aviation ppt
-
Upload
chandrashekhar-digraskar -
Category
Documents
-
view
238 -
download
4
Transcript of aviation ppt
4-6 September 2003, Singapore
The Changing Paradigm of the Aviation Sector
PECC International Roundtable
Role of Airports and Airlines in Trade Liberalisation and Economic Growth
Ravindran DevagunamHead, Transportation PracticeA.T. Kearney, Southeast Asia
2A.T. Kearney28/3795
The airline industry has had to cope with severe cycles over the past 25 years
-0.10
0.00
0.10
0.20
0.30
0.40
0.50
0.60
'74 '75 '76 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00
US cents per ASK
World Airline Operating Profit Per ASK (1)
Note: (1) ASK = Available seat kilometers, Sources: Warburg Dillon Read, IATA
estimated
3A.T. Kearney28/3795
The sector was in a down-cycle even before 911
Key: Blue - Geographical Europe, Green - Total International, Red - North Atlantic
Global Downturn In The Airline Industry
75
77
79
81
83
85
87
89
91
93
95
'88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00
61
62
63
64
65
66
67
68
69
70
71
Yield in US cents per RTK
Load factorin %
Yield Load factor
Source: A.T. Kearney analysis
Development Of Yield And Load Factor
4A.T. Kearney28/3795
It appears the sector is perpetually in reactive mode
“…Airlines have not earned enough profit to cover the cost of their capital for over the past 30 years…”
Alan Mulally; Chief Executive , Boeing Commercial Airplane Group
Source: The Economist, 3 May 2003; The Asian Wall Street Journal, 23 June 2003
“…It’s a case of ‘constant-shock syndrome’…”
“…the industry has shifted into a new paradigm in which each crisis is no longer an isolated event..”
Peter Harbison; Managing Director, Centre for Asia Pacific Aviation
5A.T. Kearney28/3795
This has remained one of the few inflexible sectors – but is beginning to be forced into fundamental changes
Inflexible Industry
“…Aviation has been incompletely deregulated, and in only two markets: America and Europe. Everywhere else deals between government dictate who flies under what rules. These aim to preserve state-owned national flag-carriers, run for prestige rather than profit. And numerous restrictions on foreign ownership impede cross-border airline mergers…”
The Economist
Source: The Economist, 3 May 2003; A. T. Kearney analysis
Forces For Change
• Advance and proliferation of Low Cost Carriers (LCCs)
• Greater transparency of fares provided by the internet
• Slow-down in the global economy
• Terror attacks – e.g. 911; Bali bombing, etc.
• War and regional conflicts
• Epidemics
• Internal airline management capabilities
• Labor disputes – e.g. pilot and airline mechanic strikes
Perceived Uncontrollable Factors
6A.T. Kearney28/3795
Low Cost Carriers (LCCs) have out-performed the market despite “uncontrollable” factors
Significant Growth For Low Cost Carriers
Terrorist Attacks (Sept. 11th, 2001)
“Uncontrollable Factors”
• Slow-down in the global economy
• Terror attacks – e.g. 911; Bali bombing, etc.
• War and regional conflicts
• Epidemics
• Internal airline management capabilities
• Labor disputes – e.g. pilot and airline mechanic stakes
Source: A.T. Kearney analysis
7A.T. Kearney28/3795
And, these LCCs are expected to continue growing at a rapid pace over the next few years
Source: KLM
1998 2001 2004 2007 2010 2013 2015
0%
5%
10%
15%
20%
25%
“Pioneering Phase”
“Proven Concept Growth
Phase”
“Consolidation Phase”
7-8%
12-15%
20-25%
Mar
ket
Sh
are
Year
Low Cost Carrier Market Growth(% of Total Global Airline Market)
21% CAGR21% CAGR 10.5% CAGR10.5% CAGR
8A.T. Kearney28/3795
LCCs have altered traditional segments of air travelers
Business travel/weekend leisure
Packaged leisure
• Convenience
• Bundled price
• On-site service offering
Charter Aircraft
Full Cost Carrier
Low-cost carriers
Price-sensitive leisure/VFR/business:• Price• Destinations portfolio• Acceptable
convenience
Business passengers on routes with short flying duration
Seat-only leisure/VFR (no hotel deal)
Leisure/VFR
• Rail• Bus
Carrier Customer Segmentation
Source: A.T. Kearney analysis
• Schedule
• Flexibility
• Frequent Flyer Program
• Service
9A.T. Kearney28/3795
LCCs reduce complexity throughout the value chain ...
