LCC Market Transformation Phase 3: Recreating The

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LCC Market TransformationPhase 3: Recreating thenetwork systemPeter HarbisonExecutive Chairman, CAPA – Centre for AviationCAPA Global LCC Summit, Singapore, 1/2 March, 2018

A word about fuel prices- more important to LCCswww.centreforaviation.com

Oil prices are important drivers(Brent Crude prices USD)One year changeFeb-2017 to Feb-2018And this is where prices camefrom: 5 year change 2013-2018Jet fuel prices have risen 20%in the past 12 monthsPrice at USD67, 28-Feb-2018No-one predicted priceswould go to USD100 /barrelSource: Oil-price.netwww.centreforaviation.com

Recreating the airline network system LCCs are still a young force They massively disrupted air travel and the way airlinesthink about serving the public Operate point to point – cheapest, simplest way to operate Impossible to link all city pairs, so some travellers need tolink via one or more hubs ( LCCs access more traffic) BUT – Connections are complex and add cost Online connections are fairly costly Interline connections even more complex add costwww.centreforaviation.com

LCCS Phase #1:The dramatic cost shift Key cost savings: Seating density Higher utilisation Simple point to point Online selling, no agents, no GDS No frills Outsource most non-flying operational activities New revenue streams Ancillaries revenueExpanded rapidly before legacy airlines could respondwww.centreforaviation.com

LCC fleet growth e: CAPA Fleet Databasewww.centreforaviation.com

LCC fleet growth e: CAPA Fleet Databasewww.centreforaviation.com

LCC fleet growth e: CAPA Fleet Databasewww.centreforaviation.com

LCC fleet growth e: CAPA Fleet Databasewww.centreforaviation.com

LCC Market share by RegionMain Groups AirAsia Group AirAsia X Group Cebu Pacific Group Flybe Group PLC Grupo Viva Indigo Partners Jetstar Group Norwegian Southwest Tiger Airways Holdings VietJet Group Volaris Wizz Air Lion Groupo (Batik & Malindo are FSCs)Source: CAPA – Centre for Aviation & OAGYear EndingDec 2017EuropeDOM: 40.4%INT: 7.4%IndiaDOM: 66.6%INT: 21.2%GlobalDOM: 31.4%INT: 11.4%www.centreforaviation.comPhilippinesDOM: 69.2%INT: 37.2%SE AsiaDOM: 53.4%INT: 24.9%AustraliaDOM: 26.4%INT: 16.3%

LCCs Phase #2:Basic networking & "hybridisation” In Asia, establish X-border JVs - improveutilisation and gain market access Encourage and facilitate pax self-connect Fly long haul, with some connectivity Add premium seating Market to business travellers and corporatesAt the same time, FSCs increasingly imitate LCCcharacteristicswww.centreforaviation.com

Group Growth: AirAsia-Jetstar-Norwegian1998GroupAverage AgeAircraft28.95AirAsiaJetstarNorwegianSource: CAPA Fleet Databasewww.centreforaviation.com

Group Growth: AirAsia-Jetstar-Norwegian2018GroupAverage n3.8146230Source: CAPA Fleet Databasewww.centreforaviation.com

Phase #3:Long haul LCCs and FSC subsidiaries Full service airlines realise they can’t compete on shorthaul, but do reduce costs and frills FSCs continue to dominate long haul with networkoperations LCCs expand long haul operations as new, economicalaircraft types arrive They expand network operations FSCs adopt their own subsidiaries, short haul then longhaulwww.centreforaviation.com

Long Haul LCCs start to spreadCarrier NameNorwegian Air ShuttleEurowingsLion AirWestjetNorwegianScootWOW AirTUIflyJetstar AirwaysAirasia XJetBlue Airways CorporationTUI fly BelgiumNorwegian Air UK ltdAzul AirlinesGOL Linhas Aereas S.A.Virgin AmericaJet2.comTransavia.comFlydubaiRyanairRoutes D-VKOEWR-OAKJin AirAir LeisureThai Air Asia XWizz AirCebu Pacific AirIndonesia Airasia XInterjetSpirit AirlinesLao SkywayLucky Air Co. Ltd.Flynas - National Air ServicesAllegiant Air LLCNokScoot Airlines Co LtdJeju AirlinesPobedaSouthwest AirlinesSource: CAPA – Centre for Aviation & OAGwww.centreforaviation.com

Long Haul LCC Growth ,119International2,686,80410,859Source: CAPA – Centre for Aviation & OAGwww.centreforaviation.com

Long Haul LCC Growth 2008-182018Domesticseats 55%Internationalseats Source: CAPA – Centre for Aviation & www.centreforaviation.com

