LCCs vs. Legacies: Converging Business Models

Transcription

1 LCCs vs. Legacies: Converging Business Models Halifax, Nova Scotia October 18, 2007 strategic transportation & tourism solutions Mark Haneke Vice President, Network & Strategic Planning Vancouver, BC 1

2 Presentation Outline What is a Low Cost Carrier? LCC Traffic Trends Network & Alliance Implications Fleet issues Inflight Service Conclusions 2

3 What is a Low Cost Carrier? An airline that offers low fares by eliminating traditional passenger services Southwest Airlines is the Godfather of the LCC movement (36 years old) LCCs generally operate with a lower operating cost structure vis-à-vis the competition Airlines have historically competed on Price and Product 3

4 Historically Common LCC Attributes Single-class aircraft Single aircraft fleet type Simplified airfare structure Open seating Flying to cheaper, less-congested secondary airports Minimal ground time (quick-turns) Point-to-point flying Direct ticket sales 4

5 Presentation Outline What is a Low Cost Carrier? LCC Traffic Trends Network & Alliance Implications Fleet issues Inflight Service Conclusions 5

6 LCC Traffic Distribution Has Grown LCC 9% LCC 21% Legacy 91% Legacy 79% RPMs (Billions) = 92.7 RPMs (Billions) = Source: DOT Form 41 6

7 7 Hot Spots The Battlegrounds JFK EWR CLT ATL MDW DFW/DAL DEN PHX IAD F9/UA /WN AA/ WN FL/ WN US/ WN PHL DL/ FL B6/UA /WN B6/FL /US US/ WN B6/ DL B6/ CO BOS B6/ FL LAX AA/DL/ UA UA/VX /WN SFO YYZ YYC YVR AC/ WS AC/ WS AC/ WS MCO FL/ WN FLL FL/NK/ WN

8 Traffic Trends LCC airlines now carry in excess of 30% of domestic traffic in the U.S. Westjet has 35% of the Canadian market, and aims to capture 50% marketshare by 2013 Mexican LCCs account for 32% of all domestic ASKs (May 2007) LCCs accounted for 30% of intra-european seat capacity in 2006 LCC penetration is increasing in key growth markets in Southeastern Asia and India 8

9 Presentation Outline What is a Low Cost Carrier? LCC Traffic Trends Network & Alliance Implications Fleet issues Inflight Service Conclusions 9

10 North Atlantic Market Concentration Alliance / Non-Allied Shares (%) Weekly Seats (000) 1,600 1,400 1,200 1, /38 69/31 76/24 75/25 80/20 82/18 82/18 85/15 86/ Source: U.S. DOT T Non-Allied Alliance 10

11 North Atlantic Structure August 2007 Frequency Shares* oneworld Star SkyTeam Other U.S. - Europe 13.8% 17.3% 37.9% 30.9% U.S. - UK 26.7% 6.9% 26.7% 39.7% U.S. - Heathrow 44.0% 13.3% 0.0% 42.7% * Based on Flights per Week Note: SkyTeam includes CO, DL, NW, AF, AZ, KL, OK Source: August 2007 Planet OAG 11

12 Major LCC Carriers Around the World 12

13 Network & Alliance Implications Star Alliance X 13

14 Network & Alliance Implications oneworld x 14

15 Network & Alliance Implications SkyTeam 15

16 Network & Alliance Implications Some LCC carriers, such as Virgin Blue (Australia) are open to joining an alliance Aer Lingus shunned its oneworld membership in favor of pursuing an LCC strategy LCC carriers could join global alliances in select, key geographic regions, or they could band together to form their own global LCC alliance 16

17 Presentation Outline What is a Low Cost Carrier? LCC Traffic Trends Network & Alliance Implications Fleet issues Inflight Service Conclusions 17

18 U.S. Jet Fleet at 12/31/06 Major & LCC Fleet LCC Fleet 6 LCC's % Other % 9 Largest LNC % Southwest % 18 Source: The Airline Monitor

19 Aircraft Deliveries Narrow Body Legacy LCCs Note: Legacy carriers include AS, AA, CO, DL, NW, UA, US LCCs comprise FL, HP, TZ, F9, B6, WN, NK Source: Airline Monitor, June

20 Fleet Issues Frontier and jetblue have expanded their fleets to include two aircraft types Several U.S. LCCs have slowed their fleet expansion plans 20

21 Presentation Outline What is a Low Cost Carrier? LCC Traffic Trends Network & Alliance Implications Fleet issues Inflight Service Conclusions 21

22 LCC Service Comparison Chart AirAsia easyjet JetBlue Frontier Ryanair Southwest WestJet Legacy Frequent Flyer Plan Standard Checked Luggage Allowance Free Beverage and Snacks Assigned Seating Paid Lounge Access Free Inflight Entertainment 22

23 LCC Attribute Scale Pure LCC Attributes Legacy Attributes 23

24 Which is the LCC Menu? Some Buy-Onboard offerings are nearly identical 24

25 Long-haul LCC Carriers are Emerging 25

26 The Bar is Being Raised on In-Flight Service 26

27 Inflight Service The bar has been raised on inflight service expectations for both LCC and Legacy carriers In-flight web surfing will be rolled out on a wider scale In-flight personal mobile phone usage is also being explored 27

28 Presentation Outline What is a Low Cost Carrier? LCC Traffic Trends Network & Alliance Implications Fleet issues Inflight Service Conclusions 28

29 Conclusions The LCC model is evolving Legacy carriers are rising to the challenge The U.S. domestic market is largely mature Niche carriers (e.g. Allegiant) will continue to find unique opportunities Long-haul LCC service is the next threshold Agreements like U.S. E.U. Open Skies will facilitate further long-haul LCC growth 29

30 Thank You strategic transportation & tourism solutions InterVISTAS Consulting Inc. Airport Square - Suite West 73rd Avenue Vancouver, BC Canada V6P 6G5 30 Tel: Fax: