6 February 2013 2012 Preliminary Results
6 February 2013
2012 Preliminary Results
22012 Preliminary Results | 6 February 2013
Disclaimer | Forward looking information
Certain information included in these statements is forward-looking and involves risks and uncertainties that could cause actual results to differ materially from those expressed or implied by theforward looking statements.
Forward-looking statements include, without limitation, projections relating to results of operations and financial conditions and the Company's plans and objectives for future operations,including, without limitation, discussions of the Company's Business Plan programs, expected future revenues, financing plans and expected expenditures and divestments. All forward-lookingstatements in this report are based upon information known to the Company on the date of this report. Due to such uncertainties and risks, you should not place undue reliance on such forward-looking statements, which speak only as at the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of newinformation, future events or otherwise, except as required by law or by any appropriate regulatory authority.
It is not reasonably possible to itemise all of the many factors and specific events that could cause the Company's forward looking statements to be incorrect or that could otherwise have a materialadverse effect on the future operations or results of an airline operating in the global economy. Among the factors that are subject to change and could significantly impact the Company’s expectedresults are the fuel costs, competition from new and existing carriers, costs associated with environmental, safety and security measures, actions of governments and regulatory authorities,fluctuations in currency exchange rates and interest rates, airport access and charges, industrial relations, the economic environment of the airline industry and the general economic environmentin the markets to which the Company operates.
32012 Preliminary Results | 6 February 2013
2012 operating profit of €69.1m; up €20.0m (+40.7%) on 2011Profitability
Positive trends across key performance metrics
Operating free cash flow of €75.2m; 5.4% of turnoverCash flow
5.0% op. margin can accommodate ALL investments in the years to comeMargin
Cash up to €908.5m (+1.5%) and debt reduced to €531.6m (-7.9%)Balance sheet
Passenger load factors up to 77.7% (+2.1pts)Asset utilization
Now more punctual than Southwest, the inventor of fast turnaroundsPunctuality
Ranked no. 4 of 16 in Europe for customer service*Customers
Gained market share in both long and short haul from LCCs, legacy,regional & charter carriers. This business model works, even in a recession
Competitors
Value creation and distribution; 2011 dividend: 3 cents; 2012: 4 centsShareholders
* Which? magazine members airlines survey, January 2013
42012 Preliminary Results | 6 February 2013
Introduction to 2012 Aer Lingus preliminary results
Our business model works
Shareholder value delivered
Growth plan in place
2012 Financial ReviewAndrew Macfarlane, Chief Financial Officer
2012 Commercial HighlightsStephen Kavanagh, Chief Commercial Officer
CEO CommentsChristoph Mueller, Chief Executive Officer
52012 Preliminary Results | 6 February 2013
2012 Financial ReviewAndrew Macfarlane, CFO
62012 Preliminary Results | 6 February 2013
€mUnless otherwise indicated
2012 2011 Change %
Total revenue 1,393.3 1,288.3 8.2%
Operating profit/(loss)(before exceptional items)
69.1 49.1 40.7%
