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Highlights in this Issue

Air Canada Changes the Fare Game p. 3


SWOT Analysis of Ryanair p. 8
Environment and LCCS: Beware of Flying! p. 14
(R)evolution of Ryanair’s Business Model p. 16
French Connect: France: A Challenging Market for LCCs p. 17
The Low Cost Carriers Analysis Newsletter
AIR SCOOP ANNOUNCEMENTS
EDITORIAL 2007 Ancillary Revenue Airline

W
hile LCCs have still difficulties to open routes in France, Conference (ARAC 2007)
French Connect 2007 took place in La Baule gathering
top executives from French airports and European low- November 14 and 15 in Frankfurt
cost carriers (p. 17).
Air Scoop is 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
Information has teamed up with the leading
research consultancy in airline ancillary re-
venues, IdeaWorks to produce this ground-
breaking event.

President of IdeaWorks and chairman of


ARAC, Jay Sorensen defines ancillary reve-
nues as “Revenues beyond the sale of tickets
that are generated by direct sales to passen-
If France doesn’t welcome LCCs, it is not the case of Central and gers, or indirectly as a part of the travel expe-
Eastern European countries. For instance, Romania has now its own rience.” This definition includes the commis-
LCC with Blue Air (p. 2) and Tcheck Republic proposes many op- sions earned by many airlines on the sale of
portunities despite important challenges (p. 6). hotel accommodations, car rentals and travel
Headlines about LCCs market point out ‘Environment’ as one of insurance.
the main issue, if not the most important (p. 14). Therefore, Flybe
has decided to lead an initiative by launching soon an eco-label pro-
viding more environmental information about airlines and aircrafts
(p. 16).
Finally, Air Scoop publishes a SWOT analysis of Ryanair (p. 8) as
many analysts predict an evolution, if not a revolution, of its busi-
ness model in the coming years (p. 16). Meanwhile, rivals have sued http://www.airlineinformation.org/confer-
the Irish carrier for unfair competition and misleading advertising ences/2007_ARAC/arac_intor.html
(p. 14).

French Connect 2008

Next year, French Connect will take place


from 9th to 11th April 2008 in Courchevel.
Keep checking www.FrenchConnect.net for
updates on the new programme format.

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


BIRD’S EYE VIEW
Exclusive Interview of Gheorghe Racaru Gheorghe Racaru
(General Director of Blue Air) General Director of
Blue Air

Romania’s single LCC, Blue Air has been created in 2004 and is operating four aircrafts.

Blue Air is a young company. How is your evolution since your creation?

Our first destinations from Bucharest were Timisoara, Milan, Barcelona and Lyon. We now offer 18 destinations, in Italy,
Spain, Germany, Belgium, France, Turkey and Portugal. For some of them, we also start from the Romanian cities Bacau,
Arad and Cluj-Napoca.
We had 55 employees at the beginning, and now over 240. In 2005, we carried more than 240,000 passengers and a little
more than 443,000 in 2006. Our turnover exceeded 24,000,000 Euros in 2005 and 47,000,000 Euros in 2006. For 2007,
we expect 80,000,000 Euros, and over 800,000 passengers. All our destinations, including the new ones, have a good load
factor. For 2006, our total load factor was 77%.

Romania has a fast-growing economy and a strong Diaspora, but it still has weak wages, a small penetration of
credit cards… How do you adapt your model to this reality?

We offer our clients a large number of possibilities to purchase tickets: Blue Air tickets can be bought not only online or
through our call-centres with a credit card, but also in cash from our ticketing agencies and over 2000 tourism agencies,
in Romania and abroad. For our Romanian clients, we also offer the possibility to book the tickets and pay them at the
bank.

Romania has entered the EU in 2007. How does Blue Air react to the growing amount of European low-cost airlines
flying to Romania? Will your company be able to compete?

The entrance of Romania in the EU has opened the sky for everyone. This competition will ultimately increase the qua-
lity of service and lower the prices.

Since October, you are operating internal flights in Romania, challenging the national company Tarom. Do you plan
to develop this strategy?

At the moment, we do not intend to introduce other domestic flights. We are focusing on strengthening our current des-
tinations and open new international routes. In 2007, we intend to introduce flights to Stuttgart, London, Zurich, Greece
and Cyprus.

Will small companies like yours be able to survive on the low-cost market in Europe?

It will depend on the markets they are operating on, and how smart they will be to take advantage of market potentials.
My own point of view is that, in the near future, we will see a kind of consolidation on LCCs operations, most probably
on the regional level.

