Winner - Willie Walsh, Aer Lingus
Award sponsor - ATKearney
Aer Lingus has become something of a standard bearer for legacy carriers that are attempting to get back into the game against low-cost competition.
Under the leadership of chief executive Willie Walsh, the Irish flag carrier is now not only competing on fares with aggressive no-frills rivals, but has emerged with record profits. Confirming the extent of the transformation, the carrier ended last year with close to double-digit operating margins, ahead of even some of its low-cost contemporaries.
Back in October 2001, when Walsh took the helm, the future as a small state-owned flag carrier looked bleak. Long-haul routes to the US East Coast were in disarray and at home Aer Lingus shared its Dublin hub with Ryanair, the most aggressive of European low-cost competitors.
The airline needed to abandon the old ways of doing business and become "relevant" again in a fast-changing market, says Walsh. "The business model we had was a failure. It had brought us close to bankruptcy."
Faced with the real possibility of failure, the management reacted with a dramatic survival plan, including losing 30% of the workforce. But Walsh was convinced the carrier had to undergo a more fundamental transformation. Recognising that the low-cost sector had created a radical and irreversible downward shift in ticket prices, the first task was to use cost gains to overhaul the fare structure.
Business-class fares were halved overnight and fares benchmarked against the likes of Ryanair. Premium class has been abandoned entirely on many European services in a network which itself has rapidly changed in pursuit of new markets - some 30 new routes have been launched and other shut over the past two years. Economy fares too have been simplified and prices cut.
The result has had a clear downward pressure on yields, with average fares falling more than 20% since 2001. So despite a gain in traffic and a steep rise in load factors, revenues have continued to drop. Yet costs have fallen faster still, by 40%, leaving the carrier with a record 9.3% margin in 2003.
Although the staff cuts have taken many of the headlines, Walsh argues that the real gains have come in stripping out complexity throughout the airline.
"There is a huge opportunity in this industry for cost reduction in all aspects of the business, not simply labour," he says, adding that the low-cost carriers have led the way. "The industry should have been more open at looking at the new kids on the block and seeing how we could learn from them."
Simplifying sales and distribution has, in fact, proved the biggest lesson, yielding Aer Lingus savings of almost 60% over the past couple of years. From a standing start, half of all ticket sales were being made over the Web at the turn of the year and the carrier is on course to hit its goal of 70% this year. The use of self-service kiosks is now at 30% in Dublin and rising fast.
The experiment continues. Walsh is talking about taking the next step to sell one-way fares over the Web.
"The lesson is to take action quickly and be decisive. Most of us in the industry know what needs to be done; it's a question of application," says Walsh, adding that airlines have perhaps been too complacent in accepting the peaks and troughs of the industry cycle rather than addressing the fundamentals.
Challenges remain, not least privatisation, but Aer Lingus has demonstrated that it is possible for a state-owned flag carrier to become relevant in a low-fares world.
Source: Flight Daily News
