Interview of Jim French (CEO of Flybe) Analysis of the Polish LCC Market SWOT Analysis of Flybe ETS and

Extra Cash to LCCs Seat Pitch Regulation: What Impact?

Highlights in this Issue
p. 2 p. 4 p. 8 p. 17 p. 19

The Low Cost Carriers Analysis Newsletter

EDITORIAL
Too Many Planes in the European Sky

AIR SCOOP ANNOUNCEMENTS Air Scoop, 2 Years Already!
Launched in January 2006, Air Scoop has already two years. Air Scoop Team has brought the best of LCCs analysis on hottest issues (subsidies, ancillary revenues, business models...). We have provided you with exclusive interviews of top executives and reports from main low-cost carriers events (World Low Cost Airlines Congress, the Low Cost Air Transport Summit, French Connect...). Through our news portal weblog (airscoop. blogspot.com), you are kept updated with fresh and most important informations of the market. Each month, a new carrier is deeply analyzed in a SWOT matrix (read under), and a Central and Eastern market is rigorously studied from a LCC point of view (Hungary, Slovakia, Romania, Czech Republic...). These different services make today Air Scoop Newsletter, a reference for European low-cost carriers information and analysis. We would like to thank all our customers and partners for their confidence and their support! Air Scoop Team

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irlines, not only LCCs, are expected to buy numerous airplanes in 2008 and 2009. Aircraft prices will indeed decrease during these years, because of the expected downturn in passenger demand on the air transport market. As aircrafts stand for more than 90% of an airline’s permanent assets, buying them when prices are low is an economical necessity, all the more than the companies’ profitability is threatened by rising oil costs. The amount of aircrafts in the European sky may thus continue to grow up. Most of the leading European LCCs already have full order forms. Ryanair currently operates about 150 planes, and plans to double its fleet by 2012. EasyJet runs 137 aircrafts, and ordered 120 ones. Air Berlin will have more than 150 planes after the takeover of Condor in 2009, and ordered about the same. Even smaller LCCs show impressive order figures: SkyEurope’s very young fleet of 14 aircrafts could double by 2011. Wizz Air has about the same amount of planes, and expects to reach more than 50 within the 3 to 5 next years. On a highly competitive air transport market, which has not yet been consolidated, airlines have to constantly increase their capacity to keep a chance to exist. Ordering lots of aircrafts is also a way of showing their prosperity and their confidence into the future. But these abundant orders could finally lead to congestion and overcapacity. Overcapacity is a chronic problem on the air transport market, especially on the LCC market, where airlines always try to add capacity in order to earn a little more extra revenue. It is part of the air transport business cyclical nature. “Airlines do well, buy more aircrafts, reach a point of overcapacity and are unable to fill them, consolidation and bankruptcies happen, few players are left, who recover, they begin to do well, and the story repeats itself all over again”, Alex Cruz, CEO of ClickAir, explained in an Air Scoop interview in 2007. In the European sky, signs of overcapacity began to appear earlier in 2007. According to some analysts, the decline of load factors (Ryanair’s went down from 85% to 83% between April 2006 and April 2007, and easyJet’s from 86% to 83%) could be a result of an overcrowded sky, even if the airlines themselves deny it. Recently, several airlines announced a reduction of either their capacities or plane orders. In Germany, a very busy market, TUIfly decided

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BIRD’S EYE VIEW
to operate only 48 aircrafts in 2008, instead of 55 now. In Great Britain, Ryanair decided to cut its capacities this winter, by grounding the equivalent of 10 planes, among which 7 in London-Stansted. Medium-size airlines may be the first to suffer from congested routes. In Spain, a market saturated by huge European players’ investments (Ryanair, easyJet, Air Berlin), Vueling (23 aircrafts) cancelled orders for nine Airbus A320s to be delivered in 2008, and postponed the delivery of six others to 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 LCC will 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 excessive aircraft orders as one of the major obstacles to airlines’ profitability in the next years. It estimates that five important European LCCs (Ryanair, easyJet, AirBerlin / dba and Germanwings) have all together ordered 360 aircrafts (most of them Airbus A320s or Boeing 737s) to be delivered until 2010, and put options on 370 others. The study concludes that there would be at least 36 million excessive seats on the 2010 European market, with serious consequences: yields reductions, and disappearance of smaller LCCs. Overcapacity will, in fact, boost the consolidation process in the European sky. However, buying aircrafts remains a necessity for LCCs. Keeping a young fleet allows them to lower fuel consumption and maintenance charges. Those who aim to develop on transatlantic routes will have to buy new long haul planes, like Boeing 737s Dreamliner or Airbus A350s. Ryanair, for example, could purchase 30 to 50 of those planes in the next 3 to 5 years, especially if prices go down. Air Berlin signed a deal this summer concerning 25 brand new Boeing 787s Dreamliner, for a total amount of 4 billion $. The planes will be delivered between 2013 and 2017. The 787 Dreamliner is not only a long haul aircraft: it is also 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 flight market. This is another reason of buying new planes. easyJet’s CEO Andy Harrison, for example, recently affirmed its intention to run one of the cleanest fleet in Europe, and presented the EcoJet, a short haul aircraft generating 50% less CO2 than current planes, not expected to be delivered before 2015.

Interview of Jim French (Chairman & CEO of FlyBe)
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 acquired British Airways’ point to point regional carrier, BA Connect earlier this year, we expect to carry 7.5 million passengers in 2007 and 10 million next year. What differentiates us compared to other LCC’s is our business model. We fly region to region rather than capital to capital, with a focus on domestic, European City and French regional flying. Our fleet of Bombardier Q400 and

Embraer 195 are modern, environmentally sensitive aircraft that are the right aircraft for the right route. In terms of what we do better than our competitors, I would say three things: Firstly, the quality of our domestic European city coverage, secondly we are number 1 in terms of ancillary revenues, averaging more than £8.00 per passenger and thirdly the fact we carry 40% business passengers. We are innovators. We were the first airline in the world to introduced baggage charging, bringing complete transparency to what passengers pay. We in effect re-wrote the low-cost rulebook by introducing a ticket that isn’t simply low-cost but that allows the traveller to select a package

