The TTG@WTM Interview
The only way is up I
Aer Lingus chief executive Christoph Mueller –who took part in the “Airlines in transition” session at Tuesday’s show –is credited with turning the airline around. Here, he tells Gary Noakes how he did it
f you had to describe Aer Lingus in purely technical terms, you might struggle. According to its chief executive Christoph Mueller, it’s an
online network carrier with a hybrid short- haul operation that operates a hub model for long-haul but isn’t part of an alliance. Mueller is credited with rescuing it from
potential oblivion by picking elements of other airlines’ business models to suit – and so far he seems to have got it right. Soon after his appointment in 2009, when it lost €154 million before tax, it turned a corner, recording an operating profit in 2010 and pre-tax surpluses in 2011 and 2012, the latest being €41 million. Mueller claims the third- highest margin of any European carrier, at 5%, behind easyJet and, of course, Ryanair. He describes the airline at the point he
arrived in Dublin four years ago with one word: “unsustainable”. More than 600 redundancies and a cull of unprofitable routes – long and short haul – were undertaken, and eight offices in Dublin alone reduced to two. These were among 500 cost savings identified. Aer Lingus’s pricing policy was torn up. “At the time, there was a ‘me too’ strategy
with Ryanair, optimising the load factor,” he recalls, adding that neither the low-cost or the legacy model “made any sense” in Aer Lingus’s case, as it had neither the cost base to compete with its budget rival or enough population for a legacy carrier. “We call ourselves a value carrier. We
have remained low cost from a people point of view, whereas on the revenue side we are modular. We offer a seat like on Ryanair with a small difference that we fly to main airports. The customer values this and we can charge €20-30 more,” he explains. The modular approach means Aer Lingus is
Christoph Mueller is credited with rescuing Aer Lingus from potential oblivion
“We sell almost 90% of long-haul tickets on the internet. That is unmatched in the
entire world” Christoph Mueller
CV Christoph Mueller
2012: Appointed to the board of Tourism Ireland 2009: Joined Aer Lingus as chief executive officer 2007-2009: Aviation director and member of group management board, Tui Travel 2002-2004: Chief financial officer at DHL Worldwide
32 07.11.2013
Mueller has also held senior positions in Daimler Benz Aerospace, Lufthansa AG and the Sabena Group.
He holds an MBA from the University of Cologne, and subsequently completed an Advanced Management Program at Harvard Business School.
offering what it thinks the customer will pay extra for, be they business passengers wanting flexibility and Fast Track, or holiday customers flying in economy wanting to treat themselves to a business-class meal – an option it also offers.
Limits on the home front When it comes to the bigger picture, Mueller has a problem in that Aer Lingus’s home market is limited – a population of 4.7 million, although as he is quick to point out, there are another 17 million of Irish descent living abroad. The market might be small, he says, but the propensity to travel, because of the diaspora, is very high, an average six times a year compared with the EU’s 1.5 times. To bolster this, Mueller has developed Dublin as a transfer hub, with 30-50% of passengers on each US service transferring there. “That enables us to fly a much larger long-haul fleet than one just serving the island,” he said. Dublin airport saw more than 25 million passengers before the economic crisis; it is now at 19.1 million,
a chance for Aer Lingus, he believes. “We would love to do more,” he says. He takes a measured approach to
expansion here. Aer Lingus has nine Airbus A350s on order that allow for a small long- haul capacity increase from 2015, but which are really like-for-like replacements for the core fleet of seven long-haul aircraft and no major expansion is anticipated. Meanwhile, one change has been to lease three Boeing 757s for the thinner routes to North America; Shannon to Boston and New York, and Dublin to Toronto, freeing an A330 for the busier Dublin routes. This spare capacity will be used next year to expand San Francisco frequencies. He is proud of one statistic relating to
long-haul. “We are the only online network carrier. We sell almost 90% of long-haul tickets on the internet. That is unmatched in the entire world.” When it comes to the global distribution systems, the modular approach suits him again. “We now selectively work with them where we are forced to, like Germany. In Ireland, it’s less than 1% non-internet distribution.” This is a major part of why he will
not return to an alliance. Aer Lingus quit oneworld in 2007 when it briefly adopted the no-frills formula. “It is a pretty expensive country club,” he said. “It cost us €40-50 million just to upgrade our IT system. We would never earn it back in terms of passengers because the Irish diaspora is quite concentrated around the world – the US, Australia, Hong Kong.” Selective code sharing is his favoured
approach. He goes further: “The high times of alliances are over. Seamless travel for the customer can be achieved much easier today. I believe alliances will be replaced by joint ventures – that is the model for the future.”
No plans for flying solo There is no go-it-alone plan, however. It is no secret that Aer Lingus was in advanced merger talks with an unnamed carrier before Ryanair scuppered a deal by announcing its third hostile bid for its rival in summer 2012. The UK Competition Commission ruled four months ago that Ryanair must reduce its stake from 29.8% to 5%, meaning that Aer Lingus will be in play again. Mueller expects an appeal by Ryanair to be heard in February, but accepts Ryanair, which he describes as “the poison pill”, may remain on its share register, limiting its appeal to investors “for another year or so”. Etihad, which has a 3% stake in Aer
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