Aer Lingus - 5
Achtung! Herr Mueller spricht!!
From The Irish Independent, 10th Sept 2010
Boom business will never return, says Aer Lingus chief - Irish, Business - Independent.ie
I'm guessing here that by "low costs model" he's referring to a low fares to get bums on seats model, as keeping costs down would be a guiding principle of any well run business (within reason of course).
He also pointed out just how expensive everything is here in Ireland, saying it was like Switzerland. Yeup, we're still an expensive little country and about to be heaped with more taxes just to make sure we stay that way!!
JAS
AER Lingus chief executive Christoph Mueller has warned that the airline won't experience any passenger growth until at least next summer and that he doesn't ever expect the carrier to again witness the type of demand experienced during the boom years.
I'm guessing here that by "low costs model" he's referring to a low fares to get bums on seats model, as keeping costs down would be a guiding principle of any well run business (within reason of course).
He also pointed out just how expensive everything is here in Ireland, saying it was like Switzerland. Yeup, we're still an expensive little country and about to be heaped with more taxes just to make sure we stay that way!!
JAS
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Mr Mueller also confirmed that Aer Lingus has formally abandoned the low-cost model.
"We abandoned the low-cost model entirely. We haven't stimulated demand with this since January of this year," he told the audience. Offering fares for nothing "wasn't sustainable".
"We abandoned the low-cost model entirely. We haven't stimulated demand with this since January of this year," he told the audience. Offering fares for nothing "wasn't sustainable".
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Boom business
There will definetely be no return to the level of business achieved during the boom if they abandons the low cost model. There simply isn't the population in Ireland to sustain a full service airline at those traffic levels. However they are constantly advertising pay only taxes and charges seats. This seems to contradict the statement from Herr Mueller.
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So Aer Lingus is no longer a low cost airline in the Southwest and Ryanair mould, nor is it a full service legacy carrier. Have we not been here before particularly with the talk about joining an alliance - its only a couple of years since it left One World giving th reason that its point to point low cost business model did not fit the alliance concept. Are we going round in circles? Which alliance - it was One World due ot a close relationship with BA. Is it to be Star due to close relationship with United (and would that help both it and bmi on the Dub-LHR route?)? What about Air Fr/KLM due to long standing codeshare on Dub-Ams.
Can it survive as a non full service, non lowcost airline - it has now tried both and given up?
Ireland is a small country and bases in other jurisdictions are not a roaring success either.
Can it survive as a non full service, non lowcost airline - it has now tried both and given up?
Ireland is a small country and bases in other jurisdictions are not a roaring success either.
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My 2 cents worth:
321s will be gone(EI already looked at reconfig for Atlantic-too expensive).
190`s bought by EI but operated by Flybe or other (Air Berlin did this with their Q400s) Flybe will be the investor in Aer Arann, allowing the franchise with EI to continue. Not being a declared LCC does`nt mean you cant keep costs down or offer some ridiculous fares(loss leaders in retail) it just means you are declaring that you are going to give the pax something resembling a decent service for a decent fare. And it will be the Star alliance
Slan Anois
Pat
321s will be gone(EI already looked at reconfig for Atlantic-too expensive).
190`s bought by EI but operated by Flybe or other (Air Berlin did this with their Q400s) Flybe will be the investor in Aer Arann, allowing the franchise with EI to continue. Not being a declared LCC does`nt mean you cant keep costs down or offer some ridiculous fares(loss leaders in retail) it just means you are declaring that you are going to give the pax something resembling a decent service for a decent fare. And it will be the Star alliance
Slan Anois
Pat
Last edited by st patrick; 10th Sep 2010 at 23:46.
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Just one flaw to your analysis Pat, FlyBe haven't expressed any interest in investing in Aer Arann. And why would they operate flights for Aer Lingus using their own metal, when they can just keep the flights to themselves and all the revenues made from them?
I doubt all the A321s will go. Aer Lingus is to take delivery of 4 new A320s next year, and this happens to coincide with the end of the lease on 3 of their A321s, so ending the lease on them makes sense. But they'll retain the 3 they own, because they are required for some routes, particularly the Heathrow sectors.
I'll give my 2c here. I'm willing to give Mueller the benefit of the doubt, because unlike Dermot Mannion, he seems to actually know what hes doing. Mannion didn't have a clue, he f****d up the long-haul expansion, and he squandered hundreds of millions in the opening of a foreign base in Gatwick. He never knew what direction he was taking the airline in.
