Hong Kong Executive Forum 26 February, 2004

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Hong Kong Executive Forum 26 February, 2004

• New Players, New Rules New Expectations Are No
  Frills Carriers Ready To Form A New Era In
  Business Air Travel?

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The Phenomenon of the Low Cost Carrier

• Speaker Peggy Vera
• Cebu Pacific Air

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many names, different shapes

• LCAs or low cost airlines
• LCCs or low cost carriers
• No-frills carriers
• Value-based carriers
• Second-tier carriers

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LCC Characteristics

• no frills
• point to point operations
• use of secondary airports
• less costly distribution channels
• greater use of technology
• dispatch reliability

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LCC Characteristics

• higher frequencies
• single class service
• fleet commonality
• staff dynamism

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(No Transcript)
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Asias LCCs
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What the experts say
Low cost airlines are shaping to be a "next
round" challenge to full service carriers in
certain markets in the Asia Pacific region. Asia
Pacific Airline Daily.
Low-cost airlines will not take off in Asia, the
same way as they have in the US and Europe.
Richard Stirland of the Association of Asia
Pacific Airlines
The low cost airline model in America and Europe
wont necessarily translate to the Asia Pacific
region. There are all sorts of issues
associated with the availability of second level
airports and reduced costs, associated with
bilateral agreements between countries. I think
we will see it occur, some successful, some not
--- but they are around, and they will stay
here. Source CNA, 4 November, Andrew Drysdale
The low-cost model works best only in big
markets where airlines schedule many flights with
quick turnarounds.
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What the experts say
Passengers are reluctant to board a no-frills
airline for a long haul flight. The longer the
route, the less price sensitive the passenger
becomes. They dont want to be crammed into a
plane for six or eight hours --- especially when
there are limited or no in-flight services.
Simon Gresham of Merrill Lynch
An abundance of low-fare carriers and dearth of
premium service might also turn off business or
leisure travelers willing to pay extra for perks
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They set-up their own
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Asia follows.
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and SQ gives in
We have been studying the rise and successful
growth of the low fare airlines in America and in
Europe, and evaluating the applicability of the
low cost, no frills model in our part of the
world. Our conclusion is that it can succeed
here as well. However, we have observed that
almost all attempts by full service network
airlines to operate wholly owned low fare
carriers have been unsuccessful.. it is hard to
be both premium full service and
low-cost-no-frills at the same time. SQs CEO
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Points to ponder

• LCCs a threat? or good for the industry?
• New era of efficiency?
• Ruinous fare wars?

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I dare say

• LCCs are here to stay

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Benjo van Laarhoven

• SVP Global Sales
• TQ-3 Travel Solutions

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State of play

• Worldwide, traditional airline industry is in a
  decided slump
  
• Last year estimated losses 6.5 billion
• Lufthansa 400m, Alitalia 570m, British Airways
  210m
  
• Severe cost-cutting efforts across the board
• The balance has shifted

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Reality bites

• Unprecedented chain of events - no-frills
  carriers made a giant leap
  
• More than 1 in 5 passengers flying intra EU
  destination is on a budget carrier
  
• Ryanair sees 39 leap in profits in 03
• Rod Eddington, CEO, BA says
• I take them low cost carriers very seriously.
  Weve got to learn from them unashamedly.
  
• Traditional counter with web fares, virtual
  airlines.

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Low cost means (In Asia?)

• Secondary airports vs. main hubs (?)
• Frankfurt-Hahn aint near Frankfurt!
• Disastrous effects during adverse conditions
• They dont provide frillssuch as food!
• No business lounges
• Point-to-point flights only
• Off-peak schedule
• Stand alone
• No code sharing no relief for stranded pax in
  event of cancellation and/or delay

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Low cost means

• More seats
• Ryanairs biggest plane seats 189 traditional
  airlines seat 150 on average
  
• LCC use Boeing 737s which are cheap, simple and
  often second-hand
  
• Less staff
• Ryanair carried 15m pax with 2,000 staff BA
  carried 35m with 55,000 staff
  
• Mostly web-only attitude
• More than 90 of bookings are made on the web
  saving LCC an estimated 25m
  
• Generally cut corners
• More inventory

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What does it really mean?

• Increased complexity due to multiple inventories
• Facilities for corporates are limited
• Facilities for travel managers looking for ease,
  cost-saving, tracking convenience for traveller
  are limited
  
• According to IATA survey of 1,000 business
  executives
  
• Many business travellers are choosing no frills
  over traditional airlines on short-haul flights
  
• 70 in North America and 76 in Europe are
  prepared to try the low cost option
  
• 80 of business travellers either very
  satisfied or fairly satisfied with the service
  on no-frills airlines
  

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Does it weigh up?

• Security
• Time saving
• Peace of mind

Cost Savings

• Most travel managers see LCC nightmare
• They are prepared to spend an extra 100 to gain
  security, time efficiency peace of mind
  
• Difficult to monitor a companys total air spend

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Does TQ3 endorse LCC?

• We appreciate some corporates will be led by
  price regardless of time wasted
  
• The take-up among corporates has been variable
  depending on segment
  
• Until now TQ3 dealt with the booking of LCC on a
  case-by-case basis
  
• We recognise that LCCs are here to stay,
  therefore we have answered the call
  
• Manage complexity through technology and new
  agent workflows
  

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Manage multiple inventories

• TQ3 has launched Web Fare-It
• TQ3 became first global TMC to offer a
  fully-integrated global web fares search and
  booking tool

• TQ3 first to offer all inventory distributed over
  the internet (including LCC and web-only fares)
  to customers
  
• Consolidated MIS

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Total cost of trip

• In many cases LCC fare is only 40 or less of
  total trip price
  
• Travel agency will concentrate on all costs
• Ground transportation
• Parking
• Pooling
• Strong emphasis on trip models
• Trip purpose
• Number of trips
• Preferred suppliers
• E-ordering and Online Booking
• POS contract management (POS versus contract
  management)

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Summary

• Asia will see many new entrants in the coming
  months
  
• LCCs are here to stay although oversupply will
  diminish the novelty-effect
  
• Established airlines dropping fares on short-haul
  routes to compete and winning
  
• LCCs will dangle carrots for corporates but
  traditional carriers will ultimately provide
  better, more reliable service
  
• Corporates will have to weigh contract management
  versus POS management
  
• Bargains do not equal better
• TMCs will assist corporates manage increasing
  complexity

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Hong Kong Executive Forum 26 February, 2004

• Roundtable Discussion
• Airfare Reforms

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Hong Kong Executive Forum 26 February, 2004

• Lunch