Aer Lingus 2013 Annual Report Download - page 8

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To that end, we are now launching the CORE programme with the objective of ensuring that we can grow profitability for the medium term.
This will require us to deliver attractive and differentiated products to our customers that represent compelling value for money.
CORE is a two year programme and has three main elements, each of which will require some investment, particularly in our IT
infrastructure.
1. Cost and business optimisation
 Simplify and improve our core airline processes for the benefit of our customers
 Transform various support functions into profit centres
 Further headcount reductions and increased productivity by the end of 2015
 Total cost reduction target of €30 million
2. Revenue excellence
 Further develop our merchandising and retail offers
 Delivering the “customer journey of the future”. As part of this initiative in 2014, we will:
(i) Re-launch our website with a re-designed booking portal;
(ii) Improve our mobile app;
(iii) Have all our transatlantic flights from Dublin pre-cleared for the Summer schedule (for the first time);
(iv) Introduce fully lie-flat seats on our long haul flights by Q1 2015;
(v) Move to the Queen’s Terminal at London Heathrow offering a much enhanced passenger experience; and
(vi) Replace our current passenger reservation system with state of the art technology
3. Our people
 Further improvements in staff engagement, training, flexibility and productivity
CORE will be underway by the end of Q1 2014 and we will provide updates on progress as part of our regularly scheduled trading results.
Update on fleet
Aer Lingus and Airbus are discussing revised delivery dates for the nine A350XWB aircraft that we have on order as the original delivery
dates cannot be achieved. It is likely that we will still take nine aircraft which will be a mixture of A350-900 and A350-900R variants.
Deliveries are likely to be over the period 2018 to 2020. Further details will be announced once final agreements are reached.
Separately, we will, over time, start to evaluate our short haul fleet rollover options but this is not urgent given the relatively young age of
that fleet.
UK Competition Commission (“UK CC”) review
On 28 August 2013, the UK CC issued its final report concluding its investigation into Ryanair’s minority shareholding in Aer Lingus.
Following a detailed investigation, the UK CC concluded that Ryanair’s shareholding is anti-competitive and that it must sell down its
29.81% stake to 5%.
The UK CC’s final report also requires that:
 Following divestiture, Ryanair may not re-acquire shares in Aer Lingus unless the European Commission grants clearance for an
acquisition of control of Aer Lingus by Ryanair under the EU Merger Regulation; and
 A divestiture trustee will be appointed to oversee the process of sale of Ryanair’s shareholding in Aer Lingus, taking the divestiture
process out of Ryanair’s hands.
The UK CC specifically determined in its report that the order requiring Ryanair to sell down its shareholding to 5% need not await the
outcome of Ryanair’s appeal to the European General Court of the prohibition by the European Commission of its third takeover offer for
Aer Lingus in February 2013.
Ryanair appealed the findings of the UK CC’s final report to the Competition Appeals Tribunal on a number of grounds. This appeal was
rejected by the Competition Appeals Tribunal on 7 March 2014. This decision represents the latest in a series of decisions adverse to
Ryanair in its attempts to prevent the UK competition authorities reviewing its minority shareholding in Aer Lingus.
2014 outlook
We expect the first quarter of 2014 will be weaker than 2013 reflecting market conditions and the timing of Easter. Based on current trading,
we expect our operating result for 2014, before net exceptional items, to be broadly in line with 2013.
Conclusion
Aer Lingus’ performance in 2013 has demonstrated resilience and an ability to deliver results in the face of significant competitive
challenges. We remain financially strong with gross cash of €897.4 million at 31 December 2013 and net cash of €419.8 million.
Nevertheless, efficiency and flexibility are both vital to ensure we can continue to adapt as the market and our competitors evolve. In this
regard, we cannot lose focus on our policy of continuously enhancing our product while reducing and eliminating cost and increasing
productivity across the airline.
In addition, we have had to accept that certain legacy issues remain unresolved for the time being, notably the funding issues in the IASS
and the continuing adverse presence of Ryanair, our main competitor, as the largest shareholder on our share register. Unfortunately, the
resolution of these matters is taking longer to achieve than we would like and we are not in a position to completely control the resolution of
either issue.
On the other hand, our continuing strong long haul performance presents a real opportunity for further revenue growth in 2014. We remain
committed to the delivery of our medium term growth strategy and the creation of value for our shareholders. We see good opportunities for
the future but we need CORE to deliver them.