Cost Driver Capacity Sales & Marketing Services Flight Ops /
MRO IT Overheads
Low cost carrier specifics
• Single aircraft type
• Low purchase price
• Low spare parts inventory
• 1-class seating - high density
• No complex buyer furnished equipment
• High utilization
• High number of rotations per day/ fast turnaround
• No feeder traffic
• No agent commission
• No GDS-fee
• No FFP
• No discounts
• No key account
• No field team
• Internet booking
• No pro rating / interlining
• Simple fare structure
• Effective yield management
• Free seating
• Simple check-in
• No transfer services
• No lounges
• No special services (kids, elderly, ...)
• No free catering
• No in-flight entertainment
• Secondary airports
• High labor productivity
• One crew body
• No transition training
• Simple patterns
• Lean Mgt
• Lean MRO engineering
• One type of MRO floor qualification
• MRO equipment
• Punctuality cost
• No complex network management tools
• Simple core applications
• Simple Yield Management
• No FFP
• Simple flight ops systems
• Simple MRO Systems
• Simple Revenue Accounting
• Simple functional structure
• Simple governance
• Simple revenue and cost accounting
• No alliance coordination cost
Cost advantage vs. Scheduled
Airlines◕ ◕ ◕ ◑ ◑ ◑
Low Cost Carriers v/s Traditional Carriers
◔ 0 – 25%
◑ 26 – 50%
◕ 51 – 75%
Source: A.T. Kearney analysis
10A.T. Kearney28/3795
... while offering services highly valued by customers
Example of Customer Satisfaction Index US Scheduled Airlines
50
55
60
65
70
75
80
1995 1996 1997 1998 1999 2000 2001 2002
Southwest
Scheduledairlinesaverage
Safety
Customer Care
Accessibility
Fulfillment
Puctuality
Attitude of Staff
Expertise
Integrity
Responsiveness
Hours of Business
Sales channels
Price
++
=
- CS Index
(%)
=
=
=
=
+
+
=
-
=
The Most Important Factors When Choosing An Airline
Source: Customer Satisfaction Survey – Airline Sector; SGS, London, September 2001; American Customer Satisfaction Index (ACSI)
Low cost carrier performance vs. traditional carriers
Low cost carrier’s attractive service/price value proposition is a major threat to traditional carriers
11A.T. Kearney28/3795
Consequently, LCCs are able to operate at close to 57% less cost than network carriers
57%2%3%
6%
6%
10%
2%6%
3%3%
16%
Source: Low Cost Carriers in the European Aivaiton Single Market Report 2002
Seat Density
Higher Aircraft
Utilization
Lower Crew Costs
Cheaper Airports/ Landing
Fees
Outsourcing Maint./Single Aircraft Type
Minimal Station
Costs/Outs Handling
No In-flight Catering
No Agent Comm.
