air scoop january 2007

8/14/2019 Air Scoop January 2007

1/11

EDITORIAL

The end of 2006 has been paradoxical. On one hand, LCCs

have realized great profits, but on the other hand, they have

never been so much criticized. One after another, LCCs

launch their IPO (Air Berlin, Vueling) or plan to do so in a near

future (Centralwings(p. 10)). At the same time, consolidation of

the market has reached a higher step. Some LCCs succeeded to ac-

quire other airline carriers like Air Berlinin Germany (p. 5) or FlyBe

with BA Connect, but others didnt: like Ryanairand Aer Lingus(p.

9). Low-cost carriers are also exploring new markets and expand inEurope to widen current frontiers (p. 2, 7 & 11).

Meanwhile, LCCs have never been under so many attacks. Jet2, like

other LCCs before, has been caught for misleading advertising by the

Advertising watchdog (p. 8). easyJets offices in Paris Orly airport

have been raided by French police forces et social security inspec-

tors, because the carrier is charged with concealed work and im-

peding staff representation bodies (p. 5). Ryanairis the European

LCC which has faced the most opposition this last month. During

the takeover bid for Aer Lingus, Ryanair faced allied opponents

(Irish government, European commission, Aer Lingus executives

and employees) and finally failed (p. 9). Ryanairis largely critici-zed over the web by the website Ryanaircampaign.org, and the car-

rier has lost the battle to win the control over this domain name (p.

10). More disturbing for the airline are the recent revelations about

subsidies received from public taxes and about secret agreements

signed between airports and Ryanair(p. 9). The disclosures of these

deals with airports could really damage Ryanairs system to earn

essential ancillary money

Highlights in this IssueThe Ten influential: Whos Who p. 4

Air Berlin Goes Shopping, But Without TUI p. 5

LCCs In the Nordic Sky... p. 7

End of 2006: Hard Air Pockets for Ryanair p. 10

Germanwings Expansion to Eastern Europe p. 11

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

The Low Cost Carriers Analysis Newsletter

Air Scoop Special Search Engine

Air Scoop Team has created a search engine

dedicated to LCCs market. We have selected

the best of websites news about aviation, and

especially low cost carriers in Europe. Then

you will find all the information that you are

looking for through our search engine.

Use it, its free!

Air Scoop - In the Air

AIR SCOOP ANNOUNCEMENTS

Air Baltic: A

New Route to

Roma?

The Air Scoop Team Wishes you a Great New Year 2007!

MOL Words of the Month!

A lot of lies and misinformation has been

put about by eco nuts on the back of a re-

port by an idiot economist.,

Michael OLeary referring to the report of SirNicholas Stern, World Bank chief economist,

on the economies of climate change.

Minister Pearson and other equally foolish

politicians actually tackled the real cause

of climate change, which is road transport

and power generation, Michael OLeary re-

ferring to Ian Pearson, UK Environment Mi-

nister, who attacked Ryanair on environment

issues.


2/11

BIRDS EYE VIEW


Exclusive Interview of Jzsef Vradi

(CEO of Wizz Air) Jzsef VradiCEO of Wizz Air

Could you please present Wizz Airto our readers? What are your speci-

ficities compared to other European

LCCs? What do you do better than

your competitors?

Wizz Airis Central & Eastern Euro-

pes largest low fare low cost airline

by number of carried passengers. The

airline was launched to coincide with

the EU accession of 10 new countries

in May 2004. The first flight took offfrom Poland, the largest of these new

EU countries on 19 May. Today the

airline operates flights from Poland,

Hungary, Bulgaria, Croatia, Slovenia

and Romania to many destinations

across Europe. Wizz Airflies a young

fleet of 180 seater Airbus A320 air-

crafts. With 32 new A320 aircrafts on

order plus 12 options Wizz Airs fleet

should consist of up to 53 aircrafts by

2012.Wizz Air

has carried close to 5million passengers since its start of

operations in May 2004.

Wizz Airs key success factor is its

cost structure, which is the most ef-

ficient in the CEE region. Wizz Airs

lowest cost is the key to its long term

success.

You recently announced an overall

expansion of Wizz Air in Poland.

easyJet and Ryanair have also an-

nounced the launch of new routes

to polish market. How do you plan

to manage such competition in this

market? What are your advantages

on this market?

Wizz Airhas already proven itself as

the leading low cost airline in all its

countries of operation. According to

the latest report of the Polish Civil

Aviation Authorities published on 19

October 2006, Wizz Air strengthe-ned its market position as the largest

low cost carrier and the second largest

airline in Poland well ahead of com-

petitors, taking 15% of the total mar-ket (4 percentage point up from last

years 11 %). Wizz Airreached 28%

share of the low cost sector transla-

ting into 8% share of the total market

in Hungary. The share ofWizz Airin

Bulgaria, the airlines new market, has

reached 52% just 6 months after its

launch in the country.

