IACC NYC March 7th Birkir Holm Gudnason CEO Icelandair

Transcription

1 IACC NYC March 7th 2009 Birkir Holm Gudnason CEO Icelandair

2 Agenda Icelandair Group Icelandair Industry Trends External Environment Future prospects

3 ICELANDAIR GROUP

4 Icelandair Group Companies

5 Group Dynamics Q4-51,5% ,5% Icelandair IGS Icelandair Cargo Air Iceland Icelandair Hotels Q4-48,5% ,5% Iceland Travel Loftleidir Icelandic Icelease Bluebird Cargo SmartLynx REVENUE DISTRIBUTION Q4/2008 BY SEGMENTS AND COMPANIES Travel Service

6 Icelandair Group 2008 Revenue Iceland Scandinavia 20% 9% North America UK 10% 4% West Cont. Europe 17% Central Europe 28% Asia 4% Africa 3% South America 2% Oceana 2%

7 The Fleet total 69 aircrafts 9 Boeing Boeing Fokker Friendship 2 Boeing Boeing Boeing Boeing Boeing Boeing Airbus A Boeing Boeing Dash 8 2 Boeing Boeing Sovereign

8 ICELANDAIR

9 History of flexibility and adaptability Commercial flights commence. Flugfélag Akureyrar founded. The name was later changed to Flugfélag Íslands. Loftleiðir starts international schedule between USA and Luxemburg with a stop in Iceland. Low fares make the company known as the hippie airline. Name changed to Flugleiðir after the merger of Loftleiðir and Flugfélag Íslands. Record oil prices, inflation, DC10 accident, job cuts and cost savings. Total renewal of all equipment - new Boeing aircraft. Focus on travel services. Billions invested in aircraft, hotels, car rental and maintenance centre. The operations were downscaled after 9/11. Better results, growth and renewal Flugleiðir becomes a holding company Icelandair and several other companies formed as subsidiaries 2004 New ownership and more focus on investment activity 2005 Flugleiðir becomes investment company FL Group, and Icelandair Group formed as its Iceland aviation part 2006 Icelandair Group sold to new owners and listed on the NASDAQ OMX Iceland Growth in charter and leasing activity, change of management, job cuts and cost savings First international flights. Flugfélag Íslands started flying to Scotland and Denmark. Loftleiðir began international flights in Air Bahamas acquired. A competitor in the North-Atlantic market bought and incorporated. Years of total utilization. The company used up all existing resources, gained high load factors, offered low fares. Expansion of the route network (1015% annually). Number of tourists visiting Iceland doubled in a 10 year period.

10 1.300 Employees Turnover of 50 billion ISK 162 flights per week to 25 destinations 1,6 million passengers in Boeing 757 aircrafts in operation

11 Organizational Structure Birkir Holm Guðnason CEO Gudjon Arngrimsson Svali Björgvinsson Corporate VP Communication HR & Strategy Helgi Már Björvinsson Andri Áss Grétarsson Hlynur Elísson SVP SVP SVP Sales & Marketing Operation Finance & Administration Marketing & Business Hilmar Baldursson Information Development VP Flight Op. &Training Technology Pricing & Revenue Management Ástþór Ingason Schedule & Network Dir. Ground Operation Management Distribution & Distribution Cost Sales Regions Jens Bjarnason VP Technical Services

12 Dynamic and Flexible Marketing and Sales USA ICELAND EUROPE Icelandair Head Office Boston New York Columbia, Maryland Sales office - REK Scandinavia Copenhagen Stockholm Sales office KEF Airport Minneapolis Oslo Orlando Bergen Stavanger Toronto Halifax Germany & Benelux Seattle Frankfurt Berlin / summer Dusseldorf / summer Munchen / summer Icelandair has a vast experience and knowledge of international consumer markets Amsterdam UK & Ireland London (LHR) Manchester 80% of the business comes from foreign markets, which is unique among airlines 25 destinations We have sales offices in 10 countries Glasgow France & Southern Europe Paris (CDG) GSAs Madrid / summer Milan / summer Barcelona / summer Great focus on PR to expand the marketing exposure Helsinki / summer

