tns infratest travel, tourism & transportation fly cheap at

TNS Infratest Travel, Tourism & TransportationFly cheap at any price?Smart Shopping exemplified by the European low-cost flight segment

Travel, Tourism & Transportation

Berlin, 10 March 2006


3 theses on the consumer in the low-cost flight segment

! The "Smart Shopper" is the prototype of the low-cost flight user! The "Smart Shopper" is the prototype of the low-cost flight user

! Brand airlines and hybrid carriers could grow more rapidly in the low-cost flight segment than classic no-frills carriers

! Brand airlines and hybrid carriers could grow more rapidly in the low-cost flight segment than classic no-frills carriers

! Even with low prices the consumer expects good service from brand airlines



Definition of terms (from consumer’s point of view)

Brand airlines=convenience

Hybrid carriers No-frills carrier=inconvenience

! classic carrier! service! good

accessibility

! new carrier! sacrifice service! compromises in

accessibility




! Brand airlines and hybrid carriers could grow more rapidly in low-cost flight segment than classic no-frills carriers


! Even with low prices the consumer expects high service from brand airlines

! Even with low prices the consumer expects high service from brand airlines


What do the users of low-cost flight offers look like?

Brand consciousness

Information and consumer behaviour

Income

Education

Age

! To a certain extent

! Thoroughly well-versed Internet user

! Approx. 60% admit to investing a lot of time and energy in finding the cheapest offer

! Most prefer to organise their journeys themselves

! Above-average flyer frequency (higher than average air passenger)

! Above-average income (higher than average air passenger)

! Above-average education (higher than average air passenger)

! Relatively young (younger than average air passenger)

!The mass of users don’t fly cheaply because they have to but becausethey want to!

Source: TNS Infratest LCCMLow Cost Carrier Monitor, Feb 2006

Profile of the users of low-cost flight offers


For more than half of the low-cost flight users the choice of brand is important

18%

34%30%

15%5%

extremely importantimportanthalf and halfrather unimportantnot at all important

Significance of the choice of brand in low-cost flights



The low-cost flight user reveals overall clear characteristics of the Smart Shopper

! A self-assured consumer who acts from a position of strength rather than weakness

! Commands a good overview of market and price structures

! To achieve this makes particularly good use of Internet facilities

! Can digest comparatively complex information

! Success in bargain-hunting bolsters sense of self-assuredness and increases prestige

! Brand and service can be integral part of the bargain, but don’t have to


Two types of low-cost offers particularly attract the Smart Shopper

! Good price

! The rewards of market insightand research performance

! Preferred brand can be used

! No, or hardly any, compromises have to be made

! Prestige enhancement

! Very good price

! Even more rewards of market insight

! The attraction of something that’s still a novelty

! Also the "new ones" have a positive image

! Prestige enhancement

Brand airline offers No-frills offers

The benefits The benefits

Source: TNS Infratest


Interim conclusion

! As a central channel of distribution for low-cost travel the Internet makes it easier for the Smart Shopper to compare prices and find the cheapest offer

! The fairly high complexity of the decision process is an additional attraction for the Smart Shopper – he or she can translate market knowledge into a direct advantage

! The Smart Shopper can reap numerous benefits both from choosing a brand airline offer and from choosing a no-frills offer

! The Smart Shopper is the dominant consumer type in the low-cost flight segment


Brand airlines attempt to keep their customers and secure their margins

No-frills airlines win customers through low prices

Price offensives Reduction in service

Brand airlines react with a double alignment of their offer


The dilemma of the brand airlines: the consumer joins in the price offensives in particular

Growing price sensitivityMassive price offensives lead to a deterioration in price perception and willingness to pay

Nonetheless brand airlines with their low-cost offers sometimes come in cheaper than their consumers expect

Persistence effectsConsumers don’t like the loss of services they were used to and equate withdrawal of services with dissatisfaction

Change in brand imagesThe withdrawal of service carries the danger that the familiar brand image may be compromised

Source: various empirical studies on airline and other markets

Price offensives? Reduction in service?

Yes please! No thanks!


