Air Scoop May 2007

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EDITORIAL

While LCCs have still difficulties to open routes in France,

French Connect 2007took place in La Baule gathering

top executives from French airports and European low-

cost carriers (p. 17).

Highlights in this IssueAir Canada Changes the Fare Game p. 3

SWOT Analysis of Ryanair p. 8

Environment and LCCS: Beware of Flying! p. 14

(R)evolution of Ryanairs Business Model p. 16

French Connect: France: A Challenging Market for LCCs p. 17

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

The Low Cost Carriers Analysis NewsletterAIR SCOOP ANNOUNCEMENTS

French Connect 2008

Next year, French Connectwill take place

from 9th to 11th April 2008 in Courchevel.

Keep checking www.FrenchConnect.net for

updates on the new programme format.

If France doesnt welcome LCCs, it is not the case of Central and

Eastern European countries. For instance, Romania has now its own

LCC with Blue Air(p. 2) and Tcheck Republic proposes many op-

portunities despite important challenges (p. 6).

Headlines about LCCs market point out Environment as one of

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 Scooppublishes a SWOT analysis ofRyanair(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

the Irish carrier for unfair competition and misleading advertising(p. 14).

2007 Ancillary Revenue Airline

Conference (ARAC 2007)

November 14 and 15 in Frankfurt

Air Scoopis proud to be media partner of the

ARAC 2007.

The Ancillary Revenue Airline Conference

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

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

Informationhas teamed up with the leading

research consultancy in airline ancillary re-

venues, IdeaWorksto produce this ground-

breaking event.

President of IdeaWorks and chairman of

ARAC, Jay Sorensendefines ancillary reve-

nues as Revenues beyond the sale of tickets

that are generated by direct sales to passen-

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

sions earned by many airlines on the sale of

hotel accommodations, car rentals and travel

insurance.

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

ences/2007_ARAC/arac_intor.html

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Exclusive Interview of Gheorghe Racaru

(General Director of Blue Air)

Gheorghe Racaru

General Director of

Blue Air

Romanias single LCC, Blue Airhas 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 Airtickets 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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The pricing strategy designed by Air Canadais complex

but great care has been taken to present it in a consumer-

friendly manner. The airline took a unique path by only

offering these fares at the Air Canadaweb site; the fare

brands are not available to offline consumers. This per-mits the airline to have complete control over the sales

process and to maximize ancillary revenues. The number

of features provided by each fare brand is determined by

the amount paid for a ticket. Lower priced fares provide

fewer features, while higher priced fares provide extra

service and perks.

Consumers are encouraged to move up to a higher fare

brand through the promise of more service and features.

But even within a fare brand, the consumer is tempted

with modestly priced a la carte features that are the retailequivalent of the impulse items stocked by grocery stores

in check-out lanes.

Air Canadas pricing strategy appears to be working.

Revenue per available seat mile (ASMs) in the domestic

market has increased by more than 22% since the strategy

began in 2003 (1). Additional statistics provided by Air

Canadareveal 48% of consumers do buy up to the hi-

gher priced fare brands.

Tango is the lowest priced fare brand and is designed to

compete with Air Canadas primary low cost compe-

titor, WestJet. In a recent presentation to bankers, Air

Canadastated it would not be undersold, and made di-

rect reference to a quote attributed to Clive Beddoe, the

President and CEO ofWestJet: Air Canadamatches us,

dollar for dollar on every single fare, every single minute

Coverage continues this month on the click and buy

method of selling travel to airline consumers. Last monthscolumn reviewed the marketing innovations introduced

by Australias low fare airline duo ofVirgin Blueand JetS-

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 airlines decision to make a radical redesign to its

pricing strategy was prompted by the SARS epidemic

in 2003. Bookings on Air Canadaplummeted after the

World Health Organizationadvised travelers to avoidthe airlines primary hub city of Toronto. Top manage-

ment at the airline had previously discussed plans to re-

vamp the complicated fare structure that was symbolic

of a legacy airline. The extreme revenue drop created by

the SARS epidemic lowered the risk of introducing a new

fare scheme; the airlines financial fortunes could only be

helped by a change in strategy.

