Flight Global and T2Impact Launch LCC Report

The definitive study on LCCs for 2009.

Ryanair posts big rise in 1/2 Year Profits

Sticking to the playbook. Well done the team over at FR.

The numbers of course are staggering. Well on the way to a 50 mil pax plus airline this year- the underlying numbers show some clear success in the strategy.

Revenues grew by 24% to €1.6bn (£1.1bn), which included ancillary revenues of €252m (£175.5m), up 54%. This meant that ancillaries accounted for 15.8% of total revenues, versus the airline’s target of 20%. This is the key to the long term success of FR. For a conventional airline this number is essentially zero as no additional revenues are booked in this manner. This only now shows how much this is worth and how successful Ryanair has been at pursuing the growth of the revenue base not based on RPMs/ASMs and CASMs.

We believe that leveraging the individual passenger as the core metric is the fundemental differentiator between the true LCC model and the legacy one. Any airline still clinging to their outdated metrics deserves to be shot.

Those of you who are regular readers - know am not a big fan of the Ryanair service but I totally buy into the model and am quite happy to put up with the poor service in exchange for a reliable timetable and a low price. This is the true credo.

Cheers

Timothy

And then there were ... 2? LCCs in Europe

GB Airways surprise capture by easyJet caught BA knapping. The big network king has suffered several defections over the last year. First there was BMED (founded by Lord Hesketh for those of you who are trivia buffs). Sold to BMI from under the noses of Willy and Co. Who promptly sold back BA's slots to them for more than the cost of the airline they bought. Go figure!

The news this week of Franchise partner GB Airways selling to easyJet was followed within a day or so by Loganair - one of the smallest of the franchises - who has also terminated their agreement.

The loser is clearly BA - but who is the winner. Some pundits are opining that this will raise the bar even higher for other LCCs. As we have said many times we believe that the market has fragmented and led to a new HVC - Hybrid Value Carrier model. Either network carriers coming down into the LCC type model or LCCs going up.

For the European market we see very few sticking to the purist (or purest) model. Ryanair for sure is one of them. However we believe that the others will morph into the HVC middle ground. Already we see many - even BA charging for value added services. We see consolidation of the kind of models that has united many brands in Germany under the Air Berlin management. (LTU, Condor, Germania, DBA etc). The dominance of the LCCs in different markets is clearly having effect. With BA pulling back still from Gatwick - easyJet's acquisition of GB Airways will bring a lot more slots and traffic to its new best friend hub at LGW. Interestingly this could also mean over time an opportunity for EZ to expand into a long haul model or at the very least a partnership with Virgin Atlantic.

Stay tuned folks this is going to be interesting. With Sir Michael Bishop soon to retire (he is getting quite old now) BMI cannot hope to remain independent for much longer. Let's just see how things work themselves out.

Cheers

Timothy

Trouble at Skybus already?

Its only been in operation for a few months but already they are monkeying around with the schedule.

Skybus has cancelled flights to San Diego and Bellingham in favor of new direct nonstops from Portsmouth Boston. Clearly they are sticking rigidly to the Rynair playbook... maybe....

O'Leary sticks it to HM Government

Not being one of the Crown's loyal subjects, Mr O'Leary is not necessarily subject to such punishment as locking him up in the Tower or leaving him Hung, Drawn and Quartered. Much though I am sure that Hon Gwyneth Dunwoody MP, Chair(wo)man Transport Committee of the British House of Commons would perhaps like him to be.

However he has a point about the issues being raised at the session being somewhat off point. HMG (Her Majesty's Government) and even its Loyal Opposition have both focused on the issue of the way pricing is displayed to (in the mind of Mr O'Leary) the real issue of extra taxes without extra value.

if you wish to have a quiet "Titter" then read the release on Ryanair's website. http://www.ryanair.com/site/EN/news.php?yr=07&month=jul&story=gen-en-260707

Guy Fawkes would have been proud.

Cheers

Timothy

Alitalia - and then there were ... NONE???

Oh wow is me - the auction for Alitalia has now officially collapsed. AirOne and its bidding group have officially withdrawn so now there are no bidders.

There are some good lessons to be learned here.

1. The world is not Italy
2. Listen up Iberia board... dont make the same mistakes

Seriously though - this should be taken as an opportunity for the Prodi government to go back to the drawing board and re-cast the bidding in a transparent manner.

