Aer Lingus warns costs threaten airline's viability

DUBLIN (Reuters) - Irish airline Aer Lingus (AERL.I) on Thursday posted a first-half operating loss, predicted a loss for the full year and said high costs threatened the long-term viability of its business.

Aer Lingus (AERL.L) made an operating loss of 22.3 million euros in the first six months of 2008, compared with a 2.6 million euro profit a year ago and a loss of 34.7 million euros expected by an average of three analysts surveyed by Reuters.

"It is now clear that we will require further fundamental changes in our operating cost base in order to minimise losses in 2009 and to help ensure the long-term viability of the business," Chief Executive Dermot Mannion said.

He said however that Aer Lingus was "making progress on the delivery of its business objectives", demonstrating strong growth in ancillary revenue and had made progress in cutting maintenance and staff costs.

In its seasonally weaker first half, Aer Lingus faced a combination of unprecedented fuel costs, slowing economic growth in its main markets and a weakness in dollar and sterling, Mannion said.

Its fuel bill rose by 56.5 million euros in the period.

"Even with the reduction in fuel prices over the last few weeks, competitive pressure on fares and volumes will continue," Mannion said.

Revenue increased by 10.2 percent in the first half of the year to 632.9 million euros and it flew 10.5 percent more passengers than in the same period of 2007, the carrier said.

(Reporting by Andras Gergely; Editing by Richard Hubbard and Erica Billingham)