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Highlights in this Issue

Promotional Campaign into a Riot p. 3


World Low Cost Airlines Congress p. 4
ClickAir: A Low Cost Adventure p. 8
Aer Lingus: From IPO to Takeover? p. 9
Air Berlin’s Battlefield Plan with Consolidation p. 11
The Low Cost Carriers Analysis Newsletter
AIR SCOOP ANNOUNCEMENTS
EDITORIAL
Air Scoop is proud to be an

C
onsolidation of the European low cost carriers market defi- Official Media Partner of
nitely hits the headlines this month. German and Irish mar-
kets (p. 9 & 11) are leading the trend, but soon other markets these LCCs events
should follow. During the World Low Cost Airlines Congress 2006
(p. 4), many speakers mentioned their vision of consolidation. De-
bates also considered viability of mixed models (legacy and LCCs),
like Clickair (p. 8). Sure similar questions would have certainly risen
about Ryanair takeover bid for Aer Lingus. Sky Full of Possibilities
Bratislava, 26 May 2006
With this bid, Ryanair is looking for a critical mass in order to re-
duce its operating costs which are threatened by terrorism (p. 10).
Another mean to reduce costs is outsourcing. Ryanair’s policy is
quite interesting, as the Irish carrier is outsourcing towards its own
passengers. For instance, to reduce cost of airport taxes, Ryanair is The Low Cost Air Transport Summit
cutting on check-in desk charges. Charging for checked luggage is London, 12-13 June 2006
lucrative in many ways: the company gains extra money, saves time
at the check-in desks and during boarding (fewer luggages to load
means less time grounded). Passengers are asked to print their tic-
kets and carry their luggage. In September, with the demo in Spain,
Ryanair tried to use a mob of potential passengers for its commu- The World Low Cost Airlines Congress
nication. The deal is quite simple: “remunerate” potential passengers London, 11-13 September 2006
with free tickets in exchange for promotional campaign (p. 3). The
concept is not defined yet as the stunt almost turned into a riot, but
the idea will surely make good…

Last concern is about cultural impact of LCCs industry on countries.


For instance, ‘Islanders’ should soon add Malta to their destinations.
Air Scoop - OAG Partnership
However, many in the tourism industry fear a potential impact of a
Air Scoop is proud to partner with OAG
different type of tourist profiles for Malta which could become an
to continue the growth of its information
obstacle for LCCs development. Evarist Bartolo, from Malta La-
gathering network.
bour Party declared: “The government needs to be more transparent
OAG will provide Air Scoop with the la-
about the composition of the selection board and the criteria used
test data on European LCCs. Thanks to
to evaluate the offers made by Ryanair and easyJet to operate four
OAG, we will be able to provide our rea-
new routes to and from Malta. (…) The incentive scheme to operate
ders with the most accurate analysis and
these flights will be paid by the tax payers, and therefore it is essen-
trends of the market.
tial that the decision is taken with the best interest of the nation in
OAG provides a suite of solutions for ma-
mind.”
naging, distributing, displaying and analy-
A similar case occurs in Estonia. Last April, we published a rumor
zing passenger and cargo flight data.
in our category “In the Air” about a documentary on Estonian TV
(ETV) which should be realized about consequences of low cost
carriers (especially easyJet and Ryanair) on Estonian society. Du-
ring this summer, Oskars Kastens, from Latvia First Party, laun-
ched a scathing attack on tourists from Liverpool branded “savages”.
The politician fears that Latvian capital becomes a place of cheap
beers and easy women with the arrival of young-party-male profile.
Is the documentary not only a rumour after all? http://www.oag.com/graphics/airscoop.htm

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


DOWN TO EARTH
Exclusive interview of Chris Mandl
(CEO of Sky Europe) Chris Mandl ,
CEO of Sky Europe

Air Scoop: Could you please present SkyEurope to our readers? What are
your specificities compared to other European LCCs? What do you do better
than your competitors?

