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Beyond the Low Cost Carrier Model

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© 1 BlueHorizon Group 2014 | PROPRIETARY INFORMATION | All Rights Reserved …

© 1 BlueHorizon Group 2014 | PROPRIETARY INFORMATION | All Rights Reserved
Beyond the Low Cost Carrier Model - The Blue Ocean strategy applied to the airline industry

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  • 1. P R O P R I E TA R Y I N F O R M AT I O N 0© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL BLUE PAPER P R O P R I E TA R Y I N F O R M AT I O N BEYOND THE LCC MODEL THE BLUE OCEAN STRATEGY APPLIED TO THE AIRLINE INDUSTRY March 2014 Updated Comfort Pricing X        1BHG, the ‘idea factory’ thinking ahead strategies www.1bluehorizon.com
  • 2. P R O P R I E TA R Y I N F O R M AT I O N 1© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL O ‘How does a Billionaire become a Millionaire? He starts an Airline…’ is not just an old and famous joke within the Aviation industry, it need to be considered very carefully by anybody thinking to create an airline… O Crisis in the airline industry led to the emergence of LCC´s (Low Cost Carriers) – The crisis has not been caused, but deepened by terrorist attacks on September 11, 2001. Originally, the root cause was the decline of the historically unequalled high yield level in the late 90s and, in parallel, considerable cost increase… O If almost everybody is talking about Low Cost Carrier it is probably because it is law fairs. Unfortunately for common people low cost is also associate to poor quality and safety. Of course it is not true… O I’ve heard a number of times that this business model sounds a little simplistic… Maybe that’s true at face value, but executing and carrying out such an approach requires great discipline, consistent communication with the employees base and an inspirational leadership model… O Summarized, what the heck does low-cost mean? From 1BlueHorizon Group stand point, the LCC Model is more a spirit on how we are able to develop uncontested market space using different recipes… O Welcome ‘Beyond the Low Cost Carrier model’ by thinking ‘1BlueHorizon’… FOREWORD TO THINK ‘1BlueHorizon’
  • 3. P R O P R I E TA R Y I N F O R M AT I O N 2© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL 1BlueHorizon creation concept is an evolution of the ‘Blue Ocean’ Strategy from INSEAD dedicated to Aviation and related businesses Blue Ocean StrategyRed Ocean Strategy Compete in Existing Market Space Beat the Competition Exploit Existing Demand Make the Value / Cost Trade-off Align the whole system of a player’s activities with its strategic choice of differentiation OR low cost Create Uncontested Market Space Make the Competition Irrelevant Create and Capture New Demand Break the Value / Cost Trade-off Throughout Value Innovation Align the whole system of a player’s activities with its strategic choice of differentiation AND low cost Source: The Blue Ocean Strategy (INSEAD 2005) from Professors W. Chan Kim and Renee Mauborgne - http://www.insead.edu/home
  • 4. P R O P R I E TA R Y I N F O R M AT I O N 3© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL Rather than competing with the confines of existing markets, the approach suggests developing uncontested market space - making the competition irrelevant Source: The Blue Ocean Strategy (INSEAD 2005) from Professors W. Chan Kim and Renee Mauborgne - http://www.insead.edu/home  Value innovation is a strategic move that allows a market player to create a blue ocean and helps companies make giant leaps in the value provided to customers through the simultaneous pursuit of differentiation and low cost  Competing in overcrowded industries does not sustain high performance  The real opportunity is to create blue oceans of uncontested market space  By focusing on competition and “competitive advantage”, players will ignore the two lucrative aspects of strategy: To find and develop blue oceans and to exploit and protect blue oceans  In blue oceans, demand is created rather than fought over  There are two ways to create blue oceans: to launch completely new industries or to create a blue ocean from within a red ocean when players expand the boundaries of an existing industry Create Uncontested Market Space Make the Competition Irrelevant Create and Capture New Demand Break the Value / Cost Trade- off Throughout Value Innovation Align Players System with Strategic Choice
  • 5. P R O P R I E TA R Y I N F O R M AT I O N 4© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL Value creation is a strategic ‘move’ that allows a market player to create a ‘Blue Ocean’, and can be archived through the ‘four actions framework’ Source::The Blue Ocean Strategy (INSEAD 2005) from Professors W. Chan Kim and Renee Mauborgne - http://www.insead.edu/home Definition  Value innovation helps companies make giant leaps in the value provided to customers through the simultaneous pursuit of differentiation and low cost  Value innovation offers buyers a huge leap in value, and that will give rise to new markets  Value innovation balances costs of delivering the value proposition with what the buyer values, to resolve the trade-off dilemma  In Value Innovation, instead of compromising the value wanted by the customer because of the high costs associated with delivering it, costs are eliminated or reduced Create a new value leap that crosses conventional market segmentation Reduce Which Factors / Costs should be reduced well below the industry’s standard Raise Which Factors should be raised well above the industry’s standard Eliminate What of the Factors that the industry takes for granted should be Eliminated? Create Which Factors should be created that the industry has never offered?
