I shall begin by addressing the activity of the senior management group, which has been described in the media as a proposed management buy out, and describe the background and time frame involved. This may help answer some of the questions which members put to the Minister for Transport earlier. It is important to clarify that the management group, which consists of Mr. Dunne, Mr. Kearney and I, has not made any proposal and is not in the process of doing so. We contacted the Secretary General of the Department of Transport on 18 June to request a meeting and it took place on 24 June. I advised the Secretary General at this meeting that the management group wished to seek consent to develop a proposal and made it clear that no work had been done in this regard and would not be done without such consent. I also pointed out to the Secretary General that I was acting under legal advice, which informed me that consent could be refused. I made it clear, therefore, that the management group was seeking consent and fully acknowledged that consent could be refused.
I had a number of subsequent telephone conversations with the Secretary General and presented a document to her on 30 June that set out the assessment of the strategic options as the management group had seen them in September 2003. I shall make this five-page document available to the committee members. It comprises a brief update on the industry and the company, an outline of the management group's proposal, and a description of the main issues that had been considered in our previous document that was presented to the Minister for Transport at a meeting on 16 September 2003. This latter document was produced in response to the Minister's request for a consideration of the various options available to Aer Lingus and this input was made in the context of the long-standing Government policy to reduce its ownership interest in the company. The view at that stage was that the private sector investment process should be initiated without delay, as presented in the statement issued on 16 September. The document of 30 June noted that no action had taken place in this regard over the previous nine months.
When I attended the meeting of the Joint Committee on Transport of 14 April, I indicated that the management group considered the operating environment to be brutally competitive and that significant additional low-cost competition had developed on a number of Aer Lingus's established routes. We also pointed to the failure of several airlines including Jetmagic. There have been more failures since then, including Jetgreen and Duo, and Skynet is experiencing serious problems. The significant fuel price increases have had a major impact on all airlines and we believe that more airlines will fail in the coming months. Aer Lingus is fortunate to be in a strong position and, as predicted, our average fares are significantly reduced and are likely to continue to be further reduced. The industry had seen profit warnings in the preceding months from the two major low-cost airlines, Ryanair and EasyJet, when we spoke to the committee in April. EasyJet had issued two profit warnings at that stage.
Unfortunately, there was limited progress on the EU-US open skies negotiations and on bilateral discussions between Ireland and the US. Against that background the company continues to perform well - the business is profitable and the balance sheet continues to strengthen. It is acknowledged, however, as we mentioned at previous committee meetings, that our revenue base continues to be unsustainable. Our average fares are too high and need to fall further. We are committed to reducing them. The airline will introduce new pricing structures in the coming months which will be of major benefit to the Irish consumer and to tourism in Ireland. While we have significantly reduced our cost base since 2001, it remains out of line with those of our major competitors. It is no secret that further substantial cost reduction is required which will involve comprehensive evaluations of everything we do and a review of all activities and the structures within the airline.
At the meeting last April we made it clear that funding of the short haul replacement fleet, namely, 17 Airbus A320 aircraft, could be completed from internal resources but we could give no comfort on funding additional aircraft to facilitate expansion on the short haul or any replacement or increase in our long haul fleet which would require capital expenditure, possibly in excess of €1 billion. We understand, and it was reiterated today, the Government will not provide that funding. The assistant secretary of the Department of Transport said the same at the last committee meeting.
On 24 June I told the secretary general of the Department of Transport that we regard an immediate move to private sector ownership as being in the best interests of Aer Lingus. That is true both for the competitive environment in which we operate and the change likely to be forthcoming, and the need for access to funding for growth and expansion. It was incumbent on us to be proactive on the ownership issue. We said we were seeking consent, that we would take no action and do no work unless consent was granted, and we would facilitate and co-operate fully with any process put in place. We emphasised that other proposals would emerge as a result of our initiative and we committed to co-operate fully with any process. I continued to make clear in all my conversations with the secretary general that a move to private ownership is in the best interests of the company.
The Minister indicated that was our first approach, the Department had made no previous contact with us and we had not made contact with it. The first and only contact was on 24 June. Several telephone conversations followed and I submitted a document to the Secretary General on 30 June and wrote a letter to the Minister on 2 July, a copy of which I will make available to the committee. Briefly, it states that I advised the Secretary General on 24 June of the intention of the members of the Aer Lingus management team, namely, Brian Dunne, Seamus Kearney and myself, to develop an investment proposal for the company, and requested consent to do so.
On 30 June 2004, we submitted a document, entitled Management Proposal to the Department, which we are furnishing to the committee, outlining the background to, and reasons for, this request. Acting on legal advice that the board of the company should be advised of this request, we provided the company secretary, Mr. Greg O'Sullivan, with copies of the management proposal on 2 July for circulation to the board members. I also called each board member that day to advise him or her of the request. I assured the Minister that we would fully comply with any corporate governance procedure put in place and said we were confident that an attractive proposal could be developed and financed if he granted his consent.
