Aer Lingus announces cost reduction plan

Aer Lingus today bit the bullet it has long found distasteful and announced a significant cost reduction plan designed to ensure the airline's survival. The plan is comprised of two elements. 
The first element is designed to deliver savings in non fuel operating costs of €97m by the end of 2011 and tackle legacy work practices to allow the airline compete against "a peer group with significantly lower operating costs". The figure comprises staff related savings of €74m and non staff savings of €23m. Operations staff are the main target of this element with pay and staff numbers in support areas suffering to a lesser extent.
The second element of the plan is designed to deliver revenue growth, improved customer service through business process improvements. The company intends to distance itself from it's traditional dependency on the Irish consumer through the use of an Airline Operating Certificate (AOC) in the UK from it's Gatwick base where costs are 40% lower than Dublin.


The company says that although staff costs have reduced in recent years the underlying trend shows current costs to be "significantly out of line with peers". As a result the company is introducing banded pay cuts to all employees earning in excess of €35,000 per annum. 
Reductions in flight schedules and changes in work practices are expected to yield a surplus of 489 flight crew and support staff, this figure being in addition to approximately 100 staff who have been informed that they will be let go by year end. The company hopes that the redundancies will be voluntary but hasn't ruled out compulsory layoffs to make the numbers. In addition, if the rate of delivery of cost improvement fails to meet the projected milestones, the airline has committed to additional headcount reductions "to ensure the continued viability of Aer Lingus". The black hole in the company's pension fund is also being addressed with a new defined contribution scheme being introduced.


The second element of the plan involves overhauling the company's IT infrastructure. Improved productivity will reduce head office headcount by 40% by the end of 2011. In total, 238 head office staff will be made redundant, made up of 51 in element one and 187 in element two. 


Aer Lingus says that it will now enter a six week consultation period with it's employees, unions and pension fund trustees which it hopes to conclude by November 18. The union response has been somewhat predictable. SIPTU has said that it will not accept pay cuts for it's members and will take whatever steps are necessary to protect it's members. IMPACT which represents cabin crew described the cuts as punitive.