2012 Preliminary Results - Aer Linguscorporate.aerlingus.com/media/aerlinguscom/content/pdfs/corporate/... · 2012 Preliminary Results | 6 February 2013 13 Exceptional costs Exceptional

6 February 2013

2012 Preliminary Results

22012 Preliminary Results | 6 February 2013

Disclaimer | Forward looking information

Certain information included in these statements is forward-looking and involves risks and uncertainties that could cause actual results to differ materially from those expressed or implied by theforward looking statements.

Forward-looking statements include, without limitation, projections relating to results of operations and financial conditions and the Company's plans and objectives for future operations,including, without limitation, discussions of the Company's Business Plan programs, expected future revenues, financing plans and expected expenditures and divestments. All forward-lookingstatements in this report are based upon information known to the Company on the date of this report. Due to such uncertainties and risks, you should not place undue reliance on such forward-looking statements, which speak only as at the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of newinformation, future events or otherwise, except as required by law or by any appropriate regulatory authority.

It is not reasonably possible to itemise all of the many factors and specific events that could cause the Company's forward looking statements to be incorrect or that could otherwise have a materialadverse effect on the future operations or results of an airline operating in the global economy. Among the factors that are subject to change and could significantly impact the Company’s expectedresults are the fuel costs, competition from new and existing carriers, costs associated with environmental, safety and security measures, actions of governments and regulatory authorities,fluctuations in currency exchange rates and interest rates, airport access and charges, industrial relations, the economic environment of the airline industry and the general economic environmentin the markets to which the Company operates.


2012 operating profit of €69.1m; up €20.0m (+40.7%) on 2011Profitability

Positive trends across key performance metrics

Operating free cash flow of €75.2m; 5.4% of turnoverCash flow

5.0% op. margin can accommodate ALL investments in the years to comeMargin

Cash up to €908.5m (+1.5%) and debt reduced to €531.6m (-7.9%)Balance sheet

Passenger load factors up to 77.7% (+2.1pts)Asset utilization

Now more punctual than Southwest, the inventor of fast turnaroundsPunctuality

Ranked no. 4 of 16 in Europe for customer service*Customers

Gained market share in both long and short haul from LCCs, legacy,regional & charter carriers. This business model works, even in a recession

Competitors

Value creation and distribution; 2011 dividend: 3 cents; 2012: 4 centsShareholders

* Which? magazine members airlines survey, January 2013


Introduction to 2012 Aer Lingus preliminary results

Our business model works

Shareholder value delivered

Growth plan in place

2012 Financial ReviewAndrew Macfarlane, Chief Financial Officer

2012 Commercial HighlightsStephen Kavanagh, Chief Commercial Officer

CEO CommentsChristoph Mueller, Chief Executive Officer


2012 Financial ReviewAndrew Macfarlane, CFO


€mUnless otherwise indicated

2012 2011 Change %

Total revenue 1,393.3 1,288.3 8.2%

Operating profit/(loss)(before exceptional items)

69.1 49.1 40.7%

Margin % 5.0% 3.8% 1.2pts

Exceptional items (26.5) 37.2 N/A

Profit/(loss) before tax 40.6 84.4 (51.9%)

ASKs (million) 18,685 18,593 0.5%

€m31 Dec 2012

31 Dec2011

Change %

Gross cash 908.5 894.8 Up 1.5%

Debt 531.6 577.2 Down 7.9%

2012 financial highlights

Operating profit up 40.7%; strong balance sheet


Cost

SH

LH

Strong operating result

Strong revenue performance more than offsets fuel and airport charge increases

Revenue

2012 operating profit bridge (€m) – before exceptional items

SH

LH

LHSH

49.1

69.1

30.1

0.6

4.6

13.1

(69.9)

(19.7)

(7.6) 2.0 10.3

30.3

18

8.2

2011 Operating Profit

Yield Seat load factor

Seat capacity Other revenue Fuel Airport charges

Staff Other Other gains/(losses)

2012 Operating Profit


Fuel analysisFull year

2012Full year

2011%

Fuel burn (‘000 tonnes) 435.6 431.3 1.0%

Avg. price per tonne (US$) 994 878 13.2%

Avg. price per tonne incl. into-plane (US$) 1,052 937 12.3%

Total fuel cost (US$m) 458.3 404.1 13.4%

Average FX rate for period 1.29 1.40 7.9%

Total fuel cost (€m) 358.6 288.7 24.2%

Fuel price inflation – a significant cost challenge in 2012

Fuel price inflation and a stronger US$ combined to cause a significant increase in fuel costs


