Irish airline Aer Lingus may ramp up a controversial cost-cutting programme after confirming profit this year will be significantly below 2010 due to weak demand and higher fuel prices.
Facing constant pressure from Ryanair, its bigger and leaner rival, Aer Lingus has cut routes, staff and pay to survive and another round of cuts could put it on a fresh collision course with employees.
“While we still expect that Aer Lingus will be profitable in 2011, we expect that the level of profitability will be much lower than in 2010,” Chief Executive Christoph Mueller said on Thursday.
“In light of the continued weakness of the Irish economy and pressures on non-controllable costs, we are assessing whether the cost reduction programme is sufficient to protect profitability or whether further measures are required.”
Industrial action by cabin crew over longer working hours hammered its first quarter performance with its operating loss before exceptional items up 42 percent to 53.7 million euros.
Aer Lingus has squeezed savings of an annual value of 72 million euros by the end of March but its reliance on the Irish market, still struggling to emerge from one of the industrialized world’s worst recessions, has prompted a second look at its outgoings.
“They could do with a few breaks in terms of the state of the Irish economy and where fuel is at the moment,” said Joe Gill, analyst at Bloxham Stockbrokers.
“Clearly the operating environment is very tough. It looks like now for the full-year their operating profit will be somewhere in the region of 20 to 25 million euros compared to 58 million euros in 2010.”
Shares in Aer Lingus were down 0.9 percent at 83 euro cents at 1004 GMT in a general market that was 0.3 percent weaker.
The company’s stock has risen around 19 percent since hitting a nine-month low of 70 cents at the end of March helped by a government-sponsored report published in April which recommended that the state sell its 25 percent stake in the airline.
A government minister has said Dublin is unlikely to sell any state assets this year. A sale of its Aer Lingus shares would be complicated given that Ryanair, which has had two hostile bids for the group rebuffed, holds a near 30 percent stake.
Aer Lingus said it expected to take delivery of a fourth, finance-leased A320 by the end of June with no further fleet additions planned for the remainder of this year.