Professional Documents
Culture Documents
Presented
Presented by:
by:
David
David H.
H. Treitel
Treitel
Chairman
Chairman and
and CEO
CEO
SH&E,
SH&E, Inc.
Inc.
Presentation Overview
United States
Europe
Asia-Pacific
1
Section 1
3
Since 2001, the LCCs Have Prospered While Legacy
Carriers Have Struggled
Ð Frequency Ð Fares
Ð Routes Ï Traffic
Ð Traffic Ï Revenues
Ð Revenues Ï Profitability
Ð Fares
LCCs Have Been
Ð Profitability the Clear Winners
4
Competition Between Legacy and Low Cost Carriers
Is Being Waged on Five Key Fronts
Product/Brand Battleground
5
The LCC’s Have Large Virtually Insurmountable Structural
Cost Advantages
Domestic
Domestic CASM
CASM
1Q2003
1Q2003 –– 1Q2004
1Q2004
ll
ttaa
tt
tt
eess
ess
ann
eenn
wwe
iicca
ee
hhww
lluu
ttiinn
dd
iirr
tthh
eerr
ttee
tt BB
taa
uutt
SAA
TAA
onn
ellt
orr
AAm
nii
m
UUS
CCo
No
UUn
AAT
DDe
SSoo
JJee
N
$0.14
$0.14
$0.12
$0.12
$0.10
$0.10
$0.08
$0.08
$0.06
$0.06
$0.04
$0.04
$0.02
$0.02
$0.00
$0.00
1Q2003
1Q2003 1Q2004
1Q2004
6 Source:
Source: US
US DOT,
DOT, Form
Form 41
41
Low Cost Carrier Growth Has Traditionally Followed
Regulatory Reforms
7
The LCC Phenomenon New To Asia but A Maturing Market
in Europe and North America
Europe
Europe
•• Continued
Continued Low
Low Cost
Cost
Expansion
Expansion inin UK/Western
UK/Western
North
North America
America Europe
Europe
•• Slow
Slow recovery from
recovery from September
September •• East-West
East-West traffic
traffic
11
11
th
th simulation
simulation because
because ofof
•• Expansion
Expansion of of International
International expanded
expanded EUEU
Service
Service •• LCC
LCC form
form in
in Eastern
Eastern and
and
•• Low
Low cost
cost carriers
carriers continue
continue to
to Central
Central Europe
Europe
gain
gain share in US and Canada
share in US and Canada •• LCC
LCC Market
Market Share:
Share: 17%
17%
•• Legacy
Legacy carriers
carriers areare
responding
responding (Delta
(Delta –– Song,
Song, Air
Air
Canada,
Canada, United – Ted) with
United – Ted) with
LCCs
LCCs
•• LCC
LCC Market
Market Share:
Share: 30% 30% Pacific
Pacific Rim/Australia
Rim/Australia
•• Relatively
Relatively infant
infant market
market
•• LCCs
LCCs Have started
Have started in
in
more
more “liberal”
“liberal”
environments
environments –– Australia,
Australia,
Singapore,
Singapore, Malaysia,
Malaysia,
Thailand
Thailand
•• India
India has
has announced
announced aa
few
few low cost start
low cost start ups
ups
•• LCC
LCC Market Share
Market Share 4%
4%
8
If LCC Penetration in Europe and Asia reaches US Levels,
They Will Need Aircraft Worth $170bn - $240bn Over the
Next 20 Years
Estimated
Estimated LCC
LCC Single-Aisle
Single-Aisle and
and Regional
Regional Jet
Jet Fleet
Fleet Growth
Growth
2004-2023
2004-2023
Value ($b)
$97.0 bn -
Europe 2,000 – 2,400 $140 bn
$70.0 bn -
Asia Pacific 1,350 – 1,900 $100 bn
9 Source:
Source: SH&E
SH&E Analysis,
Analysis, 2004.
2004.
Section 2
United States
Today Low-Fare Service Accounts for Almost 30% of the
U.S. Domestic Market
U.S.
U.S. Low
Low Fare
Fare Carrier
Carrier Share
Share of
of Total
Total U.S.