Margin % 5.0% 3.8% 1.2pts
Exceptional items (26.5) 37.2 N/A
Profit/(loss) before tax 40.6 84.4 (51.9%)
ASKs (million) 18,685 18,593 0.5%
€m31 Dec 2012
31 Dec2011
Change %
Gross cash 908.5 894.8 Up 1.5%
Debt 531.6 577.2 Down 7.9%
2012 financial highlights
Operating profit up 40.7%; strong balance sheet
72012 Preliminary Results | 6 February 2013
Cost
SH
LH
Strong operating result
Strong revenue performance more than offsets fuel and airport charge increases
Revenue
2012 operating profit bridge (€m) – before exceptional items
SH
LH
LHSH
49.1
69.1
30.1
0.6
4.6
13.1
(69.9)
(19.7)
(7.6) 2.0 10.3
30.3
18
8.2
2011 Operating Profit
Yield Seat load factor
Seat capacity Other revenue Fuel Airport charges
Staff Other Other gains/(losses)
2012 Operating Profit
82012 Preliminary Results | 6 February 2013
Fuel analysisFull year
2012Full year
2011%
Fuel burn (‘000 tonnes) 435.6 431.3 1.0%
Avg. price per tonne (US$) 994 878 13.2%
Avg. price per tonne incl. into-plane (US$) 1,052 937 12.3%
Total fuel cost (US$m) 458.3 404.1 13.4%
Average FX rate for period 1.29 1.40 7.9%
Total fuel cost (€m) 358.6 288.7 24.2%
Fuel price inflation – a significant cost challenge in 2012
Fuel price inflation and a stronger US$ combined to cause a significant increase in fuel costs
92012 Preliminary Results | 6 February 2013
Forward fuel price as at 31 December 2012 and at 31 January 2013
Fuel Q1 2013 Forecast
Q2 2013 Forecast
Q3 2013 Forecast
Q4 2013 Forecast
2013Forecast
Estimated burn (‘000 tonnes) 89 125 130 103 447
% hedged 80% 65% 51% 36% 57%
Avg. hedged US$ price / MT 1,011 1,001 987 955 994
Fuel hedging as at 31 December 2012
890
920
950
980
1,010
1,040
1,070
1,100
Platts Jet CIF NWE (US$/MT)Historic Price Forward Curve as at 31 Dec'12 Forward Curve as at 31 Jan'13
102012 Preliminary Results | 6 February 2013
€m 2010 2011 2012
Other gains 25.8 3.0 13.3
At 31 December 2012, US$132 million of the expected 2013 US$ trading requirement was hedged at an average rate of US$1.35
Other gains/losses – US$ hedging
Average US$/EUR rate for The year
1.20
1.25
1.30
1.35
1.40
1.45
1.50
Jan
-10
Ap
r-1
0
Jul-
10
Oct
-10
Jan
-11
Ap
r-1
1
Jul-
11
Oct
-11
Jan
-12
Ap
r-1
2
Jul-
12
Oct
-12
Jan
-13
Ap
r-1
3
Jul-
13
Oct
-13
US$/EUR FX Rate – January 2010 to December 2013
USD$/EUR FX rate
Forward USD$/EUR FX rate
1.33
1.40
1.29
1.48 1.43 1.42
1.35
1.15
1.20
1.25
1.30
1.35
1.40
1.45
1.50
2010 2011 2012 2013
Ave
rage
USD
$/E
UR
Rat
e
Driver of “Other gains/losses”
Avg actual US$/EUR rateAvg hedged USD$/EURAvg forward US$/EUR rate
112012 Preliminary Results | 6 February 2013
Airport charges in 2012
Airport charge variance analysis - €m
0.0
20.0
40.0
60.0
80.0
100.0
2012 2011
45.3
50.7
4.0(1.9)
3.2
0.1
2011 LHR charges
Price Volume FX Other 2012 LHR charges
86.4
92.51.0
5.00.1
2011 DUB charges
Price Volume Other 2012 DUB charges
DUB airport charges 2012 V 2011 - €m
Top 10 stations 2012 and 2011 - €m
LHR airport charges 2012 V 2011 - €m
275.7
295.39.0
5.2
7.2
(1.8)
2011 airport charges
Price Volume FX Other 2012 airport charges
On a steady state basis, price increases will add approx €15m to cost in 2013
122012 Preliminary Results | 6 February 2013
Greenfield savings over-achieved
Target of €97 million exceeded. Remain committed to achieving continued cost reduction
74.0
56.0 55.7
6.7
62.4
23.0
28.0 28.6
13.2
41.813.0
Total Greenfield targetted savings (original plan
2009)
Revised February 2011 2011 exit run rate New savings achieved 2012
Annual value of savings at December 12
Staff Non Staff Other