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of additional elements. And recently (see question 3 below) we were the world’s first airline to introduce an ecolabelling 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 marginally with Easyjet. Our main competitors are BMI regional and, as we expand in Germany, Lufthansa. What is your position on environmental issues concerning European LCCs? We support the view that human activity, including air travel, is contributing to global climate change and we accept that, as one of Europe’s largest regional airlines, we have a responsibility to reduce the carbon emissions produced by our aircraft. As a regional airline, we take our take our responsibility to the communities we serve very seriously both in terms of the economic growth we stimulate and the effect upon the local environment of the communities we serve. That’s why we’ve spent more than $ 3billion on the market’s most fuel efficient and emission efficient aircraft technology. And to give passengers as much information as possible about the impact their flight has on the local and global environment, we’ve launched an ecolabelling scheme. The label, modelled on those used in the sale of white goods like fridges, microwaves and washing machines, shows a full range of environmental indicators per aircraft. More information is available at www.flybe.com/environment The European Low cost carriers market has reached a certain maturity which leads to its consolidation. During this transition, what are, for you, the greatest threats to the European Low cost carriers? Fuel rising? Overcapacity? Evolution of airports? Regulation?... Our biggest challenges at the moment are the regulators undermining de-regulation, the effective airport monopoly operated by BAA and the ever-increasing prices for airport charges. What are your expansion projects for the coming year (s)? Further growth in the UK and overseas. We expect to fly 10 million passengers a year by the end of 2010 and plan to introduce even more new routes to Europe. Many LCCs look after extra-revenues to offset the low price of their tickets. What are the projects of Flybe in terms of Extra-revenues? We are world leaders in ancillary revenues, with the highest per passenger revenue in the business. As I said earlier, we are proud of being innovators. Our baggage charging policy has been imitated by low-cost and traditional alike and our advanced seat assignment has likewise been a big success. We were also the first low cost airline to introduce a frequent flyer programme, Rewards4All which is 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 a defendable niche, and Flybe will be one of the main 2 or 3, 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 recruitment campaign for pilots and crew and received more than 1000 applications, so clearly there is confidence out there 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 a combined 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, we had a caterer for each airport, thereby duplicating our efforts. That has all changed with a single, central distribution centre, saving time and money and is now the norm for the industry. We have prospered because we’ve been able to drive costs down and keep them down over the last few years and we’re pretty confident that our business model is in good shape.

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Analysis of the Polish LCC Market
When Michel Platini, president of UEFA, announced in Cardiff on 18 April 2007 that Poland and Ukraine will be the host of the 2012 football European Championship, the decision was celebrated by low-cost carriers, too. Such an event involves huge infrastructural investments, including for instance the further renovation and extension of airport facilities. Second, due to this event, Poland is going to appear in the international media more frequently, thereby the awareness of the country is likely to increase abroad. This, in turn, may attract more tourists to Poland. Third, the expected huge flow of spectators will generate a lot of demand for air transport during the summer of 2012; however, this may be a temporary effect. The low-cost carriers are probably more concerned with the likely rise of investments into airport facilities. In the past couple of years, as it will be discussed later, Poland has already achieved a good record in this respect. Seven Polish cities (Gdansk, Krakow, Poznan, Warsaw, Wroclaw, Chorzow) have been selected to host matches of EURO 2012 and six of them (Gdansk, Krakow, Poznan, Warsaw, Wroclaw) already have a well-equipped, steadily developing international airport. With a population of 38.1 million (2006) and a surface area (313 thousand km2) that roughly equals to Italy, Poland is the largest of the new member states of the European Union. This implies great potentials for commercial air transport, involving good prospects for low-cost carriers, too. Currently, there are ten international airports in Poland (see the map) that are served by at least one low-cost carrier. Most of these airports have recently undergone major reconstruction and extension. The biggest of all is the Frederik Chopin Airport in Warsaw, which handles more than 50 % of all air passenger traffic in the country (in 2007, Warsaw airport served more than 8 million passengers). The construction of a new terminal began in 2004 and most of the works were already completed last year. Due to this, the capacity of the airport of Poland’s capital has increased to 10-12 million passengers per year. The second busiest airport is in Krakow, which is capable of serving 3.5 million passengers annually. Between 1999 and 2003 major extension works were carried out. As a result, Krakow has become one of the most preferred airports of the low-cost carriers. However, the nearby airport of Katowice has demonstrated an even bigger activity in modernisation. First, the runway strip was extended in 2001, and then the extension of the passenger terminal was concluded in 2004. The greatest investment, however, was Other Polish airports have also undergone recent modernisation in the late 1990s, early 2000s. Gdansk, for instance, celebrated its 1000th anniversary in 1997 with the construction of a new passenger terminal. In the same year, a new international terminal was completed in Wroclaw, which was further extended in subsequent years. New passenger terminals were built at airports such as Poznan (works completed in 2001), Bydgoszcz (in 2002), and Szczecin (in 2001, further extended in 2005). In most of the cases, these works were combined with the extension of runways and apron areas and the modernisation of control towers. the construction of a new terminal (Terminal B), which was concluded last year and the terminal was officially put in operation in July, 2007. This enables the airport to serve up to 3.6 million passengers per year.

*: Bydgoszcz, Rzeszow, Szczecin, Krakow, Poznan: total passengers; Gdansk: international passengers; Wroclaw and Katowice: passengers on scheduled flights. Data is available for the first 11 months of 2007. Figures for Warsaw are not displayed. Data for Lodz are not available.

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One may conclude that Polish governments have consciously followed a policy of modernising airport facilities, thereby investing in infrastructure that may generate several beneficial effects in the long run. Passenger turnover at Polish airports, however, did not show a significant increase until 2004, when the country joined the European Union. Since that year passenger turnover has shown a steady increase at most of the airports (see the graph). Especially Krakow and Katowice has experienced extremely fast growth, for instance, Katowice served almost 13 times more passengers in 2007 than four years before! The liberalisation of air traffic within the EU and its consequences caused remarkable effects in Poland as this unprecedented growth has been caused by the multiplying number of international passengers partly carried by the low-cost carriers that entered the country. One should also bear in mind that without the prior upgrading of airport facilities, such remarkable growth in passenger turnover would not have been possible. Based on the figures of passenger turnover, Polish airports may be grouped the following way: Warsaw, Krakow and Katowice are those that handle more than 2 million passengers per year (Katowice performed just slightly under this by serving 1.995 million passengers in 2007), while there is a group of airports that serve around 1 million passengers (Gdansk, Wroclaw, Poznan). Finally, there are those airports of which passenger turnover do not exceed 250-300 thousand passengers annually (Bydgoszcz, Rzeszow, Szczecin). airport because it is easily accessible to them. The size of the catchment area of Katowice, located in the middle of a very densely populated industrial region, is the greatest, almost twice as big as that of Warsaw. Nevertheless, this does not involve that in the future passenger turnover at Katowice airport may exceed the volumes of Warsaw as it is not likely that Katowice and its surroundings will become such a significant financial, commercial and administrative centre as the Polish capital. However, the enormous catchment area may imply that local demand for flights will continue to increase also in the long run. In spite of this, Katowice’s rival, Krakow airport may be in a better position. Unlike Katowice, Krakow is able to generate substantial tourist flows due to its rich, worldfamous historical heritage and such nearby attractions like the Auschwitz (Oswiecim) concentration camp and the Wieliczka salt-mine, both listed on the UNESCO’s World Heritage List. In terms of the size of catchment area, even the currently less popular airports may bear significant potentials. In sum, it is not surprising that low-cost carriers tend to favour Polish destinations.

