air scoop april 2007

8/14/2019 Air Scoop April 2007

1/14

EDITORIAL

In the coming months, LCCs industry will have many opportu-

nities to meet, exchange ideas and do some networking. Indeed,

this month some of the most influential people in European

low-cost aviation will gather at the French Connect 2007in La Bau-

le (April 25-27). Then in May, EastEuroLinkwill bring together key

players of Air Transport in the region of Central & Eastern Europe

in Bratislava (May 4). In June, we will be back in London thanks

to MarketForceand their annual Low Cost Air Transport Sum-

mit(June 13-14) presenting current issues facing LCCs market andfocusing this year on this question: Where next for the low-cost

carriers? Finally, after the summer break, we will all be back to the

World Low Cost Airlines Congress(September 17-19) with a new

formula to improve networking. For instance, attendees will know

how the climate change debate does affect LCCs industry and what

customers really think through live focus groups At each event,

Air Scoopwill be there to discuss with top managers of LCCs, finan-

cial analysts, and market journalists.

Consolidation of the European LCC market is more than ever on-

going. The Scandinavian LCC FlyMehad to report bankruptcy andcancel its flights (p. 13) due to a lack of money to continue opera-

ting flights. Local competitors such as FlyNordicor Norwegian(p.

2) hope to benefit from this collapse and replace some ofFlyMes

flights. On another market, time is also to strong consolidation: in

Germany. Air Berlinwhich already bought its strong partner DBA

last summer has simply swallowed its competitor LTUto become

the fourth airline in Europe (p. 3). On the UK market, FlyBehas

planned a similar growing strategy by acquiringBA Connect, but fa-

ces more concrete difficulties (p. 10). To survive in this highly com-

petitive environment, LCCs have different options. One of them is

to conquer new markets always farer. Central & Eastern Europe is a

dynamic market, full of opportunities for LCCs, so after the Hun-garian market (Read Air Scoop March 2007), we have analyzed the

Slovakian market, with its strength and weakness (p. 6). One cur-

rent trend is also to study opportunities of long-haul flights. Many

analysts have speculated that Ryanairwill offer long-haul flights,

possibly in conjunctions with its Aer Lingusbid. However, such

strategy will definitely affect Ryanairs business model (p. 12). Ano-

ther issue that will certainly alter LCCs business models is climate

change. We notice a clear trend of air travelers changing their flying

habits because of climate change concerns (p. 14). To get a better vi-

sion of European LCCs market, we have realized of SWOT analysis

of it (p. 8). Each month, we will provide a SWOT analysis of a low-cost carrier, next month we will publish a SWOT ofRyanair).

Highlights in this IssueAir Berlin Swallows LTU p. 3

Analysis of the LCCs Slovakian Market p. 6

SWOT Analysis of European LCCs Industry p. 8

(R)evolution of Ryanairs Business Model p. 12

The Great Carve Up in the Nordic Sky p. 13

Air Scoop - April 2007 www.air-scoop.com

The Low Cost Carriers Analysis NewsletterAIR SCOOP ANNOUNCEMENTS

2007 Ancillary Revenue Airline

Conference (ARAC 2007)

November 14 and 15 in Frankfurt

Air Scoopis proud to be media partner of the

ARAC 2007.

The Ancillary Revenue Airline Conference

(ARAC) is the first global event in the air-

line industry to completely define and deve-lop the concept of ancillary revenues. Airline

Informationhas teamed up with the leading

research consultancy in airline ancillary re-

venues, IdeaWorksto produce this ground-

breaking event.

President of IdeaWorks and chairman of

ARAC, Jay Sorensendefines ancillary reve-

nues as Revenues beyond the sale of tickets

that are generated by direct sales to passen-

gers, or indirectly as a part of the travel expe-rience. This definition includes the commis-

sions earned by many airlines on the sale of

hotel accommodations, car rentals and travel

insurance.

http://www.airlineinformation.org/confer-

ences/2007_ARAC/arac_intor.html

The Budgie Awards 2007

The Budgie Awards have been created to

recognise the leaders, innovators, creative ta-

lents, and pioneers in the global Low Cost

Airlines industry.

Due to take place on the evening of the

World Low Cost Airlines Congress, the

Budgie Awards promises to be a spectacular

event.

http://www.terrapinn.com/2007/budgies


2/14

BIRDS EYE VIEW


Exclusive Interview of Daniel Skjeldam

(Director Network and Revenue of Norwegian)Daniel Skjeldam

Director Network

and Revenue of

Norwegian

Could you please present Norwe-

gian to our readers? What are your

specificities compared to other Eu-

ropean LCCs? What do you do bet-

ter than your competitors?

Norwegian is Scandinavias largest

LCC with 5,2 million customers in

2006 and 22 aircrafts. It is the lar-

gest carrier on international flights

from Norway. We fly a many high

frequency routes on the domestic

network with up to 14 daily round-

trips. To achieve this, we have built

a product with emphasis on an ef-

fective airport product. For instance,

you can go directly to the gate with

your creditcard or barcoded travel-

document on any domestic airport

if you only have a hand-luggage. On

the international network, we mainly

focus on primary airports, but we fly

to secondary airports where its sui-table for our customers. We have a

very effective flight-program, with

20 minutes turnaround and up to 12

daily sectors per aircraft.

You already cover many routes

between Norway and European

main cities. Do you plan to deve-

lop new routes within the Scandi-

navian market; are there sufficient

population catchment areas to opennew routes in Scandinavia? If not,

towards which market do you tend

to?

Most of our network originates out

of Norway, but weve also built a

base with two aircrafts in Warsaw,

and we also fly 4 routes out of Stoc-

kholm. The catchment area in Scan-

dinavia is smaller than in other Eu-

ropean regions, but population fliesmore due to both topography of the

area and distance from the rest of

Europe. Though, by having a smaller

catchment area you have to adapt the

product to it. For instance, we codes-

hare with other Scandinavian LCCs

on the intra-Scandinavian routes.

