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Simon Riha, M.Sc., MBA
Head of Business Development, Hahn Air Lines, Germany
Graduate, Emirates Aviation University, UAE
A...
Agenda
1. Introduction: Airline Profitability
2. Incremental Revenues: Non-Core and Distant Markets
3. Explanation: Airlin...
1. A Problem: Airlines’ Profitability
Key Issue: Airlines’ Profitability
Tony Tyler (IATA) in his state of the industry for the AGM 2014:
“… But the brutal econ...
Key Issue: Airline Profitability
Airline revenues totaled $4.6
trillion in last decade
Among the world’s fastest
growing i...
2. Incremental Revenues from
Non-Core and Distant Markets
Idea: Incremental Revenues from Non-
Core and Distant Markets
Definition of the Non-Core and Distant Markets (NCDM)
NCDM i...
Idea: Incremental Revenues from Non-
Core and Distant Markets
What if there were a simple and efficient method how to
gene...
3. Explanation: Airline Distribution for
Non-Core and Distant Markets
Explanation:
How to Best Reach the NCDM?
Explanation:
Global Distribution Systems (GDS)
Global Distribution Systems (GDS) – the heart of
indirect airline distribut...
Explanation:
GDS Booking Work Flow
Explanation:
Air Tariff Publishing Company
Explanation:
Ticket Issuance to Finish Sale
As per the NCDM definition:
Airlines do not make their own tickets available t...
4. Research: Airfares and NCDM
Research: Airfare Distribution
There may be a problem…
Though airlines may think that they distribute worldwide
and can re...
5. Literature Review (Airfares)
Literature Review:
Brief Exempt
Conclusions from Holloway (2008) – Straight and Level: Practical Airline
Economics, relate...
6. Research:
Methodology and Analysis
Research: Methodology and Analysis
What was subject to research?
Whether airlines really restrict their airfares and thus ...
Research: Methodology and Analysis
Example – Air Austral
Research: Methodology and Analysis
Example – Air Austral
If this condition is coded in the
fare rule, fare can’t be sold i...
Research: Methodology and Analysis
Example – Air Austral
Research: Methodology and Analysis
Example – Air Austral
7. Research Results
Research Results
Riha (2014): Commercial Impacts of Accessibility of Competitive Fares on
Airlines’ Global GDS Distributio...
Research Results:
A Fresh Example
A traditional well established full service carrier
Approx. 25 narrow body, 5 wide body ...
8. Conclusions and Recommendations
Conclusions and Recommendations
Bearing in mind the airline’s overall strategy and competitive
environment
Airlines can cr...
Conclusions and Recommendations
Airlines should
Identify their NCDM countries and analyze them
Find out which partner airl...
Questions?
Thank you for your attention.
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Slides - Airfares Global Distribution Strategy for Higher Incremental Revenues in Non-Core and Distant Markets

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This paper was written for the 2nd International Aviation Management Conference 2014 organized by the Emirates Aviation University in Dubai, UAE. It elaborates an often ignored commercial potential of non-core and distant countries. It is shown that airlines can seek incremental revenues in off-line markets utilizing their current distribution channels at minimum investment. Yet the airlines often miss these opportunities by not having set their fares accordingly. The study, supported by sound literature review, analyzes these points of issue, proposes an airfare global distribution strategy for higher incremental revenues from non-core and distant countries and provides recommendations for implementing this strategy.

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Slides - Airfares Global Distribution Strategy for Higher Incremental Revenues in Non-Core and Distant Markets