If one considers the catchment area of the airports, the hidden potentials for further growth may be revealed. The catchment area is defined as the number of inhabitants living within a distance of 100 km from the airport. This should imply a maximum of 2 hour long travel within any point of this circle to the airport. In other words, those people who live within this zone are the most likely domestic candidates for becoming passengers that use the

However, the LCC market in Poland seems rather concentrated. Currently, there are 20 low-cost, low-fares carriers that fly to Poland but only three of them can be considered dominant ones. Ryanair is the only carrier that serves all the 10 airports, while the Polish LCC, Centralwings flies to 8 of them. Even though the Hungarian WizzAir is present at only 5 airports, it is the biggest low-cost carrier in Poland. According to the company’s calculations, WizzAir has flown approximately 3.5 million passengers in 2007 in Poland, while Ryanair carried 2.8 million. The significance of the Polish market for WizzAir is clearly reflected in the fact that for 2007, the LCC expected to carry a total of 4.6 million passengers. With these figures WizzAir is clearly the biggest low-cost airline in Poland and the second largest carrier in Poland. WizzAir and Ryanair together take more than 50% of the market share of low-cost air traffic in Poland, leaving the competitors far behind.

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Another crucial issue is the destinations where the lowcost carriers fly. Based on the flight schedule for the winter season of 2007 and planned summer destinations for 2008, there are 18 countries to which direct low-cost connections are being offered. However, the United Kingdom and Ireland together take almost 50 % of the share of the established city-pairs between Polish airports and international destinations. This means that almost half of the flights are offered between a Polish airport and a destination in the UK or Ireland! What is more stunning is that there is hardly any low-cost flight connection between Poland and other new EU member states, or between Poland and other Central and Eastern European countries. Given that WizzAir abandons its flight between Warsaw and Budapest on 14th January 2008, there will remain a single Eastern European country, Bulgaria, to which direct flights will be offered from Poland by LCCs but only in the summer season. In short, the destination portfolio could not be more Western-oriented and concentrated on so few target countries. the airline abandoned much of its Polish operation and withdrew from the market. Only two direct flights remained: the Warsaw-Vienna and Krakow-Vienna flights. As SkyEurope offered mainly Mediterranean holiday destinations and fewer flights to the UK and Ireland, it was exposed to a much greater seasonality of demand than Ryanair or WizzAir. Moreover, as Sky’s cost base is higher than that of these two main competitors, the company proved unable to match prices and engage in a price competition. This evidently led to a loss of market share. Figures revealed by Krakow airport seem to reinforce this argument. In 2006, SkyEurope was the biggest airline at the airport, carrying over 19% of total passengers. However, its market share decreased throughout 2007, and in the first 10 months (when SkyEurope operated in Krakow with full capacity) the airline reached only 17.85%, while major competitors like easyjet and Ryanair were able to increase their share. Especially Ryanair managed to grow considerably. While in 2006 it carried 15.2% of total passengers at Krakow airport, until November 2007 the carrier reached a share of 17.59%. Passenger turnover to different destinations show an even greater concentration. In the first ten months of 2007, 39.80% of total passengers flew to or from the UK and Ireland! The second most popular country was Germany (with 13.03% of passengers), while Italy finished third with 11.07%. These three countries (counting the UK and Ireland together) alone were responsible for roughly 64% of passenger turnover in Krakow in the first ten months of 2007! The concentration of the destination portfolio therefore reflects passenger demands. The reason why Sky Europe did not manage to compete successfully in the Polish market was partly because of the intensifying price competition and partly because of failing to match its route portfolio with real needs or failing to offer flights on those routes where the greatest demand appeared.

The possible reason for this is the massive outward labour migration from Poland to the UK, Ireland and Scandinavia. According to estimates there are about 750 thousand Poles living and working in the UK, but other sources approximate this figure even up to 3 million! In any case, the huge number of recent Polish labour migrants may generate a steady, consistent demand for flight connections between the homeland and the host country. The UK-based LCCs and WizzAir seems to take advantage of this phenomenon. WizzAir offers flights to the UK and Ireland from all five Polish airports that it serves (Gdansk, Katowice, Poznan, Wroclaw, Warsaw). These airports are located in those regions from where most of the outward migrants come, therefore one may reasonably assume that a considerable part of WizzAir’s passengers in Poland are the migrant workers, their families, relatives and visiting friends. This peculiar character of the Polish low-cost air traffic market highlights the reason why SkyEurope failed to penetrate it. The biggest base of the Slovakian low-cost carrier in Poland was Krakow until November, 2007, when

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The strategy followed by WizzAir and Ryanair in Poland seems sustainable and also profitable. WizzAir is going to open its new base in Poznan in January, 2008, and will offer flights from the city exclusively to the UK, Sweden, Germany and Norway. Given the size of the city’s catchment area, it may qualify for having one of the biggest hidden potentials for low-cost carriers. The lesson that the other Central European countries already taught us is very similar in Poland. The first-movers have a significant advantage over late-comers, but only if they are constantly able to offer the lowest prices. In other words, the Central and Eastern European market, at least for the time being, offers good perspectives for those LCCs, whose business model is similar to Ryanair’s. Keeping the costs and prices down is the best strategy for LCCs to survive, but this lesson has already been learnt in Western Europe, too. Based on the above, low-cost carriers may have all the reasons to expect great returns on their investments in the Polish market in the upcoming years. A well-established airport infrastructure combined with a constantly increasing demand for air traffic, due to labour migration, growing foreign investments, and a booming property market, coupled with hosting EURO 2012, make Poland a place to closely observe also in the future. Source of data: Webpages of Polish airports. Bydgoszcz: www.plp.pl; Gdansk: www.airport.gdansk.pl; Katowice: www.gtl.com.pl; Krakow: www.lotnisko-balice.pl; Lodz: www.airport.lodz.pl; Poznan: www.airport-poznan.com. pl; Rzeszow: www.lotnisko-rzeszow.pl; Szczecin: www. airport.com.pl; Warsaw: www.lotnisko-chopina.pl; Wroclaw: www.airport.wroclaw.pl Map provided by Faqs.com

EVENTS

French Connect 2008
April 9 to 11 in Courchevel Air Scoop is proud to be part of the 5th French Connect in Courchevel. 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 representatives 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 Généraux (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

