Highlights in this Issue

Conference Air Transport Summit p. 4

Essential Ancillary revenues for Ryanair p. 7
SkyEurope: New Share Issue to Get Cash p. 9
Deregulation of LCCs European Market p. 11
Strategies to respond to rising fuel costs p. 14
The Low Cost Carriers Analysis Newsletter
AIR SCOOP ANNOUNCEMENTS
EDITORIAL
AIR SCOOP is proud to be an

T
he current playground of European LCCs is no longer suffi- Official Media Partner of
cient to bear their development. New routes are still availa-
ble inside Europe, but they are not profitable enough. Indeed, these LCCs events
profits drive routes’ opening. Thus, LCCs look for further markets to
open routes, such as in North Africa, Middle East or Eastern Europe.
Recent bases opening of LCCs leaders reflect this need to constantly
keep growing in order not to collapse. For instance, Ryanair an-
nounced it would launch up to 20 routes in Morocco in the coming Sky Full of Possibilities
5 years. The base opening in Marseille was an interesting signal for Bratislava, 26 May 2006
further expansion of the airline in North Africa. Air Berlin, with
the support of Nikki, definitely looks at the Eastern markets and
Russia…
To have the opportunity to serve these new markets, LCCs face
many restraints: longer distance between airports, problems due to The Low Cost Air Transport Summit
non-EU countries, longer turn-over on the ground, loss of time du- London, 12-13 June 2006
ring security checks… Distance and time are important challenges to
current business models. Indeed, most aircraft types used by LCCs
can’t fly routes longer than four and a half hours. This implies they
will have to settle their future bases outside Europe in order to deve-
lop an inter-area network (Europe, Scandinavia, Africa, Middle East, The World Low Cost Airlines Congress
Russia, Asia…). They will then face specific restrictions in these London, 11-13 September 2006
countries, like in airports (Casablanca in Morocco…), PSO (Public
service obligations)…
LCCs systematically promote deregulation of the markets, in par-
ticular through ELFAA, a low cost carriers association lobbying in
Brussels. Another solution to avoid restrictions will be to register
new companies under local jurisdiction. In a different way, but see-
Air Scoop Recruits!
king same goals, easyJet has envisaged a franchise with partners in
We recruit more “correspondents” over Eu-
Middle East, an area highly regulated.
rope to cover regional news and analysis.

Your role will be to cover the Low Cost

Carriers market in your country and near
area. You will write about specific topics
and propose your own articles. We may ask
you to attend special events concerning the
LCCs market occurring in your country or
near area. It is a requirement to be a fluent
writer in English.

Join Air Scoop Team by sending us your

CV and a covering letter by email to:
jobs@air-scoop.com

We look forward to seeing your applica-

tion soon.
Evolution of Low Cost Carriers Compared to other Aviation Segments

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


Interview of Maunu von Lüders
(CEO of FlyNordic)
Air Scoop: Could you please present
FlyNordic to our readers? What are
your specificities compared to other
European LCCs? What do you do
better than your competitors?
Maunu von Lüders: We do not call
ourselves a low-cost carrier anymo-
re. We are a ‘3rd generation airline’
which combines the best from the
low-cost and the traditional airlines
in such a way that our model will sa-
tisfy the Scandinavian market in the
best possible way. In order to do this
we must be better than or at least as
good as the dominating traditional
airline in the most important service
elements but at a lower cost to our
customers. We do not want to hu-
miliate our customers by depriving
them from service or ignoring their
expectations just because our fares
are low. We also do not want to rob
our customers by charging a lot for
features that are indeed traps created
by a monopoly situation. We simply
try to satisfy the most important cus-
tomer needs at a reasonable cost.
You already cover most of the Scan-
dinavian market; are there suffi-
cient population catchment areas to
open new routes in Scandinavia? If
not, towards which market do you
tend to?
The frequency of travel is very high
in Scandinavia. Distances can be
great and travel times with other
means of transportation very long
which should create a favorable si-
tuation for airlines. But even though
exceptionally many people travel by
air within Scandinavia and business
should be good, there are too many
players in the field which results in
2 Air Scoop - July 2006
DOWN TO EARTH
Maunu von Lüders ,
CEO of FlyNordic
destructive overcapacity. The market
is quite saturated and all viable rou-
tes have already been exploited. Fly-
Nordic has been successful on routes
between Stockholm and Northern
Sweden and also between Stockholm
and the other Scandinavian capital
cities. We can be even better in these
markets as we are developing a con-
cept of exceptional value.
Is there many low cost carriers
serving the Scandinavian market?
Who are your most dangerous com-
petitors: local LCCs or “Islanders”
(Ryanair, easyJet)?
The low-cost segment is growing
fast in Scandinavia. There are quite
a few low-cost carriers and more will
come. We do not consider the other
low-cost carriers as our most obvious
competitors. We target other markets
as we are predominantly offering sui-
table services for business travelers
within Scandinavia from primary
airports with a morning – evening
concept. We are in direct competi-
tion with the likes of SAS rather than
other low-cost carriers.
The European Low cost carriers
market has reached a certain ma-
turity which leads to its consolida-
tion. During this transition, what
are, for you, the greatest threats
to the European Low cost carriers?
Fuel rising? Overcapacity? ...
You mentioned indeed in your ques-
tion two serious threats. As costs are
rising and the price elasticity remains
high it will be more difficult for the
low-cost carriers to stimulate pro-
fitable growth. Consolidation is an
inevitable development as there will
be many troubled carriers without
a chance to manage the equations
between rising costs and diminishing
revenues. I do not see consolida-
tion as a threat but a natural way of
making the industry more effective.
The weakness of consolidation is the
common misfit between different
corporate cultures which often re-
sults in long term corporate turbu-
lence and ineffectiveness. Some real
threats to the low-cost segment are
the prevailing protectionism in favor
of the “flag carriers”, predatory pri-
cing and other hostile actions by the
large incumbents and a tendency to
re-regulate through various taxes and
other restrictive measures.
You have adapted your flights ac-
cording to your passengers: Mor-
ning and evening flights for business
routes, daytime for leisure travelers
and week-ends with charters. How
do you manage such an adjustable
model?
It is quite easy logistically. The seg-
mentation of customers is only a
factor regarding schedules and des-
tinations. The rest is pretty much
the same regardless if it is a business
flight, leisure flight or a charter. The
distribution mechanism and the fare
concept serve all scheduled traffic
whereas charters are sold by tour
operators. Catering and some other
service features may vary on charter
flights based on what the customer
requires but that too is easy to han-
dle. The main thing is to have the air-
crafts and crews in the air serving all
our different customer categories as
well as they can.
www.air-scoop.com

