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Highlights in this Issue

Ryanair and German Airport Subsidies p. 2


The Low Cost Air Transport Summit 2008 p. 3
Europe to Change the Airlines’ Online Sale Methods p. 7
Mitigating Rising Fuel Costs p. 8
The Predicament of Flybe p. 10
The Low Cost Carriers Analysis Newsletter

AIR SCOOP ANNOUNCEMENTS


EDITORIAL A Glimpse of Headlines News!
Air Berlin: Crisis Detected! Denmark blacklists six European carriers
Copenhagen: Denmark’s National Consumer

H
Agency on Thursday published the names of
igh fuel expenses seem to have significantly influenced Air
six European airlines it said were still using
Berlin’s flight path but the carrier tries its best to adapt to
illegal marketing practices, despite warnings
new circumstances. Though Air Berlin is the third biggest
from the European Commission after a review
budget carrier in Europe, it is not guaranteed against losses. Having
last year. The Danish Consumer Ombudsman
warned of tough times ahead, Air Berlin dropped 7 per cent, which
Henrik Oe said the Internet booking sites of
is the lowest since May 2006 when it was listed on the Stock Ex-
Ryanair, Air Berlin, Air Baltic, SkyEurope, Aer
change.
Lingus, Brussels Airlines as well as that of In-
ternet travel agent Seat24, contained incorrect
In order to make up for additional costs, the carrier will launch a cost-
information or made use of misleading booking
cutting programme which means reducing domestic and long-haul
routes starting November. At least 10 per cent of its flights will be procedures.
grounded including those to Beijing and Shanghai, Cape Town, Wind-
hoek, Bangkok, to New York, Mauritius and Sri Lanka. The airline’s EasyJet ad grounded for “misleading” CO2
cost-cutting measures will also result in cutting down administrative claims
staff at DBA, a Munich based LCC it owns. EastJet, the low cost airline, has once again
been reprimanded by the Advertising Standards
Overall, Air Berlin has revised its earnings forecast and cut the initial Authority (ASA) for making misleading carbon
forecast twice. Some analysts believe that the cost-cutting plan appea- dioxide (CO2) claims in a national press ad. The
red too late and that it is not able to stave off the threat to Air Berlin’s advertising watchdog upheld a complaint from
very existence posed by a sharp rise in fuel prices. a viewer who believed claims made in the ad
confused easyJet’s emissions per passenger with
Air Berlin appeared to be a stunning but short-lived success. Its its total CO2 plane emissions.
growth and acquisition of DBA, LTU made it Lufthansa’s biggest rival
in Germany. The acquisition of Condor, which has not been yet ap- Rising fuel cost: Experts foresee airlines’ mer-
proved by German competition authorities no longer seems feasible gers and consolidation
in the nearest future. What’s more, Air Berlin also reported certain Increased cost pressures on airlines combined
problems with LTU integration. With the help from DBA, LTU and with lower spending power among custo-
Condor, Air Berlin planned to increase its passenger flow. To date, mers, could force a new round of consolida-
the carrier has to reduce the number of planes by 14. However, the tion between carriers, say bankers, analysts and
Chief Executive Officer Joachim Hunold hopes that this reduction industry executives. Fuel is one of the biggest
won’t affect the number of passengers as the efficiency plan envisages costs airlines face and the price of oil has dou-
additional flights on high-demand routes. Any further expansion falls bled in the last year, but airlines may be unable
under question as well. Most likely, Air Berlin will have to reconsider to pass on that cost as businesses and leisure
its order for 25 Boeing 787 long-haul aircraft that were planned to be travellers face pressure to spend less as the eco-
phased-in between 2013 and 2017. nomy slows.

At the core of the current crisis experts see Air Berlin’s aggressive Bmibaby to cut Cardiff services
expansion strategy which finally took its toll. Towards the end to UK carrier Bmibaby, the biggest low-cost air-
focus on long-distance flights, Air Berlin bought two carriers and ope- line flying from Cardiff, Wales has confirmed it
ned routes to China, Thailand, to the Caribbean and New York. Air is to cut flights because of soaring global oil pri-
Berlin showed itself as growth-oriented but it was cut back by high ces. Bmibaby commercial director Julian Carr
fuel prices. said cutbacks were being made to safeguard the
company’s long-term future.
More on http://airscoop.blogspot.com

