Future of Travel Industry
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Transcript of Future of Travel Industry
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Keynote address:
The Future of the Travel Industry
Dermot Mannion Chief Executive
International Society of Tourism and Travel educators Annual Conference
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The Future of the Travel Industry.?
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Key issuespresent and future
Sustained ultra-high fuel prices
Slowing consumer demand in key markets
Intensifying competition
Industry consolidation
Environmental issues
.
.
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The credit grenade and its consequences
Housing/Consumer Slowdown
Credit CrunchBanking Crisis
FallingAsset Prices
Interest Rates$// FX
Western Economies In Sharp Slowdown
Huge VolatilityIn Commodities
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Jet fuel velocity
Rate of increase, not actual price, has undermined airlines
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The stock market reacts
Travel companies and airlines capitulate on all stock markets
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Airline Industry Response
Step 1 - Hold firm, take market share
Step 2 - Curb capacity growth and raise yield
Step 3 - Restructure costs and rationalise
Step 4 - Survive, merge or capitulate
Consolidation phase accelerating amid current crisis
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Challenges amplifies in Ireland
Economy at centre of Anglo-American crisis
Open economy with heavy $/ exposure
Short-haul Direct fight with lowest cost provider
Long-haul Fast changing transatlantic alliances
Aer Lingus under extreme market pressures
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What faces Aer Lingus ?
Sharp slowdown in home market + $/ revenue pressure
Unit costs rising labour, fuel, airports
Short-haul - key competitor expanding 15% pa minimum
Long-haul - competitors merging to cut costs, exploit market share. Open Skies
a game changer. Star, Skyteam, OneWorld = 70% transatlantic market
Rapidly changing environment creates real threats
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The European Airline Industry in 2015
2015
2008 Scenario A Scenario B
British Airways British Airways/IB British Airways/IBLufthansa Lufthansa Lufthansa
AF/KLM AF/KLM AF/KLMRyanair Ryanair Ryanair
easyJet easyJet easyJet
Air Berlin FinnairIberia Aer Lingus
SAS Virgin Atlantic
Alitalia
Austrian
Finnair
Aer Lingus
BMI
Virgin Atlantic
Brent per Barrel $125 $100 $200
Source Goldman Sachs
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The Original Challenge for Aer lingus
Preparing for an IPO
Major expansion
Compete on short haul and long haul
Deliver a consistent product to the customer
Low prices on direct flights
Extras that make flying easier
High level of customer service
An experience with a human touch
Grow profit
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The new Challenge(or is it really a New challenge
Survive
Innovate
Compete
Exploit opportunities
Remove cost from the business
Deliver a consistent product to the customer
Low prices on direct flights
Extras that make flying easier
High level of customer service
An experience with a human touch
Return to profit
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2008 and beyond - Changing perceptions
Since 2001 Aer Lingus has had to change to remain (become?) relevant
Aer Lingus Brand still has natural advantages
Customers still have high expectations
.at very Low fares
Post IPO, Aer Lingus has a greater number of constituencies/Audiences Customer
Staff
Market
Regulators
Shareholders
Airline needs to drive the business profitably forward
While retaining all that sets Aer Lingus apart from the rest
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2001 | Short Haul Point-to-Point 2008 | Short Haul Point-to-Point
2008 2001
Change
Routes 86 31
+ 55Aircraft types 1 4
Network Development 2001- 2008
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Positioning
Full Frills
Impressive
Sophisticated
Flexible
Expensive
Few Frills
Friendly
Practical
Fair
Relevant
No Frills
Cranky
Basic
Unapologetic
Tolerable
Cheapand
nasty
Cheapand
cheerful
Priceyand
smart
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based on value-for-money positioning
Operational focus on cost reduction
Key aspects of service delivery differentiation
Low fares at the core of all communication
Cost focused Customer focused
Economy pricing Premium pricing
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How our Customers currently perceive us:
Warm, welcoming (typically Irish)
Professional, punctual, safe.
