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il, Loss and Blood… These words could be the motto of EU probes Bratislava Ryanair deal
this month. According to easyJet, “the biggest danger facing The European Commission says it has laun-
the airline industry is the global oil price”. Same forecast for ched a formal investigation into an agree-
competitor Ryanair which expects another round of fuel surcharge ment between Bratislava Airport and Ryanair.
increases. Indeed, starting 1st of April 2008, the carrier will have no This follows a complaint which alleged that the
fuel hedged which means it remains unprotected from rising prices airport offers Ryanair reduced airport charges
(p. 3). Furthermore, Ryanair is now getting more profit from ancillary for existing destinations and new scheduled fli-
revenues continuously increasing prices of add-ons and services (p. ghts. The commission says the discounts could
12). Therefore, some analysts believe that decline in passenger yields, be up to 31% for existing destinations and 48%
fall in fares (by 4.4%) and rise in ancillary revenues (by 30%) alarm of for new services.
the strategy failure.
In our last issue, we analyzed the consequences of the slowdown of EasyJet fears damage to airlines from rising
European LCCs Industry (Read Air Scoop February 2008). Some car- oil price
riers are in great difficulties, and among them we find Vueling (Vueling The biggest danger facing the airline industry
reported a sharp widening in full-year net loss to €63.2 million ($93.7 is the global oil price, easyJet warned today,
million), nearly six times worse than the €10.8 million loss posted in after it released strong passenger numbers.
2006), SkyEurope (SkyEurope has been forced to sell two Boeing 737- The no-frills carrier said the passenger load fac-
700s before they were due for delivery, and admits it failed to comply tor, or proportion of seats sold per flight, was
with financial conditions attached to half of the 737-700s it has on 84.6% in February compared with 82.8% for
lease from GECAS.), but also CentralWings (CentralWings is close to the same month last year. Passenger numbers,
bankruptcy with a loss a loss of 73 million zlotys in 2007 compared driven by the airline’s acquisition of more jets,
with 65 million in the previous year) and clickair (JPMorgan estima- rose by nearly a quarter to 3.2 million.
tes clickair Loss up to 100 million euros). These financial difficulties
could finally lead to the famous “bloodbath” many times announced A revolution in the skies... a disaster for the
by Michael O’Leary… planet
French Connect 2008 will be take place this year in Courchevel the Cheap flights. More flights. Multiplying routes.
9th to 11th of April. Air Scoop is sponsor of this event, and will release At the end of a week that has seen protests
for the French Connect a Special issue. French civil aviation market is against airport expansion, predictions of further
largely dominated by Air France. The legacy carrier is backed by the airport chaos, and record oil prices, British tra-
government, so it was a big surprise to notice the presence of a go- vellers are showing no sign of shaking off their
vernment representative at easyJet’s little ceremony to launch its new addiction to CO2-heavy cheap flights.
base at Paris-Charles de Gaulle, France’s biggest airport (p. 5). For its
10th SWOT, we have realized a SWOT on French Low-Cost Carriers
market (p. 6) with its own specificities, difficulties and challenges. Fi-
nally, subsidies to LCCs is a big issue nowadays (The European Com-
mission recently said it was investigating an agreement on Irish low-
cost carrier Ryanair’s use of Slovakia’s Bratislava airport on suspicion
it may contain illegal state aid), especially in France (The European
Commission has launched a state aid probe into the use by Ryanair of
Pau airport, and would in particular examine a contract with the Pau-
Bearn Chamber of Commerce, which operates the airport, that sets
out the conditions for Ryanair’s use of the transport facility). In order
to better understand airports subsidies, we have realized a comparison
between Europe and the US (p. 13). More on http://airscoop.blogspot.com
Could you please present Airsavings to our readers? rance, hotels and car hire in a Dynamically Packaged way,
Airsavings is a 7 year-old company that started as a Group you have to find other services. And this is very often
Buying Service for LCCs and evolved into a leading player where we get brought into the picture.
in the supply of Ancillary Services to the airline indus-
try. Airsavings leveraged its purchasing know-how with How do you believe it will evolve?
