Highlights in this Issue
Oil and LCCs: High Prices to Pay p. 2
Flybe « Fake Passengers » Affair p. 3
Exploring Major Investors of Ryanair and Wizzair p. 4
SWOT Analysis of Centralwings p. 10
Will High Fuel Prices Destroy Some LCCs? p. 18
The Low Cost Carriers Analysis Newsletter
EDITORIAL
The Five Plagues of Low-Cost Carriers
T
here are currently 5 main issues facing European low-cost car-
riers: 1. Oil prices increase and its impact on LCCs; 2. Overca-
pacities and drop of the load factors; 3. Environment pressure
on LCCs; 4. Illegal Subsidies received by LCCs from public entities;
5. Important and regular fall of LCCs shares. The increase of oil price
is definitely THE issue that will deeply modify LCCs industry in Eu-
rope, and will probably have an impact on most business models.
Facing this “storm”, only the strongest will survive. Some have started
important cost-cutting programs; while others raise ancillary charges,
such as check-in taxes (p. 2), and hidden charges. Flybe has adopted
other means to fill its planes, by hiring fake passengers, and therefore
to reach the quotas needed (p. 3).
Despite these different measures, it is now clear that some LCCs won’t
escape bankruptcy, and 2008 could be a turning year in this market
(p. 18). Centralwings, a subsidiary of the national polish carrier LOT,
could be one of them in a short term (p. 7). Therefore, we have made
a detailed SWOT analysis of this carrier (p. 8). Another option for
carriers to carry on is to merge with others. In Spain, Vueling and clic-
kair, both in difficulties, are a good example. Some like Ryanair and
Wizzair (p. 4) seems to have thighs through their major investors.
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free services available through our webistes, such as:
1. SWOT Analysis
Ryanair WizzAir
easyJet CentralWings
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2. Daily Headline News
Read the news on our weblog: http://airscoop.blogspot.com
3. Exclusive Interviews of LCCs Market Top Executives
4. Coverage of Main European LCCs Events
Air Scoop - May 2008
AIR SCOOP ANNOUNCEMENTS
A Glimpse of Headlines News!
EasyJet Posts Wider Net Loss, Aims to Boost
Fuel Efficiency
EasyJet PLC on Wednesday posted a wider fis-
cal first-half net loss amid higher fuel prices and
said it will speed up the removal of less-effi-
cient airplanes from its fleet to trim operating
costs. The U.K.-based budget airline posted a
net loss of £43.3 million ($85.4 million) for the
six months ended March 31, compared with a
year-earlier loss of £12.7 million.
Airline websites still ripping off consumers,
Brussels says
The 8th of May, the European Commission said
EU consumers are still getting ripped off when
they buy airplane tickets online and threatened
the industry with «further measures» if the si-
tuation does not change within one year. «It is
unacceptable that one in three consumers going
to book a plane ticket online is being ripped off
or mislead and confused,» said consumer com-
missioner Meglena Kuneva when presenting
the findings in Brussels.
Ryanair, EasyJet decline after Merrill cuts es-
timates
Ryanair Holdings Plc, Europe’s biggest discount
carrier, fell in Dublin trading after Merrill
Lynch cut its share-price estimate for the air-
line by 7.3 percent, citing increasing fuel costs.
EasyJet Plc, Ryanair’s biggest competitor, and
British Airways Plc, Europe’s third-largest car-
rier, also declined after Merrill lowered earnings
estimates. Merrill cut its price target for Ryanair
to 3.80 euros a share from 4.10 euros, the bank
said today in a note to investors. The Dublin-
based carrier dropped as much as 4.6 percent.
Ryanair faces sanctions over fares hike
Ryanair could be facing sanctions over its treat-
ment of some Munster fans travelling to the
Heineken Cup final in Cardiff on May 24.
More on http://airscoop.blogspot.com
www.air-scoop.com
 BIRD’S EYE VIEW
Oil and LCCs: High Prices to Pay

With oil prices having crossed the $110 a barrel threshold,
LCCs are getting ready to tighten their belts. In the light
of potential bankruptcy budget airlines seek to reduce the
impact of record high fuel prices by all possible means.
To begin with let’s look at some figures. It comes as no
surprises that LCCs will experience a significant loss in
earnings. Raising oil prices hit the pockets of LCCs and
are expected to cause as many as £45m of additional costs.
Some experts estimate a cut rate in earnings between 12
% and 53%. O’Leary himself has warned investors about
a painful year forecasting a 50% fall in profits. Ryanair is
probably the worst affected airline as it remains unhedged
throughout this fiscal year. Although there is no sign of oil
prices going down, Ryanair is only going to hedge if they
drop below $110.
However, the Irish carrier keeps its promise not to add
any fuel surcharges to tickets. Passing on price increases to
tickets will undermine the entire low-cost model. Never-
theless, certain surcharges will be passed on to passengers
as Ryanair is most likely going to introduce higher check-in
and baggage fares.
Against the backdrop of economic breakdown, weakening
dollar and oil crisis, getting high yield revenue might be
quite problematic as this backdrop will certainly affect
purchasing power of consumption and have its impact on
the load factor.
In response to increasing prices Ryanair, for example, is
planning to launch a cost-cutting programme. One the one
hand, it will include negotiating ground handling contracts
with airports to reduce all possible costs. O’Leary pointed
up his tough intentions and stressed that it would not take
him long to close operations at airports reluctant to come
to terms with Ryanair. Facile airports will, on the contrary,
receive additional flights. If the situation gets worse, it will
probably mean the wind down of many less profitable ba-
ses.
On the other hand, the programme also includes cutting
inner costs by freezing top-management salary. If prices re-
main high, 36 executives should not expect to receive any
salary bonus or pay increase. Since then, Ryanair said the
salaries of its staff not on multi-year pay agreements have
been frozen which include pilots and cabin crew.
Though most LCCs will have hard times ahead with pro-
fits cut up to 50%, the economic situation will definitely
secure them from any further competition. While past
economic breakdowns gave birth to airlines offering low-
cost services, this time it is highly unlikely that any new
carrier will enter the market due to oil prices, new envi-
ronmental regulations and profit uncertainty. Additionally,
it will sweep away weaker LCCs providing the stronger
with more space. That is to say, that the stronger LCCs
may even benefit from the recession. According to one of
the managing directors of easyJet, there will be only three
or four LCCs left in the nearest future. Most likely, some
less competitive airlines will prefer merging to leaving the
business.

EVENTS

World Low Cost Airlines 2008

September 23 to 24 in London

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Plans are starting to take shape for the World Low Cost Airlines Congress 2008.
Earlier this year over 650 of you joined us in London for an action packed two days. To remind yourself of the day (or to
see what you missed!) we have put together a short video of the highlights. To see it simply visit our homepage. (You’ll
need to have flash installed on your computer.)

Don’t miss out on next year’s event.

