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LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 1 Low Cost Carriers Opportunities and Risks for Cities and.

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2 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 1 Low Cost Carriers Opportunities and Risks for Cities and Regions Wolfgang Kurth 17. November 2005 FH Bad Honnef

3 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 2 Agenda LCCs in Europe Opportunities for Cities and Regions Risks for Cities and Regions Conclusions LCCs in Europe

4 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 3 Business Environment VOLUME/GDP TIME Africa Asia Middle East Latin America PIONEER STAGE TRANSITIONRAPID GROWTH STAGE TRANSITION U.S. and Europe MATURE STAGE GDP Volume

5 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 4 For what reason would you fly more often? 11% 8% 41% 8% 6% 17% 0% 10% 20% 30% 40% 50% upgradesschedulesafety ground low faresmore FFP´s safety board others Source: IATA Online Survey 2003 Low Fares Stimulate Demand

6 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 5 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% Marktetpotential German Low-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

7 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 6 Caption: Ryanair easyjet Volareweb bmi Baby Hapag-Lloyd Express Germanwings Sterling Skyeurope jet2 LCC Routes 2001

8 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 7 Caption: Ryanair easyjet Volareweb bmi Baby Hapag-Lloyd Express Germanwings Sterling Skyeurope jet2 LCC Routes 2002

9 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 8 Caption: Ryanair easyjet Volareweb bmi Baby Hapag-Lloyd Express Germanwings Sterling Skyeurope jet2 LCC Routes 2003

10 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 9 Caption: Ryanair easyjet Volareweb bmi Baby Hapag-Lloyd Express Germanwings Sterling Skyeurope jet2 LCC Routes 2004

11 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 10 Caption: Ryanair easyjet bmi Baby Hapag-Lloyd Express Germanwings Sterling Skyeurope Jet2 etc, etc LCC Routes 2005

12 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 11 Split of LCC Customers Split of new Passengers Quelle: NFO Infratest, 2002; Monitor Group Analyse Sharel (%) Share(%) Growth Is Triggered By New Passengers

13 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 12 Asia/ Oceania European Union 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)

14 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 13 Agenda LCCs in Europe Value for Cities and Regions Risks for Cities and Regions Conclusions Opportunities for Cities and Regions

15 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 14 LCCs – Generators Of Regional Economic Prosperity Direct effects Mainly jobs at airlines, handling & related aviation acitivities (as being roughly half of total job effects). Total on-site employment of regional airports between 850 – 1200. 1000 jobs created for every 1 million passengers through an airport. Indirect effects Regional 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 effects Mainly 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.

16 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 15 Direct Impacts Of LCCs EasyJets direct operations con- tribute approximately £66 million to local gross income levels, supporting a total of 1,770 jobs in 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, EasyJets 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

17 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 16 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

18 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 17 LCCs Generate Incoming-Traffic Approx. 25-30 per cent of the passengers on the LCC routes to Germany are Incoming Passengers

19 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 18 At Airport Catchment Airport Total 1,766 2,6504,416 123 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

20 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 19 Cost And Productivity Benefits For Corporates, Example CGN Corporates With Benefits Savings Per Trip Cumulative Savings % of Trip Costs Average Saving Fares LCC 86%15,7%242 87,3 Mio. Saving Hotac and Travel Expenses 63,7%8,9%6623,7 Mio. Saving Working Hours 68,2%3,2 % 2,1h 59( 2) 755.000 h 20,7 Mio. Fare Reduction FSAs 63,8% (3) 5,2%5815,9 Mio. Total Savings 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. Avergae Savings

21 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 20 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.

22 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 21 Distribution Trends

23 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 22 Destinationmarketing: www.hlx.com

24 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 23 Destinationsmarketing: www.hlx.com

25 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 24 Destinationsmarketing: www.lufthansa.com

26 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 25 LCCs Own The Customers Booking Sequence: 1 st flight - 2 nd hotac simultanously 1 st hotac - 2 nd flight

27 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 26 Carinthia On HLX Website And Vice Versa Website Performance Page Impressions: 12,6 mio Page Visits: 1,8mMio Newsletter-Abos: >500.000 Conversion-Rate: 10 % (April 2004)

28 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 27 www.kaernten.at

29 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 28 Non Co-Ordinated Approach

30 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 29 Flights For Free

31 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 30 Flights For Free

32 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 31 Region Market Share Brussels area25% N Belgium19% S Belgium18% Netherlands17% Luxembourg 8% France 7% Germany 6% Catchment Charleroi

33 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 32 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

34 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 33 Agenda LCCs in Europe Opportunities for Cities and Regions Risks for Cities and Regions Conclusions Risks for Cities and Regions

35 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 34 Unit Costs vs. Stage Length Low Cost Carriers Britannia Regional Airlines Scheduled Airlines BA EasyJet LH AF KL IB Ryanair SK SWA ATA AS AWA NW DL CO US UA TW AirT AZ AA Average Route Length (Miles) Cents / ASM ASM: Available Seats Miles Source: 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 Charter Airlines 25 20 15 10 5 0 0200 400 600 800 1.000 1.200 1.400 1.600

36 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 35 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 km 1,075 km 698 km 467 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 stage length. Break even yield decreases with LF.

37 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 36 Stage Lenghts HAJ vs STR Boeing typical airline rules Taxi times not included 85% annual winds 3% airways allowance London Madrid Paris Barcelona Shannon Lisbon Algiers Rome Palermo Malta Athens Dubrovnik Helsinki STUTTGART St. Petersburg Minsk Moscow TallinnOslo Budapest Warsaw Stockholm Belgrade Bucharest HANNOVER

38 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 37 Incremental Costs Caused By Geo – Strategic Disadvantage DOC A/P 1 A/P 2/3 ca. 560 Euro A/P 1A/P 2 A/P 3 Avg. Costs/Bhr

39 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 38 HAJ-NAP vs. STR-NAP At 70% LF: geo-strategic disadvantage HAJ vs. STR app.ca. 5 Euro/Pax

40 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 39 Hamburg Berlin Hanover Cologne Stuttgart 26% 35% 33% 30% 27% Not All Destinations Are Equally Atttractive

41 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 40 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)

42 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 41 HAM TXL/SXF HAJ CGN STR Primary vs. Secondary Airports Lübeck Parchim Kassel-Calden Baden-Baden Weetze Fare Differential The higher the fare differential the more attractive secondary airports can be. Trip Distance to primary A/P

43 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 42 Legacy Carriers Are Cutting Back Cardiff/Wales (weekday deps) April 2002 British Airways*12 KLMuk 5 Manx 1 Ryanair 1 Air Wales 1 ---- 20 April 2003 bmibaby 11 KLMuk 5 Air Wales 3 Ryanair 1 ---- 20 Belfast International (weekday deps) April 1998 British Airways*19 British Midland12 Jersey European 4 KLMuk 3 Sabena 1 Aer Lingus 1 ---- 40 April 2003 easyJet35 bmibaby 4 British Airways* 4 Eastern 1 British Northwest 2 ---- 46 * including franchises

44 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 43 LCC Airport Tourism Organisation Incentives Passengers Tourism Industries Guests Touristic Value Creation ? The Challenge

45 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 44 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)

46 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 45 Touristik-AG

47 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 46 Regional Airline

48 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 47 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

49 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 48 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

50 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 49 Agenda LCCs in Europe Opportunities for Cities and Regions Risks for Cities and Regions Conclusions

51 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 50 Airports, cities and regions dont 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

52 LCCs-Opportunities and Risks for Cities and Regions, Bad Honnef, 18.11.2005 www.advolar.com © 51 Thank you for your attention!


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