airline growth in asia pacific

Airline Growth in Asia Pacific & the Evolutionary Dynamics of the Airline

Business Model

Amartya De, Senior Consultant

Aerospace & DefenseAerospace & Defense

23 September 2010

Frost & Sullivan’s Growth Consulting can assist with your growth strategies

Today’s Presenter

Amartya De is a senior consultant with Frost & Sullivan Aerospace &

Defense Practice, Asia Pacific. He focuses on monitoring and analyzing

emerging trends, technologies and market behavior in commercial

aviation and homeland security segments in Asia Pacific.

Amartya has been involved in several growth consulting projects in the

Commercial Aerospace, Homeland Security and Defense segments to

support the development of growth strategies of his clienteles. His

expertise includes the development of strategic roadmaps and

execution of extensive business growth plans and consulting models.

Amartya is instrumental in contributing to award functions in major

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Amartya DeSenior ConsultantAerospace & DefensePracticeAsia Pacific

Bachelor of Engineering

Computer Science,

Global Masters in Business

Administration

Amartya is instrumental in contributing to award functions in major

industry events and develops a strong network with government

agencies and industry alike.

He has received acclaim for various business initiatives taken at his

earlier organization as well as at his business school. Prior to working

with Frost & Sullivan, Amartya has worked with a well known global

consulting organization and with one of the Big Four. In all, he has five

years of experience in technical & management consulting of large

projects.

Amartya has also contributed to articles and quotes published in

Aerospace Singapore, Business Times and Singapore Airshow.

Understanding the Dynamics of the APAC Travel Market

After a challenging 2009, growth has been positive in all

world regions led by Asia Pacific (10%).South Asia posted

(15%) - South East Asia (10%) -North East Asia (10%).

Double Digit YTD growth witnessed in Hong Kong (14%),

Macao (16%), Japan(29%), Taiwan(28%), Indonesia(14%),

Singapore(21%), Vietnam(36%), Guam(10%), India(10%),

Sri Lanka(50%) and Nepal(30%)

In 2020, Europe will have (717 million tourists), Asia

Pacific (416 million) and the Americas (282 million),

followed by Africa, and the Middle East.

“… planning the trip three weeks before for my familyseemed simple enough with Orbitz, Kayak, Expedia and adozen more search engines.. within a few seconds, pagesafter pages of results showed up with prices differing byless than $5 in most cases …”

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Source: Frost & Sullivan


NE Asia (29.4%) South Asia (18.5%)“ … Low fares have transformed the

Personal Travel

Business Travel

Personal Travel

Business Travel

4

Oceania (14.7%) SE Asia (33.3%)

“ … Low fares have transformed theway people use their leisure time … “


Personal Travel

Business Travel

Personal Travel

Business Travel


5

How Airlines have Responded to Turbulent Times

There are three types of crises –

Affecting Cost Structures | Affecting Revenue Structures | Affecting All - AoG (Acts of God)

Travelers changed to low yield customers

Short haul FSC travel mainly

suffered2Q 2008 1Q 2009

High Jet Fuel Price

Economic Recession

LCC unable to justify high ticket prices

FSC could differentiate their

product

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Premium carriers still had high costs to bear

Corporate travel costs were slashed

25% fuel price reduction disproportionate to bottom

line costs

Premium demand collapsed

FSCHigh Yield

High Cost Market

LCCLow Yield

Low Cost Market

Low value product in the high cost market

product

High fuel prices diluted differences between LCC

and FSC

50% increase in fuel prices disproportionate to bottom

line costs

Affecting Cost Structures Affecting Revenue Structures

Affecting All Business Models - AoG (Acts of God)

• Cancellation of 100,000 flights• Travel disruptions 10m people• $2.2 B loss to aviation• $1.7 B loss to other business1Q 2010

Economic Recovery

Fuel costs rising

Losses

easyJet $100 millionRyanair $65 million

Air France $300 millionBritish Airways $195 million

Lufthansa $268 millionDelta Airlines $20 million

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Total 4.7 B GDP loss

“Losses for LCCs are comparatively higher”

Proliferation of the LCC in the air passenger market

“ … Though he was a member of both theirfrequent flyer programs, it didn’t make muchdifference to him as they had identical benefitsand were equally difficult to redeem milesfrom …”

500 million LCC seats (2009)

South Asia

46.5% South West

Pacific 37.0%

South East

Asia 30.7%

North Asia

3.9%

1800 million FSC seats (2009)

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Global LCC Market

Share 21.7%

Europe LCC Market

Share 32.0%

US LCC Market

Share 21.7%

Asia Pacific LCC

Market Share 15.5%


Growing the air passenger market in Asia Pacific

FSC Growth Rate LCC Growth Rate

Asia Pacific LCC Market Share 15.5%

Asia Pacific FSC Market Share 84.5%

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Europe

CAGR

US

CAGR

Asia Pacific

CAGR

31.80%- 0.82%

3.18%- 4.24%

49.53%3.70%

FSC Growth Rate LCC Growth Rate

India

53.5%

Domestic LCC Penetration

International LCC Penetration

Malaysia

53.3%

Australia

47.7%

Philippines

45.6%

Malaysia

39.2%

Indonesia

30.9%

Philippines

16.8%

New Zealand

16.3%



Customer behavior - Why they buy and when they buy

“ … The idea of paying a single, simple fare tofly on an airliner is becoming as quaint asstewardesses in short skirts …”