Which are the low cost carriers

serving the Scandinavian market?

Who are your most dangerous com-

petitors: local LCCs or Islanders

(Ryanair and easyJet)?

The largest LCCs in Scandinavia apart

from ourselves are Sterlingand Fly-Nordic who are Scandinvian-based,

and Ryanair with a base in Stoc-

kholm and a number of routes from

Norway and Denmark. Air Berlin,

easyJet, WizzAir, Sky Europe and

Germanwingsalso operate to Scan-

dinavia but on a smaller scale. On

the domestic and intra-scandinavian

network, we compete a lot with the

SAS, whereas on the leisure-routes

we compete with a number of car-riers. Though, having a very strong

brand in Norway, and operating al-

most 90 routes from this market,

puts us in a very comfortable posi-

tion as opposed to airlines having a

smaller position in the market.

The European Low cost carriers

market has reached a certain ma-

turity which leads to its consolida-

tion. During this transition, whatare, for you, the greatest threats to

European Low cost carriers? Fuel

rising? Overcapacity? Evolution of

airports? Regulation?...

In my opinion the greatest threat

towards LCCs in Europe are stupid

ideas and regulations from EU that

could limit further traffic growth. Of

course the Environmental side is an

issue we need to follow closely, but

LCCs in general should have a huge

advantage over traditional airlines,

with LCCs having newer fleets, hi-

gher seating-density, avoiding traffic-

jams at hubs like LHR and FRA and

not the least flying with much higher

load factors. Traditional airlines with

business cabins and low density sea-

ting focus on business-yield Vs filling

and standing in line at LHR for hours

are the worst threat to the Environ-

ment.

Many LCCs look after extra-reve-

nues to offset the low price of their

tickets. What are the projects of

Norwegian in terms of Extra-reve-

nues?

As most LCCs we sell hotels, rental

cars, insurances and other things on

our website. In addition we have im-

plemented assigned seating for a feeof EUR 3,5 as well as a luggage fee.

On domestic flights we also take car-

go on the last flight of the day, where

we have a little more generosity in

the schedule.

Do you believe that consolidation

of the market will lead to 2-3 main

LCCs in Europe, or do you think

there will always be many LCCs on

niche markets?

I believe its quite difficult to achieve

a low cost level with a small number

of aircrafts. For ourselves, we didnt

make profits until we reached 15 air-

craft. I believe there is room for more

than 2-3 LCCs in Europe, but not for

the around 50 LCCs flying in Europe

today.

During last World Low Cost Airli-nes Congress, you expressed your

worries about the shortage of pi-

lots and crew hitting LCC market?

Could you explain us your point


3/14

BIRDS EYE VIEW


of view on this situation and what

Norwegian does to face such pro-

blem?

I believe the airline industry will facethe challenge of very low rates of

new pilots trained in the period after

2001, but that supply and demand

will take care of this in the longer

run. I dont think the industry faces

a problem regarding cabin crews. For

ourselves, we have a lot ex-pat pilots

wanting to return to the region, and

we dont face any significant challen-

ges at the moment.

What are the options for Norwegian

to transform its business model inorder to make more costs savings?

We have a continuous focus on cost

savings in all areas. Recently we have

implemented a new reservation-sys-

tem that gives us a very competitive

distribution-cost. We have also just

implemented a new DCS-system on

our main-airports, with huge cost-sa-

vings over the old one we used. Ope-

rationally we have hedged part of the

fuel-purchases for the upcoming pe-

riod and are striving towards the 900limit for our pilots and cabin-crews.

Aircraft utilization is now 12 hours

plus in the Summer Program by im-

plementing more red-eye flights to

offset the challenge that many short

sectors flights poses to the utiliza-

tion.

Where exactly is Air Berlinflying to? In May 2006, Ger-

manys first LCC was introduced on the stock exchange

to finance its expansion plans. Less than one year later, it

swallowed two of its challengers in the German air trans-

port business. First, it was DBA, in august 2006. And now,

at the end of March 2007, the fifty-years-old charter airline

LTU, paid cash 140 million Euros. Air Berlinwill soon is-

sue 250 million Euros in new shares and convertible bonds

to finance this operation. The company also plans to buy

49% of the small Swiss airline Belair.

Last summer, Air Berlinwas operating less than 60 air-

crafts. They are now more than 100, and at least as many

are on the order form.

By buyingDBA, a company it had already a strong par-

tnership with, Air Berlins goal was to grow and strengthen

its position on the German market, make savings and pick

up DBAs strong business customers - Air Berlinwas more

tourist-oriented. The purchase ofLTUis far more daring.

This charter airline, which carried in 2006 5.75 million

passengers on its 26 airplanes, is mainly operating long-

distance flights to North American, the Caribbean, Africa,

Southern Asia, Southern Europe... That is to say, world-

wide.

No European LCC is currently flying worldwide. Long-

haul flights are said to be more profitable, but also harder

and riskier to manage. And the existing LCC model (quick

turnaround, minimal level of service, no first class...) fits

more short-haul flights. However, Air Berlinapparently

prepares to be the first to grow on the intercontinental

level. Its close European route network will help the com-pany to feed long-haul flights. If this strategy succeeds, the

competitive advantage for Air Berlincould be significant.

Joachim Hunold, Air Berlins CEO, knows that on the

very competitive European air transport market, growing

quick and big is the best way to survive. This is particu-

larly true in Germany, where the market entered a phase

of consolidation. By buyingLTU, Hunoldnot only ma-

kes his company the fourth airline in Europe, behind Air

France-KLM, Lufthansaand Ryanair. He also expects

to make important savings - between 70 and 100 million

Euros - and to settle down in Dsseldorf (West of Ger-

many), where LTUis based, the second most important

catchment area in Europe after London , Hunoldsaid.

