iacc nyc march 7th 2009 bhg - iceland · iacc nyc march 7th 2009 birkir holm gudnason ceo...
TRANSCRIPT
IACC NYC March 7th 2009Birkir Holm GudnasonCEO Icelandair
Agenda
+ Icelandair Group+ Icelandair+ Industry Trends+ External Environment+ Future prospects
ICELANDAIR GROUP
Icelandair Group Companies
Group Dynamics
IcelandairHotels
Icelandair IGS IcelandairCargo
AirIceland
LoftleidirIcelandic
Icelease TravelService
BluebirdCargo
SmartLynxIcelandTravel
Q4 - 51,5% Q4 - 48,5%2008 - 43,5%2008 - 56,5%
REVENUE DISTRIBUTION Q4/2008 BY SEGMENTS AND COMPANIES
Icelandair Group 2008 Revenue
North America10%
South America2%
Iceland20%
UK4%
Scandinavia9%
West Cont.Europe17%
CentralEurope28%
Africa3%
Asia4%
Oceana2%
The Fleet – total 69 aircrafts
9 Boeing 757-200
1 Boeing 757-300
5 Boeing 757-200 6 Fokker Friendship
2 Dash 8
2 Boeing 737-500
10 Boeing 737-800
1 Sovereign
4 Boeing 737-300
2 Boeing 737-400
7 Boeing 757-200
2 Boeing 767-300
3 Boeing 757-200
3 Boeing 737-500
2 Boeing 767-300
7 Airbus A320-200
ICELANDAIR
1937Commercial flightscommence.Flugfélag Akureyrarfounded. The namewas later changed toFlugfélag Íslands.
1945First internationalflights. FlugfélagÍslands started flyingto Scotland andDenmark. Loftleiðirbegan internationalflights in 1947.
1952Loftleiðir startsinternational schedulebetween USA andLuxemburg with astop in Iceland. Lowfares make thecompany known asthe hippie airline.
1969Air Bahamasacquired. Acompetitor in theNorth-Atlantic marketbought andincorporated.
1973–1981Name changed toFlugleiðir after themerger of Loftleiðirand FlugfélagÍslands. Record oilprices, inflation,DC10 accident, jobcuts and costsavings.
1981–1987Years of totalutilization. Thecompany used up allexisting resources,gained high loadfactors, offered lowfares.
1988–1995Total renewal of allequipment - newBoeing aircraft.Focus on travelservices. Billionsinvested in aircraft,hotels, car rental andmaintenance centre.
1995–2001Expansion of theroute network (10-15% annually).Number of touristsvisiting Icelanddoubled in a 10 yearperiod.
2002The operations were downscaled after 9/11. Better results,growth and renewal.2003Flugleiðir becomes a holding company – Icelandair and severalother companies formed as subsidiaries2004New ownership and more focus on investment activity2005Flugleiðir becomes investment company FL Group, andIcelandair Group formed as its “Iceland” aviation part2006Icelandair Group sold to new owners and listed on the NASDAQOMX Iceland2007-8Growth in charter and leasing activity, change of management,job cuts and cost savings
1930 1940 19601950 1970 1980
History of flexibility and adaptability
1990 2000
+ 1.300 Employees+ Turnover of 50 billion ISK+ 162 flights per week to 25 destinations+ 1,6 million passengers in 2008+ 12 Boeing 757 aircrafts in operation
Organizational Structure
Birkir Holm GuðnasonCEO
Hlynur ElíssonSVP
Finance & Administration
Helgi Már BjörvinssonSVP
Sales & Marketing
Ástþór IngasonDir. Ground Operation
Andri Áss GrétarssonSVP
Operation
Jens BjarnasonVP Technical Services
Hilmar BaldurssonVP Flight Op. &Training
Svali BjörgvinssonVP
HR & Strategy
Schedule & NetworkManagement
InformationTechnology
Pricing & RevenueManagement
Distribution & DistributionCost
Marketing & BusinessDevelopment
Gudjon ArngrimssonCorporate
Communication
SalesRegions
Dynamic and Flexible Marketing and Sales
EUROPE
Columbia, Maryland
Germany & Benelux
UK & Ireland
France & Southern Europe
GSAs
Scandinavia
USA
Copenhagen
Stockholm
Oslo
Frankfurt
London (LHR)
Manchester
Glasgow
Paris (CDG)
Madrid / summer
Helsinki / summer
Milan / summer
Amsterdam
Berlin / summer
Sales office - REK
ICELAND
Dusseldorf / summer
Munchen / summer
Barcelona / summer
New York
Minneapolis
Orlando
Toronto
Boston
Halifax
Icelandair Head Office
Sales office – KEF Airport
+ Icelandair has a vast experience and knowledgeof international consumer markets
+ 80% of the business comes from foreign markets,which is unique among airlines – 25 destinations
+ We have sales offices in 10 countries
+ Great focus on PR to expand the marketingexposure
Seattle
Bergen
Stavanger
Icelandair Business Idea and Network Strategy
Iceland’s geographical location on the shortest flight route across the North Atlantic enables Icelandair toservice three main markets, and carry 1.6 million passengers annually:
TO The tourist and business market to Iceland – 45%
FROMThe home market in Iceland – 20%
