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THE FUNDAMENTALS OF ROUTE DEVELOPMENTSETTING THE SCENEMODULE 1
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MODULE 1 MODULE 1 THE FUNDAMENTALS OF ROUTE DEVELOPMENT
Mike St LaurentVice President, Consulting - ASM
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MODULE 1 MODULE 1 ASM BACKGROUND
Global consultancy founded in 1993 to provide route development services for airports and their stakeholders
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MODULE 1 MODULE 1 COURSE PROGRAMME
Fundamentals of Route Development
1. Welcome & Setting the scene Day 1 0900 – 1030
2. Understanding your Market Day 1 1100 – 1230
3. Understanding Airlines Day 1 1330 – 1500
4. Positioning and Competitors Day 1 1530 – 1700
5. Strategy and Targets Day 2 0900 – 0930
6. Implementation Day 2 0930 – 1030
7. Basic Route Forecasting Day 2 1100 – 1230
8. Airline Network Planning & Scheduling Day 2 1330 – 1400
9. Airline Deals Day 2 1400 – 1500
10. Marketing to Airlines and the “Perfect Presentation” Day 2 1500 – 1630
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MODULE 1 MODULE 1 HOUSE RULES
• Don’t be inhibited - Ask lots of questions
• Compare and share experiences and learn from each other
• Mobiles on quiet, breaks for e-mails etc.
• Course notes electronically
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MODULE 1 MODULE 1 DELEGATE INTRODUCTIONS
EXPERIENCES, CHALLENGES, OBJECTIVES
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MODULE 1 MODULE 1 MODULE 1 OBJECTIVES
• Why we do Route Development?
• What are the drivers of traffic growth?
• What are the key global issues?
• What are the key local issues?
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MODULE 1
WHY DO WE DO ROUTE DEVELOPMENT ?
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MODULE 1 MODULE 1 WHY AIR SERVICE DEVELOPMENT?
Airports:• To secure & grow business
• To establish market positioning & brand
• To gain prestige – local/regional/national
• To beat the competition
• To maximize revenues
• ROI for operating company, grow value
• To diversify customer base
• Address home carrier lack of action
Tourism:• To attract & enable visitors
• To open new source markets, grow existing
• To diversify consumer offer, enhance access
choice
• To flex seasonality
• To support hotel/accommodation providers
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MODULE 1 MODULE 1 WHY AIR SERVICE DEVELOPMENT?
Government:• Economic stimulus, job creation
• Connectivity
• Prestige
• Influence national carrier
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MODULE 1 Economic Impact
"The non-gaming economic impact of one British Airways flight from London to Las Vegas is currently $91 million annually," said Cathy Tull, Senior Vice President of Marketing for the Las Vegas Convention and Visitors Authority (LVCVA). "This flight was the result of opportunities realised at previous Routes forums….
The economic impact of air service development is vast:
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MODULE 1 Economic Impact
SETTING THE SCENE
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MODULE 1 MODULE 1 SETTING THE SCENE
GLOBAL ISSUES
Route Dev.
Economic Growth
World fleet orders
Aircraft Technologies
Market Segments -LCC’s etc
Oil prices
Middle East big 3
Regulatory
New Era route
Development
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MODULE 1 MODULE 1 SETTING THE SCENE – AIR TRAVEL DEMAND
• Air traffic will double over the next 15 years.
ICAO Total Traffic Airbus GMF 2015
Air Traffic will double in the next
15 years
2014-2024
+5.2%---------------2024-2034
+4.0%---------------2014-2034
+4.6%
Source: ICAO, Airbus
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MODULE 1 MODULE 1 SETTING THE SCENE – AIR TRAVEL DEMAND
Air Traffic Growth consistently outperforms GDP growth
Source: ICAO, IHS Economics
Growth Ratio
1970s 3.1%
1980s 1.9%
1990s 1.8%
2000s 1.4%
2010s 2.1%
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MODULE 1 MODULE 1 SETTING THE SCENE – AIR TRAVEL DEMAND
Air traffic is resilient
• Measured in passengers world air traffic grew 73% over the period 2004-2014.
• In the six years following the financial crisis of 2008, average annual growth was 6.6%.
Source: World Bank
Oil Crisis
Oil Crisis
Gulf Crisis
Asian Crisis
9/11 SARS Financial Crisis
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MODULE 1 Global Middle Class
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MODULE 1 Trips per Capita - 2013
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MODULE 1 Trips per Capita - 2033
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MODULE 1 Urbanisation - 2013 Mega Cities
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MODULE 1 Urbanisation - 2033 Mega Cities
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MODULE 1 Setting the Scene – Economic Variations
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MODULE 1 Shift in Market Power
Source: IATA
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MODULE 1 MODULE 1 World’s Top Tourism Spenders (2015)
International Tourism Expenditure 2015
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MODULE 1 AIRLINE FLEET ORDERS
26
• Their current fleet of 702 aircraft will grow substantially, with 243 planes on order plus options for an additional 214.
• Introduction of the 737-MAX aircraft will provide the airline with increased range to operate longer sectors.
• Azul currently has 134 aircraft in service.
• With 99 aircraft on order, plus an additional 24 options, their fleet could nearly double in the next few years.
