Professional Documents
Culture Documents
T
he main issue discussed at the Low Cost Air Transport Sum-
mit 2007 was with no doubt the impact of environmental
issues on Low-Cost Carriers activities (p. 17). Indeed, a way November 14 and 15 in Frankfurt
to limit global warming is to tax tickets which would directly rise
their prices (p. 11) and have therefore negative consequences on Learn to boost your non-ticket revenues by
the growth of LCCs. Each speaker, one after the other, had at least attending the only conference dedicated to
a word on it, and easyJet even hold a press conference to present this topic. Ancillary Revenue Airline Confer-
its future Eco-Jet. With its own business model, easyJet has some ence - - ARAC 2007 - - will take place 14/15
assets to manage the slowdown of activity in the European LCC November 2007 in Frankfurt. The two-day
sector, that’s why Air Scoop has realized a SWOT of the carrier (p. agenda offers more than 25 speakers, inclu-
6) in order to present its strengths and weakness. ding senior airline executives and top indus-
One signal of the slowdown of the market is the current wave of try vendors working in the field. Confirmed
consolidations occurring through Europe. Air Scoop had the oppor- speakers include:
tunity to interview Maunu Von Lueders and Daniel Skjelman (p.
2) about the recent acquisition of FlyNordic by Norwegian. Face to Air Canada - Sandra Lindala, Senior Direc-
these mergers and acquisitions, our team has analyzed the effective- tor New Revenue Opportunities
ness of LCCs mergers (p. 21) and their limits. Amadeus - Alberto Pozo, Managing Director
Another sign of the slowdown of LCCs is definitely the global fall of - Travel Services & Leisure
LCCs shares (p. 14). Ryanair, easyJet, Air Berlin, Vueling… their Flybe - Militsa Pribetich-Gill, Ancillary Re-
shares all has followed the same falling trend these weeks. In this venue Manager
tensed context, many analysts predict a “bloodbath” among LCCs Lufthansa Systems - Roland Moor, Future
soon (p. 13). The market has reach its limits in terms of activity Airline Core Environment
and the slowdown will lead to few strong carriers and the death of Eurostar - Luke Kingsnorth, eCommerce
others. Manager
As usual, in each issue, Air Scoop makes a focus on a Central/Eas- SkyEurope Airlines - Karim Makhlouf, Chief
tern Europe market. After Hungary, the Czech Republic and Slova- Commercial Officer
kia, we have analyzed the Romanian LCCs market (p. 16). Bulgaria US Airways - John Reistrup, Director of
and Poland will be our next markets… Marketing Programs & Customer Loyalty
Visa - Kirk Stuart, Vice President Co-Bran-
ding
Vueling Airlines - Arturo de Perthuis, An-
Air Scoop - In the Air cillary Revenue Manager
Do you believe Norwegian is protected on its own Scan- us a lot of synergies which will be used for our growth. It is
dinavian market against other LCCs competitors? very hard to say if there will be other consolidations in the
Yes, definitely. The reason is simple, it is because, on a lot Scandinavian market as the sector is really fast moving.
of routes, 70% of the market is originated in Norway, Swe-
den or Denmark. That’s why, with this outbound, domestic How do you feel about the “price war” launched by Rya-
carriers will always have the strongest positions. Our cus- nair?
tomers know our brand and check prices of our company It doesn’t affect us at all. We are competing on quite a few
with the ones of our competitors. If we are competitive, routes, but the price difference must be very high to see
we will sell the ticket; if they are competitive, they will our customers changing their flying habits with us. We ac-
sell it. tually see a boost in the routes on which we are competing
with them, and not a decline. It attracts customers to these
Now that Norwegian and FlyNordic are merged, what destinations because they spend more money on marke-
will be the main changes? What about the consolidation ting. Our customers always check first if the home base
of the Scandinavian market? carrier doesn’t have a flight on this route, and they compare
By acquiring FlyNordic, we get an interesting size to deve- the prices. If our competitors spend money on marketing,
lop in the future. We can use FlyNordic fleet, staff, routes it also affects other routes in a good way.