As I mentioned the key focus is on

keeping the costs as low as possible

and offering low fares continuously.The market has been very competi-

tive and has shown signs of consoli-

dation already, as some competitors

had to withdraw or downsize their

operations. The key, again, will be

the most efficient cost structure.

Islanders (Ryanair and easyJet)

need to find new attractive destina-

tions to maintain their growth; The-

refore Central Europe represents an

important market for these LCCs.

Who are your most dangerous com-

petitors: Centralers (SkyEurope,

CentralWings, Estonian Airlines)

or Islanders: Now? In near future?

The competition is with other means

of transportation as well as within the

airline industry itself. Low costs will

be the key to succeed, as it is vital

to both drive the market growth and

successfully compete on the market.Our experience has proven us right:

low costs always win. This made us

the market leader in our base coun-

tries already and this will keep us in

the top league of European market

players.

The European Low cost carriers

market has reached a certain matu-

rity which leads to its consolidation.

During this transition, what are, for

you, the greatest threats to the Euro-pean Low cost carriers? Fuel rising?

Overcapacity? Evolution of airports?

Regulation?...

There are a number of factors which

represent a challenge to further de-

velopment and need to be addressed

in efficient way. Fuel price is one

of them, however as it concerns all,

we have a competitive advantage of

flying large (180 seater), very efficient

(A320) and new aircraft, while ourcompetitors mostly fly smaller equip-

ment losing on the economics of unit

cost. Airport infrastructure needs to

be developed in the region, especial-

ly from a technical perspective. And

new market entries are still limited

by regulatory specificity of individual

non-EU countries. However, new

markets open, but the competitive

nature of the business remains with

local challenges to overcome.

Many LCCs look after extra-re-

venues to offset the low price of

their tickets. What are the projects

of Wizz Air in terms of Extra-reve-

nues?

Ancillary revenue is an area with a

lot of potential. There are a number

of services already available on wiz-

zair.com, such as car rental, accom-

modation, insurance, travel packages,week-end breaks, tickets, etc. This

circle will be further enlarged as well

as products which are on sale on

board. There are also other services

and products on consideration to be

launched in the near future, which

are sources of non-ticket revenue.

Do you believe that consolidation

of the market will lead to 2-3 main

LCCs in Europe, or do you thinkthere will always be many LCCs on

niche markets?


3/11

BIRDS EYE VIEW


Find all our exclusive interviews of top

LCCs managers on our website

www.air-scoop.com

Already available online:

As I mentioned the market already shows signs of con-

solidation. There is place only for efficient airlines. The

market will be dominated by 4-5 big players with some

small marginal players to take the rest.

Are you worried about the shortage of pilots and crew

hitting LCC market?

No.

What are the options for Wizz Air to transform its busi-

ness model in order to make more costs savings?

Wizz Airs business model does not require transformation

as it has been designed to be ultra-low cost from day one.Efficient, new Airbus A320; over 13 hours aircraft utiliza-

tion; use of secondary/regional airports; 100% internet sa-

les; highly efficient organization (7500 pax/employee/year)

and best practices result in the lowest costs. And this to-

gether with the continuous benchmark against the best ma-

kes Wizz Airthe winner on the market.

Maciej Kwiatkowski

(CEO of Centralwings)

Maunu von Lueders

(CEO of FlyNordic)

Carlos Munoz

(CEO of Vueling)

Chris Mandl

(CEO of Sky Europe)

Bertolt Martin Flick

(CEO of AirBaltic)


4/11

BIRDS EYE VIEW


ANALYST PORTHOLE

The Ten influential: Whos Who of the Most Influential People in the Online

Travel Industry Over the Past Decade

The english media portal Travolution has gathered the votes and opinions of its readers to finally

released a list of the 10 most influential people in the online travel industry over the past decade.

The final 10 is, we believe, a collection of the finest thinkers and strategists since 1996, and someti-

mes those just simply brave enough to try to break new ground.

Rather than simply pick senior figures who created or ran successful businesses, Travolution wanted

to recognize the innovators and pioneers in the sector.

Among these 10 most influential people, we noticed Stelios Haji-Ioannouand Michael OLeary...

LCC EVENT

The 4th French Connecttakes place on 25-27th April 2007 in La Baule. This unique event offers you the op-

portunity to network with some of the most influential people in European Low Cost aviation.French airports, the legislators and Europes low cost operators all in one place with first-class conference faci-

lities, superb hotels and dining and a relaxed, entertaining business environment : book your place today!

