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The Low Cost Carriers Recipes
- 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 | THE LOW COST CARRIER RECIPES
P R O P R I E TA R Y I N F O R M AT I O N
LCC MODEL RECIPES
RECIPES TO FOLLOW FOR BUILDING A DIFFERENT BUSINESS MODEL…
March 2014
Updated
1BHG, the ‘idea factory’ thinking ahead strategies www.1bluehorizon.com
Comfort
Pricing
X
BLUE PAPER
- 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 | THE LOW COST CARRIER RECIPES
O On a previous 1BlueHorizon Viewpoint (BLUE PAPER) ‘Beyond the Low Cost Carrier model’
we developed ‘1BlueHorizon understanding to consider the Low Cost Carrier Model more than
a philosophy to approach the airline industry than just a matter of cost...
O The purpose of that document is to develop some Recipes to build or transform an existing
business under the LCC Spirit, what we call ‘1BlueHorizon Low Cost Carrier Cookbook’…
O 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… because you will find a lot of
‘sharks’ looking to make money and don’t take everything for granted…
O 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…
O If you are giving the right kind of segmentation strategy and good execution, there will be enough
room in the market for multiple service offering…. Obviously, the future performance of your
project will depend on the strength of the selected business model and the focus going forward…
O Last but not least, the maxim ‘How does a Billionaire become a Millionaire? is not just an old and
famous joke within the Aviation industry but need to be considered very carefully by anybody
thinking to launch an airline…
O Welcome to the world of ‘1BlueHorizonLow Cost Carrier Recipes’ to develop
successfully your business 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 | THE LOW COST CARRIER RECIPES
The low cost phenomenon has penetrated global aviation starting in the U.S.
in 1971 – but now the LCC sector is crowded ‘(Red) Horizon’
Industry
pioneers
SouthWest (1971) Ryanair (1985/1991)
Early
Adopters
Late
Adopters
e.g. AirTran (1992), West Jet (1996) e.g. Norvegian (1993), EasyJet (1995)
e.g. Air Arabia (2003), Nasair (2007), Fly Dubai (2009)
Southwest
AirTran
Jet Blue Airways
West Jet
...
Ryanair
EasyJet
Norvegian Air
Germanwings
FlyBe
BMI
Helvetic
Niki
SkyWork
...
IndiGo
AirAsia
Bangkok Airways
Kingfisher Red
Air Blue
FlyScoot
...
Virgin Blue
Freedom Air
Tiger Airways
...
AirArabia
Bahrain Air
Fly Dubai
Jazeera Airways
NasAir
Wataniya Airways
...
Azul Brazilian
Gol Airlines
EasyFly
...
FlyScoot (2012)
Note: The LCCs mentioned above are of course not exhaustive…
- 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 | THE LOW COST CARRIER RECIPES
The full liberalization of civil aviation is progressing with opportunities
coming in Africa, Caribbean and Latin America
Closed Markets Liberalization
New Business
Models
Power Play &
Consolidation
Stable Market
Segmentation
Protected
markets
Large carriers
with
governmental
support
Financially solid /
state owned
Liberalization of
markets
Emerging airlines
to serve profitable
routes
Traditional carriers
still have highest
market shares
Liberalization of
markets allows
emergence of LCC
Strong initial
growth of LCC
carriers
Build-up of an LCC
network (P2P)
LCC growth slows
down
Traditional carriers
and LCC
consolidate to
super carriers
Synergies and
economies-of-
scale
Super carriers split
markets by
customer segment,
price and service
offering
Stable market split
between carriers
Africa Asia Europe North
America
Caribbean
Latin
America
ChinaRussia Malaysia
India
‘ R e d H o r i z o n ’‘ B l u e H o r i z o n ’
Middle
East
Source: 1BlueHorizon Group Research & Analysis
- 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 | THE LOW COST CARRIER RECIPES
Air traffic liberalization typically shows significant passenger growth
development patterns - Typical Range of Air Traffic Growth Rates - …
Source: IATA, InterVistas, GAD
Post-
liberalization
Pre-
liberalization
Global
Average
Min
Max
12-35%
4-7%
2-5%
Typical Pre-Liberalization
Setting
Governmental authorities
understanding air services as
provisioning of transportation
infrastructure (esp. for
domestic markets)
Protection of (state-owned)
flag carriers against ...
