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CAPA Low Cost Long Haul Global Summit

Seville, Spain
4-5 Oct 2018

Low cost long haul operators are establishing partnerships with short haul low cost airlines as a means of expanding their network breadth and supporting their growth aspirations, as recently demonstrated by Norwegian’s tie up with easyJet. For long haul operators, connecting traffic is critical in scaling sustainably, especially as very few long haul destinations generate enough demand to justify year round capacity, while their partners benefit from additional traffic growth in short haul markets. Legacy carriers, who have long ceded competitive ground to short haul LCCs, could see history repeating itself as long haul-short haul LCC partnerships gain more momentum and disrupt full service carriers’ long haul networks.

  • How do long haul-short haul LCC partnerships enable growth and scale?
  • Is partnering with a short haul LCC the best way for low cost long haul operators to expand their network?
  • Are these new partnership arrangements set to disrupt network carriers’ long haul operations?
  • How seamless are self connecting platforms and virtual interlining? What role can airports play in enabling connectivity?
  • In which markets do long haul-short haul LCC partnerships proliferate?
  • Can long haul low cost carrier operate as stand alone entities without short haul partners?
 
Moderator: Skylight Aviation, Senior Advisor and former easyJet Group Strategy & Network Director, Cath Lynn
 
Panel:
  • easyJet, Regional Director, Javier Gandara
  • Kiwi.com, CEO, Oliver Dlouhy
  • London Stansted Airport, CCO, Aboudy Nasser
  • Norwegian Air, EVP Strategic Development, Tore Østby

While LCCs are still a relatively young force they have massively disrupted air travel and the way all airlines now think about serving the public. With a nimble strategy offering point to point connectivity, industry innovations, ancillary focused activities and modern digitalisation and technological practices, they have become the new ‘normal’ in the industry, causing major headaches for the full service carriers on short haul markets. Whether low cost carriers will create a similar transformative effect in the long haul sector remains to be seen. No less than 19 LCCs have launched widebody services in the last six years, while further disruption is on the cards in the long haul narrowbody space. The new generation single aisle Boeing 737 MAX and Airbus A320neo aircraft families have brought long, thin routes into the realm of operational and financial viability for LCCs, in turn stimulating new traffic between secondary city pairs and allowing passengers to bypass traditional hubs. Yet the low cost long haul model doesn’t have the same inherent cost advantages as the short haul model, which potentially narrows the cost gap between LCCs and FSCs, and growth has come at the expense of profits for many LHLCCs. The prospects for independent low cost long haul carriers aren’t particularly promising either; it’s rare for secondary point to point markets to be large enough to operate sustainably without additional feed.Still, low cost long haul airline growth shows no signs of abating. As the average passenger profile moves towards the price sensitive end of the spectrum, outstripping growth in premium markets, it becomes harder for higher cost airlines to sustain previous expansion rates without deploying radical strategies to address the low cost long haul onslaught.

  • Can the economics that make short haul low cost viable translate to the long haul sector?
  • How crucial is fuel efficient aircraft in making low cost long haul sustainable?
  • Does the viability of the low cost long haul model depend on continued downward pressure on fuel prices? What happens when this high-proportion input cost (inevitably) rises?
  • Can independent low cost long haul carriers operate sustainably without short haul feed from a sister carrier?
  • Do LCCs need to change their product and pricing structure to operate in the long haul market?
  • Can FSCs survive the competitive threat of low cost long haul carriers?
  • As the two models continue to adopt features of the other, will there be any true distinction between a pure full service carrier and a pure LCC?
 
Moderator: Cranfield University, Visiting Professor, Peter Morrell
 
Panel:
  • Avolon, Head of Strategy, Dick Forsberg
  • flyadeal, CEO, Con Korfiatis
  • IAG, Head of Strategy and Development, Alistair Hartley
  • SMBC Aviation Capital, Head of Strategic and Market Analysis, Shane Matthews
LCCs are constantly looking at finessing their retailing and merchandising strategies – whether it’s during the booking phase, pre flight or onboard, with relevant, timely offers that are easily accessible (preferably via mobile) and easy to pay for. This is especially important in today’s digitalised environment, where onboard connectivity is virtually a must have and almost as critical for the traveller as getting to the destination.
  • How can airlines make full use of their connected and captive audience – and generate healthy ancillary revenues in the process?
  • How will the ancillary strategies of the region’s LCC continue to evolve?
  • How is technology enabling the growth of the airline as retailer?
  • Beyond a la carte pricing, baggage and meals, what are some more creative ways of achieving ancillary revenue?
  • What are the best practice examples of airlines that have maximised their retail and ancillary strategy?
 
