10/3/06

LCCs

Nice article from Travel Weekly (more meat than usual!)

However I will disagree – LCC is not where the action is any more. It is the LCC local models combined with how to transform the legacy carrier companies into LCC competitive carriers. This is the HVC mode I have spoken about before.

I was at a meeting last week where a large network carrier who is very profitable wanted to lay blame with LCCs who fly old crappy planes. Well the example given was RyanAir. The latter’s fleet is actually younger than the Network Carrier’s fleet.

HVC is where the action is… lets go get us some

T

Plenty of buzz in the air as LCCs spread their wings (10/03/2006)

By Andrew Compart

The ups and downs of LCC enterprises Many low-cost carriers have failed, but many continue to evolve, innovate and grow. Here are a handful of examples: • Nok Air in Thailand sells tickets via thousands of ATMs and 7-11 stores as well as other retail locations. It also has enabled customers to book and pay by text messaging on a mobile phone. The airline created its own music video for MTV. It also limits airport lines by having scantily dressed girls roam the airport with PDAs they use to check in customers who are taking only carry-on baggage. Nok Air even made money on flight attendant recruitment by turning it into a public event sponsored by Coca-Cola and major banks. • Singapore-based Tiger Airways has started selling "flight combos," letting customers book two separate flights in one transaction. Customers still have to move their own checked baggage between the flights, and Tiger isn't promising them they'll make the second flight. That led many delegates at the World Low Cost Airlines Congress last month to question how Tiger would respond if customers blamed the airline when they missed a "connection." • SkyEurope, focusing on Central and Eastern Europe from its bases in the Czech Republic, Hungary, Poland and Slovakia, is offering free bus service to airports to expand the area from which it can attract customers. The airline benefits from its region's lower labor costs and taxes, and it competes with Ryanair and EasyJet on only five of its 73 routes. It recently got a $49 million investment and ordered 32 737s last year (five have already been delivered). • Ryanair flew about 35 million passengers in fiscal 2006, and it expects that number to grow to 78 million by 2012. By March 2007, it will be operating an entire fleet of 134 new 737 aircraft, and it has 115 more on order. They will be delivered over the next six years. Though it will launch its longest route yet in February -- Dublin-Malta service, about a four-hour flight -- the airline's director of new route development, Bernard Berger, insists that Ryanair will remain predominantly short-haul. -- A.C. LONDON -- The low-cost carrier concept is spreading worldwide, or at least it's trying to. But continued global expansion depends on whether enough aviation markets become deregulated. Many executives attending the third annual World Low Cost Airlines Congress here in September predicted that such deregulation was likely and would be driven by consumer demand. "This is where the action is and is going to be, at least for the rest of the decade," declared Lorne Clark, former general counsel and corporate secretary of IATA. Europe, with market leaders Ryanair and EasyJet, has the most intense low-cost competition. In all, LowCostAirlines-Europe.org counts 103 European low-cost airline ventures that flew or made plans to fly, and reports that 57 of them still are in the air. EasyJet has expanded its service beyond Europe to Morocco, and Ryanair is about to do the same and may open up a second home base. Asia was once considered resistant to the LCC concept because of the culture's emphasis on service. But the continent is home to billions more people than the European Union, with lower disposable income and fewer land transportation options, and that appears to have left an opening for low-fare offerings. AirAsia now carries more than a million passengers a month, and LCCs account for one in every 10 seats in the market, up from 1 in 100 five years ago, according to the Centre for Asia Pacific Aviation and OAG. Tiger Airways, 49% owned by Singapore Airlines and 16% owned by the Ryan family of Ryanair fame, is planning to open a second base in Asia this year. One big difference in Asia and the South Pacific, however, is that many of its LCCs were launched by full-service airlines to defend their market share, the CAPA noted. That includes low-cost units started by Qantas (Jetstar), Singapore (Tiger), Thai Airways (Nok Air), Air India (Air India Express) and Air New Zealand (Freedom Air). LCCs also are beginning to take hold in South and Central America. Brazil's Gol, profitable and growing, has been the biggest LCC success story in recent years. CFO Richard Lark said the airline has set a goal to become known by 2010 as "the airline that popularized air transportation in South America." In North America, Interjet became Mexico's first new LCC in December (Click Mexicana is a Mexicana subsidiary) and now claims it has already captured 8% of domestic traffic; four more LCCs are said to be in the works there, thanks to domestic deregulation in Mexico. In the Middle East, Sama, with private and Saudi Royal Family financing, is hoping to take off soon. It will be playing catch-up with 3-year-old Air Arabia, a United Arab Emirates-based airline that reported a profit