– … international competitors
(esp. for international
markets)
– … market forces of supply
& demand (esp. for
domestic markets)
Typical Post-Liberalization
Setting
Leaving elaboration of
operated networks and routes
to market forces of supply &
demand
Often requires privatization of
(formerly state-owned) flag
carriers upfront
Emergence of alternative
airline business models
(LCC)
Typically a fast network /
route expansion is
experienced shortly after the
liberalization step
- 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 | THE LOW COST CARRIER RECIPES
… and it clearly appears from analysis of the distribution of alternative
customer Travel Method) that in fact LCCs are creating new demand in the
market – Basically a LCC creates 1BlueHorizon
Source: Liberalization of European Air Transport 2011
No data
4%
Shift
within
airline
market
37%
New
demand
59%
Otherwise by rail
Otherwise by car
Others
Otherwise would have
not travelled
71%
15%
6%
8%
Is the Low-Cost Carriers the ultimate model, the wonder recipe
to save the whole airline industry? Unfortunately not!
- 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 | THE LOW COST CARRIER RECIPES
Typical Legacy Carrier Cost structure / operating expenses versus Low Cost
Carrier with the fuel as key fluctuating cost
Source: The Aviation & Aerospace Almanac, ICAO Air Transport Reporting Form EF-1, 1BlueHorizon Group Research & Analysis
Labor, Flight
Crew 15%
Ticket Sales 2%
Airport, Landing 18%
Depreciation,
Amortization 15%
Maintenance,
Overhaul 5%
Fuel & Oil 22%
Route Charges
Others
13%
10%
19.6%
16.4%
25.4%
7%
10.1%
12%
2.4%
7.1%
Inclusive Aircraft rental (3%)
Passengers services (10.5 %)
Station Expenses (10.8 %)
Landing fees (4.1 %)
Flight Crew (7.4 %)
General Administration (12.2 %)
Key Costs for an airline are:
Fuel
Labor
Maintenance
Key Costs for a LCC are:
Fuel
Airport
Labor
- 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 | THE LOW COST CARRIER RECIPES
At this stage it is important to clarify what is 1BlueHorizon Group®
understanding and definition of the Low-Cost Carrier Model
■ Low-Cost Carriers (LCC) are also known as a no-frills (LCC/NF), Less Frills Carrier, discount, budget carrier,
Low-Fare/High Value Carrier (LFHV), Budget Carrier, Cheap Flight or even New Generation Carrier…
■ The term originated within the airline industry referring to airlines with a lower operating cost structure than their
competitors. While the term is often applied to any carrier with low ticket prices and limited services, regardless of
their operating models…
■ It has been suggested that the Airbus A380, able to hold up to 853 passengers in an all Economy layout, would
enable true low-cost long-haul service. While the per-seat costs of such an aircraft would be lower than the
competition, there are fewer cost savings possible in a long-haul operation and therefore a long-haul low-cost
operator would find it harder to differentiate itself from a conventional airline…
■ Low-Cost Carriers want to be different than their competitors, the reason why they implement different
operational model, different recipes to build success…
‘1BlueHorizonCookbook’ highlights the main Model Recipes
Low-Cost is a mood, is a management strategy, is a mind set
‘If you think well 1BlueHorizon, you will cook well your airline...