Moderator: Comtrade Digital Services, VP/GM Mobility & Travel, Marko Javornik
 
Panel:
  • Aviation Performance Consultants/Peach Aviation, Chairman/Executive Advisor, Patrick Murphy
  • Caravelo, CCO, Jonathan Newman
  • easyJet, Head of Retail Strategy, Claire Evans

As business customers and corporate buyers increasingly seek value for money, especially for short-haul travel, and a new generation blends work and leisure when travelling, the distinction between travelling for business or personal reasons has become less relevant. This has provided LCCs with the opportunity to compete for ‘corporate’ business that may previously have not been considered a real revenue opportunity.

  • What is the awareness level amongst travel managers and buyers of LCCs as an alternative to traditional airlines?
  • What LCCs are chasing the corporate travel dollar and how successful have they been in luring buyers away from entrenched carriers?
  • What obstacles need to be overcome to persuade corporate buyers to use LCCs?
  • The legacy carriers’ view of the LCC “threat”
  • How do you demonstrate value beyond price?
  • Can LCCs profitably realise the yield premium required to sustain a ‘premium’ hard product?
 
ModeratorCAPA – Centre for Aviation, Editor, Blue Swan Daily, Richard Maslen
 
Panel:
  • BCD Travel, Senior Vice President Supplier Relations, Thomas Stoeckel
  • flyadeal, CEO, Con Korfiatis
  • London Stansted Airport, CCO, Aboudy Nasser
  • WTTC, Director Europe & Latam, Maribel Rodriguez Gamero

As full service airline groups rapidly expand into the long haul low cost sector, questions on whether to include LCC subsidiaries in intercontinental JVs naturally emerge. Including an LCC subsidiary in a JV is still rare, but becoming more common. For example, Air Canada LCC subsidiary rouge and IAG’s new long haul low cost subsidiary LEVEL are now included under their respective transatlantic JVs. Asia-Pacific JVs are yet to include any LCCs, although the addition of Scoot to the Lufthansa-Singapore Airlines JV is in the works, which would simplify the Singapore flag’s current separate partnerships with both Lufthansa and Scoot. While joining a parent’s existing JV seems like a natural strategic evolution for low cost subsidiaries, independent LCCs need to consider other options if they want to expand their market presence, whether that be forming codeshares with fellow LCCs or with full service carriers, or as famously demonstrated in 2016 by the Value and U-Fly alliances, forging their own groupings to sell joint itineraries and generate cross-bookings. Meanwhile, other creative regulatory solutions exist. In Asia, the cross border JV model has allowed the region’s major LCC groups – AirAsia, Jetstar, Lion Air, and to a lesser extent VietJet – to accommodate foreign ownership restrictions by taking branded minority stakes in local airlines. Similar strategies are being pursued in the Middle East with Air Arabia, in Latin America, through the Viva group and in Africa with fastjet/Fly540.With an array of different partnership mechanisms available, airlines need to consider whether they are prepared to create additional complexity and cost before embarking on this road.

  • What are the regulatory tools available for LCCs and are they being properly exploited?
  • Why are LCCs willing to stray from the purity of the business model and forge partnerships with other airlines? What are the cost/complexity implications of doing so?
  • Are codeshare arrangements with other LCCs the most effective way for low cost long haul operators to combat aggressive price matching tactics carried out by full service incumbents?
  • How do partnerships enable greater network breadth?
  • Is there any value in establishing LCC alliances when LCCs could form their own interlines and codeshares instead? Are there any significant cost and revenue benefits in forming a grouping?
  • Are cross border JVs effectively circumnavigating current ownership and traffic rights restrictions? Do cross border JVs help airlines achieve scale?
  • Are geographical borders becoming irrelevant or do nationalist and protectionist sentiments still exist? What kind of local partners are airlines looking for?
 
