Aer Lingus still on target for higher operating profit

Aer Lingus has said it remains on target to record full-year operating profit, before exceptional items, of more than €61 million.

The airline, which last month forecast that it would record a higher operating profit than last year for 2014, said in a statement on Thursday that the group’s trading performance in the fourth quarter confirmed its outlook.

Aer Lingus also said it recently increased its fuel hedging activity to bring its profile in line with that of peers and to take advantage of favourable jet fuel price trends to support delivery of its 2015 results.

As at September 30th, Aer Lingus had hedged 50 per cent of its 2015 fuel requirement at an average price of $937 per metric tonne. Since then the group has hedged an additional 40 per cent of its 2015 requirement at an average price of $701 per metric tonne.

As a result the airline has now hedged 90 per cent of its estimated 2015 fuel requirement at an average price of $830 per metric tonne. This compares to an average hedged fuel price of $954 per metric tonne expected for 2014.

The group has also hedged 24 per cent of its expected 2016 fuel requirement in line with its fuel hedging policy. The airline said it will consider the merits of extended hedging of 2016 fuel demand during the first quarter.

Aer Lingus said its 2015 jet fuel consumption is expected to increase to 515,000 metric tonnes, compared to 481,000 metric tonnes for this year. Using an end of year dollar to euro exchange rate of 1.22, the 2015 fuel costs would be about €52 million lower than it would have been at the 2014 average hedged fuel price.

The lower average fuel cost, in addition to the positive effects of staff cost stabilisation achieved through the IASS pension solution and further efficiency measures, will contribute positively to the group’s 2015 results, the airline said. These year-on-year positive effects will be partially offset however, by the impact of the expected strength of the dollar compared to the euro relative to the 2014 exchange rate and other cost increases.

As reported in The Irish Times on Thursday, the Government expects IAG to make a fresh approach for Aer Lingus, according to sources, with speculation in the market it could bid over €2.40 a share. The report also confirmed that chief executive Christoph Mueller will now leave the airline at the end of next month, earlier than the previously announced departure date of May.

A leading aviation analyst in London has also predicted IAG will return with an improved takeover offer for Aer Lingus.

Andrew Lobbenberg of HSBC said that a deal makes sense and, while complicated, is achievable. “We see the logic of a combination between IAG and Aer Lingus,” he said in a research note.

Mr Lobbenberg said any deal is likely to require an agreement with the Irish Government - which holds a 25 per cent stake in Aer Lingus - over competition issues and commitments over Heathrow slots.

On the attitude of the other key shareholder, Ryanair, Mr Lobbenberg said: “we think Ryanair is ready to monetise its Aer Lingus holding.”