Christian Mandl: We operate one of Europe’s fastest growing low-cost low-


fare passenger airlines, with a focus on services to and from Central and Eastern
Europe. From our five bases in Bratislava, Budapest, Krakow, Prague and War-
saw, we offer short-haul ‘‘point-to-point’’ scheduled services to 37 cities in 19
European countries over a network of Italian illy espresso and cappuccino on Who are your most dangerous com-
73 scheduled routes. The populations board, no weight limit for hand lug- petitors: ‘Centralers’ (WizzAir, Cen-
of the four countries in which our ba- gage, etc. Moreover, we keep opening tralWings, Estonian Airlines…) or
ses are located, the Slovak Republic, new attractive destinations (recently ‘Islanders’: Now? In a near future?
Hungary, Poland and the Czech Repu- Turin, Grenoble).
blic, collectively comprise more than The level of competition among airli-
85 percent. of the total population of One of your strategic initiatives is nes is high. Airlines compete primarily
the countries that acceded to the EU “Go East” which consists in deve- on the basis of routes, fare levels, con-
in May 2004, which we believe pro- loping East-East connections. How venience of airports, timing and fre-
vides significant growth opportunities do you plan to manage such strategy quency of flights, reliability of service,
for us. In addition, our largest base, with inherent difficulties due to this brand recognition, passenger amenities
Bratislava, where we also maintain area (countries not yet in the Euro- and the availability and convenience
our operational headquarters, is loca- pean Union, lack of Internet and cre- of other passenger services. The prin-
ted approximately 50 kilometres from dit card penetration…)? cipal LCCs with which we compete
Vienna, thereby providing us with ac- include Centralwings, easyJet, Niki,
cess to Austria, one of the most ma- Our « Go East » strategy is oriented Ryanair, Smart Wings and Wizz Air.
ture air travel markets in Central and at developing markets in those coun- The main LCC competition within
Eastern Europe. We target both lei- tries that will soon join the European the Vienna-Bratislava catchment area
sure and business travellers, as well as Union. As the largest low cost airline in comes from Ryanair and Niki, in
travellers visiting friends and relatives Central Europe we have a first mover Hungary we compete with Wizz Air,
(‘‘VFRs’’). Our network comprises rou- advantage in this region. Five years ago in Poland we face competition from
tes that connect cities within Central SkyEurope was founded in Slovakia, Centralwings, easyJet, Ryanair and
and Eastern Europe as well as between we then opened bases in Hungary and Wizz Air. At our youngest base Pra-
Central and Eastern Europe and Wes- Poland and recently expanded with a gue as the main competitor is Smart
tern Europe. SkyEurope Airlines was new base in the Czech Republic. The- Wings.
established in September 2001, and se markets have different characteris-
we began flying passengers on a single tics than the Western European ones. The European Low cost carriers
domestic route in the Slovak Republic For example, the internet penetration market has reached a certain matu-
in February 2002, becoming the first is lower, and customers usually do not rity which leads to its consolidation.
LCC to commence operations in Cen- have credit cards, therefore we coo- During this transition, what are, for
tral and Eastern Europe. We currently perate with Travel agencies, offer the you, the greatest threats to the Euro-
operate a fleet of 16 Boeing 737 aircraft option of call centre bookings and also pean Low cost carriers? Fuel rising?
and have ordered up to 32 brand new allow cash payments in local banks. Overcapacity? Evolution of airports?
Boeing 737-700 Next-Generation air- This local know-how and service dif- Regulation?...
craft to be delivered by 2010. Our stra- ferenciate us from Western European
tegy is to fly to convenient airports, so LCCs. All airlines are affected by high fuel
there is no need for extra transfer costs. prices, as it takes some time to adapt
Our added value is always to come up “Islanders” (Ryanair and easyJet) fares to reflect higher fuel cost. Howe-
with innovative new services for our need to find new attractive destina- ver, low-cost airlines are less affected
clients that make flying an even more tions to maintain their growth; The- than traditional airlines, as thanks to
enjoyable experience: reservation con- refore Central Europe represents an their strong growth, they are able to at
firmation via sms, assigned seating, real important market for these LCCs. least partially offset higher fuel prices

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BIRD’S EYE VIEW
by efficiency gains in other cost cate- flight on our website www.skyeurope. definitely the further development of
gories. com. Also, SkyEurope differentiates a few large and globally oriented LCCs
Concerning potential overcapacity, this itself by offering high quality products and smaller LCCs that serve purely ni-
is still not the case in Central & Eastern onboard: Italian illy cafe, hot soups and che markets.
Europe. On the contrary, many markets pizzas, tasty sandwiches, etc.
are still underserved by low-cost airli- It is necessary to constantly develop the Are you worried about the shortage of
nes. Usually, the secret of success is to product offering to bring more choice pilots and crew hitting LCC market?
find a strategic positioning with a new and value added services to our custo-
model in a new market and achieve mers. We introduced for instance the We are proud of having an internatio-
from the beginning a significant market option to book against a small fee a nal crew that loves flying for SkyEu-
share as a result of the first mover ad- pre-assigned seat in our booking pro- rope. We pay adequate salaries, pro-
vantage. cess, and offer the possibility to get vide excellent career possibilities and
booking confirmation and flight infor- a truly international, dynamic working
Many LCCs look after extra-revenues mation by sms message on your mobile environment. Our brand new fleet of
to offset the low price of their tickets. telephone. Boeing 737-700 NG is an additional
What are the projects of SkyEurope in very important factor that are a good
terms of Extra-revenues? Do you believe that consolidation of reason to fly for SkyEurope.
the market will lead to 2-3 main LCCs
We provide our customers with a com- in Europe, or do you think there will What are the options for SkyEurope to
plete offer of additional services that always be many LCCs on niche mar- transform its business model in order
bring ancillary revenues. All of them kets? to make more costs savings?
bring added value at discounted prices
to our passengers. SkyEurope.com is a The consolidation process is a factor in We are exchanging our fleet to more
travel portal that offers in a one stop maturing markets. We are well positio- cost efficient planes 737NG that save on
shop a solution to all travel needs: car ned as the leading LCC in Central and fuel consumption, maintenance costs
rental, hotels, hostels, travel insurance, Eastern Europe with a pan-European etc, we are expanding to reach critical
access to airport lounges, downloadable brand recognised fro linking Western mass which again will reduce costs, and
city guides, audio travel guides, in win- European markets with CEE and pro- are increasing productivity by further
ter ski equipment rentals etc. These ser- viding increasingly also East-East low increasing the utilization of our fleet.
vices can be booked together with your fare connections. The future will see

