Air Scoop March 2008

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EDITORIAL

Highlights in this IssueInterview of Raphael Bejar (CEO of AirSavings) p. 2

Ryanair is Paying for Being Unhedged p. 3

French Government Support LCCs Challengers? p. 5

SWOT Analysis of French Low Cost Carrier Market p. 6

Comparing Airport Subsidies in Europe and the US p. 13

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

The Low Cost Carriers Analysis Newsletter

Oil Prices, High Loss... Bloodbath?

Oil, Loss and Blood These words could be the motto of

this month. According to easyJet, the biggest danger facing

the airline industry is the global oil price. Same forecast for

competitor Ryanair which expects another round of fuel surcharge

increases. Indeed, starting 1st of April 2008, the carrier will have no

fuel hedged which means it remains unprotected from rising prices

(p. 3). Furthermore, Ryanair is now getting more prot from ancillary

revenues continuously increasing prices of add-ons and services (p.

12). Therefore, some analysts believe that decline in passenger yields,

fall in fares (by 4.4%) and rise in ancillary revenues (by 30%) alarm of

the strategy failure.

In our last issue, we analyzed the consequences of the slowdown of

European LCCs Industry (Read Air Scoop February 2008). Some car-

riers are in great difculties, and among them we nd Vueling (Vueling

reported a sharp widening in full-year net loss to 63.2 million ($93.7

million), nearly six times worse than the 10.8 million loss posted in

2006), SkyEurope (SkyEurope has been forced to sell two Boeing 737-

700s before they were due for delivery, and admits it failed to complywith nancial conditions attached to half of the 737-700s it has on

lease from GECAS.), but also CentralWings (CentralWings is close to

bankruptcy with a loss a loss of 73 million zlotys in 2007 compared

with 65 million in the previous year) and clickair (JPMorgan estima-

tes clickair Loss up to 100 million euros). These nancial difculties

could nally lead to the famous bloodbath many times announced

by Michael OLeary

French Connect 2008 will be take place this year in Courchevel the

9th to 11th of April. Air Scoop is sponsor of this event, and will release

for the French Connect a Special issue. French civil aviation market is

largely dominated by Air France. The legacy carrier is backed by thegovernment, so it was a big surprise to notice the presence of a go-

vernment representative at easyJets little ceremony to launch its new

base at Paris-Charles de Gaulle, Frances biggest airport (p. 5). For its

10th SWOT, we have realized a SWOT on French Low-Cost Carriers

market (p. 6) with its own specicities, difculties and challenges. Fi-

nally, subsidies to LCCs is a big issue nowadays (The European Com-

mission recently said it was investigating an agreement on Irish low-

cost carrier Ryanairs use of Slovakias Bratislava airport on suspicion

it may contain illegal state aid), especially in France (The European

Commission has launched a state aid probe into the use by Ryanair of

Pau airport, and would in particular examine a contract with the Pau-Bearn Chamber of Commerce, which operates the airport, that sets

out the conditions for Ryanairs use of the transport facility). In order

to better understand airports subsidies, we have realized a comparison

between Europe and the US (p. 13).

AIR SCOOP ANNOUNCEMENTS

A Glimpse of Headlines News!

EU probes Bratislava Ryanair deal

The European Commission says it has laun-

ched a formal investigation into an agree-

ment between Bratislava Airport and Ryanair.

This follows a complaint which alleged that the

airport offers Ryanair reduced airport charges

for existing destinations and new scheduled i-

ghts. The commission says the discounts could

be up to 31% for existing destinations and 48%

for new services.

EasyJet fears damage to airlines from rising

oil price

The biggest danger facing the airline industry

is the global oil price, easyJet warned today,

after it released strong passenger numbers.

The no-frills carrier said the passenger load fac-

tor, or proportion of seats sold per ight, was

84.6% in February compared with 82.8% for

the same month last year. Passenger numbers,

driven by the airlines acquisition of more jets,

rose by nearly a quarter to 3.2 million.

A revolution in the skies... a disaster for the

planet

Cheap ights. More ights. Multiplying routes.

At the end of a week that has seen protests

against airport expansion, predictions of further

airport chaos, and record oil prices, British tra-vellers are showing no sign of shaking off their

addiction to CO2-heavy cheap ights.

More on http://airscoop.blogspot.com


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BIRDS EYE VIEW


Could you please present Airsavings to our readers?

