Session ME302 Airline Routes: How You Can Influence Their Development Paul Ouimet

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1 strategic transportation & tourism solutions Session ME302 Airline Routes: How You Can Influence Their Development Paul Ouimet 49 th ICCA Congress & Exhibition October 25, 2010

2 Presentation Outline 1. What airlines are looking for 2. Implementing an Air Service Development program 3. What you can do to attract new services 2

3 Global Air Passenger Traffic Millions Gulf War and Recession Asian Economic Flu 9/11, Economic Downturn & SARS outbreak Financial Credit Crisis, Global Recession & H1N1 Outbreak IATA forecasts 7.1% increase in 2010 Source: International Civil Aviation Organization (ICAO) and International Air Transport Association (IATA).

Recession & H1N1 Outbreak IATA forecasts 7.

4 Global Air Passengers by Sector Millions Total Passengers 34% 24% 66% 76% Source: International Civil Aviation Organization (ICAO).

5 Airline Financial Performance US$ (millions) Global Air Carriers Operating Profit/Loss Source: International Civil Aviation Organization (ICAO) and International Air Transport Association (IATA).

6 Global Air Traffic and Capacity % Change Source: International Air Transport Association (IATA).

7 Consolidation: Mergers & Failures Lufthansa Swiss Austrian Brussels US Airways America West Air France KLM Delta Northwest EasyJet go dba Air Canada Canadian KLM Martinair Silverjet Gol Varig SkyBus Oasis Hong Kong ATA Ryanair buzz United Continental Southwest AirTran MyAir FlyLAL XL Airways Aviacsa Zoom Sterling MaxJet EOS SkyEurope Aloha Centralwings Nationwide 7

Gol Varig SkyBus Oasis Hong Kong ATA Ryanair buzz United Continental Southwest AirTran

8 Growth of Low Cost Carriers 8

9 Growth of Low Cost Carriers LCC Capacity Share by Region (YTD Aug-2009) 9

10 strategic transportation & tourism solutions What airlines are looking for

11 The Airline Reality Airline planners require detailed, accurate information to make new route decisions But airlines do not have the resources to fully evaluate every market Legacy carriers have scaled back staff LCCs face innumerable expansion opportunities A sound, well articulated business case, can convince airlines to introduce new air services Airports/destinations can influence the airline planning process 11

staff LCCs face innumerable expansion opportunities A sound, well articulated business case, can

12 Airline Economics New routes are a huge investment & risk to an airline Annual Operating Cost: ~ US$50 million Note Assumes 75% load factor. Source InterVISTAS Consulting Inc. 12

13 Route Priorities Air service development is a long term, strategic effort Airlines will add service in order of expected profitability Different airlines pursue different strategies Destinations can move up the priority board with: Solid research & analysis (always) Incentives (sometimes) PRIORITY ROUTE

different strategies Destinations can move up the priority board with: Solid

14 Influencing Airline Decisions Airline questions for new routes: What is the current, actual market for a potential route? How much can I stimulate the market? How will the competition react? How much market share will I achieve? What will be the connectivity contribution? Will the new route be a financial success? Airports/DMOs can answer these questions and reduce uncertainty and risk 14

How much market share will I achieve? What will be the connectivity contribution?

15 strategic transportation & tourism solutions Implementing an Air Service Development Program

16 The Air Service Development Process Market Assessment Required to quantify the true size of the existing air travel market on an O&D basis ASD Strategy Business Case Deficiency analysis and detailed route analysis Packaging & presenting the information to airlines Evaluate and Negotiate Airline Incentives An appropriate incentive, in certain circumstances, helps airlines commit to new air services 16

detailed route analysis Packaging & presenting the information to airlines Evaluate and Negotiate

17 Market Assessment Determine Catchment Area What is reasonable? Quantify Market Size & Traffic Leakage Government, GDS, primary research Identify & fill the deficiencies Data must be: Relevant Current Conservative Defendable 17

18 ASD Strategy Benchmark Air Services Identify Deficiencies Identify New Route Opportunities Identify Potential Air Service Providers Assess Viability of Potential Air Services Prioritize Route Opportunities and Target Carriers 18

Potential Air Service Providers Assess Viability of

19 New Route Business Cases Business cases should include all information airline planners require: Catchment area profile: demographics, economy, tourism, etc. Airport profile: facilities, traffic Market profile: market sizes, top city pairs, traffic leakage, etc. Suggested service: frequency, schedule, aircraft, routing Route analysis: market share, load factor, stimulation potential, self-diversion, etc. Strategic considerations 19

20 strategic transportation & tourism solutions What you can do to attract new services

21 Tourism Stakeholder Involvement Provide Unique Data Guest origins, occupancy rates, ADRs, group potential, etc. Adapt product to match target airline business models, where appropriate All inclusive, fly-drive, package tours, etc. Support route development efforts Budget support, airline fam trips, etc. Contribute to incentive funding Quantify incremental benefit and invest Route Development Success 21

22 Incentives Destinations have become increasingly aggressive in pursuing new services Portland-Tokyo: $3.5 million Pittsburgh-Paris: $5.0 million Baltimore-London: $5.5 million Airlines often demand risk sharing programs Incentives can be a good investment, if used properly 22

23 Types of Incentives Common types of incentives: Airport fee concessions Start-up cost reimbursement Operating cost reimbursement Direct subsidy Revenue guarantees Marketing support Ticket trusts/travel banks Designed to impact either the supply of or demand for air services 23

24 Best Practices - Incentives Air service checklist - will the route be: Strategically important? Marginally (un)profitable? Self-sustaining in the short term? Service must meet all three criteria Qualifying services: New routes only? Increases on existing routes? Does this work? Service retention incentives? 24

The Solution: Develop and maximize non-aeronautical revenue streams: Investments in Marketing & Fee Discounts

25 The Challenge and Solution How can airports afford aggressive airline incentives/fee discounts and still fund route development marketing in a difficult economy? The Solution: Develop and maximize non-aeronautical revenue streams: Investments in Marketing & Fee Discounts New Air Services Retail & duty free Food & beverage Parking Loyalty & premium programs Land development Incremental Airport Revenues Additional Flights & Passengers 25

26 Cooperative Marketing Program Marketing funding can be an effective incentive for destinations However, it may not differentiate a market, as route marketing incentives are used by over 80% of communities in the U.S. Marketing incentives can be: Unilateral (DMO or airport pays 100%), or Cooperative (airline matches some portion) Funding amounts are often tied to the capacity of inbound seats to be available on the new route E.g., Puerto Rico offered $5-$10 per inbound seat By calculating the economic impact of new visitors (spend at the destination), a destination can calculate the return on investment in co-op marketing 26

27 Thank You Paul Ouimet Executive Vice President InterVISTAS Consulting Inc. 27

Catania Airport Commercial Aviation Policy 2016 on incremental international traffic. 31st January 2016

Catania Airport Commercial Aviation Policy 2016 on incremental international traffic 31st January 2016 Commercial Policy Guidelines AIM This policy aims at increasing traffic (both on international connections