Is the long haul low cost model sustainable in the long term?
New aircraft technology like the 787, A350, and larger single aisle aircraft, as well as evolving passenger preferences and stable fuel prices are encouraging LCCs - and restructured full service airlines - to consider new growth opportunities on long, thin routes. What were previously niche city pairs are becoming increasingly mainstream as more LHLCCs come online and disrupt entrenched business models. But the low cost model relies largely for its cost advantage on higher utilisation and higher seating density, features that tend to be diluted as routes become longer.
- What are the features that distinguish long haul LCCs from their full service peers?
- Does the long haul model depend on low fuel prices for its survival?
- Can LHLCCs remain viable as stand alone entities operating point to point or do they need feed traffic from partners or parent airlines?
- In the face of intensifying competition, should traditional network carriers launch their own long haul LCC subsidiaries? What conditions do they need to be successful?
- To what extent are the new entrants competing for existing traffic, as opposed to carving new markets?
- Are there particular features of the new generation equipment might enable sustainable LHLCC growth?
Moderator: US-India Aviation Cooperation Program, Program Director, Sandeep Bahl
- Cebu Pacific Air, Chief Operations Advisor, Rick Howell
- Scoot, Head of Sales & Distribution, Trevor Spinks
- World Airways, Director of Business Development, Adam Weiss
Sandeep BahlI will quickly introduce you our panel. You can see them here, Rick, Trevor and Adam, please if you could come. And while they're walking over to the stage, I want to thank Brandon and Con and Jonathan, the session before talking about, is the LCC pure, LCC is still existing or not. And then they delved into long haul. So that means LCC is still there, because the LCC evolving into long haul.
And why is that? Peter also just mentioned just now that there is a technological advancement that's coming besides the one here that we're looking forward to. A350s, 787s they're all coming in. And what Jonathan said earlier, Chinese carriers don't know what to do with their tiny planes or I should say, not the wide bodies. So, as they don't get access to cities like Beijing and Shanghai if they're going to fly smaller planes. So, there are opportunities.
The thin routes that are there to grab on the longer sectors, we can see some of the airlines have already started doing that. How it will go today for next 45 minutes. We have good experts here. They will introduce themselves to you for two minutes each. We will then have some questions and they will try to answer them if they can't answer, some of you can answer on their behalf. But at the end, you will have an opportunity to ask them some questions.
Those questions, how many you're going to ask depends upon how long you want to go, because then the lunch is there. So, this is the session. That's how we're going to do it. Rick, would you like to introduce yourself first?
Rick HowellJust to follow on from the previous panel I think the obvious way that you can actually tell pure LCC's is when their executives come to the stage wearing jeans. If you haven't worked that out then you haven't been paying attention at the conferences. Sorry, it's aspirational at this point.
I run operations for the largest airline in the Philippines, Cebu Pacific. In 2016, we were the third most profitable airline on the planet, on a margin basis. We're at around about a 60 ish fleet at the moment. We got a aeroplane deliver a couple of days ago. We actually have one in a shed that's actually being painted in allegiant colours at the moment and is about to exit the fleet so I don't know whether we can't that one or not. We're a fairly complex but fairly pure LCC, we'll get to the discussions of complexity a little bit later.
If you don't know what we do, we operate ATR 72's, 500's, and 600's in a 72 and 78 [inaudible 00:03:34] config. We operate a fleet of around 36 A320's all in a 180 [inaudible 00:03:42] config, and we have eight A330's, although two slightly different specs but are all in a fourth, three, six seat pure economy config. That's about it.
Sandeep BahlThank you Rick. Trevor.
Trevor SpinksI had about just under 10 years in Europe with easyJet, that's where I got into the world of airlines and this passion that we all have. Various commercial roles within easyJet, seeing their sort of airline grow from about a 70 aircraft to 200. Five years ago though, I come over to Singapore, never to been to Asia so a [inaudible 00:04:16] to Singapore. I joined this company called Scoot, and I remember still looking at their Wikipedia site when I've been approached for this potential interview and there was literally nothing, it was the CEO who was from Singapore airlines. Five years later Scoot only started up its first subsidiary, which is NokScoot in Thailand. We've merged with Tiger, which is quite a big effort that happened sort of just last year, in July last year.