Whereas Mueller has defined exactly the kind of airline he wants Aer Lingus to be - in his words "the civil airline"(compared to Ryanair). Clearly he wants to focus on yields over passenger numbers, and to maximise load factor. It never made sense for Aer Lingus to adopt the Ryanair business model, because unless Aer Lingus can match Ryanair's cost base(which it never will and Mueller has even acknowledge this), then they can't compete with just low fares. He's also centering the focus of it's long-haul network on Dublin in order to create a connecting hub, given the advantages of the new CBP in T2, and the lack of capacity at hubs like Heathrow. So you definitely can't accuse the guy of not knowing what direction to take the airline in.
Whether it'll work is another story but the fact that hes nearly returned the airline to profitability speaks for itself.
I doubt all the A321s will go. Aer Lingus is to take delivery of 4 new A320s next year, and this happens to coincide with the end of the lease on 3 of their A321s, so ending the lease on them makes sense. But they'll retain the 3 they own, because they are required for some routes, particularly the Heathrow sectors.
Originally Posted by clareview
So Aer Lingus is no longer a low cost airline in the Southwest and Ryanair mould, nor is it a full service legacy carrier. Have we not been here before particularly with the talk about joining an alliance
Whereas Mueller has defined exactly the kind of airline he wants Aer Lingus to be - in his words "the civil airline"(compared to Ryanair). Clearly he wants to focus on yields over passenger numbers, and to maximise load factor. It never made sense for Aer Lingus to adopt the Ryanair business model, because unless Aer Lingus can match Ryanair's cost base(which it never will and Mueller has even acknowledge this), then they can't compete with just low fares. He's also centering the focus of it's long-haul network on Dublin in order to create a connecting hub, given the advantages of the new CBP in T2, and the lack of capacity at hubs like Heathrow. So you definitely can't accuse the guy of not knowing what direction to take the airline in.
Whether it'll work is another story but the fact that hes nearly returned the airline to profitability speaks for itself.
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EI strategy
Very similar to the Willie Walsh strategy in ways. I do think that EI will have to keep fares at reasonably affordable levels for leisure passengers unless they want to contract to a purely business orientated airline.
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I think that St. Patrick has made some excellent points above,
Christoph Mueller is fully in touch with the Macro environment along with trends in domestic demand at home. If he ever leaves EI in the future - there will be a job waiting for him at the EIU.
Aer Lingus are moving away from the pure low cost model that was introduced under Dermot Mannion's reign. The problem was, the man went into a major expansion drive just as the global economy was collapsing. He had visions for 8 aircraft based at Gatwick etc - all a dream in the end.
I think the ''Low Fares - Way Better'' slogan is very appropriate right now. Along with deeply discounting fares - for example, €31.00 DUB-IAD in Q4, 2008 - he made no real efficiency improvements.
Because of the inability to grow revenues in this environment, the cost base had to give.
In general, fares have increased in the past six months with Aer Lingus. On the basis of a 90 day advance, round trip purchase, Transatlantic Y has increased by some 20% - 25%, Transatlantic C has increased by between 45% -60% and European fares are also up. Transatlantic service has never moved to Low Cost at any rate and has remained along the general principles of a full service model.
Star Alliance will be the chosen alliance - take a look at some of the frequency changes recently on flights that operate into Star hubs or Star dominated airports and you can see where the future direction lies.
With Mr. Mueller's background - a further strengthening of links with the travel trade is likely in order to feed routes such as DUB-MCO further.
The airline is now profitable at current demand levels - which shouldn't trend any lower in the near term at least. Q3, 2010 operating results will be a further indication of the turnaround in performance.
In relation to the acquisition of Regional Jets - I don't think that this will be possible for EI before 2012, unless they are willing to deplete cash reserves. Net Cash was approximately €400 million at the end of June. We are going to see an outflow of approximately €50 million in the next 6 - 12 months as part of Greenfield severance payments. Counteracted by reduced cash bleed from a lower cost base, slightly improved booking profile and improved yields - there will still likely be a slight reduction in the Net Cash position at the year end - with the proviso that there are no disposals or other items that could generate cash.
Taking on further aircraft in the medium term would result in cash depletion.
We are probably entering a quieter period now in relation to EI - the airline has stabilised and at the same time there is no scope for any largescale expansion because of continually weak domestic demand.
