air scoop june 2006

8/14/2019 Air Scoop June 2006

1/11

Highlights in this IssueVueling: Interview of Carlos Munoz p.2

Air Berlin: Chaotic Stock Exchange Introduction p.3

Debriefing of the Air Transport Conference p.7

WindJet: Looking Past the Horizon p.8

Factors of LCCs Business Model Evolution p.9

Air Scoop - June 2006 www.air-scoop.com

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EDITORIAL

A Month Full of Challenges

May 2006 has been a quite challenging month for European

LCCs. As the summer season is coming, low cost carriers

had a hard time with unions. easyJethad to face a possible

industrial action from the Transport & General Works Union that

would have disrupted the summer season. The airline will know this

week if its cabin crew and ground handling do or not accept a lowerpay offer than its pilots. Aer Lingushad to cope with SIPTU, which

represents most Aer Lingusstaff, during the 70th birthday of the car-

rier. Aer Lingusunions protest against the privatisation of the airline

arguing the recent disappointing privatisation of Air Berlin. Ryanair

always had an aggressive policy towards unions. For instance, Warwick

Brady, a Ryanairs top official, recently declared we recommend fast

women, slow horses or even greyhound racing, at least youll have a few

minutes of fun, which is more than youll have with BALPA(British

Airline Pilots Association). Ryanairhas also begun a legal action to

find out who is behind some hostile messages on REPA(Ryanair Eu-

ropean Pilots Association) website.

LCCs also had to confront with regulatory authorities, especially in

Italy. Thanks to a PSO decree (Public Service Obligation), ENAC(the

Italian National Civil Aviation Authority), has refused to allow LCCs

to fly to some routes to Sardinia. So, Ryanairis not allowed to operate

flights from Rome to Alghero, nor easyJetfrom Milan to Olbia.

And at least but not last, Michael OLearytook up a challenge from

LOT, the Polish national airline. After the spokesman for LOT de-

clared that Ryanair would drop their trousers for extra publicity,

Ryanairs CEO took up his words by saying he would walked naked

through the streets of Warsaw if

LOT removed the fuel surchargeit charges customers by the end of

May. We are now in June, LOT

didnt remove its fuel surcharge,

so Polish citizens wont have the

opportunity to see an Irish man

naked this time. When will be the

next challenge Mr OLeary? Bremen: easyjet newbase or just more flights?

Ryanair in Banja

Luka?

Ryanair: Hub in

Wroclaw

Aer Arann to introduce

another Dublin flight

soon

Ryanair could set

up a base in Nice


2/11

BIRDS EYE VIEW

Air Scoop - June 2006 www.air-scoop.com2

ANALYST PORTHOLE

Carlos Munoz

Mr Carlos Munoz (CEO of Vueling) had the kindness to

answer our questions.

Air Scoop: Vueling is presenting itself as the new gene-

ration airline , what do you do better than your competi-tors? What are your specificities compared to other Euro-

pean LCCs?

Carlos Munoz: What sets Vueling apart from our compe-

titors is our innovative new airline concept: the aim to be

different from all other airlines and offer High Quality at

the Best Price

As a new generation airline, we want to guarantee all of our

passengers a new way of flying and implement our own phi-

losophy of high quality at the best price. This new formula is

changing the face of the airline market and we believe this isa key part of our continuing success. Our formula seems to

attract more and more European passengers who know they

can fly in comfort and safety with a professional and friendly

company whilst paying the best price.

Vuelings success can also be attributed to the following,

namely; the fact that our passengers are all flying on brand

new aircrafts (all our fleet is based on the same aeroplane

model Airbus A320), we always fly to main airports, Charles

de Gaulle in Paris, Fiumicino in Rome, Malpensa in Milano,

we guarantee no overbooking on all our flights and custo-

mers can choose their seat on line, we have total flexibility

with our tickets (one can change the dates of travel, the pas-

senger or destination), we have a check in system online, we

guarantee high punctuality and finally we know that almost

all passengers value on board entertainment. These attribu-

tes help to create the face ofVuelingand make us different

from the rest.