Scoot started on triple 7's, not the most friendly of aircraft in terms of fuel. Singapore Airlines is our parent company, and very quickly Singapore airlines made the decision to give the 20 Dreamline orders through to Scoot. We currently have 16, four more to be delivered in terms of the Dreamliners. And we've got 24 320's on the old Tiger 3 as well, so again, there's a lot of those being painted around at the moment. There's a lot of [inaudible 00:05:11] going forward for 39 329 Neo's as well. We've got a lot of growth to come forward as well, so there's a lot of work to do in Asia where there's a lot of airports that we just can't simply land in now because of slots etcetera.
We've got over 60 destinations now, just five years old as well. It's going from strength to strength very, very quickly. It's got a lot of growth coming in front of us in the next couple of years as well.
Sandeep BahlThank you Trevor. Adam.
Adam WeissI am Adam Wise, aside from being overdressed I am a director of business development for World Air Race. We are a long haul digital low cost carrier emanating from the US. As you saw before, in the opening remarks, it was striking that there's a tonne of long haul LCC's popping up around the world. There's none in the US, so we're going to fill that white space, we are filling that white space. Our thesis is really premised on three tenants to be contextually digitised throughout the customer journey. So we looked at the customer journey holistically and we want to serve products to passengers at the times that they expect them, from the moment they search to the moment they get off the plane and get to their place of destination.
We secondarily, want to be very opportunistic about the equipment that we use in the routes that we fly. Third we want to engage passengers socially and market to them in ways that historically they haven't been done. We see a huge latent population, particularly in the US that doesn't travel internationally, part of that group is millennials. They think, and operate, and behave in different ways that consumers have historically have. We understand that, frankly I am one of them and our motto is to activate them and provide them the connectivity and access to international destinations that they historically haven't had.
Sandeep BahlGreat, great panel here, right? We have three different airlines, similar or very different ways of doing business. Having Trevor here who has worked for easyJet, where recently, if you see in Europe, there's a Norwegian that has started as a long haul, low cost carrier. With that, let me ask a question to you now. What is really the difference between long haul LCC and a full service carrier? You know, formally by the ties and suits right, so let's get to the grand off, what is the real difference? Lot of full service carriers are also saying they have a very low cost now.
Trevor SpinksShould I start then?
Sandeep BahlYes please.
Trevor SpinksMy parent airline is Singapore Airlines, and I did my career, and I'm low cost through and through. When Scoot was started, Singapore airlines, I think they did the right thing. They literally picked it up and put it in the corner, although the CEO was from Singapore Airlines, it was left to do its own thing. Buy the start up team where they had one planner, one maybe revenue manager to get us off the ground. It was really left to run itself, and it worked. They allowed us to make decisions in the speed we needed to make decisions, as [inaudible 00:08:33] speed we needed to go as well. You can throw all these things about, a low cost airline has to have a high utilisation. Legion clearly proved you don't have to do that. If you looked at something I was doing when I was at easyJet, on a Tuesday in the afternoon in winter, utilisation was very, very low. It was just lost in the bigger numbers etcetera.
Of course, you're going to have smaller teams. You're going to have a lot of reliance on third part systems etcetera, etcetera. The difference between the long haul and the low cost as well is going to always be, to me personally ... If you just put your family side of it. If I like to travel for business, I would like to travel in business class. I don't because I work for a low cost airline, so one day I probably should work for full service care. If you're moving around with your family, now you're moving sort of three, four, five people, the cost can really grow quite quickly. If you only need one bag between all of you, you're going go on your low costs.
