Highlights in this Issue

One strike threatens Ryanair’s fall programme... p.2

Battle plan for Air Berlin to restrict access to German Market... p.3
Networking or densification: which one will win over? p.3
Mallorca - The temptation island... p.4
RyanAir - Passengers criticize the business model... p.5
The Low Cost Carriers Analysis Newsletter

RYANAIR
EDITORIAL From Transportation
to Entertainment

N
o one can deny the importance of the Low Cost Carriers
(LCCs) market. The LCCs phenomenon is revolutionising Ryanair examines ways to generate more
the European airline market and the way all airlines and revenues with in-flight services. Few ideas
passengers think about costs. Difficult decisions, both financial and are on tracks, such as onboard gambling or
strategic, need to be made and implemented within time frames. mobile telephony services. Trials will be
These decisions must be informed, inspired and robust. Facing chal- tested in springs 2006 and 2007 according
lenges of economic volatility, regulatory change and corporate insta- to Ryanair. The Low Cost carrier already
bility, the airline analysts and journalists need a tool to decipher the attempted in-flight entertainment in the
LCCs European market... past, but it didn’t work. These ideas are
once again examined because of the urge
AIR SCOOP is this tool! to get cash. “Ultimately, entertainment is
where we will make our money”, O’Leary
Air Scoop is a new monthly analysis newsletter that will carry Eu-
ropean LCCs news, strategic issues and analysis. Air Scoop newslet-
ters are a comprehensive information resource on Low Cost Carriers DOWN TO EARTH
produced by Air Scoop, a division of Global Wings Publications. EasyJet:
It deciphers market strategies, financial perspectives and key people Germany More Than Ever
for LCCs.
EasyJet aims for double-digit growth in
Every month receive our newsletter focus on analysis, formal and Germany to boost its market share to 20
informal news: percent. John Kohlsaat told daily Berliner
- Financial Insight: Follow the financial aspects of the LCCs mar- Zeitung: «Last year we had a market share
ket, Merger and Acquisition... in Germany of 2 percent with regards to
- Ups & Downs: Who are the key people of the sector? What is capacity, which is very low. This year it’ll
their influence? Are they Up or Down? be much higher. Across Europe we had
- In the Air: What are the lastest rumors running in the air...? a 20 percent share in the low-cost mar-
- Bird’s Eye View: Follow the latest analysis from our team. ket, and we want to see that in Germany
- Analyst Porthole: Get the analysis right from the expert. too.» He added that bad summer weather
- Down to Earth: Everyday operations and events of the market... had helped the airline and that it still had
room to grow in the north and the south
Global Wings Publications LLC is an independent, privately owned of the country.
company based in Germany. Our team of experts has a strong ex- LCCs already operating in Germany get
perience of the airline market, as international consultants, analysts prepared to face easyJet’s intrusion waves.
and journalists. Air Berlin, the second largest carrier of
the country, seems to be the best prepa-
red to maintain its market, thanks to its
“Euro Shuttle”.
IN THE AIR
« Bloodbath:
Howard Millar, chief financial of- Millar added that the timing of Eas-
Once Again? » ficer, declared that early signs of a ter compared with the year before
Fierce competition in the airline bu- considerable competition are already would also affect fare levels, though
siness will mean flat yields for the here. Moreover, during the winter he predicted a big rise in ancillary in-
carriers in the third quarter and up period, airlines will have to have to come over the next two years.
to a 10% fall in air fares by the end of cut fares.
the year, Ryanair predicted.