Oh yes and do remember our favorite bete noir is lurking in the wings with a suit against the EC for their previous do nothing approach to state aid to Alitalia (and others). So lets be clear. If the Prodi administration has to invest any more cash into Alitalia - then there is going to be a nasty fight. Mr O'Leary will force the EC to take a hard line on this subject or risk being taken to court in an embarassing result of having to claim the money back.

Is anyone paying attention in Athens?

Doesn't anyone in Rome remember Swissair and Sabena?

This one is going to run for a while yet

Cheers

Timothy

What is the state of the state for Long Haul LCC?

We have been tracking the Long Haul LCC roller coaster. As we predicted in February of this year the market for Long Haul LCC would heat up in 2007. Seems like we might have even underestimated the scale.

If we look at the premier LCCs in the world today we can easily say that the top players include:

Ryanair, Gol, Air Asia, Air Berlin, Virgin Blue and Jetstar. (I am not counting hybrids like US Airways or Airtran who don’t quite count at the moment). Each of these players have taken a slightly different path to Long Haul LCC.

Ryanair will take advantage of the Semi-Open Skies between EU and US next year. Gol bought Varig, Air Asia has the Air Asia X JV with a certain Brit, Virgin Blue plumped down some of its cash for 777s to fly across the Pacific. Jetstar is a surrogate for QF and a replacement for Australian Airlines. Finally Air Berlin jumped into the fray with its purchase of LTU and the recent order this week for 25 787s.

The stage is now set for a explosive growth in long haul LCC. With so much capacity in the Europe-Asia markets, Transpac looking up and even the stodgy old Transatlantic market picking up - the opportunities for significant traffic number growth is looking quite good.

Now of course where will these people end up and is there enough capacity to entertain them once they get there? We shall see

Cheers
Timothy

Alitalia - and then there were 2...

The Government of Sr Prodi can't seem to do much right these days.

Hot on the heels of a major right down of its dilapidated fleet and a resulting bad quarter, AZ lost one of the 3 remaining suitors. Sadly it was the strongest financially - the TPG, Mattelin Patterson consortium bailed yesterday. Reason? Connot comply with the restrictions on the bidding process imposed by the government. This leaves just Aeroflot (yes those guys) and AP Holdings (AirOne) only in the running.

So unless there is a white knight at the last moment (and I believe that the bidding process does not allow that), then the Prodi regime has a terrible dilemma on its hands. I can almost hear Mr O'Leary jumping for joy.

Our advice (which of course at this point is provided free of charge) is to re-open the bidding process and remove many of the stupid constraints on the bidders.

Its the only way to resolve a bad situation. However for the Italian government 3 not very nice choices:

Box A - admit you were wrong and re-open the bidding
Box B - the Russians get it (Garibaldi will be spinning in his grave)
Box C - Monopoly run by AirOne.

Hmmmm I think I would seek asylum in the Vatican

Cheers

ITK

Transatlantic For 12 quid

Perfectly feasible. Now on the radar courtesy of RyanAir's Mr O'Leary.

A canny Irish man that he is (an accountant by training in case you were unsure where his potty mouth came from), Mr O'Leary has formally announced that he will start a new sister airline to Ryanair for Transatlantic travel. Given the now enormous feed into and out of Stansted his ability to move passengers Americas to EU will be a short incremental piece rather than a leap of faith. Consider this:

1. He doesn't need a whole new aircraft - even though he wants to order 50 brand new A350XWB or 787s. In fact the Boeing 737 for which all his pilots are trained is available in an ER version (both 737-700ER and 737-900ER). http://www.boeing.com/commercial/737family/index.html
The 737-700ER unmodified has a certified range of 5510 miles. This will take you from Stansted to ISP (3478 miles) or OAK (5375 miles). Even San Diego (also mentioned in his announcement) is possible.
2. He has the right to switch aircraft sub types in his Boeing order (actually he can do pretty much what he likes with the order - the Boeing guys LOVE him)
3. The longest route on Ryanair is today 3 1/2 hours. (Marrakesh to London). The record flight time from Boston to London (Eastbound) is around 5 hours. Not a big difference in structure.
4. RyanAir has one of the best ontime records in Europe today.

So Mr O'Leary - why wait 4 years? Boeing can deliver you a brand new plane built in around 2 weeks. So Next April sounds fine don't you think?


Cheers!

The InTheKno team have just published the first study examining the LCCs and the Travel Trade. For more information go to www.inthekno.com or email sales@inthekno.com