FSC groups with LCC subsidiariesChina Southern AirHolding CompanyLongShortIn ServiceOn OrderChengdu AirlinesLCC 3426China Postal AirlinesCAR 270China Southern AirFSC 544167Chongqing AirlinesFSC 197Hebei AirlinesREG 2232Jiangxi AirLCC 70Sichuan AirlinesFSC 13033Xiamen AirlinesFSC 16364China Eastern Air HoldingCompanyLongShortInServiceOnOrderChina Cargo AirCAR 90China Eastern AirFSC 488143China United AirLCC 390Joy AirREG 2479Shanghai AirlinesFSC 967Sichuan AirlinesFSC 13033Source: CAPA – Centre for Aviation www.centreforaviation.com

FSC groups with LCC subsidiariesChina Airlines GroupLongShortIn ServiceOn Order 863China AirlinesFSCMandarin AirlinesFSC 96Tigerair TaiwanLCC 110Source: CAPA – Centre for Aviationwww.centreforaviation.com

FSC groups with LCC subsidiariesANA Holdings Inc.LongShortIn ServiceOn OrderAir JapanCHA All Nippon AirwaysFSC 21896ANA WingsREG 380PeachLCC 2017Skymark AirlinesLCC 263Vanilla AirLCC 144Vietnam AirlinesFSC 8630LongShortIn ServiceOn OrderJapan Airlines Co LtdHokkaido Air SystemCHA 30J-AirREG 290Japan Air CommuterREG 175Japan AirlinesFSC 16177Japan Transocean AirFSC 131Jetstar JapanLCC 210Source: CAPA – Centre for Aviation www.centreforaviation.com

FSC groups with LCC subsidiariesAir India GroupLongShortIn ServiceOn Order1167Air IndiaFSC Air India CargoCAR Air India ExpressLCC 230Air India RegionalREG 110ShortIn ServiceOn Order 5030 14272Garuda Indonesia GroupLongCitilinkLCCGaruda IndonesiaFSCKumho Asiana Group LongShortIn ServiceOn OrderAir BusanLCC 230Air SeoulLCC 60Asiana AirlineFSC 8151Source: CAPA – Centre for Aviation www.centreforaviation.com

FSC groups with LCC subsidiariesSingapore Airlines GroupLongShortIn ServiceOn OrderScootLCC 4243SilkAirFSC 3334Singapore AirlinesFSC 111118Singapore Airlines CargoCAR 70Tigerair TaiwanLCC 110Virgin AustraliaFSC 10040VistaraFSC 182ShortIn ServiceOn Order 298 832 200ShortIn ServiceOn OrderThai Airways Group LongNok AirLCCThai AirwaysFSCThai SmileFSCVietnam Air Group LongCambodia Angkor AirFSC 60Jetstar PacificLCC 180Vietnam Air ServicesFSC 50Vietnam AirlinesFSC 8630Source: CAPA – Centre for Aviation www.centreforaviation.com

FSC groups with LCC subsidiariesQantas GroupLongShortIn ServiceOn OrderEastern Australia AirREG 190Express FreightersCAR 60JetconnectFSC 60Jetstar AirwaysLCC 7299Network AviationCHA 170Qantas AirwaysFSC 12213Sunstate AirlinesREG 310Virgin Australia Group LongTigerair AustraliaLCCVirgin AustraliaFSCVirgin Au RegionalREGSource: CAPA – Centre for Aviation ShortIn ServiceOn Order 170 10040 150www.centreforaviation.com

FSC groups with LCC subsidiariesAeroflot GroupLongShortIn ServiceOn OrderAeroflotFSC 227104AuroraFSC 260PobedaLCC 173Rossiya – Russian AirFSC 710 Air France – KLM S.A.LongShortInServiceOnOrder 21845Air FranceFSCHOP!FSC 820Joon (*full service)FSC 70KLM CityhopperREG 454KLM Royal Dutch AirFSC 1167MartinairCAR 40TransaviaLCC 390Transavia FranceLCC 235LongShortIn ServiceOn Order 10 110Blue Panorama Air S.p.A.Blu-expressLCCBlue Panorama AirFSCSource: CAPA – Centre for Aviation www.centreforaviation.com

FSC groups with LCC subsidiariesDeutsche Lufthansa AGLongShortIn ServiceOn Order 100 110AeroLogicCARAir DolomitiREGAustrian AirlinesFSC 870Brussels AirlinesFSC 450Edelweiss AirFSC 100EurowingsLCC 320Eurowings EuropeLCC 100GermanwingsLCC 390LufthansaFSC 275142Lufthansa CargoCAR 170Lufthansa CityLineREG 480SunExpressFSC 4935SwissFSC 6316Swiss Global Air LinesREG 1515LongShortIn ServiceOn Order 275CJSC Azerbaijan AirlinesGroupAzerbaijan Airlines AZALFSCButa AirwaysLCCSource: CAPA – Centre for Aviation www.centreforaviation.com