and of course its brands. This acquisition of FlyNordic gives
2 Air Scoop - July 2007 www.air-scoop.com
DOWN TO EARTH
‘‘IDEAWORKS AISLE’’
Kulula Strike a Unique Balance as a Low Cost Airline
and South Africa’s Largest Online Retailer
EVENTS
Air Scoop is proud to be media partner of Airports 2007. This conference will be hold in Warsaw the 19-20th September
2007. This year’s edition of Airports 2007 Conference will be dedicated to extension of airports and challenges that every
airport should equal to with reference to EURO 2012 that was granted to Poland and Ukraine. We’ve invited represen-
tatives from Portuguese and German companies, that not long ago had an occasion to organize huge sport events like
EURO 2004 and Mundial 2006. Our intention is also to invite representatives of Ukrainian ports so they can share with
their plans of airport infrastructure extension.
More information: http://www.actiaconferences.com/www/index.php?pid=_en
5 Air Scoop - July 2007 www.air-scoop.com
BIRD’S EYE VIEW
SWOT TEAM
SWOT Analysis of easyJet
easyJet is Europe’s leading low fares airline. Formed in In April 1996, easyJet took delivery of its first wholly-
1995 by Sir Stelios Haji-Ioannou, it has grown rapidly to owned aircraft (started operations with two leased Boeing
become Europe’s fourth largest airline by passengers car- 737-200) and went international with first services to
ried. Sir Stelios has credited easyJet’s success to two stra- Amsterdam from London Luton. easyJet launched its
tegic imperatives. The first was “sweating the assets”, that website, easyJet.com which provided information about
is making sure that the planes were as full as possible and the airline. In September 1997, easyJet placed an order
flying as much as possible. The second was a sophistica- for 12 brand new Boeing 737-300s for delivery by 2000.
ted yield management system which would set an infinite In October, easyJet also launched its second UK base at
number of fares for a given flight, based on the demand Liverpool Airport.
and supply position for that flight. The prices for the seats
fluctuated depending on the demand for them at a parti- easyJet bought 40% of a Swiss charter operation, TEA Ba-
cular time. easyJet was the first LCC to start the sale of its sel AG, based in Basle for a consideration of three million
airline tickets online. Swiss francs in March 1998. This airline was later renamed
In 1999, Stelios was voted London Entrepreneur of the ‘easyJet Switzerland’ and moved to Geneva where the
Year at the London Electricity Londoner of the Year first European base was opened. In April, 1998, the airline
Awards. In the same year, easyJet was voted «Best Low sold its first seat online at easyJet.com while telephone sa-
Cost Airline» by readers of Business Traveler magazine les continued. easyJet ordered 15 brand-new Boeing Next
for the first time. Generation 737-700 aircraft in July 1998, with a list price
in excess of $500 million.
easyJet was selected as a Business Superbrand by the Su-
perbrand Council which recognizes companies with an In June 1999, easyJet increased stake in easyJet, Switzer-
outstanding brand name in November 1999. Other Super- land to 49% and acquired an option over the remaining
brand companies include such globally-recognized names 51%. In July 1999, easyJet Switzerland inaugurates servi-
as Virgin, Coca-Cola and Manchester United. In Decem- ces from Geneva to Nice, Amsterdam and Barcelona (the
ber 1999, ‘Marketing’ magazine described the launch of first easyJet services wholly outside the UK). easyJet seat
easyJet as «one of the 100 great marketing moments of sales over the Internet passed the one million mark in Oc-
the 20th century». tober 1999.
