Prospects of Regional Aviation in Europe and CEE Max Oldorf Chief - - PowerPoint PPT Presentation

Prospects of Regional Aviation in Europe and CEE

Max Oldorf – Chief Commercial Officer

CEE Aviation Conference Budapest 2015

Worldwide Airline Intelligence since 1998

Introduction

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Data: Layover Analysis

Creation of Algorithms and Analysis of Airline Crew Hotel Requirements at several airports in Europe, Asia, North and Latin America including research of Airline Crew Sizes by Aircraft Type/Routing. The customer approached us with a specific question in mind. How many crew members overnight every day at a specific airport where the customer operates properties nearby. With our analysis the customer was able to focus sales & marketing activities specifically on airlines that are potential clients and was able to save precious resources by ruling out carriers that are not.

Airline Crew Layover Analysis

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Creation of Algorithms and Analysis of Airline Crew Hotel Requirements

Client: Starwood Hotels & Resorts Country: United States of America Industry: Hospitality

Grab some coffee, We’ll be back in 20min

Introduction Regional Airlines in Europe and CEE

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Important for local economies and majors Regional aviation is in a state of decline

We see a major transformation going on with independent regional carriers being fairly weak players in comparison to major legacy carriers or growing low-cost carriers. Several new business models have also been developed in recent years redefining what a regional airline is and how it operates.

Introduction Regional Airlines in Europe and CEE

Over the course of the last 10 years, regional airlines in Europe and the CEE have seen many ups and downs being part of an industry described as generally less profitable than the wider economy as well as most of the industry’s suppliers. 33% of all EU Regional Airlines went out of Business between 2008 and 2013

• Rise of Low-Cost Carriers
• High Speed Rail Services
• Consolidation of Major Carriers
• New legislation by the EU (Emissions

Trading Scheme)

• Environmental Taxes in EU countries
• Increasing costs due to jet fuel prices

Client: Revenue Management Systems

07

Country: United States of America Industry: Airline IT

Factors for the Market Situation

Business Model: Subsidiary

• Selling all of its Capacity to Legacy/Mainline Carriers like

Lufthansa Group, Air France-KLM, IAG.

• Depending on one client

Characteristics

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Wholly or majority owned regional subsidiary as capacity provider

• Feeding an Legacy Airline of Airlines Group Hub and

Spoke network

Purpose

Business Model: Independent Capacity provider

• Selling all of its Capacity to multiple Legacy/Mainline

Carriers like American, Delta, United

• Depending on more than one client
• Act as outsourcing partners to for the legacy carriers
• ffering to operate regional routes with regional aircraft

at a lower cost.

Characteristics

09

US phenomenon - not owned by a Legacy but also designed as capacity provider

• Feeding multiple Legacy Airline’s Hub and Spoke

networks

Purpose

Business Model: Independent Regional Airline

• They sell their seats by themselves
• However they can opt to cooperate with Legacy Carriers

via Interline or Codeshare agreements

• Might operate under a Franchise Agreement

Characteristics

10

Serve point-to-point markets, but can cooperate with Legacy Carriers

• Serve point-to-point markets that are either because of

a lack of demand or for other reasons (i.e. technical limitations of airports)

Purpose

General EU Market Development

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General market based on the third week of June in 2005, 2010 and 2015

118.321 123.849 121.989

FLIGHTS PER WEEK

Table: Number of flights and seats offered per week and average number of seats per flight for all flights between two airports in the EU-28/Iceland/Norway/Switzerland area for the 3rd week of June in 2005, 2010 and 2015. Source: OAG Analyser (OAG Aviation Worldwide, 2015).

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13.195.787 15.404.067 17.109.539

SEATS PER WEEK

General EU Market Development

General market based on the third week of June in 2005, 2010 and 2015

Table: Number of flights and seats offered per week and average number of seats per flight for all flights between two airports in the EU-28/Iceland/Norway/Switzerland area for the 3rd week of June in 2005, 2010 and 2015. Source: OAG Analyser (OAG Aviation Worldwide, 2015).

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111,53 124,38 140,25

AVERAGE AVAILABLE SEATS PER FLIGHT

General EU Market Development

General market based on the third week of June in 2005, 2010 and 2015

Table: Number of flights and seats offered per week and average number of seats per flight for all flights between two airports in the EU-28/Iceland/Norway/Switzerland area for the 3rd week of June in 2005, 2010 and 2015. Source: OAG Analyser (OAG Aviation Worldwide, 2015).

