"Aviation In Transition" The Futur of LCC and Charter

1. "Aviation In Transition" The Futur of LCC and Charter Wolfgang Kurth 14.-16. February 2007 10th Aviation Conference, Hamburg

2. Nothing has changed…. …we still like going on vacation!

3. A Package Tour Yesterday: Highly complex integrated product chain Brochures Travel Agency Transport Incoming Transfer Tourist Guide Hotel Beach Essential? no Essential? no Essential? yes Essential? no Essential? no Essential? yes Essential? no Essential? yes • Tour Operator Added Value: • gathers information, presents destination and resort • selects hotel and guarantees quality • minimizes foreign exchange risks • guarantees prices • arranges for transfer from destination airport to hotel and vv • local assistance minimizes cultural and language problems • one focal point for problems along the product chain • provides security • manages complaints • protects customers during crisis • ………..

4. ….A Whole Lot Has Changed!

5. Less “Standard” Customers • The Standard Customer: • “John, 35 years, married, two kids, • white collar employee • suburban home, 1 Japanese SUV“ • - package tours (in Europe!), • - follows advertisements • - neighbor‘s life style provides guidance • - purchasing is based upon ratio • - status symbols are important • („my family, my home, my car!“)

6. More “Mature” Customers • The Hybrid Customer: • in any sozio-demographic group • mobile • non conformistic • picky, critical • thrifty and lavishly • can‘t be defined by price segments • purchase is experience; at the same time decisions to purchase standard goods are based upon economical thinking • often a “lead customer“

7. Information (Power) To The People! ? !

8. Mapping

9. Mapping

10. Information (Power) To The People!

11. Booking Pattern Booking Sequence: 1st flight - 2nd hotac simultanous 1st hotac - 2nd flight

12. Online Distribution Split

13. Channel Loyality % 70 60 61% 50 48% 46% 44% 40 37% 37% 30 33% 33% 26% 20 10 12% 8% Search EngineAirline Online Tour Operator Friends & Destination Travel Agency Relatives Sites Shop Buy Source: PhoCusWright Inc., Online Travel Shopping ans Buying Behavior

14. Why Buying Online? Ability to compare options myself Faster/saves time Offers lowest prices Offers wider selection of suppliers Easier/simpler to handle Offers more Frequent Flyer Miles Source: PhoCusWright Inc., Online Travel Shopping and Buying Behavior

15. Distribution & Product Trends

16. LCCs vs Charter LCC Advantage Higher utilization, Lower TOW, lower A/P charges Utilization Frills Lower ancillary costs, lower com- plexity, add. revenue stream Airports Lower handling charges Fleet Lower maintenance costs, lower spares holding costs, lower training costs, lower crew costs Marketing/ Retail Superior Direct Marketing and Route Development competence Network Lower complexity, higher reliability Lower Fixed Labour Costs Personell

17. European Airlines Unit Costs • Charter Airlines • moving into the • LCC market: • cycle related • costs + • marketing costs + • distribution costs + • LCCs moving into • L/H markets: • cycle related costs – • B/E fares + • market stimulation – • crew costs +

18. Avg. Trip Length UK Leisure Passengers (UK – EU and domestic) by airline, 2005 British Airways Other FSAs easyJet Ryanair Other LCCs Charter 2-3 Days 3-4 Days 4-7 Days 7-21 Days > 21 Days 1-2 Days < 1 Day Source: CAA Passenger Survey 2005

19. Avg. One-Way Fares (UK-EU) 250 Business 200 150 Avg. Fare in 2005 UKP 100 Leisure 50 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: CAA International Passenger Survey, Office of National Statistics

20. Charter Volume Is Declining

21. UK-EU Passenger Taffic By Airline Type Source: CAA

22. In The US Stage Length Is Increasing

23. Stage Length Is Increasing In Europe As Well Avg. Stage Length Ryanair Kilometer 2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005 2006 Source: Davy European Transport and Leisure, 15.2.2005, wwww.ryanair.com

24. Impact Of LCC Entry On Charter Routes > 4 f‘hrs LON < 3 f‘hrs 2000 – 2005: Routes served in competion (white) Charter: - 50.6% (avg) Routes served by Charter only (yellow) -10.5% (avg)

25. LCCs Eating Into Charter Markets Ryanair, easyJet, Volareweb, bmi Baby, Hapag-Lloyd Express, Germanwings, Sterling, SkyEurope, jet2 232 118 Routes to Spain 69 48 17 2002 2003 2004 2005 2006 Source: CH-Aviation

26. Migration Of Business Models Charter Airlines Full Service Airlines LCCs

27. Migration Of Business Models Full Service Airlines CharterAirlines Hybrids Hybrids LCCs

28. Airline Business Models Quality-conscious business passengers Price-conscious business passengers Non-business passengers Regional Airlines ! LCCs Short-haul routes Charter ? Long-haul routes Network Carrier Source: Mercer Management Consultants 2003

29. Fragmented Value Chain Yesterday: Highly complex integrated product chain Brochures Travel Agency Transport Incoming Transfer Tourist Guide Hotel Beach Essential? no Essential? no Essential? yes Essential? no Essential? no Essential? yes Essential? no Essential? yes Today: „Fragmented“ product chain T/O required? no T/O required? no T/O required? ??? T/O required? no T/O required? ??? T/O required? no

30. Conclusion: Holidays Become Modular!

31. Independent Holidays Are Overtaking Inclusive Tours Source: CAA, IPS (Identification & Passport Services)

32. Business Models Are Changing 1998 - 2004 > 2004 Source: TUI, WTO Conference Syria, 2004

33. Web Site Performance Web Site Performance = f(content, marketing budget….)

34. LCCs And Ancillary Products Visitors Conversion Rate (Visitors/Bookings)……~ 6-8% Transfer Rate (Bookings/Visitors)………………………………<30% Conversion Rate………………………………………………………………………~ 10% Bookings of Ancillary Products as % of total visitors………………………………………………..~ 0.2-0.4%

35. LCCs And Ancillary Products ? Visitors

36. TUIfly.com Web Performance

37. Sponsored LCCs FSA LCC Subsidary Status Delta Re-integrated United ??? British Airways 2002: sold Go 2006: start BA Connect/sold ???/sold Deutsche Lufthansa LOT For Sale?? ? TUI + + + +

38. Thank you for your attention!