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
Presentation Outline What is a Low Cost Carrier? LCC Traffic Trends Network & Alliance Implications Fleet issues Inflight Service Conclusions 2
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
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
Presentation Outline What is a Low Cost Carrier? LCC Traffic Trends Network & Alliance Implications Fleet issues Inflight Service Conclusions 5
LCC Traffic Distribution Has Grown 2000 2006 LCC 9% LCC 21% Legacy 91% Legacy 79% RPMs (Billions) = 92.7 RPMs (Billions) = 147.0 Source: DOT Form 41 6
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
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
Presentation Outline What is a Low Cost Carrier? LCC Traffic Trends Network & Alliance Implications Fleet issues Inflight Service Conclusions 9
North Atlantic Market Concentration Alliance / Non-Allied Shares (%) Weekly Seats (000) 1,600 1,400 1,200 1,000 800 600 400 62/38 69/31 76/24 75/25 80/20 82/18 82/18 85/15 86/14 200 Source: U.S. DOT T-100 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 Non-Allied Alliance 10
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
Major LCC Carriers Around the World 12
Network & Alliance Implications Star Alliance X 13
Network & Alliance Implications oneworld x 14
Network & Alliance Implications SkyTeam 15
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
Presentation Outline What is a Low Cost Carrier? LCC Traffic Trends Network & Alliance Implications Fleet issues Inflight Service Conclusions 17
U.S. Jet Fleet at 12/31/06 Major & LCC Fleet LCC Fleet 6 LCC's 848 21% Other 367 43% 9 Largest LNC 3278 79% Southwest 481 57% 18 Source: The Airline Monitor
Aircraft Deliveries Narrow Body 120 100 80 60 40 20 0-20 2005 2006 2007 2008 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 2005 19
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
Presentation Outline What is a Low Cost Carrier? LCC Traffic Trends Network & Alliance Implications Fleet issues Inflight Service Conclusions 21
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
LCC Attribute Scale Pure LCC Attributes Legacy Attributes 23
Which is the LCC Menu? Some Buy-Onboard offerings are nearly identical 24
Long-haul LCC Carriers are Emerging 25
The Bar is Being Raised on In-Flight Service 26
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
Presentation Outline What is a Low Cost Carrier? LCC Traffic Trends Network & Alliance Implications Fleet issues Inflight Service Conclusions 28
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
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