Forward fuel price as at 31 December 2012 and at 31 January 2013

Fuel Q1 2013 Forecast

Q2 2013 Forecast

Q3 2013 Forecast

Q4 2013 Forecast

2013Forecast

Estimated burn (‘000 tonnes) 89 125 130 103 447

% hedged 80% 65% 51% 36% 57%

Avg. hedged US$ price / MT 1,011 1,001 987 955 994

Fuel hedging as at 31 December 2012

890

920

950

980

1,010

1,040

1,070

1,100

Platts Jet CIF NWE (US$/MT)Historic Price Forward Curve as at 31 Dec'12 Forward Curve as at 31 Jan'13


€m 2010 2011 2012

Other gains 25.8 3.0 13.3

At 31 December 2012, US$132 million of the expected 2013 US$ trading requirement was hedged at an average rate of US$1.35

Other gains/losses – US$ hedging

Average US$/EUR rate for The year

1.20

1.25

1.30

1.35

1.40

1.45

1.50

Jan

-10

Ap

r-1

0

Jul-

10

Oct

-10

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

US$/EUR FX Rate – January 2010 to December 2013

USD$/EUR FX rate

Forward USD$/EUR FX rate

1.33

1.40

1.29

1.48 1.43 1.42

1.35

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

2010 2011 2012 2013

Ave

rage

USD

$/E

UR

Rat

e

Driver of “Other gains/losses”

Avg actual US$/EUR rateAvg hedged USD$/EURAvg forward US$/EUR rate


Airport charges in 2012

Airport charge variance analysis - €m

0.0

20.0

40.0

60.0

80.0

100.0

2012 2011

45.3

50.7

4.0(1.9)

3.2

0.1

2011 LHR charges

Price Volume FX Other 2012 LHR charges

86.4

92.51.0

5.00.1

2011 DUB charges

Price Volume Other 2012 DUB charges

DUB airport charges 2012 V 2011 - €m

Top 10 stations 2012 and 2011 - €m

LHR airport charges 2012 V 2011 - €m

275.7

295.39.0

5.2

7.2

(1.8)

2011 airport charges

Price Volume FX Other 2012 airport charges

On a steady state basis, price increases will add approx €15m to cost in 2013


Greenfield savings over-achieved

Target of €97 million exceeded. Remain committed to achieving continued cost reduction

74.0

56.0 55.7

6.7

62.4

23.0

28.0 28.6

13.2

41.813.0

Total Greenfield targetted savings (original plan

2009)

Revised February 2011 2011 exit run rate New savings achieved 2012

Annual value of savings at December 12

Staff Non Staff Other

€104.2m

€19.9m

€84.3m

€97.0m€97.0m


Exceptional costs

Exceptional credits/(charges) - €m 2012 2011

Restructuring provisions (incl. Greenfield) (17.2) 3.1

Advisory fees related to Ryanair Offer (9.9) -

Asset impairments (incl. A320 held for sale) (3.9) -

Release of impairment provision 4.8

Gain on surrender of head office site lease 21.0

Reclassification of cash flow hedges - 11.6

Loss on disposal of property, plant & equipment - (2.2)

Other (0.3) 3.7

Total (charge)/credit (26.5) 37.2

Restructuring provisions in 2012 are costs associated with the closure of hangar maintenance at Shannon and Greenfield


Strong cash generation in 2012

Strong cash generation in 2012

• Net capital expenditure in 2012 relates primarily to A330 engine purchase, capitalised aircraft maintenance, facility upgrades and other equipment costs

€ million

40.6

75.2

79.5

3.1

(22.0)

(41.1)

(2.2)17.3

Profit before tax Depreciation Provisions Working capital Net capex Net interest paid Other (incl exceptional

items)

Free cash flow (FCF)

Free cash flow represents cash generated from operating activities less net capital expenditure (purchases of fixed assets exclusive of finance lease raised less proceeds from disposals) plus or minus net interest received/paid


(577.2)(531.6)

(5.1) 45.2

5.5

Gross debt December 2011

Interest accrued Debt repaid FX Gross debt December 2012

Strong balance sheet

Gross cash increased by €13.7 million, debt reduced by €45.6 million, all debt is aircraft related

Gross Cash€m

Debt€m

894.8 908.5

75.27.7 (45.2)

(16.0) (2.5) (5.5)