Airsavings is a 7 year-old company that started as a Group

Buying Service for LCCs and evolved into a leading player

in the supply of Ancillary Services to the airline indus-

try. Airsavings leveraged its purchasing know-how with

its IT capabilities in order to bring to the airlines better

margins, better technology (with REAL Dynamic Packa-

ging), higher speed to market (because an airline wantsto earn money in weeks, not in months), and more in-

novation, because airlines want to enlarge their scope of

activities when it comes to ancillary services. Airsavings

has also been acting as a kind of think tank with its cus-

tomers, often taking the investments on its shoulder when

launching new ancillary services, which ultimately benet

the entire industry as a result.

How do you analyze current situation of ancillary reve-

nues for European low-cost carriers?

The development of ancillary revenues is an increasinglyimportant part of the European LCC model, which has

and will continue to evolve at a very high speed. Around

3 years ago, we created a team dedicated specically to

this emerging eld. And in these 3 years, we have migra-

ted from the single micro-site selling these services (the

1.0 version), to Dynamic Packaging (version 2.0). Now,

we have started running the 3.0 version, which is the Dy-

namic Packaging associated with a Loyalty Scheme that

helps passengers buy more valuable services, and to get

compensated for doing so. This version is obviously an

accelerator of net income to the airline.

How do you evaluate the part of ancillary revenues in

LCCs?

Well, it is dependent on the type of airline. Many of them

are still relying on the suppliers they have chosen from

years ago; they still do not have the right margin or the

right dynamic packaging technology. Notwithstanding,

because of their deep-seated fear to break a model (which

doesnt work anyhow), these airlines are lacking in real

ancillary income. Then there is another type of carrier,

who is willing to make money.and fast. This group is

far more pro-active, they are willing to outsource part of

this activity (ancillary revenue creation) as they know it

is the shortest way to protability and to stay on the top

with more innovative services available to their custo-

mers. Once you have implemented the big 3, i.e., insu-

rance, hotels and car hire in a Dynamically Packaged way,

you have to nd other services. And this is very often

where we get brought into the picture.

How do you believe it will evolve?

I believe ancillaries will eventually evolve into the Ama-

zon model of purchasing. Amazon started by selling books

over the Internet. After seeing the sheer volume of traf-c coming to the site, it started selling CDs, then DVDs,

MP3s and so on until the site become a marketplace for

just about anything. Today, Amazon even sells fresh foods

in certain areas. This is what, I believe, could be the evo-

lution for ancillary revenues in the airline industry. An

airline that captures more than 70 % of its sales through

the internet has become, quite simply, an e-commerce

business. And in doing so, the airline has to act in that ca-

pacity as well, meaning it has to be creative, reactive, and

ready to test new products and services which will meet

with its customers needs.

By always looking for more ancillary revenues to com-

pensate ticket prices, there could be an imbalance.

Could it be a danger for LCCs if they dont manage this

issue well enough?

Hmm, as I said just above, their own clients will show

them if there is an imbalance. However, as long as the

airline sells services which could satisfy their clients, why

should the airline not to do it?

What could be the next generation of ancillary revenuesfor the European LCCs?

A service that will reward customer loyalty at every step

of the purchase path.

Recently, the consumer watchdog group Holiday Which?

released a report criticizing low-cost carriers for levying an

increasing number of charges on consumers and requiring

travelers to jump through numerous hoops to avoid any

additional fees (read Air Scoop February 2008). By always

looking after extra revenues, could LCCs lose at mid-

term some customers that mostly see hidden charges?

Consumers have different choices. They could go with

a Legacy carrier where all the charges are hidden in the

ticket price. Or choose an LCC where they know what

they are paying for. The key is transparency; then let the

consumer choose.

Raphael Bejar(CEO ofAirSavings)

Interview of Raphael Bejar

(CEO of AirSavings)


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BIRDS EYE VIEW


French Connect 2008April 9 to 11 in Courchevel

Air Scoopis proud to be part of the 5th French Connectin 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 trafc development in France, will take place in

Courchevel, French Alps from 9th to 11th April 2008. Created in 2004 to respond to the specic needs of French airports,

French Connecthas 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 Connect2008 is hosted by Grenoble-Isre and

Chambry-Savoie Airports, two airports managed by VINCI Airportsand Keolis Airportson behalf of the Conseils G-

nraux (County Councils) of Isre and Savoie. Innovation and dynamism are the key words for next years event, which

will be an exceptional opportunity to understand the issues of low cost air trafc development in France.