For further information, please check www.frenchconnect.net

Stelios, the London School of Economics graduate and 39-year-old son of a wealthy shipping magnate,

is one of few businessmen, never mind human beings, who can proudly boast they have joined the likes

of Pele, Madonna and Jesus in the list of people universally known by a single name. () I am not sure

who voted but its probably higher name recognition than other more important players, he says of hisselection as an online travel pioneer.

Name recognition extends to his empire of businesses. There can hardly be a person living in the UK

who, after easyJetwas launched in 1997 when Stelioswas a youthful 28, would not recognize the cor-

porate orange of the easyGroup.

The most crucial business decision I made when starting out was to discount 5 to those who booked online at easyJet

in 1998, said Stelios. Like Richard Bransonand Freddie Lakerbefore him, Stelios was the latest airline entrepreneur to

believe he could take on the giant ofBritish Airwaysand arguably, by embracing the Internet as a form of distribution,

he has scored most direct hits.

easyJetis now Europes largest low-cost carrier, with a fleet of 100 jets that welcomed 30 million passengers on board

in 2005. Steliosis now a household name but he is well aware of the fickle nature of success. If I had my time again I

would have exercised more caution at the speed of rolling out some of my ventures during the dot-com bubble years.Luckily, I survived to tell the tale, he says.

Ryanairintroduced Europe to budget flying and will carry 35 million passengers this year a far cry

from the 5,000 it ferried between Ireland and mainland UK in 1985. Michael OLearyis fierce when

defending its business model against attacks from environmentalists, politicians, rival airlines and the

traditional travel trade alike. () Ryanair, along with the likes ofeasyJet, has been at the vanguard of

making travel, along with porn and gambling, one of the most profitable and patronized retail sectors

online and this is why high-street travel agents have demonized people like OLeary, who have led the

revolution. () In 1993 he was made chief operating officer and everything was in place for Ryanair to

join easyJetin pioneering the online no-frills airline revolution.


5/11

BIRDS EYE VIEW


easyJet Accused of Breaking French Labour Laws Faces Justice

In December, easyJets offices in Paris Orly airport were

raided by a 40 strong team composed of French policemen,

tax officials and social security inspectors. The operationwas ordered by the State Prosecution office. Employing

there 170 staff, easyJet has been charged with concea-

led work and impeding staff representation bodies. An

easyJetmanager was even taken into police custody on

Thursday and released Friday. Ryanaircould face similar

charges as the carrier opened a base in Marseille employing

about 60 people.

French government tries to force Islanders to move

their staff employed in France from British employment

contracts to French contracts. Indeed, since a new decree

published in November 2006, airlines with permanent

presence in France must register as French firms and give

local contracts to their staff. Islandersresist this switch

as French contract are more expensive: they would haveto pay higher security charges and improve union repre-

sentation. According to the French Directorate of Civil

Aviation (DGAC), this switch would cost a 4% increase

to LCCs.

This episode is just another step that opposes Islandersto

French government and institutions. LCCs have many dif-

ficulties to break into French market due to many known

reasons (Read Air Scoop April 2006). Both parties have

lodged complaints against the other one: a trench warfare is

going on. France definitely doesnt welcome LCCs

At the end of November, Air Berlinmade public an or-

der of 60 new Boeing 737-800 aircrafts expected to be

delivered between 2008 and 2014. Combined with the 25

planes already ordered by the company DBA, bought by

Air Berlinin September 2006, it is now 85 Boeing planes

that are on the order form. This is Boeings biggest deal

ever with a German company. At the present time, AirBerlinruns 91 aircrafts, and has already ordered 60 Airbus

planes two years ago.

This huge deal has several goals: to replace the leased air-

crafts Air Berlinis currently running, to make savings (to

run new planes is cheaper), but also to contribute to the

companys development (Air Berlinwants to increase the

number of its passengers from 10% to 13% in the coming

years). But as the deal became official, Air Berlins sha-

res suddenly slumped in price by more than 13%. The

reason: shareholders wondered how Air Berlin will be

able to afford those planes, and feared an increase of ca-pital. Indeed, the official price for the aircrafts is about

4.3 billion Euros (5.7 billion USD), though Air Berlinwill

surely be offered a discount of up to 30%.

Air Berlinimmediately denied speculations about an in-

crease of capital. The company declared it will finance

the aircrafts with its own liquid assets, over several years,

with help from external capital, and also by mortgaging

the planes.