Do you believe that consolidation
of the market will lead to 2-3 main
LCCs in Europe, or do you think
there will always be many LCCs on
niche markets?
I do not think that consolidation will
result in only 2 or 3 large low-cost air-
lines. There are more variations among
the low-cost carriers than among the
traditional airlines. This variation has
developed out of a need for different
concepts in different markets. There
will always be a need for various ni-
ches. A niche carrier can however ne-
ver expect to grow large because then
it no longer serves a niche.
BIRD’S EYE VIEW
Are you worried about the shortage
of pilots and crew hitting LCC mar-
ket?
I am not worried but one must all the
time keep an eye on the situation. The
market for pilots is very much a local
matter. Pilots are people with homes
and family and not members of a hi-
ghly mobile workforce. A well-run air-
line should be an attractive employer.
If you stick to one aircraft type and
offer a good and rewarding working
environment you should have a better
chance to recruit and maintain a good
pilot workforce.
What are the options for FlyNordic
to transform its business model in or-
der to make more costs savings?
We are pretty close to have explored
most of the cost saving areas. There
are naturally some savings to be gained
regarding service providers. Our own
organization is as small and effective as
it can ever be. If we can maintain our
cost structure but increase our earning
potential through customer oriented
and innovative product features, we
should be doing OK.

Munich or Nuremberg as 5th Low Cost Market Share – Monthly Frequencies (June 2006)
Germanwings base? To/From Germany (in percentage) Source : OAG MAX

Germanwings is currently looking for

its 5th base in Germany, and another one
outside the country. Catchment area is
important to set a base, smaller airports
are then commercially not viable to sus-
tain a base of five aircraft as targeted by
Germanwings.
Few rumors are, as usual, ongoing about
potentially airports: Munich Internatio-
nal Airport and Nuremberg Airport are
the most recurrent options.
Munich appears most expensive, but Nu-
remberg has already a strong presence of
Air Berlin, even if it is not a base. Setting
a base in Nuremberg could be the oppor-
tunity to attack its core market, but till
now Karl-Heinz Krüger, CEO Nuremberg Airport, has always rejected proposals from easyJet and Germanwings. Fur-
thermore, a recent statistics indicated that only 10 % of flights out of Nuremberg were true LCCs while other German
airports, including Munich, have between 17 and 25 %.
Even if a Condor base is scheduled in Munich (Lufthansa might try to avoid competition between its two LCCs), Mu-
nich Airport should be favorite to become the 5th Germanwings base.

Open Skies Agreement: New Markets for LCCs?

Bosnia and Herzegovina, Bulgaria, Croatia, Iceland, Mace-
donia, Norway and Romania have signed the 9th of June
the agreement on the European Common Aviation Area
(ECAA) at a ceremony in Luxembourg. Thus they join the
Single European Sky of the EU member states under speci-
fic conditions for each country. This agreement still needs
to be ratified by national parliaments.
“The creation of the ECAA will put impetus on the po-
litical and economic integration of Europe, for which air
transport plays a key role. The agreement will open up
market opportunities for the aviation industry and give
people better travel options” said Jacques Barrot, EU
Transport Commissioner.
Egypt also agreed to consider an ‘open skies’ policy to allow
foreign airlines greater access to the Arab world’s largest
tourism market. The main issue in these open-skies ne-
gotiations will concern Cairo. Indeed, Cairo is the hub of
national carrier Egypt Air and is not freely accessible for
foreign carriers.

3 Air Scoop - July 2006 www.air-scoop.com

 BIRD’S EYE VIEW
Conference Low Cost Air
Transport Summit
Air Scoop was media partner of the
last IEA and Marketforce Communi-
cations Conference that took place
in London, the 12th and 13th of June
2006: The Low Cost Air Transport
Summit (http://www.marketforce.
eu.com/lowcost).
This successful event was an oppor-
tunity to meet the main actors of the
European LCC market: managers of
LCCs, manufacturers, aviation ana-
lysts, airports representatives…

Here are some of the main analysis

Share of capacity in the low-cost segment, June 2006 (percent)
and points of view of the summit.
Brian Pearce (Chief Economist - IATA) has expressed few reservations concerning the European LCCs market: “All
business models have challenges”. He believes the ‘low-cost’ business model struggles to meet its capital. In Europe, it’s a
‘winner-takes-all’ in the low cost market.
According to him, part of the problem is due to the value chain with uneven returns not reflecting risk of value. This
inability to rationalize capacity means leads the LCC industry as a whole to deliver returns Euros 8.7bn lower than inves-
tors expect. Furthermore, even if margins are improving world-wide, regulatory restrictions and the price of fuel keep
profitability lower than investors expected.

Willem Hondius (Director of Commerce - Transavia) presented his point of view on competition, differentiation and
on the future of the travel industry. According to M. Hondius, most of the 56 LCCs in Europe loose money for few
reasons:
- The market is price driven, so the pressure is put on yields, and a higher dollar yields do not look as good in real
terms.
- Ryanair and easyJet have over 50% of European market share; the next competitor (Air Berlin) has only 6%.
- The competition has considerably increased between all the carriers. Business models of low cost, charter and network
carriers are increasingly overlapping each other, and in the next 5-10 years, their differences will become small, especially
between charters and LCCs.
- Finally, loyalty of their customers is limited, as it mainly depends on the price of the tickets.

