Air Scoop March 2007

Blue1: Low Prices - High Standards Frequent Flyer Executives... The Austrian LCC Market LCCs Subsidies: The Birth LCCs and Environment: «Green Wars»

The Low Cost Carriers Analysis Newsletter

EDITORIAL

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nvironment, environment, environment! It seems these days that environment has become the main issue concerning European low-cost carriers. Sam Sellers, from Air Bulletin, presents us the second part of his exclusive article on environmental public relations strategy for LCCs (p. 11). Two trends are clearly becoming apparent (p. 9): On one hand, some LCCs, such as easyJet (p. 9), have realized the “clear and present danger” on the planet and have prepared a strategy to reduce their carbon emissions; and on the other, some LCCs led by Ryanair refuse to accept their role and accuse government and institutions to add more taxes and to regulate the market. This attitude goes against associations such as Plane Stupid which has declared they will continue to target direct actions against LCCs (p. 10). Air Scoop starts this month a deep investigation on LCCs subsidies in Europe (p. 8). Further articles in our coming issues will follow this global introduction. Just before the recent announcement of bankruptcy of FlyMe (Read Air Scoop April 2007), Air Scoop had an exclusive interview of Finn Thaulow, CEO of the Swedish carrier (p. 2). From the same region, we made a focus on Blue1, the second largest airline in Finland (p. 4). Whereas Nordic skies are still mostly held by local carriers, it is not the case of the Austrian LCC market, largely dominated by foreign companies (p. 7). IdeaWorks Company gave us once more a clear analysis of frequent flying programs. This month Jay Sorensen explains why frequent flyer executives are concerned about reward availability (p. 5). One of our correspondents covered the FITUR 2007 in Madrid (p. 12). We had the opportunity to ask few questions to representatives from Germanwings, Meridiana and Blue Air (p. 13). At last but not least, Air Scoop is proud to announce it will be media partner of the main LCCs’ European events: - 2nd Air Transport Conference for CSEE (4th of May 2007) – Bratislava (EastEuroLink) - Low Cost Air Transport Summit (13th and 14th of June 2007) – London (MarketForce) - World Low Cost Airlines Congress (17th to 19th of September 2007 – London (Terrapinn)

Highlights in this Issue p. 4 p. 5 p. 7 p. 8 p. 9

AIR SCOOP ANNOUNCEMENTS Air Scoop and TripVision: A Partnership for Polls Air Scoop is proud to announce a partnership with TripVision, the UKs only travel specific tracking survey collecting attitudes and behaviors of the travel consumer. The UK travel industry can now benefit from a major new research program that, for the first time, aims to give meaningful insight into all aspects of traveller behaviour patterns - including future intentions. TripVision is a mixture of quantitative and qualitative research combined with data analysis to give a complete picture of the size of the market, the traveller patterns and how different categories of travellers approach their individual trips. Therefore, with TripVision, Air Scoop will be able to provide more trends from passengers and other sources. http://www.trip-vision.com

Air Scoop - In the Air Plovdiv Airport openning?

Air Scoop will of course cover all these events starting next month with French Connect (25th to 27th of April 2007) in Nantes - La Baule Atlantia.

Air Scoop - March 2007

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BIRD’S EYE VIEW Exclusive Interview of Finn Thaulow (CEO of FlyMe) Could you please present FlyMe to our readers? What are your specificities compared to other European LCCs? What do you do better than your competitors? “ FlyMe Sweden was founded in 2003 and started its commercial flights in April 2004. The business model was to operate a limited number of domestic flights plus charter flights. The utilization was very low, approx 4 hours per aircraft /day. FlyMe Sweden is owned 100% by FlyMe Europe AB which is traded on the First North at the Stockholm Exchange. New owners and a new Board of Directors took over in August 2005 and it was decided to turn FlyMe Sweden into a true LCC airline by investing in the FlyMe brand. Number of frequencies were increased on the domestic routes and 12 new European destinations were introduced from Gothenburg from the Summer 2006 traffic program. FlyMe presently operates a fleet of 5 leased aircraft (4 Boeing 737-300 and 1 Boeing 737500). From the Summer 2007 traffic program the fleet will be increased to 7 aicraft (6 737-300 and 1 dampleased MD87). The domestic operation has been increased in terms of frequencies and FlyMe has achieved a market share of 34% on the route between Gotehnburg and Stockholm/Arlanda and 38% between Malmö and Stockholm/Arlanda. European destinations have been introduced from Stockholm in November (Alicante and Nice) and more will be added from Summer 2007 when also Malmö will have flights to European destinations. Stockholm-Luleå will be added on the domestic route net. FlyMe expects to carry around 1.5 million passengers in 2007 and the growth in turnover will in principle double from 2006. FlyMe is financed through equity and has therefore posted losses in the build-up phase. With the