In Germany, rumors said this deal was hiding a coming

closer ofAir Berlinand the world leader of tourism TUI,

which is running several airlines in Europe. Indeed, the

two firms had discussions at the beginning of December

about a minority holding ofTUI in Air Berlins capital,

which would have helped to finance Air Berlins new pla-

nes. Furthermore, TUI just merged its two German air-

lines, HLX(low-cost) and Hapag Fly(holiday charter),

into one new company, TUIfly.com. TUIfly.com is ex-

pected to develop TUIs air transport activity... eventually

through partnerships with other airlines.But according to German press, the negotiation failed be-

cause ofTUIs too strong demands. Indeed, suffering from

a weak development on the Internet, TUIwanted exclu-

sive commercial links (hotels, special offers...) on Air Ber-

lins website. Will the relationship between two strong

German touristic actors be restored in the future? Both

TUI, with TUIfly.com, and Air Berlincould have interest

in building a strong partnership, unless they finally decide

to compete against each other...

Read Air Scoop October 2006 for a complete mappingof the consolidation of the LCCs German market

Air Berlin Goes Shopping, But Without TUI


6/11Air Scoop - January 2007

DOWN TO EARTH

www.air-scoop.com

I wish you a happy and successful New Year from the

IdeaWorks Companyand the Kids First Fund. Readersof this column recognize the name of my consulting firm,

but likely dont recognize the name of the non-profit or-

ganization I started in 1999 to help sexually and physi-

cally abused children. I write this month on the topic of

corporate charity and to ask you to join the 2007 Great

Online Travel Auction for Kids.

Charitable involvement provides numerous benefits for

an airline by adding depth to the brand and creating stron-

ger connections with consumers. Working with commu-

nity-based charities in primary markets can deepen brandloyalty among local consumers - - my airline cares about

my community too. Establishing relationships with lar-

ger charities on a global or continental basis can align a

brand with positive attributes such as caring for children,

historic preservation, and environmental concerns. Many

consumers prefer to support socially-responsible compa-

nies.

During January 2006 IdeaWorksissued a report on Inno-

vative Reward Alternatives for the Worlds Largest Airli-

nes. The report described how these airlines have integra-

ted charities into their frequent flier programs. Reward

options at these airlines go beyond air travel to include

airport club memberships, hotel stays, merchandise, and

even donations to charities. Six of the worlds largest air-

lines included nearly 100 charities that benefit from the

miles donated by program members.

The list of airlines was dominated by US-based carriers,

with one European entry. Air Franceand KLMsupport

seven charities through their Flying Blue frequent flier

program: French Red Cross, Enfants de la Terre, La

chane de lespoir, LEnvol, Mcnat Chirurgie Cardia-

que Enfants du Monde, UNICEF, Right to Play, and

Save a Childs Heart. These charities convert the dona-

ted miles into tickets that directly benefit children or are

used to reduce an organizations travel expenses.

Airlines can also support charities by donating tickets, or

travel certificates, to charitable auctions. Well-designed

auctions provide effective product exposure among an

attractive audience of consumers. Airlines should seek

auctions that reach target markets of vacationers, business

travelers, media representatives, and community leaders.Hopefully not lost in this article is the primary motivation

for good works - - because it helps make the world a

better place.

The auction operated by the Kids First Fundhas been

designed to meet the needs of donor travel companies by

creating substantial exposure among travelers and mem-

bers of the travel media. This will be the 4th year for theauction. Last years auction featured 25 brands and inclu-

ded global airlines and low cost carriers such as Air Cana-

da, Delta Air Lines, JetBlue, Southwest Airlines, Swiss

International Air Lines and Virgin Atlantic Airways.

Condorbecame the first Europe-based LCC participant

when it donated tickets for travel within its European

network. The auction featured over 100 item such as

airline tickets and hotel stays.

I hope more airlines in the LCC industry join the 2007

event. The auction will feature a new promotional web

site at KidsFirstAuction.com to operate as a gateway to

the eBay.com auction site. Donor airlines receive the fol-

lowing benefits:

Promotional exposure at KidsFirstAuction.com to in-

clude airline logo, aircraft image, and a link to the airlines

home page.

Similar exposure at the eBay.com auction site operated

by the Kids First Fund which will include a thorough des-

cription of each travel item donated.

Inclusion as a donor in two press releases distributed to

150 travel reporters at major news publications. Final statistical report listing the number of bids and

final price of items donated by all airlines.

Editor and publisher Randy Petersen, along with his Insi-

deFlyer Magazineand WebFlyer.com web site, has been

invited to be an official sponsor of the 2007 auction. This

would be Randys 3rd year of sponsorship. The invitation

this year includes the potential for participation in the

annual Freddie Awards.

Please consider donating 2, 3 or 4 roundtrip tickets to thisyears auction. The event opens on March 1, 2007. Do-

nated items will be auctioned to the highest bidder at the

eBay.com site. All proceeds benefit the Kids First Fund

About charity and an invitation to join the worlds largest

online travel auction to benefit kids

www.IdeaWorksCompany.com

by Jay Sorensen

(President ofIdeaWorks)

IDEAWORKS AISLE


7/11

BIRDS EYE VIEW


Although the overall growth of discount airlines has notably

decreased in Europe, Scandinavian region still demonstra-

tes vivacity. LCCs market in Northern Europe just as like

many other spheres here is rather stable. To describe eachand every budget airline in Scandinavia (Sweden, Norway,

Denmark and Finland) two words should be enough: dy-

namically developing. LCC network in Scandinavia pre-

sents three categories: independent airlines, merged and

daughter airlines, regional airlines.

