Summary operating costs

Total operating costs (before exceptional items) increased by 7.9% in H1 2015 to EUR762.9 million compared with EUR707.1 million in H1 2014, mainly as a result of the increase in operating activity associated with our expanded transatlantic network and strengthening US Dollar.

On a constant currency basis (applying H1 2014 FX rates for H1 2015), it is estimated that H1 2015 operating costs would have been approximately EUR58 million or 8% lower than actual values reported. This includes balance sheet revaluations but excludes the results of foreign exchange hedging included within the other gains and losses line item.

On a unit cost basis based on mainline ASKs, operating costs increased by 4.9% and excluding fuel increased by 3.6%. Excluding contract flying activities operating costs on a unit cost based on mainline ASKs increased by 4.8% and by 3.7% excluding fuel.

On a unit cost basis based on mainline ASKs, operating costs excluding fuel would have been approximately 0.3% lower, on a prior year constant currency basis, than the actual values reported.

 
Operating costs (EUR million       H1 2015  H1 2014  % increase/ 
 unless otherwise stated)                             (decrease) 
                                                             (1) 
---------------------------------  -------  -------  ----------- 
Fuel costs                           190.6    170.3      (11.9%) 
---------------------------------  -------  -------  ----------- 
Staff costs                          152.8    143.1       (6.8%) 
---------------------------------  -------  -------  ----------- 
Airport & en-route charges           189.8    178.4       (6.4%) 
---------------------------------  -------  -------  ----------- 
Other operating costs                229.8    215.3       (6.7%) 
---------------------------------  -------  -------  ----------- 
Total operating costs (before 
 net exceptional items)              762.9    707.1       (7.9%) 
---------------------------------  -------  -------  ----------- 
(1) Sign convention: favourable/ 
 (adverse)

Fuel costs

Fuel costs increased by 11.9% to EUR190.6 million (H1 2014: EUR170.3 million) This was driven by a 5.7% increase in fuel uplift (in metric tonnes) related to increased year-on-year flying activity. This was offset by favourable price movements with the average US Dollar blended fuel cost per metric tonne (excluding into-plane fees) 12.3% lower in the six months of 2015 compared with prior year. However a stronger US Dollar and adjustments for hedging ineffectiveness led to an 18.2% increase in the blended fuel cost per metric tonne in euro. The impact of US Dollar hedging is reported within "Other gains and losses" set out in further detail below. On a constant currency basis, it is estimated that H1 2015 fuel costs would have been approximately EUR34 million (or 22%) lower than actual values reported if H1 2014 FX rates had applied for H1 2015.

Staff costs

Staff costs increased by 6.8% to EUR152.8 million (H1 2014: EUR143.1 million). The Group employed an average 114 additional FTEs in H1 2015 compared to H1 2014, primarily related to additional cabin crew to support transatlantic expansion and higher ground operations staff. Higher flight and cabin crew expenses and the adverse FX movement in US Dollar and UK Sterling added to the increase in staff costs.

In H1 2015, stabilisation payments of EUR3.0 million were accrued (relating to the EUR1,800 payment per eligible employee for full year 2015). These payments relate to employment cost stabilisation measures negotiated as part of the IASS solution. These increases were offset by a EUR0.7 million cost reduction associated with those employees who left Aer Lingus in 2014 and early 2015 under the 2013 voluntary severance scheme and the new 2015 scheme launched in February 2015. The majority of the Group's staff costs are denominated in euro.

Airport and en-route charges

Airport and en-route charges increased by 6.4% to EUR189.8 million in H1 2015 due to the impact of price increases at certain airports including London Heathrow and Gatwick and an adverse FX movement which drove increases in both US Dollar and UK Sterling denominated airport and en-route costs. These increases were partly offset by the 1.7% decline in short haul passenger numbers and lower weighted sector movements in the first half of 2015. A significant proportion of airport and en-route charges are denominated in UK Sterling. On a constant currency basis, it is estimated that H1 2015 airport and enroute charges would have been approximately EUR8 million (or 4%) lower than actual values reported if H1 2014 FX rates had applied for H1 2015.