In the Irish market: Expect our brand to deliver higher levels of service and customer care.
Arguably a hangover from past experience/communication ?
A real alternative to traditional Low cost carriers
Markets outside of Ireland (e.g. NI, GB, Ger, USA)
Stronger on aspects of service and customer care.
Often aligned with traditional carriers rather than Low cost carriers.
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The message.Consumer
Low FaresDirect services to popular destinations
Professional and efficient customer service delivered with a human touch
Central city airports
Allocated seatingOne-way fares (short-haul and
long-haul)
e-booking
Efficient check-in (FastPass kiosks)
Frequent Flyer programme
Customer care in event of disruption
Although the Airline has changed, the primacy of the customer remains
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The message.Market/Investors
Profitable enterprise
Well run company
Strong management team that are on top of the significant issues that thecompany and industry face
Robust business model
Continues to compete strongly in all markets
Investors are comfortable with Aer Lingus' hedging approach to fuel
Management has a clear plan and is executing it well
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The message..Staff
Customer is at the centre of everything we do
The airline is well placed to grow for the benefit of all stakeholders
Progressive organisation
Rewarding and fulfilling place to work
Management has a clear plan and is executing it well
Change has been, and will be ever present
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Innovation
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To Drive Revenues without driving Cost
Expand network reach into new markets
Leverage our Know-how bulit up over many years aerlingus.com
Selectively leverage other distribution channels in existing markets
www.aerlingus.com
Travel Agent Consolidators
Dot.Coms etc.
All to be achieved without adding infrastructural cost or complexity
Sum of Sectors (EI Short-Haul and Long-Haul networks)
jetBlue Farelink (EI Long-Haul and B6 Short-Haul networks)
United Codeshare
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Sum-Of-Sectors
To access bigger markets - connect Europe to North America.
To leverage connection opportunities between our 2 standalone networks
To use Sum of Sector technology on the website to ensure that both LH and SH componentof connected product are sold at the optimum yield. Avoid cross-subsidisation
To leverage existing Sales and Marketing efforts in US and Europe to sell Europe out of theUS and US out of Europe
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Sum of Sectors - What is it?
We conducted an analysis of connecting possibilities from Short Haul to Long Haul
In many cases, there were no valid connections (without adjusting schedules) or a strong direct incumbant existed
In the case of 28 cities, connections existed, incumbants were expensive or in some cases, no direct services existed
For Example
JFK & BOS
BCN, MAD, CDG, NCE, LIN, MAN, GLA, LGW
JFK Only
FCO, NAP, WAW, KRK
BOS Only
DUS, FRA, BRU, BHX, CPH
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How we sell it - Search Engine Marketing
Strategy is to bring customers to aerlingus.com through Search EngineMarketing
(above) UK customers search for Manchester to New York
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Driving Passenger Revenue through partnership
Linking Aer Lingus lowest fare short-haul and long-haul sectors to offercustomers seamless connections
Industry first partnership with jetBlue to offer connections between Irelandand 40 destinations in the US - seamless booking process onaerlingus.com
New codeshare agreement with United Airlines commencing Nov 2008covering all of Aer Lingus US gateways with access to over 200 additionalUD destinations
The codeshare which will apply to all Aer Lingus transatlantic flights to andfrom Shannon and Dublin will also result in simplified reservations,
ticketing, through check-in and coordinated baggage handling forpassengers.
