Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07

…………….. | Low Cost Carrier – A worldwide phenomena?! by Prof. Dr. Sven Gross Hochschule Harz University of Applied Sciences

0 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07

Agenda

1. Hochschule Harz – University of Applied Sciences 2. Definition and Growth of Low Cost Carrier 3. Regional Developments 4. Recent Trends 5. Conclusions

1 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07

Location of Wernigerode/Harz

2 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07

Hochschule Harz

• Established in 1991 • Two locations: Wernigerode and Halberstadt • More than 3.000 students • More than 200 instructors and employees • Cooperation with 64 universities in 23 countries • Cooperation with major regional, as well as national and international companies • Affiliated institutions link research, education and application • 20 full-time courses of study in three departments: Automation and Computer Science, Administrative Sciences and Business Studies

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Department of Business Studies Bachelor‘s courses of study: • Tourism Management • Business Administration • Service Management • Business Psychology Dual degree programs: • International Tourism Studies • International Business Studies Master‘s courses of study: • Tourism and Destination Development • Business Consulting Extra-occupational/post-graduate studies: • Strategic Tourism Management • Business Administration • Culture Marketing • Master„s course of studies in Business Informatics for the Public Sector

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Definition and Growth of Low Cost Carrier

5 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07 Definition

• universal definition missing so far  several terms are used – Low Cost Carrier or Low Cost – Low Fare Airline, Airline, Discount Airline, Budget Airline … • Low Fare = low prices for flight tickets • Low Cost = low costs

„Many attempts to define the low cost carrier model have tended to concentrate on a set of service or operation rules, such as lack of inflight food, direct distribution and a single aircraft type. But even the most successful LCCs tend to break some or all of these rules dependig upon the markets in which they compete. (…) But there is one overriding characteristic: simplicity. This is what drives lowest cost.“ (Flight Insight 2008, p. 28)

Source: Gross/Schroeder 2005, p. 3 6 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07 Development of Low Cost Carrier

• at first only „intra-state“ air traffic in USA possible, mainly within and Texas • Southwest was and still is one of the pioneers in the low cost sector  (mostly) profitable airline and has one of the highest PAX numbers worldwide • further provider followed: 1972 American 1984 Midwest Express • transatlantic flights = Laker Airlines (1972/1977), Braniff (1979), & People Express (1983)  concepts were not successful • pioneer in : (1985/1991) • Worldwide observable liberalisation are pushing the development of LCC

Source: Gross/Schroeder 2005, S. 4.fff; Bjelicic 2007, S. 16ff. 7 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07 Development of Low Cost Carrier

8 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07 Development of Low Cost Carrier

Region (country) Year low cost operations Year(s) in which market Share ofoverall began deregulation took place market 2006 North America USA 1971/1978 1978 ca. 29% 1996 1996 ca. 30% Europe UK/Ireland 1995 1993 ca. 53% (2008) EU 1999 1995 ca. 39% (2007) EU Expansion 2002 2004 - Australia/New Zealand Australia 1990 1990 30+ New Zealand 1983 1994 .. Asia Malaysia 2001 2001 2 Singapore 2001 2001 <1 Japan 1998 1998 1

Source: Francis et al. 2006, p. 85 and own research 9 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07 Development of Low Cost Carrier

Region (country) Year low cost operations Year(s) in which market Share ofoverall began deregulation took place market 2006 Asia China - Ongoing - Thailand 2004 2003 <1% India 2003 2003 < 5 % Rest of world Brazil 2001 1998 3% South Africa 2001 1999 ca. 10% Gulf States 2004 2003 <1%

Source: Francis et al. 2006, p. 85 and own research 10 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07 Charting low-cost start-ups

Year Number of low-cost Year launches > 2000 22 Pre 2000 Airlines 50 2000 3 Subsequent closures 14 2001 4 Pre 2000 Survivors 36 2002 10 Post 2000 Startups 128 2003 13 Subsequent closures 38 2004 19 Post 2000 Survivors 90 2005 18 Total Airlines 178 2006 14 Total Closures 52 2007 14 Operating 2009 126

• more than 100 LCCs worldwide  70% of today„s LCCs have been set up since 2000 (90) • a majority of the start-ups have launched in emerging markets, in particular Asia • since 2004: 28 new LCC in the Asia-Pacific region, 18 in Europe, 11 in the Americans, 5 in Africa and 3 in the Middle East Source: Sobie 2008, p. 54; Centre of Asia Pacific Aviation 2009, p. 59 11 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07 LCCs Worldwide (February 2007)

