THE FUNDAMENTALS OF ROUTE DEVELOPMENT SETTING THE SCENE
THE FUNDAMENTALS OF ROUTE DEVELOPMENT Mike St Laurent Vice President, Consulting - ASM
ASM BACKGROUND Global consultancy founded in 1993 to provide route development services for airports and their stakeholders
COURSE PROGRAMME Fundamentals of Route Development 1. Welcome & Setting the scene Day 1 0900 1030 2. Understanding your Market Day 1 1100 1230 3. Understanding Airlines Day 1 1330 1500 4. Positioning and Competitors Day 1 1530 1700 5. Strategy and Targets Day 2 0900 0930 6. Implementation Day 2 0930 1030 7. Basic Route Forecasting Day 2 1100 1230 8. Airline Network Planning & Scheduling Day 2 1330 1400 9. Airline Deals Day 2 1400 1500 10. Marketing to Airlines and the Perfect Presentation Day 2 1500 1630
HOUSE RULES Don t be inhibited - Ask lots of questions Compare and share experiences and learn from each other Mobiles on quiet, breaks for e-mails etc. Course notes electronically
DELEGATE INTRODUCTIONS EXPERIENCES, CHALLENGES, OBJECTIVES
OBJECTIVES Why we do Route Development? What are the drivers of traffic growth? What are the key global issues? What are the key local issues?
WHY DO WE DO ROUTE DEVELOPMENT?
WHY AIR SERVICE DEVELOPMENT? Airports: To secure & grow business To establish market positioning & brand To gain prestige local/regional/national To beat the competition To maximize revenues ROI for operating company, grow value To diversify customer base Address home carrier lack of action Tourism: To attract & enable visitors To open new source markets, grow existing To diversify consumer offer, enhance access choice To flex seasonality To support hotel/accommodation providers
WHY AIR SERVICE DEVELOPMENT? Government: Economic stimulus, job creation Connectivity Prestige Influence national carrier
Economic Impact The economic impact of air service development is vast: "The non-gaming economic impact of one British Airways flight from London to Las Vegas is currently $91 million annually," said Cathy Tull, Senior Vice President of Marketing for the Las Vegas Convention and Visitors Authority (LVCVA). "This flight was the result of opportunities realised at previous Routes forums.
Economic Impact
SETTING THE SCENE
SETTING THE SCENE GLOBAL ISSUES Economic Growth New Era route Development World fleet orders Regulatory Route Dev. Aircraft Technologies Middle East big 3 Oil prices Market Segments - LCC s etc
SETTING THE SCENE AIR TRAVEL DEMAND ICAO Total Traffic 2014-2024 +5.2% --------------- 2024-2034 +4.0% --------------- 2014-2034 +4.6% Airbus GMF 2015 Air Traffic will double in the next 15 years Air traffic will double over the next 15 years. Source: ICAO, Airbus
SETTING THE SCENE AIR TRAVEL DEMAND Air Traffic Growth consistently outperforms GDP growth Growth Ratio 1970s 3.1% 1980s 1.9% 1990s 1.8% 2000s 1.4% 2010s 2.1% Source: ICAO, IHS Economics
SETTING THE SCENE AIR TRAVEL DEMAND Air traffic is resilient Oil Crisis Oil Crisis Gulf Crisis Asian Crisis 9/11 SARS Financial Crisis Measured in passengers world air traffic grew 73% over the period 2004-2014. In the six years following the financial crisis of 2008, average annual growth was 6.6%. Source: World Bank
Global Middle Class
Trips per Capita - 2013
Trips per Capita - 2033
Urbanisation - 2013 Mega Cities
Urbanisation - 2033 Mega Cities
Setting the Scene Economic Variations
Shift in Market Power Source: IATA
World s Top Tourism Spenders (2015) International Tourism Expenditure 2015
AIRLINE FLEET ORDERS Their current fleet of 702 aircraft will grow substantially, with 243 planes on order plus options for an additional 214. Introduction of the 737-MAX aircraft will provide the airline with increased range to operate longer sectors. Azul currently has 134 aircraft in service. With 99 aircraft on order, plus an additional 24 options, their fleet could nearly double in the next few years. Their capacity will grow significantly as they add larger aircraft; i.e. 320s, 321s, and A350s Fleet will grow from 24 aircraft to 67, and potentially to 107 with options, Current fleet of 83 aircraft, but 156 more on order, including 18 widebodies (787-8 and A350). 26
AIRCRAFT TECHNOLOGY - 787
SETTING THE SCENE B787 orders and deliveries (cumulative; by year-end) Top 10 Airline Customers 1. ANA 2. Etihad 3. United 4. JAL 5. BA 6. American 7. Air Canada 8. Qatar Airways 9. Singapore Airlines 10. Air India Boeing 787 Orders and Deliveries by Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total Orders 56 235 157 369 93-59 -4 13-12 182 41 53 1,124 787-8 3 46 65 104 62 280 Deliveries 787-9 10 50 60 787-10 Total 3 46 65 114 112 340
AIRCRAFT TECHONOLOGY A350 A350-800 Range
AIRCRAFT TECHNOLOGIES A350 A350 aircraft: May 2015 Total orders: 730 In Service: 3 (Qatar Airways) Source: Flightglobal May 2015
AIRCRAFT TECHOLOGIES - A380 A380 orders and deliveries
AIRCRAFT TECHNOLOGIES - COMAC ARJ21 China has been assembling aircraft under franchise for some time ARJ21 represents China s ambition to take on the duopoly in aircraft manufacturing Launch airline is Chengdu Airlines Cost per unit is very low at $20 million Dense configuration is at around 100 seats.