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General EU Market Development

General market based on the third week of June in 2005, 2010 and 2015

Week starting # of Flights # of Seats

• Avg. # of Seats

13.06.2005 118‘321 13‘195‘787 111.53 14.06.2010 123‘849 15‘404‘067 124.38 15.06.2015 121‘989 17‘109‘539 140.25

The general trend including the total market (including all aircraft types, not just regional aircraft) shows that while the number of flights in Europe has remained relatively stable according to OAG schedule data (3.1% growth between 2005 and 2015 from 118’321 to 121’989 weekly flights), the available seat capacity has increased much faster by 29.7% (from 13’195’787 to 17’109’539 weekly seats). This increase has therefore been achieved by the usage of larger airplanes with the average seat capacity per flight increasing from 111.53 in 2005 to 140.25 in 2015.

15 a

EU Regional Fleet Development

EU Regional market based on the third week of June in 2005 and 2015 Aircraft Size 2005 2015 % Change Smaller than 19 seats 15'846 2'714

• 82.87%

19 seat turboprops 36'030 18'002

• 50.04%

Jets < 50 seats 23'303 9'470

• 59.36%

Turboprops < 50 seats 175'864 134'593

• 23.47%

50 seat jets 502'676 87'134

• 82.67%

50 seat turboprops 522'953 128'842

• 75.36%

70 seat jets 131'424 238'939 81.81% 70 seat turboprops 659'214 895'751 35.88% Larger regional jets 928'143 1'300'449 40.11% Grand Total 2'995'453 2'815'894

• 5.99%

Table: Weekly EU-28 (plus Norway, Switzerland, Iceland) seat capacity in sample week starting June 15, 2015 compared to sample week starting June 13, 2005 categorized by aircraft size category (regional aircraft only). Source: OAG Analyser and own categorization of aircraft (OAG Aviation Worldwide, 2015).

• 28. Mai 2013

Quo vadis regionaler Luftverkehr? 17

Aircraft Type Seats 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Grand Total EMB120 Prop 30 51 31 23 14 7 15 17 11 14 7 2 1 2 195 Jetstream 41 Prop 30 17 14 41 20 5 2 1 100 Do328-300 Jet 34 1 16 37 31 19 2 2 1 1 110 Do328-100 Prop 34 3 18 29 23 11 13 6 2 2 107 ERJ135 Jet 37 16 48 36 11 27 14 22 27 36 35 22 12 14 17 337 S340 A Prop 37 1 1 S340 B Prop 37 48 59 49 27 10 14 28 26 25 3 289 DHC-8-100 Prop 39 40 26 26 13 17 6 2 1 1 1 133 DHC-8-200 Prop 39 2 29 23 16 13 4 5 1 1 1 3 4 1 1 104 ERJ140 Jet 44 22 36 16 1 75 ERJ145 Jet 50 1 4 33 63 81 113 106 85 61 90 47 14 7 10 7 5 2 4 733 ATR42-300 Prop 50 31 31 21 19 16 8 2 2 130 ATR42-400 Prop 50 3 1 1 2 7 ATR42-500 Prop 50 5 22 14 10 13 6 5 5 2 6 5 8 7 5 5 3 6 1 128 ATR42-600 Prop 50 1 2 3 CRJ100 Jet 52 12 20 33 33 19 21 21 5 164 CRJ200 Jet 52 3 10 6 8 23 38 53 60 97 125 137 156 109 54 12 8 22 7 3 3 2 936 DHC-8-300 Prop 56 19 31 16 6 12 12 9 9 13 11 13 17 12 6 8 8 15 13 8 10 1 1 250 F27 MK050 Prop 58 37 22 26 19 18 11 8 3 144 F27 MK060 Prop 58 4 4 MA-60 Prop 58 1 2 1 5 5 12 6 14 12 9 67 S2000 Prop 58 5 21 12 8 10 4 60 BAe ATP Prop 72 12 12 9 3 1 2 2 2 43 ATR72-200 Prop 74 15 29 31 30 29 28 11 6 5 184 ATR72-500 Prop 74 13 15 24 15 14 15 6 8 10 16 34 48 48 49 38 11 364 ATR72-600 Prop 74 1 10 45 56 CRJ700 Jet 78 1 25 46 53 54 52 27 5 4 28 20 14 3 332 EMB-170 Jet 78 3 46 47 34 11 9 22 11 1 1 185 DHC-8-400 Prop 78 18 30 21 10 15 14 30 41 45 56 52 57 36 425 An-148 Jet 80 3 5 3 3 14 Fokker 70 Jet 85 1 25 14 6 1 47 EMB-175 Jet 86 1 14 9 36 56 11 11 10 20 168 B.146-100 Jet 90 1 2 2 5 CRJ900 Jet 90 1 1 9 15 31 44 51 58 35 13 16 7 281 ARJ70 Jet 94 3 3 2 4 12 SSJ 100 Jet 98 5 7 12 CRJ1000 Jet 104 1 1 3 17 8 30 EMB-190 Jet 106 3 12 41 70 75 68 64 73 61 467 ARJ85 Jet 112 5 3 11 15 17 10 11 7 6 1 1 87 B.146-200 Jet 112 6 9 5 20 EMB-195 Jet 118 1 3 10 14 20 17 24 23 112 Fokker 100 Jet 122 25 45 53 68 33 15 4 243 B.146-300 Jet 123 16 16 13 3 4 1 53 ARJ100 Jet 128 5 11 7 8 4 11 12 7 5 1 71 Grand Total 302 313 272 257 233 297 293 253 286 301 374 432 393 351 373 320 288 340 409 250 284 306 261 7288