Ryanair’s Promotional Campaign red as a crowd manipulation and propaganda of old times
by some communication experts, didn’t go off as planned.
Turning into a Near Riot Indeed, Ryanair’s members had 500 vouchers to offer, but
hundreds more people unexpected arrived at the meeting,
Ryanair’s marketing strategy is definitely aggressive. This
and they quickly ran out of tickets. Ulled, Ryanair’s Spa-
aggressiveness is a whole part of the culture of the Irish
nish PR company, tried to appease the crowd with photo-
carrier, and Michael O’Leary, its CEO, has always been
copies of tickets. But it appeared to be even worse as these
the first one to show the way. Indeed, Mr O’Leary is well
tickets turned out to be unusable.
known throughout the world of airlines for his frankness
Mrs Sinead Finn, Head of Sales and Marketing for Eu-
and offensive declarations. Many times, Ryanair has cons-
rope, who was in charge of the promotion, has been quic-
cientiously published advertisings to shock opinion, and
kly surrounded by an impressive and furious mob there to
few times it backfired on the airlines (Ryanair was fined
get their free tickets. The situation was so tensed that Mrs
last June in France and in Denmark for misleading adver-
Finn had to be protected and escorted by armed police to
tising, Sweden’s Prime Minister sued the company last
the nearest police station.
April…).
Witnesses affirmed that the promotion would have tur-
This time Ryanair went one step further. The objecti-
ned into a riot if police weren’t there. Some of the angry
ve was to organize a promotional campaign in Barcelona
participants rewrote their placards changing them to anti-
against the Spanish national carrier, Iberia, and indirectly
Ryanair messages. A police source declared they were very
hit Clickair (Iberia’s LCC) which has just been launched.
surprised to find out that this entire situation was just ge-
The principle was simple: potential passengers were told to
nerated by a campaign of Ryanair against a competitor.
gather at Plaza de Cataluña with placards criticizing Iberia
Consumer associations have opened an investigation after
or supporting Ryanair if they wanted to get free travel
receiving about 150 complaints. Ryanair realised the dif-
vouchers from them. This stunt, which has been conside-
ficulty to set up a «non spontaneous» and indirectly paid

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BIRD’S EYE VIEW

The World Low Cost Airlines Congress 2006


The latest edition of the World Low Cost Airlines Congress took place in London the 11th to 13th of September 2006
at Queen Elizabeth II Conference Centre. Air Scoop is very proud to be media partner of the most important European
LCCs event.

The Congress lasted three days divided in two phases: Workshops and Conferences. Themes of workshops were really
close to current LCCS concerns: Best Practice Revenue Management, Airport Deal-Making, Low Cost Technology, In
Flight Revenues, but also Impact of Terrorist Threat on Low Cost Carriers.

During the two days conference, many interesting questions were raised by attendees. Among them… “Low cost carriers”:
Marketing or cost differentiation?, LCCs: Cooperation or Coopetition (cooperation and competition)?, Part of ancillary
revenues per passenger?, Consolidation of the European LCCs Market?, Shortage of Pilots and Maintenance Personnel?,
Increase of capacities: Impact on price fares?...

The first speaker of the Congress was Andrew Harrison (CEO of easyJet). Oil price has a deep impact
on activity, so easyJet has decided to smooth edging policy with short-term predictability. But contrary
to what Ryanair has declared about difficulties for this coming winter, easyJet is confident: there will
be no change. Mr Harrison expressed his concerns about UK Government’ security measures in airports
following Augusts’ terrorism threats. “Government needs to tailor police help to control airports. At ea-
syJet, we engaged an intelligent and constructive discussion with the government. But for the moment,
it’s not really encouraging. Current security checks are not sustainable”, he declared.

