Airline Growth in Asia Pacific


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Frost & Sullivan Analyst Briefing on Airline Growth in Asia Pacific & the Evolutionary Dynamics of the Airline
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Airline Growth in Asia Pacific

  1. 1. Airline Growth in Asia Pacific & the Evolutionary Dynamics of the Airline Business Model Amartya De, Senior Consultant Aerospace & Defense 23 September 2010 Frost & Sullivan’s Growth Consulting can assist with your growth strategies
  2. 2. Today’s Presenter Amartya De is a senior consultant with Frost & Sullivan Aerospace & Defense Practice, Asia Pacific. He focuses on monitoring and analyzing emerging trends, technologies and market behavior in commercial aviation and homeland security segments in Asia Pacific. Amartya has been involved in several growth consulting projects in the Commercial Aerospace, Homeland Security and Defense segments to support the development of growth strategies of his clienteles. His expertise includes the development of strategic roadmaps and execution of extensive business growth plans and consulting models. Amartya is instrumental in contributing to award functions in major industry events and develops a strong network with government agencies and industry alike. Amartya De Senior Consultant He has received acclaim for various business initiatives taken at his Aerospace & Defense Practice earlier organization as well as at his business school. Prior to working Asia Pacific with Frost & Sullivan, Amartya has worked with a well known global consulting organization and with one of the Big Four. In all, he has five years of experience in technical & management consulting of large Bachelor of Engineering projects. Computer Science, Global Masters in Business Amartya has also contributed to articles and quotes published in Administration Aerospace Singapore, Business Times and Singapore Airshow. 2
  3. 3. Understanding the Dynamics of the APAC Travel Market After a challenging 2009, growth has been positive in all “… planning the trip three weeks before for my family world regions led by Asia Pacific (10%).South Asia posted seemed simple enough with Orbitz, Kayak, Expedia and a (15%) - South East Asia (10%) -North East Asia (10%). dozen more search engines.. within a few seconds, pages after pages of results showed up with prices differing by Double Digit YTD growth witnessed in Hong Kong (14%), less than $5 in most cases …” Macao (16%), Japan(29%), Taiwan(28%), Indonesia(14%), Singapore(21%), Vietnam(36%), Guam(10%), India(10%), Sri Lanka(50%) and Nepal(30%) In 2020, Europe will have (717 million tourists), Asia Pacific (416 million) and the Americas (282 million), followed by Africa, and the Middle East. Source: Frost & Sullivan 3
  4. 4. Understanding the Dynamics of the APAC Travel Market Personal Travel Personal Travel Business Travel Business Travel NE Asia (29.4%) South Asia (18.5%) “ … Low fares have transformed the way people use their leisure time … “ Source: Frost & Sullivan Personal Travel Personal Travel Business Travel Business Travel Oceania (14.7%) SE Asia (33.3%) 4
  5. 5. Understanding the Dynamics of the APAC Travel Market 5
  6. 6. How Airlines have Responded to Turbulent Times There are three types of crises – Affecting Cost Structures | Affecting Revenue Structures | Affecting All - AoG (Acts of God) High Jet Economic Fuel Price Recession Short haul FSC LCC unable to justify 2Q 2008 1Q 2009 travel mainly high ticket prices suffered Travelers changed to FSC could low yield customers differentiate their product Corporate travel costs were slashed High fuel prices diluted FSC LCC differences between LCC High Yield Low Yield High Cost Market Low Cost Market Premium carriers still and FSC had high costs to bear 50% increase in fuel prices 25% fuel price reduction disproportionate to bottom disproportionate to bottom line costs line costs Low value product in Premium demand the high cost market collapsed Affecting Cost Structures Affecting Revenue Structures 6
  7. 7. Affecting All Business Models - AoG (Acts of God) Economic Recovery • Cancellation of 100,000 flights Fuel costs rising • Travel disruptions 10m people • $2.2 B loss to aviation 1Q 2010 • $1.7 B loss to other business Losses easyJet $100 million Ryanair $65 million Air France $300 million British Airways $195 million Lufthansa $268 million Delta Airlines $20 million Total 4.7 B GDP loss “Losses for LCCs are comparatively higher” 7
  8. 8. Proliferation of the LCC in the air passenger market South Asia “ … Though he was a member of both their 46.5% South West frequent flyer programs, it didn’t make much Pacific 37.0% difference to him as they had identical benefits North Asia and were equally difficult to redeem miles South East 3.9% from …” Asia 30.7% 500 million LCC seats (2009) 1800 million FSC seats (2009) Global LCC Market Share 21.7% Europe LCC Market Share 32.0% US LCC Market Share 21.7% Asia Pacific LCC Market Share 15.5% Source: Frost & Sullivan 8
  9. 9. Growing the air passenger market in Asia Pacific Asia Pacific LCC Market Share 15.5% Asia Pacific FSC Market Share 84.5% FSC Growth Rate LCC Growth Rate Source: Frost & Sullivan Europe Domestic LCC International LCC - 0.82% 31.80% CAGR Penetration Penetration India Malaysia US 53.5% 39.2% - 4.24% 3.18% CAGR Malaysia Indonesia 53.3% 30.9% Australia Philippines Asia Pacific 3.70% 49.53% 47.7% 16.8% CAGR Philippines New Zealand 45.6% 16.3% Source: Frost & Sullivan 9
