# Presentation: 257751

## Good Afternoon!

- John H. Jackson
- Senior V. P Marketing
- AvGroup, Inc
- Specialist in Latin American Aviation since 1988.
- www.avgroupinc.com

**Notes:**
Good afternoon ladies and gentlemen.  My Name is John Jackson and I am Senior Vice President for AvGroup, Inc headquartered in Miami, Fl.  

By way of background and introduction...AvGroup is composed of four operating corporations all targeted to aviation and specialization in Latin America.  
Our signature company is Aviation Management Services DBA AvMan, Inc ... a full service consultancy using a web based integrated marketing tool to provide consultation and management solutions to the airline industry. 
Sister companies include AvNews, Caribbean and Latin America...a monthly publication targeting major industry stories from the region with breaking updates by eMail.  AvNews hosts and produces the highly successful annual International Airline CEO Conference.  The 13th edition is scheduled for May 8-10 at the beautiful Fontainebleau Hilton Resort in Miami Beach Fl.  I Invite you to visit our web site (www.ceoconference.com) and register to attend. We attract annualy 20-25 airline CEO’s to attend and participate.  It’s a great networking opportunity 
  Our other companies are AvWit, with specialization in eBusiness solutions for the industry... and GlobalPass, a consumer loyalty company, providing customers multiple opportunities to earn and spend miles.  Using the concept that “Miles is moneyTM” GlobalPass allows customers to earn miles for each dollar spent or they may choose to use their miles to purchase goods and services including airline tickets.

## Latin American Low Cost Carriers!

- A success in The Making!

**Notes:**
Today I would like to address with you the  development of low cost carriers in Latin America and how we believe they will effect the market.

We believe that the Latin American LCC movement is “A success in the making”

I would like to give credit and a special thanks to Patricio Sepulveda, Regional Vice President-IATA, for his contribution to my remarks and for making available some of the slides used in my presentation

## What’s the Difference!

-  **Low cost**
- Single a/c type
- Secondary airports
- 10.7 hr a/c utilisation
- Point to point
- No freebies
- Limited agents sales
- Mostly paperless
- No IATA
- 5,500 pax per employee

-  **Full service**
- Multiple fleet Types
- Primary airports
- 8.3 hr a/c utilisation
- 30% interline
- Full service
- 80% agent sales
- 70% paper tickets
- IATA
- 736 pax per employee

**Notes:**
First let’s look at the major differences between the LCC entrants and the so called full service or legacy carriers.

(Review slide points)

## Low Cost Carriers

-  - Young
-  - Enthusiastic
-  - Motivated
-  - “Nothing is Impossible”

**Notes:**
LCC’s are young on the product life cycle, still have not become bureaucratic and heavy...move with agility...decisions made quickly...policy implemented in a simple process...Young, enthusiastic, motivated with a “nothing is impossible attitude.  They are on the upside of the cycle.

## Low Cost Carriers Advantages

- Point to point routes
- Unified fleet
- High aircraft, crew and personnel utilization
- Low unit costs
- No intermediaries
- New direct channels for sells (internet)
- Secondary airport use

**Notes:**
With point to point route systems and a unified fleet, LCC’s can achieve very high aircraft, crew and personnel utilization with relative low unit costs.

With minimum organization, direct sales channels and the ability to operate in/out of secondary airports, LCC’s have a big advantage over the established legacy carriers.

## Low Cost Carriers Disadvantages

- Dependant on:
- High volumes
- “Substantial” growth
- Slots at major airports
- Salary Developments
- Avoidance of Unions
- Ability to stay “Low cost” over time

**Notes:**
(Review points)

The ability and willingness to stay low cost over time is perhaps the biggest challenge facing LCC’s as they develop a passenger following and get stronger both on the balance sheet and on the identity side of the success equation.

Egos are an important element to stay away from and accepting the “notch” role of the LCC is vital in any long term success model

## The Growing LCC Network

**Notes:**
Note the extreme growth in LCC routes in the US and Europe over the past six years.  In addition the low cost airlines have finally landed in Asia.  New entrants are driving down the fares to popular destinations...for example, you can fly from Singapore to Bangkok for a mere $14.17 USD.  An Array of new airlines are springing up, taking advantage of Government deregulation and a fast growing middle class with an appetite for travel.  

As we speak, there are only two LCC’s in Latin America worthy of note;

One...GOL in Brazil and ,

Two, UAir in Uruguay

Others in the making are:  Sky Airlines-Chile, Wayra Peru-Peru, Ocean Air-Brazil, Lan Express-Chile 

## Traditional “Flag” Carriers

-  - Flat Life Cycle
-  - Mature Staff – High Average Age
-  - Old fashioned union agreements

**Notes:**
Most legacy carriers have matured to the point of stagnancy and are now unable to respond to market demands quickly. They have to operate under Union agreements that are restrictive and not cost efficient.

## Traditional “Flag” Carriers Advantages

- Well known and respected brands
- Large Customer Base – Strong Loyalty Programs
- Experienced management and staff
- Developed network  (connections)
- Developed technology
- Developed Revenue, Capacity and Yield Management and Distribution Systems
- “Grandfather rights” for slots
- Fleet capacity

**Notes:**
Legacy carriers do have some very big advantages:

Review points on slide...

