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1European MRO Conference, Berlin, 19.10.2005 www.advolar.com ©

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LCC Market Share in Europe

LCCs and the Future of the Business Model

Drivers of the Business Model

LCCs and MROs

Conclusion

Agenda


Service level

Cost

-Low-Fares-Frequency

-Main Airports-Frequency-Branding

-Business -Branding

-Low Fre- quency -Branded meals

-Hot meals, -Lounges, -Paper tickets

Pure Low Cost Carriers• Year round traffic• Independent travelers• Balanced directional flows• Grow the market• Avoid charter markets (for

the time being!)

Hybrid Models• Mix of business and leisure• “A la carte” services• Compete in some charter

markets

LCCs Develop Different Market Strategies


Full Service Airlines

LCCs

Charter Airlines

Migration of business models


Full Service Airlines

LCCs

Charter Airlines

HybridsHybrids

Migration of business models


Short-haul routes

Long-haul routes

Non-businesspassengers

Price-conscious business

passengers

Quality-conscious business

passengers

Network carrier

Regionalairlines

Charter

LCCs

Source: Mercer Management Consultants 2003

Positioning of LCCs


Migration and Segmentation

LCCs will continue to grow. Market share of 35% in 2010 seems not unrealistic.

LCCs will move into leisure destinations (sector length max 2-3 f‘hrs) where traditional charter carriers have a significant „seat only“ business.

LCCs will increase frequency on leisure routes but will reduce the number of departure airports.

LCCs will adopt quality elements or product features from Full Service/Charter Airlines provided costs and complexity will not increase or they are providing another revenue stream (FFPs, IFE, seat reservation etc.)

LCCs will enter into arrangements with tour operators provided their business model will not be affected.





LCCs and MROs

Conclusion

Agenda


Business Models


Short Turn around Time High reliabilty Excellent T/S and MEL-Management

High Utilization – Low Saisonality Equalized maintenance program Maintenance program calendar time driven Letter Checks outside standard maintenance periods

Low f‘hr/cycle ratio Engine maintenance cycle driven

High load factor Cabin wear and tear

No Hot Meal service, No IFE Spares provisioning

Basing Concept

Operation


National /

flag carrier

usually have

one or two

national

bases only

Aircraft Basing Concepts


Ryanair

LCCs have a pan European basing concept


Ryanair and Easyjet

LCCs have a pan European basing concept


Homogenous Fleet Overall maintenance costs (spares holding, engineering etc.)

No Stand-By Aircraft High reliability

Ownership: Mostly Leased Aircraft Mod policy Spares Pool Exchange

Fleet


Image Transfer

LCCs have a latent image problem:

Low Cost = Low Safety

Contracting with a „Blue Chip“ in the MRO industrie reflects positively on the LCC





LCCs and MROs

Conclusion

Agenda


Outsourcing Trends


LCCs Outsourcing Trend


Outsourcing Airframe Maintenance


Low-cost means...

...not simply reducing the price for doing what always has been done,

...but primarily changing well-known processes.

The simplicity of the new processes is key.

The Low Cost Idea Can be Adoptedby the MRO Industry

The low-cost idea has to start in people´s mind!


We are not an airline, we are a culture.

A culture founded by optimists - and built by believers.

We are not an airline.

We are listeners, innovators and technology creators.

We are not an airline.

We are magicians, musicians, acrobats and sprinters focused on a single goal: to give style, service and choice back to the people who fly.

That´s why we „cast“ our stars - to make sure each and every one is attentive and gracious.

Why we offer everyone 24 channels of real time, satellite TV and CD quality MP3 audio.

Why we hand picked a socially-conscious chef - to prepare fresh meals and cater to diverse tastes.

Why Kate Spade designed a collection for our stars, why we created exlusive programming for families, and offer cosmopolitans in the air.

All in all, it´s why we offer more. And now it´s time to dig deeper.

You see, we realize our difference doesn´t lie solely in the choices we offer, but also in how we offer them. ...

Song‘s Credo


New thinking when offering services to LCCs. LCC culture is open minded. Leadership is not necessarily having airline background!

„New frontiers“ are a challenge not a risk!

For LCCs there is little incentive to take on board anything other than line

maintenance work. What LCCs really do well is flying passengers from A to B,

develop products and grow markets, manage yield and revenue

LCCs want „air time“, suppliers want ground time. There´s a conflict of interest, less incentive for suppliers to „improve“ themselves

Source: „Service Challenge“, Airline Business, October 2004

LCC Requirements


LCC Requirements

„Equalized“ maintenance concepts to assure shorter ground time

and higher availability of the aircraft

Suppliers should maximize the benefits from the „Data Pool“ they have built up during hundreds of checks e.g. knowledge of most frequently used material (pre-kitting), repair schemes etc.

Cost reductions will have to come from smarter maintenance

planning

Doing the right work at the right time and not over-maintaining


LCC Requirements

Small Engineering organisations require more support than traditional airlines: SB-evaluation, Documentation, Tech Records etc.

LCCs are not interested in maintaining huge spare inventories. „Spares by the hour“ converts fixed costs into variable costs. Pre-kitted material for all checks, major component changes for all a/c models are available from specialized suppliers

LCCs are not looking at how to increase fares if costs are going up. LCCs are turning every stone to reduce costs further. MROs negotiating a long term contract with a LCC should not offer complex Escalation Clauses but a Productivity Improvement Program. Benefits to be shared with the airline.

Rates should be split into Euro (labour) and US Dollar (material)





LCCs and MROs

Conclusion

Agenda


Conclusion

LCCs in Europe and will continue to grow 35% market share in 2010 LCCs will continue to outsource maintenance services Maintenance volume will be affected by young fleet New Generation aircraft require less m‘hrs/bay day! MROs are invited to re-engineer processes in order to be

more cost effective. They are not expected to deliver the standard poduct cheaper!

MROs have to deliver pan european (pipe line management!) and dependable services. Productivity gains to be shared with the customer.


Thank you for your attention!

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