Air Scoop - July 2008 www.air-scoop.com


BIRD’S EYE VIEW
Ryanair Gets Under Pressure in Germany for Receiving Airport Subsidies

For Ryanair, it is just a new illegal subsidies affair. At the in the German sky! This new Ryanair boss provocation
end of June, the German LCC Air Berlin, the third low- shows the German market is just at the beginning of a
fare airline in Europe, filed a complaint with the German harsh battle, and Air Berlin’s complaint in Luebeck may
Federal Court of Justice against the Luebeck airport, in be part of it.
Northern Germany. Air Berlin accuses the airport to grant Secondly, the Luebeck case will be judged by a German
its Irish rival lower charges, and thus to create unfair com- court, which decision will set a precedent in the country.
petition. With this trial, Air Berlin, supported by the German Asso-
ciation of Airlines, clearly wants to set an example for the
Air Berlin’s action is not completely a surprise. Last year national air transport sector. What the airline is asking for
already, the European Commission launched an inquiry is in a way the mere application in Germany of European
against several European airports, among which Luebeck, rules established after the Charleroi affair: subsidies from
for similar reasons: bilateral deals offering some airlines airports to airlines have to be limited in time, restricted to
special financial conditions, which could be considered as new routes or new frequencies, cannot be proposed to a
illegal state aid. And the contract between the Luebeck single airline, and have to be transparent and communica-
airport and Ryanair had already been suspected of illegality ted to other airlines and to European authorities.
by the EC... eight years ago, at the time it was signed.
What is more, Ryanair is accustomed to that kind of ac- It is of course a way to attack Ryanair’s business model,
cusations. The first illegal subventions inquiry by the Eu- partly based on more or less illegal airport subsidies, often
ropean Commission against the company dates back to paid to the airline’s sister company Airport Marketing Ser-
2002, in Charleroi. Ryanair was finally forced in 2004 to vices as a counterpart for promotion actions of the destina-
pay back 30 pc of the subsidies it had received from the tion abroad. Subsidies or airport fees reductions represent
Belgian airport. Less than two years later, a new contract important revenues for the Irish airline: they reach several
was signed between the airport and the Irish airline, which hundred thousand Euros per airport and per year.
still has a big hub there. If Ryanair loses the German trial, its other - or at least
future - deals with German airports may be put into
After Charleroi, many other inquiries were opened by lo- question. And beyond the German market, the increasing
cal or European authorities all over Europe. Brussels cur- number of illegal subsidies cases involving the Irish airline
rently examines different deals Ryanair and other airlines could soon begin to threaten its business model, and its
as EasyJet concluded with several European airports: Pau financial wealth. Especially when the whole air transport
in France, Aarhus in Danemark, Bratislava in Slovakia, sector is expected by analysts to be hit soon by a strong
Tampere in Finland, but also Berlin and Dortmund in Ger- downturn, mainly due to record oil prices. In February,
many for EasyJet. Michael O’Leary warned 2008-2009 financial results could
And just a few days before Air Berlin’s announcement be weaker than expected. Investors are already very cau-
about Luebeck, in June, the European Commission opened tious: since October 2007, Ryanair’s share has lost nearly 50
another investigation on the Frankfurt-Hahn airport (150 pc of its value.
km from Frankfurt), suspected of having received public
aid from the Länder of Hesse and Rhineland-Palatinate, The worst case scenario for the airline would of course
and from its public owned mother company Fraport. The be several condemnations similar to the Charleroi one: if
Commission will also examine bilateral contracts between Ryanair was forced to reimburse 30 pc of all the subsidies
the airport and Ryanair, which operates in Frankfurt-Hahn it perceived, the financial impact could be enormous. Rya-
one of its major European hubs. This examination follows nair has another point of view about subsidies and free
a complaint from a German airline. competition in the European sky: according to the airline,
the companies really supported by state aid and subsidies
The Luebeck case, however, has something specific. First are national leaders as Lufthansa and Air France. Ryanair
of all, it occurs two months after Ryanair opened its first regularly accuses the European Commission to protect na-
German domestic route from Berlin to Frankfurt-Hahn, tional leaders instead of stimulating free competition.
directly challenging Air Berlin. Ryanair’s CEO, Michael
O’Leary, at that time even predicted the disappearance of
the German LCC: according to him, Lufthansa and Rya-
nair will in a few years be the only companies operating