To have more informations about last edition of the World Low Cost Airlines, read the full coverage in Air Scoop Oc-
tober 2007.
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2 Air Scoop - May 2008 www.air-scoop.com

 BIRD’S EYE VIEW
Flybe « Fake Passengers » Affair Puts LCC Business Model Into Question
The story was published on April 1st, but it is far from
being a joke: at the end of March, British LCC Flybe tried
to hire temps to fill two extra flights on its Norwich-Du-
blin route.
Why such an absurd decision? Flybe receives from the
Norwich airport a 280.000 £ yearly reduction on passen-
gers fees, under one condition : it has to reach a certain
amount of passengers per year, globally and on some speci-
fic routes. The twelve-month period was ending at March
31st. The global amount of about 60.000 passengers had
been reached, and even exceeded by far. But on the speci-
fic Norwich-Dublin route, the quota of 15.000 passengers
had not been hit. 172 passengers were missing.
Therefore, the LCC decided to set up extra flights, and
chose some rather radical methods to fill them : first, it pu-
blished an advertisment on its website, offering free flights
on 200 return tickets to « celebrate 2 years flying on our
popular Norwich to Dublin route » ; secondly, it published
another ad on a specialized website, StarNow, to hire ac-
tors for 80 £ a day, plus free bar and in-flight entertain-
ment, just to fly from Norwich to Dublin and back, with
up to three flights on the same day. Finally, it also asked
its staff to stand ready, in case the two first solutions were
not sufficient.
Setting up extra flights and hiring people to fill them was
indeed less expensive than losing the benefit of the fee re-
duction.
Unfortunately, Flybe’s weird strategy was made public, and
led to a harsh quarrel between the airline and the airport.
« We have a deal with Norwich airport. We had to deliver
60.000 passengers. We have delivered 136.000, but there
was a clause buried in the bowels of the contract that we
had to hit 15.000 passengers on Dublin to Norwich, » Mike
Rutter, Flybe’s CCO, told on an Irish radio station.
3 Air Scoop - May 2008
The airline also accused the airport to have rejected a last
minute deal about a partial fee reduction if the quota was
not totally reached. It called the airport authorities « in-
transigent » and « greedy ». Richard Jenner, managing direc-
tor of Norwich airport, refuted Flybe’s arguments, disap-
proved the company’s methods and said these « unusual »
passengers would not be counted by the airport anyway.
Environmental campaigners also charged Flybe with pollu-
ting the atmosphere needlessly by making planes fly « for
nothing ». Flybe admitted its fault, and promised to offset
the carbon emissions caused by the extra flights. All the
more since on its website, the Exeter-based British regional
airline, operating 78 planes to about 50 destinations, prou-
dly pretends to be « at the forefront of the efforts by the
airlines to reduce the environmental impact of air travel
and promote sustainable growth in the aviation industry
»...
Beyond its quite pathetic aspect, this story questions the
whole LCC business model, partly based on subsidies paid
by the airports to low-cost carriers under certain traffic
conditions, which leads to such an absurd thing as paying
customers to consume!
With this new example, the European LCC business seems
quite artificial. It frenetically creates new routes, injects
new planes in the European sky, and reaches overcapacity,
trying to create essential demand to fill the aircrafts and
to survive on this very competitive market. On the other
hand, it relies on subsidies to compensate damages of hard
competition and the eventual lack of passengers. Many
analysts today agree that such a model is not completely
sane, and raise a question: Do LCCs still wonder if there is
still a demand for all their flights?
www.air-scoop.com
 DOWN TO EARTH
A Real Battle? Exploring Major Investors of Ryanair and Wizzair
In October 2007, Ryanair announced the entry to Buda-
pest and started to operate flights on several routes from
the Hungarian capital since the beginning of November.
One of those routes was the Budapest – Frankfurt-Hahn
connection. Wizzair had been offering flights on this route
for more than three years but soon after Ryanair’s press
conference in October, the Hungarian low-cost carrier de-
cided to withdraw from the route. A potential explanation
to this could be that Wizzair did not want to be involved
in a direct competition with Ryanair on this single route.
However, rumours were already spreading about the si-
gnificant overlap between the major investors of the two
companies. Therefore, the withdrawal of Wizzair might
have been an outcome of previous, informal negotiations.
In this article we will try to collect evidence that may sup-
port the existence of a potential “co-operation” between
Ryanair and Wizzair.
First, Wizzair is the only European low-cost carrier besi-
des Ryanair, which is classified as ultra low-cost. In terms
of the business model, Wizzair has therefore successfully
imitated Ryanair to a great extent. Based on recent data,
Ryanair’s average fare including taxes and charges revolves
around 40 euros, while the same indicator for Wizzair is
50-55 euros. This is about 30-50 % lower than most of the
average fare of European low-cost competitors. It is not
surprising that Wizzair has been able to imitate Ryanair’s
business model so well, what is more interesting is that it is
only Wizzair that managed to do that so far. Does this im-
ply a stronger than usual tie between the two companies?
It is a rather hopeless enterprise to obtain detailed data
on Wizzair’s financial performance as the company refuses
to reveal any sort of “commercially sensitive” information.
However, it is known that their major investor is Indigo
Partners, an Arizona based private investment firm, which
is run by former America West Airlines head, Stanford gra-
duate William A. Franke. Indigo Partners is specialized in
the transportation sector and is also the initial investor in
Singapore-based low-cost carrier, Tiger Airways. Mr Fran-
ke holds the chairman position both at Wizzair and Tiger
Airways. Indigo Partners have already invested around 50
million euros in Wizzair, which makes the company one of
the best capitalized Central European LCCs.
Indigo Partners was founded in 2002 by Mr Franke, Ste-
ve Johnson and David Bonderman. The key figure in this
puzzle, as we will see later, is Harvard Law School gradua-
te Mr Bonderman, who has served as a director of Ryanair
since 1995, and since 1996 he has been the Chairman of
4 Air Scoop - May 2008
the Board. In essence, the close business ties and mutual
investments of Bonderman and Franke link Ryanair and
Wizzair together but how close their relationship is?
William Franke David Bonderman
Bonderman established Texas Pacific Group (TPG) in
1992, which has become one of the world’s richest and
most successful private equity companies. In 1993, Bon-
derman through TPG and other partners helped Conti-
nental Airlines out from bankruptcy. The total investment
amounted to $450 million. As a result, he became one of
the directors of Continental and took a seat in the Board
of Directors as well. Next year, in 1994, Bonderman, along
with other investors like Fidelity Investments and Mesa
Airlines, offered $220 million for a 37.5 percent stake in
America West, second largest low-cost carrier of the US
at that time, being in bankruptcy. In 1994 William Franke
was the chief executive officer of America West Airlines
(served in this position between 1993 and 2001). The deal
was made, America West was saved and the beginning of
the close business relationship between Bonderman and
Franke probably dates back to this period.
In 1996 Bonderman invested in yet another airline. For £25
million, through TPG, he took a 20 percent stake in Rya-
nair. Since then, Ryanair has literally been soaring, and has
grown from a minor player to a globally significant air car-
rier and the biggest one in the world according to the num-
ber of international passengers carried in 2007. It is also
worth mentioning that Bonderman’s presence at Ryanair
probably made negotiations with Boeing much smoother,
thus Ryanair got control of its new fleet under favourable
financial conditions.
Building on the successful track record in air transportation
investments, Indigo Partners became the joint enterprise of
Bonderman and Franke aimed to conquer Asian and Cen-
tral and Eastern European markets. In 2004, Indigo Partners
helped establishing the first Asian low-cost air carrier, Ti-
ger Airways. Tiger Airways is backed by Singapore Airlines
(49 % stake) and the Singapore government’s investment
arm Temasek (11 %), while Indigo Partners contributed
with a 24 % stake, whereas the investment vehicle of Ryan
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 DOWN TO EARTH
family (including Tony Ryan, the co-founder of Ryanair),
Irelandia Investments took a 16 percent share. The size of
the total investment has not been disclosed.
Wizzair was the other LCC, which was financially backed
since the beginning of its operation by Indigo Partners. Even
though Bonderman withdrew from Indigo Partners after
these deals and officially he does not hold now any posi-
tions in the equity firm, he is still affiliated with it through
TPG’s share in Indigo Partners. Since the largest investors
of both Ryanair and Wizzair have strong affiliations with
both Bonderman (chairman of Ryanair) and Franke (chair-
man of Wizzair), one may legitimately argue that these ties
may be reflected in the day-to-day operation and business
strategy of the air carriers. In other words, a direct battle
between these airlines would not be in the interest of their
investors.
In order to highlight the magnitude of co-operation between
Bonderman and Franke, the recent story of Russian low-
cost carrier, A1 is a good example to raise. A1 was esta-
blished in 2007 and according to its business plan it is going
to offer domestic flights. As Russia’s daily on-line business
journal, kommersant.com reported last June, private fo-
reign investors own a 49 percent stake in A1, out of which
David Bonderman has 35 percent, while the co-owners of
Indigo Partners (including Franke) got 14 percent. What is
even more intriguing is that Michael O’Leary, CEO of Rya-
nair is also involved. He is expected to consult A1 in bu-
siness development issues. What is more, A1 has allegedly
signed an agreement with Indigo Partners for buying a stake
in Wizzair!
5 Air Scoop - May 2008
The above presented evidence does not mean to suggest
that there is an ongoing informal co-operation and negotia-
tion between Ryanair and Wizzair that may raise concerns
about a potential division of the market between themsel-
ves. However, the article do suggest that due to the subs-
tantial overlap between the major investors of the two air
carriers, it may not be in the interest of the companies to
engage in a heated rivalry and direct competition. This is
clearly reflected in the fact that even though both have
gained a quite significant share in the Central and Eastern
European low-cost market, there is not even a single route
on which both of them offer flights! Moreover, there are
only three city pairs (Gdansk-London, Poznan-London,
Wroclaw-London) that both Ryanair and Wizzair serve,
however, the London destination differs as Ryanair flies to
Stansted while Wizzair flies to Luton.
Bearing all of this in mind, one may get a more nuanced
picture of the European low-cost market. Especially regar-
ding the Central European region, Wizzair may be in a very
advantageous situation and it seems that its positions are
not and probably will not be threatened by one of the big-
gest potential rivals, Ryanair. This may hold true as long as
acquisitions and mergers or new entrants do not shake up
the current European status quo.
www.air-scoop.com
 BIRD’S EYE VIEW EVENTS

