Airport Operations Today Clearing Confusion

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Airport Operations Today Clearing
Confusion The Low Fares Carrier Perspective Jan
Skeels Secretary General
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Overview

• ELFAA explained
• The Low Fares Business Model what it really
  means
• The Future for Low Fares Airlines
• Summary

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Low-cost Carriers shown impressive growth since
Liberalisation of Air Transport in Europe
PAX numbers of European LCCs
Avg. growth p.a. 45
PAX(m)
Source Analystenreports, Unternehmensinformatione
n, Monitor Group Analysis
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How ELFAA came about

• Legislation pricing policies not taking LFAs
  into account
• LFA needs not being represented
• Lack of understanding about our business
  customers
• E.g. Passenger Compensation Legislation
• Awareness too late to significantly influence
  now with ECJ
• Levels of compensation 5/6 times fare paid
• 85 delays cancellations outside LFAs control
• need many additional passengers to cover cost
• consumer choice increased protection or low
  fares
• European Bodies welcomed LFAs views encouraged
  formal set up
• ELFAA established and launched at end January
  2004

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ELFAA Airline Membership
Together operate 249 aircraft flying more than 50
m passengers in 2004
Together serve over 900 routes connecting over
200 cities in 2004
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Mission Statement

• to ensure that European policy and legislation
  promote free and equal competition to enable the
  continued growth and development of low fares
  into the future, allowing a greater number of
  people to travel by air.
• This will be achieved by
• Identifying areas affecting the LF sector
• Effectively influencing regulatory issues
• Promoting common interests of members in European
  institutions

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Overview

• ELFAA explained
• The Low Fares Business Model what it really
  means
• The Future for Low Fares Airlines
• Summary

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LFAs generate new passengers through low fares

• Data source NFO Infratest, 2002 Monitor Group
  Analysis

Low Air Fares have encouraged European
integration mobility
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Differences between low cost traditional
carriers
Classic scheduled airlines
Low-Cost advantages
Low-Cost Carrier

• Fast turnarounds (up to 25 min.)

• Turnaround slowed down by use of major airports
  with large amount of traffic (approx. 45 min.)

Utilisation

• Higher utilisation

Frills

• No Frills, extras paid for (e.g. catering, extra
  luggage)

• Entertainment programme, quick check in, lounges,
  paper tickets, business class, catering

• Lower ancillary costs, less complexity,
  additional income

• Primary and secondary airports

• International airports

Airports

• Cheaper airport charges

• Standardised fleet (only one aircraft type),
  higher seating density (737-300 148)

• Various aircraft types, low seating density
  (737-300 128)

Fleet

• Lower maintenance, spare parts and training
  costs, simpler swopping around of flight staff,
  higher capacity utilisation

• Direct channels, use of travel agencies only if
  extra costs minimal

• Most tickets sold via travel agencies and by the
  airline itself

• Lower distribution costs, lower complexity

Retail

• Direct flights, no transfers, short routes

• Long haul and short haul routes with transfers

• Lower complexity, higher capacity utilisation

Network

• High variable-proportion of salary (up to 26 ),
  better capacity utilisation

Personnel

• High basic salaries (variable proportion up to 11
  ), trade union affiliation

• Lower fixed personnel costs

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Do Key Stakeholders provide what LFAs need ?
Airline
Aircraft Manufacturers
Airports
ANSPs
Policy Makers
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How can improvements be made ?

• Air Navigation Service Providers
• Charges represent up to c. 14-18 of cost base
• will increase as other charges decrease
• Most activity is within European airspace
• Will be totally impacted by outcome of SES
• Only biting legislation will ensure service
  provision cost efficiency
• Policy-makers
• No thorough study on impact of Liberalisation /
  LFAs
• As result, legislation damaging to LFAs Europe
• Passenger Compensation Legislation
• SES
• Guidelines between airlines and publicly owned
  airports
• EC must start to understand how legislation will
  impact before decisions made.

