Investor & analyst day London, 28 September 2011
2 years ago Andrew Macfarlane Fundamentally attractive airline But Assets Robust balance sheet Modern Airbus fleet; 50% owned Valuable route network & strategic slot portfolio Too much capacity on certain routes Operating business Competitive cost base compared to legacy carriers High quality maintenance Focus on load factor depressed yield Markets Strong brand in core markets Large market share on key routes Route connectivity Lower price point didn t stimulate demand People High calibre & passenger focused staff Excellent customer satisfaction Can do attitude of staff Cost base still too high 81m operating loss¹ in 2009 ¹ Before exceptional items 2
Our revised strategy restored profitability Andrew Macfarlane 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 ¹ Before exceptional items 3
Meet the team Andrew Macfarlane / Stephen Kavanagh Christoph Mueller Chief Executive Officer Andrew Macfarlane Chief Financial Officer Stephen Kavanagh Chief Commercial Officer Michael Grealy Chief Human Resources Officer Lee Lipton Paul Brady Neal O Rourke Ronan Fitzpatrick Juergen Krins Kieron Byrne Network planning Fleet planning Network revenue Network distribution Greenfield programme Strategic sourcing 4
Lee Lipton Network planning
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 6
European short haul network offers breadth & depth to serve major business & leisure markets Lee Lipton Central airports with valuable slots Extensive & profitable European short haul network Unit revenue drives frequency growth Balanced traffic flow to & from Ireland Fleet & Regional partnership enable flexibility 7
Profitable long haul network Lee Lipton Major US east coast gateways for point-to-point traffic Transatlantic long haul network Strong network model: Aer Lingus connectivity in Europe & UK Partnerships in the US & Canada Utilise geographic advantage of Dublin hub Derive competitive advantage from low unit costs 8
Paul Brady Fleet planning
The right fleet to cost effectively serve our markets Paul Brady Modern, young Airbus fleet Low operating cost Good ownership balance Cashflow benefits Flexibility No near term capex peaks Fleet composition & size appropriate for underlying demand in our markets Appropriate short haul production platform 10
Young & modern fleet Paul Brady Short haul fleet age profile Long haul fleet age profile 19% 29% 46% 35% 71% </= 6 yrs > 6 yrs, < 10 yrs >/= 10 yrs </= 5 yrs > 5 yrs Average short haul fleet age is 5.9 yrs Average long haul fleet age is 5.2 yrs No near term capital expenditure peaks 11
Balanced ownership provides flexibility Flexibility: ability to expand or reduce fleet size in response to demand environment Short haul fleet ownership profile 8% Paul Brady Ownership profile a function of availability 49% 43% Balance between wholly owned / finance leased aircraft / operating leased aircraft Wholly owned Financed leased Operating leased Opportunity for rollover Long haul fleet ownership profile A350XWB order: Relative economics Product opportunities 57% 43% Wholly owned Finance Lease 12
Short haul capacity Paul Brady A320: core aircraft unit Expected steady state aircraft & capacity deployment Seats A320 provides cost effective platform to serve majority of Aer Lingus markets 6,000 5,000 4,000 A319 represents an attractive opportunity 3,000 2,000 80% A321: Apply in slot constrained or high demand markets 1,000-8% 12% A319 A320 A321 4 32 4 13
Neal O Rourke Network revenue
Network revenue growth strategy optimises balance between yield & load factor Neal O Rourke Maximisation of fare revenue per seat continues to be cornerstone of revenue management approach Revenue 100 50 Price focused Value focused Time focused New revenue management system improves demand forecasting & revenue optimisation capabilities 60 days 30 days Days prior to departure New technology coupled with effective pricing & inventory control allows maximisation of revenue at all points along the forward booking curve 15
Margin is driven by management of key variables Neal O Rourke 1 Tacticalcapacity management to drive revenue per seat 2 Competitively priced fares and enhanced ancillary product range 3 Effective optimisation of inventory based on consumer demand Market demand determines yield & load factor strategy 16
Long haul is key to network revenue strategy Neal O Rourke Business class products Partnerships Long haul network revenue strategy Offline connectivity Distribution strategy Improved profit potential while maintaining the ability to exercise control over key point-to-point pricing 17
Ronan Fitzpatrick Network distribution
Our multi-channel distribution is a competitive advantage Ronan Fitzpatrick Channel distribution model 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 customer relationships & generate retail revenues Global Distribution Systems channels remain a key part of our mix, providing geographic / brand reach and access to corporate markets We will continue to supplement the direct channel with key managed relationships across the Global Distribution Systems environment Monitor channel contribution & manage margins appropriately We will partner to offer wider global connectivity from aerlingus.com H1 2011 total ¹ H1 Short haul ¹ H1 Long haul ¹ 17% 12% 32% 83% 88% 68% Direct Indirect Direct Indirect Direct Indirect ¹ Booked 19
Retail revenue Ronan Fitzpatrick Deliver margin through discretionary value-adding products 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 Ancillary revenue per passenger ( ) 11.50 14.35 16.99 18.32 17.76 H1 07 H1 08 H1 09 H1 10 H1 11 20
Strategic pillars supporting revenue growth Ronan Fitzpatrick Customer journey Customer knowledge Leverage our product & brand Delivery of discretionary, value adding products Touch-point review Profile & segment Assigned seating & lounges Lounge access Advance seat selection Enhanced booking flow Understand propensity to purchase Re-work in-flight product Mobile Holidays & packages Appropriate placement Intelligent offers Innovate to strengthen relationships Pre-order meals SkyCafe re-model The correct partners Use relationships to drive revenue Capitalise on brand strength Fare families & Wi-Fi Fare lock & deposit Implemented In progress We listen to our customers needs, deliver the discretionary products they want & grow revenues through this relationship 21
