Vancouver. Washington. Ottawa. Winnipeg. Chicago Market Research & Air Service Development in Africa: A Strategic Approach Presented by: John Weatherill Director, Airline Planning InterVISTAS-EU Consulting Inc. Presented to: Africa Airports 2007 Johannesburg, South Africa February 2007
Presentation Outline Why Air Service Development Current Africa Air Service Situation Africa ASD Challenges & Opportunities The Airline Planning Process InterVISTAS ASD Process Market Research Air Service Development Tactics Airline Incentives Summary 2
Why an ASD Program? 3
Why an ASD Program? Air services drive airport revenues and regional economic development Airline planners require detailed, accurate information to make new route decisions But airlines do not have the resources to fully evaluate every market A sound, well articulated business case, can convince airlines to introduce new air services 4
Africa Air Service Development: Challenges & Opportunities 5
Africa Air Service Situation Large area, but relatively small market Africa air travel is only 3% of world total Various medium/large hub airports Johannesburg, Cairo, Lagos, Nairobi, Addis Ababa, etc. High proportion of non-african airlines Intra-Africa travel can be difficult Significant opportunity for expanded air services 6
Africa ASD Challenges Local airline instability Political instability in some areas Lower disposable income Negative perceptions of safety oversight Restrictive bilaterals Failure to fully implement Yamoussoukro Agreement Bilateral liberalisation is critical 7
Africa ASD Opportunities Greater encouragement of privately owned airports & airlines Moves towards liberalisation of air bilaterals Intra-Africa (Yamoussoukro) Intercontinental (e.g., Morocco/Europe) Tourism growth Africa offers a unique tourism product Above average growth of future air travel demand 8
Africa ASD Opportunities 9
The Airline Planning Process 10
Long Term Focus Air service development is a long term, strategic effort Carriers focus on: Short term (frequency/schedule adjustments) Medium term (new routes) Long term (new aircraft) Fixed planning cycle - schedules finalized three to six months in before startup ASD initiatives may range from six months to several years 11
Airport & Airline Objectives Airlines will add service in order of expected profitability Different airlines pursue different strategies Airports can move up the priority board with: Solid research & analysis (always) Incentives (sometimes) PRIORITY 1 2 3 4 5 6 7 8 9 10 100 ROUTE 12
Airline Perspective New routes are a risk to an airline Airlines are more confident in forecasting results on existing markets Airline questions for new routes: How much can I stimulate the market? How will the competition react? How much market share will I achieve? What will be the connectivity contribution? Will the new route be a financial success? Airports can answer these questions and reduce uncertainty and risk 13
InterVISTAS ASD Process & Methodology 14
InterVISTAS ASD Process A) Market Research Required to quantify the true size of the existing air travel market on an O&D basis B) ASD Strategy Deficiency analysis and detailed route analysis C) Business Case Packaging & presenting the information to airlines D) Evaluate and Negotiate Airline Incentives An appropriate incentive, in certain circumstances, helps airlines commit to new air services 15
Market Assessment 1: Determine Catchment Area What s reasonable/realistic? Drive time, ground access, air services, etc. 2: Quantify Market Size & Traffic Leakage True origin/destination traffic by city pair Traffic seasonality Inbound/outbound ratios Current routing patterns Average airfares Trip purpose (business, leisure, VFR) Substitutable demand 16
A) Market Assessment Government data Quality varies Global Distribution Systems MIDT, IATA BSP, ARC Exclude carrier direct/web sales Declining coverage, MIDT is expensive Survey research Passengers, residents, travel agents, etc. Very focused, but can be costly Tourism data 17
A) Market Assessment No one source is adequate Cross check as many sources as possible Establishing accurate market data is an art form It is not a straightforward process Providing airlines with relevant, defendable market data is critical for ASD success 18
B) ASD Strategy An ASD strategy is needed to Identify viable air service opportunities Co-ordinate limited resources Focus on opportunities with greatest potential for success Route analysis is critical 19
B) ASD Strategy 1: Benchmark Air Services 2: Identify Deficiencies 3: Identify New Route Opportunities 4: Identify Potential Air Service Providers 5: Assess Viability of Potential Air Services 6: Prioritize Route Opportunities and Target Carriers 20
C) Business Case Business case should include all information airline planners require: Catchment area profile: demographics, economy, tourism, etc. Airport profile: facilities, traffic Market profile: market sizes, top city pairs, traffic leakage, etc. Suggested service: frequency, schedule, aircraft, routing (double drop?) Route analysis: market share, load factor, stimulation potential, profitability, etc. Strategic considerations 21
C) Business Case Arrange carrier meetings to present business case Consider planning cycles Defend research and analysis Follow up and maintain carrier contact as required Build a relationship with route planners Provide updates as necessary Negotiate and develop incentive package, if needed 22
D) Incentive Policy Airports have become increasingly aggressive in pursuing new services Airlines often demand risk sharing programs Africa may be seen as a risky (unproven) market by some airlines Incentives can be a good investment, if used properly 23
D) Incentive Policy Are incentives appropriate? Case-by-case basis Three criteria to qualify Air service must fill an deficiency in the community Otherwise the service won t last Must reasonably be expected to achieve profitability in the short term Two years maximum Incentive must not discriminate against incumbent carriers No existing non-stops 24
Summary 25
Summary Communities can influence the airline planning process Air service development requires Sound market research A clear and rational strategy A solid business case Airline incentives can accelerate the process There is significant opportunity for the development of air services in Africa 26
Vancouver. Washington. Ottawa. Winnipeg. Chicago Thank You InterVISTAS-EU Consulting 24 Carillon Court Oxford Road London, UK W5 3SX Tel: +44 (0) 207 871 1809 Fax: +44 (0) 208 840 5778 Website: www.intervistas.com Presented by: John Weatherill Director, Airline Planning InterVISTAS-EU Consulting Inc. Presented to: Africa Airports 2007 Johannesburg, South Africa February 2007