2011 Preliminary Full Year Results - - Corporate Aer...

28 February 2012

2011 Preliminary Full Year Results

2011 Preliminary Results | February 2012

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 the forward 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-looking statements 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 new information, 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 material adverse 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 expected results 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 environment in the markets to which the Company operates.

2


Positive trading performance in 2011

• Total passengers carried with Aer Lingus increased by 5.4%; AerLingus mainline passengers up 1.8%

• Operating profit of €49.1m better than anticipated at start of 2011

• Capacity discipline maintained; we focused on profitably servingexisting demand

• Average yield per seat up 4.7%; average yield per passenger up 4.8%

• Average retail revenue per passenger held stable despite challengingconsumer environment

• 2011 revenue increased by 6.0% vs. 2010; both short & long haulrevenues up vs. 2010

• Gross cash increased by €9.8m vs. 2010; robust balance sheet withgross cash of €894.8m at end of 2011

Capacity

Passengers

Unit revenue

Revenue

Profitability

Retail

Cash

Second year of profitability under new strategy


15.0%

7.8%

4.7% 4.6%

2.9% 2.8% 2.6%1.6%

(0.3%)

(2.9%)

(4.2%)

Rya Ezy AL Norweg Lhansa IAG Vuelg SAS AFKLM Finnair Air Ber

4

Substantial turnaround in financial performance since 2008

+€70m

Source: companies’ reported financial results for latest available common reporting period for all carriers named above, i.e. LTM Sept 2011

¹ Pre-exceptional items

+€69m

+€206m

Significant improvement in profitability 2008 – 2011 (€m)

Swing since 2008:

Delivering top tier EBIT margin performance (%)

103

58

192

173

(20)

(81)

53 49

(122)

(155)

27

84

2008 2009 2010 2011

EBITDAROperating profitProfit before tax

¹


8.0 8.69.3

10.0 10.49.3 9.5

0.50.8

0.10.1

2005 2006 2007 2008 2009 2010 2011

Aer Lingus mainline Aer Lingus RegionalExtended codeshare

5

Aer Lingus passenger volumes restored in 2011

2010Total: 9.9m

2011Total: 10.4m

2009Total: 10.4m

(4%)

(2%)

4%

(12%)(11%)

2%

2009 vs. 2008 2010 vs. 2009 YTD Nov 2011 vs. YTD Nov 2010

Aer Lingus & Aer Lingus Regional Total Rep of Irl airports

2011 passenger numbers restored to recent peak levels

Aer Lingus ticketed passengers continue to increase ahead of Irish air travel trends

Pax in millions


392,563

315,994

Jul 2008 Jul 2011

6

Aer Lingus has gained share in a contracting market

35.6%

43.5%

Jul 2008 Jul 2011

(19.5%) +7.9 ppts

¹ Dublin, Cork, Shannon & Knock airports Source: anna aero, 22 Feb 2012

Passenger capacity provided by top 10 airlines serving Irish airports ¹

Aer Lingus market share as % of top 10 airlines serving Irish airports ¹

Consistent market share gain since 2008


Note: Weekly seats for Dublin schedule for January 2012; Includes mainline Europe & Transatlantic; Ryanair secondary airports included

Duopolistic competition = 71% Oligopolistic competition = 11% No direct competitor= 18%

Our trading environment remains intensely competitive

plus other

7

Proportion of Competitive Routes Overlapping with….

82,793

15,601

35,322

18,0885,082

3,654 2,262 1,566 1,218

Ryanair, 72%

Star, 9%

SkyTeam, 9%

Other , 7% Oneworld, 3%


Cost effective network extension through partnerships

• Code share agreement on all Aer Lingus flights between Ireland and Londonfor connecting passengers

• Code share agreement on routes from Dublin and Cork to Amsterdam• Interlining agreements for transfers via Paris CDG

• Code share and interlining agreement between Ireland and the US andselected domestic routes

• 41 destinations in USA and Canada

• Sales agreement allowing Aer Lingus passengers to connect to 37 US points via Boston & New York & also allowing jetBlue customers to connect onto Aer Lingus transatlantic

• Franchise agreement on thin and new routes• 88% increase in passengers carried in 2011• Proven business model with further geographical and partnership reach

2009 2010 Growth % 2011 Growth %

Inter-line passenger volumes ¹ 629 693 10.2% 789 13.9%¹ Excludes intra Aer Lingus network transfers