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Air Canada Changes the Fare Game with a la Carte ‘‘IDEAWORKS AISLE’’
Pricing

Coverage continues this month on the “click and buy”


method of selling travel to airline consumers. Last month’s
by Jay Sorensen
column reviewed the marketing innovations introduced
(President of IdeaWorks)
by Australia’s low fare airline duo of Virgin Blue and JetS-
www.IdeaWorksCompany.com
tar. The topic remains the same, but the airline presented
here is a very different breed. This article reviews the a la
carte pricing program developed by a legacy airline based
in the Northern Hemisphere - - Air Canada.
The pricing strategy designed by Air Canada is complex
The airline’s decision to make a radical redesign to its but great care has been taken to present it in a consumer-
pricing strategy was prompted by the SARS epidemic friendly manner. The airline took a unique path by only
in 2003. Bookings on Air Canada plummeted after the offering these fares at the Air Canada web site; the fare
World Health Organization advised travelers to avoid brands are not available to offline consumers. This per-
the airline’s primary hub city of Toronto. Top manage- mits the airline to have complete control over the sales
ment at the airline had previously discussed plans to re- process and to maximize ancillary revenues. The number
vamp the complicated fare structure that was symbolic of features provided by each fare brand is determined by
of a legacy airline. The extreme revenue drop created by the amount paid for a ticket. Lower priced fares provide
the SARS epidemic lowered the risk of introducing a new fewer features, while higher priced fares provide extra
fare scheme; the airline’s financial fortunes could only be service and perks.
helped by a change in strategy.
Consumers are encouraged to “move up” to a higher fare
The result could be best described as a hybrid offering brand through the promise of more service and features.
simple one way fare structure of Ryanair and the cabin But even within a fare brand, the consumer is tempted
class branding savvy of Virgin Atlantic Airways. Air Ca- with modestly priced a la carte features that are the retail
nada likely leads all other airlines in the effort taken to equivalent of the impulse items stocked by grocery stores
explain an unbundled pricing program to consumers. The in check-out lanes.
airline offers four fare brands to its domestic and Canada-
USA travelers: Tango, Tango Plus, Latitude, and Executi- Air Canada’s pricing strategy appears to be working.
ve Class. The first three fare brands apply to the economy Revenue per available seat mile (ASMs) in the domestic
class cabin, with the Executive Class brand providing a market has increased by more than 22% since the strategy
seat in the cabin of the same name. Similar fare brands began in 2003 (1). Additional statistics provided by Air
have been created for the airline’s routes to Europe, Israel, Canada reveal 48% of consumers do “buy up” to the hi-
and the Caribbean. Air Canada plans to continue expan- gher priced fare brands.
sion of the simplified fare structure to more destinations
worldwide. Tango is the lowest priced fare brand and is designed to
compete with Air Canada’s primary low cost compe-
The following describes the brand personalities created titor, WestJet. In a recent presentation to bankers, Air
by Air Canada for its a la carte pricing strategy. The ima- Canada stated it would not be undersold, and made di-
ge is from a page at Air Canada’s web site that provides rect reference to a quote attributed to Clive Beddoe, the
consumers detailed descriptions of the features associated President and CEO of WestJet: “Air Canada matches us,
with each fare brand. dollar for dollar on every single fare, every single minute

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single day.” This demonstrates the importance of the Tango fare brand as Air Canada’s tool of choice for competing
with low cost carriers.

Consumers choosing the lowest-priced option receive a basic transportation experience. Readers should note, unless
otherwise described, all prices in this report are presented in U.S. Dollars. Tango requires the consumer to rely on self-
service, as booking a ticket through the call centre will cost an extra $17 per passenger. The service fee even applies if
rebooking is requested at the airport for changes that don’t occur on the day of departure. Advance seat selection costs
$13 each way, and a $7 (Canadian) snack voucher can be pre-purchased at the reduced price of $4 (or $5 Canadian).
Tango (and Tango Plus) travelers also accept a lower rate of accrual for Aeroplan frequent flier program mileage as a
tradeoff for a lower fare.

The a la carte options are presented to the consumer as they navigate the booking process on the web site. The choices
may at first seem overwhelming, but conversations with Air Canada reservation agents indicate most consumers are
quick to grasp the concept. Consumers may customize their choices for the outbound and return trips of a travel itine-
rary.

The following table (2) offers a sampling of some of benefits associated with each fare brand for domestic Canada, and
Canada-USA travel. “Yes” indicates the feature is included as a feature of the applicable fare brand.

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Air Canada has an exceptional buy-on-board food and be- tional discounts it offers to consumers. Travelers can save
verage service. The pre-purchase option provides a tangi- $4 each way if they choose not to check baggage. Howe-
ble savings incentive to the consumer, and allows the airline ver, once they have accepted the “No Checked Baggage”
to better plan the provisioning of a flight. Consumers may option, they will be charged $43 at the airport to check
view menus at the Air Canada web site. The choices offe- two bags each way. Opting out of Aeroplan mileage ac-
red include fresh foods such as Subway sandwiches, sliced crual saves an additional $3 each way. Waiving the ability
carrots and apples, chicken Caesar salad, and hot entrees. to make itinerary changes or cancellations saves an additio-
The airline has even borrowed the concept of value meals nal $6 each way.
from the fast food industry by offering onboard savings for
sandwich, chips and bar beverage purchases. The following table (3) lists the optional discounts associa-
ted with each fare brand offered by Air Canada for domes-
tic Canada, and Canada-USA travel. Blank boxes indicate
The pricing strategy is especially innovative due to the op- the discount is not applicable for a specific fare brand.

