IT’S GOING to be a long, hard winter at Aer Lingus. Operating losses of over €500,000 a day are clearly unsustainable, especially against a backdrop of the worst recession in living memory.
Its net cash balance will have diminished to just under €300 million by the end of 2009, compared with €802 million in the middle of last year. That’s some turnaround.
And so Aer Lingus moves towards its third restructuring programme since its IPO.
The last one cost it about €117 million to achieve annual savings of €53 million. Finance chief Seán Coyle said yesterday that ratio is not viable this time around. There will be no expensive payoffs to get staff out the door.
This raises the spectre of compulsory redundancies.
Savings of about €130 million are expected to be sought.
This will involve a reduction in the headcount – probably of the order of 300 to 500 – along with double- digit pay cuts, with cabin crew and pilots’ terms and conditions in the firing line.
Aer Lingus has just advertised internally for pilots to move to Washington DC to work on its transatlantic joint venture with United Airlines that will operate flights to Madrid from March next. Aer Lingus’s intention is to pay local rates, which are about one-third lower than in Ireland.
It is also going to place its long- haul services under the microscope. Over half the €93 million losses in the first half of this year were on transatlantic flights, which only account for 8 per cent of its passengers.
Shannon-New York remains “under review” and I’m told that the frequencies of other transatlantic services this winter will be adjusted. All of the changes on transatlantic flights announced for this winter might even roll over into summer 2010.
Every other cost will be reviewed, particularly airport charges, with the airline likely to drop flights in Dublin in favour of its new London Gatwick base.
Christoph Mueller takes charge at Aer Lingus next Tuesday. His background is in charter operations and he is no stranger to cost-cutting.
He is likely to unveil the cost- cutting plan in October. It will be an early test of Mueller’s mettle and the Aer Lingus board’s stomach for the battle.
If the cuts are as deep as management suggest, then industrial action is a possibility. That’s when the fun will start.
