DUBLIN/LONDON – Irish airline Aer Lingus slashed its outlook and reshuffled management in the face of diving revenues and passenger numbers on Tuesday as rival Ryanair ruled out another bid for the beleaguered carrier.
Shares in Aer Lingus fell 20 percent, making it the top loser on the Irish stock index .ISEQ, after the company forecast losses this year would be materially worse than the 79 million-euro bottom range of market expectation.
The loss-making airline, whose chief executive resigned earlier this month saying a new person would bring fresh ideas, said it was reviewing a range of options, including its long-haul capacity, to reduce operating costs.
Aer Lingus has a track record of turning around difficult situations but analysts warned something major was needed.
“Aer Lingus faced similar challenges post 9-11 and as recently as 2007, its operation margin was the best in the industry,” said NCB analyst Neil Glynn said.
“We’re coming to the stage where we need to see something quite radical again.”
The airline saw quarterly revenue fall 16 percent as the recession drove average fares down by nearly 15 per cent. Passenger numbers decreased by 6.5 percent year-on-year in the same period.
It appointed Niall Walsh as chief operating officer while Chief Financial Officer Sean Coyle and Short Haul Operations head Stephen Kavanagh assumed a further role each.
The company said it would examine its aircraft requirements from Airbus as part of its review of its long-haul business.
Aer Lingus’ arch rival and major shareholder, Ryanair, ruled out a third bid for the former state carrier but said it would hold onto its near 30 percent stake unless it received a significant offer.
“I think Aer Lingus is worthless. If the accountancy rules allowed us we would write down our stake to zero,” chief executive Michael O’Leary told a news conference. “I am fairly certain we won’t make a third bid.”
Aer Lingus based its defence strategy against Ryanair’s most recent bid on the argument that it had a profitable future as an independent airline, forecasting a small pre-tax profit in both 2008 and 2009.
But some analysts said this argument no longer held water.
“At this point of time, it’s hard to see Aer Lingus being a standalone operation, but they still have net cash and if they’re successful in negotiations with Airbus that would help,” Davy analyst Stephen Furlong said.
Ryanair, which gained its stake following a hostile bid in 2006, made an offer of 750 million euros ($976.1 million) for its rival in December but later withdrew the bid after the Irish government, which holds a 25 percent stake, rejected it.
Aer Lingus said it had a net cash position of 594 million euros as of March 31, down 9 percent from the end of the year.
But Ryanair’s O’Leary said the balance sheet was not as strong as the airline maintained.
“They’re running out of cash rapidly. They clearly have a huge pension deficit which again they denied in December and there’s going to have to be another restructuring,” he said.
“I think Aer Lingus is going to run out of cash.”