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It is not the easiest time to operate a European airline company, especially one with heavy exposure to the United Kingdom.
Airlines across Europe have tempered investor expectations recently, with many warning they will earn less profit later this year than expected. Some are reporting lower demand for tickets, mostly because of terrorism concerns, as well as fallout from the UK’s plans to leave the European Union. Carriers have also faced operational difficulties from a rash of air traffic controller strikes and unusually bad weather.
But in this climate, one airline is performing surprisingly well, according to its new corporate parent. It’s Aer Lingus, Ireland’s national airline, bought in 2015 by International Airlines Group, owner of British Airways, Iberia and Vueling, a Spanish low-cost airline.
IAG said last week that Aer Lingus’ first-half 2016 profit was roughly $46.9 million, a massive increase from the same period last year, when the company earned about $4.5 million. Its operating margin was 5.4 percent, up 4.8 percentage points. Among the three other IAG airlines, only British Airways did better, with a 9.1 percent margin.
“Aer Lingus is probably the star in this quarter,” IAG’s CFO, Enrique Dupuy, said on the company’s July 29 earnings call.
It makes sense. Ireland has not been directly affected by terrorism, and it’s not part of the United Kingdom, so there are no direct impacts from Brexit. Plus, the airline has a “very loyal base” of customers, Dupuy said.
There’s more, too. In recent years, Aer Lingus was reasonably well-run, but it was tiny by airline standards, keeping it from benefiting from economies of scale like larger competitors. Smaller airlines generally do not get the best deals on new aircraft, but Aer Lingus now shares plane orders with other airlines in the group, driving down costs.
The old Aer Lingus, a quarter owned by the national government, was also bloated. Executives said IAG has gained “substantial” improvements in labor costs and productivity since taking over in August 2015.
With demand lagging in some markets, both in Europe and worldwide, IAG executives told analysts they have already reduced future growth plans at Vueling, and are considering similar reductions at British Airways and Iberia. But they have no plans to curb growth at Aer Lingus. Plans still call for the carrier to increase capacity by 10.2 percent this fiscal year, far higher than the 2.7 percent increase expected at British Airways.
IAG is even considering launching more U.S. routes, though executives said it is too soon to know what new cities they may add.
“We feel that Aer Lingus could become one of the beneficiaries, one of the opportunities that we have in the group to be able to deal with this prospective new environment,” Dupuy said.
Looking ahead, IAG executives said they are evaluating the Airbus A321LR for Aer Lingus. The plane, which will hit the market in 2019, is a single-aisle aircraft with about 200 seats with just enough range to fly from Western Europe to the East Coast of the United States. Because it has relatively few seats for an aircraft capable of flying that distance, the A321LR could allow Aer Lingus to fly into smaller U.S. markets that don’t work today.
JetBlue Airways said in July it also is looking at the A321 to launch its own trans-Atlantic flights. But Willie Walsh, IAG’s CEO, said Aer Lingus has an advantage over JetBlue when it comes to the Europe-U.S. market.
“The A31LR is a perfect aircraft for Aer Lingus,” Walsh said. “”The difference between Aer Lingus and JetBlue is Aer Lingus has been doing this for years and knows how to do it, and knows what the transatlantic market is like.”