The takeover ofLTUby Air Berlinwas a coup de thea-

tre in the German sky. At the beginning of March, LTUs

former main shareholder, the businessman Hans Rudolf

Whrl, had rather talked about negotiations with Condor,

the other long-haul German charter airline. But a merger

between those two companies would have been compli-

cated, since one of Condor shareholders is the national

airline Lufthansa(more than 300 aircrafts, 53.4 million

passengers in 2006), which would certainly have tried to

block the deal.

But for Lufthansa, the Air Berlin LTUmerger may not

be a better solution: after this new purchase, Air Berlin

may really become a threat for the national leader. All the

more that Air Berlinconcluded a code-sharing agreement

with Condor, even if in return it stopped its code-sharing

with TUIfly.

The funny thing about all this is that Hans Rudolf Whrl,

who is a friend ofJoachim Hunold, was already the man

who sold him DBAlast summer. Each time, the scenario

was the same: Whrlbought the airline, improved its fi-nancial situation even ifLTUis still unprofitable and

sold it to Air Berlin. So, next time Mr. Whrlgets interes-

ted in an airline, be careful...

Air Berlin Swallows LTU to Grow Worldwide


4/14Air Scoop - April 2007

DOWN TO EARTH

www.air-scoop.com

ple travel experience as the consumer moves through

the booking process. Prior to requesting payment, JetStar

offers its customers the option to pre-purchase various

services for delivery on board the flight. This is not an

uncommon practice among a growing number of airlinesseeking to boost ancillary revenues. However, JetStaris

unique because of the imaginative branding it has applied

to its online sales process.

The result encourages travelers to click and buy onboard

amenities through the use of whimsical language, tho-

rough descriptions, and pre-purchase discounts. The fol-

lowing offer is displayed after a consumer has selected

their flights:

The above prices listed are in U.S. dollars and apply to fli-

ghts operated between Honolulu and Sydney. The originpoint of the itinerary determines the currency displayed;

Australian dollars are listed for passengers that begin their

travel in Australia. Feed me! Comfort me! Entertain

me! instantly conveys the consumer benefits of these

Airline marketing innovation in Australia seems to be as

prolific as kangaroos in the Outback. Independent airlineVirgin Blue, which now claims a 30% domestic market

share, has introduced many innovations such as its Blue

Zone premium seating, the Velocity frequent flier pro-

gram, and a network of fee-based lounges to serve Austra-

lias budget-conscious travelers. Not to be outdone in this

race, to delight consumers with amenities and choices, is

the low cost airline started by Qantas Airways.

JetStar started flying domestically within Australia du-

ring May 2004 and six months later added medium haul

international flights to Asia. The company promises itscustomers a simple and fresh travel experience, with a

vibrant approach toward low cost travel. JetStarrecently

introduced its low fare strategy for long haul international

operations during November 2006. It is among the first

to apply the low cost model to longer flights.

Supported by its existing domestic network, JetStarbe-

gan flights to Bangkok, Phuket, Ho Chi Minh City, Osaka,

Bali, and Honolulu. These six international destinations

are served from the following key Australian gateways:

Sydney, Melbourne and Brisbane. Concurrent with thisexpansion, the airline adapted its low fare model to better

serve the needs of long-distance travelers.

JetStars innovations focus on three marketing areas: pre-

mium class, passenger fares, and ancillary revenues. The

airline acknowledges the importance of premium class

services by including a new StarClass on its international

long-haul flights. This business class style service encoura-

ges higher income consumers to upgrade to greater com-

fort and amenities. StarClass is promoted on the airlines

web site and is included as a fare option, along with its

JetSaver and JetFlex coach fares.

Consumers seeking maximum savings are prompted to

choose between JetSaver and JetFlex fares during the

reservation process. The airlines web site allows easy

comparison between the benefits and restrictions of each

with a pop-up page that displays terms and conditions

in a matrix format. As the branding suggests, JetFlex is

priced higher and offers greater flexibility for refunds and

reservation changes; JetSaver fares sacrifice flexibility for

maximum savings and do not accrue points in the Qantas

Frequent Flyer Program.

JetStardelivers on its promise to deliver a fresh and sim-

JetStar Clicks its Way to Ancillary Revenues

www.IdeaWorksCompany.com

by Jay Sorensen

(President ofIdeaWorks)

IDEAWORKS AISLE


5/14

BIRDS EYE VIEW


services and focuses attention on a consumers natural desire

for self-gratification.

Clicking on the Whats Available? links displays the fol-

lowing information:

Feed me!

Include this option, and youll be served meals twice on your

flight. Your choice from an international menu designed to

appeal to all tastes. With a choice of freshly prepared Aus-

tralian and local cuisine to keep your hunger satisfied throu-

gh your journey. A drink will also be included to enjoy with

your meals.

Comfort me!

On board comfort, that you can take away and use again and

again. Packed with a stylish amenity kit, blanket and inflata-

ble neck support, it also includes an eyeshade and socks for

when you just choose to switch off.

Entertain me!

To stay entertained during your flight, select this option and

well add the latest video on demand unit to your inflight

experience. With a range of new release movies, TV shows,

music videos and kids programmes. Headsets are also inclu-

ded in the price. Stop, start, rewind, fast forward. The choice

is yours.

The JetStarweb site also displays a copy of its Inflight Menu.Consumers realize savings when they pre-purchase items at

the time of booking. Pre-purchase savings are nearly US$2

for each of the Comfort me! and Entertain me! offers; the

Feed me! option yields even greater savings. And of course,

pre-purchase ensures the delivery of services, regardless of

demand on the flight.

All economy class passengers are provided a complimen-

tary bottle of water at the time of departure. In addition, a

water fountain and disposable cups are provided on board

for these passengers. All other items, to include a childrensactivity kit, are available for sale during the flight.

