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Innovation & Cost Leadership, 15. November 2004 www.advolar.com © 1 LCCs Change Airline Industry Established network carriers Tourism industry Airports.

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Presentation on theme: "Innovation & Cost Leadership, 15. November 2004 www.advolar.com © 1 LCCs Change Airline Industry Established network carriers Tourism industry Airports."— Presentation transcript:

1 Innovation & Cost Leadership, 15. November © 1 LCCs Change Airline Industry Established network carriers Tourism industry Airports Unions Aircraft manu- facturers New tariffs New products and sales channels (emphasis on the web / catering against payment) Agressive marketing in favour of the consumer Charter airlines obtain a different meaning Package tours versus individual tours Dynamic packaging Hotel portals Airports serve as gateways for regions / integration into the region Growths of airports mainly due to LCCs Requirements adjusted to LCCs Unions realize significance of LCCs (according to Verdi 70% of all LCCs are unionised) Business model is reflected in the collective labour agreements altered requirements growth due to LCCs

2 Innovation & Cost Leadership, 15. November © 2 Agenda Trends In The Aviation Industry Low-cost Carriers Characteristics Of The Low-cost Business Strategy Of Airlines Low-cost Business Strategies In Other Trades Summary

3 Innovation & Cost Leadership, 15. November © 3 Example: Airport Frankfurt Hahn Source: Frankfurt Hahn - the first German low-cost airport No glamourous passenger terminals (e.g. no sophisticated docking units and computer reservation systems) Therefore, investment costs for a terminal are significantly less than 5,00 per passenger The current capacity for approximately 5 million passengers per year was created for less than 17 million (compared to an average of 100 million needed at other German locations for a similar scale) Compensation of lower income from airport fees with higher revenue from the non-aviation sector (e.g. rental income from the licence holders in the two terminals, parking fees)

4 Innovation & Cost Leadership, 15. November © 4 Example: Touristik Express Shop-in-shop concept Trademarks: Wall with offers (taxi-design), Large photo with vacation theme, Red consultation counter No seats No display window / no display window decoration No catalogues but demonstration of daily offers of different tour operators Touristik Express: Germany´s first low-cost travel agency

5 Innovation & Cost Leadership, 15. November © 5 Example: interRent Characteristics of interRent Booking via (98 %) or call center Fast reservation system with integrated yield management Payment per credit card only Complaint rate 0 %. One-way rental not permitted No cost-intensive incentive-program Only one type of car (new VW Golf) Client cleans the car himself (in- and outside)or he books the cleaning Penalties if clearly communicated rules are violated Source: company information

6 Innovation & Cost Leadership, 15. November © Example: interRent Cont. Fences between HLX / IR & EC Source: Company information

7 Innovation & Cost Leadership, 15. November © 7 Example: wibromed Establishment into the pharma-market through Realisation of an innovative discount-strategy Creation of a transparent pricing and purchasing policy Voluntary customer retention (no contractual or contractual-like customer-supplier-relationships) Realisation through Delivery concept, no in-house logistics Cost savings through lean structure Only one delivery of goods per day Restriction of the stockkeeping on fast moving, on prescription available original products Optimisation between purchasing- and stockkeeping costs Direct pass-on of the cost advantages to the customer Source: company information

8 Innovation & Cost Leadership, 15. November © 8 Example: Mobile Phones Source: The international management and technology consultancy BoozAllen Hamilton expects low-cost providers to enter the market for mobile phones With the rising saturation of European markets for mobile phones low- cost providers are expected to enter the market Booz Allen Hamilton expects a cost reduction up to 30-40% These cost reductions can, for example, be realised through: Sales via the internet No costly customer service Concentration on basis products such as voice communication and sms-service Example of an already existing low-cost provider of mobile phones: the Danish company telmore

9 Innovation & Cost Leadership, 15. November © 9 Example: Gas Station Gas Station Raiffeisen-Markt Wissingen Bahnhofstraße Bissendorf Gas station belongs to a supermarket Fueling 24/7/365 No buildings, no staff Cash payment or payment by credit card at the machine next to the petrol pump No Shop, no sales of car-related articles No extras (except air), e.g. no water to clean the wind shield

10 Innovation & Cost Leadership, 15. November © 10 Agenda Trends In The Aviation Industry Low-cost Carriers Characteristics Of The Low-cost Business Strategy Of Airlines Low-cost Business Strategies In Other Trades Summary

11 Innovation & Cost Leadership, 15. November © 11 Summary Re-engineering of processes (not only doing the same at less cost) Pass-on of cost savings to customer Stimulate demand, increase LF Efficient use of expensive recources e.g. A/C, labour Reduction of CMI costs Pass-on of cost savings to customer Stimulate demand, increase LF

12 Innovation & Cost Leadership, 15. November © 12 Summary Re-engineering of processes (not only doing the same at less cost) Pass-on of cost savings to customer Stimulate demand, increase LF Efficient use of expensive recources e.g. A/C, labour Reduction of CMI costs Pass-on of cost savings to customer Stimulate demand, increase LF

13 Innovation & Cost Leadership, 15. November © 13 Summary Cont. Different strategies of LCCs and FFAs

14 Innovation & Cost Leadership, 15. November © 14 Summary Cont. Different strategies of LCCs and FFAs

15 Innovation & Cost Leadership, 15. November © 15 Correlation Between Price And Sales < 1990 There was only a small market for very expensive and very cheap products while there was a large markt for middle-priced products. Purchasing patterns have changed over the years

16 Innovation & Cost Leadership, 15. November © 16 Correlation Between Price And Sales < 1990 There was only a small market for very expensive and very cheap products while there was a large markt for middle-priced products. > 1990 There is a decreasing market for middle-priced products while there is a significant high end market and a huge market for cheap products. Purchasing patterns have changed over the years

17 Innovation & Cost Leadership, 15. November © 17 Produktlebenszyklus im Einzelhandel

18 Innovation & Cost Leadership, 15. November © 18 Market Segmentation - Example: Food Trade Cheap discounters (Aldi, Plus) Rather price-orientated customers Location: selected, centrally accessible locations Only few fresh products Large consumer markets ( Wal-Mart, Real, Marktkauf) Price- and brand-orientated customers Location: periphery of high density areas Fresh products Small supermarkets (Spar, Rewe, Edeka, Tengelmann) Rather brand-orientated cutomers Location: high distribution density especially in urban areas Counter with fresh products Specialised shops (Käfer, Dallmayr, Gosch) Only brand-orientated customers Location: city centre Only fresh products Qualified service price brand Source: SevenOne Media GmbH

19 Innovation & Cost Leadership, 15. November © 19 Market Segmentation - Example: Food Trade Cont. Discounters Supermarkets Warehouses Self-service warehouses / Large consumer markets Others Discounters and large consumer markets are the winners Quelle: Wollen die Deutschen nur noch billig?, Hans Reischl, Vorstandsvorsitzender der Rewe-Zentral AG, Köln, fvw-Kongress, 22. Oktober 2003, Köln

20 Innovation & Cost Leadership, 15. November © 20 Market Segmentation: Examples Discounter / Warehouse Drugstore Car service Furniture Telephone companies Chocolate

21 Innovation & Cost Leadership, 15. November © 21 Thank you for your attention!


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