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EDITORIAL
Highlights in this Issue
Did Ryanair Believe in its Gloomy Predictions?
p. 2
Investing in SkyEurope – a bottomless bag?
p. 3
Slowdown of LCCs Industry
p. 7
SWOT Analysis of Wizz Air
p. 8
LCCs Get Slammed Over Hidden Charges
p. 18
Air Scoop - February 2008
www.air-scoop.com
The Low Cost Carriers Analysis Newsletter 
Slowdown of European LCCs Industry:What Comes Next?
T
hese weeks, analysts haven’t been really enthusiastic about theEuropean low-cost carriers market. Investors decided not totake risks which resulted in a fall of most LCCs shares. Bynow, there is no doubt that European LCCs face an important eco-nomic slowdown; demand is naturally limited (p. 7). This recessioncombined with high oil prices and an average load factor could slash
Ryanair’s prot by 50% next year. However, this is not the rst time
that Michael O’Leary announced such gloomy predictions; last Junethe Irish carrier announced a pessimist outlook to come, but 6 monthslater results published by the company were far beyond the initiallypessimistic forecasts. Once again, Michael O’Leary could transformthis threat into opportunity and launch a new attack on his competi-tors by announcing a global recession to come (p. 2).Two potential victims of this economic slowdown could be SkyEu-rope and Vueling. Facing competition with Ryanair, easyJet and clic-
kair, Vueling faced many economic difculties last year. To survive,Vueling needs to nd new investors or to merge with another carrier.
Rumors of mergers with Spanish competitor clickair are in the air…On Central and Eastern market, after a major restructuring process
in 2007, SkyEurope is still not out of danger. Air Scoop realized a
complete analysis of SkyEurope investors and their goals (p. 3). Main
competitor of SkyEurope in this region is Wizz Air. To understandstrengths and weakness of this carrier, we have realized the SWOT of Wizz Air (p. 8).Ancillary revenues represent a great amount of LCCs revenues, and
could be a solution to compensate recession. Recently the numberof charges on passengers has increased and requires travelers to jumpthrough numerous hoops to avoid any additional fees. While consu-
mers associations criticize LCCs over hidden charges (p. 18), many
conferences about ancillary revenues will take place this year, like
Ancillary Revenue in Travel 2008 in February in Dublin for instance.
 AIR SCOOP ANNOUNCEMENTSA Glimpse of Headlines News!
Ryanair quarterly prot down 27%
Ryanair posted a sharper than expected drop inthird-quarter net prot today and warned high
oil prices, an economic slowdown in the UK
and weak sterling meant prots may fall by half next year. Europe’s biggest low-cost carrier saidexcluding a one-off gain from the sale of aircraftnet prot in the three months to the end of De
-
cember fell 27 per cent to €35 million as winterfares fell almost 5 per cent.
Edgardo Badiali appointed as CEO, GoAir news 
Wadia Group-promoted, GoAir, has announced
the appointment of Edgardo Badiali as the chief 
executive ofcer of the company. It said that
Badiali, a senior aviation professional with over
15 years of senior management experience,would report to GoAir managing director Jeh
Wadia. Badiali’s earlier assignment was with Ita-
lian low- cost airline, MyAir, as its CEO.
Cheap air fares ‘killing British tourism’ 
Budget airlines are «squeezing the life out of British tourism» and the government is exacer
-
bating the problem by promoting expansion of 
the aviation industry, MPs were told yesterday.Budget hotel chain Travelodge accused Ryanairand easyJet of driving an £18bn «tourism de-
cit» by drawing British holidaymakers away
from Britain with low fares underpinned by
state tax breaks.
Vueling shareholder, Hemisferio, conrms in talks with Clickair 
Vueling Airlines core shareholder, InversionesHemisferio, with approximately 26% sharehol
-ding in the LCC, said it is in talks with variouscompanies in the sector, including LCC, Clic-
kair. However, the company stated no agree
-ment or commitment with anyone has beenreached.More on
http://airscoop.blogspot.com 
Air Scoop - In the Air
 
Flybe Target Of Buyout?Clickair AndVueling PossibleFusion
 
BIRD’S EYE VIEW
Air Scoop - February 2008
www.air-scoop.com
2
Did Ryanair Really Believe in its June 2007 Gloomy Predictions?