  • 6. P R O P R I E TA R Y I N F O R M AT I O N 5© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL Furthermore, six other strategic ‘moves’ are required to re-establish market boundaries and create ‘Blue Oceans’ - The Six Paths Framework Source: The Blue Ocean Strategy (INSEAD 2005) from Professors W. Chan Kim and Renee Mauborgne - http://www.insead.edu/home Red Ocean Strategy (Head to Head Competition)  Focuses on rivals within its industry  Focuses on competitive position within strategic group  Focuses on buyer serving the buyer group  Focuses on maximizing the value of product and service offerings within the bounds of its industry  Focuses on improving price performance within the functional – emotional orientation of the industry  Focuses on adapting to external trends as they occur Blue Ocean Strategy  Looks across alternative industries  Looks across strategic groups within industry  Redefines the industry buyer group  Looks across complementary product and services offerings  Rethinks the functional – emotional orientation of the industry  Participates in shaping external trends over time Industry Strategic Group Buyer Group Scope of Product or Service Offering Functional – Emotional Orientation Time Conventional Boundaries of Competition
  • 7. P R O P R I E TA R Y I N F O R M AT I O N 6© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL Rather than competing with the confines of existing markets, the Low Cost Carrier (LCC) approach suggests developing uncontested market space  Crisis has not been caused, but deepened by terrorist attacks on September 11, 2001. Originally, the root cause was the decline of the historically unequalled high yield level in the late 90s and, in parallel, considerable cost increase  For the ‘classic’ network carriers, the critical situation has also deteriorated due to the current boom of low cost carriers (LCCs), the only players in the market to gain money despite the crisis  LCCs capitalize on their simple and efficient business model and their extremely lean cost structure (up to 60% lower unit costs in comparison with network carriers)  Wherever LCCs have entered the markets successfully, they gain considerable market share, stir additional demand and cause a declining yield level. In theory, LCCs can attack 70% of all domestic/continental traffic markets  Southwest Airlines traces its roots to the March 15, 1967 incorporation of Air Southwest Co.. On March 29, 1971, Air Southwest Co. changed its name to Southwest Airlines Co.. The rest of 1971 and 1972 saw operating losses. Southwest entered a terrible marketplace that a Porter five forces analysis would have said was a blood bath… Undoubtedly Southwest Airlines was the LCC forerunner in the airline industry Source: 1BlueHorizon Group Analysis – The Low Cost Carrier (LCC) model is born
  • 8. P R O P R I E TA R Y I N F O R M AT I O N 7© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL The strategy canvas of the ‘Short Haul’ airline industry: The criteria / rules / boundaries of the airline industry are listed along the x-axis Source: 1BlueHorizon Group Analysis – Low Cost Carriers Strategy Canvas High Relative offering level Low • Price • Meals • Lounges • Seating choices • Hub Connectivity • Friendly Service • Speed • Frequent departures Low Cost Carriers Other Airlines Car
  • 9. P R O P R I E TA R Y I N F O R M AT I O N 8© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL Actually, the airline industry growth is mainly driven by price-sensitive as well as new air passengers not able to afford in the past air tickets  Strong LCC-growth results from origin of LCC passengers – Price-sensitive passengers poached from other airlines – Demand stimulation towards additional travellers due to introduction of new routes (mainly secondary airports) – Demand stimulation towards new air passengers having chosen another medium of transport before  Price-related passenger poaching from other airlines is driven by overlap in customer segments 40% “Poached price-sensitive Passengers” "Additional Travelers" 20% “New Air Passengers“ Business/ Weekend-trips - Flight plan - Flexibility - Service - Miles program Package tour - Convenience - All incl. price - Local service offering Price-sensitive Leisure/ Business flights - Price - Destinations - Minimum comfort Full Service (FSC) Charter Low Cost (LCC) Holiday trips (flight only) Business flights1) Leisure/ Visit Source: 1BlueHorizon Group Analysis
  • 10. P R O P R I E TA R Y I N F O R M AT I O N 9© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL The budget carrier emergence was clearly (one) 1BlueHorizon creation to survive and/or to develop uncontested market space…  The first low cost carrier is generally considered to be the American company Southwest Airlines which launched in 1971, with the then revolutionary concept that you could lower the cost of ticket prices by eliminating some of the extras and therefore save passengers money  (1)Southwest is the largest airline in the United States, based in Dallas (Texas), mainly for domestic passengers carried who operates more than 3,300 flights a day and utilizing a fleet of 88 B717 and 613 B737 aircrafts.  The baton was picked up in the UK by Ryanair, in 1990, still the biggest contender in the field. Ryanair is often viewed as the lowest of the low cost, both for its cheap prices, its service and the fact that many airports are quite some distance from the town they claim to land in. The LCC is a model for airlines with different recipes that lead to success…  Ryanair Ltd. (FR) is an Irish low-cost airline established in 1985 (by Christopher Ryan, Liam Lonergan) with is head office in Dublin Airport and its primary operational bases at Dublin Airport and London Stansted Airport.  Making losses, by 1991, Ryanair was in need of restructuring. Michael O'Leary was charged with the task of making the airline profitable. He quickly decided that the key to low fares was to implement quick turn-around times for aircraft, "no frills" and no business class, as well as operating a single model of aircraft (went public in 1997).  Ryanair operates over 290 Boeing 737-800 aircraft. The airline has been characterized by rapid expansion as a result of the deregulation of the aviation industry in Europe in 1997. Note: (1)In May 2011 the airline acquired Orlando-based AirTran Airways, with a single AOC since March 1st 2012 and full integration of the carriers taking place over several years. Source: Companies websites, 1BlueHorizon Group Research & Analysis
