Highlights in this Issue

Interview of Jim French (CEO of Flybe) p. 2

Analysis of the Polish LCC Market p. 4
SWOT Analysis of Flybe p. 8
ETS and Extra Cash to LCCs p. 17
Seat Pitch Regulation: What Impact? p. 19
The Low Cost Carriers Analysis Newsletter

EDITORIAL AIR SCOOP ANNOUNCEMENTS

Too Many Planes in the European Sky Air Scoop, 2 Years Already!

A
irlines, not only LCCs, are expected to buy numerous air- Launched in January 2006, Air Scoop has
planes in 2008 and 2009. Aircraft prices will indeed de- already two years. Air Scoop Team has brou-
crease during these years, because of the expected down- ght the best of LCCs analysis on hottest is-
turn in passenger demand on the air transport market. As aircrafts sues (subsidies, ancillary revenues, business
stand for more than 90% of an airline’s permanent assets, buying models...). We have provided you with exclu-
them when prices are low is an economical necessity, all the more sive interviews of top executives and reports
than the companies’ profitability is threatened by rising oil costs. from main low-cost carriers events (World
The amount of aircrafts in the European sky may thus continue Low Cost Airlines Congress, the Low Cost
to grow up. Most of the leading European LCCs already have full Air Transport Summit, French Connect...).
order forms. Ryanair currently operates about 150 planes, and plans Through our news portal weblog (airscoop.
to double its fleet by 2012. EasyJet runs 137 aircrafts, and ordered blogspot.com), you are kept updated with
120 ones. Air Berlin will have more than 150 planes after the takeo- fresh and most important informations of the
ver of Condor in 2009, and ordered about the same. Even smaller market. Each month, a new carrier is deeply
LCCs show impressive order figures: SkyEurope’s very young fleet analyzed in a SWOT matrix (read under),
of 14 aircrafts could double by 2011. Wizz Air has about the same and a Central and Eastern market is rigorously
amount of planes, and expects to reach more than 50 within the 3 studied from a LCC point of view (Hungary,
to 5 next years. Slovakia, Romania, Czech Republic...).

On a highly competitive air transport market, which has not yet These different services make today Air
been consolidated, airlines have to constantly increase their capa- Scoop Newsletter, a reference for European
city to keep a chance to exist. Ordering lots of aircrafts is also a low-cost carriers information and analysis.
way of showing their prosperity and their confidence into the fu-
ture. But these abundant orders could finally lead to congestion and We would like to thank all our customers and
overcapacity. partners for their confidence and their sup-
port!
Overcapacity is a chronic problem on the air transport market, es-
pecially on the LCC market, where airlines always try to add ca- Air Scoop Team
pacity 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

Air Scoop - January 2008 www.air-scoop.com

 BIRD’S EYE VIEW
to operate only 48 aircrafts in 2008, instead of 55 now. In However, buying aircrafts remains a necessity for LCCs.
Great Britain, Ryanair decided to cut its capacities this win- Keeping a young fleet allows them to lower fuel consump-
ter, by grounding the equivalent of 10 planes, among which tion and maintenance charges. Those who aim to develop
7 in London-Stansted. on transatlantic routes will have to buy new long haul pla-
nes, like Boeing 737s Dreamliner or Airbus A350s. Ryanair,
Medium-size airlines may be the first to suffer from conges- for example, could purchase 30 to 50 of those planes in the
ted routes. In Spain, a market saturated by huge European next 3 to 5 years, especially if prices go down. Air Berlin
players’ investments (Ryanair, easyJet, Air Berlin), Vueling signed a deal this summer concerning 25 brand new Boeing
(23 aircrafts) cancelled orders for nine Airbus A320s to be 787s Dreamliner, for a total amount of 4 billion $. The pla-
delivered in 2008, and postponed the delivery of six others nes will be delivered between 2013 and 2017.
to 2009. The company has already given up some routes,
like Alicante-Amsterdam and Paris-Milan. In December, The 787 Dreamliner is not only a long haul aircraft: it is
Eastern European airline SkyEurope announced the sale of also said to be very fuel-efficient, answering to the growing
two new Boeing 737s ahead of delivery. The Slovakian LCC concern of passengers towards environmental protection,
will also renegotiate lease terms on other planes, after failing which could have a negative impact on the low cost flight
to meet financial conditions for part of its leased fleet. market. This is another reason of buying new planes. easy-
A 2005 Arthur D. Little study defines overcapacity and ex- Jet’s CEO Andy Harrison, for example, recently affirmed
cessive aircraft orders as one of the major obstacles to airli- its intention to run one of the cleanest fleet in Europe, and
nes’ profitability in the next years. It estimates that five im- presented the EcoJet, a short haul aircraft generating 50%
portant European LCCs (Ryanair, easyJet, AirBerlin / dba less CO2 than current planes, not expected to be delivered
and Germanwings) have all together ordered 360 aircrafts before 2015.
(most of them Airbus A320s or Boeing 737s) to be delive-
red until 2010, and put options on 370 others. The study
concludes that there would be at least 36 million exces-
sive seats on the 2010 European market, with serious con-
sequences: yields reductions, and disappearance of smaller
LCCs. Overcapacity will, in fact, boost the consolidation
process in the European sky.

