Highlights in this Issue
Which Low Cost Model in Scandinavia? p. 2
DirectFly: Regional or LCC?
LCCs: Focus on Ancillary Revenues
Battle in Central Europe: SkyEurope and Wizz Air
Ryanair: Europe is Not Enough!
The Low Cost Carriers Analysis Newsletter
AIR SCOOP ANNOUNCEMENTS
EDITORIAL
C
entral and Eastern Europe markets are under heavy compe-
tition between local carriers (‘Centralers’) and LCCs leaders
from the UK (‘Islanders’). Wizz Air, one of the main ‘Cen-
tralers’, faces both SkyEurope and Ryanair for these markets (p. 2
and 8). Smaller local carriers must adapt their business model to face
this strong competition, such as Direct Fly in Poland (p. 5), which
focus on regional and niche markets.
Meanwhile, consolidation of LCCs markets keeps going on. After
Germany with Air Berlin and dba, the UK seems to be propitious
for such evolutions. Even if Ryanair’s takeover bid for Aer Lingus
seems to have failed, other deals are ongoing, such as Flybe taking
over BA Connect (p. 4), and this should be just the beginning! Com-
petition has become too hard on many European markets, and LCCs
need to find new ones in order to survive. It is the case of Ryanair
which opens new routes to farer destinations (p. 9). However, longer
distances could imply a modification of its initial business model.
As we heard many times during recent Low Cost Airlines Congress
2006, it is now difficult to clearly define a low-cost carrier. Due
to many different business models, each carrier has its own speci-
ficities, and one model cannot apply to all markets. Thus, Maunu
von Lueders, CEO of FlyNordic, explains specificities of low-cost
carriers in the Scandinavian market (p. 4). However, one constant
factor in LCCs is the need of ancillary revenues. They are essential to
offset the low prices of tickets. To better understand these revenues,
IdeaWorks Company has realized a study about frequent flyer pro-
grams of some European LCCs (p. 6).
In its race to gain new destinations and open new routes, Ryanair
faces unexpected hurdles in Malta.
The Irish carrier already had to face politicians and some tourism
industry workers that pointed out that massive tourism could have a
negative cultural impact on Malta. Now problems come from Malta
International Airport (MIA) which is accused by the carrier of in-
flating its charges. However, Michael O’Leary went to the island to
met MIA CEO Peter Bolech and Tourism Minister Francis Zammit
Dimech. He walked into the airport’s conference room draped in a
Maltese flag and dressed up casually, and quipped «I was told to go
to Malta because there is all-year-round sunshine and the moment
I step off the plane it starts raining. That’s it, I’m pulling Ryanair
out of Malta». He repeated it was essential that the government also
plays its part in lowering the cost of travel by attacking the mono-
poly airport costs and by reducing this prohibitively high ticket tax.
Details of negotiations are for the time being confidential...
Air Scoop - November 2006
p. 3
p. 4
p. 6
p. 7
Air Scoop Exclusive Interviews
Every month, Air Scoop Team interviews a top
executive of a European LCC.
These interviews are available on our website.
Current Exclusive Interviews available:
° Chris Mandl (CEO of SkyEurope)
° Bertolt Martin Flick (CEO of AirBaltic)
° Maunu von Lueders (CEO of FlyNordic)
° Carlos Munoz (CEO of Vueling)
Read all our Exclusive Interviews on
Air Scoop.com
Air Scoop & IdeaWorks
Air Scoop is proud to have developed links
with IdeaWorks.
IdeaWorks was founded in 1996 as a consul-
ting firm building brands through innovation
in product, partnership, and marketing and
building profits through financial improve-
ment and restructuring.
IdeaWorks specializes in brand develop-
ment, profit improvement, competitive ana-
lysis, creating partner-marketing strategies,
cost reduction programs and business res-
tructuring.
IdeaWorks brings value as a consultant by
researching the expectations of the custo-
mer, learning from the wisdom of the client
organization and applying innovative ideas to
create solutions for clients and consumers.
http://www.IdeaWorksCompany.com
www.air-scoop.com