Stelios entered the Guinness Book of Records for being easyJet became the first low-cost airline to launch a flight
the world’s youngest international scheduled airline chair- arrivals information service on its web site in April 2000.
man when he launched easyJet in 1995 at 28 years of age. Internet sales reached 85% of total sales in September. ea-
Sir Stelios was knighted by the Queen in June 2006, for syJet entered the London Stock Exchange Listings in No-
services to entrepreneurship. vember 2000 at an offer price of 310p and sold 25% of the
stock to public. The IPO earnings went mainly towards
The combination of favorable market conditions, robust financing the purchase of the new Boeing 737-700 order
operating principles and world-class marketing, underpin- placed in March 2000 taking fleet size up to 44 aircraft by
ned by the entrepreneurial vision of the man now known 2004.
to the public simply as Stelios, brought success and fame
to easyJet. It established London Gatwick as its fifth base in Decem-
ber 2001, and becomes the second largest scheduled airline
History at the airport.
The easyJet airline was founded in 1995 by Stelios Haji- In August 2002, easyJet and Go combined to become Eu-
Ioannou, with £5million family loan and 20 staff members, rope’s largest low-cost airline and two months later, in Oc-
based on the Southwest Airlines model. The first bookings tober, they ordered Airbus A319 aircraft. Since then, the
were made on the easyJet telephone reservation centre Airbus A319, together with Boeing 737-700s, are inter-
opened at easyLand, the home of easyJet at London Luton changeable on all easyJet routes, so maintaining the “any
Airport. Its first passengers flew from London Luton to aircraft, any route” aspect of the easyJet business model.
Glasgow and Edinburgh for the ludicrously low price of In November 2002, Stelios stood down as Chairman of
£29 one way on November 10th, 1995. easyJet and Sir Colin Chandler took over the position.
� Maximizing the utilization of substantial assets: easy- The airline seems to be positioned very well, with experts
Jet flies its aircraft intensively, with swift turnaround ti- predicting strong growth in the low cost-sector. Given
mes each time it lands. This gives it a very low unit cost the saturated market and the shortage of other options
with maximum utilization of its fleet. It has permission to in the UK, competition is likely to intensify – inevitably
carry passengers , cargo and mail in aircrafts of 20 or more followed by consolidation, an early sign of which is easy-
seats; Jet’s purchase of GO. The UK market offers little growth
opportunity; therefore concentration will be on the con-
� Ticketless travel: Passengers receive booking details via tinental market and other new EU member markets. So
an e-mail rather than paper and hence resulting in ticket- easyJet must look at some issues with a long term pers-
less travel. This helps to significantly reduce the cost of pective. These issues are:
issuing, distributing, processing and reconciling millions of
transactions each year; � What should be the long term game plan to combat
competition and hostile takeover bids?
� No “free lunch”: The airline has eliminated unnecessary � How should it grow and expand its operations without
services which are complex to manage such as free ca- affecting its operating margins?
tering, pre-assigned seats, interline connections and cargo � Which are the most lucrative geographical markets and
services. This keeps the total cost of production low; niche segments that it must focus on?
� Should it plan for expanding outside Europe in a major
� Efficient use of airports: easyJet flies to main destination way?
airports throughout Europe, but gains efficiencies compa- � How can it increase its sources of ancillary revenue?
2) The airline should make a definite plan to expand into But the need of the hour for easyJet is to broaden its vi-
low cost medium haul sector as the short haul routes are sion to include progressive measures for becoming a global
getting filled up. With adding a little more of services on player by refining its current strategic business model. This
its flights, it should be able to easily adapt to this sector. is very important as the current European markets would
definitely get saturated and as the LCC industry is moving
3) The growth of the low cost market will slow down con- towards consolidation it has to look for new avenues for
siderably in the next five years which will increase opera- growth and expansion.
ting costs. So easyJet, which has very sensitive operating
The European LCC leader Ryanair is well-known for its bloody there as some of these carriers have strong finan-
very pugnacious vision of the air transport, as confirmed cial weakness. Will SkyEurope, introduced on the Stock
by the company’s Northern Europe manager, Wilhelm Exchange in 2005, be able to defeat its local challengers
Hamilton, describing the future of the market in a con- and to resist Ryanair and easyJet, in a « Centralers » Vs «
ference in March in Helsinki: “It will be a bloodbath”, he Islanders » fight?
