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.

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