2 Air Scoop - July 2008 www.air-scoop.com


BIRD’S EYE VIEW

The Low Cost Air Transport Summit 2008


11th & 12th June 2008, The Waldorf Hilton, London

High fuel prices, an impending economic downturn and continuing environmental pressures mean that tough times are
ahead for the aviation industry. LCCs must carefully evaluate their models, identify new revenue streams and attract the
most profitable customers if survival is to be ensured in a hotly competitive and challenging marketplace. The Low Cost
Air Transport Summit brought together the leading figures from across the industry for incisive debate into the strategies
shaping the evolution of the low cost model. The debate revolved around how to do ancillary revenues well, the future
for long-haul low cost and how airlines can become more environmentally friendly in their operations.

3 Air Scoop - July 2008 www.air-scoop.com


DOWN TO EARTH
Alex Cruz (CEO of clickair)

Clickair presents itself as the «lowest fares in Europe flying to main airports.»

According to Alex Cruz, oil at 150 dollars per barrel will «clean» the industry, and therefore
low cost / low service won’t work long term. M. Cruz believes that LCCs must work on fare
elasticity, with more relevant ancillaries and more biz-services. And above all, they must keep
low operating platforms.

Due to oil prices, «It is no


longer possible to go to Ve-
nice for the day» said Alex
Cruz.
It means that leisure pas-
sengers price sensitive are
less attracted by low-cost
carriers. This implies an
evolution of LCCs business
models, towards legacy ser-
vices.
The elements shown here
under by clickair clearly
indicate such a trend: main
airports, assigned seats, ca-
bin services...

What could be the future of clickair:


- Business class. M. Cruz said they were not ready yet, but
slowly getting there. A new sign of a global trend concer-
ning business models evolution with LCCs.
- Relationships with travel agents.
- More agreements with other airlines. clickair already
has cross-sellings with Germanwings with selected flights
between Spain and Germany.
- Long-haul distributions.
- Air - Rail product for connection could be an idea...

According to Alex Cruz, clickair has the


second lowest costs with 3.16 eurocents/
ask (2007 exfuel) behind Ryanair with
2.75 euro cents, and is the most punctual
carrier on the Spanish market with 92%
of flights on time (Jan-May 2008).

4 Air Scoop - July 2008 www.air-scoop.com


DOWN TO EARTH
Daniel Skjeldam
(Chief Commercial Officer, Norwegian Air Shuttle)

Norwegian Air Shuttle in Quick facts:


Publicly listed on Oslo Stock Exchange, Norwegian is the largest Scandinavian low fares airlines with 6.9 million of cus-
tomers in 2007. Operated by 1350 employees, the carrier has 7 bases in Norway, Sweden and Poland, and currently uses
41 aircrafts. The LCC had a profit of 208 million NOK in 2007 (EBITDA).

M. Skjeldam declared «Today’s fuel price works as an «envi-


ronmental tax» and create an incentive to cut emisions.»

Evolution of LCCs business models


due to oil prices pressure and com-
petition.

5 Air Scoop - July 2008 www.air-scoop.com


DOWN TO EARTH
Mike Rutter (COO of FlyBe)

With the acquisition of BA Connect, FlyBe is now Europe’s largest low-cost regional airline.
FlyBe serves 12 countries with more than 180 routes. The carrier operates from 56 Euro-
pean airports, and expects a revenue of £630m in 2008/2009 (March).
To face the increase of oil prices, FlyBe has decided to attract business passengers declared
Mike Rutter. To do so Flybe will increase routes frequency, serve main airports...
«Flybe cannot longer be considered as a low-cost carrier, it is a mix model.»