said. Participating to the same conference, officials of Ger-
manwings, Lufthansa’s LCC, agreed. Another important stake of the “bloodbath” may be the
newly announced intercontinental flights. Air Berlin bou-
Michael O’Leary already used the term of “bloodbath” ght the charter airline LTU to develop long-haul flights.
three years ago, as the air transport market was in great Fiercely opposed to this strategy few years ago, Michael
difficulties, with increasing costs and a strengthening com- O’Leary finally announced in April his plans to create in
petition. He wanted to stress the point that the sector 2010 a subsidiary for flights to small North American air-
would have to face a strong consolidation, and that many ports like Baltimore or New York Long Island, with fa-
LCCs would go bankrupt or have to merge. According to res starting at 10 Euros without taxes. In 2008, open sky
him and now to many analysts, only one or two big LCCs agreements between Europe and the US will be effective.
will fly the European skies on the medium term. For customers, such “bloodbath” could have positive ef-
For now, about 50 LCCs are operating in 22 European fects. It will mean new routes, both in Western Europe
countries, and 23 of them operate more than 50 daily fli- and in « peripheral » areas (Scandinavia, Central and Eas-
ghts - they were 14 in 2005. That means the number of tern Europe, North Africa...), and also an increasing pres-
significant players has reached their highest peak. But ob- sure on fares. Ryanair and easyJet have launched a “price
viously LCCs are too numerous, and many small players war” in order not to lose their passengers and to keep as
will disappear! When the market leaders (Ryanair, easy- high as possible their falling load factors. To balance, com-
Jet, Air Berlin…) speak about a “bloodbath”, they do not panies emphasize on ancillary revenues such as priority
refer to themselves of course, but to the swarm of smaller check-in, snacks, reservation of hotels... For instance, these
airlines that will undoubtedly be swallowed in a move of ancillary revenues now count for 50% of Vueling’s reve-
bankrupts and mergers. nues! In such conditions, load factors are indeed extremely
important: no passengers equal no ancillary revenues…
On the German market, the consolidation has already be-
gun. This country is a real LCC battlefield; six European EVENTS
LCCs operate 90% of the flights. Within less than one
year, three airlines disappeared or were acquired: Air Ber- French Connect 2008 - Courchevel
lin bought LTU and DBA, and the two TUI-airlines HLX
and HapagFly merged into TUIfly. With its partnership
with the small Austrian LCC Niki, and its acquisition Next year, French Connect will take place from 9th to
of 49% of the Swiss Belair, Air Berlin has also begun a 11th April 2008 in Courchevel.
transnational expansion. Consolidation is not over in Ger- Keep checking www.FrenchConnect.net for updates
many… on the new programme format.
In Ireland, Ryanair wanted to take control over the na- To have more informations about last edition of
tional company Aer Lingus introduced on the Stock Ex- French Connect in La Baule, read the full coverage in
change at the end of 2006. The European Commission Air Scoop May 2007.
will decide about this merger on July, 4th. In Scandinavia,
Swedish FlyNordic has just been acquired by Norwegian
airlines, and after FlyMe’s bankruptcy in March 2007, the
Danish Sterling immediately placed its airplanes on two
of FlyMe’s former routes!
Central and Eastern Europe is the area with the most im-
portant potential in Europe, hosting several small local air-
lines, sometimes operating the same routes (SmartWings,
Centralwings, Wizz Air, SkyEurope...) and a growing
amount of Western companies. The battle will also be
With the emergence of LCCs two separate but yet in- All this reminds of arms race. To gain more profits airlines
tertwined markets appeared: low-cost travel market and are buying more planes and opening new routs glutting
low-cost share market. Whilst the first one is believed to the market with offers and breaking out fare wars. Pe-
remain relatively stable, the second depends on numerous rhaps, it is time to realize that mutual and balanced reduc-
things to be considered: fuel prices, new duties, security, tion would safeguard profits. However, LCCs have proved
position amongst other airlines and many other factors themselves as uncompromising.
that are simply out of LCCs’ control.