A recent survey of more than 8,600 frequent flyers carried

out by a European consumer organisation in France, Belgium,

Holland, Italy, and Portugal ranked Vuelingas the best Spa-

nish airline. Out of the 110 airlines analysed, Vuelingranked

in 23rd position. People taking the survey stated that the keysfactors which helped them rate the airlines were: reliability,

punctuality, customer service, and the relationship between

quality and price.

Interview of Carlos Munoz

(CEO of Vueling)

Are you looking more for Business or Leisure passen-

gers? Both?

Our Business to Leisure passenger ratio is what we wouldexpect. Approximately 40% of our customers choose to

travel with Vuelingwhen travelling on business. Without

a doubt they value the fact that we fly to principal air-

ports, our no overbooking policy and the punctuality of

our flights gives us our personality and obviously makes

us different. Equally we have a high proportion of our

passengers who choose Vuelingas their choice airline for

leisure breaks. Our prices and high quality and service

ensure that all trips whether leisure or business work for

everyone as the price factor is no longer an obstacle.

Why Barcelona as a choice for your base? What are the

advantages?

We saw an opening in the market and we took it. Barce-

lona was crying out for the type of airline we were plan-

ning. In fact there was no low cost company established

in El Prat and as this airport is strategically very impor-

tant for the rest of Spain and the south Mediterranean,

we seized the opportunity to establish Vueling. Our lea-

ding position has always been in Barcelona although we

are equally aware of the important role Madrid is now

playing. We have already established a base in the capital,

and with the new terminal T4 in Barajas we promotedour operations from Madrid.

How do you analyse the competition with Ryanair, ea-

syJet and Air Berlin? Especially with easyJet since the

settlement of their hub in Madrid? Which one is for you

the main competitor?

To compare Vueling with other low cost companies

is difficult, our aims and what makes us a success are

very different to those other airlines, we believe there is

enough room in the skies and we fly in our own space

and they theres. The entry of companies in the marketstimulates the lawsuit. Theres no doubt that the airline

industry has seen an unprecedented transformation in

the past 10 years with the low cost phenomenon but this

a welcoming situation for all passengers and we believe

the skies can hold us all. The new situation has enticed

almost everyone to get on a plane and travel safe in the

knowledge that they will not incur huge costs, which

used to be the case. The difference between all the actual

low cost companies lies in the way they choose to fly and

the quality of service on offer. Customers nowadays have

plenty of options, they just have to decide which one isthe best for them. In Vuelingwe think our philosophy

is logical and simple and we try to keep on achieving our

promises... and it seems to be working.


3/11www.air-scoop.comAir Scoop - June 2006

BIRDS EYE VIEW

Perspectives of LCCs in 5 main European Markets

TNS Infratesthas recently released a representative con-

sumer survey conducted in the five key European mar-

kets: UK, Italy, Germany, France and Spain. After moni-toring the German LCC market over the last 3 years, the

Low Cost Carrier Monitor 2006has now included these

four main markets.

One of the main results of the survey has been a clas-

sification of these five markets with regard to low cost

carriers.

UK is the most advanced market for low cost flights

(41% of consumers claimed to have already flown with

an airline offering low cost flights). Italy takes the second

place with 20%. Its market potential for low cost is in anextremely dynamic phase with many promising growth

opportunities. Finally, Germany is in third position with

only 13% of people who admitted to having flown with

a LCC.

Unlike British and Italian passengers who are especially

interested in low-price tariffs, Germans are not ready to

accept a lower standard of comfort and service. Similar

user rates to those in Germany have been recorded in

France and Spain. Perception of low costs carriers is quite

different depending on the country. While British and

Italian passengers are loyal customers thanks to low-pri-

ces, Germans are looking for personal consideration and

good service, and Spanish have expressed the strongest

doubts about low cost carriers safety.

TNS Infratest- Low Cost Carrier Monitor 2006,

http://www.tns-infratest.com

Iberia has announced the creation of a LCC based in

Barcelona, what do you think about it?

The competition is always welcome, with Iberias low cost

aims we are slightly sceptical, we really do not know how

they are going to manage if they try and model themselves

on LCC. We reserve all judgements and are happy to sit

back and watch the developments. It will be interesting

to see how they implement this, which aircrafts are they

going to use, which airports and which destinations do

they intend to fly, etc.

