Aer Lingus 2012 Annual Report Download - page 4

CHAIRMAN’S STATEMENT Aer Lingus Group Plc
ANNUAL REPORT 2012
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CHAIRMAN’S STATEMENT
Dear Fellow Shareholders,
As shown by our financial results, 2012 was another very successful year for
Aer Lingus. The commercial strategy implemented in 2009, along with our
successful Greenfield cost reduction programme, has truly transformed the
Group. We ended the year with an operating profit of €69.1 million, our
third straight year of operating profits.
Apart from our financial results, 2012 saw us achieve a number of operating
milestones. In the year, we carried 10.8 million passengers on our services.
This was the highest number of passengers ever flown in a single year by
Aer Lingus. We further achieved an On Time Performance of 88%, ranking
us ahead of our significant competitors.
Our value carrier strategy, combining the best elements of low fares with
the option to upgrade to the features of a full service airline, is working well
and we continue to capture share in our Irish home market. In addition,
our brand is penetrating other markets, evidenced by the fact that 47% of
our total bookings are now generated outside of Ireland. Our strategy has
stabilised the business and restored profitability. We now look forward to
embarking on the next stage, which is to deliver sustainable and profitable
growth and increasing shareholder value.
Financial overview
The 2012 operating profit of €69.1 million is 40.7% above the €49.1
million achieved in 2011. In spite of continuing economic weakness in our
important Irish and UK markets, we achieved revenue growth across all
parts of our business (passenger, ancillary, cargo and other). Our long haul
operation was particularly strong in 2012, and was a main driver of our
positive revenue performance.
At the pre-tax level, our 2012 profit of €40.6 million was €43.8 million
lower than 2011. The decrease can be specifically attributed to the fact that
we incurred exceptional costs of €26.5 million in 2012 while in 2011 we
benefited from exceptional gains of €37.2 million. The 2012 exceptional
costs include €9.9 million related to consolidating our Airbus A330
maintenance in our Dublin hub and €4.1 million for further redundancy
costs under our Greenfield cost reduction programme. These initiatives will
generate positive future operational and financial benefits for the Group.
In addition, our 2012 exceptional costs include €9.8 million of legal and
professional fees incurred as a result of Ryanair’s third unsuccessful bid for
the Group.
Total revenue grew by 8.2% to €1.4 billion. Total passengers carried on
our mainline services increased by 1.5% to 9.7 million, passenger yield
increased by 7.0% to €120.15 per passenger and load factor increased by
2.1 percentage points to 77.7%. Our ancillary revenue yield increased by
3.1% to €18.28 per passenger.
We experienced considerable inflation in non-controllable unit costs
in 2012, particularly fuel and airport charges. Fuel costs increased by
€69.8 million (24.2%) compared to 2011 as a result of higher fuel prices
and weakness of the euro versus the US$. Airport charges increased by
€19.7 million (7.1%), mainly driven by price increases at some of our
most used airports, including London Heathrow and certain Spanish
airports. However, we continued to progress savings under our Greenfield
programme, achieving an additional €19.9 million of savings in 2012 and
bringing the total annual cost savings under the three year programme
to €104.2 million. This has exceeded our original annual target of €97.0
million.
The impact of our revenue growth and cost saving initiatives helped to
more than offset the cost inflation described above, resulting in our 2012
operating margin increasing to 5.0% from 3.8% in the previous year. This
operating margin compares very favourably to most of our peer airlines in
Europe.
Our balance sheet remains strong and we ended the year with cash of
€908.5 million, €13.7 million higher than at the end of 2011. Meanwhile
we have reduced our debt by €45.6 million to €531.6 million. Our debt is
associated with lease financing and is secured by the value of the related
aircraft.
Dividend
In July 2012, we paid a dividend in respect of 2011, our first dividend since
our IPO. This dividend of three cent per share totalled €16 million. Our
dividend policy, announced in May 2012, indicates our intention to pay a
dividend for those future years in which we make a profit, provided that
payment of such dividend is appropriate and prudent in the context of our
financial position, strategic objectives and prospects. In recognition of the
strong trading performance in the year and our confidence in the future of
the business, the Board is recommending a dividend of four cent per share
for 2012, an increase of 33.3% on the dividend paid in respect of 2011.
Commercial activity
Since Aer Lingus was established nearly 77 years ago, its primary mission
has been to connect Ireland to the world. In this regard, we see the 70
million people forming the Irish diaspora as a key component of our
target market. Recognising that direct services from Ireland to many long
haul destinations are not commercially viable, our business model has
expanded through partnerships with other airlines. Such partnerships, in
the form of codeshare and interline agreements, have continued to open
up new markets and destinations for our passengers.
In 2012, we continued to develop our partnership approach through the
creation of new, and the expansion of existing, agreements with other
airlines. These agreements will contribute positively to our business, create
value for our shareholders and benefit our customers. A full overview
of our commercial developments during 2012 is outlined in the Chief
Executive Officer’s review along with details of the significant benefits and
opportunities we envisage from them.