Aer Lingus 2009 Annual Report Download - page 6

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Chief Executive Officer’s Review
Dear fellow shareholders
As you know I joined the Aer Lingus Group
as CEO just over 7 months ago in September
of last year, shortly after a significant half year
loss was disclosed to you.
I spent the first few weeks “walking the shop
floor” talking to our employees and managers
in order to better understand the main
imperatives for a successful turnaround
of Aer Lingus.
I quickly came to the conclusion that Aer
Lingus is an airline with high standards of
operational excellence and a very motivated
workforce prepared to face the challenges
ahead. It was also clear to me that the
positioning of Aer Lingus as a pure no frills
carrier had not convinced our customers nor
our employees and the prevailing question
was around the future positioning of the airline.
Cost levels had been addressed in the last
number of years and, even before the
implementation of our ‘Greenfield’ cost
reduction programme, Aer Lingus’ cost
position is amongst the most competitive
in the industry. Staff costs excluding non-
recurring provisions have been reduced
by €40.1 million between 2008 and 2009,
and will decrease by €40 million (exit run
rate of €50 million) in 2010 as a result of
‘Greenfield’.
Service levels of Aer Lingus are and will be
higher than those of a pure low cost carrier
and this should be reflected in the overall
revenue levels.
Aer Lingus is an airline with a proud tradition,
celebrating its 75th birthday in May of next
year and a company that has been privatised
only some years ago. The Aer Lingus brand is
one of the company’s main assets and whilst
the notion of a national carrier has become
somewhat of an anachronism over the last
decade, the employees of Aer Lingus are
very proud to be perceived as Ireland’s airline.
The Aer Lingus brand is loaded with positive
values such as good value, Irish hospitality,
customer care and professionalism and all
employees are prepared to deliver on this
promise every day.
But the overall situation in 2009 was a
call for immediate action. The immediate
challenge was to “right-size” the company
and to consolidate our route network to
those destinations we can serve profitably
during the ongoing economic downturn.
Capacity cuts in our long haul service were
overdue and the expansion of our brand
in non-Irish markets had proven difficult.
Short haul performance for 2009 was
broadly breakeven despite the significant
losses generated by the Gatwick base. The
Gatwick losses were deemed unacceptable
by management and resulted in a reduction
in capacity which was announced in January
2010.
The pruning of our network back to our core
markets has delivered instant results. We were
able to stop the decline of unit revenue in the
last quarter of 2009 and the first quarter of
2010 will show a significant improvement in
unit revenue compared to the previous year,
despite a continuing weak gross domestic
product in our home market. We were able to
keep our strong connectivity to Ireland and
whilst other carriers had to withdraw from certain
routes, our customers’ loyalty enabled us to gain
market share in an overall shrinking market.
As a consequence of the capacity reductions,
we had to look at our cost base and address
redundancies in our workforce as well as improve
the efficiency of our operations. This became
known as “Greenfield”. As part of this plan,
a new management structure with a 40%
reduction in management positions will
enable an increased level of accountability
and shorter decision-making processes.
On behalf of our Board of Directors and our
shareholders, I was able to convey a message
of gratitude to all our employees for giving
us the mandate for change in an overall
74% positive vote for our ‘Greenfield’ cost
reduction programme while at the same time
having kept high standards of service during
negotiations with the unions. Aer Lingus
did not lose a single flight from its schedule
during the five-month period of negotiations
and we were able to conclude an agreement
in March to reduce our cost base by 7.4%, a
benchmark for the European Airline Industry.
Overall we are experiencing a new quality
of teamwork within the company and
everybody is aligned behind the target to
return to profitability. Only a sustainable
level of profitability will enable us to grow
again beyond our current route network.
These first measures have stopped the
bleeding. But what is the strategy for
Aer Lingus going ahead?
Serving the Irish market means connecting
the Irish population with a global diaspora of
approximately 70 million friends and relatives
and business travellers. While we are able to
cover a good portion of this with our own
airplanes, Aer Lingus’ global coverage is
dependant on a portfolio of strong partners.
Our current partnerships with British Airways,
KLM and United Airlines are continuing to be
very successful and the new partnership with
Jetblue in the USA has reached new levels:
we are now able to connect passengers via
John F. Kennedy Airport in New York and
Logan Airport in Boston. After only a few
Chief Executive Officer’s Review Aer Lingus Group Plc – Annual Report 2009