16

Current State of the Regional Industry in Europe

For the purpose of comparing schedule frequency and capacity, all regional aircraft operators have been categorized as follows:

• ACMI: Short-term wet-lease provided by an independent regional carrier (to cover aircraft/crew shortages
• r similar)
• Affiliate: Independent regional carrier operating on behalf of a mainline carrier (mainline carrier’s

commercial risk)

• Franchise: Independent regional carrier operating under a mainline carrier brand under a franchise

agreement (own commercial risk)

• Independent: Independent regional carrier marketing its own services
• In-House: Mainline carrier also operating regional aircraft
• Subsidiary: Wholly or majority owned regional subsidiary as capacity provider
• Virtual: Sales and marketing organization without own air operator certificate offering flights operated by

another regional carrier.

17

Current State of the Regional Industry in Europe

Airline Type 2005 2015 % Change ACMI 4'892

• 100.00%

Affiliate 407'000 389'685

• 4.25%

Franchise 24'468 55'042 124.96% Independent 738'937 639'137

• 13.51%

In-House 451'619 477'885 5.82% Subsidiary 1'367'653 1'244'705

• 8.99%

Virtual 884 9'440 967.87% Grand Total 2'995'453 2'815'894

• 5.99%

Table: Weekly EU-28 (plus Norway, Switzerland, Iceland) seat capacity in sample week starting June 15, 2015 compared to sample week starting June 13, 2005 categorized by airline category (regional aircraft only). Source: OAG Analyser and own categorization of airlines (OAG Aviation Worldwide, 2015).

18

Current State of the Regional Industry in Europe

• The independent regional carrier business model in Europe is clearly in a state of decline. Analyzing OAG

schedule data for a week in June 2005 and June 2015 shows that while in 2005 there were still 71 independent regional carriers in Europe operating scheduled services, the number of carriers has decreased to just 40 carriers in 2015. The weekly capacity of scheduled seats has decreased from 738’937 seats in 2005 to 639’137 seats in 2015 (-13.5%). In the same period, the overall seat capacity in Europe has increased by 29.7% illustrating how much this business model has suffered. Victims include Skyways (Sweden), Alpi Eagles (Italy), Cimber (Denmark), EUjet (Ireland), Euromanx (United Kingdom) and Cirrus Airlines (Germany), six of the top 15 independent regional carriers still operating in 2005, now all out of business (OAG Aviation Worldwide, 2015).

• Based on the analysis of the OAG data, more than half of the scheduled weekly capacity of independent

regional carriers is provided by just two operators (Flybe. and Wideroe). Flybe offers approximately 35.5%

• f these seats while Wideroe offers approximately 20.2% of these seats.

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Largest Independent European Regional Carrier

Carrier Country Weekly Capacity Flybe. United Kingdom 227‘148 Wideroe Norway 129‘177 Binter Canarias Spain 69‘444 Malmö Aviation Sweden 33‘536 Cityjet Ireland 32‘900 Aurigny Air Services United Kingdom 19‘077 bmi regional United Kingdom 17‘004 Nextjet Sweden 14‘634 Danish Air Transport Denmark 14‘248 InterSky Austria 10‘732

Table: Weekly seat capacity in sample week starting June 15, 2015 for European independent regional carriers. Source: OAG Analyser (OAG Aviation Worldwide, 2015).

