Pillars of Aviation – Sneak Peek into the Future of Aviation, from Kuala Lumpur, Malaysia

Airports demonstrating leadership

For starters, no speakers backed out, and the conference hall was full. This may not sound significant, but it’s one of the early indicators of things getting back to normal. Among all the speeches, I was impressed by the efforts airports like Melbourne and GoldCoast are making to work in-tandem with airlines to ensure a healthy, business-driving relationship.

In fact, Malaysia Airports is doing a tremendous job creating the hub of the future, with an LCC terminal interconnected with the existing Kuala Lumpur International Airport. That means when the new LCC Terminal is ready in 2011, passengers would be able to seamlessly connect from a Cebu Pacific flight from Manila, to an AirAsia X flight to Delhi, or a Malaysia Airlines flight to London. And at a combined capacity of 53 million per year, it would be the largest airport-hub in the region.

To read more about what folks from Dubai, Melbourne and other airports are doing, head over to SimpliFlying Airports.

Now you see why I’m excited about the future?

Below, I have highlighted key points from a number of speaker’s presentations, to give you a sneak peek into what was discussed at the conference. Enjoy!

Dr Temel Kotil – Turkish Airlines

Every time I’ve met Dr Kotil, the CEO of Turkish Airlines (TK), I’ve felt a sense of calm and humble attitude that probably earns him a lot of fans. He delivered a keynote and shared the roundtable with other airline CEOs at the conference, and here are highlights form his speech.

• Two types of crises – global/industry-wide, and company-wide – the last one was global and Turkish Airlines (TK) came out stronger


• TK 24 new routes in four months (!!)


• 2008 was the best year in terms of profit, in 77 years of history!


• How to get staff aligned to industry realities? TK is still a small company in terms of employees – and it’s all about communication. Communicating to them what’s right for the company and what they need to do.


• TK’s focus: Good network, frequencies, products, brand and a low cost structure needs to be taken care of and passengers will come


• The balance between five-star service and low price – that’s the key

• Convergence of LCCs and legacies causes a problem for airports


• Airports have been built with the network carrier in mind


• The sudden explosive growth from LCCs result in airports trying to morph. By then LCCs change again – that’s the dilemma

• By the end of 2010, 1bn travelers, 1.6bn by 2020. Of this, 75% will be short haul, 25% will be long haul (from 18% currently)


• Travel has become a commodity –> Service component at the point of sale that is the tipping point


• South Asia has grown to 50mn pax per year. North Asia – personal travel has increased


• LCCs have transformed not just the travel industry, but the entertainment industry – now, people


• Asians travel when they have a discretionary spending, as opposed to planning only 1 or two vacations per year


• 50% increase in fuel prices in 2009, and now it’s dipped by a lot – both changes are dis-proprtionate


• US – LCCs % has remained constant. It has grown in EU and Asia Pacfic


• Both LCCs and legacies are focusing mostly one the same segment – but yield management can be drastically different


• Legacy – -0.8% in EU, decreasing everywhere


• LCCs are growing by 45%


• 10-12 different fare buckets in LCCs – first bucket accumulates the losses (hence they need to be reduced?)


• How about rewarding passengers for booking late, like adding perks? Because


• New classes of travelers – The Busy Class – between Econ and Biz


• Upper movement from LCC to hybrid airlines, and downward from Legacies


• LCCs may switch to GDS – so traveler can mix and match – KL-SIN on Tiger, SIN-Auckland on SIA


• There can be class upgrades


• Social media as a distribution tool


• Airlines of the future will give value for money – unified model

• Turkish Airlines – 3 types of Mkt – domestic, intl P2P, intl transit


• Malaysia Airlines – more point-to-point (P2P) or origin-destination, like Malaysia-UK. enough demand for 1 daily 747. But 2 flights a day – that means at least 50% connecting. P2P is most profitable in the 3 hour flying distance.


