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Low Cost Carriers – Threats and Opportunities, Hellenic Chamber of Hotels, Athens, 19th of May 2011 www.advolar.com ©1

Low Cost Carriers

- Threats and Opportinities -

Wolfgang Kurth

19th of May 2010 Hellenic Chamber of Hotels, Athens


Agenda

The Airline Market

LCCs versus Charter Airlines

A new Business Model?

LCCs and the Greek Tourism Industry

Conclusions


Agenda

The Airline Market

LCCs vs Charter Airlines



Conclusions


Industry Life CycleV

OL

UM

E/G

DP

TIME

Africa

Asia

Middle East

Latin America

BEGINNING

STAGE

TRANSITION RAPID GROWTH

STAGE

TRANSITION

U.S. and

Europe

MATURE

STAGE

GDP

Volume


The Past: 2 Distinct Business Models

Legacy Carrier (Full Service Airline)

An airline revolving around a

hub & spoke network providing

First Class/Business Class,

Lounges, FFPs, Frills (food,

beverage etc.), entertaining Alliance

memberships, offering multiple

distribution channels incl. GDS

Charter Airline

An airline category defined

primarily as part of a holiday

package with high density single

class seat configuration.

Distribution solely through

tour operators.


„For what reason would you fly more often?“

11%11%

8%

41%

8%6%

17%

0%

10%

20%

30%

40%

50%

upgrades schedule safetyground

low fares more FFP´s

safetyboard

others

Low Fares Trigger Demand

Source: IATA Online Survey 2003

78% 1)

1) Survey TripAdvisor May 2011


The Airline Environment


Structural Changes in Demand

Disparity of income is increasing:Strong growth in top and bottom income groups

Classic age distribution gets “fuzzy” 1):Life expectation and disposable income

for “Best Agers” are increasing

Consumers behavior is no longer connected

to sozio-demographic groups:

The hybrid customer

Prices give different signals today :Low prices don„t stay necessarily for low quality anymore

Supply exceeds demand:Pressure from competition is increasing. Customer is king!

1) Statistisches Bundesamt

Source: Gottlieb Duttweiler Institut Schweiz


Less “Standard” Customers

The Standard Customer:“John, 35 years, married, two kids,

white collar employee

suburban home, 1 Japanese SUV“

- package tours (in Europe!),

- follows advertisements

- neighbor„s life style provides guidance

- purchasing is based upon ratio

- status symbols are important

(„my family, my home, my car!“)


More “Mature” Customers

The Hybrid Customer: in any sozio-demographic group

mobile

non conformistic

picky, critical

thrifty and lavishly

can„t be defined by price segments

purchase is experience; at the same time

decisions to purchase standard goods are

based upon economical thinking

often a “lead customer“


USA The Hub of Deregulation

19801988

1987/1993/1997

1994

2001

2006

2008(?)

2011?

1978


A New Business Model Evolved

Low-Cost Carrier

An airline category defined

primarily by low fares but

also by a focus on reducing

operating costs by eleminating

complexity and charge for product

elements which go beyond the

basic product: the flight.

Pricing is demand driven and

considers market elasticity!


0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

Low-CostOperation Frills Distribution Personal Fleet Various

Legacy Airline

Costs/ASK

(€ cent) 6.0

2.7

1.2

0.8

0.6

0.4 0.20.1 12.0

• Quick

Turnarounds,

• Point to point, no

transfers

• Higher seat

capacity per A/C

• Primary and

secondary airports

• Simplified handling

processes

• Single Class

• No Frills

• Extras at charge

• No lounges

• Re-usable

boarding passes

• Web check in

• etc.

• Direct sales

channels

• Travel

Agencies

only if no

extra costs

• No tour

operators

• No CRS

• Less

personnel

(lower

service

level)

• Minimum

overheads

• More

outsourcing

• Lower costs for

maintenance,

spare parts and

training

• Lower aircraft.

specification

Source: AEA Reports, Monitor Analysis

LCC Cost Structure

Airport Charges

Ryanair

2010

€cent 4.2!


