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
EDITORIAL
Air Berlin: Crisis Detected!
H
igh fuel expenses seem to have significantly influenced Air
Berlin’s flight path but the carrier tries its best to adapt to
new circumstances. Though Air Berlin is the third biggest
budget carrier in Europe, it is not guaranteed against losses. Having
warned of tough times ahead, Air Berlin dropped 7 per cent, which
is the lowest since May 2006 when it was listed on the Stock Ex-
change.
In order to make up for additional costs, the carrier will launch a cost-
cutting programme which means reducing domestic and long-haul
routes starting November. At least 10 per cent of its flights will be
grounded including those to Beijing and Shanghai, Cape Town, Wind-
hoek, Bangkok, to New York, Mauritius and Sri Lanka. The airline’s
cost-cutting measures will also result in cutting down administrative
staff at DBA, a Munich based LCC it owns.
Overall, Air Berlin has revised its earnings forecast and cut the initial
forecast twice. Some analysts believe that the cost-cutting plan appea-
red too late and that it is not able to stave off the threat to Air Berlin’s
very existence posed by a sharp rise in fuel prices.
Air Berlin appeared to be a stunning but short-lived success. Its
growth and acquisition of DBA, LTU made it Lufthansa’s biggest rival
in Germany. The acquisition of Condor, which has not been yet ap-
proved by German competition authorities no longer seems feasible
in the nearest future. What’s more, Air Berlin also reported certain
problems with LTU integration. With the help from DBA, LTU and
Condor, Air Berlin planned to increase its passenger flow. To date,
the carrier has to reduce the number of planes by 14. However, the
Chief Executive Officer Joachim Hunold hopes that this reduction
won’t affect the number of passengers as the efficiency plan envisages
additional flights on high-demand routes. Any further expansion falls
under question as well. Most likely, Air Berlin will have to reconsider
its order for 25 Boeing 787 long-haul aircraft that were planned to be
phased-in between 2013 and 2017.
At the core of the current crisis experts see Air Berlin’s aggressive
expansion strategy which finally took its toll. Towards the end to
focus on long-distance flights, Air Berlin bought two carriers and ope-
ned routes to China, Thailand, to the Caribbean and New York. Air
Berlin showed itself as growth-oriented but it was cut back by high
fuel prices.
Air Scoop - July 2008
AIR SCOOP ANNOUNCEMENTS
A Glimpse of Headlines News!
Denmark blacklists six European carriers
Copenhagen: Denmark’s National Consumer
Agency on Thursday published the names of
six European airlines it said were still using
illegal marketing practices, despite warnings
from the European Commission after a review
last year. The Danish Consumer Ombudsman
Henrik Oe said the Internet booking sites of
Ryanair, Air Berlin, Air Baltic, SkyEurope, Aer
Lingus, Brussels Airlines as well as that of In-
ternet travel agent Seat24, contained incorrect
information or made use of misleading booking
procedures.
EasyJet ad grounded for “misleading” CO2
claims
EastJet, the low cost airline, has once again
been reprimanded by the Advertising Standards
Authority (ASA) for making misleading carbon
dioxide (CO2) claims in a national press ad. The
advertising watchdog upheld a complaint from
a viewer who believed claims made in the ad
confused easyJet’s emissions per passenger with
its total CO2 plane emissions.
Rising fuel cost: Experts foresee airlines’ mer-
gers and consolidation
Increased cost pressures on airlines combined
with lower spending power among custo-
mers, could force a new round of consolida-
tion between carriers, say bankers, analysts and
industry executives. Fuel is one of the biggest
costs airlines face and the price of oil has dou-
bled in the last year, but airlines may be unable
to pass on that cost as businesses and leisure
travellers face pressure to spend less as the eco-
nomy slows.
Bmibaby to cut Cardiff services
UK carrier Bmibaby, the biggest low-cost air-
line flying from Cardiff, Wales has confirmed it
is to cut flights because of soaring global oil pri-
ces. Bmibaby commercial director Julian Carr
said cutbacks were being made to safeguard the
company’s long-term future.