Interview of Jim French

(Chairman & CEO of FlyBe)
Jim French
(Chairman & CEO of FlyBe)

Could you please present Flybe to our readers? What are Embraer 195 are modern, environmentally sensitive air-
your specificities compared to other European LCCs? craft that are the right aircraft for the right route.
What do you do better than your competitors? In terms of what we do better than our competitors, I
would say three things: Firstly, the quality of our domes-
Flybe is now the biggest regional airline in Europe, flying tic European city coverage, secondly we are number 1 in
162 routes from 53 European airports. Having acquired terms of ancillary revenues, averaging more than £8.00
British Airways’ point to point regional carrier, BA Con- per passenger and thirdly the fact we carry 40% business
nect earlier this year, we expect to carry 7.5 million pas- passengers.
sengers in 2007 and 10 million next year. We are innovators. We were the first airline in the world
What differentiates us compared to other LCC’s is our to introduced baggage charging, bringing complete trans-
business model. We fly region to region rather than capital parency to what passengers pay. We in effect re-wrote the
to capital, with a focus on domestic, European City and low-cost rulebook by introducing a ticket that isn’t simply
French regional flying. Our fleet of Bombardier Q400 and low-cost but that allows the traveller to select a package

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 BIRD’S EYE VIEW
of additional elements. And recently (see question 3 be- Many LCCs look after extra-revenues to offset the low
low) we were the world’s first airline to introduce an eco- price of their tickets. What are the projects of Flybe in
labelling scheme for the aircraft we, and others, fly. terms of Extra-revenues?
We are world leaders in ancillary revenues, with the hi-
How do you analyze the competition in Europe with ghest per passenger revenue in the business. As I said ear-
other LCCs? Which LCC is for you the main competitor? lier, we are proud of being innovators. Our baggage char-
Today? In the coming years? ging policy has been imitated by low-cost and traditional
alike and our advanced seat assignment has likewise been
All competition, whether low cost or traditional, is tough. a big success. We were also the first low cost airline to in-
We barely cross schedules with Ryanair and only margi- troduce a frequent flyer programme, Rewards4All which
nally with Easyjet. Our main competitors are BMI regio- is open to all passengers.
nal and, as we expand in Germany, Lufthansa.
Do you believe that consolidation of the market will
What is your position on environmental issues concer- lead to 2-3 main LCCs in Europe, or do you think there
ning European LCCs? will always be many LCCs on niche markets?

We support the view that human activity, including air There will be consolidation, however we have created a
travel, is contributing to global climate change and we defendable niche, and Flybe will be one of the main 2 or
accept that, as one of Europe’s largest regional airlines, we 3, serving a domestic and European city market.
have a responsibility to reduce the carbon emissions pro-
duced by our aircraft. As a regional airline, we take our Are you worried about the shortage of pilots and crew
take our responsibility to the communities we serve very hitting LCC market?
seriously both in terms of the economic growth we sti-
mulate and the effect upon the local environment of the Yes, but we have recently launched a successful recruit-
communities we serve. That’s why we’ve spent more than ment campaign for pilots and crew and received more
$ 3billion on the market’s most fuel efficient and emission than 1000 applications, so clearly there is confidence out
efficient aircraft technology. there about Flybe’s future.
And to give passengers as much information as possible
about the impact their flight has on the local and global What are the options for Flybe to transform its business
environment, we’ve launched an ecolabelling scheme. The model in order to make more costs savings?
label, modelled on those used in the sale of white goods
like fridges, microwaves and washing machines, shows a Through the acquisition of BA Connect, we made a
full range of environmental indicators per aircraft. More combined saving of £40million. We are always looking
information is available at www.flybe.com/environment to change and develop the business model. For example,
just five years ago, in common with other airlines, we
The European Low cost carriers market has reached a cer- had a caterer for each airport, thereby duplicating our ef-
tain maturity which leads to its consolidation. During this forts. That has all changed with a single, central distribu-
transition, what are, for you, the greatest threats to the tion centre, saving time and money and is now the norm
European Low cost carriers? Fuel rising? Overcapacity? for the industry.
Evolution of airports? Regulation?... We have prospered because we’ve been able to drive
Our biggest challenges at the moment are the regulators costs down and keep them down over the last few years
undermining de-regulation, the effective airport mono- and we’re pretty confident that our business model is in
poly operated by BAA and the ever-increasing prices for good shape.
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.