Reduced Sales/
Reservation Costs
Lower Overhead
Costs
Total
Low Cost Carrier Advantage v/s Full Cost Carriers(% Cost Advantage)
12A.T. Kearney28/3795
LCCs are now beginning to expand beyond their original niche model…
Separate business class cabin for a small incremental fee
Transcontinental services in North America
Possible regional services in Asia
Source: The Economist, 3 May 2003
13A.T. Kearney28/3795
…Offering “frills” while continuing to deliver superior performance
Comparison Of Different Low-Cost Carrier Models
Source: A.T. Kearney analysis
Ryanair Easy Jet Virgin Express
South-west jetBlue
Seat Pitch 29-31 29 31 32 32
Leather N N N Y Y
TV N N N N Y
Frequent Flyer N N Y Y Y
High Fare Variation Y Y Y N N
Connections N N Y Y Y
Customer Focus N N Y / N Y Y
Low Price Y Y / N Y / N Y Y
Pass Growth 38% 36% -18.6% 1.2% 172%
Revenue E 624.1 E 580.6 E 212.1 E 5 488 E 326.9
Profit Margin 24.1% 10.6% 0.1% 9.2% 9.8%
Founded 1986 1996 1996 1971 2000
14A.T. Kearney28/3795
Asia too has begun to see expansion of LCCs
Examples Of Low Cost And Budget Carriers in AsiaObservations
• Budget airlines operate mostly on domestic routes within Asia Pacific region, such as in Australia, Japan, Malaysia, New Zealand, Philippines, Thailand and Indonesia
• There is still the Restrictive Air Service Agreements for international routes that prevent a carrier from developing a pan-Asian network
• Air Asia is exploring the introduction of flights to/from Malaysia with destinations in SEA and China
• Virgin Blue is considering expanding operations in SEA• Cebu Pacific has recently expanded its international
routes to Hong Kong and Seoul • Quantas acquired a former competitor and low cost
carrier Impulse Airlines in 2001and will operate the budget airline on domestic routes in Australia
• Earlier this year, SIA warned it was ready to launch a low-cost carrier in short period if any budget carriers try entering its home turf. Since then, SIA has mentioned the possibility of recasting SilkAir into a low cost carrier
• SIA is also exploring the opportunity to build a low cost carrier with Bangkok Airways, to be based out of Chiang Mai
• Value Air of Singapore is also expecting to launch a regional low cost carrier
BeijingSeoul
Tokyo
Hong Kong
New Delhi
Melbourne
Sydney
Taipei
Kuala Lumpur
Singapore
Bangkok
Shanghai
Jakarta
Sources: ING Report on Low Cost Carriers, February 2003; various literature research
Value Air
Air Deccan
15A.T. Kearney28/3795
Network carriers have generally been slow to take the appropriate actions to address the “constant-shock syndrome”
Costs have not decreased in proportion to the drop in revenues
Continue ordering aircraft based on historical growth that may not necessarily be valid for the current environment
Continue to slash variable costs to weather the cycle
Network carriers have been slow to address structural costs and the fundamental way in which they operate
16A.T. Kearney28/3795
A select few network carriers have recently embarked on programatic change to reinvent themselves
Qantas
• Aggressive cost cutting plan that splits operations into three separate divisions
• Changes are designed to address domestic competition from operators such as Virgin Blue, as well as international threats from Emirates and Virgin Atlantic
• The proposed structure will separate passenger operations from supporting services and other businesses
Qantas
• Aggressive cost cutting plan that splits operations into three separate divisions
• Changes are designed to address domestic competition from operators such as Virgin Blue, as well as international threats from Emirates and Virgin Atlantic
• The proposed structure will separate passenger operations from supporting services and other businesses
British Airways
• Launched “Future Size and Shape” program aimed at reducing costs, restructuring short haul operations and removing complexity Introduced low fares for short haul flights to directly challenge no frills operators. Implemented online booking engine and reduced agency commission through initiatives such as increased e-ticketing
British Airways
• Launched “Future Size and Shape” program aimed at reducing costs, restructuring short haul operations and removing complexity Introduced low fares for short haul flights to directly challenge no frills operators. Implemented online booking engine and reduced agency commission through initiatives such as increased e-ticketing
Estimated Savings of US $ 659m
Estimated Savings of US $ 1,030m
17A.T. Kearney28/3795
The sector requires agility, facilitated by regional governments – to serve the greater good of spurring economic growth
Reassess regulations that limit open skies
Facilitate possibility to establish cross-border airline mergers
Review partnership equation between airports and anciliary service providers with airlines
Open up second and third tier airports to facilitate the proliferation of LCCs
Facilitate dialogue and collaboration between all related industry players on specific ideas to reinvent the sector
Source: IATA; A. T. Kearney