To have more informations about last edition ofFrench Connectin La Baule, read the full coverage in Air Scoop May

2007.

For more information on French Connect2008, visit www.frenchconnect.net

EVENTS


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BIRDS EYE VIEW


What a weird situation! On February 7th, easyJet had or-

ganized a little ceremony next to the Eiffel Tower, in Paris,

to launch its new base at Paris-Charles de Gaulle, Francesbiggest airport. The airline already launched 6 new routes

from there, in addition to 11 already existing. But Charles de

Gaulle is also the historic ef of national leader Air France,

which mother company, Air France-KLM, is owned at 17.8

pc by the French state. So, it was really weird to see Luc

Chatel, the French Secretary of State for Consumers affairs

and Tourism, attending the ceremony and clearly suppor-

ting Air Frances British challenger...

Of course, in France, purchasing power is currently the

biggest public concern. And a very recent report by theeconomist Jacques Attali suggests to create a low-cost ter-

minal at CDG and to develop low-cost air transport in

France, only representing 17 pc of the total trafc, versus

34 pc in Europe. From that point of view, ofcially welco-

ming a low fare airline is nothing less than logical! I consi-

der the development of LCCs in France as a good thing for

both consumers and tourism, Mr. Chatel said. The part of

low-cost is insufcient in France.

But still, several elements make this support incoherent.

First, Andy Harrisons aim is clearly to challenge the natio-

nal leader, well-known for its erce hostility against foreign

LCCs. We consider ourselves as the best French alter-native to Air France , Harrison said. The airline has now

two bases in France - Orly and Charles de Gaulle - and

will very soon open a third one in Lyon. It plans to invest

600m in the four next years. In 2011, it expects to carry

in France 12 million passengers (6 million in 2007) to 80

destinations. Some of its new routes from CDG (to Marra-

kech, Porto and Krakow) are directly challenging those of

Transavia, the Air France-KLM LCC branch. By operating

inward ights (Paris-Nice, Paris-Toulouse...), EasyJet also

directly challenges the French railway company, the state-

owned SNCF.

Another ambiguity is linked to the social status of easyJets

employees. In 2007, there was a struggle between the air-

line and the French state concerning the country in which

employees had their employment contract: Great Britain,

where social charges are lower, or France. Even if a No-

vember 2006 executive order forces foreign airlines which

employees are based and live in France to pay French so-

cial charges, LCCs always tend to prefer foreign working

conditions, generally more attractive.

The problem is that high that some companies, as Brus-sels Airlines, even think of outsourcing their pilots to

countries with better tax conditions : in fact, many pilots

leave Brussels Airlines in Brussels to work in Charleroi for

Ryanair, which Irish salary conditions allow to pay better

wages. By supporting EasyJet, is the French government

also supporting that kind of social dumping? New tensionsabout this topic between the state and the airline are pre-

dictable...

Finally, French authorities will have to pay attention to

the development of LCCs in France because it makes it

easier for the French to leave their country... and to spend

their holiday money abroad. In Great Britain, a budget

hotel chain accused LCCs of killing British tourism ,

and the government of being conniving - there is no VAT

on international ticket sales. According to the hotel chain,

inward tourism spending decreased by 16% between 1995

and 2002, whereas spending abroad by British tourists in-creased by nearly 50 %! And all because of LCCs!

Could the same phenomenon happen in France? France is

one of the biggest touristic markets in the world, and tou-

rism represents about 7 pc of its GNP. French people parti-

cipate to this strong economic market, as they very mostly

travel inside their own country. Furthermore, they do not

travel a lot by plane: a 2007 study shows that only 5 pc of

French people used the plane for their latest short break

(week-end or less than one week), and only 2 pc used a

LCC. Even a strong LCC development may not radically

lower French inward tourism. But it may encourage moreand more people, which had not necessarily the budget to

y, to look abroad instead of staying in their country.

The Secretary of State Luc Chatel prefers to consider the

new foreign tourists EasyJet could bring to France : The

development of low cost will allow us either to attract

new customers, or to attract customers who will, by redu-

cing their transportation budget, spend more in accommo-

dation and purchasing in France , he said.

