Low Cost Carriers Phantom or Phenomenon. May 23, 2007 Kraków, Hotel Stary. Wolfgang Kurth. Advolar. The LCC Experience. Less “Standard” Customers. The Standard Customer:
May 23, 2007 Kraków, Hotel Stary
decisions to purchase standard goods are
based upon economical thinking
good value for money
Ranking of Product Elements
1 Set of criteria: Aircraft (modern, looked after), tidiness, competent crew
2 Extremely low fares raise doubts with regards to reliability
Source: Contest Census, 2002; Monitor Group Analyse
The low-cost idea has to start in people´s mind!
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 not an airline.
„When removing airlines from the bosom of national politics, what remains is a simple business!“
Source: AEA Reports, Monitor Analysis
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
Prediction for the European Low Cost Market 2001E–2009F
Market potential of the GermanLow Cost Segment 2001E–2009F
Number of passengers of Ryanair & easyJet at basis of announced capacities
Estimation formed by the use of US market share & travel frequency to the German population
1Low case: Number of no-frills journeys in Europe reach current UK / Ireland level (0.25 trips / capita) over 8 years
2 High case: Number of no-frills journeys in Europe reach the same level as currently in the U.S. (0.5 trips / capita) over 8 years
Source: Analyst Reports, Monitor Analysis
Potential new LCC lines each year in Europe
Source: Airbus Industries
1) OAG 2004, non stop seats Intra European, no charter seats
2) Internet World Stats, 21.11.2005
3) WebSite101.com, 2004
4) Devinix.com, 2004
5) ICMA.com, 2004
Source: LHT AG, FH Worms, 2004
Aegean Airlines BMI Baby Iceland Express SmartWings
Air Arann British European InterSky Snalskjutsen
Air 2000 Budget Air Itali Airlines Snowflakes
Air Baltic CentralWings Jet2 Sterling
Air Berlin Clickair LTU Sun Express
Air Finland Condor Meridiana Thomson Fly
Air Scotland Corendo Monach Airlines TUIfly
Air Service Plus EasyJet My Travel Lite Transavia
Air Southwest Evolavia MyAir Virgin Express
Alpi Eagles Excel Airways Nordic Airlink VLM Airlines
Baboo Fare4U Norwegian Airshuttle Vueling Airlines
Belle Air FlyMe Pegasus Airlines Windjet
Blue1 GermanWings Ryanair WizzAir
Blue Air Globespan Scanjet
Blu-Express Helvetic Airways SkyEurope
USA 3000 Airlines
Middle East, Asia, South Pacific(26)
Adam Air Jetstar Asia
Aero Pacific Jetstar Australia
Air Arabia Kingfisher Airlines
Air Asia Lion Air
Air Blue Nok Air
Air Deccan One-Two-Go
Air India Express Paramount Airways
Bangkok Air Skymark Airlines
Cebu Pacific Air Skynet Asia Airways
Freedom Air SpiceJet
Go Air Tiger Airways
Jazeera Airways Virgin Blue
Latin & South America (12)
Aero California Mexico
Alma de Mexico
Aviasca de Mexico
Ocean Air Brazil
Viva Aerobus Mexico
Aeris Bankrupt 07Nov2003, Agent Air Never started, Air Bosnia Bankrupt, Air Andalucia Bankrupt 2005, Air Catalunya Bankrupt, Air Exel Bankrupt January 2005Air Freedom Bankrupt December2003, Air Holland Bankrupt 2004, Air Littoral Bankrupt 15Feb2004 , Air Luxor Bankrupt, Air Madrid Bankrupt 15Dec2006Air Polonia Bankrupt 05Dec2004, Air Wales Bankrupt 23Apr2006, Airlib Express Bankrupt 2003, Azzurra Air Bankrupt July2004BasiqAirChanged name in Transavia Dec2004, BerlinJet Bankrupt, Bexx Air Bankrupt Sep2004, BuzzAwaySold by KLM to Ryanair
Dream Air Never realized their Dream, DuoBankrupt on 01May2004, DutchBird Bankrupt January 2005EastJetBankrupt End 2006, EU Jet Bankrupt 26Jul2005Europe Exel Aviation Group Bankrupt January 2005
Fairline Austria Bankrupt 09Jun2004 , Fly Eco Will probably never start, Fly West Website disappeared July 2005, Flying Finn Bankrupt 27Jan2004
Free Airways Never started, Fresh Aer BankruptGermania ExpressTaken over by FlyDba eff.27Mar2005, GetJet Poland Never started, Go Fly Sold by British Airways to EasyJet, Goodjet BankruptHellas Jet Bankrupt 10May2005 , Hop Never started, never a website! (2004),
Jet Magic Bankrupt 28Jan2004, Jetgreen Bankrupt on Wed.12May2004 after 1 week flying!, JetsSkyNever started, probably a scam! (Jan2004)JetX Stopped scheduled flights March 2005Low Fare Jet BankruptMaersk Air Merged with Sterling on 13Sep2005Now Bankrupt May2004Silesian Air Never started, Skynet Airlines Bankrupt 26May2004 (booking engine too slow!), Spirit Of Balkan Never started, Swedline Express Bankrupt August 2006
V Bird Bankrupt 07Oct2004 VolareWeb Bankrupt 19Nov2004
White Eagle Sold entire 737 fleet
Civair Bankrupt 06Dec2004Flamingo Airlines BankruptAsia + South Pacific
Air Nauru Bankrupt, Air One (India) Never started, Athena Air (Malaysia) Never started, AwairTaken over by Air Asia 2005BackpackersXpressNever startedCitilink Fake low-cost airline discontinued by Garuda Indonesia in 2006Diet Jet (Thailand) Never startedImpulse Airlines Bankrupt
Origin Pacific Airways Bankrupt 10Aug2006
SkyAsia (Thailand) Never startedSmartjet Airways Never started, probably a scam!
