G2 – GROUP ASSİGNEMENT: 5 FEATURES OF LCCS VS. FSC
Low Cost Carriers and Full Service Carriers
FSC vs LCC
LCC : A low-cost carrier or low-cost airline (also known as no-frills, discount or budget carrier or airline, or LCC) is an airline without most of the traditional services provided in the fare, resulting in lower fares and fewer comforts. To make up for revenue lost in decreased ticket prices, the airline may charge for extras such as food, priority boarding, seat allocating, and baggage
FSC : Full service Carriers would usually have three classes of service—Economy, business and first class. The ticket price includes charges for baggage, meals, drinks etc, whether we avail them or not
AircraftS ( IndıGo )
- Number of Aircrafts and variety of them are less.
- Also Effected by IndıGo is a new Airline
- Most aircrafts are new.
- A320 is their main aircraft.
WHY CHOOSE ANY ONE OF THE TWO ?
Aircrafts ( American Airlines )
Features of LCC
- Bases
Develop low cost carrier coverage and defend their market. Many are operating traditional centers, mostly focusing on cities.
Indigo Airlines route map (point to point)
American Airlines route map (point to point)
Simplicity
American Airlines same day same ticket prices
Resources
G3 – GROUP ASSİGNMENT: AMSTERDAM – REYKJAVİK ROUTE
CİTİES
Currently there are 17.081.507 people living in the Netherlands. Since 1 January 2018, 833.624 people lives in Amsterdam. It is the most populated city in the Netherlands and 4.88% of the people in Netherlands live in Amsterdam. In Iceland there are currently 335.275 inhabitants. 118.918 people live in the capital, Reykjavik. 118.918 of all Icelandic people live in Reykjavik. It is clear there is a difference about the percentage living in the capitals of each country. In the Netherlands the population is scattered to multiple cities. In Iceland the majority of the inhabitants live in the capital.
AİRPORTS
Reykjavik has two airports, which have their own business area. Reykjavik Keflavik Airport serves only international routes and Reykjavik Domestic Airport only domestic routes. Amsterdam Schiphol Airport does not have domestic routes and only serves international. In the following table, the total domestic and international passengers of the three airports in Amsterdam and Reykjavik are given.
| Amsterdam Schiphol International Airport | Reykjavik Keflavik International Airport | Reykjavik Domestic Airport | |
| Total Domestic Passengers | 0 | 0 | 417.309 |
| Total International Passengers | 63.625.664 | 6.821.358 | 0 |
| Total Passengers | 63.625.664 | 6.821.358 | 417.309 |
| Total Population in city | 833.624 | 118.918 | 118.918 |
| Total Air Passenger per capita | 76,3 | 57,4 | 3,5 |
| Airport Codes | IATA: AMSICAO: EHAM | IATA: KEFICAO: BIKF | IATA: RKVICAO:BINV |
Amsterdam has in total 76,3 Air Passenger per capita and Reykjavik has in total 60,9 Air Passenger per capita. In Amsterdam there is a higher air passenger per capita, because the population of the Netherlands are spread out in different big cities. Also Schiphol Airport is an important hub for transfer flights.
DIRECT FLIGHTS
There are two airlines, WOW air and Icelandair, flying the route Amsterdam-Reykjavik. Only Reykjavik Keflavik International Airport (KEF) is served since the other airport in Reykjavik only operates domestic flights. WOW air (WW) operates every day return flights between Reykjavik and Amsterdam (table 2). On some days WOW air arrives 10 minutes later.
Icelandair (FI) operates also everyday a return flight between the two cities (table 3).
