Download - Investor & analyst day - Aer Linguscorporate.aerlingus.com/media/aerlinguscom/content/pdfs/... · 2015-11-12 · 13 Short haul capacity Aer Lingus investor day | September 2011 8%

Investor & analyst day London, 28 September 2011

2

2 years ago…

Aer Lingus investor day | September 2011

€81m operating loss¹ in 2009

Fundamentally attractive airline…

Assets

Markets

People

Operating business

• Robust balance sheet• Modern Airbus fleet; 50% owned• Valuable route network & strategic slot portfolio

• Competitive cost base compared to legacy carriers• High quality maintenance

• Strong brand in core markets• Large market share on key routes• Route connectivity

• High calibre & passenger focused staff• Excellent customer satisfaction• “Can do” attitude of staff

But…

Too much capacity on certain routes

Focus on load factor depressed yield

Cost base still too high

Lower price point didn’t stimulate demand

Andrew Macfarlane

¹ Before exceptional items

3

Our revised strategy restored profitability


• Re-position Aer Lingus

• Align capacity with demand

• Focus on connectivity, alliances & partnerships: “Connecting Ireland with the World”

• Change approach to capacity management & optimise yield per seat

• Multi channel distribution strategy

• Markets managed by margin

• Cost reduction – “Greenfield” programme

€81m operating loss¹ in 2009€58m operating profit¹ in 2010

On track for profitability in 2011

Andrew Macfarlane

¹ Before exceptional items

4

Meet the team


Christoph MuellerChief Executive

Officer

Andrew MacfarlaneChief Financial Officer

Juergen Krins

Greenfield programme

Lee Lipton

Network planning

Michael GrealyChief Human Resources

Officer

Neal O’Rourke

Network revenue

Stephen KavanaghChief Commercial Officer

Paul Brady

Fleet planning

Kieron Byrne

Strategic sourcing

Ronan Fitzpatrick

Network distribution

Andrew Macfarlane / Stephen Kavanagh

Lee LiptonNetwork planning

6

Disciplined approach to network strategy maximises return


Lee Lipton

Demand-led network development

Routes managed for contribution

Capacity investment based on profitability

Efficient & productive flight schedule

Tactical capacity adjustments

7

European short haul network offers breadth & depth to serve major business & leisure markets


Lee Lipton

Extensive & profitable European short haul network

Unit revenue drives frequency growth

Balanced traffic flow to & from Ireland

Fleet & Regional partnership enable flexibility

Central airports with valuable slots

8

Profitable long haul network


Lee Lipton

Major US east coast gateways for point-to-point traffic

Utilise geographic advantage of Dublin hub

Strong network model:

Aer Lingus connectivity in Europe & UK

Partnerships in the US & Canada

Transatlantic long haul network

Derive competitive advantage from low unit costs

Paul BradyFleet planning

10

The right fleet to cost effectively serve our markets


• Modern, young Airbus fleet

• Low operating cost

• Good ownership balance• Cashflow benefits• Flexibility• No near term capex peaks

• Fleet composition & size appropriatefor underlying demand in our markets

• Appropriate short haul productionplatform

Paul Brady

11

Young & modern fleet


No near term capital expenditure peaks

Average short haul fleet age is 5.9 yrs

46%

35%

19%

</= 6 yrs > 6 yrs, < 10 yrs >/= 10 yrs

Short haul fleet age profile

Paul Brady

Average long haul fleet age is 5.2 yrs

71%

29%

</= 5 yrs > 5 yrs

Long haul fleet age profile

12

Balanced ownership provides flexibility


A350XWB order:

Relative economics

Product opportunities

Long haul fleet ownership profile

43%

57%

Wholly owned Finance Lease

Paul Brady

Flexibility: ability to expand or reduce fleet size in response to demand environment

Ownership profile a function of availability

Opportunity for rollover

Balance between wholly owned / finance leased aircraft / operating leased aircraft

8%

43%

49%

Wholly owned Financed leased Operating leased

Short haul fleet ownership profile

13

Short haul capacity


8%

80%

12%-

1,000

2,000

3,000

4,000

5,000

6,000

A319 A320 A321

4 32 4

Seats

Expected steady state aircraft & capacity deployment

A320 provides cost effective platform to serve majority of Aer

Lingus’ markets

A320: core aircraft unit

A319 represents an attractive opportunity

A321: Apply in slot

constrained or high demand markets

Paul Brady

Neal O’RourkeNetwork revenue

Network revenue growth strategy optimises balance between yield & load factor

15

New technology coupled with effective pricing & inventory control allows maximisation of revenue at all points along the forward booking curve