Additional marketing elements have been integrated into 1. Air Canada management presentations, National Bank
the booking process. The Tango fare brand may detract Conference, March 28, 2007, AirCanada.com.
from the effectiveness of the Aeroplan frequent flier pro- 2. Information gathered from the Air Canada web site,
gram by allowing consumers to opt out of mileage accrual. Simplified Fare Options Page, April 17, 2007, AirCanada.
However, the Latitude and Executive Class fare brands com/en/travelinfo/destinations/simplifiedfare.html
strengthen Aeroplan’s allure by allowing hotel and car 3. Information gather from the Air Canada web site,
rental partners to make highly-targeted offers to upscale Simplified Fare Options Page, April 17, 2007, AirCanada.
travelers. The airline likely realizes additional ancillary re- com/en/travelinfo/destinations/simplifiedfare.html
venues through the commissions paid by partners when
travelers choose special offers. Sources used in this article: Unless otherwise noted, the information
described in this analysis were gathered at JetStar.com during February
and March 2007.
Air Canada’s pricing strategy has evolved since its in- IdeaWorks cannot guarantee, and assumes no legal liability or respon-
troduction in 2003, and will probably continue to change sibility for the accuracy, currency or completeness of the information.
as the carrier learns how to best market and sell airline
tickets and ancillary services through its web site. There is EVENTS
room for improvement, but the current strategy appears
to already surpass the efforts of most low cost carriers,
and probably all legacy airlines. It’s an amazing achieve-
ment for an airline that was once on the precipice of ex-
tinction and was not regarded as an industry innovator.
Clearly, Air Canada has changed the fare game in the Ancillary Revenue Airline Conference 2007. Ideaworks
Canadian marketplace, and perhaps has influenced how co-organizes the event with Airline Information. ARAC
legacy airlines compete with low cost carriers. 2007 will be held November 14 and 15 in Frankfurt.

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BIRD’S EYE VIEW
SWOT TEAM
SWOT Analysis of Ryanair

Air Scoop launches 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.

The no-frills carriers have created new markets, and ope- nal flight with a 15 seat turboprop aircraft flying between
ned up air travel. A greater proportion of their passengers Waterford and London Gatwick. In 1986, adding a second
are people who previously were using other modes of route between Dublin-London Luton, they carried 82,000
transport for travel, while a certain proportion are from passengers in one year.
traditional carriers. Relying as they do on linking region
to region and by-passing ex¬pensive big-city hubs, low- Today, Ryanair is Europe’s largest low fares airline with
cost carriers have caused rise in local employment. There 19 bases and 456 low fare routes across 25 countries. It will
is parallel growth in tourism; a rise in property investment have 19 European bases by the first quarter of this year.
and new businesses credited to good, cheap logistic con-
nections. Michael O’ Leary, the current CEO of Ryanair was res-
ponsible for launching the first unique low fares, ‘no-frills’
One of the strongest characteristics of the no-frills busi- airlines in Europe. Flights were scheduled into regional air-
ness model is the ability to adapt rapidly to circumstances. ports that were keen to attract new airlines, and offered
Cost savings of the no-frills business was achieved by ef- lower landing and handling charges than larger established
fectively supplying a single standard service on all routes international airports. Michael O’Leary, known for his
and improving both labor and aircraft productivity. pugnacious and aggressive management style, employed
a flat management hierarchy and vigorously followed the
Ryanair’s Chief Executive, Michael O’Leary’s, once low cost policy, on all fronts.
claimed that “Low-cost airlines are the new Europe». This
seems to have been amply proved by the tremendous im- The EU deregulation of aviation industry in 1997 helped
pact LCC have had on Europe. Ryanair’s growth and expansion into Central and Northern
Europe. It made a successful floatation on the Dublin Stock
Ryanair and easyJet are the leading low cost players ow- exchange and NASDAQ, making it rich in capital enabling
ning around 50% of the share in the European LCC mar- it to place a massive US$2 billion order for 45 new Boeing
ket. 737-800 series aircraft in 1998. Since then Ryanair has not
looked back, but grown stronger and currently is the most
Ryanair is an Irish airline headquartered in Dublin. Its dynamic airline in the European markets.
biggest operational base, however, is at London Stansted
Airport. It is Europe’s largest low-cost carrier and one of Current Status: This year Ryanair Holdings plc (on
the world’s largest and most successful airlines in terms Feb.12, 2007) has a NASDAQ listed market capitalization
of profits, number of flights and number of passengers of $5.6 billion, which will be used in the NASDAQ-100
flown. Index weighting, and a worldwide market capitalization
of $12.3 billion.
Ryanair is also one of Europe’s most controversial com-
panies, praised and criticized in equal measure; praise for In the year ending December 2006, Ryanair’s average re-
its commitment to low fares, radical management, and its venue was $2,190 million, with a growth rate of 28%. Its
willingness to challenge the ‘establishment’ within the air- net income was about $314 million with a 5-year growth
line industry and criticized for its trade union policies, hid- rate of 23% approx. The increase in passengers for the rol-
den «taxes» and fees, and limited customer services, and ling 12 month period ending February 2007 was 24%. Over
misleading advertising. In October 2006, Ryanair was vo- the period Oct 06 - Feb 07, stock value rose by nearly
ted the world’s most disliked airline in a survey conducted 50%. Increase in EPS was 29% in Q3, 2006.
among 4,000 of its users by TripAdvisor website.
Ryanair currently employs a team of 4200 people and
Overview of Ryanair: expects to carry approximately 45 million passengers this
year, making it the world’s largest international scheduled
History and Growth: Ryanair, founded in 1985 by Irish airline. It operates 134 new Boeing 737-800 aircrafts with
businessman Tony Ryan, started operations as a regio- firm orders for further 117 new aircraft to be delivered