Why Does the French Government Support Air Frances Low-Fare Challengers?


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BIRDS EYE VIEW


SWOT Analysis of French Low Cost Carrier Market SWOT TEAM

Introduction

The phenomenon of low cost carriers has completely

changed the face of the airline industry in Europe and has

been instrumental in creating new markets, jobs and busi-

ness opportunities. Its innovative low cost-low fare model

revolutionised air travel by bringing this premium mode

of travel within the reach of the low and middle income

travellers. There are number of players in this industry

(about 50) representing almost every region and country

of this continent with Ryanair leading the way, followed

closely by easyJet and Air Berlin.

But surprisingly, in this great revolution, France has remai-

ned a mute spectator as opposed to lesser developed coun-tries and new EU members like Hungary, Poland, Bulgaria

and Romania. It does not have an original home-grown

low cost carrier in spite of being the birth place of Airbus

and Concorde.

According to national airports association - UAF, in 2006,

low cost carriers (LCCs) in France carried a total of 18 M

passengers - two-thirds of them to regional destinations,

i.e. airports other than Paris. Though this represents an im-

pressive growth of 24.5% over the previous year, the mar-

ket share of LCCs in France is only 13.2% - the lowest in

Europe. It is also surprising to note that none of the LCCsin France belong to French companies.

It is this unique state of the LCC market in France - a

technologically advanced and progressive nation that

needs to be understood and analysed.

The Economy of France

France is an economic powerhouse, a global trendsetter

and a land of everlasting beauty. Although the French po-

pulation accounts for only 1% of the worlds total, its GNP

represents 4% of the global GNP. France is the sixth largest

economy in the world in USD exchange-rate terms with aGDP of 1.87 trillion (1.871012; 2006 data). According

to World Bank and IMF gures, it is the sixth largest in

terms of purchasing power parity and the third largest in

Europe after Germany and United Kingdom.

The US Census Bureau put the population of France at

60.9 million in 2006. The population is forecast to grow

slightly to 62.5 million by 2016. The proportion of the

population aged 60-69 is forecast to increase, while the

proportion of the population aged below 50 is forecast to

decline.

Frances ve largest cities are Paris, Marseille, Lyon, Tou-

louse and Nice. Paris, the capital and Frances largest city

and main manufacturing centre, is home to about one-

sixth of the population. Paris is more than 2,000 years old.

Today, Paris is the bon vivant of European cities and the

most romantic capital in the world.

The major asset of France is its beautiful terrain. It is made

up of majestic mountains, fertile plains, rolling hills, green

forests, lakes and rivers, canyons and an endless coastline.

It has the Atlantic Ocean to the west, the North Sea to

the north, and the Mediterranean Sea to the southeast. It

shares boundaries with Belgium and Luxembourg to the

northeast; Germany, Switzerland and Italy to the east; and

Spain and Andorra to the southwest. In the northwest,

France is separated from England by the English Channel.

Today, after Russia and Ukraine, France is the third-largest

country in Europe and the largest in Western Europe.

It is a producer of cars, aerospace products, and other ma-nufactured goods. It is also a major producer of chemical

products. Fashion, textiles and tourism also play a signi-

cant role. It has the highest proportion of forested land

in the European Union with a strong emphasis on agri-

culture. It is the largest agricultural producer in Western

Europe and one of the worlds leading exporters of farm

products.

The Travel and Tourism industry of France

France remains the largest travel and tourism market in the

world in terms of the number of incoming tourists, withmore than 75 million arrivals in 2006, considerably ahead

of second-ranked Spain. France ranks 4th in the world in

terms of spend on international travel, and in recent years

the market has grown steadily. French airports have repor-

ted strong trafc gures for 2006, with low cost passenger

numbers growing by 20%. Overall there was growth in

passenger numbers of 4.5%, to give total passenger gures

of 146 million.

Most of this growth was a result of a 6% increase in inter-

national passenger numbers, with more than 64% coming

from outside France. The Paris airports took the lionsshare of trafc, with over 80 million passengers, followed

a long way behind by Nice airport, with around 10 mil-

lion passengers. Regional airports saw a growth of 4.8%,

reaching 54 million passengers, and accounting for 22% of

all passenger trafc in France. Most of this growth was

made up by the increase in low-cost airline trafc, which

grew by nearly 20% to 12 million passengers. Notably high

increases occurred at La Rochelle, Bergerac, Pau, Nantes,

and Carcassonne.

