International Airlines Group (IAG) acquired Aer Lingus in September, bringing it under the Group umbrella that includes British Airways and Spanish carriers Iberia and Vueling. Stephen Kavanagh joined Aer Lingus in 1988 and was appointed CEO in March 2015.

Aer Lingus is the host airline for the 2016 IATA AGM in Dublin in June. 

Yes, Aer Lingus is celebrating its 80th anniversary this year, so it’s quite a significant milestone in the company’s history. But it is also important for Ireland and for how it has developed and highlighted the positive impact of aviation. So we are delighted to showcase both Aer Lingus and Ireland, and its aviation and airline businesses. We’ve been a very long standing member of IATA and last hosted the AGM in 1962, so we are delighted to have this opportunity. 

What issues do you expect to see raised
at this AGM?

Because we are in Europe, I think we will see a focus on the infrastructure issues in Europe, whether it be Single European Sky, runways or regulation. As an industry, we are highly regulated and some of that regulation is necessary, but not all of it adds value. That has been on the IATA agenda for some time and I can see it being echoed within [Ireland], a very liberal and deregulated marketplace. 

As you say, Ireland is a very pro-aviation country. Talk about what that means from a business perspective.

Ireland has embraced deregulation and liberalizing access. It’s a very small economy in the global context, but it’s a very open economy, one of the most open economies and on a par with Singapore. 

Ireland has recognized the requirement for connectivity and, as an island, sees that air transportation is how that’s delivered. We have very strong indigenous competition with Ryanair, but there’s the ability for us to compete not only in the Irish market but also across the Atlantic and in Europe. Deregulation has allowed us to grow scale. Deregulation, competition and liberalization have brought out the very best in terms of behaviors and competitive response. We’re efficient, we’re focused on returns, and the Irish economy has benefited and the consumer has benefited. 

Competitiveness has also fostered demand. We see a higher propensity to travel than in most other nations and that’s because we’ve created an opportunity for competitive airfares. 

We are one of the two largest Irish airlines, but there are others and the aviation eco-system—including airlines, lessors, MROs and travel technologists—has prospered because it’s been open to competition. To remain relevant, we have to remain competitive and everyone has reaped the benefits.

How has the integration into IAG progressed?

We have been delighted with the integration process so far. We’ve enabled significant improvements in cost synergies and revenue generation. But it’s been a very light touch. We’ve retained a great deal of autonomy in those areas where, quite frankly, the Group has left the operating companies to drive value. We’ve seen the opportunity to accelerate our growth plans, not change the shape of them but accelerate them. It’s been very comfortable; a very good fit. There are excellent relationships with the other operating companies. It certainly helps that the CEO of IAG [Willie Walsh, a former Aer Lingus CEO] understands Aer Lingus. All of the expectations and timings of the transaction have been met or exceeded, so we are very encouraged and we look forward to extracting even more benefits in the coming years.

What are your growth focus areas?

We have seen some recovery in the Irish economy; we are just beginning to see that drive our short-haul performance. Obviously, short-haul is where most of our volume is and it’s also where our most intense competitor is; so we continue to develop that business. But our focus in terms of ASK growth has been across the Atlantic. We’ve grown at a compound rate of 12% since 2010 and we’ve continued that in 2016 under IAG’s ownership, where we’ve accelerated growth and added three new destinations. We’ve commenced Los Angeles; we will start [New York] Newark and Hartford, Connecticut, in Q3. That will bring us to 10 gateways in North America. Hartford is really an indication of how far we’ve come because it’s a spoke on the Dublin hub where previously we’ve focused on joining two hubs. We see the network maturing, but still see a lot of growth opportunity. As we grow our long-haul operation, we create more opportunities for our flow traffic and it’s that wonderful thing about networks: once you start plugging in more spokes, it becomes more and more efficient. So we are starting to get double dailies on our core gateways in North America, which allows us to maximize our efficiencies out of Dublin without compromising the efficiencies of our short-haul operation. We have double daily now on Chicago, JFK and Boston, and we will look to increasing frequencies on our other gateways. We are also looking at future aircraft types and how aircraft such as the Airbus A321LR may fit into a revised hub strategy where frequency is invested, but not at the expense of cost per seat.

We have a lot of infill to complete. For example, on Los Angeles we’ve started at four per week, but can see that going to daily in a short period of time. Similarly, at San Francisco we’ve just gone to daily and we’ll upgrade that from an A330-200 to an A330-300.

Norwegian, the low-cost, long-haul carrier, plans to start service to the US from Ireland, pending regulatory approval. How do you view the new competition? 

Every airline wishes for a monopoly in its home market. But life doesn’t work like that. Competition is good. Level competition is healthy and it stimulates the marketplace and we respond accordingly. We are in business because of extremely low entry fares. We operate a high volume, high load factor transatlantic operation. We compete on the basis of value and price is a key component. So we keep focused on our cost reduction and on the guest experience, and we believe we can retain our competitiveness.

What are your fleet plans?

The A330 has long been the mainstay of our transatlantic operation and we were the first ETOPS operator across the Atlantic. The aircraft hasn’t stood still over time so it can be all over our mission requirements with a full payload. We are on the A350 order book, but it’s something we continue to review because in the short term, as we accelerate growth, we are doing it with the A330s. We also use the venerable Boeing 757, which we introduced into our operation two years ago, and it’s been tremendous in terms of allowing us to invest in frequency, particularly in shoulder seasons, but also to allow us to innovate in markets such as Hartford. We have four [wet-leased] 757s in service. We don’t see ourselves adding to that, but we do see new technology toward the end of the decade creating new opportunities for us, particularly in single-aisle and across the Atlantic. The ideal for us is to find a single-aisle with the same seat mile costs as an A330-300 to give us complete flexibility in terms of frequency and the ability to capacity-manage across the operation.

Returning to the IATA AGM, do you have thoughts on Tony Tyler’s IATA leadership and his named successor, Alexandre de Juniac?

We have been truly blessed with Tony for a number of years. He has that great balance of diplomacy and industry knowledge and he has been key to identifying the issues that IATA should focus on, reinforcing IATA’s core mandate. And the delivery over the past years has been exceptional and we look forward to that continuing. I think IATA has chosen very well.