annual report 2009 - Aer Lingus

Chairman’s Statement Aer Lingus Group Plc – Annual Report 2009Chairman’s StatementDear fellow shareholdersCommercial OverviewLast year was a very difficult one for AerLingus. We experienced adverse conditionsin all our markets and particularly in Ireland,where economic recession, high unemploymentand loss of consumer confidence contributedto a significant decline in the demand forair travel.Conditions in the Irish market were exacerbatedby the introduction, in April 2009, of a €10tax on air travellers. It is difficult to understandwhy air travellers should be singled out forsuch a tax at a time when Irish commercialactivity, and especially travel and tourism,urgently requires stimulation rather thantaxation.Our North American and UK markets werealso adversely affected by weak economicand consumer conditions there along withthe strength of the Euro against the US dollarand pound Sterling. Combined with the highcost of accommodation and other goodsand services, our strong currency has madeIreland an even more expensive option forinternational travellers. Reductions in thecost base of our economy at all levels willbe important for its future success.The severity of the economic downturnin 2009 and its impact on air travel wasunprecedented. Aer Lingus entered 2009with too much capacity and several long haulroutes that were no longer sustainable in thechanged market environment. Fare discountingto fill these surplus seats was not the solution,and the lower fares we offered had the effectof diluting our yields across the system. Ouraverage system-wide yield in Q1 2009 was14.5% lower than in the same period of 2008.These factors contributed to our operatingloss of €93 million in the January-June 2009period. At the same time our gross cash declinedby €155 million, from €1,207 million at 31December, 2008 to €1,052 million at 30 June,2009. This reduction reflected approximately€97 million spent on staff restructuring costsand €137 million on aircraft purchases, withthese outflows being partly offset by inflowsfrom borrowings and other miscellaneous items.The significant operating loss and the reductionsin our cash emphasised the need for significantchanges at Aer Lingus, which commencedin April 2009.First we re-geared our flight schedule to bettermatch the existing demand conditions, particularlysuspending our direct services to San Franciscoand to Washington D.C. However, by providingAer Lingus services to and from our establishedbases in Boston, Chicago and New York withan expanded range of connecting flights onUnited Airlines and JetBlue Airways, we arenow offering indirect services to a muchbroader range of North American cities thanwere available a year ago. Our new codeshare arrangements with Aer Arann aredesigned to offer similar frequency and costimprovements on our European network.We also set about preserving our cash, throughthe operational measures referred to above,through reductions in our existing fleet andthrough significant deferrals of our futureaircraft orders. We have stretched out futureorders so that new deliveries will generallycoincide with the need for replacement ofexisting aircraft. We greatly appreciate theassistance of Airbus SAS in achieving thesechanges. We are confident that any futuregrowth opportunities can be serviced withsurplus aircraft from manufacturers, aircraftlessors and other secondary markets.These actions have had a positive impacton our financial results. In the July throughDecember 2009 period, Aer Lingus reporteda small operating profit of €12 million (ascompared to an operating profit of €3 millionin the same period a year earlier). At the endof 2009 our cash balance was €829 million. AerLingus continues to have a strong balance sheet.We also set about changing the culture, thework practices and the cost base at all levelsin Aer Lingus. These changes started with theboard where, in order to give the programmea kick start, our directors agreed to substantialreductions in their fees. This was unprecedentedin Irish business and makes our directors’fees among the lowest of equivalent plcs.I greatly appreciate the support of all ofthe directors in giving this leadership.We also have the benefit of a substantiallynew senior management team, lead by ourChief Executive Officer, Christoph Mueller.Christoph joined Aer Lingus on 1 Septemberand his drive, expertise, knowledge andpersonality have been major contributors tothe cultural changes that we are experiencingat Aer Lingus. Later in this report Christophwill explain to you his vision for Aer Lingusand how he, his management team and hisstaff will make Aer Lingus more attractive toour customers as Ireland’s Civilised Airline.Radical changes in corporate culture –particularly when they involve reductions inpay and increases in work – are not easy toachieve. However, Aer Lingus’ employeeshave grasped and accepted the need forchange. Their contributions to the changeprogramme (named Project Greenfield) havebeen outstanding and are hugely appreciated.I believe that the changes that are beingimplemented at Aer Lingus will inure to thebenefit of all our stakeholders; providinga better and differentiated product for