annual report 2009 - Aer Lingus

Chief Executive Officer’s Review Aer Lingus Group Plc – Annual Report 2009Chief Executive Officer’s ReviewDear fellow shareholdersAs you know I joined the Aer Lingus Groupas CEO just over 7 months ago in Septemberof last year, shortly after a significant half yearloss was disclosed to you.I spent the first few weeks “walking the shopfloor” talking to our employees and managersin order to better understand the mainimperatives for a successful turnaroundof Aer Lingus.I quickly came to the conclusion that AerLingus is an airline with high standards ofoperational excellence and a very motivatedworkforce prepared to face the challengesahead. It was also clear to me that thepositioning of Aer Lingus as a pure no frillscarrier had not convinced our customers norour employees and the prevailing questionwas around the future positioning of the airline.Cost levels had been addressed in the lastnumber of years and, even before theimplementation of our ‘Greenfield’ costreduction programme, Aer Lingus’ costposition is amongst the most competitivein the industry. Staff costs excluding nonrecurringprovisions have been reducedby €40.1 million between 2008 and 2009,and will decrease by €40 million (exit runrate of €50 million) in 2010 as a result of‘Greenfield’.Service levels of Aer Lingus are and will behigher than those of a pure low cost carrierand this should be reflected in the overallrevenue levels.Aer Lingus is an airline with a proud tradition,celebrating its 75th birthday in May of nextyear and a company that has been privatisedonly some years ago. The Aer Lingus brand isone of the company’s main assets and whilstthe notion of a national carrier has becomesomewhat of an anachronism over the lastdecade, the employees of Aer Lingus arevery proud to be perceived as Ireland’s airline.The Aer Lingus brand is loaded with positivevalues such as good value, Irish hospitality,customer care and professionalism and allemployees are prepared to deliver on thispromise every day.But the overall situation in 2009 was acall for immediate action. The immediatechallenge was to “right-size” the companyand to consolidate our route network tothose destinations we can serve profitablyduring the ongoing economic downturn.Capacity cuts in our long haul service wereoverdue and the expansion of our brandin non-Irish markets had proven difficult.Short haul performance for 2009 wasbroadly breakeven despite the significantlosses generated by the Gatwick base. TheGatwick losses were deemed unacceptableby management and resulted in a reductionin capacity which was announced in January2010.The pruning of our network back to our coremarkets has delivered instant results. We wereable to stop the decline of unit revenue in thelast quarter of 2009 and the first quarter of2010 will show a significant improvement inunit revenue compared to the previous year,despite a continuing weak gross domesticproduct in our home market. We were able tokeep our strong connectivity to Ireland andwhilst other carriers had to withdraw from certainroutes, our customers’ loyalty enabled us to gainmarket share in an overall shrinking market.As a consequence of the capacity reductions,we had to look at our cost base and addressredundancies in our workforce as well as improvethe efficiency of our operations. This becameknown as “Greenfield”. As part of this plan,a new management structure with a 40%reduction in management positions willenable an increased level of accountabilityand shorter decision-making processes.On behalf of our Board of Directors and ourshareholders, I was able to convey a messageof gratitude to all our employees for givingus the mandate for change in an overall74% positive vote for our ‘Greenfield’ costreduction programme while at the same timehaving kept high standards of service duringnegotiations with the unions. Aer Lingusdid not lose a single flight from its scheduleduring the five-month period of negotiationsand we were able to conclude an agreementin March to reduce our cost base by 7.4%, abenchmark for the European Airline Industry.Overall we are experiencing a new qualityof teamwork within the company andeverybody is aligned behind the target toreturn to profitability. Only a sustainablelevel of profitability will enable us to growagain beyond our current route network.These first measures have stopped thebleeding. But what is the strategy forAer Lingus going ahead?Serving the Irish market means connectingthe Irish population with a global diaspora ofapproximately 70 million friends and relativesand business travellers. While we are able tocover a good portion of this with our ownairplanes, Aer Lingus’ global coverage isdependant on a portfolio of strong partners.Our current partnerships with British Airways,KLM and United Airlines are continuing to bevery successful and the new partnership withJetblue in the USA has reached new levels:we are now able to connect passengers viaJohn F. Kennedy Airport in New York andLogan Airport in Boston. After only a few