1. Wolfgang Kurth 1. February 2005
How will airline business models evolve? 8th Aviation Conference Hamburg
Wolfgang Kurth
1. February 2005

2. Industry life cycle VOLUME/GDP TIME BEGINNING STAGE TRANSITION
Africa
Asia
Middle East
Latin America
BEGINNING
STAGE
TRANSITION
RAPID GROWTH
U.S. and
Europe
MATURE
GDP
Volume

3. Rise of the Package Holiday
Past Sources of Growth
UK Charter Pax
(Millions)
Product Innovation
Rise of the Package Holiday
Source: Stan Maiden, BAA

4. Tour operator‘s committment over time (1)
End of the 70ties: one flight: one tour operator
Until mid 80ties: one flight: two tour operators
Until end of the 80ties: one flight: two tour operators plus „pro rata“

5. Tour operatot‘s committment over time (2)
Beginning of the 90ties: one flight: several tour operators and
seats with no committment
Within less than 15 years commercial risks were shifted from the
tour operator to the airline!

6. Market and business environment in the 90ties

7. Market and business environment in the 90ties

8. LCC routes 2001 Caption: Ryanair easyjet Volareweb bmi Baby
Hapag-Lloyd Express
Germanwings
Sterling
Skyeurope
jet2

9. LCC Routes 2002 Caption: Ryanair easyjet Volareweb bmi Baby
Hapag-Lloyd Express
Germanwings
Sterling
Skyeurope
jet2

10. LCC Routes 2003 Caption: Ryanair easyjet Volareweb bmi Baby
Hapag-Lloyd Express
Germanwings
Sterling
Skyeurope
jet2

11. LCC Routes 2004 Caption: Ryanair easyjet Volareweb bmi Baby
Hapag-Lloyd Express
Germanwings
Sterling
Skyeurope
jet2

12. LCC in touristic destinations: Spain 2002
Caption:
Ryanair
easyjet
Volareweb
bmi Baby
Hapag-Lloyd Express
Germanwings
Sterling
Skyeurope
jet2

13. LCC In Touristic Destinations: Spain 2003
Caption:
Ryanair
easyjet
Volareweb
bmi Baby
Hapag-Lloyd Express
Germanwings
Sterling
Skyeurope
jet2

14. LCC in touristic destinations: Spain 2004
Caption:
Ryanair
easyjet
Volareweb
bmi Baby
Hapag-Lloyd Express
Germanwings
Sterling
Skyeurope
jet2

15. London Stansted’s Growth
Million
Pax
Low Fare
Scheduled
FSAs
Charters
Source: Stan Maiden, BAA

16. Charter volume is declining

17. Limits to growth?
Source: Stan Maiden, BAA

18. Passenger profile by service type
Socio Economic %
Source: Stan Maiden, BAA

19. Passenger profile by service type%
Age

20. Passenger profile by service type
Reason for Travel %
Charter
Low Cost
Scheduled

21. Network comparison

22. LCCs grow into leisure destinations
Source: AENA

23. Differences between LCCs and Charter
Low-Cost Carrier
Charter airline
Lower Maintenance spare parts and training costs, simpler swapping around of flight staff
Limited marketing & sales forces in charter airlines, small marketing budget!!!
Low-Cost advantages
Lower handling fees
Lower TOW, lower airport charges significant for ttl. trip costs
Lower ancillary costs, less complexity, additional income
Lower complexity, higher capacity utilisation
Lower fixed personnel costs
Utilisation
Fast turnarounds ( 25min.)
Short sector length (< 1.5 hrs)
Turnarounds approx. 45 min.
Avg. sector length ~ 2.7 hrs.
Frills
No Frills, extras paid for (e.g. catering, extra luggage, no discounts for children)
IFE, „Day before“- check in, lounges, paper tickets, comfort class, discounts for kids, baggage allowance for minors, catering
Airports
Primary and secondary airports, symplified processees
Primary and secondary airports
Fleet
Standardised fleet (only one aircraft type), higher seating density ( : e.g. 149)
Various aircraft types
Marketing/
Retail
Direct channels, use of travel agencies only if no extra costs
Aggressive marketing
Most trips sold via tour operator or travel agencies
Limited marketing
Network
Point to point, no interlining, no transfers
Short/medium haul routes (1.5/5.0) sometimes via hubs
Personnel
High variable-proportion of salary (up to 26 %)
High basic salaries (variable proportion up to 11 %), trade union affiliation

24. Average Route Length (Miles)
Unit costs 25 20 15 10 5
Regional
airlines SK
Scheduled
airlines AZ AF US LH BA KL
Cents / ASM AA
EasyJet UA IB AS
Low cost carriers NW
AirT CO
Charter airlines TW
AWA
Ryanair
SWA
ATA DL
Britannia
ASM: Available Seats Miles
Source: CASM Form 41, Air Transp. World June 2001 issue, Stage length data from the Airline Monitor Nov issue; AirTran data Air Tran 10-Ks BAH Analysis
Average Route Length (Miles)

25. LCCs „own“ the customers
Booking Sequence: st flight - 2nd hotac simultanously 1st hotac - 2nd flight

26. Destination sites

27. Destination sites

28. Destination sites

32. Trends in distribution

33. Price-conscious business passengers Quality-conscious business
Positioning of LCCs
Price-conscious business passengers
Quality-conscious business
passengers
Non-business
passengers
Regional
airlines
LCCs
Short-haul routes
Charter
Long-haul routes
Network carrier
Source: Mercer Management Consultants 2003

34. LCCs: Migration and segmentation (1)
LCCs will continue to grow. Market share of 35-40% in 2010 seems not unrealistic.
LCCs will move into leisure destinations where traditional charter carriers have a significant „seat only“ volume.
LCCs will increase frequency on leisure routes but will reduce the number of departure airports.

35. LCCs: Migration and segmentation (2)
LCCs will adopt quality elements or product features from full service /charter airlines provided costs and complexity remains untouched or they are providing another revenue stream (seat reservation, FFPs, IFE)
LCCs will enter into arrangements with tour operators provided their business model will not be affected

36. Thank you for your attention!