Aer Lingus: Death by rejection?

Well 2008 is almost behind us and the Aer Lingus/Ryanair saga continues with no sign of an agreement in the near future. In my opinion the continued blanket refusal by Aer Lingus to consider a takeover by Ryanair is completely unfounded and ridiculous.
Firstly it is clear that sentimentality and politics are getting involved in the situation, where clearly this should not be the case. The “state run company” attitude is still following Aer Lingus around like an unprofitable shadow and is clearly getting in the way of important commercial decisions, like say... dropping an unprofitable route:

“Also at the hearing, Aer Lingus has been told that unless it re-instates a Shannon to Heathrow service, there would be considerable support among TDs for the Ryanair takeover bid. A number of TDs from the Shannon region said there was still a lot of anger there, about the pull-out”

The fact is that Aer Lingus is not a charity, it does not OWE any airport in Ireland anything, the airline should be able to make commercial decisions without having TDs from the Shannon area interfering and I have a feeling that a management headed up by Michael O’Leary wouldn’t stand for this constant interference from these irrelevant parties.

My second point of contention with the anti-Ryanair takeover crowd is their insistence that the takeover bid “significantly undervalues Aer lingus”:

Ryanair says the proposal represents a premium of about 28% over the average closing price (€1.09) of an Aer Lingus share for the 30 days to November 28. It also represents an premium of about 25% over the closing price of €1.12 of an Aer Lingus share on Friday.

Given that Ryanair offered 25% over what the market values Aer Lingus at, I find it bizarre and absurd that someone would argue the bid “undervalued” the company, again this act of denial of financial reality is another example of the complete ignorance of the Aer Lingus board as to the state of their company.

Some interesting facts from Finfacts.ie:

Since 2006, when Aer Lingus rejected Ryanair’s €2.80 offer, they have:

• Spent over €24 million on its defence of Ryanair’s 2006 €2.80 offer


• Allowed its director’s basic annual fee to almost treble from €17,500 to €45,000


• Allowed its non-executive Chairman’s basic annual fee to increase fivefold from €35,000 to €175,000


• Increased short haul fares by 7% to €94Increased fuel surcharges 5 times to a current average of €75 per sector


• Aer Lingus’ forecast operating losses for 2008 and again in 2009
  

In summary I suppose I would like to tell the Aer Lingus board to get real, a Ryanair takeover is the best option for the continued existence of the company. Its time for Aer Lingus to get the sentimentality of “the good old times”, and the politics out of its decision making, its also time to have a management that is not afraid to make tough decisions, and its time for Aer Lingus to get a strategic plan that will ensure the companys long term survival.

Marketing: Strategic vs Reactionary

One of the core activities of marketing is strategic brand management. The brand is the public interface between the company and the general public, who are potential customers. In terms of strategy it is your brand that will allow you to survive into the future and set long term direction, but all too often companies believe that their brand is simply a name, and changing how that brand is positioned will have little affect on customers loyalty and feelings towards it. Strategic marketing means developing the brand in a planned manner rather that altering the brand as a reactionary measure under duress of adverse conditions.

A perfect example of strategic marketing vs reactionary marketing is the example of Ryanair and Aer Lingus.
Ryanair are in the grand scheme of things a relatively new entrant to the airline industry, yet due to their excellent strategic marketing have managed to transform themselves into Europe’s biggest airline in terms of volume in quite a brief amount of time. Michael O’Leary, CEO of the Irish airline made the decision to adopt low fare airline techniques that had experienced some success in the US and converted them to fit the European market. Ryanair knew exactly what they were offering, who they were offering it too, and how they wanted to convey this message. Ryanairs strategic position and marketing methods were so successful that within a few years many copycat airlines had arisen.
Conversely we can observe Aer Lingus, who under the protection of the state and pre-Ryanair had very little to worry about. The brand enjoyed a world class reputation for both the levels of customer satisfaction and the fact that it was so closely related to Ireland a fact that was easily observed in marketing communications. Aer Lingus however were not very forward thinking and really had no future strategy at all. As more and more of Europe’s airlines went the Ryanair route and changed to low fare models a sense of panic set in at Aer Lingus HQ and they began the transformation of Aer Lingus into a low fare airline.

The Brand that had been developed for some many years was gone, abandoned for a generic low fare model that experienced moderate success, however faced with Ryanair and a more expensive look-a-like customers turned to Ryanair. Furthermore Aer Lingus' long haul and short haul services are two very different services, however under new marketing campaigns the Aer Lingus brand as a whole was tarred with the "cheap" brush.
The start of this year has seen a reversal of this knee jerk reaction with the attempted revival of the “old” Aer lingus yet while they try to cater for both customers seeking price and others quality under one brand, success will undoubtedly be limited. Aer Lingus did not and re not thinking strategically, Ryanair did.

The following videos show and older more romantic Aer Lingus ad (which is actually quite humorous), followed by the message they were trying to send at the start of their change.