Vincenc Marti, Chief Commercial Officer of Vueling, the Spanish LCC, talked about Vueling future and LCC compe-
tition in Spain.
- What are your projects for the near future? “We will first celebrate our 5th million passenger this week. Then we will
remain on continental and south market, but still exploring costs of new exploiting routes. We will also possibly open a
3rd base to face competition. It will be hard, but interesting. We have the spirit of competition!”

Willem Hondius (Commercial Director of Transavia) answered the following questions:


- What are your plans and strategy? “Transavia sells its tickets twice thanks to our model: once to
the operator, and then directly.” Mr Hondius believes “there will be a consolidation and we will loose
some carriers on the way, between 10 and 20. The configuration should be 2 or 3 bigger ones, around 10
smaller, and niche players like Transavia”. According to him, bases in Europe are an issue for further
development: “There are not a lot of bases left in Europe.”

4 Air Scoop - October 2006 www.air-scoop.com


BIRD’S EYE VIEW
Maunu von Lueders (CEO of FlyNordic) (Read our Exclusive interview – Air Scoop July 2006) dis-
cussed about the crossed benefits between FlyNordic and Finnair: “We are a strategic tool for Finnair
to penetrate new markets. We are complementary to Finnair, and we get a lot of benefits, especially
respect, because we have a very good owner.”
- What is FlyNordic recipe to survive? “We focus on the Scandinavian market as we cannot use our
model to another place. We listen to business needs and expectations (Read below). If we satisfy these
needs, we will win!”
- What are your plans and strategy? “We have short flights, so it’s hard to sell products on board. But
there’s a market outside the plane: we would sell onboard and then send the products directly to our
customers’ home.”

Most important choice criteria by the decision-makers (Travel Managers, Finance ) and the travelers (employees).

Mike Rutter (Director of Flybe) believes in a strong consolidation within 5 to 7 years with stronger
entities. “Ryanair will still be there, followed by “value carriers” driven by prices, and legacy carriers
organized around their hubs”.
- What are your plans and strategy? “Gambling, in-flight calls, charging for check-in at the airport desk.
Ancillary revenues are at the core of LCCs model!”

Daniel Skjeldam (Director Network and Revenue of Norwegian) declared that “most of our traffic
comes from business travelers, so we need frequencies to be competitive on those markets. For our
leisure travelers, we first create traffic and as the volume increases, we add frequencies. We have to
build the market to make routes sustainable, and sustain our growth.”
- What is your Norwegian’ situation about pilots and maintenance personnel shortage? “This shortage
will make it more difficult in the next years.”
- Will the increase of capacities have an impact on price fares? “If you miscalculate your growth, you
can affect your load factor and price average.”

Bernard Berger (Director New Route Development of Ryanair) answered these following ques-
tions:
- Will Ryanair change its business model because flights now last 3 hours? How far will Ryanair
go? “Over the years, the average time has increased. For instance, a flight from Dublin to Malta lasts
around 4 hours. Our objective is to maintain short time flights with some long time on specific rou-
tes, as we may fly from Germany to Cyprus.”

5 Air Scoop - October 2006 www.air-scoop.com


BIRD’S EYE VIEW

Chris Mandl (CEO of SkyEurope) explained its strategy: “First modernize the fleet (fuel efficiency,
leather seats, pre-booking on website, winglets…). Then, we are still looking after emerging markets,
such as Russia and Ukraine. To back our growth, we have raised 56.3 million euros. Our aircrafts are
tuned to flight for 2 hours. As long as we have 2 hours routes, we will try to focus on these routes.”
- How strong is the competition between LCCs? “We are also in competition for money. The best
company will also be the best funded one.”
For further details, read our exclusive interview page 2.

Jozsef Varadi (CEO of Wizz Air) described Wizz Air’s market in Central Europe: “Wizz Air has 36%
of LCCs’ market in Poland, 27% in Hungary and 54% in Bulgaria.”
- What are the key factors to success? “Unit cost, aircraft (A320 with narrow body aircraft), secondary
airports, distribution through the Internet, latest technology, efficiency… Through the Internet, we sell
tickets, but also additional services.”
At last, but not least, Maciej Kwiatkowski (President of the board of CentralWings) expressed some concerns about the
shortage of pilots: “We start to have a problem with pilots.”

As always, Terrapin Team has been very efficient to prepare this incredible Congress. A lot of professionalism mixed
with a relaxed atmosphere, like the paper plane contest on Tuesday evening.

The World Low Cost Airlines


Congress 2007 will held the 17
- 19 September 2007 at Queen
Elizabeth II Conference Cen-
tre in London.