So the difference between the full service and the low cost is ... Honestly is cost is put up there a lot of the time. If the fuel burns, the aircraft technology etcetera, etcetera. Whether it's a BA or if it's United, you've got these guys who've been around for a long, long time. They're very well established, they have huge head offices, huge costs, etcetera. We've seen Cathay go through a lot of problems recently as well. You've just got this very big structure that takes a lot longer to make decisions or maybe to get to where they need to. LCC's it's about getting to those decisions quickly, making decisions ... And if you do it wrong, we'll put our hands up and say we've done this one wrong, move onto something else.
Sandeep BahlThanks Trevor. Rick, any comment on that.
Rick HowellYeah. It's an interesting discussion because there are quite a lot of low fares carriers that actually aren't low cost carriers, and there's a problem with being a low fare carrier without a low cost base. Unfortunately, it generally ends up in a shareholder problem as much as anything else. On the low cost side, I think the long haul piece for low cost ...
To be honest, I remain a little sceptical about the idea of pure long haul low cost. That's just from my own experience operating our A330 fleet, where there are markets we entered that we exited. Picking up on what Trevor said, we're trying to change the way that we do business internally to become a more well ... As I've described this before, an eCommerce company with aeroplanes . We're trying to stop thinking like an engineering led organisation. Really connect directly with our passengers on a sort of more finite and an individual level. But that actually is the end result of a philosophical change that we want to try to drive into the business, and that is if you talk to the guys from Google, Amazon, the big software powerhouses. They both have a fairly significant culture of experimentation. They have experimental teams that have a process that drives the business to try things, and if it doesn't work it's not a failure, as long as you learn something from it. If you don't learn anything from it, it's a failure.
That doesn't really fit very well with airlines to be honest. It certainly doesn't fit very well with full service carriers because if you actually don't, or if you've never done this before, when a full service carrier goes to set up a new port, it doesn't just say oh right, we think we want to go and fly to Berlin for example, so we'll go and see whose going to be able to handle us at Berlin airport. A full service carrier will actually go set up an office, it'll employ a station manage, it'll employ station staff, it'll find a lounge, it'll train people. It will invest a lot of fixed cost up front before it actually starts the process of delivering passengers. It has to do that because the passenger expectation is, hey I walk into a Singapore Airline lounge in London, it's going to feel like the Singapore Airline lounge in Johannesburg, in Singapore, or somewhere else. That's the passenger expectation.
It actually means that it is very difficult if you're a full service carrier to be able to make the decisions that Trevor just spoke about, and turn things on and off. You can't actually invest all this money, acquire all the people, acquire the real estate, invest in a lounge and then go, you know what no that's not a good idea, lets cancel that. That probably is the essence ... I mean the passenger piece is obviously fairly clear, the [inaudible 00:13:32] charges, the number of seats on the aeroplane. But if you're looking at philosophically, I think the ability to execute a quick decision and to not invest yourself into a position where you can't actually unwind a decision that hasn't worked, is probably the big difference between a full service carrier and a successful low cost carrier, not necessarily a low fares carrier.
Sandeep BahlThank you. Rick, that's a good point there where agility that an airline can adapt when they're starting a new route, going directly to looking at whether we sure have our own people have vendor arrangement. But besides these costs, is it ... Do you think ... Is fuel is one of the key driver nowadays or is it just fuel cost the same for all? Is it fuel is the driver for long haul or fuel costs?
Trevor SpinksOf course fuels going to be very important. We had a big step change where we went from the triple 7's to the Dreamliners, and a new aircraft coming that's going to help as well. But it's not the big driver that it what was maybe 10 years ago or 20 years ago, or something similar. Of course, it's very important, but it's going to affect everyone the same. From Scoot's point of view, we purchase off you as a group, so it's Singapore Airlines and it's Scoot and it's Silk.
