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Annual report and accounts 2016

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23<br />

Aer Lingus<br />

Making the most<br />

of our opportunities<br />

“<strong>2016</strong> has been a year of<br />

profitable growth with a<br />

strong return on invested<br />

capital supported by<br />

reduced non-fuel unit<br />

cost <strong>and</strong> an improved<br />

guest value proposition.”<br />

Stephen Kavanagh<br />

Chief Executive Officer of Aer Lingus<br />

Performance 1<br />

€ million <strong>2016</strong><br />

Higher/<br />

lower<br />

Revenue 1,766 +2.8%<br />

EBITDAR 399 +40.2%<br />

Operating profit 233 +86.9%<br />

Key statistics<br />

Punctuality<br />

82.5<br />

Fuel efficiency gCO 2<br />

/pkm<br />

87.0<br />

1 The comparison to 2015 includes the annualised results of Aer Lingus<br />

Overview<br />

Throughout <strong>2016</strong>, we have leveraged<br />

the benefits of IAG ownership, with<br />

accelerated network <strong>and</strong> fleet growth,<br />

cost synergies <strong>and</strong> increased market reach<br />

to deliver a record operating margin of<br />

13.2 per cent This result is underpinned<br />

by our positioning as a value carrier <strong>and</strong><br />

our application of a resilient dem<strong>and</strong> led<br />

business model – a model that is simple<br />

by design; centred on cost, product <strong>and</strong><br />

service. We are committed to delivering<br />

value to our guests, <strong>and</strong> our productivity<br />

<strong>and</strong> non-fuel unit cost improvements in<br />

<strong>2016</strong> have enabled us to deliver more<br />

competitive products, <strong>and</strong> to significantly<br />

improve our operating margin.<br />

An ambitious strategy<br />

Our ambition is to be the leading value<br />

carrier across the North Atlantic, enabled<br />

by a profitable <strong>and</strong> sustainable shorthaul<br />

network. Our strategy is based on key<br />

fundamentals which include a strong<br />

guest-focussed br<strong>and</strong> <strong>and</strong> service, a<br />

network that offers compelling connection<br />

propositions, <strong>and</strong> a competitive <strong>and</strong><br />

resilient cost base. We believe that Aer<br />

Lingus is well positioned to continue to<br />

grow successfully to extract the benefits<br />

of IAG ownership, <strong>and</strong> to deliver on<br />

our targets.<br />

A value carrier focussed<br />

on guest experience<br />

Guided by our “Voice of Guest” surveys<br />

<strong>and</strong> direct feedback, we have continued<br />

to invest proactively in product, process<br />

<strong>and</strong> br<strong>and</strong> to improve our guest experience,<br />

cost <strong>and</strong> value proposition. A key focus in<br />

<strong>2016</strong> was our on-time performance <strong>and</strong> we<br />

achieved the most punctual status every<br />

month at our main base of operations, <strong>and</strong><br />

were placed in the top 20 most punctual<br />

airlines globally.<br />

Aer Lingus targets aligned with IAG targets 1<br />

<strong>2016</strong> <strong>2016</strong>-2020<br />

Lease adjusted<br />

operating margin (%) 14.9% +6.0pts 15%+<br />

RoIC 23.1% +11.1pts 15%+<br />

ASK growth<br />

per annum 9.6% 8%<br />

Fleet 47 59<br />

The roll-out of our new transatlantic<br />

business cabin was completed with<br />

consistency across the Aer Lingus Airbus<br />

A330 <strong>and</strong> Boeing 757 fleets. In <strong>2016</strong>, we<br />

introduced new <strong>and</strong> enhanced retail<br />

products, simplified boarding processes<br />

<strong>and</strong> automated check-in facilities, <strong>and</strong><br />

launched our new loyalty programme<br />

AerClub, with Avios, in the fourth quarter.<br />

These initiatives <strong>and</strong> the dedication to<br />

service delivered every day by the team<br />

at Aer Lingus have been rewarded by<br />

increased seat factor, guest satisfaction<br />

<strong>and</strong> cost efficiencies. Our “Good to<br />

Great” programme, which incorporates<br />

consistent service st<strong>and</strong>ards across the<br />

customer journey, continues to deliver, <strong>and</strong><br />

we received external validation with the<br />

award of a 4-star rating by Skytrax during<br />

the year, becoming Irel<strong>and</strong>’s first <strong>and</strong> only<br />

4-star airline.<br />

Building the Dublin Gateway<br />

We remain committed to exploiting<br />

the geographic advantage of Dublin<br />

as a gateway between Europe <strong>and</strong><br />

North America. In <strong>2016</strong>, we continued<br />

our profitable growth, we built on the<br />

momentum of recent years, with direct<br />

services to Los Angeles, Newark <strong>and</strong><br />

Hartford, strengthening IAG’s leadership<br />

across the transatlantic <strong>and</strong> leveraging<br />

the power of the Aer Lingus mainline <strong>and</strong><br />

regional shorthaul networks.<br />

The profitable network growth was enabled<br />

by the introduction of an additional Boeing<br />

757 <strong>and</strong> two Airbus A330-300s, the latter<br />

procured jointly with the benefit of IAG.<br />

In 2017, we will introduce two more Airbus<br />

A330-300s to add frequency <strong>and</strong> capacity<br />

across our networks, <strong>and</strong> we will begin a<br />

new direct service to Miami. We continue<br />

to use this growth to drive efficiency <strong>and</strong><br />

productivity in our Dublin operations.<br />

Revisions to turn, team composition <strong>and</strong><br />

increased use of automation, for example,<br />

in combination with the increased scale of<br />

operations, have improved the relative cost<br />

competitiveness of the Gateway.<br />

Conclusion<br />

In 2017, we, in Aer Lingus, will build upon<br />

our success <strong>and</strong> target sustainable<br />

returns for IAG. Our commitment to our<br />

dem<strong>and</strong> led value carrier model will see<br />

us continue to focus on cost, product <strong>and</strong><br />

service. In addition, we will develop our<br />

commercial capabilities to further leverage<br />

the network opportunities provided by<br />

fellow IAG airlines, American Airlines <strong>and</strong><br />

other partners.<br />

Strategic <strong>report</strong> Corporate governance Financial statements Additional information<br />

www.iairgroup.com

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