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 BIRD’S EYE VIEW
Analysis of the Polish LCC Market

When Michel Platini, president of UEFA, announced in the construction of a new terminal (Terminal B), which
Cardiff on 18 April 2007 that Poland and Ukraine will be was concluded last year and the terminal was officially put
the host of the 2012 football European Championship, the in operation in July, 2007. This enables the airport to serve
decision was celebrated by low-cost carriers, too. Such an up to 3.6 million passengers per year.
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 ap-
pear 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 deve-
loping international airport.
Other Polish airports have also undergone recent moderni-
With a population of 38.1 million (2006) and a surface area sation in the late 1990s, early 2000s. Gdansk, for instance,
(313 thousand km2) that roughly equals to Italy, Poland celebrated its 1000th anniversary in 1997 with the cons-
is the largest of the new member states of the European truction of a new passenger terminal. In the same year, a
Union. This implies great potentials for commercial air new international terminal was completed in Wroclaw,
transport, involving good prospects for low-cost carriers, which was further extended in subsequent years. New
too. Currently, there are ten international airports in Po- passenger terminals were built at airports such as Poznan
land (see the map) that are served by at least one low-cost (works completed in 2001), Bydgoszcz (in 2002), and Szc-
carrier. Most of these airports have recently undergone ma- zecin (in 2001, further extended in 2005). In most of the
jor reconstruction and extension. The biggest of all is the cases, these works were combined with the extension of
Frederik Chopin Airport in Warsaw, which handles more runways and apron areas and the modernisation of control
than 50 % of all air passenger traffic in the country (in towers.
2007, Warsaw airport served more than 8 million passen-
gers). 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 air-
ports 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 *: Bydgoszcz, Rzeszow, Szczecin, Krakow, Poznan: total passengers; Gdansk:
2001, and then the extension of the passenger terminal was international passengers; Wroclaw and Katowice: passengers on scheduled fli-
concluded in 2004. The greatest investment, however, was ghts. 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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 BIRD’S EYE VIEW
One may conclude that Polish governments have cons- airport because it is easily accessible to them. The size of
ciously followed a policy of modernising airport facilities, the catchment area of Katowice, located in the middle
thereby investing in infrastructure that may generate se- of a very densely populated industrial region, is the grea-
veral beneficial effects in the long run. Passenger turnover test, almost twice as big as that of Warsaw. Nevertheless,
at Polish airports, however, did not show a significant in- this does not involve that in the future passenger turno-
crease until 2004, when the country joined the European ver at Katowice airport may exceed the volumes of War-
Union. Since that year passenger turnover has shown a saw as it is not likely that Katowice and its surroundings
steady increase at most of the airports (see the graph). Es- will become such a significant financial, commercial and
pecially Krakow and Katowice has experienced extremely administrative centre as the Polish capital. However, the
fast growth, for instance, Katowice served almost 13 times enormous catchment area may imply that local demand
more passengers in 2007 than four years before! The libe- for flights will continue to increase also in the long run.
ralisation of air traffic within the EU and its consequences In spite of this, Katowice’s rival, Krakow airport may be
caused remarkable effects in Poland as this unpreceden- in a better position. Unlike Katowice, Krakow is able to
ted growth has been caused by the multiplying number generate substantial tourist flows due to its rich, world-
of international passengers partly carried by the low-cost famous historical heritage and such nearby attractions like
carriers that entered the country. One should also bear in the Auschwitz (Oswiecim) concentration camp and the
mind that without the prior upgrading of airport facilities, Wieliczka salt-mine, both listed on the UNESCO’s World
such remarkable growth in passenger turnover would not Heritage List. In terms of the size of catchment area, even
have been possible. the currently less popular airports may bear significant po-
tentials. In sum, it is not surprising that low-cost carriers
Based on the figures of passenger turnover, Polish airports tend to favour Polish destinations.
may be grouped the following way: Warsaw, Krakow and
Katowice are those that handle more than 2 million pas-
sengers 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 ex-
ceed 250-300 thousand passengers annually (Bydgoszcz,
Rzeszow, Szczecin).

However, the LCC market in Poland seems rather concen-

trated. 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 pre-
sent 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
If one considers the catchment area of the airports, the of the Polish market for WizzAir is clearly reflected in the
hidden potentials for further growth may be revealed. The fact that for 2007, the LCC expected to carry a total of 4.6
catchment area is defined as the number of inhabitants million passengers. With these figures WizzAir is clearly
living within a distance of 100 km from the airport. This the biggest low-cost airline in Poland and the second lar-
should imply a maximum of 2 hour long travel within any gest carrier in Poland. WizzAir and Ryanair together take
point of this circle to the airport. In other words, those more than 50% of the market share of low-cost air traffic
people who live within this zone are the most likely do- in Poland, leaving the competitors far behind.
mestic candidates for becoming passengers that use the