Low-Cost Carrier

• Primary and secondary airports

• Direct channels, use of travel

agencies only if extra costs

minimal

• Standardised fleet (only one

aircraft type), higher seating

density (737-700: 149)

• Various aircraft types, low seating

density (737-700: 128)

Full Service Airlines

• International airports

• Most tickets sold via travel agencies

and by the airline itself

• Fast turnarounds (up to 25

min.)

• Turnaround slowed down by use of

major airports with heavy traffic

(approx. 45 min.)

Retail

Airports

Fleet

Utilisation

Frills • No Frills, extras paid for (e.g.

catering, extra luggage)

• Entertainment program, quick

check in, lounges, paper tickets,

business class, catering

• Direct flights, no transfers,

short routes• Long haul and short haul routes with

transfers

Network

• High variable-proportion of salary

(up to 26 %), higher utilisation • High basic salaries (variable

proportion up to 11 %), trade union

affiliation

Personnel

• Lower maintenance, spare

parts and training costs,

simpler swapping of flight

crews, higher asset utilization

Low-Cost advantages

• Lower airport charges

• Lower distribution costs, lower

complexity

• Higher utilisation

• Lower ancillary costs, less

complexity, additional income

• Lower complexity, higher

utilization of assets

• Lower fixed personnel costs,

lower labor unit costs

LCCs vs FSAs


LCC a Global Phenomenon

Source: ecac-ceac.org/UK/Whatsnew/1-Franke


LCC Network 2000

Legende:

Ryanair

Easyjet

dba

jet2


Legende:

Ryanair

Easyjet

bmi Baby

Sterling

jet2

LCC Network 2001


Legende:

Ryanair

easyjet

Volareweb

bmi Baby

Hapag-Lloyd Express

Germanwings

Sterling

Skyeurope

jet2

LCC Network 2002


Legende:

Ryanair

easyjet

Volareweb

bmi Baby

Hapag-Lloyd Express

Germanwings

Sterling

Skyeurope

jet2

LCC Network 2003


Legende:

Ryanair

easyjet

Volareweb

bmi Baby

Hapag-Lloyd Express

Germanwings

Sterling

Skyeurope

jet2

LCC Network 2004


Legende:

Ryanair

easyjet

bmi Baby

Hapag-Lloyd

Express

Germanwings

Sterling

Skyeurope

Jet2etc, etc

LCC Network 2005


Legende:

Ryanair

easyjet

bmi Baby

Hapag-Lloyd

Express

Germanwings

Sterling

Skyeurope

Jet2etc, etc

LCC Network 2006


LCC Market Share

Source: York Aviation LLP, April 2011

Mercer Management in 2002

Source: IATA, AEA, Mercer Management Consulting


Growth Generated by „new‟ Passengers

59%

37%100%4%

0%

25%

50%

75%

100%

New

passengers

Shift within

airline

market

No details Total

71%

15%

6%

8% 100%

0%

25%

50%

75%

100%

Otherwise

would not

have

traveled

Otherwise

by car

Otherwise

by rail

Others Total

Classification of low-cost passengers Classification of “new” passengers

Source: NFO Infratest, 2002; Monitor Group Analysis


LCC Customer Profile

Age distribution


Customer Expectations

safety

reliability

good value for money

transparency / fairness

decent airport infrastructure

competent / professional attitude

flexibility

Expectations

Relevance Element

safety1

dependability essential

low fares2

primary airports (infra

structure, connectivity)

flexible, competent staff

price transparency

important

point to point

change of bookings nice to have

catering

lounge

In-Flight Magazine unnecessary

paper tickets

Ranking of Product Elements

1 Set of criteria: Aircraft (modern, looked after), tidiness, competent crew2 Extremely low fares raise doubts with regards to reliability