Which low-cost model in Scandinavia?
The biggest losers have been those
low-cost carriers that were established
and owned by traditional airlines and
operated in head-on competition with
their parent companies. Low- cost air-
lines, such as Go, Buzz, Tango, Snow-
flake, Song…, have all been wiped
out from the roster of low-cost airli-
nes. We will probably see less of these
cases in the future as the incumbents
have learned their lesson. But is the
basic Ryanair model a viable concept
for all markets and for all customers?
Does “one size” or “one form” fit all?
Definitely not!
There are markets where the basic
model would not be very successful.
An example of this is the large Intra-
Scandinavian business travel market.
These business travelers have been
used to a certain level of service and
although many of them are also price
sensitive they are not willing to give
BIRD’S EYE VIEW
ANALYST PORTHOLE
up a lot of service features in exchange for
a lower fare.
In most cases the costs of travel will bur-
den the companies who seek cost cuttings
and savings and not the passengers who
seek personal benefits such as comfort, re-
cognition and status. The combination of
these two different perspectives regarding
business travel has however created a new
set of choice criteria which has one foot
in the old and one foot in the new world.
An annual survey made among a couple
of thousand Swedish corporate travel ac-
counts reveals the choice criteria that the
airlines should try to satisfy in order to
capture the business.
The basic low-cost model would not be
able to satisfy the needs and expectations
of the business travel segment within
Scandinavia even though Price is by far the
most important factor. Price alone is not
enough to make a customer to switch cost.
This why a low-cost carrier in Scandina-
by Maunu von Lueders
(CEO of FlyNordic)
via faces the challenge to keep the
costs down while providing added
value similar to what the custo-
mers are expecting.
This low-cost niche model repre-
sents a different approach to low-
cost air travel and it shows that
different kinds of models are nee-
ded in special markets for special
segments and that one size does
not fit all.
Read our Exclusive interview of
Maunu von Lueders on Air Scoop
July 2006

Flybe + BA Connect: The Largest European Regional Airline

British Airways edged down its full-year revenue growth The transaction is till now an agreement in principle, and
expectations, and announced its plans to sell its regional still subject to due diligence. If the deal is signed, Flybe
operation unit, BA Connect, to Flybe. Security disrup- would take a serious option to face future strong conso-
tions due to terrorist alert in Mad-August had an impact lidation of European LCCs, as its planned initial public
on the decline in operating profits of BA Connect, and led offering has been delayed until the first half of 2008.
to this sale.
Jim French, Chairman and Chief Executive of Flybe, af-
Based in Manchester and formerly named CityExpress, firmed that this acquisition will make Flybe the largest re-
BA Connect has 1900 employees and operates 52 routes gional airline in Europe and one of the largest in the UK.
from 13 UK regional airports. BA Connect has been a loss- The LCCs UK market is definitely very active these days
making unit for British Airways, in particular because of after Ryanair’s takeover bid for Aer Lingus. Context is
higher fuel costs and security-related disruption. now the same, so will the acquisition face same opposi-
The deal includes that BA will take 15% stake in Flybe, tion from unions and employees?
but excludes BA Connect’s Manchester-New York route,
and services out of London City Airport which will still
complement BA’s mainline business at Heathrow.
Even if both networks will complement each other, BA
Connect requires a huge sum to replace its fleet. Flybe
announced it will replace current aircrafts with more
fuel- efficient ones. Flybe is based in Exeter; the carrier
employs 1800 staff and operates 101 routes from 21 UK
airports. Head management has already admitted job los-
ses at BA Connect’s head office in Didsbury.
Jim French, Chairman of Flybe

2 Air Scoop - November 2006 www.air-scoop.com

 BIRD’S EYE VIEW
Direct Fly - Regional or “Low Cost” Carrier AIRWAY MARKERS
in the Polish Niche Market? http://www.directfly.pl/

