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Transcript of LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 © 1 Low Cost Carriers...
1LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Low Cost Carriers Opportunities and Risks for Cities and
Regions
Wolfgang Kurth
17. November 2005 FH Bad Honnef
2LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Agenda
LCCs in Europe
Opportunities for Cities and Regions
Risks for Cities and Regions
Conclusions
LCCs in Europe
3LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Business EnvironmentV
OLU
ME/G
DP
TIME
Africa
Asia
Middle East
Latin America
PIONEERSTAGE
TRANSITION RAPID GROWTHSTAGE
TRANSITION
U.S. andEurope
MATURESTAGE
GDP
Volume
4LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
For what reason would you fly more often?
11%11%
8%
41%
8%6%
17%
0%
10%
20%
30%
40%
50%
upgrades schedule safetyground
low fares more FFP´s
safetyboard
others
Source: IATA Online Survey 2003
Low Fares Stimulate Demand
5LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Forecasts for the European Low-Cost Market
2002–2009F
PAX(Mio)
Pessimistisch
Optimistisch
Anzahl der Passagiere von Ryanair und easyJet auf Basis der Kapazitätsankün-digungen
19%
15%
30%
5
16
83
21
42
0
25
50
75
100
Gesamtbevölkerung Optimistisch
International
National
Marktetpotential GermanLow-Cost Segment
PAX(Mio)
Schätzung unter Anwen-dung US und UK Marktanteile & Reisehäufigkeit auf die deutsche Population
Forecasts Are Optimistic
1 Pessimistisch: Anzahl der No-Frills-Reisen in Europa erreicht derzeitiges UK / Irland Niveau (0.25 Trips / Capita) in 8 Jahren (Anzahl der Passagiere = 72MM) 2 Optimistic: Anzahl der No-Frills-Reisen in Europa erreicht das derzeitige Nivaeu in den U.S.A. (0.5 Trips / Capita) in 8 Jahren (Anzahl der Passagiere = 195MM)
Quelle: Analystenreports, HLX-Schätzung, Monitor Group Analyse
CAGR
Pessimistisch
0
50
100
150
200
250
2002 2004F 2006F 2008F
6LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Caption:
Ryanair
easyjet
Volareweb
bmi Baby
Hapag-Lloyd Express
Germanwings
Sterling
Skyeurope
jet2
LCC Routes 2001
7LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Caption:
Ryanair
easyjet
Volareweb
bmi Baby
Hapag-Lloyd Express
Germanwings
Sterling
Skyeurope
jet2
LCC Routes 2002
8LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Caption:
Ryanair
easyjet
Volareweb
bmi Baby
Hapag-Lloyd Express
Germanwings
Sterling
Skyeurope
jet2
LCC Routes 2003
9LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Caption:
Ryanair
easyjet
Volareweb
bmi Baby
Hapag-Lloyd Express
Germanwings
Sterling
Skyeurope
jet2
LCC Routes 2004
10LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Caption:
Ryanair
easyjet
bmi Baby
Hapag-Lloyd Express
Germanwings
Sterling
Skyeurope
Jet2etc, etc
LCC Routes 2005
11LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Split of LCC Customers Split of “new” Passengers
Quelle: NFO Infratest, 2002; Monitor Group Analyse
71%
15%
6%
8% 100%
0%
25%
50%
75%
100%
Otherwiseno Travel
Otherwiseper Train
Otherwiseper Car
Other Total
59%
37%4% 100%
0%
25%
50%
75%
100%
New Pax Transfer NoStatement
Total
Sharel (%)Share(%)
Growth Is Triggered By „New“ Passengers
12LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
0,2%
-0,8%
6,2%
3,5%
2,4%
1,3% 1,2%
2,2%
-8,5%
Asia/Oceania
EuropeanUnion
North America
Source: ITA Daten 2002/3, Analysis ADL Aviation Competence Center
secondary airports
continental hubs
intercontinental hubs
4,5%
9,7%
6,2%
European Union,secondary airports
with
LCC
home
base
with-
out
LCC
home
base
Growth Of Secondary Airports (Basis: Pax 2002/2003)
13LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Agenda
LCCs in Europe
Value for Cities and Regions
Risks for Cities and Regions
Conclusions
Opportunities for Cities and Regions
14LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
LCCs – Generators Of Regional Economic Prosperity
Direct effectsMainly jobs at airlines, handling & related aviation acitivities (as being roughly half oftotal job effects). Total on-site employment of regional airports between 850 – 1200. 1000 jobs created for every 1 million passengers through an airport.