13 Icelandair Business Idea and Network Strategy Iceland s geographical location on the shortest flight route across the North Atlantic enables Icelandair to service three main markets, and carry 1.6 million passengers annually: TO FROM VIA The tourist and business market to Iceland 45% The home market in Iceland 20% The market between Europe and USA 35% The via market makes is possible for Icelandair to offer the to and from markets much better schedule than they could justify on their own

14 Our competitive advantage The Route Network strategy is based on 24 hour rotation, where the aircraft has to be able to make one trip to Europe and one trip to USA within the 24 hour rotation cicle High utilisation of Aircrafts (efficiency) Single type aircraft fleet (Boeing 757) Short turnaround times (50-80 minutes) Seattle Helsinki Stockholm Oslo Copenhagen Minneapolis Frankfurt Amsterdam London Toronto Paris Orlando New York Boston Halifax

15 Three Markets (TO FROM VIA) The route networks gives us the flexibility of changing focus relatively quickly to adjust to change in demand In 1999 we had 50% of our passangers going Trans Atlantic (VIA) We expect growth in Tourism to Iceland in coming years 60% F e r ð i r fr á Ís l a n d i F e r ð i r t i l Ís l a n d s 50% T e n g i fa r þ e g a r 40% 30% 20% 10% 0% Y 2000 Y 2001 Y 2002 Y 2003 Y 2004 Y 2005 Y 2006 Y 2007 Y 2008 Y 2009

16 Seattle from July 22 Location of Iceland between North America and Europe gives us competitive advantage for travel between Seattle and Scandinavia

17 Cooperation with Alaska Airlines

18 Icelandair Business Idea Icelandair "punches above its weight" because it has leveraged its tiny market into a global operation, says Ulrich Schulte-Strathaus, secretary general of the Association of European Airlines in Brussels. He says Icelandair is "a benchmark for older carriers... because it has been able to serve its niche market consistently well over so many years. (Wall Street Journal news story on Icelandair, October 2008) The country enjoys a niche in transatlantic flights through Reykjavik and an associated tourist trade. (Financial Times Editorial on the Prospects of Iceland, February 2009)

19 Importance of the Route Network In a typical week in winter 2008/2009: NORTH AMERICA: There are 14 flights from Stockholm to USA (NYC, Chicago) There are 6 flights from Oslo to USA (NY) There are 17 flights from Iceland to USA Without this network, all of our VIA passengers, plus 70% of our TO passengers and 50% of our FROM passengers would dissappear because of less frequency We assume we would have 2-4 flights a week to USA if we would operate without the hub-and-spoke network There is a great difference between 17 flights a week and only 2-4 flights a week EUROPE: There are 48 flights a week to Europe with Icelandair Only 13 of them do not connect to the US departures We assume at least 20 of those flights would dissapear if there was no connection to USA. Our capacity would probably be only 50% of what we have today without the network. In the Icelandair network we carry 1.6 million passengers, serving a home market of little more than

20 TOURISM DEVELOPMENT AND INDUSTRY TRENDS

21 The Industry Challanges Accurately forecast market demand Drive load factors without compromising price Keep up with competitor online developments and spend Respond to low cost carrier growth Grow margin levels Build stronger relationships and engender customer loyalty Increase marketing efficiency and drive out cost Drive more traffic to brand sites (and call centers) Sell more complex inventory online Build out the route network and differentiate the product

22 Tourism to Iceland and Icelandair passenger numbers Gestir Pax Growth of travellers to Iceland are in line with Icelandair s passengers growth Strong route network and high frequency is main reason for 10% annual growth to Iceland in past 10 years