Partner Mutual benefits for both parties

2011 Full Year Financial ReviewAndrew Macfarlane, Chief Financial Officer


Change in accounting policy


• In Q4 2011, we changed how we apply IAS 19:• This change would have been required next year in any event• 2010 result has been re-stated

• Previous application of IAS 19: all retirement benefit provision movements were recognised throughthe Income Statement

• New application of IAS 19: components split:• Interest Finance charges• Actuarial SOCI• Only service cost Operating profit

Full Yr Q4Operating profit 2011 2010 2011 2010Previous application of IAS 19 43.2 57.6 (23.5) (2.6)

Adjustment 5.9 (5.1) 5.9 (5.1)

New application of IAS 19 49.1 52.5 (17.6) (7.7)

Staff costs 2011 2010 2011 2010Previous application of IAS 19 266.4 258.9 70.5 61.3

Adjustment (5.9) 5.1 (5.9) 5.1

New application of IAS 19 260.5 264.0 64.6 66.4

Less volatility under new application; IASS & pilots’ pension scheme not affected


2011 financial highlights€munless otherwise indicated

Full Yr 2011

Full Yr 2010 restated Change %¹ Q4 2011 Q4 2010

restated Change %¹

Total revenue 1,288.3 1,215.6 6.0% 283.4 265.9 6.6%

Operating profit/(loss)² 49.1 52.5 (6.4%) (17.6) (7.7) 128.6%

Margin %² 3.8% 4.3% - NM ³ NM ³ -

Exceptional items 37.2 (31.0) NM ³ 22.4 (29.6) NM ³

Net interest (1.9) 5.7 NM ³ (1.0) (1.4) NM ³

Profit/ (loss) before tax 84.4 27.2 210.3% 3.8 (38.7) NM ³

ASKs (million) 18,593 18,269 1.8% 4,354 4,154 4.8%

€m 31 Dec 2011

31 Dec 2010 Change %¹

31 Dec 2011

30 Sept 2011

Change %¹

Gross cash 894.8 885.0 1.1% 894.8 927.3 (3.5%)

Debt 577.2 535.2 7.8% 577.2 572.7 0.8%¹ Sign convention: increase / (decrease) ² Pre exceptional items³ Not meaningful


2011 operating profit better than expected at start of year


53 49

15

41

(6) 1

(39)

(1)

17(23)

(4) 4

(31)3

14

(3)8

2010 op. profit

Increased capacity

Yield improvement

Load factor decrease

Other revenue

Fuel price increase

Fuel vol increase

Fuel FX impact

Airport charges

price

Airport charges volume

Airport charges FX &

other

Increase in other costs

2011 op. profit

Operating profit bridge


Revenue gains Cost increases

Good result in the face of non-controllable cost increases

SH

LH

SH

LH

OtherSHLH


Q4 avg. hedge: US$ 849/MT

Q2 avg. hedge: US$ 809

Q3 avg. hedge: US$ 826

80%65%

51%

20%35%

49%

Q2 11 Q3 11 Q4 11

% hedged % purchased at spot13

Fuel price inflation – a significant challenge in 2011Fuel analysis Q4

2011Q4

2010 % Full Yr2011

Full Yr 2010 %

Fuel burn (‘000 tonnes) 101.2 98.5 2.7% 431.3 429.9 0.3%

Avg. price per tonne (US$) 952 729 30.6% 878 762 15.2%

Avg. price per tonne incl. into-plane (US$) 1,009 785 28.5% 937 819 14.4%

Total fuel cost (US$m) 102.1 77.4 31.9% 404.1 352.3 14.7%

FX rate for period 1.35 1.35 - 1.39 1.33 4.5%

Total fuel cost (€m) 75.4 57.1 32.0% 288.7 266.2 8.5%

Fuel price inflation became a largerchallenge in second half of 2011 asavailable fuel hedging adjusted tonew oil price level


Decrease in fuel hedge protection from Q2 onwards¹

Q2 avg. spot price: US$1,057



¹ As at 31 March 2011


Fuel Hedging Fuel ¹ Q1 12 Q2 12 Q3 12 Q4 12 Full Yr

2011Full Yr 2012

Estimated burn (‘000 tonnes) 91.1 118.9 123.9 102.2 431.3 436.1

% hedged 86% 70% 55% 40% NM ² 62%

Avg. hedged US$ price / MT 949 961 991 1,007 NM ² 972¹ As at 31 December 2011 ² Not meaningful

