Aer Lingus back in profit but warns of tough year ahead

Image caption,
The company is worried about rising fuel costs and airport taxes, as well as weak demand in Ireland

Aer Lingus has reported a return to profit in 2010, but warned the coming year will be much more challenging.

The Irish national carrier made 47m euros ($64m, £40m), up from a 130m euro loss in recession-struck 2009, despite passenger volumes hit by volcanic ash, the Irish crisis, and winter weather.

But the firm said that recession in its home market, higher airport taxes and fuel costs would hurt profits in 2011.

The airline has also been hit by an unexpected tax demand from Dublin.

Last week Aer Lingus was forced into 32.5m euros provision to cover a tax demand related to its renegotiation of contracts and wages with 715 ground staff in 2008-09.

The move was part of a 41m euro cost reduction strategy.

Business strategy

Passenger volumes were down 10% last year to 9.3 million - coming on top of a 13% fall the year before - as the Irish economy remains flat on its back.

Business was also hurt by the Iceland volcanic eruption in April and extreme winter weather in December.

Yet despite this, Aer Lingus managed to eke out a 1% gain in revenues to 1.22bn euros.

Management attributed the turnaround to a new business strategy that has boosted earnings per passenger, particularly on transatlantic routes.

The return to profit was in line with analysts' forecasts, although Aer Lingus' share price fell 1.5% in early trading, having been up nearly 3% at the open on Monday.

Ryanair tie-up

But the strong performance is unlikely to be repeated in 2011, according to chief executive Christoph Mueller, with the company's fortunes hostage to events in the Middle East.

"If current fuel prices persist, we expect that 2011 operating profits will be significantly below that of 2010," he said.

Citing higher airport taxes as another concern, Mr Mueller said he did not expect continued cost cutting measures and rising passenger spending to be enough maintain current profit levels.

Passenger volumes also remain a concern, with the Irish economy stagnant, and the airline is not planning any increase in capacity this year.

Mr Mueller dismissed speculation of a possible tie-up with rival Ryanair, which already owns 30% of the national carrier, and has twice attempted to take it over.

With a change in government in Ireland over the weekend, questions have been raised over whether it may dispose of its remaining 25% stake in the company.

"The Aer Lingus share is currently still undervalued," said Mr Mueller speaking to the Reuters news agency.

"The government would certainly be ill-advised to sell at a time when the outcome won't be optimal for taxpayers."

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