More on http://airscoop.blogspot.com
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
end of June, the German LCC Air Berlin, the third low-
fare airline in Europe, filed a complaint with the German
Federal Court of Justice against the Luebeck airport, in
Northern Germany. Air Berlin accuses the airport to grant
its Irish rival lower charges, and thus to create unfair com-
petition.
Air Berlin’s action is not completely a surprise. Last year
already, the European Commission launched an inquiry
against several European airports, among which Luebeck,
for similar reasons: bilateral deals offering some airlines
special financial conditions, which could be considered as
illegal state aid. And the contract between the Luebeck
airport and Ryanair had already been suspected of illegality
by the EC... eight years ago, at the time it was signed.
What is more, Ryanair is accustomed to that kind of ac-
cusations. The first illegal subventions inquiry by the Eu-
ropean Commission against the company dates back to
2002, in Charleroi. Ryanair was finally forced in 2004 to
pay back 30 pc of the subsidies it had received from the
Belgian airport. Less than two years later, a new contract
was signed between the airport and the Irish airline, which
still has a big hub there.
After Charleroi, many other inquiries were opened by lo-
cal or European authorities all over Europe. Brussels cur-
rently examines different deals Ryanair and other airlines
as EasyJet concluded with several European airports: Pau
in France, Aarhus in Danemark, Bratislava in Slovakia,
Tampere in Finland, but also Berlin and Dortmund in Ger-
many for EasyJet.
And just a few days before Air Berlin’s announcement
about Luebeck, in June, the European Commission opened
another investigation on the Frankfurt-Hahn airport (150
km from Frankfurt), suspected of having received public
aid from the Länder of Hesse and Rhineland-Palatinate,
and from its public owned mother company Fraport. The
Commission will also examine bilateral contracts between
the airport and Ryanair, which operates in Frankfurt-Hahn
one of its major European hubs. This examination follows
a complaint from a German airline.
The Luebeck case, however, has something specific. First
of all, it occurs two months after Ryanair opened its first
German domestic route from Berlin to Frankfurt-Hahn,
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
in the German sky! This new Ryanair boss provocation
shows the German market is just at the beginning of a
harsh battle, and Air Berlin’s complaint in Luebeck may
be part of it.
Secondly, the Luebeck case will be judged by a German
court, which decision will set a precedent in the country.
With this trial, Air Berlin, supported by the German Asso-
ciation of Airlines, clearly wants to set an example for the
national air transport sector. What the airline is asking for
is in a way the mere application in Germany of European
rules established after the Charleroi affair: subsidies from
airports to airlines have to be limited in time, restricted to
new routes or new frequencies, cannot be proposed to a
single airline, and have to be transparent and communica-
ted to other airlines and to European authorities.
It is of course a way to attack Ryanair’s business model,
partly based on more or less illegal airport subsidies, often
paid to the airline’s sister company Airport Marketing Ser-
vices as a counterpart for promotion actions of the destina-
tion abroad. Subsidies or airport fees reductions represent
important revenues for the Irish airline: they reach several
hundred thousand Euros per airport and per year.
If Ryanair loses the German trial, its other - or at least
future - deals with German airports may be put into
question. And beyond the German market, the increasing
number of illegal subsidies cases involving the Irish airline
could soon begin to threaten its business model, and its
financial wealth. Especially when the whole air transport
sector is expected by analysts to be hit soon by a strong
downturn, mainly due to record oil prices. In February,
Michael O’Leary warned 2008-2009 financial results could
be weaker than expected. Investors are already very cau-
tious: since October 2007, Ryanair’s share has lost nearly 50
pc of its value.
The worst case scenario for the airline would of course
be several condemnations similar to the Charleroi one: if
Ryanair was forced to reimburse 30 pc of all the subsidies
it perceived, the financial impact could be enormous. Rya-
nair has another point of view about subsidies and free
competition in the European sky: according to the airline,
the companies really supported by state aid and subsidies
are national leaders as Lufthansa and Air France. Ryanair
regularly accuses the European Commission to protect na-
tional leaders instead of stimulating free competition.
