1. European Low Fares Airlines Association European Low Fares Airline Association Low fares airlines: business model and impact on regional airports John Hanlon, ELFAA Secretary General ASSSEMBLY OF EUROPEAN REGIONS CONFERENCE: “LOW NOISE – LOW FARE – HIGH IMPACT” Eindhoven Airport, 13 and 14 December 2006

2. European Low Fares Airlines Association About ELFAA Introduction to Low Fares Airlines (LFAs) Successful Partnership: LFAs and Regional Airports Current threat to that Successful Partnership OUTLINE

3. European Low Fares Airlines Association ELFAA today 11 airline members and several associate members (manufacturers, airports, etc.) Over 100 million passengers in 2006 Almost 400 modern aircraft Representing members in key industry bodies at the EU level and active involvement in all matters affecting low fares airline sector

4. European Low Fares Airlines Association Origin of LFAs Born of EC liberalisation of market access Window created by previously very high fares in Europe by traditional carriers Business model eliminated complexity Strong pressure by LFAs on internal costs enabled significant fare reductions As result, LFAs now account for c. 30% of scheduled intra-European traffic

5. European Low Fares Airlines Association LFA business model (1/3) LFAsTraditional airlinesLFA advantages Operate from mostly secondary, underutilised, regional airports Operate from mostly primary international hub airports Lower airport charges, faster turnaround times, less air traffic control-related delays Fast turnarounds (25 min.) Slow turnarounds due to use of congested hub airports Better fleet utilisation Direct point-to-point flights, no transfers, short-haul routes Mix of long, medium and short haul routes with transfers (“connecting flights”) Lower complexity, higher capacity utilisation

6. European Low Fares Airlines Association LFA business model (2/3) LFAsTraditional airlinesLFA advantages Standardised fleet (only one aircraft type), higher seating density Various aircraft types, low seating density Cheaper aircraft financing; Lower maintenance and training costs; Simpler swapping around of flight and maintenance staff; Higher capacity utilisation Distribution primarily through direct channels (internet, call centres) Most tickets sold via travel agencies (high GDS costs, travel agent commissions, etc.) Lower distribution costs, lower complexity

7. European Low Fares Airlines Association LFA business model (3/3) LFAsTraditional airlinesLFA advantages No “frills”, extras paid for (e.g. catering, excess baggage) Entertainment programmes, express check-in, VIP lounges, paper tickets, business class, “free” catering Lower ancillary costs, less complexity; Additional revenues Highly incentivised work force (variable proportion of salary up to 40%) High basic salaries (variable proportion less than 10 %) High employee productivity

8. European Low Fares Airlines Association Source: Analystenreports, Unternehmensinformationen, Monitor Group Analysis; 2005-2006 – ELFAA analysis Growth of LFAs (1/2)

9. European Low Fares Airlines Association Growth Generated By ‘New’ Passengers Source: NFO Infratest, 2002; Monitor Group Analysis Growth of LFAs (2/2)

10. European Low Fares Airlines Association Successful Partnership: LFAs and Regional Airports LFAs have recognised great potential in underutilised regional and secondary airports Low-fare point-to-point services have revitalised many underutilised secondary and regional airports around Europe Multiple regional and secondary airports now have direct international connections with other European regions and with major cities Many regional and secondary airports became bases for LFAs (unthinkable in the old regime of single-hub airlines) Passenger numbers at regional and secondary airports growing much faster than at major airports

11. European Low Fares Airlines Association Impact of LFAs (traffic growth: an example)

12. European Low Fares Airlines Association Catchment area of the Cologne Bonn Airport for low fares passengers traveling to Venice (km) Source: : Hapag-Lloyd Express’ own research Impact of LFAs (catchment area grows)

13. European Low Fares Airlines Association Frankfurt-Hahn Airport – growth of non-aeronautical revenues Source: Frankfurt Hahn Airport Impact of LFAs (non-aeronautical revenues grow)

14. European Low Fares Airlines Association Inward investment in the regions encouraged by direct air connections Benefits to tourism industry Improved business environment for the local and regional businesses Increased employment Increased tax revenues for local and regional authorities Other benefits of the low fare services

15. European Low Fares Airlines Association Current threat to the Successful Partnership Misinformed environmental policies Initiatives based on false myths about aviation’s impact on environment Seen as a way of curbing the growth of air transport FACTS Aviation accounts for only 2% of CO2 emissions Aviation generates 3.1 million jobs and GDP of €221bn in EU-15 Airlines are already making enormous efforts to reduce fuel burn and emissions

16. European Low Fares Airlines Association Thank you! Please join our mailing list at: www.elfaa.com