2Agenda LCC Market Share in Europe LCCs and the Future of the Business ModelDrivers of the Business ModelLCCs and MROsConclusion
3LCCs Develop Different Market Strategies Pure Low Cost CarriersYear round trafficIndependent travelersBalanced directional flowsGrow the marketAvoid charter markets (for the time being!)Hybrid ModelsMix of business and leisure“A la carte” servicesCompete in some charter markets-Hot meals,-Lounges,-Paper tickets-Business-Branding-Low Fre-quency-Brandedmeals-Main Airports-Frequency-Branding-Low-Fares-Frequency
4Migration of business models Charter AirlinesFull Service AirlinesLCCs
5Migration of business models Charter AirlinesFull Service AirlinesHybridsHybridsLCCs
6Price-conscious business passengers Quality-conscious business Positioning of LCCsPrice-conscious business passengersQuality-conscious businesspassengersNon-businesspassengersRegionalairlinesLCCsShort-haul routesCharterLong-haul routesNetwork carrierSource: Mercer Management Consultants 2003
7Migration and Segmentation LCCs will continue to grow. Market share of 35% in 2010 seems not unrealistic.LCCs will move into leisure destinations (sector length max 2-3 f‘hrs) where traditional charter carriers have a significant „seat only“ business.LCCs will increase frequency on leisure routes but will reduce the number of departure airports.LCCs will adopt quality elements or product features from Full Service/Charter Airlines provided costs and complexity will not increase or they are providing another revenue stream (FFPs, IFE, seat reservation etc.)LCCs will enter into arrangements with tour operators provided their business model will not be affected.
8Agenda LCC Market Share in Europe LCCs and the Future of the Business ModelDrivers of the Business ModelLCCs and MROsConclusion
10Operation Short Turn around Time High reliabilty Excellent T/S and MEL-ManagementHigh Utilization – Low SaisonalityEqualized maintenance programMaintenance program calendar time drivenLetter Checks outside standard maintenanceperiodsLow f‘hr/cycle ratioEngine maintenance cycle drivenHigh load factorCabin wear and tearNo Hot Meal service, No IFESpares provisioningBasing Concept
11Aircraft Basing Concepts National / flag carrier usually have one or two national bases only
20The Low Cost Idea Can be Adopted by the MRO Industry Low-cost means......not simply reducing the price for doing what always has been done,...but primarily changing well-known processes.The simplicity of the new processes is key.The low-cost idea has to start in people´s mind!
21Song‘s Credo We are not an airline, we are a culture. A culture founded by optimists - and built by believers.We are not an airline.We are listeners, innovators and technology creators.We are magicians, musicians, acrobats and sprinters focused on a single goal: to give style, service and choice back to the people who fly.That´s why we „cast“ our stars - to make sure each and every one is attentive and gracious.Why we offer everyone 24 channels of real time, satellite TV and CD quality MP3 audio.Why we hand picked a socially-conscious chef - to prepare fresh meals and cater to diverse tastes.Why Kate Spade designed a collection for our stars, why we created exlusive programming for families, and offer cosmopolitans in the air.All in all, it´s why we offer more. And now it´s time to dig deeper.You see, we realize our difference doesn´t lie solely in the choices we offer, but also in how we offer them....
22LCC RequirementsNew thinking when offering services to LCCs LCC culture is open minded. Leadership is not necessarily having airline background!„New frontiers“ are a challenge not a risk!For LCCs there is little incentive to take on board anything other than line maintenance work. What LCCs really do well is flying passengers from A to B, develop products and grow markets, manage yield and revenueLCCs want „air time“, suppliers want ground time There´s a conflict of interest, less incentive for suppliers to „improve“ themselvesSource: „Service Challenge“, Airline Business, October 2004
23LCC Requirements„Equalized“ maintenance concepts to assure shorter ground time and higher availability of the aircraftSuppliers should maximize the benefits from the „Data Pool“ they have built up during hundreds of checks e.g. knowledge of most frequently used material (pre-kitting), repair schemes etc.Cost reductions will have to come from smarter maintenance planningDoing the right work at the right time and not over-maintaining
24LCC RequirementsSmall Engineering organisations require more support than traditional airlines: SB-evaluation, Documentation, Tech Records etc.LCCs are not interested in maintaining huge spare inventories. „Spares by the hour“ converts fixed costs into variable costs Pre-kitted material for all checks, major component changes for all a/c models are available from specialized suppliersLCCs are not looking at how to increase fares if costs are going up. LCCs are turning every stone to reduce costs further MROs negotiating a long term contract with a LCC should not offer complex Escalation Clauses but a Productivity Improvement Program. Benefits to be shared with the airline.Rates should be split into Euro (labour) and US Dollar (material)
25Agenda LCC Market Share in Europe LCCs and the Future of the Business ModelDrivers of the Business ModelLCCs and MROsConclusion
26Conclusion LCCs in Europe and will continue to grow 35% market share in 2010LCCs will continue to outsource maintenance servicesMaintenance volume will be affected by young fleetNew Generation aircraft require less m‘hrs/bay day!MROs are invited to re-engineer processes in order to be more cost effective. They are not expected to deliver the standard poduct cheaper!MROs have to deliver pan european (pipe line management!) and dependable services. Productivity gains to be shared with the customer.