Gross cash December

2011 Free cashflowInterest accrued Debt repaid Dividend

Investment in JV FX

Gross cash December

2012

Debt repayments

2013: €42 million

2014: €118 million


2012 Commercial HighlightsStephen Kavanagh (CCO)


Revenue component €’m€’m increase

yr on yr% Change yr on

yr

Passenger revenue 1,159.8 91.8 8.6%

Retail revenue 176.5 7.8 4.6%

Cargo revenue 45.7 2.7 6.3%

Other revenue 11.3 2.7 31.4%

Total revenue 1,393.3m 105.0 8.2%

83%

13%

1%

Strong revenue growth across the business

Commercial highlights

3%


38% 39%41% 43%

2011 2012Aer Lingus market share (%)

Aer Lingus market share (incl Regional) %

49%53%

2011 2012

Aer Lingus market share (%)

45%46%

2011 2012

Aer Lingus market share (incl Regional) %

9.9

10.410.8

2010 2011 2012

Passengers ('m)

• 10.8m passengers flown in 2012 on all services including:

• Aer Lingus Regional

• Washington Dulles – Madrid codeshare with United Airlines

• Highest ever number of passengers flown on Aer Lingus services in a single year

+5.1%

Passenger development

Market share development

Passenger and market share development

+3.9%

DUB – London Traffic Ex-Ireland TA Traffic Total Ex-Ireland Traffic

Source: DAA, CAA figures


8,616

8,674

2011 2012

66.09

68.67

2011 2012

12,509

12,464

2011 2012

Short haul performance

Strategy of carefully managing capacity deployment and focusing on maximising yield per seat is delivering positive results

• Demand led capacity deployment

• Continuous investment in frequency and schedule quality creating choice for customers

• Price and volume both contributing to growth in revenue per seat

Capacity (ASKs in millions)

+0.7%-0.4%

Customers (thousands) Fare yield per seat (€)

+3.9%


248.03

289.12

2011 2012

6,084

6,221

2011 2012

897

979

2011 2012

Strategy of carefully managing capacity deployment and focusing on maximising yield per seat is delivering positive results

• Partnership and connectivity continuing to play key role in growing passenger volume

• Excellent load factor (82.5%) performance combined with effective pricing driving fare yield per seat

• Business cabin continues to perform strongly, accounting for 22% of LH revenue in 2012

Capacity (ASKs in millions) Customers (thousands) Fare yield per seat (€)

+16.6%

Long haul performance

+2.3% +9.1%


• Product launch

- Fare family (low, plus and flex)

- Sky Deli Menu

- Choice Seats on Long haul

• Opportunity enabled by seat assignment

• Continuous investment

- Pre-order meals on long haul and short haul

- New Business lounge at Boston

- Wi-Fi rollout from Q1 2013 on long haul, short haul fit out to commence in Q4 2013

- Online / mobile channel development to optimise Retail product sales

€euro 2012 2011 % Change

Retail revenue per passenger 18.28 17.73 3.1%

Retail revenue

Ongoing investment in retail revenue generating positive results


Cost effective network extension through partnerships

¹Inclusive of short haul and long haul flows from our interline partners. 2 Excludes EI Regional Traffic

2012 2011 Growth %

Interline flown passenger volumes1,2 (‘000) 832 789 5.5%

Aer Lingus Regional passengers (‘000) 1,010 758 33.3%

Open architecture approach delivering growth

• Increased code-share with United Airlines

• New partnership, code-share with Etihad Airways

• Move to jetBlue Terminal 5 at New York

¹Inclusive of short haul and long haul flows from our interline partners. 2 Excludes EI Regional Traffic


Our commercial strategy continues to create value


CEO CommentsChristoph Mueller, CEO


Our ‘value carrier’ business model works – even in a recession!

The business has been stabilised and returned to profitability

The next phase of our plan is to deliver sustainable growth for our shareholder

Growth will be achieved through three main business components:

1Aer Lingus Mainline

3 New business ventures/

white label flying

2Aer Lingus Regional

Future growth plans


• The classic Aer Lingus connecting Ireland with the World

Transatlantic

• Strengthening Dublin as Hub for superior North Atlantic connections. All main gateways with at least 2 daily flights.

• 15 % capacity growth in 2013 supported by code share agreements and improved connectivity at both ends.

• US customs pre-clearance at Dublin and Shannon provides significant competitive advantage

• Neutrality from three major alliances is key, our focus is on travel patterns of our 70 million customer base of Irish Diaspora

• Ability to open up selectively a range of additional routes and destinations in all important regions

• Selection of partners is minimum equal or even superior to own service offering; the product is accepted

Aer Lingus mainline

Partnerships

Network Reach

• New summer schedule 2013 has triggered the strongest revenue bookings in our history for consecutive days in January 2013

• New Summer schedule 2013 is attractive to partners and has caused multiple code share/interline requests.


