Aer Lingus: putting cost at the CORE after 2013 profit growth stalls

As anticipated by the company, Aer Lingus' 2013 operating result was below that of 2012. The profit recovery from heavy losses in 2009 had been driven by mainly unit revenue growth, but, in 2013, RASK growth was outpaced by CASK growth. Unit revenues were particularly weak on short-haul in the second half of the year, reflecting fierce price competition in European markets. Strong growth in revenues from Aer Lingus' new contract flying business helped, but not enough to drive earnings growth.

Against this backdrop, a concerted push on cost reduction is necessary and Aer Lingus has recognised this priority in a new profit improvement programme, dubbed CORE. Although revenue initiatives are also part of it, the weak pricing environment of 2H2013 underlines the need for a competitive cost base and CORE includes a EUR30 million cost reduction target over two years. With savings largely expected to come from the payroll, the quality of industrial relations will be a key feature in the programme's success.