U.S. Nonstop
Nonstop Seats
Seats
28%
28%
26%
26%
24%
24%
23%
23%
21%
21% 22%
22%
18% 19%
19%
18%
18% 18%
16%
16%
14%
14%
12%
12%
10%
10% 10%
10%
8%
8%
Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug
90
90 91
91 92
92 93
93 94
94 95
95 96
96 97
97 98
98 99
99 00
00 01
01 02
02 03
03 04
04
Low
Lowcost
costcarrier
carriershare
shareof
ofIntra-Canadian
Intra-Canadianseats
seatsexceeds
exceeds30%
30%
11 Source:
Source: OAG
OAG Schedule
Schedule Tapes
Tapes
Average Unit Costs for LCCs Remain About A Third Lower
than Those of Legacy Carriers
Domestic
Domestic Unit
Unit Cost
Cost versus
versus Trip
Trip Length
Length for
for Select
Select Legacy
Legacy and
and Low
Low Cost
Cost Carriers
Carriers
YE
YE 2Q2004
2Q2004
13
12
US Airways
Delta
11
Continental
Northwest American
U nit C osts (in cents)
10
9
AirTran
8
Southwest Spirit
7
6
JetBlue
5
4
400 500 600 700 800 900 1,000 1,100 1,200 1,300 1,400
Trip Length (miles)
Cost
Cost Advantage
Advantage of
of US
US Low
Low Cost
Cost Carriers
Carriers vs.
vs. US
US Legacy
Legacy Carriers
Carriers
(Domestic
(Domestic CASM)
CASM)
2Q2004
2Q2004
Overall 30.8%
Maintenance 27.1%
13 Source:
Source: US
US DOT,
DOT, Form
Form 41
41
LCCs Will Continue Growing More Rapidly Than Legacy
Carriers
Aircraft
Aircraft on
on Order
Order as
as aa %
% of
of Current
Current Fleet,
Fleet, US
US Carriers
Carriers
September
September 2004
2004
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
14 Source:
Source: ACAS
ACAS Database
Database
The Trend of North America LCC Penetration Suggests
That It Will Reach 50%
Domestic
Domestic Seat
Seat Market
Market Share
Share By
By Carrier
Carrier Type
Type
December
December 2004
2004 vs.
vs. the
the Future
Future (estimated)
(estimated)
Other
Other
10%
3%
LowCost Majors
31% 40%
Majors
66% LowCost
50%
15 Source:
Source: OAG
OAG Schedule
Schedule Tapes.
Tapes. SH&E
SH&E Analysis,
Analysis, 2004.
2004.
Section 3
Europe
The European ‘Domestic’ Market Has Also Witnessed Rapid
Growth of Low Cost Carriers
European
European Low
Low Cost
Cost Carrier
Carrier Share
Share of
of Total
Total Nonstop
Nonstop Intra-Europe
Intra-Europe Seats
Seats
17%
17%
14%
14%
9%
9%
6%
6%
5%
5%
4%
4% 4%
4%
3%
3%
1% 1%
1% 2%
2%
1%
1% 1%
1% 1%
1% 1%
1% 1%
Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Aug
Aug Dec
Dec
90
90 91
91 92
92 93
93 94
94 95
95 96
96 97
97 98
98 99
99 00
00 01
01 02
02 03
03 04
04
18
European LCCs easyJet and Ryanair Are Expected To Lead
in Capacity Growth
European
European Carriers
Carriers –– Capacity
Capacity Growth
Growth Forecast
Forecast
1997-2002
1997-2002 and
and 2003-2005E
2003-2005E
eess
ss
iinn
aayy
irrll
irrww
AAi
ccee
ssaa
Ai
hA
iaan
n
ann
aann
tt
iirr
JJee
aaiir
iaa
a
iissh
r
nnaa
ttrri
aalli
iiaa
FFrr
fftthh
ssyy
LMM
nnnn
SS
uss
yaa
eerr
riitt
liitt
SSAA
irr
AAu
KKL
RRy
LLuu
eeaa
BBr
Ai
Al
FFii
IIbb
A
A
50%
50%
40%
40%
30%
30%
20%
20%
10%
10%
N/A
0%
0%
-10%
-10%
1997-2002
1997-2002 2003-05E
2003-05E
19 Source:
Source: UBS,
UBS, 2004.
2004.
Upstart LCCs and National Airlines Transforming into
No-Frills Carriers Have Plans for Significant Growth in 2004
20
LCCs in Europe Have A Significant Labor Cost Advantage
and Labor Efficiency
Passengers
Passengers Served
Served Per
Per Employee
Employee and
and Labor
Labor CASK
CASK –– Europe
Europe
2003
2003
12,000
12,000 44
Low Cost Legacy
3.5
3.5
10,000
10,000
33
8,000
8,000
2.5
2.5
6,000
6,000 22
1.5
1.5
4,000
4,000
11
2,000
2,000
0.5
0.5
00 00
Ryanair
Ryanair easyJet
easyJet Virgin
Virgin Exp
Exp Lufthansa
Lufthansa Austrian
Austrian Alitalia
Alitalia British
British Finnair
Finnair Air
Air France
France KLM
KLM
Airways
Airways
21 Source:
Source: Company
Company Reports,
Reports, 2004.
