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EDITORIAL
Highlights in this Issue
Interview of Jim French (CEO of Flybe)
p. 2
Analysis of the Polish LCC Market
p. 4
SWOT Analysis of Flybe
p. 8
ETS and Extra Cash to LCCs
p. 17
Seat Pitch Regulation: What Impact?
p. 19
Air Scoop - January 2008
www.air-scoop.com
The Low Cost Carriers Analysis Newsletter 
Too Many Planes in the European Sky
A
irlines, not only LCCs, are expected to buy numerous air-planes in 2008 and 2009. Aircraft prices will indeed de-crease during these years, because of the expected down-turn in passenger demand on the air transport market. As aircraftsstand for more than 90% of an airline’s permanent assets, buying them when prices are low is an economical necessity, all the morethan the companies’ profitability is threatened by rising oil costs.The amount of aircrafts in the European sky may thus continueto grow up. Most of the leading European LCCs already have fullorder forms. Ryanair currently operates about 150 planes, and plansto double its fleet by 2012. EasyJet runs 137 aircrafts, and ordered120 ones. Air Berlin will have more than 150 planes after the takeo-ver of Condor in 2009, and ordered about the same. Even smallerLCCs show impressive order figures: SkyEurope’s very young fleetof 14 aircrafts could double by 2011. Wizz Air has about the sameamount of planes, and expects to reach more than 50 within the 3to 5 next years.On a highly competitive air transport market, which has not yetbeen consolidated, airlines have to constantly increase their capa-city to keep a chance to exist. Ordering lots of aircrafts is also away of showing their prosperity and their confidence into the fu-ture. But these abundant orders could finally lead to congestion andovercapacity.Overcapacity is a chronic problem on the air transport market, es-pecially on the LCC market, where airlines always try to add ca-pacity in order to earn a little more extra revenue. It is part of theair transport business cyclical nature. “Airlines do well, buy moreaircrafts, reach a point of overcapacity and are unable to fill them,consolidation and bankruptcies happen, few players are left, whorecover, they begin to do well, and the story repeats itself all overagain”, Alex Cruz, CEO of ClickAir, explained in an Air Scoopinterview in 2007.In the European sky, signs of overcapacity began to appear earlierin 2007. According to some analysts, the decline of load factors(Ryanair’s went down from 85% to 83% between April 2006 andApril 2007, and easyJet’s from 86% to 83%) could be a result of anovercrowded sky, even if the airlines themselves deny it. Recently,several airlines announced a reduction of either their capacitiesor plane orders. In Germany, a very busy market, TUIfly decided
AIR SCOOP ANNOUNCEMENTSAir Scoop, 2 Years Already!
Launched in January 2006, Air Scoop hasalready two years. Air Scoop Team has brou-ght the best of LCCs analysis on hottest is-sues (subsidies, ancillary revenues, businessmodels...). We have provided you with exclu-sive interviews of top executives and reportsfrom main low-cost carriers events (WorldLow Cost Airlines Congress, the Low CostAir Transport Summit, French Connect...).Through our news portal weblog (airscoop.blogspot.com), you are kept updated withfresh and most important informations of themarket. Each month, a new carrier is deeplyanalyzed in a SWOT matrix (read under),and a Central and Eastern market is rigorouslystudied from a LCC point of view (Hungary,Slovakia, Romania, Czech Republic...).These different services make today AirScoop Newsletter, a reference for Europeanlow-cost carriers information and analysis.We would like to thank all our customers andpartners for their confidence and their sup-port!
Air Scoop Team 
 
BIRD’S EYE VIEW
Air Scoop - January 2008
www.air-scoop.com
2
to operate only 48 aircrafts in 2008, instead of 55 now. InGreat Britain, Ryanair decided to cut its capacities this win-ter, by grounding the equivalent of 10 planes, among which7 in London-Stansted.Medium-size airlines may be the first to suffer from conges-ted routes. In Spain, a market saturated by huge Europeanplayers’ investments (Ryanair, easyJet, Air Berlin), Vueling (23 aircrafts) cancelled orders for nine Airbus A320s to bedelivered in 2008, and postponed the delivery of six othersto 2009. The company has already given up some routes,like Alicante-Amsterdam and Paris-Milan. In December,Eastern European airline SkyEurope announced the sale of two new Boeing 737s ahead of delivery. The Slovakian LCCwill also renegotiate lease terms on other planes, after failing to meet financial conditions for part of its leased fleet.A 2005 Arthur D. Little study defines overcapacity and ex-cessive aircraft orders as one of the major obstacles to airli-nes’ profitability in the next years. It estimates that five im-portant European LCCs (Ryanair, easyJet, AirBerlin / dbaand Germanwings) have all together ordered 360 aircrafts(most of them Airbus A320s or Boeing 737s) to be delive-red until 2010, and put options on 370 others. The studyconcludes that there would be at least 36 million exces-sive seats on the 2010 European market, with serious con-sequences: yields reductions, and disappearance of smallerLCCs. Overcapacity will, in fact, boost the consolidationprocess in the European sky.However, buying aircrafts remains a necessity for LCCs.Keeping a young fleet allows them to lower fuel consump-tion and maintenance charges. Those who aim to developon transatlantic routes will have to buy new long haul pla-nes, like Boeing 737s Dreamliner or Airbus A350s. Ryanair,for example, could purchase 30 to 50 of those planes in thenext 3 to 5 years, especially if prices go down. Air Berlinsigned a deal this summer concerning 25 brand new Boeing 787s Dreamliner, for a total amount of 4 billion $. The pla-nes will be delivered between 2013 and 2017.The 787 Dreamliner is not only a long haul aircraft: it isalso said to be very fuel-efficient, answering to the growing concern of passengers towards environmental protection,which could have a negative impact on the low cost flightmarket. This is another reason of buying new planes. easy- Jet’s CEO Andy Harrison, for example, recently affirmedits intention to run one of the cleanest fleet in Europe, andpresented the EcoJet, a short haul aircraft generating 50%less CO2 than current planes, not expected to be deliveredbefore 2015.
