Thursday, 22 March 2012

Aer Lingus: Independence Day ©


 “Neutrality contributes to the bottom line it is paramount”- CEO Christoph Muller

In recent weeks their has been speculation as to whom to the government will sell it’s 25% stake however the sale process is a long way off as Market conditions remain extremely tough as a number of flag carriers in the EU are up for sale, IATA has warned that high fuel costs will adversely impact on airlines profitability and domestic demand in Ireland its core market remains very weak. The Government has indicated it will sell the shares at the "Right Price and Right Time".

The Aer Lingus Management team has consistently stated since the adoption of the Hybrid Business Model (elements of LCC & Legacy model) which has restored profitability, that it is essential the carrier remains independent as is key to the future leveraging its geographic position and Dublin Hub to create new traffic flows using multiple partnerships.

An Aviation Week Top-Performing Airline ranking report December 2010 ranked Aer Lingus in position 6 out of 10 legacy carriers, having jumped 8 places on the December 2009 ranking. The report stated ‘Carriers can still thrive without consolidating or joining an alliance, if they have the right business plan’.

There is growing opportunities to leverage new partnerships to access the fast growing BRIC countries as airlines from these countries add new frequencies and routes to major European hubs (Frankfurt, London Gatwick, London Heathrow and Paris CDG), therefore it is of benefit of the airline and Ireland Inc that it remains independent rather than be aligned to a single carrier or alliance.

The airline has multiple agreements with Aer Arann Regional (Ireland), Air France-KLM (Amsterdam), British Airways (London), JetBlue Airways (Boston/New York JFK), United Airlines (Chicago) making an equal contribution to revenue/profitability, the Carrier is the largest feeder to British Airways (Heathrow), JetBlue Airways (New York JFK) and Virgin Atlantic. Therefore to align with one carrier will severely undermine profitability.

The airline could potentially leverage its London Heathrow slot portfolio to add new partnerships post the IAG Group take-over of BMI Airlines (Star Alliance) and/or further develop the existing interline agreement with British Airways (IAG).

The airline stated in its 2011 Annual Results “The Group will in 2012 further study the viability of a North Atlantic bilateral using anti-trust immunity, i.e. the legally permissible full co-ordination between Aer Lingus and another airline on scheduling, pricing, revenue management, marketing and sales on selected routes”.

This could set stage for the carrier to deepen its strategic relationship with JetBlue Airways as the carrier indicated on the investor day on the 28th of September 2011, the next phase was to develop code-share and Global Distribution access leveraging low-cost web to web platforms, which could see the JB code placed on Aer Lingus flights from New York JFK in due course.

The Aer Lingus CEO Christoph Muller stated on the publication of the 2011 Annual Report it would announce a “New Era of Strategic Partnerships”. On the 14th of March the first phase of the strategy was announced when Aer Arann Regional would re-brand as Aer Lingus Regional with effect from the 25th of March.

The airline rolled out the Sabre Airline Solution system as part of an IT systems upgrade enables the carrier to add new partnerships in tandem as it develops the economy product by the bundling of service features (Bag & Seat) to appeal to legacy carriers. Thus the foundations of the independence are in place to enable a multiple partnerships to be expanded in due course.

Aer Lingus is ideally placed to reap the benefits of the growing trend of emergence of JV’s within alliances as platform to maintain independence leveraging its brand and slot portfolio, to tap into Irish Diaspora of 70 million people throughout the global through partnerships, this strategy will enable the carrier to maintain it’s unit cost advantage without a trade buyer infecting the cost base to a higher level.

Aer Lingus Partnerships

Irish Aviation Research Institute © 22nd March 2012 All Rights Reserved.

Tuesday, 20 March 2012

Aer Lingus & Ryanair new aircraft orders ©

The prospects of Aer Lingus and Ryanair securing very attractive new aircraft  pricing in the next 18-24 months have improved considerably as cracks begin to appear in the current aircraft order cycle as industry pressures begin to mount, it will be interesting to see will the carriers be able to secure similar deals to those after 9/11 when both carriers placed orders enabling them to widen the unit cost differential with competitors can they repeat the trick again?

The factors: 1)  American Airlines is likely to consolidate post Chapter 11 process & on-going consolidation in US Airline industry 2)  Lufthansa considers freezing capacity (2011 Annual Report) 3)  A recent S&P report on the European airline sector highlighted GDP/Fuel issues 4) IATA warns airlines face bankruptcy if fuel costs rise from $120 to $150 per barrel particularly in Europe 5) Industry analysts have warned of a bubble with the existing aircraft order backlog due long-lead times 6) Airbus is concerned with the state of the Indian Airline market (Long-term prospects good) 7) ILFC lease rates under pressure 9) Airbus and Boeing some orders on the books are 'paper orders' ISTAT12 10) AerCap CEO Aengus Kelly ‘Clearly there is a vast amount of over-ordering’ (WSJ 23rd February 2012) 8) Significant re-structuring of EU short-haul market

Aer Lingus and Ryanair are ideally  placed to seize new aircraft order opportunities as they arise in the next 18-24 months as both carriers are profitable and growing unit cost differential with competitors with robust balance sheets.
                                      A fuel-efficient engine option for Airbus' A320 Family

                                                      New Boeing 737 MAX


Irish Aviation Research Institute © 20th March 2012 All Rights Reserved. 

Monday, 12 March 2012

Ryanair: Managing Demand ©

Ryanair 737s at Cork Airport: Picture Courtsey of Paul Daly

Ryanair has responded to evolving market conditions with speed through the Chief Operating Decision Maker (CODM) modelling to allocate the aircraft in terms of where it will generate the highest yield and revenue to achieve the highest rate of return rather than individual route performance, thus protecting its margins as fuel costs expected to rise by €350 million in FY2012.

