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Stage Length may increase
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LCC Market Share in Europe
LCCs and the Future of the Business Model
Drivers of the Business Model
LCCs and MROs
Conclusion
Agenda
3European MRO Conference, Berlin, 19.10.2005 www.advolar.com ©
Service level
Cost
-Low-Fares-Frequency
-Main Airports-Frequency-Branding
-Business -Branding
-Low Fre- quency -Branded meals
-Hot meals, -Lounges, -Paper tickets
Pure Low Cost Carriers• Year round traffic• Independent travelers• Balanced directional flows• Grow the market• Avoid charter markets (for
the time being!)
Hybrid Models• Mix of business and leisure• “A la carte” services• Compete in some charter
markets
LCCs Develop Different Market Strategies
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Full Service Airlines
LCCs
Charter Airlines
Migration of business models
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Full Service Airlines
LCCs
Charter Airlines
HybridsHybrids
Migration of business models
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Short-haul routes
Long-haul routes
Non-businesspassengers
Price-conscious business
passengers
Quality-conscious business
passengers
Network carrier
Regionalairlines
Charter
LCCs
Source: Mercer Management Consultants 2003
Positioning of LCCs
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Migration and Segmentation
LCCs will continue to grow. Market share of 35% in 2010 seems not unrealistic.
LCCs will move into leisure destinations (sector length max 2-3 f‘hrs) where traditional charter carriers have a significant „seat only“ business.
LCCs will increase frequency on leisure routes but will reduce the number of departure airports.
LCCs will adopt quality elements or product features from Full Service/Charter Airlines provided costs and complexity will not increase or they are providing another revenue stream (FFPs, IFE, seat reservation etc.)
LCCs will enter into arrangements with tour operators provided their business model will not be affected.
8European MRO Conference, Berlin, 19.10.2005 www.advolar.com ©
LCC Market Share in Europe
LCCs and the Future of the Business Model
Drivers of the Business Model
LCCs and MROs
Conclusion
Agenda
9European MRO Conference, Berlin, 19.10.2005 www.advolar.com ©
Business Models
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Short Turn around Time High reliabilty Excellent T/S and MEL-Management
High Utilization – Low Saisonality Equalized maintenance program Maintenance program calendar time driven Letter Checks outside standard maintenance periods
Low f‘hr/cycle ratio Engine maintenance cycle driven
High load factor Cabin wear and tear
No Hot Meal service, No IFE Spares provisioning
Basing Concept
Operation
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National /
flag carrier
usually have
one or two
national
bases only
Aircraft Basing Concepts
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Ryanair
LCCs have a pan European basing concept
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Ryanair and Easyjet
LCCs have a pan European basing concept
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Homogenous Fleet Overall maintenance costs (spares holding, engineering etc.)
No Stand-By Aircraft High reliability
Ownership: Mostly Leased Aircraft Mod policy Spares Pool Exchange
Fleet
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Image Transfer
LCCs have a latent image problem:
Low Cost = Low Safety
Contracting with a „Blue Chip“ in the MRO industrie reflects positively on the LCC
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LCC Market Share in Europe
LCCs and the Future of the Business Model
Drivers of the Business Model
LCCs and MROs
Conclusion
Agenda
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Outsourcing Trends
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LCCs Outsourcing Trend
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Outsourcing Airframe Maintenance
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Low-cost means...
...not simply reducing the price for doing what always has been done,
...but primarily changing well-known processes.
The simplicity of the new processes is key.
The Low Cost Idea Can be Adoptedby the MRO Industry
The low-cost idea has to start in people´s mind!
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We are not an airline, we are a culture.
A culture founded by optimists - and built by believers.
We are not an airline.
We are listeners, innovators and technology creators.
We are not an airline.
We are magicians, musicians, acrobats and sprinters focused on a single goal: to give style, service and choice back to the people who fly.
That´s why we „cast“ our stars - to make sure each and every one is attentive and gracious.
Why we offer everyone 24 channels of real time, satellite TV and CD quality MP3 audio.
Why we hand picked a socially-conscious chef - to prepare fresh meals and cater to diverse tastes.
Why Kate Spade designed a collection for our stars, why we created exlusive programming for families, and offer cosmopolitans in the air.
All in all, it´s why we offer more. And now it´s time to dig deeper.
You see, we realize our difference doesn´t lie solely in the choices we offer, but also in how we offer them. ...
Song‘s Credo
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New thinking when offering services to LCCs. LCC culture is open minded. Leadership is not necessarily having airline background!
„New frontiers“ are a challenge not a risk!
For LCCs there is little incentive to take on board anything other than line
maintenance work. What LCCs really do well is flying passengers from A to B,
develop products and grow markets, manage yield and revenue
LCCs want „air time“, suppliers want ground time. There´s a conflict of interest, less incentive for suppliers to „improve“ themselves
Source: „Service Challenge“, Airline Business, October 2004
LCC Requirements
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LCC Requirements
„Equalized“ maintenance concepts to assure shorter ground time
and higher availability of the aircraft
Suppliers should maximize the benefits from the „Data Pool“ they have built up during hundreds of checks e.g. knowledge of most frequently used material (pre-kitting), repair schemes etc.
Cost reductions will have to come from smarter maintenance
planning
Doing the right work at the right time and not over-maintaining
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LCC Requirements
Small Engineering organisations require more support than traditional airlines: SB-evaluation, Documentation, Tech Records etc.
LCCs are not interested in maintaining huge spare inventories. „Spares by the hour“ converts fixed costs into variable costs. Pre-kitted material for all checks, major component changes for all a/c models are available from specialized suppliers
LCCs are not looking at how to increase fares if costs are going up. LCCs are turning every stone to reduce costs further. MROs negotiating a long term contract with a LCC should not offer complex Escalation Clauses but a Productivity Improvement Program. Benefits to be shared with the airline.
Rates should be split into Euro (labour) and US Dollar (material)
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LCC Market Share in Europe
LCCs and the Future of the Business Model
Drivers of the Business Model
LCCs and MROs
Conclusion
Agenda
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Conclusion
LCCs in Europe and will continue to grow 35% market share in 2010 LCCs will continue to outsource maintenance services Maintenance volume will be affected by young fleet New Generation aircraft require less m‘hrs/bay day! MROs are invited to re-engineer processes in order to be
more cost effective. They are not expected to deliver the standard poduct cheaper!
MROs have to deliver pan european (pipe line management!) and dependable services. Productivity gains to be shared with the customer.
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Thank you for your attention!