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
European air ticket selling websites. At the beginning of
May, it released an inquiry on the online air ticket mar-
ket, involving several European countries (1). The conclu-
sion was harsh: 137 out of the 386 websites examined at
the end of 2007 (airlines, travels agencies, tour operators,
fare comparison sites...) were not in conformity with the
European legislation on misleading advertising and unfair
contract terms. These 137 sites represent 80 different com-
panies, especially airlines.
The Commission in particular noticed three types of in-
fractions: wrong, confusing or lying information on fares,
for example extra costs and taxes not included in the ini-
tial fare (58% of the incriminated websites); unfair infor-
mation on the terms of the contract, for instance optio-
nal travel insurances automatically included in the ticket
(49% of the websites) ; unavailability of commercial offers
(15% of the sites).
«It is unacceptable that one in three consumers going to
book a plane ticket online is being ripped off or misled
and confused», European Consumer Commissioner Me-
glena Kuneva said.
Once the « faulty » airlines and operators had been iden-
tified at the end of 2007, the countries involved in the
inquiry proceeded to enforcement actions for the breach
of consumer rights. They asked the companies to rectify
their websites, and then checked the corrections. On the
European level, Meglena Kuneva firmly asked the airlines
to change their marketing methods, threatening to publish
the name of the « faulty » airlines if nothing was done, and
warning about possible closing of some websites.
But the Commission itself can not directly sanction an air-
line or force it to close its website. It can only for example
ask the airline’s national authorities to do so, and if they
refuse, prosecute the country in the European Court of
Justice. The mere enforcement of the law is a matter of
national authorities. It makes the Commission’s power to
directly change the airlines’ marketing methods quite li-
mited.
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
7 Air Scoop - July 2008
website). Only 12 pc of these cross-border cases have been
resolved. It shows how European voluntarism can be res-
trained by difficulties in transnational cooperation.
Commissioner Meglena Kuneva put an ultimatum on May
2009 to solve definitively the problem of commercial abu-
ses in the online air ticket market. Otherwise, the Euro-
pean Commission plans to adopt a new specific directive
on air ticket fares, constraining airlines and other ticket
sellers to provide customers from the beginning with ex-
plicit final prices including all the fares, taxes and fees.
That kind of specific legislation could be more efficient
than the current global European legislation on commer-
cial practices. The airlines could also be forced to change
their irregular methods by the customers themselves, who
become more and more aware of all the tricks companies
use to increase their final prices. Commissioner Meglena
Kuneva thus called consumers to be aware of these practi-
ces, to compare fares, to check preselected options, and to
lodge a complaint if they were victims of abuses.
The first airlines to suffer from such a reaction may be the
LCCs: companies like Ryanair and EasyJet rely a lot on the
gap between advertised fares and final prices. They attract
the customer with incredibly low prices, and then add
numerous extra costs: credit card tax, insurances, priority
booking... These hidden costs, part of which are included
in the « ancillary revenues », represent an important part
of their income.
For now, the European inquiry has two other limits : first,
important LCC countries like Ireland, the United Kin-
gdom and Germany did not participate - which does not
mean they do not conduct they own inquiries : in the UK,
for example, 13 airlines were ordered by the Office of fair
trading to modify their websites. Secondly, the names of
the incriminated airlines were not published. Except in
Norway and in Sweden, where the most litigious airline
was... Ryanair, and Blue One in Norway.
(1) Belgium, Bulgaria, Denmark, Estonia, Greece, Spain,
France, Italy, Cyprus, Lithuania, Malta, Austria, Portugal,
Finland, Sweden + Norway
www.air-scoop.com
 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
consideration for transit and transport industries in gene-
ral, particularly for the airline industry, which has histori-
cally needed greater quantities of fuel compared to other
methods of conveyance. But recently, the harsh realities
about global supply have begun to sink in: the traded price
of crude has quadrupled since the turn of the century, and
global markets and media have started to make oil a cen-
tral consideration as well. It seems that nearly everywhere
there is intensely growing interest in fuel cost mitigation,
the reduction of consumption, and the overall scope and
trend of the oil futures market. From consumer dialogue
to congressional inquiry, everyone wants to know what’s
happening with oil.