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SWOT Analysis of Flybe
Introduction The LCC market of the United Kingdom: Low cost air travel has heralded a new wave of investment, tourism and jobs in UK. It has given ordinary working people the chance, many for the first time, to travel to new destinations that would have been unthinkable just ten years ago. In 1997 there were just two low-cost operators with 19 aircraft between them. Today, 6 low-cost airlines operate more than 250 aircraft. The United Kingdom is the first country to have a lowcost share above 25% of the total IFR movements. Ten of the top 25 low-cost country-pair flows involve the United Kingdom. These 10 flows had 39% of all low-cost flight movements in first six months of 2007. Nine United Kingdom airports had 19% of all low-cost flight movements during the first 6 months of 2007. (Source: Eurocontrol Market updates 2007). The total market share of UK was 32.5% in the first half of 2007 with a share growth of 4%. London’s Stansted airport had the highest share of 5% of low cost arrivals in ESRA. Besides market leaders, easyJet and Ryanair, the other major players are: Flybe, BMIbaby, Jet2, Flyglobespan. Flybe, the regional low cost carrier: Flybe promotes itself as a champion of regional transport and short haul flying and as a carrier at the forefront of efforts to minimize environmental impact and promote sustainable growth in the aviation industry. It currently operates one of the most environmentally friendly fleets in the world following the introduction of the Embraer 195 aircraft to its fleet last year. Flybe is based in Exeter and is the largest scheduled airline major at Birmingham, Southampton, Belfast, Channel Islands, Edinburgh and Glasgow. It flies from the United Kingdom to destinations in Portugal, Spain, France, Switzerland, Austria, Holland and Germany. It has developed a very firm niche in the UK aviation market, primarily through the usage of smaller aircraft than most of their rivals and downgrading London from its portfolio of airport bases. Jim French, Chairman and CEO of Flybe, heads up a team who in the last few years have transformed Flybe from a regional carrier to a dynamic, fast-growing and profitable new generation low-cost airline. The other members of the Flybe management team are: Mike Rutter – Chief Commercial Officer; Andrew Knuckey – Chief Financial Officer; Andrew Strong – Chief Operating Officer.

SWOT TEAM
The organization is 69% per cent owned by Rosedale Aviation Holdings Ltd. 16% of shares are owned by staff through an Employee Share Scheme. The final 15% is owned by British Airways as a consequence of Flybe’s acquisition of BA Connect. The IPO and a likely listing on the London Stock Exchange are expected sometime later next year or early 2009. Flybe now flies on 152 routes from 22 UK and 34 European airports across 12 European countries. After the successful acquisition of BA Connect, Flybe is now Europe’s largest and fastest growing regional low cost airline. It will have 70 aircraft by end of 2007. The company employs 1,800 people, of which 1,300 are airline staff and 500 are in aviation services. Awards 1. In October 2007, Flybe’s acquisition of the regional arm of British Airways earlier this year, earned it the Business Achievement Award from the French Chamber of Commerce in Great Britain. Flybe now operates more than 100 weekly departures to France, to destinations including Nice, Avignon, and Paris Charles de Gaulle. Some 818,000 passengers fly between France and the UK each year and the link is estimated to be worth 80 million Euros to the regional French economy. 2. In June 2007, Flybe was crowned the top low-cost airline by The Listening Company, a leading customer insight specialist in UK. It also placed Flybe as the fourth most recommended carrier overall, just behind Emirates, P&O and Virgin. 3. Flybe.com, the website for Flybe, has been honored by Wanderlust magazine in its Feb. 2007 Travel Awards, as the best airline website in the UK. 4. In November 2006, Flybe was awarded the Gold Award for Disability Equality Achievement in the Transport sector. 5. In October 2006, Flybe, was named a Business Superbrand for 2007 by the Business Superbrands Council, as an exceptional business to business brand in the UK. 6. Flybe has been voted “Best Low Fares Airline” in Northern Ireland for the second year running October, 2006. 7. In 2005, CEO Jim French won the Executive of the Year title at the Low Fares and Regional Aviation Summit. Overview of Flybe History and Growth: Flybe has its roots in the 1979 launch of Jersey European Airways. This company was taken over by the Walker Steel Group in 1983, with Exeter as its headquarters. In the 1990s the airline grew, adding London

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Gatwick to its routes from Guernsey. In 1993 Business Class Service was launched, making Jersey European the first domestic airline to offer two classes of service. This period also saw more BAe 146 jets joining the fleet, bringing the total number of jets to seven. Three new Business lounges were opened at Belfast City, Jersey and Guernsey, as well as the launch of the innovative Ticket to Freedom frequent flyer scheme to reward the loyal business customer. In 1996, franchise partnerships with Air France saw new routes open from Birmingham to Paris and Glasgow. In 2000, the company changed its name to British European. The re-branding reflected British European’s status as the 3rd biggest domestic scheduled airline. In July 2002 British European was forced to dramatically change its business model and brand name to survive in a highly competitive and aggressive new low cost travel era. Flybe was born as a bright modern brand and accompanied by changes to commercial, fleet and operational policies that were to transform the airline. More new routes were opened in 2004, as the company launched new sun and ski destinations in France. In 2004, record half year profits of £14 million were announced. Flybe signed a deal for 20 Bombardier aircraft in 2005. It became the first airline to offer celebrity endorsed snacks and sandwiches onboard and to introduce the Fair Deal on Baggage. It also launched new flights from Liverpool John Lennon Airport and Norwich International. 26 new Embraer aircraft were ordered. In 2006 this airline invested £12m in a brand new Hangar Facility in Exeter. It appointed four Non Executive Directors and announces year end profits of £6.6m. Later that year, it took delivery of Embraer’s newest 195 model aircraft and announced plans to take over BA Connect, which would make Flybe the largest regional airline in Europe. “We have gone through a massive transformation,” says Chairman Mr. Jim French “For every seat we fly our costs are now 32 per cent less than they were two years ago. That’s been achieved through a fleet transition, rationalizing our aircraft from five types to two and cutting crew on board. We are unique and we are by far the largest low fares regional airline in Europe. The average size of our aircraft is 85 seats. A lot of analysts and journalists doubted that we could make it work. But we now have a business that is showing a good profit margin, has cash in the bank and is growing by around 25 per cent.” Innovativeness of Flybe operations: Since 2005, Flybe has introduced numerous innovations that have lead the low cost revolution including pre-assigned seating facility, online check-in and the ability to change your flight itinerary online. Flybe is also the only low cost airline to offer a business service in UK and runs the most generous frequent flier program. Some of its unique innovative schemes are: 1) Eco-labeling scheme: In June 2007, Flybe became the first airline in the world to introduce an aircraft eco-labeling scheme under which Flybe passengers will be provided with a detailed but user-friendly breakdown of the fuel consumption, carbon emissions and noise patterns of the aircraft type to be used on their journey. This will help passengers to decide, whether they want to carbon-offset that journey. 2) Flybe Cruise: In January 2007, Flybe made an exclusive deal with Voyana Ltd, a cruise company in the UK and Europe, to launch a new brand ‘Flybe Cruise’. Flybe is the first UK airline to offer this type of holiday platform to its customers to depart for cruises. 3) Self-service check-in kiosks: In July 2006, Flybe introduced self-service check-in kiosks at Manchester international airport. The introduction of the kiosks was a first for both Manchester airport and Flybe and is being rolled out across other Flybe bases. 4) Sale of unique advertising aircraft space: In June 2006, Flybe launched it’s first ever aircraft ‘wraparound’ by signing a six figure deal with the gaming entertainment company MANSION. The low cost airline’s jet aircrafts were covered in Mansion colors and logos. MANSION was benefited from reaching over 5 million of Flybe’s passengers through onboard and executive lounge promotions. 5) Promotion of Disability Equality: Besides bringing air travel at the door step of regional passengers and eliminating crowded London routes, some of the measures introduced by Flybe to promote disability equality include: � Free of charge assistance to and from the aircraft � Introduction of the more accessible Embraer 195 on its routes � Assistance for embarking / disembarking from the aircraft � An onsite trainer fully equipped to train staff on risk assessment, wheelchair handling and practical handling � Special allowances for customers traveling with wheelchairs 6) Reinforcing its commitment to the communities it serves: In August 2005, Flybe announced its first ever charity partnership with the UK’s leading wish-granting charity, Make-A-Wish Foundation that grants wishes to children aged 3 to 18 who live with life threatening illnesses. Flybe became Make-a-Wish’s official low cost airline partner. 7) Flybe’s advertising model: In July 2005, Flybe launched a first of its kind website and ambient media-offering, providing advertisers a range of opportunities including: � Home page, booking confirmation page and destination guide advertising on Flybe.com website � emails to Flybe’s subscriber base, either to whole national base or targeted at specific geographic regions � Innovative onboard advertising (from headrest covers,

