As Aer Lingus reported its last set of results before its planned flotation next spring, new chief executive Mr Michael Foley warned that the airline's various industrial relations problems would have to be sorted out long before the flotation.
Aer Lingus is in the midst of a bitter inter-union row over who represents cabin staff and is facing substantial pay claims from cabin crew, pilots and baggage handling staff. "We are facing tough challenges and we need a stable environment. Rest assured that these issues won't be there when we go to the market. They won't be and they can't be," he stated bluntly.
Aer Lingus has reported solid results for the year to December 1999 - a period when many of the so-called "full service airlines" like British Airways and KLM have reported poor results. Turnover from continuing operations was up 12 per cent to just more than €1.1 billion while operating profits were up 7 per cent on €71.6 million.
Passenger numbers increased 13 per cent to 6.5 million, with transatlantic passenger traffic up 17 per cent to 905,000, European traffic up 19 per cent to 1.3 million, London traffic up 11 per cent to 2.2 million and commuter traffic up 13 per cent to 1.8 million.
In what is in effect a clearing-out exercise ahead of the flotation, the airline has included a whole host of exceptional gains and losses and took a net exceptional loss of €11.3 million into the 1999 accounts compared to a net gain of €4.3 million in 1998. The end result was that pre-tax profits fell to just under €60 million from €76 million while after-tax profits were down to €51.9 million from €74.6 million.
But while operating margins fell to 6.3 per cent from 6.6 per cent, Mr Foley said that this compared with operating margins of under 1 per cent elsewhere in the sector. He added that while Aer Lingus's earnings before interest tax and depreciation margin fell to 18.8 per cent from 19.6 per cent, this compares with an average among European full service airlines of 11-15 per cent.
The new chief executive said that trading in the current year was good, but he warned that Aer Lingus had to cope with substantial higher fuel costs and that price increases of 2-3 per cent could be ahead. Spot market aviation fuel has risen from $107 (€121) per tonne in January 1999 to a high of $380 per tonne earlier this year and now trades around $350 per tonne.
Finance director Mr John O'Donoghue said Aer Lingus had hedged its aviation fuel supplies for all of the current year and for 45 per cent of next year's fuel requirement. "Our fuel price rises are not as significant as the market rise," he said.
Mr Foley said Aer Lingus must avail of the enormous opportunities for growth that exist in its markets, particularly through the Oneworld alliance that Aer Lingus joined in June and its two bilateral agreements with American Airlines and British Airways. Warning that the airline's potential could only be realised when the business operated fully within the marketplace, he said: "The IPO is not a discretionary issue for this business but a mandatory one. There is no other way for Aer Lingus to access the capital it needs to fund its investments in fleet, people, routes, systems, innovation and customer service."
Aer Lingus plans to raise £200 million equity funding to coincide with the Government's sale of the airline on the stock market. Mr Foley said he expected negotiations between the Aer Lingus union group and the Department of Public Enterprise on the sale of a 9.9 per cent stake in the airline would be completed by Christmas. The 6,000 employees already hold 5 per cent of Aer Lingus and this will rise to 14.9 per cent ahead of the initial public offering. While Aer Lingus has reached an agreement with Aer Rianta on measures to deal with overcrowding and congestion at Dublin Airport, Aer Lingus deputy chief executive Mr Larry Stanley said: "The situation in the airport is simply not acceptable and it inhibits us from delivering our product to our customers. We understand that they have problems but it's still not as good as it should be."
Mr Stanley also expressed the airline's dissatisfaction with charges at Dublin Airport and particularly the absence of consultation by Aer Rianta with the airport users. "We haven't had the normal consultation we get from other airports," he said.