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Air Scoop - March 2007

Finn Thaulow CEO of FlyMe

current trend and size of the airline, the financial results will improve and profits are expected from the second quarter of 2007.” How do you analyze the competition in Sweden, especially with Ryanair with its base in Stockholm? Which LCC is for you the main competitor? “The LCC airlines are taking more and more market share but also growing the market by being able to offer attractive fares and thus enable more people to fly. The important thing is to keep very tight cost control as ultimately the one with the lowest unit cost will be the winner” Why did you choose Gothenburg as your main base? What are the advantages to be there? “Gothenburg has historically been an underserved area. The national carrier, SAS, offered very few non-stop services to and from Gothenburg trying to channel as much traffic a possible via its main hub in Copenhagen. Consequently, there was an untapped potential in Gothenburg and its catchment area; stretching also far into Norway.” The European Low cost carriers market has reached a certain maturity which leads to its consolidation. During this transition, what are, for you, the greatest threats to the European Low cost carriers? Fuel rising? Overcapacity? Evolution of airports? Regulation?... “Overcapacity and lack of airport slots pose the biggest challenge. Again, it is important to monitor the cost base continuously and also the traffic program in terms of frequencies and destinations. A high degree of flexibility is needed to respond to

changes in the market and competitive actions” What are your expansion projects for the coming year(s)? “FlyMe will continue to grow and gradually increase its network between Stockholm and Euope as well as Malmö and Europe. Furthermore, flights on intra-Scandianvian sectors will also be introduced. FlyMe Europe has announced the purchase of 51% of River Don, which owns 51% of Global Supply Systems. The transaction is conditioned by necessary approval by the British Civil Aviation Authorities as well as an endorsement from the General Assembly of FlyMe Europe. Global Supply System is a profitable 747-400 cargo operator today and has the potential to partly develop the existing cargo business but could also serve as a platform for the introduction of long haul LCC in due time. A project is looking into this exciting possibility right now. A proposal or recommendation will be made to a General Assembly by the 28th of February 2007.” Many LCCs look after extra-revenues to offset the low price of their tickets. What are the projects of FlyMe in terms of Extra-revenues? “Ancillary revenue is very important. FlyMe is presently strengthening this part and will put in a lot of efforts in 2007 to substantially increase revenues from non-airline products. The website is being up-dated and ancillary services presented more attractively and efficiently. It is a most prioritized area”

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BIRD’S EYE VIEW Do you believe that consolidation of the market will lead to 2-3 main LCCs in Europe, or do you think there will always be many LCCs on niche markets? “There will certainly be consolidation in the market with maybe 3-5 main LCCs. FlyMe aims to be part of this group. Additionally, there will always be a number of smaller LCCs but probably shrinking” Are you worried about the shortage of pilots and crew hitting LCC market?

ming years according to IATA. The LCCs continue to grow faster and to represent a higher share of the total number of passengers traveling – reaching around 20% of the total in 2007. This high development rate will definitely put pressure on getting sufficient number of pilots also considering that other parts of the world have an increased demand and corresponding shortage as well. Therefore, it is important to be regarded as a good and attractive employer and first and foremost to have an excellent relationship and working climate”

What are the options for FlyMe to transform its business model in order to make more costs savings? “Cost savings is a matter of continuous improvements and the right mentality throughout the entire organization. Additionally, it is the flexibility to respond to changes in the market and being able to make adjustments in a reasonably short time.” Read Air Scoop February 2007 for a complete analysis on FlyMe.

“The overall airline market is growing by an estimated 5% annually the co-

UP & DOWN GermanWings: Best German Airlines Six European consumers’ protection organizations from different countries (Belgium, France, Italy, Portugal, Spain and The Netherlands) have evaluated more than 36 000 flights from legacy airlines, charter airlines and low cost carriers. The 9 000 passengers questioned gave detailed information on their travel experiences on board flights from July 2004 until September 2005. With a rank at the 14th spot, GermanWings is therefore the German airline with the highest evaluation marks. This result is particularly due to the punctuality of its flights, the good relation between price and performance, the cleanness on board and the efficiency of the ground staff.

Ryanair Cancelled Flights and French Investigations According to a French judicial source, French prosecutors have opened a preliminary inquiry into allegations that Ryanair’s advertisements were misleading after receiving more than 40 formal complaints. Indeed, Ryanair highly publicized the launch of new routes from Marseille to Morocco scheduled to begin in November 2006. But the flights have been cancelled indefinitely as the necessary licenses had just not materialized on time. The company denies any responsability for this fiasco. A spokesman of the airline accuses the French government of «delibarately trying to damage Ryanair». Passengers of these cancelled flights accuse Ryanair of selling tickets before getting the green light for the routes, and sue the carrier for misleading advertising. Although Ryanair has paid back the cost of the tickets, the carrier failed to reimburse related expenses, such as deposits for hotels and hire cars.

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BIRD’S EYE VIEW AIRWAY MARKERS Blue1: Low prices - High standards The Nordic sky has always been a tough place for airlines where “the survival of the fittest” law can be applied vividly. What survives – survives and goes on holding positions. Blue1 entered the market after two previous brands had failed (Air Bonita and Flying Finn) and managed to evolve into the second largest airline in Finland. Under its name Blue1 was launched in 2004 after tender call for the re-branding, which was won by SAS. The carrier started operating flights to those destinations that had previously been served by Flying Finn but more successfully. Though Blue1 is positioned as an individually branded airline appealing in its colour scheme (white and blue) to Finnish identity it is strongly backed up by SAS group. Apparently it was that good fellowship with SAS that helped Blue1 to become the first regional airline to join Star Alliance in 2004. At the moment Blue1 is code shared with SAS but it can also fulfill the task in getting regional passengers feed into other airlines within the alliance. On the other hand, Blue1 passengers can enjoy the full range of Star Alliance facilities: EuroBonus programme, through check-in and lounges. “1” in the name stands for the fastest developing airline in Finland and probably the first national airline to challenge Finnair. With its new 11 international destinations opened in 2006 Blue1 has to some extend undermined Finnair’s position. This also intensified overall competition in Scandinavia and led to response from other airlines such as Sterling. Danish LCC made an attempt to create its sixth base in Helsinki serving 11 destinations. But the story was short and the project was terminated almost 4 months after, leaving Blue1 one of the largest operators between Finland and Scandinavia.

