Future of Travel Industry

8/6/2019 Future of Travel Industry

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Keynote address:

The Future of the Travel Industry

Dermot Mannion Chief Executive

International Society of Tourism and Travel educators Annual Conference


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drakedaa [printed: August 7, 2006 9:33 AM] [saved: August 7, 2006 9:40 AM] 07060K239 - 805ac688

The Future of the Travel Industry.?
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Key issuespresent and future

Sustained ultra-high fuel prices

Slowing consumer demand in key markets

Intensifying competition

Industry consolidation

Environmental issues

.

.


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The credit grenade and its consequences

Housing/Consumer Slowdown

Credit CrunchBanking Crisis

FallingAsset Prices

Interest Rates$// FX

Western Economies In Sharp Slowdown

Huge VolatilityIn Commodities


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Jet fuel velocity

Rate of increase, not actual price, has undermined airlines


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The stock market reacts

Travel companies and airlines capitulate on all stock markets


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Airline Industry Response

Step 1 - Hold firm, take market share

Step 2 - Curb capacity growth and raise yield

Step 3 - Restructure costs and rationalise

Step 4 - Survive, merge or capitulate

Consolidation phase accelerating amid current crisis


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Challenges amplifies in Ireland

Economy at centre of Anglo-American crisis

Open economy with heavy $/ exposure

Short-haul Direct fight with lowest cost provider

Long-haul Fast changing transatlantic alliances

Aer Lingus under extreme market pressures


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What faces Aer Lingus ?

Sharp slowdown in home market + $/ revenue pressure

Unit costs rising labour, fuel, airports

Short-haul - key competitor expanding 15% pa minimum

Long-haul - competitors merging to cut costs, exploit market share. Open Skies

a game changer. Star, Skyteam, OneWorld = 70% transatlantic market

Rapidly changing environment creates real threats


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The European Airline Industry in 2015

2015

2008 Scenario A Scenario B

British Airways British Airways/IB British Airways/IBLufthansa Lufthansa Lufthansa

AF/KLM AF/KLM AF/KLMRyanair Ryanair Ryanair

easyJet easyJet easyJet

Air Berlin FinnairIberia Aer Lingus

SAS Virgin Atlantic

Alitalia

Austrian

Finnair

Aer Lingus

BMI

Virgin Atlantic

Brent per Barrel $125 $100 $200

Source Goldman Sachs


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The Original Challenge for Aer lingus

Preparing for an IPO

Major expansion

Compete on short haul and long haul

Deliver a consistent product to the customer

Low prices on direct flights

Extras that make flying easier

High level of customer service

An experience with a human touch

Grow profit


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The new Challenge(or is it really a New challenge

Survive

Innovate

Compete

Exploit opportunities

Remove cost from the business

Deliver a consistent product to the customer

Low prices on direct flights

Extras that make flying easier

High level of customer service

An experience with a human touch

Return to profit


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2008 and beyond - Changing perceptions

Since 2001 Aer Lingus has had to change to remain (become?) relevant

Aer Lingus Brand still has natural advantages

Customers still have high expectations

.at very Low fares

Post IPO, Aer Lingus has a greater number of constituencies/Audiences Customer

Staff

Market

Regulators

Shareholders

Airline needs to drive the business profitably forward

While retaining all that sets Aer Lingus apart from the rest


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2001 | Short Haul Point-to-Point 2008 | Short Haul Point-to-Point

2008 2001

Change

Routes 86 31

+ 55Aircraft types 1 4

Network Development 2001- 2008


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Positioning

Full Frills

Impressive

Sophisticated

Flexible

Expensive

Few Frills

Friendly

Practical

Fair

Relevant

No Frills

Cranky

Basic

Unapologetic

Tolerable

Cheapand

nasty

Cheapand

cheerful

Priceyand

smart


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based on value-for-money positioning

Operational focus on cost reduction

Key aspects of service delivery differentiation

Low fares at the core of all communication

Cost focused Customer focused

Economy pricing Premium pricing


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How our Customers currently perceive us:

Warm, welcoming (typically Irish)

Professional, punctual, safe.

