1. The Low-cost Idea The low-cost idea has to start in people´s mind!
Low-cost means...
...not simply reducing the price,
...but primarily changing well-known processes.
In doing so the simplicity of the new processes is most important.

2. Low-Cost Business Strategy Of Airlines: CEOs
CEOs of LCCs don´t necessarily have an airline background
Joachim Hunold
Chariman of
executive board Air Berlin
Airliner: no
David Neeleman
CEO JetBlue
Airliner: no
Wolfgang Kurth
CEO Hapag-Lloyd
Express
Airliner: yes
Tim Claydon
Senior Vice President
JetBue
Airliner: no
Michael O´Leary
CEO Ryanair
Airliner: no
Herbert D. Kelleher
CEO Southwest
Airliner: no
Onno van den Brink
CEO Transavia
Airliner: no
Ray Webster
CEO Easyjet
Airliner: yes
Jozef Varadi
CEO Wizz Air
Airliner: no
Christian Mandl
CEO SkyEurope
Airliner: no

3. Song´s Credo 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 magicians, musicians, acrobats and sprinters focused on a single goal: to give style, service and choice back to the people who fly.
That´s why we „cast“ our stars - to make sure each and every one is attentive and gracious.
Why we offer everyone 24 channels of real time, satellite TV and CD quality MP3 audio.
Why we hand picked a socially-conscious chef - to prepare fresh meals and cater to diverse tastes.
Why Kate Spade designed a collection for our stars, why we created exlusive programming for families, and offer cosmopolitans in the air.
All in all, it´s why we offer more. And now it´s time to dig deeper.
You see, we realize our difference doesn´t lie solely in the choices we offer, but also in how we offer them.
...

4. Song´s Credo Cont.
This means paying attention to those subtle, all-important details that give someone or something a certain specialness.
This means understanding that style isn´t just about the uniforms we wear, but in how we wear them.
It means remembering not only to say please and thank you - but how old is your son and happy birthday.
It means recognizing that some guests desire a sense of well-being and others - a sense of humor.
It´s knowing that smiling is contagious, technology is empowerment, and that some people like their martini - ice cold - with olives - shaken, not stirred.
It´s each and every day - in the lobby, the parking lot, on the web site and in the plane - demonstrating that we truly understand the frustrations our guests have with airline travel and exceeding their expectations with choices that are special and surprising.
Here, lies the Song difference.
Because in the end, as we all know, the proof is in the pudding.
And if it needs to be low-fat, organic pudding - so be it.
We are in tune with our guests.
We are not an airline. We are Song.

5. LCCs Have A Competitive Edge
Comparison of the cost structure of different airlines 14
Lufthansa
Full Fare
Airlines 12 10
easyJet 8
Virgin Express
Costs/ASK (€ cent)
Charter GO 6
Southwest
Ryanair 4
Hapag-Lloyd Flug 2
Low-Cost
300
550
800
1050
1300
1550
1800
2050
Sector lenght (in km)
Source: Unternehmensberichte und -Websites, Analystenreports, AEA, Monitor Group Analyse

6. Average Route Length (Miles)
Comparison Of The Average Unit Costs For Intra-European Flights 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)

7. Unit Costs Of LCCs Are Only Half Of The Costs Of Traditional Airlines
14,0
Primary and secundary airports
0.1
12.0
0.4
0.2
12,0
0.6
0.8
1.2
10,0
2.7
Lower maintenance-, trainings costs
simplified change of flight personnel
8,0
Less staff (limited service, no transfers)
Standardized classes
No Frills
Extras are subject to additional rates
No lounge
Etc.
Costs/ASK (€ cent)
Direct channels
Bookings via travel agency are subject to addidtional rates
6.0
6,0
Fast turnarounds, direct flights, no transfer
more seats per A/C
4,0
2,0
0,0
LCCs
Aircraft
operation
Airport
fees
Frills
Sales
Staff
Fleet
Others
Traditional
airline
Source: AEA, Analysten Reports, Artikel, Monitor Analyse

8. Differences Between Low-cost & Traditional Carriers
Low-Cost Carrier
Full Fare airlines
Lower maintenance, spare parts and training costs, simpler swopping around of flight staff, higher capacity utilisation
Low-Cost advantages
Lower airport charges
Lower distribution costs, lower complexity
Higher utilisation
Lower ancillary costs, less complexity, additional income
Lower complexity, higher capacity utilisation
Lower fixed personnel costs
Utilisation
Fast turnarounds (up to 25 min.)
Turnaround slowed down by use of major airports with large amount of traffic (approx. 45 min.)
Frills
No Frills, extras paid for (e.g. catering, extra luggage)
Entertainment program, quick check in, lounges, paper tickets, business class, catering
Airports
Primary and secondary airports
International airports
Fleet
Standardised fleet (only one aircraft type), higher seating density ( : e.g. 146)
Various aircraft types, low seating density ( : e.g. 134)
Retail
Direct channels, use of travel agencies only if extra costs minimal
Most tickets sold via travel agencies and by the airline itself
Network
Direct flights, no transfers, short routes
Long haul and short haul routes with transfers
Personnel
High variable-proportion of salary (up to 26 %), better capacity utilisation
High basic salaries (variable proportion up to 11 %), trade union affiliation