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BIRD’S EYE VIEW
over next 5 years. This increase in fleet would permit Rya- cover operating expenses of Ryanair. To sustain growth of
nair to expand passenger base from 45 million in 2007 to operating margins and reassure shareholders, Ryanair has
85 million in 2012. adopted stringent cost cutting measures and strengthened
ancillary activities.
Among Ryanair’s main low-cost competitors are easyJet,
Monarch Airlines, Bmibaby, Air Berlin, Germanwings, Some of the cost cutting measures are:
Transavia, Jet2, SkyEurope, Vueling, WizzAir, Flybe,
Thomsonfly and TUIfly. In 2004 approximately 60 new 1. There are no window shades, no seat-back reclines and
low-cost airlines were formed. Despite traditionally being seat-back pockets, thus leading to increased number of
a full-service airline, Aer Lingus moved to a low-fares stra- seats and reduced cleaning and repair costs.
tegy from 2002, leading to much more intense competition 2. The staff has to pay for their own training, uniforms and
with Ryanair on Irish routes. meals and the staff is not allowed to unionize.
3. Very short turnarounds of aircraft which increases air-
On Oct 5, 2006 Ryanair launched a €1.48bn (GB£1bn; craft utilization.
US$1.9bn) bid to buy Irish carrier Aer Lingus. Aer Lingus 4. Staff takes on multiple responsibilities like cleaning the
rejected the offer as unsolicited, opportunistic and too low passenger cabins and also welcoming passengers on board.
and later EU stalled it. Ryanair has raised its stake in Aer 5. Aggressive fuel hedging to offset fluctuating fuel prices.
Lingus to 25% in Nov 2006 and plans to make a second bid
later this year. Alliance of Aer Lingus shareholders - inclu-
ding the government, Aer Lingus pilots and an employee Sources of ancillary income are:
trust hold more than 45%.
1. Customers are charged for priority boarding and assigned
Business Model of Ryanair: Ryanair’s business model is seating. Families would end up paying priority boarding fee
stated to be a disruptive model within the European avia- as they would wish to sit near each other.
tion sector. A disruptive business model challenges the 2. Food, water and drinks are sold to passengers at a price
strategies used by the existing, often well-established bu- on flights. There are no exceptions in catering services even
sinesses in the market. Its primary focus has been on price when passengers are stranded due to flight delays or can-
sensitivity of customers. cellations.
3. Ryanair was the first airline to charge a fee for check-in
The major features of this LCC are: baggage. This deters passengers from carrying extra luggage
and reduces baggage handling costs. Charges are increased
1. Lowest ticket prices to any place in Europe. for checking in baggage over telephone or in person.
2. Differential pricing of fares. 4. There is an ‘Irs & Wchr’ levy (insurance & wheelchair)
3. Usage of secondary and smaller airports. added to all passenger ticket fares.
4. 100% E-tailing of air tickets. 5. A new ‘pay as you weigh’ policy has been introduced this
5. Flying only single model of aircraft year. Under this policy, passengers exceeding the airline’s
6. Increased capacity of airplanes and lowest threshold to recommended flying weight will be charged an increasing
travel to achieve highest seat density scale of penalty charges for the extra fuel costs they incur
7. Short turnaround and maximum utilization of aircrafts. the airline. Ryanair customers will be required to give de-
8. Every additional service is charged tails of their height and weight at the point of booking.
9. A flat management structure 6. Ryanair earns from its website, (15 million unique visi-
10. Non-unionized labor force tors each month), commissions from sales of Hertz rental
11. Aggressive fuel hedging cars, hotel rooms, ski packages, and travel insurance.
12. Continuous innovative measures to increase ancillary 7. Ryanair planes have become giant billboards, displaying
earnings* ads for Vodafone Group, Jaguar, and Hertz. Ads will also
13. Stringent cost-cutting measures employed. be featured on seat back trays.
14. Main Base location in high traffic zone (London-UK) 8. Flight attendants sell everything from scratch-card games
15. Focus on routes with large non-business potential to perfumes and digital cameras.
9. On arrival at any of its secondary airports, the passengers
can buy a bus or train ticket to travel to city/town centre
*Ancillary income generation and cost cutting measures: from Ryanair.
10. It has also launched online gambling on its website and
Money generated by tickets has never been sufficient to plans to offer them on flights, after the introduction of on-