Moderator: European Aviation Club, Chairman, Rigas Doganis
 
Panel:
  • Air Black Box, Co Founder, Timothy O’Neil-Dunne
  • London Gatwick Airport, Head of Airline Relations, Stephen King
  • Mango Aviation, Managing Partner, Andrew Cowen
  • Scoot Tigerair, CCO, Vinod Kannan

Change is now in the wind as low cost long haul operators continue to capitalise on the capabilities of new narrowbody aircraft and increasing liberalisation to stimulate competition on markets traditionally dominated by the full service carriers. As a prime example, LCCs, led by Norwegian, have been encroaching on the tightly controlled trans-Atlantic route over the past five years. Their presence continues to grow here and elsewhere, thanks to the development of new, more cost efficient aircraft types such as the 787, and narrowbodies such as the Boeing 737 MAX and A321neo. The better fuel efficiency of the MAX and the A321neo and, in particular, the additional range of the A321neoLR enable new smaller city pairs that are not big enough to sustain widebody operations to become economically viable. Legacy airlines are also taking advantage of new narrowbody equipment to open up or defend existing routes.

  • What new aircraft production platforms are stirring interest and what opportunities to they open up to LCCs?
  • Disrupting mature markets or growing new city pairs? Which markets are prime targets for low cost long haul expansion?
  • How are legacy airlines utilising the new aircraft equipment to defend markets?
  • What role will widebodies play as long range narrowbodies take on greater significance in long haul markets? What particular features of the new generation equipment will help enable sustainable growth of the low cost long haul growth?
  • Are operators looking to fly new aircraft to destinations that are far apart, or is the focus more on trying to make the aircraft fit into the existing network?
  • Are new narrowbodies freeing up older widebodies for deployment on new routes?
Moderator: Avolon, Head of Strategy, Dick Forsberg
 
Panel:
  • Airbus, Principal – Market Intelligence & Consulting, Yves Renard
  • Boeing, Senior Managing Director – Marketing, Darren Hulst
  • PlaneConsult, Managing Director, Conor McCarthy

Whilst geographic position plays a large part in an airline’s decision whether or not to fly to a particular destination, the airport also holds an influential role in the decision making process. LCCs and low cost long haul LCCs in particular have unique requirements compared with their FSC counterparts; so it follows that those airports that are able to offer the right facilities and services for their airline customers stand to gain. But additionally, there is huge untapped potential for airports to share data and co-operate commercially with airlines for mutual benefit; this could prove a key factor in attracting and retaining carriers assessing the viability of a new route.

  • How do needs vary between full service and low cost airlines?
  • How can airports help airlines develop a business case for establishing or expanding a new route?
  • The importance of self connect for low cost long haul traffic. What do airports need to do to enable the smooth transfer of self connecting passengers?
  • What constitutes the ideal base for a low cost long haul airline?
  • How do airports and airlines view the passenger journey? What kinds of data sharing initiatives exist between airports and airlines, and how much cooperation is there in retail and merchandising?
Moderator: ForwardKeys, CMO, Laurens Van Den Oever
 
Panel:
  • Aena, Airline Customer Relations and Airport Marketing, Ignacio Biosca
  • Dohop, Commercial Director, Chris Baldwin
  • easyJet, Regional Director, Javier Gandara
  • Halifax International Airport Authority, CCO, Bert van der Stege
  • London Gatwick Airport, Head of Airline Relations, Stephen King

Aena, Airline Customer Relations and Airport Marketing, Ignacio Biosca

Air Canada Rouge, President, Duncan Bureau

LCCs, as the newer players in the industry, are competing to meet future growth needs. They can scarcely afford to stand still if they are to assert themselves in the long term – especially as newer models enter. The need to plan for fleet expansion and replacement, as well as making decisions on leasing and purchasing. For larger LCC groups, one notable strategy to offset the risk inherent in large forward orders has been to establish a leasing capability, to absorb any excess capacity as new aircraft are delivered.
  • Finding the funding – debt and equity – to support LCC expansion. Is the money there?
  • What special features need to be considered in funding new and established LCCs?
  • Which funding models are most attractive to LCCS?
  • What roles have the OEMs played in LCC expansion?
  • Are markets large enough to support all the new orders?
  • What is the risk profile of an independent LCC vs a subsidiary?
  • Should airlines lease or purchase outright from the OEM?
  • Should LCCs with large order books establish their own leasing companies?
  • What skills are necessary for an LCC to be successful in this very different venture – while maintaining the airline operation?
Moderator: SMBC Aviation Capital, Head of Strategic and Market Analysis, Shane Matthews
 