Are you worried about the shortage of pilots and crew

hitting LCC market?

We are not overly concerned about this matter there will

always be professional graduated pilots who want to work

for a new generation airline. Vuelingcontinues to increase

its staff every month with more and more pilots and cabincrew with each new aircraft. This Wednesday 30th of May

we will accept our 12th A320 and by the end of 2006 we

expect to have 16 aeroplanes in our fleet.

Do you have expansion projects in a near future? (IPO?

New planes? Partnerships?...) Vuelingcurrently covers 6

countries; do you plan to open more routes to/from these

countries, or to open new routes to other countries?

Vuelinghas been growing and developing since it was es-

tablished in July 2004. We began flying Barcelona-Ibiza

and now we operate in 7 European countries (Lisbon-

Portugal, Paris-France, Amsterdam-The Nederland, Brus-sels-Belgium, Milan, Venice and Rome-Italy and Santiago

de Compostela, Bilbao, Madrid, Sevilla, Mlaga, Granada,

Valencia, Barcelona, Mallorca and during the summer

Menorca and Ibiza). We are dedicated to fly to more and

more cities whilst continuing to increase the frequencies

with our well established routes. New destinations, more

schedules and our constant improvement in all aspects of

our company are our constant goals.

Ryanair, easyJet and Air Berlin have routes to Morocco.

Vueling is close from this market, do you plan to open

routes there before its too late? What is your point of

view about this market?

As I said before Vuelingis an airline focused on the south

Mediterranean, and our business plan is based on a specific

model which considers a determinate type of routes and

destinations based on our customers preferences. We are

still very young and Morocco at this stage is to far from

our plans right know. That does not mean we may ne-

ver fly there in the future however increasing our actualroutes and improving our services in the countries we fly

remain our aims.

Thank you very much Mr Munozfor your time and your

answers.



BIRDS EYE VIEW

Air Berlin Faces Chaotic Stock Exchange

Introduction

Air Berlins introduction on the German Stock Exchange

was chaotic: first scheduled for May 5th, it finally tookplace almost one week later, on May 11th. The reason for

this delay: many potential investors, especially from Great

Britain and the United States, considered the first projected

issue price of the share, estimated by Air Berlinbetween 15

and 17,5 Euro, too high, particularly because of significant

risks on air transport due to high kerosene prices.

Lufthansas challenger on the German market therefore

decided to reduce the price of the share to 11,5 to 14,5 Euro,

and to postpone the introduction. The share was finally

launched on the market at the price of 12 Euro. After the

first quotation day, it had fallen to 11,40 Euro, and to 10,70one week later the Lufthansashare, however, followed

a comparable trend during that period. Furthermore, a few

days after the introduction, Joachim Hunold, Air Berlins

CEO, announced the companys kerosene taxes would be

raised by 5 Euro.

The reducing of the shares issue price may penalize Air

Berlins ambitious development policy. Joachim Hunold

wants to keep the companys number three position among

low-cost airliners in Europe (behind Ryanairand easyJet),

by opening new routes, especially to Eastern Europe and

Scandinavia, and by developing business customers. Air

Berlin also ordered 60 new Airbus jets. Two weeks be-

fore the introduction, Hunold told his company needed

290 million Euro to carry all these development projectsthrough.

Yet, whereas it expected almost 300 million Euro from the

Stock Exchange introduction, Air Berlinhas only col-

lected a net amount of about 195 million Euro to finance

its development. Will this be enough? Hunold thinks so:

he announced he would not change his plans, and his com-

pany has enough liquid assets to fund them. But he may

not have enough money left for major strategic operations,

such as external growth or aggressive pricing policy.

Air Berlinalso announced the composition of its board of

directors. The chairman is Johannes Zurnieden (Bonner

Phoenix Reisen GmbH), non-executive directors are Ec-

khard Cordes(Haniel & Cie GmbH), Hans-Joachim Kr-

ber (Metro AG), Nicholas Teller (Commerzbank AG),

Claus Wlfers(ex-Hapag Lloyd AG). Executive directors

are Joachim Hunold(CEO), Ulf Httmeyer(CFO), Karl

Friedrich Lotz(COO) and Elke Schtt(CCO).

