Challenges of networking airlines with private jet operators in LATAM Liége Emmerz, Associate Partner, Lufthansa Consulting LABACE 2012

Transcription

1 Liége Emmerz, Associate Partner, Lufthansa Consulting LABACE 2012 Sao Paulo, August 16th, 2012

2 Content 1. Small Introduction of Lufthansa Consulting 2. Challenges of networking airlines with private jet operators 3. Conclusions -2-

3 Our background makes us different Independent management consulting subsidiary within the Lufthansa Group founder of the StarAlliance network provides us with in-depth aviation business knowledge. Aviation know-how combined with extensive methodological expertise Lufthansa Consulting combines operational experience and methodological skills to develop and implement concepts that work. Global experience Since 1988 more than 1,500 projects were successfully completed for clients worldwide. We are the biggest aviation consultant in the C.I.S. countries, the Middle-East and Africa Multicultural organization We employ consultants from many different nations and cultures which enable us Ecuadorian National Air Service Strategy and Implementation Initiative -3-

4 Airline Consulting Services (Selection) Management Strategic Planning and Development Corporate Strategy Business Planning Start-Up Consulting Restructuring and Airline Turn-Around Market Potential Analysis, Forecasting Cost Reduction Programs Operations On-Time Performance Enhancement Flight Training Crew Management and Training Inflight Service Process Flight Planning and Dispatch Ground Operations Fuel Management Company Presentation July 2012 Commercial Sales and Marketing Distribution Channels Sales Planning E-Business Support Brand Strategy Schedule Evaluation Network, Route and Fleet Planning/Optimization Technical Maintenance Management Implementation EASA/JAR regulations Outsourcing and Privatization Technical OTP Supply Chain Management Material Management Aircraft Lease -4-

5 Airport Consulting Services Development Master Planning Infrastructual and Operational Planning Free Economic Zone, Airport City / Industrial Zone Economics Business Development Market Potential Analysis Traffic Forecast Marketing Air Service Development Organizational Development (CAA / Airport) Strategy Development Training Business Planning and Financial Planning Efficiency Analysis and Enhancement Cost Optimization and Revenue Enhancement Airport Process Optimization Privatization Airport Operations Assessment Bid Management Airport Safety and Security Concession Development Service Quality Enhancement Financial Assessment and Valuation Performance Management Investment Management Airport Certification Economic Impact Analysis Project and Program Management Aviation Trend Analysis Company Presentation July

6 Serving airlines, airports, governments and institutions worldwide projects have been completed all over the world Europe Russia/CIS Government of Abu Dhabi Dubai Cargo Village Government of Belize Government of Uruguay Americas Africa Middle East Asia/Pacific -6-

7 Content 1. Small Introduction of Lufthansa Consulting 2. Challenges of networking airlines with private jet operators 3. Conclusions -7-

8 There is a need for business aviation in Latin America because of the lack of frequencies of scheduled flights Routes in LATAM allowing a return trip within a day Comments Business activities often require return trips within a day Secondary cities in Latin America are currently poorly served by scheduled airlines and thus are not reachable with a one day return trip Business aviation fills the gap by offering time sensitive business passengers the possibility to reach these destinations especially in the central area of the continent without losing a day in transportation Scheduled flights with at least 14 freq a week offered by the same airline Source: OAG week

9 Rich individuals are not driving the business aviation in Latin America but the strong need of doing business Number of billionaires, by region (March 2012) 450 TAM Executiva North America Europe China Russia CIS Asia Pacific* Middle East Latin America India Africa Note: *Excluding China and India Source: Forbes March

10 Premium traffic is also supported by intercontinental demand with Europe and North America representing 24% of the total demand Distribution of premium scheduled traffic from and to South America (2011) North America Europe Asia 11% 13% 1% 1% Central America Middle East 4% South America 70% Source: Airport IS, Lufthansa Consulting

11 The business jet market in LATAM is already well developed, therefore differentiation is a key success factor for business jet operators Business jet market value normalized by GDP (2010) Comments The business jet market value is the revenue generated by the sales of new business jets by OEMs 0,06 0,05 Related to its economy, the Latin American region is the second biggest market for business jets after North America 0,04 0,03 LCG considers thus the Latin American market as a rather mature market where business aviation penetration is already high and competition already established 0,02 0,01 0,00 North America Latin America Europe Africa Asia Middle East In order to improve profitability, business jet operators need to differentiate themselves by offering innovating solutions Source: UN World population prospects, IMF, Roland Berger