If the current trends are maintained - clear profitability will be seen in Q2, 2011 with a greater than 40% chance now of a small operating profit being declared for the FY 2010.
The EI share price now continues upon a northward trajectory - closing at €0.9750 per share on Friday.
EI Premier
Christoph Mueller is fully in touch with the Macro environment along with trends in domestic demand at home. If he ever leaves EI in the future - there will be a job waiting for him at the EIU.
Aer Lingus are moving away from the pure low cost model that was introduced under Dermot Mannion's reign. The problem was, the man went into a major expansion drive just as the global economy was collapsing. He had visions for 8 aircraft based at Gatwick etc - all a dream in the end.
I think the ''Low Fares - Way Better'' slogan is very appropriate right now. Along with deeply discounting fares - for example, €31.00 DUB-IAD in Q4, 2008 - he made no real efficiency improvements.
Because of the inability to grow revenues in this environment, the cost base had to give.
In general, fares have increased in the past six months with Aer Lingus. On the basis of a 90 day advance, round trip purchase, Transatlantic Y has increased by some 20% - 25%, Transatlantic C has increased by between 45% -60% and European fares are also up. Transatlantic service has never moved to Low Cost at any rate and has remained along the general principles of a full service model.
Star Alliance will be the chosen alliance - take a look at some of the frequency changes recently on flights that operate into Star hubs or Star dominated airports and you can see where the future direction lies.
With Mr. Mueller's background - a further strengthening of links with the travel trade is likely in order to feed routes such as DUB-MCO further.
The airline is now profitable at current demand levels - which shouldn't trend any lower in the near term at least. Q3, 2010 operating results will be a further indication of the turnaround in performance.
In relation to the acquisition of Regional Jets - I don't think that this will be possible for EI before 2012, unless they are willing to deplete cash reserves. Net Cash was approximately €400 million at the end of June. We are going to see an outflow of approximately €50 million in the next 6 - 12 months as part of Greenfield severance payments. Counteracted by reduced cash bleed from a lower cost base, slightly improved booking profile and improved yields - there will still likely be a slight reduction in the Net Cash position at the year end - with the proviso that there are no disposals or other items that could generate cash.
Taking on further aircraft in the medium term would result in cash depletion.
We are probably entering a quieter period now in relation to EI - the airline has stabilised and at the same time there is no scope for any largescale expansion because of continually weak domestic demand.
If the current trends are maintained - clear profitability will be seen in Q2, 2011 with a greater than 40% chance now of a small operating profit being declared for the FY 2010.
The EI share price now continues upon a northward trajectory - closing at €0.9750 per share on Friday.
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EI/RE - Regional services
I think Aer Arann is going to be packed up, this presents a problem for EI and the smaller regional routes for which an A320 is too big to service efficiently. That will surely force their hand into doing something rather than loose business. I agree with previous posters about the costs involved but perhaps a similar agreement with another airline to franchise the routes is an option. Flybe isn't a big brand in ROI, they would have to invest significant resources in marketing and promoting any Irish routes. It potentially easier for someone like them to enter the market first under a franchise.
Just a thought!
Just a thought!
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Interesting! I think Flybe actually have a franchise agreement with Finnair whereby they will deploy ac on regional routes to feed into Vantaa and Finnairs international network.
I don't know the exact workings of the agreement and indeed I have to wonder how it will be affected by Finnairs purchase of a stake in Finncomm Airlines, to prevent AirBaltic mounting a take over! Finncomm are very similar to Aer Arann except they operate a couple of E-Jets along with the turboprops.
Actually, Finnair would be an interesting case study for EI. They are trying to build Vantaa as a hub for connections between Europe and Asia, they operate mostly Airbus ac (including orders for the A359) and they have recently purchased E190s!! Almost a mirror of the direction EI seem to be taking!
C
I don't know the exact workings of the agreement and indeed I have to wonder how it will be affected by Finnairs purchase of a stake in Finncomm Airlines, to prevent AirBaltic mounting a take over! Finncomm are very similar to Aer Arann except they operate a couple of E-Jets along with the turboprops.
Actually, Finnair would be an interesting case study for EI. They are trying to build Vantaa as a hub for connections between Europe and Asia, they operate mostly Airbus ac (including orders for the A359) and they have recently purchased E190s!! Almost a mirror of the direction EI seem to be taking!
C
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The difference between Finnair and Aer Lingus is that the Finnair hub is well placed, by flying over the pole, or at least very far north, to destinations in Asia. That attracts transfer traffic from elsewhere in Europe. Most European countraies are however well served with options to the US so Dublin is less attractive as a hub.