Pointing out that most of the LCCs are small players, M. Hondius pro-
posed few strategic options in order to compete with the market lea-
ders:
- Becoming a niche carrier on specific niche routes.
- Setting up alliances between small carriers, beyond current limited par-
tnerships.
- Growth by take-overs or merging.
- Changing the business model by developing hybrid models, interli-
ning…
- Promoting vertical integration of the business.
- Widening their field of action through diversification.

« Being big is not the issue, but the ability to adapt fast to changing
market circumstances »
Willem Hondius

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

 BIRD’S EYE VIEW
Maunu von Lüders (President – FlyNordic) summed up
its strategy in the LCC crowded marketplace: “Listen to the
customer!”.
Thanks to studies of LCCs customers, both decision ma-
kers and travelers, three main points lead: price, schedule
and punctuality.
He believes six dangers threaten low cost carriers:
- Regulatory problems (consumer protection, slots…)
- The rising of costs
- Overcapacity (higher costs, but lower fares)
- Uneven cost structures between carriers (Eastern Euro-
pean cost advantages)
- Cannibalizing or complementary structures
- Traditional carriers transforming into low cost models
Read our exclusive interview of M. von Lüders (p. 2).
Carten Kroeger (Director of Sales – Air Berlin) insisted
on the ‘low fares alliances’ in Germany. For instance, Air
Berlin shares its codes with HapagFly, owns 24% of Niki,
and has links exchanges with dba website. “It is efficient
and cost cutting, but it is not a trend”.
For more on German market and LCCs alliances, read our
June 2006 issue.
Tim Evans (Managing director – BA Connect)
M. Evans defended the regional airlines market faced to
LCCs:
- There is not a total domination from the LCCs, there are
still niche carriers
- There is an emergence of a kind of alliance or federation
among regional carriers
- Between regional carriers, there is an important growth
of capacity

Duncan Alexander (Managing director

Business Development – OAG World-
wide) presented MAX online, a useful
product of its company, sponsor of the
event.
OAG is a global travel information com-
pany which provides a suite of solutions
for managing, distributing, displaying and
analyzing passenger and cargo flight data.
Every ten seconds a flight is updated on
the OAG system which includes inter-
net timetables; flight analysis tools; flight
status displays and SMS alert services for
airports, airlines and travel-related web
sites.
Increase of Low cost flights from/to these markets
Some Key Trends - June 2006 Vs June
2005 Source : OAG – June 2006

85% more Low cost flights to/from Bal-

tic States ; 59% more Low cost flights
to/from Scandinavia ; 48% more Low
cost flights to/from Western Europe ;
47% more Low cost flights to/from Eas-
tern Europe…

Air Scoop has established a partnership

with OAG which will provide aviation
data for our next newsletters.

www.oagmax.com
Low Cost Carriers Operating To/From Major European
Countries By Frequency

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

 BIRD’S EYE VIEW
Dr Andreas Bierwirth (Managing director – Germanwings) introduced Germanwings which is the only pure German
low cost carrier and bigger than Air Berlin which is mix-model between LCC and charter. Germanwings is located in
Germany’s regions with the strongest purchasing power.

Purchasing power of cities in Germany Germanwings‘s bases

= population density balanced with purchasing (purchasing power per person BIP)

Dr Andreas Bierwirth entered the question of the Fuel surcharge: Is it a - High Seat Load Factor
viable strategy for the low cost model? - Improved earning capacity
For Dr Bierwirth, LCCs need to respond to rising fuel costs as any other - Short turnarounds / high utilization of
airline. Communication and public awareness about high fuel costs will aircraft
help implementing a Fuel surcharge. The main problem comes from the
- Home base concept
high price sensitivity among large parts of the low cost passengers. So hi-
- Young and integrative aircraft fleet
gher the fuel surcharge will be, higher is the risk to loose parts of the highly
price sensitive generated demand.
- Reduced need for airport infrastructure
Jason Bitter (Chief Operating Officer – SkyEurope) made his presenta- lowers costs
tion about: “Delivering an Optimal Fleet Strategy for Future Growth”. He - Make-or-buy services (engineering,
explained which points are important when buying an aircraft: “Fleet re- stations/hubs)
quirements” - Staff costs and crew employment
- Maximizing online sales
- Outsourcing uncontrollable costs
(airport, fuel, credit card…)
Keyfactors for Maximising
Operational and Cost Efficiency

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

 BIRD’S EYE VIEW
Jason Bitter also insisted on the fact that fleets have real
and artificial costs.

Mike Rutter (Chief Operating Officer – FlyBe) described

its company and their efforts to reduce costs. FlyBe is a re-
gional low cost airline with frills, concentrating on domes-
tic travel (80% weight). FlyBe has developed a defendable
niche within the domestic sector which is supported by its
cost structure, its choice of fleet and its strong retail brand.
FlyBe operates 25% of UK/France routes and 35% of regio-
nal French routes by flying to disadvantaged regions.
He also pointed out the important spending on advertising
by UK LCCs.
Real & Artificial Costs of a Fleet

Advertising spent in the UK air travel

market (Nov 2005 – Jan 2006)
Source NMS

Essential Ancillary Revenues

for Ryanair The business model of Ryanair is not meant to generate
growth only through the selling of tickets. Money genera-
ted by tickets has never been sufficient to cover operating
expenses. Ryanair’s boss had the cleverness to use this
weakness as a marketing tool with a slogan: “Flying with
Free Tickets”.
Free tickets are not a reality yet, but here are some ways
Ryanair plans to reduce, always more, the price of its tic-
kets.
The core activity of the Irish airline is to carry its passengers
across Europe. To earn extra-revenues from its passengers,
tickets are low, but the services around are not. The LCC
proposes (or will propose) meals and drinks, in-flight enter-
tainment and gambling… Every opportunity to get money
is considered, even if the airplane must become a flying
advertising.
To sustain the growth of operating costs and reassure shareholders, Ryanair has strengthened ancillary activities. On the
corporate website, the airline already offers car hire and hotel room reservation. Recently, the carrier announced it would
provide its customers with car and home insurance products.
All these extra-revenues are essential to Ryanair to face fuel rising, to offset low revenues from the tickets and to show
good results to the stock markets.

