Aer Lingus 2011 Annual Report Download - page 21

PRINCIPAL RISKS AND UNCERTAINTIES Aer Lingus Group Plc
Risk Impact Mitigation
Staff productivity Aer Lingus has a largely unionised workforce and collective
and relations bargaining takes place on a regular basis across a range of
issues including but not limited to: pay, rosters and
pensions. A breakdown in the bargaining process could
have the potential to result in industrial action, disrupting
operations and adversely effecting business performance.
The Greenfield agreements include productivity
commitments which are an important element of the
Group’s cost reduction programme and any inability to
implement them might result in failure to achieve cost
savings targets.
Cost recovery The group operates in an extremely competitive market.
The core Irish market is very price sensitive, with a
substantial majority of passengers travelling for leisure or
family reasons. Fuel and airport charges represented some
45% of the of the Group’s total costs in 2011. Volatility in
the price of jet fuel can have a significant negative impact
on costs and airport charges are largely outside the Group’s
control. The Group is particularly vulnerable to increases
in charges at Dublin, which is its hub airport. In addition,
the Group will become subject to the EU carbon emissions
trading scheme in 2012, which will require the Group to
buy credits for CO
2
emissions in excess of a free
allowance. This will add to cost. The nature of our
markets can make it very difficult to pass cost increases on
to passengers without an adverse impact on traffic volumes.
Organisational The Group is engaged in a change programme to create a
capacity flexible, entrepreneurial company with a competitive cost
base. The extent of change that is required is significant
and a challenge for the group’s managers and staff at all
levels. The Group is reliant on third party support for
certain important initiatives.
Operational 2010 saw the closure of airspace on a number of occasions
disruption due to the eruption of the Icelandic volcano in April and
May. Adverse weather conditions disrupted operations at
the beginning and end of 2010 and again at the start of
2011. In addition, a dispute with cabin crew (now settled)
resulted in flight cancellations and lost bookings in January
and February 2011. Long term disruption, or the inability
to recover promptly from short term disruptions, can have
amaterial adverse impact on the company’s business in
terms of lost bookings and revenue, additional cost and
damaged customer confidence.
The Group seeks to mitigate pressure on its margins by
implementing fuel surcharges on longhaul flights, using
hedging techniques to reduce the volatility in fuel prices
and by actively managing those costs over which the Group
has more control. The Group pays close attention to the
profitability of individual routes and is prepared to consider
reductions in capacity or other actions if cost increases
erode margins.
Important operational lessons were learned in 2010 and
2011 from these disruptions, but the Group remains
exposed to potential future events, the nature and timing
of which may be outside its control and which can occur at
short notice.
Aprogramme office has been established to monitor the
progress of Greenfield and other important projects being
implemented in the business. Initiatives are being
launched to improve the engagement of staff and assist
managers to improve their own performance. The change
programme receives the close attention of Executive
Management and their direct reports.
Annual Report 2011 19
The Group seeks to maintain open and constructive
relationships with staff representatives, while recognising
that it may from time to time prove difficult to reach
agreement on certain issues.