The online click and buy process continues with the presen-

tation of checked baggage options. JetStarprovides a free

baggage allowance of 2 pieces per passenger on its Hawaii

services. Travelers may increase their allowance by one pie-

ce and save 20% on the fee assessed at the airport through

the pre-purchase option. The following offer is displayed

below the Inflight Extras section:

Pre-purchase extra luggage

While making your booking, you can pre-purchase addi-

tional baggage.

You can pre-purchase excess checked baggage (in addi-

tion to your checked baggage allowance) at up to a 20%

discount. Pre-purchased excess baggage is for checkedbaggage only. For more information, regarding cabin,

checked and excess baggage, please click here. Purchase

of Excess Baggage is non-refundable and non-transfera-

ble.

Add an additional 1 item (+$60) to my booking.

JetStar may have developed the ideal long-haul expe-

rience that appeals to a wide variety of passenger expec-

tations and levels of affluence. Higher-income passengersseeking maximum comfort can choose a fully bundled

premium product with more personal space and better

dining and beverages included in the ticket price. Budget-

minded travelers can choose the convenience of a JetFlex

fare and pre-purchase their food, beverages and enter-

tainment at the time of booking. Ultra-budget travelers

can lock in their travel dates with a JetSaver fare and

bring their own snacks on board.

The airline delivers these choices through a tasteful and

efficient online process. Simple and uncluttered branding

seems to be part of the airlines DNA. However, JetStar

might consider adding more depth to its branding with

images to convey the attractiveness of its service offers.

But the airline has clearly designed a click and buy pro-

cess that likely delivers substantial ancillary revenues and

provides consumers with the freedom to design their

own travel experience.

Sources used in this article: Unless otherwise noted, the information

described in this analysis were gathered at JetStar.com during Februa-

ry and March 2007.

IdeaWorks cannot guarantee, and assumes no legal liability or res-

ponsibility for the accuracy, currency or completeness of the infor-

mation.

Ancillary Revenue Airline Conference 2007.Ideaworksco-organizes the event with Airline Information. ARAC

2007 will be held November 14 and 15 in Frankfurt.

EVENTS


6/14

BIRDS EYE VIEW


The break-up of former Czechoslovakia in 1993 left Slo-

vakia without a single national air transport company. Thisgap was meant to be filled by Slovak Airlines, established

in 1998. However, one of the most successful Central Eu-

ropean low-cost air carriers, Sky Europehas claimed the

right for this title. Since 2002, when Sky Europebegan its

operation, the company has been gradually growing and

nowadays is dominating the Slovakian air transport mar-

ket. In this respect, Sky Europehas become the Ryanair

of Slovakia. This is the reason why the analysis of the Slo-

vakian low-cost market is inseparable from the discussion

of this low-cost carrier.

Currently, there are three international airports in the

country that are served by a low-cost carrier: Bratislava,

Koice and Poprad-Tatry. Bratislava is by far the most signi-

ficant of these, since the bulk of the traffic is concentrated

at this airport. Koice is served only by Sky Europe, daily

domestic flights connect the city with Bratislava. Similarly,

Poprad-Tatry, which is a popular tourist resort, is served

solely by Sky Europe, regular flights are offered to London-

Stansted.

As a consequence, the capital of Slovakia with approxima-

tely 430 thousand inhabitants almost exclusively attractsthe whole air traffic to the country. The annual number

of total passengers at Bratislava airport shows a dynamic

growth and as Figure 1 suggests, the multiplication of pas-

senger turnover after 2002 is mainly due to the entry of

the low-cost carriers (1). In 2006, 1.93 million passengers

landed or departed from Bratislava, 94% of them travel-

led on international routes. The share of low-cost carriers

from the passengers is very high, Sky Europecarried 48%

of total passengers, Ryanairtook 24% and lastly, easyJet

reached a mere 3.28%. The low-cost carriers, therefore, are

dominating the Slovakian market, and especially Sky Eu-ropehas taken the lead.

However, in spite of the dynamic growth, the size of the

market is still small and its potentials are not particularly

convincing, too. Given the relatively small population of

Slovakia (5.44 million), domestic demand for internationalflights is limited while international demand may also be

relatively restricted. It is not a coincidence therefore, that

Sky Europe, which gained first-mover advantage and has

established reputation for being a low-cost carrier, is able

to be a quasi- monopol player in this market. Based on

the winter timetable of 2006 and the summer timetable

of 2007, 26 destinations are served from Bratislava by low-

cost carriers, and Sky Europe is not present on only two

of them (Frankfurt-Hahn and Nottingham, served just by

Ryanair)! Moreover, there are only three routes on which

Sky Europehas to face competition from its single rival inSlovakia, Ryanair(Milan, Dublin and London-Stansted).

A look at the passenger numbers of the top destinations

in 2006 (Figure 2) clearly shows that there is not much

opportunities left for new entrants on already established

routes (2).

London proved to be the most popular destination with

almost 400 thousand passengers, however, on October 1st,

2006, easyjet had to withdraw its flight on the London-Lu-

ton route, as it was financially not viable, according to the

spokesperson of the company. In other words, easyJetwas

not able to bear the fierce competition on this route posedby Sky Europeand Ryanaireven though the 9 months of

serving this route in 2006 were enough for the 8th posi-

tion in terms of passenger turnover. In this list of top 15

destinations, Prague and Munich are those cities which are

not served by low-cost carriers, although they show quite

substantial traffic.

These routes might be potentially viable for low-cost car-

riers to serve in the future but only if they are able to un-

dercut the prices of the incumbents.

Nevertheless, entry to new routes or expansion by the

already present low-cost carriers is still possible. Only 13

European countries are served from Bratislava (25 destina-

tions in total) by the two low-cost carriers and out of these

Analysis of the Slovakian Low-Cost Air Transport MarketANALYST PORTHOLE


7/14

BIRDS EYE VIEW


some are surprisingly underrepresented (Figure 3), while

the number of connections to Central and Eastern Europe

are also very limited. Especially Germany, the Scandinavian

states and Poland are those markets which could be consi-

dered as possible new destinations.