last year. There are also, among many others, Kulula in South Africa and a low-cost carrier trying to get off the ground in Russia. Even the Chinese government launched a low-cost carrier, Spring Airlines, last July. "It seems to be the buzzword of the moment, that everyone should have a low-cost carrier," Air Arabia CEO Adel Abdulla Ali said at the conference. Growth, challenges, 'daft' ideas Low-cost growth, however, faces different challenges in different regions of the world. For example, in Europe, EasyJet CEO Andrew Harrison identified costly, congested and poorly run airports and environmentalists with "daft" ideas such as a "green tax" on airlines as the two biggest barriers to continued LCC growth there. Some European environmentalists are attacking low-cost carriers, which fly primarily short-haul routes, as bad for the environment because their low fares are attracting many customers who previously used trains. European LCCs also voiced concern about the effects of the new carry-on limits at U.K. airports, now the strictest in the world, and about security officials' ability to process passengers quickly. Competition also is more intense in Europe, and many industry observers predict that a period of consolidation is both inevitable and imminent. Low-cost carriers in Asia have far different concerns, largely because unlike airlines in Europe and North America, they face regulatory restrictions on airline competition that inhibit LCC growth, particularly for flying between countries. For that reason, most of the LCCs there have confined themselves to domestic routes. Tiger Airways broke out of that box, but President and CEO Tony Davis said he is spending a great deal of his time trying to overcome regulatory barriers. Those barriers remain a big concern in many other regions as well. "Everybody in the Middle East dreams of open skies, but it's not there," Air Arabia's Ali said. Nonetheless, airline representatives and analysts at the London conference saw plenty of room for LCC growth worldwide, and they were optimistic that governments would loosen regulations in response to consumer demand. Ali, for example, said he was expecting to see movement in the Middle East within the next 12 to 18 months. In fact, the proliferation of low-cost carriers had some observers at the conference already contemplating the next step, if there is one. "Who's going to connect the dots?" wondered Jay Sorenson, president of IdeaWorks in Shorewood, Wis. By that, Sorenson meant: Which new or existing low-cost carrier is going to operate the low-fare, transatlantic, scheduled service that connects low-cost carriers on the European and North American continents? Most LCCs don't even own or lease aircraft that can fly that far. Besides, long-haul service is more difficult to operate at low cost because of elements such as crew layovers and equipment-backup requirements, and because the distance makes it difficult to attain the high aircraft-utilization rates and frequency many LCCs rely on for maximum efficiency. Breaking long-haul barriers Nonetheless, some low-cost carriers are trying to break through the barrier. Viva Macau, based in Macau, a gambling center on the southern coast of China, is using 767 aircraft with a maximum range of 12 hours to begin service to Jakarta, Indonesia, and the Maldives this year and to Australia, the Middle East and other points in Asia next year. Hong Kong-based Oasis plans to begin flying this month with service to London on 747 aircraft. Jetstar, which started flying within Asia and Australia in 2004, begins its first long-haul service later this year to Vietnam, Japan, Thailand, Bali and Honolulu, and said the 787 aircraft it is scheduled to begin receiving at the end of 2008 could expand its reach to the U.S. West Coast. Aer Lingus has tried to reposition its transatlantic services as low-fare and low-cost, but it remains somewhat of a hybrid on those routes with a business class. The closest thing to Sorenson's vision may be Ottawa-based Zoom, which flies 767 aircraft from eight Canadian cities to five U.K. destinations, including London (Gatwick), and from four Canadian cities to Paris. The Bank of Scotland this August acquired a minority stake in Zoom for about $11 million, which the airline plans to use to establish Zoom U.K., which would fly to non-Canadian destinations. But Zoom, at least so far, isn't making any effort to become a link between low-cost carriers in different countries. To the contrary, it reportedly rejected an overture for an alliance with Canadian low-cost carrier WestJet. Clark, a former IATA secretary general who is also a former chairman of DJ Air Group and now a senior advisor to an international aviation law firm, said he is working with a consultant on a project to study the feasibility of a low-cost service to link low-cost carriers on both sides of the pond.This isn't just a theoretical study; Clark said someone was interested in getting such an enterprise started, if the study finds it can work. There's also plenty of buzz right now about the possibility of LCC alliances to create bigger networks. Alliances add cost and complexity, however, so whether this concept can work -- and whether many LCCs would participate -- remains to be seen

Timothy J O'Neil-Dunne
Managing Partner - T2Impact Ltd
Global Travel eBusiness
Tel (US) +1 425 836 4770
Mobile (US) +1 425 785 4457

Mobile (International) +44 7770 33 81 75
Fax +1 815 377 1583

www.t2impact.com