On 7 July, following the Cabinet meeting on 6 July, the three of us wrote again to the Minister and referred to the letter of 2 July, advising the Secretary General of the intention of the members of the management team to request consent to develop an investment proposal for the company. In the letter we recalled that we had submitted the document, Management Proposal, to the Department on 30 June 2004, outlining the background to, and reasons for, this request. We added that contrary to public comments on the previous day to the effect that we sought an exclusive deal or arrangement, the document submitted on 30 June stated that we fully expected other proposals would emerge and we committed to support and co-operate fully with any investment process. As the request had not been granted the letter reconfirmed my commitment to the Secretary General at our meeting on 24 June and in subsequent conversations that in the absence of consent we would do no work in developing an investment proposal for the company.
That remains our position. I wish to clarify this because I do not have an answer to the Deputy's question about a proposal as we have not developed any proposal and will not do so unless and until consent is granted. The Minister said he is satisfied that we have acted correctly at all times. We have at all times acted in the best interests of Aer Lingus and have made it clear that we will not engage in any activity unless we receive consent to do so. That is why no proposal has been produced, or is being or will be developed until consent is granted. That has been our position since the beginning of this process and will remain so. I apologise for being somewhat long-winded in answering the first part of the question but it is important to clarify the point. I will make these letters available to the committee so that members may consider them.
We are pleased that there is a debate about connectivity. If one looks at our track record over the past two years, one will see that the management team has focused on establishing greater connectivity from Ireland to points in continental European destinations and that it has actively sought a change to the existing bilateral agreement that would facilitate major expansion on the transatlantic routes. Yesterday I found an Aer Lingus timetable for summer 2001 and the only destinations we served in continental Europe at that time were Amsterdam, Brussels, Dusseldorf, Frankfurt, Madrid, Milan, Munich, Paris, Rome and Stockholm. Today's route network shows that our focus is to expand direct services out of Ireland to enable people to avail of direct flights from Ireland. Most of those are from Dublin although we have significantly expanded the range of destinations served out of Cork. We will evaluate any route from any Irish airport we believe can be profitable. We have more than doubled, even close to trebled, the size of our network in the past two and a half years. That is, and continues to be, the focus of this management team.
While Heathrow slots are very important because we have consolidated all our London operations there, we want to serve the Irish consumer and inbound tourism by providing direct services rather than maintaining the very restricted route network that existed prior to 2001 whereby access to Ireland was almost dependent on connectivity over hubs such as Heathrow, Amsterdam and Paris. It is our stated desire, clearly evidenced by all we have done since 2001, to develop direct connectivity into Ireland rather than rely on indirect connectivity.
We find it somewhat frustrating that the management team has sought changes in the bilateral agreement to allow us to expand direct services into the United States rather than requiring both inbound and outbound business and tourism to be served over indirect destinations such as Heathrow, Amsterdam and Paris. Our desire - our actions speak loudly in this regard - is to provide direct services from Ireland.
I would argue that Aer Lingus is already the cheapest low-cost carrier on transatlantic routes. However, we acknowledge that further action is required on fare structures. In my opening comments, I stated that there will be more developments in this area in the coming months. It is our intention to continue to reduce our average fares, not only on European routes, which has been the focus of our attention over the past two years, but also on transatlantic ones. On the issue of single or multiple hubs, the low-cost model is based on multiple hubs. The Ryanair and EasyJet models are dependent on multiple hubs, which is the most efficient way of operating. Members will be excused for confusing the low-cost model with the traditional network model proposed and supported by many of the established mainline carriers which hub over their main bases. This is best exemplified by British Airways hubbing over Heathrow Airport, Air France over Paris-Charles De Gaulle Airport, KLM over Amsterdam Airport and Lufthansa over Frankfurt Airport. That is not a low-cost model but a high-cost one which Aer Lingus is moving away from. The model that Aer Lingus is now embracing is the low-cost one that is dependent on opening up efficient hubs and operating from multiple bases to ensure the most effective operational efficiencies rather than having major peaks in terms of operation, such as starting first in the morning and repeating at lunch time. It is our intention to continue developing the low-cost model based on a multiple hub scenario.
The document produced by me and the chairman of the board for the Minister on 16 September 2003 was presented in the context of the Government decision to reduce its shareholding in Aer Lingus. It clearly stated that a move on private investment must take place without delay and that we believed such a process would be successful. This should be considered in the context that since the request for consent was made by the management team, much interest has been expressed in the Aer Lingus story. I have no doubt that a move to the private sector would be a successful development for Aer Lingus.