Low-cost offers from brand airlines don’t take full advantage of willingness to pay

25%

49%

10%

10%6%

with the same airline at a higherprice

with the same airline ondifferent terms

with another airline

by ground transport

wouldn't have taken the trip

Alternatives to the low-cost trip(on flights with brand airlines)



Strategic implications for brand airlines

! Improve own cost structures

! Make more sophisticated differences in own product, i.e. selective reduction in services

! Action taken to be communicated to the consumer comprehensively,where necessary via sub-brands


The markets are in different phases of development


*Proportion of people who will “certainly”, “probably” or “maybe” use a low-cost flight offer**Proportion of people who have already used low-cost flight offers

Potential*

Usa

ge**

Limit of market saturation

ES

UK

DE

IT

FR

0%

10%

20%

30%

40%

50%

60%

0% 10% 20% 30% 40% 50% 60%


When it comes to low-cost flying consumers in the 5 markets have different perspectives

Top-2-Box agreement

84%76%

61% 61%

44%

IT ES DE UK FR

"In a few years low-cost flights will make up the majority of the market"



No-frills airlines on a level playing field withbrand airlines

Satisfaction*

Re-

use*

*


*Proportion of top 2 boxes on a 5-point scale (1=“extremely satisfied”, 5= “not satisfied at all")**Proportion of re-use “certainly" and “probably"

Satisfaction and re-use in the low-cost

flight market

No-frills airlines

Brand airlines

0%

20%

40%

60%

80%

100%

0% 20% 40% 60% 80% 100%


There does exist a general framework for strong growth in the low-cost segment

! Overall there is still plenty of room for expansion in the low-cost flight segment

! Smart Shopping consolidates the pressure on the prices

! Brand airlines will allow their short-haul product to converge in the direction of no-frills

! The range of low-cost flights on offer will increase further

! Depending upon each individual market there are a variety of providers who can best cream off the potential


If they are correctly positioned brand airlines and hybrid carriers can better exploit the potential

! Potential already extensively exploited! Slow-down in growth

! Perception of no-frills airlines as brand airlines ! Generally low willingness to pay! Here it is easier for no-frills airlines to realise their potential

! Consumers amenable to service! People are prepared to pay for service! No-frills offers have disadvantages due to local factors ! Better opportunities for low-cost offers by brand airlines and

for hybrid carriers to exploit the potential

DE, FR, ES

IT

UK



Conclusion

! Smart Shopping, i.e. the fun of bargain-hunting, pushes up demand in the low-cost flight segment

! Smart Shopping, i.e. the fun of bargain-hunting, pushes up demand in the low-cost flight segment

! At last it's Smart Shopping that limits the potential growth forno-frills carriers.

! At last it's Smart Shopping that limits the potential growth forno-frills carriers.

! In this respect brand airlines are under double pressure, from both a price and a service perspective

! In this respect brand airlines are under double pressure, from both a price and a service perspective


Further information

The LCCM Low Cost Carrier Monitor" A subscription-based multi-client survey covering Germany, Great Britain, France, Italy and Spain

" Hybrid approach, consisting of CATI and online interviews (n = 7.000 CATI / n = 6.000 onlineinterviews, of which more than 5.000 with users of low cost flight offers)

" 11.000 reported low cost flights

" Special benefits:# Comprehensive information about the European low

cost airline market from the consumer’s perspective

# Internationally comparable statements for the 5 majormarkets (DE, UK, FR, IT, ES)

# Detailed insights into the requirement structures for low cost flights

# Substantiated potential for low cost flights to particular target regions# Detailed user profiles (What are the users of low cost flights like?)# Brand positioning of relevant players

# Significance of business trips for the low cost airline market# Trends on the consumer side for assessing further market development

About TNS Infratest Travel, Tourism & TransportationTNS Infratest Travel, Tourism & Transportation has been one of the leading suppliers of high-quality market research and consulting for customers in the transportation markets for more than 30 years. We combine industry knowledge with methodical know-how, and support our clients with decision-relevant and practice-oriented information that is tailored to their particular question as well as providing them with basic research.


Your contact partners

TNS Infratest Travel, Tourism & TransportationLandsberger Straße 33880687 Munich, Germany

Gerhild Abler Tel.: +49 (0) 89 / 56 00 – 1517

Director Fax: +49 (0) 89 / 56 00 – 1227E-Mail: [email protected]

Michael Ehlting Tel.: +49 (0) 89 / 56 00 – 1589

Senior Consultant Fax: +49 (0) 89 / 56 00 – 1227E-Mail: [email protected]

Further information on the survey can also be found on the Internet at:http://www.tns-infratest.com/01_business_areas/01014d_lccm_en.asp

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