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BIRD’S EYE VIEW
board mobile phone service this year. impact, criticizing politicians , disabled passengers)
4. Latest absurd ancillary charges (fat tax, wheelchair char-
All these extra-revenues are essential to Ryanair to meet ge, check-in baggage charges, refund handling charges etc.)
rising fuel prices, to offset low revenues from the tickets 5. Its strict policy of communication to passengers only
and to show good results at the stock market. through e-mail, while passengers can reach it only by pre-
mium rate phone line
ISSUES: 6. Poor services to passengers in and off the flights
Ryanair has transformed itself from an industry minnow 7. Leadership succession issue
into one of Europe’s biggest airlines over two decades.
However, its obsessive focus on the bottom line has den-
ted its public image. Chief executive Michael O’Leary has SWOT ANALYSIS:
been an outspoken critic of rivals and the industry. The air-
line refuses to recognize trade unions and has opted not to The SWOT analysis given below should help Ryanair to
join industry groups such as the International Air Trans- achieve their mission and goals by capitalizing on opportu-
port Association, which accounts for 94% of the world’s nities using their strengths and eliminating their weaknes-
air traffic. Ryanair does not recognize the Irish Airline ses and threats.
Pilots’ Association (IALPA), although it is the largest pi-
lots’ union in Ireland. It prefers to plough a lone furrow, The vision and goals of Ryanair are:
targeting rivals with relentlessly aggressive advertising cam-
paigns. - to be the biggest and most profitable low fares airline in
Europe”.
Some of its major issues are: - to make Low cost is a “management religion” and be air
fare passive.
1. Misleading advertisements and cluttered website - to target growth, actively manage load factors and the
2. Its negative public image contributed equally by both its cost base, and
aggressive CEO and unfriendly staff. - growth will be based on opening new airports.
3. Immature handling of sensitive issues (environmental

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BIRD’S EYE VIEW

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BIRD’S EYE VIEW
Challenges and Recommendations for the future: which is an environmental hazard. Hence Ryanair has to
combat it with pro-nature conservation moves.
1. Low-cost carrier market expansion will probably slow 5. The economy traveler segment can be divided into
significantly in the next five years as new opportunities be- lowest price segment and value-price segment. Ryanair is
come more limited. As this growth slows, labor costs will already the leader in the lower price segment, but would
continue to rise for the low-cost carriers, in all likelihood have to cater to the rapidly growing value segment for total
reducing the advantage they once enjoyed. Ryanair must domination in the economy segment. The value segment
be prepared for the inevitable convergence of costs and constitute travelers interested to optimize time, comfort
conditions, but it will still retain the ‘no-frills’ advantage and price. This would mean preference for city-centric
of high seat density and aircraft utilization coupled with airports, convenient departure and arrival times, and basic
lowest fares in any market. service coupled with the willingness to pay little more for
2. Ryanair’s domination in the low-price market segment the comfort.
will continue but to become the biggest player it will have 6. Competitors like easyJet, Air Berlin, Basic Air,
to expand into more popular routes which will entail bet- BMIBaby are catering to the Value market segment and
ter service and good customer relations. This will require have established slots at some primary airports and provi-
high employee retention which is key to customer satis- ding basic cost effective services. Acquisition of Aer Lin-
faction. The business philosophy should be ‘smile, charge gus or a merger with a similar airline would enhance Rya-
and serve’. nair’s showing in stock markets and also facilitate quicker
3. Stock market earnings are totally based on growth, ex- expansion into value-oriented market segments without
pansion and high operating margins. This can be sustai- comprising its top position in the low-price segment.
ned by Ryanair in the existing market conditions. But
these conditions are dynamic. Competitions with other Conclusions
established modes of transport in the low price segment
will intensify in certain regions. Hence growth will slow Ryanair is the only airline that has been completely focu-
down. The current major growth areas in Europe are in the sing on Low Price segment and with the creation of this seg-
Eastern regions. So it will have to launch new operations ment has shown staggering growth rates of 30% and more.
in non-European territories like Russia and Turkey. This Combined with an excellently executed low cost business
would require off-base (like crew lodging in areas not ha- model and high profitability, Ryanair will emerge as one of
ving home bases) service operations increasing operational the clear winners from future market consolidations.
costs. This will cut into its operating margins. On the other
hand, improved service image can have a positive impact The key challenge for Ryanair in the next couple of years
on share prices. Hence the Stock market earnings will con- therefore is developing a successful strategy for not only
tinue to be vulnerable to market dynamics. winning the war in the Low Price segment but gaining a
4. Rapid growth of secondary airports will definitely in- solid position in the Value segment and in new non-Euro-
crease noise pollution and carbon emissions in remote areas pean markets.
EVENTS
2nd Air Transport Conference for CSEE

Air Scoop is 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. http://www.transport.easteurolink.co.uk/air_Upcoming.html

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Environment and LCCS: Beware of Flying!