6 Air Scoop - May 2008 www.air-scoop.com

 DOWN TO EARTH
The Fate of Centralwings
Jacek Ksen, member of the Board of Supervisors of the Po-
lish flag carrier LOT, announced earlier this year that LOT
is planning to divest its low-cost subsidiary Centralwings
as it has not turned profitable since it began operating in
February, 2005. Centralwings poses a textbook example of
how not to position and run a low-cost airline. In this arti-
cle we will try to highlight the main reasons for its failure.
In 2004, low-cost carriers flew 1.2 million passengers on the
Polish market, way much above the estimations, which a
year earlier predicted about 580 thousand for 2004. The
significant growth of this market segment and the parallel
shrinking of the market share of traditional carriers urged
LOT, the most exposed traditional carrier in Poland to the
competition from LCCs, to react quickly. The dilemma
was the following: LOT would either become a low-cost
carrier itself or would launch its own low-cost subsidiary
as a response to the arrival of other LCCs. The manage-
ment of LOT committed itself to the latter option, there-
fore Centralwings was born.
However, this commitment was rather half-hearted. Very
limited financial assets were dedicated to Centralwings,
LOT has provided a capital investment of a mere $1.6 mil-
lion. In comparison to this, after the first year of its opera-
tion, Wizzair received a total capital injection amounting
to €40 million. Despite being undercapitalised, LOT ex-
pected Centralwings to make profit soon.
The second mistake was the mismatch between the po-
sitioning of Centralwings in the low-cost market and its
business model. At the beginning, the company was targe-
ting UK destinations, which seemed the most profitable;
however, Centralwings had to face the toughest competi-
tion there. EasyJet, Sky Europe, Wizzair and Ryanair had
already been offering flights between Polish cities and the
UK, moreover, they all had a much more favourable cost
structure than Centralwings. As a result, the Polish LCC’s
average fare price exceeded that of its competitors’, thus
it failed to match the intense price competition. Moreo-
ver, Centralwings have constantly been lacking a focused
network, a problem Sky Europe also had to face. This si-
gnificantly harmed the profitability of Centralwings as it
was unable to clearly target a market niche.
Third, Centralwings was unable to take advantage of eco-
nomies of scale given its small fleet size (in May 2008 they
still operate with 9 Boeing 737-s). Furthermore, its fleet
with an average age of 12.3 years (data from March 2008)
is significantly older than the fleets of its closest rivals. This
7 Air Scoop - May 2008
directly raises the operating costs as older aircrafts use
more fuel and are less efficient than younger ones and may
require higher maintenance costs as well.
Fourth, the soaring oil prices seriously affected Centra-
lwings’ cost structure. The low revenues (under €6 per
seat) and the unsuccessful attempts to raise ancillary reve-
nues coupled with rising costs left the company in a dire
financial position. In 2006 Centralwings reported to make
an operating loss of 65 million Polish zloty (about €19
million), while in 2007 the deficit increased to 73 million
(about €21 million) versus a planned €35 million zloty.
Fifth, the Polish government is planning to sell LOT and
the first phase of it would be to list it on the stock ex-
change later this year. This further casts shadows on Cen-
tralwings’ future.
As Waldemar Krolikowski, CEO of Centralwings revealed
to Polish business daily Puls Biznesu in February, 2008, ‘the
stronger players are driving out the weaker ones, first from
the profitable routes, then from the market. This may be
Centralwings’ fate as well.’ This is well reflected in the fact
that Centralwings decided to cancel operations on eight
routes this year (Shannon – Gdansk, Manchester – Gdansk,
Manchester – Warsaw, Lille – Warsaw, Birmingham – Cra-
cow, Cork – Cracow, Edinburgh – Poznan, Dortmund –
Szczecin). Most of them are routes between Poland and
the UK or Ireland, where the tough competition may have
forced Centralwings to abandon operations.
Krolikowski also mentioned that the business plan of the
carrier had been revised and in the future they would like
to focus on charter flights and escape the “violent com-
petition” in the scheduled market. However, for this plan
to execute, Centralwings needs capital, but in a situation
close to bankruptcy the management has been unsuccess-
ful at securing additional funds.
What is more likely is that Centralwings is going to fol-
low the fate of former Polish low-cost carrier Air Polonia,
which declared bankruptcy after three years of operation.
It is also very probable that Centralwings will be sold to
a third party. In light of the above, LOT’s board member
Mr Ksen’s following remark sounds ironic enough exactly
three years after Centralwings began operation: ‘Our wi-
thdrawal from Centralwings should have been carried out
three years ago. Creating the low-cost airline was a mis-
take”.
www.air-scoop.com
 BIRD’S EYE VIEW
SWOT Analysis of Centralwings
Introduction
There are approximately 50 low-cost carriers in Europe,
with new ones emerging and old ones dying regularly. The
largest is Ryanair (Ireland), followed by easyJet (U.K.) and
Air Berlin (Germany/Spain). Other significant players
currently are Germanwings (half owned by Lufthansa),
Clickair and Vueling (Spain), Sterling (Denmark), Virgin
Express (Belgium). Further east, WizzAir (Poland) is the
low-cost leader which has negatively impacted the per-
formances of SkyEurope and state-owned Centralwings.
Besides these there are several charter and semi-scheduled
airlines which compete for European traffic.
Globally, 2008 is anticipated to be a year of economy
slowdown, rising fuel prices, lower consumer spend and
consolidation (mergers or bankruptcies) in the airline
industry. After two years of hefty growth, the European
LCC industry is slowing down. In May 2007, EasyJet had
already warned about ‘weaker market conditions’ and ex-
pressed worries about its summer activity. In June, Mi-
chael O’Leary, Ryanair’s CEO, had predicted a difficult
winter for LCCs. He had corrected the company’s expec-
ted profit growth for 2007 down to 5%, the slowest rate
in four years. He warned about decreasing yields in 2008,
combined with rising costs. “We expect a big downturn in
the next 12 months”, he said.
There are several reasons for this downturn. First, the air
transport market is cyclical, and after two years of growth
and rising yields, it is likely to slow down. As the fares
have grown too high, the demand is softening. Secondly,
costs are rising – airlines are extremely anxious about the
tax increases on air transport, higher charges at airports
and increasing oil prices. Although LCCs often claim to be
less affected by increased fuel prices as they operate mo-
dern fuel-efficient planes, experts believe that rises in fuel
price will do a lot to slow the entire industry. Consumers
may be less euphoric than before as carriers are most likely
to pass the additional costs to their passengers in one way
or another.
Third, all European LCCs tried to grow fast and big very
quickly and at almost the same time, opening new rou-
tes and buying new planes. In a highly competitive air
transport market, which has not yet been consolidated,
airlines have to constantly increase their capacity to keep
a chance to exist. Ordering lots of aircrafts is also a way
of showing their prosperity and their confidence into the
future. But these abundant orders could finally lead to
congestion, overcapacity and price wars. Now, the most
