Irish flag carrier Aer Lingus has unveiled a new business plan to carry it through to 2007, with a further drive on costs. The plan, which is designed to cement its turnaround, includes another 33% reduction in the workforce.
Chief executive Willie Walsh warns that the carrier's commitment to low fares means that average prices will continue to fall over the period of the plan. As a result, revenues will decline in 2005 and 2006, before returning to 2003 levels on the back of a European fleet expansion. However, the plan envisages operating margins of 13%, driven by cost cuts, productivity improvements and an expansion of the European network with a "modern single type fleet".
The carrier has successfully turned around its short-haul operations by adopting a low-fares strategy, and plans to extend this philosophy to the transatlantic and "potential new long-haul destinations". The carrier is currently offering fares out of Dublin starting from €25 ($30) to the UK, €49 to Europe and €119 to the USA. "Our vision is to be recognised by our customers and the airline industry as one of Europe's leading low-fare airlines and a pioneering profitable long-haul, low-fare airline," says Walsh.
The workforce proposal has met union opposition, with threats of strikes. The headcount has already been taken down by from around 6,000 three years ago to under 4,000 today. The plan calls for this to fall to 3,000 next year and to reach 2,668 in 2007. This will give a ratio of just under 3,500 passengers per employee compared with only 1,540 in 2003. Aer Lingus compares this with 12,500 for Ryanair and 5,900 for easyJet.
The axe will fall across all departments. Among the hardest-hit areas will be catering, falling from 249 to nine; support (including finance, IT and human resources), which will virtually halve to 191; the team at Shannon airport, which will be reduced from 200 to 66; and European distribution, which falls from 228 to 91. Flight Services will see numbers reduced by a quarter to 770, flight operations will fall 13% to 370, and Dublin airport will see headcount down 30% at 535.
Aer Lingus is offering a voluntary redundancy scheme, with a minimum offer of €40,000 for staff who sign up before mid-September. The maximum payment will be €70,000.
The staff costs will account for 24.5% of cost savings in 2007 against a benchmark of 2001, with another 32% coming from the move to internet distribution through aerlingus.com. By 2007, Aer Lingus expects 85% of all sales to go through its website. Currently, the site accounts for 57% of worldwide sales and 75% of distribution in the domestic market. "The plan continues and consolidates the process of change that started in October 2001," says Walsh.
The carrier has launched 32 new routes since November 2001, and plans to add 10 more in 2005. Average fares are down by a third since 2001, with €9 of every €10 of cost savings passed onto customers through lower fares.
Source: Airline Business