its IT capabilities in order to bring to the airlines better I believe ancillaries will eventually evolve into the Ama-
margins, better technology (with REAL Dynamic Packa- zon model of purchasing. Amazon started by selling books
ging), higher speed to market (because an airline wants over the Internet. After seeing the sheer volume of traf-
to earn money in weeks, not in months), and more in- fic coming to the site, it started selling CDs, then DVDs,
novation, because airlines want to enlarge their scope of MP3s and so on until the site become a marketplace for
activities when it comes to ancillary services. Airsavings just about anything. Today, Amazon even sells fresh foods
has also been acting as a kind of “think tank” with its cus- in certain areas. This is what, I believe, could be the evo-
tomers, often taking the investments on its shoulder when lution for ancillary revenues in the airline industry. An
launching new ancillary services, which ultimately benefit airline that captures more than 70 % of its sales through
the entire industry as a result. the internet has become, quite simply, an e-commerce
business. And in doing so, the airline has to act in that ca-
How do you analyze current situation of ancillary reve- pacity as well, meaning it has to be creative, reactive, and
nues for European low-cost carriers? ready to test new products and services which will meet
The development of ancillary revenues is an increasingly with its customers’ needs.
important part of the European LCC model, which has
and will continue to evolve at a very high speed. Around By always looking for more ancillary revenues to com-
3 years ago, we created a team dedicated specifically to pensate ticket prices, there could be an imbalance.
this emerging field. And in these 3 years, we have migra- Could it be a danger for LCCs if they don’t manage this
ted from the single “micro-site” selling these services (the issue well enough?
1.0 version), to Dynamic Packaging (version 2.0). Now, Hmm, as I said just above, their own clients will show
we have started running the 3.0 version, which is the Dy- them if there is an imbalance. However, as long as the
namic Packaging associated with a Loyalty Scheme that airline sells services which could satisfy their clients, why
helps passengers buy more valuable services, and to get should the airline not to do it?
compensated for doing so. This version is obviously an
accelerator of net income to the airline. What could be the next generation of ancillary revenues
for the European LCCs?
How do you evaluate the part of ancillary revenues in A service that will reward customer loyalty at every step
LCCs? of the purchase path.
Well, it is dependent on the type of airline. Many of them
are still relying on the suppliers they have chosen from Recently, the consumer watchdog group Holiday Which?
years ago; they still do not have the right margin or the released a report criticizing low-cost carriers for levying an
right “dynamic packaging technology”. Notwithstanding, increasing number of charges on consumers and requi¬ring
because of their deep-seated fear to break a model (which travelers to jump through numerous hoops to avoid any
doesn’t work anyhow), these airlines are lacking in real additional fees (read Air Scoop February 2008). By always
ancillary income. Then there is another type of carrier, looking after “extra revenues”, could LCCs lose at mid-
who is willing to make money….and fast. This group is term some customers that mostly see “hidden charges”?
far more pro-active, they are willing to outsource part of Consumers have different choices…. They could go with
this activity (ancillary revenue creation) as they know it a Legacy carrier where all the charges are hidden in the
is the shortest way to profitability and to stay on the top ticket price. Or choose an LCC where they know what
with more innovative services available to their custo- they are paying for. The key is transparency; then let the
mers. Once you have implemented the big 3, i.e., insu- consumer choose.
For the 5th consecutive year, CEOs of French airports and European low cost airlines will gather for 3 days of debates
and networking.
French Connect, the only professional forum dedicated to low cost air traffic development in France, will take place in
Courchevel, French Alps from 9th to 11th April 2008. Created in 2004 to respond to the specific needs of French airports,
French Connect has become, in just a few years, a must-attend meeting and debating forum for French airports and low
cost airlines.
For 3 days, decision-makers will gather from over 20 low cost airlines and 50 French airports together with representa-
tives from regional, national and European political institutions. French Connect 2008 is hosted by Grenoble-Isère and
Chambéry-Savoie Airports, two airports managed by VINCI Airports and Keolis Airports on behalf of the Conseils Gé-
néraux (County Councils) of Isère and Savoie. Innovation and dynamism are the key words for next year’s event, which
will be an exceptional opportunity to understand the issues of low cost air traffic development in France.
To have more informations about last edition of French Connect in La Baule, read the full coverage in Air Scoop May
2007.
For more information on French Connect 2008, visit www.frenchconnect.net
What a weird situation! On February 7th, easyJet had or- Ryanair, which Irish salary conditions allow to pay better
ganized a little ceremony next to the Eiffel Tower, in Paris, wages. By supporting EasyJet, is the French government
to launch its new base at Paris-Charles de Gaulle, France’s also supporting that kind of social dumping? New tensions
biggest airport. The airline already launched 6 new routes about this topic between the state and the airline are pre-
from there, in addition to 11 already existing. But Charles de dictable...