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 BIRD’S EYE VIEW
Another crucial issue is the destinations where the low- the airline abandoned much of its Polish operation and
cost carriers fly. Based on the flight schedule for the winter withdrew from the market. Only two direct flights remai-
season of 2007 and planned summer destinations for 2008, ned: the Warsaw-Vienna and Krakow-Vienna flights. As
there are 18 countries to which direct low-cost connec- SkyEurope offered mainly Mediterranean holiday destina-
tions are being offered. However, the United Kingdom tions and fewer flights to the UK and Ireland, it was ex-
and Ireland together take almost 50 % of the share of the posed to a much greater seasonality of demand than Rya-
established city-pairs between Polish airports and inter- nair or WizzAir. Moreover, as Sky’s cost base is higher than
national destinations. This means that almost half of the that of these two main competitors, the company proved
flights are offered between a Polish airport and a destina- unable to match prices and engage in a price competition.
tion in the UK or Ireland! What is more stunning is that This evidently led to a loss of market share.
there is hardly any low-cost flight connection between
Poland and other new EU member states, or between Po- Figures revealed by Krakow airport seem to reinforce this
land and other Central and Eastern European countries. argument. In 2006, SkyEurope was the biggest airline at
Given that WizzAir abandons its flight between Warsaw the airport, carrying over 19% of total passengers. Howe-
and Budapest on 14th January 2008, there will remain a ver, its market share decreased throughout 2007, and in
single Eastern European country, Bulgaria, to which di- the first 10 months (when SkyEurope operated in Krakow
rect flights will be offered from Poland by LCCs but only with full capacity) the airline reached only 17.85%, while
in the summer season. In short, the destination portfolio major competitors like easyjet and Ryanair were able to
could not be more Western-oriented and concentrated on increase their share. Especially Ryanair managed to grow
so few target countries. considerably. While in 2006 it carried 15.2% of total pas-
sengers at Krakow airport, until November 2007 the car-
rier reached a share of 17.59%. Passenger turnover to dif-
ferent 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 passen-
gers), 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
The possible reason for this is the massive outward labour did not manage to compete successfully in the Polish
migration from Poland to the UK, Ireland and Scandinavia. market was partly because of the intensifying price com-
According to estimates there are about 750 thousand Poles petition and partly because of failing to match its route
living and working in the UK, but other sources approxi- portfolio with real needs or failing to offer flights on those
mate this figure even up to 3 million! In any case, the huge routes where the greatest demand appeared.
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 phenome-
non. 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 consi-
derable part of WizzAir’s passengers in Poland are the mi-
grant 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 pe-
netrate it. The biggest base of the Slovakian low-cost car-
rier in Poland was Krakow until November, 2007, when

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 BIRD’S EYE VIEW
The strategy followed by WizzAir and Ryanair in Poland Source of data: Webpages of Polish airports. Bydgoszcz:
seems sustainable and also profitable. WizzAir is going to www.plp.pl; Gdansk: www.airport.gdansk.pl; Katowice:
open its new base in Poznan in January, 2008, and will www.gtl.com.pl; Krakow: www.lotnisko-balice.pl; Lodz:
offer flights from the city exclusively to the UK, Sweden, www.airport.lodz.pl; Poznan: www.airport-poznan.com.
Germany and Norway. Given the size of the city’s cat- pl; Rzeszow: www.lotnisko-rzeszow.pl; Szczecin: www.
chment area, it may qualify for having one of the biggest airport.com.pl; Warsaw: www.lotnisko-chopina.pl; Wro-
hidden potentials for low-cost carriers. The lesson that the claw: www.airport.wroclaw.pl
other Central European countries already taught us is very Map provided by Faqs.com
similar in Poland. The first-movers have a significant ad-
vantage 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 les-
son 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 de-
mand for air traffic, due to labour migration, growing fo-
reign investments, and a booming property market, cou-
pled with hosting EURO 2012, make Poland a place to
closely observe also in the future.

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 representa-
tives from regional, national and European political institutions. French Connect 2008 is hosted by Grenoble-Isère and
Chambéry-Savoie Airports, two airports managed by VINCI Airports and Keolis Airports on behalf of the Conseils Gé-
néraux (County Councils) of Isère and Savoie. Innovation and dynamism are the key words for next year’s event, which
will be an exceptional opportunity to understand the issues of low cost air traffic development in France.

To have more informations about last edition of French Connect in La Baule, read the full coverage in Air Scoop May
2007.
For more information on French Connect 2008, visit www.frenchconnect.net

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 BIRD’S EYE VIEW
SWOT Analysis of Flybe SWOT TEAM