Booking and information on


Terrapinn’s website:
http://www.terrapinn.
com/2007/wlca/

6 Air Scoop - October 2006 www.air-scoop.com


BIRD’S EYE VIEW
ANALYST PORTHOLE
LCC and Regional Airline Perspectives
by James Parker
3 questions to James Parker, (Managing Director of Raymond James)
Managing Director of Raymond James.
- What is the winning formula?
1. Achieve the lowest unit costs in your market.
2. Build a strong balance sheet with a lot of cash.
3. Have the management discipline to spend whatever cash as necessary to repel competition intru-
sion.
- What about the fuel issue? only 9% of revenues from non-seat and cargo sales. Airlines
Fuel is now the single largest expense item for most airlines have captive audiences on their aircraft and websites. They
around the world at 38% to 40% of total costs. Airlines use their website as a distribution channel, but they could
hedge future fuel purchases in order to achieve more stable add a lot of new products soon.
predictable cash and earnings streams. The purpose of hed- The leader is Ryanair which derives some 15% of revenue
ging fuel is not to achieve lower fuel costs. In order to hed- and 25% of profits from ancillary sales. The carrier uses Rya-
ge fuel, an airline must commit substantial cash collateral nair.com as distribution channel which is the largest travel
because a hedge is a contract for future delivery of fuel. website in Europe (15 million unique visitors per month).
Thus Ryanair secures minimum guaranteed revenue and
- What about ancillaries’ revenue? has a potential for increased conversion (Travel insurance,
Ancillaries are lucrative revenue and earnings producers. Car hire, Hotels…) but also a new product potential (On-
Most airlines only sell passengers a seat, thereby neglecting line advertising, Cell phone use revenue, Hostels, car par-
a lucrative incremental source of earnings. easyJet derives king, aircraft painting, Gambling, property, hotels…)

«Take Control of Booking a Cheap Airline Ticket»,


by Sam Sellers
«Take Control of Booking a Cheap Airline Ticket» has been written to help passengers to
find, as quickly as possible, low cost fares with Internet to book airline tickets. Thanks to
this 152-page book, readers will be able to find advice for reserving a good seat and prepa-
ring for low-hassle travel, as well as information on using frequent flyer miles, credit cards
that provide flight discounts, and recommended methods for tracking deals. Appendixes
provide links to major airline home pages and flight-route maps, an explanation of the
taxes applied to fares, and more.

«Take Control of Booking a Cheap Airline Ticket» can be read onscreen or on paper. The onscreen version is a PDF file
with hot links to the Web sites mentioned, making it easy for readers to quickly access recommended sites. Although
Take Control’s onscreen book design has won over many who previously believed they would never read a book on a
computer, a paper version is available for those who prefer to read a bound volume.

Written by airline industry blogger Sam Sellers (http://www.airlinebulletin.com), «Take Control of Booking a Cheap
Airline Ticket» joins more than 40 titles in the Take Control library, all written by long-standing technology experts.

Book Details
«Take Control of Booking a Cheap Airline Ticket» by Sam Sellers
Ebook price: $10 / Printing cost: $13 (Readers must first purchase the eBook)
More info: http://www.takecontrolbooks.com/airline-ticket.html