Transgulf Express (Gulf Area) Never started
Canada West Air Never startedetsGo Bankrupt 11Mar2005Tango Airlines Fake low-cost airline discontinued by Air Canada in 2004ZipFake low-cost airline discontinued by Air Canada in 2004U Air Bankrupt Early 2006USA
America West Merged with US Airways
Independence Air Bankrupt Early 2006, Interstate Jet Bankrupt 2005
Song Air Fake low-cost airline discontinued by Delta in 2006, Southeast Airlines Bankrupt 01Dec2004
TransMeridian Airlines Bankrupt 2006
Virgin USA Never started
Source: Seabury Group, ACI Airline Restructuring Conference, Septt 0, 2004
"We don't fall all over ourselves if ... say my granny fell ill.
What part of “no refund” don't you understand?
You are not getting a refund so fuck off."
Source: M. O’Leary, original sound track
FSA FSA/LCC high potential LCC market
Source: Harris Interactive Airline Segmentation Study
To remain competitive LCCs incorporate FSA elements
into their operational strategies
- Jetblue, Frontier, Air Tran, Spirit, America West, ATA
- Southwest and ATA
- US Airways / America West membership in Star Alliance
- Embraer 190 to jetBlue‘s A320 fleet
- A319 to easyJet‘s B737 fleet
The EU-USA Open Skies Agreement is liberalizing the highly lucrative transatlantic market. EU airlines can fly from any European airport to any airport in the US. In turn it opens European airports to US airlines. The market is expected to grow by > 25 mio passengers within 5 years.
Conclusion: No longer national markets will belong exclusively to National Carriers!!Side Step: EU – USA Open Skies Agreement
…we still like going on vacation!
Yesterday: Highly complex integrated product chain
Business travellers are more sensitive to airline and schedule
Portion of travellers naming factor as "most important"
Source: Boeing-sponsored traveller survey
Avg. Stage Length Ryanair
2000 2001 2002 2003 2004 2005
2000 2001 2002 2003 2004 2005 2006
Source: Davy European Transport and Leisure, 15.2.2005, wwww.ryanair.com
> 4 f‘hrs
< 3 f‘hrs
2000 – 2005:
Routes served in competion (white)
Charter: - 50.6% (avg)
Routes served by Charter only (yellow)
Ryanair, easyJet, Volareweb, bmi Baby,
Hapag-Lloyd Express, Germanwings,
Sterling, SkyEurope, jet2
Routes to Spain
2002 2003 2004 2005 2006
Yesterday: Highly complex integrated product chain
Today: „Fragmented“ product chain
… continue to appreciate „Value for Money“ products.
… see an increase in travel opportunities, i.e. more destinations
from more origines
… be affected by increasing costs which will hit the leisure segment
… offer plenty of supply and price sensitive demand
The consumer will ….
… take advantage of oversupply and unlimited information available
… be hard to predict, no easy segmentationConclusion
… continue to grow. Market share of 35-40% in Europe by 2010 seems realistic.
… move into leisure destinations where traditional charter carriers have a significant „seat only“ volume.
… increase frequency on leisure routes but will reduce the number of departure airports.
… enter into arrangements with tour operators provided their business model will not be affected.
… adopt quality elements or product features from full fare airlines provided costs and complexity remains untouched or they are providing another revenue stream (seat reservation, IFE).
… move into „business destinations“ which today have only indirect connections.
… negotiate corporate fares.Conclusion
… take place between selected LCCs (Cross Marketing).
… start between international (non-Alliance) long haul carriers
Merges will …
… take place between mid size LCCs and smaller LCCs to grow
quickly into international markets.
Re-integration will …
… affect most „Sponsored LCCs“ (LCC subsidaries of FSAs)
… reduce the flock of European LCCs to 3 -4 strong Pan European
LCCs and about 10 -12 national/niche LCCsConclusion