Blue1 succeeded in finding its own way in business travel niche-market. It has elaborated a certain strategy addressed to short business travel segment. Not only fares were reduced but several facilities added that made Economy Flex a business-like class with the features required: fast check-in, front seats and special meal offers. The company has recently introduced brand-new tariff scheme with three types of fares: WebSaver with the lowest prices possible without any re-fund permitted; BestBuy with higher prices but with the possibilities of rebooking; and FullFlex with flexible conditions of rebooking and full refund. Such a variety of choices means that the airline is oriented both towards “usual” low-cost passengers and to people with higher demands. This has a good impact on the carrier’s image bringing it closer to a full service airline than to a no-frill one. But still there are some fields where Blue1 can’t beat Finnair in the nearest future: Russia, for example. Though the LCC has initiated consultative sessions with Russian aviation authorities regarding flight permission to start operation regular flights to Moscow; it is unlikely that Finnair will concede its monopoly in the region. According to Blue1 web-site, the main goal is to become “the best regional airline for the North European business and leisure traveller.” And there are just two steps left to achieve this. In September 2006 Blue1 was voted the third best regional carrier in Europe by the European Regions Airline Association. No wonder the award would foster further development and expansion. But as long as it is Finnish the airline doesn’t disclose its plans preferring to develop quietly without unnecessary excitement in order to show then great results at once.

EVENTS

The 4th French Connect takes place on 25-27th April 2007 in La Baule. This unique event offers you the opportunity to network with some of the most influential people in European Low Cost aviation. French airports, the legislators and Europe’s low cost operators all in one place with first-class conference facilities, superb hotels and dining and a relaxed, entertaining business environment : book your place today! For further information, please check www.frenchconnect.net

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Air Scoop - March 2007

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DOWN TO EARTH Stormy Weather: Frequent Flier Executives Are Concerned About Reward Availability and Other Consumer Issues Representatives from more than 70 frequent flier programs recently gathered in Vancouver Canada for the third annual FFP Conference. Low cost carriers sending representatives included Air Berlin, Frontier Airlines, JetBlue Airways, Southwest Airlines, Spirit Airlines, and Virgin Blue. The event is the world’s largest gathering of frequent flier program executives and provides a unique opportunity to measure the pulse of the loyalty marketing industry.

‘‘IDEAWORKS AISLE’’

by Jay Sorensen (President of IdeaWorks)

www.IdeaWorksCompany.com

IdeaWorks, in cooperation with conference organizers Airline Information and Global Flight, distributed a survey during February 2007 to more than 100 registered attendees. The survey results demonstrated an almost painful level of awareness of consumer resentment over reward availability issues. Management at low cost carriers might find the results of interest as they react to competitors that offer frequent flier programs, or as they consider the development of programs of their own. 67% of program executives recognized that consumers are frustrated by the lack of basic reward availability for the entire airline industry. This awareness seems to be having an affect on policy, as nearly 60% of survey respondents anticipate some level of increased reward availability for 2007. But the dynamics of frequent flier programs have clearly changed over the years. What began as a method to increase loyalty has now become a source of attractive revenues. 42% of program executives indicate top management now rates the ancillary revenues generated by frequent flier programs as the benefit of greatest importance.

The issue of reward availability was also measured in a broader sense by asking about consumer perceptions for the entire airline industry. Here again, program executives acknowledged the scope of the problem; 57% agreed “it’s a major problem and members are very upset.” Only 6% of program executives indicated reward availability is not a problem and that members are happy with the ability to secure reward seats.

Booking reward tickets is a top-of-mind issue for frequent fliers. It seems every frequent flier has a tale of woe on the topic reward availability. Consumers might be surprised to learn program executives are very aware of the problem. The survey measured perception of the reward availability issue by comparing it to other areas of complaint, and by seeking feedback for the airline industry as a whole. By every measure, reward availability appears to be problem number one in the airline industry. One of the survey questions addressed the issue directly by asking program executives about the perceptions held by the members of their frequent flier program. Program executives expressed concern over issues such as extra fees and upgrades. But, the greatest source of member frustration is the trouble associated with booking reward seats.

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Perhaps the surprise result of the survey was the importance placed by top management on the ancillary revenues produced by frequent flier programs. Loyalty was the primary objective when frequent flier programs were introduced 26 years ago. Over time, and largely concurrent with the advent of co-branded credit cards, the primary mission of these programs has become the generation of cash flow for the parent airline. Meanwhile, the

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BIRD’S EYE VIEW

pure loyalty benefit has been reduced to a lower level of importance. 42% of survey respondents suggest their top management says “show me the money” when placing a value on their frequent flier program. Only 15% of those surveyed opted for “loyalty” as the primary benefit recognized by an airline’s top management.