During the last few years, the European airline industry has 42 Euros) with taxes included. Direct Fly offers services
experienced quick and dynamic changes, which have led to on board and options to purchase a package of twenty or
the establishment of low cost airlines. The term “low cost” fourteen tickets at fixed and discounted price.
used in the airlines classification is related to some other sy-
nonyms such as “low fare“, “low budget“, “discount” or “no After the launch, Direct Fly began flights to four inter-
frills“. This term generally defines any carrier with low fares national destinations: Berlin, Copenhagen, Kiev and Lvov.
but without many traditional passengers’ services. Never- However, the carrier was forced to cease all of them af-
theless some general characteristics of the low cost business ter just one month of operation. Polish destinations, like
model (for instance: a single passenger class, secondary air- Bydgoszcz, Lodz and Rzeszow, have also been eliminated
ports, short flights, unallocated seats, operation of one type from the Direct Fly schedule. Nowadays its offer includes
of airplane…) are not implemented the same way by every six domestic routes from Gdansk to Krakow and Wroclaw,
“low cost” airline. The main reason is that some carriers try and from Warsaw to Wroclaw, with ambitions to expand
to differentiate themselves from their rivals. flights to Katowice, Szczecin and Poznan.
Since 2001, when aviation industry suffered heavy losses, Direct Fly is the first company on Polish market which
traditional airlines entered a period of reorganization of their offers direct connections between polish cities, especially
market and their strategies. Many carriers opted to launch between Gdansk in the north and Krakow or Wroclaw in
their own low cost subsidiaries (KLM, BA, Lufthansa, the south, within 1 hour and 20 minutes range. Danish are
LOT, Iberia and some others) in response to the new phe- living from the NATO basis, was supposed to be a niche
nomenon in European market. “Open Sky Policy”, which goal.
is the consequence of globalization and liberalization, has
enabled the rapid spread of low cost carrier model. Direct Fly with 34 seats on the aircraft is not looking for
mass market, its positioning is rather on the niche market.
In April 2006, a new Polish airline, Direct Fly joined the The polish market is operated by six low cost airlines, with
European Open Sky. Direct Fly is now operating scheduled high competition and regularly new cheap connections.
domestic flights to three destinations within Poland. The Consolidations in the deregulated market are inevitable,
carrier differentiates itself emphasizing on alternatives to so there would be two options for Direct Fly to survive
fly on completely new routes with low fare tickets, but in this high competitive low cost market: First one would
in the same time more comfortably than with LCCs. Di- be the ability to offer lower prices than other operators,
rect Fly operates two SAAB´s 340A with 34 seats. From but meanwhile staying profitable from a long term point of
that point of view, it can be described as a regional carrier view. The second one would be to find the right niche. It
with connections that are not able to be supported by lar- appears Direct Fly has chosen to focus on this option with
ger aircrafts. Ticket prices start from 169 zlotych (approx its expansions course.
UPS AND DOWNS
And the Winner SkyEurope: Fined for
is… Flybe! Misleading Advertisement
The 25th of October, SkyEurope was fined
For the second year run- almost 200 000 euros by the Hungarian
ning, Flybe has been Competition Authority (Gazdasági Verse-
voted “Best Low Fares nyhivatal - GVH) for misleading passengers
Airline” at the Northern with its advertisements. The GVH “conclu-
Ireland Travel News ded that the advertisements of SkyEurope
Awards on Friday 13th Airlines were misleading consumers because it only stated the
October. This award is the result of votes taken price of the flight ticket, but omitted to indicate that other fees,
from members of the travel trade in the region. taxes, etc. also have to be covered in order to purchase a flight
“Winning the award for the second consecutive ticket.» Furthermore, SkyEurope’s advertisement slogan «the
year was a fantastic achievement given the evident most flights at the best price» was deemed to be unlawful as
strength of the competition here in Northern Ire- SkyEurope hasn’t been able to demonstrate the truthfulness of
land” declared Stephen Hoblay, Flybe’s Head of this statement. SkyEurope said it would appeal the fine with the
Sales. Budapest Municipal Court.