Air Scoop n°1 - January 2006 www.air-scoop.com

 BIRD’S EYE VIEW
Ryanair: Sharing the Spots, Not the Routes
When European leaders of the low cost market use new
airports, smaller LCCs land there soon after. For instance,
Blue Air, the Rumanian low cost, has created since Oc-
tober 11th three new lines from Bucharest to Beauvais.
Located one hour away from Paris, this French airport is
historically linked to Ryanair which drives up to 60% of
the passengers. Blue Air is the fourth low cost carrier to
land to Beauvais, after the Danish Sterling, the Hungarian
Wizz Air and Norwegian Shuttle. Thus, Beauvais faces
the typical development of “low airports”.
Sharing the airports between big and small LCCs is one
thing, sharing the routes is not conceivable. To survive,
the small carriers have to deserve specific routes unchal-
lenged by leaders. Last November, Ryanair has decided to
launch a service from Cork to Dublin competing with re-
gional low cost airline Aer Arann. This decision has forced
Aer Arann to reduce its daily flights from nine to three on
this route considered as lifeblood till now.
Padraig O’Ceidigh, owner of Aer Arann, had no choice
but to hold his plans to sale a majority stake in his com-
pany. He declared: “When you see a tsunami, there is no
way you are going to swim against it and in the same way
there is no way we are going to go head-to-head with a
5bn euros company.” To counter this aggressive move, Aer
Arann plans new services from the Isle of Man which is
considered as a difficult market due to high airport taxes,
low yields and unpredictable weather.
Competing on same routes has long been seeing as pure
suicide for low costs. Nowadays it appears to be an aggres-
sive weapon to destabilize the financial and organizational
heart of the competitors. EasyJet has clearly understood it
by opening three routes this year from Gatwick to Cork,
Knock and Shannon considered as the cash cow of Rya-
nair.
Air Berlin Strikes Back!
Germany is more than ever a market facing fierce compe-
tition for bases and routes control. Air Berlin, the LCCs
leader in Germany, is challenged on its lands. Respecting
the old adage, “The best defense is a good offense”, Air Ber-
lin will open new routes inside the UK and will be the
first German airline to do so. “Our rivals are competing
with us in the German market, so we’ll enjoy challenging
them here”, declared Joachim Hunold, Air Berlin Mana-
ging partner. To establish its strategy, Air Berlin will use
Stansted airport as a mini-transfert hub like Nuremberg
and Palma de Mallorca. This reveals the actual trend of
connecting flights in the low cost market rather than strict
point to point destination.
Low Costs: The Rush for Cash
Low Cost Carriers have a constant need of cash. EasyJet
has chosen a diversification strategy whereas its main com-
petitor Ryanair stays in a pure LCC model. Stelios Haji-
Ioannou, founder of easyJet, applies his “airline” business
model to other markets such as InternetCafes, Car rental,
Cruises, Cinema… These businesses, inspired by its une-
qualled cash cow easyJet, have some common points: few
employees, Internet booking, stimulation of the demand
by low prices... and all belong to The easyGroup registe-
red in the tax heaven of the Jersey Islands. EasyJet foreign
ownership limit has been boosted from 40 to 45%, which
will provide more flexibility for investors. FL Group,
which also controls Icelandair, has gradually increased its
stake in easyJet to reach 16%, which brings some fresh
cash in this low cost model. Like its rival Ryanair, easyJet
is now evaluating its first passenger in-flight phone calls
which are seen as a massive money spinner. Unlike Rya-
nair, EasyJet hasn’t tested yet aircrafts that operate flights
branded by companies. Other ideas in mind?
CLOUDS AHEAD

Sky Bumps Between Ryanair operates only Boeing air-

Boeing and Ryanair
Ryanair had to delay the introduction
of some new routes this fall because
of a single strike. Boeing’s 18,300
machinists have been on strike from
early September till October shutting
down commercial airline produc-
tion at the Chicago-based company.
The seven aircrafts which were sche-
duled to be received in September
and October are now expected to be
delivered in December. To guaran-
tee the crucial fall flight programme,
three of the carrier’s 737-200 series
aircraft which were due to be retired
in September remainded in service.
crafts and needs to expand its fleet
as it expands its routes network.
The leader Ryanair is the last ma-
jor European LCCs using single type
aircrafts which has been a wise stra-
tegic option till now. A dual fleet
composition has already been adop-
ted by easyJet or Air Berlin, and the
time may has come for Ryanair ma-
nagement to adapt the model to new
market orientations.