Source: Contest Census, 2002; Monitor Group Analyse


The LCC Experience


Customer Satisfaction


Agenda

The Airline Market




Conclusions


A Package Tour

BrochuresTravel

AgencyTransport Incoming Transfer

Tourist

GuideHotel Beach

Yesterday: Highly complex integrated product chain

Tour Operator Added Value:• gathers information, presents destination and resort

• selects hotel and guarantees quality and prices

• minimizes foreign exchange risks

• arranges for transfer from destination airport to hotel and vv

• local assistance minimizes cultural and language problems

• one focal point for problems along the product chain

• provides security

• manages complaints

• protects customers during crisis

•………..


Unscheduled Services (Charter)


End of the 70ties: 1 flight: 1 tour operator

Til mid of the 80ies: 1 flight: 2 tour operators

Til end of the 80ies: 1 Flight: 2 tour operators plus „pro rata“

Charter Airlines and Tour Operator Risk


Beginning of the 90ies: 1 flight: several tour operators

plus „pro rata“ and plenty of non-committed capacity

In less than 15 years the commercial risk has been

transferred from the tour operator to the airline!

Charter Airlines and Tour Operator Risk


Online Travel Bookings


Holidays Become Modular!


Value Added By Tour Operator

BrochuresTravel

AgencyTransport Incoming Transfer

Tourist

GuideHotel Beach

Yesterday: Highly complex integrated product chain

Essential?

no

Essential?

noEssential?

no

Essential?

no

Essential?

noEssential?

yes

Essential?

yesEssential?

yes

Today: Disintegrated product chain

T/O required?

no

T/O required?

no

T/O required?

???

T/O required?

no

T/O required?

???

T/O required?

no

http://images.google.de/imgres?imgurl=http://www.billige-flug-tickets.de/images/hlx-billige-flug-tickets.gif&imgrefurl=http://www.billige-flug-tickets.de/&h=237&w=378&sz=29&hl=de&start=75&tbnid=RbMNxe803lJ6EM:&tbnh=76&tbnw=122&prev=/images%3Fq%3Dhlx%26start%3D60%26ndsp%3D20%26svnum%3D10%26hl%3Dde%26lr%3D%26rls%3DGGLG,GGLG:2006-15,GGLG:de%26sa%3DN

http://images.google.de/imgres?imgurl=http://www.cheapercarrentals.info/images/car_rental.jpg&imgrefurl=http://www.cheapercarrentals.info/rental-car-houston.php&h=210&w=149&sz=9&hl=de&start=97&tbnid=gqrNenJEb2hR_M:&tbnh=106&tbnw=75&prev=/images%3Fq%3Drental%2Bcar%2Bcompanies%26start%3D80%26ndsp%3D20%26svnum%3D10%26hl%3Dde%26lr%3D%26rls%3DGGLG,GGLG:2006-15,GGLG:de%26sa%3DN

http://www.airlinerphotos.de/HLX_B737-8K5WL_D-AHFS_556.jpg

http://images.google.de/imgres?imgurl=http://upload.wikimedia.org/wikipedia/en/thumb/1/1a/TripAdvisorLLC.jpg/410px-TripAdvisorLLC.jpg&imgrefurl=http://en.wikipedia.org/wiki/TripAdvisor&h=299&w=410&sz=31&hl=de&start=7&tbnid=Zr5Gihqz-FjB3M:&tbnh=91&tbnw=125&prev=/images%3Fq%3Dtrip%2Badvisor%26svnum%3D10%26hl%3Dde%26lr%3D%26rls%3DGGLG,GGLG:2006-15,GGLG:de

http://images.google.de/imgres?imgurl=http://www7.hrs.de/images/de/el_pic_start.gif&imgrefurl=http://www7.hrs.de/%3Fclient%3Dde&h=237&w=276&sz=20&hl=de&start=3&tbnid=yPMgGTg1KCj79M:&tbnh=98&tbnw=114&prev=/images%3Fq%3Dhrs%26svnum%3D10%26hl%3Dde%26lr%3D%26rls%3DGGLG,GGLG:2006-15,GGLG:de


• Lower Maintenance spare parts

and training costs, simpler

swapping around of flight staff,

seating configuration about equal

• Limited marketing & sales forces in

charter airlines, small marketing

budget!!!

