Airline Strategies and Airport Growth

ACI conference

Airline Strategies & airport growth

Livingstone, Aug 2012

Overview

Introduction

Our world – Reality check

Current Industry conditions

Making Progress Under Challenging

Conditions

Future Outlook- survival strategies

Our world - Utopia

Global Airline Industry is under pressure:

• Qantas announces losses and cuts hundreds of jobs

• American Airlines, one of the world’s biggest airlines, is in bankruptcy

• LH reports loss of Eur. 381m for 1st Qtr & announces 3500 job cuts

• Spanair and Malev closed down

• Malaysian Airlines, TAP Portugal, Jet Airways and Iberia announces

withdrawal from South Africa

Locally, regionally, times are hard for everyone:

• Domestic carriers facing closure

• Comair, operator of BA and Kulula, reports first loss in 61 years

• Air Zimbabwe ceased operations in April 2012

• Air Malawi suspended from IATA

Challenging Times for the Industry

Pressure on the industry comes from a number of areas, including:

• Airline fuel – global expenditure will rise by $32 Billion this year

according to IATA

• Air traffic management

• Airport user fees

• Drop in passenger demand

• Services such as catering, security and airspace management

Airlines in Africa face very specific challenges:

• Majority of revenue is generated in weaker currencies while

significant portion of costs are billed in USD and EUR

• Premium on fuel prices in many African countries

• Restrictive access to highly regulated markets (BASA)

Challenges Facing the Airline Industry

Airline profits forecast to fall further in 2012

Global commercial airline profitability

6.0

3.0

0.0

-3.0

-6.0

-9.0

EBIT margin (left scale)

Net post

tax losses (right scale)

20

15

10

5

0

-5

-10

-15

-20

-25

-30

• Airline Profits remain under pressure

2012/13 Future Outlook

Strategic imperatives...

Innovation holy grail… -Pursue innovation at 3 levels of ambition:

-Enhancement to core offerings

-Pursuit of adjacent opportunities

-Venture into transformational territory

Airline imperatives:

-Cost compression

-Regulatory framework

-Customer choices

-Technology

-Demographics

•Shareholders

•Investors

•Public

•Employees

•Competition

•Trade

•Partners

•Nature

Pause forward…

The future has several names:

•For the weak, it is the impossible.

•For the faint hearted, it is the unknown.

•For the thoughtful and valiant, it is the IDEAL.

(Victor Hugo)

Oil

$ …thou shall not…

Airline imperatives…

Strategic inflection…

Airline life cycles are threatened with juvenile

mortality

•Engage non-traditional partners

•Think through the box and out of the building

•Belly revenue means survival

•Only the paranoid survive

•Financials are instruments of trade

•Customer loyalty means nothing – affinity gives hope

•Partnerships } Hope } Future } Possibilities

Recipe for growth…

Advent of cyclical demand has resulted in cyclical business

Geography

Regulatory

Human Capital

Technology

Unpredictable

Watchdog

Or

guide dog?

Bearer of good news

People & places

Geography & technology...

Changing and influencing hubbing dynamics

Traveler

Population

Geography

Growing segments

Dynamic

Segmentation

Revenue

Buying power

Traffic flows

Constantly innovate

Update brand

Energise & motivate

staff

Manage stakeholders

We must learn to live together as

brothers (and sisters) or perish

together as fools… (Martin Luther King Jr.)

Travel industry community...

Actively support the travel related communities - create harmony.

The operating environment is dynamic and rewarding (more often to

the daring) to both airlines and airports

Seek ways to actively support the travel industry – we are in this

together

Cooperation will lead to sustainable business

Service orientation has no boundaries – CRM means cult relationship

management!

Innovation ambition...

Core •Optimizing existing network

•Serving existing customers

•Serve existing markets

Adjacent

Transformational

•Expand into “new to us” business

•Add incremental products

•Enter adjacent markets

•Develop breakthroughs

•Inventing new products

•Create new markets

•Target new customers

•Take to the future

•No limits to possibilities

Total innovation…or perish

Liberalisation of the industry is one of the major innovations

of the 21st Century and the positive impact is immeasurable.

Competitive fares, happy customers

New products and services

More routes and thus diversified visitor base

Increased traffic means boom to tourism industry

Growth of jobs in aviation and related industries

Liberalisation gives growth opportunities

Political

Labour

Borders

Regional

New technologies

Markets

Regulatory

Trade & Markets

Globalisation

Air travel

influencers

Strategic duet…airports & airlines

Airlines changed business

model

From:

•Rigid to flexible

•Inward to outward

looking

•Regulated to

deregulated

•No nonsense to User

friendly

•Reactive to Proactive

•Rules driven to

Business driven

Airports changed business

model

From:

•No entry to all are welcome

•Strictly travel to business

parks

•Strict environment to

relaxed

•Travel only to complete

experience

•Regulatory to experiential

•Single use to multipurpose

•State ownership to hybrid

•Monopolistic to open

egalitarian

There is a tide in the affairs of men,

Which taken at the flood leads on to fortune,

Omitted , all the voyage of their life,

Is bound in shallows and in miseries.

On such a full sea are we now afloat,

We must take the tide when it serves.

(William Shakespear.

Julius Ceaser Act 4 scene 3)

Opportunity knocks….

Appreciation….

Thank you

Airline Strategies and Airport Growth

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