Contribution of Network Carriers and Low Cost Carriers to the development of (regional) air transport services

Transcription

1 AVIATION FORWARDING & LOGISTICS RAIL POSTAL & EXPRESS DELIVERY DE/EN OEMs, SUPPLIERS, SERVICE PROVIDERS Contribution of Network Carriers and Low Cost Carriers to the development of (regional) air transport services Dr. Markus Franke, Founder and Owner of FATC 1 st Cracow Aviation Conference: Managing Regional Airports in Competitive Environment Cracow, March 10, 2011

2 Main topics of today s presentation 1 What are the prospects for Poland s aviation sector, and what are the shares of relevant business segments? 2 Which are feasible objectives for regional airports, and how will WAW / CAP interfere with them? 3 How can Network Carriers and Low Cost Carriers contribute to a sustainable development of Polish regional airports? 4 What are critical success factors of Network Carriers and Low Cost Carriers in Poland, and which actions can be taken to foster them? Page 1

3 1 Poland s air traffic is emerging however, there is still a gap between overall wealth trajectory and propensity to fly 10 Propensity to fly in selected (European) countries (2009) Spain UK Portugal 1.0 Outbound flights per capita (log, 2009) Empiric range Hungary Czech Republic Italy Slovenia France Germany 0.1 Romania Poland Passenger growth: +13 % p.a Mid-term gap: Mn pax p.a ,000 20,000 30,000 GDP per capita (USD, 2009, Purchase power parity) Source: Eurostat, Statistics of International Monetary Funds, 40,000 Page 2

4 1 Poland s air traffic is emerging however, there is still a gap between overall wealth trajectory and propensity to fly BACKUP Poland s economy is continuously growing, even throughout the 2008/2009 financial crisis - GDP ( ) + 42 % (+ 18 % price-adjusted) - CAGR (GDP ) = 4.5 % (+2 % price-adjusted) - CAGR (GDP per capity ) > 2 % (price-adjusted) Air traffic has grown even more - CAGR of passenger numbers ( ) = +13% (11.3 Mn 20.7 Mn) However, affinity to fly of Polish citizens is still disproportionately low relative to mature European economies (e.g., Germany): - Poland has 47% in terms of inhabitants compared to Germany - Poland s GDP per capita is around 46% of the German number (adjusted by purchase power parity) - However, Poland s airports reported in 2010 only 12% of overall passengers compared to Germany (20.6 Mn : 167 Mn) - With the same travel / buying behaviour like in Germany, Polish citizens would create 36 Mn departures (wealth-level-adjusted) Consequently, there is a gap of > 15 Mn passengers or +74% to be tackled in the future Source: Eurostat, Statistics of International Monetary Funds, Page 3

5 1 Although Polish air traffic sector is highly concentrated on top 8 airports, regional airports account for 55% of total passengers Gdansk Concentration of passengers at polish airports (2008 in % of total PAX) 100% Total PAX: 20.7 mn Szczecin Zielona Gora Szczytno Bydogszcz Poznan Wroclaw Lodz Katowice Warsaw / CAP Krakow Rzeszow 80% 60% 40% 20% Top 4 airports ~81% Top 8 airports ~97% Top 6 airports ~94% Regional Airports (55%) WAW (45%) 0% Source: CAP Project of Polish Ministry of Infrastructure, Oliver Wyman, PwC, DFS, MKmetric Warsaw Krakow Katowice Gdansk Wroclaw Poznan Lodz Jasionka Goleniow Bydogszcz Zielona Others Page 4

6 1 Growth of household incomes has boosted charters, which now generate substantial traffic for most airports Share of charter traffic in total traffic (PAX, %) Share of Polish charter market (2009) Total Poland Rzeszów 8% 11% 16% 100% 1% Regional airports have provided Polish people with easy access to attractive tourism destinations Bydgoszcz Szczecin 9% 8% 8% 22% 1% 2% Share of Polish charters has grown rapidly from 11% to 16% in Gdańsk Łódź 8% 6% 16% 22% 5% 2% This trend is expected to continue due to rising incomes and large Poles s appetite to travel Poznań Wrocław Katowice Kraków Warszawa 7% 8% 8% 16% 14% 16% 27% 26% 24% 35% 12% 7% 19% 7% 44% Warsaw is the largest charter hub (44% share in 2009), leveraging the region s wealth and tour operators preferences Katowice has emerged as the second strongest charter hub in Poland 0% 10% % 30% % Source: ULC, Instytut Turystyki ; analyses FATC and Dr. Roman Gurbiel Page 5