6 Air Scoop - July 2008 www.air-scoop.com


BIRD’S EYE VIEW
Europe has a Long Way to Go to Change the Airlines’ Online Sale Methods

The European Commission is getting very angry towards website). Only 12 pc of these cross-border cases have been
European air ticket selling websites. At the beginning of resolved. It shows how European voluntarism can be res-
May, it released an inquiry on the online air ticket mar- trained by difficulties in transnational cooperation.
ket, involving several European countries (1). The conclu-
sion was harsh: 137 out of the 386 websites examined at Commissioner Meglena Kuneva put an ultimatum on May
the end of 2007 (airlines, travels agencies, tour operators, 2009 to solve definitively the problem of commercial abu-
fare comparison sites...) were not in conformity with the ses in the online air ticket market. Otherwise, the Euro-
European legislation on misleading advertising and unfair pean Commission plans to adopt a new specific directive
contract terms. These 137 sites represent 80 different com- on air ticket fares, constraining airlines and other ticket
panies, especially airlines. sellers to provide customers from the beginning with ex-
plicit final prices including all the fares, taxes and fees.
The Commission in particular noticed three types of in-
fractions: wrong, confusing or lying information on fares, That kind of specific legislation could be more efficient
for example extra costs and taxes not included in the ini- than the current global European legislation on commer-
tial fare (58% of the incriminated websites); unfair infor- cial practices. The airlines could also be forced to change
mation on the terms of the contract, for instance optio- their irregular methods by the customers themselves, who
nal travel insurances automatically included in the ticket become more and more aware of all the tricks companies
(49% of the websites) ; unavailability of commercial offers use to increase their final prices. Commissioner Meglena
(15% of the sites). Kuneva thus called consumers to be aware of these practi-
ces, to compare fares, to check preselected options, and to
«It is unacceptable that one in three consumers going to lodge a complaint if they were victims of abuses.
book a plane ticket online is being ripped off or misled
and confused», European Consumer Commissioner Me- The first airlines to suffer from such a reaction may be the
glena Kuneva said. LCCs: companies like Ryanair and EasyJet rely a lot on the
gap between advertised fares and final prices. They attract
Once the « faulty » airlines and operators had been iden- the customer with incredibly low prices, and then add
tified at the end of 2007, the countries involved in the numerous extra costs: credit card tax, insurances, priority
inquiry proceeded to enforcement actions for the breach booking... These hidden costs, part of which are included
of consumer rights. They asked the companies to rectify in the « ancillary revenues », represent an important part
their websites, and then checked the corrections. On the of their income.
European level, Meglena Kuneva firmly asked the airlines
to change their marketing methods, threatening to publish For now, the European inquiry has two other limits : first,
the name of the « faulty » airlines if nothing was done, and important LCC countries like Ireland, the United Kin-
warning about possible closing of some websites. gdom and Germany did not participate - which does not
mean they do not conduct they own inquiries : in the UK,
But the Commission itself can not directly sanction an air- for example, 13 airlines were ordered by the Office of fair
line or force it to close its website. It can only for example trading to modify their websites. Secondly, the names of
ask the airline’s national authorities to do so, and if they the incriminated airlines were not published. Except in
refuse, prosecute the country in the European Court of Norway and in Sweden, where the most litigious airline
Justice. The mere enforcement of the law is a matter of was... Ryanair, and Blue One in Norway.
national authorities. It makes the Commission’s power to
directly change the airlines’ marketing methods quite li- (1) Belgium, Bulgaria, Denmark, Estonia, Greece, Spain,
mited. France, Italy, Cyprus, Lithuania, Malta, Austria, Portugal,
Finland, Sweden + Norway
Finally, at the beginning of May 2008; 50 pc of the pro-
blems noticed during the inquiry had been solved directly
on the national level. The situation was far more compli-
cated concerning cross-border cases, when judicial coope-
ration between two countries was necessary (for exam-
ple, when illegal methods are noticed on a foreign airline’s

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BIRD’S EYE VIEW
Mitigating Rising Fuel Costs;
LCCs ask…hedging or group purchasing alliances?
By Rapahel Bejar
CEO, Airsavings SA
email: rbejar@airsavings.net