Introduction The organization is 69% per cent owned by Rosedale

Aviation Holdings Ltd. 16% of shares are owned by staff
The LCC market of the United Kingdom: Low cost air through an Employee Share Scheme. The final 15% is
travel has heralded a new wave of investment, tourism owned by British Airways as a consequence of Flybe’s ac-
and jobs in UK. It has given ordinary working people the quisition of BA Connect. The IPO and a likely listing on
chance, many for the first time, to travel to new destina- the London Stock Exchange are expected sometime later
tions that would have been unthinkable just ten years ago. next year or early 2009.
In 1997 there were just two low-cost operators with 19 Flybe now flies on 152 routes from 22 UK and 34 European
aircraft between them. Today, 6 low-cost airlines operate airports across 12 European countries. After the successful
more than 250 aircraft. acquisition of BA Connect, Flybe is now Europe’s largest
and fastest growing regional low cost airline. It will have
The United Kingdom is the first country to have a low- 70 aircraft by end of 2007. The company employs 1,800
cost share above 25% of the total IFR movements. Ten of people, of which 1,300 are airline staff and 500 are in avia-
the top 25 low-cost country-pair flows involve the United tion services.
Kingdom. These 10 flows had 39% of all low-cost flight
movements in first six months of 2007. Nine United Kin- Awards
gdom airports had 19% of all low-cost flight movements
during the first 6 months of 2007. (Source: Eurocontrol 1. In October 2007, Flybe’s acquisition of the regional arm
Market updates 2007). The total market share of UK was of British Airways earlier this year, earned it the Business
32.5% in the first half of 2007 with a share growth of 4%. Achievement Award from the French Chamber of Com-
London’s Stansted airport had the highest share of 5% of merce in Great Britain. Flybe now operates more than 100
low cost arrivals in ESRA. Besides market leaders, easyJet weekly departures to France, to destinations including
and Ryanair, the other major players are: Flybe, BMIbaby, Nice, Avignon, and Paris Charles de Gaulle. Some 818,000
Jet2, Flyglobespan. passengers fly between France and the UK each year and
the link is estimated to be worth 80 million Euros to the
Flybe, the regional low cost carrier: Flybe promotes itself regional French economy.
as a champion of regional transport and short haul flying 2. In June 2007, Flybe was crowned the top low-cost air-
and as a carrier at the forefront of efforts to minimize envi- line by The Listening Company, a leading customer insight
ronmental impact and promote sustainable growth in the specialist in UK. It also placed Flybe as the fourth most
aviation industry. It currently operates one of the most recommended carrier overall, just behind Emirates, P&O
environmentally friendly fleets in the world following the and Virgin.
introduction of the Embraer 195 aircraft to its fleet last 3. Flybe.com, the website for Flybe, has been honored by
year. Wanderlust magazine in its Feb. 2007 Travel Awards, as
the best airline website in the UK.
Flybe is based in Exeter and is the largest scheduled air- 4. In November 2006, Flybe was awarded the Gold Award
line major at Birmingham, Southampton, Belfast, Channel for Disability Equality Achievement in the Transport sec-
Islands, Edinburgh and Glasgow. It flies from the United tor.
Kingdom to destinations in Portugal, Spain, France, Swit- 5. In October 2006, Flybe, was named a Business Super-
zerland, Austria, Holland and Germany. It has developed brand for 2007 by the Business Superbrands Council, as an
a very firm niche in the UK aviation market, primarily exceptional business to business brand in the UK.
through the usage of smaller aircraft than most of their ri- 6. Flybe has been voted “Best Low Fares Airline” in Nor-
vals and downgrading London from its portfolio of airport thern Ireland for the second year running October, 2006.
bases. 7. In 2005, CEO Jim French won the Executive of the Year
title at the Low Fares and Regional Aviation Summit.
Jim French, Chairman and CEO of Flybe, heads up a team
who in the last few years have transformed Flybe from Overview of Flybe
a regional carrier to a dynamic, fast-growing and profita-
ble new generation low-cost airline. The other members History and Growth: Flybe has its roots in the 1979 launch
of the Flybe management team are: Mike Rutter – Chief of Jersey European Airways. This company was taken over
Commercial Officer; Andrew Knuckey – Chief Financial by the Walker Steel Group in 1983, with Exeter as its hea-
Officer; Andrew Strong – Chief Operating Officer. dquarters. In the 1990s the airline grew, adding London