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in-flight magazine, overhead lockers and seat-back tables) � Sponsorship of Flybe’s airport executive lounges reaching a group of high wealth individuals and corporate travelers. Impact of Takeover of BA Connect: In November 2006, Flybe bought the loss-making regional arm of British Airways, BA Connect. As a result of the takeover, Flybe went from an airline employing 1700 staff and carrying 4 million passengers to one carrying 7 million passengers and employing 3000 staff. It will operate 400 flights each weekday. British Airways has kept a 15% stake in the business. The takeover reinforces Flybe’s position in the airline market as a specialist regional operator. Flybe has kept the majority of the BA Connect’s routes, but has eliminated its international and London Gatwick slots. The most important routes for Flybe of those previously operated by BA Connect are the Domestic trunk routes namely Leeds Bradford, Liverpool, Edinburgh, Belfast, Manchester, Birmingham, Southampton and Exeter and European business centers like Amsterdam, Bordeaux, Dublin, Dubrovnik, Düsseldorf, Faro, Galway, Geneva, Hamburg, Hanover, La Rochelle, Malaga, Nice, Palma, Paris, Rennes, Salzburg, and Toulouse. Thus Flybe has become the largest scheduled airline at Manchester, Birmingham, Southampton, Belfast City, Inverness, Norwich, Jersey, Guernsey and the Isle of Man. Turnover is likely to top £500m. The company is also on track to deliver £40m of cost and revenue savings having completed changes such as the closure of the BA Connect Manchester head office and axing loss-making routes. Flybe is doing a major push in Inverness, and plans to increase its operation by more than 50 per cent. The airline is preparing for future expansion and is adding 10 new cabin members to the existing 18 already based in Inverness, and an additional 9 new customer-care agents and supervisors. The recruitment drive is aimed at new routes planned for Manchester, Exeter, Birmingham and Southampton from Inverness. Flybe also has plans to link with Schipol Airport in Amsterdam. Flybe sees the City as a long-term base. Current Status: Flybe’s Exeter Headquarters has grown over the past 20 years with an investment of over £155m in the facilities. It has spent approximately £1.2 billion equipping its fleet with more fuel efficient aircraft. The new Canadian-made 78-seater Bombardier Q400 and the Brazilian Embraer 195 planes (for which it is the launch customer) will be fully operational by 2009. Flybe in the past five years has grown from 1.9m passengers and 41 routes to one serving five million passengers and 152 routes. It is a ‘much stronger business’ after the complete integration of BA Connect into it as stated by the CEO. The group posted pre-tax profits of £15.6m for the year to March 31, 2007 against a loss of £4.4m a year before. Turnover rose 17 per cent to £355m. Flybe has sold all of the Embraer 145 aircraft inherited from BA Connect as it prepares for the launch of a new fleet consisting of 60 78-seat Bombardier Q400s and 16 118-seat Embraer 195s. The new planes, worth 3 billion (£1.44bn) are due for delivery by the end of 2009, creating one of the youngest and most environmentally sensitive fleets in the world. It is phasing out its fleet of older BAe 146 jets by February 2008. It has a workforce of 3,000 and it is a member of IATA. Around half of its pilots are represented by the British Air Line Pilots Assn., while the other half are nonunion but are represented by BALPA during contract negotiations. Domestic flights between UK domestic airports account for 83 per cent of Flybe’s business compared with 22 per cent of those of EasyJet and 7 per cent of Ryanair’s. UK & Ireland traffic is 64%; Euro city & France is 14%; Sun and Ski is 22%. Flybe had an approximately of 64% breakeven load factor in 2006 against an actual load factor in 2005 of 67.7%. Its average stage length is 300 miles and average aircraft size is 90 seats. Flybe’s summer schedules saw a major move into the new area of Croatia, with flights from Birmingham to Dubrovnik and Split that started in May 2007. Re-emerging as a popular leisure destination, this move into the south eastern European country is of high strategic importance to the airline as it continues to push its boundaries and grow across Europe. Minor setbacks during H2, 2007 Forced landings and fumes in cabins: February 2007: An incident of a gas leak was reported on the flight between Birmingham and Belfast in a BAe 146 aircraft. The crew had to put on oxygen masks and turn back after fumes wafted into the cabin 15 minutes after take-off. July 2007: The next happened when two cabin crew members became violently ill and collapsed during a Flybe flight in on a BAe 146 aircraft between Birmingham, England and George Best Belfast City Airport in Northern Ireland. All