VIA The market between Europe and USA – 35%
The via market makes is possible forIcelandair to offer the to and from marketsmuch better schedule than they couldjustify on their own
Seattle
Orlando New York Boston Halifax
Paris
LondonAmsterdam
Frankfurt
CopenhagenOslo
Stockholm
Helsinki
Minneapolis
Toronto
Our competitive advantageThe Route Network strategy is based on 24 hour rotation, where the aircraft has to be able to make one trip toEurope and one trip to USA within the 24 hour rotation cicle
High utilisation of Aircrafts (efficiency)Single type aircraft fleet (Boeing 757)Short turnaround times (50-80 minutes)
Three Markets (TO – FROM – VIA)
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1 0 %
2 0 %
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Y 2 0 0 0 Y 2 0 0 1 Y 2 0 0 2 Y 2 0 0 3 Y 2 0 0 4 Y 2 0 0 5 Y 2 0 0 6 Y 2 0 0 7 Y 2 0 0 8 Y 2 0 0 9
F e rð i r frá Ís la n d i
F e rð i r t i l Ís la n d s
T e n g i fa rþ e g a r
+ The route networks gives us the flexibility of changing focus relatively quickly to adjust to change indemand
+ In 1999 we had 50% of our passangers going Trans Atlantic (VIA)+ We expect growth in Tourism to Iceland in coming years
Seattle from July 22
+ Location of Iceland between North America and Europe gives us competitive advantage for travelbetween Seattle and Scandinavia
Cooperation with Alaska Airlines
Icelandair Business Idea
+ Icelandair "punches above its weight" because it has leveraged its tinymarket into a global operation, says Ulrich Schulte-Strathaus, secretarygeneral of the Association of European Airlines in Brussels. He saysIcelandair is "a benchmark for older carriers ... because it has been able toserve its niche market consistently well over so many years.“ (Wall StreetJournal news story on Icelandair, October 2008)
+ The country enjoys a niche in transatlantic flights through Reykjavik and anassociated tourist trade. (Financial Times Editorial on the Prospects ofIceland, February 2009)
Importance of the Route Network
NORTH AMERICA:+ There are 14 flights from Stockholm to
USA (NYC, Chicago)+ There are 6 flights from Oslo to USA (NY)+ There are 17 flights from Iceland to
USA+ Without this network, all of our VIA
passengers, plus 70% of our TOpassengers and 50% of our FROMpassengers would dissappear because ofless frequency
+ We assume we would have 2-4 flights aweek to USA if we would operate withoutthe hub-and-spoke network
+ There is a great difference between 17flights a week and only 2-4 flights a week
EUROPE:+ There are 48 flights a week to Europe
with Icelandair+ Only 13 of them do not connect to the
US departures+ We assume at least 20 of those flights
would dissapear if there was noconnection to USA.
+ Our capacity would probably be only50% of what we have today without thenetwork.
+ In the Icelandair network we carry 1.6million passengers, serving a homemarket of little more than 300.000
In a typical week in winter 2008/2009:
TOURISM DEVELOPMENTAND INDUSTRY TRENDS
The Industry Challanges
Drive load factorswithout compromising
price
Accurately forecastmarket demand
Keep up with competitoronline developments and
spend
Respond to low costcarrier growth
Drive more traffic tobrand sites (and callcenters)
Sell more complexinventory online
Build out the routenetwork and differentiate
the product
Increase marketingefficiency and drive out
cost
Build stronger relationshipsand engender customer
loyalty
Grow marginlevels
1999 2000 2001 2002 2003 2004 2005 2006 2007
Pax
1999 2000 2001 2002 2003 2004 2005 2006 2007
Gestir
Growth of travellers to Iceland are in line with Icelandair’s passengers growth
Strong route network and high frequency is main reason for 10% annual growth to Icelandin past 10 years
Tourism to Iceland and Icelandair passenger numbers
Total passenger numbers have tripled in the last 15 years
0
200.000
400.000
600.000
800.000
1.000.000
1.200.000
1.400.000
1.600.000
1.800.000
´91 ´92 ´93 ´94 ´95 ´96 ´97 ´98 ´99 ´00 ´01 ´02 ´03 ´04 ´05 ´06 ´07 ´08
Visitors to Iceland have also tripled in the last 15 years*
*ITB immigration figures
0
50.000
100.000
150.000
200.000
250.000
300.000
350.000
400.000
8́5 8́6 8́7 8́8 8́9 9́0 ´91 9́2 9́3 9́4 ´95 9́6 9́7 9́8 9́9 0́0 0́1 0́2 0́3 0́4 0́5 ´06 ´08´07
450.000
+ After the slow recovery from 9/11 and the initial Iraq invasion, U.S. traffic to Europe finally set a new recordof 13.33 million visits in 2007.
