Aer Lingus Switches to Imitating EasyJet, Not Ryanair (Update1)
January 26, 2010, 12:15 PM EST(Adds comments from chief executive starting in eighth paragraph, closes shares in fifth.)
By Steven Rothwell and Louisa Fahy
Jan. 26 (Bloomberg) -- Aer Lingus Group Plc will stop trying to undercut larger Irish rival Ryanair Holdings Plc and offer enhancements including better food and faster check-in times to customers willing to pay more.
In a switch that brings it closer to EasyJet Plc, which attracts a higher proportion of business flyers, Dublin-based Aer Lingus will adopt a hybrid model somewhere between a discount and full-service carrier, new Chief Executive Officer Christoph Mueller said today at an investor briefing in London.
Aer Lingus will also add more short-haul routes through a franchise deal with smaller Irish carrier Aer Arann, while seeking to boost long-haul connections by increasing the number of code-share partners. Mueller, who became CEO in September, said a review of the company had led him to conclude that the low-cost model was limiting its ability to maximize revenue.
“They’re setting out their stall by offering something different to Ryanair,” said Joe Gill, an analyst at Bloxham Stockbrokers in Dublin. “You could describe it as an EasyJet model for Ireland. That’s going to be very challenging as the evidence suggests short-haul is a pretty commoditized product.”
Aer Lingus closed unchanged at 68 cents in Dublin after earlier gaining as much as 2.9 percent. The stock has advanced 6.3 percent this year, valuing the company at 363 million euros ($512 million).
“The customer will decide where to position Aer Lingus on a particular flight,” Mueller told investors. “We offer the basics of transportation then we add what is needed, as opposed to a full-service carrier, where the extras are hard-wired.”
New Routes
The agreement with Aer Arann will cover 12 routes, giving Aer Lingus new services to Bristol, Blackpool, Cardiff, Durham and Doncaster/Sheffield in England, together with Glasgow and Edinburgh in Scotland. While the flights will use Aer Arann ATR 72 turboprop planes, they’ll be branded “Aer Lingus Regional,” with tickets sold through the larger carrier’s Web site.
Mueller said Aer Lingus also needs to improve connections to Asia by finding a partner with daily flights to the region.
The airline may rebuild its base at London’s Gatwick airport should demand improve after paring services and cutting the number of planes stationed there, the CEO said. Aer Lingus said Jan. 8 it was halting an expansion that began in April with new routes to cities including Vienna, Munich and Malaga, Spain.
In Hibernation
“Gatwick is still a very important market, and it’s London,” said Mueller. “I would describe it as a little bit like hibernation mode. When times get better, I wouldn’t exclude that we will strengthen our London market.”
Luton, England-based EasyJet is the largest carrier at Gatwick, and has attracted more time-sensitive flyers than Ryanair by operating to airports that are generally closer to major European cities than those used by its rival.
Aer Lingus is already reducing wages and slashing its workforce by almost a fifth, and more jobs may have to go as the airline braces for a decline in sales in what will be an “extremely challenging” year, Mueller said. The Irish government holds 25 percent of the carrier’s stock, with Ryanair owning about 29 percent following two failed takeover attempts.
Airlines probably lost $11 billion in 2009, according to estimates from the International Air Transport Association. Aer Lingus has been hit harder than most as the Irish economy struggles to emerge from the worst recession since World War II.
“The Irish market is just a basket case,” Mueller said. “We do expect the recession in Ireland to last longer than in the rest of the world.”
--Editors: Chris Jasper, Kenneth Wong.
To contact the reporters on this story: Steven Rothwell in London at srothwell@bloomberg.net; Louisa Fahy at lnesbitt@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net.