2 Air Scoop n°1 - January 2006 www.air-scoop.com

 BIRD’S EYE VIEW
From Leisure to Business, vellers from Germany to Mallorca, German capital. In 2002, the airli-
Air Berlin is now considered as the ne launched “City Shuttle”, its first
Air Berlin: The Challenger third largest low-cost airline in Eu- city to city services, with the aim
rope, behind Ryanair and easyJet. to connect an increasing number of
Last June, Air Berlin has been ran-
Air Berlin is based in seventeen European cities; in 2005, this service
ked “Europe’s Best Low-Cost Carrier”
German airports and proposes con- has been renamed “Euro Shuttle” to
by the London-based consultancy
nections to forty eight destinations, reflect this global changes. For large
Skytrax. The German airline is now
mainly located around the Mediter- corporations, a tailored travel pro-
the third largest low-cost airline in
ranean Sea. gram has even been set up to offer
Europe and the second largest car-
Its strategic goals have definitely up to 60% reduction on fares.
rier in Germany, with 13.8 millions
been redefined as the company in-
passengers carried in 2005. Even
tends to attract business passengers. In order to compete with its rivals,
though this airline is quite hard to
In order to be identified as an airline Air Berlin will focus, in near future,
qualify; its strategy and business
suitable for business travellers, Air on consolidation and development
model are extremely efficient.
Berlin has set up a team dedicated of selected new routes. Time is now
As a mix of low-cost carriers, char-
to contact and discuss with firms. counted as easyJet has defined the
ter airlines and legacy carriers, Air
Breaking from pure low-cost model, German market as a primary target
Berlin provides comparative low-
the company flies to main airports to expand, aiming to boost its mar-
cost tickets and operates point-
only and proposes frequent flyer ket share to 20 percent. Will the
to-point flights with a single-class.
programs. Berlin Tegel airport, the “business passenger” strategy of Air
Its offers also include all taxes and
homebase of Air Berlin, is conside- Berlin be sufficient to counter this
even in-flight catering. Starting out
red as “the business airport” of the opponent?
as a charter service for leisure tra-

Networking Vs Densifica- these routes propose only one round one of the main objectives of Rya-
trip per day. The goal is to cover as nair. To slow down its Irish rival, Ea-
tion: True Strategic Issues quickly possible many airports and syJet has initiated a precise offensive
destinations. By covering these rou- by opening new routes in 2005 in
The European Low-cost leaders,
tes, the company checks their viabi- Ireland, the “land” of Ryanair (Ga-
Ryanair and easyJet, have adopted
lity for further development. This is twick to Knock, Shannon and Cork).
two different strategies to develop
the “networking” strategy! Most of the cash of Ryanair comes
and control the market.
On the other side, easyJet the Oran- from these unchallenged routes. As-
On one side of the ring, Ryanair the
ge challenger! EasyJet has decided signing one or two flights per day
Irish champion! It is quite impossi-
to consolidate its existing bases. To on these routes already occupied by
ble for low-cost airlines to be pre-
do so, the company has multiplied Ryanair flights marks just the begin-
sent on same routes for a long time,
the destinations from their airports ning of the settlement of easyJet in
the competition is too hard. So the
already established, which become west Ireland and points out the wil-
management of Ryanair has decided
sorts of “hubs”. Passengers have more ling to weaken its competitor. Rya-
to implement a strategy based on:
destinations from their airport and nair has taken the threat seriously,
“The first implanted, the last to survi-
more flight schedule options per day. and thus announced it will double
ve”. The company has opened many
This is the “densification” strategy! the traffic going through Shannon in
new routes linking new airport ba-
However, easyJet is kept away from no time at all.
ses, mainly located in Eastern Europe
some areas, including Scandinavia,
and Scandinavia. Most of the time,
QUOTES OF THE MONTH
“The only thing Ryanair does not charge for yet is using the lavatory”
Ryanair Special

Mike Boyd, President of Boyd Group, an aviation consulting firm.

“My experience of five weeks of fatherhood is that I want to spend more time
at the office”
Michael O’Leary, Ryanair.

