Investor & analyst day - Aer Lingus
Investor & analyst day - Aer Lingus
Investor & analyst day - Aer Lingus
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
<strong>Investor</strong> & <strong>analyst</strong> <strong>day</strong><br />
London, 28 September 2011
2 years ago…<br />
Andrew Macfarlane<br />
Fundamentally attractive airline…<br />
But…<br />
Assets<br />
• Robust balance sheet<br />
• Modern Airbus fleet; 50% owned<br />
• Valuable route network & strategic slot portfolio<br />
Too much capacity on<br />
certain routes<br />
Operating<br />
business<br />
• Competitive cost base compared to legacy carriers<br />
• High quality maintenance<br />
Focus on load factor<br />
depressed yield<br />
Markets<br />
• Strong brand in core markets<br />
• Large market share on key routes<br />
• Route connectivity<br />
Lower price point didn’t<br />
stimulate demand<br />
People<br />
• High calibre & passenger focused staff<br />
• Excellent customer satisfaction<br />
• “Can do” attitude of staff<br />
Cost base still too high<br />
€81m operating loss¹ in 2009<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
¹ Before exceptional items<br />
2
Our revised strategy restored profitability<br />
Andrew Macfarlane<br />
• Re-position <strong>Aer</strong> <strong>Lingus</strong><br />
• Align capacity with demand<br />
• Focus on connectivity, alliances & partnerships:<br />
“Connecting Ireland with the World”<br />
• Change approach to capacity management &<br />
optimise yield per seat<br />
• Multi channel distribution strategy<br />
• Markets managed by margin<br />
• Cost reduction – “Greenfield” programme<br />
€81m operating loss¹ in 2009<br />
€58m operating profit¹ in 2010<br />
On track for profitability in 2011<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
¹ Before exceptional items<br />
3
Meet the team<br />
Andrew Macfarlane /<br />
Stephen Kavanagh<br />
Christoph Mueller<br />
Chief Executive<br />
Officer<br />
Andrew Macfarlane<br />
Chief Financial Officer<br />
Stephen Kavanagh<br />
Chief Commercial Officer<br />
Michael Grealy<br />
Chief Human Resources<br />
Officer<br />
Lee Lipton<br />
Paul Brady<br />
Neal O’Rourke<br />
Ronan<br />
Fitzpatrick<br />
Juergen Krins<br />
Kieron Byrne<br />
Network<br />
planning<br />
Fleet<br />
planning<br />
Network<br />
revenue<br />
Network<br />
distribution<br />
Greenfield<br />
programme<br />
Strategic<br />
sourcing<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
4
Lee Lipton<br />
Network planning
Disciplined approach to network strategy maximises return<br />
Lee Lipton<br />
Demand-led network development<br />
Routes managed for contribution<br />
Capacity investment based on profitability<br />
Efficient & productive flight schedule<br />
Tactical capacity adjustments<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
6
European short haul network offers breadth & depth to serve<br />
major business & leisure markets<br />
Lee Lipton<br />
Central airports with valuable<br />
slots<br />
Extensive & profitable European short haul network<br />
Unit revenue drives<br />
frequency growth<br />
Balanced traffic flow to &<br />
from Ireland<br />
Fleet & Regional partnership<br />
enable flexibility<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
7
Profitable long haul network<br />
Lee Lipton<br />
Major US east coast gateways for<br />
point-to-point traffic<br />
Transatlantic long haul network<br />
Strong network model:<br />
<strong>Aer</strong> <strong>Lingus</strong> connectivity in<br />
Europe & UK<br />
Partnerships in the US & Canada<br />
Utilise geographic advantage of<br />
Dublin hub<br />
Derive competitive advantage<br />
from low unit costs<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
8
Paul Brady<br />
Fleet planning
The right fleet to cost effectively serve our markets<br />
Paul Brady<br />
• Modern, young Airbus fleet<br />
• Low operating cost<br />
• Good ownership balance<br />
• Cashflow benefits<br />
• Flexibility<br />
• No near term capex peaks<br />
• Fleet composition & size appropriate<br />
for underlying demand in our markets<br />
• Appropriate short haul production<br />
platform<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
10
Young & modern fleet<br />
Paul Brady<br />
Short haul fleet age profile<br />
Long haul fleet age profile<br />
19%<br />
29%<br />
46%<br />
35%<br />
71%<br />
6 yrs, < 10 yrs >/= 10 yrs<br />
5 yrs<br />
Average short haul fleet age is 5.9 yrs<br />
Average long haul fleet age is 5.2 yrs<br />
No near term capital expenditure peaks<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
11
Balanced ownership provides flexibility<br />
Flexibility: ability to expand or reduce fleet<br />
size in response to demand environment<br />
Short haul fleet ownership profile<br />
8%<br />
Paul Brady<br />
Ownership profile a function of availability<br />
49%<br />
43%<br />
