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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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EAS417 Air Transport Management
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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EAS417 Air Transport Management
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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EAS417 Air Transport Management
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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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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EAS417 Air Transport Management
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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EAS417 Air Transport Management
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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EAS417 Air Transport Management
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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EAS417 Air Transport Management
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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EAS417 Air Transport Management
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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EAS417 Air Transport Management
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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EAS417 Air Transport Management
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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EAS417 Air Transport Management
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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EAS417 Air Transport Management
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