Sun, Jun 08, 2008 - Page 11 News List

Oil prices may push Aer Lingus into red, requiring route cut


Aer Lingus PLC warned its shareholders on Friday that record-high fuel prices could drive the Irish airline into the red this year and would require at least one US route to be suspended.

“Based on current fuel prices and the uncertain economic outlook, we expect, at best, to break even for the year 2008,” Aer Lingus chairman John Sharman said in a statement to the airline’s annual general meeting at a Dublin hotel.

Sharman said that the airline would suspend its services to Los Angeles in November and would keep other long-haul routes to US cities under review — a stunning U-turn following its launch earlier this year of new routes to San Francisco, Washington and Orlando, Florida.

He called the shutdown of the Los Angeles service “a direct consequence of the unprecedented increases in fuel costs, the weak US dollar and slowing economies.”

Aer Lingus also published its May passenger figures. It said 23.9 percent of its seats went unsold last month, up more than 4 percentage points over the previous year.

The company’s figures were worst on US routes, where 28.8 percent of seats were empty, up 7.8 points.

The airline emphasized, however, that ticket sales were up 10.4 percent overall because of its rapid expansion of routes over the past year.

Shares in Aer Lingus — which the government floated on the Irish and British stock exchanges in September 2006 — fell to a record low of US$2.41 after Sharman’s statement, but rebounded slightly to close down 4.5 percent at US$2.46.

Meanwhile, European airline stocks slumped on Friday as oil pushed above US$130 a barrel, deepening fears that carriers will struggle to hold on to passengers in an ongoing climate of high fuel costs and slowing economic growth.

Analysts and industry executives alike are predicting that the difficult conditions will push more airlines the way of British business-class carrier Silverjet PLC, which grounded its planes last week after a key funding deal fell through.

The high prices of oil are forcing carriers across the globe to raise fuel surcharges, increasing the cost of tickets even as consumers in many countries are tightening their belts thanks to the fallout of the global credit squeeze.

That combination of factors is expected to impact severely on demand as airlines head into the traditionally strong summer season, prompting budget carriers to both introduce late sales to grab what’s left of the market and cut winter services to keep costs down.

“In the absence of a sharp downward correction in the oil price, it looks set to be a bloody battle for all,” Collins Stewart market analyst Andrew Fitchie said.

That sentiment was reflected in share prices across the industry on Friday, with EasyJet PLC dropping 7.7 percent, British Airways PLC losing 8.2 percent, Ryanair Holdings PLC falling 7.4 percent and Air France SA sliding 6 percent.

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