Aviation’s importance to Ireland means Stephen Kavanagh, Chief Executive Officer of Aer Lingus, is determined to fully exploit the potential of joining IAG. Tony Concil reports
How is the airline performing?
Aer Lingus is celebrating its 80th Anniversary. I would describe the airline as an octogenarian with teenage tendencies.
We’re in a good position with strong cost and market fundamentals. Our 2015 results showed a credible 7.2% operating margin. We achieved that without the full benefits of the low oil prices due to a combination of the effects of hedging and the exchange rate.
We are growing profitably. The main driver is our successful strategy to expand across the Atlantic and our continued competitive resilience in short-haul markets. The benefits created by our integration into IAG are creating new opportunities to deliver improved margin.
How are you positioning the airline in the market?
Aer Lingus is firmly positioned as a value carrier. Our mission is to connect Ireland to the world and we exploit the opportunities created by our geography to use Dublin as a gateway between Europe and North America.
Aer Lingus is a business on a relatively small island on the periphery of a major market. But what we lack in size, we make up for in innovation. Aer Lingus has always been at the forefront of new ideas because of the size of our home market.
We’re pragmatic. We are demand-led. You can’t pigeon-hole us other than to say we try to identify and meet demand. We manage cost diligently and try to deliver great customer service too. And we will continue to evolve to meet customer demand.
What impact has the IAG takeover had on business partnerships?
Pre-IAG integration, our strategy was to look for sustainable partnerships based on mutual value. We were alliance-neutral with strong partner airlines from all three major alliances and an equity interest from Etihad.
The IAG purchase gives us a stronger platform with the potential for fresh investment and the possibility to increase our share of traffic across the Atlantic. But, many of our old codeshare arrangements remain in place. That includes our codeshare with Etihad, even though the IAG purchase included Etihad’s stake.
Basically, we plan on maintaining our partnerships where they add value to IAG.
British Airways (BA) is, of course, one of our oldest and strongest partners. So, being part of IAG is a natural fit and our relationship with BA now goes much deeper. We are extracting even more value and that is helping with our revenue flows and with cost synergies. It’s working for all stakeholders and it’s working quicker and better than most of us expected.
Will Aer Lingus be re-joining oneworld?
Aer Lingus was in oneworld and exited. We like to think that we were ahead of the curve in industry trends. At that time, for example, Aer Lingus stopped offering business class on short haul and that didn’t work for the other alliance partners.
Today, it is a different story. We are very open to joining oneworld again, which already includes our IAG siblings BA and Iberia. And I expect that we will make a decision with respect to re-joining oneworld under BA sponsorship in the not-too-distant future.
Has the move from being an individual airline to a group member been a good thing?
I have been very struck by the autonomy given to the member companies within IAG. There is support for our business strategy. The independent business plans haven’t changed at all. They have just accelerated in terms of timing and growth potential.
The brands all have their relevance in their respective markets. Aer Lingus in Ireland is a strong brand just as Iberia is strong in Spain. If you can maintain those brands, their history, and, at the same time, exploit the synergies then you can have the best of both worlds.
And though there is plenty of mutual learning and cooperation, there is also healthy competition within the group to be the star performer. We are all striving to be better.
Aer Lingus is comfortable working within the IAG philosophy and it is looking very good for our business. IAG has developed all the right behaviors for a company wanting to maximize its returns and the efficiency of its operations.
Can Dublin provide IAG with capacity across the Atlantic given the congestion at Heathrow?
Dublin has been talked about as Heathrow’s third runway. But, Dublin is much more than that. All the gateways—Madrid, London and Dublin—are working for IAG in their own way and all the carriers have a role to play.
Aer Lingus is fortunate to call Dublin home as it is a natural gateway between Europe and North America. And we have positioned the airline to take advantage of that with a unique service proposition and a primary reliance on direct distribution though our website.
Does Dublin airport have enough capacity to cater to your growth?
We have been very successful in growing connectivity at Dublin. The global financial crisis took its toll on Dublin’s overall passenger numbers and planning permission from 2007 to build a parallel runway was put on hold.