The cost of oil has always been a central, if not prominent maintaining what is, in effect, a commodities brokerage in
consideration for transit and transport industries in gene- addition to their primary air transit operations. Southwest
ral, particularly for the airline industry, which has histori- is the poster carrier for this method, having hedged subs-
cally needed greater quantities of fuel compared to other tantial percentages of its operating fuel consumption for
methods of conveyance. But recently, the harsh realities every quarter for the next few years. According to a
about global supply have begun to sink in: the traded price New York Times article (3), Southwest owns long-term
of crude has quadrupled since the turn of the century, and contracts to buy most of its fuel through 2009 for what it
global markets and media have started to make oil a cen- would cost if oil were $51 a barrel. As the value of those
tral consideration as well. It seems that nearly everywhere hedges has soared as oil raced above $130 a barrel, they are
there is intensely growing interest in fuel cost mitigation, now worth more than $3 billion. In hindsight, Southwest
the reduction of consumption, and the overall scope and seems quite the genius enterprise for betting so heavily on
trend of the oil futures market. From consumer dialogue what now seems an inevitable rise in oil prices. So why
to congressional inquiry, everyone wants to know what’s didn’t other airlines enter the sweepstakes when oil was in
happening with oil. the sub-$100 range? Most airlines engage in term contrac-
ting with individual fuel suppliers, foregoing the need to
In no other industry is this sense more acute than the ‘play’ the speculative oil markets, but also foregoing the
airline industry, and for good reason. In 2007 alone, US long-term cost savings enjoyed by Southwest in favor of
passenger and cargo operations consumed more than 19.6 shorter-term, negotiable contracts. Term contracting is
billion gallons of jet fuel, or 465 million barrels (1). To put more flexible than hedging, while still providing a measure
a dollar value on that already astronomical figure, the price of security against price volatility, and is thus often pre-
of jet fuel increased nearly 50% over this time period (2) ferred.
from $1.69 per gallon to $2.67 per gallon at the beginning
of this year. To further compound this trend, the real price Of course, both of the above methods are employed by
rise has happened since January, with crude jumping from larger, established airlines (even Southwest, with its low
$93 per barrel to $134 and Jet A-1, averaging $1.25 more per cost carrier cachet and origins, is a giant among LCCs and
gallon in the ensuing six months. in the US marketplace). Emerging low cost and midsized
While these are alarming statistics and do indicate a dis- airlines have different concerns when it comes to purcha-
turbing trend, they are by no means new discoveries. Our sing fuel, namely obtaining a price comparable to that paid
industry is of course very well-versed in the meteoric na- by legacies and other large airlines. All things being equal
ture of oil prices, and is aware of the difficulties inherent to (that is, excepting hedging and spot market speculation),
operating in such an environment of unprecedented fixed the large legacy airlines have the advantage of economies
(read: fuel) costs coupled with intense downward pressure of scale over their smaller or regional competitors. Airlines
on prices and increasingly elastic demand. Airlines have like Southwest and American have far more purchasing
typically employed a handful of methods to help offset the and negotiating power with fuel suppliers than do carriers
volatility of oil prices, including hedging, term contracts, such as Spirit or JetBlue, simply because they need to buy
spot market speculation, and purchasing alliances, all of more at any given time. The only avenue LCCs and mid-
which have had varying degrees of success in the current sized players have to combat this competitive advantage is
climate of unbridled price increase. the formation of purchasing alliances.

The technique that has garnered the most attention is hed- Alliances and other group purchasing organizations allow
ging, which (very simply) is when an airline buys a fuel fu- several airlines to pool their individual needs to purchase
tures contract at a current price for delivery in a specified in larger quantities, including recurrent items like fuel and
period, often more than a year in advance. Hedging works fuel term contracts. While there is no prognostication in-
best in a market with steadily rising prices and limited vo- volved or long-term betting or market speculation, group
latility, though in the current market it has worked for purchasing is nonetheless the most accessible and effective
those airlines that have committed substantial resources to way for low cost and midsized carriers to level the purcha-

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BIRD’S EYE VIEW
sing playing field with the majors. Several organizations, 1. http://www.airlines.org/economics/energy
including Airsavings , facilitate the development and esta- 2. New York Harbor Jet-A spot price, http://tonto.eia.
blishment of these alliances, and allow many of the LCCs doe.gov/dnav/pet/hist/rjetnyhm.htm
that have reshaped the airline industry in the past decade 3.http://www.nytimes.com/2007/11/29/
to maintain their successful business model and compete business/29hedge.html?n=Top/Reference/Times%20To-
with established carriers worldwide. pics/People/K/Kelly,%20Gary%20C.