7 Air Scoop - October 2006 www.air-scoop.com


BIRD’S EYE VIEW
Clickair: Iberia’s Low Cost Adventure AIRWAY MARKERS
After the UK and Germany, Spain has become one of the As Spain is easyJet’s second largest market, behind the UK,
main battlefields for European LCCs. Iberia, the Spanish the airline has logically announced the opening of a base
national carrier, faces more competition on its own market in Madrid in February 2007. Indeed, the carrier plans to
from ‘Islanders’ and Spanish competitors. To respond to this take advantage of the big increase of capacity at Madrid’s
competitive threat, Iberia decided to launch its own LCC Barajas airport, which has doubled the number of runways
based in Barcelona, under the brand name: Clickair. from two to four and has opened a new fourth terminal.
Clickair has just been launched in this very competitive Operating in Madrid’s Barajas airport since 1998, easyJet
Spanish market. It will begin operation from three Spanish is already the fourth largest operator in this airport after
cities: Barcelona, Seville and Valencia. The airline aims to Iberia, Spanair (SAS Group) and Air Europa. According
serve 70 routes to 60 national and international destinations to Andy Harrison, CEO of easyJet: “Spain has excellent
with a fleet of 30 aircrafts by 2008. The network will be pri- opportunities for growth”.
marily composed of point-to-point routes. The airline plans “30% of all flights in Spain are low cost, but we believe this
to employ 5 crew members per aircraft, which implies it figure is sure to rise far more because up to now, a good
will hire 300 pilots and 600 crew members by 2008. part of the offering has been tailored towards the tourist
and the European passengers. The Madrid base expects to
The company is equally controlled by Iberia, Cobra (which revolutionize this situation”, added Arnaldo Munoz, Head
belongs to ACS, a Spanish construction and services group), of Southern Europe Operations.
Iberostar (a Spanish tourism group), Nefinsa (a holding
company owned by the Serratosa family) and Quercus (a This strong competition stimulates Clickair which is confi-
private equity firm). dent about its future: “With a start-up capital of 120m euros
The setting up of Clickair reflects the long-term strategy and a good business plan based on low costs, Clickair will
of Iberia. The Spanish carrier has realized that LLCs com- overtake rival airlines easyJet, Ryanair and Vueling, and
petition was too hard on domestic and European routes, that it will become the leading airline at Barcelona-El Prat
so it decided to focus on international routes, especially to airport” declared Alex Cruz, Clickair’s Managing director.
very profitable South America destinations. Clickair will
now face other LCCs’ hard competition in Spain: Air Ber-
lin, Ryanair and easyJet carried 57.4% of low-cost service
passengers last year with more or less 19% of the Spanish
LCC market each. Vueling (Read Air Scoop June 2006)
still occupies the sixth position and is the fastest growing http://www.clickair.com
LCC as the airline doubles its passenger numbers in just a
year and its fleet should reach 25 aircrafts by 2007.
UPS AND DOWNS
Monarch Gets Air One:
Bigger!
22 Violations of EU Rules!
Monarch Airlines has Air One, an Italian LCC, has been
ordered six new Boeing fined 150 000 Euros for cancelling
787-8 Dreamliners which more than 80 flights in August,
will form the core of its leaving 9000 passengers stranded
future long-haul fleet. across Italy.
With purchase rights for According to ENAC (Italian civil aviation agency), Air One
another four aircrafts, the first Dreamliners will be has committed 22 violations of European Union rules gover-
delivered in 2010. ning compensation and assistance to passengers in case of flight
This acquisition, worth 717 million Euros, is relevant cancellations or delays. Staff shortage at the LCC would be a
with Monarch’s business model which includes both reason why the airline is unable to cope with an increase of
scheduled and charters flights. Moreover, Monarch is Italian traffic according to labor unions. The company blames a
in line with the LCCs global trend which consists in combination of late arrival of aircrafts, bad weather and techni-
buying aircrafts with longer-range capabilities with cal problems.
superior fuel efficiency to reach new destinations and Air One will have to pay within two months, if not, the fine
to face high fuel prices. could reach a maximum of about 450 000 Euros.

8 Air Scoop - October 2006 www.air-scoop.com


DOWN TO EARTH
Aer Lingus: From IPO to Takeover? tion between them as wished by Regulation Authorities.
European Commission regulators usually ask for conces-
The 5th of October, Ryanair launched a shock bid for sions to create more competition, by forcing merged air-
Aer Lingus listed just a few days before, and already bou- lines to surrender takeoff and landing slots. In this case,
ght 16% of the Irish company. Ryanair would have to relinquish lucrative slots at Stans-
ted, Dublin and Heathrow airports.
According to analysts, this move would move Ryanair Finally, Michael O’Leary has spent many years lambas-
from a being a pure “no-frills” carrier investment to one ting European antitrust and transport officials, the same
with network carrier exposure. This attempt of acquisi- whom will have to rule on his latest move. This aspect
tion is seen as the model for future consolidation in the should not be forgotten.
airlines industry. Indeed, this strategy would link a rapidly
growing point-to-point carrier with a long-haul national Unions and employees have voiced opposition to the
carrier. With this acquisition, Ryanair would then deve- takeover. Aer Lingus employees fear to be sacked if
lop long-haul operations to the United States and other Ryanair’s takeover succeeds as part of a detailed ratio-
markets (Aer Lingus has 7 Airbus 380 on routes to the nalization plan. For instance, Ryanair would begin by
United States and Dubai). The idea of Michael O’Leary outsourcing Aer Lingus’ entire catering department,
could be to develop a long-haul “Business Low-Cost Car- which currently employs around 200 people. Employees,
rier”, like Eos or MaxJet. through the Employee Share Ownership Trust (ESOT)
hold around 10% stake and have discussed various ways
Contrary to what Ryanair has done in 2003 with Buzz, to finance an additional purchase of shares. “If the ESOT
which has now disappeared, the two airlines would be run and other staff shareholders manage to increase their
separately. Aer Lingus brand would be retained and ma- stake by a few percentage points and they form a loose
nagement would stay on, although they would be assisted alliance with one other substantial shareholder, the chan-
by Ryanair management. But an analyst from Citigroup ces of Ryanair chief executive Michael O’Leary getting
declared: “It’s difficult to argue that the two companies beyond the key figure of 50 per cent would seriously di-
under single ownership will be in true competition.” minish” said a source advising the opponents of the Rya-
nair bid.
And “true competition” is these days the master word.
Indeed, Ryanair faces many oppositions and hurdles to Finally, even if the two companies are Irish, there would
accomplish this takeover. First, the Irish Government, be cultural clashes as they are two completely different
which still holds 28% of Aer Lingus, disapproves this ac- business models. On one hand, Ryanair is a no-frills car-
quisition. Irish Government is committed to competition rier with an aggressive strategy, and on the other hand, Aer
in aviation markets and will not sell its shares in Aer Lin- Lingus is a national carrier with still strong political links
gus. Ryanair declared there was no problem for the Irish to the Irish government. Some analysts have expressed
Government to remain on as a significant minority sha- their doubts about such a merging between a LCC and a
reholders as long as Ryanair has the majority ownership. legacy carrier. The fleet is also another difficulty: Ryanair
Chris Avery, JP Morgan Analyst, considers the govern- has Boeing aircrafts and Aer Lingus has an Airbus fleet.
ment’s opposition a major hurdle. Ryanair is the latest European LCC to operate a single
fleet, because of operating costs. Switching to a mixed
Then, EU antitrust officials still need to approve the ta- fleet would definitely affect its business model.
keover. In fact, only EU regulators have the power to stop
it. Robert Stallard, Bank of America analyst, suggested: This surprise takeover bid over Aer Lingus doesn’t seem
“Although the audacity of Ryanair CEO Michael O’Lea- to have many chances to succeed, but if it does Ryanair
ry has never been in doubt, we believe that this deal faces would lead the way to further consolidation not only
significant difficulties in obtaining regulatory approval.” between Low cost carriers, but also between LCCs and
For instance, in 2000, the EU stopped the takeover of legacy companies. This strategy will definitely change the
Scania AB (Swedish truck maker) proposed by its rival face of the European LCC market.
AB Volvo because the combined group would have had a
market share of around 90% in Sweden.
The new entity, Ryanair-Aer Lingus, would get 78% of
traffic between Ireland and Great Britain and create a vir-
tual monopoly in Ireland (over 70% of Irish short-haul
market). The two carriers have only 17 routes in common,
which seems not sufficient enough to offer a real competi-