Source: 1BlueHorizon Group Analysis
- 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 | THE LOW COST CARRIER RECIPES
Rolling out an innovative airline with ‘1BlueHorizonCookbook’ support
requires the design of seven fundamental building blocks (1BHG Framework)
Note: 1The costs for an ASK = available seat kilometer are defined as the fraction of all costs which can be attributed to one available seat flown over 1 km distance
Source: 1BlueHorizon Group | Framework
Operational model:
– High-frequency shuttle services instead of
connecting traffic (via hubs)
– Fleet structure
Distribution model:
– Direct sales (online, call center)
– Indirect sales (travel agents/CRS)
Tariff model:
– Low entry prices (limited volume)
– Auction model
Required maximum unit cost (per ASK1)
Required minimum average yield per flight
Break-even seat load factor
Master plan for physical roll-out and
business building
Opera-
tional
model
Distri-
bution
model
Tariff
model
Cost
structure
Demand /
Destin.
portfolio
Product
concept
Operational Implementation
1 2 3
4 5 6
7
Business Model
- 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 | THE LOW COST CARRIER RECIPES
The LCC Recipes from ‘1BlueHorizon Cookbook’ allow any airline to follow a
different operational model with significant differentiation and
cost difference
Note: As example the Southwest Airlines used recipes
Source: 1BlueHorizon Group Research & Analysis
A single passenger class
Recipe doable for
Air Carriers?
A single type of aircraft reducing training and servicing costs
Development of one of more hubs to maximize destination coverage
and defend their market
A minimum set of optional equipment on the aircraft, further reducing
costs of acquisition and maintenance, as well as keeping the weight of
the aircraft lower and thus saving fuel
Often pilot conveniences are excluded such as ACARS and auto
throttle
No in-flight entertainment systems made available
For your
Project?
1/5
- 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 | THE LOW COST CARRIER RECIPES
LCCs capitalize on their simple and efficient business model and their
extremely lean cost structure
Note: As example the Southwest Airlines used recipes
Source: 1BlueHorizon Group Research & Analysis
No seat recliners, seat pockets, window blinds or seat headrest
covers
Recipe doable for
Air Carriers?
A Fast turnaround times (allowing maximum use of aircraft
Unreserved seating (encouraging passengers to board early and
quickly, thus further decreasing turnaround times)
A simple fare scheme, such as charging one-way tickets half that of
round-trips (typically fares increase as the plane fills up, which
rewards early reservations)
Newer more fuel efficient aircraft (launch customer to be involve din
the new or improved aircraft development)
Flying to cheaper, less congested secondary airports and/or flying
early in the morning or late in the evening to avoid air traffic delays
and taking advantage of lower landing fees
For your
Project?
2/5
- 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 | THE LOW COST CARRIER RECIPES
The LCC Recipes from ‘1BlueHorizon Cookbook’ are tips on how to
consider the airline differently
Note: As example the Southwest Airlines used recipes
Source: 1BlueHorizon Group Research & Analysis
Simplified routes, emphasizing point-to-point transit instead of
transfers at hubs (again enhancing aircraft use and eliminating
disruption due to delayed passengers or luggage missing connecting
flights)
Recipe doable for
Air Carriers?
Encourage the use of direct flights. Luggage is not automatically
transferred from one flight to another, even if both flights are with the
same company
Generation of ancillary revenue from a variety of activities, such as à
la carte features and commission-based products
Emphasis on direct sales of tickets, especially over the internet
(avoiding fees and commissions paid to travel agents and computer
reservations systems)
Passengers paying charges for extras, such as hold luggage, online
check in and priority boarding
For your
Project?
3/5
- 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 | THE LOW COST CARRIER RECIPES
The LCC Recipes from ‘1BlueHorizon Cookbook’ are the cornerstone of the
airline project or restructuring
Note: As example the Southwest Airlines used recipes
Source: 1BlueHorizon Group Research & Analysis
Employees working in multiple roles, for instance flight attendants also
cleaning the aircraft or working as gate agents (limiting personnel
costs)
Recipe doable for
Air Carriers?
A disinclination to handle special service passengers, for instance by
placing a higher age limit on unaccompanied minors than full service
carriers
Aggressive fuel hedging programs
Avoiding using jetways wherever possible to board and alight
passengers by using a mobile stairway which is a cheaper alternative
Not supplying meals in a flight, but offering snacks, sandwiches and
drinks instead to purchase on board
For your
Project?
