Aer Lingus Reports €24.5 million Loss

Aer Lingus has posted a pre-tax loss of €24.5 million for the first half of the year, a 79% increase on the same period last year. It’s typical for the carrier to report a loss for the first half of the year, but this year the loss was worsened by several exceptional items – €4.3 million in advisory fees to defend against the takeover bid by Ryanair and €11.7 million in restructuring costs.

Aside from these exceptional items, Aer Lingus has narrowed its operating loss to €4.4 million for the first half – down 83.6% compared to last year. Revenues rose 10% to €512.9 million, but operating costs increased as well by 5.8%. This was mostly due to a 29.6% increase in fuel costs and an 8.1% rise in airport charges. Also during the half, passenger numbers rose slightly by 3.4% to 4.5 million. Total passenger fare revenue rose 6.6%, sustained by a 5.3% increase in average yield per passenger.

Aer Lingus chief executive Christoph Mueller says the €4.4 million operating loss represents a huge improvement over the first half of last year. These results clearly show that their strategy to build a leaner and more efficient airline is working. They will continue focusing on improving financial and operational performance during the summer travel months. If current trends continue, operating profit for the year – before net exceptional items – will be at least the €49.1 million achieved last year, he added.

The carrier has also announced that its board has urged shareholders to reject the takeover offer from Ryanair. The budget rival launched a €694 million bid for Aer Lingus in mid-July, but Mueller says the offer fundamentally undervalues the group. The company’s balance sheet is strong – with more than €1 billion in cash – and the board continues to argue that the bid is unrealistic given that healthy financial position.

In a 32-page document sent to shareholders this week, the Aer Lingus board unanimously recommended that the Ryanair bid be rejected. It said that the offer isn’t in the interest of shareholders. Chairman Colm Barrington encouraged shareholders in the document not to take action on the bid on grounds that the €1.30 per share offer fundamentally undervalues the carrier. This bid represents a 34% discount on a cash basis.

Barrington also cited legal advice that suggests the European Commission will likely prohibit the offer from going ahead (again), given the dominance Ryanair would have in the market if it succeeds. The competition problems are so serious that the budget airline’s offer isn’t capable of completion and isn’t credible, he added. The Competition Commission said last week that it would make a decision regarding the offer on August 29.

This comes as Ryanair reported earlier this week a 29% decline in profits during the second quarter due to austerity, the recession and high fuel prices – with net profit for the quarter at €99 million. The airline had hedged 90% of its fuel needs for the year to March at around $1,000 per tonne – a 21% increase on last year but less than current fuel prices. While the other 10% of its fuel needs were lower than expected at the beginning of the year, the savings will be offset by the worse euro to dollar exchange rate.