• Oman Air
  
  
  
  • Focus on P2P traffic – the biggest strength. Especially to India and Pakistan. There’s also the Ramadhan period when yields are very high
  
  
  • After GulfAir pull out, Oman Air is now into mid/long-haul market. 3rd/4th freedom market
  
  
  • Won’t look at a market if in some time it can’t develop into a daily service
  
  
  • Won’t be like EK and EY, but will be a niche player in the market
  
  
  
  


• Alliances


• How has Star Alliance helped Turkish Airlines?
  
  
  
  • Alliance has helped TK like never before, much more than Interline
  
  
  • The biggest help has been in terms of spreading the brand – can reach many new markets. You can have the best product in the world, but can’t sell any seats if the brand awareness is not there
  
  
  
  


• Malaysia Airlines: Alliances are good for the customer, it offers choices. Want to get in, but with a position of strength


• Oman Air
  
  
  
  • Heavy investment in product – joining an alliance will dilute the product distinction
  
  
  
  
  
  
  • First widebody broadband wifi in the world, LiveTV – all with OnAir
  
  
  • Leverage the partnerships with suppliers – when times are tough, you get very good prices
  
  
  • Competition from regional A380s: “We’re still the best way to get to Oman – tight focus on P2P markets”
  
  
  
  
  
  
  • “We do not need alliances” when you’re a small, niche carrier focusing on P2P
  
  
  • We’re not big on transit market
  
  
  • Putting your code on someone else’s product is a BIG risk in terms of brand dilution
  
  
  • “I will build my penetration in the markets I want to target”
  
  
  • Domestic growth will also be key – 2 to 6 destinations in the next couple of years – much like public service
  
  
  
  


• How will MH win the battle with LCCs?
  
  
  
  • The Odd Couple – Malaysia Airlines and AirAsia/other LCCs
  
  
  • Live together in one market, supposedly for different markets
  
  
  • Implementing OpenSkies is ideal, but difficult to implement
  
  
  • MH needs to focus on types of aircraft, and P2P – high yielding
  
  
  • There are lots of opportunities following a Blue Ocean strategy
  
  
  • Go for different markets and not go for bloodbath – different markets, increase the pie for both
  
  
  
  


• Business opportunities for growth
  
  
  
  • TK: Focus on transit, in addition to P2P: TK – Timing is key, when it comes to finalizing strategies – 10Mn P2P,
  
  
  • TK: Last 3 years, 3X the pax, 4X the cargo (!!!), a lot of it thanks to the alliance and increased brand awareness
  
  
  • MH: Focus on codesharing – eg with OmanAir for domestic M’sia, MH+TK for eastern EU/Germany – hence pick and choose your partners
  
  
  • OmanAir – when you think of p’ships, think about 10-15 yrs, not 2-3 years. Plans must be in-sync
  
  
  • If EK flies 3X daily to KL, 60% of pax connect on to other cities on MH – so that helps too
  
  
  
  

• Market opportunity – Scandinavia is one of the most underserved, given how much they travel -


• Every Scandinavian travels 4X/yr, EU = 1.5X/yr, Global average = 0.4X/yr


• Low cost long haul is sustainable


• Top 10 LCC carriers made a collective $1bn profit last year, while the industry overall lost $9bn


• LCC model is embraced in Scandinavia, hence driving awareness won’t be a problem


• First routes: Norway-NYC, Norway-Miami, Norway-Bangkok


• Launching in Feb 2011

• Low Cost Long Haul = creating new markets. It’s not about sharing traffic, but stimulating demand


• Cost structure = 2.8cents vs 7.3cents operating cost per ASK. 2.5 liters per seat per 100km flown, vs 5.0 in legacy like Cathay Pacific. Over 50% cost difference


• Malaysia was one of only 1 of 6 countries that recorded +ve growth. , and average spend per tourist also grew!


• AirAsia X’s primary customers – families with little kids and retirees, not just backpackers


• 1/3 of the average business class fare, for the flat-bed seats (which I will be flying from London-Melbourne)


• KL-LON = 90 tons of fuel for AirAsia X vs 160 tons of fuel for 747 of Malaysia Airlines


• AirAsia X no longer part of AirAsia group, and gearing for IPO in 2011.