Low yield seats

Pressure on

premium end of aircraft

Ind

ustr

y a

ccu

mu

lati

ng

lo

sses

+PassengerMovement

PassengerMovement

10

47% 23% 18% 12%

3 Weeks + 2 Weeks 1 Week Same Week

Pricing buckets accumulating losses

Beverages to Blankets (Add-ons)

Full Service Carriers

Ind

ustr

y a

ccu

mu

lati

ng

lo

sses

Source: AirAsia

+ ++

+

+PassengerMovement

PassengerMovement

“ … All airlines lose money on the last few buckets … ”

“ … Many airlines have a large number of pricing buckets … ”


Customer behavior - Why they buy and when they buy

“ … LCC airlines need to progressively movetowards value offerings to increase yield andnot necessarily towards frills provided by FSC…”

47% 23% 18% 12%


+ ++

LCCs fares change week onweek but product (value) tocustomer remains same


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47% 23% 18% 12%


+ ++

Product (value) to customerneeds to change with weeklyprices to sell off all the buckets

“ the last few seats on a low cost carrier are

sometimes as pricey as the full service carriers

…” - CustomerSource: Frost & Sullivan

GAP in the market - “Busy Traveler”

“… today’s busy travelers with their hecticlifestyles want to sidestep delays, queues andcrowds by dealing with the necessary processes

of their travel plans at times convenient to

them…”

“Airline’s Airbus A319 and A320 aircraft would include 12 premium seats, these are not

business, but between business and economy, and we expect these to remain

consistently busy” - Bahrain Air, MD, Ibrahim Abdulla Al Hamer

“On a long term basis where we would like our cost structure to be is

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“Recessionary environment has opened up a gap in the market, corporate clients have had their travel budgets cut and are turning to low-cost airlines for a cheaper

option” – Jazeera Airways, CEO Andrew Cowen

Deal Grabber

Ticket Price (Yield)

Busy Traveler

Co

st

to A

irlin

e

Business Traveler

Planner

would like our cost structure to be is kind of between the ultra low cost

carriers and the legacy carriers ..” –Dave Berger, CEO, Jet Blue


Evolution & Hybridization – The “New World Carrier”

First class lounges on the planes will be removed to make way for 40 economy

seats from this September” -Qatar Airways CEO Akbar Al

Baker

We don’t want to be seen as a low-cost carrier, but a

premium gold network carrier, that offers value but not

excess.” - Gulf Air CEO Bjorn Naf

Ancillary Revenue by FSC

Contract buying to Transactional buying

Interlining with LCC

Travel agents back in fashion

CONVERGENCE

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"I feel nickel-and-dimed when I have to pay extra for everything,

just throw it all in and tell me what the fare is, I would rather have an

all-inclusive fare” - Customer

Code Sharing LCC-FSC

Fee based value added services

Long haul LCC for feeder traffic

Fine print of LCC fares

Class upgrades to move up value chain

Global GDS for LCC & FSC

Social media from branding tool to B2C

distribution tool

Customize travel by mix match LCC & FSC

products

“Customers do not want to know that they are paying for

every small thing – airport tax, fuel surcharge, aisle

row/exit row …” - Customer


CONVERGENCE

Evolution & Hybridization – The “New World Carrier”

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Trends in the air passenger market

What a traveler wants …

“ … They don’t necessarily want to lieon flat beds, but they do want extra leg-room, a decent meal and some form ofinflight entertainment. … ”

Low-cost carriers entry in premium regions & routes

and to include few premium seats

onboard

Emergence of

“Busy Class”

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Recessionary environment

has opened up a ‘GAP’ in the

market

Travel budget cuts for Corporate clients

“Busy Class” between Business

& Economy

Last minute deals not being marketed well


Airline don’t want to be seen as a low-

cost carrier

Change is in the Air

The future is not for LCCs, nor is it simply for hybrid

versions or for FSC. It is for value airlines, airline which

provide value for money.

Airline check-in to process baggage of

multiple airlines

High fuel costs, labour issues &

economic crises to chisel out airline business model

LCC

Premium All Business

Universal GDS / Web Platform

FUTURE UNIFIED MODEL

Most airlines to

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Common Check-in & Handling Facilities

Common Fleet Management & Operations

Different Onboard Services Companies (Airline)

Most Airlines to have combination of low cost, premium economy & business

Airlines maintaining their differentiation through service components, quality & marketing


Most airlines to provide all value

added services on board to increase

yield

ContinuingConvergence

leading tohybrid model

Specialist staff to cater only onboard

to provide better customer

experience

Common fleet management companies

Next Steps

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For Additional Information

Donna Jeremiah

Corporate Communications

Aerospace & Defense

603 6204 5832

[email protected]

Amartya De

Senior Consultant

Aerospace & Defense

603 6207 1071

[email protected]

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Subhranshu Sekhar Das

Director

Aerospace & Defense

603 6207 1032

[email protected]