Since he picked up in February 60%

of Germanys fourth biggest holiday

airline LTU, the businessman Hans-

Rudolf Whrl, already controlling

the low-cost carrier DBA, considershe has enough means to achieve his

ambition: Create the first worldwide

low-cost airline, and a significant Ger-

man challenger to Lufthansa.

Whrltook control ofDBA, formerly

affiliated to British Airways, in 2003.

His plan is now to combine DBAs

mainly internal German routes and

LTUs international network (USA,

Egypt, Caribbean, Sri Lanka...). Both

companies already cooperate via their

online booking system. However, no

merger is planned.

Whrl is first aiming to strongly im-

prove LTUs tricky financial situation.

In 2006, he wants to reduce the com-

panys costs by 45 million Euro, by

creating synergies with DBA, attrac-

ting new customers and reducing the

wages. By the end of April, Whrlalso

transferred 24% of the LTUshares toLTUs CEO Jrgen Marbach, in order

to enhance top managements invol-

vement in the companys results.

This coming closer of two German

most important airliners was a sur-

prise for the German air transport

sector. Last year, DBAhad picked up

Germania Expresss routes, and even

begun an online-partnership with

Air Berlin, which is still running. But

Whrls strategy makes sense given

the growing competition on the Ger-

man market. Even the traditional

airline Lufthansa now competes on

the low-cost market with his 99 Euro

Europe-round-trips.

Other less ambitious partnerships

are going on: Germanwings and

Condor, for instance, exchange ad

banners on their respective websites.

There were even rumours about col-laboration between Air Berlin, DBA,

HapagFly and HLX, finally denied.

All companies may not survive the

competition - Whrl warned LTUs

employees the airline could go ban-

krupt if its financial situation did not

improve.

If his risky strategy fails, Whrl may

choose an alternative plan for DBA,

for example a partnership with Air

Berlinor easyJet. Whatever happens,

he announced he would definitively

step out from air transport business

by the end of 2007, when he is 60

years old.

DBA-LTU Partnership Shows Hardening Competition on the German Market


5/11Air Scoop - June 2006

FROM THE GROUND

www.air-scoop.com

Inaugural Air Transport Conference ForCentral and Southeast Europe

Air Scoopwas proud to be Media partner of the Inaugu-

ral Air Transport Conference For Central and Southeast

Europeorganised by EastEuro Link Air Transport.

Under the auspices of Ministry of Transport, Posts and

Telecommunications of the Slovak Republic, this confe-

rence has been held in Bratislava, Slovak Republic, the

26th of May.

Two important speakers came to outline the LCC marketin CSEE and the perspectives of their company within.

Jim Callaghan is the Head of Regulatory Affairs with

Ryanair Limited.

Mr Callaghaninsisted on the success of low fair airlines

in Europe, based on his Ryanair experience. Ryanairs

success is due to five points: a maximisation of efficiency

(a 25 min turnaround, using both exits), a single aircraft

type fleet, the use of regional and secondary airports, a P2P

network model (no waiting for connecting passengers)and cost reduction (Internet sales, no free meals). In

two words: increase efficiency and reduce costs!

Concerning CSEE, the transition to LCCs was very sud-

den. Mr Callaghanregrets the important protectionism

from the eastern governments. Overregulation, over taxa-

tion, state aids to national flag carriers and elimination

of competition between airports are for him among the

greatest threats to liberalisation.

Chris Mandlis the CEO ofSkyEurope Airlines.

During his speech, Mr Mandl described his company

and its integration to CSEE market. SkyEuropehas five

bases: Bratislava-Vienna, Budapest, Prague, Krakow and

Warsaw. According to Mandl, the growth potential in

the CSEE area is huge because of the lack of speed and

inter-region transport. The building of a high speed trains

network or highways will take some time.

But the CSEE market is still not mature enough to focus

exclusively on leisure travellers, so SkyEuropehas deci-

ded to fly to convenient airport for business passengers.