Jim French 
(Chairman & CEO of 
FlyBe 
 )
Interview of Jim French(Chairman & CEO of FlyBe)
Could you please present Flybe to our readers? What are your specificities compared to other European LCCs? What do you do better than your competitors? 
Flybe is now the biggest regional airline in Europe, flying 162 routes from 53 European airports. Having acquiredBritish Airways’ point to point regional carrier, BA Con-nect earlier this year, we expect to carry 7.5 million pas-sengers in 2007 and 10 million next year.What differentiates us compared to other LCC’s is ourbusiness model. We fly region to region rather than capitalto capital, with a focus on domestic, European City andFrench regional flying. Our fleet of Bombardier Q400 andEmbraer 195 are modern, environmentally sensitive air-craft that are the right aircraft for the right route.In terms of what we do better than our competitors, Iwould say three things: Firstly, the quality of our domes-tic European city coverage, secondly we are number 1 interms of ancillary revenues, averaging more than £8.00per passenger and thirdly the fact we carry 40% businesspassengers.We are innovators. We were the first airline in the worldto introduced baggage charging, bringing complete trans-parency to what passengers pay. We in effect re-wrote thelow-cost rulebook by introducing a ticket that isn’t simplylow-cost but that allows the traveller to select a package
 
BIRD’S EYE VIEW
Air Scoop - January 2008
www.air-scoop.com
3
of additional elements. And recently (see question 3 be-low) we were the world’s first airline to introduce an eco-labelling scheme for the aircraft we, and others, fly.
How do you analyze the competition in Europe with other LCCs? Which LCC is for you the main competitor? Today? In the coming years? 
All competition, whether low cost or traditional, is tough.We barely cross schedules with Ryanair and only margi-nally with Easyjet. Our main competitors are BMI regio-nal and, as we expand in Germany, Lufthansa.
What is your position on environmental issues concer- ning European LCCs? 
We support the view that human activity, including airtravel, is contributing to global climate change and weaccept that, as one of Europe’s largest regional airlines, wehave a responsibility to reduce the carbon emissions pro-duced by our aircraft. As a regional airline, we take ourtake our responsibility to the communities we serve veryseriously both in terms of the economic growth we sti-mulate and the effect upon the local environment of thecommunities we serve. That’s why we’ve spent more than$ 3billion on the market’s most fuel efficient and emissionefficient aircraft technology.And to give passengers as much information as possibleabout the impact their flight has on the local and globalenvironment, we’ve launched an ecolabelling scheme. Thelabel, modelled on those used in the sale of white goodslike fridges, microwaves and washing machines, shows afull range of environmental indicators per aircraft. Moreinformation is available at www.flybe.com/environmentThe European Low cost carriers market has reached a cer-tain maturity which leads to its consolidation. During thistransition, what are, for you, the greatest threats to theEuropean Low cost carriers? Fuel rising? Overcapacity?Evolution of airports? Regulation?...Our biggest challenges at the moment are the regulatorsundermining de-regulation, the effective airport mono-poly operated by BAA and the ever-increasing prices forairport charges.
What are your expansion projects for the coming year (s)? 
Further growth in the UK and overseas. We expect to fly10 million passengers a year by the end of 2010 and planto introduce even more new routes to Europe.Many LCCs look after extra-revenues to offset the lowprice of their tickets. What are the projects of Flybe interms of Extra-revenues?We are world leaders in ancillary revenues, with the hi-ghest per passenger revenue in the business. As I said ear-lier, we are proud of being innovators. Our baggage char-ging policy has been imitated by low-cost and traditionalalike and our advanced seat assignment has likewise beena big success. We were also the first low cost airline to in-troduce a frequent flyer programme, Rewards4All whichis open to all passengers.
Do you believe that consolidation of the market will lead to 2-3 main LCCs in Europe, or do you think there will always be many LCCs on niche markets? 
There will be consolidation, however we have created adefendable niche, and Flybe will be one of the main 2 or3, serving a domestic and European city market.
Are you worried about the shortage of pilots and crew hitting LCC market? 
Yes, but we have recently launched a successful recruit-ment campaign for pilots and crew and received morethan 1000 applications, so clearly there is confidence outthere about Flybe’s future.
What are the options for Flybe to transform its business model in order to make more costs savings? 
Through the acquisition of BA Connect, we made acombined saving of £40million. We are always looking to change and develop the business model. For example, just five years ago, in common with other airlines, wehad a caterer for each airport, thereby duplicating our ef-forts. That has all changed with a single, central distribu-tion centre, saving time and money and is now the normfor the industry.We have prospered because we’ve been able to drivecosts down and keep them down over the last few yearsand we’re pretty confident that our business model is ingood shape.
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