The largest low cost carrier in Scandinavia and the 4th lar-

gest in Europe, Sterlingwas once just a promising Danish

low cost airline but after it had been bought by Fons Ei-

gnarhaldsflag investment grouptogether with Maersk

Airit evolved into the biggest Nordic low fare carrier withdirect flights within Northern and Southern Europe. It co-

vers almost all popular destinations and is hard to compete

with. But rivalry over the Nordic sky is rather high. Being

the youngest and very ambitious low fare airline Swedish

FlyMebased in Gothenburg intended to buy Sterlingto

gain strong positions at once. But the acquisition project

was terminated. Nevertheless FlyMeshifted from a regio-

nal carrier to an international one expanding its destina-

tions as far as Southern Europe. Some of those destinations

were already covered by Sterling.

In the same line of independent low cost airlines stands

Norwegian Air Shuttle. Like many others it was formed

on the basis of a regional airline that went bankrupt and

evolved into a strong and prosperous LCC that operates

flights in more than 50 destinations. NAS is particularly

interested in Eastern Europe and entered the market ope-

ning the second hub in Poland. Another airline developing

exotic destinations is Swedish Scand Jetwith hub in Go-

thenburg that works on a consolidation basis. It was esta-

blished in order to provide cheap transportation between

Scandinavian countries and Croatia and Bosnia connecting

northern parts of Europe with major Croatian and Bosniancities as well as resorts.

Since low cost carriers in Scandinavia have to operate their

flights under the permanent tension of such aviation mons-

ter as SASthey need to team up and co-operate otherwise

they could leave the market as Swedline Express ABdid.

On the other hand, LCCs are considered to pose a threat

to full service airlines. When a first class carrier establishesor acquires no-frills it is not only profitable but good from

the perspective of competition.

Two recently established airlines belong to SAS groupthat

are Blue1(Finland) and Snowflake. Although Blue1started

to operate flights as Air Botnia in 1988 it became well-

known after being purchased by SAS and its further re-

branding. Lately it was awarder admission to Star Alliance

as the first regional carrier.

To hold strong positions on the LCC market Finnair boughtSwedish FlyNordicthat is based in Stockholm and ope-

rates flights within Northern Europe and on international

routes. Alliance was also formed between Sterling and Fly-

Nordicwhich involved route and material and technical

basis sharing that allowed to reduce overall expenditure

and to increase passenger flow. Such a threesome started a

new phase of co-operation between first class airlines and

LCCs.

Besides common Scandinavian low cost airlines Swedish

market presents regional carriers that operates their flights,

with some minor exceptions, within Sweden and based in

Gotland region (Kullaflyg), in Malm (Malm Aviation)

and offer low fare tariffs.

What is special about Scandinavian LCC market is that

there to be found budget airlines that are somewhere in

between low cost and full service airlines. Some companies,

such as Sterling, Blue1have occupied niche between LCC

and first class airline. Regarding that Scandinavian LCCs

market development is shaped by such factors as SASpre-

sence, handling at airports that are among the European

leaders and assuming that it (the market) has reached asaturation boundary with respect to destination develop-

ment we may expect LCCs there evolving into airlines of

a new type -like Sterlingand Blue1 airlines that are in-

between low-cost carriers and full service airlines.

LCCs In the Nordic Sky...

and its current shelter project for abused children in the

Latgale region of Latvia. You may contact me via email to

learn more about the auction: Jayat IdeaWorksCom-

pany.com. Items should be confirmed to me by January

20, 2007.

Thank you for helping to make the world a better place

through the magic of travel.

Sources of Information used in this article:

The IdeaWorks Report on Innovative Reward Alternatives

for the Worlds Largest Airlines, issued January 19, 2006.

www.IdeaWorksCompany.com


8/11

BIRDS EYE VIEW


Exclusive Interview of Klaus Martin Enders

(Responsible for Marketing of Germanwings) Klaus Martin EndersMarketing of Germanwings

Could you please present your plans and your further

development, what are you goals for the future?