4/5
- 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 | THE LOW COST CARRIER RECIPES
The LCC Recipes from ‘1BlueHorizon Cookbook’ are not finalized, plenty
need to be added under 1BlueHorizon creation
Note: As example the Southwest Airlines used recipes
Source: 1BlueHorizon Group Research & Analysis
No refunds or transfers to later flights in the event of missed flights,
i.e. If the aircraft leaves on time without a passenger who arrived late,
he will have to buy a wholly new ticket for the next flight
Recipe doable for
Air Carriers?
Developing freight activities (cargo) with the aircraft belly hold to
generate additional revenues
Seeking the extra mile by maximizing revenue per flight, which
implicitly includes all ancillary revenues as well as the airfares paid
To pay for using the toilet (if the passengers don’t use it then it is
potentially more space for seats!)
(empty for a new recipe)
For your
Project?
5/5
- 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 | THE LOW COST CARRIER RECIPES
The selected recipes from ‘1BlueHorizonCookbook’ are the cornerstone of
the business model, but never underestimate the specific situation in the
region you are in - Examples of implications/critical questions
Source: 1BlueHorizon Group | Framework & Analysis
Opera-
tional
model
Distri-
bution
model
Tariff
model
Cost
structure
Demand /
Destin.
Product
concept
Operational Implementation
11 22 33
44 66
77
Lowest price vs. value for money
Convenience of travel chain
Specific process needs/amenity
expectations in the particular country
No frills vs. frills for money
Competitive scenarios
Home base? Maintenance
locations?
Achievable average stage length?
Achievable frequencies per route?
Achievable block hours per day?
Fleet size, A/C type?
Master plan for launch
Funding
Managerial/operational capacities
Availability of fleet, maintenance
Creation of service contracts and
required processes
Achievable productivity, salary level
Realizable airport/handling fees
Product/frills concept (cf. 6)
Fleet homogeneity, maintenance
Fuel subsidies?
p y
Customer/demand segments
Accessibility of latent demand
(leisure, religious/ethnical travel)
Sustainable destination portfolio for
LC operation within the country
Catchment area/airport affinity
55
Business Model
Booking behavior of local (National)
passengers
Customer segments (cf. 5)
Favorable pricing logic (e.g., auction
model)
Internet penetration/acceptance of online
booking within the country?
Presence of travel agencies?
Availability of call centers/ respective
resources?
- 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 | THE LOW COST CARRIER RECIPES
The implementation of the business model based on selected recipes from
‘1BlueHorizonCookbook’ should follow a defined framework...
Source: 1BlueHorizon Group | Framework for illustrative purpose
Coverage 1) Core Questions
Market potential,
achievable market shares
Required
cost structure
Appropriate positioning of
product and brand
Conceptual design of
product
Action
Inquiry of current/future transportation
streams (also other carriers)
Discussion of attractive destinations
(traffic stream, yields, competition)
Evaluation of the offers of competitors
and different airports of that region
Economical evaluation of different
scenarios (simplified business plan)
Benchmarking of the cost structure of
charter airlines + low cost carriers
Determination of target cost structures
(top-down)
Definition of valuation rate
Benchmarking of the positioning of
other LCC
Analysis of brand attribute of main line
vs. low cost carriers
Analysis of the own positioning
Client segmentation, characterization
and -quantification
Benchmarking of business models of
other LCC
Discussion of product concept
(service level, rates, restrictions)
Source Result
Traffic data
Flight plans of relevant
competitors (e.g. from OAG)
Other transportation streams
(e.g. IATA, MIDT, AEA, ICAO)
Official Saudi Arabia sources:
– Presidency of Civil Aviation
– SV flight plan/fares
Current cost/yield structure
Annual report, Press Releases
of competitors
Booz Allen database
Analyst report
Future traffic streams
Possible market share
Target size of business (Fleet,
frequency shares etc.)
