LCCs Change Airline Industry

1. LCCs Change Airline Industry Established network carriers Aircraft manu- facturers Tourism industry Airports Unions • New tariffs • New products and sales channels (emphasis on the web / catering against payment) • Agressive marketing in favour of the consumer • Airports serve as gateways for regions / integration into the region • Growths of airports mainly due to LCCs • Requirements adjusted to LCCs • Charter airlines obtain a different meaning • Package tours versus individual tours • Dynamic packaging • Hotel portals • 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. 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. Example: Airport Frankfurt Hahn 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) Source: http://www.hahn-airport.de/sycomax/files/7064_1LowCost.doc

4. Example: Touristik Express Touristik Express: Germany´s first low-cost travel agency • 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

5. Example: interRent Characteristics of interRent • Booking via www.interRent.com (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. Example: interRent Cont. Fences between HLX / IR & EC Source: Company information

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. Example: Mobile Phones 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“ Source: http://www.boozallen.de/content/presseforum/4aax_0504_mobilbillig_d.asp

9. Example: Gas Station • Gas Station • Raiffeisen-Markt Wissingen • Bahnhofstraße 28 • 49143 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. 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. 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. 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. Summary Cont. Different strategies of LCCs and FFAs

14. Summary Cont. Different strategies of LCCs and FFAs

15. Correlation Between Price And Sales Purchasing patterns have changed over the years • < 1990 Therewas only a small market for very expensive and very cheap products while there was a large markt for middle-priced products.

16. Correlation Between Price And Sales Purchasing patterns have changed over the years • < 1990 Therewas 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.

17. Produktlebenszyklus im Einzelhandel

18. price brand 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 Source: SevenOne Media GmbH

19. Discounters Supermarkets Warehouses Self-service warehouses / Large consumer markets Others Market Segmentation - Example: Food Trade Cont. 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. Market Segmentation: Examples Discounter / Warehouse Furniture Car service Chocolate Drugstore Telephone companies

21. Thank you for your attention!