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Airline Business Models

Airline Business Models. Jagoda Egeland Strategy & Policy Manager Airports Commission Briefing London, 17 March 2014. 1. The global aviation sector: Two parallel trends. Consolidation, partnership & network integration (legacy carriers)

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Airline Business Models

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  1. Airline Business Models Jagoda Egeland Strategy & Policy Manager Airports Commission Briefing London, 17 March 2014 1

  2. The global aviation sector: Two parallel trends Consolidation, partnership & network integration (legacy carriers) Budget travel, mostly offered by new entrants (low-cost carriers = LCCs) 2

  3. Legacy carriers vs. low-cost carriers 3

  4. Currently, the three major alliances hold over half of global seat capacity… 4

  5. …but most growth over recent years has been due to LCC expansion Passengers at UK airports by ELFAA membership, 1990-2012 Source: DfT analysis based on CAA airport statistics 5

  6. This picture is constantly changing The AC is looking into factors that are driving that change • Regulation • New aircraft technology • Behaviour of aviation users 6

  7. Regulation: Further consolidation or further expansion of LCCs? • Will restrictions on foreign ownership of airlines be relaxed over time and hence strengthen the alliances? • A global EU-US Open Skies agreement will be a chance for low-cost carriers to expand? 7

  8. New aircraft technology: A long-haul low-cost revolution? • Will Boeing 787 and Airbus A350 facilitate low-cost dominance in the long-haul market or will they simply reconfirm the position of legacy carriers? Source: Norwegian Air Shuttle, n Magazine, March 2014. 8

  9. Why LCCs may not want to fly long-haul? Low-cost carriers’ input-cost edge is larger for short-haul flights than for long-haul ones Source: McKinsey Quarterly, Budget carriers face difficult odds moving into the most profitable sector of the airline industry. 9

  10. Will LCCs and legacy carriers reach into each other’s business models? • Business travel with LCCs • Asian consumer will dominate route networks in 2030 • Self-connecting • LCC model predominantly on short-haul and the thickest long-haul routes • Legacy carrier model serving the majority of long-haul connections 10

  11. The AC is looking into potential scenarios for each short-listed scheme • What will the potential airport charges be? • How affordable is the proposal to airlines? • New entrants? • What kind of airline business models could different levels of charges attract? • Scenarios and their plausibility • What is the potential competitive impact on the UK airport system in each case? • What connectivity can potentially be delivered? 11

  12. Airline Business Models Jagoda Egeland Strategy & Policy Manager Airports Commission Briefing London, 17 March 2014 12

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