Traditionally French people have been spending their holi-

days within France but now outbound trips are increasing

and are forecast to grow in the coming years. The French

traditionally favour long touring holidays over the summer

and have one of the highest holiday entitlements in the


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BIRDS EYE VIEW


world. However, an increasing trend for shorter more fre-

quent breaks is emerging. Like many countries, the most

popular type of outbound holiday for French people is a

beach holiday. However, both touring and city holidays

are popular, as they enjoy learning about different culturesand discovering new places.

Transport System of France: The transportation system in

France is very extensive and varied with connections to

every part of the globe. It has a system of large navigable

rivers that criss-cross the country and a well developed

water transport system. Several sea routes link France with

other countries. But it is dominated within Europe by its

high speed, efcient and affordable SNCF, the French na-

tional railroad company, (TGV and regional trains) that

connects about 1400 cities throughout the continent. This

is also aided by the metro rail and trams in Paris whichis the countrys main bus and rail hub, with services to/

from every part of Europe. Eurostar speeds you through

the Channel Tunnel, one of Europes biggest infrastructure

projects to date, between England and France. The Chan-

nel also has high-speed shuttle trains that whisk cars and

coaches from England to France.

Several international airlines along with Air France, the

countrys national carrier, link Paris with every part of the

globe. Bordeaux, Lyon, Marseille, Nice, Strasbourg and

Toulouse are other cities with direct international air links.Most urban centres are linked by domestic airlines, but

ying is expensive. Buses are used extensively for short-

distance travel within regions, especially in rural areas.

The most popular low cost carriers in France are Ryanair

and Easyjet. Hoewever their passengers are mostly inward

bound. In 2006, the market share of low cost carriers was

13% though initially the LCC market share grew rapidly in

2001 & 2002 by 85%. But this situation is gradually chan-

ging.

The substantial market share of railways in the French do-

mestic travel market (over 80% in 2004), has had a very

dissuasive effect on low cost carriers. easyJet dropped itsservice to Marseille after two years of operations, as it

could not compete with SNCFs promotional price of 19

Euros. The Paris-Marseille line, a 600-mile stretch, can be

covered by train in less than three and a half hours. Also

the LCCs have not been made very welcome by either

the aviation industry in France or by the Government. But

lately the picture has been changing.

French Airports: Airports in France are in a unique situa-

tion because of the market dominance of Aroports de

Paris (ADP), the Paris Airport Authority. It has 14 airports

under its purview and controlled 60% of all passenger traf-c in 2006. ADP went public in the spring of 2006, and

the other major regional airports are following the same

trend.

Until recently, French airports were publicly owned, with

the state delegating their management to the regional

Chambers of Commerce and Industry (CCI). This system

is changing rapidly at the instigation of the CCIs, paving

the way for privatization of regional airports. Nice wasprivatized at the end of 2007. Lyon, Marseille, and even

Toulouse are working towards the same objective, which

will doubtless lead to an increasingly competitive atmos-

phere among major regional airports. The only alternative

for regional airports to combat competition is to attract

low cost airlines.

The aim of these regional airports is to be as different as

possible from one another. Because of the preponderance

of trafc that comes through Paris, the major regional air-

ports serve only 3 to 6 million passengers each per year,with only Nice reaching the 10 million passenger level.

Typical features of French Travel: The top four outbound

destinations for the French traveller are: Spain, UK, Italy

and Morocco. The four most popular types of holidays are:

sun and sand, touring holidays, city breaks and countryside

holiday. The travelling season is between April and August.

The French norm is an annual ve week holiday usually

taken between July and August but is now being divided

throughout the year due to the growing importance of

short breaks in recent years. Most French have preferredto spend considerable amount of their holidays in France

itself, though that is also gradually changing.

The most important source market is Paris and the sur-

rounding region of Ile de France with ten million inhabi-

tants, producing the biggest number of outbound travel-

lers and having the highest income in France. South-East

France (Rhne-Alpes) comes in the second place, followed

by Brittany and Normandy. But price is one of the most

important factors inuencing the French travellers choice

of destination. The importance of the transportation cost

has increased markedly with the advent of low-cost airli-

nes, which have created a whole new market for low-costshort break holidays. French travel patterns increasingly

seem to include individually researched destinations and

tours rather than the traditional package tours. This in-

dustry is witnessing the emergence of a breed of consu-

mers that demands more personalised travel opportuni-

ties tted to their particular lifestyles and values. Frances

smaller cities are enjoying a boom as short-break holiday

destinations thanks to the explosion of routes by low-cost

carrier and new direct Eurostar services.

