03_low Cost Arline

7/30/2019 03_low Cost Arline

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EAS417 Air Transport Management

Low Cost Airlines

Dr Keith Mason

Head of Air Transport Management Group,Cranfield University


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European short haul market

Source: Mercer, Hapag-Lloyd, McKinsey, Global Research (HVB) (2007)


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The low-cost sector in Europe

In 2010, 44% of EU capacity was offered by LCCs.

LCCs serve over 300 airports

LCC capacity is concentrated with two carriers accounting forthe lion share of services and capacity


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Bangladesh

GMG Airlines

Royal Bengal Airline

Best Air

China

Spring Airlines

India

Air-India Express

JetLite

Jet_Konnect

Kingfisher Red

Spicejet

Goair

IndiGo

Indonesia

Indonesia AirAsia

Lion Air

Mandala Airlines

Batavia Air

Citilink

Japan

JAL Express

Skymark Airlines

Hokkaido International Airlines (Air Do)

Skynet Asia Airways

StarFlyer

Air Next

South Korea

Eastar Jet

Jeju Air

Jin Air

Air Busan

Malaysia

AirAsia

AirAsia X

Firefly

Silverfly

Pakistan

Air Blue

Shaheen Air

Philippines

Cebu Pacific

Spirit of Manila Airlines

Zest Airways

Airphil Express

Sri Lanka

Mihin Lanka

Singapore

Jetstar Asia Airways

Tiger Airways

Valuair

New SQ LH Start-up

Thailand

Nok Air

One-Two-GO Airlines

Thai AirAsia

Bangkok Airways (with some budget

routes)

Vietnam

Jetstar Pacific

The low-cost sector in Asia


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Some LCCs are largeRank Airline

Pax

2010(000s)

1 Delta Air Lines 111,159

2 Southwest Airlines 106,228

3 American Airlines 86,129

4 China Southern Airlines 76,078

5 Ryanair 71,229

6 Lufthansa 56,693

7 United Airlines 54,015

8 US Airways 51,814

9 China Eastern Airlines 50,336

10 Air France 47,029

11 Air China 46,008

12 Continental Airlines 43,603

13 All Nippon Airlines 43,585

14 easyJet 42,401

15 Qantas Airways 42,381

18 Gol Airlines 31,478

22 AirTran Airways 24,558

29 JetBlue 24,250

Source: IATA WATS 2011

NB: Gol and JetBlue both

became IATA members in

2011, and so shouldnt

really be BOLD


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7/45Source: OAG (LCC routes 0908 to 0912.xlsx)


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Airports served, 2011

EasyJet 123

9.91 departures per airport per day

Ryanair 154

9.76 departure per airport per day

Southwest 72

42.63 departures per airport per day


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Tiger

480 weekly departures

26 routes (all ex-SIN)

25 destinations


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20%

25%

25%

26%

26%

26%

28%

29%

29%

29%

31%

38%

40%

41%

46%

48%

50%

60%

65%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70%

Greece

Switzerland

France

Finland

Denmark

Austria

Hungary

Czech Republic

Sweden

Netherlands

Belgium

Portugal

Norway

Germany

Italy

Ireland

Poland

United Kingdom

Spain

Average 44%

EU Share ofLow-cost

Seats on domestic and intra European routes in each country Sept.2010

LCC Average share in 2003 was 17% Source: compiled by Doganis using OAG data,


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LCC entry in Asia 8% and rising


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Intra-European Traffic

0

50,000

100,000

150,000

200,000

250,000

300,000

2005 2006 2007 2008 2009 2010

Passen

gers

('000)

AEA

ELFAA

Source: Association of European Airlines and European Low Fares Airline Association

AEA includes all Intra-Europe passenger traffic for: airBaltic, AirFrance, Alitalia, Austrian, British Airways, bmi, brussels airlines, Lufthansa, Iberia, KLM, LOT, SAS, Swiss, TAP

Portugal, Virgin Atlantic et al.

ELFAA inlcudes all traffic for: easyJet, flybe, Jet2.com, Norwegian Air Shuttle, Ryanair, Sverige Flyg, Transavia, Vueling and Wizz Air

CAGR: 0.3%

CAGR: 24.1%


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European LCC Growth - summary

Source: OAG (2009), Data for August of respective Years

Intra-European Peak Summer LCC Capacity

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

2004 2005 2006 2007 2008 2009

Avera

geWeeklyPeakSumm

erSeatCapacity

Other LCC

Ryanair

easyJet


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LCCs in Singapore

Subsidiary of Singapore

Airlines and some

private investors

Est Dec 2003

Pax: 3.2m (2008)

Fleet:10 aircraft

Destinations: 19

BKK Bangkok Suvarnabhumi International

BLR Bengaluru International

SIN Changi Airport Singapore

MAA Chennai International

CRK Diosdado Macapagal International

CAN Guangzhou Baiyun International

HAN Hanoi Noi Bai International

HDY Hat Yai InternationalSGN Ho Chi Minh City - Tan Son Nhat Internat

HKG Hong Kong International

CGK Jakarta Soekarno Hatta International

KBV Krabi

KUL Kuala Lumpur International

KCH Kuching International Airport

MFM Macau International

HAK Meilan International Airport

PEN Penang InternationalHKT Phuket International

SZX Shenzhen Baoan International


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Jetstar Asia

Subsidiary of Qantas,

Singapore Govt,

Temasek

Est April 2004

Pax: 2.3m (2009)