Sandeep BahlThat's another great point. Now, if we look at long haul low cost carriers. A lot of this ... You know, you mentioned with Singapore Airlines quite a few times in context of Scoot. Is their long haul model is more dependent upon their parent company or is it more feed interlining? Whereas we earlier heard from a panel earlier, the low cost carriers today are now jumping into the same thing, interlining, trying to get a partnerships. How would long haul LCC model, knowing that there are carriers like Scoot ... Parent is SQ. recently June started from Air France Airline. BA or IEG group came up with level ... Qantas has for very long time, Jetstar. And I checked with my friend from A&A, they have no plans to have a long haul LCC going for some time. So you think that the parent company or having an interliner [inaudible 00:16:08] or a feed from full service parent carrier will determine the success of long haul low cost carrier?
Rick HowellCan I take that one?
Sandeep BahlYeah sure, please, any one of you.
Rick HowellOur parent company, we're part of a conglomerate majority owned by a Filipino family through the holding company, which our parent company primarily is in snack foods. For us the full service carrier, and the full service parent actually doesn't exist. And the ability for us to connect the chips and drinks supplied by our parent company to our passengers actually is not necessarily a big advantage because they come in the right format to fit in the trolley's. So that isn't necessarily a significant driver of our success. On the connection side, so if you look at our own internal network, moving away from the Value Alliance, which I know Brendan is going to jump on me at some way to point about. But moving away from any of the Alliance discussion. What we sell internally through our own website, and it's now about 70% of our sales are through the website.
Across our whole network we see about 5%, low single digits or mid single digits, of our passengers arrange their own self connection. We'll sell a flight and they might go from [inaudible 00:17:53], to Manila, to [inaudible 00:17:55]. We sell a connected product, but it's actually a fairly small percentage. On our long haul network though, so Dubai, and Sydney, and we expect it'll be similar in Melbourne. We're actually seeing sort of mid double digits, so those are people that actually arrange their own feed, their own connection to one of our domestic services. If you're a full service carrier, 15% connectivity would be an abject value. You'd actually take a walk through a hall of mirrors and a long hard look at yourself. For us, 15% of the 436-8 aeroplane ... We're into the 60 or 70 passengers per flight are actually coming off or joining our long haul aeroplane and then entering our domestic network.
So we don't need a full service parent to deal with the connectivity, and we actually do make a lot of people happy by being able to join them at low cost from a long haul operation into the most extensive domestic network in the Philippines.
Sandeep BahlGreat point because if you have, as I understand, if you have your own nice connectivity within your hub area and you have your long haul operation coming and feeding into your hub, that will work very well. Having the chips onboard long haul, probably went real well. Tell me about that. In US Adam, what we're hearing out of Asia and Europe, level June started ... In US, you don't hear any of these big carriers thinking about going low cost long haul. They are working on making themself a low cost carrier anyways. Is that right or you think there's something else is happening?
Adam WeissYeah, no, it's absolutely correct and it's the white space that we're hoping to fill. 64% of Americans have never travelled internationally. Of the ones that do, only 41% in 2017 travelled overseas, so there's a huge latent market. The consolidation of the US 3 has really left large areas of the country without the opportunity to access destinations abroad. It really takes a certain appetite for risk profile to enter the aviation industry in the US. We don't anticipate that any of the larger carriers are gonna form subsidiaries long haul LCC's. It'll cannibalise a lot of their business. There's pricing pressure from the domestic LCC's already and a lot of their profit margins are in the long haul networks.
Frankly, it's striking that there haven't been any enterprises to sort of fill that void. There's a tonne in Europe, a tonne in Asia, none in the US. We tried to understand why. We love the thesis and we're pursuing it aggressively, and frankly I can't explain why there isn't more people trying to replicate the model.
Sandeep BahlAll right. I think Trevor can answer this very well. What is an extent when a carrier, a full service carriers looks at, okay I need to have a long haul low cost carrier. For SQ, say building up Scoot? What is the criteria, what drives this? And is it only because of the competition or is it just they want to cannibalise their current route, or the routes are not making money? What are the reasons you think there are?
