UPDATE 3-Aer Lingus sees FY profit as bookings rise

Wed Aug 31, 2011 10:08am EDT

* H1 operating loss of 27.8 mln eur, vs 19 mln year-ago loss

* CEO says more positive about H2 profit on strong bookings

* Airline focusing capacity on higher-margin routes (Adds details on bookings growth, pension deficit)

By Conor Humphries

DUBLIN, Aug 31 (Reuters) - Irish airline Aer Lingus said strong bookings for the second half of 2011 meant it would recover from a first-half loss to post a full-year operating profit.

The airline posted an operating loss of 27.8 million euros ($40 million) for the first six months as higher average fares per passenger failed to make up for lower passenger numbers and a 15 million euro loss from an industrial dispute.

But it said it would post a full-year operating profit in the region of 21 million to 22 million euros, in part by focusing capacity on bringing passengers to Ireland from faster-growing parts of Europe, like Germany, Belgium and the Netherlands.

The number of tourists visiting Ireland rose more than 15 percent in the second quarter from a year ago as high profile visits by Britain's Queen Elizabeth and U.S. President Barack Obama helped paint the country in a positive light.

"We are seeing strong growth inbound which is in some way compensating for a flat performance ex-Ireland," said Chief Commercial Officer Stephen Kavanagh.

Aer Lingus earned 55 percent of its revenues from inbound traffic, up from less than 50 percent three years ago, he said.

The airline increased its average yield, or fare, per passenger in the first six months by 8.4 percent on a year ago by focusing its capacity on higher-margin routes.

"They are showing good discipline on costs, that they can still push through yield increases," said Brian Devine, an analyst at NCB stockbrokers in Dublin, who said the results were ahead of expectations.

Shares opened up 8 percent at 64.5 euro cent and were trading 7 percent higher by 1340 GMT. The share price has fallen 41 percent since the start of the year compared with a fall of 12 percent in the broader Irish market, due in part to concern about its large pension obligations.

Ryanair, which has a lower cost base and less exposure to the Irish market, has seen its share price fall 17 percent in the same period.

Average passenger yields at Aer Lingus are likely to remain broadly flat in the second half of the year, with most growth potential in increasing volumes, Kavanagh told journalists.

Aer Lingus' booking profile for the second half of 2011 was better than expected with single-digit percentage increase compared to last year, Kavanagh said.

"We are far more optimistic now that at the end of quarter one," CEO Christoph Mueller said.

Revenue was up 5.8 percent in the first half from a year ago and Mueller said he expected that rate to continue in the second half.

Chief Financial Officer Andrew Macfarlane said he expected an increase in the consensus forecast for operating profit for the year, which he said was currently around 21-22 million euros.

Cost savings under the company's Greenfield programme would reach 80 million euros by the end of the year, Macfarlane said.

The company will then focus on adapting its business model to match the seasonality of its business by asking staff to work more in the summer period and seeking to lease out planes in the winter.

The trustees of Aer Lingus' pension scheme, which has a deficit of 400 million euros, are to decide in the coming months whether to cut benefits, which could cause an increase in the risk of industrial action, Macfarlane said.

Aer Lingus has received legal advice that it has no obligation to fund any shortfall, but a legal challenge to this position is possible, he said.

The operating loss before exceptional items of 27.8 million euros compared with a loss of 19 million in the same period last year. ($1 = 0.693 Euros) (Reporting by Conor Humphries; Editing by David Holmes and Helen Massy-Beresford)