Operation approach
(destinations)
Yield return
Target passenger/-utilization
Target productivity airplane
Cost structure
Market and competition
analyses concerning the brand
perception
Own brand positioning
Own client-/ passenger data
Target positioning of the brand
Target client segment
Mission statement
„Best Guess“ of
(external/internal) experts
Brainstorming with the team
Operation Approach
(destinations)
Product-/price concept (rough)
Target size of business (Fleet,
frequency shares etc.)
1
2
3
4
5
6
- 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 | THE LOW COST CARRIER RECIPES
… and the operational implementation of the seventh fundamental building
blocks can occur in 14 operational modules
Network structure/
design
Position
Destinations
Frequencies,
Schedule etc.
Pricing/
Yield Management
Tariffs
Classes
Logic of pricing/yield
management
Flight operations
Resource scheduling
Capacity
requirements
Organization
Product concept/-
management
Board products
„Frills“
Ground products
Sales/Distribution
Choice of distribution
channels/partners
Reservation system
Key account
management
Ground Ops
[s. Flight Operations]
Fleet composition
Choice of airplanes
Planning Roll-Over
Funding
Communication
Marketing strategy
(channels etc.)
Communications
concept
Partner
Maintenance
Own added value
Make or buy
Branding
New Brand?
Positioning
Concept for
launch,
communication
Accounting
Client accounting
(e.g. credit cards)
Profit and loss
account
Reporting
Supplier manag./
Sourcing
Fuel
Airport management
Other suppliers
Concept/
Layout
Commercial
processes
Commercial
processes
Operational
Processes
Operational
Processes
IT-Profile
Internet
platform
Reservation/
distribution
systems
Operation
systems
Controlling
systems
System
integration
22
66
1010
33 44 55
99
131312121111
77 88
1414
Project management
Planning of business
Planning of organization
Controlling of project
Controlling of implementation
7
Source: 1BlueHorizon Group | Framework
- 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 | THE LOW COST CARRIER RECIPES
Even the temptation to start a new venture is big due to the fact that the
Airline business is known to be ‘sexy’, the Go / No GO decision should follow
an uncompromising six-step evaluation approach
Source: 1BlueHorizon Group | Framework
Understand the
Strategic
Objectives of the
project owner in
the selected
Marketplace
Conduct Workshop
with Key
Stakeholders to
Reach a Go / No
Go Decision
6
Define and
Evaluate
Alternative Options
for a New Entrant
in the Domestic
Marketplace
Assess Market
Demand in the
Domestic
Marketplace
Evaluate the
Competitive
Landscape &
Profile Leading
Players in the
Domestic
Marketplace
Determine the
Implications of the
Proposed Changes
in Aviation
Regulations for the
Domestic
Marketplace
3a
1
2a
Define and
Evaluate
Alternative Options
for a New Entrant
for the Regional
Marketplace
Assess Market
Demand in the
Regional
Marketplace
Evaluate the
Competitive
Landscape &
Profile Leading
Players in the
Regional
Marketplace
Determine the
Implications of the
Proposed Changes
in Aviation
Regulations for the
Regional
Marketplace
2b 3b
4a
4b
5a
5b
Domestic Assessment
Regional Assessment
- 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 | THE LOW COST CARRIER RECIPES
Source: © 1BlueHorizon Group | ‘Start me Up A-Plan’ Framework
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…
© 1BlueHorizon start me up A -plan
1BlueHorizon ‘start me up A-plan’ (Afor Airline) Airline Model highlight
the usual ten main phases to be carefully developed to avoid any pitfall
- 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 | THE LOW COST CARRIER RECIPES
We therefore recommend to consider a multi-phased approach along four
main Phases to move forward with the new airline venture
Source: 1BlueHorizon Group | Framework
PHASE IV
Do it!
Implementation
PHASE I
Should we do it?
Go/ No Go
Understand the regulatory
environment
Assess competitive activity
Analyze demand for air travel
Identify target segments
Define and evaluate potential
options to be pursued
Go/ no go decision to
proceed with next phase
PHASE III
How to do it?