The price of oil, in the very long term, isn’t likely to abate. Raphael Bejar is CEO of Airsavings, a group purchasing
As a finite, non-renewable resource, the supply of oil will and ancillary services firm based in Paris, France. As foun-
only become more constricted as the years pass. Sad but der and chief executive of a company that focuses on cri-
true. And this will hold true even if the current price of tical operational aspects of low cost and mid-sized carriers
crude turns out to be more driven by speculation than by on three continents, and with his 15 years of experience
real macroeconomic forces of supply and demand. The in airline finance with European giants Credit Foncier and
only real long-term solution to outlandish fuel prices, Jet Finance, Mr. Bejar is uniquely positioned to comment
then, is a reduction of demand. Technology, including that on emerging trends affecting the airline industry. Mr. Be-
affecting the airline industry, is moving in that direction. jar founded Airsavings in 2001, and in the ensuing 7 years
In the meantime, airlines will continue to do everything has become an outspoken proponent of the LCC business
and anything they can and will to keep fuel from being the model and provided well-reasoned critiques of US and Eu-
industry’s fundamental undoing. ropean legacy carrier operations over the past decade.

EVENTS

World Low Cost Airlines 2008


September 23 to 24 in London

Air Scoop is proud to be media partner of the World Low Cost Airlines 2008.

Plans are starting to take shape for the World Low Cost Airlines Congress 2008.
Earlier this year over 650 of you joined us in London for an action packed two days. To remind yourself of the day (or to
see what you missed!) we have put together a short video of the highlights. To see it simply visit our homepage. (You’ll
need to have flash installed on your computer.)

Don’t miss out on next year’s event.


To have more informations about last edition of the World Low Cost Airlines, read the full coverage in Air Scoop Oc-
tober 2007.
For more information on the World Low Cost Airlines 2008, visit www.terrapinn.com

9 Air Scoop - July 2008 www.air-scoop.com


BIRD’S EYE VIEW
Exclusive Analysis for Air Scoop

www.airlinebulletin.com

The Predicament of Flybe

Flybe has experienced more difficulties than many of the that the company could generate sufficient traffic levels at
larger LCCs in recent months, in part because they have a the airport by a given deadline. On the Norwich-Dublin
business model that doesn’t work well in this environment route, Flybe projected a small shortfall in the minimum
of rapidly rising costs, and partly because the airline has number of passengers required to receive the subsidy, and
failed to execute reliable service to its customers. As fuel so the airline hired actors and gave away free flights for
prices climb and competition intensifies, the airline could any passengers who were willing to fly the routes in or-
run into further difficulties unless it reverses course. der to raise passenger totals. Needless to say, the airport
was incredulous, but contractually, there was little they
Cost Troubles could do about it. However, the story came out, and da-
Flybe operates Q400 and E195 aircraft, both of which are maged the company’s reputation. Unfortunately, this type
considerably smaller than their counterparts at easyJet of practice is becoming increasingly common, and is the-
and Ryanair. Smaller aircraft have higher per-seat costs, refore less shocking to customers who have heard similar
and in this age of rising fuel prices, that has meant grea- tales of Ryanair and other LCCs abusing airport subsidy
ter expenses for the company. Flybe has greater difficul- programs for their own gain. While it’s not great press
ty than many legacy carriers at generating the necessary for Flybe, the story is really more of an indictment on
yields to justify the higher per-seat operating costs. For- the unethical business practices of LCCs in general, rather
tunately, Flybe has considerable market share in certain than the fault of any specific carrier.
smaller destinations, such as Jersey and Southampton, and
can use its pricing power to generate higher yields, but Business Model
the company still operates many routes to leisure destina- Flybe is a different kind of LCC than easyJet or Ryanair,
tions, which likely generate lower yields. and as such, needs to innovate the LCC model to better
fit the realities of the times. What many observers don’t
Moreover, Flybe has not adopted the LCC model as de- recognize is that LCCs are done with removing frills.
voutly as Ryanair has, and the company will face increased There’s almost nothing that Ryanair can charge extra for,
costs in the coming years managing two very different ty- and other LCCs across the continent are running out of
pes of aircraft, as well as rapidly rising costs at many pri- potential charges. As fuel prices climb, all airlines will
mary airports across Europe. suffer, and while LCCs will still have lower cost bases
than legacies, and will still be able to offer lower fares,
Service Mishaps the difference between LCC fares and legacy fares will
Flybe has not received good press recently, because of decrease, and their fares will become more comparable.
some service mishaps that have damaged the carrier’s re- Most passengers are willing to spend a little bit more to
putation. Last year, several flight crewmembers complai- receive frills, as evidenced by the wild success of JetBlue
ned of sicknesses, which they say were caused by toxic in the United States, and this is especially the case with
fumes leaking into the cabin from the engine. While no business travelers.
definitive conclusion was reached about these claims, it
did increase pressure on the carrier to remove its BAE- Flybe operates more like a legacy carrier than other LCCs,
146s more quickly from its fleet, and created health and because its costs are higher. As a result, the company
safety concerns among passengers. needs to seriously consider dropping a pure no-frills bu-
siness model, and evolve into a model that is traditional,
More recently, Flybe was criticized by airport executi- but still minimizes costs. Flybe will never beat most other
ves who noticed an abuse of the company’s obligation LCCs on price, and should therefore spend a little bit ex-
to uphold a subsidy contract. On some routes out of the tra to give customers the level of service and comfort that
Norwich airport, Flybe was promised a substantial sub- they expect from a more expensive product. The airline
sidy by the local airport authority if it could be shown should seriously consider adopting two-class seating ar-