For instance, this strategy explains the choice of Orly in

Paris (SkyEuropeis now the second LCC in Paris, behind

easyJet), and not Roissy-Charles-de-Gaulle because the

carrier doesnt need connecting traffic, nor Beauvais be-

cause of the distance from the city centre is too far for

business travellers.

This immaturity of the CSEE market has an impact ontickets sales. Because of the lack of Internet and credit

card penetration, SkyEuropedecided to offer innovativealternatives: a centre call in Bratislava, and a cash depo-

sit in the bank partners. Therefore banks have become

points of sales for the carrier.

CurrentlyOriginal

Future?



FROM THE GROUND

www.air-scoop.com

QUOTES OF THE MONTH

Our difference:

leather seats and real Italian espresso,Chris Mandl, CEO ofSkyEurope

All the people that tried to copy the Southwest model, they failed. Thepeople that succeeded were the ones that introduced little differentiation

factors. ()We are the first short haul airline in the world that sales a

real Italian espresso on board

Sky Full of Possibilities, Bratislava, May 26th, 2006.

Financial situation and financing strategy:

To finance an aggressive strategy, it was important to ac-

cess the capital market; therefore SkyEuropeis the first

airline in Central Europe to be listed on a stock exchange

(Vienna and Warsaw).

With this financial asset, SkyEuropewants to achieve cri-

tical mass, so the airline decided to order 32 new aircrafts

by 2010 (16 firm orders: 12 financed by operating leases

with GECAS, and 4 bought directly from Boeing backed

by the Bank of Scotlandand put on balance sheet). The

choice for new aircrafts is a cost issue: lower fuel burn,

lower maintenance costs and downtime, and higher air-

craft utilization and reliability.

New fleet network planning:

Thanks to the large aircraft order, the carrier will be more

predictable in the aircrafts allocation and will make early

deals with airports as they know when the aircrafts will

be delivered. SkyEuropehas three strategic priorities: in-

crease frequencies on existing routes, join the dots within

the existingSkyEuropenetwork (reducing of marketing

investments), and open new destinations to satisfy the

local needs of the respective bases. The choice of new

destinations is based on destinations which are under-ser-

viced, which are in the optimal range of two hours flighttime (because of the rhythm of two or three rotations a

day), and which may be served from more SkyEurope

bases. SkyEurope management focuses on profitability

and not just passenger volumes.

Two strategic initiatives:

Go East consists of developing East-East connections

in addition to the East-West flights and entering markets

of future European Union countries (Croatia, Romania,

Bulgaria), and maybe to Ukraine and Russia in the fu-

ture.

Winter Offensive has been launched trying to

offset the seasonality and to offer fights to at-

tractive winter ski resorts (Innsbruck, Salzburg,

Poprad/Zakopane).

6


7/11

BIRDS EYE VIEW

Air Scoop - June 2006 www.air-scoop.com

WindJet Airlines:

Looking Past the Horizon

This summer, more individuals

than ever are scheduled to take ad-

vantage of the wide range of ticket-

prices and travel locations offered

by low-cost carriers. Certainly one

of the bright spots heading into

the peak tourist months can be felt

from Cantanias WindJet Airlines.

Within the low-cost carrier indus-

try, WindJethas turned more than

a few heads, and for all the right

reasons. Consider the following:

- In 2005, WindJet moved more

than two million passengers

- The total number of flights from

2004 to 2005 increased by 274%.

Jumping from 3200 to 12,057.

- Enjoyed an increase in profits

from 23.3 million Euro in 2003 to

approximately 139 million Euro in

2005.

In short, WindJetis the only airlinein Italia that is growing.

But numbers like that dont come

by accident. According to Windjets

Commercial Director Mr. Massimo

Polimeni, it all comes down to pro-

viding a product that the public

wants. These days it seems like eve-

ry airline will promise its customers

the moon.