  • 11. P R O P R I E TA R Y I N F O R M AT I O N 10© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL The low cost carriers(1) are following different operational model – different LCC recipes(2) from the ‘1BlueHorizon Cookbook’(2) Note: (1)Also known as low cost airlines or no-frills, discount or budget carriers (2) ‘LCC recipes’ are available upon request from ‘1BlueHorizon Cookbook’ Source: 1BlueHorizon Group | Framework Lessons learned Airline industry case study  Only an up front specified market segment is addressed (-> targeted value proposition) Principally doable for the legacy Air Carrier?        LCCs need to achieve significant cost differences along all cost categories (at 40% of incumbent)  Wherever LCCs enter markets successfully, they gain considerable market share and create additional demand  With superior cost position, extreme pricing is possible which is hardly to be beaten through incumbents  Market volume and market share are increased by penetration and usage increase  Successful models have often been developed from scratch – downsizing existing models is questionable
  • 12. P R O P R I E TA R Y I N F O R M AT I O N 11© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL Looking briefly at the economics of European carriers, the LCCs benefits from big cost differences (up to 60% lower unit costs than network carriers) Note: (1)ASM = Available Seat Mile Source: 1BlueHorizon Group Analysis – Overview of the share of total costs 2012 Adjusted Cost Difference (8.41 C/ASM(1)) (European carriers) ► Productivity gain through higher utilization in LCC Business Model ► Different tariffs/work rules (e.g. performance-based remuneration) ► Reduced service concept (e.g. minimum crew complement, check-in process) Labor Costs 33% ► Innovative direct sales (e.g. internet bookings, call centers, no travel agents/commissions) ► Lower GDS charges Sales & Reservations 15% ► Young homogeneous fleet ► Aggressive negotiation of maintenance contracts ► Subcontracting Maintenance 13% ► Dense airport schedule/rapid gate turnaround and no-frills service concept ► Partly favorable contracts at secondary airports Ground Handling 12% ► Reduced charges due to less value added by the airport ► Secondary airports Landing Fees 9% ► Fuel: Purchasing and fleet efficiency ► Ownership Costs: Financing Conditions ► Onboard Services: No frills service concept Others 18% Share of Total Costs
  • 13. P R O P R I E TA R Y I N F O R M AT I O N 12© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL Beyond the Low Cost Carrier model: definitely the LCC spirit can be used in an infinite number of ways to support 1BlueHorizon creation O The Low Cost Carrier business model as 1BlueHorizon outcome give us four questions to which we can start thinking about during the airline business plan development process to create uncontested market space (niches):  Which of the factors that the Aviation & Aerospace industry takes for granted should be eliminated?  Which factors should be reduced well below the Aviation & Aerospace industry's standard (safety & security excluded)?  Which factors should be raised well above the Aviation & Aerospace industry's standard?  Which factors should be created that the Aviation & Aerospace industry has never offered? I sincerely wish that the airline venture will change the trend of air travel… Time will only tell us… Note: MENA stands for "Middle East & North Africa / EMENA stands for Europe, Middle East & North Africa ‘from R e d to B l u e Horizon’
  • 14. P R O P R I E TA R Y I N F O R M AT I O N 13© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL Non exhaustive The airline Puzzle (the venture is tough!) ‘Prepare to Takeoff’ (the target) Launching an airline is very challenging and similar to a puzzle where the success depend on how each pieces fit each other 1 B l u e H o r i z o n G r o u p  From the LCC Idea to the take-Off Source: © 1BlueHorizon Group | ‘The Airline Puzzle’ Framework
  • 15. P R O P R I E TA R Y I N F O R M AT I O N 14© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL Source: © 1BlueHorizon Group | ‘Start me Up A-Plan’ Framework 1BlueHorizon ‘start me up A-plan’ (Afor Airline) Airline Model highlight Would you like to see your Aircraft in the air flying at your brand? You are at the Idea Phase of your new airline. Do not fall into same mistake that many investors do. Prior to your investment, listen to our professionals by keeping in mind that airline business requires more sophisticated management skills and experience than having capability of operation of an aircraft, and more detailed financial and commercial analysis other than changing numbers in standard excel sheets. Best Strategy with a wide vision can be established at the Idea Phase of Your New Airline. Do not try to fly with your wings, as it can hurt falling from high altitudes, due to the fact that recovery plan should be identified clearly before you take off… the usual ten main phases to be carefully developed to avoid any pitfall © 1BlueHorizon start me up A -plan
  • 16. P R O P R I E TA R Y I N F O R M AT I O N 15© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL AOC Certification Date Business Plan Commercial Operation AOC Approval Process1 Aircraft Registration Human Resources National Civil Aviation Authority / Ministery in charge of transportation Approved Training Organisation Infrastructure Maintenance Organizational Approval Continuous HR Recruitment Continuous Infrastructure Expansion Projectowneraim/FeasibilityStudy 3 4 5 7 8 6 Enter Intro Service Typical comprehensive high level framework for processing of an Air Operator’s Certificate (AOC) including its subordinate permissions Finance&Aircraftsourcing 2 AirlineManagementAdvisorySupport 1109 Source: © 1BlueHorizon Group | Framework - IATA http://www.iata.org/whatwedo/safety/audit/iosa/Pages/index.aspx The IATA Operational Safety Audit (IOSA) programme is an internationally recognized and accepted evaluation system designed to assess the operational management and control systems of an airline. It should be a prerequisite for any start-up airline willing to access once the European airspace to be build on the IOSA guidelines, and then to be certified IOSA.