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

 BIRD’S EYE VIEW
Air Scoop: Could you please present Air Baltic to our
readers? What are your specificities compared to other
European LCCs? What do you do better than your com-
petitors?
Bertolt Flick: Air Baltic is, in a way, a very unique Low
Cost Carrier, if we can call Air Baltic a Low Cost Carrier.
The company has been established in 1995 by Latvian Go-
vernment, investment funds and Scandinavian airlines. Air
Baltic is the national carrier of Latvia and combines still
some features of very traditional airlines, with business
class, full services in business class, as well as connecting
flights, combines this with the best practices from LCCs.
The cost structure of Air Baltic is definitely comparable to
any of the best LCCs in Europe. However, we do offer a
product which is a very original product on markets which
are not served by LCCs.
In Central and Eastern Europe, there are already many
low cost carriers (SkyEurope, WizzAir, Estonian Air,
CentralWings…), how do you manage competition with
so many carriers? Are “Islanders” (Ryanair, easyJet)
your main competitors?
A few years ago, Air Baltic was a very traditional company
focused on the business travelers; and around 2002-2003,
we started to turn around the company to be competitive
with LCCs on all destinations. Currently, about a half of
our destinations that we fly to Western Europe, we have
Low Cost competition. It has been our aim to restructure
the company in a way that we can successfully compete
with LCCs. So we have competition with Ryanair, easy-
Jet, Aer Lingus and Norwegian on a number of destina-
tions, and actually we do fairly well in direct competition.
In most cases, despite the fact that we are a much smaller
airline, we get a very fair share of the market and we are hi-
ghly profitably on all destinations where we fly with direct
competition with LCCs. In the future, we expect to have
Low Cost competition practically on all destinations to
Western Europe. But in the same time, we fly a lot more to
the former Soviet Union and to Eastern Europe which are
markets which still are not served by LCCs, and obviously
we take a very determining step into these markets.
Do you believe that consolidation of the market will lead
to 2-3 main LCCs in Europe, or do you think there will
always be many LCCs serving niche market?
Neither for the LCCs, nor for the traditional airlines, I see a
real consolidation taking place. First of all, there are plenty
more markets that can be served by LCCs. A lot of the
networks do not overlap. I cannot see us going out of bu-
siness just because easyJet gets bigger or starts flying in
Spain. We do not overlap and where we compete in direct
flight, we do very well, and so it goes for many other airli-
nes. I think it is a total myth to assume that the consolida-
tion is a necessity; there’s no proof for this and some of the
8 Air Scoop - July 2006
Interview of Bertolt Flick
(CEO of Air Baltic)
second rank LCCs are already very substantially airlines.
Quite frankly, I think this is just a journalist truth.
All the flights from Eastern Europe to/from Western
Europe stop at your Baltic hubs. Do you plan in a near
future to offer direct flights between eastern cities and
western ones?
There is a very big difference in flying to Western Europe
than to the former Soviet Union. The markets outside the
EU are fully regulated; you need the designation from the
ministry of Transport which you only get when the compa-
ny is majority nationally owned and controlled, and there’s
no open sky to those countries, so we are allowed to ope-
rate, for example, to Russia, only from Riga and not even
from our base in Vilnius. This is not something that we
will significantly change in the case of Russia, Georgia and a
number of countries in the near future. There are countries
like Ukraine which are developing to an ‘open sky system’
and it is not totally impossible that once the open sky will
be implemented in a country like Ukraine, there could be
direct flights from Ukraine to other parts of Western Eu-
rope. But for the time being, this is not yet possible. We
profit from the fact that the Baltic States, Riga in particular,
as a historically part of the former Soviet Union, have a
very strong demand to a number of destinations in Russia,
Ukraine, Belorussia, as well as Azerbaijan or Georgia.
You operate a “star network”, do you consider serving
cities inside “blocks” (inter-cities in the western block,
and inter-cities in the eastern block)?
Not everything that is allowed by open sky makes com-
mercial sense. It is for us very important to operate out
of our bases. Of course this looks like a star, but this is a
question of also developing a certain size in a given market.
From a third market to a third market, you have very little
marketing power, that’s why it is at the moment not so
interesting for us to fly from, let’s say, Roma to Marseille. In
Lithuania or in Latvia, we have to develop a certain market
presence, and we will rather look at a third place that starts
operating flights from third markets to third markets.
Warsaw and Budapest are located between the two
“blocks”. Do you plan to convert them into “hubs access
points” like Riga or Vilnius?
www.air-scoop.com
 BIRD’S EYE VIEW
We have no specific interests in Warsaw or Budapest. If
we look at a third base, we look for a place with strong
traffic to the Baltic States. The Baltic States being a part of
the former Soviet Union have very little trade relationships
with Hungary or even with Poland. Warsaw and Budapest
are being very served by a number of carriers, and we defi-
nitely have no interests in those two places.
Are you focusing more on Business or Leisure passen-
gers?
Depending on the destinations that we serve, we have of
course a number of destinations which are primarily for
the interest of leisure passengers, and other destinations,
like our flights within the Baltic States, will attract more