ROUTE CAPACİTY
WOW air and Icelandair use different aircraft with different capacity (table 4). The flying distance and flight time remain the same. The ASK is been retrieved by multiplying the available seats with the frequency and the flight distance.
| Flight Code | Aircraft | Frequency | Number of available seats | Flying distance in KM | Driving Distance in KM | ASK per day | ASK per week | ASK per month | ASK per year |
| WW 442 | A320 | Wednesday, Friday, Saturday and Sunday | 176 | 2026 | 3212 | 356576 | 2496032 | 10697280 | 130150240 |
| WW 442 | A320 | Monday, Tuesday and Thursday | 176 | 2026 | 3212 | 356576 | 2496032 | 10697280 | 130150240 |
| WW 443 | A320 | Monday till Sunday | 176 | 2026 | 3212 | 356576 | 2496032 | 10697280 | 130150240 |
| FI 500 | B767-300 | Monday till Sunday | 249 | 2026 | 3212 | 504474 | 3531318 | 15134220 | 184133010 |
| FI 501 | B767-300 | Monday till Sunday | 249 | 2026 | 3212 | 504474 | 3531318 | 15134220 | 184133010 |
ROUTE TRAFFİC
The average general load factor of Icelandair in September 2017 was 81.0%. WOW air does not have a load-factor registered and therefore the standard 80% is used. RP and RP is been calculated using this information (table 5).
SOURCES
http://statline.cbs.nl/StatWeb/publication/?VW=T&DM=SLEN&PA=37296eng&LA=EN
http://worldpopulationreview.com/countries/iceland-population/
https://www.schiphol.nl/en/schiphol-group/page/facts-and-figures/
https://centreforaviation.com/data/profiles/airports/amsterdam-schiphol-airport-ams/traffic
https://www.isavia.is/english/about-isavia/reports-and-statistics/statistics/
https://www.isavia.is/files/12_des_2016_tolur_fyrir_vefsiduna-(1).pdf
https://centreforaviation.com/data/profiles/airports/amsterdam-schiphol-airport-ams/schedules
https://www.travelmath.com/from/Amsterdam,+Netherlands/to/Reykjavik,+Iceland
https://www.distancecalculator.net/
https://www.icelandairgroup.is/investors/traffic-data/
G4 – GROUP ASSİGNMENT: FUEL COST
What is Fuel economy in aircraft ?
Fuel economy is a measure of how much fuel an aircraft, or a fleet of aircraft of mixed types, needs to operate in relation to a service provided (i.e. number of passengers or ton of freight) and the distance between points of travel. It can be expressed in several ways, for example by the litres of fuel consumed per passenger per kilometer.
AMERICAN AIRLINES FUEL CONSUMPTION
- 2017 : 2,723,409 USD
- 2016 : 4,711,720 USD
- 2015 : 4,942,318 USD
- 2014 : 6,978,696 USD
- 2013 : 7,401,272 USD
- 2012 : 7,496,153 USD
- 2011 : 7,143,183 USD
- 2010 : 5,546,005 USD
DELTA AIRLINES FUEL CONSUMPTION
- 2017 : 3,423,765 USD
- 2016 : 3,391,928 USD
- 2015 : 3,368,545 USD
- 2014 : 3,247,534 USD
- 2013 : 3,148,573 USD
- 2012 : 3,057,048 USD
JAPAN AIRLINES 1% FUEL SAVING
1 JPY (yen) = 0.00880790 USD / 1 USD (dollar) = 113.534 JPY
Total Fuel cost 2016 : 198.7 billion yen = 1.75 billion dollar ($1,750,128,967.21)
Total operating cost 2016 : 1118,6 billion yen = 9.85 billion dollar ($9,852,306,761.38)
Fuel costs as percentage : 17.8%
1% fuel saving -> 17.5 million dollar
VUELING AIRLINES
Total Fuel Cost January-December (2012) 339,966 thousand euros = 396,116 thousand dollars
Total Variable Costs January-December (2012) 815,193 thousand euros = 949,833 thousand dollars
Total Semi-Fixed Costs January-December (2012) 193,599 thousand euros = 225,574 thousand dollars
Total Fixed Costs January-December (2012) 60,555 thousand euros = 70,556.4 thousand dollars
Total Cost January-December (2012) 1,409,313 thousand euros = 1,642,080 thousand dollars
Fuel cost % Share = Fuel Cost / Total Cost
(396,116 thousand dollars / 1,642,080 thousand dollars) x 100 = 24.1%
1% (Total Fuel Cost) = 3,961.16 thousand dollars
How to Reduce it ?