  • 17. P R O P R I E TA R Y I N F O R M AT I O N 16© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL Source: © 1BlueHorizon Group | The Air Transport Fundamentals Framework ‘to be able to take off and generate revenue’ Having the AOC is not being Airborne… The appropriate infrastructure and legal framework is required to allow the expected flight phases Traffic Rights Over flight Permits Airport Slots Allocation 4 Engineering Line-Maintenance 2 Station Management Ground Hand handling Fuel Supply 1 Station Management Ground Hand handling Fuel Supply 7 Airport authority6 General Civil Aviation Authority / ICAO / IATA Air Traffic Control3 5 Operating an airline is not just a matter of having an AOC and aircraft… Still some homework to be done before to start generating revenue
  • 18. P R O P R I E TA R Y I N F O R M AT I O N 17© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL Last but not least, it appear useful to consider the pie chart that illustrates the huge operating costs of running an airline… Source: 1BlueHorizon Group Analysis The fuel rate in some places might be definitely a competitive advantage ! Capacity planning a key area 29 % 14 %14 % 8 % 7 % 7 % 14 %  Whether an airline is starting up, growing or focusing on profit opportunities, capacity planning is one of the most important areas in the business-planning process. Although there are many contributing departments leading up to the induction of an aircraft, such as operations, finance and legal, network and fleet planning are responsible for matching the appropriate capacity to demand, which can make the difference between an operating loss or profit.  Three main components - aircraft ownership, fuel and maintenance - account for more than half of an airline’s operating expenses. While they are not entirely controllable, it is essential to factor them into the fleet- planning decision.  Excluding ownership and despite the oil fall, fuel makes up the largest percentage of an airline’s direct operating costs (40%). As an aircraft ages, its fuel efficiency declines. Additionally, its maintenance expenses rise. Therefore, while the ownership costs for an older aircraft might be less than that of new aircraft, the lower cost of fuel and maintenance for a newer aircraft may offset the higher cost of ownership. ‘Modern aircraft are somewhat more fuel efficient, but they still suck jet fuel like a Hoover sucks dirt…’ 7 %
  • 19. P R O P R I E TA R Y I N F O R M AT I O N 18© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL First cash positive year First flight First profitable month Deposit Investmentrequired Minimum cash = 1 month of cost 0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 Source: © 1BlueHorizon Group | The Air Transport Fundamentals Framework ‘to be able to take off and generate revenue’ … and the cash balance for the first years of operations, generating profit very quickly is more a dream and financiers are generally cautious HR cost Accelerated losses
  • 20. P R O P R I E TA R Y I N F O R M AT I O N 19© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL Keep in mind a few advises before to open the Airline venture door because even you have the best operational model or an unique market opportunity (niche), only once the operations start you will know the truth… ■ As within the Aviation & Aerospace industry you will find a lot of ‘sharks’ looking to make money, be extremely careful and don’t take everything for granted… ■ As the Aviation is a very competitive industry, keep everything confidential and avoid talking about your project until you are very close to start operations… ■ I f you are giving the right kind of segmentation strategy and good execution, there will be enough room in the market for multiple service offering…. ■ The future performance of your project will depend on the strength of the selected business model and the focus going forward… ■ Finally, don’t copy/paste an existing airline. Benchmark them, learn from them and find out where is a niche, where is potentially (one) 1BlueHorizon … A maxim never to be forgotten before to start an airline venture: ‘How does a Billionaire become a Millionaire? Start an Airline…’
  • 21. P R O P R I E TA R Y I N F O R M AT I O N 20© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL We are used to generate 1BlueHorizon® out of the Rough... Customers with specialized needs often choose us for our unique custom turnkey solutions to propel their business further… THANK YOU 1BlueHorizon Group® Key Senior Personnel LEONARD FAVRE - Partner, Managing Director Email: leo@1bluehorizon.com Abu Dhabi (U.A.E.) & Bern (Switzerland) A strategic thinker with 25 years progressive experience in aviation environments with a proven background as airline project manager, restructuring and performance improvement advisor or in senior airline executive roles. He started his involvement in the airline industry following the dramatic grounding of the National carrier Swissair in October 2001 as one of the Swiss ministry of Economy adviser. Professional background (highlights)  Chief Restructuring Officer for a family conglomerate, managing a fleet of more than 20 aircraft (wet lease, charter and re-marketing);  Director Enterprise Improvement for AlixPartner LLP, part of the core team restructuring a major Middle East airline for fleet and strategy;  Vice-President Business Development & Strategy for Maximus Air in Abu Dhabi, where he managed the wet lease fleet (ACMI & Charter) and developed it into a leading Middle-East brand through the improvement of operational capabilities and fleet management;  Senior Associate with Booz Allen Hamilton where he directed successfully, major start-up airline projects in the Middle-East and Europe. Any clarifications or questions regarding this document should be addressed to: Note: Detailed References upon request