Indirect effectsRegional airports support roughly 1200-1800 jobs within the regional or local economies. Studies have found regional airports to have comparable economic effects to several mid-size manufacturing plants.
Catalytic effectsMainly effects stemming from attraction and detention of inward investment and the stimulation of inbound tourism. Especially the enhancement of competitiveness to local economies as well as the attraction of business and leisure passengers leads to higher generation of incomes and employment.
15LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Direct Impacts Of LCCs
EasyJet’s direct operations con-tribute approximately £66 millionto local gross income levels, supporting a total of 1,770 jobsin the aviation sector and supply-chain companies.
These levels of direct expen-diture and employment provide income and employment for others.
Taking all these wider effects into account, EasyJet’s operations add £120 million to local incomes and support a total of 3,185 local jobs.
Source: National Economic Research Associates, London 2000
LTN Passenger development
16LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Catalytic Impacts Of LCCs
Routes from London-Stansted launched in April 1998 and from Brussels-Charleroi in April 2001. Annual passengers of both routes account for roughly 250.000 visitors, 90% of which are non-French
Stimulus by London route only is estimated to account for € 215m, only € 6,5m of which related to direct effects at the airport. A total of 2.800 new jobs is estimated to be related to this new route and it´s consequences.
Prices of real estate are estimated to have risen by 25% between 1998.
LCCs contribute to regional development and economic development, directly and indirectly.
Source: Financial Times, Dec12, 2002
Carcassonne
17LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
LCCs Generate Incoming-Traffic
• Approx. 25-30 per cent of the passengers on the LCC routes to
Germany are Incoming Passengers
Incoming Anteil Köln im Dezember 2003
37%
17%
32%
32%
31%
43%
29%
28%
38%
29%
23%
22%
20%
20%
28%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
BIO
CIA
GVA
KLU
MAD
MAN
MRS
NAP
OLB
PMO
PSA
REU
SVQ
VCE
VLC
Incoming Anteil Hannover im Dezember 2003
30%
41%
18%
23%
26%
28%
14%
27%
21%
29%
21%
25%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
BGY
BIO
CIA
CTA
KLU
NAP
NCE
OLB
PSA
REU
VCE
VLC
18LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
At Airport
Catchment
Airport Total
1,766 2,650 4,416
123 Mio. €74 Mio.
€49 Mio.
€
239 Mio. €143 Mio. €96 Mio. €
+
+
+
=
=
=
Jobs
Income
Value Creation
Source: „Die regionalwirtschaftlichen Auswirkungen des Low-cost Marktes im Raum Köln/Bonn“, IfV Universität Köln, 2004
LCCs Affecting Employment, Income and Value Creation, Example CGN
19LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Cost And Productivity Benefits For Corporates, Example CGN
Corporates
With
Benefits
Savings
Per
Trip
Cumulative
Savings
% of Trip Costs
Average
SavingFares LCC
86% 15,7% 242 € 87,3 Mio. €
Saving Hotac and
Travel Expenses63,7% 8,9% 66€ 23,7 Mio. €
SavingWorking Hours
68,2% 3,2 %2,1h
59€(2)
755.000 h 20,7 Mio.€
Fare Reduction FSAs
63,8%(3) 5,2% 58€ 15,9 Mio. €
TotalSavings
147,6 Mio. €
Anmerkung (1): Basis: all corporates withh LCC business travel
(2): Basis: average hourly rate 28 €
(3): Basis: all corporates with FSA business travel.
Quelle: Unternehmensbefragung IfV Köln.
