Aer Lingus CFO on helping to turn around the fortunes at Ireland's flag carrier
Andrew Macfarlane, CFO of Aer Lingus
It's not an easy time to be a chief financial officer of an airline business. Increased incidence of natural disasters, volatile fuel prices, a possible double-dip recession and falling passenger numbers have all combined to severely dent most airlines' profits and prospects, so to join the board of an airline at the time of one of its worst financial years is a job only for the very experienced.
But then Andrew Macfarlane, CFO of Aer Lingus, has solved messier financial dilemmas before now. And it's a good job he has because when he joined Ireland's flag carrier in 2009 as interim finance chief, the business was facing an operating loss of nearly €90 million on revenues of around €1.2 billion, and passenger numbers were falling fast.
With a new management team on board (of which Macfarlane was a member) the executives tore up the old strategy of competing with its main domestic rival – the much younger and cheaper upstart Ryanair – and started work on a new three year transformation programme dubbed Greenfield.
The strategy involves overhauling the airline's commercial model and cutting €97 million out of the cost base. So far the CFO has removed around €80 million and he's "confident we'll get the balance of it this year".
The board is repositioning Aer Lingus somewhere between the low-cost, no-frills airlines and the higher end carriers. 'Value carrier' is a term Macfarlane doesn't particularly like, but it is a philosophy the company is pursuing with determination.
To underpin the repositioning of Aer Lingus as a value carrier, the company is also ditching its former marketing plan of pushing Aer Lingus as a point-to-point carrier and have been marketing the airline's attributes as a 'connected' airline.
"One of the changes made to strategy was to emphasise our connectedness. Now we say our mission is to connect Ireland to the world and the world to Ireland," Macfarlane explains.
A gentle lift-off
The strategy appears to be working. Passenger number rose by 2.1 percent in the third quarter last year with full year volumes rising 0.2 percent on the previous year. Retail revenue per passenger also increased by 6.1 percent in the third quarter. Admittedly, traffic still isn't anywhere near the highs Aer Lingus achieved before the company got into financial difficultly and the global recession, but this is in the context of a fall in air travel both around the world and at the airline's hub in Dublin. In 2010, for example, Dublin Airport handled over 18.4 million passengers, a 10 percent decrease on 2009 levels.
Macfarlane admits that the growth is "very small" but he is upbeat on yield. "Yield has been tracking ahead of previous years and that theme has continued. What we have said is that we'll be demand-led and we'll not go chasing volume," he says.
"We'll match supply to demand and if demand is flat, we'll keep our capacity flat and we'll get smarter in the way in which we manage yield," he says.
One of the first places Macfarlane had to start with when cutting costs was in remuneration and staff benefits. Most of the workforce took a 10 percent pay cut and salaries have been frozen for three years. It's worth noting that it wasn't only the workers who took a pay cut. The CFO took a larger than 10 percent cut in salary; something he had never done in his career.
"It's very important that we take the same medicine. Otherwise you don't have the moral authority, do you?" he asks rhetorically.
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