2004.
Average Unit Costs for European LCCs Are More Than 40%
Lower than Those of European Major Carriers
Unit
Unit Cost
Cost versus
versus Trip
Trip Length
Length for
for Select
Select European
European Legacy
Legacy and
and Low
Low Cost
Cost Carriers
Carriers
2003
2003
12
Lufthansa
Finnair KLM
10
Austrian
U nit C osts (in cents)
8
BA
Virgin easyJet
6
Express
4
Ryanair
2
0
400 600 800 1000 1200 1400 1600 1800
Trip Length (miles)
22 Source:
Source: Company
Company Reports,
Reports, 2004.
2004.
Section 4
Asia-Pacific
Asian Environment Offers Special Challenges to Low Cost
Airline Models
Stronger
Stronger Direct-to-consumer distribution strategies
Agency
Agency Role
Role may be harder to implement in Asia
Limited
Limited Route
Route Bilateral agreements could limit
Rights
Rights extensive/rapid service development
24
But, Low Cost Carrier Activity Is Growing in South East
Asia
25
And Now Accounts For Under 5% of Seats, Showing Similar
Growth to Europe in the Early 90s
Low
Low Cost
Cost Carrier
Carrier Share
Share of
of
Total
Total Nonstop
Nonstop Intra-Far
Intra-Far East
East Asia/Australian
Asia/Australian Seats
Seats
4.3%
4.3%
2.2%
2.2%
0.8%
0.8% 1.1%
1.1%
Aug
Aug 01
01 Aug
Aug 02
02 Aug
Aug 03
03 Dec
Dec 04
04
26 Source:
Source: OAG
OAG Schedule
Schedule Tapes
Tapes
Air Asia and Virgin Blue Have Lower Costs Than Their
Regional Legacy Carrier Counterparts
CASKs
CASKs for
for Australian
Australian and
and Southeast
Southeast Asian
Asian Carriers
Carriers
2003
2003
Australia Southeast Asia
Singapore
Singapore Malaysian
Malaysian
Qantas
Qantas Virgin
Virgin Blue
Blue Airlines
Airlines Thai
Thai Airways
Airways Airlines
Airlines Air
Air Asia
Asia
8.0
8.0
7.0
7.0
6.0
6.0
5.0
5.0
4.0
4.0
3.0
3.0
2.0
2.0
1.0
1.0
0.0
0.0
27 Source:
Source: Company
Company Reports,
Reports, 2004.
2004.
Several Independent LCCs Are in a Strong First-to-Market
Position
28
However Several Established Carriers in the Region Are
Competing With LCC Operations
29
Section 5
Implications/Market
Opportunity
The World’s Fleet Will More Than Double Over The Next 20
Years, With Asia-Pacific Leading In Expected Order Value
Estimated
Estimated Fleet
Fleet Growth
Growth (New
(New and
and Replacements)
Replacements)
2004-2023E
2004-2023E
Value ($b)
Europe $529.5
Asia-Pacific $673.0
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000
31 Source:
Source: Boeing
Boeing Current
Current Market
Market Outlook
Outlook 2004.
2004.
If LCC Penetration in Europe and Asia reaches US Levels,
They Will Need Aircraft Worth $170bn - $240bn Over the
Next 20 Yrs..
Estimated
Estimated LCC
LCC Single-Aisle
Single-Aisle and
and Regional
Regional Jet
Jet Fleet
Fleet Growth
Growth
2004-2023E
2004-2023E
Value ($b)
$97.0 bn -
Europe 2,000 – 2,400 $140 bn
$70.0 bn -
Asia Pacific 1,350 – 1,900 $100 bn
32 Source:
Source: SH&E
SH&E Analysis,
Analysis, 2004.
2004.
Already Several Non US Low Cost Carriers Have Made
Significant Orders for New Aircraft
33 Source:
Source: ACAS
ACAS Database,
Database, 2004.
2004.
LCC’s Will Expand Into More Market Segments
LCC’s are expanding into the 70-100 aircraft that will serve
different markets
34
LCC’s Will Continue to Force The Industry To Restructure
35