Gaulle is also the historic fief of national leader Air France, Finally, French authorities will have to pay attention to
which mother company, Air France-KLM, is owned at 17.8 the development of LCCs in France because it makes it
pc by the French state. So, it was really weird to see Luc easier for the French to leave their country... and to spend
Chatel, the French Secretary of State for Consumers affairs their holiday money abroad. In Great Britain, a budget
and Tourism, attending the ceremony and clearly suppor- hotel chain accused LCCs of « killing British tourism »,
ting Air France’s British challenger... and the government of being conniving - there is no VAT
on international ticket sales. According to the hotel chain,
Of course, in France, purchasing power is currently the inward tourism spending decreased by 16% between 1995
biggest public concern. And a very recent report by the and 2002, whereas spending abroad by British tourists in-
economist Jacques Attali suggests to create a low-cost ter- creased by nearly 50 %! And all because of LCCs!
minal at CDG and to develop low-cost air transport in
France, only representing 17 pc of the total traffic, versus Could the same phenomenon happen in France? France is
34 pc in Europe. From that point of view, officially welco- one of the biggest touristic markets in the world, and tou-
ming a low fare airline is nothing less than logical! « I consi- rism represents about 7 pc of its GNP. French people parti-
der the development of LCCs in France as a good thing for cipate to this strong economic market, as they very mostly
both consumers and tourism, Mr. Chatel said. The part of travel inside their own country. Furthermore, they do not
low-cost is insufficient in France. » travel a lot by plane: a 2007 study shows that only 5 pc of
But still, several elements make this support incoherent. French people used the plane for their latest short break
First, Andy Harrison’s aim is clearly to challenge the natio- (week-end or less than one week), and only 2 pc used a
nal leader, well-known for its fierce hostility against foreign LCC. Even a strong LCC development may not radically
LCCs. « We consider ourselves as the best French alter- lower French inward tourism. But it may encourage more
native to Air France », Harrison said. The airline has now and more people, which had not necessarily the budget to
two bases in France - Orly and Charles de Gaulle - and fly, to look abroad instead of staying in their country.
will very soon open a third one in Lyon. It plans to invest The Secretary of State Luc Chatel prefers to consider the
€600m in the four next years. In 2011, it expects to carry new foreign tourists EasyJet could bring to France : « The
in France 12 million passengers (6 million in 2007) to 80 development of low cost will allow us either to attract
destinations. Some of its new routes from CDG (to Marra- new customers, or to attract customers who will, by redu-
kech, Porto and Krakow) are directly challenging those of cing their transportation budget, spend more in accommo-
Transavia, the Air France-KLM LCC branch. By operating dation and purchasing in France », he said.
inward flights (Paris-Nice, Paris-Toulouse...), EasyJet also
directly challenges the French railway company, the state-
owned SNCF.
The phenomenon of low cost carriers has completely The major asset of France is its beautiful terrain. It is made
changed the face of the airline industry in Europe and has up of majestic mountains, fertile plains, rolling hills, green
been instrumental in creating new markets, jobs and busi- forests, lakes and rivers, canyons and an endless coastline.
ness opportunities. Its innovative low cost-low fare model It has the Atlantic Ocean to the west, the North Sea to
revolutionised air travel by bringing this ‘premium mode the north, and the Mediterranean Sea to the southeast. It
of travel’ within the reach of the low and middle income shares boundaries with Belgium and Luxembourg to the
travellers. There are number of players in this industry northeast; Germany, Switzerland and Italy to the east; and
(about 50) representing almost every region and country Spain and Andorra to the southwest. In the northwest,
of this continent with Ryanair leading the way, followed France is separated from England by the English Channel.
closely by easyJet and Air Berlin. Today, after Russia and Ukraine, France is the third-largest
But surprisingly, in this great revolution, France has remai- country in Europe and the largest in Western Europe.