French online travel market: Online penetration of the

French travel market has been steadily evolving, and hasnot been explosive, partly due to the absence of home-

grown low-cost carriers. Internet usage in France has ri-

sen to 48% of the population. Travel products are the 2nd

most popular items purchased online with approximately


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BIRDS EYE VIEW


21% of French Internet users purchasing travel via the web,

and a third of these living in Paris. 47% of online reserva-

tions are made at most one month prior to departure. This

means that 53% still book in advance, and these are either

for taking advantage of early booking offers, for examplelow-cost airline deals, or for booking with an operator or

going direct. The type of holiday booked also has an effect

on when the booking is made. It is dependent on the cost

and the length of time spent on a holiday. A touring holi-

day to a country would be booked in advance than a city

break holiday to a nearby city.

French Aviation Industry

France had made a global impact on the aviation indus-

try from the rst ight of Clement Ader in 1900 to the

construction of the Concorde. It is one of the leadingcountries in civil aviation. It has built a strong reputa-

tion in aircraft technology by building the Airbus and the

Concorde. Besides its engineering accomplishments, France

is a country where exports and imports have also played

a major role in its economic progress and this has been

facilitated to a great deal by its aviation industry. Another

important factor that makes France such a strong player

in the aviation sector is the fact that it is one of the main

tourist destinations of the world. Over 70 million people

visit France every year and most of them travel by air.

Two later developments which have impacted this in-

dustry are low cost carriers and the volatile fuel prices.

Low-cost airlines are denitely bringing more travellers

to the industry that is further developing the interest in

the aviation sector. The increasing fuel price and intense

competition has made it imperative for airline companies

to replace old aircraft types with new more fuel-efcient

aircraft. The aviation industry in turn is making a huge

impact on the French economy since it generates avenues

for employment.

Air France is the countrys main scheduled airline. It pos-

sesses an extensive network around the world and has

played an important part in projecting Paris as a major hubfor the whole world and connecting it to more than 200

locations around the world. easyJet is currently Frances

second largest airline with a 6% market share. Air France

currently controls 55% of the market. Ryanair is the third

prominent airline in the market.

The Low Cost Airline Industry in France

There has been record number of airline bankruptcies in

France. Many low cost carriers have come and gone wi-

thout a trace, thus proving the limitations of this concept,

in France where the market structure is different fromthat of other advanced countries of Europe. There is not

a single home-grown independent low cost carrier to this

date.

There are several factors contributing to this unique situa-

tion which will be presented later in the SWOT. But two

major reasons which need to be highlighted are Air France

and TGV. This has been aptly expressed in the words

of Paul Sies, Commercial Director of Virgin Express whostated, Were not even speaking about nationalism here

because privately owned airlines like Air Lib and Aeris are

allowed to go down. The French government manifestly

protects its national carrier Air France and its heavily sub-

sidized prestige project TGV. There is no room for consu-

mer choice.

But the situation is improving for the low cost airlines.

The regional airports which are not under the control of

the ADP are being privatized. They are now willing to

adapt to the needs of low cost airlines and are going all out

to woo them. The advent of low cost carriers in France hasalso contributed in a major way in increasing job and bu-

siness opportunities, opened up new tourist destinations

and second home markets for other European countries

(especially UK).

But the fear is that the legal hurdles between the LCCs

and the French Government regarding payment of subsi-

dies to them by airports, could make the airlines withdraw

operations from these airports. The subsidies are not

usually provided in cash. The airports provide the carrier

with a standard service package at reduced price, which

include the lower landing fees, cheaper ground handling

and maintenance. This form of support is logically illegal

and contradicts the EU Competition Law. The future is

therefore uncertain.

French airport association, UAF, reported recently that,

airports in France recorded a 4.9% increase in passenger

trafc in 2007, which was attributed mainly to low-cost

carriers and international operations. Meanwhile, low-cost

carriers operating at French airports reported a 20% in-

crease in passenger trafc to reach 23 million. The most

popular low cost carriers include Ryanair (out of Paris

Orly airport) and Easyjet (out of Ble-Mulhouse, Orly,Marseille and Paris CDG airports).

