Aer Lingus chief prepares to fly solo in the new year

If Stephen Kavanagh was anymore down to earth he'd be subterranean. The Dubliner is as unassuming as they come, particularly among the officer ranks of corporate Ireland.

By his own admission, he's more a numbers man than a people person. His career in aviation began as a teenager with a weekend job washing shelves for the old Aer Rianta (now DAA). He was introverted, preferring to look at his shoes and avoid eye contact.

In 1988, he interviewed for a role with Aer Lingus on check-in, a move that would help to bring him out of his shell. "I had a social interaction every 15 seconds for the next four years and that's what allowed me to develop," he says.

“People ask me what was the single biggest positive career moment, it was simply being forced to engage with people. My natural disposition is to always rely on numbers and I’m comfortable on numbers but ultimately Aer Lingus is a people business.”

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Aviation has been his life. His father worked in security and the fire service at Dublin Airport when you could literally meet people off a flight at the bottom of the steps. “I’m still known to many as Tommy’s son and that was a lovely start.”

His career story is remarkable, rising through the Aer Lingus ranks over the course of three decades to become the airline’s chief executive in early 2015.

Helped by IAG’s financial clout, and a remarkable recovery in the Irish economy, Aer Lingus has soared under his leadership in the intervening period.

Decision to step down

In October, Kavanagh stunned colleagues and the wider industry with his decision to step down at the end of this month. He made his mind up in the first quarter of this year, with his priority to get a five-year business plan signed off by the board and IAG.

“The decision was relatively easy,” he says. “It was based around family. I can’t do things by half. Getting that balance between family and professional pursuits, I’ve never been able to find that balance. It’s just not in my nature.

“It’s either prioritise business for another three or four years . . . or give the appropriate time and attention to family and friends.”

The Aer Lingus chief executive used to travel to work by bus. His one concession on taking the top job was to upgrade to a taxi for his commute from Drumcondra.

“My youngest is three and we made a pact to be there in the morning to see the kids get up and be home in the evening for bedtime. Changing from bus to taxi saved 45 minutes in total.”

Kavanagh leaves the house at 7.15 am each morning, and is at his desk within 15 minutes. He is “very hands on in terms of [management] style” and remains a “nuts and bolts” operations man. “Most evenings” he is home by 7pm.

That said, running an airline is a 24-hour business, with aircraft in the air throughout the day. “The phone is always with you, it’s always on and the phone rings often. Even when I’m in the company of kids your head can be somewhere else. You’re never not here.”

Kavanagh is originally from Errigal Road in Drimnagh on the southside of the city. He went to school in Drimnagh Castle, where he is now on the board. The 123 bus takes him door to door for meetings. "I'm not sure what I'm going to do with the upheaval planned for Dublin Bus, " he says in a reference to the controversial Bus Connects plan.

He is much more exercised about development plans for Dublin Airport, which are crucial to the future growth and success of Aer Lingus. A new €360 million runway is in the pipeline although the DAA wants changes to planning restrictions that are being placed on early-morning flights, which would be limiting for Aer Lingus.

“The ambition that Aer Lingus has will not be realised without the development of some level of incremental hub capacity at Dublin,” he says, adding that the “shackles are off” in terms of the airline’s ambition.

If the five-year plan comes to fruition, Aer Lingus will be flying 30 aircraft on a daily basis back and forth across the Atlantic, serving 18 to 20 destinations and carrying more than 4.5 million passengers annually (from about 2.5 million currently). "We will have a strong European network supported by partners such as Stobart and CityJet . . . feeding the hub," he says.

At the heart of this plan is the development of Dublin Airport as a hub connecting North America with Europe. "We've reached a critical mass and the next phase is to build on that," he says.

Aer Lingus currently has a 3 per cent share of the market between Europe and North America, on a par with Swiss and “catching up” with Dutch flag carrier KLM. Parent group IAG holds a 15 per cent share overall.

This year more than 800,000 passengers will connect to Aer Lingus’s transatlantic flights in Dublin having started their journeys from other parts of Europe. About 400,000 passengers will fly from North America through Dublin to other parts of Europe.

New single-aisle A321 aircraft, with better range, size and fuel efficiency, have the potential to fly to most parts of east-coast America with the same relative seat costs as the larger aircraft A330 that the airline currently operates across the Atlantic.

The A321 has just 186 seats compared with the A330’s 324, reducing the risks involved in launching a new route. “Every aircraft you add increases the power of the network so you begin to aggregate,” Kavanagh explains. “The ambition to become more than a 3 per cent player becomes real.”

Since IAG’s takeover, Aer Lingus’s business has grown by a third, primarily across the Atlantic, while the airline has doubled its margin to about 15 per cent. This has been in the face of increased competition across the Atlantic from low-cost carriers Norwegian and Wow.

Aer Lingus plans to sweat the new long-range aircraft. Once they touch down in Dublin of a morning, they will be used to serve short-haul routes around Europe.

