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

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• 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