  • 22. P R O P R I E TA R Y I N F O R M AT I O N 21© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL SOLUTIONS PACK 1BLUEHORIZON GROUP GENERATING THRUST TO PROPEL YOUR BUSINESS FURTHER... March 2014 We generate 1B l ue H o r i z o n® out of the Rough... www.1bluehorizon.com P R O P R I E TA R Y I N F O R M AT I O N A s s e t M a n a g e m e n t | M a n a g e m e n t C o n s u l t i n g | I n t e r i m M a n a g e m e n t A b u D h a b i | B e r n | L o n d o n | M a d r i d | M o n t r e a l | P a r i s       
  • 23. P R O P R I E TA R Y I N F O R M AT I O N 22© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL Source: © 1BlueHorizon Group | Corporate profile 1BlueHorizon Group® value proposition is simple — Going the Extra Mile by generating trust to propel your business further O 1BlueHorizon Group® (Asset Management | Management Consulting | Interim Management) was established in 2007 as a network of International aviation professionals, providing objective, independent, evidence-based analysis, advice and implementation support. We build on the experience of our team to help clients realize real and measurable results, quickly. Start-ups, restructuring, cost cutting, project management office, due-diligence or exploiting growth opportunities, we have experts who have faced these challenges. O Our highly competent seasoned senior professional have experience from leading companies in both management roles within their disciplines and as senior level professional advisors throughout diverse and complex locations in the Middle East, Europe, Africa, Asia Pacific and North America. O Privately owned, 1BlueHorizon Group® is independent of any financial institution, manufacturer, operator, insurance company or maintenance provider assuring our clients the benefit of truly unbiased, comprehensive and flexible provision of service. O 1BlueHorizon Group® believes in working closely with client staff to transfer our knowledge and experience, which means 1BlueHorizon Group® continues to deliver value long after the project is complete. O A unique blend of languages, age groups, cultural backgrounds and skills qualifies 1BlueHorizon Group® to provide turnkey solutions for any and all of your aviation requirements - worldwide. O 1BlueHorizon Group® range of services is continuously tailored and adapted to suit the geographical scope and needs of our customers. P R O P R I E TA R Y I N F O R M AT I O N
  • 24. P R O P R I E TA R Y I N F O R M AT I O N 23© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL Family conglomerates (Governance, Portfolio analysis and investment Strategy) Economic development (Business review / Cluster / Project Management office) Air Transportation (Airline / Airport / General Aviation / Aerospace & Defense) Management Consulting Operational Improvement Our understanding of operational improvement is quite simple: Whereas restructuring is about stabilizing a company and fixing how it does things, operational improvement is about seeing a company through the transformation of becoming more competitive – going the Extra Mile. Asset Management Fleet Strategy & Planning With our Fleet Solutions, we can help you expand your fleet, transition from older models to newer aircraft types, or provide interim capacity. We back our support with a global team of technical experts and industry specialists who will provide you with the fleet solution and support that meets your specific needs. Interim Management Knowledge transfer Finding talent is difficult even at the best of time. Finding resources to assist for a short- term assignment of a proven heavyweight interim executive manager to manage a period of transition, crisis or change within an organization or to take on critical projects or senior positions for a limited time is even more difficult. Ahead of Strategies Three Practices Shareholders and management of companies with specialized needs often choose 1BHG for our unique custom turnkey solutions. If you want a business plan or a feasibility study to assess the case, or your are burning cash and running into trouble, or seek help to assess the case for entering immunized joint venture or looking for an interim management solution… 1BlueHorizon Group® highly competent seasoned professional will assist you to propel your business further… Going the extra mile ahead of strategies … 1BHG® Business model dedicated to particular Sectors is built around three Practices providing clients with turnkey solutions to maximize Value Creation Source: © 1BlueHorizon Group | Business model with Sectors (Horizontals) & Practices (Verticals) P R O P R I E TA R Y I N F O R M AT I O N … no matter how complex the issues are!
  • 25. P R O P R I E TA R Y I N F O R M AT I O N 24© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL Our three Sectors expertise covers the entire breadth of the Aviation and Defense sector, Economic development and Family conglomerates Airline Economic development Corporate governance structure  Portfolio analysis  Investment strategy  The family element  Performance Management  Organization Improvement  Privatization  Aerospace cluster  Logistic, Cargo, GH Airport Family conglomerate  Restructuring MRO, Aerospace & Defence  Performance Management  Organization and Change Management  Pricing and Revenue Management  Market Forecasting  Branding, Marketing and Sales General aviation Aerospace & Defence  Feasibility, Business Plan  Operations Improvement  Merger & Acquisitions  Due Diligence  Fleet Planning  Business review  Cluster strategy  Project Management office  Public–private partnership (PPP) Source: © 1BlueHorizon Group | Core competencies in the main three Sectors P R O P R I E TA R Y I N F O R M AT I O N … and our clients well recognize this!