Ecological food and ecology friendly cars were the first. change was the number one question, Peter Gabriel, for
Then companies that seriously care of the environment example, assumed that overall flights in the world would
grew in favour. Apparently, people’s world view is gra- be reduced in a short span of time since they would sim-
dually changing towards the idea that it is good to be ply become unpopular amongst people. And Prince Char-
“green” and a vast number of passengers with nature frien- les in turn cancelled his ski trip to Switzerland to reduce
dly behaviour is about to emerge. his personal carbon footprint. It seems like executives and
other Cabinet members are about to accept virtual com-
The idea that air travel poses a grave threat to the envi- munication which would undoubtedly have an impact on
ronment was first scientifically proved in 2004 when the common people’s mind.
University of York think tank group published its report
saying that air industry expansion placed the whole planet Obviously, responsible-traveler-behaviour contradicts
under risk. Emission limiting cannot be achieved unless budget-traveler-behaviour. With LCCs people could tra-
flights are reduced, said the report. Scholars also suggested vel more often than they do it with legacies. Shop-tour in
businessmen using technological advancements such as vi- Barcelona, culture-vulture-trip to Stockholm, weekends
deo and internet conferences and live link-ups instead of somewhere in the UK have become usual things for many
traveling. Governments were recommended introducing people and not all of them are ready to give up air trave-
“environmental taxes” for each flight. Today anyone is of- ling in favour of alternative means of transport. However,
fered to offset his/her emission by buying special carbon statistics shows that in Britain people are willing to travel
offsets either with the carrier or at special online shops slower, longer and less in sake of the environment. No
such as CarbonFootprint after calculating his/her per- wonder ethic traveling is popular in the UK since the Bri-
sonal CO2 emissions with a carbon footprint calculator. tish are Europe ecology pioneers. The question is whether
For example, London –Barcelona return flight will pro- those tendencies will find fertile ground in other coun-
duce 291 kg of CO2 and it costs £4.29 per passenger. That tries.
money would be invested into tree planting in the Great
Rift Valley in Kenya. There are numerous other web-pro- Hardly any would doubt the idea that anything good in life
jects that advocate the idea of flights reduction and people is either illegal, immoral or harmful. Such sort of things
changing their consumer behaviour, such as Responsible should be chosen consciously, for people to be ready to
Tourism Awards and Climate Care. pay for them. Apparently, that was the logic of Institute
for Public Policy Research that called for a visible warning
Passengers are encouraged to change their consumer be- message to be placed on any product related to air travel-
haviour not only by scientists but by public figures. Du- ling. “Flying causes climate change” will say a travelling
ring the World Economic Forum in 2007, where climate line at the end of any airline commercial.

Ryanair Sued by its Rivals


Iberia sues Ryanair for 2 Million Euros for unfair competition. The Spanish
carrier has accused the LCC of cutthroat competition and denigrating its brand
name during a promotional campaign in September 2006. Ryanair promised
free flight vouchers to anyone turning up at Barcelona’s Plaza de Catalunya with
placards criticizing Iberia. “Ryanair did not write the placards, Spanish consu-
mers did”, Ryanair declared.
While thousands arrived asking for their tickets, the crowd turned hostile when
Ryanair ran out of vouchers; Sinead Finn, Ryanair’s head of sales and marke-
ting for Europe, even had to be rushed inside a police station for her own protec-
tion. The Catalunyan Consumer Affairs Agency opened an investigation after
receiving more than 150 complaints. Iberia confirmed that the lawsuit had been
filed: “It has nothing to do with being scared. It has everything to do with competing airlines acting within law”.
Meantime, LOT has also sued Ryanair for publishing controversial advertisements as they describe LOT’s tickets as
“robbery” and “theft”. One of Ryanair’s press release was even entitled “LOT’s fuel surcharge is daylight robbery”. LOT
declared that the campaign was dishonest and insulting, and wants written apology for Irish carrier.

12 Air Scoop - May 2007 www.air-scoop.com


DOWN TO EARTH

Thxxxx
Fridaxxxx

13 Air Scoop - May 2007 www.air-scoop.com


BIRD’S EYE VIEW
Exclusive Analysis for Air Scoop

www.airlinebulletin.com

(R)evolution of Ryanair’s Business Model (part 2)


Ryanair is also examining the prospect of expanding into tions. Ryanair will probably offer neither in the coming
larger airports. years, and as a result, it may not attract the legions of busi-
Ryanair, unlike its low-fare rival easyJet, has meticulously ness travelers it desires, even if it offers significantly lower
avoided many central airports due to high fees and longer fares than legacies. Therefore, Ryanair must target leisure
turnaround times. Ryanair has avoided central airports in travelers and others who prefer larger airports, not neces-
numerous cities where easyJet operates from them, inclu- sarily business travelers. It’s unlikely that Ryanair will signi-
ding Barcelona, Brussels, Copenhagen, Paris, and Venice. ficantly trim flights at secondary airports if it adds service
Ryanair also has large operations in secondary airports at primary airports, because the new service will augment
near Dusseldorf, Frankfurt, Glasgow, Rome, Stockholm, the old service by enabling Ryanair to target different con-
and of course, London. While it’s unlikely Ryanair will sumer groups that currently don’t use Ryanair because of
enter Heathrow anytime soon, due to its slot restrictions the secondary airport issue. Some service may be trans-
and very high costs, Ryanair may enter primary airports ferred from secondary airports to primary airports, but
in other cities where it already has bases at secondary air- Ryanair will primarily grow its passenger numbers from
ports. Ryanair will try to target travelers who prefer the these larger airports, not simply transfer passengers from
convenience of a larger airport, typically closer to the city one facility to another.
center, and who are willing to pay a price premium for that
privilege. That price premium will compensate not only Ryanair will need to add longer routes, as well as routes
for the higher fees that Ryanair will pay at the airport, to and from central airports if it wants to meet its five-
but also for the longer turnaround times that Ryanair may year growth targets. However, Ryanair must do both ca-
encounter. refully, in a way that modifies its business model without
destroying its cost advantage over other carriers. If it can
However, Ryanair must target its new customer base ca- do so, it will, without a doubt, be Europe’s leading airline,
refully. Many business travelers who prefer airports closer catering to the majority of passengers with substantially
to city centers are loyal to legacy carriers because of their lower costs than its competitors.
frequent flyer programs and spacious seating configura-