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United Network
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JFK Connections With
JetBlue Services
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Long Haul Product Enhancement
Long Haul Product needs to be relevant
Current product is inconsistent
Recent new aircraft arrivals set the new standard
Major retrofit programme underway
At least 80% of Long Haul fleet at new standard by Summer 2009
New seats in both cabins
Enhanced Premier Inflight Entertainment system (IFE)
Video on Demand in Economy Other misc. cabin enhancements
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Driving Revenue through
Ancillary Revenue
Baggage Charges introduced with 60% of customers pre-paying online
Introduction of Seat Selection fees on Short Haul and Orlando
New Travel Insurance option at point of booking provided by Mondial
Improved Car Hire proposition through dynamic packaging at point of booking
New hotel provider, lastminute.com contributing increased hotel bookings
http://www.aerlingus.com/cgi-bin/obel01im1/bookonline/goHome.do?BV_SessionID=@@@@0981848038.1204764428@@@@&BV_EngineID=ccchadedhkjfildcefecfigdffgdfkh.0 -
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Delivering Growth | New Bag Tag Kiosk
Bag Weighing Scale
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The Environment
A i ti t ib ti t li t
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drakedaa [printed: August 7, 2006 9:33 AM] [saved: August 7, 2006 9:40 AM] 07060K239 - 805ac688Aviations contribution to climatechange
Aviation accounts for about 2% of total anthropogenic CO2 emissions
Domestic aviation is included in Kyoto commitment to find a solution throughICAO for international air transport
Contribution to man-madecarbon dioxide emissionsaccording to different key
studiesSources: IPCC, UNFCCC, IEA and DLR
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2007 | Reducing Fuel Consumption
Average specific fuel consumption(litres per 100 revenue passenger kilometres)
8.15
7.64
6.56
5.91
4.52
4.82
4.65
4.865.00
4.92
5.085.19
4.214.10
3.94 3.98
4.04
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
1991
1993
1995
1997
1999
2001
2003
2005
2007
Aer Lingus fleet 2007
4.04 litres /100 RPK
50%
reduction since 1991
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2007 | Reducing Fuel Consumption New Aircraft
Fuel burn - kilos of fuel, per seat, per flight hour
Reducing fuel burn and emissions
18.1
A330-300
Enhanced
17.2
A350-800
19.0
A330-300
(OG)
15.4
A350-900
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Emission Trading Contd
2005 2006 2007 2008 2009 2010 2011 2012 2013
C
O2
produc
tion
/tonnes
This amount of CO2 is allowed without
charge
This amount of CO2 must be
purchased from the open market
CO2 can only come from otherindustries which can reduce their
CO2 below the capCAP
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2008 First Half | Financial Summary
m 2008 2007 Change
Total revenue 632.9 574.1 + 10.2%
EBITDAR 36.0 56.5 (36.0%)
Operating (loss)/profit (before profit share) (22.3) 2.6 NM
Return on Invested Capital (%)** 17.4% 17.3% +0.1pt
Loss reflects difficult consumer and fuel environment
Delivery on cost saving initiatives through PCI and maintenance contracts
Worsening market conditions call for a fundamental overhaul of our cost base
**As measured by EBITDAR/Replacement Value on 12 month-rolling basis.
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Future imperatives
Economic outlook in main markets uncertain - exacerbated by continuing risein oil prices 64% of 2008 fuel exposed to market US$5 change in the price per tonne of jet fuel has US$1.5m impact on cost of
unhedged fuel requirements for the period March to December 2008.
Key focus will be to increase awareness and traffic on new gateways while
continuing to drive performance on current gateways
Open skies now offers us the means of supplying the market purely againstdemand and market dynamics
Sum of Sectors allows us to harness demand to/from 17 of our Short haulpoints feeding into our long haul
Our new relationships with United and Jetblue give us the opportunity ofsignificantly increasing our footprint in the US market
Open Skies offers us new and exciting opportunities for growth
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Outlook
Difficult market conditions will continue
Significant cost pressures in all areas of the model
Further fare reductions required to drive volumes
Driving value through active network and fleet management
Winter LH capacity will reduce by 11%; SH capacity will reduce by 1%
Deferral of delivery of new A330 aircraft from September 2009 to June 2010
Operating environment and rising costs will continue to have a significant effecton the financial performance of the business
Aer Lingus will at best, break even in the second half, delivering a loss for the full year
Further fundamental changes needed to operating cost base to minimise lossesin 2009 and to ensure the long term viability of the business
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