7 1 Excluding Warsaw, LCC share has exceeded 50% at most regional airports Share of LCC traffic in total traffic (%), regular flights 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 98% 86% 82% 82% 87% 90% 88% 66% 63% 65% 68% 66% 62% 64% 59% 61% 62% 61% 63% 65% 56% 55% 55% 58% 53% 53% 50% 53% 52% 29% 26% 20% 24% Warszawa Kraków Katowice Wrocław Poznań Łódź Gdańsk Szczecin Bydgoszcz Rzeszów Total Poland Already more than 50% of the Poland s aviation market is generated by LCC, with further growing tendency Some smaller airports are almost fully dependent on LCCs (usually just one) In 2009, three airports Warsaw, Kraków and Katowice had the largest similar share in LCC market Warsaw has in recent years decreased its share in LCC market from 41% in 2005 to 20% in Source: ULC Aviation Market Analyses / Statistics by Carrier; analyses FATC and Dr. Roman Gurbiel based on ULC datal Bydgoszcz Szczecin 3% 2% Gdańsk 14% Łódź 3% Poznań 8% Wrocław 9% Structure of LCC market (2009) Rzeszów 3% Katowice 19% Warszawa 19% Kraków 20% Page 6

8 2 Regional airports have passed Warsaw in terms of growth dynamics, developing independent network structures 10.0 Regional propensity to travel ROUGH ESTIMATE Trips per capita KRK GDA 1.0 WRO 3,000 3,500 4,000 4,500 5,000 5,500 6,000 6,500 7,000 7, KRK IEG GDA WRO POZ BZG SZE LCJ RZE KTW WAW BZG Note: Airport catchment area = relevant voivodship IEG SZE POZ LCJ KTW Likely future scenario Household disposable income per capita (euro, current prices) WAW Log. (2004) Log. (2010) Warsaw is still Poland s major hub however, its growth (6.4% p.a ) has been far behind that of regional airports (on average 27% p.a. in ) The growing household incomes have proven to be one of the major drivers of demand Kraków, Katowice and Gdańsk emerged as major regional airports, fuelled by attractive catchment areas Source: GUS; analyses FATC and Dr. Roman Gurbiel (2010 disp income own estimate based available data trend and crisis factor) Page 7

9 2 Even if LOT boosts its transfer share in WAW / CAP, the growth dynamics of regional airports will be untapped ROUGH ESTIMATE Scenario 1: LOT s (low) transfer share remains constant (<8%) LOT: 7 Mn (of which transfer PAX 600 thsd.) 20 Mn Pax Scenario 2: LOT boosts ist transfer share (30%) 20 Mn Pax +4% p.a. +4% p.a Mn Pax LOT: 18.6 Mn (of which transfer PAX 1.5 Mn) 53 Mn Pax LOT: 22.7 Mn (of which transfer PAX 5.6 Mn) Source: CAP Project of Polish Ministry of Infrastructure, Oliver Wyman, PwC, DFS, MKmetric Regional airports had Mn passengers in 2010 LOT is very focused on WAW and contributes only a minor share to regional airports pax number At 4% annual growth and a constant transfer share of LOT, regional airports would see additional 20 Mn pax in 2035 Assuming that LOT could win additional passengers through boosting its transfer share in WAW / CAP to 30%, some passengers could be lost for regional airports Even if they would lose all transfer passengers, they would still see additional 16 Mn pax in 2035 (+ 3.4% p.a.) Page 8

10 2 This is underlined by the experience in other European countries where regional airports outgrew national hubs Growth by Airport Size Clusters (mn PAX, size selection based on 2009) GERMANY SPAIN Size of airports Size of airports p.a. 6.4% 3.0% 2.3% 5.6% 3.5% p.a. 3.8% 2.3% 2.3% 1.0% 4.1% below 5 mn (14) 5-9 mn (4) mn (1) mn (1) 30 mn and above (2) below 5 mn (33) 5-9 mn (4) mn (1) mn (1) 30 mn and above (2) BACKUP The Polish market structure may to some extend follow those of Germany, Spain or UK with one (or more) major central hub(s), several mid-sized regional hubs, and local airports Despite dynamic growth of major hubs in Europe, smaller regional airports have defended and even expanded their market position The key role was often played by LCCs, establishing their operations at secondary airports In Germany, LCC market share has grown dynamically from 5% in 2002 to 30% in 2010 Source: AENA, ADV; analyses FATC and Dr. Roman Gurbiel; (x) no. of airports in the size cluster Page 9

11 2 Regional airports pursue diverse objectives a good connection to the world drives both passenger numbers and profit Profitable operations Efficient processes Attractive retail offerings Objectives of regional airports Creation of jobs High passenger numbers Connection of region to the world Accessibility (for inbound) traffic Connectivity via relevant hubs (outbound) Source: Analyses FATC, Redondi & Bourghouwt: Measuring connectivity in air transport networks, working paper, January 2010 Page 10

