European Low Fares Airline Association

1
European Low Fares Airline Association
Low fares airlines business model and
impact on regional airports John Hanlon, ELFAA
Secretary General ASSSEMBLY OF EUROPEAN REGIONS
CONFERENCE LOW NOISE LOW FARE HIGH
IMPACT Eindhoven Airport, 13 and 14 December 2006
2
OUTLINE

• About ELFAA
• Introduction to Low Fares Airlines (LFAs)
• Successful Partnership LFAs and Regional
  Airports
• Current threat to that Successful Partnership

3
ELFAA today

• 11 airline members and several associate
• members (manufacturers, airports, etc.)
• Over 100 million passengers in 2006
• Almost 400 modern aircraft
• Representing members in key industry
• bodies at the EU level and active
• involvement in all matters affecting low
• fares airline sector

4
Origin of LFAs

• Born of EC liberalisation of market access
• Window created by previously very high fares in
  Europe by traditional carriers
• Business model eliminated complexity
• Strong pressure by LFAs on internal costs enabled
  significant fare reductions
• As result, LFAs now account for c. 30 of
  scheduled
• intra-European traffic

5
LFA business model (1/3)
LFAs Traditional airlines LFA advantages
Operate from mostly secondary, underutilised, regional airports Operate from mostly primary international hub airports Lower airport charges, faster turnaround times, less air traffic control-related delays
Fast turnarounds (25 min.) Slow turnarounds due to use of congested hub airports Better fleet utilisation
Direct point-to-point flights, no transfers, short-haul routes Mix of long, medium and short haul routes with transfers (connecting flights) Lower complexity, higher capacity utilisation
6
LFA business model (2/3)
LFAs Traditional airlines LFA advantages
Standardised fleet (only one aircraft type), higher seating density Various aircraft types, low seating density Cheaper aircraft financing Lower maintenance and training costs Simpler swapping around of flight and maintenance staff Higher capacity utilisation
Distribution primarily through direct channels (internet, call centres) Most tickets sold via travel agencies (high GDS costs, travel agent commissions, etc.) Lower distribution costs, lower complexity
7
LFA business model (3/3)
LFAs Traditional airlines LFA advantages
No frills, extras paid for (e.g. catering, excess baggage) Entertainment programmes, express check-in, VIP lounges, paper tickets, business class, free catering Lower ancillary costs, less complexity Additional revenues
Highly incentivised work force (variable proportion of salary up to 40) High basic salaries (variable proportion less than 10 ) High employee productivity
8
Growth of LFAs (1/2)
Source Analystenreports, Unternehmensinformatione
n, Monitor Group Analysis 2005-2006 ELFAA
analysis
9
Growth Generated By New Passengers
Growth of LFAs (2/2)
Source NFO Infratest, 2002 Monitor Group
Analysis
10
Successful Partnership LFAs and Regional Airports

• LFAs have recognised great potential in
  underutilised regional and secondary airports
• Low-fare point-to-point services have revitalised
  many underutilised secondary and regional
  airports around Europe
• Multiple regional and secondary airports now have
  direct international connections with other
  European regions and with major cities
• Many regional and secondary airports became bases
  for LFAs (unthinkable in the old regime of
  single-hub airlines)
• Passenger numbers at regional and secondary
  airports growing much faster than at major
  airports

11
Impact of LFAs (traffic growth an example)
12
Catchment area of the Cologne Bonn Airport for
low fares passengers traveling to Venice (km)
Impact of LFAs (catchment area grows)
Source Hapag-Lloyd Express own research
13
Frankfurt-Hahn Airport growth of
non-aeronautical revenues
Impact of LFAs (non-aeronautical revenues grow)
Source Frankfurt Hahn Airport
14
Other benefits of the low fare services

• Inward investment in the regions encouraged by
  direct air connections
• Benefits to tourism industry
• Improved business environment for the local and
  regional businesses
• Increased employment
• Increased tax revenues for local and regional
  authorities

15
Current threat to the Successful Partnership

• Misinformed environmental policies
• Initiatives based on false myths about aviations
  impact on environment
• Seen as a way of curbing the growth of air
  transport
• FACTS
• Aviation accounts for only 2 of CO2 emissions
• Aviation generates 3.1 million jobs and GDP of
  221bn in EU-15
• Airlines are already making enormous efforts to
  reduce fuel burn and emissions

16
Thank you!

• Please join our mailing list at
• www.elfaa.com