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seven crew members had to be taken to hospital on landing. The Transport and General Workers’ Union, which represents Flybe’s cabin crew, says the crew members’ illness was caused by a «toxic gas» in the aircraft cabin. October 2007: Some cabin crew and pilots at Flybe refused to work on the airline’s BAe 146 planes, saying the polluted air is making them ill. There have been ten leaks in Flybe’s fleet over the past 15 months, a BBC investigation found. Since 2002, pilots’ union Balpa has received about 30 complaints about sickness allegedly caused by fumes. Passengers too expressed worries about flying on them. But Flybe claimed, although its planes were fine, it had decided ‘several years ago’ to phase the planes out by February 2008. 14th November 2007: A Flybe plane was forced to make an emergency landing shortly after take-off when fumes began leaking into the cabin. Passengers on board the BE7125 flight from Birmingham International to Stuttgart in Germany complained of an «unpleasant odour» and «high temperatures». As a precaution the plane landed back at Birmingham International just 15 minutes after taking off. Former Flybe captain John Hoyte, who founded the Aerotoxic Alliance, said: “Passengers’ lives are definitely at risk.” A Flybe spokeswoman apologized to passengers for the incident. «The safety of our passengers is of the utmost importance to Flybe and we apologize for any inconvenience caused to their journey this afternoon.» The safety of the Q400 aircraft: When the third gear collapsed in a landing incident with SAS flight 2867 using Q400 aircraft on October 27, 2007, SAS decided to per¬manently ground their entire 24-aircraft Q400 fleet. SAS’s dramatic action, while potentially very costly, emphasizes to the public that they’re not taking any chances when it comes to safety. Even if the accident were the fault of the aircraft manufacturer, it is the airline that is seen to be liable in the public’s eye. But Flybe is standing by its Bombardier fleet. Flybe has had no incidents. Q400 aircraft make up the bulk of FlyBe’s fleet and will comprise even more once their BAE146 planes have been removed. With a low-cost business model that necessita¬tes high aircraft utilization, would FlyBe be as willing as SAS to ground its Q400s if it discovered a technical pro¬blem with the plane? Q400s comprise almost half of FlyBe’s fleet; so such grounding could be devastating to the company. Legacy carriers could use it to their advantage to capture the LCC market share. A Capital Mistake: Nov. 21, 2007: Flybe, has been dogged with problems Misleading Advertisement: November 27th 2007: The Advertising Standards Authority (ASA) has ruled against Flybe, for its misleading advertisement earlier this year which made erroneous claims about the level of train fares rises past and present, as well as claiming that Flybe was cheaper than rail. Following a complaint to the Advertising Standards Authority (by Lord Faulkner of Worcester), the ASA investigated and has ruled (Ref A07-35546) that Flybe’s claims breached the code. In its ruling the ASA says, ‘We told Flybe to ensure they made the basis of their claims clear in future and that they held evidence to support their claims before their ads were published. We advised them to seek guidance from the CAP Copy Advice team for their future advertising.’ The ASA rebuts the implication that the hypothesis put forward by Flybe was supported by ATOC when it was clearly not and it demonstrates that rail often offers better value than air, and of course, is a far more sustainable way to travel.’ since its take over of BA Connect earlier this year. Passengers have been left stranded on numerous occasions as a result of cancellations on the Inverness-Gatwick route. Flybe has been forced into making several apologies and earned itself the nickname Fly-Maybe. Reliable services between Inverness and Gatwick are essential to the Highland economy. But the airline has now caused further fury by promoting its Inverness route with a map showing the Highland capital located in Edinburgh on their latest promotional flyers being distributed to households in the Highlands. The promotional material, which boasts ‘more choice of routes than any other airline’ tells passengers they should: “Think Flybe. Come fly with us.” The company, has ploughed £700,000 into advertising the city as an attractive destination, but wrongly positioned the Highland capital in the map. But one seasoned traveler hit back: “Maybe it’s them who should ‘think’ more, especially when they are trying to improve the service in the Highlands. They got off to a bad start and it certainly does them no favors by putting Inverness in the wrong place on a map advertising their flights.” Mike Rutter, Flybe’s Chief Commercial Officer, said: «It was a capital mistake and we apologize unreservedly.”

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Business Model of Flybe The company’s philosophy is to offer low airfares on its flights, but not low services, and continue to focus on the service it provides in order to satisfy its customers. Flybe achieves a 10-15 pounds premium above the prices of hardcore low fares airlines, by providing convenient local departure points, and the Flybe product differentiators. Nearly 86% of bookings are done via the Internet. Important elements of Flybe strategy are: 1) Aggressive and outstanding marketing: � Simplified distribution channels � Direct B2C sales � Democratized the skies � Put leisure back in air � Empowered the consumer-control trend � Used PR to develop heavy weight media coverage 2) Transparent All centric Pricing: The charges for the fares are clearly specified and they are cheaper on off-peak days. The fare consists of: a) Basic air fare; b) Credit/Debit card charge; c) Taxes; d) Airport charges; e) Ski charges; f ) Ancillary revenue charges; g) Excess baggage; h) In-flight sales 3) Phenomenal low-cost base: LCCs in general have an almost 50% lower direct operating costs and 100% lower indirect operating costs than traditional airlines. Flybe’s costs are lower due to not only its lower operating costs, but also because of using smaller, younger and more fuel-efficient, 2-model fleet making it more environmental friendly. But Flybe’s average flight length is shorter than Ryanair’s and their average fares are higher because of the additional free customer services it provides. The main Flybe product differentiators are: 1) Economy Plus class for business travelers 2) Convenient airports and choice of route networks 3) Pre-assigned seating and no over-booking Major facilities provided to passengers are: I. Customer Accounts: Flybe offer all customers an online account. This makes it faster and easier to make a booking plus the customer can also manage his/her existing bookings online. It offers easy access to your travel extras such as online check-in, pre-booked baggage and seating. One can register for a Flybe account by either registering when booking a new flight after confirmation or register directly from the log-in and registration box. II. Economy Plus: • Flexibility of fully changeable tickets at no extra charge; • Complimentary seat selection online before you travel; • Less time in the airport with dedicated priority checkin; • Largest baggage allowance of any UK low fare airline, (30kgs in hold and 10kgs in hand); • Executive lounges with complimentary refreshments and WiFi access; • Complimentary onboard food and drink from Deli in the Sky range; • The UK’s most generous frequent flyer program; • Dedicated B2B website. III. Economy class: • Online check-in and selection of seat at a fee of 5 pounds • Free hand baggage with a maximum allowance of 10Kgs. • Upper limit for check-in baggage is 23Kgs. charged at 4 pounds per baggage at the time of booking and at 7 pounds for check-in at airport. • Excess baggage charge is 5.50 pounds at airport • Economy fare ticket change fee is 25 pounds per passenger IV. Rewards4all: This is a brand new frequent flyer program and the first low cost airline customer loyalty scheme open to all Flybe passengers. All one needs is a customer account to become a member, and then the points get added up automatically with each flight. When enough points have been collected, they can be used to book future flights or one could instead opt for a year’s exclusive executive lounge access. V. Other services: • Bookings permitted through travel agents, corporate travel manager, a travel management company, online or through its customer call centers • Self-service check-in kiosks at many airports • Innovative Q-Buster facility for all passengers booking on-line to check-in both hand and hold-baggage • A self-service one-stop website, flybe2b.com that caters for all corporate travel requirements like Avis car hire, hotels and trains • Much higher legroom for passengers compared to other LCC airplanes • Scheduled Airline Failure Insurance protection • First to introduce celebrity- chef endorsed food range in airlines • First to launch in-flight radio service, Flybe Unplugged • First airline in the world to introduce an aircraft eco-labeling scheme • Purchase of discounted Economy plus ticket books for corporate clients

