Another economist has warned that Aer Lingus is facing financial turbulence. Mr Colm McCarthy told a pilots' conference yesterday that, in effect, even the least efficient airline can make money in benign economic conditions. The problem is that Aer Lingus's cost base is still far too high to allow it to cope with the inevitable downturn in this most cyclical of industries. Dr Garret FitzGerald said recently that an analysis of traffic flows showed Aer Lingus was losing market share on the critical Irish Sea routes, notably Dublin-London.
NCB stockbrokers have also weighed in with a view that there are early warning signs in Aer Lingus of a group in financial difficulties. The airline made a pre-tax profit of £40 million in 1996, a healthy enough result, but the management concedes that work practices in Aer Lingus must change. This is an eerie throwback to the pre-Cahill Plan period, which brought about the need to rescue the airline from bankruptcy. It is plain that whatever changes in work practices the Cahill Plan achieves, are no longer enough. Such is the scale of competition in international aviation that change must be a perpetual condition, not just an occasional response to crisis.
Aer Lingus management, to its credit, is continuing to seek out cost savings. But there is little stomach among the unions for further rationalisation when memories of the Cahill-inspired cutbacks are still fresh and when the company balance sheet appears relatively healthy. The atmosphere may not be conducive to a belt-tightening approach. Yet it is as essential a s ever. The company has already secured a once-off payment of £175 million in State aid. The European Commission has made it clear that it will not countenance further State assistance. Aer Lingus is also clearly in need of a strategic alliance with a bigger, stronger airline. But the search for such a partner has proved elusive for a number of reasons. Aer Lingus's route network is small by the standards of international airlines. And there is, at the very least, political ambiguity about the kind of privatisation which would be an inevitable part of any meaningful alliance. The proposed abolition of intra-EU duty-free sales as part of the Single Market project in 1999 also has the potential to damage Aer Lingus. Duty-free sales matter more to Ryanair than Aer Lingus, but the big loser will be Aer Rianta. About 60 per cent of Dublin Airport's profits come from duty-free. Eliminate these and Aer Rianta admits it will have to pass the loss to its customers - the airlines - in the form of higher charges. The airlines, in turn, will put up their prices, dampening the buoyancy of air travel and, incidentally, damaging the domestic tourist industry. For these and other reasons, the Government should urgently explore a future co-ordinated strategy for Aer Lingus. It cannot afford the situation to deteriorate to the point where a new Cahill Plan is needed.