Selection of LCC Destination, Bergamo, 3.11.2005 © 1 Selection of LCC Destinations SEAPLANE Follow...

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Selection of LCC DestinationsSEAPLANE Follow up Event

Wolfgang Kurth3. November 2005 Bergamo, Italy


Agenda

LCCs in Europe

Value for Cities and Regions

Selection of LCC Destinations

Conclusions

LCCs in Europe


Business EnvironmentV

OLU

ME/G

DP

TIME

Africa

Asia

Middle East

Latin America

PIONEERSTAGE

TRANSITION RAPID GROWTHSTAGE

TRANSITION

U.S. andEurope

MATURESTAGE

GDP

Volume


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

Source: IATA Online Survey 2003

Low Fares Stimulate Demand


Forecasts for the European Low-Cost Market

2002–2009F

PAX(Mio)

Pessimistisch

Optimistisch

Anzahl der Passagiere von Ryanair und easyJet auf Basis der Kapazitätsankün-digungen

19%

15%

30%

5

16

83

21

42

0

25

50

75

100

Gesamtbevölkerung Optimistisch

International

National

Marktetpotential GermanLow-Cost Segment

PAX(Mio)

Schätzung unter Anwen-dung US und UK Marktanteile & Reisehäufigkeit auf die deutsche Population

Forecasts Are Optimistic

1 Pessimistisch: Anzahl der No-Frills-Reisen in Europa erreicht derzeitiges UK / Irland Niveau (0.25 Trips / Capita) in 8 Jahren (Anzahl der Passagiere = 72MM) 2 Optimistic: Anzahl der No-Frills-Reisen in Europa erreicht das derzeitige Nivaeu in den U.S.A. (0.5 Trips / Capita) in 8 Jahren (Anzahl der Passagiere = 195MM)

Quelle: Analystenreports, HLX-Schätzung, Monitor Group Analyse

CAGR

Pessimistisch

0

50

100

150

200

250

2002 2004F 2006F 2008F


Caption:

Ryanair

easyjet

Volareweb

bmi Baby

Hapag-Lloyd Express

Germanwings

Sterling

Skyeurope

jet2

LCC Routes 2001


Caption:

Ryanair

easyjet

Volareweb

bmi Baby

Hapag-Lloyd Express

Germanwings

Sterling

Skyeurope

jet2

LCC Routes 2002


Caption:

Ryanair

easyjet

Volareweb

bmi Baby

Hapag-Lloyd Express

Germanwings

Sterling

Skyeurope

jet2

LCC Routes 2003


Caption:

Ryanair

easyjet

Volareweb

bmi Baby

Hapag-Lloyd Express

Germanwings

Sterling

Skyeurope

jet2

LCC Routes 2004


Caption:

Ryanair

easyjet

bmi Baby

Hapag-Lloyd Express

Germanwings

Sterling

Skyeurope

Jet2etc, etc

LCC Routes 2005


Split of LCC Customers Split of “new” Passengers

Quelle: NFO Infratest, 2002; Monitor Group Analyse

71%

15%

6%

8% 100%

0%

25%

50%

75%

100%

Otherwiseno Travel

Otherwiseper Train

Otherwiseper Car

Other Total

59%

37%4% 100%

0%

25%

50%

75%

100%

New Pax Transfer NoStatement

Total

Sharel (%)Share(%)

Growth Is Triggered By „New“ Passengers


0,2%

-0,8%

6,2%

3,5%

2,4%

1,3% 1,2%

2,2%

-8,5%

Asia/Oceania

EuropeanUnion

North America

Source: ITA Daten 2002/3, Analysis ADL Aviation Competence Center

secondary airports

continental hubs

intercontinental hubs

4,5%

9,7%

6,2%

European Union,secondary airports

with

LCC

home

base

with-

out

LCC

home

base

Growth Of Secondary Airports (Basis: Pax 2002/2003)


Agenda

LCCs in Europe



Conclusions



LCCs – Generators Of Regional Economic ProsperityImpacts on regional economies be generally split into:

Direct effectsMainly jobs at airlines, handling & related aviation acitivities (as being roughly half oftotal job effects). Total on-site employment of regional airports between 850 – 1200. 1,000 jobs created for every 1 million passengers through an airport.

Indirect effectsRegional airports support roughly 1200-1800 jobs within the regional or local economies. Studies have found regional airports to have comparable economic effects to several mid-size manufacturing plants.

Catalytic effectsMainly effects stemming from attraction and detention of inward investment and the stimulation of inbound tourism. Especially the enhancement of competitiveness to local economies as well as the attraction of business and leisure passengers leads to higher generation of incomes and employment.


Direct Impacts Of LCCs

EasyJet’s direct operations con-tribute approximately £66 millionto local gross income levels, supporting a total of 1,770 jobsin the aviation sector and supply-chain companies.

These levels of direct expen-diture and employment provide income and employment for others.

