LCCs Change Airline Industry Established network carriers Tourism industry n New tariffs n Charter airlines obtain a different n New products and meaning sales channels (emphasis on the n Package tours versus individual web / catering tours against payment) n Agressive marketing in favour of the consumer n Dynamic packaging n Hotel portals Innovation & Cost Leadership, 15. November 2004 Airports Unions Aircraft manufacturers n Airports serve as gateways for regions / integration into the region n Unions realize n altered significance of requirements LCCs (according to n growth due to Verdi 70% of all LCCs are unionised) n Growths of airports mainly due to LCCs n Business model is reflected in the collective labour agreements n Requirements adjusted to LCCs 1
Agenda n Trends In The Aviation Industry n Low-cost Carriers n Characteristics Of The Low-cost Business Strategy Of Airlines n Low-cost Business Strategies In Other Trades n Summary Innovation & Cost Leadership, 15. November 2004 2
Example: Airport Frankfurt Hahn - the first German low-cost airport § No glamourous passenger terminals (e. g. no sophisticated docking units and computer reservation systems) § Therefore, investment costs for a terminal are significantly less than € 5, 00 per passenger § The current capacity for approximately 5 million passengers per year was created for less than € 17 million (compared to an average of € 100 million needed at other German locations for a similar scale) § Compensation of lower income from airport fees with higher revenue from the non-aviation sector (e. g. rental income from the licence holders in the two terminals, parking fees) Source: http: //www. hahn-airport. de/sycomax/files/7064_1 Low. Cost. doc Innovation & Cost Leadership, 15. November 2004 3
Example: Touristik Express: Germany´s first low-cost travel agency § Shop-in-shop concept § Trademarks: Wall with offers (taxi-design), Large photo with vacation theme, Red consultation counter § No seats § No display window / no display window decoration § No catalogues but demonstration of daily offers of different tour operators Innovation & Cost Leadership, 15. November 2004 4
Example: inter. Rent Characteristics of inter. Rent n Booking via www. inter. Rent. com (98 %) or call center n Fast reservation system with integrated yield management n Payment per credit card only n Complaint rate 0 %. n One-way rental not permitted n No cost-intensive incentive-program n Only one type of car (new VW Golf) n Client cleans the car himself (in- and outside)or he books the cleaning n Penalties if clearly communicated rules are violated Innovation & Cost Leadership, 15. November 2004 Source: company information 5
Example: inter. Rent Cont. Fences between HLX / IR & EC Source: Company information Innovation & Cost Leadership, 15. November 2004
Example: wibromed Establishment into the pharma-market through n Realisation of an innovative discount-strategy n Creation of a transparent pricing and purchasing policy n Voluntary customer retention (no contractual or contractual-like customer-supplier-relationships) Realisation through n Delivery concept, no in-house logistics n Cost savings through lean structure n Only one delivery of goods per day n Restriction of the stockkeeping on fast moving, on prescription available original products n Optimisation between purchasing- and stockkeeping costs n Direct pass-on of the cost advantages to the customer Source: company information Innovation & Cost Leadership, 15. November 2004 7
Example: Mobile Phones The international management and technology consultancy Booz. Allen Hamilton expects low-cost providers to enter the market for mobile phones § With the rising saturation of European markets for mobile phones lowcost providers are expected to enter the market § Booz Allen Hamilton expects a cost reduction up to 30 -40% § These cost reductions can, for example, be realised through: § Sales via the internet § No costly customer service § Concentration on basis products such as voice communication and sms-service § Example of an already existing low-cost provider of mobile phones: the Danish company „telmore“ Source: http: //www. boozallen. de/content/presseforum/4 aax_0504_mobilbillig_d. asp Innovation & Cost Leadership, 15. November 2004 8
Example: Gas Station Raiffeisen-Markt Wissingen Bahnhofstraße 28 49143 Bissendorf n Gas station belongs to a supermarket n Fueling 24/7/365 n No buildings, no staff n Cash payment or payment by credit card at the machine next to the petrol pump n No Shop, no sales of car-related articles n No extras (except air), e. g. no water to clean the wind shield Innovation & Cost Leadership, 15. November 2004 9
Agenda n Trends In The Aviation Industry n Low-cost Carriers n Characteristics Of The Low-cost Business Strategy Of Airlines n Low-cost Business Strategies In Other Trades n Summary Innovation & Cost Leadership, 15. November 2004 10
Summary § Re-engineering of processes (not only doing the same at less cost) Pass-on of cost savings to customer Stimulate demand, increase LF § Efficient use of expensive recources e. g. A/C, labour Reduction of CMI costs Pass-on of cost savings to customer Stimulate demand, increase LF Innovation & Cost Leadership, 15. November 2004 11
Summary § Re-engineering of processes (not only doing the same at less cost) Pass-on of cost savings to customer Stimulate demand, increase LF § Efficient use of expensive recources e. g. A/C, labour Reduction of CMI costs Pass-on of cost savings to customer Stimulate demand, increase LF Innovation & Cost Leadership, 15. November 2004 12
Summary Cont. Different strategies of LCCs and FFAs Innovation & Cost Leadership, 15. November 2004 13
Summary Cont. Different strategies of LCCs and FFAs Innovation & Cost Leadership, 15. November 2004 14
Correlation Between Price And Sales Purchasing patterns have changed over the years n < 1990 There was only a small market for very expensive and very cheap products while there was a large markt for middle-priced products. Innovation & Cost Leadership, 15. November 2004 15
Correlation Between Price And Sales Purchasing patterns have changed over the years n < 1990 There was only a small market for very expensive and very cheap products while there was a large markt for middle-priced products. n > 1990 There is a decreasing market for middle-priced products while there is a significant „high end“ market and a huge market for cheap products. Innovation & Cost Leadership, 15. November 2004 16
Produktlebenszyklus im Einzelhandel Innovation & Cost Leadership, 15. November 2004 17
Market Segmentation - Example: Food Trade Cheap discounters (Aldi, Plus) § Rather price-orientated customers § Location: selected, centrally accessible locations § Only few fresh products price § Large consumer markets ( Wal-Mart, Real, Marktkauf) § Price- and brand-orientated customers § Location: periphery of high density areas § Fresh products § Small supermarkets (Spar, Rewe, Edeka, Tengelmann) § Rather brand-orientated cutomers § Location: high distribution density especially in urban areas § Counter with fresh products § Specialised shops (Käfer, Dallmayr, Gosch) § Only brand-orientated customers § Location: city centre § Only fresh products § Qualified service Innovation & Cost Leadership, 15. November 2004 brand 18 Source: Seven. One Media Gmb. H
Market Segmentation - Example: Food Trade Cont. Discounters and large consumer markets are the winners Discounters Supermarkets Warehouses Self-service warehouses / Large consumer markets Others Quelle: „Wollen die Deutschen nur noch billig? “, Hans Reischl, Vorstandsvorsitzender Rewe-Zentral AG, Köln, fvw-Kongress, 22. Oktober 2003, Köln Innovation & Cost Leadership, 15. November 2004 19
Market Segmentation: Examples Discounter / Warehouse Furniture Car service Chocolate Drugstore Telephone companies Innovation & Cost Leadership, 15. November 2004 20
Thank you for your attention! Innovation & Cost Leadership, 15. November 2004 21
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