The result could be best described as a hybrid offering

simple one way fare structure ofRyanairand the cabin

class branding savvy ofVirgin Atlantic Airways. Air Ca-nadalikely leads all other airlines in the effort taken to

explain an unbundled pricing program to consumers. The

airline offers four fare brands to its domestic and Canada-

USA travelers: Tango, Tango Plus, Latitude, and Executi-

ve Class. The first three fare brands apply to the economy

class cabin, with the Executive Class brand providing a

seat in the cabin of the same name. Similar fare brands

have been created for the airlines routes to Europe, Israel,

and the Caribbean. Air Canadaplans to continue expan-

sion of the simplified fare structure to more destinations

worldwide.

The following describes the brand personalities created

by Air Canadafor its a la carte pricing strategy. The ima-

ge is from a page at Air Canadas web site that provides

consumers detailed descriptions of the features associated

with each fare brand.

Air Canada Changes the Fare Game with a la Carte

Pricing

www.IdeaWorksCompany.com

by Jay Sorensen

(President ofIdeaWorks)

IDEAWORKS AISLE

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single day. This demonstrates the importance of the Tango fare brand as Air Canadas 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 dont 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 Canadareservation 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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Ancillary Revenue Airline Conference 2007.Ideaworks

co-organizes the event with Airline Information. ARAC

2007 will be held November 14 and 15 in Frankfurt.

Air Canadahas an exceptional buy-on-board food and be-

verage service. The pre-purchase option provides a tangi-

ble savings incentive to the consumer, and allows the airline

to better plan the provisioning of a flight. Consumers may

view menus at the Air Canadaweb site. The choices offe-

red include fresh foods such as Subway sandwiches, sliced

carrots and apples, chicken Caesar salad, and hot entrees.

The airline has even borrowed the concept of value meals

from the fast food industry by offering onboard savings for

sandwich, chips and bar beverage purchases.

The pricing strategy is especially innovative due to the op-

tional discounts it offers to consumers. Travelers can save

$4 each way if they choose not to check baggage. Howe-

ver, once they have accepted the No Checked Baggage

option, they will be charged $43 at the airport to check

two bags each way. Opting out of Aeroplan mileage ac-

crual saves an additional $3 each way. Waiving the ability

to make itinerary changes or cancellations saves an additio-

nal $6 each way.

The following table (3) lists the optional discounts associa-

ted with each fare brand offered by Air Canadafor domes-

tic Canada, and Canada-USA travel. Blank boxes indicate

the discount is not applicable for a specific fare brand.

Additional marketing elements have been integrated into

the booking process. The Tango fare brand may detract

from the effectiveness of the Aeroplan frequent flier pro-

gram by allowing consumers to opt out of mileage accrual.

However, the Latitude and Executive Class fare brands

strengthen Aeroplans allure by allowing hotel and car

rental partners to make highly-targeted offers to upscale

travelers. The airline likely realizes additional ancillary re-

venues through the commissions paid by partners whentravelers choose special offers.

Air Canadas pricing strategy has evolved since its in-

troduction in 2003, and will probably continue to change

as the carrier learns how to best market and sell airline

tickets and ancillary services through its web site. There is

room for improvement, but the current strategy appears

to already surpass the efforts of most low cost carriers,

and probably all legacy airlines. Its 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

Canadian marketplace, and perhaps has influenced how

legacy airlines compete with low cost carriers.

1. Air Canadamanagement presentations, National Bank

Conference, March 28, 2007, AirCanada.com.