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BIRD’S EYE VIEW

rangements, assigned seats for all passengers, and free be- environmentally friendly. Understandably, there is a place
verage service. Passengers are more likely to understand if for some regional flights, given the difficulty and hassle of
they have to pay for a meal on a very short flight, than if other forms of transport between certain islands or cities
they have to pay to check luggage, and charges should be in the UK and the European mainland. Nevertheless, as
implemented based on the needs of customers on regional airfares rise much faster than train or bus fares, and as
flights, not the trend-setting moves of a larger LCC. growing environmental awareness makes regional flights
less attractive, Flybe may be more vulnerable than other
Moreover, with higher fares, the airline will attract fewer LCCs to a shift to other forms of transport within the UK.
leisure travelers. This is acceptable, because business tra- The airline should seriously reconsider some of its domes-
velers generate higher yields, but also have higher expec- tic routes within England and Scotland and determine
tations about comfort and service, and Flybe needs to whether these routes are viable, given the environmental
adapt to their needs. With rising fares, leisure travel could and cost challenges regional flights will face in the future.
suffer, and consequently, Flybe should seriously reconsi-
der its route map. There is a niche for the carrier. The Flybe needs to evolve into a niche carrier, one that can
aircraft they operate are very effective at serving certain efficiently serve critical UK regional markets for higher-
routes, but they need to be used more strategically. Flybe yielding travelers. While the airline has many low-cost at-
should dramatically reduce its exposure to leisure routes, tributes, it should seriously consider adding some smaller
or instead make more of them seasonal. Moreover, the costs in the forms of amenities or added staff to provide
carrier should focus on two primary markets. improved service. Moreover, Flybe should remove some
of its ancillary fees in order to better meet the needs of
One is the island-hopping market, from various islands in business travelers, who are more adverse than leisure tra-
the UK (such as Jersey or the Isle of Man) to the main- velers to the “unbundled” airfare model. If the airline does
land. These are nice, short flights with little competition, this, it should be able to survive the eventual shakeout of
and the carrier can generate high aircraft utilization and the LCC market.
yields. As long as Flybe keeps out competition with its
pricing and service, the company should see continued
success in these markets for years to come. Remarks, questions… Join Sam by email (samsellers@
gmail.com) or on his website to comment this article…
The second market is targeting business travelers who http://www.airlinebulletin.com.
need to fly between major European cities and key UK
regional airports, such as Exeter, Southampton, Leeds, and
Newcastle. The company should offer business travelers
the convenience of nonstop service from these cities, ver-
sus a connection in London or elsewhere, and generate hi-
gher fares as a result. Flybe would need to target markets
carefully, to ensure that they are not easily accessible by
other modes of transport, nor large enough that Ryanair or
easyJet could enter and profitably service them. But, if the
carrier does so successfully, it can avoid the downward
pricing pressure of other LCCs and create long-term suc-
cess.
Sam Sellers provides analysis and commentary on the
Environmental Concerns airline industry at his website, www.airlinebulletin.com,
While Flybe has tried to be proactive on the environmen- and is the author of Take Control of Booking a Cheap
tal front, by offering a carbon footprint tag on all flights, so Airline Ticket, an ebook for travelers in the United States
passengers can evaluate the likely emissions of their jour- who are interested in purchasing cheap airline tickets.
ney, the fact remains that regional flights are simply not

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11 Air Scoop - July 2008 www.air-scoop.com