Boosted by strong growth in passenger numbers, Aer Lingus has reported solid growth for 1998, with pre-tax profits up 14 per cent to £52.4 million (€66.5 million) while sales were up 12 per cent to £901 million (€1.14 billion).
Aer Lingus chief executive Mr Garry Cullen has warned that the airline's operating margins of 6 per cent are too low but said it was unlikely that there would be any improvement in margins in the current year and that it would be 2000 at the earliest before Aer Lingus reached its target operating margin of 8 per cent.
To achieve this, he said Aer Lingus would have to improve its yield by increasing passenger numbers and improve its cost base, especially its staff costs. He said Aer Lingus had reached an agreement with staff in the United States on a new contract which generated savings but the airline and SIPTU had yet to reach "common ground" on changes to the grading structure for Aer Lingus's clerical and operative grades.
Aer Lingus is looking to end the system where operative and clerical grades receive annual incremental pay increases in addition to national pay increases. Mr Cullen said Aer Lingus was negotiating new pay scales with SIPTU. "We intend to get it completed in the next couple of months because the benefits have to begin to come through in the second half of this year," he said, adding that Aer Lingus expected savings of between £5 million and £10 million over the next two years from the grade restructuring.
Mr Cullen said Aer Lingus was in discussions with all its outside suppliers, including Aer Rianta, and added: "Both ourselves and Aer Rianta are running businesses but I know what our passengers would feel about taking extra costs on board because of the loss of duty free."
Aer Lingus also benefited from interest income of £4.7 million - the airline ended the year with net cash of £69.8 million - and was boosted by £7.7 million from the sale of 75 per cent of its stake in GPA, a stake that had previously been written off in total.
Overall passenger numbers were up 10 per cent to 5.8 million, with numbers on the highly profitable transatlantic routes to Boston, New York, Newark and Chicago up 9 per cent to 776,000 with 1.2 million seats on offer this year. The North American business will be boosted further from the end of May with the inauguration of a direct service to Los Angeles.
On the London route, where Aer Lingus competes with Ryanair, British Midland and Cityjet, passenger numbers rose 9 per cent to two million. This seems set to rise further with the addition of three Airbus 321 aircraft on the Heathrow route this year and increased frequency of flights to Stansted.
Continental routes are set to grow as well, with Aer Lingus switching some of its larger aircraft to these routes and additional frequency of flights planned from Dublin to Paris, Amsterdam and Frankfurt.
Passenger numbers to British provincial destinations rose 14 per cent to more than 11 million, while traffic from British regional airports to the US via Dublin grew by 25 per cent.
Mr Cullen confirmed Aer Lingus was having discussions with a number of ground handling companies about the future of its handling operations in Heathrow, where it employs 1,000 people. Aer Lingus lost a number of handling contracts in 1998 as a result of the formation of global airline alliances. The opening-up of ground handling operations as a result of an EU directive puts the airline's operations at Heathrow under further pressure.