Role of LCCs AMEND North Asia LCC Seat only 9.5% % of Low Cost Seats by Region (2013) South East Asia 50% 1020 aircraft order from the three largest LCCs in Asia Development of Pan Asia LCC brands Source: Innovata
Consolidation, Mergers, Acquisitions & LCC Subsidiaries Consolidation: loss of Transaero & Estonia Air Continuation of cross airline investments: SQ and Vistara, IAG & Aer Lingus / Etihad & Alitalia / TAP & Atlantic Gateway (AZUL). (Who next: LOT Turkish Airlines, SAS) LCC subsidiaries: ANA (Vanilla & Peach), Lufthansa (Eurowings / Jump), Singapore (Tiger & Scoot) LCCs conversations with FSC: Ryanair Aer Lingus, easyjet Lufthansa Role of the alliances
BUSINESS MODELS MIXING Pure LCC Hybrid Pure Network Point to point network model Leisure market focus No FFP Sales channel via proprietary web sales only Scheduling takes no account of connecting opportunities Point-to point network model Business and Leisure market focus FFP Multiple sales channels including limited GDS participation No Alliance membership (until recently!) or IATA driven interline connecting products On-line connecting product only Connecting traffic network model Business and Leisure market focus FFP Multiple sales channels including full GDS participation Alliance membership, and IATA driven interline connecting products
Oil Price Impact Existing Brent Crude Oil $50 Average fuel price for 2014 $101 Average fuel price for 2015 $65 Drop in fuel price of 36% AA drop in fuel bill 44% YTD 3QTR
New Era of Route Development Marketing within Airport Structure Relationship with airlines 1990-2000 2000-2010 2010-2020 Handles dialogue with local airlines Terminal advertising Utility for airlines Published fees and charges Stakeholders Airlines, passengers and other airport departments Route Development tools Research & Analysis (catchment, forecasts, market analysis, market research) Consumer marketing Defines market position of airport Increased focus on route development Meetings with airline Head Office Incentives become common Increasingly includes external stakeholders R&A includes network performance Consumer marketing B2B marketing CRM Marketing has Board level role Fundamental to airport strategy Targeted sales Pricing negotiated Marketing coordinates stakeholder interest Creation of Route Development Fund Social networking and new media Website facilitates connecting traffic
SETTING THE SCENE CHINA ISSUES LCC s Middle East 3 Economy China Global Issues Airline deals Regulation Tourism competition
Middle East Domination Dubai is now the largest International Airport In 2005 Dubai wasn t in the top 10 Emirates launched 30 years ago (1984) Half of the world s A380s operated by EK If and when will Istanbul over take Dubai? Airport Passengers 2014 % Dubai 69,954,392 6% Heathrow 68,091,095 2% Hong Kong 62,929,420 6% Paris Charles de Gaulle 58,623,111 3% Amsterdam Schiphol 54,940,534 5% Singapore Changi 54,093,070 1% Frankfurt 52,713,013 3% Incheon 44,906,813 10% Ataturk 38,037,302 12% Bangkok Suvarnabhumi 37,183,099-10%
The Nine Air Freedom Rights