FSC groups with LCC subsidiariesInternational AirlinesGroupLongShortIn ServiceOn Order 4817 230Aer LingusFSCBA CityFlyerREGBritish AirwaysFSC 26870IberiaFSC 7937Iberia ExpressLCC 210Iberia RegionalREG 439LEVELLCC OpenSkiesFSC 40Sun-Air of ScandinaviaCHA 160VuelingLCC 10449Tui GroupLongShortIn ServiceOn OrderCorsairFSC 70TUI Air BelgiumLCC 240TUI Air NetherlandsCHA 80TUI Airways LtdCHA 540TUIflyLCC 330Tuifly Nordic ABCHA 50Source: CAPA – Centre for Aviationwww.centreforaviation.com

FSC groups with LCC subsidiariesAir Canada GroupAir CanadaFSCAir Canada JatzCHAAir Canada rougeLCCCopa Holdings S.A.LongShortIn ServiceOn Order 175106 30 500LongShortIn ServiceOn Order 8672150Copa AirlinesFSCCopa Airlines ColombiaREG WingoLCC Source: CAPA – Centre for Aviationwww.centreforaviation.com

FSC groups with LCC subsidiariesEl Al GroupEl AlFSCUpLCCSouth African AirwaysGroupSouth African AirwaysFSCMangoLCCTurkish Airlines GroupLongShortIn ServiceOn Order 4416 LongShortIn ServiceOn Order 550 100ShortIn ServiceOn Order 4935 300210LongSunExpressFSCTurkish AirlinesFSCAnadoluJetLCCSource: CAPA – Centre for Aviation www.centreforaviation.com

Future moves for LCCs Alliances Joining the dots in Asia (Europe already advanced) Long haul narrow body – opens up many new city pairpotentials Expansion, diversification, more networking Continued hybridisation Major new expansion Asia: Lion, IndiGo Latam US?www.centreforaviation.com

Future moves for LCCs Allianceswww.centreforaviation.com

LCC Alliances – more to come?Founded in May 2016Cebu PacificJEJU airNok AirNOKScootScootTigerair AustraliaVanilla AirSource: CAPA – Centre for Aviation & OAGFounded in January 2016Eastar JetHK ExpressLucky AirUrumqi AirWest Airwww.centreforaviation.com

Future moves for LCCs Alliances Joining the dots in Asia (Europe is already well onthe way)www.centreforaviation.com

Time to join the dots?1998GroupAverage AgeAircraft28.95AirAsiaJetstarNorwegianSource: CAPA Fleet Databasewww.centreforaviation.com

Time to join the dots?2018GroupAverage n3.8146230Source: CAPA Fleet Databasewww.centreforaviation.com

Future moves for LCCs Alliances Joining the dots in Asia (Europe is already well onthe way) Long haul narrow body – opens up many new citypair potentials (for FSCs too)www.centreforaviation.com

Fleet Orders-by manufacturers and seriesSource: CAPA Fleet Databasewww.centreforaviation.com

Long Haul Narrowbody– in service & on order35%54%737MAXA320neo38 1,445in service151 2,800on orderon orderFull serviceLCC* Delivery scheduled to 2033Source: CAPA Fleet Databasein servicewww.centreforaviation.com

A321neo LR orders41%A321neo LR54on orderFull serviceLCC* Delivery scheduled to 2033Source: CAPA Fleet Databasewww.centreforaviation.comLLCC6Air Arabia18Jetstar Airways30Norwegian Air Shuttle ASAOOther8Aer Lingus4Air Astana10Air Transat2Primera Air4SATA International10TAP Air Portugalon order

Future moves for LCCs Alliances Joining the dots in Asia (Europe already advanced) Long haul narrow body – opens up many new city pairpotentials Expansion, diversification, more networking Continued hybridisation Major new expansion Asia: Lion, IndiGo Latam US?www.centreforaviation.com

Future moves for LCCs Each of these developments blurs the differencesbetween LCC and full service airlines As LCCs develop1) Network operations; and2) Greater attractiveness to higher yielding traffic,so the inroads on classical FSC network operationsbecome more intense – and the FSCs respond inkind, with their own subsidiariesWhat will Phase 4 bring?.www.centreforaviation.com

Thankyou!www.centreforaviation.com

China Postal Airlines CAR 27 0 China Southern Air FSC 544 167 Chongqing Airlines FSC 19 7 Hebei Airlines REG 22 32. Jiangxi Air LCC 7 0. Sichuan Airlines FSC 130 33 Xiamen Airlines FSC 163 64. China Eastern Air Holding Company Long Short In Service On Order. China Cargo Air CAR 9 0 China Eastern Ai

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