"Aviation In Transition" The Futur of LCC and Charter

1 Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com ©

"Aviation In Transition" The Futur of LCC and Charter

Wolfgang Kurth

14.-16. February 2007 10th Aviation Conference, Hamburg


Nothing has changed….

…we still like going on vacation!


A Package Tour

Brochures Travel

Agency Transport Incoming Transfer

Tourist Guide

Hotel Beach

Yesterday: Highly complex integrated product chainYesterday: Highly complex integrated product chain

Essential?no

Essential?no

Essential?no

Essential?no

Essential?no

Essential?yes

Essential?yes

Essential?yes

Tour Operator Added Value: • gathers information, presents destination and resort• selects hotel and guarantees quality• minimizes foreign exchange risks• guarantees prices• 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•………..


….A Whole Lot Has Changed!


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“


Information (Power) To The People!

? !


Mapping


Mapping


Information (Power) To The People!


Booking Pattern

Booking Sequence: 1st flight - 2nd hotac simultanous 1st hotac - 2nd flight


Online Distribution Split


Channel Loyality

61%

26%

48% 46% 44%37% 37%

33% 33%

12% 8%

20

10

30

40

50

60

70

%

Shop

Buy

Search Engine Airline Online Tour Operator Friends & Destination Travel Agency Relatives Sites

Source: PhoCusWright Inc., Online Travel Shopping ans Buying Behavior


Why Buying Online?

Ability to compare options myself Faster/saves time

Offers lowest prices Offers wider selection of suppliers

Easier/simpler to handle Offers more Frequent Flyer Miles

Source: PhoCusWright Inc., Online Travel Shopping and Buying Behavior


Distribution & Product Trends


LCCs vs Charter

Utilization

Frills

Fleet

Airports

Marketing/Retail

Network

Personell

Higher utilization,Lower TOW, lower A/P charges

Lower ancillary costs, lower com-plexity, add. revenue stream

Lower handling charges

Lower maintenance costs, lowerspares holding costs, lower training costs, lower crew costs

Superior Direct Marketing and Route Development competence

Lower complexity, higher reliability

Lower Fixed Labour Costs

LCC Advantage


European Airlines Unit Costs

Charter Airlinesmoving into theLCC market:

• cycle related costs +• marketing costs +• distribution costs +

LCCs moving into L/H markets:

• cycle related costs –• B/E fares +• market stimulation –• crew costs +


Avg. Trip Length

British Airways Other FSAs easyJet Ryanair Other LCCs Charter

< 1 Day 1-2 Days 2-3 Days 3-4 Days 4-7 Days 7-21 Days > 21 Days

Source: CAA Passenger Survey 2005

UK Leisure Passengers (UK – EU and domestic) by airline, 2005


Avg. One-Way Fares (UK-EU)

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

250

200

150

100

50

0

Business

LeisureAv

g.

Fa

re i

n 2

00

5 U

KP

Source: CAA International Passenger Survey, Office of National Statistics


Charter Volume Is Declining


UK-EU Passenger Taffic By Airline Type

Source: CAA


In The US Stage Length Is Increasing


Stage Length Is Increasing In Europe As Well

2000 2001 2002 2003 2004 2005

Source: Davy European Transport and Leisure, 15.2.2005, wwww.ryanair.com

2000 2001 2002 2003 2004 2005 2006

Avg. Stage Length Ryanair

Kilo

met

er


2000 – 2005: Routes served in competion (white)Charter: - 50.6% (avg)Routes served by Charter only (yellow)-10.5% (avg)

2000 – 2005: Routes served in competion (white)Charter: - 50.6% (avg)Routes served by Charter only (yellow)-10.5% (avg)

Impact Of LCC Entry On Charter Routes

LON

> 4 f‘hrs

< 3 f‘hrs


LCCs Eating Into Charter Markets

1748

69

118

232

2002 2003 2004 2005 2006

Ro

ute

s to

Sp

ain

Ryanair, easyJet, Volareweb, bmi Baby, Hapag-Lloyd Express, Germanwings, Sterling, SkyEurope, jet2

Ryanair, easyJet, Volareweb, bmi Baby, Hapag-Lloyd Express, Germanwings, Sterling, SkyEurope, jet2

Source: CH-Aviation


Full Service Airlines

LCCs

Charter Airlines

Migration Of Business Models


Full Service Airlines

LCCs

Charter Airlines

HybridsHybrids

Migration Of Business Models


Short-haul routes

Long-haul routes

Non-businesspassengers

Price-conscious business

passengers

Quality-conscious business

passengers

Network Carrier

RegionalAirlines

Charter

LCCs

Source: Mercer Management Consultants 2003

Airline Business Models

!

?


Fragmented Value Chain

Brochures Travel

Agency Transport Incoming Transfer

Tourist Guide

Hotel Beach

Yesterday: Highly complex integrated product chainYesterday: Highly complex integrated product chain

Essential?no

Essential?no

Essential?no

Essential?no

Essential?no

Essential?yes

Essential?yes

Essential?yes

Today: „Fragmented“ product chainToday: „Fragmented“ product chain

T/O required?no

T/O required?no

T/O required????

T/O required?no

T/O required????

T/O required?no


Conclusion: Holidays Become Modular!


Independent Holidays Are Overtaking Inclusive Tours

Source: CAA, IPS (Identification & Passport Services)


Business Models Are Changing

Source: TUI, WTO Conference Syria, 2004

1998 - 2004 > 2004


Web Site Performance

Web Site Performance = f(content, marketing budget….)Web Site Performance = f(content, marketing budget….)


Conversion Rate (Visitors/Bookings)……~ 6-8%Transfer Rate (Bookings/Visitors)………………………………<30%Conversion Rate………………………………………………………………………~ 10%Bookings of Ancillary Products as % of total visitors………………………………………………..~ 0.2-0.4%

Vis

ito

rs

LCCs And Ancillary Products


Vis

ito

rs

LCCs And Ancillary Products

?


TUIfly.com Web Performance


Sponsored LCCs

Deutsche LufthansaDeutsche Lufthansa

DeltaDelta

UnitedUnited

British AirwaysBritish Airways

FSA LCC Subsidary Status

Re-integrated

???

???/sold

2002: sold Go2006: start BA Connect/sold

LOTLOT For Sale??

TUITUI +

+++

?


Thank you for your attention!

Documents

"Aviation In Transition" The Futur of LCC and Charter