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Benefits to Regions

• Regions
• LFAs play vital social economic role
• Job creation
• Previously unknown regions are now on the map
• Free advertising on airline websites
• Year round services
• Numerous studies highlight benefits of LFAs

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Some examples of studies.

• Carcassonne
• December 2003
• 253,000 passengers generated
• Direct income of Euro 8.4m
• Indirect income of Euro 135m
• Induced Income of Euro 272.4m
• rce Ract Madoux-Groupe Second Axe, Rapport
  detude Impact socio-economique de la compagnie
  aerienne Ryanair dans la region et alentours de
  Carcassonne, December 2003)
• Cologne Bonn
• 2002
• Taxes paid of Euro 91 m
• Cost Productivity advantages for companies in
  Region of Euro 147.6m
• Average spend per incoming passenger of Euro
  285.42
• (Institut fur Verkehrswissenschaft und der
  universitat zu Koln, die regionalwirtshaftlichen
  Auswirkungen des Low cost-Markets im Raum
  Koln/Bonn, 2004)
• Pisa
• 2003
• 316,000 arriving foreign passengers generated
• 37.8 business passengers at average spend each
  of Euro 431.40 / 62.2 tourists at average spend
  each of Euro 496.52

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Benefits to Regional Airports

• Airlines guarantee long term passenger growth in
  exchange for lower costs
• Increased employment
• Airports benefit from much increased commercial
  revenues
• Airports have become more cost efficient
• Fixed costs, previously not recovered, now
  recovered and profits generated.
• The rules of the game have changed airports now
  acting as commercial undertakings

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Examples..

• Stansted
• Data source
• CAA Statistics and
• Http// www.baa.com/doc/712eb95974cdf46
• c802566b9004bfd2f_frame.html.
• Frankfurt Hahn
• Data source
• http//www.hahn-airport.de/default.
• aspx?menupress_basic_infosccen.

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More examples.

• Pisa
• Data source
• CAA statistics and
• Http//www.pisa-airport.com/sat/cda/
• aree/index.php?idArea12idSection37
• Katowice
• Data Source
• MPL Katowice Marketing
• Department, unpublished

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Overview

• ELFAA explained
• The Low Fares Business Model what it really
  means
• The Future for Low Fares Airlines
• Summary

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The Future

• Successful liberalisation in Europe now
  threatened by
• Re-regulation through inappropriate legislation
• Reduce efficiency
• Increase costs
• Undermine competitiveness
• Example Passenger Compensation Legislation
• Misapplication of the State Aid Rules
• Originally to ensure no unfair advantages given
  by States to National Carrier
• Now trying to stop competition by applying same
  rules to Regional Airports
• Proposed guidelines place publicly-owned airports
  at a disadvantage
• Airport growth regional prosperity threatened
  as a result
• Answer A better understanding needed by
  decision-makers
• The whole game has changed
• ELFAA publishing a study to help deliver a better
  understanding
• The full economic impact of liberalisation should
  be assessed BEFORE decisions are made

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Still room for improvement

• SES to address cost inefficiency of Air Traffic
  Control Services
• Better service provision and cost efficiencies an
  absolute must
• SES Regulations can deliver a rationalisation in
  service provision
• European airlines must be allowed to operate more
  efficiently
• BUT If Regulators get it wrong will impact
  adversely on whole of European Aviation industry

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Overview

• ELFAA explained
• The Low Fares Business Model what it really
  means
• The Future for Low Fares Airlines
• Summary

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To summarise

• LFAs are a rapidly growing sector of the market
  here to stay
• Many Europeans travel only because of low air
  fares
• LFAs voice needed in Europe to protect low fares
  into the future
• Rules of the Game have changed
• Low Fares generate great economic benefit to
  airports regions
• Re-regulation is a big threat to successful
  liberalisation
• If decision-makers get it wrong on SES All
  European Airlines will suffer
• A better understanding of the Low Fares sector
  urgently needed
• ELFAA study on the benefits of the Liberalisation
  of European Air Transport to be published soon on
  www.elfaa.com

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• Thank you for your attention !