• Lower handling fees

• Lower TOW, lower airport charges

significant for ttl. trip costs

• Lower ancillary costs, less

complexity, additional income

• Lower complexity, capacity utilisation

about equal

• Lower fixed personnel costs

Low-Cost Carrier

• Primary and secondary airports,

simplified processes

• Direct channels, use of travel

agencies only if no extra costs

• Aggressive marketing

• Standardized fleet (only one

aircraft type), higher seating

density (737-700: e.g. 149)

• Various aircraft types

Charter airline

• Primary and secondary airports

• Most trips sold via tour operator or

travel agencies

• Limited marketing

• Short turnarounds ( 25min.)

• Short sector length (< 1.5 hrs)• Turnarounds min. 45 min.

• Avg. sector length ~ 2.7 hrs.

Retail

Airports

Fleet

Utilisation

Frills • No Frills, extras paid for (e.g.

catering, extra luggage, no

discounts for children)

• IFE, „Night Before“- check in,

lounges, paper tickets, comfort

class, discounts for kids, baggage

allowance for minors, catering

• Point to point, no interlining,

no transfers

• Short/medium haul routes (1.5/5.0)

sometimes via hubs

Network

• High variable-proportion of salary

(up to 26 %)

• High basic salaries, trade union

affiliation

Personnel


Marketing

• Asset utilisation about equal

Low-Cost advantages


Conflicting Pricing Systems


LCCs Eating Into Charter Markets

17

1022

2002 2011

Ro

ute

s t

o S

pa

in

Ryanair, easyJet,

Volareweb, bmi Baby,

HLX, Germanwings,

Sterling, SkyEurope, jet2

Source: CH-Aviation

Ryanair, easyJet,

bmi Baby,TUIfly,

Germanwings,

Norwegian


Growth rates 2000 – 2009:

•Routes served in competion (white)

Charter: - 50.6% (avg)

•Routes served by Charter only (yellow)

-10.5% (avg)

Impact of LCC Entry into Charter Routes

LON

> 4 f„hrs

< 3 f„hrs


Avg. LCC Stage Length in Europe

610

1123*

2002 2011

Kil

om

ete

rExample: easyJet

Source: CH-Aviation

*) Ryanair: 1063


„LCC – Range“ for ATH


The German Airline Market


Charter Volume is Declinig

Source: anna.aero


Agenda

The Airline Market




Conclusions


Service level

Cost

-Low-Fares

-Frequency

-Grass strips

-Main Airports

-Frequency

-Branding

-Business passenger

-Branding

-Low Frequency

-Branded meals

-Hot meals,

-Lounges,

-Paper tickets

Pure Low Cost Carriers• Year round traffic

• Independent travellers

• Balanced directional flows

• Grow the market

• Avoid charter markets (for the time being!)

• High proportion of ancillary revenue

• Use primarily secondary airports

Hybrid Models• Mix of business and leisure

• “A la carte” services on board

• Compete in charter markets

• Link with alliances

• Use international airports

Different Market Strategies

http://www.go-fly.com/goweb2/in_html/main2.html

http://www.buzzaway.com/intro_frameset.html


Segmentation in the Airline Industry



LCCs

Charter Airlines

Migration Of Business Models



LCCs

Charter Airlines

HybridsHybrids

Migration Of Business Models


Agenda

The Airline Market




Conclusions


Tourism is a Fragile Business!

