European short haul

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1 Vueling Airlines S.A. 2009 European short haul 2011-2015 - The Final Phase European Aviation Club – Brussels, 16 June 2011

Transcript of European short haul

Page 1: European short haul

1Vueling Airlines S.A. 2009

European short haul2011-2015 - The Final Phase

European Aviation Club – Brussels, 16 June 2011

Page 2: European short haul

Agenda A. The Evolution of Short Haul

B. The Last Phase

C.

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C. Vueling: the Right Model

D. What is Needed for the Last Phase

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o>700 LCC a/c in Europe

oEvery major has

oRyanair converts to an LCC

oMajors are created

oAll countries

The evolution of short-haulTHE PHASES

Deregulation/Privatization

Entry of LCCsShort-haul, converted

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oEvery major has a lower-cost strategy (at different stages of implementation)

oeasyJetlaunches with two planes

oother regional LCCs start

oAll countries with a national airline that goes to total or partial privatization

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oPermanently lower fares and lower costs

oLower fares

oMore competition

oHigh fares

oMono or duo-polies

The evolution of short-haulTHE PHASES

Deregulation/Privatization

Entry of LCCsShort-haul, converted

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oContinued competition

competition

oLower costs

polies

oHigh costs

“When we privatise, we will be really successful!”

“We are pretty skeptical, but not worried”

“We’ve given up on short-haul; focus on long-haul”

And what were traditional airlines saying at each stage?

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The last phase

B.

1. The last phase: short-haul, converted

2.What does it mean? Why is

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2.What does it mean? Why is this good?

3.What are signs that we may be already in this last phase?

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What does it look like when it ends

o Majors operate short haul with business class only between own alliance hubs and major business trunk routes

THE LASTPHASEThe last phase: short-haul converted

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routes

o Everything else is lower operating cost subsidiaries or LCC alternative

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o Become more sophisticated

o Evolve in product:

• Business passenger

• Connections

o Access to higher fares

o Disappearance of full business class

product in all but premium routes

o Connect and revenue share models

with leaner operators

o Finally control their short haul costs

Traditional airlines Low cost airlines

What does it mean? Why is this good?

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THE LASTPHASE

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Airports Business activity

o Access to higher fares

o Growth through lower fares

o More choices

o More direct flights

o More growth (Flights, Pax, services…)

o Discretionary spending increases

o Drives more capital investment

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+ +

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� Assigned seat trial

� Acknowledged currently “bad customer service” (17-5-11, FT Deutschland)

Traditional airlines

What are the signs that we may be in this last phase?

Low cost airlines

� Germanwings: Cooperation

� Re-distribution of bases

� Access to Transavia

THE LASTPHASE

� Seat assignment

� Blocked middle seat

� Multi-frequency

� Main airports

� Oneworld FFP

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� Biz passenger focus

� Flexible fares

� GDS distribution

� Inflight WIFI

� Clickair, then Vueling

� LGW as an alternative

� Welcoming Air Berlin

� Connections / interline

� GDS sales

� Flexible fares

� Very high punctuality

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� Lessons learned: Why did other airlines fail?

THE LASTPHASEWhat are the signs that we may be

in this last phase?

Consolidation till now Future consolidation?

�Do we expect more consolidation?

• High competition

• Higher costs

• Short-haul only

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� Closure

� Consolidation

YES

• Short-haul only

• Short-haul without prospects to grow

• State-aided airlines with limited government resources

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Vueling in this phase

C.1. Vueling figures and history

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Some figures

2004 2005 2006 2007 2008 2009 2010 2011 2012

VUELING

o 12m annual pax, > 100 routes, >50 airports

o 47 A320s, 8 bases, €800m revenues

o LCC in Europe with more frequencies (10,4 weekly frequencies on average per route)

History

Only proven tool to profitably support the last phase of short haul substitution in Europe

CASK exfuel, 2010 (€c/ASK)

7,4210,07

4,443,865,104,07

Air FranceLufthansaNorwegianeasyJetAir BerlinVueling

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Vueling startsflying

Clickairstartsflying

Vueling’sIPO

$148/Barrel Oil

Vueling Clickairmerger

Profitability€ 8M

Profitability€ 28M

Profitability€ 46M

European expansion

-Full interline-Code-share-50/50 GDS/ internet sales

LCC Service New Model

Middle seat blocked FlexibilityInternet Sales only GDS Sales LCC Business

Transfer Pax

Interline

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VUELINGOnly proven tool to profitably support the last phase of short haul substitution in Europe

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What does the market need for this last phase

D.No more market distorsions!!!

A fair competitive environment for everyone, in and out of the industry:

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industry:

• 261/2004 regulation: Urgent reforms

• Stop selected, politically-driven public subsidies

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o Stop having to play the role

of an insurance company

• Cost sharing with

administration

• Cost sharing with

airports

o Poor drafting & referrals to

ECJ for interpretation has led

to confusion regarding its

objectives and reach

261/2004 regulation: Urgent reforms Cost sharing

NEEDS

What does the market need for this last phase?

o Under the current regulation,

Airlines are objectively

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• Objective limitations to

the duty of care, as in

ground and maritime

transport regulations

Airlines are objectively

responsible for events outside

the scope of their

responsibility

o Natural events: Volcanic ash,…

o Inappropriate Airport management

(London, Dec 2010) / Disruption

Events (Strikes…)

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Subsidies create artificial demand Leveling the playing field

NEEDS

What does the market need for this last phase?

o “The aid may be granted only once (the ‘one time, last time’ principle)” (EC Competition Law)

o “The aid must not be

o Prolonging state-aid not only distorts the market but it slows down access to a better environment

o Local Spanish

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o “The aid must not be targeted on expansion” (EC Competition Law)

o Local Spanish example: More than €100M of public aid during 2 years

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