In the Irish market: Expect our brand to deliver higher levels of service and customer care.

Arguably a hangover from past experience/communication ?

A real alternative to traditional Low cost carriers

Markets outside of Ireland (e.g. NI, GB, Ger, USA)

Stronger on aspects of service and customer care.

Often aligned with traditional carriers rather than Low cost carriers.


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The message.Consumer

Low FaresDirect services to popular destinations

Professional and efficient customer service delivered with a human touch

Central city airports

Allocated seatingOne-way fares (short-haul and

long-haul)

e-booking

Efficient check-in (FastPass kiosks)

Frequent Flyer programme

Customer care in event of disruption

Although the Airline has changed, the primacy of the customer remains


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The message.Market/Investors

Profitable enterprise

Well run company

Strong management team that are on top of the significant issues that thecompany and industry face

Robust business model

Continues to compete strongly in all markets

Investors are comfortable with Aer Lingus' hedging approach to fuel

Management has a clear plan and is executing it well


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The message..Staff

Customer is at the centre of everything we do

The airline is well placed to grow for the benefit of all stakeholders

Progressive organisation

Rewarding and fulfilling place to work

Management has a clear plan and is executing it well

Change has been, and will be ever present


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Innovation


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To Drive Revenues without driving Cost

Expand network reach into new markets

Leverage our Know-how bulit up over many years aerlingus.com

Selectively leverage other distribution channels in existing markets

www.aerlingus.com

Travel Agent Consolidators

Dot.Coms etc.

All to be achieved without adding infrastructural cost or complexity

Sum of Sectors (EI Short-Haul and Long-Haul networks)

jetBlue Farelink (EI Long-Haul and B6 Short-Haul networks)

United Codeshare


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Sum-Of-Sectors

To access bigger markets - connect Europe to North America.

To leverage connection opportunities between our 2 standalone networks

To use Sum of Sector technology on the website to ensure that both LH and SH componentof connected product are sold at the optimum yield. Avoid cross-subsidisation

To leverage existing Sales and Marketing efforts in US and Europe to sell Europe out of theUS and US out of Europe


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Sum of Sectors - What is it?

We conducted an analysis of connecting possibilities from Short Haul to Long Haul

In many cases, there were no valid connections (without adjusting schedules) or a strong direct incumbant existed

In the case of 28 cities, connections existed, incumbants were expensive or in some cases, no direct services existed

For Example

JFK & BOS

BCN, MAD, CDG, NCE, LIN, MAN, GLA, LGW

JFK Only

FCO, NAP, WAW, KRK

BOS Only

DUS, FRA, BRU, BHX, CPH


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How we sell it - Search Engine Marketing

Strategy is to bring customers to aerlingus.com through Search EngineMarketing

(above) UK customers search for Manchester to New York


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Driving Passenger Revenue through partnership

Linking Aer Lingus lowest fare short-haul and long-haul sectors to offercustomers seamless connections

Industry first partnership with jetBlue to offer connections between Irelandand 40 destinations in the US - seamless booking process onaerlingus.com

New codeshare agreement with United Airlines commencing Nov 2008covering all of Aer Lingus US gateways with access to over 200 additionalUD destinations

The codeshare which will apply to all Aer Lingus transatlantic flights to andfrom Shannon and Dublin will also result in simplified reservations,

ticketing, through check-in and coordinated baggage handling forpassengers.