2. Information gathered from the Air Canadaweb site,

Simplified Fare Options Page, April 17, 2007, AirCanada.

com/en/travelinfo/destinations/simplifiedfare.html

3. Information gather from the Air Canada web site,

Simplified Fare Options Page, April 17, 2007, AirCanada.

com/en/travelinfo/destinations/simplifiedfare.html

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

described in this analysis were gathered at JetStar.com during February

and March 2007.IdeaWorkscannot guarantee, and assumes no legal liability or respon-

sibility for the accuracy, currency or completeness of the information.

EVENTS

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SWOT Analysis of Ryanair

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

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

SWOT TEAM

The no-frills carriers have created new markets, and ope-

ned up air travel. A greater proportion of their passengers

are people who previously were using other modes of

transport for travel, while a certain proportion are from

traditional carriers. Relying as they do on linking region

to region and by-passing expensive big-city hubs, low-

cost carriers have caused rise in local employment. There

is parallel growth in tourism; a rise in property investment

and new businesses credited to good, cheap logistic con-

nections.

One of the strongest characteristics of the no-frills busi-

ness model is the ability to adapt rapidly to circumstances.

Cost savings of the no-frills business was achieved by ef-

fectively supplying a single standard service on all routes

and improving both labor and aircraft productivity.

Ryanairs Chief Executive, Michael OLearys, once

claimed that Low-cost airlines are the new Europe. This

seems to have been amply proved by the tremendous im-

pact LCC have had on Europe.

Ryanairand easyJetare the leading low cost players ow-

ning around 50% of the share in the European LCC mar-

ket.

Ryanair is an Irish airline headquartered in Dublin. Its

biggest operational base, however, is at London Stansted

Airport. It is Europes largest low-cost carrier and one of

the worlds largest and most successful airlines in terms

of profits, number of flights and number of passengers

flown.

Ryanairis also one of Europes most controversial com-

panies, praised and criticized in equal measure; praise for

its commitment to low fares, radical management, and its

willingness to challenge the establishment within the air-

line industry and criticized for its trade union policies, hid-

den taxes and fees, and limited customer services, and

misleading advertising. In October 2006, Ryanairwas vo-

ted the worlds most disliked airline in a survey conducted

among 4,000 of its users by TripAdvisorwebsite.

Overview of Ryanair:

History and Growth: Ryanair, founded in 1985 by Irish

businessman Tony Ryan, started operations as a regio-

nal flight with a 15 seat turboprop aircraft flying between

Waterford and London Gatwick. In 1986, adding a second

route between Dublin-London Luton, they carried 82,000

passengers in one year.

Today, Ryanairis Europes largest low fares airline with

19 bases and 456 low fare routes across 25 countries. It will

have 19 European bases by the first quarter of this year.

Michael O Leary, the current CEO ofRyanairwas res-ponsible for launching the first unique low fares, no-frills

airlines in Europe. Flights were scheduled into regional air-

ports that were keen to attract new airlines, and offered

lower landing and handling charges than larger established

international airports. Michael OLeary, known for his

pugnacious and aggressive management style, employed

a flat management hierarchy and vigorously followed the

low cost policy, on all fronts.

The EU deregulation of aviation industry in 1997 helped

Ryanairs growth and expansion into Central and NorthernEurope. It made a successful floatation on the Dublin Stock

exchange and NASDAQ, making it rich in capital enabling

it to place a massive US$2 billion order for 45 new Boeing

737-800 series aircraft in 1998. Since then Ryanairhas not

looked back, but grown stronger and currently is the most

dynamic airline in the European markets.

Current Status: This year Ryanair Holdings plc (on

Feb.12, 2007) has a NASDAQ listed market capitalization

of $5.6 billion, which will be used in the NASDAQ-100

Index weighting, and a worldwide market capitalizationof $12.3 billion.