 
Other operating costs (EUR million)   H1 2015  H1 2014     % increase/ 
                                                         (decrease)(1) 
------------------------------------  -------  -------  -------------- 
Maintenance costs                        34.0     35.0            2.9% 
------------------------------------  -------  -------  -------------- 
Depreciation                             45.8     44.9          (2.0%) 
------------------------------------  -------  -------  -------------- 
Aircraft operating lease costs           43.8     29.9         (46.5%) 
------------------------------------  -------  -------  -------------- 
Distribution costs                       37.2     30.7         (21.2%) 
------------------------------------  -------  -------  -------------- 
Ground operations and other costs        77.6     73.6          (5.4%) 
------------------------------------  -------  -------  -------------- 
Other gains/(losses) -net               (8.6)      1.1          n/m(2) 
------------------------------------  -------  -------  -------------- 
Total other operating costs             229.8    215.3            6.7% 
------------------------------------  -------  -------  -------------- 
(1) Sign convention: favourable/ 
 (adverse) (2) not meaningful

Maintenance

H1 2015 maintenance costs decreased by 2.9% to EUR34.0 million due to process improvements offset by adverse FX and higher de-icing costs. A significant proportion of maintenance costs are denominated in US Dollar. On a constant currency basis, it is estimated that H1 2015 maintenance costs would have been approximately EUR6 million (or 23%) lower than actual values reported if H1 2014 FX rates had applied for H1 2015.

Depreciation

The 2.0% increase in depreciation in H1 2015 is mainly associated with increased IT capital expenditure project spend, depreciation costs in relation to the business class re-fit and increase in the capitalisation of engine maintenance driven by the timing of aircraft checks.

Aircraft operating lease costs

H1 2015 aircraft operating costs increased by 46.5%. Additional capacity was deployed over the period compared to last year: costs include the full six month costs of the Boeing 757s deployed since April 2014 and the impact of seasonal lease costs associated with the deployment of an A330-200 and a Boeing 767 since May and June 2015 respectively. Hire-in costs were incurred as a result of the re-fit of the A330 business class cabin. Almost all of the Group's aircraft lease costs are denominated in US Dollar. On a constant currency basis, it is estimated that H1 2015 aircraft lease costs would have been approximately EUR4 million (or 11%) lower than actual values reported if H1 2014 FX rates had applied for H1 2015.

Distribution costs

Distribution and advertising costs increased by 21.2% in H1 2015 reflecting the changes in the transatlantic sales mix driving higher US denominated Global Distribution Systems (GDS) costs. Increased sales volumes from US originating bookings also drove higher credit card and commission fees. In the period the Group also incurred higher advertising costs associated with the launch of new brand positioning "Smart Flies Aer Lingus".

Ground operations and other costs

Ground operations and other costs increased by 5.4% in H1 2015. This transatlantic expansion has resulted in increased variable costs such as in-flight entertainment, passenger comforts, training and catering. There are also additional costs associated with the establishment of the new JFK lounge and the "Revival" lounge in Dublin airport.

Other gains and losses

Other gains and losses largely comprises gains from maturing currency contracts used to manage foreign exchange exposure reflected in other income statement captions. In addition other gains and losses include the revaluation effect of foreign currency balance sheet items. The gain of EUR8.6 million in H1 2015 was driven by:

   --      A gain of EUR1.5 million arising from maturing hedging contracts including:

o A gain of EUR7.0 million arising from the favourable difference between US Dollar rates reflected in US Dollar forward purchase contracts entered into by the Group compared to the average US dollar spot rate.

o A loss of EUR5.8 million arising from the unfavourable difference between UK Sterling rates reflected in UK Sterling forward sale contracts entered into by the Group compared to the average UK Sterling spot rate.

o EUR0.3 million gain arising from favourable differences on maturing foreign exchange contracts in other currencies.

-- A realised gain of EUR4.2 million in relation to operating activities realised on exchange (including settlement of foreign currency denominated debtor and creditor amounts owned to and by the Group, respectively).

-- An unrealised net gain of EUR2.9 million relating to the revaluation of foreign currency denominated balance sheet items. This was driven mainly by the change in the US Dollar period-end rate (30 June 2015: US Dollar $1.12 versus 31 December 2014: US Dollar $1.22).

Aer Lingus (LSE:AERL)
Historical Stock Chart
From May 2024 to Jun 2024 Click Here for more Aer Lingus Charts.
Aer Lingus (LSE:AERL)
Historical Stock Chart
From Jun 2023 to Jun 2024 Click Here for more Aer Lingus Charts.