Sam Sellers provides analysis and commentary on the airline industry at his website,
www.airlinebulletin.com. He is the author of Take Control of Booking a Cheap Airline
Ticket, an ebook for travelers in the United States who are interested in purchasing
cheap airline tickets. The ebook provides step-by-step instructions that readers can use
to purchase the cheapest airline tickets. It can be purchased for $10 at
http://www.takecontrolbooks.com/airline-ticket.html

Flybe: Environmental Label Soon


Flybe has announced that it will launch in May a new environmental labelling
scheme that will provide passengers with detailed environmental information
about aircraft performance of their flight. Flybe is currently investing more
than £1 billion in fuel-efficient Embraer 195 aircraft as it looks to reduce per
seat CO2 emissions. The aim of the carrier is to provide passengers with better
information on airlines who have invested in class technology which delivers a
lower impact on local and global environments. Flybe predicts that by 2009 it
will have «one of the youngest and most environmentally sensitive fleets in the world», with
per seat fuel consumption reduced by more than half.

14 Air Scoop - May 2007 www.air-scoop.com


BIRD’S EYE VIEW

The 4th French Connect took place on 25-27th April 2007 at the Atlantia Conference Center in La Baule whe-
re some 45 French airports and 25 LCCs were present. This unique event offered the opportunity to network
with some of the most influential people in European Low Cost aviation.
French airports, the legislators and Europe’s low cost operators all in one place with first-class conference faci-
lities, superb hotels and dining, and a relaxed, entertaining business environment.

France: A Challenging Market for LCCs


“French market is less attractive because state is disinvesting, high taxation and social issues”
François Marie, Managing Director Aeroport Nantes Atlantique

“French don’t travel too much because they have a marvelous country”
Jacques Sabourin, Delegate General, Union des Aeroports Français
Martin Saxton (Director of Commercial Planning, FlyBe)

With the acquisition of BA Connect, FlyBe has become the largest regional airline in Europe with 41
routes in France. FlyBe has added UK density in Manchester, Inverness and Isle of Man, but has also a
major presence in Paris and Germany, and has increased its slots in main European airports.

Rate of UK - France Routes


Opening for FlyBe

15 Air Scoop - May 2007 www.air-scoop.com


BIRD’S EYE VIEW
The challenges of France:
- The UK-French market place has a decreasing percentage of daily services
- Breaking the seasonal pattern (Exceptionally seasonal; Creating UK inbound market; French market needs to
develop short break travel pattern)
- Political and Cultural Challenges (Air Transport is not seen as a cheap from of transport; Supportive political
environment (regional not radial); Supportive regulatory environment)

Karim Makhlouf (CCO SkyEurope)

“Load Factor is the base of LCC business”,


Karim Makhlouf

The strategy of SkyEurope is to connect main cities of Western Europe, but the company also aims Eastern countries such
as Russia or Ukraine. SkyEurope has difficulties to grow in France as the destinations of the carrier are slots restricted and
highly competitive, like in Orly airport for instance.
Only 12% of French people travel outside of France, and most of the time, they prefer French speaking countries.

“There is no real LCC market in France yet as easyJet and Ryanair have 85%”, Karim Makhlouf
“Wizz Air has a Ryanair strategy with secondary airports destinations”, Karim Makhlouf

François Bacchetta (Regional General Manager France, easyJet)

“France has one of the lowest LCC market penetration in Europe”, François Bacchetta
“easyJet flies longer routes because Europe is expanding”, François Bacchetta
“Joining the dots first if relevant!”, François Bacchetta
“We always need to find the right balance between secondary and primary airports”, François Bac-
chetta

Norbert Zoet (Vice-President Business to Consumer, Transavia)

Transavia is positioned as a web-based travel brand with air travel as the core activity. This
new company is established in France with its head office in the surrounding of Orly airport. Its
structure is a limited liability company with a supervisory Board and a Board of directors, and
its 4 aircrafts are based is Orly, south terminal.

The carrier aims at profitable growth, sophisticated route network and revenue management.
Transavia pays maximum attention to customer demands and presents itself the “Low Cost
Low Fare with care”.