popular and profitable routes are overcrowded and the
8 Air Scoop - May 2008
SWOT TEAM
transport capacity seems to be now in excess. According
to some analysts, the decline of load factors could be a re-
sult of an overcrowded sky, even if the airlines themselves
deny it. Recently, several airlines announced a reduction of
either their capacities or plane orders. Lastly, environmen-
tal concerns are increasing and environmental campaigns
against LCCs are affecting sales. European governments
may enforce greater accountability towards the environ-
ment on low cost carriers in the near future.
There does not seem to be many growth possibilities left
for LCCs. They can either fight a temporary cost and price
war to gain market shares, or develop their offerings, by
consolidating their existing network, finding new secon-
dary airports to win new customers, or exploring more
distant destinations in the South, the East or the North.
Many of them are weakened by their quick and strained
development. Some examples of struggling airlines are
Centralwings, Vueling and SkyEurope.
The market is bound to enter into a phase of maturation
and consolidation. According to a Cranfield University fo-
recast, the low-cost airlines sector in 2015 will be domina-
ted by 2 or 3 large carriers carrying up to 80 million pas-
sengers approximately, flying 250 air-crafts, along with a
few niche players. Two models that would most probably
survive are: the Ryanair kind with reduced fares, flying to
secondary airports, relying on leisure cus-tomers, earning
high ancillary revenues and the EasyJet / Air Berlin type,
with mid-fares, flying to main airports, challenging big car-
riers and gathering leisure and business customers.
Polish airline market
Among the Eastern European countries, Poland main-
tains strong growth and now has the 4th highest low-cost
market share with 21%. The International Air Transport
Association had forecast that, during 2005-2009, Poland
would become the fastest-growing air transport market in
the world. Its average annual growth in passenger numbers
was expected to be 11.2 percent over that period. Along
with the growing economy of Poland, the number of pas-
sengers is also predicted to grow tenfold, with passenger
numbers for low-cost carriers alone are expected to reach
five million in 2010. The top-10 air carriers in Poland now
include five budget airlines: Hungary’s Wizz Air, Britain’s
easyJet, Ireland’s Ryanair, Germany’s Germanwings and the
LOT Polish Airlines’ own Centralwings.
Polish airports: Poland is the largest of the new member
states of the European Union with a population of 38.1
million (2006) and a surface area (313 thousand km2) that
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 BIRD’S EYE VIEW
roughly equals to that of Italy. This implies great poten-
tials for commercial air transport. Currently, there are
ten international airports in Poland that are served by at
least one low-cost carrier. Most of these airports have un-
dergone major reconstruction and extension. The biggest
of all is the Frederik Chopin Airport in Warsaw, which
handles more than 50 % of all air passenger traffic in the
country (in 2007, Warsaw airport served more than 8 mil-
lion passengers). The capacity of the airport of Poland’s
capital has increased to 10-12 million passengers per year
with the addition of a new terminal. The second busiest
airports are in Krakow and in Katowice, which are capable
of serving around 3.5 million passengers annually. Other
Polish airports like Gdansk and Wroclaw have also under-
gone modernisation. New passenger terminals were built
at airports such as Poznan, Bydgoszcz and Szczecin. Polish
governments seem to have consciously followed a policy
of modernising airport facilities, thereby investing in in-
frastructure that may generate several beneficial effects in
the long run. The national carrier of Poland is LOT Polish
Airlines which is more than 75 years old and also the most
successful airline in Poland.
Migrant labour market of Poland: The boom in Poland’s
low-cost carrier business is reflected by the development
of air transportation between Poland and the UK, a result
of the British and Irish labour markets opening up to Poles
following EU accession. Many carriers have chosen Po-
land, as it is the only country with a sizeable population
and one with extremely poor road infrastructure. Before
EU enlargement, passengers could fly directly to the UK
only from Warsaw and Krakow to London or Manchester.
But now short-term migrants such as plumbers or buil-
ders are routinely flying to Britain and Ireland from almost
every Polish airport. A research study has indicated that, in
15 years, the number of passengers served in Poland could
reach 39 million, rising to 63 million by 2030.
The low cost airline market: Poland has seen an unpre-
cedented growth in low cost carriers which has resulted
in multiplying the number of international passengers en-
tering the country. However, the LCC market in Poland
seems rather concentrated. Currently, there are more than
15 low-cost, low-fares carriers that fly to Poland but only
three of them can be considered dominant ones. Ryanair
is the only carrier that serves all the 10 airports, while the
Polish LCC, Centralwings flies to 8 of them. Even though
the Hungarian WizzAir is present at only 5 airports, it is
the biggest low-cost carrier in Poland. The significance of
the Polish market for WizzAir is clearly reflected in the
fact that for 2007, the LCC carried about 4.6 million pas-
sengers. With these figures WizzAir is clearly the biggest
low-cost airline in Poland. Ryanair, which carried around
3 million passengers in 2007, is the second largest carrier
in Poland.
9 Air Scoop - May 2008
WizzAir and Ryanair together take more than 50% of the
market share of low-cost air traffic in Poland, leaving the
competitors far behind. It must also be noted that almost
half of the flights offered from Polish airports are to UK
and Ireland (among 18 countries) which has been attribu-
ted to the massive outward labour migration from Poland
to the UK and Ireland. In the first ten months of 2007,
39.80% of total passengers flew to or from the UK and
Ireland! The second most popular country was Germany
(with 13.03% of passengers), while Italy finished third with
11.07%. The strategy followed by WizzAir and Ryanair in
Poland seems to be sustainable and profitable. Both offer
flights at the lowest prices to UK and Ireland from airports
that are located in those regions which inhabit the labour
migrants. This has enabled them to keep far ahead of the
competition.
Thus, a well-established airport infrastructure combined
with a constantly increasing demand for air traffic, due
to labour migration, growing foreign investments, and a
booming property market, coupled with hosting European
Football Championship in 2012, makes Poland, a place to
be closely observed in the future.
The Polish State Airline: LOT Polish Airlines (Polskie
Linie Lotnicze LOT, short name PLL LOT) is the national
airline/flag carrier of Poland, based in Warsaw. The name
Polskie Linie Lotnicze means «Polish Airlines» in Polish,
while lot means «flight». It was established in 1929,to be-
come is one of the oldest airlines in the world. The airline
is owned by the Polish government (67.97%), SAirLines
B.V. (a member of SAirGroup) (25.1%) and employees
(6.93%).[2] It has 4,199 employees (March 2007).
In the late 1980s, with the fall of the communist system,
the fleet shifted back to Western aircraft, beginning with
acquisitions of the Boeing 767-200 in April 1989, followed
by the ATR 72 in August 1991, Boeing 737-500 in Decem-
ber 1992 and Boeing 737-400 in April 1993. From the mid-
1980s to early-1990s LOT flew from Warsaw to Chicago,