In the year ending December 2006, Ryanairs average re-

venue was $2,190 million, with a growth rate of 28%. Its

net income was about $314 million with a 5-year growth

rate of 23% approx. The increase in passengers for the rol-

ling 12 month period ending February 2007 was 24%. Over

the period Oct 06 - Feb 07, stock value rose by nearly

50%. Increase in EPS was 29% in Q3, 2006.

Ryanair currently employs a team of 4200 people and

expects to carry approximately 45 million passengers this

year, making it the worlds largest international scheduled

airline. It operates 134 new Boeing 737-800 aircrafts with

firm orders for further 117 new aircraft to be delivered

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over next 5 years. This increase in fleet would permit Rya-

nairto expand passenger base from 45 million in 2007 to

85 million in 2012.

AmongRyanairs main low-cost competitors are easyJet,Monarch Airlines, Bmibaby, Air Berlin, Germanwings,

Transavia, Jet2, SkyEurope, Vueling, WizzAir, Flybe,

Thomsonflyand TUIfly. In 2004 approximately 60 new

low-cost airlines were formed. Despite traditionally being

a full-service airline, Aer Lingusmoved to a low-fares stra-

tegy from 2002, leading to much more intense competition

with Ryanairon Irish routes.

On Oct 5, 2006 Ryanair launched a 1.48bn (GB1bn;

US$1.9bn) bid to buy Irish carrier Aer Lingus. Aer Lingus

rejected the offer as unsolicited, opportunistic and too lowand later EU stalled it. Ryanairhas raised its stake in Aer

Lingusto 25% in Nov 2006 and plans to make a second bid

later this year. Alliance ofAer Lingusshareholders - inclu-

ding the government, Aer Linguspilots and an employee

trust hold more than 45%.

Business Model of Ryanair: Ryanairs business model is

stated to be a disruptive model within the European avia-

tion sector. A disruptive business model challenges the

strategies used by the existing, often well-established bu-

sinesses in the market. Its primary focus has been on price

sensitivity of customers.

The major features of this LCC are:

1. Lowest ticket prices to any place in Europe.

2. Differential pricing of fares.

3. Usage of secondary and smaller airports.

4. 100% E-tailing of air tickets.

5. Flying only single model of aircraft

6. Increased capacity of airplanes and lowest threshold to

travel to achieve highest seat density

7. Short turnaround and maximum utilization of aircrafts.8. Every additional service is charged

9. A flat management structure

10. Non-unionized labor force

11. Aggressive fuel hedging

12. Continuous innovative measures to increase ancillary

earnings*

13. Stringent cost-cutting measures employed.

14. Main Base location in high traffic zone (London-UK)

15. Focus on routes with large non-business potential

*Ancillary income generation and cost cutting measures:

Money generated by tickets has never been sufficient to

cover operating expenses ofRyanair. To sustain growth of

operating margins and reassure shareholders, Ryanairhas

adopted stringent cost cutting measures and strengthened

ancillary activities.

Some of the cost cutting measures are:

1. There are no window shades, no seat-back reclines and

seat-back pockets, thus leading to increased number of

seats and reduced cleaning and repair costs.

2. The staff has to pay for their own training, uniforms and

meals and the staff is not allowed to unionize.

3. Very short turnarounds of aircraft which increases air-

craft utilization.

4. Staff takes on multiple responsibilities like cleaning the

passenger cabins and also welcoming passengers on board.5. Aggressive fuel hedging to offset fluctuating fuel prices.

Sources of ancillary income are:

1. Customers are charged for priority boarding and assigned

seating. Families would end up paying priority boarding fee

as they would wish to sit near each other.

2. Food, water and drinks are sold to passengers at a price

on flights. There are no exceptions in catering services even

when passengers are stranded due to flight delays or can-

cellations.

3. Ryanairwas the first airline to charge a fee for check-in

baggage. This deters passengers from carrying extra luggage

and reduces baggage handling costs. Charges are increased

for checking in baggage over telephone or in person.

4. There is an Irs & Wchr levy (insurance & wheelchair)

added to all passenger ticket fares.