+ Traffic was in decline through 2008, at first because of weak dollar (touching lowest ever vs. euro in July) andrelatively high fares (fuel prices), then because of financial meltdown in second half. 2008 final estimated at12.49 million visits, or - 6.3 percent. That’s not so bad.
+ Through the 1st Q, overall trans-Atlantic travel (both directions) is not down as much domestic U.S. and inter-Europe. But business and premium-class is down more than leisure. This creates opportunities for carrierlike Icelandair
+ If economy appears to be touching bottom in 2nd Q then losses in leisure might not be so bad thissummer compared to last year (partly because the decline began last summer). This assumes that dollarstays relatively strong.
+ Deals are moving the market and there is a late booking trend. People expect deals.
+ Capacity for North Atlantic travel is expected to go down in 2009 because of less demand
+ Iceland’s image, we believe, is well-established with growing market segments like adventure groups andother niche market segments, who may be encouraged by new lower prices to make return trips. ButIceland’s numbers have been high because of the large number of general leisure travelers that have beenattracted. Again, the new, lower prices and proximity should make it possible to draw many of their peerswho have yet to make their first trip.
+ And, of course, Icelandair always offers that 2-for-1 idea with a Stop Over in Iceland: Iceland, plusanother destination in Europe for a great price.
Trends : US Travel to Europe
Distribution Channels Development
+ We get less and less chance to meet and talk with our customers, therefore those
points where we have direct contact gets more important and valuable.
00
100.000
200.000
300.000
400.000
500.000
600.000
2000 2001 2002 2003 2004 2005 2006 2007
Consolidators
Internet agents
Travel agents
Tour operators
Telephone sales
Internet sales
EXTERNAL ENVIRONMENT
Overnight market collapse
+ Icelandair was doing reasonably well in 2008+ FROM Iceland market was decreasing but capacity had been adjusted to the demand+ Autumn 2008
• ISK was devaluating slowly• Oil going down• Capacity cuts made up for the declining local market• Until end of sep 2008...
Actions in 2008
+ We took drastic actions in May/June 2008 and October again as we expected tough winter – we were one of the firstairlines to cut capacity and cost for the winter
+ New executive board and trimmed management. Consolidation of departments, 4 SVP´s instead of 7 before, 8 directorsinstead of 15 - streamlined and more efficient organization to make the structure leaner and quicker decision process.
+ Improvement projects to cut cost in all departments - Focus on fuel conservation.
+ Major cutbacks owing to fuel prices and economic crisis. Management lead extremely difficult measures to lower costlast summer as a result of the economic conditions and operating environment. Capacity was cut by 20-25% % from thepreceding year – 280 flights taken out.
+ Layoffs of staff. The cutbacks meant that 350 staff lost their jobs in one of the most extensive staff cuts in the Company’shistory.
+ Swift reaction following the collapse in Iceland after the banking crisis. One of the consequences was that the peopleof Iceland, our home market, extensively cut back on their travels abroad. Icelandair’s sales and marketing staff swiftlychanged focus and managed to significantly increase sales in international markets.Moved all marketing funds and salesfocus away from the FROM market over to the TO and VIA markets.
+ Pricing and Revenue management focus to maximize revenues on TO and VIA markets with the aim to make up forthe lost FROM market sales.
+ Made use of all of the attention Iceland was getting in foreign media to highlight our product and the fact that visitingIceland had become much more affordable.
+ We sent crisis team to all our foreign markets to tackle negative PR and respond to false media statements
Results so far...
+ Managed to reach revenue goals in October, November and December in spite of the home marketcollapse - However faced a serious cost increase due to devaluation of the ISK
+ January, February, March show good bottom line outcome and spring and summer show positiveindications.