€104.2m
€19.9m
€84.3m
€97.0m€97.0m
132012 Preliminary Results | 6 February 2013
Exceptional costs
Exceptional credits/(charges) - €m 2012 2011
Restructuring provisions (incl. Greenfield) (17.2) 3.1
Advisory fees related to Ryanair Offer (9.9) -
Asset impairments (incl. A320 held for sale) (3.9) -
Release of impairment provision 4.8
Gain on surrender of head office site lease 21.0
Reclassification of cash flow hedges - 11.6
Loss on disposal of property, plant & equipment - (2.2)
Other (0.3) 3.7
Total (charge)/credit (26.5) 37.2
Restructuring provisions in 2012 are costs associated with the closure of hangar maintenance at Shannon and Greenfield
142012 Preliminary Results | 6 February 2013
Strong cash generation in 2012
Strong cash generation in 2012
• Net capital expenditure in 2012 relates primarily to A330 engine purchase, capitalised aircraft maintenance, facility upgrades and other equipment costs
€ million
40.6
75.2
79.5
3.1
(22.0)
(41.1)
(2.2)17.3
Profit before tax Depreciation Provisions Working capital Net capex Net interest paid Other (incl exceptional
items)
Free cash flow (FCF)
Free cash flow represents cash generated from operating activities less net capital expenditure (purchases of fixed assets exclusive of finance lease raised less proceeds from disposals) plus or minus net interest received/paid
152012 Preliminary Results | 6 February 2013
(577.2)(531.6)
(5.1) 45.2
5.5
Gross debt December 2011
Interest accrued Debt repaid FX Gross debt December 2012
Strong balance sheet
Gross cash increased by €13.7 million, debt reduced by €45.6 million, all debt is aircraft related
Gross Cash€m
Debt€m
894.8 908.5
75.27.7 (45.2)
(16.0) (2.5) (5.5)
Gross cash December
2011 Free cashflowInterest accrued Debt repaid Dividend
Investment in JV FX
Gross cash December
2012
Debt repayments
2013: €42 million
2014: €118 million
162012 Preliminary Results | 6 February 2013
2012 Commercial HighlightsStephen Kavanagh (CCO)
172012 Preliminary Results | 6 February 2013
Revenue component €’m€’m increase
yr on yr% Change yr on
yr
Passenger revenue 1,159.8 91.8 8.6%
Retail revenue 176.5 7.8 4.6%
Cargo revenue 45.7 2.7 6.3%
Other revenue 11.3 2.7 31.4%
Total revenue 1,393.3m 105.0 8.2%
83%
13%
1%
Strong revenue growth across the business
Commercial highlights
3%
182012 Preliminary Results | 6 February 2013
38% 39%41% 43%
2011 2012Aer Lingus market share (%)
Aer Lingus market share (incl Regional) %
49%53%
2011 2012
Aer Lingus market share (%)
45%46%
2011 2012
Aer Lingus market share (incl Regional) %
9.9
10.410.8
2010 2011 2012
Passengers ('m)
• 10.8m passengers flown in 2012 on all services including:
• Aer Lingus Regional
• Washington Dulles – Madrid codeshare with United Airlines
• Highest ever number of passengers flown on Aer Lingus services in a single year
+5.1%
Passenger development
Market share development
Passenger and market share development
+3.9%
DUB – London Traffic Ex-Ireland TA Traffic Total Ex-Ireland Traffic
Source: DAA, CAA figures
192012 Preliminary Results | 6 February 2013
8,616
8,674
2011 2012
66.09
68.67
2011 2012
12,509
12,464
2011 2012
Short haul performance
Strategy of carefully managing capacity deployment and focusing on maximising yield per seat is delivering positive results
• Demand led capacity deployment
• Continuous investment in frequency and schedule quality creating choice for customers
• Price and volume both contributing to growth in revenue per seat
Capacity (ASKs in millions)
+0.7%-0.4%
Customers (thousands) Fare yield per seat (€)
