‘Airlines are stupid’; bleisure has ‘always been a topic’; and aircraft become ‘very good investment assets’- initial insights from CAPA’s Global LCC Summit

The CAPA – Centre for Aviation Global LCC Summit 2018 took place in Singapore last week bringing together some of the biggest names in aviation to discuss the increasingly growing low cost carrier (LCC) market, and especially the developing long haul low cost (LHLCC) sector.

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 new point to point connectivity, introducing industry innovations, developing ancilliary focused activities and embracing modern digitalisation and technological practices, they have become the new ‘normal’ in the industry.

Here’s some of the initial insights and observations from delegates during the event at the Capella Singapore…

‘Airlines are stupid’: Air Black Box group head of product
Air Black Box group head of product Timothy O’Neil-Dunne said “I think airlines are stupid”, stating airlines are highly regarded as brands but are “really lousy” at customer engagement. He also commented: “The speed of business is now constrained by legacy thinking and legacy people”.

Carlson Wagonlit VP: Bleisure has always been a topic
Carlson Wagonlit Travel VP sales and programme management Michael Valkevich said bleisure is a new word but noted: “It’s always been a topic”. Mr Valkevich also said mobile technology is a “very useful tool” in keeping track of travellers.

‘More and more corporates’ combining business and leisure: BHP global head of travel
BHP global head of travel and expense management Joanne Taylor said “more and more corporates” are combining business and leisure travel.

Jetstar ‘very interested’ in long haul services from Japan; technology key for the future
Jetstar Group CEO Gareth Evans described the potential for long haul low cost operations from Japan as “very attractive”, adding: “We are very interested in exploring the long haul opportunities out of Japan”. Mr Evans said the launch of such operations will not happen immediately and would require the right aircraft. He noted that the future of the airline depends on making “smart investments” in technology. Mr Evans said there is “much, much more we need to do in this space” and technology can deliver a “huge positive impact”. He added: “We have to innovate around technology. We will be dead in the water if we don’t”. 

Aircraft seen as ‘very good investment assets’
Astro Aircraft Leasing CEO Johnny Lau said aircraft are now a popular investment target and are seen as “very good investment assets”. In China he said the government is encouraging investors to enter the aviation market and local governments have agendas to attract more tourists and business travellers. Mr Lau said LCCs are considered to be a successful business model and some investors are looking beyond the airline business, noting there are “additional benefits” to investing in LCCs.

flyadeal CEO expects LCC consolidation in Asia; focus on low costs key to its own strategy
flyadeal CEO Con Korfiatis commented on the LCC sector in Asia, stating: “We’ll probably see more consolidation in this part of the world in the years going forward”. He said the support of a strong parent airline can be “incredibly powerful” for an LCC subsidiary, enabling financial support and driving greater cost efficiency than an independent start up. Mr Korfiatis said the parent company can facilitate better deals with lessors and suppliers and gives the LCC subsidiary “tremendous bargaining power”. He defined flyadeal as the only ‘pure’ LCC in the Middle East, stating: “Everyone else is a hybrid”. Mr Korfiatis said flyadeal does not intend to move away from a ‘pure’ LCC model, which is focused on “putting the lowest cost seat into the market”.

15% of Peach passengers self connect, airline not planning ‘seamless’ connectivity
Aviation Performance Consultants executive advisor to Peach Aviation Patrick Murphy reported around 15% of Peach passengers self connect. Mr Murphy noted providing ‘seamless’ connectivity is “quite an expensive business” and the airline is “not planning it at this point in time”. 

Cebu Pacific aims to be ‘an e-commerce business with aeroplanes’
Cebu Pacific Air chief operations advisor Rick Howell said the airline is working to change internal business processes to become “an e-commerce business with aeroplanes”. He added new  generation aircraft such as the Airbus A350 and Boeing 787 were “not specifically designed for the LCC market” but added the A330neo “is going to be interesting”. 

HK Express to evaluate partnerships on a case by case basis
HK Express commercial director Jonathan Hutt said the airline will evaluate potential partnerships with other carriers on a case by case basis, noting its partnership strategy “so far has proved to be very effective”. He said operating between slot constrained airports is now “par for the course for Asian LCCs” and on the ability of LCCs to maintain a ‘pure’ low cost model, he said the market determines “how pure you can actually stay”. He added: “Flexibility is a very important part of that low cost model”. 

Secondary and tertiary cities to be ‘key drivers’ in Asia
Boeing Commercial Airplanes executive director market analysis Wendy Sowers said secondary and tertiary cities will become “key drivers” in Asia. Ms Sowers noted smaller cities can provide improved overall trip time and trip experience compared to large cities and said airlines will be increasingly drawn to airports “that have opportunity” as it will take time to expand infrastructure at major airports to support growth. She noted eight of the top 10 airlines by operating margin are LCCs and described low cost as a “very profitable business model”. Ms Sowers said LCCs have “found a winning approach in the market place” and commented: “We see a very bright future for the low cost carriers”. She added LCCs have the right product offering to match market trends, noting leisure now accounts for 75% to 80% of passengers’ purpose of travel, compared to a 50/50 split between leisure and business travel in the past. 

Hybrid model can unlock opportunities for LCCs: Embraer VP
Embraer VP Asia Pacific Cesar Pereira said adopting a hybrid model can unlock new opportunities for LCCs and said the trend towards a hybrid model is often driven by revenue opportunities. He also noted: “Growth brings additional cost”.

Allegiant maintains low aircraft utilisation and low CASM
Allegiant VP fleet planning and corporate finance Robert Neal said the carrier is “uniquely able to maintain very low aircraft utilisation and yet maintain very low cost per available seat mile”. The airline recorded non fuel CASM of USD 6.6 cents and average aircraft utilisation of between six and seven block hours per day in FY2017. The airline serves 396 routes with 95 aircraft, based on the current schedule until 14-Aug-2018. The network includes 98 small and medium sized cities and 21 leisure destinations. According to Mr Neal, Allegiant’s average total fare per scheduled passenger decreased from USD137.23 in 2014 to USD129.35 in 2015, USD117.96 in 2016 and USD116.77 in 2017. Average total airfares in 2017 comprised USD67.4 from scheduled services, USD45.02 from ancillary air related charges and USD4.34 from ancillary third party products.

Want to hear more about the growing LCC market around the world? Join us at the CAPA Low Cost Long Haul Summit 2018 on the 4th & 5th October in Seville, Spain. To register visit the CAPA Events website.