I will begin by associating myself with the remarks made by the Chairman about Séamus Brennan. Séamus Brennan made a huge contribution to Irish aviation and was responsible for the liberalisation which the travelling public, both into and out of Ireland, has enjoyed for many years. As Minister for Transport, he was responsible for appointing the current chairman of Aer Lingus, Mr. John Sharman, and Mr. Sharman wishes to be associated with my comments. When I took up the post three years ago I received a letter of great kindness and encouragement from Séamus Brennan, which I will never forget. On behalf of everybody at Aer Lingus I express heartfelt sympathy to his family.
I will now move onto the issues under consideration. I thank the Chairman and members of the committee for the opportunity to update the committee on a number of issues pertaining to Aer Lingus and, in that context, future plans for the aviation industry in Ireland in general.
The rising cost of fuel presents an unprecedented challenge for the airline industry and will have serious implications across the sector. Fuel represented our largest change in operating costs in 2007, growing by 26%, or €52.7 million, to €253 million. Since then, the aggressive movement of fuel prices makes it even more imperative to identify and garner savings elsewhere. For some airlines this will be unsustainable but despite this challenge, Aer Lingus remains in a strong position, both in our robust balance sheet, especially following the IPO, and because we have a strong management team to steer us through this period of uncertainty.
We have a hedging policy on fuel which is comparable with other airlines in our sector, including Aer Berlin and British Airways. We have hedged 28% of our fuel requirements for 2008. However, with fuel prices at $142 a barrel when we drafted this presentation two days ago and $136 today, the implications for fuel price in the full year 2009, with minimal hedging opportunities, poses a serious challenge for the entire airline industry.
The long-haul fuel surcharge, first introduced by the company in April 2006 and constantly reviewed in line with the change in the oil market, partially offsets volatility in the market and the resulting costs. However, the fuel surcharge accounts for less than 50% of the associated fuel cost per passenger. In that context, we will continue to monitor the fuel surcharge and will bring it into line with changes in the price of fuel. Aer Lingus does not currently impose a fuel surcharge on short-haul flights. In the current environment, it is imperative for Aer Lingus to retain our relentless focus on managing the cost base. We have no choice and I can make no apology for that.
On 28 April 2008, Aer Lingus celebrated a momentous milestone with the dawn of our 50th anniversary of transatlantic flights. Our evolution from a single route in 1958 to achieving global brand recognition that resonates across the North Atlantic is an Irish success story. With the advent of open skies last autumn, Aer Lingus was the first European carrier to take advantage of this agreement, giving the airline access to a further three gateways in North America, including Washington DC, San Francisco and Orlando. In that context, Aer Lingus intends to continue to operate a profitable long-haul operation.
Aer Lingus is also committed to our medium-term long-haul growth strategy. However, at a time of unprecedented high fuel prices and uncertain economic conditions, we will continue to focus on actively managing our capacity and reducing our operating costs. Our current position is that we have decided not to increase in 2009 our long-haul fleet beyond the current nine units. This will be achieved by using new deliveries to replace existing units with increased levels of passenger amenity as well as the added benefit of improved economics and fuel burn.
Following the peak summer season, Aer Lingus will suspend services on our Dublin-Los Angeles route from 2 November 2008 and will reduce long-haul capacity by 15% for the winter season 2008-09. However, the situation is being kept under constant review and we cannot rule out further changes in the schedule if volatile conditions continue. These actions are a direct consequence of the unprecedented increase in fuel prices, the weak US dollar and slowing economies generally.
Overall, despite the difficult prevailing conditions, Aer Lingus remains committed to investing in the long-haul product. Specifically, three of our current fleet of A330s will be refurbished this year, bringing the total number of new-refurbished aircraft in the fleet to seven out of a total of nine.
Aer Lingus has reviewed opportunities for viable connectivity with Aer Arann flights. As a result of this review, we identified that the volume of Aer Arann flights between Dublin and Cork, coupled with customer demand, facilitated a viable connecting product to our transatlantic flights from Dublin. To this end, we recently signed an interline agreement with Aer Arann that allows customers to connect directly to Aer Lingus transatlantic flights from Cork Airport. These are early days in the new arrangement with Aer Arann and we will keep the initiative under active review.
I would like to address the issue of the proposed EU emissions trading scheme, ETS. I recently wrote to members of the committee, MEPs, members of the Government, including the Taoiseach and the Ministers for Transport, Finance, Environment, Heritage and Local Government, and Deputy Power, outlining my concern with the current proposals. I draw the committee's attention to the potentially disastrous effects on the Irish travelling public of the current draft of the proposal to include aviation in the EU emissions trading scheme.
May I put forward two propositions, which are broadly accepted in Ireland? First, aviation has been and will continue to be a positive force in the development of this island. Second, it is not inconsistent to be both pro-aviation and pro-environment. Aer Lingus is very conscious of our obligations to the environment. However, the entire airline industry contributes 1.8% of global carbon emissions. Carbon-based fuels are the only viable fuel source option available for the airline industry, now and for the foreseeable future.
Aer Lingus fully supports the aviation industry's four pillar strategy towards tackling environmental emissions, which takes into account technology, infrastructure, operations and legislation. We have already improved our fuel efficiency by 50% in the period 1991 to 2007 and we have recently contracted to invest more than $2.33 billion dollars in the next generation of long-haul aircraft with "best in class" fuel emissions. We will continue to work closely with suppliers and partners to achieve whatever we can and, where possible, to be a leader in setting new standards for fuel and emissions saving measures.
However, for Aer Lingus we estimate the net cost of ETS will be €39 million in 2012 and this could jump to over €205 million in the period 2013-16. At a time of unprecedented oil prices and a very uncertain outlook for the aviation industry, it is inconceivable that such costs should be imposed. There will be no alternative but to recharge these costs to passengers with, again, no obvious benefit to the environment.
Overall, Ireland's situation as an island-based economy means we are uniquely dependent on air transport links and no consideration has been given to the disproportionate effect of this scheme on passengers to and from this jurisdiction. Aer Lingus believes this ill-timed and ill-conceived proposal should be put on hold to allow for further deliberation, especially at a time when efforts are continuing by the International Air Transport Association, IATA, and the International Civil Aviation Organization, ICAO, to find a worldwide solution across the entire industry. A one-sided EU scheme which is not matched in the United States or other parts of the world is doomed to failure and will serve only to put European airlines at a significant disadvantage to carriers in other jurisdictions.
I thank you, Chairman, and members of the committee for your kind attention.