Readers are encouraged to note the importance placed upon the revenue generating power of frequent flier programs. What was launched as an initiative to further the loyalty of key customers, has become a significant contributor of profits from the sale of miles to partners such as co-branded credit cards. But as the issue of reward availability demonstrates, airline management should not forget the key purpose of these programs - - to drive loyalty, provide recognition and enhance customer service. After all, these programs are designed to serve an airline’s best customers. If airlines fail to maintain the value of these programs for their customers, they will be useless as revenue sources. Readers are invited to browse the complete 9-page report online at the IdeaWorks web site: www.IdeaWorksCompany.com

ANALYST PORTHOLE Was Thomas Cook’s and My Travel’s merger the right outcome? Everybody knows the packaged holiday tour business has been ripe for consolidation for some time. There were no surprises when First Choice put their mainstream business up on the block. Soon the suitors were circling like 30-somethings at a speed dating party. Thomas Cook was hot, My Travel was ready to rumble and even Kuoni and Virgin were strutting their stuff. So it was quite a surprise when Thomas Cook caught My Travel’s eye across the crowded dance floor and announced they were an item! Was this unexpected outcome an opportunistic «grab it now» that could be a ‘synergy trap’ as some industry experts have observed....or a carefully thought through plan?

Cook & My Travel Presentation.» The analysis shows it was a good move for both companies. Read on and reflect - results for the entire industry are also included on our chart and clearly, there are still plenty of merger and acquisition opportunities out there. ...so make sure you pick the right partner by considering the consumer ownership perspective as well as the financials !!!!

TripVision ran the numbers on the deal from a unique standpoint - that of ‘consumer ownership’. As well as tracking the absolute numbers of consumers who have used a particular travel agent, TripVision is also able to identify those consumers who have NOT used a particular agent. TripVision is the only data source to be able to do this. This is a crucial factor as it determines whether the merge will produce incremental business, or if consumers from either party end up cannibalising each others sales. The customer ownership results are available to subscribers (it’s free to subscribe) of our web site www.trip-vision. com - to the right hand side of this item entitled «Thomas

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Get more information: http://www.trip-vision.com/TravelNews/index.cfm?ccs=61&cs=193

Air Scoop - March 2007

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BIRD’S EYE VIEW The Austrian LCC Market Is Dominated By Foreign Companies At the beginning of 2007, the LCC headlines in Austria were dominated by... a Slovakian company, SkyEurope. For two reasons: first, two Austrian businessmen, Ronny Pecik and his partner Georg Stump, took over 16,5% of the Bratislava-based company, quoted on the Vienna Stock Exchange. Thus, they challenged the other big SkyEurope investor, the American hedgefond York (23% of the shares).

Austria has only two small LCCs. The first one, InterSky, is based at the German Friedrichshafen airport, a few miles away from the western Austrian border. It operates three small aircrafts to 13 destinations. The second one is Niki, the company of the former formula-one champion Niki Lauda, created in november 2003. It owns six aircrafts, and carries more than one million passengers per year.

Secondly, at the end of March, SkyEurope will land at the Vienna Airport for the first time ever. In 2007, the LCC will open 16 new destinations from Vienna to Holland, Greece, Spain, Belgium, Italy, France, Romania, Bulgaria, Cyprus and Croatia, and also an internal route to Innsbrück. This year, the Slovakian LCC expects more than 700 000 passengers in Vienna. Two of its planes will be based in Austria’s main airport, and ten in two years.

Niki could not exist without its German « big brother », Air Berlin. The German leader and third biggest LCC in Europe owns 24% of Niki, which is, in fact, its « affiliated company » in Austria. Niki operates flights from Vienna to Air Berlin’s hubs (Palma de Mallorca, Nürnberg...), from where the German LCC brings the passengers further to other destinations. It also benefits from Air Berlin’s logistic support (marketing, Internet, call-center...). In Vienna, 2,2 of 16,9 million passengers yearly choose low-cost flights - among whom 1,8 million fly with Air Berlin - Niki. SkyEurope will have to fight hard. Fortunately, the low-cost activity is dynamic in this airport: in 2006, it grew by 13,2%. Austria, with 8 million inhabitants and high living standards, is an attractive market for LCCs. Their market share is growing behind national leader Austrian Airlines. In addition to Vienna, five other Austrian airports are connected to low-cost flights. In their case too, foreign companies are predominant.

This is an important evolution in SkyEurope’s strategy : with two hubs both in Bratislava and in Vienna, the LCC now really reinforces its leading position in Central Europe. Previously, SkyEurope was only connecting Vienna with a shuttle bus from the Bratislava airport, one hour away from the Austrian capital city, but located in another country. The same strategy than Ryanair, not operating a single flight to Vienna, but connecting four British cities and Milano to Bratislava. In Vienna, SkyEurope will have to compete with the local low-cost leader: the German-Austrian alliance Air Berlin - Niki.

