From Online to Interline in a low cost environment Julian Carr, IATA India & Middle East Low Cost Airline Symposium, 2006

India & Middle East Low Cost Airline Symposium, 2006

Content ¸ The model is evolving… ¸ Low cost versus Legacy: The trade off - higher costs for higher yields ¸ From Online to Interline (or… enhancing online with interline) ¸ Simplified Interlining? ¸ IATA’s role

India & Middle East Low Cost Airline Symposium, 2006

The model is evolving… ¸ Seat allocation common – even Southwest trialing ¸ Cooperation agreements – WestJet have with China Airlines and Japan Airlines, and are reported to be discussing Alliance opportunities ¸ Commission to travel agents – e.g. Sky Europe ¸ Frequent flier programs – e.g. Virgin Blue ¸ High quality in-flight service – e.g. JetBlue ¸ Ryanair launch services to Madrid – major hub airport ¸ “New World” LCC’s India & Middle East Low Cost Airline Symposium, 2006

The model is evolving… (legacy too) ¸ AerLingus removes business class on most European routes, cancels its frequent flier programme – and leaves the One World Alliance ¸ British Airways (and others!) undertake major website promotions ¸ Air Canada adopt LCC style revenue managed pricing tiers ¸ Charging for in-flight catering becoming commonplace – all US majors

India & Middle East Low Cost Airline Symposium, 2006

Low cost versus Legacy

India & Middle East Low Cost Airline Symposium, 2006

Low cost versus Legacy ¸ “Certain additional costs are worth preserving – though only if delivered efficiently – if they can attract and expand additional revenue streams..”

¸ “Not every airline should seek to be the lowest cost operator. There are still many advantages in an efficiently delivered, higher product quality network model” Giovanni Bisignani, Director General, IATA

India & Middle East Low Cost Airline Symposium, 2006

What are the key cost gaps? ¸ Cost gap between Asian legacy and AirAsia 6 0.4

US cents per ASK

5

1.2

4 1.4 3

5.9 1.0

2

1

1.9

0 Network Airline

Labour

Aircraft and Fuel

Infrastructure

Product, Distribution, Overhead

Air Asia

India & Middle East Low Cost Airline Symposium, 2006

From Online to Interline ¸ Why consider? ¸ To expand market reach ¸ Interlining airlines enjoy network access, while interlining customers benefit from greater convenience ¸ Added value could attract new clientele paying a premium

¸ However… ¸ Process requires careful control & development ¸ Will add cost ¸ But what about the trade off…?

India & Middle East Low Cost Airline Symposium, 2006

From Online to Interline ¸ Interline Agreements ¸ Need to reach an agreement with another carrier ¸ Bilateral – individual carrier to carrier agreement ¸ Multilateral – signing a Multilateral Interline Traffic Agreement (MITA) ¸ Industry standard agreements

¸ Various liabilities and responsibilities associated

¸ Ticketing ¸ Handling of e-tickets in a format that complies with industry standards ¸ Issuance of other standard traffic documents

India & Middle East Low Cost Airline Symposium, 2006

From Online to Interline ¸ Systems Integration and Communications ¸ LCC systems & general aversion to GDS’s ¸ Recent LCC system developments more open to external messaging ¸ Industry standards / protocols to “plug into”

¸ Distribution Strategy ¸ Core LCC model generally avoids agency / 3rd party distribution ¸ Own website focused for cost reduction / control ¸ Alternate sources can extend reach – implementation of interline processes inherently opens the door to more distribution potential ¸ In turn, creating potential to sell interline space through own channels

India & Middle East Low Cost Airline Symposium, 2006

From Online to Interline ¸ Pricing / Revenue Management ¸ Own “closed” systems allow greater control over revenue management practices ¸ Opening the door, could affect core (important) pricing structures ¸ Need to file and construct fares with this in mind

¸ Revenue Accounting ¸ Billing and Settlement Processes for interline travel ¸ Proration agreements ¸ Emergence of e-ticketing making simpler

India & Middle East Low Cost Airline Symposium, 2006

From Online to Interline ¸ Scheduling and route planning ¸ Commercial and operational implications ¸ Need to coordinate / develop schedules with partner schedules in mind ¸ Shift in focus to hubs, point to point, or combination – choices to make

¸ Airport Processes ¸ Check-in / Baggage procedures ¸ Handling other airlines passengers ¸ Differences in terms and conditions ¸ To refund or not to refund - that is the question

India & Middle East Low Cost Airline Symposium, 2006

From Online to Interline ¸ Alliances / working together ¸ Is there potential for new model LCC’s to join current alliances? ¸ Standards of service? ¸ Terms and conditions?

¸ Alliances among LCC’s? ¸ Is there such a thing as Simplified Interlining?

India & Middle East Low Cost Airline Symposium, 2006

Simplified Interlining? ¸ Current Interline standards and agreements are established ¸ Plug and Play concept ¸ Anything is possible, but… ¸ LCC goes to Flag Carrier, and says can I join in the fun… ¸ Is Flag Carrier going to amend its processes that are in place with 50 other carriers, to facilitate the LCC?

India & Middle East Low Cost Airline Symposium, 2006

Simplified Interlining? ¸ Cooperation agreements ¸ LCC reservations systems recognising interest ¸ However – unless every current Interline airline changes practices, standards still remain ¸ Key is for these systems to become compatible with the standards

¸ Customer driven “Managed Connectivity”

India & Middle East Low Cost Airline Symposium, 2006

Simplified Interlining? ¸ Meet in the middle concept – low cost long haul?

Beirut based LCC

Dubai or Mumbai based LCC Bangkok based LCC

India & Middle East Low Cost Airline Symposium, 2006

Is Interlining right for me? ¸ Ultimately major strategic decision – dependant upon future aspirations, business model and market environment ¸ It will raise cost and complexity ¸ However once system set up - can “plug and play” ¸ Not for every LCC, but some… ¸ Individual cooperation agreements have a future

India & Middle East Low Cost Airline Symposium, 2006

IATA’s input?

India & Middle East Low Cost Airline Symposium, 2006

Enhancing Online with Interline ¸ The IATA 4 step solution ¸ Interactive in-company workshop ¸ Overview of fundamentals of incorporating interlining

¸ Gap Analysis workshop ¸ Specific to airline – evaluating interline model in context of your airline

¸ Strategy Development guidance ¸ Onsite support in making the plan

¸ Implementation support ¸ Strategic and detailed execution support

India & Middle East Low Cost Airline Symposium, 2006

Julian Carr Manager – New Product Development

IATA

e-mail: [email protected] tel: +1 514 874 0202

Name of Project

05/10/2006