UPDATE : As Ryanair just warned high oil prices could slash its prots by 50% next year, Air Scoop has decided to analyse another past gloomy prediction made by the carrier just 6 months ago, in June 2007.Will it be the same situation now? 
On June 5th 2007, Ryanair made an unusual announce
-ment given its outstanding economic performances: the
airline predicted a low full-year prot growth of “only”5 pc for nancial year 2007-2008. According to the com
-pany softening demand, rising interest rates and higherairport charges were the main reasons for this pessimism.
But Ryanair quickly revised upwards its prot guidance.On July 31th, in its Q1 nancial results, the airline re-evaluated prot growth predictions to 10 pc, thanks to
cost cutting and capacity reductions. Finally, in Novem-
ber 2007, H1 gures published by the company were farbeyond the initially pessimistic forecasts. And the full-year prot guidance was now pushed to 470 million €,+17.5 pc over the year.In retrospect, the cautious prot predictions on June 5th,2007 are quite surprising regarding Ryanair’s previous re
-
sults. In 2006, the airline made more than 400 million €net prot, about 30% more than in 2005! The Irish carrieris one of the most protable airlines in the world. What
is more, Ryanair’s strategy of strong and quick growth ma-
kes the airline not really familiar with gloomy nancial
announcements.So, why did the airline published such low projections on
that day? Did it really had “no visibility”, as it pretendedat that time? Did it really believed in a “very difcult”
winter season? Or was this pessimism just intentionally
exaggerated?
There could have been several reasons for Ryanair to
lower its nancial prospect for 2007-2008. If the Euro
-pean leader makes poor predictions, the entire LCC bu-siness is hurt. Smaller competitors are weakened; their
share value goes down, making them more exposed totakeover. And Ryanair can justify the launching of a harsh
fare war, as it did this summer, putting all its challengersunder pressure. Besides, O’Leary’s opinion on the market
is not approved by all his colleagues: EasyJet boss AndyHarrisson, for example, rejected it.
But one important reason for Ryanair’s pessimism may bethat it helped lowering the airline’s own share value, in
order to benet from more attractive prices for a sharebuyback. In fact, on June 5th, Ryanair also announced a300 million € share buyback, representing 3.5 pc of theshare capital. On the same day, after the bad prot an
-nouncements, Ryanair’s share lost about 7 pc, and then
continued to decrease slightly. From 5.4 € on June 4th,it fell to 4.95 € on June 26th, the day the airline began tobuy shares back. At the beginning of August, Ryanair had
bought back a total amount of 37.6 million of its shares
(2.5 pc of the share capital), for approximately 187 million €, about 4.97 € per share.As Ryanair does not pay dividends “as long as I live andbreathe”, as O’Leary said, the purpose of buying back sha
-
res is to increase the “earning per share” (EPS) ratio, forthe benet of shareholders. Ryanair established in its H1report in November: “Prot upgrade and share buybackincrease EPS by 19.5% in 08”. The EPS is also an indica
-
tor of a company’s protability. The share value, however,was not signicantly enhanced by this buy back operation.At the end of 2007, it was lower than 4.7 €, and even than4 € in 2008.Ryanair’s intentions when it announced bad prot pers
-pectives in June, which were then nearly quadrupled untilNovember, cannot be established for sure. Was the airlinesincere? Was this just a strategy to hit the whole EuropeanLCC business and lower share prices in prevision of the
buyback? However, even if Ryanair predicts a downturn,
it is the last company suffering from it, given the airline’s
record economic performances. And it has the ability tonally take advantage even of poor forecasts.