“I’ve been excited about this aircraft for the last seven years,” Kavanagh says, with a noticeable excitement. Flying to and from the east coast of America consumes about 15 hours of the asset, with nine hours a day going spare.

“They no longer go spare because when they come back to Dublin they will be going through to Paris, to Amsterdam, or through to Barcelona. This will also allow Aer Lingus to offer a business-class service on these European routes, something that was axed in 2002.

“When we have the long range aircraft going on into Europe, they will have a business cabin with full lie-flat [seats]. So they’ll get consistent service from all of the gateways in North America to the principal gateways in Europe.”

Kavanagh says Aer Lingus needs to grow Seattle and Florida, and there are a couple of "midwest cities that we are interested in opening up".

There have been many highs and lows in Aer Lingus over Kavanagh’s career, particularly when it was in State ownership. It almost went bust post 9/11 before recovering to float on the stock market in 2006.

Ryanair bids

Ryanair moved in, sweeping up Aer Lingus shares before eventually taking its holding to just under 30 per cent. Michael O’Leary made three attempts to buy the airline but was foiled by a combination of European Union competition concerns and opposition from the Government, which had retained a 25 per cent stake.

Kavanagh admits that the Ryanair bids were a “distraction” and says he would (unlike most of his colleagues at the time) have had “no problem” working for O’Leary if the deal had been allowed to go through.

“It was a lost five or six years, without doubt, but ultimately we have ended up with an incredibly strong Ryanair and a powerful Aer Lingus that both have a role in this marketplace. That competitive dynamic is healthy for both businesses and for the island economy. What we’ve done with the Aer Lingus opportunity has created more value and more relevance than what would have happened as part of the Ryanair family.”

He has been offered other jobs over the years but never wanted to leave Aer Lingus, with the exception of a period in 2007-2008 when he “fundamentally disagreed with the direction the business was taking”, towards the end of Dermot Mannion’s tenure as chief executive.

“Transatlantic was the source of our problems,” he says. “I believed a flawed strategy was being applied to the transatlantic and not the fact that we flew across the Atlantic.”

German Christoph Mueller succeeded Mannion and, according to Kavanagh, one of the early board meetings of his time in charge involved a "discussion about the termination of the Aer Lingus transatlantic operation, which for a new CEO was the obvious conclusion to draw, to be fair, because it's where the red ink was".

This also happened to be the first board meeting attended by veteran trade union leader David Begg as a non-executive director.

“David expressed surprise that we’d even consider such a move given, not just the history of the operation, but the importance of the operation for an island economy.”

Aer Lingus retained its transatlantic routes and Kavanagh was one of those tasked with getting the operation back into the black, developing the hub in Dublin and forging relationships with American carriers United and JetBlue to connect passengers into their networks.

“Within 12 months the red ink disappeared,” he says, noting that this was then followed by the turbulence of the global financial crash.

Aer Lingus weathered that storm, too, and Kavanagh takes pride from the fact that it is the most profitable airline within the IAG family in terms of margin and return on capital.

New runway

Kavanagh says the new runway at Dublin Airport is vital for Aer Lingus to continue growing its transatlantic services. At present, the airport is jammed at the peak times of 5.45am to 8.30am.

“We have been compromised and continue to be comprised [in our growth],” he says, adding that a new runway and more aircraft stands are needed rather than a third terminal building for the airport to become a 50 million passenger hub.

Kavanagh will be 51 on St Stephen’s Day but has no clear career plan for next year and beyond.

He will transition to new chief executive Seán Doyle and will be a non-executive director of the Aer Lingus board. “I will retain a keen interest in Aer Lingus and will be available to Seán. I do think that if I can offer support and it’s valued by Seán then I’m more than happy to stay involved.”

How will he pay the bills? “I don’t generate much expense,” he says with another wink. “I’ll appraise opportunities as a non executive, particularly in the new year. My ambition is to gain some more experience in Irish business and I’m keen to continue my involvements in both DCU and UCD guest lecturing.”

He has no plans to set up his own business or to become a consultant. And he’s not particularly angling for another full-time executive role.

“I’ve been at Aer Lingus for 31 years so I don’t know what the alternative is. I will not step into a new role that I don’t think I can actually earn my corn.”

He views his strengths as being “decisive” and authentic, while the negatives are that “I’m not always as inclusive as I should be. The people skills are okay.

“At some point, the business will mature and need a more traditional leader with charisma. I didn’t want to be a personality CEO.

“I’ll find something in the new year that keeps me involved, engaged and making a contribution and hopefully I’ll be a much better father as a result. Because it’s a balance.”

CV

Name: Stephen Kavanagh

Job: Steps down as Aer Lingus chief executive on December 31st

Age: 51

Lives: Drumcondra

Family: Partner Clodagh and two children

Hobbies: Arsenal supporter and rugby fan

Something you might expect: "I'm not a man of surprises."

Something that might surprise: "I often travel with other airlines, to experience the competition and understand their businesses and keep current."