Newark and Toronto.
In December 1992 the airline became a joint stock com-
pany, as a transitional step towards partial privatisation,
which was effected in late 1999, with the SAirGroup ac-
quiring a 37.6% stake. The Polish government has retained
a controlling 51% holding. [1]. It operates scheduled pas-
senger and cargo services. Domestic services link Warsaw
with ten cities. Over 50 routes are operated throughout
Europe and to the Middle East, North America. Its main
base is at Warsaw Frederic Chopin Airport. On 26 Octo-
ber 2003, it became the fourteenth member of the Star
Alliance. The airline also signed a codesharing agreement
with Star Alliance partner Singapore Airlines.
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 BIRD’S EYE VIEW
The present network of LOT Polish Airlines’ scheduled fli-
ghts covers 60 cities in Europe and beyond, plus 8 within
Poland. LOT operates a fleet of 7 wide-body Boeing 767s, 8
single aisle B737s, 6 Embraer 175s, 10 Embraer 170s (LOT
was the launch carrier for this type), 9 Embraer 145s and 14
ATRs, offering two-class service (Economy and Business)
on all international flights. LOT will be the first network
carrier in Europe to fly Boeing 787 Dreamliner. LOT’s
market share was 41% in 2004 which slightly increased to
43.8% in 2005. But this further eroded to 36.6% in 2006
due to more open competition with increased number of
budget carriers.
LOT created low cost arm Centralwings in 2004 as a way
to compete better with other European budget carriers –
particularly Wizz Air and SkyEurope Airlines, who had
captured significant market share at that time. Centra-
lwings, as its name suggested, operated from the Central
European market, Poland to 36 destinations. The airline
started operations by taking over LOT’s charter flights. It
operated a fleet of nine Boeing 737-300 and 737-400 air-
crafts, leased from its parent. The airline had planned to
increase its fleet to 15 aircraft by 2010.
LOT earlier this month had reported an operating profit
(EBIT) from its core business of 83 mln zlotys in 2007, sli-
ghtly above the airlines’s forecasts, while its net profit rose
fivefold to 161 mln. The Polish state treasury, which has
a majority stake in it, plans to float LOT on the Warsaw
bourse in the third quarter and has said it does not rule out
selling its entire 51 pct stake in the company as it seeks
ways to find a new strategic partner for the airline.
Overview of Centralwings
History: Centralwings is a low-cost airline based in Łódź,
Poland. It is a low-fare subsidiary of LOT Polish Airlines,
operating international and charter services in Europe. The
airline was established in December 2004 and started ope-
rations in February 2005.
Its main base of operations was Warsaw Okecie airport,
from where it started flights to 10 destinations: Bologna,
Catania, Gerona, Hanover, Lisbon, London Gatwick, Mal-
ta, Nuremberg, Prague and Rome Ciampino. But Centra-
lwings also operated from Krakow to London Gatwick and
Rome Ciampino, and Katowice to Cologne and Hanover.
The carrier also served charter routes to locations in Bul-
garia, Egypt and the Mediterranean. Charter services were
also operated from other cities in Poland such as Wroclaw
and Poznan.
Before the commencement of its flights on 1st Februa-
ry, 2005, Centralwings forged a partnership with Ger-
manwings. This deal involved Germanwings hosting Cen-
tralwings’ IT services and the linking of the two carrier’s
websites for ticket sales. The main competitors at that
time were Wizz Air and SkyEurope. (Ryanair had not en-
10 Air Scoop - May 2008
tered Poland till then).
But the carrier stood apart from the pack when it came to
one important detail: Centralwings is owned 100 percent
by LOT Polish Airlines and is therefore state-owned. That
translates, within reasonable boundaries, to a virtually un-
limited source of financing and removes the threat of lo-
sing financial fluidity. Technical service support would be
provided by LOT. The launch of Centralwings followed
the collapse of independent Polish low-cost carrier Air Po-
lonia.
Centralwings’ budget and charter flights from Poland in-
cluded destinations in Greece, Great Britain, Ireland, Italy,
Germany, Spain, Malta and Portugal. From the UK, Cen-
tralwings’ scheduled low cost flights were on offer from
3 airports namely London Gatwick, London Stansted and
from Edinburg. In Republic of Ireland, Centralwings flew
from Shannon, Dublin and Cork.
Centralwings served 15 cities, five of them converted from
charter, and hoped to carry 400,000 charter passengers
and 300,000 passengers on scheduled routes in its first year
(2005). Polish low cost carrier Centralwings is planning to
more than double its fleet from five to 12 planes by 2006,
and attain 40% market share in the budget carrier market
by 2006.
Its then President and CEO Piotr Kociolek had stated that
the by 2010, it aimed to have a fleet of 24 planes. In the
future, more charter destinations would be transformed to
low-cost destinations. Also there was the possibility of ta-
king over some of LOT mainline routes. While it believed
that its charter business would remain stable, it expected
to double passenger figures on its low-cost operations to
600,000 in 2006.
Growth: Within five months of its commencement, Cen-
tralwings had flown 160,000 passengers on chartered fli-
ghts and 101,000 on scheduled flights. Their major routes
included flights from Warsaw and Krakow to London Ga-
twick. Their timetable during March-May 2005, had rou-
tes between Warsaw and Bologna (Guglielmo Marconi),
Lisbon, Malta, Girona, Prague, Nuremberg, Catania, from
Krakow to Rome (Ciampino) and from Katowice to Co-
logne-Bonn and Hanover.
They later launched flights from Poland to Greece star-
ting May 2005 till mid-October. They also operated servi-
ces from Warsaw, Poznan and Krakow to Crete (Chania)
and to Thessaloniki from Poznan and Katowice. They also
planned to fly weekly to Palma (Mallorca) from Warsaw
from 20th May 2005 for the summer season.
In September 2005, Centralwings announced that it plan-
ned to post its first profits in 2007. It would increase its
fleet of 5 airplanes to ten in 2006. It also aimed to achieve
40% share in the budget carrier market by 2006 which
seemed to be an over - ambitious target in a very com-
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 BIRD’S EYE VIEW
petitive market. Centralwings introduced new routes for
its winter timetable. These included flights from Warsaw
to Shannon, Edinburg and Milan (Malpensa). They also
commenced flying to Dublin from Katowice and Wro-
claw.
In December it announced that it would launch 5 new
routes to the UK and Republic of Ireland for the summer
2006 season. They would launch a route to Dublin from
Gdansk. They would also launch a route from Lodz to
Dublin in direct competition with Ryanair, who also an-
nounced that they would start flying this route from 04
April.
In addition, they would fly on the routes to Edinburgh
from Gdansk and Katowice, and to Leeds (Bradford) from
Warsaw. At the same time, Centralwings will also launch
a route from Krakow to Bologna (Guglielmo Marconi).
All routes would commence at the end of March 2006. It
carried 750,000 passengers by the end of 2005 and hoped
to carry 1.5 million in 2006. In 2005 Centralwings serviced
26 links from airports in Warsaw, Cracow, Katowice and
Poznan.
According to Centralwings, in December 2005 the com-
pany was in the second place on the low-cost aviation
market with the share of 14.01% in Poland, following
Wizz Air, which has the share of 41.26%. The third place
belongs to EasyJet with 13.95%, followed by SkyEurope
(13.72%), Ryanair (7.75%), Germanwings (6.87%), Norwe-