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

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

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 BIRD’S EYE VIEW
seven crew members had to be taken to hospital on lan- since its take over of BA Connect earlier this year. Pas-
ding. The Transport and General Workers’ Union, which sengers have been left stranded on numerous occasions as
represents Flybe’s cabin crew, says the crew members’ ill- a result of cancellations on the Inverness-Gatwick route.
ness was caused by a «toxic gas» in the aircraft cabin. Flybe has been forced into making several apologies and
October 2007: Some cabin crew and pilots at Flybe re- earned itself the nickname Fly-Maybe. Reliable services
fused to work on the airline’s BAe 146 planes, saying the between Inverness and Gatwick are essential to the Hi-
polluted air is making them ill. There have been ten leaks ghland economy.
in Flybe’s fleet over the past 15 months, a BBC investiga-
tion found. Since 2002, pilots’ union Balpa has received But the airline has now caused further fury by promo-
about 30 complaints about sickness allegedly caused by ting its Inverness route with a map showing the Highland
fumes. Passengers too expressed worries about flying on capital located in Edinburgh on their latest promotional
them. But Flybe claimed, although its planes were fine, it flyers being distributed to households in the Highlands.
had decided ‘several years ago’ to phase the planes out by The promotional material, which boasts ‘more choice of
February 2008. routes than any other airline’ tells passengers they should:
14th November 2007: A Flybe plane was forced to make “Think Flybe. Come fly with us.” The company, has plou-
an emergency landing shortly after take-off when fumes ghed £700,000 into advertising the city as an attractive
began leaking into the cabin. Passengers on board the destination, but wrongly positioned the Highland capital
BE7125 flight from Birmingham International to Stuttgart in the map.
in Germany complained of an «unpleasant odour» and
«high temperatures». As a precaution the plane landed But one seasoned traveler hit back: “Maybe it’s them who
back at Birmingham International just 15 minutes after should ‘think’ more, especially when they are trying to
taking off. Former Flybe captain John Hoyte, who foun- improve the service in the Highlands. They got off to a
ded the Aerotoxic Alliance, said: “Passengers’ lives are de- bad start and it certainly does them no favors by putting
finitely at risk.” A Flybe spokeswoman apologized to pas- Inverness in the wrong place on a map advertising their
sengers for the incident. «The safety of our passengers is of flights.”
the utmost importance to Flybe and we apologize for any
inconvenience caused to their journey this afternoon.» Mike Rutter, Flybe’s Chief Commercial Officer, said: «It
was a capital mistake and we apologize unreservedly.”
The safety of the Q400 aircraft:

When the third gear collapsed in a landing incident with Misleading Advertisement:
SAS flight 2867 using Q400 aircraft on October 27, 2007,
SAS decided to per¬manently ground their entire 24-air- November 27th 2007: The Advertising Standards Autho-
craft Q400 fleet. SAS’s dramatic action, while potentially rity (ASA) has ruled against Flybe, for its misleading ad-
very costly, emphasizes to the public that they’re not ta- vertisement earlier this year which made erroneous claims
king any chances when it comes to safety. Even if the about the level of train fares rises past and present, as well
accident were the fault of the aircraft manufacturer, it is as claiming that Flybe was cheaper than rail. Following
the airline that is seen to be liable in the public’s eye. a complaint to the Advertising Standards Authority (by
Lord Faulkner of Worcester), the ASA investigated and
But Flybe is standing by its Bombardier fleet. Flybe has has ruled (Ref A07-35546) that Flybe’s claims breached
had no incidents. Q400 aircraft make up the bulk of Fly- the code.
Be’s fleet and will comprise even more once their BAE-
146 planes have been removed. With a low-cost business In its ruling the ASA says, ‘We told Flybe to ensure they
model that necessita¬tes high aircraft utilization, would made the basis of their claims clear in future and that
FlyBe be as willing as SAS to ground its Q400s if it disco- they held evidence to support their claims before their
vered a technical pro¬blem with the plane? Q400s com- ads were published. We advised them to seek guidance
prise almost half of FlyBe’s fleet; so such grounding could from the CAP Copy Advice team for their future adverti-
be devastating to the company. Legacy carriers could use sing.’ The ASA rebuts the implication that the hypothesis
it to their advantage to capture the LCC market share. put forward by Flybe was supported by ATOC when it
was clearly not and it demonstrates that rail often offers
A Capital Mistake: better value than air, and of course, is a far more sustaina-
ble way to travel.’
Nov. 21, 2007: Flybe, has been dogged with problems

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

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 BIRD’S EYE VIEW
Ancillary sources of Revenue are: SWOT Analysis

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

1. Flybe plans to replicate its UK based regional mo- Flybe has chosen their battleground carefully, by
del across France, Spain and Italy. Its future success building on their strengths of being a regional opera-
and direction will completely depend on how well tor. Their expansionist strategy has included picking
they perform outside UK. Each country has its own routes that appeal to UK air travelers’ needs and de-
unique topography and infrastructure. Some modifi- dicated to providing value-priced service to the busi-
cations and adaptations may be necessary to match ness traveler. The airline has also made considerable
the specific requirements. efforts to renew their fleet, and becoming eco-frien-
2. The other geographical areas that Flybe can think dly. The next couple of years will be crucial in deter-
of operating outside UK could be in Baltic regions mining the growth and direction of the company.
including Scandinavia, that is, after it stabilizes ope-
rations in France, Spain and Italy. Chief commercial officer Mike Rutter has said: «The
3. It may have to plan for entering medium-haul rou- timing of an IPO (flotation) will depend upon when
tes in Europe itself after about five years from now everything else is in place - and if no other oppor-
following the consolidation and maturing of the EU tunities come through. We are certainly not ruling
aviation markets. out further acquisitions - it’s not a question of if but
4. In order to expand into new European markets, it when.»
could adopt the strategy of cooperation, collabora-
tion, or mergers and acquisitions. In the words of its Chairman Jim French: “From a
Commercial Perspective, Flybe has proved that there
Conclusion is no Low Cost Rule book, or should I say, that by
breaking all of the supposed rules, we have proved
In the battle of low-cost airlines, Flybe has decided that there are no rules other than: Find a niche in
that an ambitious strategy is the best way to prosper. the market, maximize your USP, make sure your re-
The acquisition of BA Connect accelerated this stra- venues are higher than your costs and never stand
tegy. Flybe’s rapid growth will enable them to spread still.”
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.
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 Oc-
tober 2007.
For more information on the World Low Cost Airlines 2008, visit www.terrapinn.com