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Most European countraies are however well served with options to the US so Dublin is less attractive as a hub.
The destinations I refer to above eg Tenerife, Lanzarote, Alicante, Faro, Bilbao, Toulouse, Jersey, some of the Alitalian destinatations etc. In addition if the customer can get a fair price well then thats them well on their way.
As regards comments about EI needing a commuter outfit, ie Aer Lingus regional, in the absence of Aer Arann (if this should occur) surely there could be an airline interested in setting up as a franchise carrier for same. In US there are a few airlines who do franchise operations for the big airlines like Delta, US, AA etc.
I could see Flybe looking at this and they have demonstrated well that they are resilient against Ryanair. Eg SOU V BOU, BHD etc.
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Morning all!
Some interesting points above. EI Premier, I think you have analised Mueller`s plan very well. The Company is becoming profitable as it stands. Aer Lingus is a niche operator and as such growth opportunities are limited. T2 and Pre-clearance are 2 such opportunities as are franchise/joint venture. I may be wrong about Flybe buying Are Arann, but I do believe they will step into their shoes if the worst happens. I believe EI are willing to enter into franchises with more than one operator.
As to why EI would want E-jets, Mueller is on record as saying that he would like to serve places such as Geneva twice a day in order to capture the business traveler who currently connects through AMS or LHR. Cannot do this profitably with a 320. 319 is too expensive to buy/operate. Better to get a third party to operate it. He got agreement in Greenfield with the Pilots to
do just that. He also has Board approval to go shopping.
As regards the 321s, I think EI will get rid of them at the first convenient opportunity. You have to keep fares low to fill them(even on LHR) and it is all about maximising yield these days.
There will be news on the UA/EI JV at the end of next week.
Some interesting points above. EI Premier, I think you have analised Mueller`s plan very well. The Company is becoming profitable as it stands. Aer Lingus is a niche operator and as such growth opportunities are limited. T2 and Pre-clearance are 2 such opportunities as are franchise/joint venture. I may be wrong about Flybe buying Are Arann, but I do believe they will step into their shoes if the worst happens. I believe EI are willing to enter into franchises with more than one operator.
As to why EI would want E-jets, Mueller is on record as saying that he would like to serve places such as Geneva twice a day in order to capture the business traveler who currently connects through AMS or LHR. Cannot do this profitably with a 320. 319 is too expensive to buy/operate. Better to get a third party to operate it. He got agreement in Greenfield with the Pilots to
do just that. He also has Board approval to go shopping.
As regards the 321s, I think EI will get rid of them at the first convenient opportunity. You have to keep fares low to fill them(even on LHR) and it is all about maximising yield these days.
There will be news on the UA/EI JV at the end of next week.
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Very interesting points as ever St. Patrick,
In relation to the EI/UA JV - all indications seem to point towards another route being launched next Summer from IAD - quite likely to another destination in a Mediterranean country.
EI are hiring further Cabin Crew once again for the IAD base, with a certain amount entering a hold pool for recruitment at a later date - which all point towards expansion at the base.
On another note - it seems that there is a very high rate of Staff turnover ex IAD, when you consider the amount of positions that have been advertised in recent months for what is still a relatively small operation at the moment.
Regards,
EI Premier
In relation to the EI/UA JV - all indications seem to point towards another route being launched next Summer from IAD - quite likely to another destination in a Mediterranean country.
EI are hiring further Cabin Crew once again for the IAD base, with a certain amount entering a hold pool for recruitment at a later date - which all point towards expansion at the base.
On another note - it seems that there is a very high rate of Staff turnover ex IAD, when you consider the amount of positions that have been advertised in recent months for what is still a relatively small operation at the moment.
Regards,
EI Premier
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Guys I don't know why yous are talking about FlyBe taking over Aer Arann routes. As has been pointed out several times in this thread already and in the media, FlyBe have no interest in Aer Arann, and are not one of the 14 interested investors.
riptack, you have no idea whats going to happen to Aer Arann, so what puts you in any better position than the court appointed examiner to say that the airline is going to go bust? Its grand for you to make wild statements like that on a forum so that you can stir up rumours, but there are peoples jobs and livelihoods at risk here so cop yourself on before coming out with crap like that in future.