12 In order to offer attractive intercontinental first class P2P products, business jet operators could partner with network carriers Comments Share of business jets by range Short haul business jets (economic range < 6000 km) Long haul business jets (economic range > 6000 km) 60% 58% 40% 76% 20% 80% 81% 89% 24% 19% 42% 20% 11% 0% North America Latin America Europe Africa With only 11%, Latin America is the region with the lowest share of long-haul business jets among its fleet By partnering with network carriers, business jets operators from Latin America can offer an attractive product for private passengers willing to fly intercontinental Business jet operators partnering with network carriers would benefit from a unique selling point and thus build a competitive advantage that will allow them to attract the high yield intercontinental passengers from and to Latin America Middle East Source: ACAS, Lufthansa Consulting

13 Partnering with a network carrier can allow business jet operators to maximize their revenue while reducing their costs and their risks Potential benefits for jet operators Booking flexibility Planning Common planning (fleet planning, network planning, bases...) Better understanding of the first-class market in Latin America Marketing Branding Frequent flyer program (FFP) Possibility to reduce sales team by delegating ad-hoc contracts Sales -in- -haul flights by connecting with first-class wide body Operation Usage of network carrier existing facilities (hangars, maintenance, dispatch services, One partner, one negotiation, one bill Customer Reputation Safety Usage of network carrier services (lounges) Transferring the image in terms of safety, quality and punctuality from the airline to the business jet operator from a high competitive advantage by providing strong safety guarantee to the customer

14 A cooperation can only work if all parties take advantages Win-Win Situation Airline As the model allows passengers to connect from long haul flights operated by the mainline carrier via the main hubs to charter flights, the airline generates additional traffic from these mainline traffic flows. The airline bind the passenger in its own network (loyalty program) The airline increase the level of service for premium passenger Better understanding of Client needs and their need for flexible booking Jet operator Additional revenue is generated through the big airline. Joint network analysis identifying potential routes also regarding point-topoint flights Increased level of service for premium passenger with less investments Increased image (safety & quality) through airline branding Reduced costs in the daily operation through Client Easy and flexible booking No pre agreements with jet operator required Miles collection Price advantage High safety standards common planning and airport services

15 Lufthansa Consulting identifies 5 business models that can be adopted by business jet operators to partner with network carriers Different business models different integration models Full integration The network carrier owns and operates its own business jets Participation The network carrier and the business jet operator share assets and liabilities of the business jet operations (e.g. joint venture) Product The network carrier subcontract part of the operation to the business jet operator Distribution The network carrier sells the ticket and gets a commission. The whole service remains done by the business jet operator Marketing The network carrier advertise the name and the brand of the business jet operator Comments Lufthansa studied in details the five possible business models and assessed all of them before choosing to partner with NetJets The choice of the business model is a determining success factor for the future cooperation Each model has to be assessed depending on the region, the business jet operator model and the targeted airline for partnership Source: Interviews with Lufthansa Private Jet

16 Partnerships between main airlines and business jet operators already exists with different business models Description of existing partnerships between airlines and business jet operators Branding Branding Common payment card ($50,000 minimal deposit required) that allows to pay business jet trips as well as regular Delta flight tickets Common Delta Sky Club lounges Branding Business jet passengers get (shared FFP) Common First Class lounges in FRA, MUC and ZRH Business-jet to long-haul wide-body connection under one reservation No initial deposit is required, one bill per trip

17 The difficulties to allow this model to work must be addressed Risk analysis Burocracy in the major hub airports (capability to allow a quick passenger dispatch process and smooth flow in the apron between the commercial and the general aviation sector) Air Traffic Control Infrastructure Dedicated General Aviation area in the main airports Coordinated slots for general aviation (networking between intercontinental and regional flights) Difficulties in the connection transport between general aviation airports and major hub airports (loss of time, traffic congestion) These problems need to be addressed by the airlines, jet operators, authorities and airport concessionaires

18 LCG identifies 6 criteria that are mandatory to allow a successful cooperation between network carriers and business jet operators Cooperation between network carriers and business jet operators: key success factors Network carriers are likely to select a business jet operator that: operates a large and diverse fleet that ensures flexibility and availability has a proven business clientele and a strong relationship with local business executives understands perfectly the local premium market operates with a high level of service standard has a separate customer base that ensures that both network carrier and business jet operator are not competing on the same market has proven very high safety standards that allows the network carrier to subcontract operation at low liability risk

19 Content 1. Small Introduction of Lufthansa Consulting 2. Challenges of networking airlines with private jet operators 3. Conclusions

20 Conclusions A well designed cooperation between airlines and jet operators can create additional business for both parties Business cooperation between network carrier has been successful in other areas of the world The cooperation can only succeed if the present constraints are better controlled through a joint approach (airlines, jet operators, authorities, local airports and new airport concessionaires) towards an adequate regulation and appropriate investments in the infrastructure Cooperation agreements would enhance the importance of business aviation in Latin America and motivate government and private investors to faster solutions