WindJets success is a bit more con-crete. In the physical sense, a larger

fleet of airplanes translates into a

more flexible operation and more

flights that can be offered. What

the Italian public notices either di-

rectly or indirectly is the attention

addressed to customer concerns by

the airlines Customer Management

Team and the quick turn-around

to questions by the WindJet Call-

Center staff. Adds Polimeni, ...We

try to be pragmatic about adopting

the true industrial model that go-

verns low-cost carriers. There are

a lot of companies out there doing

business and most will call them-

selves low-cost but in effect, they

are only trying to copy the pricing

model of the true low-cost air-

lines. [That isnt the way to run abusiness] and sooner or later these

other companies are going to have

problems. As a result they will lose

everytime.

WindJet has experienced pheno-

menal success with its most popu-

lar flights departing to such diverse

locations as Barcelona, Madrid, St.

Petersburg, Paris, Oslo and Bucha-

rest. Departure points are scatteredfrom Palermo and Catania in the

South and from Forl and Venice

in the North. But access to an even

larger hub in the north is the key

to even more expansion in the co-

ming years. Comments Polimeni,

When it comes to increasing our

presence, we cant really anticipate

anything until we open a base of

operations in Northern Italy. We

did in fact have a plan in motion

for just such a thing for this sum-

mer, but ultimately we decided to

re-schedule this initiative until the

winter months

WindJethas concentrated on sche-

duled activities and limiting its

commitment to charter flights and,

most importantly, it has made huge

investments in its fleet, increasing

the number of 180-seater Airbus

320 planes from 8 to 11. Further-more, a significant partnership

agreement with Lufthanza Technic

(the largest international supplier of

MRO (Maintenance, Repair and

Overhaul) aeronautical services)

assigns them technical support for

WindJets entire fleet of 11 Airbus

A320s.

Furthermore, the contract inclu-

des the supply of components tothe carriers bases in Catania and

Palermo, while also supplying its

complete range of ARC (Airframe

Related Components) services.

The low-cost carrier industry is a

competitive one. Other airlines in

Italy include Volare and Eurofly

and both have successfully managed

to grab a respectable portion of themarket share. Ryanair looms even

larger across Europe. But WindJet

stands on the brink of making huge

gains across the board as it conti-

nues to position itself as a reliable

carrier to and from Sicily as well

as other location throughout Eu-

rope. Adds Polimeni, ...Volareand

Euroflyarent actual lowcost airli-

nes. And we dont know ifAlitalia

which recently aquired Volare will transform that airline into a

true lowcost carrier. With respect

to easyJetand Ryanair, its impos-

sible to consider ourselves as their

competitors at this point because

those airlines function on another

level all together.

What that means, remarks Poli-

meni, is that WindJetcan only look

to grow by operating within its

means and allotted space. Wi-

thin 5 years we hope to experience

significant growth within our fleet

and also the number of flights and

locations we offer. Accomplishing

that will place us within the top 3

low-cost carriers in Italy with re-

gards to the number of passengers

and flights. Above all, the only way

to ensure our continued growth is

to keep moving forward, continue

to re-invest our profits as we offerunsurpassed customer service

As the halfway point for 2006 looms

into view, WindJetcontinues to be

a force to be reckoned with, and is

on track for achieving its goals of

servicing over 2.5 million passengers

-- an increase of more than 20%

over the last year.

** For more information onWindJet Airlines log on to

www.volawindjet.it

7



BIRDS EYE VIEW

Barclaycard Business Travel Survey 2006

The Barclaycard Business Travel Survey is this year celebrating its

10th anniversary. It is one of the most comprehensive business travel re-

ports in the UK and is used by many to track trends within this dynamic

and changing industry. This year, in addition to summarising the current

state of business travel, the Barclaycard Business Travel Surveylooks

ahead to the trends business travellers might experience in 2015.

The Barclaycard Business Travel Survey predicts that by 2015 half

of all business travellers will consider improved services an important

reason to choose an airline. Furthermore, the number of business travel-

lers using business class services is likely to rise from 25% in 2005/2006

to approximately 33% in 2015.

Low-cost air travel is not expected to increase further, with the le-

vel of business travellers who have used these services staying at the

2004/2005 level of 74% through to 2015.

Nearly a third (30%) of all flights taken for business are with a low-cost

provider. This year, for the first time, a low-cost airline (easyJet) has

become the second favourite airline for business travel overall. easyJet

is also seen as the number one choice within the low-cost airline cate-

gory.