April 2011:

+ 10% more bookings from

Germany

(Die Welt)

Tourism contributes

15%

to Greek GDP

(Reuters)

March 2011:

Egypt subsidizes charter flights

(travel.one)

Greece bookings

2009: - 10%

2010: - 9%

(Reuters)

March 2011:

Greek airport charges suspended

(travel.one)

March 2011:

Greece may be an „in-demand“

destination after political problems

in Egypt and Tunesia

(anna.aero)

Egypt lost € 1.5 mrd revenue

from tourists since the departure of

Mubarak

(El Alam El Jum)

Tourism contributes

10%

to Egypt GDP

(APA)


Travel Volume and External Shocks

Source: IATA, Airbus

Air traffic can return to previous growth rates!

but....... (Jamaica, Sri Lanka, Kenia...)


Domestic Traffic Affected Most

Source: anna.aero


Greece Offers Already Low Fares!

The fares reflect the lowest fares available for return flights per passenger

on „skyscanner.net“ within the next 2 months plus estimated fees and taxes.

Source: SkyScanner.net


Paxe 2010:

+ 11%

Ryanair: 8 destinations

easyJet: 1 destination

Selected Greek Airports 2010/2011

Paxe 2010:

+ 9%

Ryanair: 10 destinations

easyJet: 3 destination

Paxe 2010:

- 7%

Paxe 2010 / March 2011

- 5% - 16%

Source: anna.aero, Handelsblatt

2011:Ryanair: + 7 routes !

easyJet: + 6 routes !

Germanwings: + 17 routes ! (incl. via)


Get a good understanding of the destination„s strength and weaknesses.

Identify the right consumer segment. Individualist like Greece ANDLCCs!

Hotels and/or destinations have to assume the role of a tour operator getting into control of their own distribution. Potential partners could be selected LCCs.

Hotels and/or destinations may encourage a co-operation between LCCs and tour operators. But that„s a cumbersome job!

Hotels and destinations have to become pro active! But: negotiations hotel by hotel will not be successful! No LCC can handle hundreds of hotels individually!

The best operation model for Greece?


The balance between LLC and tour operators

Not easy from the perspective of Greek hotels! Tour operators will

be afraid of being eliminated from the value chain.

Giving LCCs access to the hotel‟s bed banks at equal Terms &

Conditions and permit marketing and distribution through LCC

channels can be the solution. Use LCCs as an additional distribution

channel

Note: not all LCCs will support this concept!


The strategy that the tourist destinations

have to follow in their approach with the LLC

Airports and destination management should join forces. The in

depth knowledge of the destination should be offered as a service to

the LCCs going even as far as acting on behalf of the LCCs „Sales

& Marketing“ agent.

Present a convincing case regarding the economical viability of a

given route. That requires good knowledge of the LCCs economical

and operational restrictions as well as the market potential.

Risk sharing is a valid option!

Be convinced of your destination!


Marketing of the LCC via the hotel web site. Better: marketing of the

hotel / hotels via the LCC‟s web site. Use the carrier‟s website as

another distribution channel!

Assure transfer from the airport to the hotel and vv!

Arranging of packages (hotel accommodation plus flight!).

Note: legal risk of becoming a tour operator!

The hotel offer of the destination and the LLC


Finance policy: Should it be? How much? For

how long? By who to who? Directly or indirectly?

Comply with the rules! Study the Ryanair / Charlesroi case! Initial subsidies are legal!

In general the Private Investor Principle has to be followed.

Private airports and airports in public ownership are treated differently!

Only Incoming passengers should be incentivized through marketing support, landing fees, airport charges etc. Outgoing traffic is export of purchasing power!

Flexible incentives, e.g. for longer routes, for more passengers, for more frequencies etc


LCC

Airport

Tourism Organisation

Incentives

Passengers

Tourism Industries

Guests

Touristic Value Creation

?

