Aer Lingus and Aer Arann have announced a deal to set up a franchise arrangement between the two airlines. The franchise services will be branded Aer Lingus Regional and will use Aer Arann aircraft and crew.

Under the agreement, Aer Arann will operate 12 routes from Dublin and Cork. These will include current Aer Lingus and Aer Arann flights as well as three new routes.

In a statement, Aer Lingus said that Aer Arann will assume full operational and commercial responsibility for the services covered by the deal with Aer Lingus getting a franchise fee for providing its brand and produce suite to the smaller airline.

Meanwhile, Aer Lingus also gave an update on its financial position. It said that in 2009 it made an operating loss and its gross cash fell by about €400m due to restructuring costs, buying and leasing new planes and the repayment of debt.

However, it added that it has a strong balance sheet and by the end of December it had gross cash and deposits of €825m. Of this about €55m is restricted due to certain lease obligations, while the remaining €770m is unencumbered.

'The group has more than sufficient liquidity to meet both its short-term and medium-term capital expenditure and lease repayment requirements,' today's statement said.

Aer Lingus to introduce new extra paid services

After what it called a detailed review of its business and in an effort to ensure it best serves its markets, Aer Lingus said it is planning to introduce new additional paid services.

To enhance revenue, it said it would 'unbundle' paid product options for passengers, offering low fares for the majority with additional premium 'enhancements' on demand, such as pre-booked seat numbers.

It also said it enhance its network through the new Aer Arann franchise and it is also looking at enhancing its existing partner network in the longer term, with a special emphasis on improving its long haul connectivity in Asia.

Aer Lingus also gave an update on its cost structuring programme today. It said that it expects staff cost savings of €40m in 2010, with more staff savings expected in 2011 and 2012 as the head office is restructured. It said it expects to see total annual staff cost savings of €74m by the end of 2012.

It also said that it expects market conditions to remain extremely challenging in 2010. It currently expects revenues for this year to be below that of 2009, with the first half of the year being especially weak.

It added that the severe weather conditions of January have resulted in a lower than expected level of bookings for the first quarter of 2010.

However, fuel costs should be lower this year than last. This reduction will be partially offset by an increase in airport charges, which are set to be €20m higher year on year.

Aer Lingus shares gave up earlier gains to end unchanged at 68 cent in Dublin.