12 2 Accessibility and connectivity of Polish regional airports still depends to a high degree on foreign hubs p2p traffic growing Potential connection of Polish regional airports to the world Example: Poznan Illustrative North America Offered destinations from Poznan: - 5 in in 2009 Poznan Eastern Europe Asia Most Polish regional airports are located West of Warsaw Thus, connections to South / West / Northern Europe are available via WAW, but not always convenient P2P services are often offered by Low cost carriers Intercontinental p2p services are only available in Krakow and Kattowice Main focus of Polish international p2p traffic on UK, Ireland, Germany (> 50% of overall traffic in 2009) + outbound! South / West Europe Apart from that, intercontinental destinations can be reached via adjacent hubs (WAW, FRA, MUC, LHR, CDG, ) Source: Analyses FATC, Redondi & Bourghouwt: Measuring connectivity in air transport networks, working paper, January 2010 Page 11

13 2 Further growth of wealth level and air traffic demand in Poland will in any case foster expansion of regional airports Offered Destinations (regular flights, summer season, 2004 vs. 2009) Warszawa Kraków Katowice Gdańsk Poznań Wrocław Bydgoszcz Rzeszów Łódź Szczecin Summer 2004 Summer 2009 WAW 2004 level BACKUP Total number of offered destinations from regional airports has increased from 34 to 135 ( ) (summer season; winter season: from 12 to 132) Connection to the world and growth of passenger numbers go hand in hand Major Poland s hub; increasing role of transfer and intercont traffic Stand-alone O&D spoke, potential for some transfer traffic in future Medium O&D operations, hub-feeding Niche O&D operations, hub-feeding Likely future scenario Even an increase of transfer traffic via adjacent hubs (WAW / CAP, BBI, FRA, ) should not harm O&D demand O&D network development will however strongly depend on the local demand Source: ULC; analyses FATC and Dr. Roman Gurbiel Page 12

14 2 New Berlin capital airport BBI opens as of summer 2012 however, only SZZ and IEG seem to be directly impacted Calculation of BBI pull effect on adjacent regions BACKUP Source: xvia-tool, MKmetric; analyses FATC and Dr. Roman Gurbiel Due to good connectivity by rail and motorway, BBI would be easily accessible for Polish passengers BBI may attract passengers from regions with poor destination choice SZZ, POZ, IEG and WRO could benefit as BBI feeders; however, this will depend on the shortdistance travel time&cost alternatives Ryanair as major operator at Polish airports has not yet confirmed its dedication to the new Berlin airport (BBI) Page 13

15 3 Like in other emerging economies, Poland s air traffic growth has been boosted by charter and low cost carriers Developing Economies (e.g. India) Emerging economies (e.g. Poland) Mature economies (e.g. U.S., Germany) ILLUSTRATIVE Size of national air traffic In maturing air traffic markets, low cost demand becomes saturated, while network carriers expand their networks In already mature air traffic markets, low cost carriers have stimulated demand and partly replaced network carriers Wealth level of an economy (over time) = Traditional Network carriers = Low cost carriers = Charter carriers Page 14

16 3 LCCs have played major role in market stimulation, growing by > 25 % p.a. over the past 5 years... Market share by airline, regular flights, 000 PAX 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 69% 31% 48% 52% Other Netw Car; 9% 7% BA; 3% 1% SAS; 3% 1% AirFrance KLM; 4% 3% Lufthansa; 6% 7% LOT; 44% 29% Other LCC; 12% 2% Norwegian; 1% 2% Easyjet; 4% 3% Ryanair; 3% 22% Wizzair; 12% 23% LCC characteristics in Poland LCC provide the major stream of traffic for mid-sized airports and critical stream for the smallest ones Dynamic growth of Wrocław, Gdańsk, Poznań was possible primarily due to LCC traffic increases If excluding LOT from the picture, the dependence on LCCs increases to 70-80% on average 0% Source: ULC ; analyses FATC and Dr. Roman Gurbiel = Network carriers = Low cost carriers Page 15

17 3 however, Poland s flag carrier LOT has still considerable growth prospects Growth prospects for LOT (and other network carriers) LOT s national market share has steadily decreased Up to now, Polish people are still reluctant despite increasing wealth level to pay premium fares for air travel they love Low cost carriers Thus, LOT focuses on few international markets with limited intercontinental uplift, supported by domestic network With an expected further growth of wealth level, Polish citizens are likely to demand more air travel capacities, both nationally and internationally Network carriers like LOT are suited to satisfy this growing demand, particularly in the premium and intercontinental segment Source: ULC ; analyses FATC and Dr. Roman Gurbiel Page 16

