European Low Fares Airlines Association

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

European Low Fares Airlines Association

• About ELFAA

• Introduction to Low Fares Airlines (LFAs)

• Successful Partnership: LFAs and Regional Airports

• Current threat to that Successful Partnership

OUTLINE

European Low Fares Airlines Association

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

European Low Fares Airlines Association

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

European Low Fares Airlines Association

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

European Low Fares Airlines Association

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

European Low Fares Airlines Association

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

European Low Fares Airlines Association

Source: Analystenreports, Unternehmensinformationen, Monitor Group Analysis; 2005-2006 – ELFAA analysis

Growth of LFAs (1/2)

Passenger numbers of European LFAs (m)

0

20

40

60

80

100

120

140

1999 2000 2001 2002 2003 2004 2005 2006

European Low Fares Airlines Association

Growth Generated By ‘New’ Passengers

Source: NFO Infratest, 2002; Monitor Group Analysis

Others, 8%

Otherw ise by rail, 6%

Otherw ise by car, 15%

No data, 4%

Shift w ithin airline market, 37%

Otherw ise w ould not have travelled, 71%

New demand, 59%

Growth of LFAs (2/2)

European Low Fares Airlines Association

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

European Low Fares Airlines Association

Impact of LFAs (traffic growth: an example)

Passenger numbers at Pisa airport (m)

0.0

0.5

1.0

1.5

2.0

2.5

1997 1998 1999 2000 2001 2002 2003 2004 2005

European Low Fares Airlines Association

Catchment area of the Cologne Bonn Airport for low fares passengers traveling to Venice (km)

50-10029%

10-2022%

0-107%

250-5007%

20-5025%

100-25010%

Source: : Hapag-Lloyd Express’ own research

Impact of LFAs (catchment area grows)

European Low Fares Airlines Association

Frankfurt-Hahn Airport – growth of non-aeronautical revenues

Source: Frankfurt Hahn Airport

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2002 2003 2004 2005

Shop area (sqm)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2002 2003 2004 2005

Parking space

Impact of LFAs (non-aeronautical revenues grow)

European Low Fares Airlines Association

• 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

Other benefits of the low fare services

European Low Fares Airlines Association

Current threat to the Successful Partnership

Misinformed environmental policies

• Initiatives based on false myths about aviation’s 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

European Low Fares Airlines Association

Thank you!

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