23 Total passenger numbers have tripled in the last 15 years

24 Visitors to Iceland have also tripled in the last 15 years* *ITB immigration figures

25 Trends : US Travel to Europe After the slow recovery from 9/11 and the initial Iraq invasion, U.S. traffic to Europe finally set a new record of million visits in Traffic was in decline through 2008, at first because of weak dollar (touching lowest ever vs. euro in July) and relatively high fares (fuel prices), then because of financial meltdown in second half final estimated at million visits, or percent. That s not so bad. Through the 1st Q, overall trans-atlantic travel (both directions) is not down as much domestic U.S. and intereurope. But business and premium-class is down more than leisure. This creates opportunities for carrier like Icelandair If economy appears to be touching bottom in 2nd Q then losses in leisure might not be so bad this summer compared to last year (partly because the decline began last summer). This assumes that dollar stays relatively strong. Deals are moving the market and there is a late booking trend. People expect deals. Capacity for North Atlantic travel is expected to go down in 2009 because of less demand Iceland s image, we believe, is well-established with growing market segments like adventure groups and other niche market segments, who may be encouraged by new lower prices to make return trips. But Iceland s numbers have been high because of the large number of general leisure travelers that have been attracted. Again, the new, lower prices and proximity should make it possible to draw many of their peers who have yet to make their first trip. And, of course, Icelandair always offers that 2-for-1 idea with a Stop Over in Iceland: Iceland, plus another destination in Europe for a great price.

26 Distribution Channels Development We get less and less chance to meet and talk with our customers, therefore those points where we have direct contact gets more important and valuable Internet sales Telephone sales Tour operators Travel agents Internet agents Consolidators

27 EXTERNAL ENVIRONMENT

28 Overnight market collapse Icelandair was doing reasonably well in 2008 FROM Iceland market was decreasing but capacity had been adjusted to the demand Autumn 2008 ISK was devaluating slowly Oil going down Capacity cuts made up for the declining local market Until end of sep

29 Actions in 2008 We took drastic actions in May/June 2008 and October again as we expected tough winter we were one of the first airlines to cut capacity and cost for the winter New executive board and trimmed management. Consolidation of departments, 4 SVP s instead of 7 before, 8 directors instead of 15 - streamlined and more efficient organization to make the structure leaner and quicker decision process. Improvement projects to cut cost in all departments - Focus on fuel conservation. Major cutbacks owing to fuel prices and economic crisis. Management lead extremely difficult measures to lower cost last summer as a result of the economic conditions and operating environment. Capacity was cut by 20-25% % from the preceding year 280 flights taken out. Layoffs of staff. The cutbacks meant that 350 staff lost their jobs in one of the most extensive staff cuts in the Company s history. Swift reaction following the collapse in Iceland after the banking crisis. One of the consequences was that the people of Iceland, our home market, extensively cut back on their travels abroad. Icelandair s sales and marketing staff swiftly changed focus and managed to significantly increase sales in international markets.moved all marketing funds and sales focus away from the FROM market over to the TO and VIA markets. Pricing and Revenue management focus to maximize revenues on TO and VIA markets with the aim to make up for the lost FROM market sales. Made use of all of the attention Iceland was getting in foreign media to highlight our product and the fact that visiting Iceland had become much more affordable. We sent crisis team to all our foreign markets to tackle negative PR and respond to false media statements

30 Results so far... Managed to reach revenue goals in October, November and December in spite of the home market collapse - However faced a serious cost increase due to devaluation of the ISK January, February, March show good bottom line outcome and spring and summer show positive indications. We expect to increase the number of tourists TO Iceland by 15-20% in We are therefore relatively pleased with the results from a very difficult situation Revenue per ASK on fixed exchange rate are up compared to last year and above budget 7,5 7 6, Bud 6 RASK 5,5 5 4,5 4 3,5 3 2,5 Ja ar nú r úa r b Fe s ar M A íl pr aí M ní ú J lí Jú Á st ú g Se Month pt r be m e r r er be be ób t m m k e e O es óv D N