We have a lot of plans and we are increasing much. In the

next year, we will fly 26 aircrafts, which are 3 more than

this year. We will fly then from four hubs: Cologne, Stu-

ttgart, Berlin and Hamburg to more than 60 destinations

Non Stop. In Cologne and Stuttgart, we are also right now

the leading carrier on the airport, while in Berlin and Ham-

burg we are quite a bit smaller, and we want to increase

there in the next future very much. Now outside of the

UK, we have some strategic destinations like the East and

South East of Europe. We started this year, for example,

flights to St. Petersburg, to Moscow and I believe, in a nearfuture, destinations like Bulgaria are possible. In the South

East, we are very strong now in the Ex-Yugoslavia, we have

three destinations in Croatia, we fly since in September to

Belgrade in Serbia, we also fly since this year to Pristina

and also to Tirana in Albania. As you may see, we have

some strategic destinations, where we think in the East and

South East part of Europe there are some good possibilities

and interests for us.

The second part of our strategy is towards the Mediterra-

nean Sea. We opened a lot of routes in the MediterraneanSea like in Greece, Malta or in South Italy. We are today in

London, and I can say that the UK destinations are doing

very well as well. Since this year, we also fly three times per

day from Cologne to Stansted. From Stuttgart, we fly twi-

ce daily to Stansted and from Hamburg to Gatwick twice

daily also. The UK routes are doing very well!

You have mentioned the Central and East European

Market. Are the operations on these routes already profi-

table for Germanwings?

Yes, of course. We also begun to fly to Czech Republic,Hungary and Poland one year ago, and I may say that these

markets are very good for us, because of the foreign wor-

kers (gastarbeiter). We have for example Warsaw in our

program; we were said that we were crazy flying from

Cologne to Warsaw. But on the other hand, there are

hundred buses going every day from Poland to Cologne

and Dsseldorf area. We have now daily flights to War-

saw, and this route is very good for us because we have a

lot of people traveling between these areas.

Does it mean you are more concentrated in this area

on Labor workers than on business and holiday tra-

velers?

Generally the best way would be to separate it in three

parts. One third is labor market, on third is business mar-

ket and last third is tourist market.

What is your opinion on consolidation in the European

LCCs Sector? Do you believe that in a near future there

will be just two Low-Cost Airlines operating the mar-

ket?

Consolidation did already begin and a lot of airlines disap-

peared from the market. We hope to stay on the market.

We do not make big increases just a little bit, 6 aircrafts a

year and not in a massive way. I am convinced we are on

the right way. I believe that few big airlines will operate

around 70-80% of the market, and the rest by smaller

LCCs.

Advertising Watchdog Warns Jet2

Jet2 has been rapped by the Advertising Standards Authority (ASA) about a misleading ad-

vertising campaign promoting free tickets. The ASAreceived many complaints, including

those from Ryanairand Flybe, two competitors of Jet2. The advertising watchdog declared

that Jet2s adverts breached its code as the fees and duties added to a flight are not an optional

extra, and therefore must be quoted. Jet2 has been told to quote inclusive price in its future

adverts.Jet2 is not the first LCC to get caught by the ASAfor misleading advertising. Ryanairhas

already been sanctioned by the ASAover a TV ad promoting 4 million zero fare flights

following a complaint from its rival Monarch airlines.



DOWN TO EARTH

www.air-scoop.com

Ryanair Under Heavy Attack About Subsidies Received from Public Taxes

Last December, Ryanairhas been accused to have recei-

ved public money from indirect payments.First, Derry Airporthad to reveal its financial deals with

Ryanair. This is the result of a two year battle of journa-

list Brian Hutton, through a Freedom Information request,

to make public the terms of the contract between the

private carrier and the public airport. Ryanairwas gua-

ranteed more than 1 million pounds in a five year marke-

ting agreement to fly to Derry Airportand to promote its

London Stanstedroute. Moreover, the carrier was given

free landing, navigation and parking facilities, security

Till December, these massive subventions were hidden

in a secret agreement. Council Chief Executive Anthony

McGurkhas admitted the airport was costing ratepayers

about 1.3 million pounds a year.

The second broadside came from Deutsche Lufthansa

AG. Lufthansahas accused Frankfurt-Hahn Airportto

have granted Ryanairwith indirect payments. These sums

reach up to 2.7 million Euros received in reduced airport

fees. The German carrier has filed a complaint against

Frankfurt-Hahns operators and has demanded Ryanairto

return these sums. Lufthansaalso asked for information

regarding money received by Ryanair since 2002 in theform of marketing support. The German legacy carrier is

now calling for no further state money to be paid to Rya-

nair without European Union approval.

These cases followed declarations of Prime Minister in

his 2007 budget speech: Earlier this year, we took the first

steps and introduced schemes to attract a low-cost airline

other than those already operating here. At this point, it

is pertinent to point out that these schemes will cost the

government more than 1 million pounds. I am saying this

to explain to everyone that the price of a low-cost airline

ticket is cheap because we are all paying part of it.