Europa (58) Canada (4) FlyMe Canjet Air Arann Blu-Express German Wings Snalskjutsen HMY Airways Air 2000 BMI Baby Globespan Snowflakes Sunwing Air Baltic British European Helvetic Airways Sterling Westjet Air Berlin Budget Air Express Sun Express Air Inter Sky Thomson Fly USA (10) Air Clickair Itali Airlines TUIfly Air Tran Jet2 Allegiant Air Corendon Virgin Express ATA Easy Jet Monach Airlines VLM Airlines Frontier Baboo Ryanair Airlines JetBlue Airways Belle Air Excel Airways Scanjet Windjet Midwest Airlines Fare4U SkyEurope WizzAir Spirit Airlines Southwest Latin & South Middle East, Asia, South Pacific (26) USA 3000 Airlines Ted America (13) Adam Air Asia California Aero Pacific Jetstar Australia Alma de Mexico Kingfisher Airlines Aviasca de Mexico Africa (5) Air Asia Lion Air Mexico 1 Blue NokAir Azteca Mexico Air Deccan One-Two-Go Bra Brazil Express Paramount Airways Click Mexicana Kulula Bangkok Air SkymarkAirlines Gol Brazil Mango Cebu Pacific Air SkynetAsia Airways Mexico SpiceJet LAN Express (Chile) Go Air Tiger Airways Ocean Air Brazil IndiGo Valuair Viva Aerobus Mexico JazeeraAirways Virgin Blue 12 Mexico Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07 The Graveyard – Europe

Aeris bankrupt 2003, Agent Air never started, Air Bosnia bankrupt, Air Andalucia bankrupt 2005, Air Catalunya bankrupt, bankrupt 2005, Air Freedom bankrupt 2003, bankrupt 2004, Air Littorel bankrupt 2004, Air Luxor bankrupt, Air bankrupt 2006, bankrupt 2004, Air bankrupt 2006, Airlib Express bankrupt 2003, Azurra Air bankrupt 2004 BasiqAir changed name in Transvia 2004, BerlinJet bankrupt, Bexx Air bankrupt 2004, sold by KLM to Ryanair, Centralwings (bankrupt 2008, ), Clickair and Vueling by (2009) Dream Air never realized their dream, Duo bankrupt 2004, DutchBird bankrupt 2005 EastJet bankrupt End 2006, EU Jet 2005, Europe Exel Aviation Group bankrupt 2005 Fairline Austria bankrupt 2004, Fly Eco will probably never start, (bankrupt 2009, Scotland), Fly Me (bankrupt 2007, Sweden), Fly Nordic taken over by Norwegian (2009) Fly West Website disappeared 2005, Flying Finn bankrupt 2004, Free Airways never started, Fresh Aer bankrupt Germania Express taken over by Fly DBA 2005, GetJet Poland never started, Go Fly sold by to EasyJet, Goodjet bankrupt, bankrupt 2005, Hop never started, never a website! (2004), Jet Magic bankrupt 2004, Jetgreenbankrupt on Wed. 12 May 2004 after 1 week flying!, JetsSky never started, probably a scam! (Jan 2004), JetX stopped scheduled flights 2005, Low Fare Jet bankrupt, Maersk Air merged with Sterling 2005, My Air (bankrupt 2007, ), Now bankrupt 2004, Silesian Air never started, Silverjet (bankrupt 2008, UK), SkyEurope (bankrupt 2009, Slovakia), Skynet Airlines bankrupt 2004 (booking engine too slow!), Spirit of Balkan never started, Sterling (bankrupt 2008, Danmark), Swedline Express bankrupt 2006, bankrupt 2004, VolareWeb bankrupt 2004, White Eagle sold entire 737 fleet ...!!!