1st Fuel Hedging Contracts
As a Vueling we can save money through fuel hedging contracts that secure a fixed price for fuel over a certain period. If we has hedged a low fuel price and fuel prices increase we can benefit greatly from being locked into the lower price, sometimes for months or even years, consequently saving huge amounts of money.
For example, the past year has seen fuel prices drop substantially (a 46.9 per cent reduction has been noted in September 2015 from prices recorded in September 2014, according to IATA), meaning those airlines that may have previously been enjoying cheaper rates through hedging are now having to pay above the odds to fly their planes.
2nd Reducing Weight
such as Lightweight Galley Carts, Galley carts also known as Trolleys are used by the crew onboard the aircrafts to serve food and beverages to passengers. The lightweight full-size carts were 5.5 kg lighter and the lightweight half-size carts 4 kg lighter than the standard carts. The costs for the lightweight carts were 100 EUR extra for each cart in comparison with the standard carts. With this information was it possible to make different business cases for different scenarios to see if lightweight carts would be preferable.
3rd Route Specific Taxi Fuel
The idea with this project was to have a route specific amount of taxi fuel instead of a standard amount. When the calculations for the flight plan are made Skytrack always adds 300 kg (Boeing 737-800) or 450 kg (Boeing 757-200) of fuel for taxiing. All the taxi fuel is not always used because of shorter taxi times at certain airports, why the author wanted to ask about the pilots’ thoughts and experiences and make a research of average taxi times at airports TUIfly Nordic flies to. Taxi times are available in the IDPS database where data is saved automatically direct from the aircraft computers. By collecting these and calculating an average taxi time value is it possible to get an average value of fuel needed for taxiing. Those values could be used by estimating a route specific taxi fuel.
RESOURCES
https://www.transtats.bts.gov/fuel.asp?pn=1
https://www.transtats.bts.gov/fuel.asp?pn=0&display=data4
http://blog.rusada.com/blog/five-ways-airlines-can-reduce-operating-costs
G5 – GROUP ASSİGNMENT: ANCİLLARY REVENUE
Delta Airlines Ancillary Revenues
What is Ancillary Revenues ?
Revenue generated from goods or services that differ from or enhance the main services or product lines of a company. By introducing new products and services or using existing products to branch into new markets, companies create additional opportunities for growth.
TOP 10 AIRLINES ANCILLARY REVENUE
DELTA AIRLINES 2016 DATA’S
- Delta Airways may have a smaller slice of bag revenue, they certainly generate lots of cash from their frequent flyer programs.
- The vast majority of activity occurs when airlines sell miles to the banks that issue cobranded cards such as the Delta SkyMiles card issued by American Express.
- Worldwide the a la carte approach long embraced by low cost carriers has been adopted bynnetwork airlines. Within the US, American, Delta, and United recently introduced basic economy fares (sometimes called seat-only fares) to compete with Frontier and Spirit. These fares reduce the product to a minimalist experience with fees charged for bags and early seat assignments, no elite upgrades, and a ban on flight changes. Yet when presented with higher fare, better service options, the majority of consumers opt to spend more.
- The airline has broken ranks with most others by investing a healthy $50 million of the revenue windfall from bag fees to actually improve service for the customer. Delta now attaches RFID tags to bags everywhere the airline flies. The tags transmit a bag’s whereabouts to the traveler via a mobile phone app. Reading the message ‘your bag has been loaded’ provides a sense of tranquility that truly allows travelers to ‘sit back and enjoy the flight’,” IdeaWorks states.
What is Ancillary Revenue on Airlines?
