When Christoph Mueller took the helm of Aer Lingus just over five years ago, the challenges facing the Irish carrier were both numerous and daunting.
The carrier's Ireland home was caught in the centre of the global financial crisis; demand on the key transatlantic market was collapsing. Its costs were uncompetitive, particularly against neighbouring Ryanair - which was in the middle of attempts to take over its Irish rival - and a pensions hole was about to open up.
The airline was on the brink of collapse.
Five years on - and with the end of Mueller's tenure at the Irish carrier in sight - improved profits, further transatlantic expansion, and signs that industrial tension over pensions may nearly be over, point to happier fortunes at Aer Lingus.
In 2009 the airline recorded an operating loss before exceptional items of €81 million. This year, after disclosing operating profits up a fifth for the third quarter, Aer Lingus expects full year operating profits before exceptional items to outstrip last year's €61 million surplus.
Credit: AirTeamImages
That projection is itself an improvement on its earlier guidance. Aer Lingus began the year hoping to match the 2013 figure, only for it to warn of industrial action in June, with the threat of further strikes meaning it would fail to meet this target. By the end of July it restored its original forecast of matching a €61 million profit off the back a brighter bookings picture. Now it believes it can exceed this figure.
"I would say we are back to normal," Mueller says. Citing the impact the threat of strike action had on the carrier, he says: "We suffered substantial losses from that."
Operating profits before exceptionals for the three months ending 30 September were up 19% to €112.9 million.
"This result was driven by strong short-haul revenue performance relative to prior year and continued strength in our transatlantic business during the peak summer travel period," the airline says. The improvement over the 2013 third quarter also partly reflects bad weather and significant price competition on short-haul a year ago.
While Mueller points to some concerns from the strengthening US dollar, he is largely confident for the rest of this year. "The US dollar development is certainly causing some concerns in Europe as a whole. For the rest I think we are operating in a more healthy economic environment," he says.
"People do forget that Ireland lost 30% of its passenger traffic during the financial crisis. We have only recovered 15% of that, so there is still some growth to come before we reach pre-crisis levels."
While Aer Lingus has has done much to improve its short-haul performance, aided by its co-operation with Aer Arann on regional operations, the return to long-haul growth embodies the confidence of a revived Aer Lingus. The airline lifted transatlantic capacity by a quarter this year, including the launch of flights to San Francisco and Toronto, and has more than filled this capacity.
"All year-to-date long-haul revenue metrics are ahead of the corresponding prior year period," says the carrier. Yield per seat is up 7.1%, passenger volumes are up 18.7% and load factor is up 1.2 points at the nine-month stage. It says the increase in load factor has been achieved despite a 21% increase in capacity.
Aer Lingus transatlantic network October 2010 versus 2014
Source: Innovata Flightmaps Analytics; Blue routes served 2014 only, green routes served 2010 & 2014
This network will be expanded again next summer as the airline launches summer flights to Washington Dulles, a third early morning frequency on its Dublin-New York flights and further capacity increases including taking San Francisco to daily.
Both San Francisco and Washington were routes the carrier axed as part of 25% cut in transatlantic capacity in September 2009, immediately ahead of Mueller's arrival at Aer Lingus.
The expansion will increase Aer Lingus' transatlantic seats next summer by 12.5% and capacity by 14%.
Elsewhere work continues on revenue and cost initiatives under its CORE programme, although many of the financial benefits are not expected to take effect until next year as the deadlock over the pensions gap has stalled progress on labour initiatives and strained industrial relations.
But while Mueller - with the pensions dispute having rumbled through most of his five years at the airline - is cautious of taking any resolution of the dispute for granted, the backing from 97% of affected Aer Lingus staff for the proposals to resolve the funding gap is another significant step in clearing this hurdle.
"The successful implementation of the [pension] solution, including employment cost stabilisation measures, will be a key enabler to achieving other, targeted labour-related benefits," the airline says.
There may be further clarity on another issue to have dogged the airline: Ryanair and its stake in Aer Lingus. Having been thwarted by regulatory hurdles in pursuing a takeover of its neighbour, Ryanair has been ordered by UK regulators to cut its near-30% stake to 5%. Having lost its challenge to the ruling in March, Ryanair heads to the UK Court of Appeal later this month. A judgement is expected in the first quarter of next year.
Even ventures which have failed to work out, such as Virgin Atlantic's Little Red domestic flights from London Heathrow, which Aer Lingus operated, offer an interesting counter-point to the situation Mueller inherited. Virgin bore the commercial cost of the failed venture at Heathrow as Aer Lingus was merely providing the capacity, while five years ago Aer Lingus had to unpick its own ill-fated move into London Gatwick flights.
After the financial turmoil of 2008 and 2009, another profit this year would mark a fifth consecutive year in the black for the Irish carrier. Many of the headwinds appear to be easing and Mueller, who will step down by May next year when his successor has been determined, is set to leave the airline in far better health.
"We have two things in common with Ryanair, which I do not say a lot," he says, referring to the strength of its operating margin and cash positions. "I believe if you compare this company with the Aer Lingus of five years ago, when we were threatened with bankruptcy, we now have one of the strongest balance sheets in the industry, if you measure unrestricted cash against turnover, and we are now in spitting-distance of having an operating margin close to the most profitable airline in Europe.
"So overall I think the airline is very healthy. But you can never rest on your laurels. The airline business is like a sports competition, you have to train every day and stay on your toes."
Source: Cirium Dashboard