business passengers. What we see in the former years, we
used to have 70% business travelers. Nowadays, the share
is equally divided which has to do with the kind of des-
tinations we serve and also with the fact that the Baltic
States have become more attractive for tourism which was
simply not true just ten years ago.
To face strong competition, Air Baltic has adapted its
model into a “mix model” which means having LCC and
legacy passengers in same flights. How do you manage
such model?
Saying we have a mixed model between LCCs and legacy
sounds a bit negative. What we really have is a cost base
which is lower than most of LCCs. In Economy class, we
have no difference between ourselves and most LCCs. Our
prices are for one way ticket without any conditions. We
also keep the business class, particularly because of the fli-
ghts to Eastern Europe and also to Western Europe which
is of the free choice of the passengers to buy the business
class, not like in the earlier days when he was forced by
conditions to seat in business class. There is no real ma-
nagement difficulty with this model. However, the LCCs
model is easier and simpler, and I will not exclude in the
future that we will transfer to a single class model if we see
SkyEurope: New Share Issue to Get Cash
SkyEurope Airlines shareholders approved the planned in-
crease in share capital; 20 million new shares should be is-
sued which will raise share capital to 40 million Euros. The
cash generated will be used to buy new aircraft and deve-
lop the network (Read Air Scoop May 2006). The time of
the issue will depend on the situation of the market, but
“this summer is rather a bad moment since the situation on
the bourses in the region is not good”, said Andrea Hofer,
Manager for investor relations. The Air Berlin IPO is the
latest example.
SkyEurope had a lost worth 33,75 million Euros in the first
half of fiscal year 2005-2006. According to SkyEurope, this
loss is due to investment in capacity expansion and launch
of new flights. In fact, the Slovak LCC is facing, like other
9 Air Scoop - July 2006
the time for it.
Your routes to the Scandinavian market serve capitals
(Helsinki, Stockholm, Oslo). Do you plan to extend your
routes network in Scandinavia?
It’s quite clear that initially the traffic even to the capital
cities was very limited. We see the traffic to Scandinavia
growing very fast and we are definitely considering to look
at secondary destinations there. We have already started,
we have opened Bergen in Norway, and we are looking
at other Norwegian destinations, Swedish destinations, Da-
nish destinations or Finish destinations.
Are you worried about the shortage of pilots and crew
hitting LCC market?
I don’t think there is a reason for panic yet concerning pi-
lots. However, within the local market, we do not have a
sufficient supply of pilots, that’s why we have to recruit
our pilots all over Europe. The pilots in our company come
from over 18 countries, and we unfortunately have to pay
salaries, which are not comparable to low cost salaries, but
which are fully competitive with European salaries.
You already have few partnerships with other carriers
(Spanair, Blue1, AtlasJet…), can you tell us what is your
strategy with these partnerships? Do you plan to form a
low cost carrier’s alliance?
We have one very important strategic partnership with
SAS which covers the Scandinavian countries, and with
some SAS group companies such as Spanair and Blue1.
When we operate into the former Soviet Union, we try
to cooperate with the local partners. Partnerships can have
all kinds of depths and shapes; we have a very close par-
tnership now with Aeroflot to serve Moscow, and we have
also a partnership with Austrian Airlines to serve Vienna.
At the moment, LCCs don’t have a combined nor uni-
fied global reservation system. And before there is a link
between different airlines systems, I do not see any LCCs
alliance making any sense.
LCCs, the impact of fuel rising. Fuel rising has a direct im-
pact on operating costs which rose of more 46% compared
with first semester 2005.
Even if SkyEurope transported 216 246 passengers in May
2006, which represents a 44,2% increase over March 2005,
the load factor in May 2006 decreased to 70,5% due to the
opening of new routes including the new base in Prague, a
reduction in non scheduled services and a strong increase
of available seat capacity.
Set up in 2001, SkyEurope made an IPO in September
2005 through the Warsaw and Vienna Stock Exchanges.
Shares on Warsaw bourse debuted at 6 Euros, while their
price in June 2006 fluctuated around 4 Euros.
www.air-scoop.com
 BIRD’S EYE VIEW
Niki: Ex-Formula 1 Champion
Creates Austrian Low-Cost
The former triple Formula 1 world champion Niki Lau-
da (1975, 1977 & 1984) has quite early switched from the
steering-wheel to the joystick. In 1979, when he was still
competing in the Formula 1 championship, he created the
Austrian charter company Lauda Air, focused on holiday
destinations. It was sold to the national leader Austrian
Airlines in 2001.
Two years later, Niki Lauda, who sometimes pilots his
planes himself, attempted a new breakthrough on the air
transport market: in November 2003, he bought the Aus-
trian affiliated company of the German Aero Lloyd, who
had gone bankrupt, to create a new airline, Niki.
AIRWAY MARKERS
Niki plays the role of Air Berlin’s « extension » in Austria,
operating for instance flights from Wien to Palma de Mal-
lorca, from where Air Berlin brings the passengers fur-
ther to Spain and Portugal. During the winter, Air Berlin
and Niki work together to carry Spanish and Portuguese
passengers to the Austrian Alps. Air Berlin also provides
logistic support to its Austrian partner (Internet, call-cen-
ter...).
Niki, which already serves four airports in Austria (Wien,
Salzburg, Linz, Graz), nineteen in Germany, and a few
other in Europe, now plans to extend to Eastern Europe,
in spite of an aborted attempt to fly to Poland in 2005.