The Challenge


Tax Financed Marketing

Kärnten1) Werbung (legal entity, major shareholder State Government) provides certain incentives and support to LCCs and gets re-financed through:

„Fremdenverkehrsabgabe“

„Tourist Fee“ to be paid by tourism industries to Local and State Government

„Nächtigungstaxe“

„Bed Tax“ to be paid by hotels, B&Bs to Local and State Government

Total Income: app. € 20 mio (est)

1) Kärnten: Federal State of Austria


An airport is never the final destination of a trip! Therefore co-operation between cities and regions is essential.

When Airports support new comers the existing carrier portfolio should not be affected.

Know how and experience are key when evaluating LCC routes.

Stay in close and regular contact with your carriers. In order to become proactive you need to understand the carrier‟s thinking.

Airport policy and LLC


LCCs have to follow the same European rules for operating

commercial airplanes (AOC).

The vast majority of all LCCs operate very young equipment and

meet the latest design requirements.

The surveilleance of the operation and of the NAAs is following

standard procedures in Europe.

Source: European Cockpit Association

The safety related issues concerning the LLC


LCCs and their passengers don„t need marble fountains in the airport lounges!

Ramp or tarmac for embarking and disembarking is suffucient, no jetways are required.

Shops and entertainment are pleasing passengers and represent a significant source of income for the airport. (Some airports make more money with non aviation activities than with airside activities!)

It should be catered for sufficient room for the check–in lines and in the waiting lounges.

The charging scheme should be variable (€ / passenger) and broken down in the various elements. Note: not all LCCs require all service elements (cleaning, toilet service, water service etc.)

Low cost services in airports


Agenda

The Airline Market




Conclusions


The market will ….

… continue to appreciate „Value for Money“ products.

… see an increase in travel opportunities, i.e. more destinations

from more origines

… be affected by increasing costs which will hit the leisure segment

… offer plenty of supply and price sensitive demand will stay strong

The consumer will ….

… take advantage of oversupply and unlimited information available

to him

… be hard to predict, no easy segmentation

Conclusions


LCCs will ….

… continue to grow. Market share of 40% plus in Europe by 2015 seems realistic.

… move into leisure destinations in particular where traditional charter carriers have a significant „seat only“ volume.

… increase frequencies on certain leisure routes.

… enter into arrangements with tour operators provided their business model will not be affected.

… adopt quality elements or product features from FSAs provided costs and complexity remains untouched or they are providing another revenue stream (seat reservation, IFE).

… move into „business destinations“ which today have only indirect connections.

… negotiate corporate fares.

Conclusions


FSAs will ….

… cut costs, adopt elements of the LCC business model.

… simplify tarifs and travel rules.

… focus on on-line distribution.

… improve long haul product

… apply agressive price strategies to fight LCCs

… loose on indirect routes < 2 f„hrs

Charter Airlines will…

… disappear

Conclusions


Thank you for your attention!

ευχαριστώ


Co-operations will ….

… take place between selected LCCs (Alliance?).

… start between international non Alliance long haul carriers

and LCCs.

Merges will …

… take place between mid size LCCs and smaller LCCs to grow

quickly into international markets.

Re-integration will …

… affect most „Sponsored LCCs“ (LCC subsidaries of FSAs)

Fatalities will…

… reduce the flock of European LCCs to 3 - 4 strong Pan European

LCCs and about 10 -12 national/niche LCCs

Conclusions


Price Elasticity by Market Segment

Market Segment

1. Long-haul

international business

2. Long-haul

international leisure

3. Long-haul domestic

business

4. Long-haul domestic

leisure

5. Short-haul business

6. Short-haul leisure

More Elastic Less Elastic

-2 -1,5 -1 -0,5 0

-0,475 -0,198

-0,56-1,7

-0,836-1,428

-0,787-1,228

-0,783 -0,595

-1,288-1,743


0

50

100

150

200

2001 2003F 2005F 2007F 2009F

Pessimistic

Optimistic

Number of passengers of

Ryanair & easyJet at basis of

announced capacities

19%

15%

30%

Prediction for the European Low

Cost Market 2001E–2009F

Market potential of the German

Low Cost Segment 2001E–2009F

Low case: Number of no-frills journeys in Europe reach current UK / Ireland level (0.25 trips / capita) over 8 years