9 Air Scoop - October 2006 www.air-scoop.com


DOWN TO EARTH
Shortage of Pilots: Vueling, the Seducing Appeal

To face general shortage of pilots in Europe, LCCs have increased their


attractive strategy toward crew members. Already in April 2006, Ryanair
tried to recruit disappointed SAS crew members during an impressive
meeting. Vueling also needs pilots. The Spanish LCCs have set up ‘Open
days information’ to recruit new pilots to face its growth strategy. Indeed,
with 16 Airbuses by the end of 2006, the fleet should reach 23 aircrafts in
2007. To attract new pilots, the company has released a specific advertising
called: “7 reasons to join Vueling”. Competent pilots, like slots, are vital
for LCCs future.

Terrorism Threats Ryanair‘s Reducing Costs Strategy


Airport counter-terrorism measures implemented by
British government in August irritate Ryanair. The
Irish carrier threatened to sue the government for
compensation. Ryanair has estimated to have lost
more than 2 million £ from cancelled flights and lost
bookings.

Security measures taken by authorities are clearly


negative to Ryanair’s reducing cost strategy. In fact,
through a recent campaign, Ryanair has widely pro-
moted a “carry-on-luggage” policy to reduce boarding
time and check-in and ground handling crews’ costs.

Moreover, passengers’ body searches, described as “non


sense” by Mr O’Leary, take too much time which
disrupt quick turnarounds of the aircrafts. More time
on the ground means late flights and losses for the
company.

Despite clear terrorism threats in UK, Ryanair asked


the Ministry of Transport to immediately restore “nor-
mal” standards of security measures. Otherwise, the
airline will claim for compensation worth just over 3
million £.

LCC EVENT

The next French Connect will be held the 23rd-27th of April 2007 in Nantes La Baule.
For further information, please check www.frenchconnect.net