16 Air Scoop - January 2008 www.air-scoop.com

 BIRD’S EYE VIEW

The ETS Could Bring Some Extra Cash to LCC’s Pockets

An emission trading scheme is believed to be one of the The biggest LCC today is Ryanair which means that it is
most promising and efficient ways to protect environ- Ireland that the carrier would address its conversion de-
ment. Aviation has only recently been included in the mands to. Ireland would have to convert Ryanair’s aviati-
scheme. By the decision of the EU ministers the aviation on allowances to national ones since it is obligatory under
sector was incorporated in the ETS which applies both the provision. Due to incommensurable number of flights
to flights within the EU and flights to and from the EU. Ryanair operates Ireland could easily swap all its national
According to some estimation, carbon emissions caused allowances and would have to buy new credits since avia-
by aviation are likely to increase twice by the year 2020. tion allowances can only be passed to another operator.
The Scheme is comprised of a set of measures that seek What is special about Ryanair is that it is far from being
to cut carbon emission. A conventional approach would a national carrier as it operates 90% of flights outside Ire-
suggest that it is airline that should pay for CO2 emission. land which means that national allowances changed by
However, a closer look at the new regulation backed by Ryaniar would in fact cover its international activity. Pa-
the MEP December this year reveals some evidence that radoxically, the Irish taxpayers whose money partly goes
airlines could make additional profits from it. for buying national allowances would find themselves
paying for emission caused by the flights that do not form
The ETS established in 2005 includes industries which the part of the national air traffic in Ireland. That is, the
contribute to climate change and carbon emission. The Irish public money could be used to pay for pollution
ETS allocates a certain number of permits to those in- caused by Ryanair in other Member-states. This is where
dustries with each permit being equal to one tonne of the polluter pays principle gets a bit ridiculous. What’s
CO2 emission per year. The number of permits allocated more, national allowances are much higher in price than
is limited for each industry. In case operators run out of aviation. The carrier could then sell unused national cre-
their permits they need to buy more at the open market. dits which it has changed at the open market and again
The main point here is that some permits are given to make profit.
operators free of charge. Since the aviation sector has only
recently entered the scheme the regulation still contains It seems that the perfect scheme has several considerable
several loopholes such as vague limits of the total number shortcomings and could work in a way it was not desi-
of permits and the number of free permits. Therefore, gned for. If the regulation is not revised such big carriers
with a generous amount of free allowances given to air- have several ways of getting windfall profits. They can
lines they are likely to rise around €7 bn if they sell their sell their allocated allowances, they can pass the costs to
free allowances to other industries. If the initial proposal their passengers and finally they can force their respective
is revised and the number of free allowances is reduced, host countries to pay for the emission they produce. In
airlines are not going to be down anyway. They are likely the case of Ryanair, Ireland could quickly run out of its
to pass costs of new permits to customers which will lead national credits and be forced to buy new ones which can
to price increase. However, the increase won’t affect the seriously affect the country’s overall compliance with the
demand as the cost of a ticket could approximately rise Kyoto protocol let alone wasting of the public money.
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 respec-
tive 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 na-
tional allowance. This provision raises big concerns in the
Member-states with huge airlines registered.

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 DOWN TO EARTH

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Exclusive Analysis for Air Scoop

www.airlinebulletin.com

Seat Pitch Regulation: What Impact on LCCs?

As LCCs, and charter carriers in particular, have expan- argue that on short-haul flights, the current regulations
ded across Europe, they have engaged in prolonged battles should be kept. However, on flights over six hours, airli-
to profitably reduce fares. To do so, LCCs have had to nes should concede to the recommendations. This would
trim costs, and one way to generate additional efficiencies affect virtually no flights from short-haul LCCs like Rya-
is to pack more seats into an aircraft, cutting the seat pitch nair and easyJet, which don’t operate flights over six hours
(the distance between any point on a seat and that same in length, but would affect charter carriers that operate
point on the seat in front). long haul flights to Asia, Africa, or the States.