  1. 1. Simon Riha, M.Sc., MBA Head of Business Development, Hahn Air Lines, Germany Graduate, Emirates Aviation University, UAE Airfares Global Distribution Strategy for Higher Incremental Revenues from Non-Core and Distant Markets ©2013 Emirates Group. All Rights Reserved.
  2. 2. Agenda 1. Introduction: Airline Profitability 2. Incremental Revenues: Non-Core and Distant Markets 3. Explanation: Airline Distribution and NCDM 4. Research: Airfare Distribution in NCDM 5. Literature Review (Airfares) 6. Research: Methodology and Analysis 7. Results of the Research 8. Conclusions and Recommendations
  3. 3. 1. A Problem: Airlines’ Profitability
  4. 4. Key Issue: Airlines’ Profitability Tony Tyler (IATA) in his state of the industry for the AGM 2014: “… But the brutal economic reality is that on revenues of USD 746 billion we will earn an average net margin of just 2.4% … Every day is still a struggle to keep revenues ahead of costs. …”
  5. 5. Key Issue: Airline Profitability Airline revenues totaled $4.6 trillion in last decade Among the world’s fastest growing industries However, industry’s best annual profit margin of the century was 2.9% Overall result: $16 billion net loss (Source: IATA, 2012)
  6. 6. 2. Incremental Revenues from Non-Core and Distant Markets
  7. 7. Idea: Incremental Revenues from Non- Core and Distant Markets Definition of the Non-Core and Distant Markets (NCDM) NCDM is a country, where a particular airline: 1) Does not operate any flight 2) Does not offer any marketing code share flights 3) Does not have any sales offices nor other representatives 4) Did not make its tickets available to local travel agencies through the local IATA BSP ticketing system
  8. 8. Idea: Incremental Revenues from Non- Core and Distant Markets What if there were a simple and efficient method how to generate new incremental revenues at negligible cost? What if, for example, Air Malta could be selling additional one or two million Euros p.a. outside of Europe, in the countries, where Air Malta does not fly, does not have any sales offices nor conduct any particular sales activities? … This would have reduced its 2012 annual loss by 4-8% from € 25 M down to € 23-24 M.
  9. 9. 3. Explanation: Airline Distribution for Non-Core and Distant Markets
  10. 10. Explanation: How to Best Reach the NCDM?
  11. 11. Explanation: Global Distribution Systems (GDS) Global Distribution Systems (GDS) – the heart of indirect airline distribution since 1960s Amadeus, Sabre and Travelport 83% of travel agents in the world, 75% of all airlines’ bookings (Source: PhoCusWright, 2009)
  12. 12. Explanation: GDS Booking Work Flow
  13. 13. Explanation: Air Tariff Publishing Company
  14. 14. Explanation: Ticket Issuance to Finish Sale As per the NCDM definition: Airlines do not make their own tickets available to local travel agencies in NCDM (costs, distance, maintenance, money collection, repatriation, exchange rates…) Travel agencies in NCDM can possibly sell the airline on other airlines’ tickets to conclude the GDS sales transaction Interline e-ticketing agreements Alliance partner airlines
  15. 15. 4. Research: Airfares and NCDM
  16. 16. Research: Airfare Distribution There may be a problem… Though airlines may think that they distribute worldwide and can reach basically all agents thanks to GDS, they may actually not, for Airlines tend to neglect the NCDM countries (they are non- core, distant) In particular, airlines tend to omit setting their airfares properly for issuance on other airlines’ tickets in NCDM
  17. 17. 5. Literature Review (Airfares)
  18. 18. Literature Review: Brief Exempt Conclusions from Holloway (2008) – Straight and Level: Practical Airline Economics, related to the airfare distribution: Fares must be set for all markets (= including NCDM) Fares must be competitive and minimally restricted to successfully compete in today’s market place In contrast with the past, when the airline environment used to be: More regulated and restrictive (Governments) Much less global
  19. 19. 6. Research: Methodology and Analysis
  20. 20. Research: Methodology and Analysis What was subject to research? Whether airlines really restrict their airfares and thus cut their sales in NCDM. Data for 270 airlines collected to analyze underperformance in NCDM Finding: Airlines normally sell 0.65% tickets in NCDM measured by arithmetic mean and 0.26% measured by median Selling less than 0.1% tickets is sure underperformance (25th percentile) 10 NCDM underperforming ‘finalists’ selected (judgmental sample, airline distribution experts) The routes best representing their networks were analyzed for compatibility of fare structures for sales in NCDM
  21. 21. Research: Methodology and Analysis Example – Air Austral
  22. 22. Research: Methodology and Analysis Example – Air Austral If this condition is coded in the fare rule, fare can’t be sold in NCDM
  23. 23. Research: Methodology and Analysis Example – Air Austral
  24. 24. Research: Methodology and Analysis Example – Air Austral
  25. 25. 7. Research Results
  26. 26. Research Results Riha (2014): Commercial Impacts of Accessibility of Competitive Fares on Airlines’ Global GDS Distribution in Non-Core and Distant Markets 60% of analyzed fare structures were adverse for sales in NCDM It can be deemed as a pattern, not as a coincidence Thus, restrictive fare structures certainly have a negative impact on sales in NCDM The rest 40% may be caused by other various “soft” factors, such as brand awareness, safety reputation, etc. (It’s not always just the price what matters.)
  27. 27. Research Results: A Fresh Example A traditional well established full service carrier Approx. 25 narrow body, 5 wide body aircrafts, 30 destinations Fares opened for NCDM as a result of consulting
  28. 28. 8. Conclusions and Recommendations
  29. 29. Conclusions and Recommendations Bearing in mind the airline’s overall strategy and competitive environment Airlines can create new incremental revenue streams from NCDM by simply adjusting fare structures Costs are negligible, because the airlines already have all the tools (GDS, ATPCO, interline e-ticketing agreements)
  30. 30. Conclusions and Recommendations Airlines should Identify their NCDM countries and analyze them Find out which partner airlines’ e-tickets are suitable there Adjust the fare structures to optimize their fares (in general, or per market) for NCDM in order to generate more new revenues.
  31. 31. Questions? Thank you for your attention.

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