+ We expect to increase the number of tourists TO Iceland by 15-20% in 2009.+ We are therefore relatively pleased with the results from a very difficult situation
2,5
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Janúa
r
Febrú
arMar
sApr
ílMaí
Júní Jú
lí
Ágúst
Septe
mber
Októb
er
Nóvem
ber
Desem
ber
Month
RA
SK
2005200620072008Bud
• Revenue per ASK on fixed exchange rate are up compared to last year and above budget
Future of the FROM market
+ For a number of years we had observed a very strong trend of Private ConsumptionGrowth (PCG) and Icelandair sales out of Iceland
+ The general knowledge that travel overshoots PCG seems to be true in our FROMmarket
+ Without much else to rely on in the uncertainty last autumn, we waited for PCG forecastfrom the Central Bank and simply took capacity actions 100% accordingly
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Y1996 Y1997 Y1998 Y1999 Y2000 Y2001 Y2002 Y2003 Y2004 Y2005 Y2006 Y2007 Y2008 Y2009 Y2010 Y2011
Private consumption growth
FI From PAX growth
Low cost competition starts
Icelandic bubble
Icelandic crash
FUTURE PROSPECTS
Outlook
+ Focus on profitable growth and sustainability of the Icelandair network which is our main competitive advantage
+ Renovation of fleet with new interiors. An extensive undertaking is in its final stages. It is safe to say that the
appearance of the Boeing 757 fleet has been transformed with new seats and entertainment systems.
+ New look, new image of Icelandair's services. At the same time Icelandair has changed its service concept, launched a
new class, Economy Comfort, and made various other changes, such as food services, sale on board, uniforms etc.
+ Differenciating the Icelandair brand from its global competitors
+ Strong focus on inventory & revenue control to improve unit revenues
+ Great focus on capacity control and profitability – quickly adjust to changes in demand
+ Less demand in the FROM market gives us opportunities in VIA and TO markets where we expect to increase
passangers in coming months and years
+ New Operation to Seattle from July 22nd 2009. Full year operation, 4-5 x a week. Icelandair will have the best elapse
time between Seattle and Scandinavia. It is a great addition to our network that will support the frequency of our European
gateways. Biggest share of passangers will be trans atlantic (VIA) and TO Iceland, we are expecting only 10% of
passengers FROM Iceland.
+ Tourism industry in Iceland is gaining from weak ISK – we are therefore expecting inrease in foreign tourists to Iceland
this year by 15-20%
+ We are optimistic for the months and years ahead. We see opportunities in growing our network and add new gateways
both in Europe and North America
Entertainment,A la carté,Efficient
WorkEnvironment,practical, Valuefor money
WorkEnvironment,practical, Valuefor money
New Middle CabinEconomy Comfort
+ New Seats and Entertainment system
Valuecreation
Time (years)Current operations
Medium term1-3 years
Long term3+ years
Strategy forthe next 12months
Strategy forthe next 1 - 3years
Strategy for thenext 3+ years
Consolidation
Efficiency
Customer Service
Adaptability
Corporate culture
New Service level
Streamline operation
Dual fleet
Market penetration
Working environment
Lean Management
New Markets
Fleet change
Icelandair 3-5 year strategy
THANK YOU
WHO? – WHAT? – HOW? – WHERE?
We offer different products to different market segments
At the same time we use different channels for different market segments
The same goes for media and marketing
Market Segments Target Group Product Channel
Saga ClassEconomy ComfortEconomy Class
Iceland & North America
Economy ClassEconomy Comfort
Iceland & North America
Economy ClassEconomy Comfort
Packages
Iceland & North America
Economy ClassEconomy Comfort
Customer Club
Iceland & North America
Visit Friends & FamilyIcelandic Ethnic Market
USA Ethnic MarketCanada Ethnic Market
FI InternetTravel AgenciesInternet Partners
FI Call Center
Leisure Travel
City Break (all age groups)Retired people 55+
Baby boomers 45-55Families
Young nature enthusiasts
Tour OperatorsTravel Agents
Internet PartnersFI Internet
Groups & MICE
CorporationsMeeting & incentive houses
Travel agents groupdepartments
Tour OperatorsTravel Agencies
Corporate Group Dep.FI Group Department
Business Travel
Companies doing businessbetw een our gatew ays, e.g.
Chamber of Commerce,Embassies
Corporate TravelAgenciesFI Internet
FI Call Center
Our Purpose
+ Its a common thought that airlines are only a method to go from A to B. That the service offered is the same everywhere
and that it doesn’t matter who you travel with
+ However, we do have airlines that have managed to differentiate by creating a different experience that is valued
among customers and wants to fly with them rather than others if possible. Examples of this are Southwest, Virgin Atlantic
and JetBlue.
+ We believe we can differentiate among airlines by putting emphasis on our positive origin, meaning nature, culture and
heritage.
+ We need to give our guests a reason to prefer Icelandair over the competition, by offering an experience they cannot get
elsewhere.
+ Increase the enjoyment and pride among our employees and therefore make Icelandair a exciting workplace
Firm infrastructure
Human resource management
Technology development
Procurement
Inboundlogistics
Opera-tions
Outboundlogistics
Marketingand sales
Service
Sup
port
More
Icelandair