3 Air Scoop - November 2006 www.air-scoop.com

 DOWN TO EARTH
Europe’s Top 4 Low Cost Carriers Generated €470 Million
From Ancillary Revenue Sources in 2005...
But U.S. frequent flier programs produced revenues esti-
mated at €2.5 billion and better per passenger results.
Revenues from non-ticket sources, which are called an-
cillary revenues, have become an important financial
component for low cost carriers (LCCs) in Europe and
throughout the world. Michael O’Leary, Chief Execu-
tive of Ryanair, Europe’s largest LCC, wants to offer free
airline tickets by replacing traditional ticket sales with
revenues produced by ancillary activities. His statement
reflects how Europe’s LCCs have morphed the Southwest
Airlines model of providing overall value into an a la car-
te style of offering ultra-low fares and charging consumers
for services such as checked baggage.
Mr. O’Leary needs to add a frequent flier program if
he wants to squeeze more revenue from non-traditional
sources. IdeaWorks estimates Ryanair’s aggressive use of
a la carte pricing generated ancillary revenues of €7.76 per
passenger, while United’s Mileage Plus frequent flier pro-
gram posted amazing results of €9.40 per passenger. Even
US-based LCCs are realizing attractive ancillary revenues
from their relatively young programs. For example, the
co-branded credit card linked to Frontier’s EarlyReturns
program contributed revenues of €19.6 million during
2005.
In practice, ancillary revenues are often the a la carte ser-
vices and features that passengers may purchase before
or during their travel experience. Legacy airlines bundle
these services into the price of an airline ticket. LCCs,
and especially those outside the United States, tend to
un-bundle the travel experience. Under this scenario,
consumers purchase basic airline transportation and may
pay extra for services such as advance seat assignments,
checked baggage and onboard snacks and drinks.
The prevailing LCC model in the United States focuses
on value - - providing good service at a fair price. For
example, LCCs such as AirTran, JetBlue, Frontier, Spi-
rit, US Airways and Southwest offer frequent flier bene-
fits, free checked baggage, and do not charge extra fees
for payment by credit card. Outside of the United States,
LCCs emphasize ultra-low fares and often tie these servi-
ces to the payment of additional fees.
4 Air Scoop - November 2006
‘‘IDEAWORKS AISLE’’
by Jay Sorensen
(President of IdeaWorks)
Ryanair led the development of LCCs in Europe and
borrowed Southwest’s original model of low fares and no
frills. Ryanair has a reputation for ruthless cost cutting
and charging consumers for services beyond basic trans-
portation. On the expense side, it has removed tray tables
and window shades to lower fuel and maintenance costs.
On the revenue side it charges fees for checked baggage
and for ticket purchases made via credit cards. LCCs in
Europe and throughout the world have largely embraced
Ryanair’s mantra of cutting costs and charging service
fees.
Michael O’Leary’s vision of making flying free by 2010
has raised the profile of the ancillary revenues generated
by LCCs. The investment community views robust an-
cillary revenues as an indicator of an effective and creative
management team. IdeaWorks researched the financial
statements of the more established LCCs in the world
and found the following list “ancillary revenues” in their
financial reports: AirAsia, Air Berlin, easyJet, Ryanair,
SkyEurope, Virgin Blue, and WestJet.
This represents a clear distinction from the LCC experien-
ce in the United States, where the financial statements of
U.S. carriers are largely silent on the issue. But some U.S.
airlines report the revenues generated from their frequent
flier programs. IdeaWorks believes these financial results
should qualify as ancillary revenues. For major airlines,
such as United and Alaska, these revenues are significant
enough to warrant inclusion in Form 10-K annual reports.
United attributed revenues in excess of €627 million to its
Mileage Plus frequent flier program for 2005.
IdeaWorks retrieved ancillary revenue data from esta-
blished LCCs in Europe, Asia and the United States as
shown in the table. Alaska and United were included as
representative of the results generated by major U.S. airli-
nes that operate mature frequent flier programs.
www.air-scoop.com
 DOWN TO EARTH
Europe’s LCCs have been very creative in developing op-
portunities to encourage air travelers to spend money. Vir-
tually all LCCs in Europe, and many of those elsewhere in
the world, already allow consumers to arrange hotel accom-
modations, car rentals and trip insurance at their web sites.
The airlines are paid a commission by third parties for each
completed sale.

Ryanair’s home page offers a virtual shopping mall expe-

rience with offers for car insurance, personal loans, pre-ar-
ranged airport parking, airport motor coach transfers, airport
lounge access, co-branded credit cards, holiday packages, bed
& breakfast stays, and golfing in Ireland. The airline has also
turned its baggage service into a profit center. Checked bag-
gage can be pre-paid at the time of booking at a cost of €4.50
per piece, or €10.00 if paid at the airport. Like many other
LCCs outside of the United States, Ryanair charges an additional fee for payment by credit card. The fee for MasterCard
and Visa charges is €2.50 per passenger per flight. The fee is lower for debit card transactions and is waived for infant
travelers.

