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Air Scoop July 2006

Air Scoop July 2006

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Published by airscoop
Air Scoop provides market analysis on the European Low-cost carriers market.
Air Scoop provides market analysis on the European Low-cost carriers market.

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Published by: airscoop on Oct 28, 2009
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he current playground of European LCCs is no longer suffi-cient to bear their development. New routes are still availa-ble inside Europe, but they are not profitable enough. Indeed,profits drive routes’ opening. Thus, LCCs look for further markets toopen routes, such as in North Africa, Middle East or Eastern Europe.Recent bases opening of LCCs leaders reflect this need to constantlykeep growing in order not to collapse. For instance,
an-nounced it would launch up to 20 routes in Morocco in the coming 5 years. The base opening in Marseille was an interesting signal forfurther expansion of the airline in North Africa.
Air Berlin,
withthe support of 
definitely looks at the Eastern markets andRussia…To have the opportunity to serve these new markets, LCCs facemany restraints: longer distance between airports, problems due tonon-EU countries, longer turn-over on the ground, loss of time du-ring security checks… Distance and time are important challenges tocurrent business models. Indeed, most aircraft types used by LCCscan’t fly routes longer than four and a half hours. This implies theywill have to settle their future bases outside Europe in order to deve-lop an inter-area network (Europe, Scandinavia, Africa, Middle East,Russia, Asia…). They will then face specific restrictions in thesecountries, like in airports (Casablanca in Morocco…), PSO (Publicservice obligations)…LCCs systematically promote deregulation of the markets, in par-ticular through
, a low cost carriers association lobbying inBrussels. Another solution to avoid restrictions will be to registernew companies under local jurisdiction. In a different way, but see-king same goals,
has envisaged a franchise with partners inMiddle East, an area highly regulated.
Highlights in this Issue
Conference Air Transport Summit
 p. 4 
Essential Ancillary revenues for Ryanair
 p. 7 
SkyEurope: New Share Issue to Get Cash
 p. 9
Deregulation of LCCs European Market
p. 11 
Strategies to respond to rising fuel costs
 p. 14 
 Air Scoop - July 2006
The Low Cost Carriers Analysis Newsletter 
AIR SCOOP is proud to be an
Official Media Partner
ofthese LCCs events
Sky Full of Possibilities 
Bratislava, 26 May 2006
The Low Cost Air Transport Summit 
London, 12-13 June 2006
The World Low Cost Airlines Congress 
London, 11-13 September 2006
Air Scoop Recruits!
We recruit more “correspondents” over Eu-rope to cover regional news and analysis.Your role will be to cover the Low CostCarriers market in your country and neararea. You will write about specific topicsand propose your own articles. We may askyou to attend special events concerning theLCCs market occurring in your country ornear area.
It is a requirement to be a fluent writer in English 
. Join Air Scoop Team by sending us yourCV and a covering letter by email to: jobs@air-scoop.comWe look forward to seeing your applica-tion soon.
Evolution of Low Cost Carriers Compared to other A
viation Segments
 Air Scoop - July 2006
Interview of Maunu von Lüders(CEO of FlyNordic)
Maunu von Lüders ,CEO of FlyNordic
Air Scoop: Could you please present FlyNordic to our readers? What are your specificities compared to other European LCCs? What do you do better than your competitors? 
 Maunu von Lüders: We do not callourselves a low-cost carrier anymo-re. We are a ‘3rd generation airline’which combines the best from thelow-cost and the traditional airlinesin such a way that our model will sa-tisfy the Scandinavian market in thebest possible way. In order to do thiswe must be better than or at least asgood as the dominating traditionalairline in the most important serviceelements but at a lower cost to ourcustomers. We do not want to hu-miliate our customers by depriving them from service or ignoring theirexpectations just because our faresare low. We also do not want to robour customers by charging a lot forfeatures that are indeed traps createdby a monopoly situation. We simplytry to satisfy the most important cus-tomer needs at a reasonable cost.
You already cover most of the Scan- dinavian market; are there suffi- cient population catchment areas to open new routes in Scandinavia? If not, towards which market do you tend to? 
 The frequency of travel is very highin Scandinavia. Distances can begreat and travel times with othermeans of transportation very long which should create a favorable si-tuation for airlines. But even thoughexceptionally many people travel byair within Scandinavia and businessshould be good, there are too manyplayers in the field which results indestructive overcapacity. The marketis quite saturated and all viable rou-tes have already been exploited.
Fly- Nordic 
has been successful on routesbetween Stockholm and NorthernSweden and also between Stockholmand the other Scandinavian capitalcities. We can be even better in thesemarkets as we are developing a con-cept of exceptional value.
Is there many low cost carriers serving the Scandinavian market? Who are your most dangerous com-  petitors: local LCCs or “Islanders” (Ryanair, easyJet)? 
 The low-cost segment is growing fast in Scandinavia. There are quitea few low-cost carriers and more willcome. We do not consider the otherlow-cost carriers as our most obviouscompetitors. We target other marketsas we are predominantly offering sui-table services for business travelerswithin Scandinavia from primaryairports with a morning – evening concept. We are in direct competi-tion with the likes of 