Trevor SpinksI think it's sort of the above. From the SQ side of things, once Scoot was up and its proved itself and it profited from year two onwards. If you're the parent airline you've got roots that are maybe much more suited for LCC model. We've taken of over Athens and [inaudible 00:22:06] from the SQ group. We're going to take over some other roots in Malaysia and Indonesia from the Silk groups. So it give you this portfolio to move your aircraft or airline types around, whether it's the premium or the low cost. But why would you invest in Tiger 10 years ago, or Scoot five years ago as well, clearly competition is one of them. Air Asia obviously had a great jumpstart, in Asia, with no one really following suit for awhile. Then obviously Qantas started Jetstar, and at this point if you're Singapore Airlines, and you've gotta remember that there's only five or six million people here to try and sort of move or [inaudible 00:22:46] travel a fair bit. It's a bit more than travelling a bit overseas than the Americans.
They were feeling the punch, feeling the pinch, from obviously the Air Asia guys above, from Jetstar before them. Jetstar Singapore started up themselves as well. So all of a sudden they're going to have their own yields decrease. People are going to jump from the Singapore to Melbourne roots and they will lose out to these low cost carriers as well, so do you start your own low cost carrier to compete with those and cannibalise yourself? It's yes and no in a sense.
We actually fly to the big four points in Australia, and you could look at the history and say, oh maybe when Scoot started one year of Australia destinations, it stops Jetstar starting up to Singapore because can some of the routes handle two long haul low cost carriers. So in that sense Singapore Airlines kind of cannibalises themselves but they keep the money within the group, rather than sort of reacting too slowly and that money also leaking to a third carrier as well. It's a little bit of everything as well. Obviously geographic position as well, excuse me, important.
Sandeep BahlAdam you think with now West Jet going into long haul routes in North America, but before launching their long haul they have gone into building up these alliances with easyJet and Ryanair, etcetera,[inaudible 00:24:07], for the feeder traffic. And recently they also announced a very big joint venture with Delta. Before launching their long haul low cost service, is this a model you think a new long haul ... If an airline wants to get into long haul mode that they're already predicting that we might have to get into this, whereas what we are hearing from Trevor as well as from Rick, we're [inaudible 00:24:39] we can just feed it on their customers? Is it a different model all the way there in Northern Europe?
Adam WeissIt goes back to the discussion that we were having before, that the term low cost is sort of nebulous. It depends really what the lens through what you look at it. You don't see very many announcements of new full service carriers. No ones coming out and saying we're going to be a full service carrier. It's more ideological and strategic in a way. It's the way that you brand your airline. It's being digital, it's not being beholden to Legacy systems and Legacy ideologies in a way. To answer your question, I think when a full service carrier wants to enter the long haul low cost market it's not a natural evolution for them to go down in class, so they need to find these opportunities to do so, whether it's through network alliances, whether it's through rebranding, whether it's through a general change in strategy. Everyone wants to participate in this hot white space, but it's difficult for larger airlines to do so because they're not agile, they're not malleable.
When you're a start up, you are. When you have a clean sheet you can pick the systems, you want to pick the routes you want, pick the equipment you want. It's difficult for a large carrier to replicate that model and participate in the space the way that a start up can.
Sandeep BahlYou know, Peter earlier in the morning mentioned about a lot of new planes being delivered. Then he also talked about Boeing is delivering a lot of planes in this market. And you will notice, many of those planes are bought by ... On the order books, a lot of low costs carriers are also there. And some of these are wide body ultra modern planes.
So my question is, is there any particular features of these new planes that might enable a sustainable LCC long haul model? Because sustainability is also important in our business. Do you think is this will help the new generation planes here?
Rick HowellInterestingly, when we're looking at ... Not giving anything away here. We continue to evaluate the options that are in the market, so don't immediately assume that we're actually out for an RFP for our new wide body aeroplanes , we continue to look at this on an ongoing basis. One of the things that was quite clear from both manufacturers, the 787 and 350 were both not designed for LCC's. And that actually manifested itself in two ways. We have an A330 with 436 seats, the limit on the aircraft is 440 seats. Airbus lied to us a little bit and told us we couldn't get the extra four seats in but Lion Air did, so we're a little annoyed about that, 'cause they have a 1% lower cost base than we do. Anyway, that's water under the bridge Airbus.