5. A new pay as you weigh policy has been introduced this

year. Under this policy, passengers exceeding the airlines

recommended flying weight will be charged an increasing

scale of penalty charges for the extra fuel costs they incur

the airline. Ryanaircustomers will be required to give de-tails of their height and weight at the point of booking.

6. Ryanairearns from its website, (15 million unique visi-

tors each month), commissions from sales of Hertz rental

cars, hotel rooms, ski packages, and travel insurance.

7. Ryanairplanes have become giant billboards, displaying

ads for Vodafone Group, Jaguar, and Hertz. Ads will also

be featured on seat back trays.

8. Flight attendants sell everything from scratch-card games

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 centrefrom Ryanair.

10. It has also launched online gambling on its website and

plans to offer them on flights, after the introduction of on-

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BIRDS EYE VIEW


board mobile phone service this year.

All these extra-revenues are essential to Ryanairto meet

rising fuel prices, to offset low revenues from the tickets

and to show good results at the stock market.

ISSUES:

Ryanairhas transformed itself from an industry minnow

into one of Europes biggest airlines over two decades.

However, its obsessive focus on the bottom line has den-

ted its public image. Chief executive Michael OLearyhas

been an outspoken critic of rivals and the industry. The air-

line refuses to recognize trade unions and has opted not to

join industry groups such as the International Air Trans-

port Association, which accounts for 94% of the worlds

air traffic. Ryanair does not recognize the Irish Airline

Pilots Association (IALPA), although it is the largest pi-lots union in Ireland. It prefers to plough a lone furrow,

targeting rivals with relentlessly aggressive advertising cam-

paigns.

Some of its major issues are:

1. Misleading advertisements and cluttered website

2. Its negative public image contributed equally by both its

aggressive CEO and unfriendly staff.

3. Immature handling of sensitive issues (environmental

impact, criticizing politicians , disabled passengers)

4. Latest absurd ancillary charges (fat tax, wheelchair char-

ge, check-in baggage charges, refund handling charges etc.)

5. Its strict policy of communication to passengers only

through e-mail, while passengers can reach it only by pre-

mium rate phone line6. Poor services to passengers in and off the flights

7. Leadership succession issue

SWOT ANALYSIS:

The SWOT analysis given below should help Ryanairto

achieve their mission and goals by capitalizing on opportu-

nities using their strengths and eliminating their weaknes-

ses and threats.

The vision and goals ofRyanairare:

- to be the biggest and most profitable low fares airline in

Europe.

- to make Low cost is a management religion and be air

fare passive.

- to target growth, actively manage load factors and the

cost base, and

- growth will be based on opening new airports.

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Challenges and Recommendations for the future:

1. Low-cost carrier market expansion will probably slow

significantly in the next five years as new opportunities be-

come more limited. As this growth slows, labor costs will

continue to rise for the low-cost carriers, in all likelihood

reducing the advantage they once enjoyed. Ryanairmust

be prepared for the inevitable convergence of costs and

conditions, but it will still retain the no-frills advantage

of high seat density and aircraft utilization coupled with

lowest fares in any market.

2. Ryanairs domination in the low-price market segment

will continue but to become the biggest player it will have

to expand into more popular routes which will entail bet-

ter service and good customer relations. This will require

high employee retention which is key to customer satis-

faction. The business philosophy should be smile, chargeand serve.

3. Stock market earnings are totally based on growth, ex-

pansion and high operating margins. This can be sustai-

ned by Ryanair in the existing market conditions. But

these conditions are dynamic. Competitions with other

established modes of transport in the low price segment

will intensify in certain regions. Hence growth will slow

down. The current major growth areas in Europe are in the

Eastern regions. So it will have to launch new operations

in non-European territories like Russia and Turkey. This

would require off-base (like crew lodging in areas not ha-ving home bases) service operations increasing operational

costs. This will cut into its operating margins. On the other

hand, improved service image can have a positive impact

on share prices. Hence the Stock market earnings will con-

tinue to be vulnerable to market dynamics.