gian (1.76%) and Dauair (0.70%).
But this positive picture started to change when compe-
tition in the market intensified with Ryanair’s entry. This
airline with its least cost fares captured 12% of the Polish
low-cost airline market in the QI of 2006, where the lea-
der was Wizz Air (38%). This impacted the performance
of Centralwings negatively in the market in the following
years (2006, 2007). Besides the increased competition and
a small fleet, this ‘daughter’ airline was too dependent on
its parent for finance and strategy.
In February 2006, the airline announced that it would
operate more often from regional airports so as to not
come in the way of its parent company. In 2005, Centra-
lwings carrier 378,000 charter passengers and expects to
boost that number to 469,000, thanks to the expansion in
regional airports.
During March, Piotr Kociolek, Chief executive officer of
Centralwings resigned as losses approached zł.60 million.
According to the business plan of the company, the target
was only PLN 42m (EUR 10.9m) of net loss in 2005. It had
PLN 59m of loss”, Leszek Chorzewski, the spokesman of
LOT reportedly said. Another reason for the conflict in
the group was direct competition on certain routes, e.g.
on the flights to Milan. “The group should cooperate and
not compete”, Leszek Chorzewski stressed.
As it continued its rapid expansion with the launch of
11 Air Scoop - May 2008
five new routes, Centralwings – Poland’s fastest growing
low cost airline – had indicated significant progress to-
wards its aim of carrying one and a half million passengers
during 2006.
As promised earlier, the airline started flights between
Leeds Bradford and Warsaw, between Dublin Internatio-
nal and Łódz,, from Gdansk to Edinburg International and
Dublin International and between Edinburg International
and Katowice in the last week of March 2006. The airline
would also become the first low cost carrier to operate a
weekly flight from their Warsaw base to Kavala in Greece
from 22nd May, 2006.
According to a spokesperson of the company the UK and
Ireland routes have been pivotal to its growth. In April,
for the first time in history of the low cost airline industry,
Centralwings offered 20% discount on standard adult fare
tickets for children between the ages 2 to 16 years on all
flights.
The number of air passengers in Poland had increased so
dramatically that IATA predicted that within the next
four years Poland would become the fastest-growing air
market in the world. So Centralwings seemed to be at
the right place at the right time. But this did not help its
operations as it defaulted in May 2006.
During May, Centralwings unexpectedly cancelled its
Warsaw-Leeds Bradford flights. Wizz Air stepped in by
offering the stranded passengers free seats for which they
had to pay only the taxes and the extra charges.
Centralwings began flying between the Polish cities of
Warsaw and Wroclaw from 26th May, 2006. This was one
of the first examples of it operating regional flights. On
May 31st Centralwings welcomed its millionth passenger
who arrived in Krakow-Balice Airport onboard the flight
from Bologne. The passenger received flowers and was
driven home in a limousine.
In June Centralwings had included many new routes in
their winter schedule for 2006/2007 which was put up
for sale. These included: flights from their Warsaw base to
London (Stansted), Lille and Grenoble; between Krakow
and Cork; Gdansk and Shannon. The Irish routes seemed
to be a direct challenge to Ryanair.
On 25th July 2006, it was reported that LOT Polish airlines
had appointed Maciej Kwiatkowski as its chief executive.
He replaced Piotr Kociolek, who had resigned in March.
According to the carrier: «One of the first priorities for
the new CEO will be to participate in the creation of a
new strategy for the LOT Group – in which Centralwings
is a very important element. We have already proved that
we have a strong market offer and we look forward to uti-
lising the newest technologies and distribution channels
as we continue to grow.»
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 BIRD’S EYE VIEW
During the summer of 2006 (June-August) the Polish low
cost airline carried 57% more passengers than in the same
period during 2005. It had carried more than 1.5 million
passengers since the start of its operations and had achie-
ved 6% share of the Polish aviation market. This year it
also became the fourth largest in the Polish low cost carrier
market after Wizz Air, Ryanair and SkyEurope.
But the progress of this ‘daughter’ airline has been like a
sine curve. Whenever there appears a peak, it seemed to
be immediately followed by a fall. In October Centralwings
cancelled its Katowice-Cologne and Wroclaw-Cologne
routes, making Wizz Air again a saviour for the stranded
passengers.
In November, the low cost airline announced flights
between Dublin and Szczecin in Poland commencing on
19 February 2007. It would also operate two routes from
Lodz to Rome (Ciampino) and Paris (Beauvais) from the
same date.
In an interview, Maciej Kwiatkowski who had been in the
hot seat at Centralwings since July, had claimed that inef-
ficient and expensive Polish airports (especially Warsaw)
was the main challenge faced by Centralwings. They were
considering relocating its base to a city west of Warsaw,
like Krakow or Poznan where the airport fees were lower.
This decision represents “the most important step for our
strategy moving forward”, he says. Kwiatkowski said that
he planned to addressing cost reduction issues and creating
a new low-cost base as part of “a big strategy” for the airline
in the coming years.
This strategy included adding more routes to its network in
2007, with the UK and Ireland forming the carrier’s “num-
ber one markets”, followed by France and Italy. Centra-
lwings would also avoid launching routes already operated
by parent company LOT. The carrier no longer operated
any routes flown by LOT because the Polish flag carrier
“was not happy” about competing, something Centra-
lwings would “take into consideration for future routes”,
he stated.
However, he also cited the example of Warsaw-Milan,
where Centralwings withdrew from the market because it
was going head to head with LOT. Shortly afterwards ano-
ther low-cost carrier moved in. “Surely it is better to have
a low-cost ally than a low-cost enemy,” he reasoned. “We
need to talk more.” Kwiatkowski admitted that competi-
tion was getting “tougher and tougher”, particularly from
fellow central European budget carriers SkyEurope and
Wizz Air. “There is no question there will be strong com-
petition, mainly in Poland,” says Kwiatkowski. However,
he was confident that the carrier would become profitable
in 2008 in spite of the highly competitive LCC market.
In December the Treasury Minister granted permission for
a partial privatization of Centralwings, a low-cost airline
currently owned by the state-owned carrier LOT. But this
12 Air Scoop - May 2008
would happen only after the IPO of LOT airline scheduled
to take place sometime in 2007.
During the year 2007, Centralwings operated almost all of
the routes operated in 2005/2006, in addition to some new
ones. But during this year also it was plagued by delays and
cancellations.
Some of the major new routes it announced for the sum-
mer season included flights from Warsaw to Faro, Varna,
Heraklion and Rhodos and also Krakow-Lisbon route. It
also operated weekly flights to Malaga and Bourgas in Bul-
garia from Warsaw in summer. It introduced three new
routes from Poznan to Rome (Ciampino), Paris (Beauvais)
and Edinburgh.
During the winter season it had launched many new routes
namely: Warsaw to Manchester; from Krakow to Dublin,
Manchester, Athens and Girona; Krakow to Birmingham,