 
BIRD’S EYE VIEW
Air Scoop - February 2008
www.air-scoop.com
3
In 2007, SkyEurope underwent a major restructuring pro
-
cess. The business strategy of the company was signi
-
cantly modied and the management board was renewed.Christian Mandl and Alain Skowronek, the founders of 
SkyEurope also had to leave the management. The reason
for this turmoil was the constantly bad nancial perfor
-mance of the carrier, which threatened SkyEurope withbankruptcy. In spite of the daunting prospects of the com-pany, certain investors did not refrain from investing in it.Since the low cost carrier became listed simultaneously on
the Warsaw and Vienna stock exchange on 27 September2005, the shares have been traded and exchanged among 
several investment funds. In this article,we attempt to
analyze who invested in the company and we also try toexplain the motivations and goals of those investors.
Before the initial public offering (IPO), the shareholder
structure of SkyEurope was the following: Endavour Hol
-
dings (43.45%), Bank Austria Creditanstalt AG (39.83%)and Loryma Investments (16.72%) owned the assets of thecompany. The latter group, Loryma Investments was ex
-clusively owned by Mandl and Skowronek. Within the
group led by Bank Austria, several investment funds tooktheir share, including East Capital Asset Management(16.72 % of total shares) and DWS funds (7.79 %), whichis a member of Deutsche Bank Group.The IPO price on 25 September 2007 was €6 per share,therefore the company was valued at €120 million at thebeginning of the trading. In December, 2005 the 20 mil
-
lion authorized shares of SkyEurope were divided among Endavour Holdings (13.3%), Loryma Investments (8.8%),East Capital (8.4%), Merrill Lynch (6.5%) and Grifn Ca
-
pital Investment (5.7%). The rest of the shares (57.3%)were on public oat.However, the nancial downturn of the company soon
became critical, as SkyEurope failed to improve its load
factor in the rst quarter of 2006 (compared to the pre
-
vious year), thus operating loss further increased. In April2006, Endavour Holdings decided to sell all the 2 668 546
shares it owned.
These shares were bought buy institutional investors. As a
result of the transaction, within weeks, SkyEurope’s share
price soared to an all-time high of € 6.35 only to see theprice plummeting in the following month down to € 1.42in August, 2006. Within less than a year, market capita
-
lization of SkyEurope fell from € 120 million to € 28.4million. The decision of Endavour Holdings about the sale
of the shares triggered a wave of sales, which resulted inthe continuous decrease in the share price.
In September, 2006 a new investor appeared on the ho
-
rizon, York Global Finance II (York), which is an afliateof York Capital Management, an international private
investment fund group that manages over €7 billion of 
assets globally. York has built expertise in investing in un
-dervalued corporations, such as SkyEurope, which seemedto qualify for this title. The agreement between the air
carrier and York contained a considerable capital injectioninto SkyEurope. 10 million new shares were issued thatwere subject to purchase by existing and new sharehol
-
ders at a xed price of € 1.75. Moreover, York purchasedan additional 8.99 million new shares also at a xed priceof € 1.75. This transaction made York the largest share
-
holder of SkyEurope, as it owned 23.06 % of the totalauthorized shares of which number increased to 38.99million with this transaction. In addition to these, York
also purchased bonds worth €6.7 million, which weremandatorily convertible to an additional 3.8 million newshares of SkyEurope. Upon conversion of these bonds to
shares, York’s share was expected to rise to 29.9%. In sum,York invested approximately € 22.4 million in SkyEurope
in order to become the largest shareholder and gain subs-tantial control over the company. To reinforce its com-
mitment to SkyEurope, York also agreed to purchase a
further € 17 million nominal amount of nonmandatorilyconvertible bonds; therefore the total investment of the
fund exceeded €38 million (€ 15.73 million of purchase of 
shares, €6.7 million of purchase of convertible bonds, € 17million of nonconvertible bonds). Together with the is-
suing of 10 million new shares, this comprehensive equityand equity-linked nancing package amounted to € 56.3
million.
Investing in SkyEurope – a bottomless bag?
Histor of Sk Euroe’s share rice Se 2005 – Feb 2008
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