Balance between wholly owned / finance<br />
leased aircraft / operating leased aircraft<br />
Wholly owned Financed leased Operating leased<br />
Opportunity for rollover<br />
Long haul fleet ownership profile<br />
A350XWB order:<br />
Relative economics<br />
Product opportunities<br />
57%<br />
43%<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
Wholly owned<br />
Finance Lease<br />
12
Short haul capacity<br />
Paul Brady<br />
A320: core aircraft unit<br />
Expected steady state aircraft & capacity deployment<br />
Seats<br />
A320 provides cost<br />
effective platform to<br />
serve majority of <strong>Aer</strong><br />
<strong>Lingus</strong>’ markets<br />
6,000<br />
5,000<br />
4,000<br />
A319 represents an<br />
attractive opportunity<br />
3,000<br />
2,000<br />
80%<br />
A321:<br />
Apply in slot<br />
constrained or high<br />
demand markets<br />
1,000<br />
-<br />
8%<br />
12%<br />
A319 A320 A321<br />
4 32 4<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
13
Neal O’Rourke<br />
Network revenue
Network revenue growth strategy optimises balance between<br />
yield & load factor<br />
Neal O’Rourke<br />
Maximisation of fare<br />
revenue per seat<br />
continues to be<br />
cornerstone of<br />
revenue management<br />
approach<br />
Revenue<br />
€100<br />
€50<br />
Price<br />
focused<br />
Value<br />
focused<br />
Time<br />
focused<br />
New revenue<br />
management system<br />
improves demand<br />
forecasting & revenue<br />
optimisation<br />
capabilities<br />
60 <strong>day</strong>s 30 <strong>day</strong>s<br />
Days prior to departure<br />
New technology coupled with effective pricing & inventory control allows<br />
maximisation of revenue at all points along the forward booking curve<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
15
Margin is driven by management of key variables<br />
Neal O’Rourke<br />
1 Tactical capacity management to drive revenue per seat<br />
2<br />
Competitively priced fares and enhanced ancillary product range<br />
3 Effective optimisation of inventory based on consumer demand<br />
Market demand determines yield & load factor strategy<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
16
Long haul is key to network revenue strategy<br />
Neal O’Rourke<br />
Business<br />
class<br />
products<br />
Partnerships<br />
Long haul<br />
network<br />
revenue<br />
strategy<br />
Offline<br />
connectivity<br />
Distribution<br />
strategy<br />
Improved profit potential while maintaining the ability to exercise control over key<br />
point-to-point pricing<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
17
Ronan Fitzpatrick<br />
Network distribution
Our multi-channel distribution is a competitive advantage<br />
Ronan Fitzpatrick<br />
Channel distribution model<br />
• We have no channel barriers to entry. We are already active in all distribution channels.<br />
• Our direct channel, aerlingus.com is our primary channel & is our best platform to support customer<br />
relationships & generate retail revenues<br />
• Global Distribution Systems channels remain a key part of our mix, providing geographic / brand reach and<br />
access to corporate markets<br />
• We will continue to supplement the direct channel with key managed relationships across the Global<br />
Distribution Systems environment<br />
• Monitor channel contribution & manage margins appropriately<br />
• We will partner to offer wider global connectivity from aerlingus.com<br />
H1 2011 total ¹ H1 Short haul ¹ H1 Long haul ¹<br />
17%<br />
12%<br />
32%<br />
83%<br />
88%<br />
68%<br />
Direct<br />
Indirect<br />
Direct<br />
Indirect<br />
Direct<br />
Indirect<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
¹ Booked<br />
19
Retail revenue<br />
Ronan Fitzpatrick<br />
Deliver margin through discretionary value-adding products<br />
• Build on strong foundations established over recent years<br />
• Refreshed focus on retail to optimise return on our existing offerings & leverage our product<br />
• Capitalise on demand<br />
• Improve customer insight, identify challenges early and act accordingly<br />
Ancillary revenue per passenger (€)<br />
11.50<br />
14.35<br />
16.99<br />
18.32 17.76<br />
H1 07 H1 08 H1 09 H1 10 H1 11<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
20
Strategic pillars supporting revenue growth<br />
Ronan Fitzpatrick<br />
Customer<br />
journey<br />
Customer<br />
knowledge<br />
Leverage our<br />
product & brand<br />
Delivery of<br />
discretionary,<br />
value adding<br />
products<br />
Touch-point review<br />
Profile & segment<br />
Assigned seating &<br />
lounges<br />
Lounge access<br />
Advance seat selection<br />
Enhanced booking flow<br />
Understand propensity<br />
to purchase<br />
Re-work in-flight<br />
product<br />
Mobile<br />
Holi<strong>day</strong>s & packages<br />
Appropriate placement<br />
Intelligent offers<br />