+3.9%
202012 Preliminary Results | 6 February 2013
248.03
289.12
2011 2012
6,084
6,221
2011 2012
897
979
2011 2012
Strategy of carefully managing capacity deployment and focusing on maximising yield per seat is delivering positive results
• Partnership and connectivity continuing to play key role in growing passenger volume
• Excellent load factor (82.5%) performance combined with effective pricing driving fare yield per seat
• Business cabin continues to perform strongly, accounting for 22% of LH revenue in 2012
Capacity (ASKs in millions) Customers (thousands) Fare yield per seat (€)
+16.6%
Long haul performance
+2.3% +9.1%
212012 Preliminary Results | 6 February 2013
• Product launch
- Fare family (low, plus and flex)
- Sky Deli Menu
- Choice Seats on Long haul
• Opportunity enabled by seat assignment
• Continuous investment
- Pre-order meals on long haul and short haul
- New Business lounge at Boston
- Wi-Fi rollout from Q1 2013 on long haul, short haul fit out to commence in Q4 2013
- Online / mobile channel development to optimise Retail product sales
€euro 2012 2011 % Change
Retail revenue per passenger 18.28 17.73 3.1%
Retail revenue
Ongoing investment in retail revenue generating positive results
222012 Preliminary Results | 6 February 2013
Cost effective network extension through partnerships
¹Inclusive of short haul and long haul flows from our interline partners. 2 Excludes EI Regional Traffic
2012 2011 Growth %
Interline flown passenger volumes1,2 (‘000) 832 789 5.5%
Aer Lingus Regional passengers (‘000) 1,010 758 33.3%
Open architecture approach delivering growth
• Increased code-share with United Airlines
• New partnership, code-share with Etihad Airways
• Move to jetBlue Terminal 5 at New York
¹Inclusive of short haul and long haul flows from our interline partners. 2 Excludes EI Regional Traffic
232012 Preliminary Results | 6 February 2013
Our commercial strategy continues to create value
242012 Preliminary Results | 6 February 2013
CEO CommentsChristoph Mueller, CEO
252012 Preliminary Results | 6 February 2013
Our ‘value carrier’ business model works – even in a recession!
The business has been stabilised and returned to profitability
The next phase of our plan is to deliver sustainable growth for our shareholder
Growth will be achieved through three main business components:
1Aer Lingus Mainline
3 New business ventures/
white label flying
2Aer Lingus Regional
Future growth plans
262012 Preliminary Results | 6 February 2013
• The classic Aer Lingus connecting Ireland with the World
Transatlantic
• Strengthening Dublin as Hub for superior North Atlantic connections. All main gateways with at least 2 daily flights.
• 15 % capacity growth in 2013 supported by code share agreements and improved connectivity at both ends.
• US customs pre-clearance at Dublin and Shannon provides significant competitive advantage
• Neutrality from three major alliances is key, our focus is on travel patterns of our 70 million customer base of Irish Diaspora
• Ability to open up selectively a range of additional routes and destinations in all important regions
• Selection of partners is minimum equal or even superior to own service offering; the product is accepted
Aer Lingus mainline
Partnerships
Network Reach
• New summer schedule 2013 has triggered the strongest revenue bookings in our history for consecutive days in January 2013
• New Summer schedule 2013 is attractive to partners and has caused multiple code share/interline requests.