In the past, Ryanairhas already been criticized by Euro-

pean Unionfor taking substantial subsidies from regional

airports. No doubts that 2007 will see similar actions to

get more transparency of deals made between airports and

LCCs.

European Commission Investigations on Failed Operation Bargepole

At the end of September, Aer Lingusfinally made it to

the stock market after years of deliberations from the go-

vernment. In the weeks that followed, Ryanairlaunched

an ambitious 1.48 billion Euros takeover bid for Aer Lin-

gusafter increasing its stake from 19% to 25%: Opera-

tion Bargepole

From the beginningAer Lingusrejected this offer com-

plaining to the European Commissionthat this project

was anti-competitive. The European Commissioner

Neelie Kroesdecided to open a Phase II enquiry. Thecommissions initial market investigation indicates that

the proposed acquisition would raise serious competition

concerns in the passenger air transport sector and in par-

ticular could reduce choice for consumers and could give

rise to higher fares than would be likely if the two re-

mained separate. This Phase II investigation should take

between 3 and 5 months to mull the impact on competi-

tion if a deal ever goes ahead.

Michael OLearyimmediately accused European compe-

tition commissioners of bias against his carrier. We are di-

sappointed with the delay in the European Commissions

approval ofRyanairs offer for Aer Lingus, he declared.

Ryanairstill wants to acquire Aer Lingusthrough a se-

cond offer, but to do so, the carrier will need the per-mission of the EC. The trial of strength for Aer Lingus

control is not finished yet

RYANAIRS

BAD DAYS



DOWN TO EARTH

www.air-scoop.com0

End of 2006:

Hard Air Pockets for Ryanair

The last months of 2006 have been tough for Ryanair. Af-

ter the failure of its bid for Aer Lingusand the revelation

of its secret deal with some airports (Read p. 9), Ryanair

had to face multiple issues.

In December, Ryanair lost a battle to win the control

over a hostile Internet domain name. Last July, Michael

Coulston, a disgruntled former customer, set up a critical

website against Ryanairs business practices: www.ryanair-

campaign.org. To stop these critics, Ryanairclaimed that

this domain name infringed its trademark and should be

transferred into its possession. In the past, the Irish carrier

won against Michael Coulstonwho had to hand over ano-

ther domain name: www.ryanair.org.uk. But this time, theWorld Intellectual Property Organization (WIPO) de-

clared that Michael Coulstonhad the right to use www.

ryanaircampaign.org as he was running an online campaign

aiming to inform Ryanairpassengers.

Beginning of December, Ryanairalso faced a report of

the European Consumer Centre Network specifying

the carrier was the most complained against in Europe.

The network recorded more than 1300 complaints and

disputes in 2005, and some 33% were against Islanders(UK and Ireland). While European legislation is failing to

protect passengers, the report says that airlines are adop-

ting a cynical approach to these complaints: one in three

valid complaints was not resolved. Airlines often blame

exceptional circumstances such as weather conditions or

security issues for refusing to compensate passengers. The

survey finally highlighted several serious stories of passen-

gers left stranded at airports, without any refreshments or

information, forced to find their own solution to get back

home. easyJetis the second Islanderswhich received the

most complaints just behind Ryanair.ECCN is a network of consumer information centers

across the European Unionwhich are co-funded by the

European Commission and national governments. The

ECCN only investigates complaints involving cross bor-

der-issues.

Air Madrid: Wings Clipped

The Civil Aviation authorityhas finally suspended Air

Madrids flying license and rejected its proposals to re-

solve security issues and flights delays.Security became a too important issue; the government

had to cancel seven flights in the last four months due

to security reasons, and Air Madridhas recently come

under criticism for repeated delays that frequently left its

passengers stuck in airports for days.

The decision of the Civil Aviation authorityleft thou-

sands of passengers stranded in Spain and abroad. Accor-

ding to Spanish National Radio, 130 000 ticket-holders

could have been affected. This decision has been taken

with total independence of the absolutely irresponsi-ble and unilateral behavior of the company, declared a

member of the Civil Aviation authority.

Founded in 2004, Air Madrid, which operates nine Air-

bus aircrafts mainly on routes to Latin America, now

faces legal actions from the Spanish government which

claim back 6.6 million dollars for emergency flights.

The disappearance of Air Madrid satisfies other LCCs

operating in Spain. Indeed, few days after the revocation

of Air Madrids license, over 100 of the airlines pilots

went to Barcelona seeking to be hired by Vuelingand

ClickAir. These two LCCs will definitely need pilots

next year to go with their expansion projects. ClickAir

plans to buy over 15 aircrafts next year and to hire 120

pilots, whereas Vueling will need 80 new pilots.

