Aviation Hedgehogs. Edward Shelswell-White Principal. ACI-NA Annual Conference and Exhibition San Jose, CA September 23, 2013

Transcription

1 Aviation Hedgehogs 1 Edward Shelswell-White Principal

2 A Word On Airports And Customers 2 Who is your customer, and what does your customer consider value? (Jim Collins, this morning)

3 Contents 3 Airline Strategy (Over?)Simplified The Hedgehog Concept ULCC hedgehog concepts Airport Implications/Hedgehog concept(s)

4 Airline Network Strategy Meta-Matrix SM 4 Airline's Expected Yield Strong Weak Sample Characteristics and Portfolio Implications Strong demographics and origina on demand Possibly limited compe on Airlines manage capacity for Margin Secondary airports in or near QII airport catchments Most non-large hubs Meet no criteria of QI, QII or QIV Airlines limit capacity to improve yield, or to fund growth elsewhere I II III IV Significant demand for both origina on and des na on traffic "Anchor" hub Interna onal Gateway Airlines invest capacity: First for Share Then for Margin Strong des na on demand Adds value to network beyond segment performance Airlines manage capacity for Share Legacies and LCCs tend to have complex network strategies Essentially, they optimize the financial performance of the network as a whole: Tolerate QIVs Minimize QIIIs Milk QIs Focus on QIIs Low High Strategic Value to Airline

5 Weak Airline's Expected Yield Strong ULCC Strategy Is Less Complex 5 Sample Characteristics and Portfolio Implications Strong demographics and origina on demand Possibly limited compe on Airlines manage capacity for Margin Secondary airports in or near QII airport catchments Most non-large hubs Meet no criteria of QI, QII or QIV Airlines limit capacity to improve yield, or to fund growth elsewhere Low I II III IV Significant demand for both origina on and des na on traffic "Anchor" hub Interna onal Gateway Airlines invest capacity: First for Share Then for Margin Strong des na on demand Adds value to network beyond segment performance Airlines manage capacity for Share High Strategic Value to Airline Low costs airlines have earned the luxury of choosing strategies that are less complex Essentially, they optimize the financial performance of each market Avoid or exit QIIIs Don t tolerate QIVs Minimize QII bets Focus on Qis Why is this so?

6 The Hedgehog Concept 6 #1 $

7 The ULCC Hedgehog Concept 7 Depends on the carrier #1 Low fares to chosen target customer $ Ancillary revenue per passenger

8 RASM Breakdown vs. CASM An LCC A Legacy A ULCC LCC RASM LCC CASM Legacy RASM Legacy CASM ULCC RASM ULCC CASM CASM Load Factor Third Party Products Ancillary Fare From 2012 Annual Reports

9 From Allegiant s 2012 Annual Report 9 unique business model... look differently at the traditional way business has been conducted in the airline industry focus on the customer eliminate costly complexity a simple product is critical to low operating costs we sell only nonstop flights we do not code-share or interline we have a single class cabin

10 Where Are ULCCs Heading? 10 What they ve said in the past Versus What they re doing now

11 Allegiant s First Nationwide Ad 11

12 Allegiant s Blooper Reel 12

13 13 Low Costs Provide ULCCs Opportunity Airline's Expected Yield Strong Weak Sample Characteristics and Portfolio Implications Strong demographics and origina on demand Possibly limited compe on Significant demand for both origina on and des na on traffic "Anchor" hub Interna onal Gateway Airlines manage capacity for Margin Secondary airports in or near QII airport catchments Most non-large hubs Meet no criteria of QI, QII or QIV I II III IV Airlines invest capacity: First for Share Then for Margin Strong des na on demand Adds value to network beyond segment performance A Legacy s/lcc s QIII Might be a ULCC s QI Airlines limit capacity to improve yield, or to fund growth elsewhere Airlines manage capacity for Share Low High Strategic Value to Airline

14 14 What Drives Airports Economic Engines Depends on the airport #1 Depends on the airport $ Passengers

15 Implications For Airports 15 Where is net domestic growth like to come from? Depends upon your market and airport size. E.g. Large hubs probably not a significant factor Others may be a significant factor What can you control or affect that ULCCs want? Costs Risks of/barriers to entry Market/customer development

16 Aviation Hedgehogs 16 Edward Shelswell-White Principal

17 Let It Fee 17 Let It Fee Music by John Lennon and Paul McArtney Lyrics by Edward Shelswell-White Intro C C C G G G Am Am Am7 F F F C C C G G G F C G C C C C G Am Am7 F F F Verse 1 When I find myself in RASM trouble, Michael O'Leary comes to me Verse 2 And since the low fare seeking people surfing our web site agree Verse 3 I wake up to the sound of profits Michael O'Leary smiles at me C G F C G C C C Verse 1 Speaking words of wisdom, let it Fee And Verse 2 Low fares are what matter, let it Fee For Verse 3 Low fares are the answer, let it Fee And C G Am Am7 F F F Verse 1 in our hour of budgets, he is standing right in front of me Verse 2 though they may pay more when they want something else that once was free Verse 3 if we need more income I have plenty more in side of me A C G F C G C C C Verse 1 Low fares are the answer, let it Fee Let it Verse 2 Low fares are what matter, let it Fee Let it Verse 3 fee-free-conven ience fee? Let it Fee Yeah let it Chorus Am F G C C C Fee, let it Fee, let it Fee, let it Fee C G F C G C C C Low fares are the answer, let it Fee Exit F C G C F C G F C 2013 Tongue-in-cheek productions (a LexVolo Company) (not really)