ned a mute spectator as opposed to lesser developed coun- It is a producer of cars, aerospace products, and other ma-
tries and new EU members like Hungary, Poland, Bulgaria nufactured goods. It is also a major producer of chemical
and Romania. It does not have an original home-grown products. Fashion, textiles and tourism also play a signi-
low cost carrier in spite of being the birth place of Airbus ficant role. It has the highest proportion of forested land
and Concorde. in the European Union with a strong emphasis on agri-
According to national airports association - UAF, in 2006, culture. It is the largest agricultural producer in Western
low cost carriers (LCCs) in France carried a total of 18 M Europe and one of the world’s leading exporters of farm
passengers - two-thirds of them to regional destinations, products.
i.e. airports other than Paris. Though this represents an im-
pressive growth of 24.5% over the previous year, the mar- The Travel and Tourism industry of France
ket share of LCCs in France is only 13.2% - the lowest in France remains the largest travel and tourism market in the
Europe. It is also surprising to note that none of the LCCs world in terms of the number of incoming tourists, with
in France belong to French companies. more than 75 million arrivals in 2006, considerably ahead
It is this unique state of the LCC market in France - a of second-ranked Spain. France ranks 4th in the world in
technologically advanced and progressive nation – that terms of spend on international travel, and in recent years
needs to be understood and analysed. the market has grown steadily. French airports have repor-
ted strong traffic figures for 2006, with low cost passenger
The Economy of France numbers growing by 20%. Overall there was growth in
France is an economic powerhouse, a global trendsetter passenger numbers of 4.5%, to give total passenger figures
and a land of everlasting beauty. Although the French po- of 146 million.
pulation accounts for only 1% of the world’s total, its GNP Most of this growth was a result of a 6% increase in inter-
represents 4% of the global GNP. France is the sixth largest national passenger numbers, with more than 64% coming
economy in the world in USD exchange-rate terms with a from outside France. The Paris airports took the lion’s
GDP of €1.87 trillion (1.87×€1012; 2006 data). According share of traffic, with over 80 million passengers, followed
to World Bank and IMF figures, it is the sixth largest in a long way behind by Nice airport, with around 10 mil-
terms of purchasing power parity and the third largest in lion passengers. Regional airports saw a growth of 4.8%,
Europe after Germany and United Kingdom. reaching 54 million passengers, and accounting for 22% of
The US Census Bureau put the population of France at all passenger traffic in France. Most of this growth was
60.9 million in 2006. The population is forecast to grow made up by the increase in low-cost airline traffic, which
slightly to 62.5 million by 2016. The proportion of the grew by nearly 20% to 12 million passengers. Notably high
population aged 60-69 is forecast to increase, while the increases occurred at La Rochelle, Bergerac, Pau, Nantes,
proportion of the population aged below 50 is forecast to and Carcassonne.
decline.
France’s five largest cities are Paris, Marseille, Lyon, Tou- Traditionally French people have been spending their holi-
louse and Nice. Paris, the capital and France’s largest city days within France but now outbound trips are increasing
and main manufacturing centre, is home to about one- and are forecast to grow in the coming years. The French
sixth of the population. Paris is more than 2,000 years old. traditionally favour long touring holidays over the summer
Today, Paris is the bon vivant of European cities and the and have one of the highest holiday entitlements in the
Air Scoop is proud to be Media partner of the Airline Payment Summit 2008, and offers 3 months subscription to Air-
line Payment Summit 2008 delegates.
As airline yields come under downward pressure, Airline Payment Summit (APS) will examine leading-edge low-cost
payment solutions within the landscape of traditional forms of payments such as credit cards.
Delegates will not only hear about how to drive-down costs through the use of, innovative, non traditional payment
methods, but also how to increase revenues with new payment options for the customer. A must attend for airline and
travel (Hotel, Car Hire, OTA) executives interested in better managing payments and related costs.
IdeaWorks offers an excerpt from its recently released for the first piece when paid in advance at the website,
147-page Ancillary Revenue Guide which doubles to €18 when paid at the airport.
• An exclusive relationship with Hertz contributed to year
Ryanair likely leads all other low cost airlines in total an- car hire revenue of nearly €23 million for fiscal year 2007.
cillary revenue. The carrier recently announced revenue Ryanair - The Godfather of Ancillary Revenue was re-
from sources such as car-hire commissions, checked-bag- leased today as a 10-page Industry Analysis, and is an
gage charges, and priority boarding, increased by 30% excerpt from the 147-page Ancillary Revenue Guide by
(compared to 2006) to €111 million for the quarter ended IdeaWorks.