FinancingBusiness Planning
PHASE II
What to do?
Major
Activities
Key
Deliverables
Refine target segments
Define value proposition
Define network and fleet
structure and operating
requirements
Evaluate partnering options
Address regulatory issues
Build business case
Define implementation
timetable
Go/ no go decision to proceed
with next phase
Detail value proposition
Detail network and fleet
structure
Detail operating
requirements
Establish partnering
agreements
Complete outstanding
regulatory submissions
Build detailed financials
Obtain financing
Finalize network
arrangements
Acquire fleet
Hire staff
Initiate partnerships
Implement operating
procedures
Launch marketing
activities
Launch operations
Assessment of regulatory
environment
Competitive assessment
Demand assessment
Target segments
Option evaluation
Go/ No Go decision to
proceed
Refined target segments
Value proposition definition
Network & fleet structure
definition
Operating req. definition
Partnership options
Regulatory submissions
Financial assessment and
business plan
Detailed value proposition
Network and fleet structure
details
Operating requirements
details
Partnership agreements
Regulatory submissions
Financial statements
Financing
Implementation timetable
Operational airline
service(s)
- 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 | THE LOW COST CARRIER RECIPES
Many Low Cost Carriers have not moved far enough towards customer
satisfaction, leaving money on the table – The model of the future ?
Costs
Revenues
Increasing Passenger Satisfaction
IncreasingOperationalComplexity
Innovation
Legacy
Carriers
Traditional
LCCs
Doable by youFulcrum
High
Capacity
Carrier
(HCC)
Low
Cost
Long
Haul
(LCLH)
Low
Cost
High
Revenue
(LCHR)
Note: Airlines that find the right balance - their ‘innovation fulcrum’ - can dramatically improve their performance
Source: 1BlueHorizon Group | Framework
HCC / LCLH / LCHR
‘1BlueHorizon®’
- 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 | THE LOW COST CARRIER RECIPES
Emirates Airline (EK) is a good example of 1BlueHorizoncreation by
implementing Low-Cost Model Recipes to a Legacy Carrier: The High
Capacity Carrier (HCC) model for ‘Long Haul’ is born in the Middle East
9,128
+188%
169,469
92,294
28,700
58,786
30,527
‘MEB3’ carriers have 3 times the ordered seat, in the next 10 years compared to the ‘EUB3’ in Europe
Source: © 1BlueHorizon Group Analysis, Ascend, www.anna.aero (without the last Dubai Air Show orders…)
- 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 | THE LOW COST CARRIER RECIPES
To support EK growth, the airline industry is fully vertically integrated in
Dubai from the Regulator to the Airport, Airport Services and the airline
Fleet: Dual Fleet of aircraft (by 2020)
Airbus A380
Boeing 777 & B777X
‘Long Haul’ Network:
Hub and Spoke system
Emirates Airline for ‘Long Haul’
(FlyDubai for ‘Short Haul’)
Airport - One Hub:
Dubai International Airport (DXB)
The future Dubai World Central beyond 2020
Cargo operations:
Emirates SkyCargo with full Freighters
Fleet Belly hold for major ‘extra’ revenues
Note: Vertical Integration is best understood by applying Michael Porter’s Value Chain model. It refers to the degree of integration between a firm’s value chain and the value chains of its suppliers and
distributors.
Air Services
Aircraft ground handling, Cargo, Travel, and
Flight catering services
Regulator
Dubai Civil Aviation Authority
- 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 | THE LOW COST CARRIER RECIPES
As provisional conclusion, we are convince that 1BlueHorizoncreation is
still there with the Low-Cost Long-Haul model emergence
6 Can an airline carve out a business model that makes a profit from long-
distance routes at low fares?
6 Will the advent of a new generation of fuel-efficient aircraft — shrinking a fuel
bill that can account for up to half an airline’s operating costs — makes the
enterprise viable?