Days prior to departure

Revenue

Price focused

Value focused

Time focused

60 days 30 days

€100

€50

Maximisation of fare revenue per seat continues to be cornerstone of

revenue management approach

New revenue management system

improves demand forecasting & revenue

optimisation capabilities

Neal O’Rourke

16

Margin is driven by management of key variables


1 Tactical capacity management to drive revenue per seat

2

3 Effective optimisation of inventory based on consumer demand

Competitively priced fares and enhanced ancillary product range

Market demand determines yield & load factor strategy

Neal O’Rourke

17

Long haul is key to network revenue strategy

Improved profit potential while maintaining the ability to exercise control over key point-to-point pricing

Long haul network revenue strategy

Business class

products

Offline connectivity

Distribution strategy

Partnerships


Neal O’Rourke

Ronan FitzpatrickNetwork distribution

19

Our multi-channel distribution is a competitive advantage

• We have no channel barriers to entry. We are already active in all distribution channels.

• Our direct channel, aerlingus.com is our primary channel & is our best platform to support customerrelationships & generate retail revenues

• Global Distribution Systems channels remain a key part of our mix, providing geographic / brand reach andaccess to corporate markets

• We will continue to supplement the direct channel with key managed relationships across the GlobalDistribution Systems environment

• Monitor channel contribution & manage margins appropriately

• We will partner to offer wider global connectivity from aerlingus.com

Channel distribution model

H1 2011 total ¹ H1 Short haul ¹ H1 Long haul ¹

83%

17%

Direct Indirect

88%

12%

Direct Indirect

68%

32%

Direct Indirect

¹ Booked

Ronan Fitzpatrick


20

Retail revenue

• Build on strong foundations established over recent years

• Refreshed focus on retail to optimise return on our existing offerings & leverage our product

• Capitalise on demand

• Improve customer insight, identify challenges early and act accordingly

Deliver margin through discretionary value-adding products

Ancillary revenue per passenger (€)

11.50 14.35

16.99 18.32 17.76

H1 07 H1 08 H1 09 H1 10 H1 11


Ronan Fitzpatrick

21

Strategic pillars supporting revenue growth

We listen to our customers’ needs, deliver the discretionary products they want & grow revenues through this relationship


Ronan Fitzpatrick

Customer journey

Touch-point review

Enhanced booking flow

Appropriate placement

The correct partners

Customer knowledge

Profile & segment

Understand propensity to purchase

Intelligent offers

Use relationships to drive revenue

Leverage our product & brand

Assigned seating & lounges

Re-work in-flight product

Innovate to strengthen relationships

Capitalise on brand strength

Delivery of discretionary, value adding

products

Lounge accessAdvance seat selection

Pre-order meals“SkyCafe” re-model

Mobile Holidays & packages

Fare families & Wi-FiFare lock & deposit

Implemented

In progress

22

Ancillary revenue with a retail focus


Ronan Fitzpatrick

Deliver discretionary value adds

Differentiate through the retail offering to drive margin

Stephen KavanaghCommercial summary

24

Our product offering focuses on different market segments


Economy low

• Allows Aer Lingus to compete on price

• Seat is basic product proposition

Economy

• Allows Aer Lingus to compete on value

• Modular product build including bag fee & advance seat assignment

Economy flex

• Targets time sensitive passengers

• Flexibility with components targeted for the business user

Our product philosophy

• Generate positive margin

• Simplicity for the consumer

• Simplicity in our systems

• Create choices & options for customers

Stephen Kavanagh

25

Commercial decisions are financial decisions


Network planning

Profitability

Fleet planning

Revenue management

Network distribution &

retail

Stephen Kavanagh

Function Decision

Demand led route planning

Route profitability

Financial lever

Margin

Young, modern fleet

Maximise yield per seat

Ownership

Tactical capacity management

Ancillary revenue with a retail focus

Distribution strategy

Cashflow

Balance sheet

Profitability & cashflow

Market share & profitability

Profitability

Margin

Refreshment break15 minutes

Juergen KrinsGreenfield programme

28

Greenfield transformation programme 2010 - 2012


Greenfield will continue to deliver sustainable cost improvements & business transformation

2010: Implementation

2011:continuous

improvement

2012: transformation

• Launch of Greenfield programme• Targeted savings of €97m by 2012• Key focus on delivery of €50m staff savings

• Primary goal is the implementation of non staff savings across all areas• Driving business transformation & changes in processes, systems and

organisation• Forecast €80m of savings by year end

• Focus on projects & change management delivering significant savings withminimum lead time

• Exploit advantages of new airline processes & systems to further improvecost & efficiency

Juergen Krins

55.9 52.8

74.0

27.8 27.723.0

83.7 80.5

97.0

2011 budget run rate 2011 forecast run rate 2012 target run rate

Staff Non-staff Total

29

Greenfield savings update


• In-year 2011 savings variance for budget vs. forecast is €3.2m. This is mainly due to phasing ofplanned staff savings.

