Aer lingus forecasts lower operating profit as fuel costs climb

Aer Lingus Group Plc, Ireland’s second-biggest airline, said profit will decline this year as fuel costs rise and the carrier’s home market shrinks.

Operating profit before exceptional items last year fell 6.4 percent to 49.1 million euros ($66 million), even as sales and passenger numbers increased, Dublin-based Aer Lingus said today in a statement. The carrier booked a 17.6 million-euro loss on operations in the fourth quarter as fuel prices jumped 32 percent from the previous year.

Spending on fuel in 2012 may increase by 60 million euros, which will weight on earnings, Chief Financial Officer Andrew Macfarlane said today on a conference call with reporters. Aer Lingus said today that it expects to remain “significantly profitable,” albeit at a lower level than last year.

Ireland’s economy will grow by less than 1 percent this year, following an expansion estimated at 0.9 percent in 2011, as the sovereign-debt crisis and government austerity measures across Europe weigh on consumer spending, the Dublin-based Economic & Social Research Institute said on Feb. 24.

Aer Lingus fell as much as 3.8 percent to 90 cents at 11:02 a.m. in Dublin in the biggest intraday drop since Jan. 20, valuing the airline at 479 million euros.

Possible Stake Sale

The carrier’s biggest owners are larger local competitor Ryanair Holdings Plc, with almost a 30 percent stake, and the Irish government, with 25 percent. Authorities reiterated plans on Feb. 22 to sell the state’s stake, though Transport Minister Leo Varadkar said antitrust rules will prevent shifting the holding to Ryanair, which has wanted to acquire Aer Lingus.

Aer Lingus isn’t a takeover target, even with the government’s stake-sale plans, Aer Lingus Chief Executive Officer Christoph Mueller said in an interview with broadcaster RTE today.

CFO Macfarlane urged state officials to take account of Aer Lingus’s ties to other airlines when disposing of the holding.

“One of the reasons we have been successful is that we have a broad range of partnerships and alliances with others in the industry,” including all three global airline marketing alliances, Macfarlane said. “We trade on our neutrality,” and “if a stake was sold in a way that was deeply offensive to one of our partners then it could damage our business.”

Varadkar said Feb. 22 that the government would only dispose of its stake Aer Lingus at the right price, declining to give details. Varadkar said he would like to see a solution to the carrier’s pension deficit before a sale.

Pension-Deficit Stance

Macfarlane reiterated today that Aer Lingus has no responsibility to set aside additional funds to help rectify a 700 million-euro deficit on the occupational pension program in which it participates.

Full-year net income jumped 65 percent to 71.2 million euros following gains from shifts in its headquarters office leasehold agreement and aircraft-order provisions. Sales rose 6 percent to 1.29 billion euros, in line with average Bloomberg analyst estimates. Passenger numbers increased 1.8 percent to 9.5 million.

The average fuel price Aer Lingus paid in the fourth quarter rose to $952 a ton from $729 a year earlier, it said. The company has hedged 62 percent of estimated fuel needs at $972 for this year.

Recovery prospects for the Irish economy remain “fragile” as external demand may be affected by international capital and consumer markets, Aer Lingus said.

The fuel-cost forecast may prompt Goodbody Stockbrokers to cut its operating-profit estimate for Aer Lingus by about 20 million euros, Eamonn Hughes, a Dublin-based analyst, said in a note today. Dublin-based brokerage Davy said it may lower its operating-profit estimate for the airline to about 35 million euros from 61.7 million euros.