In no other industry is this sense more acute than the
airline industry, and for good reason. In 2007 alone, US
passenger and cargo operations consumed more than 19.6
billion gallons of jet fuel, or 465 million barrels (1). To put
a dollar value on that already astronomical figure, the price
of jet fuel increased nearly 50% over this time period (2)
from $1.69 per gallon to $2.67 per gallon at the beginning
of this year. To further compound this trend, the real price
rise has happened since January, with crude jumping from
$93 per barrel to $134 and Jet A-1, averaging $1.25 more per
gallon in the ensuing six months.
While these are alarming statistics and do indicate a dis-
turbing trend, they are by no means new discoveries. Our
industry is of course very well-versed in the meteoric na-
ture of oil prices, and is aware of the difficulties inherent to
operating in such an environment of unprecedented fixed
(read: fuel) costs coupled with intense downward pressure
on prices and increasingly elastic demand. Airlines have
typically employed a handful of methods to help offset the
volatility of oil prices, including hedging, term contracts,
spot market speculation, and purchasing alliances, all of
which have had varying degrees of success in the current
climate of unbridled price increase.
The technique that has garnered the most attention is hed-
ging, which (very simply) is when an airline buys a fuel fu-
tures contract at a current price for delivery in a specified
period, often more than a year in advance. Hedging works
best in a market with steadily rising prices and limited vo-
latility, though in the current market it has worked for
those airlines that have committed substantial resources to
8 Air Scoop - July 2008
maintaining what is, in effect, a commodities brokerage in
addition to their primary air transit operations. Southwest
is the poster carrier for this method, having hedged subs-
tantial percentages of its operating fuel consumption for
every quarter for the next few years. According to a
New York Times article (3), Southwest owns long-term
contracts to buy most of its fuel through 2009 for what it
would cost if oil were $51 a barrel. As the value of those
hedges has soared as oil raced above $130 a barrel, they are
now worth more than $3 billion. In hindsight, Southwest
seems quite the genius enterprise for betting so heavily on
what now seems an inevitable rise in oil prices. So why
didn’t other airlines enter the sweepstakes when oil was in
the sub-$100 range? Most airlines engage in term contrac-
ting with individual fuel suppliers, foregoing the need to
‘play’ the speculative oil markets, but also foregoing the
long-term cost savings enjoyed by Southwest in favor of
shorter-term, negotiable contracts. Term contracting is
more flexible than hedging, while still providing a measure
of security against price volatility, and is thus often pre-
ferred.
Of course, both of the above methods are employed by
larger, established airlines (even Southwest, with its low
cost carrier cachet and origins, is a giant among LCCs and
in the US marketplace). Emerging low cost and midsized
airlines have different concerns when it comes to purcha-
sing fuel, namely obtaining a price comparable to that paid
by legacies and other large airlines. All things being equal
(that is, excepting hedging and spot market speculation),
the large legacy airlines have the advantage of economies
of scale over their smaller or regional competitors. Airlines
like Southwest and American have far more purchasing
and negotiating power with fuel suppliers than do carriers
such as Spirit or JetBlue, simply because they need to buy
more at any given time. The only avenue LCCs and mid-
sized players have to combat this competitive advantage is
the formation of purchasing alliances.
Alliances and other group purchasing organizations allow
several airlines to pool their individual needs to purchase
in larger quantities, including recurrent items like fuel and
fuel term contracts. While there is no prognostication in-
volved or long-term betting or market speculation, group
purchasing is nonetheless the most accessible and effective
way for low cost and midsized carriers to level the purcha-
www.air-scoop.com
 BIRD’S EYE VIEW
sing playing field with the majors. Several organizations,
including Airsavings , facilitate the development and esta-
blishment of these alliances, and allow many of the LCCs
that have reshaped the airline industry in the past decade
to maintain their successful business model and compete
with established carriers worldwide.