This summit came at a time when the low cost model is under pressure, and carriers are fighting to differentiate them-
selves and compete effectively in a crowded marketplace. In addition, they are facing an increasingly stringent regulatory
burden as the environmental impact of air transport moves up the political agenda.
‘The Low Cost Air Transport Summit’ has tackled these issues, in a focused forum dedicated to asking the question,
‘Where Next for Low Cost Carriers?’
Keith Mason, Director of the Business Travel Research Centre and Senior Lecturer in the De-
partment of Air Transport Cranfield University
«With years, average fares have increased, so low fares is the main objective. Chasing ancillary
revenues could be counter-productive», Dr Keith Mason
«There is not a lot of room to reduce costs in long-haul (…) You need to have a business class or
at least a two cabin (…) The cutting in price is just not possible»
Ryanair and easyJet dominate the European LCCs market. We should no-
tice that only 13 companies carry more than 500 000 seats per year.
Cranfield forecast for 2015:
Due to maturation of the market (or its fatigue?), European LCCs market
would be dominated by 2 or 3 large carriers, plus a number of smaller player.
Low-Cost Carriers in long-haul market won’t be easy as opportunities to
gain lower costs and significantly undercut incumbents is limited. Long-haul
flights are less likely to stimulate this market as much as short haul. Further-
more, there is an increasing likelihood that passengers will self connect at
LCCs airport «hubs», and therefore opportunities to sell insurance for self
connections.
Network Choices
«Biggest increases are to Asia, Eastern Europe and the Baltic countries»,
Maunu von Lueders
Which of the following factors are most important Which of the following factors are most important when
when your company chooses an airline to enter into an choosing an airline for business trips?
agreement with?
Sweden to Europe with SAS has one way fares which are
at LCC levels.
Swedish domestic full service carrier offers full in-flight
service with fares that are successfully competing with
LCC carriers.
«Since the demise of Air Madrid, the Spanish CAA has increased inspections ten fold»,
Alex Cruz
«10 of 28 routes were previously Iberia. Clickair is still highly dependant on Iberia (handling,
maintenance, aircrafts…. )»
«The battle for the summer will be bloody, main airports, short haul. We have till summer 2008
to prove ourselves»
David Doctor,
Director of Airline Business Group
Distribution
Tim Jeans
(Managing director of Monarch Airlines)
«Environmental attacks is the most important threat to the LCC business», Tim Jeans
«Then comes taxation and airports in the UK which make a lot of damages to the business.
Moreover, slots are today a real break on flexibility.»
Andy Harrison
(CEO of easyJet)
easyJet Routes in %
Philippe Wilmart
(Marketing Director of
Marseille Airport)
How can airports work with airlines to attract low-cost traffic? Airports, like in Marseille, can
identify all potential customers segments (size and location of communities, second home mar-
kets…) and therefore tailor made marketing plans.
MP2 also had to educate, inform and stimulate its local markets, and helped establish and develop
the LCCs brands locally.
www.airlinebulletin.com
Are LCC Mergers Effective?