- Ancillary revenue. In the airline industry, ancillary revenue is revenue from non–ticketsources, such as baggage fees and on-board food and services, and has become an important financialcomponent for low-cost carriers (LCCs) in Europe, North America and other global regions.
AMERICAN AIRLINES
TOP 10 ANCILLARY REVENUES ”US DOLLARS”
INDIGO AIRLINES
IndiGo, which announced its September quarter results last week, saw its ancillary revenue record a sequential decline of 3.8 per cent, compared with the double-digit growth in previous quarters. For the September quarter, revenue from ancillary sources stood at Rs 558.4 crore compared to Rs 581 crore in the April-June period. The same had grown 9.2 per cent and 3.1 per cent, sequentially, in the previous two quarters.
Excess Baggage
Flight Food Menu
VUELING AIRLINE ANCILLARY REVENUE
CALCULATIONS ARE BASED ON 2007 – 2010 DATA.
What is Ancillary Revenue For An Airline ? (More Detail)
In the airline industry, ancillary revenue is revenue from non-ticket sources, such as baggage fees and on-board food and services, and has become an important financial component for low-cost carriers (LCCs) in Europe, North America and other global regions. Ancillary revenue has been defined as, “Revenue beyond the sale of tickets that are generated by direct sales to passengers, or indirectly as a part of the travel experience. Ancillary revenue has been further defined to include these categories: à la carte features, commission-based products, and frequent flier activities.
Ancillary Revenue as a % of Total Revenue (VUELING)
Ancillary Revenue per Passenger (euros)
Differences Between 2008 – 2009 Vueling Airlines
FIRST QUARTER 2008 to 2009
2009 – 2010 Last Quarters (Q4)
Seat Assignments
PERSONEL COMMENT
All of us want to fly cheap, with an expection of a good service. LCC’s are selling cheap tickets with a standart services such as transporting you from A to B. But they are offering you extra services such as seat options. For example XL seat. In my opinion seat is the most important service. Because i can eat before my flight or drink whatever i want. But i can not change my seat on plane if its not comfortable. Offering seat assignments are the most important services for me. If you check
2008 – 2009 data you can see the increase of seat services as +147.1%
Per passenger.
COMPARE
If we compare LCC vs FSC there is only one big differences which is LCC’s are offering what ever you want with different services you can pay for what you need. However FSC’s are giving you some standarts which you have to pay even if you dont need. Such as large seats, foods and beverages. For a people who are flying often because of bussines most of them choosing LCC’s because they only need to go A to B.
Referances
- http://www.ideaworkscompany.com/wp-content/uploads/2014/07/Press-Release-89-Ancillary-Revenue-Top-10.pdf
- https://www.vueling.com/en/vueling-services/supplementary-service-rates
- https://en.wikipedia.org/wiki/Ancillary_revenue
- http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjA1NTkzfENoaWxkSUQ9LTF8VHlwZT0z&t=1
- https://flightchic.com/2016/12/29/5-most-innovative-ancillary-strategies/
- https://www.forbes.com/sites/gradsoflife/2017/10/19/cyber-attacks-against-you-will-get-worse/#6650b7823870
- https://www.delta.com/content/www/en_US/traveling-with-us/onboard-services/food-and-beverage.html
- http://www.ideaworkscompany.com/wp-content/uploads/2017/07/2016-Top-10-Airline-Ancillary-Revenue-Rankings.pdf
G6 – GROUP ASSİGNMENT: TİCKET PRİCES
- As anyone that has traveled by airplane can attest to, airline ticket prices are in a constant state of flux. For most consumers, the most apparent factors that influence airline prices include: the amount of distance traveled, the popularity of the air route (e.g. NY to LA vs. CHI to SF), the number of days before departure, and socio‐political factors (e.g. war, pandemics, travel ban, etc…) specific to the arrival and departure locations. Considering these factors, consumers have some sense of what a reasonable price should be. And these “ reasonable” prices are determined by the airline companies that set them.