  10. 10. Customer behavior - Why they buy and when they buy “ … The idea of paying a single, simple fare to fly on an airliner is becoming as quaint as stewardesses in short skirts …” Pressure on Low yield premium seats end of aircraft Industry accumulating losses Passenger Passenger Movement Movement + Source: AirAsia “ … Many airlines have a large number of pricing buckets … ” Beverages to Blankets (Add-ons) + + + Passenger Passenger Movement + Movement 47% 23% 18% 12% Full Service 3 Weeks + 2 Weeks 1 Week Same Week Carriers Pricing buckets accumulating losses “ … All airlines lose money on the last few buckets … ” Source: Frost & Sullivan 10
  11. 11. Customer behavior - Why they buy and when they buy “ … LCC airlines need to progressively move towards value offerings to increase yield and not necessarily towards frills provided by FSC + + + …” 47% 23% 18% 12% LCCs fares change week on week but product (value) to customer remains same 3 Weeks + 2 Weeks 1 Week Same Week Source: Frost & Sullivan Product (value) to customer needs to change with weekly + + + prices to sell off all the buckets 47% 23% 18% 12% “ the last few seats on a low cost carrier are sometimes as pricey as 3 Weeks + 2 Weeks 1 Week Same Week the full service carriers …” - Customer Source: Frost & Sullivan 11
  12. 12. GAP in the market - “Busy Traveler” “… today’s busy travelers with their hectic lifestyles want to sidestep delays, queues and “Airline’s Airbus A319 and A320 aircraft would crowds by dealing with the necessary processes include 12 premium seats, these are not of their travel plans at times convenient to business, but between business and economy, and we expect these to remain them…” consistently busy” - Bahrain Air, MD, Ibrahim Abdulla Al Hamer “On a long term basis where we would like our cost structure to be is kind of between the ultra low cost carriers and the legacy carriers ..” – Business Traveler Dave Berger, CEO, Jet Blue Cost to Airline Busy Traveler Planner “Recessionary environment has opened up a gap in the market, corporate clients have had their travel budgets cut and are Deal Grabber turning to low-cost airlines for a cheaper option” – Jazeera Airways, CEO Andrew Cowen Ticket Price (Yield) Source: Frost & Sullivan 12
  13. 13. Evolution & Hybridization – The “New World Carrier” First class lounges on the We don’t want to be seen as a planes will be removed to low-cost carrier, but a make way for 40 economy premium gold network carrier, seats from this September” - that offers value but not Qatar Airways CEO Akbar Al excess.” - Gulf Air CEO Bjorn Baker Naf CONVERGENCE Ancillary Revenue Travel agents back Interlining with Contract buying to by FSC in fashion LCC Transactional buying Customize travel by mix Social media from Global GDS for Class upgrades to match LCC & FSC branding tool to B2C LCC & FSC move up value chain products distribution tool Code Sharing Fee based value Fine print of Long haul LCC for LCC-FSC added services LCC fares feeder traffic CONVERGENCE "I feel nickel-and-dimed when I “Customers do not want to have to pay extra for everything, know that they are paying for just throw it all in and tell me what every small thing – airport the fare is, I would rather have an tax, fuel surcharge, aisle all-inclusive fare” - Customer row/exit row …” - Customer Source: Frost & Sullivan 13
  14. 14. Evolution & Hybridization – The “New World Carrier” 14
  15. 15. Trends in the air passenger market What a traveler wants … “ … They don’t necessarily want to lie on flat beds, but they do want extra leg- Low-cost carriers room, a decent meal and some form of entry in premium regions & routes inflight entertainment. … ” and to include few premium seats onboard Emergence of “Busy Class” between Business & Economy Recessionary environment Airline don’t want to has opened up Last minute deals not Travel budget cuts for be seen as a low- being marketed well a ‘GAP’ in the cost carrier Corporate clients market Source: Frost & Sullivan 15
  16. 16. Change is in the Air Premium All Business The future is not for LCCs, nor is it simply for hybrid versions or for FSC. It is for value airlines, airline which provide value for money. LCC High fuel costs, FUTURE UNIFIED MODEL labour issues & economic crises to Airline check-in to chisel out airline process baggage of business model multiple airlines Universal GDS / Web Platform Most airlines to provide all value added services on board to increase yield Common Check-in & Handling Facilities Common fleet Most Airlines to have management companies combination of low Continuing cost, premium Convergence economy & business leading to hybrid model Specialist staff Common Fleet Management & Operations to cater only onboard to provide better Airlines maintaining customer their differentiation experience through service components, quality & marketing Source: Frost & Sullivan Different Onboard Services Companies (Airline) 16
  17. 17. Next Steps Request a proposal for or Growth Partnership Services or Growth Consulting Services to support you and your team to accelerate the growth of your company. ( Join us at our annual Growth, Innovation, and Leadership 2010: Asia Pacific, 18-19 October 2010, Resorts World Convention Centre, Sentosa, Singapore ( Register for Frost & Sullivan’s Growth Opportunity Newsletter and keep abreast of innovative growth opportunities ( 17
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  20. 20. For Additional Information Donna Jeremiah Amartya De Corporate Communications Senior Consultant Aerospace & Defense Aerospace & Defense 603 6204 5832 603 6207 1071 Subhranshu Sekhar Das Director Aerospace & Defense 603 6207 1032 20