The Highs and Lows of running an Airline in Todays World A Presidents View of the Airline Industry

1
The Highs and Lows of running an Airline in
Todays WorldA Presidents View of the Airline
Industry

• The Insurance Institute of London
• Aviation Lecture
• Thursday, 7th. March 2002

2
Agenda

• Personal Experience
• What is LTU International Airways
• The Lows
• The Highs
• The Airline Insurance Market from an Airline
  Point of view.
• The Future

3
Personal Experience(in the Airline Industry)

• Joined SAirGroup, Zurich in August 1997 as
  Corporate Treasurer
• Moved to LTU in April 2000 as CFO
• Appointed CEO in March 2001

4
Personal ExperienceInsurance

• Responsibility for insurance department as of
  January 1998
• Outsourcing of the insurance department to Marsh
  (SAirLink) in March 1998
• Working within the KSSAF-Policy framework until
  the creation of the
• QLP-Policy as of November 1999

5
What is LTU International Airways

• Founded in 1955
• Second Largest Charter Carrier in the German
  Market
• App. 6 Million Passenger per Year
• Operating 26 Aircraft
• After finalisation of fleet-renewal in 2003
• 7 A330-200 3 A330-300 and 17 A320/A321

6
What is LTU International Airways

• Shareholders
• 49,9 SAirGroup until December 21st. 2001
• 40 REWE
• 10,1 CKA (Trust)
• Customers
• 1/3 REWE Touroperator
• 1/3 Other Touroperators (Major TUI/Preussag)
• 1/3 Single-seat sales

7
What is LTU International Airways

• Turnover app. DEM 2 Billion
• Turnover
• 1/3 Long haul
• 2/3 Short haul
• 2,300 employees
• 350 Pilots
• 1000 Flight attendents
• 950 Ground (including Maintenance)

8
LTU International AirwaysRestructuring Program

• Reduction of Personal of 10
• Sale and/or closure of non-core activities
• Cost reductions of app. 20 and optimisation of
  processes
• Increased productivity for Cockpit an Cabin
• Fleet-renewal program -change to All Airbus Fleet

9
LTU International AirwaysRestructuring Program

• Two resets in 2001
• September 11th.
• October 1st.

10
The Lows

• Lessens to be learned out of the crises started
  in 2001
• Whole business build on continued growth
• Cost structures within the airlines
• Overheads
• Pilots
• Flight attendant
• Costs are easier to manage when the business
  growth year by year

11
The Lows

• Infrastructure
• Airports, ATCs etc, Security
• Airline Related business
• Catering
• Ground Handling
• Retailers at Airports
• Insurance Market
• Cure Reduction of costs ?

12
The Lows

• Cost transfer from suppliers
• Airport fees
• Security
• Insurance Cost
• ATC
• Lower demand from passengers
• Fast growing low cost airlines
• No total growth in demand

13
The Lows

• You grow old and grey fast
• 2 Years in the Airline industry is like 5 years
  elsewhere

14
The Highs

• ?

15
The Highs

• Highly committed personnel
• Flying is in the blood (also on the ground)
• High attention in the media
• Known brand
• High attention in politics
• No lay-off in an election year
• Infra-structure provider

16
The Highs

• At LTU - loyal customer base
• No complaints during 8 weeks of severe crises
• After a solution was found the complaints returned

17
The Highs

• But your are still 5 years older after 2 years

18
Airline Insurance Market from an Airline Point of
View

• 180 Degree turn in Markets
• Shrinking capacity
• Non insurable risks
• Co-ordinated premium increases
• How to deal with 3rd. Party liability on Ground

19
The Future

• How long until sustainable growth is restored for
  the airline industry
• Experiments with positioning i.e. low cost/low
  fare 1 or 2 or 3 Class systems etc.
• Turn of fortunes in the airline insurance market
  ?
• Continued Government coverage of risk (nice
  additional income!)

20
The Future

• Airlines must position them selves clearly
• low fares and traditional cost structures leads
  to disaster
• Brand
• Quality Service provider or commodity ?
• There is a market for every one