Ancillary revenue with a retail focus Ronan Fitzpatrick Deliver discretionary value adds Differentiate through the retail offering to drive margin 22
Stephen Kavanagh Commercial summary
Our product offering focuses on different market segments Stephen Kavanagh Economy low Economy Economy flex Allows Aer Lingus to compete on price Seat is basic product proposition Allows Aer Lingus to compete on value Modular product build including bag fee & advance seat assignment 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 24
Commercial decisions are financial decisions Stephen Kavanagh Function Decision Financial lever Network planning Demand led route planning Route profitability Profitability Margin Fleet planning Ownership Young, modern fleet Cashflow Balance sheet Revenue management Maximise yield per seat Tactical capacity management Profitability Margin Network distribution & retail Ancillary revenue with a retail focus Distribution strategy Profitability & cashflow Market share & profitability 25
Refreshment break 15 minutes
Juergen Krins Greenfield programme
Greenfield transformation programme 2010-2012 Juergen Krins 2010: Implementation Launch of Greenfield programme Targeted savings of 97m by 2012 Key focus on delivery of 50m staff savings 2011: continuous improvement 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 2012: transformation Focus on projects & change management delivering significant savings with minimum lead time Exploit advantages of new airline processes & systems to further improve cost & efficiency Greenfield will continue to deliver sustainable cost improvements & business transformation 28
Greenfield savings update Juergen Krins Staff Non-staff Total 97.0 m 55.9 83.7 52.8 80.5 74.0 27.8 27.7 23.0 2011 budget run rate 2011 forecast run rate 2012 target run rate In-year 2011 savings variance for budget vs. forecast is 3.2m. This is mainly due to phasing of planned staff savings. Targeted Greenfield savings in 2012 amount to 16.5m. 29
Significant Greenfield non-staff saving initiatives in 2011 Juergen Krins Maintenance & engineering Catering Ground operations Inflight services / flight operations Fuel management These initiatives will generate 16m of forecast run rate savings in 2011 Strategic sourcing Facilities & security Treasury & taxes Group financial control 30
Fuel efficiency programme delivering company-wide savings Juergen Krins Governance Fuel management committee established to identify fuel saving initiatives Changes in fuel consumption policies Initiatives Weight reduction initiatives Monitoring of fuelling in Dublin & at bases Targeted vs. achieved 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 Conclusion Fuel efficiency is an integral part of Aer Lingus cross management responsibility 31
Strategic sourcing transformation Juergen Krins Strategic sourcing board Category management teams Procurement plan Cost reduction plans Governance Visibility Contract / supplier management Defined process Contracts in place before work has commenced Defined KPIs Performance based A common way of working Enabled through eprocurement tools Underpinned by a fit for purpose Procure-to-Pay system, a defined category management approach in conjunction with a robust compliance culture 32
Strategic sourcing transformation Juergen Krins Procure to Pay historic state Procure to Pay future state 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 Pay systems Currently at 3,000 active suppliers; target is to rationalize 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 with Strategic Sourcing unit as the approver Use of the Procure to Pay system fully utilized Only 2 ways to purchase goods or services in Aer Lingus: (i) through a Conclusion purchase order or (ii) through a P-card Organisational discipline as well as cost & efficiency savings 33
Greenfield programme next steps Juergen Krins Continuous cost & efficiency improvements Business transformation (HR, IT, & operations) Strengthened sourcing strategy / supplier management Increased flexibility of aircraft & resources (seasonality) Continuous improvement will become an integral part of daily operations at Aer Lingus 34
Michael Grealy Human Resources
Aer Lingus Human Resources Michael Grealy HR strategy is seeking to achieve cost advantages beyond what is available under historical constraints HR is supporting the delivery of Aer Lingus commercial strategy 52.8m of staff cost savings to be delivered under Greenfield in 2011 A key objective over last 2 years has been strengthening of leadership in the organisation Aer Lingus HR is supporting the delivery of sustainable profitability improvements 36
Medium term focus Michael Grealy Aer Lingus staff & management are on a journey Where we were Semi state heritage Where we are going Flexibility We have achieved demonstrable progress But further work remains to be done Inward facing culture IR conflicts periodically disrupting operations Productivity Address seasonality No compromise on change Our goal is to provide a meaningful employee proposition that supports the corporate strategy & continues to deliver a competitive unit cost position 37
We recognise that legacy issues must be addressed Michael Grealy Resource planning Rostering improvements Management are focused on addressing & resolving legacy issues Manpower planning Production planning Pension 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 Resolution of legacy issues is key to re-affirming employer & employee relationship as well as delivering shareholder value 38
Christoph Mueller Conclusion
Important decisions to drive shareholder value 2009 2010 2011 2012 2013 Christoph Mueller Completed In progress Legacy issues Commercial strategy Partnerships Greenfield 50m 80m 97m Production strategy Seasonality IT HR Legacy issues Real estate ESOT Leave & return Pension 40
Q & A