Amsterdam and Hamburg (Fuhlsbuettel). They would
also operate a weekly flight from their Katowice base to
Hurghada in Egypt.
Current status: The commencement of 2008 was made
with announcements of many new routes by Centralwings.
But the picture turned sour with the announcement of its
financial results for 2007.
Unlisted Centralwings, the budget arm of Poland’s profi-
table state airline LOT, slid to an operating loss of 73 mln
zlotys last year versus a planned 35 mln, and greater than
the 65 million loss reported in the previous year, putting
the future of the cheap airline in doubt ahead of LOT’s IPO
this year. Rising oil prices, aggressive competition, growing
airport fees and not enough airplanes had hampered its
growth as expressed by the Director of Centralwings, Wal-
demar Krolikowski. “This was supposed to be our last year
in the red. We estimated that the losses would amount to
PLN 35m. Unfortunately, market conditions deteriorated
substantially and our costs grew by 13.4 percent”, Walde-
mar Krolikowski, Centralwings CEO explained.
Dziennik daily reported that the airline was ‘close to ban-
kruptcy’ and business daily Puls Biznesu quoted Centra-
lwings Chief executive Waldemar Krolikowski as saying it
could be sold off or pushed out of the market. But the final
decision would rest with its owner – LOT Polish airlines.
Centralwings cancelled many unprofitable flights during
the months of March and April. Since April 1 Centralwings
was serving only one route from the mid-western Polish
city of Poznań to Rome. The connections to Paris and
Edinburgh were put on hold. New flights to Amsterdam
and Manchester which were supposed to take off in April
were cancelled. Flights from Warsaw, Gdańsk, Kraków,
Szczecin, Wrocław disappeared from the departure sche-
dules on its website. Some of the routes would be canceled
for good.
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 BIRD’S EYE VIEW
But Centralwings’ charter flights - to eg. Hurgharda, Sharm
el Sheikh, Thessaloniki, Heraklion and Palma de Mallorca,
would go ahead according to timetable.
“We were forced to cut the flight schedule in April. We
are updating our route network, and for now we are able
to offer only the minimum number of connections we are
certain to operate» – said Kamil Wnuk, a spokesperson for
Centralwings. «We are not disappearing from the market,
we will work on our development, it is just that we are
waiting for new planes. We are scheduled to receive two
737 Boeings in late April and one more in May» - he ad-
ded.
Currently, Wizz Air has stepped in to rescue hundreds of
Poles left stranded by the current wave of cancellations,
and the leading Hungarian-Polish budget operator has said
it may take over many of the connections Centralwings
has cancelled.
In the second week of April, Centralwings had decided
to stop the majority of its flights from Dublin, Shannon
and Cork airports. The axed routes include Shannon to
Katowice and Warsaw and Dublin to Katowice, Krakow,
Szczecin and Wroclaw. It had already pulled its servi-
ces from Cork Airport with the last flight from Cork to
Krakow leaving on March 26. Three-time weekly flights
from Dublin to Warsaw and Gdansk will remain.
Later Centralwings had put on sale, flights from their
Krakow base to Barcelona commencing from 1st May,
2008 operating three times per week. They seemed to
replace the withdrawn flight-route between Krakow and
Girona.
On 24th April, 2008 PLL LOT SA declared that the pro-
cess of restructuring Centralwings was in progress, which
aimed at developing charter connections as they offered
the greatest potential. In addition, cost cuts were being
planned, along with the liquidation of the least popular
regular connections in favour of the most rewarding ones.
The restructuring plan in question will not impact the
existing charter connection agreements. On the contrary,
the expansion of the charter offer is planned, with the in-
troduction of the so-called charter mix.
«At this time we’re trying to change our orientation,» Kro-
likowski says. «I’m trying to find a more profitable market.
The charter market will be stable for the next couple of
years in my opinion. Therefore we will look to take a place
in the charter market. It’s not as competitive as the low
cost market.»
Centralwings was not the only low-cost carrier which
struggled in the Polish market. Bratislava-based SkyEurope
had a base in Krakow but dropped it late last year and
completely exited from the Poland market. CentralWings,
13 Air Scoop - May 2008
which had two aircraft based at Krakow, picked up some
of the routes SkyEurope dropped but quickly discove-
red there were unviable and dropped them. «At the time
being it’s very difficult and very competitive because a lot
of big players are in this market,» Krolikowski said. «They
offer very cheap tickets and I can’t give such cheap tickets
to the people. You can see how hard it’s to fight in the
Polish market.»
Business Model
Centralwings operated like an LCC-Charter flight offe-
ring both low-cost scheduled flights and charter flights to
long-distance tourist destinations. So it was similar to Ger-
manwings as it was Legacy airline’s ‘daughter’ and similar
to Air Berlin only because it offered charter flights. The
airline is 100% owned by LOT Polish airlines and is the-
refore state owned. It operates nine Boeing 737 400s and
300s. The fleet is serviced and maintained at a certified
technical base of PLL LOT.
They also offer two options for travel insurance, group ra-
tes, special offers, car rentals, hotels and much more. Their
Call Centre is available in five language versions and their
Website – www.centralwings.com - is one of the three
most popular websites in Poland with more than six mil-
lion page views per month. Their booking procedure is
quite simple, clear and easy to follow. It is the only Polish
low cost airline operating from seven regional airports in
Poland. The airline slogan is: Pay less, expect more!
Their mission statement is: “We bring the world closer to
people who want to reach their destinations in an inex-
pensive, reliable and friendly way”.
The main features of its business model are explained be-
low:
Ticket booking: The customers can make payments for
the tickets online through credit card or through bank
transfers. The tickets can be booked through their custo-
mer call centres, through travel agents, at the cash counter
in super markets and online. The charges are higher when
booked through travel agents. An extra fee has to be paid
for booking through its call centre. Children aged between
2-16 years old are eligible for a 20 % discount on adult
passenger fares at all times.
Rebooking and cancellation: Tickets for flights on Centra-
lwings can be rebooked for a fee by paying the additional
difference in fares at that point in time. Centralwings al-
lows name change on tickets at an extra fee, provided that
the change is requested at least two hours before departure
and that the cost of the ticket is above a certain amount.
Baggage rules: These rules are similar to a long haul flight
except for the hand baggage. Each traveller can check-in
luggage with a weight of maximum 20 kg at no extra char-
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 BIRD’S EYE VIEW
ge. One piece of hand luggage with only a weight of 5 kg is
allowed free of charge. Pre-booking of excess baggage can
be done online at a discounted price.
Personal belongings, such as a small handbag, overcoat,
umbrella, walking stick, camera, video camera, binoculars,
notebook, etc are free of charge. It is also possible to take
non-standard luggage like skis, snowboards, bicycles and
surfing board at additional charges quoted on their web-
site.