• Targeted Greenfield savings in 2012 amount to €16.5m.

€m

Juergen Krins

Significant Greenfield non-staff saving initiatives in 2011

30

Juergen Krins

• Maintenance & engineering

• Catering

• Ground operations

• Inflight services / flight operations

• Fuel management

• Strategic sourcing

• Facilities & security

• Treasury & taxes

• Group financial control

These initiatives will generate €16m of forecast run rate savings in 2011

31

Fuel efficiency programme delivering company-wide savings


Governance• Fuel management committee established to identify fuel saving

initiatives

Targeted vs. achieved

Initiatives

Conclusion

• Changes in fuel consumption policies

• Weight reduction initiatives

• Monitoring of fuelling in Dublin & at bases

• Savings budget of €1.6m set for 2011; actual savings forecast for 2011

is €2.0m

• Expected full year savings for 2012 are €3.5m

• Fuel efficiency is an integral part of Aer Lingus cross management

responsibility

Juergen Krins

Strategic sourcing transformation

Underpinned by a fit for purpose Procure-to-Pay system, a defined category management approach in conjunction with a robust compliance culture

• A common way of working

• Enabled through eProcurement tools

• Contracts in place before work has commenced

• Defined KPIs• Performance based

• Procurement plan• Cost reduction plans

• Strategic sourcing board

• Category management teams

Governance Visibility

Defined process

Contract / supplier

management

Juergen Krins

32

33Aer Lingus investor day | September 2011

Conclusion

• Only 2 ways to purchase goods or services in Aer Lingus: (i) through a

purchase order or (ii) through a “P-card”

• Organisational discipline as well as cost & efficiency savings

Juergen Krins

10,600 listed suppliers

70,000 paper invoices

40,000 invoices without purchase order

35,000 invoices under €500

No approval process for new suppliers

Inconsistent use of existing Procure to Paysystems

Currently at 3,000 active suppliers; target is torationalize to 1,500 preferred suppliers

90 % of invoices processed electronically

95% of invoices with a Purchase Order: “no PO,no pay!”

60% of invoices under €500 processed using a“P-card”

Formal new supplier introduction process withStrategic Sourcing unit as the approver

Use of the Procure to Pay system fully utilized

Procure to Pay historic state Procure to Pay future state

Strategic sourcing transformation

Greenfield programme next steps

Continuous cost &

efficiency improvements

Business transformation

(HR, IT, & operations)

Strengthened sourcing strategy / supplier

management

Increased flexibility of aircraft & resources

(seasonality)

34

Juergen Krins

Continuous improvement will become an integral part of daily operations at Aer Lingus

Michael GrealyHuman Resources

36

Aer Lingus Human Resources


Michael Grealy

Aer Lingus HR is supporting the delivery of sustainable profitability improvements

€52.8m of staff cost savings to be delivered under Greenfield in 2011

HR is supporting the delivery of Aer Lingus’ commercial strategy

HR strategy is seeking to achieve cost advantages beyond what is available under

historical constraints

A key objective over last 2 years has been strengthening of leadership in the organisation

37

Medium term focus


Our goal is to provide a meaningful employee proposition that supports the corporate strategy & continues to deliver a competitive unit cost position

Aer Lingus staff &

management are on a

journey

We have achieved

demonstrable progress

But further work remains

to be done

Semi state heritage

Inward facing culture

IR conflicts periodically disrupting operations

Where we were Where we are going

Flexibility

Productivity

Address seasonality

No compromise on change

Michael Grealy

38

We recognise that legacy issues must be addressed


Resolution of legacy issues is key to re-affirming employer & employee relationship as well as delivering shareholder value

• Resolving the issues represented by the Irish Airlines

Superannuation Scheme is a key focus

• We are working with the pension trustees and employee groups

to attempt to find solutions to pension issues

Resource planning

• Rostering improvements

• Manpower planning

• Production planning

Pension

Management are

focused on addressing

& resolving legacy

issues

Michael Grealy

Christoph MuellerConclusion

40Aer Lingus investor day | September 2011

Christoph MuellerImportant decisions to drive shareholder value

2009 2010 2011 2012 2013

Commercial strategy Partnerships

Greenfield€50m €80m

Legacy issuesReal estate ESOT Leave & return Pension

Production strategy

Seasonality IT HR

Completed

In progress

Legacy issues

€97m

Download - Investor & analyst day - Aer Linguscorporate.aerlingus.com/media/aerlinguscom/content/pdfs/... · 2015-11-12 · 13 Short haul capacity Aer Lingus investor day | September 2011 8%

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