31 Future of the FROM market For a number of years we had observed a very strong trend of Private Consumption Growth (PCG) and Icelandair sales out of Iceland The general knowledge that travel overshoots PCG seems to be true in our FROM market Without much else to rely on in the uncertainty last autumn, we waited for PCG forecast from the Central Bank and simply took capacity actions 100% accordingly 50% 40% Private consumption growth 30% FI From PAX growth Icelandic bubble 20% 10% 0% Y1996 Y1997 Y1998 Y1999 Y2000 Y2001 Y2002 Y2003 Y2004 Y2005 Y2006 Y % Low cost competition starts -20% Icelandic crash -30% -40% Y2008 Y2009 Y2010 Y2011

32 FUTURE PROSPECTS

33 Outlook Focus on profitable growth and sustainability of the Icelandair network which is our main competitive advantage Renovation of fleet with new interiors. An extensive undertaking is in its final stages. It is safe to say that the appearance of the Boeing 757 fleet has been transformed with new seats and entertainment systems. New look, new image of Icelandair's services. At the same time Icelandair has changed its service concept, launched a new class, Economy Comfort, and made various other changes, such as food services, sale on board, uniforms etc. Differenciating the Icelandair brand from its global competitors Strong focus on inventory & revenue control to improve unit revenues Great focus on capacity control and profitability quickly adjust to changes in demand Less demand in the FROM market gives us opportunities in VIA and TO markets where we expect to increase passangers in coming months and years New Operation to Seattle from July 22nd Full year operation, 4-5 x a week. Icelandair will have the best elapse time between Seattle and Scandinavia. It is a great addition to our network that will support the frequency of our European gateways. Biggest share of passangers will be trans atlantic (VIA) and TO Iceland, we are expecting only 10% of passengers FROM Iceland. Tourism industry in Iceland is gaining from weak ISK we are therefore expecting inrease in foreign tourists to Iceland this year by 15-20% We are optimistic for the months and years ahead. We see opportunities in growing our network and add new gateways both in Europe and North America

34 New Middle Cabin Economy Comfort Work Environment, practical, Value for money Work Environment, practical, Value for money Entertainment, A la carté, Efficient

35 New Seats and Entertainment system

36 Icelandair 3-5 year strategy Value creation Consolidation Dual fleet New Markets Efficiency Market penetration Fleet change Customer Service Working environment Adaptability Lean Management Corporate culture New Service level Streamline operation Strategy for the next 3 years Strategy for the next 1-3 years Strategy for the next 12 months Current operations Medium term 1-3 years Long term 3 years Time (years)

37 THANK YOU

38 WHO? WHAT? HOW? WHERE? Market Segments Target Group Business Travel Companies doing business betw een our gatew ays, e.g. Chamber of Commerce, Embassies Groups & MICE Leisure Travel Visit Friends & Family Corporations Meeting & incentive houses Travel agents group departments City Break (all age groups) Retired people 55 Baby boomers Families Young nature enthusiasts Icelandic Ethnic Market USA Ethnic Market Canada Ethnic Market Product Saga Class Economy Comfort Economy Class Iceland & North America Economy Class Economy Comfort Iceland & North America Economy Class Economy Comfort Packages Iceland & North America Economy Class Economy Comfort Customer Club Iceland & North America Channel Corporate Travel Agencies FI Internet FI Call Center Tour Operators Travel Agencies Corporate Group Dep. FI Group Department Tour Operators Travel Agents Internet Partners FI Internet FI Internet Travel Agencies Internet Partners FI Call Center We offer different products to different market segments At the same time we use different channels for different market segments The same goes for media and marketing

39 Our Purpose Its a common thought that airlines are only a method to go from A to B. That the service offered is the same everywhere and that it doesn t matter who you travel with However, we do have airlines that have managed to differentiate by creating a different experience that is valued among customers and wants to fly with them rather than others if possible. Examples of this are Southwest, Virgin Atlantic and JetBlue. We believe we can differentiate among airlines by putting emphasis on our positive origin, meaning nature, culture and heritage. We need to give our guests a reason to prefer Icelandair over the competition, by offering an experience they cannot get elsewhere. Increase the enjoyment and pride among our employees and therefore make Icelandair a exciting workplace Firm infrastructure Technology development Procurement Inbound logistics Operations Outbound logistics Marketing and sales Service More Icelandair Human resource management Support