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Air Berlin – Niki, Flybe, RyanAir, TUIfly, SkyEurope, Norwegian, Aer Lingus, Transavia...), new routes to Manchester and several German cities will open in 2007. In Graz (Niki, Condor, InterSky, RyanAir, TUIfly), news routes to Palma de Mallorca and Berlin are planned. In Innsbrück, Transavia recently opened a route to Rotterdam and TUIfly to Köln. Linz (RyanAir, TUIfly, Air Berlin - Niki) will be connected with Köln in March. RyanAir and TUIfly also serve the smallest lowcost airport in Austria, Klagenfurt. Among the important European LCCs, only easyJet is absent in the country. Its route to Bratislava was suppressed in 2006. Most of the LCCs in Austria fly to Germany, Great Britain and Southern Europe. Charter activity is significant, from Austria to the southern seas in summer, and from abroad to the Austrian snow in winter. But Austria is also the door to Central and Eastern Europe. And this market has just begun to emerge. From Salzburg, Niki already flies to Budapest, and SkyEurope to Warsaw. And from Vienna, SkyEurope will launch in March flights to Bucharest and Sofia, and Niki to Moscow. The beginning of a « battle to the East » ? Maybe... But Niki Lauda, the partner of Air Berlin, is also a friend of Ronny Pecik, the new Skyeurope investor. And he announced he could, one day, cooperate with SkyEurope.

In Salzburg, an important LCC platform (12 companies, among which

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BIRD’S EYE VIEW The Birth of LCC Subsidies Subsidies for airports and low-cost carriers (LCCs) have long been a center of debate. With Ryanair greeted the New Year facing European Commission’s queries over the carrier’s airports deal with Derry in the mist of scrutiny and suggested illegal state aid, LCCs and airports subsidies once again strike European media. State aid in aviation sector is not a new breed. It has long existed in European Union when all airlines are privately owned, of partial or complete state ownership. As a result, complete or partial state ownership has frequently involved state capital injections into airlines having financial difficulties. State aid has been justified on various grounds ranging from economic and military to legal and psychological. In the present European aviation scene in which fair competition is emphasized, many aviation development funds are taken in more subtle and implicit forms. When Ryanair and easyJet started low-fare operations in Europe in the 1990s, they offered modest flights connecting small and secondary airfields. However, this started to change when European governments launched route development funds to support cultivation of direct regional flights connecting local airports with major transport hubs and even exotic international destinations, with the aim to bolster business travel and tourism and ultimately maximize commercial interests for the airports, carriers and the cities concerned. Various route development funds are set up as indirect initiatives to promote, secure and enhance existing and new direct air services between regional airports and more popular destinations. As a strategic move to consolidate city and even country image, direct air connection is considered to help create more popular business and tourism gateway. As early as November 2002, Route Development Fund (RDF) was set up in November 2002 by the Scottish Executive. The RDF is operated on a partnership basis with Highlands & Islands Enterprise, VisitScotland and Scottish Enterprise, which administers the fund on the Executive’s behalf, allocating funding to airports and new external direct routes proved to be economically beneficial to Scotland. It has helped lure more than 40 new services than mere European routes that were on the wish list in 2003, including lucrative links from Glasgow to Dubai and Boston and Edinburgh to New York and Atlanta.

LCCs SUBSIDIES Development (NI) Ltd. This company was created by the Department of Enterprise, Trade and Investment and Invest Northern Ireland, providing investment support to airports that offer “discounts” on aeronautical charges to airlines introducing new routes, as well as match funding which allows the airports to double the amount of discount offered. By June 2005, it has subsidized nine new routes include one direct flight linking Belfast and New York. From carrier’s perspective, launching new air routes connecting major destinations and airfields is no easy task. Airports are natural assets to countries and at the same time, monopolies. Apart from fuel and operational cost, airport charges levied by the airfields is what each carrier strives to reduce through individual negotiation. After slimming down operational cost through e-ticketing, reduced complimentary services and back-office operations, low-cost carrier is burdened by steepened airport charges. This creates another contradiction to route development funds which offer financial “aid” for respective airports and carriers to develop direct routes. If the airports are, in a way sources of carrier’s financial expenditure, to what extent they can be justified to receive government incentives to “discount” carriers on landing and other administrative charges in order to encourage them to fly to these airports? Notably, European Commission strives to put an end to such subsidies and retain a competitive air market. The new EU rules will outlaw start-up subsidies for long-haul routes launched after the end of May and all flights to airports with 10 million or more passengers a year. The Commission hopes to put many lucrative links that are made possible by route development funds to date back on the ground. However, since many of the regional airports such as Edinburgh and Belfast still have missing links to many Europe’s biggest economic and transport hubs, the executives would still offer scaled down financial backings to routes that would have started by June. As a matter of fact, the new rules do let the Scottish executive to use RDF to support routes from Edinburgh duplicating those that already existed from Glasgow. Find more articles about LCCs Subsidies in our next newsletter: Air Scoop April 2007.

Northern Ireland followed suit shortly after by launching an air route development fund in 2003. Similar to the Scottish flagship fund’s operational structure, the northern Irish initiative is operated by a company called Air Route

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DOWN TO EARTH LCCs “Green” Wars Tense debates over certain issues have always accompanied the EU Commission – LCCs relationships. The latest ecological initiative set out by the Commission has brought forward discords that exist within the European Low Fares Airline Association (ELFAA). The two leaders, Ryanair and easyJet, appeared to have different approaches to the problem of CO2 emissions and environmental protection. However, the idea to include LCCs in the emission trading scheme met rather cool reaction from ELFAA, the organization that was created in order to protect LCCs’ interests and defend their rights against, amongst others, the EU policies. Positioning itself as a green and environmental friendly airline Ryanair is absolutely against any additional taxation regarding ecological issues. The LCC is convinced that factories and road transport are much more to be blamed than aviation. Being the largest LCC in Europe with the fleet of more than 120 aircraft Ryanair is not interested in any additional costs. The company accuses the Commission of speculating; and states that the offered measure will do nothing but decrease the overall economic growth. Environmental agencies in the UK, in turn, chastised Ryanair for its position, calling it irresponsible. easyJet, on contrary, admits airlines’ negative influence on the environment and is ready to improve it at any stake. The company sees minimising this influence as a crucial part of the strategy. The British LCC is rather supportive of the scheme and does not see any threat in it. Unlike Ryanair, easyJet believes that this measure is worth taking to cut down greenhouse gas emissions. The scheme itself has two-step implementation with intra EU flights being added in 2011 and flights operated out/ into the EU in 2012. This basically means that LCCs are