“Ryanair needs its wings clipped”

Tony Manwaring, chief executive of Scope, a leading disability group.

3 Air Scoop n°1 - January 2006 www.air-scoop.com

 DOWN TO EARTH
FROM THE GROUND TOURISM EASYJET
Ryanair & IATA Mallorca: easyJet:
Attack Airports The Battle for the Island The Need of Coalition
Ryanair has decided to avoid paying The airport of Mallorca has reached ELFAA was established in late 2003
airports taxes by all means. “It is that a “phenomenal record levels” of pas- as the voice of European`s low fare
fight that’s motivating me to stay on” sengers thanks to Low cost airlines; airlines, which distinct business mo-
declared O’Leary. This decision is more than 2,8 million passengers dels could not be represented by the
supported by Giovanni Bisignani, used the airport in July. Such re- long-established associations of the
CEO of IATA. “You can’t consider sults confirm Mallorca’s popularity traditional flag carrier and charter
airlines as cash cows” he told Avia- as a holiday and residential tourism airlines.
tion Week. Both agree to cut off as destination. As an analysis is now Jan Skeels, ELFAA Secretary Gene-
much as possible money given to being made to evaluate how much ral, said: “This is a good day for our
airports. One main objectives of the the LCCs will represent in the fu- young association. easyJet`s initial
IATA is to get 100% of e-tickets by ture, the traditional airlines know decision to remain outside of the as-
the end of 2007. Passengers will buy now that they will have to share the sociation has limited our ability to
all their tickets online, make changes space with them. speak for the whole low-fare airline
through their computer, and print It appears that tourists of LCCs tend industry.”
their tickets at home. With their to make up their own holiday pac- ”We see the benefit of being part of an
own boarding card and a hand lug- kage, choosing their own hotels and established, specialist industry asso-
gage, passengers won’t need to check flights. No wonder why in such con- ciation - particularly the access it can
in at the airport. So Ryanair will not ditions, LLCs intend to obtain more give us to some of the institutions that
have to pay for terminal building and more lines to Mallorca (i.e. Ea- rather short-sightedly prohibit access
and charges for check-in desks. “This syJet has 10 connections and Air to individual companies.” said Ray
is the way to blow up the airport mo- Berlin more than 40!). Webster, easyJet Chief Executive.
nopoly”, said O’Leary. Airports mas-
sively invest to seduce and attract
LCCs, they may not earn as much as
they thought…
AIRWAY MARKERS
bmibaby: Growing, Growing, Growing…
Created in 2002, bmibaby is a subsidiary of British Mi- bmibaby targets both business and leisure passengers.
dland Airways (bmi), UK’s second largest full service The airline offers direct connection to main business
scheduled airline. With a 16 aircrafts fleet, this LCC con- European cities such as Milan, Geneva, Paris, Madrid…
nects 18 UK airports to 25 cities of seven European coun- but also vacation destinations, mainly located in Spain
tries. This no-frills airline includes many services such as (Malaga, Alicante, Palma).
the choice of the seat, free-seats for infants under two, To sustain this growth strategy, bmibaby will acquire
fast-track check-in, more hand baggage allowance… The next year three more Boeing 737s which will boost the
airline has been named twice « Best No Frills Airline » in fleet to 19 aircrafts. The carrier also announced that five
the Telegraph Travel Awards in 2003 and 2004. new routes will be introduced to Amsterdam, Knock,
Newquay, Paris and Perpignan.

UPS AND DOWNS

Air Berlin:
Best Low-Cost Carrier
In the airline test carried out by “Capital”, the
business magazine, Air Berlin has come out on
first place as the best low-cost carrier. Air Ber-
lin was well ahead of its competitors (Deuts-
che BA & Germanwings ).
Airport Workers Exploited
Transport & General Union discovered that Big Orange
Handling is using an agency which brings workers from Po-
land to Luton airport. These workers are been paid substanti-
ally less than British workers doing the same job. Big Orange
Handling is a joint venture of EasyJet and Menzies Aviation
taking care of ground handling operations for EasyJet at Lu-
ton. Further investigations are being made by T&G Union.