Innovate to strengthen<br />
relationships<br />
Pre-order meals<br />
“SkyCafe” re-model<br />
The correct partners<br />
Use relationships to<br />
drive revenue<br />
Capitalise on brand<br />
strength<br />
Fare families & Wi-Fi<br />
Fare lock & deposit<br />
Implemented<br />
In progress<br />
We listen to our customers’ needs, deliver the discretionary products they want & grow<br />
revenues through this relationship<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
21
Ancillary revenue with a retail focus<br />
Ronan Fitzpatrick<br />
Deliver discretionary value adds<br />
Differentiate through the retail offering to drive margin<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
22
Stephen Kavanagh<br />
Commercial summary
Our product offering focuses on different market segments<br />
Stephen Kavanagh<br />
Economy low<br />
Economy<br />
Economy flex<br />
• Allows <strong>Aer</strong> <strong>Lingus</strong><br />
to compete on<br />
price<br />
• Seat is basic<br />
product<br />
proposition<br />
• Allows <strong>Aer</strong> <strong>Lingus</strong><br />
to compete on<br />
value<br />
• Modular product<br />
build including<br />
bag fee &<br />
advance seat<br />
assignment<br />
• Targets time<br />
sensitive<br />
passengers<br />
• Flexibility with<br />
components<br />
targeted for the<br />
business user<br />
Our product philosophy<br />
• Generate positive margin<br />
• Simplicity for the consumer<br />
• Simplicity in our systems<br />
• Create choices & options for customers<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
24
Commercial decisions are financial decisions<br />
Stephen Kavanagh<br />
Function<br />
Decision<br />
Financial lever<br />
Network<br />
planning<br />
Demand led route planning<br />
Route profitability<br />
Profitability<br />
Margin<br />
Fleet<br />
planning<br />
Ownership<br />
Young, modern fleet<br />
Cashflow<br />
Balance sheet<br />
Revenue<br />
management<br />
Maximise yield per seat<br />
Tactical capacity management<br />
Profitability<br />
Margin<br />
Network<br />
distribution &<br />
retail<br />
Ancillary revenue with a retail focus<br />
Distribution strategy<br />
Profitability & cashflow<br />
Market share & profitability<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
25
Refreshment break<br />
15 minutes
Juergen Krins<br />
Greenfield programme
Greenfield transformation programme 2010 - 2012<br />
Juergen Krins<br />
2010:<br />
Implementation<br />
• Launch of Greenfield programme<br />
• Targeted savings of €97m by 2012<br />
• Key focus on delivery of €50m staff savings<br />
2011:<br />
continuous<br />
improvement<br />
• Primary goal is the implementation of non staff savings across all areas<br />
• Driving business transformation & changes in processes, systems and<br />
organisation<br />
• Forecast €80m of savings by year end<br />
2012:<br />
transformation<br />
• Focus on projects & change management delivering significant savings with<br />
minimum lead time<br />
• Exploit advantages of new airline processes & systems to further improve<br />
cost & efficiency<br />
Greenfield will continue to deliver sustainable cost improvements &<br />
business transformation<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
28
Greenfield savings update<br />
Juergen Krins<br />
Staff Non-staff Total<br />
97.0<br />
€m<br />
55.9<br />
83.7<br />
52.8<br />
80.5<br />
74.0<br />
27.8 27.7<br />
23.0<br />
2011 budget run rate 2011 forecast run rate 2012 target run rate<br />
• In-year 2011 savings variance for budget vs. forecast is €3.2m. This is mainly due to phasing of<br />
planned staff savings.<br />
• Targeted Greenfield savings in 2012 amount to €16.5m.<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
29
Significant Greenfield non-staff saving initiatives in 2011<br />
Juergen Krins<br />
• Maintenance & engineering<br />
• Catering<br />
• Ground operations<br />
• Inflight services / flight operations<br />
• Fuel management<br />
These initiatives will generate €16m of<br />
forecast run rate savings in 2011<br />
• Strategic sourcing<br />
• Facilities & security<br />
• Treasury & taxes<br />
• Group financial control<br />
30
Fuel efficiency programme delivering company-wide savings<br />
Juergen Krins<br />
Governance<br />
• Fuel management committee established to identify fuel saving<br />
initiatives<br />
• Changes in fuel consumption policies<br />
Initiatives<br />
• Weight reduction initiatives<br />
• Monitoring of fuelling in Dublin & at bases<br />
Targeted vs.<br />
achieved<br />
• Savings budget of €1.6m set for 2011; actual savings forecast for 2011<br />
is €2.0m<br />
• Expected full year savings for 2012 are €3.5m<br />
Conclusion<br />
• Fuel efficiency is an integral part of <strong>Aer</strong> <strong>Lingus</strong> cross management<br />
responsibility<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