LCCs ENVIRONMENTAL ISSUES the first to feel the burden of new taxation. ELFAA insists on long-distance flights entering the scheme together with the domestic EU flights. ELFAA sees such division as discriminatory and afraid that the delay in out-EU flights entering can end up with no entering at all. To defend member airlines and to accommodate both Ryanair and easyJet interests ELFAA has published the Frontier Report stressing that the whole idea of scheme implementation is just a waste of time. The report highlighted that airlines are not the biggest polluters and should not be treated as such. The main goal of the report, which was to disclose all the myths that surround airlines’ negative impact on the environment, was much in accordance with Ryanair’s position. But considering that the present Chairman of the Environment Working Group at the ELFAA is also a representative of easyJet it is plausible that some kind of compromise is to be found. Positions of other members of ELFAA are not that clear as of the two mentioned. Sterling, for example, is aimed at reducing C2O emissions and introducing new environmental friendly fleet by its own efforts. The approach is really close to Ryanair’s: “we don’t pollute, so there is no need to pay.” Although Ryanair’s and easyJet’s attitudes towards buying so called ”pollution credits” are fundamentally different, ELFAA itself (meaning all the member airlines) took a somewhat «middle of the road» position acknowledging the importance of environmental protection but being strongly against any additional taxation. However, this could be a matter of further bargaining with fuel taxation, for example, being an objective.

easyJet: Friend of the Environment... Among all European LCCs, easyJet appears as the most open to discussion on Environment and ready to make some proposals to reduce its carbon emissions. Here under are the latest positions of the carrier: “easyJet today publishes its Corporate and Social Responsibility Report which outlines its strong environmental credentials and includes three «promises» to help balance aviation’s huge social and economic contribution with its impact on climate change.”

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Andy Harrison, easyJet Chief Executive, declared: «It’s hard to see how anybody who has read the recent IPCC report and the Stern Review can deny that global warming

Air Scoop - March 2007

is a clear and present danger and that this generation has a responsibility to take action now. Most within the aviation industry recognise that aviation pollutes and that we must improve the environmental efficiency of today’s operations and work on tomorrow’s technologies. «It is time for a proper debate of the sort that has been largely missing of late. Given that aviation CO2 only accounts for 1.6% of global greenhouse gas emissions, grounding every aircraft in the world would have a miniscule impact on climate change yet a vast impact on our economies. So, airlines have a responsibility to do what they can and governments have a responsibility to ensure that their policies incentivise the right behaviour.

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DOWN TO EARTH «It is for this reason that easyJet has today published its Environmental Code, which contains three promises - that easyJet will be efficient in the air, efficient on the ground and will help shape a greener future for the industry.

«I believe that we are on the cusp of major advances in aircraft and engine technologies which will lead to dramatic reductions in emissions, which have not yet been factored into the environmental forecasts about our industry.

«The same business model which gives us low fares (new aircraft, high occupancy rates, direct flights) also gives us environmental efficiency in the skies - easyJet emits 27% fewer greenhouse gasses per passenger kilometre than a traditional airline on an identical route. In addition we recognise that we can and we will expect more of our ground suppliers at airports.

«In the meantime airlines have an obligation to maximise their environmental efficiency (particularly by operating the cleanest available technology). For their part, Governments must ensure their policies balance the vast economic and social benefits of flying with its impact on climate change, particularly by mandating minimum environmental standards for aircraft to operate in Europe.

«We also intend to play a leading role in improving the future environmental performance of our industry - reforming Europe’s famously-inefficient air traffic system, implementing a meaningful European emissions trading scheme, working on the next generation of aircraft, giving customers the most comprehensive range of environmental information available for travel to a particular destination, and helping them to offset the carbon emissions of their flight.

«Governments should also recognise that some airlines are already more efficient than others - something that the UK’s Air Passenger Duty dramatically fails to do. APD provides no incentive for airlines to operate the cleanest aircraft; it completely omits airfreight and private jets; the proceeds are not allocated to any scheme to improve the environment; and it is disproportionate - on a UK domestic return flight, the £20 APD is now 25% of the average fare and about 10 times the cost of off-setting the carbon emitted on an easyJet flight.»

