THE FUNDAMENTALS OF ROUTE DEVELOPMENT DEALS MODULE 8 AIRLINE DEALS MODULE 8

Experiences?

asm-global.com WHY? MODULE 8

AIRPORT / DESTINATION PERSPECTIVE

1. Your operates in a competitive • around you • Airports with deeper pockets environment • Airports that provide something you may or may not

2. To reward existing customers for traffic growth • Additional frequencies • Year round operations • Larger aircraft

3. To encourage new customers to use the facilities and services • New routes • Network development

asm-global.com WHAT IS THE AIRLINE TRYING TO ACHIEVE ? MODULE 8

AIRLINE PERSPECTIVE

• Minimise/eliminate the cost levied by airports. 1. Mitigate costs / share commercial • Realise a share of the incremental passenger revenues at the airport and destination. revenue generated by passenger • Improve overall margin (their customer)

2. Competitive advantage • Gain a cost differential to enable a competitive advantage.

• To not be restricted if and when the market changes. 3. Non binding support • Be able to walk away if it’s not working. • Move capacity if a better deal emerges.

asm-global.com ROUTE SUPPORT MODULE 8

There are broadly three types of support

A. Support to boost a carriers revenue through promoting passenger demand

B. Support designed to induce carriers to supply air service by reducing costs

C. Support designed to mitigate risk

asm-global.com VARIANTS OF ROUTE SUPPORT MODULE 8

Aeronautical Incentives

Marketing Support/ Miscellaneou Direct s Support Funding

Subsidies & Joint Ventures

asm-global.com AERONAUTICAL INCENTIVES MODULE 8

Typically airport aeronautical charges are levied on some or all of the following: Aeronautical Incentives Schedule • Aircraft type/weight • Time of day • Season • Destination (domestic/international) Marketing Support/ Miscellaneous Direct Support Facilities Funding • Air bridges • Parking

Ancillary items • De-icing, aircraft washing facilities Subsidies • Navigational charges & Joint • Security Ventures

asm-global.com THE CONVENTIONAL AIRPORT AGREEMENT MODULE 8

• Discounts over a 3-5 year period, reducing over time • Discounts are normally on aeronautical charges, sometimes on handling charges • Simple, easy to understand

Beware though: 1. airline new-route business cases are unlikely to go beyond 2-3 years (at least for short haul) 2. Landing fees account for perhaps 20% of a short-haul carrier’s total operating costs, 10% or less for a long-haul carrier. A modest discount has only a small effect on the route economics

asm-global.com MARKETING SUPPORT/DIRECT FUNDING MODULE 8

Types of Support • Direct marketing funds Aeronautical Incentives • Non-financial marketing information (data, corporate database) • Access to marketing (web links, consumer magazines) Marketing Support/ MiscellaneouMiscellaneous Apply Conditions Direct s SupportSupport Funding • Matching funds • Minimum frequency/season/aircraft size • New destination only Subsidies • Receipts of spend & Joint • Recourse if route is cancelled Ventures

asm-global.com SUBSIDIES & JOINT VENTURES MODULE 8

Aeronautical Incentives Airport & e.g. revenue Risk Sharing Stakeholders guarantees

Marketing Support/ Miscellaneou Direct s Support Funding

Airport & Joint i.e. share risk Stakeholders Ventures & profits Subsidies & Joint Ventures

asm-global.com ROUTE SUPPORT - REVENUE RELATED MODULE 8 Revenue related:

Minimum Revenue Guarantees (MRG)

Agreements that establish a target amount of revenue that a carrier will receive for operating a particular service to a particular destination over a given length of time. Only paid out if passenger demand and target revenues do not materialise. The amou