The new company started with two planes operating Niki Lauda wants to land in Moscow at the beginning of
charter flights. Three years later, with five planes, it re- 2007, and then possibly in Saint Petersburg. Thereby, Niki
mains a small business, divided between charter and low- challenges Austrian Airlines, leader in Austria, which
cost routes. But the company is growing: in 2005, Niki main market is already in Eastern Europe. Air Berlin, also
carried 1 million passengers, and made profit for the first willing to expand to the East, would of course benefit
time. It expects to carry 1.2 million customers in 2006, and from its partner’s routes to Russia.
to achieve a turnover of about 135 million Euros (+5%).
The company also plans to buy one new plane every year The Wien-based company’s symbol is a fly. Trying to de-
until 2011. velop the « low-fare » business model, Niki Lauda also
created a car leaser, Lauda Motion.
In order to survive in the very competitive air transport
market, Niki Lauda, 57 years old, quickly decided to lean
on an important European airliner to gain solidity. Few
months after the creation of Niki, he negotiated a par-
tnership with the German Air Berlin, the third low-cost
company in Europe. It was the first European low-cost
alliance ever. Air Berlin now owns 24% of Niki.
UPS AND DOWNS
Ryanair:
Money Back in Belgium
Ryanair has lost an important High
Court bid. The Belgium High Court
refused an application by the Irish car-
rier to stay proceedings brought against
it by the Kingdom of Belgium. Air Berlin:
Belgium seeks to recover 2.8m Euros Best low-cost airline in Europe
Europe!
provided by Belgian authorities to Rya-
nair during the development of its base at Charleroi. Many of the With around five million airline passengers, the
financial arrangements agreed between Ryanair and Belgium’s Wal- Skytrax survey analyzed their opinion on a range
loon were declared state aid incompatible with the common mar- of customer satisfaction criteria.
ket said the European Commission in February 2004. Air Berlin has been named best low-cost airline
The European Commission decision still has to be regarded by the in Europe. easyJet is second and Vueling is third.
Irish courts as having the force of law, but if the airline does not Furthermore, Air Berlin has been named the
succeed in Europe, Ryanair will have to give the money back to world’s best low-cost airline. JetBlue Airways
Belgium. Money had already been paid into an account. Analysts of finished second and easyJet in third place.
the market wonder if this case won’t be the first of many, as the Eu- Skytrax survey:
ropean Commission intends to clarify aids to Low Cost Carriers. http://www.worldairlinesurvey.com

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

 DOWN TO EARTH
DEREGULATION OF LCCs EUROPEAN MARKET
Deregulation of the European market is a big issue for Low Cost
Carriers. During the latest two conferences on LCCs, the topic
was omnipresent because deregulation has a huge impact on
current and future market.
Air Scoop decided to publish different points of view to cover
the largest spectrum of this issue.

- Case study: LCCs in Italy Vs ENAC

- Point of view of Eurocontrol (European institution)

Low Cost Carriers in Italy and ENAC: into the application of PSO rules in Italy.
While that’s a matter for the courts to decide, ENAC Di-
The Challenge of Working Together rector General Silvano Manera adds that, “…ENAC rules
are impartial toward low-cost and legacy carriers. Evalua-
If Low Cost Carriers in Italy, Sicily, and Sardinia had their
tion parameters are identical for all carriers. A certified EC
way, they’d enjoy the flexibility of initiating flights to and
carrier with an operating licence issued according to EC
from the islands that would connect with LCC hubs spread
Regulation 2407/92 and meeting all technical, operational,
across Italy. From the LCC’s point-of-view, such flights
insurance and safety requirements is apt to operate, on the
would not only benefit the airlines; but would also benefit
national territory, on all routes not subject to restrictions.
consumers, and in the bigger scheme of thing benefit tou-
The possibility to operate under a PSO regime is open
rism: more flights, more passengers, more reason to travel
to all carriers, which have to comply with the limit of
and more profits. Everyone goes home a winner.
the maximum fares, the commitment to operate all year
round, a minimum number of daily flights (going back and
Achieving those goals seems easy enough: the number of
forth on the same day) tailored to the users’ needs.”
available flights to and from Sicily, Sardinia and Lampa-
dusa is strictly regulated by ENAC (Ente Nazionale per
The challenge then may be to work within ENAC’s esta-
L’Aviazione Civil) the civilian aviation air regulatory
blished perimeters. WindJet Airlines -- by far the most
commission for Italy. Since 1997, ENAC has created a set
profitable Italian LCC in the South -- refers to this issue
of ground rules that govern how airlines conduct themsel-
as one of “territoriality”. Remarks Windjet’s Commercial
ves and where they can fly. ENAC’s position covers a lot
Director Mr. Massimo Polimeni … “…In Sicily, there are
of ground, and they’ve been proactive on many levels re-
no real travel restrictions per se, except those related to
garding the airline industry, for example identifying LCC
connections to the major islands and the minor islands (for
and legacy airlines that don’t meet its stringent safety stan-
example Pantelleria and Lampedusa). In Sardinia, there is
dards for aircraft and passengers.
a regulation that refers to “territorial continuity” which
However, in the eyes of many LCC’s, ENAC has also ta-
means that only airlines which fall under the authority
ken steps that seem to limit the growth of Low Cost Car-
of ENAC have access to the airspace. This pretty much
riers; particularly in the south. Consider the recent frustra-
spells out which companies are permitted to fly from the
tions of Ryanair -- unquestionably the LCC heavyweight
mainland to the islands and vice-versa. Obviously this
throughout Europe -- which is currently fighting an ENAC
creates an enormous limitation on the number of inde-
decision that regarding air service in and out of Sardinia.
pendent low-cost airlines which can operate, but that’s the
Ryanair has written to the European Commission over
way it is…”
what it termed the “abuse of regulations” governing Public
Service Obligation (PSO) routes by the Italian Aviation
WindJet has found a way to work within these guide-
Authority. It contacted the Commission following the an-
lines while at the same time demonstrating unparalleled
nouncement that Alitalia would be allowed to fly on a
growth in the marketplace. Not all LCC’s have been so
PSO route which, according to Ryanair, it did not apply
successful. The discussion of “territorial continuity” was
for when initially offered to carriers.
the topic of discussion in a recent ENAC general assembly
Following allegations by Ryanair in May that the Italian
meeting that addressed whether AirOne and Meridiana
Civil Aviation Authority blocked Ryanair and easyJet
could increase the number of flights they offer from Sardi-
from offering low fares, competition and choice to consu-
nia during peak holiday and vacation periods.
mers wishing to travel between mainland Italy and Sardi-
nia, the European Commission launched an investigation