Source: http://www.etn.nl and own research 13 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07 The Graveyard

Africa Civair bankrupt 2004, Flamingo Airlines bankrupt Asia + South Pacific Adam Air (Indonesia, bankrupt 2008), Air Nauru bankrupt, (India) never started, Athena Air (Malaysia) never started, Awair taken over by Air Asia 2005, BackpackersXpress never started, Citilink Fake low-cost airline discontinued by in 2006, Diet Jet (Thailand) never started, Impulse Airlines bankrupt, Oasis (Hong Kong, 2008), Origin Pacific Airways bankrupt 10 Aug 2006, Sky Asia (Thailand) never started, Smartjet Airways never started, probably a scam!, Transgulf Express (Gulf Area) never started, Viva Macau (March 2010) Canada Canada West Air never started, etsGo bankrupt 11 Mar 2005, Tango Airlines Fake low-cost airline discontinued by in 2004, Fake low-cost airline discontinued by Air Canada in 2004, U Air bankrupt early 2006 USA America West merged with US Airways, ATA bankrupt 2008, Eos Airline bankrupt 2008, Frontier Airlines bankrupt 2008,Independence Air bankrupt 2006, Interstate Jet bankrupt 2005, Maxjet bankrupt 2007, bankrupt 2008,Song Air Fake low-cost airline discontinued by Delta in 2006, Southeast Airlines bankrupt 2004, TransMeridian Airlines bankrupt 2006, Virgin USA never started, Zoom bankrupt (August 2008) …!!!

Source: http://www.etn.nl and own research 14 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07 Top 20 Low Cost Carrier by passenger numbers

Rank Carrier Country Launch Passengers Load Fleet year factors 2007 2006 million change current orders 1 1 Southwest USA 1971 88.7 5.8% 72.6% 523 96 2 2 Ryanair Ireland 1991 48.4 19.3% 78.0% 153 139 3 3 easyJet UK 1995 38.2 13.4% 83.5% 125 115 4 5 Air Berlin 2002 27.9 41.4% - 83 147 5 4 AirTrans USA 1993 23.8 18.6% 76.2% 137 60 Airways 6 7 GOL Brazil 2001 22.4 28.5% 68.4% 78 104 7 6 JetBlue USA 2000 21.4 15.2% 80.7% 137 67 8 8 VirginBlue Australia 2000 15.6 6.7% 81.7% 54 47 9 9 WestJet Canada 1996 13.0 16.1% 80.7% 72 24 10 11 Frontier USA 1994 10.4 16.5% 78.7% 60 8 Airlines

Ryanair: 202 aircrafts, around 100 orders and more than 150 options (February 2010)

Source: Airline Business 09/2008, p. 22 15 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07 Top 20 Low Cost Carrier by passenger numbers

Rank Carrier Country Launch Passengers Load Fleet year factors 2007 2006 million change current orders 11 13 Lion Airlines Indonesia 2000 10.0 25.0% - 29 169 12 10 Ted USA 2002 10.0 0% - 47 - 13 14 AirAsia Malaysia 2001 9.7 31.1% 78.6% 43 136 14 12 Ireland 1936* 9.3 7.8% 75.4% 41 5 15 16 Jetstar Australia 2003 8.4 22.3% 75.8% 32 88 16 15 Germanwings Germany 2002 7.9 11.3% 81.4% 26 8 17 17 Deccan India 2003 7.3 30.7% 76.6% 41 52 18 21 Spirit Airlines USA 1990 6.9 39.0% 80.7% 27 49 19 18 Norwegian Norway 2002 6.4 24.6% 80.3% 27 49 20 27 Vueling 2004 6.2 77.2% 73.0% 23 -

* = later transformed into a LCC

Source: Airline Business 09/2008, p. 22 16 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07 Passengers and Market Share of LCCs

Region Pax 2007 Pax 2006 change market share (mio.) (mio.) 2007 Africa 6.9 4.1 66.7% 1.2%, 4.6% Asia-Pacific 104.8 77.5 35.3% 18.9% Europe 219.8 173.7 26.5% 39.5% Middle East 4.9 2.8 77.5% 0.9% North America 194.1 169.2 14.7% 34.9% South 25.6 19.8 28.9% 4.6% America Total 556.1 447.0 24.4%

Source: Sobie 2008, p. 52; Gross/Schroeder 2005, p. 18 17 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07 Passengers of LCCs

Customer Profile • young, well-to-do and well educated, • consistently experienced internet users, • majority prefers to organize travels themselves • more and more business travellers

Source: Gross/Schroeder 2005, p. 18 18 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07

Regional Developments

19 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07 Domestic LCC penetration by Capacity (Seats): Major markets* 2005 to 2009** 0% 10% 20% 30% 40% 50% 60% -10% 0% 10% 20% 30% 40% 50% 60%

India 53.5% USA 28.4% Malaysia 53.3% Spain 25.5% Brazil 49.5% Vietnam 22.8% Australia 47.7% South Korea 22.1% Philippines 45.6% 21.2% 43.9% 2009 Turkey Germany 2009 2005 New Zealand 13.6% 2005 Mexico 42.3% 8.3% South Africa 37.6% 6.2% UK 34.9% Indonesia