Current status of French airline industry

The following major events have occurred in 2007-2008

which could make or break the low cost airline industry in

France in the coming years:

The launch of Transavia.com, a low cost subsidiary of

Air France-KLM

Privatisation of regional airports like Nice Airport

Increase in operations on the shorter routes by the

TGV at low prices Opening of the rst low cost facility called Marseille

Provence 2(MP2) catering exclusively to Low Cost airli-

nes


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BIRDS EYE VIEW


Ryanair plans to set up its rst base at MP2

easyJet sets up a second base at Charles de Gaulle in

Feb. 2008

easyJet plans to set up a third base in April 2008 at

Lyon which offers low cost facilities French Online Travel Market Projected to Near 10

Billion EUROs in 2008

Access to new regions in France through LCCs has

increased the purchase of second homes by other Euro-

peans

Launch of a new low-cost, high-frills French airline

LAvion across the Atlantic i.e. between Paris Orly and

Newark, New Jersey using a single leased Boeing 757-200,

which is tted with 90 business-class seats

Conclusion

French airline market has been on the sidelines of the lowcost carrier revolution. But it is now apparent that they

cannot afford to remain so any longer. Low cost carriers

are growing stronger and are here to stay. But there could

be a shift in the basic model of the airlines in order to

match the rather unique travel needs of the French pas-

senger.

In France, a hybrid low cost model of business and lei-

sure which offers transport from regionally close airports,

a minimal of two-class seating, allocated seats, one-way

fares, online advance seat selection, transparent pricing

through website, frequent yer programmes, self servicecheck-in, customer care in the event of disruption etc.

could succeed. Air Berlin is one such airline which if based

in France has a fair chance to attract both the business

and leisure traveller who seeks comfort and exibility at

a reasonable price.

LCCs have denitely ushered in strong growth in reve-

nues to the airports and tourism to the respective regions.

But increased taxes and cancellation of subsidies could

threaten its continuance due to higher passenger fares

and lesser prots for the airline. In the long term the low

cost model should evolve to become a more practical andrelevant business model that adapts to the emerging pe-

riods of environmental taxes, rising fuel costs, economic

slowdown and consolidation.

Air Scoop is proud to be Media partner of the Airline Payment Summit 2008, and offers 3 months subscription to Air-

line Payment Summit 2008delegates.

As airline yields come under downward pressure, Airline Payment Summit (APS) will examine leading-edge low-cost

payment solutions within the landscape of traditional forms of payments such as credit cards.

Delegates will not only hear about how to drive-down costs through the use of, innovative, non traditional payment

methods, but also how to increase revenues with new payment options for the customer. A must attend for airline and

travel (Hotel, Car Hire, OTA) executives interested in better managing payments and related costs.

More on APS Website : www.airlinepaymentsummit.com


10/14

BIRDS EYE VIEW

Air Scoop - March 2008 www.air-scoop.com0

SWOT of French Airline Market


11/14

BIRDS EYE VIEW



12/14

BIRDS EYE VIEW


EVENTS

IdeaWorks offers an excerpt from its recently released

147-page Ancillary Revenue Guide

Ryanair likely leads all other low cost airlines in total an-

cillary revenue. The carrier recently announced revenue

from sources such as car-hire commissions, checked-bag-

gage charges, and priority boarding, increased by 30%

(compared to 2006) to 111 million for the quarter ended

December 31, 2007. The airline says it is on target to ge-

nerate 20% of total revenue from ancillary sources within

the next three years.

Ryanairs net margin of 21% is a remarkable achievement

in an industry, which according to an International Air

Transport Association forecast, averaged an operating

margin of 5.6% for 2007. The secret to Ryanairs robust

prot can be partially attributed to its ancillary revenue

expertise. How does Ryanair achieve these industry-lea-

ding results? Here is a sampling of observations from the

analysis:

Ryanairs aggressive a la carte pricing strategy includes a

4 airport fee for passengers that dont plan ahead and use

the website for check-in.

Fees are also charged for checked baggage and start at 9

for the rst piece when paid in advance at the website,

which doubles to 18 when paid at the airport.

An exclusive relationship with Hertz contributed to year

car hire revenue of nearly 23 million for scal year 2007.