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

 DOWN TO EARTH
Remarked Manera, “…The Minister of Transports, accor-
ding to EC Regulation 2408/92, has levied public service
fares on certain routes to/from Sardinia, with the aim to
guarantee territorial continuity with the Peninsula. All EC
air carriers owning an operating licence as per EC Regula-
tion 2407/92, regardless of their being low cost or legacy,
can conform to the public service fares or, should no car-
rier accept, present their offer for the public tender, for the
entrustment of operations under a public services regime.
The PSO (Public Service Obligation) routes are subject
to restrictions and can only be operated by the carrier/s
which has/have accepted the conditions imposed by Mi-
nisterial Decree or, on an exclusive basis, by the carrier
which won the public tender for the operation of services
under a PSO regime. I take this opportunity to remind
that ENAC is the enforcing Authority of rules set forth
by a Joint Services Conference, convened by the President
of the Region Sardinia on the authority of the Minister of
Transports. It is Sardinia itself which deems it a priority to
safeguard mobility as well as territorial continuity needs of
its citizens…”
Eurocontrol and Deregulation of European Low Cost Carriers Market
Low-cost carriers have changed the shape of aviation. It is,
in large measure, due to them that traffic levels recovered
after 11 September 2001. It seems clear that they will also
drive future growth.
Deregulation allowed low-cost carriers to compete with
flag-carrying and network airlines. This liberalisation hap-
pened first in the United States, in 1978, and Europe fol-
lowed suit in 1997. It was a process that changed air trans-
port irrevocably.
In Europe, using a series of liberalisation packages, the Eu-
ropean Commission eroded the monopoly position of the
major airlines, allowing start-ups to compete with slashed
ticket prices on routes between and within European
countries.
The result has been intense competition which has af-
fected not only the industry’s former leaders but the new
budget airlines too, some of whom have failed, especially
in the United States. In Europe, the number of low-cost
carriers has remained more or less constant at around 50
for the last few years.
Impact
The impact on Europe has been tremendous. In fact,
Ryanair’s Chief Executive, Michael O’Leary’s, claim that
“Low-cost airlines are the new Europe” is not as far-fet-
ched as it might seem at first.
12 Air Scoop - July 2006
Regarding the increase of flights, ENAC President Vito
Riggio remarked that such an augmentation was possi-
ble if it involved code-sharing with other LCC’s -- that
is -- booking passengers from other airlines. A decision is
pending.
The relationship between LCC’s and ENAC is either chal-
lenging or strained depending on one’s point of view. LCC’s
remain committed to their goals: striving to offer low pri-
ces while at the same time remaining competitive in an
ever-growing marketplace. ENAC -- likewise -- remains
loyal to it’s charter as well, “…enforcing European and
national standards in Italy, adopting an impartial stance,
regardless of an airline’s status as low-cost or legacy, with a
view to to the passengers’ rights, the service level offered
by airports and the operators of the civil aviation system
and taking into account, primarily, the safety safeguard. ”
Jean-Paul Soyer,
Eurocontrol’s Central
Route Charges Office
A new generation of Europeans has now built their lives
around cut-price tickets, which make it easily affordable
for most citizens to travel widely within the continent.
Low-cost carriers are shoring up the ideal of free move-
ment of goods and persons. Labour mobility, for instance,
has become a reality, as people in the new European Sta-
tes in search of better paid work are able to move around
the continent without having to pay large sums of money
in order to do so.
The impact on regions has been most impressive. Relying
as they do on linking region to region and by-passing ex-
pensive big-city hubs, low-cost carriers have literally
transformed some of Europe’s backwaters (1).
Four years ago, only 200,000 travellers passed through
Charleroi in Belgium. The airport, known as “Brussels
South Charleroi” now processes more than 2 million pas-
sengers annually.
The region has benefited hugely: the airport itself accounts
directly for about 700 jobs, but more than 3,000 have
been created indirectly.
www.air-scoop.com
 BIRD’S EYE VIEW
In Carcassonne, France, it is estimated that the 235,000
travellers who arrive there each year have created over
€270m of extra economic activity.
Talinn in Estonia has had a dramatic transformation, as
has Katowice in Poland. Thanks to the low-cost carriers
that fly there, nearby Cracow has seen 50% growth in tou-
rism since 2004: last year, it received three million visitors.
Property development has boomed and thousands of new
jobs created as a result.
Slovakia’s economic overhaul and flat tax system are often
credited for the country’s newly-won economic success.
But there could well be another reason. Slovakia stands
out from the rest of Europe as the one national market
where individual flows are most dominated by low-cost
carriers (in other countries, traditional carriers lead the
market: out of the top 10 total country-pair flows in Eu-
rope, the low-cost carriers have the highest share only in
one - between Spain and the United Kingdom).
There is a clear connection between low-cost carriers’ des-
tinations and direct rises in local employment: more taxi
licences are issued; bus lines are opened; services in gene-
ral proliferate. There is parallel growth in tourism; a rise
in property investment and new businesses. Good, cheap
logistic connections encourage investment generally: it
makes sense for big companies to invest in an area where
land is inexpensive and labour plentiful.
Growth
The market share of low-cost carriers in Europe is clim-
bing steadily: it reached 16.3% of all European flights in
May 2006. According to an analysis recently conducted by
Eurocontrol, comparing the first six months of 2006 with
the same period in 2005, low-cost carriers’ market share
(2) rose from 12.9% to 15.3%.
There are now 15 low cost operators with more than 50
flights each day, compared with 13 only a year ago. Since
deregulation in 1997 in Europe, well over 40 companies
have carried over 100 million passengers each year.
The Single European Sky initiative aims at enhancing
fairness – putting players on the same footing – in parti-
cular in the area of terminal charges. Currently, the situa-
tion in Europe is very opaque. The convergence towards
a common formula should increase transparency, allow
for comparison and ultimately focus competition on the
level of charges and not on semi-confidential local arran-
gements.
Some low-cost carriers are unhappy that this formula still
uses a weight factor. But on one hand, this formula is not
really a handicap, if one considers the average composition
of the fleets of these carriers. On the other hand, alterna-
13 Air Scoop - July 2006
tive proposals could well have worse effects. For example,
a charge based on passengers would increase the burden
on the airlines’ ability to achieve a high seat occupancy
rate, which is precisely the case with low-cost carriers.
Concern
Environmentalists are concerned about the rapid rise in
low-cost carrier growth, pointing out that aircraft emis-
sions are now the fastest rising source of greenhouse gases.
Cheap flights are appealing - but the environment might
have to pay the full price one day.
Eurocontrol is doing what it can to enable Air Traffic
management mitigate the effect of aviation on the envi-
ronment. Just to take one example, through effective use
of flow management, thousands of tonnes of fuel (3) are
saved annually. Other projects are underway and valuable
work is being carried out with stakeholders to do eve-
rything possible to limit pollution through air transport
activity.
The Future
Low-cost carriers have around 20% of the world’s airline
market today and this figure may reach 40% by 2010.
In May 2006, Ryanair, Europe’s biggest low-cost operator,
said that it was on track to double passenger volumes and
profit by 2012.
There is doubtless still room for growth, especially in Eas-
tern Europe, where the low-cost market only really took
off following the inclusion of ten States into the European
Union in 2004. There are plenty of military airbases, now
unused, in the old Warsaw Pact countries which could be
developed by budget airlines.
However, there could be constraints in the future if Europe
follows in the United States’ footsteps. Low-cost carriers
there are beginning to lose their labour cost advantage. At
the end of 2005, network carriers had 27% higher labour
costs than low-cost carriers. That is a daunting amount -
but it is a lot less than their 77% disadvantage in 2000.
It has been stated that the single largest driver of labour
costs in the future will be growth. Low-cost expansion
will probably slow significantly in the next five years as
new opportunities become more limited. As this growth
slows, labour costs will continue to rise at the low-cost
carriers, in all likelihood reducing the advantage they once
enjoyed.
Conclusion
All the same, the changes made by low-cost carriers on
the air transport market will probably prove to be per-
manent: the days of premium prices are over. As IATA,
www.air-scoop.com
 DOWN TO EARTH
the International Air Transport Association, has decla- Notes
red, all airlines are lower cost now. The network carriers 1. 25% of low-cost carriers’ operations are carried
have adapted their business models to follow the low-cost out at airports with less than 50 arrivals per day
carriers as far as they can. 2. in the Eurocontrol Statistical Reference Area
3. in 2005, the unnecessary consumption of roughly
This has been of real benefit to passengers who now have 350,000 tonnes of fuel, or almost 1.1 million tonnes of car-
more choices and better prices. bon dioxide, were avoided thanks to air traffic flow mana-
gement
by Jean-Paul Soyer, Head of Billings and Customer Rela-
tions, Eurocontrol’s Central Route Charges Office
WORD OF THE MONTH
The ‘MOL’s Word of the Month’
‘‘I will leave some time in the next couple of years; I wouldn’t tie myself down to 2008.
It will be some time after Ryanair has established world domination, then it will be time to go.”
Michael O’Leary