Taking all these wider effects into account, EasyJet’s operations add £120 million to local incomes and support a total of 3,185 local jobs.

Source: National Economic Research Associates, London 2000

LTN Passenger development


Catalytic Impacts Of LCCs

Routes from London-Stansted launched in April 1998 and from Brussels-Charleroi in April 2001. Annual passengers of both routes account for roughly 250.000 visitors, 90% of which are non-French

Stimulus by London route only is estimated to account for € 215m, only € 6,5m of which related to direct effects at the airport. A total of 2.800 new jobs is estimated to be related to this new route and it´s consequences.

Prices of real estate are estimated to have risen by 25% between 1998.

LCCs contribute to regional development and economic development, directly and indirectly.

Source: Financial Times, Dec12, 2002

Carcassonne


LCCs Generate Incoming-Traffic

• Approx. 25-30 per cent of the passengers on the LCC routes to

Germany are Incoming Passengers

Incoming Anteil Köln im Dezember 2003

37%

17%

32%

32%

31%

43%

29%

28%

38%

29%

23%

22%

20%

20%

28%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

BIO

CIA

GVA

KLU

MAD

MAN

MRS

NAP

OLB

PMO

PSA

REU

SVQ

VCE

VLC

Incoming Anteil Hannover im Dezember 2003

30%

41%

18%

23%

26%

28%

14%

27%

21%

29%

21%

25%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

BGY

BIO

CIA

CTA

KLU

NAP

NCE

OLB

PSA

REU

VCE

VLC


Region Verkehrsanteil

Brussels area 25%

N Belgium 19%

S Belgium 18%

Netherlands 17%

Luxembourg 8%

France 7%

Germany 6%

Catchment Charleroi


Per 1 mio passengers per annum on 12 routes….

Ryanair pays to Charleroi Airport:€ 2.0 mio airport fees and handling charges

Charleroi Airport pays to Ryanair:€ 1.9 mio Marketing Incentive for new routes € 2.0 mio Marketing Support€ 1.5 mio Support for infrastructure and recruitment

Total costs for the airport:

€ 3.4 mio or € 3.4 per passenger

Quelle: Aviation Strategy, July/August 2001, S.3

Incentivprogram for Ryanair


Agenda

LCCs in Europe



Conclusions



Unit Costs vs. Stage Length

Low CostCarriers

Britannia

Regional

Airlines

Scheduled

Airlines BA

EasyJet

LHAF

KL

IB

Ryanair

SK

SWA ATA

AS

AWA

NW

DL

CO

US

UA

TWAirT

AZ

AA

Average Route Length (Miles)

Cen

ts /

AS

M

ASM: Available Seats MilesSource: CASM Form 41, Air Transp. World June 2001 issue, Stage length data from the Airline Monitor Nov. 2001 issue; AirTran data Air Tran 10-Ks BAH Analysis

CharterAirlines

25

20

15

10

5

00 200 400 600 800 1.000 1.200 1.400

1.600


40

60

80

100

120

140

160

180

200

220

240

30% 40% 50% 60% 70% 80% 90% 100%

MADROMVCETXL

Note: Yield Curves include costs of Airports, Ground-Handling, TNC, En Route, Fuel and ACMI (1,980 and 1650 EUR/BH respectively) Source: TUI Data, Press, Company Reports, Company Website, Broker Reports, EU, AEA, Monitor Analysis

Load Factor (%)

1,396 km1,075 km

698 km467 km

Break Even Yield Curves

Revenue/Segment

(€)

Unit Costs Decrease with Stage Length

Trip costs increase with stage length.

Unit costs decrease with stage length or aircraft size.

Break even yield increases with stagelength.

Break even yield decreases with LF.


NetworkDesign

EasyJet

2003E

Liverpool

Barcelona

Malaga

EdinburghGlasgow

AberdeenIverness

Belfast

Newcastle

Geneva

Nice

Amsterdam

Madrid

Luton

Gatwick

Paris

LCCs Follow Different Growth Patterns

Ryanair

Dublin

Stansted

Brüssels

Shannon

Milan Frankfurt-Hahn

Stockholm

Glasgow 2003E

GrowthStrategy

Growth mainly triggered by new market generation (I.e. stimulating new leisure and business demand); some growth by taking share from incumbents

Competition only from Ryanair (only 25% of routes have low-cost competition) and flagships (67% of routes); however, flagships started to react and protect their routes (BA kicked back ‘01)

Accelerated growth over last two years; however, increased density but did not add new destinations

High network gains by utilizing higher airport costs with high frequencies and many connections

Expanded continuously since 1995; Since ’99 increased network density by adding new hubs and connecting these with existing network successively; Started integrating Go network end of ‘02

Hubs are based on successful destinations

Growth mainly triggered by new market generation (I.e. stimulating new leisure and business demand); some growth by taking share from incumbents

Competition only from easyJet (only 12% of routes have low-cost competition) and flagships (59% of routes); however, flagships started to react and protect their routes

