ANALYSIS:GIVEN THE turbulence being experienced by the airline industry globally, Aer Lingus's full year results yesterday will provide comfort to investors that it is in reasonable shape to withstand whatever buffeting comes its way.
Like all airlines, Aer Lingus is facing two major challenges - the rising price of oil and the effects of an economic downturn on passenger movements. Analysts have pared back their 2008 earnings forecasts by about 14 per cent to reflect this.
Against this backdrop, Dermot Mannion's decision to add 14 per cent more capacity on short-haul services and 17 per cent on flights to the US is a brave one. Especially so when you consider that the average number of seats filled on Aer Lingus planes last year declined to 75.4 per cent from 77.6 per cent in 2006.
Statistics for February show that its load factor on long-haul routes was just 60 per cent.
Aer Lingus is also about to place an order for $2.4 billion worth of new Airbus aircraft to bolster its long-haul fleet.
However, as Michael O'Leary has demonstrated in the past, attack is often the best form of defence at a time of weakness in the airline industry.
There are a lot of factors in Aer Lingus's favour.
It has net cash balances of about €750 million, which Mr Mannion said gives it the "ability to withstand any short, sharp shocks in the industry".
And, after months of tortuous negotiations, Mr Mannion finally looks set to deliver on his promise to trim staff costs by €20 million a year.
He has shaved a similar amount off its annual maintenance bill by breaking SR Technics' hold on the 10-year contract and dividing it between four suppliers.
The airline has also reduced its airport costs by €5 million a year.
These are important savings when you are facing a $185 million rise in your fuel bill in 2008.
The new Belfast base appears to be taking off and ancillary revenues are soaring, helped by large rises in baggage charges.
Open Skies has resulted in an scramble by flag carriers to provide extra flights to the US, with the result that many short-haul services have been sacrificed. In addition, some flag carriers - Alitalia is an example - are in financial disarray. This provides significant opportunities for low-cost carriers like Aer Lingus and Ryanair to fill the short-haul vacuum.
Mr Mannion has had a bumpy ride over the past 18 months, but appears now to have steadied the ship.
Barring an unforeseen jolt, Aer Lingus should avoid a crash landing