10 Air Scoop - October 2006 www.air-scoop.com


BIRD’S EYE VIEW
Consolidation in Germany: Air Berlin.
Air Berlin’s Battle Plan Air Berlin’s operation is on one hand ‘defensive’ (to pro-
tect itself against strong competitors: GermanWings and
German airline industry has entered a new phase of con-
‘Islanders’) and on the other hand ‘offensive’ (to dominate
solidation as the whole European sector goes through
the profitable German market located between western
some difficult time (high fuel costs, terrorism threats…).
and eastern destinations). The management will compare
As we predicted it in our June issue (Air Scoop June
which has the best cost position and lowest production
2006), Air Berlin has acquired 100 percent of one of its
costs between Air Berlin and dba. Joachim Hunold an-
main competitors: dba (third German LCC) for around
nounced there will be no change of the wage agreement
50 million Euros. The cost of the operation will entirely
between dba employees and their company. He declared:
be financed out of income from the stock market flota-
“If flight plans are optimized, then it may well be that we
tion of Air Berlin (Air Scoop June 2006). Dba was acqui-
will reduce capacities. But then perhaps we will also have
red in 2003 by Hans-Rudolf Woehrl who initiated the
new flights.”
consolidation process in February 2005 when the com-
pany bought Germania Express and took a major stake
TUI AG is now in difficult position and needs to make
in LTU (Lufttransport Unternehmen GmbH).
a strategic move. The first one will be to merge two of
its companies: Hapagfly (charter) and Hapag-Lloyd
According to Joachim Hunold, CEO of Air Berlin,
Express (HLX). Then one “strategic option” could be
networks complement each other, as dba serves do-
to create a tie-up between this new entity and Condor,
mestic routes in Germany, and Air Berlin connects the
which belongs to Thomas Cook.
European market. «Acquiring our dream partner was an
But TUI is not the only one interested in Condor. With
opportunity not to be missed» M. Hunold said. More
similar business models, LTU could acquire Condor to
synergies will be derived from yield management, joint
reduce both operating costs. But on the other hand, LTU
purchasing and logistics. With the integration of dba, Air
could become a target for Air Berlin as their networks are
Berlin will clearly increase the number of business pas-
complementary (Air Berlin-dba: short and middle hauls;
sengers. The new entity will also gain in flexibility thanks
LTU: long-hauls).
to the different types of aircrafts, and their carriage capa-
cities. At last but not least, Air Berlin will benefit from
Consolidation of the German LCCs market is not over
precious slots of dba, especially at Düsseldorf and Mu-
yet. Few others should come as pressure is now on all
nich airports. More than ever slots are a vital resource for
competitors.
LCCs’ development. However, dba will still be operated
as an independent company, but will be re-branded as

Market Shares of LCCs from, to and in the German Market


Source : OAG

11 Air Scoop - October 2006 www.air-scoop.com


BIRD’S EYE VIEW
Mapping of LCCs German Market
Consolidation

12 Air Scoop - October 2006 www.air-scoop.com


BIRD’S EYE VIEW
Inflight Mobile Telephony: Between Ancillary Revenues and Passenger Satisfaction
Ryanair is in deal with OnAir, a communications com- A great majority of business travelers surveyed felt this ser-
pany (a joint-venture with Airbus and SITA), to provide vice was a good idea, especially to access their email and
Europe-wide mobile telephones services during flights to to use their time more effectively during the flight. But
all its passengers. From mid 2007, the system should be not all passengers share this feeling. A few days after the
installed on the entire fleet, and Ryanair’s customers will Irish carrier announced its in-flight mobile plans, Monarch
be able to call, send SMS messages and check their emails released a survey conducted in 2005 which said 67% of
using their mobile phones or smartphones. passengers claimed mobile phone during a flight would be
the most “annoying in-flight experiences” for them. Some
Ryanair is always looking for new sources of ancillary re- passengers do not want to be disturbed by loud in-flight
venues and differentiate themselves from other carriers conversations of others. Furthermore, another issue raised
with the latest services and technology. The carrier will will be the cost. OnAir announced it will start next year
receive a commission from OnAir on call revenues genera- with prices around $ 3.30 a minute in Europe.
ted by passengers. Ancillary’ sales already represent around By implementing this service on its all fleet, Ryanair ma-
15% of Ryanair’s global revenues, but mobile telephony is kes an important move towards business travelers to the
just another step forward. Even if the company had to stop detriment of leisure passengers less interested by such a
in-flight entertainment system experiment after disappoin- service.
ting level of take-up, Ryanair hopes to trial an onboard
gambling solution in 2007 to generate more revenues from
in-flight services.

Monarch Survey in a nutshell


Monarch passengers were asked to list the three things that would annoy them the most during a flight:
With 78%, the person behind knocking your seat / With 69%, the person in front reclining their seat
With 67%, mobile phone use during a flight / With 53%, sitting next to a smelly passenger

BLOGS TREND
Ryanair’s Summer High Peaks

Ryanair is definitely leading the blogos-


phere LCCs’ coverage. High peaks noticed
during August are due to some specific
events:
First, Ryanair announced it will allow
phone calls, text and emails from passen-
gers own mobile phones or Blackberrys on
board in 2007. The revenues generated by
onboard mobile telephony will reduce the
carrier’s costs according to management.

Second peak (the highest): following the


arrests of suspects in a plot to detona-
te bombs aboard trans-Atlantic flights, the UK Government decided to strengthen security measures against terrorist
threats. These measures spurred Ryanair to sue the U.K. government for damages from flights cancellations. This radical
attitude has not been well understood among bloggers whom widely commented this attitude.

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