4. Rapid growth of secondary airports will definitely in-

crease noise pollution and carbon emissions in remote areas

which is an environmental hazard. Hence Ryanair has to

combat it with pro-nature conservation moves.

5. The economy traveler segment can be divided into

lowest price segment and value-price segment. Ryanairis

already the leader in the lower price segment, but would

have to cater to the rapidly growing value segment for total

domination in the economy segment. The value segment

constitute travelers interested to optimize time, comfort

and price. This would mean preference for city-centric

airports, convenient departure and arrival times, and basic

service coupled with the willingness to pay little more for

the comfort.

6. Competitors like easyJet, Air Berlin, Basic Air,

BMIBabyare catering to the Value market segment and

have established slots at some primary airports and provi-

ding basic cost effective services. Acquisition of Aer Lin-

gusor a merger with a similar airline would enhance Rya-nairs showing in stock markets and also facilitate quicker

expansion into value-oriented market segments without

comprising its top position in the low-price segment.

Conclusions

Ryanairis the only airline that has been completely focu-

sing on Low Price segment and with the creation of this seg-

ment has shown staggering growth rates of 30% and more.

Combined with an excellently executed low cost business

model and high profitability, Ryanairwill emerge as one ofthe clear winners from future market consolidations.

The key challenge for Ryanairin the next couple of years

therefore is developing a successful strategy for not only

winning the war in the Low Price segment but gaining a

solid position in the Value segment and in new non-Euro-

pean markets.

2nd Air Transport Conference for CSEE

Air Scoopis proud to be media partner this year again of the 2nd Air Transport Conference for CSEE.

Following the success of our Inaugural event last year, this year we are continuing in dealing with the issues Air Transport

is facing in this region. http://www.transport.easteurolink.co.uk/air_Upcoming.html

EVENTS

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Ecological food and ecology friendly cars were the first.

Then companies that seriously care of the environment

grew in favour. Apparently, peoples world view is gra-dually changing towards the idea that it is good to be

green and a vast number of passengers with nature frien-

dly behaviour is about to emerge.

The idea that air travel poses a grave threat to the envi-

ronment was first scientifically proved in 2004 when the

University of York think tank group published its report

saying that air industry expansion placed the whole planet

under risk. Emission limiting cannot be achieved unless

flights are reduced, said the report. Scholars also suggested

businessmen using technological advancements such as vi-

deo and internet conferences and live link-ups instead of

traveling. Governments were recommended introducing

environmental taxes for each flight. Today anyone is of-

fered to offset his/her emission by buying special carbon

offsets either with the carrier or at special online shops

such as CarbonFootprint after calculating his/her per-

sonal CO2 emissions with a carbon footprint calculator.

For example, London Barcelona return flight will pro-

duce 291 kg of CO2 and it costs 4.29 per passenger. That

money would be invested into tree planting in the Great

Rift Valley in Kenya. There are numerous other web-pro-

jects that advocate the idea of flights reduction and peoplechanging their consumer behaviour, such as Responsible

Tourism Awards and Climate Care.

Passengers are encouraged to change their consumer be-

haviour not only by scientists but by public figures. Du-

ring the World Economic Forumin 2007, where climate

change was the number one question, Peter Gabriel, for

example, assumed that overall flights in the world would

be reduced in a short span of time since they would sim-ply become unpopular amongst people. And Prince Char-

lesin turn cancelled his ski trip to Switzerland to reduce

his personal carbon footprint. It seems like executives and

other Cabinet members are about to accept virtual com-

munication which would undoubtedly have an impact on

common peoples mind.