1. http://www.airlines.org/economics/energy
2. New York Harbor Jet-A spot price, http://tonto.eia.
doe.gov/dnav/pet/hist/rjetnyhm.htm
3.http://www.nytimes.com/2007/11/29/
business/29hedge.html?n=Top/Reference/Times%20To-
pics/People/K/Kelly,%20Gary%20C.

The price of oil, in the very long term, isn’t likely to abate.
As a finite, non-renewable resource, the supply of oil will
only become more constricted as the years pass. Sad but
true. And this will hold true even if the current price of
crude turns out to be more driven by speculation than by
real macroeconomic forces of supply and demand. The
only real long-term solution to outlandish fuel prices,
then, is a reduction of demand. Technology, including that
affecting the airline industry, is moving in that direction.
In the meantime, airlines will continue to do everything
and anything they can and will to keep fuel from being the
industry’s fundamental undoing.
Raphael Bejar is CEO of Airsavings, a group purchasing
and ancillary services firm based in Paris, France. As foun-
der and chief executive of a company that focuses on cri-
tical operational aspects of low cost and mid-sized carriers
on three continents, and with his 15 years of experience
in airline finance with European giants Credit Foncier and
Jet Finance, Mr. Bejar is uniquely positioned to comment
on emerging trends affecting the airline industry. Mr. Be-
jar founded Airsavings in 2001, and in the ensuing 7 years
has become an outspoken proponent of the LCC business
model and provided well-reasoned critiques of US and Eu-
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
The Predicament of Flybe
Flybe has experienced more difficulties than many of the
larger LCCs in recent months, in part because they have a
business model that doesn’t work well in this environment
of rapidly rising costs, and partly because the airline has
failed to execute reliable service to its customers. As fuel
prices climb and competition intensifies, the airline could
run into further difficulties unless it reverses course.
Cost Troubles
Flybe operates Q400 and E195 aircraft, both of which are
considerably smaller than their counterparts at easyJet
and Ryanair. Smaller aircraft have higher per-seat costs,
and in this age of rising fuel prices, that has meant grea-
ter expenses for the company. Flybe has greater difficul-
ty than many legacy carriers at generating the necessary
yields to justify the higher per-seat operating costs. For-
tunately, Flybe has considerable market share in certain
smaller destinations, such as Jersey and Southampton, and
can use its pricing power to generate higher yields, but
the company still operates many routes to leisure destina-
tions, which likely generate lower yields.
Moreover, Flybe has not adopted the LCC model as de-
voutly as Ryanair has, and the company will face increased
costs in the coming years managing two very different ty-
pes of aircraft, as well as rapidly rising costs at many pri-
mary airports across Europe.
Service Mishaps
Flybe has not received good press recently, because of
some service mishaps that have damaged the carrier’s re-
putation. Last year, several flight crewmembers complai-
ned of sicknesses, which they say were caused by toxic
fumes leaking into the cabin from the engine. While no
definitive conclusion was reached about these claims, it
did increase pressure on the carrier to remove its BAE-
146s more quickly from its fleet, and created health and
safety concerns among passengers.
More recently, Flybe was criticized by airport executi-
ves who noticed an abuse of the company’s obligation
to uphold a subsidy contract. On some routes out of the
Norwich airport, Flybe was promised a substantial sub-
sidy by the local airport authority if it could be shown
10 Air Scoop - July 2008
Exclusive Analysis for Air Scoop
www.airlinebulletin.com
that the company could generate sufficient traffic levels at
the airport by a given deadline. On the Norwich-Dublin
route, Flybe projected a small shortfall in the minimum
number of passengers required to receive the subsidy, and
so the airline hired actors and gave away free flights for
any passengers who were willing to fly the routes in or-
der to raise passenger totals. Needless to say, the airport
was incredulous, but contractually, there was little they
could do about it. However, the story came out, and da-
maged the company’s reputation. Unfortunately, this type
of practice is becoming increasingly common, and is the-
refore less shocking to customers who have heard similar
tales of Ryanair and other LCCs abusing airport subsidy
programs for their own gain. While it’s not great press
for Flybe, the story is really more of an indictment on
the unethical business practices of LCCs in general, rather
than the fault of any specific carrier.