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Ancillary sources of Revenue are: a) Sporting equipment fees and credit card fees b) Ticket changes charge and speedy boarding fees c) Sale of extra-legroom seats, check-in and excess baggage charges d) Profit share from in-flight sale of food, beverages, and boutique items e) Sale of scratch cards for prizes on-board & online gaming facility f ) Scheduled Airline Failure Insurance protection package g) A unique website and ambient media offering for advertisers h) First ever advertising aircraft ‘wraparound’ deal with a gaming company i) An exclusive deal with Voyana Ltd, a cruise company, launching a new brand ‘Flybe Cruise’ j) Commissions received from products and services sold for e.g. hotel bookings, car hiring, travel insurance, credit card, ski accommodation. k) Supervisory fee for the carriage of unaccompanied children between 6 and 12 years l) A training centre (EASA Part 147 equipped) offering training to engineers, pilots and apprentices Flybe has recently admitted that it was considering levying a fee for people using the check-in desk in the future. The airline is currently installing self-service check-in kiosks at the airports and passengers will be able to use them or check in online for free. SWOT Analysis Flybe set out in January, 2004 with the clear business plan of offering low fares and a high quality service from easily accessible regional airports, developing a network that has become the backbone of Britain. Flybe’s vision is: Creating Europe’s local airline... • No.1 for UK regional travel • No.1 to regional France, from the UK regions • No.1 to European cities, from the UK regions Flybe’s Pledge: • To be a £200m+ contributor to the local economy • To support 2,200 direct and indirect jobs in the region • To provide affordable public transport (without subsidy) to the South West region • Driving the regional economy • Driving Labor mobility • Supporting work/life balance • To be an active and a responsible member of the local community • To be a good and responsible neighbor Flybe’s Commitment to be a Good Neighbor: By end 2006/2007 Flybe will have the youngest fleet in the world and is committed to: • reducing gas emissions by 25% with the E195 • reducing noise levels by up to 35% with the E195 • substantially reducing noise effected communities with the E195 • reducing fuel consumption by 21% • lower noise levels and emissions through the purchase of state of the art Q400’s • lower noise levels and emissions through the purchase of state of the art Q400’s

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Recommendations 1. Flybe plans to replicate its UK based regional model across France, Spain and Italy. Its future success and direction will completely depend on how well they perform outside UK. Each country has its own unique topography and infrastructure. Some modifications and adaptations may be necessary to match the specific requirements. 2. The other geographical areas that Flybe can think of operating outside UK could be in Baltic regions including Scandinavia, that is, after it stabilizes operations in France, Spain and Italy. 3. It may have to plan for entering medium-haul routes in Europe itself after about five years from now following the consolidation and maturing of the EU aviation markets. 4. In order to expand into new European markets, it could adopt the strategy of cooperation, collaboration, or mergers and acquisitions. Conclusion In the battle of low-cost airlines, Flybe has decided that an ambitious strategy is the best way to prosper. The acquisition of BA Connect accelerated this strategy. Flybe’s rapid growth will enable them to spread their costs over a far greater range of activities and routes than ever before. This should enable them to continue to offer low cost fares. Flybe has chosen their battleground carefully, by building on their strengths of being a regional operator. Their expansionist strategy has included picking routes that appeal to UK air travelers’ needs and dedicated to providing value-priced service to the business traveler. The airline has also made considerable efforts to renew their fleet, and becoming eco-friendly. The next couple of years will be crucial in determining the growth and direction of the company. Chief commercial officer Mike Rutter has said: «The timing of an IPO (flotation) will depend upon when everything else is in place - and if no other opportunities come through. We are certainly not ruling out further acquisitions - it’s not a question of if but when.» In the words of its Chairman Jim French: “From a Commercial Perspective, Flybe has proved that there is no Low Cost Rule book, or should I say, that by breaking all of the supposed rules, we have proved that there are no rules other than: Find a niche in the market, maximize your USP, make sure your revenues are higher than your costs and never stand still.”

EVENTS

World Low Cost Airlines 2008
September 23 to 24 in London 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.) Don’t miss out on next year’s event. To have more informations about last edition of the World Low Cost Airlines, read the full coverage in Air Scoop October 2007. For more information on the World Low Cost Airlines 2008, visit www.terrapinn.com

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The ETS Could Bring Some Extra Cash to LCC’s Pockets
An emission trading scheme is believed to be one of the most promising and efficient ways to protect environment. Aviation has only recently been included in the scheme. By the decision of the EU ministers the aviation sector was incorporated in the ETS which applies both to flights within the EU and flights to and from the EU. According to some estimation, carbon emissions caused by aviation are likely to increase twice by the year 2020. The Scheme is comprised of a set of measures that seek to cut carbon emission. A conventional approach would suggest that it is airline that should pay for CO2 emission. However, a closer look at the new regulation backed by the MEP December this year reveals some evidence that airlines could make additional profits from it. The ETS established in 2005 includes industries which contribute to climate change and carbon emission. The ETS allocates a certain number of permits to those industries with each permit being equal to one tonne of CO2 emission per year. The number of permits allocated is limited for each industry. In case operators run out of their permits they need to buy more at the open market. The main point here is that some permits are given to operators free of charge. Since the aviation sector has only recently entered the scheme the regulation still contains several loopholes such as vague limits of the total number of permits and the number of free permits. Therefore, with a generous amount of free allowances given to airlines they are likely to rise around €7 bn if they sell their free allowances to other industries. If the initial proposal is revised and the number of free allowances is reduced, airlines are not going to be down anyway. They are likely to pass costs of new permits to customers which will lead to price increase. However, the increase won’t affect the demand as the cost of a ticket could approximately rise by no more than €9 by 2020. Since the aviation sector is a newcomer to the ETS it is provided with separate aviation allowances in addition to Kyoto (or national) allowances given to each of the Member-states, which they are to allocate to the respective industries. That is, airlines can decide what to “spend” aviation or national allowances. Member-states cannot refuse an airline to change its aviation allowances for national allowance. This provision raises big concerns in the Member-states with huge airlines registered. The biggest LCC today is Ryanair which means that it is Ireland that the carrier would address its conversion demands to. Ireland would have to convert Ryanair’s aviation allowances to national ones since it is obligatory under the provision. Due to incommensurable number of flights Ryanair operates Ireland could easily swap all its national allowances and would have to buy new credits since aviation allowances can only be passed to another operator. What is special about Ryanair is that it is far from being a national carrier as it operates 90% of flights outside Ireland which means that national allowances changed by Ryaniar would in fact cover its international activity. Paradoxically, the Irish taxpayers whose money partly goes for buying national allowances would find themselves paying for emission caused by the flights that do not form the part of the national air traffic in Ireland. That is, the Irish public money could be used to pay for pollution caused by Ryanair in other Member-states. This is where the polluter pays principle gets a bit ridiculous. What’s more, national allowances are much higher in price than aviation. The carrier could then sell unused national credits which it has changed at the open market and again make profit. It seems that the perfect scheme has several considerable shortcomings and could work in a way it was not designed for. If the regulation is not revised such big carriers have several ways of getting windfall profits. They can sell their allocated allowances, they can pass the costs to their passengers and finally they can force their respective host countries to pay for the emission they produce. In the case of Ryanair, Ireland could quickly run out of its national credits and be forced to buy new ones which can seriously affect the country’s overall compliance with the Kyoto protocol let alone wasting of the public money.

