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Changing the Game - The De-Linking Paradigm Old Way Our Way - - PDF document
Changing the Game - The De-Linking Paradigm Old Way Our Way - - PDF document
Montie Brewer, President and CEO 1 Changing the Game - The De-Linking Paradigm Old Way Our Way De-Link De-Link Link Link Revenue Revenue Revenue Revenue Capacity Costs Capacity Costs Capacity Costs Capacity Costs 2 Changing the
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Changing the Game
What is being sold: travel from A to B Complex pricing - rules, rules, rules Hidden information, choices unclear
Old Way
What is being sold: How one wants to travel from A to B Product very differentiated:
- Tailored to individual choice
- Clear link between price and value
Transparency and trust are guiding principles
Our Way
Lack of Trust Loyalty
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Simplified Fare Products
Flexibility Price Value Choice
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Simplified Fare Products
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Simplified Fare Products
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Choices and confirming what is purchased.
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Simplified Fare Display: The Key to Success
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“Air Canada matches us, dollar for dollar on every single fare, every single minute of every single day.”
Clive Beddoe President and CEO, WestJet
Air Canada Will Not Be Undersold
Matching Low-Fare Competition
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People will “Buy-Up”
Tango Plus sales increase 39% in Q3, 34% in Q4 year over year Tango only accounts for 45% of domestic sales in Q4 48% “buy-up”
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Reduced Costs Through Web Bookings
Benefit: reduction in commissions and variable labour
59.4% 30.5%
0% 10% 20% 30% 40% 50% 60% 70%
% of total bookings made on the Web
Domestic Transborder
Jan. 06 Mar. 06 May. 06 Jul. 06 Sep. 06 Nov. 06 Jan. 07 Mar. 07 May. 07 Jul. 07
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Higher average fare Higher average fare
+ +
Higher load factor Higher load factor Higher revenue premium Higher revenue premium Unit Cost Gap Unit Cost Gap = Profit Gap = Profit Gap
The Math Works
Buy up for additional features Business class International feed Superior network & schedule International feed More appropriate aircraft size Transborder feed Labor Single fleet
Our Advantage LCC Advantage
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Air Canada’s Market Share
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10.2 9.0 8.5 8.7 8.6 9.1 9.9 18.7 17.2 17.2 15.2 16.1 18.1 18.6
2.0 7.0 12.0 17.0 22.0
2000 2001 2002 2003 2004 2005 2006
(1) 4th QTR. ‘05 + YTD Sept. ‘06
New Revenue Model As Effective As The Old Model
Air Canada & Jazz Air Canada & Jazz CDN CDN ¢ ¢ U.S. Markets (DOT) U.S. Markets (DOT) U.S. U.S. ¢ ¢
Cents per ASM
Domestic Passenger Revenue per ASM
(1)
New Model Introduction
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Changing the Game - The De-Linking Paradigm
Revenue Capacity Costs Revenue Capacity Costs
Old Way Our Way
De-Link Link Revenue Capacity Costs De-Link Revenue Capacity Costs Link
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Passes Allow Us To De-Link
De-Linking Revenue from Capacity
Increases Revenue Locks in long-term loyalty and revenue stream – Less shopping Buying network access – Focus on ‘when/where to travel’ not ‘who’ positions Air Canada as My Airline of Choice Decreases Expenses Fewer flights Reduce related labor expenses Reduce distribution expenses Decrease advertising spend or passenger acquisition expense
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Rapidair Western Triangle Canada East Canada West Trans Canada Canada Coast to Coast
Customer Can Customize
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Consumer Focused Products
Price predictability Ease of use and online flexibility Transaction cost savings
Who is buying? Why?
Frequent business flyers and their companies
Penetration Improving – 7.7% of Domestic Sales Creates loyalty – 30% increase in eligible travel High satisfaction – 90% of pass holders repurchase
Encouraging Results
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AC.com
Objective Is To Develop Personalized Products
Best fare Pass/Subscription
Guaranteed best fare Transparent Fare Packages Easy to compare Universally acceptable Customized pricing for all segments Personal pricing Relevant and simple to customer Not transparent Differentiated Complex to Airline Impossible to match
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Transition To New Way of Doing Business
Gain customer’s trust through transparency Maintain historic revenue premiums through buy ups Encourage development of products that encourage bulk purchase Change what we sell Change our competition Change our historic financial performance
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