rather thanother low-cost carriers.
The European Low cost carriers market has reached a certain ma- turity which leads to its consolida- tion. During this transition, what are, for you, the greatest threats to the European Low cost carriers? Fuel rising? Overcapacity? ...
 You mentioned indeed in your ques-tion two serious threats. As costs arerising and the price elasticity remainshigh it will be more difficult for thelow-cost carriers to stimulate pro-fitable growth. Consolidation is aninevitable development as there willbe many troubled carriers withouta chance to manage the equationsbetween rising costs and diminishing revenues. I do not see consolida-tion as a threat but a natural way of making the industry more effective.The weakness of consolidation is thecommon misfit between differentcorporate cultures which often re-sults in long term corporate turbu-lence and ineffectiveness. Some realthreats to the low-cost segment arethe prevailing protectionism in favorof the “flag carriers”, predatory pri-cing and other hostile actions by thelarge incumbents and a tendency tore-regulate through various taxes andother restrictive measures.
You have adapted your flights ac- cording to your passengers: Mor- ning and evening flights for business routes, daytime for leisure travelers and week-ends with charters. How do you manage such an adjustable model? 
 It is quite easy logistically. The seg-mentation of customers is only afactor regarding schedules and des-tinations. The rest is pretty muchthe same regardless if it is a businessflight, leisure flight or a charter. Thedistribution mechanism and the fareconcept serve all scheduled trafficwhereas charters are sold by touroperators. Catering and some otherservice features may vary on charterflights based on what the customerrequires but that too is easy to han-dle. The main thing is to have the air-crafts and crews in the air serving allour different customer categories aswell as they can.
 Air Scoop - July 2006
Open Skies Agreement: New Markets for LCCs?
Bosnia and Herzegovina, Bulgaria, Croatia, Iceland, Mace-donia, Norway and Romania have signed the 9th of Junethe agreement on the
European Common Aviation Area (ECAA)
at a ceremony in Luxembourg. Thus they join theSingle European Sky of the EU member states under speci-fic conditions for each country. This agreement still needsto be ratified by national parliaments.“The creation of the
will put impetus on the po-litical and economic integration of Europe, for which airtransport plays a key role. The agreement will open upmarket opportunities for the aviation industry and givepeople better travel options” said
Jacques Barrot 
, EUTransport Commissioner.Egypt also agreed to consider an ‘open skies’ policy to allowforeign airlines greater access to the Arab world’s largesttourism market. The main issue in these open-skies ne-gotiations will concern Cairo. Indeed, Cairo is the hub of national carrier
Egypt Air 
and is not freely accessible forforeign carriers.
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? 
I do not think that consolidation willresult in only 2 or 3 large low-cost air-lines. There are more variations among the low-cost carriers than among thetraditional airlines. This variation hasdeveloped out of a need for differentconcepts in different markets. Therewill always be a need for various ni-ches. A niche carrier can however ne-ver expect to grow large because thenit no longer serves a niche.
Are you worried about the shortage of pilots and crew hitting LCC mar- ket? 
 I am not worried but one must all thetime keep an eye on the situation. Themarket for pilots is very much a localmatter. Pilots are people with homesand family and not members of a hi-ghly mobile workforce. A well-run air-line should be an attractive employer.If you stick to one aircraft type andoffer a good and rewarding working environment you should have a betterchance to recruit and maintain a goodpilot workforce.
What are the options for FlyNordic to transform its business model in or- der to make more costs savings? 
We are pretty close to have exploredmost of the cost saving areas. Thereare naturally some savings to be gainedregarding service providers. Our ownorganization is as small and effective asit can ever be. If we can maintain ourcost structure but increase our earning potential through customer orientedand innovative product features, weshould be doing OK.
Low Cost Market Share – Monthly Frequencies (June 2006)To/From Germany (in percentage)
Source : OAG MAX 
Munich or Nuremberg as 5thGermanwings base?
is currently looking forits 5th base in Germany, and another oneoutside the country. Catchment area isimportant to set a base, smaller airportsare then commercially not viable to sus-tain a base of five aircraft as targeted by
.Few rumors are, as usual, ongoing aboutpotentially airports:
Munich Internatio- nal Airport 
Nuremberg Airport 
arethe most recurrent options.Munich appears most expensive, but Nu-remberg has already a strong presence of 
Air Berlin 
, even if it is not a base. Setting a base in Nuremberg could be the oppor-tunity to attack its core market, but tillnow
Karl-Heinz Krüger 
, CEO Nuremberg Airport, has always rejected proposals from
. Fur-thermore, a recent statistics indicated that only 10 % of flights out of Nuremberg were true LCCs while other Germanairports, including Munich, have between 17 and 25 %.Even if a
base is scheduled in Munich ( 
might try to avoid competition between its two LCCs), Mu-nich Airport should be favorite to become the 5th

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