Innovation & Cost Leadership, 15. November 2004 © 1 LCCs Change Airline Industry Established...

1Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©

LCCs Change Airline Industry

Established network carriers

Tourism industry

Airports UnionsAircraft manu-

facturers

New tariffs

New products and

sales channels

(emphasis on

the web / catering

against

payment)

Agressive

marketing in

favour of the

consumer

Charter airlines obtain a different meaning

Package tours versus individual tours

Dynamic packaging

Hotel portals

Airports serve as gateways for

regions / integration into the region

Growths of airports mainly due to LCCs

Requirements adjusted to LCCs

Unions realize significance of LCCs (according to Verdi 70% of all LCCs are unionised)

Business model is reflected in the collective labour agreements

altered requirements

growth due to LCCs


Agenda

Trends In The Aviation Industry

Low-cost Carriers

Characteristics Of The Low-cost Business Strategy Of Airlines

Low-cost Business Strategies In Other Trades

Summary


Example: Airport Frankfurt Hahn

Source: http://www.hahn-airport.de/sycomax/files/7064_1LowCost.doc

Frankfurt Hahn - the first German low-cost airport

No glamourous passenger terminals (e.g. no sophisticated docking units and

computer reservation systems)

Therefore, investment costs for a terminal are significantly less than € 5,00 per

passenger

The current capacity for approximately 5 million passengers per year was created for

less than € 17 million (compared to an average of € 100 million needed at other

German locations for a similar scale)

Compensation of lower income from airport fees with higher revenue from the non-

aviation sector (e.g. rental income from the licence holders in the two terminals,

parking fees)


Example: Touristik Express

Shop-in-shop concept

Trademarks: Wall with offers (taxi-design), Large photo with vacation theme, Red consultation counter

No seats

No display window / no display window decoration

No catalogues but demonstration of daily offers of different tour operators

Touristik Express: Germany´s first low-cost travel agency


Example: interRent

Characteristics of interRent

Booking via www.interRent.com (98 %) or call center

Fast reservation system with integrated yield management

Payment per credit card only

Complaint rate 0 %.

One-way rental not permitted

No cost-intensive incentive-program

Only one type of car (new VW Golf)

Client cleans the car himself (in- and outside)or he books the cleaning

Penalties if clearly communicated rules are violated

Source: company information

Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©

Example: interRent Cont.

Fences between HLX / IR & EC

Source: Company information

Product attributesTOP 10 Description

1 Booking channel

2 Cancelation / No show fee

3 Customer creates user

4 Only pre-payment by credit card

5 Car / aircraft class

6 One way possible

7 Employees per location

8 Revenue management

9 Cap mileage

10 Cleaning payable

HLX

internetcall center

travel agency

yes

yes

(yes)

1

yes

-

yes

-

-

interRent

internet

yes

yes

yes

1

no

1

yes (automatic)

yes (100 km/day)

yes

Europcar

internettelephone

GDS

no

no

no

12

yes

at least 3

yes (manual)

no

no


Example: wibromed

Establishment into the pharma-market through

Realisation of an innovative discount-strategy

Creation of a transparent pricing and purchasing policy

Voluntary customer retention (no contractual or

contractual-like customer-supplier-relationships)Realisation through

Delivery concept, no in-house logistics

Cost savings through lean structure

Only one delivery of goods per day

Restriction of the stockkeeping on fast moving, on prescription available original products

Optimisation between purchasing- and stockkeeping costs

Direct pass-on of the cost advantages to the customer

Source: company information


Example: Mobile Phones

Source: http://www.boozallen.de/content/presseforum/4aax_0504_mobilbillig_d.asp

The international management and technology consultancy BoozAllen Hamilton expects low-

cost providers to enter the market for mobile phones

With the rising saturation of European markets for mobile phones low-cost providers are expected to

enter the market

Booz Allen Hamilton expects a cost reduction up to 30-40%

These cost reductions can, for example, be realised through:

Sales via the internet

No costly customer service

Concentration on basis products such as voice

communication and sms-service

Example of an already existing low-cost provider

of mobile phones: the Danish company „telmore“


Example: Gas Station

Gas Station

Raiffeisen-Markt Wissingen

Bahnhofstraße 28

49143 Bissendorf

Gas station belongs to a supermarket

Fueling 24/7/365

No buildings, no staff

Cash payment or payment by credit card at the

machine next to the petrol pump

No Shop, no sales of car-related articles

No extras (except air), e.g. no water to clean the wind shield


Agenda

Trends In The Aviation Industry

Low-cost Carriers

Characteristics Of The Low-cost Business Strategy Of Airlines

Low-cost Business Strategies In Other Trades

Summary


Summary

Re-engineering of processes

(not only doing the same at less cost)

Pass-on of cost savings to customer

Stimulate demand, increase LF

Efficient use of expensive recources e.g. A/C,

labour

Reduction of CMI costs




Summary

Re-engineering of processes

(not only doing the same at less cost)



Efficient use of expensive recources e.g. A/C,

labour

Reduction of CMI costs




Summary Cont.

Different strategies of LCCs and FFAs


Correlation Between Price And Sales

< 1990

There was only a small market

for very expensive and very

cheap products while there was a

large markt for middle-priced

products.

Purchasing patterns have changed over the years


Correlation Between Price And Sales

< 1990

There was only a small market

for very expensive and very

cheap products while there was a

large markt for middle-priced

products.

> 1990

There is a decreasing market for

middle-priced products while

there is a significant „high end“

market and a huge market for

cheap products.

Purchasing patterns have changed over the years


Produktlebenszyklus im Einzelhandel


Market Segmentation - Example: Food Trade

Cheap discounters (Aldi, Plus)

Rather price-orientated customers

Location: selected, centrally accessible locations

Only few fresh products

Large consumer markets ( Wal-Mart, Real, Marktkauf)

Price- and brand-orientated customers

Location: periphery of high density areas

Fresh products

Small supermarkets (Spar, Rewe, Edeka, Tengelmann)

Rather brand-orientated cutomers

Location: high distribution density especially in urban areas

Counter with fresh products

Specialised shops (Käfer, Dallmayr, Gosch)

Only brand-orientated customers

Location: city centre

Only fresh products

Qualified service

price

brand

Source: SevenOne Media GmbH


Market Segmentation - Example: Food Trade Cont.

14% 2%

24%28% 30%

38%

33%28%

16%28% 35%

5%

6%8%

5%

1985 1995 2002

Discounters

Supermarkets

WarehousesSelf-service warehouses / Large consumer markets

Others

Discounters and large consumer markets are the winners

Quelle: „Wollen die Deutschen nur noch billig?“, Hans Reischl, Vorstandsvorsitzender der Rewe-Zentral AG, Köln,

fvw-Kongress, 22. Oktober 2003, Köln


Market Segmentation: Examples

Discounter / Warehouse

Drugstore

Car service

Furniture

Telephone companies

Chocolate


Thank you for your attention!

Innovation & Cost Leadership, 15. November 2004 © 1 LCCs Change Airline Industry Established...

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Transcript of Innovation & Cost Leadership, 15. November 2004 © 1 LCCs Change Airline Industry Established...