with a view to restoring profitability. Barrington says Mueller will have a "critical leadership role in completing the strategic review currently underway; and he will be responsible for delivering the significant changes required to ensure a sustainable, profitable future for Aer Lingus".
New Aer Lingus chief executive Christoph Mueller will take on lead role in carrier's restructuring
Neil Glynn, analyst at Dublin-based NCB Stockbrokers, says key challenges facing Mueller include to significantly cut the carrier's costs in the face of stiff union resistance and to improve operational processes. "Further diversifying the business to reduce exposure to Ireland, and to take advantage of medium term growth opportunities organically such as in the UK or through partners in the US," he adds as a further challenge, together with "right sizing the long-haul business and tapping more premium demand".
Against the backdrop of the challenges ahead there remains the larger than life presence of Ryanair. The Irish budget carrier, which has failed in two attempts to acquire Aer Lingus, remains its single largest shareholder and today reiterated its criticism of Irish regulators and Aer Lingus over the latter's defence document submitted last December. "Ryanair believes that Aer Lingus shareholders are entitled to know why a Ryanair offer of €1.40 per share was rejected by the board of Aer Lingus just eight months ago, on the basis of patently false claims about growth and profitability," Ryanair says in a statement issued after the half-year results announcement.