What does the future hold for Aer Lingus?

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Ryanair chief executive Michael O'Leary has been scathing in his criticism of Aer Lingus since the Irish government prevented his latest takeover bid from going ahead. He believes the decision will leave Aer Lingus facing an isolated future as a "small, peripheral, loss-making airline", and has attacked it for having no strategy for survival.

But Aer Lingus has fought back, insisting it does have a growth strategy in place and that O'Leary's comments amount to little more than sour grapes. "We do have a strategy for growth but it suits Michael [O'Leary] to say those things because he's in a bad situation," says Aer Lingus director of corporate affairs Enda ­Corneille. "Our strategy remains on course for growth but this is conveniently forgotten."

Corneille points to a recent agreement between Aer Lingus and United Airlines, which will initially see the two carriers co-operate on a new route linking Washington Dulles with Madrid from March 2010. Aer Lingus will operate the flight using a Dulles-based Airbus A330 and crew, while United will add its code to the service and take responsibility for ­revenue generation.

"We will use A330s coming into the fleet next March. This is complementary to our long-haul operations out of Ireland and the aircraft are incremental," says Corneille. A total of three A330s will be dedicated to the agreement, and the pact will deepen with more routes. "As the agreement grows we will add other cities in Europe. We haven't decided yet if they'll all be from Washington - there could be opportunities in Chicago as well."

Aer Lingus and United chose to open their agreement with the Madrid route because it is "not served on a daily basis", says Corneille, adding that "this is not necessarily a route built on point-to-point traffic".

"More than half of the passengers will transfer at Dulles into the United network in the US," adds Corneille. He also points to Aer Lingus' internet-based tie-up with JetBlue Airways as being a sign that the Irish carrier has a clear strategy for international growth. The agreement with JetBlue is essentially a low-cost alternative to a codeshare, which enables the two carriers to combine two point-to-point local fares into a single fare under one itinerary.

But despite these strategic developments, Ryanair will likely remain a thorn in Aer Lingus' side for some time to come. It still holds a near-30% stake in the carrier and has not completely ruled out the possibility of launching a third takeover bid, although this does now appear unlikely.

"We will continue to be a significant minority shareholder in Aer Lingus," O'Leary said during Ryanair's recent third quarter results analyst call. "Were someone to come along and make an offer we'd consider it on its merits, but it's an optimistic assumption that Ryanair would come back and make another offer."

O'Leary added that the outlook for Aer Lingus was "remarkably bleak", and that the government's decision essentially "condemns Aer Lingus to being a subsized, loss-making airline".

"They're operating in a country where there's going to be a massive tourism and traffic decline." O'Leary says Ryanair will now "focus on very aggressively competing with Aer Lingus".

For its part, Aer Lingus is prepared for a third takeover attempt from Ryanair. "It's impossible to say [whether Ryanair will bid again]," says Corneille. "We shouldn't do anything other than prepare for a possible third bid. We've defeated two but we need to get on with the day job now, and that involves developing the brand and internationalising the ­airline." He adds: "It is possible that Ryanair will sell down its stake, but that's not something that's easy. Ryanair will have to take their own view."