18 3 There are no good or bad airlines both Low cost and Network carriers can contribute to the development of regional airports Characteristics of Low cost & Network carriers from the perspective of regional airports Examples in Poland Presence in / commitment to regional airports (local station jobs) Destination portfolio (connection to the world) Passenger potential (growth options) Economic potential (fees and revenues) Low cost carriers Wizz Air, easyjet, Ryanair, Germanwings, Presence: strong (> 60% market share) Commitment: mediocre (most stations except Wizz Air) are abroad Domestic: most major city pairs Continental: numerous routes Intercontinental: None Medium (additional bases in Poland + European city pairs) Airport fees: poor (LCCs are very tough bargainers) Retail: limited (bargainer passengers) Network carriers LOT, Lufthansa, Air France / KLM, British Airways, Presence: poor (some hub feed; international flights only in KRK + KTW) Commitment: medium (some local planes and jobs) Domestic: some city pairs + feeder traffic to WAW Continental: some routes P2P, more via WAW, FRA, MUC, CDG Intercontinental: a few routes via WAW, FRA, MUC, CDG, High (stimulation of additional premium demand for P2P and transfer traffic, esp. Internationally) Airport fees: good Retail: good ( esp. International passengers, inbound) Page 17

19 3 Example LCC: Ryanair uses a uniform approach to develop its network in Poland, leveraging e.g. large commuter flows Kraków Gdańsk Rzeszów Łódź BACKUP Wrocław Poznań Szczecin Katowice Bydgoszcz Source: Ryanair (as of March 2011) Thin network is the result of strong Wizzair position Page 18

20 3 Example NC: LH group focuses on feeding its German hubs, benefiting also from very strong Polish-German economic ties Warsaw Gdańsk Poznań Rzeszów BACKUP Kraków Wrocław Katowice Source: Lufthansa (as of March 2011), excluding codeshares Page 19

21 3 Various airports across Europe have developed a balanced approach for sustainable co-existence between LCCs and NCs LCC and NC Co-existence (Case examples) Major national hubs Medium sized regional airports Small regional airports Airport Examples Madrid (e.g. Iberia, EasyJet, Ryanair) Munich (e.g. LH, EasyJet) Warsaw (e.g. LOT, Wizzair) Lyon (e.g. AF, EasyJet) Stuttgart (e.g. LH, Germanwings, Air Berlin) Kraków (e.g. LH, LOT, EasyJet, Ryanair) Katowice (e.g. LH, Wizzair) Dresden (e.g. LH, Germanwings, Air Berlin) Strassbourg (e.g. AF, EasyJet) Rzeszów (e.g. LH, Ryanair) Key Drivers Balanced airport charges at acceptable level for LCCs and NCs Catchment area attractiveness, offering opportunities for LCCs and NCs development Airport infrastructure enabling to provide appropriate level of service at acceptable cost Alternative carriers strategies with limited city-pair direct competition Page 20

22 4 Assuming that both LCCs and NCs will further prosper in Poland, regional airports should pursue a phased approach Four steps towards further growth LCCs Contribution of Network carriers Step 1 Further expansion of domestic and European P2P traffic Strong contribution Medium (opportunistic development) Step 2 Development of high-yield demand and respective service offerings Poor (outside traditional LCC strike zone) Considerable contribution Step 3 Build-up of intercontinental connections (via WAW / CAP or other hubs) Feed to network carriers with intercontinental services? Considerable contribution (in the course of O&D growth) Step 4 Build-up of intercontinental p2p services Today: none (future: long-haul LCC models?) Opportunistic development (depends on O&D demand) Page 21

23 4 Conclusion and outlook: What regional airports and airlines can do to realise the vision of sustainable growth What regional airports can do Leverage characteristics and strengths of different business models: Low cost carriers: + helpful to quickly stimulate (low yield) demand and create decent domestic / European connections - limited commitment, poor commercial potential Network carriers: + helpful to accommodate growing high-yield demand, boost international (esp. intercontinental) connections through hub & spoke approach Support carriers according to these characteristics, foster phased approach (see airlines) and what airlines can do Prepare to capture future growth potentials in Poland (high-yield, international routes) Low cost carriers: further expand destination portfolio and frequency patterns, build stations where appropriate Network carriers: create better coverage / connectivity for regional airports, build up network in a phased approach 1) Further expansion of domestic (LOT) and European P2P traffic 2) Coverage of high-yield demand 3) Build up of intercontinental connections via WAW / CAP, other hubs 4) Build up intercontinental P2P services Page 22

24 THANK YOU VERY MUCH FOR YOUR ATTENTION!!! Selected aviation clients of FATC / Dr Franke Dr. Markus Franke Owner, Senior Advisor Franke Aviation& Transportation Consulting Von-Stauffenberg-Str. 10 D Korschenbroich (mob.) franke@franke-aviation.com Page 23