Panel:
  • Air Lease Corporation, Executive Chairman, Steven Udvar-Hazy
  • BOC Aviation, Managing Director & CEO, Robert Martin
  • DVB Bank, SVP Aviation Financial Consultancy, Albert Muntane Casanova

The majority of low cost long haul airlines operate either as part of a larger low cost group or they are subsidiaries of full service carriers. Indeed the number of successful independent low cost long haul operators is rare; currently there is only one independent airline in the newly launched French Bee, while another start up, US based World Airways, is in the works. But independent long haul LCCs have historically struggled because they have lacked short haul feed from a sister airline, adding merit to the argument that long haul LCCs work better if they are part of an LCC group with short haul connectivity. Meanwhile in an attempt to combat growing LCC competition, many full service carriers have wisely avoided unsustainable price matching (although tiered fare products are a popular tactic amongst the US majors) and launched their own LCCs. Yet embedding a low cost culture within a legacy environment poses its own set of challenges, especially where services and systems are shared. A constant threat is that the subsidiary cannibalises the principal’s mainline traffic. But the success of Qantas’ Jetstar, launched more than a decade ago, shows that if executed correctly, low cost subsidiaries can generate remarkable synergies for both parent and child carrier.

  • How are the traditional operators responding to long haul low cost competition? Price matching or launching their own low cost brand?
  • Is it possible for traditional hub-based network airlines and LCCs to co exist on long haul sectors?
  • What is the key to making a low cost long haul subsidiary work? How do you clearly differentiate the airline brands, ensure the networks are complementary and avoid cannibalisation?
  • Does a low cost long haul airline only work when part of a larger group?
  • What are the opportunities or limitations for creating brand awareness, increasing purchasing power and synergising fleets under the two partnership models?
  • Can low cost subsidiaries ever be considered true LCCs if they’re owned by parents with high cost legacy structures?
  • In the absence of partner feed from a short haul sister LCC or the backing from a full service parent, what are the options for independent operators to sustainably launch long haul operations?
ModeratorEuropean Aviation Club, Chairman, Rigas Doganis
 
Panel:
  • Air Canada Rouge, President, Duncan Bureau
  • flyadeal, CEO, Con Korfiatis
  • flynas, Senior Vice President, Paul Byrne
  • T.B.L. (JAL’s new LCC), Executive Officer, Hiroyuki Uehara
  • VietJet Aviation, Member of Board of Directors, Cuong Chu

It is questionable whether LCCs can continue to adhere to simple, low cost distribution methods, given the inevitable complexity that low cost long haul generates. At the very least, a more flexible approach to marketing and distribution is required and LCCs are responding and adapting to the (often different) needs of long haul customers, where price for example, doesn’t hold as much sway in promoting brand stickiness.

  • What marketing and distribution strategies can LCCs adopt to support their growth in the long haul arena?
  • What is the value of an omni channel approach?
  • How to find the right touch points as multi channel engagement becomes the new norm in the current marketing and selling environment?
  • How can LCCs leverage data and new technologies to offer more personalised end-to-end travel content that engages consumers and builds up trust?
  • Do frequent flyer programmes work for low cost long haul airlines, as an engagement and distribution tool?
  • How important is price in incentivising travellers to book?
Moderator: Mango Aviation, Managing Partner, Andrew Cowen
 
Panel:
  • Air Canada Rouge, President, Duncan Bureau
  • Amadeus, VP Strategy & Marketing, Airlines, David Doctor
  • Aviation Performance Consultants/Peach Aviation, Chairman/Executive Advisor, Patrick Murphy
  • Skyscanner, Senior Director, Commercial, Hugh Aitken

3D SeatMapVR allows passengers, like never before, to know the seat they are booking, through an immersive 3D 360º view from their specific position during the booking process. It has already been recognised having won a Crystal Cabin Award in the Visionary Concepts category, and the technology has already been introduced by Emirates Airline.