## Traditional “Flag” carriers Disadvantages

- Diversified company structure
- “High Responsibility” towards the society
- Complicated network operations – need for feed
- Complicated price structure
- Mixed fleet with low seating density
- Aircraft, crew and personnel low utilization
- Diversified products
- Too high unit costs

**Notes:**
However...for every advantage point there is a counter point:

Review point on the slide>

## Latin America & Caribbean...

**Latin America & Caribbean...**

- 5% worldwide traffic
- 39 states
- 574 airports
- 100 airports moving 85% of traffic
- In which over 100 airlines operate
- Transporting over 100 million passengers

**Notes:**
Lets take a look at a thumb nail peofile of Latin America:

Review points on the slide

## LCCs in Latin America

- Slower growth than other regions
- Two major LCCs in Latam
- GOL
- UAIR
- Low Cost – Full Service?
- TACA
- LAN

**Notes:**
The LCC picture in Latin America defers from other parts of the world in that the growth and expansion of the LCC influence has been  slower that in other regions.

There are however two excellent examples in GOL of Brazil and Uair in Uruguay.

The GOL model is based on the success story of South West Airlines that begin operations in Texas now expanded to penetrate most major markets in the USA.  Spirit Airlines is another example of a repeatable model. Spirit Airlines started out in 1980 as Charter One, a Detroit-based charter tour operator providing travel packages to entertainment destinations such as Atlantic City, Las Vegas, and the Bahamas. Ten years later, Charter One began scheduled service from Boston, MA and Providence, RI to Atlantic City. On May 29, 1992 Charter One brought jet equipment into the fleet, changed its name to Spirit Airlines and inaugurated service from Detroit to Atlantic city. Headquartered in Fort Lauderdale, Florida, Spirit Airlines is the largest privately-held airline in the United States. Spirit Airlines fleet currently consists of twenty four MD-80's and six DC-9 aircraft operating 100 daily flight departures

GOL has been able to grow the market by enticing passengers off the busses and into the air with low fares and frequency of service that is unique to Brazil

Uair serves Argentina, Brazil and Chile from it’s hub in MVD.

It is important to note that Both TACA and LAN are examples of the low cost, but full service business models that serve the region.

## Industry in Crisis...

- Worldwide airlines that have disappeared:
- Panam			- Swissair
- Laker			- Airways
- Eastern			- Braniff
- Sabena
- In “Chapter 11” or similar:
- United			- US Airways
- Avianca			- Alitalia
- SW			- VASP
- ATA			- Aerocontinente
- Azteca

**Notes:**
We have to concede that we are an industry in crisis.

There are some household names that have disappeared from the region:

Review points

## Industry in Crisis...

- Latam airlines that have disappeared:
- Aces (Colombia)		- AeroPeru (Peru)
- Transbrasil (Brazil)		- LAPA (Argentina)
- Cruzeiro do Sul (Brazil)	- Taesa (México)
- Avant (Chile)		- National (Chile)
- VIASA (Venezuela)		- Saeta (Ecuador)
- SAN (Ecuador)		- Avensa (Venezuela)
- Ecuatoriana de Aviación	- Faucett (Peru)
- LAP (Paraguay)

**Notes:**
Latin American owned and operated airlines have also experienced financial difficulties.

Review slide points

## Our region presents LCC opportunities;

- In theory, our region is “low cost” due to:
- Low level of salaries
- Low costs of living
- Traffic growth
- Low penetration of air transport

- But unfortunately....

**Notes:**
Our Region presents LCC opportunities Because in theory, there is low level income with low cost of living and a growing market.  In most cases there has been a low level of market penetration of affordable air transport so the opportunities abound.

Unfortunely that are some impressive roadblocks 

## There is Lack of:  

- Long term policies that stimulate a healthy and sustained growth of Air Transport.
- Governmental understanding of the importance of Air Transport for Regional economies as an engine of Regional / Worldwide Integration.
- Understanding of the need for a low cost industry by our main partners (airports, ATS providers, suppliers, etc.)
- Incentives to foreign investment due to high protectionism to locals...which results in less competitiveness for the airline industry.
- Transparency

**Notes:**
There is a lack of understanding among the investment community and government leaders.

Review Slide points

## In our opinion!	

- The origin of Low Cost carriers has been **the result** of the critical situation faced by the airline industry worldwide.
- Our industry is going through a strong restructuring due to the adverse business environment.
- Airlines are being forced to migrate to a lower cost structure.
- The impact!

**Notes:**
(Review slide points)

...And the impact is going to be dramatic. As LCCs get going, they will have a major impact on market stimulation...a la Southwest in the United States which has been called “the Southwest Effect” which has been able to greatly stimulate the market getting new flyers to leave the automobile bus or train to fly.

Latin American’s 500 million population with only 10%  (50 million) using air transporation has the greatest potential for stimulation even if you set aside those below the poverty line, perhaps as much as 50% of the population, you still have a growth market potential of 200 million people.

Finally, tourism is “taking off” in Latin America, both regional and international from the USA, Europe and the Pacific...which LCCs will greatly improve and stimulate.

There just remains the problem of the government’s getting their act together and lowering taxes, airport fees and surcharges!

## Thank you  for your very kind attention!!!

**Notes:**
Thank you for your attention and I trust that you have a better understanding of the LCC situation in Latin America and the dramatic impact we believe they will make on the market.  It is truly ...............

A SUCCESS STORY IN THE MAKING!