  • 26. P R O P R I E TA R Y I N F O R M AT I O N 25© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL Interim Manage- ment Managing Consulting Asset Management  The Management Consulting (MC) Practice is our ability to strike a rapport working side by side with you and quickly understanding what you need when the margin of error is thin… Providing a highly targeted surgical strike (to-the-point) to improve de performance and going the extra mile…  The Interim Management (IM) Practice help you by giving comfort and control with relevant seasoned advisors whenever and wherever they are needed… Whereas a management consultant provides an advisory role, Interim managers with performance improvement focus are directly responsible in delivering quick results, visible and measurable...  The Asset Management (AM) Practice works individually with each of our clients to develop creative strategies and solutions for all types of aviation equipment, with innovative financing models.… Source: © 1BlueHorizon Group | Practices Performance improvement Quick results / Hands-on Turnkey solutions Knowledge transfer Ahead of Strategies… The 1BlueHorizon® difference 1BlueHorizon Group® three dedicated Practices are built to propel clients business further with a comprehensive approach ahead of strategies P R O P R I E TA R Y I N F O R M AT I O N GENERATINGTHRUSTTO PROPEL YOUR BUSINESS FURTHER...
  • 27. P R O P R I E TA R Y I N F O R M AT I O N 26© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL 1BlueHorizon Group® Asset Management Practice – AM at a glance Customers with specialized needs often choose us for our unique custom solutions Source: © 1BlueHorizon Group | Asset Management Practice (AM) at a glance P R O P R I E TA R Y I N F O R M AT I O N If you’re seeking: O A dedicated team with proven aviation asset management experience with the entire scope of services from initial marketing through technical services, lease management and remarketing O Access to a world recognized industry research team with proven track record working for global clients O An opportunity to benefit from 1BHGB’s ‘one stop shop’ aviation portfolio of skills and services O Long term commitment to the industry with a global presence along an international network of Partners in the EMEA Region (Europe, Middle East and Africa) enabling us to stay in contact with potential customers on a daily basis O Access to high quality independent technical know how for all aircraft types O Someone who understands the needs of the investor community and its customers and has extensive experience… Then look no further than 1BlueHorizon Group® Asset Management Practice (1BHG - AM) to provide you with the highest possible standards of service and advice. Advantages of Operating Lease Aircraft Remarketing  When you use us to sell, re-lease or trade aircraft, you don’t just get the best transactional service on the market. You get the full benefit of our unrivalled marketing expertise, in-depth knowledge of the entire aircraft industry, enormous collective experience in the market and a vast network of contacts.  Potential targets are identified by our teams, working through established processes that get results…fast, and ensure maximum coverage of the potential customer base.  Our financial analysis capabilities can then prove decisive in helping you to choose the best transaction.  So whether selling, arranging finance or re-furbishing and re- configuring aircraft for re-marketing, we can provide services to add real value to the transaction - meaning you get the best possible deal. Remarketing is an ongoing activity driven by the market, opportunity and the owners’ strategy…
  • 28. P R O P R I E TA R Y I N F O R M AT I O N 27© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL 1BlueHorizon Group® Asset Management Practice – AM at a glance (cont’d) Sometimes all you need is clear, concise and professional advice Source: © 1BlueHorizon Group | Asset Management Practice (AM) at a glance P R O P R I E TA R Y I N F O R M AT I O N Advantages of Operating Lease Technical Services  Our experience in managing a range of aircraft types for clients around the world gives you the peace of mind that we are monitoring the technical condition of your aircraft when they’re on lease, and continuously reviewing their schedule of inspections to take into account changes in financial or technical performance of the lessee. We ensure that all the terms of the lease contracts are being strictly adhered to and putting us at the forefront in this highly valuable element of managing the aircraft lease.  Regular reviews provide you with detailed reports that are designed to clearly highlight any areas of concern, and provide advice as to the most suitable means of rectification.  Our skills in negotiating and managing tailor made vendor and third party maintenance and service agreements will protect your assets and ensure they remain attractive throughout their life.  Our expertise in the key area of maintenance reserve adjudication ensures that any reserves accumulated by the Lessor are applied correctly, thus retaining the full value of the asset throughout the lease term. Advantages of Operating Lease Our knowledge and experience of the commercial aircraft, freighters and business aircraft market, means we’re well placed to provide you with quality advice when considering aircraft acquisitions, lease advice, operational management, market reviews and outlook and or remarketing. Our market knowledge ensures you’re getting the best available data to make decisions on the price of your deal and we’ll provide assistance in discussing the prevailing market conditions for certain types and their potential impact on current and future values.