All in all, the relatively small potentials of the Slovakian

market in terms of domestic and international demand pose

a limit to all planned expansions. It is enough to compare

the passenger turnover data with nearby Budapest: concer-

ning all flights, the airport of the Hungarian capital served

8.27 million passengers last year, while, as already mentio-

ned, Bratislava served only 1.93 million passengers. Howe-

ver, regarding passengers flying with low-cost carriers, the

difference is not so enormous. This figure for Bratislava in

2006 was approximately 1.46 million passengers, while for

Budapest it was 2.2 million. This also clearly demonstrateshow significant role the low-cost carriers play in the Slova-

kian market.

In spite of this, even for Sky Europe, which is truly the do-

minant player in Slovakia, the home market would not be

large enough to grow. The airline carried roughly 2.74 mil-

lion passengers in 2006 and out of these only about every

third passenger flew to or from Slovakia (based on market

share data). This suggests that the home market may not

be the major source of growth for Sky Europein the long

run. This is underpinned by the fact that Sky Europetries

to increase the catchment area of Bratislava airport and the

domestic flights from Koice to Bratislava are scheduled

in a way that all destinations from Bratislava are possible

to reach from Koice as well. Another issue is the proxi-

mity of Vienna airport (Austria) to Bratislava, which in-

duces rivalry between the two airports. In this respect, it isa remarkable development that on 19th December, 2006,

Sky Europeopened its fifth operation base in Vienna. The

company will soon offer 16 destinations from the new base.

The big overlap between these destinations and those ser-

ved from Bratislava suggests that a division of labour mi-

ght be introduced and certain destinations may be served

only from one of the airports in the future.

At first sight, it seems that Sky Europeis cannibalising its

business by serving the same destinations from rival airports,

thus posing a potential threat of competing away passen-

gers. However, it is also a sensible business decision since

with this strategic movement, the company will be able

to control traffic from Vienna thereby securing the home

market, and at the same time with the shuttle bus service

already operating between the airports, the catchment area

of both airports can be increased or even joined.

What seems to be a conclusion from this analyis is that

given the highly concentrated nature and limited demand

of the Slovakian air transport market, the first-mover Sky

Europemay be the dominant player in the long run and

new low-cost carriers may not find the country attractiveenough to enter unless they open up new routes and serve

new destinations.

1. Source: www.airportbratislava.sk/flashContent/default3.html

2. Source: www.letiskobratislava.sk/flashContent/prilozene_subo-

ry/2007-18-01_Prev_vykony_rok-2006.doc

Read our analysis of the

Hungarian Marketin Air Scoop March 2007 and

Tcheck RepublicLCCs market : Air Scoop May 2007.

Wanderlust Magazinehas honored FlyBewith its 2007 Travel Awards. The

award is based on both readers votes and customer satisfaction, and places Fly-

Be above other carriers making it the best airline website in the UK. Mike

Rutter, CCO ofFlyBe, commented: For FlyBe.com to be recognized as the best

airline website is a great honor for us, especially as the awards take customer

satisfaction into account. () We look forward to building on this success and

hopefully featuring again in next years awards.

Low-Cost Carriers and Websites Awards

However, according to Hitwise, a market research firm, easyJet.com website is the most po-pular travel website in the UK. Hitwisehas gathered data from more than 8 million British

Internet users and found easyJet.com to be the 5th most searched-for brand online. In 2006,

more than 98 per cent of total sales ofeasyJetcame through its website. Andrew Berks, Band

communication manager, pointed out that easyJetis committed to further developing its on-

line products in the future.


8/14

BIRDS EYE VIEW


SWOT Analysis of Low Cost Carrier Industry

Air Scooplaunches a new range of articles called SWOT Team. Each month, we will publish a SWOT analysis of an

European low-cost carrier. In this issue, we start with a global SWOT of the market.

SWOT TEAM

Air travel in the 21st century is becoming an economic

necessity and not a luxury. It has been predicted that by

2010, business and leisure passengers will increase to 2.3

billion worldwide (from 1.6 billion today) of which a ma-

jor share will be enjoyed by the Low Cost Carriers. LCCs

had a share of 17% of the total number of scheduled seats

on offer worldwide in 2006. It was 24% within Europe.

The low-cost model, based on Southwest Airlines succes-

sful formula in the US, has been adopted by leading LCC

players in Europe. The key components of their model

are ticket-less travel, Internet booking, usage of secondary

airports, no commission for travel agents, no seat alloca-

tion or connecting flights, and no frills such as in-flight

catering (customers pay extra for what they require), no

business class and lounges. The most profitable routes for

LCCs are less than two hours in duration, allowing maxi-

mum utilization of aircrafts. They started by flying city-

to-city routes but are now increasingly targeting resorts,

although many tend to ignore routes of three hours or lon-ger. They often out perform the legacy airlines in operating

performance.

Overview of the European LCC market:

Growth: Demand for low cost air services was up 9% in

the last quarter of 2006 and the number of LCC flights in-

creased by 18%. In a single decade, low-cost carriers (LCCs)

have transformed the European aviation scene beyond re-

cognition. The UK is the largest and most mature market

for low cost carriers in Europe, followed by Germany andSpain, which is now seeing the fastest growth.

The enlargement of the EU to include more nations has

given LCCs renewed impetus, with many new services

starting in Central and Eastern Europe as a result of the

deregulation that EU membership brings. Central and Eas-

tern Europe is a key growth area.

Impact: LCCs have opened up direct services between EU

cities that were not available through the legacy airlines

and popularized regional airports by breathing life into theotherwise under utilized airports.

They have forced established airlines and tour operators to

change their business models. The most significant achieve-

ment for the LCCs, especially in the EU, is that they have

brought air travel within easy reach of everyone across Eu-

rope and changed peoples leisure and travel habits.