Trust in the brand and the rou-

te offered have replaced relia-

bility and comfort as the main

reasons why people choose a

particular airline. This is in part

due to the airline industry, and

particularly the low-cost sector,

becoming much more brand

driven and the growing trend

for travelling longer distances.

In 2005/2006, when asked

which methods they had used

for checking into airlines in the

previous 12 months, traditional

check-in was still the most wi-dely used, although the majori-

ty prefer the newer technology-

based solutions.

It is predicted remote electro-

nic check-in procedures will be

preferred by almost all (90%)

business travellers in 2015.

The survey can be downloaded here:

http://www.companybarclaycard.co.uk/information_centre/tibs/tibs2005_06_survey.pdf



BIRDS EYE VIEW

9

The original business model of Low Cost Carriers has been

based on few simple points: a single product (single class,

no-frills, no frequent flyer program), a secondary airports

policy, a point-to-point development strategy, and a low

operational cost (single fleet, direct sales distribution).The whole system is based on quantity which implies that

LCCs must constantly develop their load factor to reach this

critical mass. As price is THE main weapon against legacy

carriers, a war on price between LCCs could be dreadful.

So at first LCCs intended to avoid such direct confrontation.

The result: In 2005, LCCs had a fifth of the European mar-

ket, and in 2009, it should be a third. Ryanairand easyJet

still control 88% of the European LCC market.

This system is no longer the European market reality. In fact,

it is now impossible to talk about a single business model for

LCCs. Thats the main reason why Air Scoophas been crea-

ted: to analyse these differences and to study their evolution

to dominate the market and competitors.

LCCs will face both internal and external evolutions. While

airlines management can handle and drive first ones, they are

heavily dependent of the seconds.

We may focus on four main internal evolutions for LCCs:

Restructurationimplies getting new extra-revenues sources, opting for IPO strategy or not Consolidationof the mar-

ket could happen through partnerships, franchises, buyouts Externalisationof services like pilots, cabin crews, ground

handling will be one option to reduce heavy operational costs as airlines keep growing. Distributionwill evolve to cut

prices by all means (websites, supermarkets).

On the other hand, external factors, such as constant rise of fuel price, airports mutation (read the article on French Con-

nect), the global economy growth, and even the technology break-out, have a deep impact on these internal evolutions. Formanagements, evolution means corporate adaptation in order to survive. These adaptations will lead to a new generation

of LCCs, far from their genuine business model. Systems in mutation are always subjects to instability. This instability

occurs in a time of strong competition between LCCs for similar routes and airports.

Internal and External Factors of LCCs Business Model Evolution

The Low Cost Air Transport Summit

is a strategic conference dedicated tothe rapidly expanding low cost sector,

held in the historic London venue of

One Whitehall Place.

The summit is organised by the Insti-

tute of Economic Affairs (IAE) which

is considered as one of the worlds lea-

ding policy think-tanks.

The main topics of the summit will

be about Competition, Regulation,

Consolidation, Cost-efficiency and

Emerging Markets.

This event comes during a period

when the low cost industry is in high-

growth mode, and where the rewards

on offer attract massive competition as

well as the watchful eye of the regu-

lator. Furthermore, a restructuring le-gacy sector is eager to capitalise on the

growth which successful newcomers

have experienced, and these competi-

tive and regulatory pressures compel

low cost carriers to develop incisive

strategies if they are to succeed.

The summit will last two days with

four sessions each day.

Day 1: Facing the global challenges

of competition & regulation; Future

trends, future challenges; Defining

your strategy in a crowded marketpla-

ce; Exploring emerging markets - An

international panel.

Day 2: The Low cost model - Crea-

ting value, maximising efficiency;Fleet strategy - Planning for the fu-

ture; Exploring innovative business

models; New routes, new airports.


will gather industry leaders, analysts of

the market, aviation associations...

Some european airlines represen-

ted during the summit: Ryanair, Air

Berlin, Sterling, Sky Europe, Ger-

manwings, FlyBe, MaxJet, FlyNor-

dic...

Air Scoop will cover the conference

and provide a detailed debriefing in

our next issue.