  • 29. P R O P R I E TA R Y I N F O R M AT I O N 28© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL 1BlueHorizon Group® Managing Consulting Practice – MC at a glance Our goal is to provide leadership for helping you achieve higher levels of success Source: © 1BlueHorizon Group | Managing Consulting Practice (MC) at a glance P R O P R I E TA R Y I N F O R M AT I O N CXOs are increasingly focusing on corporate strategies to deliver outcomes that contribute measureable business value. Aligning technology investments to corporate strategies is the key to create competitive advantage, grow the business, and increase revenues. Our team members experience enables a richer understanding of client needs, the competitive landscape, the opportunity landscape, product build out, revenue drivers, and solutions tailoring.
  • 30. P R O P R I E TA R Y I N F O R M AT I O N 29© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL 1BlueHorizon Group® Managing Consulting Practice – MC at a glance (Cont’d) Our Solutions Center is providing tailor made solutions with focus on results Source: © 1BlueHorizon Group Managing | Consulting Practice (MC) at a glace – 1BHG Solutions Center (non exhaustive)  Strategy & Leadership  Organization & Change  Due Diligence  Joint Ventures  Competitive Analysis  Network Strategy & Planning  Pricing Strategy / Yield Management  Capacity Management  Airline Alliance & Partnerships  Cargo strategy and Management  Aircraft Selection  Fleet Planning & Scheduling  Sales & Distribution  Ancillary Revenues  Airline Loyalty Programmes  Product Design and Marketing  Strategy & Leadership  Acceleration of economic growth  Cluster Strategy  Tourism Strategy  Organizational design & Reform  Project Management Office (PMO)  Personnel management and planning  Investment Promotion and Marketing (incl. Real Estate projects support)  Strategic studies  Roadmap & Performance reviews  Capability definition studies  Options development and analysis  Information & Knowledge management  Building Public-Private Partnership  Strategy & Leadership  Governance  Ways to structure for the next generation, understanding the additional dimensions that influence the conventional strategy framework - the family element  Portfolio analysis, including restructuring a poorly performing portfolio and disinvestment  Competitive Analysis  Due Diligence  Joint Ventures  Mergers & Acquisitions Economic development Family conglomerateAviation, Aerospace & Defense We highlight here some of the specific technical expertise of our team members. Of course, we do not list everything here so if you don't find something listed, please do not hesitate to contact us. We may still have strong capabilities to serve you... P R O P R I E TA R Y I N F O R M AT I O N
  • 31. P R O P R I E TA R Y I N F O R M AT I O N 30© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL 1BlueHorizon Group® Interim Management Practice – IM at a glance Business solutions by an independent senior manager, for a limited period of time Source: © 1BlueHorizon Group | Interim Management Practice (IM) at a glance P R O P R I E TA R Y I N F O R M AT I O N ■ Organizations have become more streamlined and typically retain core management to deal with their transactional requirements. As such they no longer have the available resources to manage exceptional or unforeseen circumstances or have the in-house skills to deliver specific projects. ■ Interim Executives give organizations the opportunity to utilize management resources to handle these situations, whilst operating with a leaner structure. Interim Executives provide functional expertise gained from a wide range of organizations and industry sectors. ■ Interim Management is a short-term executive resource with proven skills to allow organizations to manage in a period of Transition, Change, Gap management or Crisis. ■ It provides flexibility to organizations when they need to inject a strong track record of management success combined with specific functional skills. There are many factors that make interim management an essential option for organizations, which include: ► Interim Executives can be in place within days. The speed of recruitment gives organizations the flexibility to respond to market forces allowing them to implement key decisions rapidly. ► Interim Executives bring knowledge. They will have had experience of dealing with a number of different challenges and situations which means they will be over qualified for the role and ensures they are equipped to handle any issues they are asked to deal with. ► Interim Executives are independent and impartial. They offer your organization a fresh outlook whilst providing you with effective solutions on how to handle situations. They remain objective in dealing with the processes and not seeking promotional advancement. ► Interim Executives have clear responsibilities to deliver outcomes from planning through to implementation, review and handover. ► Interim Executives bring considerable expertise and are able to transfer both specialized knowledge and ideas on best practice, giving additional value to their hands-on approach to delivering results. Interim Executives are not seeking permanent positions and are committed to an Interim career. As an interim is constantly judged on their ability to deliver against objectives, their previous experience provides organizations with the assurance they seek.
  • 32. P R O P R I E TA R Y I N F O R M AT I O N 31© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL 1BlueHorizon Group® Interim Management Practice – IM at a glance (cont’d) Interim Management is delivering quick results, visible and measurable Source: © 1BlueHorizon Group | Interim Management Practice (IM) at a glance P R O P R I E TA R Y I N F O R M AT I O N Ability to create quickly a positive working environment during a period of change and transition… Self motivated and hard working with the willingness to provide and present results on a monthly basis… Aware of, but not driven by, internal politics, so making them ideal during periods of change... Excellent analytical skills. Ability to create roadmap to success rapidly… A fundamental management tool for shareholders, boards of directors, management committees and human resources directors… The four elements to any Interim Management assignment are Diagnose, Plan, Implement and Exit… A ‘hands-on’ specialist with significant experience and a proven track record in the related industry… The willingness to share expertise and experience… … whereas a management consultant provides an advisory role, interim managers are directly responsible and accountable to the business in their own right !