9. Distribution, Staff And Network Planning
Business processes
Sales
Direct sales channels
Processes such as „information“, „booking“, „seat-reservation“ and „payment“ are relocated to the client
Bookings via Call-Center or travel agency are subject to additional charges
No paper tickets
Pricing-strategies
Aggressive marketing
Staff
Lean-management
Fast decision making
Less staff (e.g. no service)
Flexibility and motivation of staff
Network planning
Point-to-point traffic
High frequencies
usually short distance flights (max km)

10. Low-cost Business Strategy Of Airlines: Sales
Sales channels as per revenue
in % 2004
Sales channels as per bookings
in % in 2004 3 3 2 2 1 1
1 including 74% Internet, 5% flyloco/LTUR, 13% Skyagent
2 including 3% CC, 1% Agencies via CC
3 e.g. group-, press- and member of staff bookings
1 including 79% Internet, 4% flyloco/LTUR, 9% Skyagent
2 including 2% CC, 2% Agencies via CC
3 e.g. group-, press- and member of staff bookings

11. Low-cost Business Strategy Of Airlines: Sales Cont.
Sales via internet is essential
Website performance per month
Page visits: 2,0 m
Page impressions: 14,8 m
Newsletter subscription: >
Conversion rate: 16 % (August 04)
Cooperation with Flyloco.de offers:
Dynamic packaging.
Hotel data base
With about 2400 hotels
Average prices from € 85 to € 130
per double room
40 % of these hotels in 3-stars segment

12. Low-cost Business Strategy Of Airlines: Sales Cont.
Targeted promotion generates demand
HLX „Rock Buttom Site“
Clearly laid out overview of the cheapest flights
„Happy HLX Hours“
Regular promotion at especially favourable conditions (Tuesday- Wednesday)
Partner HLF and others
Distribution synergies due to „piggy backing“ on partners´ natioal website

13. Low-cost Business Strategy Of Airlines: Sales Cont.
Course of the day: 8:00 to 24:00, high utilisation also beyond the “travel agency time”

14. Low-cost Business Strategy Of Airlines: No Frills
No meals, drinks and snacks for free, therefore reduction of costs for the catering itself but also for cleaning and loading
No frequent-flyer programs
Excess baggage, sports equipment etc. is subject to additional rates
No cancellation
Changes of booking are charged
Free-seating / seat reservations are changed
No lounges

15. Airlines Meals Lufthansa breakfast HLX breakfast
Quelle: Die Welt,
Lufthansa breakfast
HLX breakfast

16. Low-cost Business Strategy Of Airlines: A/C and Fleet
Aircraft / Fleet
Homogeneous fleet, therefore low costs for maintenance, cockpit training and „stand by“ crews
Higher number of seats, therefore higher capacity and higher utilisation of the aircraft
In future functions will be paid instead of the hardware, e.g. functions such as CAT IIIA, MTOW and thrust are paid according to the actual utilisation instead of being an integral part of the purchase

17. Low-cost Business Strategy Of Airlines: Airports
Utilisation of secondary airports, thererfore lower airport fees, lower traffic and congestion, fewer delays
Basing of the fleet at several airports, aircraft return to their base at the end of the day, no hotel expenses for the crew, crew rostering is more efficient

18. Low-cost Business Strategy Of Airlines: A/C Basing
LCCs spread their bases across Europe
National / flag carrier usually have one or two national bases only

19. Low-cost Business Strategy Of Airlines: A/C Basing
LCCs spread their bases across Europe
National / flag carrier usually have one or two national bases only

20. Low-cost Business Strategy Of Airlines: A/C Basing
LCCs spread their bases across Europe
National / flag carrier usually have one or two national bases only

21. Low-cost Business Strategy Of Airlines: Flight Operation
Higher productivity due to faster turnarounds (20 to 25 min. in comparison to 45 min and more from flag carriers) due to:
Less traffic and less delays at secondary airports
No waiting time due to transfer-passengers and baggage
Simple boarding and loading processes
Time-saving fueling processes
No cargo
Cleaning by cabin crew
Catering for four legs
„Outsourcing“ of catering and bordshop, airline only provides staff and sales area

22. Low-cost Business Strategy Of Airlines: Staff
Source:

23. Low-cost Business Strategy Of Airlines: Staff Cont.*
* pilots are charged an application fee of £ 50
Source:

24. Low-cost Business Strategy Of Airlines: Maintenance
New service concepts for LCCs
Suppliers should „provision“ according to the data they have collected during hundreds of checks (e.g. knowledge of most frequent material repair)
LCCs want „air time“, suppliers want ground time, there´s a conflict of interest, less incentive for suppliers to „improve“ themselves
Development of „equalised“ maintenance concepts, shorter ground time and higher availability of the aircraft
For LCCs there is little incentive to take on board anything other than line maintenance work. What LCCs really do well is flying passengers from point A to point B, develop product and markets, manage yield and revenue
Cost reductions will have to come from smarter maintenance planning. Doing the right work at the right time and not over-maintaining
Source: „Service Challenge“, Airline Business, October 2004

25. Low-cost Business Strategy Of Airlines: Pricing
Price development of different airlines1,2
Remarks
LCCs flexibly adjust their prices to the respective demand
Prices rise towards departure time
the higher the demand the higher the price
Pricing of flag carriers is usually more inflexible
Price curves proceed flater, however they rise as well
Price structures of Charter-Airlines are contrary to those of LCCs
Prices decline towards departure time
Index
Days prior to departure
1 Research , indicated floating average, (basis: one-way incl. taxes and fees 2 Ryanair: Frankfurt-Glasgow, Lufthansa: Munich-London, Aerolloyd: Düsseldorf-Malaga
Source: Monitor Group, 2003