With the recent merger activity in the LCC industry, as Approximately 60 LCCs presently operate in Europe, and
well as the slowdown in demand, rumors abound about many of them are vulnerable to competition. Ryanair and
additional consolidation. Airlines engage in mergers for a easyJet are much more powerful than any other LCCs,
variety of reasons, and this article explores the ever-shif- and they will ultimately move into most regions around
ting LCC merger environment. LCC mergers are typically Europe. Ryanair and easyJet also have lower costs than
used to help LCCs consolidate in a given region, in order most other LCCs, so they pose the greatest threat to less-
to further trim costs and better compete with other car- competitive LCCs. Smaller LCCs are most likely to con-
riers. LCC mergers are often designed with a long-term solidate, especially when vulnerable to LCC competition.
outlook, and the main goal of any airline merger is to in- When Ryanair entered Scandinavia and lowered fares
crease worker productivity, particularly in the managerial drastically, other LCCs were hurt. Since the market is rela-
and aircraft crew positions. According to Dr Keith Mason tively small, airlines were fighting for relatively few passen-
at Cranfield University, high worker productivity is most gers, and Ryanair’s lower fares attracted a significant share
correlated with LCC profit, and ultimately, LCCs are fo- of the market. To compensate, Norwegian and FlyNordic
cused on increasing profits with any merger. In the larger merged, and other Scandinavian LCCs, including Sterling,
merged company, redundant worker positions can be eli- may be vulnerable to takeover.
minated and others can be streamlined. Flight attendant
and pilot scheduling can be optimized to better meet the Consolidation could create regional airlines that could
needs of the company. However, savings also exist from have costs similar to Ryanair or easyJet’s, but which tar-
many airport jobs, including ground crew and maintenance get a particular market. The Norwegian/FlyNordic and
staff, but are more elusive since many LCCs outsource the- the Air Berlin/DBA mergers created two large airlines in
se functions. Mergers typically do less to increase aircraft their respective regions. The most rampant consolidation
productivity, since most LCCs already use their planes as will be seen in markets that are less penetrated by Ryanair
much as possible, and a merger doesn’t change that para- and easyJet and which also lack a dominant low-cost car-
digm very significantly. rier. Such regions, which include Spain/Portugal, Italy, and
Eastern Europe, could see merger activity, depending on
Mergers give the new carrier additional market share and additional circumstances, particularly those that are con-
often, reduced costs, critical to a LCC’s survival. Market tributing to the present slowdown, including higher inte-
share provides pricing power, and more leeway to adjust rest rates, higher taxes and landing fees, and the amount of
capacity to meet the demands of the market. With LCC competition already in a market.
growth slowing, airlines need to raise fares. And airlines
can most easily do that by controlling capacity to better In Spain and Portugal, Vueling has struggled to expand in
meet the needs of the market. When LCCs are small, mar- the face of stiff competition from Ryanair, easyJet, Clic-
ket share is difficult to acquire, but as a LCC grows and kair, and SpanAir. The upstart Clickair has had a lot of
matures, it often has lower costs, greater name recognition, success, with costs that are close to Ryanair’s. A Clickair/
and more pricing power. Some LCC mergers, especially Vueling merger could create an airline that offers exten-
between smaller carriers, will be focused more on efforts sive domestic service as well as substantial service to Por-
to pare costs as much as possible. When these mergers oc- tugal, France, Italy, and Germany thereby becoming more
cur, fleet and airport commonalities are more important, as competitive with many of its low-cost competitors. Since
they allow the two carriers to sync operations more quic- both Clickair and Vueling operate A320 aircraft, there
kly and more immediately realize the cost benefits from would be significant fleet commonalities, and the new air-
their connection. Other mergers, typically between larger line could deliver a streamlined, uniform service to quic-
carriers, are more focused on acquiring more market share kly realize cost benefits of the deal. It’s also possible that
for the combined company. Fleet and airport commonali- Vueling or Clickair would merge with SpanAir to create
ties are less important, and the two airlines involved in the a Spanish low-cost powerhouse, but that seems less likely
deal often continue to operate separately for the indefi- right now because the benefits of that merger would be
nite future. Many mergers take place even though the two less immediate due to differences in fleet types as well as
airlines operate completely different fleet types or from network structure and overall business model.
different airports. For example, even though FlyNordic
operates MD-80 series aircraft, while Norwegian operates
737-300s, the two companies merged.