1. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 1 "Aviation In Transition" The Futur of LCC and Charter Wolfgang Kurth 14.-16. February 2007 10th Aviation Conference, Hamburg

2. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 2 Nothing has changed…. …we still like going on vacation!

3. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 3 A Package Tour Brochures Travel Agency Transport Incoming Transfer Tourist Guide Hotel Beach Yesterday: 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 ………..

4. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 4 ….A Whole Lot Has Changed!

5. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 5 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!“)

6. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 6 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“

7. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 7 Information (Power) To The People! ?!

8. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 8 Mapping

9. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 9 Mapping

10. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 10 Information (Power) To The People!

11. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 11 Booking Pattern Booking Sequence: 1 st flight - 2 nd hotac simultanous 1 st hotac - 2 nd flight

12. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 12 Online Distribution Split

13. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 13 Channel Loyality 61% 26% 48% 46% 44% 37% 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

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

15. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 15 Distribution & Product Trends

16. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 16 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, lower spares 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

17. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 17 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 – B/E fares + market stimulation – crew costs +

18. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 18 Avg. Trip Length British Airways Other FSAs easyJet Ryanair Other LCCs Charter < 1 Day 1-2 Days 2-3 Days3-4 Days4-7 Days7-21 Days> 21 Days Source: CAA Passenger Survey 2005 UK Leisure Passengers (UK – EU and domestic) by airline, 2005

19. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 19 Avg. One-Way Fares (UK-EU) 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 250 200 150 100 50 0 Business Leisure Avg. Fare in 2005 UKP Source: CAA International Passenger Survey, Office of National Statistics

20. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 20 Charter Volume Is Declining

21. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 21 UK-EU Passenger Taffic By Airline Type Source: CAA

22. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 22 In The US Stage Length Is Increasing

23. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 23 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 Kilometer

24. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 24 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

25. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 25 LCCs Eating Into Charter Markets 17 48 69 118 232 2002 2003 2004 2005 2006 Routes to Spain 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

26. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 26 Full Service Airlines LCCs Charter Airlines Migration Of Business Models

27. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 27 Full Service Airlines LCCs Charter Airlines Hybrids Migration Of Business Models

28. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 28 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 Airline Business Models ! ?

29. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 29 Fragmented Value Chain Brochures Travel Agency Transport Incoming Transfer Tourist Guide Hotel Beach Yesterday: Highly complex integrated product chain Essential? no Essential? no Essential? no Essential? no Essential? no Essential? yes Essential? yes Essential? yes Today: „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

30. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 30 Conclusion: Holidays Become Modular!

31. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 31 Independent Holidays Are Overtaking Inclusive Tours Source: CAA, IPS (Identification & Passport Services)

32. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 32 Business Models Are Changing Source: TUI, WTO Conference Syria, 2004 1998 - 2004> 2004

33. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 33 Web Site Performance Web Site Performance = f(content, marketing budget….)

34. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 34 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% Visitors LCCs And Ancillary Products

35. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 35 Visitors LCCs And Ancillary Products ?

36. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 36 TUIfly.com Web Performance

37. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 37 Sponsored LCCs Deutsche Lufthansa Delta United British Airways FSA LCC Subsidary Status Re-integrated ??? ???/sold 2002: sold Go 2006: start BA Connect/sold LOT For Sale?? TUI + ++++++ ?

38. Aviation in Transition – The Future of LCC and Charter, 10th Aviation Conference, Hamburg, 14.- 16.02.2007 www.advolar.com © 38 Thank you for your attention!