1. © 2008 Amadeus IT Group SA 1 Internet in aviation IT industry Grach Muradyan Moscow 26 November 2008

2. © 2008 Amadeus IT Group SA 2 Current situation review Internet penetration in airline sales ( airline own web site vs. total bookings)  Western airlines:  Southwest: 74% (2006 - 70%)  British airways: 46.9 %  airBaltic: 43%  RU / CIS airlines:  Aeroflot: 6-7%  Air Astana: 4 %  Aerosvit: 3.15%

3. © 2008 Amadeus IT Group SA 3 Current situation review “The web Veteran” - www.southwest.comwww.southwest.com  The first LCC and to establish a home page on the Internet  101+ mln pax (74+ mln pax booked online in 2007)  2997 pax per one WN employee  527 aircraft fleet (B737s fleet only)  Number One airline web site for online revenue  70% of customers are checking-in online or at self-service kiosk

4. © 2008 Amadeus IT Group SA 4 Current situation review Internet in the airline IT: 3 dimensions at least  Data transfer media (terminal or host to host)  Traffic cost savings, global reach, standard protocols  Services access environment  Ordering and billing online, problem loading / servicing…  Sales and Marketing environment – competition is moving from offline to online !  Advertising, promotions…  Travel agencies vs. airlines direct sales channel

5. © 2008 Amadeus IT Group SA 5 Current situation review Ordering services online via Amadeus Extranet

6. © 2008 Amadeus IT Group SA 6 Internet sales effectiveness Are Internet sales so easy as seemed initially ? Full business package should be available… ( just one missing component decreases effectiveness)  Seamless booking scenarios  Flexible Fare Quote, simple & clear FQ rules  Reliable CC payments + options (ATO/CTO ticketing)  E-ticketing on the whole airline network + interlines  Post-sell support, including online rebooking, refund, etc… / Does anybody provide this service in RU ? /  Increasing pressure on the airline call centres  DCS services online (web check-in…)

7. © 2008 Amadeus IT Group SA 7 Internet sales effectiveness Are Internet sales so cheap as seemed initially ?  Less savings as agent commissions went down  CC transaction fees appeared instead  Additional permanent costs for  Website Servicing and support (outsourcing)  Fraud protection  Marketing (banners, advertising on the search engines)  Payment solutions integrations costs  Call centre for online booking (post sell) servicing…

8. © 2008 Amadeus IT Group SA 8 Internet sales effectiveness Marketing on easyJet.com: banners & references

9. © 2008 Amadeus IT Group SA 9 Internet sales effectiveness Need for permanent promotion

10. © 2008 Amadeus IT Group SA 10 Internet sales effectiveness ( post-sale services)

11. © 2008 Amadeus IT Group SA 11 Permanent support needed Internet sales effectiveness

12. © 2008 Amadeus IT Group SA 12 Internet sales effectiveness Cheapest fares promotion – risk of loosing revenues ( sales “black holes” vs. upsell options)

13. © 2008 Amadeus IT Group SA 13 Variety of travel services to be offered Internet sales effectiveness

14. © 2008 Amadeus IT Group SA 14 Content competition: airlines vs. agencies

15. © 2008 Amadeus IT Group SA 15 Content competition: airlines vs. agencies

16. © 2008 Amadeus IT Group SA 16 Internet sales …website referring on the offline channel ?!

17. © 2008 Amadeus IT Group SA 17 Internet sales …site content should be clear even for “housekeepers”

18. © 2008 Amadeus IT Group SA 18 Internet sales effectiveness Internet specifics vs. traditional distribution channels  Internet was not specifically designed for ticket sales  Global coverage / unlimited access channel, but multilingual interface needed  No need for terminal distribution, but requirement for user-friendly & intuitive interface  No booking / abusing responsibility vs. agency case  Risk of seats freezing (soonest payment needed)  Booking cost is not fixed (vs. GDS Net Booking fees)  Look to book ratio is very low (less then 2%)  Competition area between airlines and TAs / portals

19. © 2008 Amadeus IT Group SA 19 Internet sales effectiveness GDS still behind…  GDS content while Internet used as an interface  Consolidating travel services (hotels, cars, etc…)  Acting as IT providers at the same time  Ensuring the sales integrity (E-ticketing)  Playing e-Commerce solutions providers role  Sabre IBE: SU, KD…  Amadeus IBE: FV, VV, KC…  Supporting Travel agencies Direct sales channel  Providing channel for higher revenue pax

20. © 2008 Amadeus IT Group SA 20 Internet sales effectiveness channels diversification history Client

21. © 2008 Amadeus IT Group SA 21 Internet trends Provider – User relationship development  Stage 1: Provider gives no choice at all to User  Stage 2: Provider offers User to choose within a number of limited options  Stage 3: Provider establishes the rules, User creates the content itself

22. © 2008 Amadeus IT Group SA 22 Internet trends choice by the users – www.SkyExpress.ruwww.SkyExpress.ru

23. © 2008 Amadeus IT Group SA 23 Internet trends ( vs. “all inclusive” marketing concept)

24. © 2008 Amadeus IT Group SA 24 Internet trends Content fully created by users – одноклассники.ru

25. © 2008 Amadeus IT Group SA 25 Internet trends www.wikipedia.com

26. © 2008 Amadeus IT Group SA 26 Internet trends Content provided by users - Wikipedia, Wictionary, etc…  A project (since 2001) to build free encyclopedias in all languages of the world  Everybody is free to contribute (neutral information)  More than 10 million articles in 250 languages  The largest Wikipedia - in English (2+ million articles)  German, French, Polish and Japanese editions (each containing more than 1/2 million articles)  Seventeen other language editions contain 100 000+ articles  More than 100 other languages contain 1000+ articles

27. © 2008 Amadeus IT Group SA 27 Internet trends Passengers to bid on airline website, similar to ebay.com?

28. © 2008 Amadeus IT Group SA 28 Internet trends Passengers to bid on airline website, similar to ebay.com?

29. © 2008 Amadeus IT Group SA 29 Internet trends Airlines consolidator website: SkyAuction.com

30. © 2008 Amadeus IT Group SA 30 Internet trends www.SkyAuction.com  Airline tickets, room nights, tours, cruises and all-inclusive vacations  Negotiating special deals with leading airlines, hotels, resorts and cruises  Business around two simple, but powerful, ideas:  Consumers should pay for their travel however much they feel it is worth (and not a penny more)  Purchasing travel should be easy and exciting (and not difficult and boring…) !

31. © 2008 Amadeus IT Group SA 31 Some conclusions  Internet primary benefit is not (really) cost cutting, but instead  Unlimited capacity channel (24 x 7 uninterrupted services)  Unlimited geographical coverage  Flexible content control & shortest “delivery” time  Airline online activity to follow the Internet trends  Providing the complete business package (including all post-sell services and support + upsell option!)  Becoming more interactive and flexible for choices  Allowing User / Passenger increasing influence on the content & services offered by an aniline

32. © 2008 Amadeus IT Group SA 32 Some conclusions  Internet turned out to be not so cheap channel as it seemed initially  Internet sales require permanent efforts & investments for support & development  Internet sales could lead to revenue loosing if misused (“black hole” effect)  It’s not simply online vs. offline, but mainly direct vs. indirect sales split choice  Offline vs. online sales should be well balanced:  Every channel has it’s value vs. it’s cost

33. © 2008 Amadeus IT Group SA 33