Business Model
Flybe is a different kind of LCC than easyJet or Ryanair,
and as such, needs to innovate the LCC model to better
fit the realities of the times. What many observers don’t
recognize is that LCCs are done with removing frills.
There’s almost nothing that Ryanair can charge extra for,
and other LCCs across the continent are running out of
potential charges. As fuel prices climb, all airlines will
suffer, and while LCCs will still have lower cost bases
than legacies, and will still be able to offer lower fares,
the difference between LCC fares and legacy fares will
decrease, and their fares will become more comparable.
Most passengers are willing to spend a little bit more to
receive frills, as evidenced by the wild success of JetBlue
in the United States, and this is especially the case with
business travelers.
Flybe operates more like a legacy carrier than other LCCs,
because its costs are higher. As a result, the company
needs to seriously consider dropping a pure no-frills bu-
siness model, and evolve into a model that is traditional,
but still minimizes costs. Flybe will never beat most other
LCCs on price, and should therefore spend a little bit ex-
tra to give customers the level of service and comfort that
they expect from a more expensive product. The airline
should seriously consider adopting two-class seating ar-
www.air-scoop.com
 BIRD’S EYE VIEW
rangements, assigned seats for all passengers, and free be-
verage service. Passengers are more likely to understand if
they have to pay for a meal on a very short flight, than if
they have to pay to check luggage, and charges should be
implemented based on the needs of customers on regional
flights, not the trend-setting moves of a larger LCC.
Moreover, with higher fares, the airline will attract fewer
leisure travelers. This is acceptable, because business tra-
velers generate higher yields, but also have higher expec-
tations about comfort and service, and Flybe needs to
adapt to their needs. With rising fares, leisure travel could
suffer, and consequently, Flybe should seriously reconsi-
der its route map. There is a niche for the carrier. The
aircraft they operate are very effective at serving certain
routes, but they need to be used more strategically. Flybe
should dramatically reduce its exposure to leisure routes,
or instead make more of them seasonal. Moreover, the
carrier should focus on two primary markets.
One is the island-hopping market, from various islands in
the UK (such as Jersey or the Isle of Man) to the main-
land. These are nice, short flights with little competition,
and the carrier can generate high aircraft utilization and
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.
The second market is targeting business travelers who
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.
Environmental Concerns
While Flybe has tried to be proactive on the environmen-
tal front, by offering a carbon footprint tag on all flights, so
passengers can evaluate the likely emissions of their jour-
ney, the fact remains that regional flights are simply not
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11 Air Scoop - July 2008
environmentally friendly. Understandably, there is a place
for some regional flights, given the difficulty and hassle of
other forms of transport between certain islands or cities
in the UK and the European mainland. Nevertheless, as
airfares rise much faster than train or bus fares, and as
growing environmental awareness makes regional flights
less attractive, Flybe may be more vulnerable than other
LCCs to a shift to other forms of transport within the UK.
The airline should seriously reconsider some of its domes-
tic routes within England and Scotland and determine
whether these routes are viable, given the environmental
and cost challenges regional flights will face in the future.
Flybe needs to evolve into a niche carrier, one that can
efficiently serve critical UK regional markets for higher-
yielding travelers. While the airline has many low-cost at-
tributes, it should seriously consider adding some smaller
costs in the forms of amenities or added staff to provide
improved service. Moreover, Flybe should remove some
of its ancillary fees in order to better meet the needs of
business travelers, who are more adverse than leisure tra-
velers to the “unbundled” airfare model. If the airline does
this, it should be able to survive the eventual shakeout of
the LCC market.
Remarks, questions… Join Sam by email (samsellers@
gmail.com) or on his website to comment this article…
http://www.airlinebulletin.com.
Sam Sellers provides analysis and commentary on the
airline industry at his website, www.airlinebulletin.com,
and is the author of Take Control of Booking a Cheap
Airline Ticket, an ebook for travelers in the United States
who are interested in purchasing cheap airline tickets.
www.air-scoop.com