Plane Stupid: «Yes. We will continue to target direct actions against LCCs» Probably if somebody conducted a survey today about the most often heard word in the news and read in the newspaper the answers would be firstly Environment and secondly Climate changes. Be honest with yourself, does it not seems to you as if the words had been discovered few weeks ago. Everybody is speaking about environmental issues, their changes and consequences for the future - for our future. Supposedly everybody cares about the future, and therefore also about the environment, but what can be done? Who is responsible and what is the solution? Air Scoop asked the association Plane Stupid why are Low Cost Carriers, in their opinion, not environmental friends and if they plan any action against LCC´s in the future? Leo Murray, Press Officer of Plane Stupid, answered as follow: “Low cost carriers are driving the massive growth in air travel we have seen and expect to continue to see over the next decades if our governments do not adopt a policy of demand restraint. Air travel is the most environmentally damaging form of transport, both because of the very high levels of CO2 it deposits in the upper atmosphere - exactly where it is not wanted - but also because of the seldom mentioned other greenhouse gas emissions, such as NOX and contrails, which make the warming effect of aircraft emissions at least twice that of the CO2 alone. All of this adds up to make aviation the fastest growing contributor to climate change, especially here in the UK and the EU.

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Air Scoop - March 2007

Low cost carriers are only able to offer their services so cheaply because of the enormous tax subsidies they receive through 0% tax rating on aviation fuel and no VAT on tickets, aircraft or aircraft spares and repairs. All of the LCCs in the UK lobby aggressively to maintain their uniquely tax-free status; see Ryanair’s APD stunt earlier this year, or indeed easyJet’s deliberately misleading ‘sustainability’ statement last week. Plane Stupid targets LCCs specifically because most of the destinations they serve are near enough to be easily accessible by more sustainable forms of transport such as rail; 45% of all flights in the EU are to destinations of 500km away or less; Paris is the top destination from Heathrow airport - there are 60 flights every day to Paris from Heathrow. The reality of transforming our economies to avoid dangerous climate change means we cannot allow aviation as a whole to grow much beyond its present size, and we may very likely even need to reduce it. This means if we are still going to travel to places like Australia, South America, China and Japan - places that are basically innaccessible by other forms of transport - then we are going to have to stop flying between nearby European cities altogether, and find some other means of getting around instead. Yes. We will continue to target direct actions against LCCs until they accept and admit that their business is a major cause of climate change, and is set to become the UK’s n°1 contributor before 2050 unless their crazy expansion plans are scrapped.”

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BIRD’S EYE VIEW Exclusive Analysis for Air Scoop www.airlinebulletin.com

A Proposed Environmental Public Relations Strategy for LCCs (part 2) (Read the first part Air Bulletin’s analysis on LCCs and Environment Issues on Air Scoop February 2007) Moreover, LCCs need to clearly explain to customers their position on two controversial programs that impact passengers and airlines. The first is the EU Emission Trading Scheme. Many LCCs seem to understand that emission trading is the best system for reducing aircraft emissions, but LCCs might consider pressing for changes to make the system fairer. These include: • Ensuring that long-haul flights on any airline to/from Europe are covered so passengers who fly longer distances on an airplane, regardless of the airline, will pay their fair share. • Pressing for tough restrictions on the minimum number of seats airlines can configure their aircraft with, which might force legacy carriers to cut premium seat sections and make their aircraft more efficient to operate. • Ensuring that the EU presses other nations, including the United States and China to develop similar schemes to control emissions. EU airlines should not be the only ones making sacrifices for the planet. LCCs also need to communicate to passengers what “green” taxes LCCs find acceptable. Many customers justifiably believe that airlines are opposed to any taxes on air travel, but some LCCs recognize that some environmental taxes are necessary for passengers to pay, a fact many passengers aren’t aware of. LCCs need to set clear criteria for new or expanded air travel taxes that passengers can comprehend and empathize with. Some possible criteria include: • Tax increases must be phased in over a period of at least six months, so a fiasco similar to the current APD crisis doesn’t reoccur. • Taxes must directly fund environmental programs such as the formation of carbon sinks. • Tax increases are proportional to the airline, duration of flight, and class of travel. Passengers who fly more environmentally friendly carriers shouldn’t pay the same rate as those who fly on dirtier carriers, and like the APD, passengers who fly in premium classes should pay more than passengers who don’t.

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LCCs also need to offer an alternative to environmental taxes. Perhaps the easiest idea is to allow customers to donate to a carbon offsetting charity to compensate for the emissions of their trip right from the booking page. To launch this feature, airlines should match customer donations up to a certain figure. If LCCs create a dialogue with customers, they must acknowledge the successes, but also the steps that still need to be taken by passengers and airlines to achieve further reductions to the human impact on climate change. An advertising campaign that discusses the environment and not travel may be the best way for LCCs to start a dialogue with customers. LCCs should consider voicing their environmental message in various formats including: • An advertising campaign similar to HSBC’s latest campaign in the UK. This brilliant campaign contains a positive, down-to-earth message that customers can relate to. The campaign de-emphasizes the negative image customers have of banking and instead focuses on what HSBC has done to reduce its environmental footprint, what more they still have to do, and most importantly, what customers can realistically do to help. • Information in in-flight magazines and other sources on the aircraft with the same content as proposed in the advert campaign above. • A prominent, detailed, dedicated page to the environment on their Web sites. European LCCs shouldn’t hide the fact that they contribute to climate change. Instead, creating an open and frank dialogue will help customers understand the challenges airlines face, the steps most LCCs have already taken to reduce their environmental impact, and the steps they plan to take in the future. If LCCs don’t present their own solutions to slowing climate change, then the uninformed public will side with governments, which will impose higher taxes and an EU Emissions Trading Scheme that will unfairly punish LCCs.