Ryanair announced on the 6th of March the airline announced that it was to cease routes from its new Budapest Base to Chania, Palma, Rhodes and Trapani citing weak demand, and replace them with two new routes to Billund and Dusseldorf Weeze and increase frequency on routes to Barcelona London Stansted, Paris Beauvais ( 6th March 2012)

Ryanair announced on the 2nd of March it would not proceed with plans to base an 8th Boeing 737-800 at Faro, with the carrier to terminate three routes to Bergamo, Marseille and Leipzig while frequency will be cut on seven routes (Bournemouth, Beauvais, Bristol, Cork, East Midlands and Maastricht citing “Operational reasons”, although local media report indicate low demand on the routes (Low Cost Portugal 6th March 2012).  

The Ryanair Budapest and Faro Base announcements demonstrate the ability of the carrier respond quickly to market conditions axing underperforming routes and replacing them with new routes, as the Euro Crisis evolves asset allocation will play a key contribution to FY2012 results. In the context of the Irish Market the reduction of the frequency on the Faro to Cork route by one weekly is interesting as Aer Lingus is to increase frequency on the route by one weekly frequency indicating strong outbound summer traffic on the route.

Irish Aviation Research Institute © 12th March 2012 All Rights Reserved.

Tuesday, 6 March 2012

Irish Airlines Report February Traffic ©

Aer Lingus announced that it carried 658,000 passengers in February up 8.8% with a load factor of 67.3% up 1%. The airline carried 45,000 long-haul passengers up 15.4% with a load factor of 64.9% up 2.2% and 554,000 short-haul passengers up 6.9% with a load factor of 68.5% up 0.9%. The Aer Lingus Regional operation carried 59,000 passengers up 22.9% and as usual the figures exclude passengers carried on the United Airlines Joint-Venture Washington Dulles to Madrid route.

The Aer Lingus short-haul load-factor of 68.5% is above the AEA Airlines of 65.4% and on the long-haul the Aer Lingus long-haul load factor of 64.9% versus AEA Airlines at 72.6%, the information in based on AEA Data for the four weeks ended 26th of February.


Ryanair announced that it carried 4.47 million passengers in February down 2% with load factor of 76% and in the rolling 12 months to the end of February it carried 76.1 million passengers. The carrier’s traffic will have been boosted by the collapse of Malev Airlines and Spanair with the launch of the new Budapest Base and increased demand on routes from Barcelona, as the carrier reported 44,000 rescue bookings from Spanair passengers.

In Europe the Danish Trade Union 3F is seeking to negotiate a collective bargaining agreement for employees for Ryanair’s 48th European Base in Billund B, which has been rejected by Ryanair “Since all our workers are employed on Irish air territory and under Irish contracts, we have no interest in negotiating with the Irish, the Danes or any trade union” (NewEurope online 6th March).

Ryanair opens its 50th European Base in Paphos in April , however one of the unions representing Cyprus Airways staff warned that it will make a formal complaint on the joint agreement between the state and Hermes Airports to local and EU officials unless they get the same incentives as Ryanair (Famagusta Gazette 6th March).

Irish Aviation Research Institute © 6th March 2012 All Rights Reserved.


Monday, 5 March 2012

IAG CEO Willie Walsh: Consolidation through Joint-Ventures ©

The IAG CEO Willie Walsh gave an insight into his views of consolidation in the airline industry, on the announcement of the IAG 2011 Full Year results on the 29th of February in a rapid changing environment where there is opportunities and threats.

A constantly theme on the conference call was the need for further consolidation with a particular emphasis on the US Industry, this is very interesting on the context of a potential marketing tie-up between American Airlines (Oneworld) and JetBlue Airways. The IAG CEO previously stated interest in JetBlue Airways given its strong position in the New York market where it is competing against Delta Airlines (JFK) and United Airlines (Newark).

The IAG CEO Willie Walsh views on the evolving consolidation are interesting as Aer Lingus considers its strategic options, Willie indicated that Joint-Ventures offer many benefits (Cost/Revenues) without the full issues of a merger and there is a growing trend of these Joint-Ventures within Alliances, in the Oneworld Alliance two separate JV’s are in place for different global markets with the trilateral JV AA/IB/BA (Atlantic) and IB/BA/QF (Asian/Australia).

The carrier is yielding benefits of developing a Singapore Hub where sectors are shared between partners (British Airways and Qantas Airways), thus reducing operating costs and allowing re-deployment of aircraft within the networks, as BA has been able to re-deploy capacity onto the Atlantic. The IAG Group is pursuing a new JVA with JAL Airlines for which it expects regulatory approval from the Japanese authorities in the next 12 months.

                                                    IAG CEO Willie Walsh Quotes:

‘Airline failures are the cheapest form of airline consolidation’.

‘We will focus on the integration of BMI and we are open for further opportunities where it is sensible effective consolidation’.

‘There is room for further consolidation in the US I would be amazed if not’.
‘Growing trend of emergence of JV’s within alliances’.

‘Joint Ventures make sense consolidation working very well’.

'This is an exciting time for the US Industry it has to consolidate further as this would change the regulatory environment’.

It will be interesting to see how the IAG acquisition strategy evolves as joint-ventures rather than acquisitions come into prominence in the industry, given the airline had drawn up a list of 12 potential targets to pursue in 2010 ,in the context of a very challenging market environment, as JV’s would allow consolidation synergies without impacting on the balance sheet.

Irish Aviation Research Institute © 5th March 2012 All Rights Reserved.