6 Definitely stretching the low-cost model to profitably operate intercontinental
flights would open a new chapter in aviation…
6 1BlueHorizon Groupstrongly believe on the LCLH potential linked to the LCC…
The evolving Long-Haul Low-Cost
network airline model: AirAsia X
with interline onto the Short-Haul
LCC Air Asia connectivity?
Scoot Pte Ltd. is a Singapore-based
Low-Cost Long-Haul airline from its
parent company, Singapore Airlines…
Norwegian is the first Low-Cost
Carrier providing Long-Haul
transatlantic service between several
destinations in the U.S. and Europe…
Are the real opportunity to build a
Low-Cost Long-Haul business
mainly in Asia with growth market
China and South Asia?
‘Gambling?’
- 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 | THE LOW COST CARRIER RECIPES
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
- 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 | THE LOW COST CARRIER RECIPES
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
- 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 | THE LOW COST CARRIER RECIPES
Wataniya Airways - Chairman Mr. Abdulsalam Al
Bahar with Mrs Ghaida Abdul Latif, vice chairman –
director general & CEO of Syrian Arab Airlines.
Flydubai - CEO Mr. Ghaith Al Ghaith
Gulf Air - Ex CEO Samer Majali
H.E. Mohamed Hamad bin Azzan Al
Mazrouei, WRDC's Director General and
Acting Under Secretary of the Court of the Ruler's
Representative in the Western Region (al Gharbia)
of Abu Dhabi Emirate
Democratic Republic in Congo (Transport)
AerospaceOne Company in India
Jet Green in Pakistan
Ababeel Air in Libya
His Highness Sheikh Ahmed Bin Saeed Al
Maktoum, President of the Dubai Civil Aviation
Authority, Chairman of Dubai Airports, Chairman &
Chief Executive of Emirates Airline & Group
Note: Detailed references upon request
For the last ten years we have been actively involved with our Senior
personnel in major airlines, start-ups or Economic development ventures
P R O P R I E TA R Y I N F O R M AT I O N
- 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 | THE LOW COST CARRIER RECIPES
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)
… no matter how complex the issues are!
P R O P R I E TA R Y I N F O R M AT I O N
- 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 | THE LOW COST CARRIER RECIPES
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
… and our clients well recognize this!
P R O P R I E TA R Y I N F O R M AT I O N
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29© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | THE LOW COST CARRIER RECIPES
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
GENERATINGTHRUSTTO PROPEL
YOUR BUSINESS FURTHER...
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 | THE LOW COST CARRIER RECIPES
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
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…
P R O P R I E TA R Y I N F O R M AT I O N
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31© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | THE LOW COST CARRIER RECIPES
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.
- 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 | THE LOW COST CARRIER RECIPES
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.
- 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 | THE LOW COST CARRIER RECIPES
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
- 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 | THE LOW COST CARRIER RECIPES
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.
- 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 | THE LOW COST CARRIER RECIPES
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 !
- 37. P R O P R I E TA R Y I N F O R M AT I O N
36© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | THE LOW COST CARRIER RECIPES
“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
- 38. P R O P R I E TA R Y I N F O R M AT I O N
37© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | THE LOW COST CARRIER RECIPES
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
- 39. P R O P R I E TA R Y I N F O R M AT I O N
38© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | THE LOW COST CARRIER RECIPES
LEONARD FAVRE
Partner, Group Managing Director
1BlueHorizon Group
P.O. Box 34154 M +971 50 6164007 (U.A.E.)
Abu Dhabi M +41 79 2080256 (Switzerland)
United Arab Emirates leof007
leo@1bluehorizon.com
www.1bluehorizon.com
Abu Dhabi | Bern | Madrid | Montreal | Paris
Any clarifications or questions regarding this document should be addressed to:
P R O P R I E TA R Y I N F O R M AT I O N
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…
© 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.
The information contained in this document has not been independently verified. It 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, or any type of legal transaction.
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.
- 40. P R O P R I E TA R Y I N F O R M AT I O N
39© 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | THE LOW COST CARRIER RECIPES