32.8% Italy Japan 4.7%

32.2% Canada Russia 3.8%

Thailand 28.8% Saudi Arabia 2.0%

* Offering more than 700,000 seats in Jan-Aug 2009 ** First eight months of each year

Source: Centre for Asia Pacific Aviation & OAG FACTS 2009 20 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07 Low Cost Carrier in India

LCC Capacity Share (Domestic)

Domestic Passenger Market Share

Source: Centre for Asia Pacific Aviation 2009 21 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07 Busiest air routes in South Africa

Passenger per Year 1TimeKulula Air • 1 Time: ca. 1.8 Mio. • Kulula Air: ca. 2.5 Mio. • South African: ca. 7.1 Mio.

Source: http://www.travelwithinsouthafrica.co.za/images/content_pics/ air/route-map.gif, 30/03/10 22 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07 International LCC Penetration Rates by Capacity (Seats) – Major markets* 2005 to 2009**

0% 10% 20% 30% 40% 50% 60% -10% 0% 10% 20% 30% 40% 50% 60%

Poland 52.6% Australia 15.7% Spain 49.8% India 13.6% Ireland 47.5% Thailand 12.5% Italy 39.5% Vietnam 12.2% Malaysia 39.2% Brazil 12.1% UK 36.7% UAE 10.6% Portugal 31.9% Finland 7.7% Sweden 31.7% Turkey 7.5% Indonesia 30.9% 2009 Canada 6.2% 2009 Germany 29.2% 2005 Mexico 5.8% 2005 Austria 27.3% USA 5.8% Czech Republic 25.0% Saudi Arabia 4.9% 22.1% Russia 3.2% France 21.7% China 2.7% 21.1% Israel 1.9% Denmark 17.1% Japan 1.1% 16.9% South Korea 0.8% Philippines 16.8% Taiwan 0.7% New Zealand 16.3% South Africa 0.2%

* Offering more than 700,000 seats in Jan-Aug 2009 ** First eight month of each year

Source: Centre for Asia Pacific Aviation & OAG FACTS 2009 23 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07

Development of the European LCC-net

20012003 20052006

Source: ELFAA 2006 24 SouthwestProf. Dr. Harald AirlinesMustermann | Wirtschaftsinformatik WS 06/07 Midwest Airlines

North America

Virgin America In which Go! countries do these airlines distribute their destinations?

Allegiant AirTran Airlines

Source http://www.theairdb.com/index.html 25 Prof.Jet Dr. Blue Harald Mustermann | Wirtschaftsinformatik WS 06/07 WestJet Airlines

Canjet Frontier Airlines In which countries do these airlines distribute their destinations?

USA3000 Airlines Spirit Airlines

Source http://www.theairdb.com/index.html 26 Prof. Dr. Harald Mustermann | Wirtschaftsinformatik WS 06/07

Recent Trends

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Low Cost Carrier on the Long-haul

Zoom Airlines: 2002-2008 Viva Macau: 2006-2010 Jetstar: 2004- … Flyglobespan: 2006-2009 Tiger Airways: 2004- … L‟Avion: 2003-2009 Eos Airline: 2005-2008 Silverjet: 2007-2008 Maxjet: 2005-2007 AirAsia X: 2007 - … Oasis: 2006-2008

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Transferring the Low Cost Strategy to Ship, Bus and Rental Car Companies and so on … 4 night route with easyCruiseOne

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Transferring the Low Cost Strategy to Ship, Bus and Rental Car Companies and so on …

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New Technology - Farecast

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New Technology - Farecast

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Conclusions

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Conclusions • Low Cost Carrier fly on all continents, but still not in all countries • Low Cost is all over the transport sector • And … you can find the “Low Cost Trend” all over the economy

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If you would like to know more about Low Cost Airlines, than …

Gross, S./Lueck, M.: Flying for a buck or two: Low-cost carrier in Australia and New Zealand, Proceedings TTRA European Chapter Conference “Transport and Tourism: Challenges, Issues and Conflicts”, 22 – 24 April 2009, Rotterdam/Breda The Netherlands

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Thank you for your attention!

Prof. Dr. Sven Groß

Contact Hochschule Harz Friedrichstraße 57-59 D-38855 Wernigerode Tel. ++49-3943-659 279 E-mail: [email protected]

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