High case: Number of no-frills journeys in Europe reach the same level as currently in the U.S. (0.5 trips / capita) over 8 years

Source: Analyst Reports, Monitor Analysis

510

16

32

83

21

42

0

25

50

75

100

Total Population

International

Domestic

Estimation formed by the use of

US market share & travel

frequency to the German

populationPAX

(m) PAX

(m)

Market Potential for European LCCs

actual


The Demand Pattern is Changing

Conservative disposition of disposable income …

due to uncertain economical environment and lack of confidence in the

future

Simplification is key …

due to overwhelming choice between goods and services

Tendency to “outsource to the customer” …

because it„s appreciated by the customer

(not necessarily because it„s cheaper!)

“Soft Factors” become more important …

because suppliers become bigger and bigger, less personal and

replaceable – at the same time the desire for more personal recognition

is increasing

Source: Gottlieb Duttweiler Institut Zürich


Touristik - AG


Business Cycle

All players are similar

• Competitors‘ business models

are similar…competition on tactics

„New“ models

enter the market• lower costs

• lower prices

„New“ models are copied and expand• more new entrants

• expansion due to success

• „old“ model businesses fail

„New“ model

becomes “Norm“• „new model players

compete on non-price

basis

• „old“ model players

disappear or re-invent

themselves

Source: acc. SH&E

?


Mega Trend „Best Buys“


The Low-Cost Philosophy

The low-cost idea has to start in people´s mind!

Low-cost does not mean...

... simply reducing the ticket price,

but primarily

changing traditional business processees,

using demand driven pricing,

applying aggressive marketing strategies


„We are not an airline, we are a culture.

A culture founded by optimists - and built by believers.

We are not an airline.

We are listeners, innovators and technology creators.

We are not an airline.“

...(Song„s Credo)

LCC Mantra

„When removing airlines from the bosom of

national politics, what remains is a simple

business!“

(Ray Webster)


Customer in Focus?

"We don't fall all over ourselves if

... say my granny fell ill.

What part of “no refund” don't

you understand?

You are not getting a refund so

fuck off."

Source: M. O‟Leary, (original sound track)


Parking at LCC Airport


Business travellers are more sensitive to airline and schedule

Portion of travellers naming factor as "most important"

Source: Boeing-sponsored traveller survey

57%

19%

17%

7%

Tourists

30%

36%

25%10%

Business travellers

Airfare

Schedule

Airline

Airplane

Tourists Are Most Sensitive To Airfare


Flight length is a key factor in determining what is important to tourists

Portion of travellers naming factor as "most important"

Source: Boeing-sponsored traveller survey

63%

19%

16%2%

Flights of less than 2 hours

52%19%

18%

11%

Flights of more than 5 hours

Airfare

Schedule

Airline

Airplane

Airfares are Less Important on Longer Flights


Google Earth


Information (Power) To The People!

? !


Information (Power) To The People!


Protect Your Fare


„Industrialization“ by Thomas Cook


„Industrialization“ by TUI

Source: TUI, WTO Conference Syria, 2004

1998 - 2004 > 2004


Trip DOCs and Stage Length

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

70,00%

80,00%

90,00%

100,00%

0 0,25 0,5 1 1,5 2 2,5 3 3,5 4 4,5 5 5,5 6 6,5 7

Block Hours

Co

st

Sh

are

(%

)

AP cost

En Route

Fuel/Oil

ACMI


European Airlines Unit Costs

Charter Airlines

moving into the

LCC market:

• cycle related

costs +

• marketing costs +

• distribution costs +

LCCs moving into

L/H markets:

• cycle related costs –

• Break Even yield +

• market stimulation –

• crew costs +


In the US Stage Length is Increasing


Price Elasticity

Vorausbuchung & Yield, CGN-HAM,Flugmonat October 03, Buchungen seit Freigabe

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

52 02 04 06 08 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44

0

20

40

60

80

100

120

Booked Segments Rev/Seg Polynomisch (Booked Segments)

Vorausbuchung & Yield, CGN-OLB,Flugmonat September 03, Buchungen seit Freigabe

0%

5%

10%

15%

20%

25%

30%

35%

10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40

0

50

100

150

200

250


Vorausbuchung & Yield, CGN-VLC,Flugmonat September 03, Buchungen seit Freigabe

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

52 02 04 06 08 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40

0

50

100

150

200

250


Vorausbuchung & Yield, CGN-CIA,Flugmonat September 03, Buchungen seit Freigabe

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

52 02 04 06 08 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40

0

50

100

150

200

250



Business Complexity

Business Complexity

Time

LCC

FSA

Growth Rate


Market Segmentation

Old Luxury

Status and exclusivity

• high prices and low quantities

• consumption shown off

Premium Volume

Trading Up

• higher prices compared to

traditional products

• may be applicable to all

products

(coffee, cars, TV) Traditional Middle

Function & price prevail

• no emotions

• low key

• meets a requirement

• a compromise

Discount

Trading Down

• fair pricing

• fair quality

• socially accepted

• chic and smart

Examples: Rungis vs Aldi, Chanel vs. H&M, Bulthaupt vs Ikea, Aston Martin vs Smart

„Dead“

Middle


Hybrid Carriers

With LCC Background:

- offer seat reservation

- catering service at no extra charge

- provide audio & video entertainment

- offer FFPs

- offer connectivity and interlining

- offer through check-in

- offer different fares for different

services (super saver, saver, flexibel)

- use the travel agencies

- cooperate with tour operators and coporates

…….

With FSA Background:

- increase „ticket flexibility“

- reduce on board catering

- reduce turn around time to <30min

- use agressive marketing technics

- offer lower head line prices

- offer sector pricing

- push direct sales

- introduce performance related pay systems

- operate more P2P

…….


Short-haul

routes

Long-haul

routes

Non-business

passengers

Price-conscious

business

passengers

Quality-conscious

business

passengers

Network Carrier

Regional

Airlines

Charter

LCCs

Source: Mercer Management Consultants 2003 plus own updates

Airline Business Models

?

„Hard Core“

LCCs


Greece in the World Wide Web


Website Popularity


Destination Mallorca


Destination Sardinia


Selected Market Shares


Price Elasticity

Quantity

Price

elastic

η = -1

non elastic

-1 < η <0

no or inferior substitution

(Business short & long haul / VFR)

very elastic

η <-1

excellent substitution

(Leisure & Short Breaks)


Spain

Italy

Turkey

Greece

Croatia

Egypt

Tunisia 9.1

7.1

6.5

6.2

5.1

4.7

3.5

Interchangeability of destinations around the Mediterranean Sea

Interchangeability = Number of alternate „Warm Water“ destinations

Inte

res

t fo

r...

.. w

ith

in t

he

ne

xt

3 y

ea

rs

Source: Reiseanalyse 2011


Caption:

Ryanair

easyjet

Volareweb

bmi Baby

Hapag-Lloyd Express

Germanwings

Sterling

Skyeurope

jet2

LCCs to Spain 2002


Caption:

Ryanair

easyjet

Volareweb

bmi Baby

Hapag-Lloyd Express

Germanwings

Sterling

Skyeurope

jet2

LCCs to Spain 2003


Caption:

Ryanair

easyjet

Volareweb

bmi Baby

Hapag-Lloyd Express

Germanwings

Sterling

Skyeurope

jet2

LCCs to Spain 2004


Online Bookings by Segment

Source: TUI, TUIfly

Low Cost Carriers - Threats and Opportinities · Low Cost Carriers –Threats and Opportunities,...

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