innovation & cost leadership, 15. november 2004 © 1 lccs change airline industry established...
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1Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
LCCs Change Airline Industry
Established network carriers
Tourism industry
Airports UnionsAircraft manu-
facturers
New tariffs
New products and
sales channels
(emphasis on
the web / catering
against
payment)
Agressive
marketing in
favour of the
consumer
Charter airlines obtain a different meaning
Package tours versus individual tours
Dynamic packaging
Hotel portals
Airports serve as gateways for
regions / integration into the region
Growths of airports mainly due to LCCs
Requirements adjusted to LCCs
Unions realize significance of LCCs (according to Verdi 70% of all LCCs are unionised)
Business model is reflected in the collective labour agreements
altered requirements
growth due to LCCs
2Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
Agenda
Trends In The Aviation Industry
Low-cost Carriers
Characteristics Of The Low-cost Business Strategy Of Airlines
Low-cost Business Strategies In Other Trades
Summary
3Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
Example: Airport Frankfurt Hahn
Source: http://www.hahn-airport.de/sycomax/files/7064_1LowCost.doc
Frankfurt Hahn - the first German low-cost airport
No glamourous passenger terminals (e.g. no sophisticated docking units and
computer reservation systems)
Therefore, investment costs for a terminal are significantly less than € 5,00 per
passenger
The current capacity for approximately 5 million passengers per year was created for
less than € 17 million (compared to an average of € 100 million needed at other
German locations for a similar scale)
Compensation of lower income from airport fees with higher revenue from the non-
aviation sector (e.g. rental income from the licence holders in the two terminals,
parking fees)
4Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
Example: Touristik Express
Shop-in-shop concept
Trademarks: Wall with offers (taxi-design), Large photo with vacation theme, Red consultation counter
No seats
No display window / no display window decoration
No catalogues but demonstration of daily offers of different tour operators
Touristik Express: Germany´s first low-cost travel agency
5Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
Example: interRent
Characteristics of interRent
Booking via www.interRent.com (98 %) or call center
Fast reservation system with integrated yield management
Payment per credit card only
Complaint rate 0 %.
One-way rental not permitted
No cost-intensive incentive-program
Only one type of car (new VW Golf)
Client cleans the car himself (in- and outside)or he books the cleaning
Penalties if clearly communicated rules are violated
Source: company information
Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
Example: interRent Cont.
Fences between HLX / IR & EC
Source: Company information
Product attributesTOP 10 Description
1 Booking channel
2 Cancelation / No show fee
3 Customer creates user
4 Only pre-payment by credit card
5 Car / aircraft class
6 One way possible
7 Employees per location
8 Revenue management
9 Cap mileage
10 Cleaning payable
HLX
internetcall center
travel agency
yes
yes
(yes)
1
yes
-
yes
-
-
interRent
internet
yes
yes
yes
1
no
1
yes (automatic)
yes (100 km/day)
yes
Europcar
internettelephone
GDS
no
no
no
12
yes
at least 3
yes (manual)
no
no
7Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
Example: wibromed
Establishment into the pharma-market through
Realisation of an innovative discount-strategy
Creation of a transparent pricing and purchasing policy
Voluntary customer retention (no contractual or
contractual-like customer-supplier-relationships)Realisation through
Delivery concept, no in-house logistics
Cost savings through lean structure
Only one delivery of goods per day
Restriction of the stockkeeping on fast moving, on prescription available original products
Optimisation between purchasing- and stockkeeping costs
Direct pass-on of the cost advantages to the customer
Source: company information
8Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
Example: Mobile Phones
Source: http://www.boozallen.de/content/presseforum/4aax_0504_mobilbillig_d.asp
The international management and technology consultancy BoozAllen Hamilton expects low-
cost providers to enter the market for mobile phones
With the rising saturation of European markets for mobile phones low-cost providers are expected to
enter the market
Booz Allen Hamilton expects a cost reduction up to 30-40%
These cost reductions can, for example, be realised through:
Sales via the internet
No costly customer service
Concentration on basis products such as voice
communication and sms-service
Example of an already existing low-cost provider
of mobile phones: the Danish company „telmore“
9Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
Example: Gas Station
Gas Station
Raiffeisen-Markt Wissingen
Bahnhofstraße 28
49143 Bissendorf
Gas station belongs to a supermarket
Fueling 24/7/365
No buildings, no staff
Cash payment or payment by credit card at the
machine next to the petrol pump
No Shop, no sales of car-related articles
No extras (except air), e.g. no water to clean the wind shield
10Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
Agenda
Trends In The Aviation Industry
Low-cost Carriers
Characteristics Of The Low-cost Business Strategy Of Airlines
Low-cost Business Strategies In Other Trades
Summary
11Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
Summary
Re-engineering of processes
(not only doing the same at less cost)
Pass-on of cost savings to customer
Stimulate demand, increase LF
Efficient use of expensive recources e.g. A/C,
labour
Reduction of CMI costs
Pass-on of cost savings to customer
Stimulate demand, increase LF
12Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
Summary
Re-engineering of processes
(not only doing the same at less cost)
Pass-on of cost savings to customer
Stimulate demand, increase LF
Efficient use of expensive recources e.g. A/C,
labour
Reduction of CMI costs
Pass-on of cost savings to customer
Stimulate demand, increase LF
13Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
Summary Cont.
Different strategies of LCCs and FFAs
14Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
Summary Cont.
Different strategies of LCCs and FFAs
15Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
Correlation Between Price And Sales
< 1990
There was only a small market
for very expensive and very
cheap products while there was a
large markt for middle-priced
products.
Purchasing patterns have changed over the years
16Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
Correlation Between Price And Sales
< 1990
There was only a small market
for very expensive and very
cheap products while there was a
large markt for middle-priced
products.
> 1990
There is a decreasing market for
middle-priced products while
there is a significant „high end“
market and a huge market for
cheap products.
Purchasing patterns have changed over the years
17Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
Produktlebenszyklus im Einzelhandel
18Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
Market Segmentation - Example: Food Trade
Cheap discounters (Aldi, Plus)
Rather price-orientated customers
Location: selected, centrally accessible locations
Only few fresh products
Large consumer markets ( Wal-Mart, Real, Marktkauf)
Price- and brand-orientated customers
Location: periphery of high density areas
Fresh products
Small supermarkets (Spar, Rewe, Edeka, Tengelmann)
Rather brand-orientated cutomers
Location: high distribution density especially in urban areas
Counter with fresh products
Specialised shops (Käfer, Dallmayr, Gosch)
Only brand-orientated customers
Location: city centre
Only fresh products
Qualified service
price
brand
Source: SevenOne Media GmbH
19Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
Market Segmentation - Example: Food Trade Cont.
14% 2%
24%28% 30%
38%
33%28%
16%28% 35%
5%
6%8%
5%
1985 1995 2002
Discounters
Supermarkets
WarehousesSelf-service warehouses / Large consumer markets
Others
Discounters and large consumer markets are the winners
Quelle: „Wollen die Deutschen nur noch billig?“, Hans Reischl, Vorstandsvorsitzender der Rewe-Zentral AG, Köln,
fvw-Kongress, 22. Oktober 2003, Köln
20Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
Market Segmentation: Examples
Discounter / Warehouse
Drugstore
Car service
Furniture
Telephone companies
Chocolate
21Innovation & Cost Leadership, 15. November 2004 www.advolar.com ©
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