Obviously, responsible-traveler-behaviour contradicts

budget-traveler-behaviour. With LCCs people could tra-

vel more often than they do it with legacies. Shop-tour in

Barcelona, culture-vulture-trip to Stockholm, weekends

somewhere in the UK have become usual things for many

people and not all of them are ready to give up air trave-

ling in favour of alternative means of transport. However,

statistics shows that in Britain people are willing to travel

slower, longer and less in sake of the environment. No

wonder ethic traveling is popular in the UK since the Bri-

tish are Europe ecology pioneers. The question is whether

those tendencies will find fertile ground in other coun-

tries.

Hardly any would doubt the idea that anything good in life

is either illegal, immoral or harmful. Such sort of thingsshould be chosen consciously, for people to be ready to

pay for them. Apparently, that was the logic of Institute

for Public Policy Research that called for a visible warning

message to be placed on any product related to air travel-

ling. Flying causes climate change will say a travelling

line at the end of any airline commercial.

Environment and LCCS: Beware of Flying!

Iberia sues Ryanair for 2 Million Euros for unfair competition. The Spanishcarrier has accused the LCC of cutthroat competition and denigrating its brand

name during a promotional campaign in September 2006. Ryanairpromised

free flight vouchers to anyone turning up at Barcelonas Plaza de Catalunya with

placards criticizingIberia. Ryanairdid not write the placards, Spanish consu-

mers did, Ryanairdeclared.

While thousands arrived asking for their tickets, the crowd turned hostile when

Ryanairran out of vouchers; Sinead Finn, Ryanairshead 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 Agencyopened an investigation after

receiving more than 150 complaints. Iberiaconfirmed that the lawsuit had been

Ryanair Sued by its Rivals

filed: It has nothing to do with being scared. It has everything to do with competing airlines acting within law.Meantime, LOThas also sued Ryanairfor publishing controversial advertisements as they describe LOTs tickets as

robbery and theft. One ofRyanairspress release was even entitled LOTs fuel surcharge is daylight robbery. LOT

declared that the campaign was dishonest and insulting, and wants written apology for Irish carrier.

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Ryanairis also examining the prospect of expanding into

larger airports.

Ryanair, unlike its low-fare rival easyJet, has meticulously

avoided many central airports due to high fees and longer

turnaround times. Ryanairhas avoided central airports in

numerous cities where easyJetoperates from them, inclu-

ding Barcelona, Brussels, Copenhagen, Paris, and Venice.

Ryanair also has large operations in secondary airports

near Dusseldorf, Frankfurt, Glasgow, Rome, Stockholm,

and of course, London. While its unlikely Ryanairwill

enter Heathrow anytime soon, due to its slot restrictionsand very high costs, Ryanairmay enter primary airports

in other cities where it already has bases at secondary air-

ports. Ryanairwill try to target travelers who prefer the

convenience of a larger airport, typically closer to the city

center, and who are willing to pay a price premium for that

privilege. That price premium will compensate not only

for the higher fees that Ryanairwill pay at the airport,

but also for the longer turnaround times that Ryanairmay

encounter.

However, Ryanairmust target its new customer base ca-refully. Many business travelers who prefer airports closer

to city centers are loyal to legacy carriers because of their

frequent flyer programs and spacious seating configura-

tions. Ryanairwill probably offer neither in the coming

years, and as a result, it may not attract the legions of busi-

ness travelers it desires, even if it offers significantly lower

fares than legacies. Therefore, Ryanairmust target leisure

travelers and others who prefer larger airports, not neces-

sarily business travelers. Its unlikely that Ryanair will signi-

ficantly trim flights at secondary airports if it adds service

at primary airports, because the new service will augment

the old service by enablingRyanairto target different con-

sumer groups that currently dont use Ryanairbecause of

the secondary airport issue. Some service may be trans-ferred from secondary airports to primary airports, but

Ryanairwill primarily grow its passenger numbers from

these larger airports, not simply transfer passengers from

one facility to another.