The issue for us in the 787 was very interesting. The 787-8's too small. The 787-9, okay it's an aeroplane that actually has the same seat limit as the A330 because of the door exit limit. So we started digging into that a little bit more because it's obviously more fuel efficient than the A330, and actually ran into an interesting problem that buying it actually never thought about it, or never run into before. And that was that the all electric air conditioning system was actually not capable of sustaining life for 440 people, so okay oops, there's a small problem.
A350, same doors as the A330, so you get a whole lot more aeroplane. Our A330's weigh about 121/122 tonnes empty. That makes them very light A330's in case you were wondering. A350 would be carrying about an extra 20 or 30 tonnes of aeroplane to be able to fly further, that's true, but we'd still actually only be able to put 440 people on it. So if you're just looking at it as a straight aerodynamic thermodynamic argument, why would you want to carry an extra 30 tonnes for the same number of people, because those same number of people actually have to pay for that extra 30 tonnes to move every time.
Those two aeroplanes were not specifically designed for the LCC market. I know Scoot have done very well, you know, been very successful in their implementation of the 787. Doesn't necessarily work for us. The 330neo is going to be interesting, depending upon exactly how that works out. Mainly with the engine manufacturers. For us, the essence of any wide body aeroplane that we have is that we must be able to sub it in parts of our network where there is demand. And the demand might not just be passenger demand, it might be cargo demand. Some of our prime A330 routes, we're seeing revenue of more than 20% coming from under floor cargo.
Now when you have 20% of your revenue come from under floor cargo, that's aside from ancillaries like seats, or baggage charges, or things of that nature. It means you can actually drive down the cost per ticket quite significantly. If we can enter a market and we compete with Scoot, and they have a lot fuel burn than us because they're flying a 787, we're flying an A330. But if we can undercut them by 20% just by virtue of getting more cargo than they do. Low cost passengers are not particularly loyal.
Even though we have a great loyalty programme, well it's actually, sorry, a lifestyle rewards programme. Even though we have a good programme in that regard, 70% of our passengers travel less than once per year. So 7 out of 10 are going to forget about the experience before they come back again. So it really does come down to, he with the lowest cost wins, and if you lose the religion and start driving unnecessary cost into your business, you're just not going to compete.
Sandeep BahlNow good point. Especially on the [inaudible 00:31:30] space. I think that really detriments how to make the profit. If I have some friends from cargo vicinity here, long haul low costs cargo fares you're looking forward, you know who to talk to here. The cargo really needs some jump.
Rick HowellJust to jump in there. We're actually not a low cost cargo operator. We're a low cost passenger operation. A cargo operation is as full service as you could possibly imagine. Thank you, just for clarity.
Sandeep BahlThat's a great point. I want to have an opportunity for audience to ask some questions and then we will wrap it up. So anyone has any burning question to the panel? Andrew.
Sandeep BahlSo the question is how we can get the manufacturer on board so that they're white boarding new planes are more suitable for LCC operation. That's from Andrew.
Rick HowellYeah that's a great question Andrew. I was talking before about how airlines that are sort of engineering led tend to be sort of lethargic and they don't change directions very well. You need to sort of slap them around a bit to make them move. Aircraft manufacturers are like Legacy Airlines on Xanax. It's actually convincing them to change the ... Sorry, anyone from ... Sorry, [inaudible 00:33:20] I didn't mean that.
If they're not going to pay attention to where the successful investment grade opportunities are, and if you want to have a look around and see where are the developing investment grade airlines? They don't have lounges. They actually wear polo shirts. So the manufacturers ... And unfortunately there's a bit of ... We are our own worst enemy in some regards in this area, because as Trevor had said, we're usually a fairly small team, it's usually fairly young. It's not generally made up of grumpy old bastards like me that actually try to beat the manufacturers around to change their minds. Because the young and upcoming teams that frequently run low cost carriers actually haven't developed that sort of nasty attitude that comes from being the recipient of love from the manufacturers for so many years.