  • 33. P R O P R I E TA R Y I N F O R M AT I O N 32© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL “1BlueHorizon Group is the only consulting firm that works successfully on all levels: Board level, middle management, implementation" “1BHG senior personnel come in with strong views but integrate perfectly in our teams" “1BHG has convinced us through it's excellent industry- and technology expertise" "The 1BHG team knows perfectly well how to push the necessary change" “1BHG guys are implementation - oriented and their cooperation with my people is very good " “1BHG Practice has very qualified people who really know a lot about our industry" Testimonials - What do our Customers think about 1BlueHorizon Group® "In each project step, we could clearly identify 1BHG's added value and improve the overall bottom line" P R O P R I E TA R Y I N F O R M AT I O N THE ONLY WAY TO DO GREAT WORK IS TO LOVE WHAT WE DO… A MILE OF RUNWAY WILL TAKE YOU ANYWHERE NO ONE HAS EVER COLLIDED WITH THE SKY Note: A list of qualifications is made available separately
  • 34. P R O P R I E TA R Y I N F O R M AT I O N 33© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL Published books and decisive management theories that facilitate critical dialogue and support 1BlueHorizoncreation A short selection of inescapable aviation related books “Baseline” (Philosophy) “Low Cost Carriers” “Courier services” “Various” Airlines’ Turnaround “Air Transport Management” Source: © 1BlueHorizon Group | Recommended bibliography (non exhaustive) P R O P R I E TA R Y I N F O R M AT I O N Partners Network – Aviation Sector
  • 35. P R O P R I E TA R Y I N F O R M AT I O N 34© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL LEGAL DISCLAIMER © 1BlueHorizon Group®. All rights reserved. Without the prior written consent of 1BlueHorizon Group®, it is not permitted to modify this document or create derivative works. High quality global airline industry insight requires investment. Please do not cut & paste the document. Email info@1bluehorizon.com to get / buy additional rights. This presentation has been prepared by 1BlueHorizon Group® (1BHG or the ‘Company’). This presentation does not constitute or form part of any offer to sell or issue, or invitation to purchase or subscribe for, or any solicitation of any offer to purchase or subscribe for, any securities of the Company or in any other entity, nor shall this document or any part of it, or the fact of its presentation, form the basis of, or be relied on in connection with, any contract or investment decision, nor does it constitute a recommendation regarding the securities of the Company or any other company. The information contained in this presentation has not been independently verified. This presentation does not purport to be all-inclusive or to contain all the information that a prospective investor in securities of the Company may desire or require in deciding whether or not to offer to purchase such securities. No representation or warranty, express or implied, is made or given by or on behalf of the Company or any of its affiliates (within the meaning of Rule 405 under the US Securities Act 1933) (‘Affiliates’), members, directors, officers or employees or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this presentation or any other material discussed verbally. None of the Company or any of its Affiliates, members, directors, officers or employees nor any other person accepts any liability whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith. The information in this presentation includes forward-looking statements which are based on the Company's or, as appropriate, the Company's directors' current expectations and projections about future events. These forward-looking statements may be identified by the use of forward-looking terminology, including the terms ‘believes’, ‘estimates’, ‘plans’, ‘projects, ‘anticipates’, ‘expects’, ‘intends’, ‘may’, ‘will’ or ‘should’ or, in each case, their negative or other variations or comparable terminology, or by discussion of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements, as well as those included in any other material discussed at any analyst presentation, are subject to risks, uncertainties and assumptions about the Company and its subsidiaries and investments, including, among other things, the development of its business, trends in its operating industry, and future capital expenditures. In light of these risks, uncertainties and assumptions, the events or circumstances referred to in the forward-looking statements may differ materially from those indicated in these statements. Forward-looking statements may and often do materially differ from actual results. None of the future projections, expectations, estimates or prospects in this presentation should be taken as forecasts or promises nor should they be taken as implying any indication, assurance or guarantee that the assumptions on which such future projections, expectations, estimates or prospects have been prepared are correct or exhaustive or, in the case of the assumptions, fully stated in the presentation. Forward-looking statements speak only as of the date of this presentation. Subject to obligations under the listing rules and disclosure rules made by the Financial Services Authority under Part VI of the Financial Services and Markets Act 2000 (as amended), neither the Company nor any of its affiliates, or individuals acting on its behalf, undertakes to publicly update or revise any such forward-looking statement, whether as a result of new information, future events or otherwise. As a result of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements as a prediction of actual results or otherwise. The information and opinions contained in this presentation and any other are material discussed verbally are provided as at the date of this presentation and are subject to verification, completion and change without notice. In giving this presentation, neither the Company nor its advisers and/or agents undertakes any obligation to provide the recipient with access to any additional information or to update this presentation or any additional information or to correct any inaccuracies in any such information which may become apparent. P R O P R I E TA R Y I N F O R M AT I O N
  • 36. P R O P R I E TA R Y I N F O R M AT I O N 35© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | BEYOND THE LOW COST CARRIER MODEL

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