272012 Preliminary Results | 6 February 2013
Aer Lingus mainline (continued)
LHR Terminal 2 (STAR)
JFK Terminal 5(jetBlue)
• Move to New Terminal 2 (Star Alliance and Virgin) at London Heathrow
• Now modern state of the art terminals in Dublin, London and New York
• Seamless transfers to all partnering airlines in the same terminal
• Aer Lingus regarded partner due to hands on approach and pragmatism
Ancillary revenue
• Fare revenue increases will always reach a ceiling as a function of fuel
• Ancillary revenues main growth area in the industry: Aer Lingus in top 10
• Aer Lingus approach honest: tangible value for money rather than rip off
• Recent successes with ‘fare family’ and ‘sky deli’
• 2013/14: total fleet will be wifi, pre-order meals, attractive retail
Developing new markets
• Continue to compensate for weakness in key Irish and UK markets
• Gains already achieved with 60% of long haul bookings now sourced in US, 47% of all bookings now sourced outside Ireland
• Aer Lingus only “online network carrier” in Europe with rapidly increasing brand recognition
• Irish brand and lifestyle has international resonance and acceptance
282012 Preliminary Results | 6 February 2013
• Over 1 million passengers carried in 2012; an 33.3% increase on 2011
• The particular benefits of the Regional model are:
• Allows us to profitably service lower capacity routes while maintaining high frequency
• Using Aer Arann turbo-prop aircraft as fuel efficient tool to keep the prices low
• Franchise fee is equivalent substitute to short haul margin; creates the right incentives on both sides
• Important source of passenger feed for transatlantic services; it is just faster to the USA
• 10 year extension of franchise agreement reflects importance of Regional services to the Aer Lingus business
• Aer Lingus is investing in the business model:
• Not as a shareholder in the airline to avoid “cost creep”
• But as an asset owner in a joint venture with Aer Arann shareholders
Aer Lingus Regional
292012 Preliminary Results | 6 February 2013
• Virgin Atlantic ‘wet lease’ agreement presents profitable opportunity to increase our production base with positive effects on overall unit costs
• ACMI (i.e. aircraft, crew, maintenance and insurance), other commercial agreements (franchise, JVs) also possible within the same platform
• In this case, we combine:
• Cost efficiencies of our established UK production platform
• Capability and knowledge of experienced operator (highest punctuality and baggage delivery in London Heathrow)
• Low risk entry into a very complex market
Wet lease of an Airbus 330-200 for three consecutive winter seasons
• Operation of a long haul aircraft from Europe to various Caribbean destinations on behalf of a major European Tour Operator to fill our winter low. Substantial contribution to our margin due to higher capacity utilisation
• We will disclose details in due course
New business ventures/ white label flying
302012 Preliminary Results | 6 February 2013
Q&A
312012 Preliminary Results | 6 February 2013
FY 2013 Development Key financial considerations
Termination of ECS and redeployment of A330 in our long haul services for Summer 2013
• The overall bottom line impact is expected to be marginally positive year-on-year
Virgin Atlantic ‘wet lease’ agreement
• Four A320 aircraft - costs will impact each relevant profit and loss line. • Revenues will be “other income”. • 2013 will absorb setup costs• Similar margin to short haul operations over the life of the contract
Aircraft leasing vehicle investment
• Attractive return on equity over the life of the Joint Venture• Returns will increase as aircraft are delivered over 2013 and 2014• Effect on 2013 small
Airport charges
• On a steady state basis (i.e. assuming the same passenger/movement volumes as 2012), price increases, mainly at Dublin, London Heathrow, Spanish and Italian airports, will add approximately €15 million to costs in 2013
Appendix A - 2013 modelling guidance
322012 Preliminary Results | 6 February 2013
€mUnless otherwise indicated
Q4 2012 Q4 2011 Change %¹
Revenue
Passenger revenue 254.2 232.7 9.3%
Retail revenue 38.7 37.2 4.0%
Cargo revenue 12.1 10.9 11.0%
Other 1.2 2.6 (53.9%)
Total revenue 306.2 283.4 8.0%
Operating costs
Fuel 83.8 75.4 11.1%
Staff costs 65.2 64.6 0.9%
Airport chares 66.6 64.1 3.9%
Other operating costs 108.0 96.9 11.5%
Total operating costs 323.6 301.0 7.5%
Operating loss before net exceptional items (17.4) (17.6) 1.1%
Exceptional items (1.7) 22.4 NM 2
Operating loss after net exceptional items (19.1) 4.8 NM 2
Appendix B - Q4 financial highlights
¹ Sign convention: favourable/ (adverse) 2 Not meaningful