The Civil Aviation Authority (CAA) in the UK manda- If regulations where seat pitch varied on flight time were
tes that carriers provide a minimum of 26 inches of seat contemplated, there would be several details to negotia-
pitch, and most charter carriers, including Thomas Cook, te. The first is how flight time would be measured, as
First Choice, and Monarch, offer the bare minimum or scheduled flight time is often not the same as actual flight
just above it. Short-haul LCCs such as easyJet and Ryanair time, and passengers’ time on the ground stuck in their
offer slightly more, their seat pitches are around 28 inches, seats could contribute to developing DVT. The second
while legacy carriers such as British Airways and Bmi offer would be what penalties airlines would face if they were
a minimum of around 30 inches. While a reduction in to violate the flight time requirements, since the severity
seat pitch to near the regulatory minimums has meant of penalties can greatly affect how willing airlines are to
that LCCs can offer lower fares, some critics are raising violate the rules.
questions that these reductions might be at the expense
of passengers’ health and comfort. Additionally, the LCCs would have to determine how to
subdivide their fleets into aircraft configured with long-
The House of Lords Science and Technology Commit- haul seat pitches and short-haul seat pitches. LCCs hate
tee recently issued a report calling for the minimum seat subdividing their fleets, because it reduces flexibility and
pitch to be increased from 26 inches to 28.2 inches. The operating efficiencies. Although some aircraft, such as the
committee argues that this change will allow passengers 757 or 767, are versatile, and could be used for higher-den-
to more easily adopt the brace position in an emergency, sity short-haul flights, or lower-density long-haul flights,
reduce the risk of passengers developing health problems seat pitch regulations, and the desire by airlines to pack
as a result of sitting in cramped conditions, and improve as many seats as possible into aircraft, could encumber
their comfort. Many LCCs, and especially charter carriers airlines and make it difficult for them to use those aircraft
that offer the legal minimum seat pitch, oppose the pro- efficiently.
posed regulations. I suggest a wiser course should be that
LCCs fight for revised regulations, which take into ac- Another regulation that carriers should lobby for, because
count several aspects of passenger comfort while maintai- it is not very intrusive and could prevent regulators from
ning low fares. imposing more burdensome requirements, would sim-
ply require cabin crew to discuss DVT and the dangers
One of the primary concerns of legislators is that a narrow of staying in one’s seat too long in the pre-flight safety
seat pitch will cause health problems, such as deep vein demonstration. Moreover, airlines should be required to
thrombosis (DVT). While valid, this is a much bigger put some sort of notice about DVT in onboard safety
concern on long-haul flights, where customers sit in their cards, with suggestions about how to prevent its effects
seats for hours. On these flights, where seat pitches can during the flight. A brief announcement advising passen-
be extremely tight on charter carriers in economy class, gers to get up and walk around the cabin to avoid DVT
passengers are much more vulnerable to developing DVT. would remind passengers of their role in maintaining their
On short-haul flights, less than 6 hours or so, passengers health. Granted, this would not address the safety issue of
run a lower risk of developing DVT, and carriers could passengers being able to adopt the brace position, which

19 Air Scoop - January 2008 www.air-scoop.com

 BIRD’S EYE VIEW
regulators are also concerned with, but it would make it Airways and other legacy carriers could be forced to offer
easier on LCCs to address some of the regulators’ concerns more amenities to retain economy passengers. However,
while maintaining the status quo in seat pitch. the regulations will change little in the short-haul market,
as most LCCs already exceed the minimum seat pitch.
If these new requirements are implemented, regulators But it will still be an important battle that LCCs and char-
may decide to eventually target other areas of passenger ter carriers will fight in the new year, as it affects their
comfort. For instance, regulators may try to impose grea- ability to operate economically. But whether the outcome
ter seat width requirements. With a narrow seat width, will be successful for LCCs will depend on how much
passengers often must squeeze into their seats, making the airlines fight the proposed requirements, and how much
flight very uncomfortable and painful. Moreover, passen- they choose to concede.
gers 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 ta-
ken under consideration by regulators in the future when
Airbus and Boeing are designing new generations of air-
craft.

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 hi-
gher 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 Remarks, questions… Join Sam by email (samsellers@gmail.
carriers to utilize one potential revenue-generating tool, com) or on his website to comment this article… http://
premium seating. Most charter carriers offer some form www.airlinebulletin.com.
of “premium economy” seating, with similar seat widths,
but slightly more legroom than regular economy. Many Sam Sellers provides analysis and commentary on the
taller passengers who cannot comfortably sit in regular airline industry at his website, www.airlinebulletin.com,
economy seats often purchase these premium economy and is the author of Take Control of Booking a Cheap
seats, and if more legroom is given to economy passengers, Airline Ticket, an ebook for travelers in the United States
fewer passengers will have a need to do this. Charter car- who are interested in purchasing cheap airline tickets.
riers 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 passen-
gers, 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 uncomforta-
ble seats, and instead fly with legacy carriers. Some of
these passengers could be converted back to charter car-
riers if they were given more legroom. As a result, British

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20 Air Scoop - January 2008 www.air-scoop.com