For our project, we wanted to try and model the pricing strategy that an airline company would use for a given flight in order to see how reasonable prices are determined.
What is Pricing Strategy ?
Pricing strategy refers to method companies use to price their products or services. Almost all companies, large or small, base the price of their products and services on production, labor and advertising expenses and then add on a certain percentage so they can make a profit. There are several different pricing strategies, such as penetration pricing,price skimming, discount pricing, product life cycle pricing and even competitive pricing.
Can we use it for Avition ?
Starting a new business or launching a new product or service requires detailed thouht and planning. A critical piece of that planning is deciding how you should price your products and services. The pricing strategy you choose dramatically impacts the profit margins of your business, and determines the pace at which your business can grow. Several pricing strategies exist for products and services,and choosing the best for your business depends greatly upon your overall long-term business strategy.
Delta Airlines Pricing Strategy
- Lower Fares
- Enhanced Frequent Flier program
- Trans-Atlantic flights’ Fares lowered by 10 to 45 percents
- Absence of Advanced Purchase
- Lowering of Mileage requirement
- In recent years, Delta’s strategies and objectives have been to adjust in response to new market realities by adding scale, expanding geographic reach, strategic mergers and partnerships with both U.S. and foreign companies, an overhaul of fleet and airport operations and pricing model.
American Airlines Pricing Stragtegy
- In 1990s, American Airlines tried to introduce their “Value Pricing” program with the hopes of making flight fares more simple, understandable and cheap. Stiff price competition, however, prevented the success of the modified fare structure, leading AA to abandon the model shortly thereafter.
- American used buyer power is further amplified in the airline industry. In general, this enhanced ability of consumers to act on price has benefitted low-cost carriers, which can offer more attractive pricing on many of the high-trafficked routes.
American Airlines Price Comparison
- American Airlines Hub is Dallas/Fort Worth International Airport (DFW)
- O’Hare International Airport (ORD) and London Heathrow Airport (LHR) is chosen as destinations
- Flight dates are 1st December till 1th March 2018
Dallas->London (non stop flight)
$2,343
Dallas-> Chicago
$148
Chicago -> London
$2,238
Dallas -> Chicago -> London
$ 2,343
Delta Airlines Price Comparison
- Delta Airlines Hub is Atlanta Hartsfield-Jackson Airport (ATL)
- London Heathrow Airport (LHR) and Amsterdam Schiphol Airport (AMS) is chosen as destinations
Flight dates are 1st December 2017 till 1th March 2018
Atlanta -> London (non-stop return flight)
$2,888.56
——————————————————————————–
Atlanta -> Amsterdam
$ 2,968.86
Amsterdam -> London (code-share with KLM)
158 euro = $ 187.94
Atlanta -> Amsterdam -> London
$ 3156,80
PERSONAL COMMENT
As we compared two different FCC from different routes to another routes, we can
easily see that there is a remarkable price differentiation between these companies
although they have kindly similar price strategy. These two companies have spent
millions of dollars to put in appropriate way their price strategy. However, they have different strategies from each other, although they are both full cost carrier.
G7 – GROUP ASSİGNMENTT – FORECASTİNG
DELTA AIRLINES PASSENGER TRAFFIC BY YEARS
2011 to 2017 (OCT)
- 2011 113,485 ( In Millions)
- 2012 116,445
- 2013 164,659
- 2014 171,350
- 2015 179,382
- 2016 183,741
- 2017 (OCT) 157,129 (2016 OCT Number is 154,423 ) Aready 3 million bigger than last year.
SCATTER PLOT CHART
FORECAST OF 2017
- 2017 estimated number of passenger boarded is 209,521 (in millions)
- Calculated with excel forecast formula
LINEAR TRENDLINE
- Calculated with linear trendline forecasting on excell
- It shows us linear forecasting is more clear than trendline also we use it to calculate for forecasting.
- A linear trend line is a best-fit straight line that is used with simple linear data sets. Our data is linear if the pattern in its data points resembles a line.