Last year, the airport experienced 15% growth, taking total passenger numbers to over 25 million. Double digit growth is expected again this year. So, we welcomed the recent announcement that the Dublin Airport Authority (DAA) now plan to complete a parallel runway by 2020.
While the runway is the most important long-term investment, we are also working with the DAA for improvements to taxiways and the stand areas to make sure that the existing capacity is utilized optimally. And there are some pinch points in the terminal too. We have just introduced a self-service bag drop facility, for example, that should help passengers to utilize existing terminal resources better. We have big expectations of getting more people through the terminal faster. That’s good for our customers and for our competitiveness.
You share Dublin Airport with Ryanair. How would you describe your relationship?
We have been competing vigorously for 30 years and that has been to the benefit of both carriers. Broadly speaking, in Dublin the market is 40% Aer Lingus, 40% Ryanair, and 20% others. We have stimulated the marketplace together and that can clearly be seen in the dramatic rise in traffic figures.
If we didn’t have Ryanair we would have had to invent them because it keeps us focused on what matters. We are disciplined on cost and we never take the customer for granted. Trying to keep one step ahead is a healthy thing. The passenger has benefitted and Ireland has benefitted.
What do you see as the biggest challenges in European aviation?
Operating in Europe carries more costs than it should because of the infrastructure and air traffic management issues. But, there has been a lot of progress and in many ways the market is liberalized. Carriers can achieve scale in operations in a limited context.
Even so, some of the infrastructure and services are not priced at what I would call a market rate. And until we get to that point, European airlines are not as competitive globally as they could be. We are getting closer to that point all the time, but we need some very basic, but critical improvements—like achieving the Single European Sky.
There is also an onerous regulatory burden. Take EU261, the passenger rights regulation. We are focused on our customers. And our aim is to ensure that our guests never have to seek recourse through it. But, the scope of the regulation keeps growing through court decisions. And it is a law that hasn’t been replicated in any other business sector.
Europe can be a very complicated place to do business and the priority for simplification is anything that reduces costs, that improves efficiency, and that allows airlines to fly on time. The answer is found as much in building the right regulatory framework as it will be in achieving a real Single European Sky.
What makes a great Chief Executive in the airline industry?
You need clarity in your strategic direction and you must be consistent in implementing that strategy. It goes without saying that you must be a leader and have the courage of your convictions.
Do you feel there is an advantage in promoting leaders from within the industry?
I am biased obviously, but I’m a great believer in knowing the industry inside out. I’ve been with Aer Lingus for 28 years in a wide variety of roles, from Check-in Agent to Chief Executive, in both state and public ownership, and through the range of business cycles that this industry experiences. I’ve witnessed what works, what doesn’t, and most importantly, why.
I’ve also been fortunate to work with a lot of very talented people. Aer Lingus has been a training ground for many CEOs and senior managers. Willie Walsh [IAG Chairman] is a former Aer Lingus CEO and Alan Joyce [Qantas CEO] was my first line manager. And there are many others. Having the experience of their mentoring and guidance has benefitted me enormously.
What can delegates expect at IATA’s 72nd AGM in Dublin?
I hope the AGM will demonstrate the reason why there are so many Irish nationals working across aviation on a global basis. Ireland is a great aviation nation.
Delegates will get first-hand knowledge of why aviation is so important to Ireland, its people, and its economy. If you want to demonstrate the power of competitive, liberalized air travel, then Dublin and Ireland are wonderful examples.
An entire aviation ecosystem has grown up in Ireland that is creating jobs and supporting economic growth. Ireland is an aviation success story and a template for others to follow.
And, of course, we shouldn’t forget that being in Dublin means the social opportunities will be plentiful!
2015 Appointed as Chief Executive Officer and executive director with effect from 1 March
2014 Kavanagh made Chief Strategy & Planning Officer
2009 Chief Commercial Officer
2007 Corporate Planning Director
2006 Planning Director
2003 Operations Planning Director
1988 He joins Aer Lingus working in analytical and management roles in fleet scheduling and business planning departments
Kavangh is a graduate of University College Dublin