Sam Sellers provides analysis and commentary on the airline industry at his website, www.airlinebulletin.com. He is the author of Take Control of Booking a Cheap Airline Ticket, an ebook for travelers in the United States who are interested in purchasing cheap airline tickets. The ebook provides step-by-step instructions that readers can use to purchase the cheapest airline tickets. It can be purchased for $10 at http://www.takecontrolbooks.com/airline-ticket.html

Air Scoop - March 2007

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DOWN TO EARTH FITUR 2007 FITUR 2007 is the first grand tourism event on the yearly calendar for the international tourist industry. Over 5 intensive working days, from 31st January to 4th February, a comprehensive range of tourism businesses and destinations from around the world has been presented in Madrid, which became a veritable focal-point for Spanish and international tourism opportunities. FITUR reinvents itself year after year, providing an Integral Promotional Service which generates fluid trade links among all participating actors of the tourist industry before, during and after the exhibition. An Air Scoop correspondent was at the FITUR 2007 and had the opportunity to interview LCCs representatives there.

2 questions to... Andreas Engel: PR Spokesman International Germanwings What are the projects of Germanwings in Malta? Germanwings is now a litlle bit older than 4 years, flying from 4 hubs in Germany to 60 destinations in Europe and from end of March from Cologne & Stuttgart also to Malta, starting with 2 flights per week - starting from 19 EUR (incl. all taxes, up to 15 % of all tax). We think Malta has an enormous growth potential, is a undiscovered Island for 7,1 Mi. Germanwings Customers we had 2006. And there is a high demand also for well situated Germans to fly individualy with nice Germanwings Airbus, leather seats and without any advertising for gaming, gambling nor car rentals to Malta

How does Germanwings manage the competition with Ryanair? Ryanair is low-cost market leader in Europe with over 16 years experience to fly from nowhere to nowhere. Germanwings is mostly flying to Primary Aiports (Hamburg not Luebeck like Ryanair or Barcelona not Reus or Stockholm-Arlanda and not Skavsta, Paris CDG not Beauvais etc) So Ryanair does not disturb us, and competition is good for Germanwings - we have the better product, we are «Lufthansa light», like a radio station in Malta mentioned recently. If you want to fly cheap with a very reliale airline, with brand new Airbus from, or to, a big city like Cologne and Stuttgart, Germanwings should be your choice!

2 questions to... Loredana De Filippo, Exterior Relations from Meridiana What are the projects of Meridiana in Malta? We will start operation between Bologna and Malta on next April with two weekly flights (on Thursdays and Sundays). Last year, Meridiana carried about 8.000 passengers on this route from June to September, the load factor on the 3 month base was 65%, in August we reached 77%. If 2007 operations will show a positive trend we could even add a third flight per week. We aim to reinforce commercial agreement with tour operators and travel agency that helped us last year while starting operation in Malta in order to keep this service even in winter season. If we’ll have cooperation and good results, next step could be opening other destination and connecting Malta with Florence, Turin or Verona.

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Air Scoop - March 2007

How does Meridiana manage the competition with Ryanair? Ryanair is not a real competitor for Meridiana, even if this company is strongly operating in Malta. We feel more aggressive the competition with other Italian carriers that operates schedules and charter flight between Malta and Italy. Anyway Meridiana has a very strong position in the trade Italian market, a website known and appreciated, fares and services standards that can compete with these carriers.

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BIRD’S EYE VIEW 3 questions to... Mariana Ion, Development Manager from Blue Air What is the impact for Blue Air of the entrance of Romania in the EU? The entrance of Romania in the EU brings Blue Air a lot of new opportunities: new routes that now are available to us, easier access to the EU for our passengers that ultimately maximizes our check-in times as the customs procedures go faster. We will also have new competition and this will increase the quality of the services provided to the client. What will you do now that you could not do before? Now we can have flights between the EU states (like Rome – Paris for instance). Also, other low-cost companies have entered and will enter into the Romanian market and this would be a great possibility for all of us to educate the Romanians regarding the low-cost concept; this has been a difficult task for Blue Air because we are the first Romanian low-cost carrier.

With this new opening, how do you prepare competition with Low Cost Carriers in Europe? Even from the start we have offered accessible and safe flights. We offer competitive services besides the low-cost of our tickets and this is why last year we started our own handling services in the Baneasa Airport (ground handling, passenger handling, lost and found services, providing the aircraft with specific equipment). This year we intend to buy 2 new aircrafts and to open Blue Air ticketing agencies in the EU. Blue Air always focuses on the quality of the services it provides and always finds highly competitive solutions to keep its rates as low as possible.

2nd Air Transport Conference for CSEE

EVENTS

Air Scoop is proud to be media partner this year again of the 2nd Air Transport Conference for CSEE. Following the success of our Inaugural event last year, this year we are continuing in dealing with the issues Air Transport is facing in this region. This is a unique opportunity to meet face-to-face with Key Players in this sector and discuss what additional strategies you can easily implement to empower your business development. How to register? tel: +381 (11) 20 26119 e-mail: [email protected] www.easteurolink.co.uk

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Air Scoop is a Registered Trademark of Global Wings Publications. Subscription to Air Scoop: 290 euros for 1 year (10 issues) Copyright 2006 - Unauthorized distribution or reproduction is forbidden. http://www.air-scoop.com ; http://airscoop.blogspot.com (free portal news)

Air Scoop - March 2007

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