12th and 13th June 2006

One Whitehall Place, London



FROM THE GROUND

www.air-scoop.com0

The 2006 Worlds Low Cost Airlines Congress

Air Scoopis proud to be the Media partner of the 2006 Worlds Low Cost Airlines Congress.

French Connect to

Anticipate

Airports Mutation

The third edition ofFrench Connect,

the Low Cost forum for French air-

ports, took place in Marseille, May

9th to 11th. This forum gathered

the community of low cost carriersmarket, from airlines and airports

managers to analysts, investors and

journalists. The choice of Marseille

for the forum has been strategic as

the airport faced passengers loss

since the opening of the TGV rail

route. The Mediterranean airport

bets on LCCs to gain back passen-

gers. The impact of this type of

conference has been quite impres-

sive on French LCC market, as 66

new low cost routes were created

in France during the year following

the latest edition in 2005.

During the last decade, regionalFrench airports mainly invested in

heavy facilities. Nowadays, their

strategic approach is different as

low cost carriers are included in

most airports business models. The

mutation is ongoing: From a tran-

sit place designed for departures

and arrivals, airports are evolving

to a market place. Analysts notice

that recent evolutions of secondary

airports are quite similar to LCCs

ones. The objective is to raise the

profitability by reducing constant

operational costs and by adding ex-

tra-revenues. Airports bet on stores

and lights facilities, like in Fran-kfurt-Hahnairport where stores are

now covering 3300 m2 (just 180 m2

in 2002).


11/11

FROM THE GROUND

Air Scoopis a Registered Trademark ofGlobal Wings Publications.

Subscription to Air Scoop: 290 euros for 1 year (12 issues)

Copyright 2006 - Unauthorized distribution or reproduction is forbidden.

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

UPS AND DOWNS

EuroAirport:

Low Cost Carriers Unwanted

The Administrative Court of Strasburg has de-

manded the abolition of the incentive measures

stipulated in the new EuroAirport (Basel-Mul-

house-Freiburg) tariff regulations, after a claim

filed by Air France.

This justice decision is a bad news for easyJetthat chose EuroAirport

as a major base in the area. easyJetalready deserves 18 destinations

to many different countries, and designed the airport to be a Ryanair

Frankfurt-Hann like.

This case occurs three years after a similar justice decision invol-

vingRyanairin Strasburg-Entzheim Airport. The airline finally left

the French airport in fall 2003 for the nearby German Baden-Baden

Airport.

www.easyjet.com

1

BLOGS TREND

Ryanair had three important blog peaks in May.

The first peak is due to the investigation of the Irish

Aviation Authorityagainst Ryanairs airplanes that

landed at Stansted Airport when visibility was be-low minimums. The second peak occurred in the

middle of the month when Ryanairannounced the

settlement of its new base in Marseille. This move

is seen by many as a sign of further activities de-

velopment in South Europe (Morocco). Finally,

the most important peak of the month happened

because of the conjunction of two events. First

one, Ryanairhas gone to court to find out who is

behind messages on its pilots website and to know

the identity of those people who go under the codenames

ihateryanair And second one when Michael OLearyresponded to a challenge ofLOT. The Polish national air-

line said that Ryanairwould drop their trousers for extra

publicity. Right! Michael OLearydeclared he would walk

naked through Warsaw ifLOTremoves the fuel surcharge

on its tickets by the end of May.

easyJetweblog coverage is as usual lower than Ryanair.

Two peaks can be identified, but they both relate to the

same event: Flight attendants and ground staff have to vote

on industrial action in a row over the handling of a pay

offer. easyJetmanagement has faced a tense month as they

waited for a verdict from flight attendants and ground staffon the contested pay deal. As they know, this could lead

to a strike that would disrupt the airlines crucial summer

season

Air Berlinhas the lowest weblog coverage of the three Eu-

ropean LCC leaders. The unique main peak of the month

concerns its IPO. Air Berlin announced first they would

postpone its planned stock market flotation, and then they

would cut price of IPO. With this price cutting, Air Berlin

will lose out on 100m euros from the initial 290m euros.

Ryanair: Still the Largest Weblog Coverage

air scoop june 2006

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