FlyPOP’s business model is predicated on the fact that the South Asian diaspora in the UK (and North America) are underserved by the global aviation industry. Despite the significant VFR demand in flying non-stop to major tier two cities in South Asia, most cannot be reached directly. The start-up airline plans to put an end to this and disrupt the industry by putting the passenger first.

TroopTravel aims to take the complexity out of organising meetings. The award-winning platform uses big data and machine learning to connect thousands of data points to find the best location for meetings based on individual requirements, comparing flight and hotel cost, visa requirements and CO2 impact in the process.

The Butterfly Flexible Seating Solution is a flatbed suite that is instantly transformable into two reclining seats, giving operators the flexibility to respond to demand fluctuations and adapt to market differences on a flight by flight basis.

David Doctor, VP strategy & marketing, airlines, Amadeus, highlights how the travel technology specialist is already active within the Low Cost Long Haul space and working to help airlines on their digitalisation journey to stay relevant in both today’s and tomorrow’s emerging marketplace.

Paul Byrne, senior vice president, flynas, highlights how religious travel habits into Saudi Arabia could help form the backbone of a successful Low Cost Long Haul operation for the carrier based around a fleet of up to 300-seat aircraft serving markets such as Indonesia, Morocco and others.

Vinod Kannan, chief commercial officer, Scoot Tigerair, highlights how one of the pioneers of the Low Cost Long Haul model operates; how new aircraft are driving economic and operational benefits; the important feeder role Tigerair now plays; being part of a bigger airlines group and the positives and negatives it can bring; and the increasingly important role of technology.

Robert Martin, managing director and chief executive officer, BOC Aviation explains how the company works with airlines, the value of critical mass of operation and how the high value assets needed for Low Cost Long Haul could impact availability of liquidity.

Ken O’Toole, chief executive officer, London Stansted Airport, highlights how the short haul LCC foundations at both London Stansted and Manchester airports could support their role in the emerging Low Cost Long Haul market, with Stansted’s catchment, available capacity and location making it a particularly attractive proposition.

Duncan Bureau, president, Air Canada Rouge, highlights how Air Canada Rouge works to complement the premium operations of Air Canada and how it offers the mainline business a brand to better compete with LCCs and ULCCs.

Vincent Hodder, chief executive officer, LEVEL, highlights how the IAG brand is adopting a variety of business models to deliver operations out of Spain, France and Austria. He speaks about the important role of being part of a wider airline group and the continued evolution of the Low Cost Long Haul model.

The CAPA Low Cost Long Haul Global Summit is the only strategy event dedicated to the new frontier of low cost travel: long haul. New aircraft technologies, evolving passenger preferences and stable fuel prices are pushing LCCs (and restructuring full service airlines) to consider new growth opportunities. High fare long haul markets are ripe for disruption and airports/destinations are aggressively courting new routes. New city pairs are emerging, and secondary airports are featuring regularly in the long haul low cost networks. But it’s not just fuel efficient widebody equipment that’s changing the game – the new long haul narrowbodies are opening up vast new opportunities for airlines – and they’ll be entering the fleets of airlines around the world in large numbers in the coming years. The implications are profound, touching the entire travel value chain from airports to accommodation, ground transportation, distribution/payment and technology – and even corporate travel.

  • The role of low cost long haul subsidiaries in full service carrier groups
  • The viability of independent low cost long haul carriers vs those that belong to large LCC groupings
  • The LCCs’ evolving relationships with airports
  • Low cost long haul to short haul connectivity
  • Virtual interlining, and the role of new-generation equipment in enabling the growth of the model – including the impact of long haul narrowbodies on traditional high fare markets

Two leaders of the aircraft leasing business, Air Lease Corporation’s Executive Chairman of the Board, Steven Udvar-Hazy, and BOC Aviation’s Managing Director and Chief Executive Officer, Robert Martin, joined CAPA’s Low Cost Long Haul Global Summit in Seville earlier this month to give their perspectives on the outlook for the fast growing sector. In an absorbing session, when asked what they look for in an airline business model, Mr Udvar-Hazy said, “there are literally dozens of different factors that we consider when making these decisions”, including the credit structure, management talent and capital structure of the business, as well as the competitive landscape, network, long term strategy and break-even point.