Aer Lingus short-haul "structurally unsustainable"
Jul 24, 2017, 1:49 am
#1
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Aer Lingus short-haul "structurally unsustainable"
Sounds like the return of Slasher Walsh....with a vengeance!
Originally Posted by Irish Independent
The honeymoon period is over. That is the stark message from a confidential document prepared by Aer Lingus management, outlining the challenges the airline faces.
An extraordinary 49-page submission to the Labour Court, seen by this newspaper, outlines in stark terms just why the airline's management believes that it cannot give in to a huge pay claim from trade unions.
The document outlines how Aer Lingus's transatlantic ambitions face a major threat from Norwegian, the newest entrant to Ireland's transatlantic market.
It also brands its short-haul operation as "structurally unsustainable", admitting it has been negatively impacted by Ryanair's improved customer focus.
<snip>
Aer Lingus is already "off-market" with regards to its cost base, and much of this relates to employee costs, it said.
"There is simply nowhere to go if off-market pay, terms and conditions are maintained. Market share will be conceded to Ryanair, Norwegian and other value carriers, and Aer Lingus will be forced to contract its business," it warned.
The document cites the example of cabin service managers in Aer Lingus who earn €63,000, 38pc more than in Easyjet. Aer Lingus cabin crew on almost €38,000 earn 31pc more than their Easyjet counterparts, it said
<snip>
The document also warns about the success of Ryanair's 'Always Getting Better' programme, saying that the heavy investment in customer focus has "directly impacted Aer Lingus". Aer Lingus's 'sentiment tracker' between April 2014 and November 2016 found that the number of passengers stating that 'Ryanair is better than Aer Lingus' had grown from 10pc to 15pc.
"This means that the Ryanair campaign is proving successful in changing perceptions of its brand but also putting more pressure on Aer Lingus in terms of justifying the premium it charges," it said.
<snip>
The document also dispels any notions that trade unions and staff might have had that London IAG is the aviation equivalent of a sugar daddy for its new Irish subsidiary. It must compete for resources against other IAG airlines such as British Airways, Iberia and Vueling.
As "a rational parent company", IAG deploys its capital resources to the airline that can generate the highest return on invested capital (ROIC), it said.
"Unreasonable pay requests risk damaging Aer Lingus's ability to deliver acceptable profits and cash generation and therefore threaten to reduce IAG's willingness to allocate cash resources to Aer Lingus and support future growth," it said.
And the airline has a stark warning for its staff. The short-haul business, where the vast majority of staff are deployed and which accounts for 54pc of passenger revenue, is "structurally unsustainable due the higher cost of employment and lower productivity levels when compared with direct and genre competitors".
This has meant that the short-haul operation has "delivered cumulative losses between 2008 and 2015 and does not pass the threshold of our required ROIC return to justify replacement investment."
An extraordinary 49-page submission to the Labour Court, seen by this newspaper, outlines in stark terms just why the airline's management believes that it cannot give in to a huge pay claim from trade unions.
The document outlines how Aer Lingus's transatlantic ambitions face a major threat from Norwegian, the newest entrant to Ireland's transatlantic market.
It also brands its short-haul operation as "structurally unsustainable", admitting it has been negatively impacted by Ryanair's improved customer focus.
<snip>
Aer Lingus is already "off-market" with regards to its cost base, and much of this relates to employee costs, it said.
"There is simply nowhere to go if off-market pay, terms and conditions are maintained. Market share will be conceded to Ryanair, Norwegian and other value carriers, and Aer Lingus will be forced to contract its business," it warned.
The document cites the example of cabin service managers in Aer Lingus who earn €63,000, 38pc more than in Easyjet. Aer Lingus cabin crew on almost €38,000 earn 31pc more than their Easyjet counterparts, it said
<snip>
The document also warns about the success of Ryanair's 'Always Getting Better' programme, saying that the heavy investment in customer focus has "directly impacted Aer Lingus". Aer Lingus's 'sentiment tracker' between April 2014 and November 2016 found that the number of passengers stating that 'Ryanair is better than Aer Lingus' had grown from 10pc to 15pc.
"This means that the Ryanair campaign is proving successful in changing perceptions of its brand but also putting more pressure on Aer Lingus in terms of justifying the premium it charges," it said.
<snip>
The document also dispels any notions that trade unions and staff might have had that London IAG is the aviation equivalent of a sugar daddy for its new Irish subsidiary. It must compete for resources against other IAG airlines such as British Airways, Iberia and Vueling.
As "a rational parent company", IAG deploys its capital resources to the airline that can generate the highest return on invested capital (ROIC), it said.
"Unreasonable pay requests risk damaging Aer Lingus's ability to deliver acceptable profits and cash generation and therefore threaten to reduce IAG's willingness to allocate cash resources to Aer Lingus and support future growth," it said.
And the airline has a stark warning for its staff. The short-haul business, where the vast majority of staff are deployed and which accounts for 54pc of passenger revenue, is "structurally unsustainable due the higher cost of employment and lower productivity levels when compared with direct and genre competitors".
This has meant that the short-haul operation has "delivered cumulative losses between 2008 and 2015 and does not pass the threshold of our required ROIC return to justify replacement investment."
Last edited by irishguy28; Jul 24, 2017 at 2:37 am Reason: Link fixed
Jul 24, 2017, 2:23 am
#2
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But the TATL business is driven by connections from short haul.
EI has the highest return on capital as any IAG airline so the story doesn't really make sense
EI has the highest return on capital as any IAG airline so the story doesn't really make sense
Jul 24, 2017, 2:40 am
#3
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And Ryanair is more than willing to provide those pax at DUB!
EI works with UA and B6 on the American side...why not work with someone on this side, too?
Yeah, EI has used their fleet very well and apparently several of the older aircraft have had their value written down to next to nothing. But it's getting the cash for new aircraft that may be the sticking point...
EI works with UA and B6 on the American side...why not work with someone on this side, too?
A major advantage for the airline in recent years has been the fact that it chose not to replace 14 older short-haul Airbus A320 and eight older long-haul A330 aircraft that it owns and which have been written down heavily resulting in low annual depreciation costs.
But that advantage is now turning to disadvantage. Currently the airline has 52 aircraft including four leased 757s. It plans to increase the fleet to 61 aircraft, amounting to a required investment well in excess of €1bn.
But that advantage is now turning to disadvantage. Currently the airline has 52 aircraft including four leased 757s. It plans to increase the fleet to 61 aircraft, amounting to a required investment well in excess of €1bn.
Jul 25, 2017, 5:17 am
#4
Join Date: May 2016
Posts: 91
EI have long given up competing on Short Haul stuff, there main and basically only focus nowadays is TATL