Aer Lingus mainline (continued)

LHR Terminal 2 (STAR)

JFK Terminal 5(jetBlue)

• Move to New Terminal 2 (Star Alliance and Virgin) at London Heathrow

• Now modern state of the art terminals in Dublin, London and New York

• Seamless transfers to all partnering airlines in the same terminal

• Aer Lingus regarded partner due to hands on approach and pragmatism

Ancillary revenue

• Fare revenue increases will always reach a ceiling as a function of fuel

• Ancillary revenues main growth area in the industry: Aer Lingus in top 10

• Aer Lingus approach honest: tangible value for money rather than rip off

• Recent successes with ‘fare family’ and ‘sky deli’

• 2013/14: total fleet will be wifi, pre-order meals, attractive retail

Developing new markets

• Continue to compensate for weakness in key Irish and UK markets

• Gains already achieved with 60% of long haul bookings now sourced in US, 47% of all bookings now sourced outside Ireland

• Aer Lingus only “online network carrier” in Europe with rapidly increasing brand recognition

• Irish brand and lifestyle has international resonance and acceptance


• Over 1 million passengers carried in 2012; an 33.3% increase on 2011

• The particular benefits of the Regional model are:

• Allows us to profitably service lower capacity routes while maintaining high frequency

• Using Aer Arann turbo-prop aircraft as fuel efficient tool to keep the prices low

• Franchise fee is equivalent substitute to short haul margin; creates the right incentives on both sides

• Important source of passenger feed for transatlantic services; it is just faster to the USA

• 10 year extension of franchise agreement reflects importance of Regional services to the Aer Lingus business

• Aer Lingus is investing in the business model:

• Not as a shareholder in the airline to avoid “cost creep”

• But as an asset owner in a joint venture with Aer Arann shareholders

Aer Lingus Regional


• Virgin Atlantic ‘wet lease’ agreement presents profitable opportunity to increase our production base with positive effects on overall unit costs

• ACMI (i.e. aircraft, crew, maintenance and insurance), other commercial agreements (franchise, JVs) also possible within the same platform

• In this case, we combine:

• Cost efficiencies of our established UK production platform

• Capability and knowledge of experienced operator (highest punctuality and baggage delivery in London Heathrow)

• Low risk entry into a very complex market

Wet lease of an Airbus 330-200 for three consecutive winter seasons

• Operation of a long haul aircraft from Europe to various Caribbean destinations on behalf of a major European Tour Operator to fill our winter low. Substantial contribution to our margin due to higher capacity utilisation

• We will disclose details in due course

New business ventures/ white label flying


Q&A


FY 2013 Development Key financial considerations

Termination of ECS and redeployment of A330 in our long haul services for Summer 2013

• The overall bottom line impact is expected to be marginally positive year-on-year

Virgin Atlantic ‘wet lease’ agreement

• Four A320 aircraft - costs will impact each relevant profit and loss line. • Revenues will be “other income”. • 2013 will absorb setup costs• Similar margin to short haul operations over the life of the contract

Aircraft leasing vehicle investment

• Attractive return on equity over the life of the Joint Venture• Returns will increase as aircraft are delivered over 2013 and 2014• Effect on 2013 small

Airport charges

• On a steady state basis (i.e. assuming the same passenger/movement volumes as 2012), price increases, mainly at Dublin, London Heathrow, Spanish and Italian airports, will add approximately €15 million to costs in 2013

Appendix A - 2013 modelling guidance


€mUnless otherwise indicated

Q4 2012 Q4 2011 Change %¹

Revenue

Passenger revenue 254.2 232.7 9.3%

Retail revenue 38.7 37.2 4.0%

Cargo revenue 12.1 10.9 11.0%

Other 1.2 2.6 (53.9%)

Total revenue 306.2 283.4 8.0%

Operating costs

Fuel 83.8 75.4 11.1%

Staff costs 65.2 64.6 0.9%

Airport chares 66.6 64.1 3.9%

Other operating costs 108.0 96.9 11.5%

Total operating costs 323.6 301.0 7.5%

Operating loss before net exceptional items (17.4) (17.6) 1.1%

Exceptional items (1.7) 22.4 NM 2

Operating loss after net exceptional items (19.1) 4.8 NM 2

Appendix B - Q4 financial highlights

¹ Sign convention: favourable/ (adverse) 2 Not meaningful

Documents

2012 Preliminary Results - Aer Linguscorporate.aerlingus.com/media/aerlinguscom/content/pdfs/corporate/... · 2012 Preliminary Results | 6 February 2013 13 Exceptional costs Exceptional