Airlines all over the globe seek to emulate the ancillary revenue results obtained by Ryanair. The phrase has become
popular with airline management and investors. Aer Lingus used the word “ancillary” more than 70 times in its recent
public share prospectus. Major airlines, such as British Airways, now openly express the desire to increase ancillary
revenues in their presentations to the investment community.

The analysis performed by IdeaWorks suggests even greater ancillary revenues may reside in an activity traditionally
scorned by LCCs . . . frequent flier programs. United and Alaska have proven the financial power of these programs
through results that approach €10 per passenger. These programs not only have revenue potential, they also make con-
sumers more loyal to a brand. Ironically, these programs already allow millions of program members to enjoy the free
flight sought by Michael O’Leary for the year 2010.

Sources used in this Industry Analysis: Unless otherwise noted, frequent flier program information presented in this re-
port is based upon an online review conducted during October 2006 of airline financial filings, web sites, and communica-
tion with airline management. Currency exchange rates were calculated during October 2006 at the XE.com web site.

1. 518 million passengers were carried by U.S. major airlines during 2005. IdeaWorks
estimates minimum frequent flier related revenues were €4.77 per passenger.
2. “A radical fix for airlines: Make flying free” Business 2.0 Magazine, March 31,
2006.
3. AirAsia estimates are for the AirAsia Group (Malaysia, Thailand, Indonesia) for
the fiscal year ended June 2006 and reflect 8.4% of group revenues, as referenced in
financial documents.
4. SkyEurope results are for the 9 month period ended June 2006.
5. Virgin Blue results are for the fiscal year ended September 2005 and reflect 4.9% of
total revenues, as referenced in financial documents.

Disclosure:
IdeaWorks makes every effort to ensure the quality of the information available in this
report. Before relying on the information, readers should obtain any appropriate profes-
sional advice relevant to their particular circumstances.
This Industry Analysis was independently produced and has not been completed as
work on behalf of a client company. IdeaWorks cannot guarantee, and assumes no
legal liability or responsibility for the accuracy, currency or completeness of the infor- http://www.IdeaWorksCompany.com
mation.

