Shares in Irish national airline Aer Lingus (AERL) fall 2.75 cents to €1.44 after a profit warning reveals that the imminent threat of a strike has 'caused significant damage to Aer Lingus' trading and forward bookings for several months into the future'.


The group's last trading update (20 May) assured investors that the airline had experienced positive trading in April with short haul, long haul and retail all performing strongly in the month. This performance enabled Aer Lingus to maintain guidance that 2014 operating profits would be in line with the prior year, despite the adverse effect of the strike called by the Impact trade union for the June bank holiday weekend (30 May-2 June), a dispute which centres on crew rostering and working conditions.


It would appear that the threat of industrial action has been at least deferred if not averted and Aer Lingus last night welcomed the decision by Impact to defer the further two days of strike action that had been called for 16 and 18 June 2014. This deferral is to allow consideration of an interim recommendation to be issued by the Irish Labour Court today.


That notwithstanding, the airline is claiming that the threat of this strike alone has caused significant damage to Aer Lingus' trading and forward bookings for several months into the future. The flag carrier now expects that its 2014 operating profits (before net exceptional items) will be 10-20% lower than last year.


Investec's Gerald Moore rightly identifies industrial relations as the airline's most visible risk going forward. He says that this is likely to remain the case ahead of future discussions over the pension issue and Aer Lingus' 'CORE' cost-cutting plan, not to mention a resolution to the aforementioned roster dispute.


Despite this, Moore remains an optimistic buyer of the airline: 'If management and staff at Aer Lingus can improve industrial relations, we believe the company will be well positioned to capture growth opportunities, in particular on long haul, where Aer Lingus has established an attractive proposition, especially for transfer passengers,' he says.


Investec nevertheless cuts its 2014E EBIT forecast in line with this new guidance. 'We expect to make no significant changes to our 2015E forecasts or our DCF-derived price target of €1.74,' Moore concludes.

Issue Date: 12 Jun 2014