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July 2009 Transport and Logistics Department 1
Air Transport Management
Session 2: Impact of Deregulation
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Pre-Deregulation in the
US Carriers ere not a!le to compete in terms o" price Ser#ice $uality and "re$uency ere the main means
!y hich they competed
Load "actors ere lo and unit costs high as a result
% study !y Jordan &Airline Regulation in America,
1970) o" inter-state trun' airline "ares in 19() shoed
that if there had been no regulation these would have
been 32 7! lower
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US Deregulation
US interstate mar'ets tightly regulated "rom19*0
US Domestic +ar'et "ully li!eralised in 19,
US international mar'ets tightly regulated since
19*) .ntra-/uropean +ar'et gradually li!eralised
19,-199,
"orms of Regulation
#omestic $% &ntra'(uroeares
Capacity
+ar'et /ntry
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utcome o" USDeregulation
Loer "ares
.ncrease in mar'et concentration
Poor prota!ility
/ntry o" lo cost no-"rills airlines
Use o" Chapter 11 !an'ruptcy protection
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/uropean
Li!eralisationLi!eralisation an on-going e#olutionary process.mpact o" Tight /conomic 4egulation5rea'ing the +ould6
7 a8nity group charters
7 inclusi#e tours
Changing +ar'et Conditions
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ey Di:erentiatingeatures /urope comprises o#er ;0 autonomous states each ith its on
language< culture and administrati#e procedures= &0> o"airline trips are international=?
%round 20> o" intra-/uropean demand &4Ps? is carried onnon-scheduled &charter? ser#ices= &+ost o" this tra8c consistso" inclusi#e tour holidayma'ers tra#elling "rom @orthern /uropeto +editerranean resorts=?
Au! and Spo'e Systems already in eBistence< !ut not eBploited=
lag carriers ere nearly all state-oned= &ery "eindependently oned airlines operated scheduled ser#ices=?
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/uropean lag Carriers% State Owned Airline Equity Holder %
Aer Lingus 28 Ryanair 30
Air France - L! "#
Alitalia $0
Austrian 0&ritis' Airways 0 (& 8
&russels Airlines 0 LH $
Finnair $)
(*eria 0 &A "3
Lu+t'ansa 0Lu,air 23 LH "3
Oly.ic "00
SAS $0
Swiss 0 LH "00
/A "00
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The /uropean %pproachStage 1 5ilateral Aarmonisation
Stage 2 5ilateral Li!eralisation
Stage ; +ultilateralism
*e+ $nderl+ing b-ective.
Achieving a /ommon (uroean aret
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utcomes o" /uropean Li!eralisation
%c$uisition o" localotentialcompetitors
%c$uisition o" carriers !ased in other /U states
ranchising o" "eeder airlines
utsourcing
/mergence o" lo cost Eno-"rillsF carriers &e=g=4yanair< easyJet< Germanings< @oregian?
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.ncum!ent response in rance toderegulation
.ncrease "re$uency
DonsiHe aircra"t
+atch ne entrant discount "ares
+aintain single class
+aintain high density seating
+aintain minimal in-Iight ser#ice
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U Domestic Trun'4outes@o-"rills carriers ha#e had a maor impact on U domestic air routes< ith )0> o" passengers tra#elling ithin the U on such ser#ices &up "rom ;,> in e!ruary 200; and 22> in
e!ruary
2001?
London K Glasgo is one o" the Us !usiest domestic city pairs< ith ser#ices pro#ided "rom "our o" the capitals airports
" the ;=1 million ourneys underta'en in 200,< some *> ereon Iights operated !y lo cost airlines
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%nnual passenger tra8c 190 - 200,
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Tra8c generation on London-Glasgo
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@o "rills tra8c at U 4egional %irports
Since 1999 U regional airports ha#e attracted theattentions o" lo cost operators
Go< "or eBample< !egan operations !eteen 5ristoland /din!urgh in Septem!er 2001< producing an
e#en more dramatic increase in tra8c #olumesthan that eBperienced on London-Glasgo
Passenger ourneys nearly tre!led "rom 10,
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@o "rills impact on 5ristol -/din!urgh
Gos tra8c share during the rst $uarter o" 200; as astaggering 2>
Despite this dominant position o" the lo cost operator&easyJet? ith its three daily rotations< 5% CitieBpresscontinued to pro#ide #e ser#ices each ee'day using/m!raer 1*) regional ets until +arch 200,
.t is orth noting that the "ull ser#ice pro#ider eBperienced adrop o" ;1=)> in its passenger tra8c on the route in 2002compared to the pre#ious year
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U .ntra-/uropean Scheduled4outes
)*> o" passengers are no tra#elling!eteen the U and //% countries on theser#ices o" no-"rills carriers
U K +alaga routes pro#ide a good eBampleo" the impact that lo cost Eno-"rillsF
carriers ha#e had on con#entional netor'airlines and charter companies
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Poor inancial Per"ormance partly due to eBternal "actors
Economic downturns
Sept 11th2001 terrorist attacks
Iraq war
SARS
Increasing oil prices
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Poor inancial Per"ormance partly due to internal "actors
Overly comple operations
Ina!ility to modi"y !usiness model quickly
O!session with market share and load "actor at
the epense o" pro#t
Ecess capacity
$u! ine%ciency and congestion
Ignoring low cost carriers as via!lecompetitors
Ignoring the changes in customers& purchasing !ehaviour
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1
8
#
"0
""
"2
"3
"%
US cents per RPK, world scheduled airlines, deflated by US CPI, 1990=100 Sources IC!",
I!#!
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The results o" %irline Deregulation so "ar
$ Poor financial returns
$ %allin& yields
$ Rapid &rowth of 'ow Cost Carriers
$ Increased consu(er awareness
$ )e*elop(ent of Sur*i*al strate&ies
$ %or(ation of &lobal alliances$ Emergence of new international hubs
$ Innovation new products
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Source "!+ ,-00./
ithin !sia Pacific ithin urope ithin US02
32
102
132
-02
-32
402
-001
-00-
-004
-005
-003
-00.
/'e growt' o+ low cost carriers in Asia2 Euro.e and t'e 3S 4Seat 5a.acity6
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Top 20 LCC Passenger Tra8c &m? in200,
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/Bamples o" /uropeanLCCL55 wit' +rills L55 no +rills Regional L55 Leisure 'y*rid*i*a*y 7orwegian Fly&e Air &erlin
5licair Ryanair Hel9etic Fly:lo*es.an
easy;et !onarc'
:eranwings Sterling
/'oson+ly
/ransa9ia
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#i(e series forecast, low cost carrier *erses networ6 airlineuropean Seat Capacity -00-7-010
Source "8Connell
MMMN N
-00- -004 -005 -003 -00. -00 -00: -009 -0100
100
-00
400
500
300
.00
'ow Cost Carrier Series 4M
Seat5a.acity4!illions6
N
N NN N
N N
;etwor6 !irlineN
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Continuing /#olution
ore dierentiation6
Loer cost !usiness class only airlines
Greater emphasis on customers con#enience
Lo cost ith "rills
Longer haul lo cost ser#ices