Sunday 4 December 2016

A refreshed brand, revamped website and new routes: Aer Lingus takes flight under IAG

Aer Lingus chief commercial officer Mike Rutter tells Sarah McCabe how he's winning back passengers who left for Ryanair, and explains how the two rivals could partner up to funnel passengers on to Aer Lingus' US routes

Published 18/10/2015 | 02:30

'Aer Lingus needed to appeal to those people who had deserted the franchise,' says Mike Rutter, above with chef Clodagh McKennaI
'Aer Lingus needed to appeal to those people who had deserted the franchise,' says Mike Rutter, above with chef Clodagh McKennaI

When he joined Aer Lingus 20 months ago, Mike Rutter was boarding a very different airline. Recruited as chief revenue officer by Christoph Mueller in 2013, the Newcastle-born aviation executive had no idea he was about to take part in the biggest deal in Irish aviation history.

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While onlookers are still coming to terms with its change of ownership, Aer Lingus has already moved on. In the last few months the carrier has revamped its brand, product and website. Rutter, recently promoted to chief commercial officer, has led much of this.

The rebranding, including a new 'Smart Flies' advertising campaign designed by a Dutch agency, and a partnership with the IRFU, has had a dramatic response, he told me over coffee at Shamrock House in Dublin Airport.

"It is the airline's first move in years to freshen up its brand and present Aer Lingus in a more progressive, modern and youthful light. Aer Lingus had not invested in a brand campaign since 1998… It needed to become more relevant and appeal to people who had deserted the Aer Lingus franchise and gone to Ryanair," says Rutter, who previously worked in management at Flybe.

"The two key markets that we were after were the younger demographic and people who were lapsed Aer Lingus customers. And it has worked exceptionally well in both of these cases."

Customer polling suggests about a third of lapsed passengers are returning, he says. "In the last three years, about 19pc of our passengers have lapsed and gone to Ryanair. [Polls found that] 78pc of those have, since they've seen the new ad, reconsidered Aer Lingus. And of those, 42pc have booked with Aer Lingus."

Rolled out alongside the brand revamp was a new online sales system, website and app that he says are far superior to Aer Lingus' main rival's. The company's website and apps are its shop floor, accounting for about four-fifths of all bookings and generating in excess of €1bn a year. "We have just launched a brand new website and in the next few weeks will launch the mobile apps that go along with that website. We are taking the digital and mobile experience to the highest level of our competitive set."

There were two key aims to the IT revamp, the first being personalisation. "Historically, airlines offer everybody the same communication - you know: 'Do you want to go to Amsterdam today?'," says Rutter. "Even if you've never been to Amsterdam and have no interest in Amsterdam and only ever fly to New York, we have bombarded you with emails that have been irrelevant.

"What we've done with the platforms that we built with [Irish software company] Datalex, and built internally, gives us a major step towards personalising the opportunities that you receive as a consumer. So if you are a person that regularly flies to Manchester and occasionally flies to Alicante, then we will personalise offers and incentives that actually relate to those behaviours and habits. And when those behaviours and habits change, we will track them and change our offers. It is the Holy Grail for marketers and retailers.

"The second part is what airlines call merchandising. About 22pc of our passengers don't come to us directly, they come to us through other channels like online travel agents. Every airline in the world, not just Aer Lingus, has a problem with anybody who doesn't come to them directly - they aren't able to sell them things other than the seat. So what we did as part of this rebuild is put in place a merchandising capability so that we can merchandise to those passengers and reach another 22pc our passengers with our total stack of ancillary revenues.

"It doesn't sound like a lot, but what it actually means is that last year Aer Lingus made €19.14 from every single passenger that came on board the Aer Lingus network in ancillary revenues. It's publicly available data.

"What people don't know outside the industry is that 96pc of that €19.14 falls to the bottom line of the business because there is very little cost attached to it.

"For us to be able to retail that to another 22pc of our base is transformative to the business. That is why the investment was sanctioned, that is why we took the time to get this live. I can't tell you what ancillary revenue per passenger has gone up to now because that is price-sensitive information, but it is in a positive trajectory."

A multi-airline flight search engine run by Aer Lingus - something Michael O'Leary has already voiced an ambition to do - is also a possibility, he said. "I think further down the line that is something of interest."

