Innovation and Cost Leadership

Innovation&CostLeadership,15.November2004©1Innovation&CostLeadershipWolfgangKurth15.November2004Innovation&CostLeadership,15.November2004©2TrendsInTheAviationIndustryLow-costCarriersCharacteristicsOfTheLow-costBusinessStrategyOfAirlinesLow-costBusinessStrategiesInOtherTradesSummaryAgendaInnovation&CostLeadership,15.November2004©3BusinessEnvironmentVOLUME/GDPTIMEAfricaAsiaMiddleEastLatinAmericaBEGINNINGSTAGETRANSITIONRAPIDGROWTHSTAGETRANSITIONU.S.andEuropeMATURESTAGEGDPVolumeInnovation&CostLeadership,15.November2004©4Growthratesaredeclining(GDPYield)Source:A.Sentance,AirlineBusinessJune2000,R.Doganis,AirlinesInternational,May-June2001)USdomesticmarketgrowth-1980svs1990sAverageannualgrowth(%)-4-3-2-101234561980s1990sPassengertrafficEconomy(GDP)RealrevenueRealyieldGrowthRatesAreDecliningInnovation&CostLeadership,15.November2004©5951001051101151201251301359192939495969798990001Index(1991=100)Airline(Yield)Consumer(CPI)AirlineyieldshavenotkeptpacewithinflationAirlinePricesvsConsumerPricesInnovation&CostLeadership,15.November2004©65,06,07,08,09,010,011,012,013,070727476788082848688909294969800Yield(cent/RPK)Note:YieldsoninternationalscheduledservicesdeflatedbyUSconsumerpriceSource:ICAO,updatedbyBAestimatesinAirlineBusinessJuly2001YieldTrendRealinternationalyields-realdecline010203Innovation&CostLeadership,15.November2004©7USairlines,.Source:TheAirlineMonitorinAirTransportWorldFebruary200257,0059,0061,0063,0065,0067,0069,0071,0073,00909294969800Loadfactorin%UtilisationLoadfactor(%)8,18,48,79,09,39,69,910,110,4Blockhoursperday(approx..)Utilisation&LoadFactorTrendsUtilisation&Loadfactor,USairlinesInnovation&CostLeadership,15.November2004©867,069,370,370,971,172,470,072,364,966,865,766,666,570,477,475,065,070,075,080,019951996199719981999200020012002FPassengerLoadFactor(%)ActualBreakevenLowpricesandhighcostsmeancarriersmustfillmoreseatstoavoidlossesBreakevenPassengerLoadFactoratRecordHighsInnovation&CostLeadership,15.November2004©9AirlineCostOverview:Externally&InternallyDrivenCosts1115121255AircraftleasingFuelGroundservicesMaintenaceLandingchargesAirtrafficControl60%2086640%PersonnelSales&MarketingInflightG&AExternallydrivenitemsSource:RolandBergerExternalInternalInnovation&CostLeadership,15.November2004©10CrewFuelMaintenanceOwnershipTypicalAirlineCostSplitInnovation&CostLeadership,15.November2004©11NetreductionobjectiveOperationsCapitalOperationsCapitalClassicfleetNextGenerationPresentvalueofcostsperseatOffsetHigherCapitalCostwithLowerOperatingCostInnovation&CostLeadership,15.November2004©12Aircraft(Sticker)pricesEstimateearly20020,300,290,280,320,310,340,340,320,000,100,200,300,40737-800(184)737-900X(205)A321(216)757-200(217)757-300(256)767-300(324)767-4ER(375)A330-200(375)Seatprivein(m)US$0100000200000300000400000500000600000MTOWinlbsSeatpriceMAX.TOWAircraftPricesInnovation&CostLeadership,15.November2004©130,40,60,811,21,41,61,8196019621964196619681970197219741976197819801982198419861988199019921994199619982000AirplanePriceperSeatYieldperPaxMileIndex1994ConstantDollarsYieldPerPassengervsPricePerSeatInnovation&CostLeadership,15.November2004©14DirectOperatingCosts(%)PriceIncrease(%)012345605101520300Seater150SeaterDOCSensitivityvsPriceIncreasesInnovation&CostLeadership,15.November2004©150,05,010,015,020,025,0300Seater150SeaterMAINTENANCEMATERIALMAINTENANCELABOURMTOWFUEL%ImprovementNeededtoGeta1%CashCostDecreaseInnovation&CostLeadership,15.November2004©16Today1year3/4years10/15yearsShorttermMediumtermLongtermVerylimitedFairIncreasedflexibilityFairtouncertainVerylargeuncertaintyLargeflexibilityTodayAdaptabilityofthemeansandresourcesPredictabilityofmarketandenvironmentStrategicplanningThePerspectiveofTimeInnovation&CostLeadership,15.November2004©17AgendaTrendsInTheAviationIndustryLow-costCarriersCharacteristicsOfTheLow-costBusinessStrategyOfAirlinesLow-costBusinessStrategiesInOtherTradesSummaryInnovation&CostLeadership,15.November2004©18Forwhatreasonwouldyouflymoreoften?Today'sDemandIsTriggeredByLowFares11%11%8%41%8%6%17%0%10%20%30%40%50%upgradesschedulesafetygroundlowfaresmoreFFP´ssafetyboardothersSource:IATAOnlineSurvey2003Innovation&CostLeadership,15.November2004©19MarketShareOfLCCs7560201525520002010LCCsCharterNetworkCarriersLCCswillhaveamarketshareofabout25%inEuropein2010Quelle:MercerManagementConsultants2003Innovation&CostLeadership,15.November2004©20ImpressiveGrowthOfLCCsWithinEuropePAXnumbersofEuropeanLCCsSource:Analystenreports,Unternehmensinformationen,MonitorGroupAnalysisPAX(m)Avg.growthp.a.46%1317243947900102030405060708090100199920002001200220032004EInnovation&CostLeadership,15.November2004©21GrowthGeneratedBy‘New’Passengers(Germany2004)59%37%100%4%0%25%50%75%100%NewpassengersShiftwi