Garry Cullen: Coming out of retirement to expand Aer Arann

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Garry Cullen must really love the airline business. The 63 year-old former Aer Lingus chief executive has come out of retirement twice, both for much smaller carriers that are not exactly household names.

Cullen, who spent his first six years after Aer Lingus in the Caribbean heading Antigua-based regional carrier Liat, is now leading Dublin-based Aer Arann through, at least by regional carrier standards, a dramatic growth period.

“It’s been an enjoyable experience,” Cullen says. “It’s been a contrast working for one man rather than seven governments in the Caribbean, or for one government at Aer Lingus.”

Aer Arann’s owner and former managing director, Padraig O’Ceidigh, persuaded Cullen to take over the managing director post in June 2006. O’Ceidigh had just placed an order for 10 ATR 72-500s, which Cullen says rejuvenated Aer Arann’s 400 employees because the carrier had never operated a new aircraft in its 37-year history. “The staff has been there from the beginning. There is a tremendous sense of pride and accomplishment. There are no unions. It’s absolutely a different type of culture [compared to Aer Lingus],” Cullen says.

When O’Ceidigh purchased Aer Arann back in 1997 it was a tiny operator providing island-hopping services and carrying less than 100,000 passengers per year. Today it operates five ATR 42-300s, nine ATR 72-200s and two ATR 72-500s. It carries well over 1 million passengers per year and generates about €100 million ($148 million) in annual revenues. O’Ceidigh continues to serve as chairman but it was time for him to turn over the reigns to an experienced airline executive like Cullen to lead the carrier through its next growth spurt.

“It was taking a bunch of his time,” Cullen explains. “He’s an entrepreneur and has his fingers in a lot of pies. He wanted to pull back a bit. And the company had grown very fast. It got to the point it needed structure.”

Cullen’s first order of business was to drop unprofitable routes and outsource ground handling at Aer Arann’s Dublin base. Cullen also reduced the carrier’s already low cost base.

Cullen says Aer Arann, which offers frills but low fares, has been able to expand rapidly over the last decade on the back of increasing demand for services at Ireland’s regional airports. Cullen says the hot Irish economy as well as congestion at Dublin airport, where plans for a badly needed new terminal have been held back for years because of objections by Ryanair, have created new opportunities for small regional airports that traditionally only had “public service obligation [PSO] routes and a flying club”.

By going into small easy-to-use airports, Aer Arann has grown fast while avoiding competing with Ryanair or Aer Lingus. It helps that two of Aer Arann’s bases, Galway and Waterford, have short runways that cannot be accessed by Ireland’s two big carriers. “We always try to avoid as much as possible the crossfire of Ryanair and Aer Lingus. That’s not the place for us to go,” Cullen says.

The next phase of Aer Arann’s expansion could see the carrier add regional jets and longer routes. Cullen says the carrier will evaluate potential regional jets next year as it starts considering its options for expansion beyond early 2009, when the last of the 10 new ATR 72-500s are delivered. The regional jets, most likely 70-seat Embraer 170s, could be part of a new five-year plan that will be considered by the carrier’s board in June.

“We’ll have to do the analysis and make a call by the second half of next year on what is the right fleet for expansion after 2009. Once we make a decision where to go beyond 2009, we’ll look at financing opportunities. We’ll need more capital if we expand to the next level,” he says, adding that whether this includes a public offering will be up to O’Ceidigh.

Cullen says regional jets are needed for Aer Arann to expand beyond its current niche of operating flights of less than two hours to regional airports in the Ireland, the UK and northern France. Its network is now limited to domestic Irish services and Ireland-UK services, which were only launched in 2002 and now consist of nearly 20 routes, with the exception of two seasonal services to northern France.

“Until we move to regional jets that’s what we’re focused on,” Cullen says, adding that routes beyond northern France are not viable with the ATR 72 because of payload restrictions on flights over two hours.

With regional jets Aer Arann will be able to launch services from Irish regional airports to destinations throughout continental Europe. Cullen also sees using regional jets to launch services at London City and potentially feeding Aer Lingus at Dublin.

Aer Arann has inked a new codeshare agreement with Aer Lingus which is expected to be implemented shortly. Cullen says the codeshare will initially only cover Aer Arann-operated domestic flights, but adds: “My belief is they’ll need feed from more than just domestic Ireland to support expansion of the new terminal” at Dublin.

Aer Lingus plans to expand its long-haul network in conjunction with the opening of a new terminal at Dublin, now slated to open in 2010. Cullen believes Aer Lingus will need a regional carrier to operate thin short-haul international routes within three to five years to help feed its expanded transatlantic network.

More international services could be critical as subsidies on some domestic routes are phased out. About 10% of Aer Arann’s ATR services still consists of PSO routes and its sister carrier, Aer Arann Islands, continues the original island hopping mission with a fleet of three Britten-Norman Islanders. “Those PSO routes won’t last forever. To some extent we’ll be the victim of our own extent,” Cullen says, explaining regional airports will grow to the point that they no longer need subsidies to sustain air services.

What’s next for Cullen? He has promised O’Ceidigh he will lead Aer Arann for at least two years and this will likely turn into three. But Cullen is looking forward to retiring again and spending more time at his homes in Ireland and the Caribbean. “My get out of jail card will be to find a successor he [O’Ceidigh] likes,” Cullen jokes. “I’ve retired twice already. This time it will be for good.”