Strategies to Respond to Rising Fuel Costs

LCCs must adapt themselves in order to survive the rising
fuel costs. The result is often a mixture of secured and unse-
cured fuel contingent (fuel price backup, hedging…) and a
new approach of fuel consumption, privileging direct flight
routes, lightening aircraft weight, adjusting flight altitude,
and also in the choice of engine types less consuming.
The following diagram displays strategies of LCCs to res-
pond to rising fuel costs.

14 Air Scoop - July 2006 www.air-scoop.com

 BIRD’S EYE VIEW
Eurocontrol
Low-Cost Carrier Market
Update (May 2006)
The number of low-cost carriers has fallen
by 2 to 50, operating out of 22 States in
Europe.
They operated 16.3% of all flights in May
2006.
Finland, Poland, Denmark and Latvia mar-
ket shares have jumped by more than 5 %,
while others like Greece, Hungary and the
Balkan countries have lost market shares.
“Ten of the top 25 low-cost country-pair
flows involve the United Kingdom. Slova-
kia is the national market where individual
flows are most dominated by the low-cost.
However, the biggest markets remain do-
minated by traditional carriers: out of the
top 10 total country-pair flows in Europe,
the low-cost carriers have the highest share
in only one.” Change in market share in percentage points,
Low-cost share is increasing in only 3 of the Jan-May 2006 vs Jan-May 2005
10 major country pair flows in Europe. Source : http://www.eurocontrol.int/statfor

BLOGS TREND
Constant blog coverage for easyJet

Ryanair still had the main blog activity, but

easyJet with an important coverage overtook
its competitor at the end of the month.
The most important peak was due to the
British Prime Minister when he took a fli-
ght back home from Italy with Ryanair. This
event provided an important buzz activity
around it. A second peak occurred during the
third week when the Irish airline announced
it would launch home and car insurance to its
customers.
easyJet had no real peak in June, but a cons-
tant blog activity which implies a regular cor-
porate communication. Among others, easyJet has won an award for its website, awaited for Turkish approval to serve
Istanbul, launched investigations on ammunition carried in a hand luggage onto one of its aircraft…
Air Berlin had a low blog coverage this month with only one main peak around the 20th of June. This corresponds to the
nomination of the German airline as the best low-cost carrier in Europe.

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