Sandeep BahlGood. Any other question? Yes, please.
Christian HylanderHello. Hi, my name is Christian. Hi, I'm here from MasterCard. I have two questions actually. The first one, what would you define being the ancillary revenue streams of tomorrow, how do you develop that? And the second one would be, how do you attack the cost at the airport? What do you do to reinvent the airport flow?
Trevor SpinksCan I take the airport cost one first? I saw a huge difference when I was in Europe with easyJet and when I come to Asia, easyJet was awfully huge and you could bundle into airports, and you could throw your weight around, and we want to come here. I'm not [inaudible 00:35:14] that great, I don't think easyJet [inaudible 00:35:15] that great on anything. So you go right down and then when you come to the end of your contract you want to go to them again and say, I want to renew that contract at the very low rate. When I come over to Asia, even with Singapore Airlines etcetera, etcetera. You didn't really negotiate with the airports. You had this rate and you paid. Okay, one of the differences between a full service and a low cost. To me, is a low cost would go and get these rates, you're bringing a huge number of people in. Sometimes to secondary or [inaudible 00:35:42] airports or something similar.
So negotiate with these airports and bring your airport costs down as well, and that has started. Some airports don't need to because they're hugely constrained anyway, but if they're really after trying to sort of get these low cost carriers in with these huge numbers, they'll get by the packs. So it's in their interest to get these high density aircraft in. That's where I am in terms of the cost side on the airports, is negotiate with them to start off with, rather than just accept what you're given on page one.
Sandeep BahlYeah. Yes, please.
Adam WeissTo answer your ancillary question. We look at the term ancillary to historically be a stigmatised term. People think ancillary and they think pain points. It's paying for baggage, it's paying to expedite your place in line. We say it as augmentative, not attractive to customer experience. The technologies that have been in place have really prevented passengers from replicating the behaviour they have at home. We want to emulate the couch experience in the sky. We think that the wifi, the connectivity is there now, and that gives you an opportunity to monetize the passengers in ways that historically haven't been done.
Ecommerce is a huge driver for us. We've just never understand why someone that's literally physically constrained from three to 16 hours, that's desperate for distraction, how you can't figure out how to monetize that person. It's bewildering to us. So ancillaries from my perspective are going to come from the same places the eCommerce currently drives revenues, which take a point on transactions that are made on board. On shopping channels, on gaming, on social interactions. Be really progressive in your thought.
Rick says that they want to be an eCommerce platform that flies, and we truly believe that also. Airlines have these wide [inaudible 00:37:43] of customers that most businesses don't have. They have them constrained, they have them captive, and there's tonnes of ways to monetize them using current technologies that haven't exist before. To us ancillaries, the old definition of ancillary, that's just revenue. That's not ancillary revenue. New ancillary revenues comes from digital and eCommerce.
Sandeep BahlThank you Adam. It's amazing, you know, most of the things that we heard are all related whether this long haul LCC is sustainable or not. They're all ending up like, you have to adapt and change. To sustainable in any business its common theory that we have to work with different partners, whether it's a manufacturer of aeroplanes . Look at it whether they can ... Our business model as an airline business model is changing, can they change themselves or not.
At the same time technology that Adam is talking about is driving so many new opportunities, unbelievable. Ancillaries you will hear it in the next session also. All the money that you're going to make with the ancillaries ... Not even US, I think in Asia nowadays you see that ancillary revenue is taking off in a big way, where it's not only the baggage fees anymore, it's much more than that. So with that I want to say thank you so much. Thank you Rick, Trevor, and Adam. Wonderful team here, and now I leave it with Peter. Thank you CAPA for this, thank you so much.
Copyright policy: All transcripts on this site are the copyright of CAPA - Centre for Aviation. Our reproduction policy is as follows: you may quote up to 400 words of any transcript on the condition that you attribute the transcript to CAPA - Centre for Aviation and link to the original video page. All other use is prohibited. While we aim for 100% accuracy in the transcript, there may be some minor transcribing errors.