Forward fuel price as at 24 February 2012


850.0880.0910.0940.0970.0

1000.01030.01060.01090.01120.01150.0

Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13

Platts Jet CIF NWE (US$/MT)Historic Price Forward Curve

Forward range: US$1,106 – US$1,057

At US$1,100 & €/US$ of 1.35, fuel cost will be approx €60m higher in 2012


Airport charges in 2011


2011 airport charges overview

• Passenger volumes increased by 1.8%

• However, total airport charges increased by9.1%

• Fees paid to Dublin & Heathrow were 48%of total charges in 2011

• Dublin price levels expected to remain flatin 2012

• Heathrow price levels expected to rise byapprox. 13% in 2012

DUB airport charges 2010 to 2011

LHR airport charges 2010 to 2011

38.7

45.35.4

1.7(0.5)

2010 LHR charges

Price Vol FX 2011 LHR charges

€m

€m

72.7

87.310.9

4.5(0.8)

2010 DUB charges

Price Vol Growth incentive

2011 DUB charges

Average airport price increases of 3.6% expected for 2012


312

259 258

(15)

(34)

+5 (7) +2 (4) +4

+10 (15)

'09 staff cost '09 non-recurring

prov.

Operations Mntce DUB station & other

Other '10 prov. releases

'10 staff cost '10 non-recurring

prov. releases

'10 non-recurring savings

'10 staff exits '11 f'cast staff cost

Actuarial gain

• €10m of 2010 savings didn’t recur in 2011 (unpaid leave: €6m & ash disruption: €4m)

• €15m flow-through from 2010 exits

• 2011 out-turn:

16

Staff costs

Staff costs – actual 2009 to 2010Staff costs – what had been

expected for 2011

2010 in-yr savings of

€36m

What we said last year:

€m 2011 2010 Diff.

Staff costs expected (new policy) 259 264 (5)

Staff costs actual (new policy) 261 264 (3)

Staff costs: tightly controlled


Greenfield savings update

€m


• Significant Greenfield initiatives in 2011 were mainly non-staff related

• Notable 2011 initiatives included fuel management, procurement and “lean” initiatives in engineering& maintenance

• 2012 Greenfield initiatives will include reduction in catering wastage through improved controlprocesses, reduction in professional fees & further extraction of benefits of multi channel distribution

Confident we’ll achieve our target of €97m in 2012

50.0 55.7

97.03.9

24.7 28.6

12.75.7

2010 exit run rate 2011 new initiatives 2011 exit run rate 2012 - still to be achieved

2012 total targeted savings

Staff savings

Non-staff savings

Staff savings

Non-staff savings

Staff savings

Non-staff savings

2011 total: €84.3m


Exceptional itemsExceptional credits / (charges) - €m 2011 2010

Gain on surrender of head office site lease 21.0 -

Gain on re-measurement of frequent flier programme 4.5 -

Profit / (loss) on disposal of property, plant and equipment (2.2) 3.1

Reclassification of cash flow hedging reserve 11.6 -

Adjustment of Greenfield provision 3.1 8.6

Leave & return (0.8) (29.5)

Gain on exit of line maintenance contract - 11.8

Volcanic ash - (4.3)

ESOT (0.2) (25.7)

Other 0.2 5.0

Total exceptional credit / (charge) 37.2 (31.0)



Cash flow in 2011

• Capex primarily comprises purchase of A320s in H1 2011 net of proceeds from sale of an A330-300


€m

49.1

(24.9)

(30.0)

84.8

11.1 (13.7)

(116.1)

3.5(13.6)

Op. profit pre exceptionals

Exceptional cashflows

Depreciation Working capital

Provisions Net capex Net interest received

Other Net cashflow


accrued

20

Cash and debt


Gross cash

€m

Debt

€m

We have a strong balance sheet

(535.2)

(577.2)

(96.0)62.0

(2.9) (5.1)

Dec 2010 New debt Debt repaid FX Interest Dec 2011

885.0 894.1 894.8

(24.9)

96.0(62.0)

0.7

Dec 2010 Free cashflow New debt Debt repaid FX Dec 2010

2011 Commercial ReviewStephen Kavanagh, Chief Commercial Officer


Commercial strategy in 2011


Network planning

Fleet

Revenue management

Multi-channel distribution

Clearly differentiated customer proposition:

“Great care. Great fare.”

