ATM 2 Deregulation

7/23/2019 ATM 2 Deregulation

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July 2009 Transport and Logistics Department 1

Air Transport Management

Session 2: Impact of Deregulation


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Pre-Deregulation in the

US Carriers ere not a!le to compete in terms o" price Ser#ice $uality and "re$uency ere the main means

!y hich they competed

Load "actors ere lo and unit costs high as a result

% study !y Jordan &Airline Regulation in America,

1970) o" inter-state trun' airline "ares in 19() shoed

that if there had been no regulation these would have

been 32 7! lower


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US Deregulation

US interstate mar'ets tightly regulated "rom19*0

US Domestic +ar'et "ully li!eralised in 19,

US international mar'ets tightly regulated since

19*) .ntra-/uropean +ar'et gradually li!eralised

19,-199,

"orms of Regulation

#omestic $% &ntra'(uroeares

Capacity

+ar'et /ntry


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utcome o" USDeregulation

Loer "ares

.ncrease in mar'et concentration

Poor prota!ility

/ntry o" lo cost no-"rills airlines

Use o" Chapter 11 !an'ruptcy protection


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/uropean

Li!eralisationLi!eralisation an on-going e#olutionary process.mpact o" Tight /conomic 4egulation5rea'ing the +ould6

7 a8nity group charters

7 inclusi#e tours

Changing +ar'et Conditions


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ey Di:erentiatingeatures /urope comprises o#er ;0 autonomous states each ith its on

language< culture and administrati#e procedures= &0> o"airline trips are international=?

%round 20> o" intra-/uropean demand &4Ps? is carried onnon-scheduled &charter? ser#ices= &+ost o" this tra8c consistso" inclusi#e tour holidayma'ers tra#elling "rom @orthern /uropeto +editerranean resorts=?

Au! and Spo'e Systems already in eBistence< !ut not eBploited=

lag carriers ere nearly all state-oned= &ery "eindependently oned airlines operated scheduled ser#ices=?


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/uropean lag Carriers% State Owned Airline Equity Holder %

Aer Lingus 28 Ryanair 30

Air France - L! "#

Alitalia $0

Austrian 0&ritis' Airways 0 (& 8

&russels Airlines 0 LH $

Finnair $)

(*eria 0 &A "3

Lu+t'ansa 0Lu,air 23 LH "3

Oly.ic "00

SAS $0

Swiss 0 LH "00

/A "00


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The /uropean %pproachStage 1 5ilateral Aarmonisation

Stage 2 5ilateral Li!eralisation

Stage ; +ultilateralism

*e+ $nderl+ing b-ective.

Achieving a /ommon (uroean aret


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utcomes o" /uropean Li!eralisation

%c$uisition o" localotentialcompetitors

%c$uisition o" carriers !ased in other /U states

ranchising o" "eeder airlines

utsourcing

/mergence o" lo cost Eno-"rillsF carriers &e=g=4yanair< easyJet< Germanings< @oregian?


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.ncum!ent response in rance toderegulation

.ncrease "re$uency

DonsiHe aircra"t

+atch ne entrant discount "ares

+aintain single class

+aintain high density seating

+aintain minimal in-Iight ser#ice


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U Domestic Trun'4outes@o-"rills carriers ha#e had a maor impact on U domestic air routes< ith )0> o" passengers tra#elling ithin the U on such ser#ices &up "rom ;,> in e!ruary 200; and 22> in

e!ruary

2001?

London K Glasgo is one o" the Us !usiest domestic city pairs< ith ser#ices pro#ided "rom "our o" the capitals airports

" the ;=1 million ourneys underta'en in 200,< some *> ereon Iights operated !y lo cost airlines


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%nnual passenger tra8c 190 - 200,


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Tra8c generation on London-Glasgo


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@o "rills tra8c at U 4egional %irports

Since 1999 U regional airports ha#e attracted theattentions o" lo cost operators

Go< "or eBample< !egan operations !eteen 5ristoland /din!urgh in Septem!er 2001< producing an

e#en more dramatic increase in tra8c #olumesthan that eBperienced on London-Glasgo

Passenger ourneys nearly tre!led "rom 10,


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@o "rills impact on 5ristol -/din!urgh

Gos tra8c share during the rst $uarter o" 200; as astaggering 2>

Despite this dominant position o" the lo cost operator&easyJet? ith its three daily rotations< 5% CitieBpresscontinued to pro#ide #e ser#ices each ee'day using/m!raer 1*) regional ets until +arch 200,

.t is orth noting that the "ull ser#ice pro#ider eBperienced adrop o" ;1=)> in its passenger tra8c on the route in 2002compared to the pre#ious year


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U .ntra-/uropean Scheduled4outes

)*> o" passengers are no tra#elling!eteen the U and //% countries on theser#ices o" no-"rills carriers

U K +alaga routes pro#ide a good eBampleo" the impact that lo cost Eno-"rillsF

carriers ha#e had on con#entional netor'airlines and charter companies


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Poor inancial Per"ormance partly due to eBternal "actors

Economic downturns

Sept 11th2001 terrorist attacks

Iraq war

SARS

Increasing oil prices


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Poor inancial Per"ormance partly due to internal "actors

Overly comple operations

Ina!ility to modi"y !usiness model quickly

O!session with market share and load "actor at

the epense o" pro#t

Ecess capacity

$u! ine%ciency and congestion

Ignoring low cost carriers as via!lecompetitors

Ignoring the changes in customers& purchasing !ehaviour


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1

8

#

"0

""

"2

"3

"%

US cents per RPK, world scheduled airlines, deflated by US CPI, 1990=100 Sources IC!",

I!#!


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The results o" %irline Deregulation so "ar

$ Poor financial returns

$ %allin& yields

$ Rapid &rowth of 'ow Cost Carriers

$ Increased consu(er awareness

$ )e*elop(ent of Sur*i*al strate&ies

$ %or(ation of &lobal alliances$ Emergence of new international hubs

$ Innovation new products


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Source "!+ ,-00./

ithin !sia Pacific ithin urope ithin US02

32

102

132

-02

-32

402

-001

-00-

-004

-005

-003

-00.

/'e growt' o+ low cost carriers in Asia2 Euro.e and t'e 3S 4Seat 5a.acity6


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Top 20 LCC Passenger Tra8c &m? in200,


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/Bamples o" /uropeanLCCL55 wit' +rills L55 no +rills Regional L55 Leisure 'y*rid*i*a*y 7orwegian Fly&e Air &erlin

5licair Ryanair Hel9etic Fly:lo*es.an

easy;et !onarc'

:eranwings Sterling

/'oson+ly

/ransa9ia


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#i(e series forecast, low cost carrier *erses networ6 airlineuropean Seat Capacity -00-7-010

Source "8Connell

MMMN N

-00- -004 -005 -003 -00. -00 -00: -009 -0100

100

-00

400

500

300

.00

'ow Cost Carrier Series 4M

Seat5a.acity4!illions6

N

N NN N

N N

;etwor6 !irlineN


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Continuing /#olution

ore dierentiation6

Loer cost !usiness class only airlines

Greater emphasis on customers con#enience

Lo cost ith "rills

Longer haul lo cost ser#ices

ATM 2 Deregulation

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