Issues: But the story has not been of continued success.

Some LCCs suffer from low employee morale. This in

turn leads to poor customer service. LCCs are often ac-

cused of misleading advertisements, resulting in low cre-

dibility & image.

The distinction between LCC and charter services is also

becoming blurred. Some of them have copied the low

cost airlines by making accommodation, car hire and other

ground services available online through their website, and

effectively unpackaging their own product.

SWOT Analysis:

The SWOT analysis given below will help LCCs to achie-

ve their goals by capitalizing on potential opportunities

using their strengths and eliminating their weaknesses &

threats.

The goals of a low cost airline can be:

Expansion and diversification

Long-term growth planning

Competitive combats Development of the most suited business model

Target audiences for this analysis are members of the avia-

tion industry, such as:

boards of airlines

airports

aviation suppliers

air navigation providers

investment companies, and

government agencies


9/14

BIRDS EYE VIEW



10/14

BIRDS EYE VIEW

Air Scoop - April 2007 www.air-scoop.com0

Some of the factors mentioned above may not be applica-

ble to all members of the LCC industry. The relevance of

these factors will depend on the business models and goals

of the players.

Recommendations for Low Cost Carriers:

1. Some innovative schemes should be adopted to attract

the increasing number of small & medium business trave-

lers. This would definitely enhance the market share and

build brand image.

2. The LCCs should expand into medium haul routes, with

the same no-frills formula, thus adopting an offensive

strategy rather than a defensive one. This will keep the

traditional players busy protecting their turf and restrict

their encroachment into the LCC market.3. The European markets are expected to saturate after

a decade, as it has happened in the US & UK. Hence, the

LCC players should plan to enter the fast growing markets

of Middle-East and Asia, at the earliest.

4. High employee morale is key to customer retention.

The business philosophy of LCCs should be smile, charge

and serve. Employee satisfaction and customer loyalty are

invaluable for any business to succeed in the long term.

5. Cost cutting may be further achieved by applying lean

operating techniques and standardized processes.

It seems inevitable that the growth rates of recent years

will slow down, except in Central and Eastern Europe

where there is still untapped potential. The larger LCCs

have an opportunity to expand into new markets and eat

into the market share of legacy airlines and tour operators.

Some consolidation is likely to happen in the LCC market,at the expense of smaller operators.

How to Get to Go from Edinburgh Now?

When BA Connect is finally disconnected from BAand

is acquired by FlyBefellow, Scots are really puzzled with

the future of air travel in their home town, Edinburgh. So

are the townsfolk of Glasgow, Manchester, Birmingham,

and Bristol.

The acquisition project was announced first in Novem-

ber 2006 but due to certain legal difficulties and prepara-

tion and legalization of all documentation needed it was

completed in the beginning of March this year. Difficulties

meant not only legal process and money issue but future

of personnel affected as well as passengers. Thats why the

final date for the acquisition was moved several times.

Initiated as a measure of cutting losses on regional routes,

BA Connect appeared to be a greater loss itself. BA re-

ported to lose approximately 100,000 a day. Offloadingthe subsidiary to FlyBehas both positive and negative im-

pact on BA. Undoubtedly, such a deal is just a weight off

BAs mind and pocket. On the other hand, BAis now wi-

thdrawn from regional market and is likely to evolve into a

pure business/first-class long-haul airline. Though expres-

sing aggressive expansion strategy, FlyBedecided not re-

open some of the routes to smaller UK airports cancelled

by BA Connectwhich means not only passengers affected

by also huge job losses, especially amongst managers and

ground handling personnel. Staff members are offered re-

employment with BAor FlyBebut there is no guaranteethat everyone will get a job. The merge affected about

700 positions which found a critical respond from Trade

Unions. There is a real threat of strike during the Easter.

Passengers on the cancelled flights were offered alterna-

tive flights (some of which will take much longer now)

or full refund. Anyhow there will be certain destinations

affected a lot, like Birmingham Barcelona or Manchester

Madrid, as well as some domestic flights such as from/to

Edinburgh, for example.

BAhad cancelled more than 1000 flights before the ac-

tual acquisition was completed to reduce severe losses as

soon as possible. However, FlyBeestimates the economic

capacity of the newly merged airline rather high looking

forward to taking over the regional market in two years.

With the acquisition FlyBegot in toto 152 routes which

brings the airline on the top of the list of European regio-

nal airlines. The future would be really bright save for two

things: Ryanair and easyJet. Those are the biggest and

triumphant LCCs operating in the region that serve about200 destinations all over Europe. Needless to say it makes

really hard for FlyBeto be original in this case and open

a competitive route for a competitive price.

BA Connectis not the first regional project that was ter-

minated. GOonce shared the same fate and was sold off

by BAto 3i companyin June 2001.



DOWN TO EARTH

www.air-scoop.com1

Airports roll out no-frills red carpets to lure low-cost car-

riers. What can LCCs do for them?

European aviation sector was struck by yet another Euro-

pean Unionqueries over suggested illegal state aid. Irish

Independent reported British and Derry governments

would be questioned over its deals with Ryanair con-

cerning an agreement inked in 1999 guaranteed Ryanair

GBP250,000 a year from a consortium of four state-fun-

ded authorities on both sides of the Irish border to pro-

mote its Derry to London route.

A range of other taxpayer-subsidiesed benefits included

free landing, navigation, air control, security, baggage and

passenger charges. All legal issues aside, what ushers in the

scene is to what extent LCC is important to an airports

operation, status and finances that European airports are

striving to meet the hard-line low-cost tactics.

September 11 changed the equation in civil aviation lands-

cape even in Europe. Many airports lose a significant

amount of traffic since then. Since traditional aviation seg-

ment of full services for major airlines was under pressure,

airports started to shift their attention to grow revenues

from no-frills segment. In 2003 which was merely two

years after the trauma, it was estimated LCC represented

a 12% year-on-year increase to 20% of the European airtravel market. To be LCC friendly is not only desirable

and, in many ways, necessary for airports survival.