Originally Posted by riptack
I think Aer Arann is going to be packed up, this presents a problem for EI and the smaller regional routes for which an A320 is too big to service efficiently
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Ryanair moving away from low fares? How will this affect EI?
Ryanair must move away from low fares, says O'Leary | Business | The Observer
MO'L has been talking about the development of FR and how he believes it will move away from low fares; it's interesting that CM has already recognised this, but I guess the big question is, how will such a change in FR's strategy affect EI and can FR do this successfully?
I would hate to be the one to say "can't be done", but I think FR faces huge hurdles. Having spent the last 16 years or so leading the way in cost cutting and establishing a name for itself, it's very difficult to go from that into being a "normal" airline. FR has prospered because it ISN'T a "normal" airline. However, any changes it makes to the way it operates is going to affect other carriers ... but I suspect it's going to affect FR more. Can EI take advantage of this change in FR's strategy? I think so; the thing is, FR can't change much about what it does without adding to its costs. The ground FR wants to move into is already occupied by EI and several other carriers; take away the low cost aspect and what differentiates FR from other carriers is gone; what will FR offer then? To me, it's like the Coke -v- Pepsi thing, when Coke developed "New" Coke, about 20 years ago, which was a complete disaster. EI's big challenge is to ensure that it has positioned itself - particularly in the markets where both compet, to ensure that it can take full advantage of the changes FR makes to its model.
Ryanair must move away from low fares, says O'Leary | Business | The Observer
MO'L has been talking about the development of FR and how he believes it will move away from low fares; it's interesting that CM has already recognised this, but I guess the big question is, how will such a change in FR's strategy affect EI and can FR do this successfully?
I would hate to be the one to say "can't be done", but I think FR faces huge hurdles. Having spent the last 16 years or so leading the way in cost cutting and establishing a name for itself, it's very difficult to go from that into being a "normal" airline. FR has prospered because it ISN'T a "normal" airline. However, any changes it makes to the way it operates is going to affect other carriers ... but I suspect it's going to affect FR more. Can EI take advantage of this change in FR's strategy? I think so; the thing is, FR can't change much about what it does without adding to its costs. The ground FR wants to move into is already occupied by EI and several other carriers; take away the low cost aspect and what differentiates FR from other carriers is gone; what will FR offer then? To me, it's like the Coke -v- Pepsi thing, when Coke developed "New" Coke, about 20 years ago, which was a complete disaster. EI's big challenge is to ensure that it has positioned itself - particularly in the markets where both compet, to ensure that it can take full advantage of the changes FR makes to its model.
WRT moving away from low fares; all the indicators that are worth watching suggest the current global economic situation is not going to improve during any foreseeable time frame and what's worrying is that there is much to suggest that things around the world will get worse, and in Ireland's case, much, much, much worse before they bottom out, let alone show any signs of reversing the current trend.
With that in mind, airlines must face the reality, that for Europe anyway, of fewer people needing or wanting to travel. You can't entice people to fly with low fares when a) they don't have the cash in the first place and b) the new "austere" reality is that taking the weekend city break or sending executives on trips just doesn't look good.
So, you've got to get more revenue from the passengers who can/will fly. The result, expect fewer seats on fewer routes at higher prices.
JAS
With that in mind, airlines must face the reality, that for Europe anyway, of fewer people needing or wanting to travel. You can't entice people to fly with low fares when a) they don't have the cash in the first place and b) the new "austere" reality is that taking the weekend city break or sending executives on trips just doesn't look good.
So, you've got to get more revenue from the passengers who can/will fly. The result, expect fewer seats on fewer routes at higher prices.
JAS
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Dublinaviator, I'm sorry if my post was not clear, English is not my first language. When I referred to Flybe in my post I meant in terms of them operating a franchise for Aer Lingus not buying Aer Arann. This is the Aer Lingus Forum after all.
On the topic of Aer Arann's survival I meant no disrepect to any of its employees I just gave my own opinion. The facts are widely available for anybody to read in the Irish and International media, no inside information is even needed. I'm sure those who work there already have a perfect insight into what could happen without mine or anybody elses comments. What I was interested in is the Aer Lingus response to possibly loosing its regional operator.
On the topic of Aer Arann's survival I meant no disrepect to any of its employees I just gave my own opinion. The facts are widely available for anybody to read in the Irish and International media, no inside information is even needed. I'm sure those who work there already have a perfect insight into what could happen without mine or anybody elses comments. What I was interested in is the Aer Lingus response to possibly loosing its regional operator.