Managing Low Cost and Legacy Growth at the Same Airport. Vilnius Case Jurate Baltrusaityte CCO Lithuanian Airports IC Aviation. The Future of Aviation in Eastern Europe Iasi, Romania 20 th November 2014
LITHUANIA IN FIGURES Population Real GDP growth Inflation Membership 3 M 2013 3.3% 2014 f 2.9% 2015 f 3.4% 2013 1.2% 2014 f 0.9% EU and NATO Currency Euro from 2015 #1 GDP/Capita growth in EU #10 #24 For ease of doing business in EU Globally for ease of doing business
LITHUANIAN AIRPORTS Lithuania's three largest airports (Vilnius, Kaunas, Palanga) were merged in 2014 in order to: Implement airports development strategy Increase efficiency Utilize synergies and economies of scale Altogether: 3.7 M PAX (2014 f ) ALL TIME HIGH 24 airlines 61 destinations 26 countries 4000 3500 60 3000 50 40 2500 30 20 2000 10 PAX traffic changes in Lithuania 0 1500-10 1000-20 -30 500-40 0-50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F VNO KUN PLQ ------ traffic change, %
LITHUANIA. TRAFFIC AND ECONOMY 3.2 Average scale factor (ex. outliers) 0.9 Correlation 30% 20% 10% 0% -10% -20% -30% Lithuanian PAX and GDP growth 21.8% 15.9% 11.1% 6.1% -14.8% -36.9% 2006 2007 2008 2009 2010 2011 10.4% 11% 3.3% 2.9% 2012 2013 2014f Lithuania's GDP growth Lithuania's PAX growth Airport growth rate (2013) 20% 15% 10% Russia Air traffic growth = GDP growth x 3.2 Mexico Taiwan Thailand Lithuania Malaysia Colombia Peru United Arab Emirates Turkey China Euro area 5% -3% -2% 0% 1% 2% 3% 4% 5% 6% 7% Italy Netherlands Spain -5% France Japan Poland UK Germany United States South Korea Canada Australia Brazil Switzerland Egypt World Saudi Arabia India Argentina Vietnam Indonesia Philippines 8% GDP growth rate (2013)
CURRENT CARRIERS
2.9 M PAX (2014F) 24 airlines 46 destinations 3.5 M terminal capacity 2.515 / 50 m RWY 14 departure gates (6 jet bridges) 55 AC parking spaces VIP terminal Cargo City Development VILNIUS AIRPORT
VILNIUS TRAFFIC DEVELOPMENT 2000-2008 good times 2009 January FLY LAL bankruptcy 34% pax BT reductions 17% pax CAGR 36% 2010 September STAR1 bankruptcy 9,5% pax 60 50 40 30 20 10 0-10 -20-30 -40-50 Passenger traffic changes, % 8 12 9 13 38 29 13 52-7 -36 5 25 29 21 11 2000 2002 2004 2006 2008 2010 2012 2014F Action required, new strategy drafted
BUSINESS MODEL (R)EVOLUTION 2010 October Volume based incentive scheme introduced. Target LCC s Later 2010 Wizz Air announces new base in Vilnius starting S2011, response of Ryanair - start operations from VNO in S2011 2011 spring Wizz Air and Ryanair launch 5 same destinations Vilnius Airport becomes one of European LCC battlefields
VILNIUS TRAFFIC SHARES LCC s are quicker to make decisions - route launch or cease LCC s and Legacy compete Constant cost cutting dialog 100% 90% 80% 70% 60% 70% 54% 49% 58% 50% 100% 40% 30% 20% 10% 30% 46% 51% 42% 0% 2010 2011 2012 2013 2014F LCC Traditional airlines
EASTERN EUROPE CAPITAL AIRPORTS 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Year 2009. LCC share, % 11% 13% 12% 6% 26% 52% Year 2013. LCC share, % Traditional LCC 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 17% 21% 37% 61% 18, 3% 34% 5, 20% 1% 12% 45% Source: CAPA, AOG Traditional LCC
LCC v. LEGACY LCC and Legacy changing difference margin slimming Traditional carriers ape budget airlines (The Economist, 2014) It is no longer purely theoretical to wonder if low-cost carriers and legacy airlines will apply a unified economic model (Aviation Excess, 2014) The service being offered by low-cost and legacy carriers is now more or less the same (KPMG, 2013) Did requirements for airport services change of any airline segment?
CHALLENGES Infrastructure capacity constraints Flexibility Dedicated terminal? Evaluate and try quick fixes Flexi/Multipurpose solutions Watch out for creating overcapacity Long-term investment. ROI! VNO Strategic Investment Plan until 2020 Runway and taxiway reconstruction Apron reconstruction Passenger terminal modernization Signal light system modernization 60 M
CHALLENGES Peak wave management Flexibility Airport ATC GH close dialog Flexi gates Remote walk-on stands Charter schedule adjustment Movements per hour, typical week Source: CAPA, AOG
CHALLENGES Personnel management Flexibility Flexi schedules Process analysis Seasonal/temp employment Aim for multifunction Detailed definition and allocation of duties
CHALLENGES Passenger satisfaction Non-aero revenue growth Top ASQ s: o Cleanliness, esp. toilets! o Free Wi-Fi o Staff courtesy Diverse retail and F&B offer Relaxation, kids, entertainment areas and events
CHALLENGES OPPORTUNITIES Infrastructure capacity constraints Personnel management Peak wave management Passenger satisfaction Flexibility Non-aero revenue growth
NON-AERO REVENUES.HOW DO WE DO? 100 % 90 83% 76% 64% 64% 61% Non aero revenues by type 80 70 60 50 47% 47% 48% 48% 49% 13% 6% 5% 40 52% 30 20 10 0 17% 24% 36% 36% 39% 2009 2010 2011 2012 2013 24% Retail F&B Parking Advertising Other Global Trend Aero revenues Non-aero revenues
VILNIUS AIRPORT TRATEGY- SUSTAINABILITY Encourage growth of existing carriers Sustainable low cost carrier presence Manage risk. Encourage new carrier network development Carefully plan infrastructure fixes to transition into long-term investment Growth of non-aero revenues Yield orientation
I THANK YOU FOR YOUR ATTENTION COMMENTS? SUGGESTIONS? QUESTIONS? Jurate Baltrusaityte CCO j.baltrusaityte@ltou.lt