December 31, 2007. The airline says it is on target to ge-
nerate 20% of total revenue from ancillary sources within More information is available at the website:
the next three years. www.IdeaWorksCompany.com.
EVENTS
Air Scoop is proud to be media partner of the World Low Cost Airlines 2008.
Plans are starting to take shape for the World Low Cost Airlines Congress 2008.
Earlier this year over 650 of you joined us in London for an action packed two days. To remind yourself of the day (or to
see what you missed!) we have put together a short video of the highlights. To see it simply visit our homepage. (You’ll
need to have flash installed on your computer.)
To have more informations about last edition of the World Low Cost Airlines, read the full coverage in Air Scoop Oc-
tober 2007.
For more information on the World Low Cost Airlines 2008, visit www.terrapinn.com
www.airlinebulletin.com
Specific airports in both Europe and the US are able to of- can also work with carriers to develop infrastructure that
fer subsidies to carriers that start new service, though the meets their needs. If an airline commits to expanding ser-
types of subsidies vary. However, unlike in Europe, many vice at a given airport, the airport board could finance the
of the largest LCCs in the US don’t receive significant construction of a new terminal, allowing airlines to start
benefits from airport subsidies, even though US airports service while paying off the construction costs through
have more flexibility in the types of subsidies they can future fees.
offer. This is often because most US LCCs serve routes
already served by legacy carriers from larger airports, lea- US Airports typically offer subsidies to foster business
ving little reason for these large airports to offer incentives development, and less for tourism development, as seen
to lure LCCs, whereas in Europe, small airports that are in Europe. Airports will often identify routes that they
typically bypassed have found success in using subsidies would like to see served, and offer airlines subsidies for
to lure LCCs. In the US, since Southwest and many other serving those routes. These routes are often of some stra-
LCCs are increasingly focused on serving primary airports tegic importance to the region’s economy, such as routes
(with some notable exceptions), some secondary airports, to China, Japan, and Europe or to major business centers
especially those distant from city centers, find that sub- in the US. Many airports also offer subsidies for airlines
sidies are more effective for luring legacy carriers to of- that fly routes nonstop where passengers are currently
fer regional jet service. While new regional jet flights will required to take a connecting flight. Other airports offer
bring additional passengers to a small airport, they pale general subsidies for new airlines to add flights and/or for
in comparison to the large number that an LCC could existing airlines to add flights to any new destinations un-
deliver. served from the airport, regardless of their perceived im-
portance by the airport authority. Subsidies are typically
In Europe, airport subsidies have become an enormous offered in the form of landing fee waivers, terminal rent
issue, especially as so many small airports across Europe cuts, and matching advertising funds to help market the
have offered Ryanair subsidies. However, as LCCs expand, new flights. However, in most cases, airlines don’t get a
subsidies could become less commonplace since of the free ride, and are responsible for some fees.
value of potential traffic at larger airports could outweigh
the need for subsidies to lure LCCs to start service. But while Southwest considers subsidies in its expansion
decisions, they are not necessarily a precondition to arri-
To keep this article simple, I’ll use the example of ving in a new market, and even attractive subsidy packa-
Southwest in the US. However, some other US LCCs, in- ges do not guarantee new service. One example of this is
cluding JetBlue, Frontier, and AirTran gain different bene- Southwest’s service from the Dallas, Texas area. In 2005,
fits from subsidies, since their smaller jets allow them to after starting a codeshare agreement with ATA Airlines,
serve smaller airports with different subsidy offerings. the Dallas-Fort Worth Airport tried to lure Southwest
to its facility with a significant subsidy package including
Most US Airports are public entities, regulated by elected free terminal rent for a year and up to $22 million USD
boards that allocate funds. These airports are allowed to in incentives (as part of a program being offered to any
offer subsidies, but only if the subsidies are made availa- carrier new to the airport). But, Southwest declined this
ble to any carrier that qualifies for a specific subsidy pro- offer, preferring to expand at other facilities that could
gram. Airports are prohibited from enacting fee-reduction better help the carrier meet its goal of attracting more
deals with specific carriers. In most cases, airports can- business travelers, and thus higher yields.
not discriminate against legacy carriers in favor of LCCs,
though they can structure their subsidy programs such Ryanair has proven to be extremely reliable in garnering
that LCCs are more likely to qualify. However, airports traffic, making it a valuable carrier for airports. As a car-