Serving multiple different markets simultaneously

Profitably matching capacity with demand

Competitive value proposition

Above industry average operating margin

Strong partnerships

Revenue growth Retail

Components Achievements Results

Driving business performance in 2011


62.63

66.09

2010 2011

23

Short haul yield per seat growth


12,188

12,509

2010 2011

• Demand led capacity allocation

• Schedule build focussed onfrequency and convenience

8,438

8,616

2010 2011

• Share growth in core Dublin andLondon markets

• Reduced reliance on Irishoriginating demand

2.6%

2.1%

5.5% • Combination of volume and pricedriving yield per seat strength

• Improving revenue managementcapability

Capacity (ASKs in millions)

Customers (thousands)

Fare yield per seat

(€)

Profitable short haul network


Long haul network strength


• Focus on four US gateway cities

• Schedule build focussed onconnectivity and convenience

• Improved online and offlinenetwork flows now provide 36%of total long-haul traffic

• Business Class occupancy +7%

• Absolute growth of €9.38 perseat

• Relative improvements mostnotable is off-peak Q1 and Q4

6,081 6,084

2010 2011

908 897

2010 2011

238.61247.99

2010 2011

(1.2%)

3.9%

FlatCapacity (ASKs in millions)

Customers (thousands)

Fare yield per seat

(€)

Consolidated 2010 turnaround in financial performance


Distribution strategy driving retail performance

• aerlingus.com is our primarydistribution channel

• Delivering low relative unit cost ofsales

• This direct relationship with ourcustomer allows us the opportunity toretail

• Changed buying behaviour withrespect to baggage charges evidencedin H1

• Remedial action taken in H2 tocompensate with price and productdevelopments


Customer channel mix by volume

Retail spend per customer (€)

14.97

16.7517.67 17.73

2008 2009 2010 2011


Product launches in 2011

• Strategy to offer choice and value

• Fare family options tailored tocustomer needs– Price– Convenience– Flexibility

• Introduced advance seat selectioninto on-line booking flow

• Refresh of on-board sales productwith revised menus supported byEPOS technology

26


Customer experience continues to evolve

• Convenient mobile applications– 350,000 downloads since June 2011 launch

• Online check-in capability now availableto all European destinations

• Improved terminal facilities at mainairports

• Business lounge upgrades completed atLondon Heathrow and Dublin

• Recognition of the need for continuousimprovement and innovation established

27


Network

Partnerships

Fleet

Revenue management

aerlingus.com

Retail capability

Value and Service

Our commercial strategy continues to deliver results


2012 Outlook & Closing Comments Christoph Mueller, Chief Executive Officer


8.6%

1.0%

5.1%

7.8%

0.3%

(1.2%)

(5.8%)

0.1%

6.5%

(0.3%)

10.6%

8.2%

Aer Lingus AF-KLM easyJet IAG Lufthansa Ryanair

EBITDAR margin movement ppts 2009-11 Avg. capacity growth % 2009-11

30

How will Aer Lingus deliver shareholder value in the future?

• Common sector strategy: drive margin & reduce unit costs through capacity expansion

• In contrast, Aer Lingus has:• Driven margin through cost restructuring & demand led revenue management• Not engaged in unprofitable capacity expansion in static markets

• However, there is a limit to margin expansion through yield performance & cost restructuring

• We will explore strategies which overlay additional revenue layers onto our existing cost base

• In this way, Aer Lingus intends to drive future margins & drive shareholder value creation

Airlines: FY2009 to forecast FY2011 / 12: ¹ Capacity growth used to mathematically reduce unit costs & drive margin

¹ Data sourced from: Davy Research airlines report, 19 January 2012 & company data


2012 overview

31

• People:

• 50% new senior managers in past 24months

• Balance of internal development &gaining external expertise

• Consolidation of Dublin Airport real estateonto Hangar 6

• Will drive organizational efficiencies• Co-location of our support services

within a modern office complex• Key business functions working together

in one location• Our team will be closer to the airline

operation

• Fuel costs uncertainty and increases

• IT expenditure catch-up programme

• Macroeconomic environment

• Inflated airport charges in UK and Ireland

• Internal production processes

• Fixed cost base is under-utilised

Change enablers Challenges to change


Current trading & 2012 outlook

32

• 2012 capacity deployment will be kept flat compared to 2011

• Key challenges:

• Fuel price inflation likely to be a key source of uncertainty in 2012• Increasing passenger volumes will be hard given muted markets• Higher yield per seat across the network will be difficult to achieve

• However, encouraging start to 2012, especially on long haul bookings

• 2012 expectation: to remain significantly profitable albeit below 2011 levels

Q & A

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