• Their capacity will grow significantly as they add larger aircraft; i.e. 320s, 321s, and A350s
• Fleet will grow from 24 aircraft to 67, and potentially to 107 with options,
• Current fleet of 83 aircraft, but 156 more on order, including 18 widebodies (787-8 and A350).
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MODULE 1 MODULE 1 AIRCRAFT TECHNOLOGY - 787
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MODULE 1 MODULE 1 SETTING THE SCENE
B787 orders and deliveries (cumulative; by year-end)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 TotalOrders 56 235 157 369 93 -59 -4 13 -12 182 41 53 1,124
787-8 – – – – – – – 3 46 65 104 62 280787-9 – – – – – – – – – – 10 50 60787-10 – – – – – – – – – – – – –
Total – – – – – – – 3 46 65 114 112 340
Deliveries
Boeing 787 Orders and Deliveries by Year
1. ANA2. Etihad3. United4. JAL5. BA6. American7. Air Canada8. Qatar Airways9. Singapore Airlines10. Air India
Top 10 Airline Customers
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MODULE 1 MODULE 1 AIRCRAFT TECHONOLOGY – A350
A350-800 Range
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MODULE 1 AIRCRAFT TECHNOLOGIES A350
Source: Flightglobal May 2015
A350 aircraft: May 2015Total orders: 730In Service: 3 (Qatar Airways)
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MODULE 1 MODULE 1 AIRCRAFT TECHOLOGIES - A380
A380 orders and deliveries
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MODULE 1 MODULE 1 AIRCRAFT TECHNOLOGIES - COMAC ARJ21
China has been assembling aircraft under franchise for some time
ARJ21 represents China’s ambition to take on the
duopoly in aircraft manufacturing
Launch airline is Chengdu Airlines
Cost per unit is very low at $20 million
Dense configuration is at around 100 seats.
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MODULE 1 MODULE 1 Role of LCCs
North Asia LCC Seat only 9.5%
South East Asia 50%
1020 aircraft order from the three largest LCCs in Asia
Development of Pan Asia LCC brands
% of Low Cost Seats by Region (2013)
Source: Innovata
AMEND
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MODULE 1 MODULE 1 Consolidation, Mergers, Acquisitions & LCC Subsidiaries
• Consolidation: loss of Transaero & Estonia Air
• Continuation of cross airline investments: SQ and Vistara, IAG & Aer Lingus / Etihad
& Alitalia / TAP & Atlantic Gateway (AZUL). (Who next: LOT – Turkish Airlines, SAS)
• LCC subsidiaries: ANA (Vanilla & Peach), Lufthansa (Eurowings / Jump), Singapore
(Tiger & Scoot)
• LCCs conversations with FSC: Ryanair – Aer Lingus, easyJet – Lufthansa
• Role of the alliances
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MODULE 1 BUSINESS MODELS MIXING
Pure LCC
• Point to point network model• Leisure market focus • No FFP• Sales channel via proprietary web sales only• Scheduling takes no account of connecting opportunities
Hybrid Pure Network
• Point-to point network model• Business and Leisure market focus – FFP• Multiple sales channels including limited GDS participation• No Alliance membership (until recently!) or IATA driven interline connecting products• On-line connecting product only
• Connecting traffic network model• Business and Leisure market focus – FFP• Multiple sales channels including full GDS participation• Alliance membership, and IATA driven interline connecting products
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MODULE 1 MODULE 1 Oil Price Impact
• Existing Brent Crude Oil $50
• Average fuel price for 2014 $101
• Average fuel price for 2015 $65
• Drop in fuel price of 36%
• AA drop in fuel bill 44% YTD 3QTR
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MODULE 1 New Era of Route Development
1990-2000 2000-2010 2010-2020
Marketing within Airport Structure
Handles dialogue with local airlines
Terminal advertising
Defines market position of airport
Increased focus on route development
Marketing has Board level role Fundamental to airport
strategy
Relationship with airlines
Utility for airlines Published fees and charges
Meetings with airline Head Office
Incentives become common
Targeted sales Pricing negotiated
Stakeholders Airlines, passengers and other airport departments
Increasingly includes external stakeholders
Marketing coordinates stakeholder interest
Creation of Route Development Fund
Route Development ‘tools’
Research & Analysis (catchment, forecasts, market analysis, market research)
Consumer marketing
R&A includes network performance
Consumer marketing B2B marketing CRM
Social networking and new media
Website facilitates connecting traffic
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MODULE 1 MODULE 1 SETTING THE SCENE
CHINA ISSUES
Global Issues
LCC’s
Economy
Airline deals
Tourism competitionRegulation
China
Middle East 3
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MODULE 1 MODULE 1 Middle East Domination
Dubai is now the largest International Airport
• In 2005 Dubai wasn’t in the top 10
• Emirates launched 30 years ago (1984)
• Half of the world’s A380s operated by EK
• If and when will Istanbul over take Dubai?
Airport Passengers 2014 %
Dubai 69,954,392 6%
Heathrow 68,091,095 2%
Hong Kong 62,929,420 6%
Paris Charles de Gaulle 58,623,111 3%
Amsterdam Schiphol 54,940,534 5%
Singapore Changi 54,093,070 1%
Frankfurt 52,713,013 3%
Incheon 44,906,813 10%
Ataturk 38,037,302 12%
Bangkok Suvarnabhumi 37,183,099 -10%
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MODULE 1 The Nine Air ‘Freedom’ Rights