Aer Lingus 2011 Annual Report Download - page 7

CHIEF EXECUTIVE OFFICER’S REVIEW Aer Lingus Group Plc
CHIEF EXECUTIVE OFFICER’S REVIEW
Dear Fellow Shareholders,
2011 was a momentous year for Aer Lingus
during which we collectively took important
and necessary steps in order to secure the
turnaround achieved since 2009 and to
continue to deliver great passenger care.
Progress achieved in 2011
In 2011, we focused on the achievement of a
core set of commercial, operational and
financial priorities. The successful pursuit of
these priorities has consolidated Aer Lingus’
return to profitability as well as creating a
platform for the future development of the
airline.
Customer focus continues to be our priority.
Our commitment to customer care is
paramount. We need to further improve our
punctuality and reliability but nonetheless I
never feel the need to tell our staff how
important customers are. My colleagues’
intuition and understanding of what
constitutes great care helps us to gain
valuable market share from our competitors
and I deeply value their commitment.
This year we have made further progress in
the airline’s overall transformation plan. I am
particularly pleased to report that Aer Lingus
generated an operating profit of ¤49.1 million
in 2011. This is the second consecutive year
of good profitability under our new strategy
and demonstrates the success of the changes
we have made to our business over the past
two years since we started our turnaround.
While differences arose in relation to some
elements of the turnaround programme at the
beginning of the year, I am pleased to say
these were resolved through dialogue and
discussion.
While the 2011 operating result was lower
than that reported for 2010, it was
nonetheless significantly ahead of our
expectations at the start of 2011. We are
justifiably proud of this result in 2011 as it
was achieved against very challenging
conditions in our key markets. In particular,
fuel price inflation was a notable feature of
2011 with the average jet fuel spot price
increasing by 40.2% on a year-on-year basis
linked to political changes in the Middle East.
Air passenger demand during 2011 remained
unsettled reflecting the unease caused by
several European governments implementing
fiscal austerity measures as well as continuing
concerns about eurozone sovereign debt.
It is also notable that Aer Lingus has not
significantly increased capacity since 2009
and the improvements in profit margins
achieved over this period have been driven
by our effective revenue management strategy
as well as the positive impact of the
Greenfield cost reduction programme rather
than simply relying on the operational
leverage effects of increasing Available Seat
Kilometres flown during the year.
Earlier this year we completed the move to
Terminal 2. This move involved hundreds of
our Aer Lingus colleagues and took careful
planning and dedicated teamwork to deliver
the smooth transition. Our new home
represents our airline extremely well. It says
something about what we stand for and gives
great visibility and vibrancy to our brand.
Aer Lingus also became a full member of the
International Air Carrier Association (“IACA”),
the recognised body of leisure air carriers. We
look forward to working together with IACA
to promote our shared interests within the
international aviation sphere.
The Aer Lingus family continues to grow. We
welcomed 19 new apprentices to the airline
during the year. These new colleagues began
their training with the Maintenance and
Engineering Department in September. This
new group joined Aer Lingus following a
recruitment campaign that took place earlier
this year that saw over 2,000 candidates
apply.
We also welcomed 20 new pilot cadets in
January 2012 following a successful Cadet
Pilot Training recruitment campaign that took
place earlier in 2011. This campaign also saw
over 2,000 candidates apply.
Importance of partnerships
Aer Lingus’ neutrality combined with its
freedom to partner (i.e. lack of restrictions
imposed by alliance membership) with a wide
range of other airlines is essential to ensure
our continued viability as an independent
profitable carrier and our future financial and
commercial development.
Aer Lingus’ partnerships and bilateral
relationships represent a crucial component
of our business model and strategy. The
financial contribution from routes operated in
partnership with other carriers to key central
destinations and hubs (e.g. London
Heathrow, Amsterdam and Chicago O’Hare)
constitute a core component of Aer Lingus’
overall profitability.
Strategy
In 2011, we continued to apply the same
strategic approach as in 2010 and there will
be no substantial changes in this strategy in
2012. However, Aer Lingus recognises that it
must address the longer term challenges of
creating sustainable shareholder value against
the backdrop of intensely competitive
markets and achieving revenue stability which
preserves profitability through the aviation
and economic cycles.
In addressing these challenges, we believe
that growth through bilateral relationships
with selected partner airlines should be
prioritised as the primary means to achieve
profit improvement with minimised cost and
risk.
As part of this strategy, Aer Lingus will study
the viability of a North Atlantic bilateral
relationship in 2012 using anti-trust
immunity, (i.e. the legally permissible full
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Annual Report 2011