LCCs vs. Legacies: Converging Business · PDF fileLCCs vs. Legacies: Converging Business Models Halifax, Nova Scotia ... YYZ YYC YVR AC/ WS AC/ WS AC/ WS ... HP, TZ, F9, B6, WN, NK

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strategictransportation

& tourismsolutions

LCCs vs. Legacies: Converging Business Models

Halifax, Nova ScotiaOctober 18, 2007

Mark HanekeVice President, Network & Strategic PlanningVancouver, BC

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Presentation Outline

• What is a Low Cost Carrier?• LCC Traffic Trends• Network & Alliance Implications• Fleet issues• Inflight Service• Conclusions

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What is a Low Cost Carrier?

• An airline that offers low fares by eliminating traditional passenger services

• Southwest Airlines is the Godfather of the LCC movement (36 years old)

• LCCs generally operate with a lower operating cost structure vis-à-vis the competition

• Airlines have historically competed on Price and Product

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Historically Common LCC Attributes

• Single-class aircraft• Single aircraft fleet type• Simplified airfare structure• Open seating• Flying to cheaper, less-congested secondary

airports• Minimal ground time (quick-turns)• Point-to-point flying• Direct ticket sales

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LCC Traffic Distribution Has Grown

2000 2006

Source: DOT Form 41

RPMs (Billions) = 147.0RPMs (Billions) = 92.7

Legacy91%

LCC9% LCC

21%

Legacy79%

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“Hot Spots” – The Battlegrounds

JFKEWR

CLT

ATL

MDW

DFW/DAL

DEN

PHX

IAD

F9/UA/WN

AA/WN

FL/WN

US/WN

PHL

DL/FL

B6/UA/WN

B6/FL/US

US/WN

B6/DL

B6/CO

BOSB6/FL

LAX

AA/DL/UA

UA/VX/WN

SFO

YYZ

YYCYVR AC/WS AC/

WSAC/WS

MCO

FL/WN

FLL

FL/NK/ WN

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Traffic Trends

• LCC airlines now carry in excess of 30% of domestic traffic in the U.S.

• Westjet has 35% of the Canadian market, and aims to capture 50% marketshare by 2013

• Mexican LCCs account for 32% of all domestic ASKs (May 2007)

• LCCs accounted for 30% of intra-European seat capacity in 2006

• LCC penetration is increasing in key growth markets in Southeastern Asia and India

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10

1,600

1,400

1,200

1,000

800

600

400

200

0

North Atlantic Market Concentration

Source: U.S. DOT T-100

Alliance / Non-Allied Shares (%) W

eekl

y Se

ats

(000

)

Non-Allied Alliance

2002 2004200120001998 1999 2003

62/3869/31

80/20

76/24 75/2582/18

82/18

2005 2006

85/1586/14

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North Atlantic Structure

* Based on Flights per WeekNote: SkyTeam includes CO, DL, NW, AF, AZ, KL, OKSource: August 2007 Planet OAG

U.S. - Europe

U.S. - UK

U.S. - Heathrow

17.3%

6.9%

13.3%

37.9%

26.7%

0.0%

30.9%

39.7%

42.7%

oneworld Star SkyTeam Other

August 2007Frequency Shares*

13.8%

26.7%

44.0%

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Major LCC Carriers Around the World

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Star Alliance

X

Network & Alliance Implications

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oneworld

x


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SkyTeam


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• Some LCC carriers, such as Virgin Blue (Australia) are open to joining an alliance

• Aer Lingus shunned its oneworldmembership in favor of pursuing an LCC strategy

• LCC carriers could join global alliances in select, key geographic regions, or they could band together to form their own global LCC alliance

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U.S. Jet Fleet at 12/31/06

9 LargestLNC 3278 79%

6 LCC's 84821%

Source: The Airline Monitor

Major & LCC Fleet

LCCFleet

Southwest48157%

Other36743%

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Aircraft Deliveries – Narrow Body

Note: Legacy carriers include AS, AA, CO, DL, NW, UA, USLCCs comprise FL, HP, TZ, F9, B6, WN, NK

Source: Airline Monitor, June 2005

-20

0

20

40

60

80

100

120

2005 2006 2007 2008

Legacy LCCs

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Fleet Issues

• Frontier and jetBlue have expanded their fleets to include two aircraft types

• Several U.S. LCCs have slowed their fleet expansion plans

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LCC Service Comparison Chart

AirAsia easyJet JetBlue Frontier Ryanair Southwest WestJet Legacy

Frequent Flyer Plan

Standard Checked Luggage Allowance

Free Beverage and Snacks

Assigned Seating

Paid Lounge Access

Free Inflight Entertainment

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LCC Attribute Scale

“Pure” LCC Attributes

Legacy Attributes

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Which is the LCC Menu?

• Some Buy-Onboard offerings are nearly identical

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Long-haul LCC Carriers are Emerging

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The Bar is Being Raised on In-Flight Service

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Inflight Service

• The bar has been raised on inflightservice expectations for both LCC and Legacy carriers

• In-flight web surfing will be rolled out on a wider scale

• In-flight personal mobile phone usage is also being explored

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Conclusions

• The LCC model is evolvingLegacy carriers are rising to the challenge

• The U.S. domestic market is largely matureNiche carriers (e.g. Allegiant) will continue to find unique opportunities

• Long-haul LCC service is the next thresholdAgreements like U.S. – E.U. Open Skies will facilitate further long-haul LCC growth

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& tourismsolutions

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1200 West 73rd AvenueVancouver, BC Canada V6P 6G5

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LCCs vs. Legacies: Converging Business · PDF fileLCCs vs. Legacies: Converging Business Models Halifax, Nova Scotia ... YYZ YYC YVR AC/ WS AC/ WS AC/ WS ... HP, TZ, F9, B6, WN, NK