Brand and website aren't the only parts of the business to enjoy a refurbishment. The airline's business-class service has also been upgraded. Transatlantic flyers now have access to seats that lie flat, revamped menus, new lounges in the US and an arrivals lounge in Dublin Airport. "We have seen a 25pc-plus increase in business-class passengers on long haul since we implemented the changes in March," says Rutter.

Frequent fliers can also look forward to an improved loyalty scheme, and wave goodbye to the airline's Gold Circle system.

"We independently, but supported by IAG, will be seeking to move beyond gold circle to a new programme which will be announced in the early part of next month, which will have the benefit of a currency which can be shared across a number of airlines and will also have enhanced benefits of recognition and reward and loyalty for members... It will include a bigger opportunity to spend and redeem points with other airlines but it will still absolutely be an Aer Lingus plan with a proper Aer Lingus name and a sense of modernity."

IAG boss Willie Walsh is delivering on the promises it made in merger talks to grow Aer Lingus staff and traffic, Rutter says.

"The context of this deal was very simple, it was 99pc about revenue synergies rather than cost synergies. IAG has reinforced since the merger that they were interested in Aer Lingus because of what it is, not because of what they want to change it into.

"We expect to employ more frontline staff. We have publicly committed to, and you will see in the next week or 10 days when we make these announcements about new long-haul routes, that there will be more staff employed than less." But IAG expects double-digit operating margins from its airlines - is that achievable without cost-cutting? Yes, he believes.

"If you look at our margin capability as a business, we compare quite favourably to the rest of IAG's portfolio. So we are going in at pretty much the same place as the rest of the airlines in the group... None of them is yet in double-digit growth. There is an aspiration to do this... that the total group achieves double-digit capability, but to put that in context, we are currently right in the middle of where the IAG group of companies are."

Rutter denies that short-haul is under pressure. "We are having the best short-haul season that we've had in probably 10 years. Our short-haul business is in very strong and very robust health and has grown dramatically in the last 12 to 15 months as we have become more aggressive. This year we announced Liverpool as our first UK destination in years. Liverpool has some significance because it was the first route the Irish Government forced us to give up in the early 1980s to allow Ryanair to survive when Ryanair wasn't the behemoth that it is now. People think of the Ryanair journey as being totally without government support - it wasn't!

"Our short-haul business is very successful, doing very well against Ryanair. We are the most successful airline in the world in competing head-to-head with Ryanair. We are the only ones who have done it for 30-odd years and we will continue to do it."

The two old rivals have even discussed operating a code-share agreement that would see Ryanair funnel passengers from Europe on to Aer Lingus' transatlantic routes, he confirms.

"We have definitely not ruled it out. There have been various conversations between the airlines, and also the airlines and IAG. They haven't yet produced fruit but that doesn't mean that, if somebody is prepared to offer connecting capability that doesn't conflict with our network at a cost that works, we will work with anybody that can provide an appropriate product.

"I think it would be a potential good deal for both airlines, providing the economic of the deals are right. Why? Because it opens up the places that from an Aer Lingus perspective we wouldn't get to serve in the long run.

"So, for example, another airline might have a great network in Poland - we don't have an extensive network in Poland. Or they may have a great network in the Baltic states - we don't have an extensive network in the Baltic states.

"So for us, it gives us access to traffic where there are large concentrations of diaspora from those countries in the US, and for them, it gives them traffic which they don't currently get on their network, which is probably more valuable to them than some of the traffic they currently pick up at the bottom end of their price groupings. So it potentially works for both parties.

"But to be clear, it is no substitute for Aer Lingus continuing to invest and grow its own short-haul network. So just because we do one doesn't mean we won't keep doing the other. They are meant to be complementary.

"It would be the complete final change in Mr O'Leary's model. Having said that he would never have anything to do with connecting passengers, never have anything to do with being nice to passengers and never have anything to do with pre-assigned seating, it would mark the full journey for Ryanair."

Despite all of these ambitious growth plans, Rutter is not in favour of the immediate construction for a second runway for Dublin.

"I think Dublin Airport has a lot of untapped capacity which it is currently not exploiting. Key to that is actually investing in things like taxiways and improving the flow off the existing runways. If you look at an airport like Gatwick you get up to 55 aircraft departing off the runway every hour; here we are up to 38. So you can see there is an opportunity.

"We are limited more by taxiway capacity because you need different points to inject aircraft on to the runway. If the growth we are all hoping for comes about in the next couple of years then absolutely, there is a case for a cost-effective second runway to be looked at."

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