Since the trend of traveling with LCC is growing among

domestic travelers in Europe, LCC do not only fly on the

wings of operational profit and retail revenue to the air-

ports but also tourism to the city and the neighboring re-

gion. Swedens Stockholm Skavsta Airport is one of the

early bloomers capturing the growth of LCC on the conti-

nent. According to Invest in Sweden Agency, Ryanairs se-

lection of Skavsta as its ninth Scandinavian base has bene-

fited the airport to share the growth of LCC. When civil

aviation was still overshadowed in 2003 by September 11,Skavsta already reported positive growth: it is expected

that passenger numbers would jump from 300,000 to 1.5

million in 2003. The airport handled 96,000 passengers in

May, up from 86,000 the month before, and expected the

number to rise to 106,000 in June.

Tourism was the first to feel the difference from Skavsta

receivingRyanair. The nearby city of Nykping began to

reap the economic benefits ofRyanairs expansion. This is

further confirmed by a report released by Jones LaSalle

Hotelsin November last year. The report said that since

the introduction of budget airlines in Stockholm in 1997,

figures have shown an upsurge in overnight stays from 5.8

million in 1997 to 7.4 million in 2005. Growth in tourism

was especially strong after the announcement by Ryanair

to open Skavsta airport as their Scandinavian base. Since

then, international over night stays have shown an average

growth of almost 10% per annum.

Although the emergence of LCC does usher in strong

growth in revenues and tourism to the airport and res-

pective city, it should be noted that LCCs blatant cost

controls can also threaten airports growth. Dispute brokebetween Ryanairand Skavsta when the airport planned

to levy a new safety charge in 2005. The Jones LaSalle

report also detailed the Swedish Governments proposal

to introduce a new airport tax could possibly slow growth

in tourist numbers and affect the hotel industry which

already has several new hotels currently in the pipeline

and expected to open in the next 3 years, as new airport

tax means higher cost for the passenger but less profit for

LCC.

Airports Growth with LCCs?

The 4th French Connecttakes place on 25-27th April 2007 in La Baule. This unique event offers you the op-

portunity to network with some of the most influential people in European Low Cost aviation.

French airports, the legislators and Europes low cost operators all in one place with first-class conference faci-lities, superb hotels and dining and a relaxed, entertaining business environment : book your place today!

For further information, please check www.frenchconnect.net


12/14

BIRDS EYE VIEW

Air Scoop - April 2007 www.air-scoop.com2

Ryanairhas projected ambitious growth targets for the

next five years. By 2012, the airline plans to carry 85 million

passengers a year, up from 42.5 million in 2006. However,

in order to meet this target, Ryanairwill have to change

its business model to meet the needs of more travelers.

Some have speculated that Ryanairwill offer long-haul

flights, possibly in conjunction with its Aer Lingus bid,

as well as flights to larger airports closer to city centers.

While Ryanairwill probably not fly transatlantic flights,

it will need to target longer routes, as well as flights to lar-

ger airports closer to city centers if it wants to meet thosegrowth targets.

Many observers believe that Ryanairs bid for Aer Lingus

is a maneuver to get the company into the long-haul avia-

tion market. However, RyanairCEO Michael OLeary

recently said in the German newspaper Sueddeutsche

Zeitung that the bid is rather unlikely to succeed. Rya-

nairis unlikely to deviate from its no-frills business model

in the coming years, because that enables the carrier to

maintain the lowest costs of any airline in Europe. Expan-

sion into long-haul markets complicates Ryanairs simple

business model, and it would almost certainly increase

costs. Ryanairs available seat mile costs would increase

because it would have to add a new aircraft type to its

fleet, it would likely have to increase seat pitch on long-

haul planes, it might have to facilitate connections at bases

such as London Stansted, and it would run into more com-

petition, particularly if it opened routes already operated

by charter carriers such as Monarchor First Choice.

But ifRyanairchose not to operate long-haul flights, and

instead focus on medium-haul flights, between 4 and 6

hours in length, the airline could operate them with its737-800 aircraft. While longer flights deviates from Rya-

nairs established business model to operate quick 1-3

hour flights, operating medium-haul flights could allow

Ryanairto increase its aircraft utilization. This could be

accomplished ifRyanairoperates many of the flights as

red-eyes, provided the airline leaves enough time in the

schedule to make up for any delays or maintenance. This

model opens up many opportunities for Ryanairto serve

markets that badly need competition. Ryanairsucceeded

beautifully in Poland where the airline significantly lowed

fares and expanded service to many smaller markets that

lacked nonstop service to Western Europe. If Ryanair

expanded service in Western Russia, it would likely have

a similar effect on many smaller airports in the country.

Ryanairhas already adopted some medium-haul routes.

For example, Ryanair started service to Morocco last

year, where it committed to serving up to 20 routes within

five years. While flights between Marseille and Morocco

werent successful, flights between the UK and Morocco

have been. Ryanairalso has medium-haul opportunities in

North and West Africa, the Middle East, including Israel,

and other former Russian non-EU states, such as Ukraineor Georgia.