5 Air Scoop - November 2006 www.air-scoop.com

 BIRD’S EYE VIEW
LCCs Battle in Central Europe:
SkyEurope vs. Wizz Air
German As the competition between low-cost airlines be-
comes stiffer, it is interesting to compare how two major
Central European carriers face this battle. Both SkyEurope
and WizzAir have been successful in capturing their home
market where they have capitalised on the advantages of
being first-movers.
SkyEurope’s business model
Established in 2002, operating from five bases (Bratislava,
Budapest, Prague, Krakow and Warsaw), currently flying
with 15 Boeing 737 aircrafts, the Slovakian SkyEurope has
shown a massive passenger growth rate although the com-
pany does not follow strictly the classic low-cost business
model. Apart from assigning seats to passengers, it serves
several major, but contested, airports like Amsterdam-
Schipol, Paris-Orly, Barcelona or Rome-Fiumicino. Con-
sequently, this strategy involves higher unit costs that are
currently around 6 eurocents per available seat kilometer.
This implies that the carrier needs a relatively high break-
even load factor (above 75%). However, in the first nine
months of 2006, SkyEurope achieved on average only 71%
which partly explains why the company is accumulating
deficit. Even though the IPO in September 2005 (listed in
the Vienna and Warsaw stock exchange) gave the com-
pany greater access to capital markets, share prices have
declined sharply which makes the financial situation cri-
tical. Although SkyEurope dominates the routes between
Slovakia and the UK, Poland, France and Italy, it needs to
capture market share in those routes that attract greater
traffic. Building on the opportunity that Bratislava can be
an alternative airport to Vienna, and the fact that Krakow
is a popular tourist destination all-year round, SkyEurope
has systematically opened up routes from these bases to
major Western European and Mediterranean destinations.
Wizzair’s strategy
Unlike its Slovakian rival, the Polish-Hungarian WizzAir
(established in 2004) is a private limited company which
implements the classic low-cost model with only a few ex-
ceptions. Operating from five bases (Katowice, Budapest,
Warsaw, Gdansk, andSofia) WizzAir flies to secondary air-
ports (it recently gave up flying to contested Schipol and
changed the destination to Eindhoven), therefore it ma-
nages to achieve quick turnaround times that enables the
company to highly utilize its 9 Airbus A320 aircraft. Due to
these factors, Wizz Air’s units cost is comparable to that of
Ryanair, currently it is around 4 eurocents. Building on the
extensive relational network of the CEO, who formerly was
the CEO of the Hungarian national air carrier Malév, the
6 Air Scoop - November 2006
company enjoys a relatively stable financial background
although it has not yet turned profitable and is constantly
in need of cash. Having captured 15% of the overall Polish
market, the company extensively builds on the mass flow
of labour between Poland and Western Europe (especially
the UK and Sweden) while keeps penetrating the Cen-
tral European market by opening up West-East routes. In
the summer period, Wizz Air offers weekly flights from
Katowice and Budapest to popular Mediterranean tourist
resorts, thereby it directly competes with charter airlines.
Its strategy, however, includes only a limited service of
routes between Central European destinations (from Bu-
dapest to Transylvania, Bucharest, Sofia and Warsaw).
Comparison and implications for the future
Although both low-cost carriers have established a strong
home-base which is a powerful resource for the future,
their further expansion depends on several other factors.
SkyEurope has gained foothold in Prague (major compe-
titor is Smartwings), Krakow and Bratislava, while Wizz
Air is particularly strong in Poland. Since many of SkyEu-
rope’s destinations are touristic resorts, the company is
to a great extent exposed to the seasonal fluctuation of
market demand. In this sense, WizzAir is more protected
since the Polish market provides a relatively stable de-
mand over time, although it has to face a strong local rival,
Centralwings. Both Wizz Air and SkyEurope try to enter
new Central and Eastern European markets, their primary
focus recently is Romania and Bulgaria. In the former one,
WizzAir has made a strong strategic commitment with
opening up 9 new routes by January 2007, while SkyEu-
rope proved to be slower to penetrate this important,
much underserved market. Since both carriers are stron-
gly committed to expanding their capacity (both have 32
new aircrafts on order) to reach economies of scale and to
achieve a critical mass that ensures operating at minimum
efficiency scale, they are likely to continue opening up
further Western-Eastern routes but a shift towards East-
East routes is also probable.
www.air-scoop.com
 BIRD’S EYE VIEW
Given its higher unit cost and vulnerable financial situation,
SkyEurope is endangered by the so-called stuck-in-the-mid-
dle problem. It is neither a classic low-cost carrier in terms of
its business model nor a traditional one. If competition inten-
sifies and the capacity expansion does not meet the increase
in market demand, SkyEurope may not be able to cope with
the price competition posed by carriers having a lower cost-
base. It is not certain that there is a big enough market niche
in Central Europe between the classic low-cost carriers and
traditional ones that could be served by SkyEurope.

Wizz Air’s concern is its limited access to capital and the need
to generate cash. Although an IPO is planned by the CEO, it
is unlikely to get it accomplished in the nearest future. As a
typical symptome of low-cost carriers, both SkyEurope and
Wizz Air need to extend their revenue base, thus they have
already engaged themselves in diversifying their business and
have entered into strategic alliances with tour operators and
car rental companies. Nevertheless, the expected higher an-
cillary revenues will not solve their problems of becoming
profitable until they do not reach the minimum efficiency (1) According to the winter schedule. Wizz Air flies to se-
scale that is estimated between 25 and 30 aircrafts. condary airports like Paris-Beauvais, Barcelona-Girona,
The most likely outcome is that both companies will try to Rome-Ciampino, while SkyEurope directly flies to the
strengthen their established markets, thus there might be a major airports of these destinations.
shift towards serving home routes (East-East destinations) (2) Even though Wizz Air flies from Katowice while
SkyEurope from Krakow, the two airports are in direct
and increasing the frequency in the already served West-East
competition with each other due to their poximity to each
routes. This way they could capture these markets before the
other.
Islanders massively extend their networks to Central and Eas-
tern Europe. All in all, Wizz Air’s and SkyEurope’s most cru-
cial task is to increase the load factor and to keep costs low:
tasks that seem to be simple but much harder to accomplish.