So long for the first long-haul European LCC

Centralwings sold on the Warsaw

Stock Exchange, but not to Ryanair

The Polish Government plans to list its national carrier

LOTin 2007. The Ministry of the Treasure wants to keepa controlling stake. This solution should be advantageous

for LOTbankruptcy officer, declared Ireneusz Dabrows-

ki, the deputy Minister of the Treasure.

After the IPO ofLOT, Mr Dabrowskiwould like to sell

Centralwings, still owned by LOT. There are offers from

investors interested in acquiring this company so it may be

sold. With 17% of the market, Centralwingsis the third

low-cost carrier, and together with LOT, they have 42% of

the Polish market. Following the takeover bid ofRyanair

on Aer Lingus, the Polish government will refuse Ryanair

to acquire Centralwings. Centralwings is supposed tocompete with this company, Mr Dabrowski explained.

Governments seem to be very wary now ofRyanairex-

pansion through LCCs IPO.

Read our Exclusive Interview ofMr Maciej Kwiatkowski,

CEO ofCentralwings(Air Scoop December 2006).


11/11

BIRDS EYE VIEW

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Copyright 2006 - Unauthorized distribution or reproduction is forbidden.

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easyJet Best Covered by Weblogs

We notice that global weblog coverage of our three

LCCs has decreased, and for the first time easy-

Jethas taken the advantage over Ryanair. Indeed,

even ifRyanairhad many interesting stories to blog

about, for instance the setback in the Aer Lingus

takeover case or against the domain name ryanair-

campaign.org, easyJet has constantly increased its

presence in side weblog communities. The carrier

announced new routes for 2007 that inspired a lot

of bloggers. And finally, the raid against easyJets

offices in France by policemen has been widely dis-

cussed over and commented. Labor conditions inthe LCCs industry, especially with Islanders, are important issues for employees and

governments. In 2007, we should notice an increase of labor opposition in this market.

BLOGS TREND

Following the trend, Germanwingshas decided to make a

strategic commitment and expand further into Central and

Eastern Europe by opening up new routes served from the

four operating bases of the airline (Cologne/Bonn, BerlineSchnefeld, Hamburg, Stuttgart). Given the size and the

steady growth of the Eastern market coupled with price-

sensitive passengers, Thomas Winkelmann, the CEO of

Germanwingssees a great opportunity for low-cost car-

riers in this region.

In 2006, roughly 14% of all Germanwingspassengers came

from Central and Eastern Europe, a rate, which is expec-

ted to rise with the announced new routes. This year, Ger-

manwingsstarts to serve the cities of Burgas, Varna and

Sofia (Bulgaria); the Romanian capital, Bucharest; Zadarand Split in Croatia, the Bosnian capital Sarajevo and the

popular Hungarian tourist resort, Lake Balaton.

Even though the company has long been considering ope-

ning a new permanent base in Poland, so far it has refused

to disclose the exact location. While once Winkelmann

named Poland as the most important country for Ger-

manwings in the region, it is also possible that instead

of undertaking such a potentially risky and costly invest-

ment, the management has chosen to pursue a geographi-

cal focus strategy based on strengthening its position in the

home market, Germany.

All routes of Germanwingsare served from one of itsfour German hubs; the new ones are not an exception to

this. Therefore, on the one hand the Eastern expansion

can be viewed as preventing the Central and Eastern Eu-

ropean rivals from opening up new routes to these hubs

thereby stealing market opportunities away. On the other

hand, since the main national rivals, like Air Berlin, DBA

and HLXso far have largely stayed away from the Eastern

market, it is an evident consequence that Germanwings

tries to strenghten itself by entering a market which isunserved by the main competitors.

This strategy seems to be the right one, as for the first time

in its history, Germanwingswas reported to turn profi-

table in 2006, however, the exact figures will be revealed

later this year. The forthcoming years will see a major ex-

pansion of the uniform Airbus A319 fleet as well; by 2009

the air carrier plans to increase its fleet size to 42 from the

current 24.

Germanwingscounts on both leisure and business tra-

vellers, and this is the reason why it refrains from flying

into out-of-the-way, remote airports, unlike many of itsrivals. It may imply a cost disadvantage especially relative

to Ryanair, however, if Germanwingsis able to create

more value than rivals by offering superior service, it is

likely to reach a competitive advantage based on benefits

to customers. The German air carrier so far has succeeded

in this strategy, this is reflected in a survey conducted in

April, 2006, in which Germanwingswas ranked the best

German airline for punctuality, cleanliness and value for

money.

Regarding these, two questions may arise. First, whether

a price-sensitive market environment like the Central andEastern European allows for pursuing a strategy based on

benefit advantage, second, whether the parent company,

Lufthansais not cannibalising its own business to a cer-

tain extent by having established the low-cost, low fares

Germanwings?

Germanwings Expansion to Eastern Europe and Some Implications

air scoop january 2007

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