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Largest Independent European Regional Carrier

• Looking at the top 10 independent carriers by capacity in the week starting June

15, 2015, of the remaining independent regional carriers quite a few of them either operate

– a wide range of public service obligation routes (i.e. Wideroe, Nextjet), – are able to leverage their geographical market niches (i.e. Binter Canarias, Aurigny Air Services, Danish Air Transport) with a high dependency on routes over water where key competition comes from slow and therefore less attractive ferry services or –

• perate from attractive airports close to the city centers of Stockholm and London (i.e. Malmö

Aviation and Cityjet) that cannot be served by larger aircraft due to runway constraints at Stockholm’s Bromma and London’s City airport allowing them to retain yield premiums over alternative airports further away served by major or low-cost carriers.

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Situation in CEE

– Bulgaria: none, Bulgaria Air operating some large regional aircraft – Croatia: Croatia Airlines operating some 70-seat turboprops

• European Coastal Airlines (Seaplanes)
• Trade Air (PSO)

– Czech Republic: none, CSA operating some 50/70-seat turboprops – Estonia: Estonian Air operating 70/90-seat jets, wet-leases various regional aircraft

• Avies (PSO)

– Hungary: none – Latvia: none, Air Baltic operating some 70-seat turboprops – Lithuania: none – Poland: LOT operating some 70-seat turboprops, 70-seat and large regional jets

• Sprint Air (PSO)

– Romania: none, Tarom operating some 50/70-seat turboprops – Slovakia: none – Slovenia: Adria Airways operating some 50/70/90-seat jets

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Disappeared in CEE since 2005

– Bulgaria: Hemus Air, Viaggio Airlines – Czech Republic: Czech Connect Airlines – Estonia: Aero Airlines, Air Livonia, Estonian Air Regional – Hungary: Malev Express – Lithuania: Air Lithuania, Air Lituanica, Amber Air – Poland: Direct Fly, EuroLOT, Jet Air/OLT – Romania: Carpatair (stopped scheduled ops), Direct Aero Services – Slovakia: Danubewings – Slovenia: Slovenian Spirit

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Essentially the business model is dead in CEE

– The only true remaining regional carriers are operating PSO routes in Croatia, Estonian,

• Poland. 18 have gone out of business, 4 left.

– European Coastal an exception (different business model altogether) – Bulgaria Air, Croatia Airlines, CSA, Estonian, Air Baltic, LOT, Tarom and Adria Airways all struggling, but operating in-house regional fleets. – FlyLAL, Malev and SkyEurope did too but went out of business leaving Lithuania, Hungary and Slovakia without regional aircraft left in scheduled service. – Regional services only seem to work in CEE with government support, as hub feeders (although carriers are not doing well) or for overwater flights (i.e. Croatia).

New Business Models

several new business models have emerged over the last few years that have reinvented regional aviation.

E.g. Flybe has taken the best from both models (LCC and Full Service). Increase Ancillary Revenues but have not left the GDS ) and continued to work with codeshare and interline partners combining the traditional regional carrier distribution channels with the ancillary revenue and direct distribution approach of LCCs.

Hybridization

Rhein-Neckar Air as an example. A group of local investors fund an airline to retain a route that is considered vital to the community In a scenario like this, the sales and marketing organization sells the seats in a similar fashion like a flight only tour

• perator and the operator (MHS

Aviation in the above example) essentially operates full charter flights

• n behalf of the sales and marketing
• rganization.

Virtual Carrier

Another new model has been pioneered in California where Surf Air has been able to grow relatively fast with a membership

• model. It offers its members an unlimited

number of flights on its network for a monthly fee. Using the same business model, Take Air has recently launched the first similar operation in Europe using Beech King Air turboprops operated by Belgian business aviation operator Abelag linking Antwerp and Zurich with plans to enter the London-Paris market later this year. Beacon in New York and Elevate in Australia are following later this year.

Membership only

OneJet in the USA is the first one offering this service on a scheduled basis. They only fly if someone books. We don’t have to go. In a big hub-and-spoke operation, they have to. But we

• nly fly when there is demand. Unlike the

membership model, this new on-demand model directly competes with traditional airlines but aims to make use of the gaps left in the network of major carriers that cannot serve markets non-stop that do not have sufficient demand (i.e. Indianapolis-Milwaukee).

On-Demand Service

New sustainable business models for Regional aviation?

Max Oldorf Chief Commercial Officer ch-aviation GmbH

Contacts:

Quaderstrasse 8 7000 Chur Switzerland 0041 (0) 78 636 56 54 max.oldorf@ch-aviation.com