Fleet:10 aircraft

Destinations: 16

BKK Bangkok Suvarnabhumi InternationalSIN Changi Airport Singapore

SGN Ho Chi Minh City - Tan Son Nhat Internat

HKG Hong Kong International

KIX Kansai International

BKI Kota Kinabalu International

KUL Kuala Lumpur International

MFM Macau International

MNL Manila Ninoy Aquino International

HAK Meilan International AirportPEN Penang International

PNH Phnom Penh International

HKT Phuket International

REP Siem Reap International

TPE Taiwan Taoyuan International

RGN Yangon International


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Valuair

Sister airline to Jetstar

Asia

Est May 2004

Fleet:10 aircraft

Destinations: 16

SIN Changi Airport Singapore

CGK Jakarta Soekarno Hatta International

MES Medan

DPS Ngurah Rai - Bali International

SUB Surabaya - Juanda

Also AirAsia with 10 flights a day to SIN and

also Johor Bahru


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Low cost airlines in 10 years have

Changed the way people think of air travel

Changed how airlines construct their business

model Removed unnecessary costs

Improved utilisation of assets

Recognised the potential of the internet for direct distribution

Moved customer expectations to accepting charges for non-flight items


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Low cost airline strategy

Simple strategy

Focus on cost competitive advantage over network carriers

Low fares

Point to point No interlining or connections

Short haul Higher aircraft utilisation

Low comfort acceptable on short sectors

Potential for unit cost savings in in-flight product, aircraftutilisation, labour productivity, etc. reduces as sector length

increases


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Higher utilisation advantage short haul

30 minturn

45 min

turn

8am 9 am 10 am 11 am noon 1 pm 2 pm 3 pm 4 pm 5 pm

Turnaround Flight


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Low cost airline strategy

Secondary airports

Lower airport charges

Less congested than principal airports

Quicker turnaround

Simple fleet Commonality: increased crew flexibility & cheaper

maintenance

No free in-flight service

Direct distribution

Outsourcing


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Consumers trade schedule & prices

Source: EasyJet website August 2011


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Market stimulation:Mature market

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1997 1998 1999 2000 2001 2002 2003 2004 2005

Sum of TotalPax

Ryanair

(STN-GRO, LTN-GRO,

LTN-REU, STN-REU)

easyJet

(LTN,LGW,STN-BCN)

British Airways

Iberia

London to Barcelona Scheduled Traffic (1997-2005)

Source: UK CAA

Market stim lation


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Market stimulation:Mature market

London to Barcelona

Seat Capacity

Source: UK CAA


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Market stimulation:Secondary market

-

50,000

100,000

150,000

200,000

250,000

300,000

1997 1998 1999 2000 2001 2002 2003 2004 2005

Sum of TotalPax

Ryanair

(STN-VLC)

easyJet(STN,LGW-VLC)

British Airways

Iberia

Source: UK CAA

easyJet started STN-VLC on 3 November 2004, LGW-VLC on 1 March 2005

London to Valencia Scheduled Traffic (1997-2005)

Market stimulation:


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Market stimulation:Secondary market

Source: UK CAA

London to Valencia Seat Capacity

M k t ti l ti


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Market stimulation:Undeveloped market

easyJet started STN-OVD 24 March 2005

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1997 1998 1999 2000 2001 2002 2003 2004 2005

Sum of TotalPax

easyJet

Iberia

Source: UK CAA

London to Oviedo/Asturias Scheduled Traffic (1997-2005)

Market stimulation:


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Market stimulation:Undeveloped market

Source: UK CAA

London to Oviedo/Asturias Seat

Capacity


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What delivers success in

the LCC sector?


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Success in the LCC arena

Fagin and Alamdari (2005)

Demonstrated the impact of business model on profit for LCCs

Their model of adherence to traditional model was limited

Experts ranking of LCC business model elements according to the


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Experts ranking of LCC business model elements according to the

importance

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

Aircraftutili

satio

n

Labou

rproductivity

Sec

tors

per

day

Directdist

ribution

High

seatingdensity

Secondaryairport

Ancilla

ryreve

nue

Airline

size

Unifo

rmfleet

Brandim

age

Shorts

ectorlength

Avoiding

com

petitionwith

other

LCC

s

Avoiding

netwo

rkcarrier

competition3

Noconnections

Marketsha

reinthick

routes

Dominatin

gthin

routes

Settin

gup

multiple

bases

asagro

wthstrat..

.

Averagescore

Source: Z. Molnarova, 2008

Experts include Cawley, Murphey, Doganis, Lawton, Lobbenberg


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Unit cost trends


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Average Fare Trends


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EasyJet BELF and LF Trends


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Ryanair BELF and LF Trends


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Southwest BELF and LF Trends


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Operating Ratios trends


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LCCs in long haul?

Opportunity to gain lower costs and significantly undercut

incumbents is limited

Less likely to stimulate this market as much as short haul

The analyses weve performed suggest any model require a

business class/economy configuration

However, increasing likelihood that passengers will self connect

at LCC airport hubs Opportunity to sell insurance for self connections?

Higher tilisation harder on


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Higher utilisation harder on

long haul

45 minturn

60 minturn

8am 9 am 10 am 11 am noon 1 pm 2 pm 3 pm 4 pm 5 pm

Turnaround Flight


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Long haul low cost in Asia

Air Asia X

A330-300 and A340-300

Utilisation increase by variation in schedule over the week (different

departure times on different days) Lower airport charges by unattractive flight times

High density seats

330 = 12 beds + 365, CX 41 beds + 223

340 = 18 beds + 309, AF 36 bed + 21 prem + 204 econ

Some premium seats (60 pitch) Additional revenue for these seats as opposed to selling spare normal seat

capacity at discount to get load factor

New SQ start-up


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The future

Cranfield forecast in 2005 for 2015 LCA sector dominated by 2 or 3 large carriers

est. upto 80m pax with circa. 250 aircraft Plus and a number of smaller players

Maturation/fatigue?

Environmental taxation reduces the demandsignificantly

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