4 Air Scoop n°1 - January 2006 www.air-scoop.com


Ryanair Passengers
Business Model
Cracks Down
After a group of disabled travellers
was ordered off a plane in Italy, cam-
paigners got a partial victory over
Ryanair. Scope and The Norfolk
and Norwich Association for Blind
(NNAB), leading disability groups,
called for a boycott of Ryanair after
those blind and partially-sighted pas-
sengers were told to get off the plane
at Stansted because they had not told
the airline in advance that blind peo-
ple would be travelling. According to
Ryanair, these passengers were over
From Low to High Costs:
Challenging Strategies
“In the beginning, Southwest created
the low cost carriers model...”: a sim-
ple product, leisure travellers, price-
conscious business travellers oriented,
and short-haul flights. Soon after, Eu-
ropean “hybrid carriers” have emerged
from this genuine model in the mar-
ket scope. Lately, the Low “high-cost”
carriers’ concept has risen, especially
with Maxjet and Eos airlines. Their
idea is to offer “First Class” flights as
ANALYST PORTHOLE
European Low Costs
Carriers at a crossroads
Dr Lucio Pompeo, McKinsey &
Company, released his analysis of
LCCs European market. According
to him, to maintain their status on
the market, LCCs need to follow
three strategies: keep their “cost lea-
dership” ; imagine new business mo-
dels ; add new sources of income.
Dr Pompeo points out that first
signs of saturation are apparent.
LCCs’ growth is slowing down be-
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5 Air Scoop n°1 - January 2006
BIRD’S EYE VIEW
the quota for disabled people on that
flight, even though they didn’t need
assistance from staff.
Following consultation with the Na-
tional Council for the Blind of Ire-
land (NCBI), Ryanair announced
changes in its policies, now waiting
for regulatory approval from IAA.
Vision-impaired passengers who
travel with a sighted companion on
a one-to-one basis would no longer
be required to inform the carrier in
advance. However, vision-impaired
passengers travelling alone still re-
main part of the rule.
Campaigners sought compensation
and apologies for this incident. In-
deed, seven of the passengers had
“low-cost business airlines” between
Europe and the States. Even if Maxjet
and Eos will both fly between New
York’s JFK and Stansted, their offers
are quite different. Maxjet considers
itself like the first «low cost business
airline», while Eos services are more
like flying with a corporate or private
jet.
These two companies focus their
strategy on three main points: bu-
siness passengers, first class services
and long-haul flights. Their concept
of low cost model may appear at the
cause all routes are not successful,
the revenues per passenger kilome-
ter decline, and fleets are heavily
expanding.
The author pinpoints that the LCCs
market is still perceived as a test
field for new concepts. Nowadays,
two carriers dominate the market;
he predicts that only two or three
will be sustainably profitable by
2010.
Source: Dr. Lucio Pompeo,
McKinsey&Company, Frankfurt,
June 23, 2005 Source: Ryanair, easyJet, McKinsey analysis
to fly later that evening arriving in
the middle of the night while four
others had to sleep on the floor of
the airport waiting for a flight the
following morning. Legal actions are
now backed by the Royal National
Institute for the Blind (RNIB).
Ryanair had already been under
strong criticises from Scope, espe-
cially in January 2004 regarding the
low cost decision to increase passen-
ger fares after losing the landmark
court case. This case, which aimed
to prevent them from charging indi-
viduals for wheelchair assistance, has
been won by Bob Ross and suppor-
ted by the Disability Rights Com-
mission.
first glance as the opposite of the ones
already existing. In fact, their choice is
based on a clear analysis of Ryanair’s
“Networking strategy” (see our article
p.3) and on the anticipation of Euro-
pean intra-routes overload. The do-
minance of the “Big Two” over routes
and airports clearly represents a threat
for smaller LCCs’ future development.
So, by focusing on the “high cost” mar-
ket segment, these companies intend
to shortcut the unbalanced competi-
tion by positioning their services on a
different level.
* Passenger kilometers flown
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