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United Network


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JFK Connections With

JetBlue Services


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Long Haul Product Enhancement

Long Haul Product needs to be relevant

Current product is inconsistent

Recent new aircraft arrivals set the new standard

Major retrofit programme underway

At least 80% of Long Haul fleet at new standard by Summer 2009

New seats in both cabins

Enhanced Premier Inflight Entertainment system (IFE)

Video on Demand in Economy Other misc. cabin enhancements


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Driving Revenue through

Ancillary Revenue

Baggage Charges introduced with 60% of customers pre-paying online

Introduction of Seat Selection fees on Short Haul and Orlando

New Travel Insurance option at point of booking provided by Mondial

Improved Car Hire proposition through dynamic packaging at point of booking

New hotel provider, lastminute.com contributing increased hotel bookings
http://www.aerlingus.com/cgi-bin/obel01im1/bookonline/goHome.do?BV_SessionID=@@@@0981848038.1204764428@@@@&BV_EngineID=ccchadedhkjfildcefecfigdffgdfkh.0


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Delivering Growth | New Bag Tag Kiosk

Bag Weighing Scale


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The Environment

A i ti t ib ti t li t


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drakedaa [printed: August 7, 2006 9:33 AM] [saved: August 7, 2006 9:40 AM] 07060K239 - 805ac688Aviations contribution to climatechange

Aviation accounts for about 2% of total anthropogenic CO2 emissions

Domestic aviation is included in Kyoto commitment to find a solution throughICAO for international air transport

Contribution to man-madecarbon dioxide emissionsaccording to different key

studiesSources: IPCC, UNFCCC, IEA and DLR


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2007 | Reducing Fuel Consumption

Average specific fuel consumption(litres per 100 revenue passenger kilometres)

8.15

7.64

6.56

5.91

4.52

4.82

4.65

4.865.00

4.92

5.085.19

4.214.10

3.94 3.98

4.04

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

1991

1993

1995

1997

1999

2001

2003

2005

2007

Aer Lingus fleet 2007

4.04 litres /100 RPK

50%

reduction since 1991


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2007 | Reducing Fuel Consumption New Aircraft

Fuel burn - kilos of fuel, per seat, per flight hour

Reducing fuel burn and emissions

18.1

A330-300

Enhanced

17.2

A350-800

19.0

A330-300

(OG)

15.4

A350-900


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Emission Trading Contd

2005 2006 2007 2008 2009 2010 2011 2012 2013

C

O2

produc

tion

/tonnes

This amount of CO2 is allowed without

charge

This amount of CO2 must be

purchased from the open market

CO2 can only come from otherindustries which can reduce their

CO2 below the capCAP


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2008 First Half | Financial Summary

m 2008 2007 Change

Total revenue 632.9 574.1 + 10.2%

EBITDAR 36.0 56.5 (36.0%)

Operating (loss)/profit (before profit share) (22.3) 2.6 NM

Return on Invested Capital (%)** 17.4% 17.3% +0.1pt

Loss reflects difficult consumer and fuel environment

Delivery on cost saving initiatives through PCI and maintenance contracts

Worsening market conditions call for a fundamental overhaul of our cost base

**As measured by EBITDAR/Replacement Value on 12 month-rolling basis.


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Future imperatives

Economic outlook in main markets uncertain - exacerbated by continuing risein oil prices 64% of 2008 fuel exposed to market US$5 change in the price per tonne of jet fuel has US$1.5m impact on cost of

unhedged fuel requirements for the period March to December 2008.

Key focus will be to increase awareness and traffic on new gateways while

continuing to drive performance on current gateways

Open skies now offers us the means of supplying the market purely againstdemand and market dynamics

Sum of Sectors allows us to harness demand to/from 17 of our Short haulpoints feeding into our long haul

Our new relationships with United and Jetblue give us the opportunity ofsignificantly increasing our footprint in the US market

Open Skies offers us new and exciting opportunities for growth


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Outlook

Difficult market conditions will continue

Significant cost pressures in all areas of the model

Further fare reductions required to drive volumes

Driving value through active network and fleet management

Winter LH capacity will reduce by 11%; SH capacity will reduce by 1%

Deferral of delivery of new A330 aircraft from September 2009 to June 2010

Operating environment and rising costs will continue to have a significant effecton the financial performance of the business

Aer Lingus will at best, break even in the second half, delivering a loss for the full year

Further fundamental changes needed to operating cost base to minimise lossesin 2009 and to ensure the long term viability of the business


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Future of Travel Industry