16 Air Scoop - May 2007 www.air-scoop.com


BIRD’S EYE VIEW

Transavia Medium Haul


Business Models Analysis

Strategy of Transavia in France:


• to build presence on attractive and fast-growing markets
• to catch the opportunity of e-tourism development
• to compete with other low cost carriers
• to strengthen the position in Orly to destinations not presently served by Air France with its own means
• to meet expectations of commercial partners expectations (i.e. Club Med, Fram, Accor …)

Transavia Strategy Transavia Target Groups

“Short turn-overs are not so important for us as we have longer flights, Norbert Zoet

17 Air Scoop - May 2007 www.air-scoop.com


BIRD’S EYE VIEW
Alex Cruz (CEO, Clickair)

Clickair plans to carry 10 million passengers by the end of 2008, and around 17 million by the end of
2012. In 2007, Clickair has a fleet of 24 aircrafts and expects to reach 30 in 2008 and 50 in 2012. The
carrier has a one-type fleet of A320 with a capacity of 180 passengers in a one-class configuration.
The aircrafts are used 12.3 hours per day with a 25 minutes turn-over on the ground on main air-
ports.
The Costs per Available Seat Kilometer (including fuel) is currently 4.2 euro cents for Clickair. The
carrier aims 3.8 for 2007. Clickair will be ready for France beyond main markets in summer 2008.

“There will be more casualties. The


survival will be the one with the
lowest structure cost”, Alex Cruz.

Julian Cook (CEO, Flybaboo)

Flybaboo is a Swiss low-cost carrier operating from Geneva which had its first commercial flight in
November 2003.

Future strategy of Flybaboo will include


the implementation of new GDS System
(Sabre) by August 2007. The carrier studies
the possibility of second base for 2nd half
2008 and to move into new destinations
from Geneva (both high density routes &
new markets).

18 Air Scoop - May 2007 www.air-scoop.com


BIRD’S EYE VIEW
Alfons Claver (International Sales & Marketing Manager, Vueling)

Vueling is a European low-cost airline, headquartered in Barcelona, which had its first commercial
flight on July 1st 2004.

“Clickair looses business travelers that go to Vueling”, Alfons Claver

“France is a one city country.


It’s hard for carrier to serve re-
gional cities”, Alfons Claver

Gilles Gantelet (Deputy Head of Unit Internal Market, Air Transport Agreements & Multilateral
Relations, Directorate-General for Energy and Transport, European Commission)

Gilles Gantelet explained the simplification of existing legislation in European air transport. The Euro-
pean Commission will revise the “Third Package” (Regulation 2407/92 on operating licences, Regulation
2408/92 on market access, Regulation 2409/92 on air fares) to finally have one single regulation for the
internal aviation market.

Key Elements of Proposed Revision of Third Package:


- Transparent fares (publication of fares incl. all taxes and charges)
- Non-discriminatory fares (irrespective of residence)
- Streamlining of monitoring of Community operating licences
- Clearer rules on Public Service Obligations (more transparent allocation)
- Clarifies the framework for relations with third countries (e.g. intra-Community traffic rights to be
negotiated at EU level)

The European Commission also proposes a Directive on airport charges:


- Common principles for airport charges (non-discrimination, mandatory consultation etc)
- More transparency
- Structured dialogue between airports and airlines
- Independent national regulators that can take binding decisions

19 Air Scoop - May 2007 www.air-scoop.com


BIRD’S EYE VIEW

Potential of a Common Aviation Area by 2010


(48 states, 900 Million Inhabitants):

European Commission Accompanying Measures to Protect the Environment:


- Growing concerns about global warming
- Emissions from aviation currently account for about 3% of total EU greenhouse gas emissions, but
they are increasing fast (by 87% since 1990)
- Commission proposal to include aviation in the EU Emissions Trading System (ETS) as one element
- Market-based Mechanism
- From 2011 for intra-EU flights, from 2012 for all flights arriving or departing in/from EU airports.
- Other Measures: Greener ATM…

Karim Baina (Commercial Director, Jet4you)

Jet4you is the first private Moroccan Low-cost carrier. Jet4you had two Boeing 737-400 in 2006 and
plan to have a fleet of 10 by 2010.
Tourist arrivals to Morocco are steadily growing, reaching an all time high performance 6.5 million
in 2006 from 4 main sources: France : 2.577 million (+8% vs 2005), Spain : 1. 444 million (+8% vs
2005), Belgium : 370.000 (+12% vs 2005) and England : 344.000 (+41% vs 2005). Casablanca ac-
counts for 49% of 6.5 million total traffic. Marrakech and Agadir in 2nd and 3rd with 27% and 12%
(2006).

Jet4you has a strategic partnership with CorsairFly from TUIFly.com on a Code Share agreement.
There is a commercial synergy between both airlines on each home market, and a joint communi-
cation between Jet4you & Corsair on the Moroccan and French Market.

20 Air Scoop - May 2007 www.air-scoop.com


BIRD’S EYE VIEW

“Only 20-25% of the people have a


bank account. Therefore, we will still
use travel agency”,
Karim Baina

Jet4you has a strategic partnership with CorsairFly from TUIFly.com on a Code Share agreement. There is a commercial
synergy between both airlines on each home market, and a joint communication between Jet4you & Corsair on the
Moroccan and French Market.

«French Connect brings together senior key speakers to address industry issues during the conference programme, and
also provides unequalled networking opportunities for all interested in French aviation», declared Karin Butot, Founder
of The Airport Agency.
For its 5th edition in 2008, French Connect will take place from 9th to 11th April 2008 in Courchevel.
Keep checking www.FrenchConnect.net for updates on the new programme format.

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21 Air Scoop - May 2007 www.air-scoop.com

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