AvergaeSavings
20LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Quelle: „Die regionalwirtschaftlichen Auswirkungen des Low-cost Marktes im Raum Köln/Bonn“, IfV Universität Köln, 2004
Tax Effect By LCCs, Example CGN
Incremental Tax Revenue
in Mio. €
Tax Revenue Federal Republic 76 Mio. €
Tax Revenue State 70 Mio. €
Tax Revenue Community 21 Mio. €
Total Tax Revenue 167 Mio. €
21LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Distribution Trends
22LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Destinationmarketing: www.hlx.com
23LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Destinationsmarketing: www.hlx.com
24LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Destinationsmarketing: www.lufthansa.com
25LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
LCCs „Own“ The Customers
Booking Sequence: 1st flight - 2nd hotac simultanously 1st hotac - 2nd flight
26LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Carinthia On HLX Website And Vice Versa
Website Performance Page Impressions: 12,6 mio
Page Visits: 1,8mMioNewsletter-Abos: >500.000
Conversion-Rate: 10 %
(April 2004)
27LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
www.kaernten.at
28LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Non Co-Ordinated Approach
29LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
„Flights For Free“
30LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
„Flights For Free“
31LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Region Market Share
Brussels area 25%
N Belgium 19%
S Belgium 18%
Netherlands 17%
Luxembourg 8%
France 7%
Germany 6%
Catchment Charleroi
32LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Per 1 mio passengers per annum on 12 routes….
Ryanair pays to Charleroi Airport:€ 2.0 mio airport fees and handling charges
Charleroi Airport pays to Ryanair:€ 1.9 mio Marketing Incentive for new routes € 2.0 mio Marketing Support€ 1.5 mio Support for infrastructure and recruitment
Total costs for the airport:
€ 3.4 mio or € 3.4 per passenger
Quelle: Aviation Strategy, July/August 2001, S.3
Incentivprogram For Ryanair
33LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Agenda
LCCs in Europe
Opportunities for Cities and Regions
Risks for Cities and Regions
Conclusions
Risks for Cities and Regions
34LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Unit Costs vs. Stage Length
Low CostCarriers
Britannia
Regional
Airlines
Scheduled
Airlines BA
EasyJet
LHAF
KL
IB
Ryanair
SK
SWA ATA
AS
AWA
NW
DL
CO
US
UA
TWAirT
AZ
AA
Average Route Length (Miles)
Cen
ts /
AS
M
ASM: Available Seats MilesSource: CASM Form 41, Air Transp. World June 2001 issue, Stage length data from the Airline Monitor Nov. 2001 issue; AirTran data Air Tran 10-Ks BAH Analysis
CharterAirlines
25
20
15
10
5
00 200 400 600 800 1.000 1.200 1.400
1.600
35LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
40
60
80
100
120
140
160
180
200
220
240
30% 40% 50% 60% 70% 80% 90% 100%
MADROMVCETXL
Note: Yield Curves include costs of Airports, Ground-Handling, TNC, En Route, Fuel and ACMI (1,980 and 1650 EUR/BH respectively) Source: TUI Data, Press, Company Reports, Company Website, Broker Reports, EU, AEA, Monitor Analysis
Load Factor (%)
1,396 km1,075 km
698 km467 km
Break Even Yield Curves
Revenue/Segment
(€)
Unit Costs Decrease With Stage Length
Trip costs increase with stage length.
Unit costs decrease with stage length or aircraft size.
Break even yield increases with stagelength.
Break even yield decreases with LF.
36LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Stage LenghtsHAJ vs STR
•Boeing typical airline rules•Taxi times not included•85% annual winds•3% airways allowance
LondonLondon
MadridMadrid
ParisParis
BarcelonaBarcelona
ShannonShannon
LisbonLisbon
AlgiersAlgiers
RomeRome
PalermoPalermo
MaltaMalta
AthensAthens
DubrovnikDubrovnik
HelsinkiHelsinki
STUTTGARTSTUTTGART
St. PetersburgSt. Petersburg
MinskMinsk
MoscowMoscow
TallinnTallinnOsloOslo
BudapestBudapest
WarsawWarsaw
StockholmStockholm
BelgradeBelgradeBucharestBucharest
HANNOVERHANNOVER
37LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Incremental Costs Caused By Geo – Strategic Disadvantage
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
0 0,25 0,5 0,75 1 1,25 1,5 1,75 2 2,25 2,5 2,75 3
BH
Eu
ro
Durch. Kosten/BH STR CGN HAJ
DOCDOC
A/P 1A/P 1
A/P 2/3A/P 2/3
ca. 560 Euroca. 560 Euro
A/P 1 A/P 2 A/P 3Avg. Costs/Bhr
38LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
HAJ-NAP vs. STR-NAP
0,00
20,00
40,00
60,00
80,00
100,00
120,00
140,00
160,00
40% 50% 60% 70% 80% 90% 100%
STR (1H)
STR(1,25)
STR(1,5)
STR(1,75)
STR(2h)
STR(2,25)
STR(2,5)
0,00
20,00
40,00
60,00
80,00
100,00
120,00
140,00
160,00
40% 50% 60% 70% 80% 90% 100%
HAJ (1H)
HAJ(1,25)
HAJ(1,5)
HAJ(1,75)
HAJ (2h)
HAJ(2,25)
HAJ(2,5)
40
50
60
70
80
90
100
110
120
130
40% 50% 60% 70% 80% 90% 100% Auslastung
Eur
o/P
ax
HAJ-NAP(2,25)
STR-NAP(1,75)
At 70% LF: geo-strategic disadvantage HAJ vs. STR app.ca. 5 Euro/Pax
39LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Hamburg
Berlin
Hanover
Cologne
Stuttgart
26%
35%
33%
30%
27%
Not All Destinations Are Equally Atttractive
40LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Catchments Are Affected By Competition
Liverpool
East Midlands
Luton
Liverpool
East Midlands
Luton
Leeds/Bradford
Birmingham
Catchment for:East Midlands - Barcelona Frühjahr 2002 (bmibaby)
Catchment for:East Midlands - Barcelona Frühjahr 2003 (bmibaby and easyJet)
41LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
HAM
TXL/SXF
HAJ
CGN
STR
Primary vs. Secondary Airports
Lübeck
Parchim
Kassel-Calden
Baden-Baden
Weetze
Fare Differential
The higher the fare differentialthe more attractive secondaryairports can be.
Trip Distance to primary A/P
42LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Legacy Carriers Are Cutting Back
Cardiff/Wales (weekday deps)
April 2002British Airways* 12KLMuk 5Manx 1Ryanair 1Air Wales 1
----20
April 2003bmibaby 11KLMuk 5Air Wales 3Ryanair 1
----20
Belfast International (weekday deps)
April 1998British Airways* 19British Midland 12Jersey European 4KLMuk 3Sabena 1Aer Lingus 1
----40
April 2003easyJet 35bmibaby 4British Airways* 4Eastern 1British Northwest 2
----46
* including franchises
43LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
LCC
Airport
Tourism Organisation
Incentives
Passengers
Tourism Industries
Guests
Touristic Value Creation
?
The Challenge
44LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Tax Financed Marketing
Kärnten Werbung (legal entity, major shareholder State Government) provides certain incentives and support to LCCs and gets re-financed through
„Fremdenverkehrsabgabe“ Tourist Fee to be paid by tourism industries to Local and State Government
„Nächtigungstaxe“ Overnight Tax to be paid by hotels, B&Bs to Local and State Government
Total Income: app. € 20 mio (est)
45LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Touristik-AG
46LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Regional „Airline“
47LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
LCCs stimulate the demand but frequency and days of service are of paramount importance.
Attractivity of destinations de-termines the balance of the traffic flow
LCCs have very different business models
…. More Challenges
48LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Incentives have to be based upon careful evaluation
o follow the rules o stimulate Incoming Traffic o take into account the existing route portfolio o take into account the existing carrier-portfolio o „stretch“ the average stage length
The Home Page of LCC is perfect to market touristic services (hotel, entertainment, Guided Tours etc)
Catchments of LCC - airports may be influenced by other services
…. More Challenges
49LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Agenda
LCCs in Europe
Opportunities for Cities and Regions
Risks for Cities and Regions
Conclusions
Conclusions
50LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Airports, cities and regions don‘t have necessariy the same interests!!
A strong and co-operative partnership between Low Cost Airline and tourism organisation/-industrie is pre-requisit for a significante stimulation of the touristic value creation.
Know how and experience are key for a realistic evaluation of LCC-services.
Key Success Factors
51LCCs-Opportunities and Risks for Cities and Regions , Bad Honnef, 18.11.2005 www.advolar.com ©
Thank you for your attention!