Accelerated growth over last two years, mainly by adding new destinations

Not many network gains; due to lower airport cost not necessary

Concentrated on domestic market until 1996, increased frequencies; Expanded between ’97 and ’00 by adding destinations; Started turning successful destinations into hubs since ‘01

“DensityApproach”

“ModularApproach”


Stage LenghtsHAJ vs STR

•Boeing typical airline rules•Taxi times not included•85% annual winds•3% airways allowance

LondonLondon

MadridMadrid

ParisParis

BarcelonaBarcelona

ShannonShannon

LisbonLisbon

AlgiersAlgiers

RomeRome

PalermoPalermo

MaltaMalta

AthensAthens

DubrovnikDubrovnik

HelsinkiHelsinki

STUTTGARTSTUTTGART

St. PetersburgSt. Petersburg

MinskMinsk

MoscowMoscow

TallinnTallinnOsloOslo

BudapestBudapest

WarsawWarsaw

StockholmStockholm

BelgradeBelgradeBucharestBucharest

HANNOVERHANNOVER


Incremental Costs Caused By Geo – Strategic Disadvantage

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

0 0,25 0,5 0,75 1 1,25 1,5 1,75 2 2,25 2,5 2,75 3

BH

Eu

ro

Durch. Kosten/BH STR CGN HAJ

DOCDOC

A/P 1A/P 1

A/P 2/3A/P 2/3

ca. 560 Euroca. 560 Euro

A/P 1 A/P 2 A/P 3Avg. Costs/Bhr


HAJ-NAP vs. STR-NAP

0,00

20,00

40,00

60,00

80,00

100,00

120,00

140,00

160,00

40% 50% 60% 70% 80% 90% 100%

STR (1H)

STR(1,25)

STR(1,5)

STR(1,75)

STR(2h)

STR(2,25)

STR(2,5)

0,00

20,00

40,00

60,00

80,00

100,00

120,00

140,00

160,00

40% 50% 60% 70% 80% 90% 100%

HAJ (1H)

HAJ(1,25)

HAJ(1,5)

HAJ(1,75)

HAJ (2h)

HAJ(2,25)

HAJ(2,5)

40

50

60

70

80

90

100

110

120

130

40% 50% 60% 70% 80% 90% 100% Auslastung

Eur

o/P

ax

HAJ-NAP(2,25)

STR-NAP(1,75)

At 70% LF: geo-strategic disadvantage HAJ vs. STR app.ca. 5 Euro/Pax


Agenda

LCCs in Europe



Conclusions

Conclusions


Hamburg

Berlin

Hanover

Cologne

Stuttgart

26%

35%

33%

30%

27%

Not All Destinations Are Equally Atttractive


Catchments Are Affected By Competition

Liverpool

East Midlands

Luton

Liverpool

East Midlands

Luton

Leeds/Bradford

Birmingham

Catchment for:East Midlands - Barcelona Frühjahr 2002 (bmibaby)

Catchment for:East Midlands - Barcelona Frühjahr 2003 (bmibaby and easyJet)


Legacy Carriers Are Cutting Back

Cardiff/Wales (weekday deps)

April 2002British Airways* 12KLMuk 5Manx 1Ryanair 1Air Wales 1

----20

April 2003bmibaby 11KLMuk 5Air Wales 3Ryanair 1

----20

Belfast International (weekday deps)

April 1998British Airways* 19British Midland 12Jersey European 4KLMuk 3Sabena 1Aer Lingus 1

----40

April 2003easyJet 35bmibaby 4British Airways* 4Eastern 1British Northwest 2

----46

* including franchises


LCC

Airport

Tourism Organisation

Incentives

Passengers

Tourism Industries

Guests

Touristic Value Creation

?

The Challenge


Tax Financed Marketing

Kärnten 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“ Overnight Tax to be paid by hotels, B&Bs to Local and State Government

Total Income: app. € 20 mio (est)


Touristik-AG


Regional „Airline“


LCCs stimulate the demand. Frequency and days of service are of paramount importance.

Attractivity of destinations de-termines the balance of the traffic flow

LCCs have very different business models

…. More Challenges


Incentives have to be based upon careful evaluation

o follow the rules o stimulate Incoming Traffic o take into account the existing route portfolio o take into account the existing carrier-portfolio o „stretch“ the average stage length

The Home Page of LCC is perfect to market touristic services (hotel, entertainment, Guided Tours etc)

Catchments of LCC - airports may be influenced by other services

…. More Challenges


Airports, cities and regions don‘t have necessariy the same interests!!

A strong and co-operative partnership between Low Cost Airline and tourism organisation/-industrie is pre-requisit for a significante stimulation of the touristic value creation.

Know how and experience are key for a realistic evaluation of LCC-services.

Key Success Factors


Thank you for your attention!

Selection of LCC Destination, Bergamo, 3.11.2005 © 1 Selection of LCC Destinations SEAPLANE Follow...

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