Ryanair - The Godfather of Ancillary Revenue was re-

leased today as a 10-page Industry Analysis, and is an

excerpt from the 147-page Ancillary Revenue Guide by

IdeaWorks.

More information is available at the website:

www.IdeaWorksCompany.com.

World Low Cost Airlines 2008September 23 to 24 in London

Air Scoopis 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. (Youll

need to have ash installed on your computer.)

Dont miss out on next years 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

How Ryanair Achieves Ancillary Revenue Zen in a World

Where Airline Profts Might Become Zero


13/14

BIRDS EYE VIEW


Specic airports in both Europe and the US are able to of-

fer subsidies to carriers that start new service, though the

types of subsidies vary. However, unlike in Europe, many

of the largest LCCs in the US dont receive signicant

benets from airport subsidies, even though US airports

have more exibility in the types of subsidies they can

offer. This is often because most US LCCs serve routesalready served by legacy carriers from larger airports, lea-

ving little reason for these large airports to offer incentives

to lure LCCs, whereas in Europe, small airports that are

typically bypassed have found success in using subsidies

to lure LCCs. In the US, since Southwest and many other

LCCs are increasingly focused on serving primary airports

(with some notable exceptions), some secondary airports,

especially those distant from city centers, nd that sub-

sidies are more effective for luring legacy carriers to of-

fer regional jet service. While new regional jet ights will

bring additional passengers to a small airport, they palein comparison to the large number that an LCC could

deliver.

In Europe, airport subsidies have become an enormous

issue, especially as so many small airports across Europe

have offered Ryanair subsidies. However, as LCCs expand,

subsidies could become less commonplace since of the

value of potential trafc at larger airports could outweigh

the need for subsidies to lure LCCs to start service.

To keep this article simple, Ill use the example ofSouthwest in the US. However, some other US LCCs, in-

cluding JetBlue, Frontier, and AirTran gain different bene-

ts from subsidies, since their smaller jets allow them to

serve smaller airports with different subsidy offerings.

Most US Airports are public entities, regulated by elected

boards that allocate funds. These airports are allowed to

offer subsidies, but only if the subsidies are made availa-

ble to any carrier that qualies for a specic subsidy pro-

gram. Airports are prohibited from enacting fee-reduction

deals with specic carriers. In most cases, airports can-

not discriminate against legacy carriers in favor of LCCs,

though they can structure their subsidy programs such

that LCCs are more likely to qualify. However, airports

can also work with carriers to develop infrastructure that

meets their needs. If an airline commits to expanding ser-

vice at a given airport, the airport board could nance the

construction of a new terminal, allowing airlines to start

service while paying off the construction costs through

future fees.

US Airports typically offer subsidies to foster business

development, and less for tourism development, as seen

in Europe. Airports will often identify routes that they

would like to see served, and offer airlines subsidies for

serving those routes. These routes are often of some stra-

tegic importance to the regions economy, such as routes

to China, Japan, and Europe or to major business centers

in the US. Many airports also offer subsidies for airlines

that y routes nonstop where passengers are currently

required to take a connecting ight. Other airports offer

general subsidies for new airlines to add ights and/or forexisting airlines to add ights to any new destinations un-

served from the airport, regardless of their perceived im-

portance by the airport authority. Subsidies are typically

offered in the form of landing fee waivers, terminal rent

cuts, and matching advertising funds to help market the

new ights. However, in most cases, airlines dont get a

free ride, and are responsible for some fees.

But while Southwest considers subsidies in its expansion

decisions, they are not necessarily a precondition to arri-

ving in a new market, and even attractive subsidy packa-ges do not guarantee new service. One example of this is

Southwests service from the Dallas, Texas area. In 2005,

after starting a codeshare agreement with ATA Airlines,

the Dallas-Fort Worth Airport tried to lure Southwest

to its facility with a signicant subsidy package including

free terminal rent for a year and up to $22 million USD

in incentives (as part of a program being offered to any

carrier new to the airport). But, Southwest declined this

offer, preferring to expand at other facilities that could

better help the carrier meet its goal of attracting more

business travelers, and thus higher yields.

Ryanair has proven to be extremely reliable in garnering

trafc, making it a valuable carrier for airports. As a car-

Comparing Airport Subsidies in Europe and the US

www.airlinebulletin.com

Exclusive Analysis for Air Scoop


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