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Small airline, small country, small minds – the Aer Lingus story

Political interference has kept Aer Lingus one of the smallest airlines in Europe whilst its home-grown competition passed it by ten times over.

Aaron McKenna

ONCE UPON A time, the staple diet of the Oireachtas transport committee was Aer Lingus. Company executives would be brought in to squirm under questioning from far sighted politicians who would ensure that the airline kept up best practices, like making transatlantic jets burn tonnes of fuel to land in Shannon before finishing their journey to Dublin; just the same way that it kept fares nice and high for passengers.

For most of its life Aer Lingus had a regulatory and political backing that could have enabled it to do almost anything.

Naturally, the politicised Aer Lingus preferred to focus on the things that really matter to Leinster House. Under the unassailable banner of “the national interest” the flag carrier kept on trucking to ensure that Ireland would always have an air bridge to other countries that would, we were assured, disappear if any of that free market, non-unionised, unscrupulous capitalism was allowed to reign.

Thinking small

Small mindedness has done a lot for this country. You can objectively look at examples of it from economic protectionism until the 1960s to social subjugation of ‘undesirables’ and quantify the needless ways that we have held ourselves back as a nation. That we have obvious contrasts through the success attained by open-minded worldliness makes the tendency to think small seem supremely stupid.

Very often when criticising this tendency we have to resort to whatiffery to guess at how things might have turned out in an alternative universe. We have very few direct corollaries and so the small-minded types can claim that theirs is the only sensible path to maintain some key interest in the village.

Enter to the story the small village the upstart kid Ryanair. In 1991, when Aer Lingus carried 3.7 million passengers, Ryanair turned its first ever profit: £293,000. The fledgling airline moved a mere 651,000 passengers. The company had nearly folded the year before, with £20 million in cumulative losses since its foundation in 1985 requiring a cash injection of £20 million from the Ryan family to keep it going.

Aer Lingus was a parochial political plaything – Ryanair was run as a business 

The two airlines shared the same home base of Dublin airport. They both had access to the same market of potential passengers. They both hired from the same labour force. One of them was a long-established state run company with bottomless support from successive governments to do practically whatever it wanted.

One of these airlines now moves 10 million passengers per year. The other moves 100 million. No whatiffery about it, no room for excuses or extenuating circumstances. Aer Lingus, with its slogan in the early 2000s becoming “Low Fares, Way Better”, was chasing a very, very distant second place.

This needn’t have been a zero sum game, where one airline was a clear winner and the other clearly a pathetic second run contender. There’s plenty of room in Ireland and throughout Europe, and indeed the world, for growth in the business. But Aer Lingus was run like a parochial political plaything, designed to secure jobs in key constituencies and perform ridiculous aerobatics at great expense like the Shannon stopovers. We were told that all this was essential or Ireland would be cut off from the world.

Ryanair was run to be a successful business. It now employs more people, delivers more profits and has done more for the affordable connectivity to our island nation than the state-run cartels ever did. Not only did Ryanair expand the range of destinations Irish people could fly to, it brought the price of getting out of Ireland down through the floor.

History repeats itself

Now we’re at it again over Aer Lingus. IAG, the parent company of British Airways, wants to buy Aer Lingus and integrate it into its network.

The scenes at the transport committee hearings, with a cast of naysayers preaching doom, stretching out the gates of Leinster House, evokes many memories of times gone by. This time, of course, the airline is privately owned with the government a minority shareholder.

Another memory is evoked by IAG CEO Willie Walsh sitting in the committee room on Thursday. He was able to spar with Timmy Dooley of Fianna Fail on familiar grounds, having been CEO of Aer Lingus back when Dooley was a Senator rather than a TD on the committee. On a recent Late Late Show interview, Ryanair boss Michael O’Leary said that the last time Aer Lingus had a chance of becoming something great was when Walsh proposed plans for a management buyout and expansion of the airline that was shot down by Bertie Ahern’s government.

Walsh left the airline in January 2004, and was hired as CEO of British Airways by May of that year. He went on to turn BA into IAG through its merger with Iberia and become the sixth-largest airline in the world. His remaining shares in Aer Lingus are worth less than €30,000 at the sale price IAG is offering, while his holdings in IAG make him worth about half a billion euros today. That’s about what Michael O’Leary is worth through his Ryanair shareholding. Bertie probably did Willie a favour by shooting down his plans.

Aer Lingus will be subsumed by a larger airline one day

Walsh put on an excellent performance at the committee. He was able to parry hyperbolic claims away and make a clear and strong case for the success he envisioned Aer Lingus having as part of the IAG group. He offered up further guarantees relating to Heathrow slots for Shannon and Cork that had not previously been on the table. He put a lot of questions firmly to bed, though one still sensed that the hearing might be a waste of his time if politicians are determined not to take a politically unpalatable decision so close to an election. Once again, the parochial beats the sensible in the race for Aer Lingus’ future.

Aer Lingus is going to be subsumed by a larger airline someday. That’s the nature of the airline business, where scale matters. That or Aer Lingus will go to the wall, which nearly happened during the recession.

Good business sense

IAG is offering the country a strategic fit that makes good business sense and a bunch of guarantees that may never be available again. It helps that the CEO of IAG is intimately familiar with Aer Lingus and has a fair idea, as Michael O’Leary has said of him, as to how it might be grown.

IAG is a business that will make decisions in a business light. As Ryanair proved however, the good decisions for Ireland can often be the right decisions for business. There’s a market of passengers that isn’t going to shut down and go away if IAG decided against all reason to close some of the most trafficked short haul routes in Europe that feed its long haul base at Heathrow.

The Irish government may choose to hang on to its minority share and IAG may walk away from this pretty sweet looking deal. What happens next cannot be guaranteed, but what we do know is that this sort of political interference is what has kept Aer Lingus one of the smallest airlines in Europe whilst its home-grown competition passed it by ten times over. But sure, it’ll probably be grand this time. And anyway, Mick is promising us transatlantic routes as soon as he can get the aircraft; so in the event Aer Lingus does get knocked over by the next economic shock to the industry we’ll still be able to get out of the village to the bigger world.

Aaron McKenna is a businessman and a columnist for TheJournal.ie. He is also involved in activism in his local area. You can find out more at aaronmckenna.com or follow him on Twitter @aaronmckenna. To read more columns by Aaron click here.

IAG boss Willie Walsh has offered a ‘cast-iron guarantee’ on Aer Lingus’ Heathrow slots*

Ryanair cites ‘human rights’ as it fights to hold onto its piece of Aer Lingus

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