Ryanair: Europe is Not Enough!
It appears that over years, Ryanair has added longer-
distance routes to its network, with destinations such as
Malta, Morocco, Canary Islands… The main questions are
now: How far will Ryanair go? And which impact will
this have on its business model?
During the World Low Cost Airlines Congress 2006,
Bernard Berger, Director of New Route Development of
Ryanair, already answered questions concerning average
time increase on routes. He said that, even if Ryanair in-
tends to keep flights as short as possible, the Irish carrier
will need to find new markets as far as they are in order
to maintain its growth. The carrier even considers adding
destinations in Russia as soon as the country enters a bi-
lateral air services agreement with the European Union.
These medium-haul routes would be a natural extension
to Ryanair’s current network. This expansion towards East
is clearly visible in Poland (Read next Air Scoop Decem-
ber 2006) and creates high competition with local LCCs:
the “Centralers” (SkyEurope, Wizz Air, CentralWings…).
With its “Go East” strategy, SkyEurope has still the first
mover advantage in developing markets in countries that
will soon join the European Union, but for how long?
Ryanair doesn’t seem to be willing to restrict itself to the
European market. Indeed, Michael O’Leary considers
setting up a partner company to operate long-haul flights
between Ireland and the US. This declaration to Ryanair’s
shareholders was before takeover bid for Aer Lingus. This
takeover bid could be the first one of Ryanair’s strategy
which consists in targeting airlines with long-haul routes.
As Aer Lingus offers flights to the USA and to Dubai, the
carrier was the perfect target to complete and develop
Ryanair’s network.
Ryanair faces strong resistance to its takeover bid from
Irish Government and Aer Lingus employees, and now
has to wait for the European Union’s authorization. Even
if Ryanair is not sure to succeed on this shot, it will defi-
nitely look for other long-haul targets. Which airline will
be the next target?

7 Air Scoop - November 2006 www.air-scoop.com

 BIRD’S EYE VIEW
Impact of the FL Group
on Scandinavian LCCs industry
FL Group is an Icelandic investment com-
pany founded in 1973 under the name Flu-
gleiðir. FL Group was well known for its
subsidiary Icelandair which has just been
sold in October 2006. Its investments in
LCCs market are now FlyNordic throu-
gh Finnair (10%) and Sterling Airlines
(100%).
Founded in 1993 by Consul Bruno Lucan-
der, Finnair is still controlled by the Fin-
nish Government with 58.42% while FL
Group has about 10%. In 2003, the Finnish
carrier acquired 85% of Swedish FlyNor-
dic, and then increased up to 100% in May
2004. In October 2005, FL Group bought
Sterling Airlines, the fourth largest low-
fare airline in Europe, from Fons Eigna-
rhaldsfelag.

Late April, after talks about a potential

takeover bid for easyJet, FL Group sud-
denly sold all its shares, about 16.9% of ea-
syJet. The proceeds from the sale of about
68 million shares were approximately €325
millions, but shares in easyJet slumped by
more than 11 percent after the move.
Such investments funds can’t be ignored as actors of LCCs’ market and must be carefully analyzed. Indeed, LCCs are in
competition for money, so in the future, best carriers will also be best funded ones. This is a decisive issue on which Air
Scoop will come back on next issues.
BLOGS TREND
Hostile Takeover Bid:
Main Weblog Coverage
The Blogosphere has been quieter in October
than during precedent months. Ryanair still
beneficiates from a larger weblog coverage than
its competitors, but it appears a bit more balan-
ced. Main news concerning Ryanair in October
was its hostile takeover bid for Aer Lingus. Rya-
nair should learn within in few weeks whether
the European Commission will block or not its
bid to buy Aer Lingus. Indeed, the European
Commission set a provisional deadline of De-
cember 6th to clear the deal but can extend that
if it receives complaints from rivals or identifies
antitrust problems.
easyJet is constant with its weblog coverage, especially concerning routes opening (Bristol – Paris) and dropping (Newcastle
– Nice) in France.
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8 Air Scoop - November 2006 www.air-scoop.com