But, while medium-haul flights would give Ryanairmany

opportunities to expand its services, it could also lead to

problems. IfRyanairs planes were flying fewer passengers

per day, then ancillary revenues may decrease. On a ten-

and-a-half-hour round-trip (approximately five hours each

way with 25-30 minutes turnaround time), Ryanaironly

has a potential market of 378 customers for its ancillary

products (up to 189 passengers each way), while Ryanair

could fly more than two two-hour round-trips in the same

amount of time, doubling the number of potential custo-

mers who could utilize ancillary revenue products. Conse-

quently, this may decrease Ryanairs revenues per available

seat mile, because although longer segments could generate

higher fares, they would decrease the importance one of

Ryanairs most profitable revenue source. Also, ifRyanair

flew more medium-haul routes, it would be flying fewer

segments and it would need more planes to increase its

passenger loads to 85 million a year, than if it were just to

focus on shorter segments. But another lingering difficulty

that Ryanairmay have in adopting a medium-haul stra-

tegy is regulatory issues. Ryanairhas been able to expandquickly within EU states because it faces few regulatory

hurdles when opening a new route. But Ryanairencoun-

tered much greater hurdles when entering Morocco, whe-

re it took the airline six months of negotiations to reach

an agreement with the Moroccan government. IfRyanair

expands further into non-EU states, then it could delay the

opening of new routes while terms are negotiated. That

could enable competitors to wield their influence with

foreign governments to deny Ryanairs application, or to

at least stall Ryanairs arrival, enabling foreign carriers to

adapt to changing passenger needs.

(R)evolution of Ryanairs Business Model (part 1)

www.airlinebulletin.com

Exclusive Analysis for Air Scoop

Sam Sellersprovides analysis and commentary on the airline industry at his website,

www.airlinebulletin.com, and is the author ofTake Control of Booking a Cheap Air-

line Ticket, an ebook for travelers in the United States who are interested in purchasing

cheap airline tickets.



DOWN TO EARTH

www.air-scoop.com3

Friday night, 2 March, Swedish mobile network operators

were probably heavily loaded as Swedish low-cost carrier

FlyMewas sending more than 2500 SMS to its passen-

gers reporting of bankruptcy. The airline flights to threedomestic and 15 international destinations were cancelled

though the staff was not aware of it until the first check-

in.

As explained by the companys board, FlyMe does not

have enough money to continue operating flights. The

whole question is about a considerable sum of money that

was to be paid by the LCC to its bank. The airlines par-

tner bank, Handesbank, decided not to continue transac-

tions as it had 60 MSEK on blocked accounts as insurance

claims from passengers. In case FlyMehad demonstratedpayments and closed all the right issues, the bank would

have resumed operations. Unfortunately, at that moment

FlyMedid not have enough means to pay off. Finn Thau-

lowsaid to Swedish Aftonbladet that the company lacked

33,7 mln SEK. Before the deadline set by Handesbank

there were some hopes for certain investments but the

company did not receive any. Though it was rather pro-

fitable it had experienced some economic difficulties for

a long time. Its strategy was to expand as fast as possible.

Obviously, those 11 new routes opened in a short period

of time did not bring expected profit. That makes us torecall that sometimes less is more. The matter ofFlyMe

collapse is now handled by Rickard Strm, an attorney

at Lindahl KB law firm, and is investigated by Swedish

National Economic Crimes Bureau.

This lack of money has been a hotly debated issue in Swe-

den. Some Swedish periodicals assumed other reasons for

the unexpected economic failure than just red flights. In

September 2005 Christen Ager-Hanssen, FlyMe finan-cier and the owner ofCognition, bought out shares in the

company from Icelands Fons and basically took over the

carrier. He is known as a financial scam artist who has 60

mln SEK of tax liability. And he was that very person who

did not comment on FlyMebankruptcy.

Interestingly, the airline who announced to replace FlyMe

flights was Sterling, the one FlyMewanted to buy once.

Sterlingpromised to take care of passengers and to carry

them free of charge within Sweden and at a cut rate of 200

SEK within other Europe. The airline did not charge thosewho just needed to travel back home.

Obviously, rivals are not that sorry for the company as

passengers are. Some of them have already expressed

their happy feelings. As reported by Finnish Kauppale-

hti Online, Maunu von Lueders, FlyNordicCEO, hopes

to benefit from FlyMecollapse and replace some of its

flights. Apparently, Mr. von Lueders looks forward to

Stockholm-Gothenburg route that was literally in FlyMe

hands. He also expects improvement in the overall situa-

tion as the cutthroat competition in the region might getless tense after one of the major players left the field.

Read our Exclusive Interview ofFinn Thaulow, CEO of

FlyMe, in Air Scoop March 2007.

The Great Carve-Up in the Nordic Sky

2nd Air Transport Conference for CSEE

Air Scoopis proud to be media partner this year again of the 2nd Air Transport Conference for CSEE.Following the success of our Inaugural event last year, this year we are continuing in dealing with the issues Air Transport

is facing in this region. This is a unique opportunity to meet face-to-face with Key Players in this sector and discuss what

additional strategies you can easily implement to empower your business development.

http://www.transport.easteurolink.co.uk/air_Upcoming.html

EVENTS


14/14

BIRDS EYE VIEW

Air Scoopis a Registered Trademark ofGlobal Wings Publications.

Subscription to Air Scoop: 290 euros for 1 year (10 issues)

Copyright 2006-2007 - Unauthorized distribution or reproduction is forbidden.

http://www.air-scoop.com ; http://airscoop.blogspot.com(free portal news)

John Valentine, an environmental campaigner founded the site www.fli-

ghtpledge.org.uk which invites travelers to take a pledge to stop flying al-

together or restrict themselves to one long-haul or two short-haul flights ayear. So far 1.240 people have given the undertaking, with nearly two-thirds

(776) giving the gold pledge not to fly anywhere for a year. John Valentine

said:There is a need among people to be able to do something positive to

cut their carbon emissions and reducing flying is the most obvious and signi-

ficant way of doing it. The popularity of this website combined with global

environmental concerns has an impact on air travelers habits.

A research for the aviation industry estimates that up to 3% of regular flyers

in Britain have stopped boarding flights because of concerns about the en-

vironmental impact. A previous unpublicized a survey for the British Air

Transport Association (BATA), found that a further 10% of flyers haddecided to reduce their travelling by air because of climate change concerns,

and 35% had changed their flying habits.

Air Travelers Habits Evolve Due to Climate Changes

air scoop april 2007

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