Investor & analyst day London, 28 September 2011
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
Aer Lingus investor day | September 2011
• 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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
• 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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
• 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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
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
Aer Lingus investor day | September 2011
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
Q & A