Ryanairwill need to add longer routes, as well as routes

to and from central airports if it wants to meet its five-

year growth targets. However, Ryanairmust do both ca-

refully, in a way that modifies its business model without

destroying its cost advantage over other carriers. If it can

do so, it will, without a doubt, be Europes leading airline,catering to the majority of passengers with substantially

lower costs than its competitors.

(R)evolution of Ryanairs Business Model (part 2)

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Flybehas 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. Flybeis 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. Flybepredicts that by 2009 it

Flybe: Environmental Label Soon

will have one of the youngest and most environmentally sensitive fleets in the world, with

per seat fuel consumption reduced by more than half.
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BIRDS EYE VIEW


French market is less attractive because state is disinvesting, high taxation and social issues

Franois Marie, Managing Director Aeroport Nantes Atlantique

French dont travel too much because they have a marvelous country

Jacques Sabourin, Delegate General, Union des Aeroports Franais

France: A Challenging Market for LCCs

The 4th French Connecttook place on 25-27th April 2007 at the Atlantia Conference Center in La Baulewhe-

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 Europes low cost operators all in one place with first-class conference faci-

lities, superb hotels and dining, and a relaxed, entertaining business environment.

Martin Saxton (Director of Commercial Planning, FlyBe)

With the acquisition ofBA Connect, FlyBehas become the largest regional airline in Europe with 41routes in France. FlyBehas 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

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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 politicalenvironment (regional not radial); Supportive regulatory environment)

Karim Makhlouf (CCO SkyEurope)

Load Factor is the base of LCC business,

Karim Makhlouf

The strategy ofSkyEuropeis to connect main cities of Western Europe, but the company also aims Eastern countries such

as Russia or Ukraine. SkyEuropehas 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 easyJetand Ryanairhave 85%, Karim Makhlouf

Wizz Airhas a Ryanairstrategy with secondary airports destinations, Karim Makhlouf

Franois Bacchetta (Regional General Manager France, easyJet)

France has one of the lowest LCC market penetration in Europe, Franois Bacchetta

easyJetflies longer routes because Europe is expanding, Franois Bacchetta

Joining the dots first if relevant!, Franois Bacchetta

We always need to find the right balance between secondary and primary airports, Franois Bac-

chetta

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

Transaviais 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.

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Strategy ofTransaviain 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 Medium Haul

Business Models Analysis

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

Transavia Strategy Transavia Target Groups

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Alex Cruz (CEO, Clickair)

Clickairplans to carry 10 million passengers by the end of 2008, and around 17 million by the end of

2012. In 2007, Clickairhas 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. Clickairwill 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)

Flybaboois 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).

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Alfons Claver (International Sales & Marketing Manager, Vueling)

Vuelingis 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.

Its hard for carrier to serve re-

gional cities, Alfons Claver

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

Gilles Gantelet (Deputy Head of Unit Internal Market, Air Transport Agreements & Multilateral

Relations, Directorate-General for Energy and Transport, European Commission)

Gilles Ganteletexplained 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.

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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)

Jet4youis the first private Moroccan Low-cost carrier. Jet4youhad 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).

Jet4youhas a strategic partnership with CorsairFlyfrom TUIFly.comon a Code Share agreement.

There is a commercial synergy between both airlines on each home market, and a joint communi-

cation between Jet4you & Corsairon the Moroccan and French Market.

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Air Scoopis a Registered Trademark ofGlobal Wings Publications.

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

C i ht 6 U th i d di t ib ti p d ti i f bidd

Jet4youhas a strategic partnership with CorsairFlyfrom TUIFly.comon a Code Share agreement. There is a commercial

synergy between both airlines on each home market, and a joint communication between Jet4you & Corsairon the

Moroccan and French Market.

Only 20-25% of the people have a

bank account. Therefore, we will still

use travel agency,

Karim Baina

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

ofThe Airport Agency.

For its 5th edition in 2008, French Connectwill 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

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