Aer Lingus Confirms Boeing 757 Deal to Boost Transatlantic Offering

Republic of Ireland national carrier Aer Lingus has confirmed it has reached an agreement to damp lease three Boeing 757-200s to expand its transatlantic activities during the first half of 2014. The aircraft will be acquired via Air Contractors and the first jet is expected to enter service in January 2014 with all three aircraft in operation by next summer. The details of the anticipated deal were revealed during the Aer Lingus Group interim management statement for the period from January 1, 2013 to March 31, 2013, representing the first quarter of the Group’s 2013 financial year.

The airline remains tight-lipped over its operational plans for the 757s and simply says they will operate in the North Atlantic market, but the expansion of a previous interline partnership with US low-cost carrier JetBlue Airways into a full blown codeshare agreement earlier this year will support its strategy in the US market. It is rumoured that the 757s will be based at Shannon Airport and will be used to expand the carrier’s existing offering, increasing the existing seasonal services to Boston and New York and potentially freeing up a larger Airbus A330-200 to operate from Dublin, where demand is stronger.

“The use of Dublin as a hub for connecting traffic flows and the partnerships in North America are giving us a lot of comfort that there is more growth in the market,” said Stephen Kavanagh, Chief Commercial Officer, Aer Lingus on a investors’ call announcing the carrier’s first quarter performance this week. “The 757 is a smaller-gauge aircraft and it is more flexible,” he added.

There are certainly suggestions that Aer Lingus could look to introduce a number of new routes from Dublin using the widebodied jet with San Francisco, Los Angeles, Orlando, Toronto and Chicago among those thought to be under consideration. All of these are among the top ten connecting long-haul destinations from Dublin in 2012, a list headed by Sydney, Australia and which also includes Melbourne, Australia; Johannesburg, South Africa and Singapore.

The transatlantic market has been a key part of the Aer Lingus network for many years and it continues to perform positively for the Group. Following a strong 2012, the first quarter of 2013 has seen long-haul passenger fare revenue increase by 14.4 per cent to €60.3 million. This increase in revenue was a function of long-haul fare yield per passenger increasing by 5.6 per cent to €333.15, fare revenue per seat increasing by 10.4 per cent to €246.53 and load factor increasing by 3.4 percentage points to 73.7 per cent. The premium cabin played an important role in this performance with Business Class traffic on long-haul services up 15.6 per cent and load factor up 5.0 percentage points to 66 per cent in the three month period versus the same quarter last year.

During this period Aer Lingus increased its long-haul capacity by 3.5 per cent in comparison to the same period last year through the deployment of an additional Airbus A330 which returned to the carrier’s fleet in October 2012 having previously been flown for United Airlines. This aircraft has acted as a reserve during the winter schedule to cover for routine fleet maintenance but was placed into service in March to support the early launch of Aer Lingus’ long-haul summer schedule ahead of the Easter holiday.

Aer Lingus anticipates that the operation of the aircraft within its own network will “earn a contribution at least equal to that earned from the enhanced codeshare operation” with United last year, but this contribution will be “concentrated in the peak summer season”. The return of this aircraft has also enabled the carrier to conclude a deal to lease a single A330-200 to Scandinavian charter operator Novair under an ACMI arrangement for the forthcoming two winter schedules (2013/2014 and 2014/2015) with the option to place the aircraft for a third season.

The big question is what opportunities exist for growth. In the table below we highlight the largest O&D markets between Republic of Ireland and North America. San Francisco is by far the largest transatlantic market currently not served from Ireland, with over 100,000 annual O&D passengers (5.3 per cent of total transatlantic O&D demand) and obvious business links between the countries makes it a strong candidate for any network expansion from Aer Lingus at Dublin. In 2012 an estimated 88,000 O&D passengers flew on the route, the majority with British Airways via London Heathrow. Aer Lingus currently has just a 16.2 per cent share of this traffic through partner airline connections in the US to its existing transatlantic services.

The first quarter of 2013 has represented a key period of transition for Aer Lingus and concluded with it inaugurating domestic flights for Virgin Atlantic in the UK market with the introduction of ‘Little Red’ services to London Heathrow from Aberdeen, Edinburgh and Manchester. According to the carrier start-up costs associated to this long-term partnership, the planned changes to the long-haul fleet and slightly weaker trading on UK routes were the reasons for a €9.4 million increase in first quarter losses to €45.5 million.

With first quarter revenues up 3.3 per cent on the same period last year, total passengers (including Aer Lingus Regional) up 2.2 per cent year-on-year, fare revenue per seat up 6.5 per cent (short-haul up 3.3 per cent and long-haul up 10.4 per cent) and overall passenger yield up 3.7 per cent and load factors up 2.7 percentage points to 71.4 per cent, the outlook for the carrier is good, especially in the long-haul market where yield and load factor performance was particularly strong in the first quarter, increasing by 5.6 per cent and 3.4 percentage points, respectively.

“We have delivered revenue growth of 3.3 per cent in the first quarter and are particularly pleased with the performance of our long haul business which is up 14.4 per cent on the prior year. Our long haul business continues to perform robustly, carrying forward the positive momentum from 2012,” said Christoph Mueller, Chief Executive Officer, Aer Lingus in the interim management statement.

However, he warned that markets observations during the first three months of the year show 2013 will be another tough year for the Irish carrier. “Trends identified in Q1 2013 including higher airport charges, the strength of long- haul and softness in GBP and our UK market have the potential to remain a feature for the rest of the year. On that basis, we currently expect 2013 operating profit, before exceptional items, to be broadly in line with last year,” he added.