31
Strategic sourcing transformation<br />
Juergen Krins<br />
• Strategic sourcing<br />
board<br />
• Category<br />
management teams<br />
• Procurement plan<br />
• Cost reduction plans<br />
Governance<br />
Visibility<br />
Contract /<br />
supplier<br />
management<br />
Defined<br />
process<br />
• Contracts in place<br />
before work has<br />
commenced<br />
• Defined KPIs<br />
• Performance based<br />
• A common way of<br />
working<br />
• Enabled through<br />
eProcurement tools<br />
Underpinned by a fit for purpose Procure-to-Pay system, a defined category management<br />
approach in conjunction with a robust compliance culture<br />
32
Strategic sourcing transformation<br />
Juergen Krins<br />
Procure to Pay historic state<br />
Procure to Pay future state<br />
10,600 listed suppliers<br />
70,000 paper invoices<br />
40,000 invoices without purchase order<br />
35,000 invoices under €500<br />
No approval process for new suppliers<br />
Inconsistent use of existing Procure to Pay<br />
systems<br />
Currently at 3,000 active suppliers; target is to<br />
rationalize to 1,500 preferred suppliers<br />
90 % of invoices processed electronically<br />
95% of invoices with a Purchase Order: “no PO,<br />
no pay!”<br />
60% of invoices under €500 processed using a<br />
“P-card”<br />
Formal new supplier introduction process with<br />
Strategic Sourcing unit as the approver<br />
Use of the Procure to Pay system fully utilized<br />
• Only 2 ways to purchase goods or services in <strong>Aer</strong> <strong>Lingus</strong>: (i) through a<br />
Conclusion<br />
purchase order or (ii) through a “P-card”<br />
• Organisational discipline as well as cost & efficiency savings<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
33
Greenfield programme next steps<br />
Juergen Krins<br />
Continuous<br />
cost &<br />
efficiency<br />
improvements<br />
Business<br />
transformation<br />
(HR, IT, &<br />
operations)<br />
Strengthened<br />
sourcing<br />
strategy /<br />
supplier<br />
management<br />
Increased<br />
flexibility of<br />
aircraft &<br />
resources<br />
(seasonality)<br />
Continuous improvement will become an integral part of daily operations at<br />
<strong>Aer</strong> <strong>Lingus</strong><br />
34
Michael Grealy<br />
Human Resources
<strong>Aer</strong> <strong>Lingus</strong> Human Resources<br />
Michael Grealy<br />
HR strategy is seeking to achieve cost<br />
advantages beyond what is available under<br />
historical constraints<br />
HR is supporting the delivery of <strong>Aer</strong> <strong>Lingus</strong>’<br />
commercial strategy<br />
€52.8m of staff cost savings to be delivered<br />
under Greenfield in 2011<br />
A key objective over last 2 years has been<br />
strengthening of leadership in the organisation<br />
<strong>Aer</strong> <strong>Lingus</strong> HR is supporting the delivery of<br />
sustainable profitability improvements<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
36
Medium term focus<br />
Michael Grealy<br />
<strong>Aer</strong> <strong>Lingus</strong> staff &<br />
management are on a<br />
journey<br />
Where we were<br />
Semi state heritage<br />
Where we are going<br />
Flexibility<br />
We have achieved<br />
demonstrable progress<br />
But further work remains<br />
to be done<br />
Inward facing culture<br />
IR conflicts periodically<br />
disrupting operations<br />
Productivity<br />
Address seasonality<br />
No compromise on change<br />
Our goal is to provide a meaningful employee proposition that supports the corporate<br />
strategy & continues to deliver a competitive unit cost position<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
37
We recognise that legacy issues must be addressed<br />
Michael Grealy<br />
Resource planning<br />
• Rostering improvements<br />
Management are<br />
focused on addressing<br />
& resolving legacy<br />
issues<br />
• Manpower planning<br />
• Production planning<br />
Pension<br />
• Resolving the issues represented by the Irish Airlines<br />
Superannuation Scheme is a key focus<br />
• We are working with the pension trustees and employee groups<br />
to attempt to find solutions to pension issues<br />
Resolution of legacy issues is key to re-affirming employer & employee relationship as well as<br />
delivering shareholder value<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
38
Christoph Mueller<br />
Conclusion
Important decisions to drive shareholder value<br />
2009 2010 2011 2012 2013<br />
Christoph Mueller<br />
Completed<br />
In progress<br />
Legacy issues<br />
Commercial strategy<br />
Partnerships<br />
Greenfield<br />
€50m €80m<br />
€97m<br />
Production strategy<br />
Seasonality IT HR<br />
Legacy issues<br />
Real estate ESOT Leave & return Pension<br />
<strong>Aer</strong> <strong>Lingus</strong> investor <strong>day</strong> | September 2011<br />
40
Q & A
Change language