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DOWN TO EARTH

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BIRD’S EYE VIEW
Exclusive Analysis for Air Scoop
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Seat Pitch Regulation: What Impact on LCCs?
As LCCs, and charter carriers in particular, have expanded across Europe, they have engaged in prolonged battles to profitably reduce fares. To do so, LCCs have had to trim costs, and one way to generate additional efficiencies is to pack more seats into an aircraft, cutting the seat pitch (the distance between any point on a seat and that same point on the seat in front). The Civil Aviation Authority (CAA) in the UK mandates that carriers provide a minimum of 26 inches of seat pitch, and most charter carriers, including Thomas Cook, First Choice, and Monarch, offer the bare minimum or just above it. Short-haul LCCs such as easyJet and Ryanair offer slightly more, their seat pitches are around 28 inches, while legacy carriers such as British Airways and Bmi offer a minimum of around 30 inches. While a reduction in seat pitch to near the regulatory minimums has meant that LCCs can offer lower fares, some critics are raising questions that these reductions might be at the expense of passengers’ health and comfort. The House of Lords Science and Technology Committee recently issued a report calling for the minimum seat pitch to be increased from 26 inches to 28.2 inches. The committee argues that this change will allow passengers to more easily adopt the brace position in an emergency, reduce the risk of passengers developing health problems as a result of sitting in cramped conditions, and improve their comfort. Many LCCs, and especially charter carriers that offer the legal minimum seat pitch, oppose the proposed regulations. I suggest a wiser course should be that LCCs fight for revised regulations, which take into account several aspects of passenger comfort while maintaining low fares. One of the primary concerns of legislators is that a narrow seat pitch will cause health problems, such as deep vein thrombosis (DVT). While valid, this is a much bigger concern on long-haul flights, where customers sit in their seats for hours. On these flights, where seat pitches can be extremely tight on charter carriers in economy class, passengers are much more vulnerable to developing DVT. On short-haul flights, less than 6 hours or so, passengers run a lower risk of developing DVT, and carriers could argue that on short-haul flights, the current regulations should be kept. However, on flights over six hours, airlines should concede to the recommendations. This would affect virtually no flights from short-haul LCCs like Ryanair and easyJet, which don’t operate flights over six hours in length, but would affect charter carriers that operate long haul flights to Asia, Africa, or the States. If regulations where seat pitch varied on flight time were contemplated, there would be several details to negotiate. The first is how flight time would be measured, as scheduled flight time is often not the same as actual flight time, and passengers’ time on the ground stuck in their seats could contribute to developing DVT. The second would be what penalties airlines would face if they were to violate the flight time requirements, since the severity of penalties can greatly affect how willing airlines are to violate the rules. Additionally, the LCCs would have to determine how to subdivide their fleets into aircraft configured with longhaul seat pitches and short-haul seat pitches. LCCs hate subdividing their fleets, because it reduces flexibility and operating efficiencies. Although some aircraft, such as the 757 or 767, are versatile, and could be used for higher-density short-haul flights, or lower-density long-haul flights, seat pitch regulations, and the desire by airlines to pack as many seats as possible into aircraft, could encumber airlines and make it difficult for them to use those aircraft efficiently. Another regulation that carriers should lobby for, because it is not very intrusive and could prevent regulators from imposing more burdensome requirements, would simply require cabin crew to discuss DVT and the dangers of staying in one’s seat too long in the pre-flight safety demonstration. Moreover, airlines should be required to put some sort of notice about DVT in onboard safety cards, with suggestions about how to prevent its effects during the flight. A brief announcement advising passengers to get up and walk around the cabin to avoid DVT would remind passengers of their role in maintaining their health. Granted, this would not address the safety issue of passengers being able to adopt the brace position, which

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regulators are also concerned with, but it would make it easier on LCCs to address some of the regulators’ concerns while maintaining the status quo in seat pitch. If these new requirements are implemented, regulators may decide to eventually target other areas of passenger comfort. For instance, regulators may try to impose greater seat width requirements. With a narrow seat width, passengers often must squeeze into their seats, making the flight very uncomfortable and painful. Moreover, passengers can be squeezed further if a passenger of size sits next to them (though admittedly, this is a larger problem in the States, where I live). While this is an issue that cannot be rectified immediately, since it is difficult for carriers to add width to seats to existing aircraft without narrowing the aisle (a health and safety hazard), it will likely be taken under consideration by regulators in the future when Airbus and Boeing are designing new generations of aircraft. LCCs that already offer the proposed minimum seat pitch standard should have no problems in the future. However, charter carriers that currently offer the bare minimum will likely need to remove seats, leading to higher fares and fewer opportunities to offer loss-leading extra-low fares in order to lure customers to their planes. The regulations will also diminish the opportunities for carriers to utilize one potential revenue-generating tool, premium seating. Most charter carriers offer some form of “premium economy” seating, with similar seat widths, but slightly more legroom than regular economy. Many taller passengers who cannot comfortably sit in regular economy seats often purchase these premium economy seats, and if more legroom is given to economy passengers, fewer passengers will have a need to do this. Charter carriers could be forced to rethink the sizes of their premium economy seating sections and the potential revenue that they might generate as a result. The House of Lords proposed regulations will, however, make charter carriers more attractive to fly on for passengers, and if these companies can keep fares substantially lower than legacy carriers, then they may be able to make the improved legroom a selling point. Many passengers currently avoid charter carriers because of uncomfortable seats, and instead fly with legacy carriers. Some of these passengers could be converted back to charter carriers if they were given more legroom. As a result, British Airways and other legacy carriers could be forced to offer more amenities to retain economy passengers. However, the regulations will change little in the short-haul market, as most LCCs already exceed the minimum seat pitch. But it will still be an important battle that LCCs and charter carriers will fight in the new year, as it affects their ability to operate economically. But whether the outcome will be successful for LCCs will depend on how much airlines fight the proposed requirements, and how much they choose to concede.

Remarks, questions… Join Sam by email (samsellers@gmail. com) or on his website to comment this article… http:// www.airlinebulletin.com. Sam Sellers provides analysis and commentary on the airline industry at his website, www.airlinebulletin.com, and is the author of Take Control of Booking a Cheap Airline Ticket, an ebook for travelers in the United States who are interested in purchasing cheap airline tickets.

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