Pre-assigned seating: Seats are assigned at time of check-in

at the airport itself. Therefore there is no rush for getting
the seats.
Other special services: There is a special offer for children
who fly with Centralwings - the ‘Captain Bear’ menu. Toys
and gadgets are available to keep youngsters amused du-
ring the flight. Passengers also have a unique opportunity
to send a postcard from onboard the plane, with greeting
courtesy of Centralwings. Adverts can be placed on tip-up
tables, seats, headrests and a range of other surfaces. They
also have an in-flight magazine.
Catering: Food and drinks are provided on board at reaso-
nable prices. Some flights have been reported to offer free
small snacks.

Conclusion
Centralwings is already undergoing a complete restructu-
ring and also the IPO of LOT Polish airline is expected to
take place this year. So the final shape of things to come
in the Polish aviation market can only be seen after the
occurrence of the above events. But in the current scenario
the revival of Centralwings again as a low cost player seems
doubtful.

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 BIRD’S EYE VIEW

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 BIRD’S EYE VIEW

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

 DOWN TO EARTH

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 BIRD’S EYE VIEW
Will High Fuel Prices Destroy Some LCCs?
Over the previous weeks, several small US LCCs, inclu-
ding Aloha, ATA, and Skybus, have shut operations due
to high fuel costs. Because these carriers were so small,
they lacked the cash reserves to weather the fuel price
spike, which put them over the edge. It is important
to remember that while three LCCs shut down over a
matter of days, these carriers had operated at the margin
of the industry, and in at least one case (Skybus) with
an unsuccessful business model. While larger US LCCs
such as Southwest are struggling, they won’t disappear
anytime soon. The airlines that are most likely to declare
bankruptcy and potentially shutter operate older aircraft
(which use fuel less efficiently), have limited cash reser-
ves (to dip into to pay high fuel bills), and face significant
competition (leading to insufficient yields). Since ATA,
Aloha, and Skybus were pushed over the edge, could the
same thing happen in Europe, a far different market than
the US? The short answer is yes.
First and foremost, it’s important to note that the largest
European LCCs, while potentially taking a hit in traffic
growth and profits from the spike in fuel costs, won’t li-
kely go bankrupt with fuel costs at this level. Moreover,
carriers that generate revenue in euros or pounds have an
advantage over carriers that generate revenue in US dol-
lars, since euros and pounds are much stronger currencies
(and oil is priced in dollars) helping to soften the blow
of higher oil prices. Ryanair, easyJet, Flybe, and Air Ber-
lin, should all survive this fuel spike, although they may
diminish their capacity (or at least reduce future growth)
in order to cope. But, some smaller LCCs that have low
cash reserves and inefficient aircrafts are vulnerable. As in
the United States, the very small carriers operating at the
margins of the air transportation business are those that
are most likely to go under.
In the short-haul market, smaller carriers that mostly rely
on discretionary leisure traffic and are having their niches
co-opted by larger LCCs or legacy carriers are the most
vulnerable. WindJet, Blue Air and Jet2 are all suscepti-
ble to a potential shutdown, because of limited route
networks, use of smaller or older aircraft, and increasin-
gly competitive markets. But these carriers represent only
a sample of the potential bankruptcy candidates. Car-
riers need to have sufficient cash on hand to operate and
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deal with high fuel prices while they reassess their route
networks. Small carriers and recent start-ups simply don’t
have enough.
Is consolidation the answer? Possibly, if the match is a
very good one. LCCs that have complementary route
networks and aircraft fleets could merge to create a larger
carrier better equipped to compete in the marketplace.
But the acquiring carrier will still see a lot of cash tied up
in a merger or buyout, cash desperately needed for fuel. A
combination could benefit both carriers in the long-term,
but carriers need to have some mechanism to deal with
their short-term woes, and consolidation will not provide
that. What is more likely to happen are not mergers, but
rather the failure of smaller carriers, and the acquisition of
selected assets of these carriers from larger LCCs.
To some extent, there will be regional consolidation, with
significantly fewer, but larger LCCs dominating in certain
markets. The potential merger of Vueling and Clickair de-
monstrates this model in Spain. Air Berlin’s acquisitions
have created a powerful LCC in the German market. Si-
milar consolidation could occur in Italy, Scandinavia, and
Eastern Europe, creating larger, regional LCCs to compete
against pan-European Ryanair and easyJet. While short-
haul carriers are vulnerable, some low-cost long-haul car-
riers could be in even deeper trouble.
Most charter operators should survive this bump, because
their packaged holidays give them a little more leeway
with pricing and revenue generation. But carriers that
rely less on packaged holidays could feel squeezed. One
carrier of concern is Flyglobespan. They have expanded
very quickly (some would argue too quickly, as the carrier
has developed a strong reputation for poor service). As a
consequence, Flyglobespan has had to keep its fares low
to fill seats, diminishing yields and inhibiting the carrier
from becoming profitable. Given their current operating
circumstances, I seriously doubt the long-term viability
of this carrier without a significant shift in their business
model.
But other long-haul carriers with smaller networks could
also feel the pinch. Canada-based Zoom, which has set up
a UK subsidiary to offer flights between London and seve-
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 BIRD’S EYE VIEW
ral destinations in the Americas, might also be in trouble.
While not acquiring the same poor reputation for service
as Flyglobespan, Zoom operates long, low-yield routes,
with difficult competition from larger US and European
carriers. With Open Skies already creating pressure on
legacy carriers to lower fares, Zoom may find that pas-
sengers will opt for a slightly more expensive ticket that
offers a significantly better travel experience. Even in the
higher-yield premium class market, small, standalone car-
riers have suffered. MaxJet shut down late last year, and
Eos recently shut its operations on April 27. Silverjet has
been rumored to have significant difficulties filling its pla-
nes, and is looking for a significant cash infusion. With
older aircraft, a small operation, and limited cash on hand,
it is another candidate for shutdown and possible liquida-
tion unless it immediately secures the financing it needs.
All carriers, LCCs and legacies alike, are examining their
current capacity and route structure, and will trim routes
that aren’t profitable with current fuel prices. Airlines in
the States have already started to do this by reducing ca-
pacity particularly on longer, lower-yield routes. In Euro-
pe, LCCs will work towards reducing unprofitable routes.
This will mean fewer flights from the UK to destinations
in Eastern Europe, the Canaries, and North Africa. LCCs
will focus on adding routes of an optimal length (likely
routes with flight times between 1.5 and 3 hours). But
these additions notwithstanding, the trend for all carriers
will be one of slower growth. LCCs will continue to de-
lay new aircraft deliveries and reduce new capacity. For
existing aircraft, fleet utilization will almost certainly de-
crease. Ryanair, for instance, will likely ground 20 aircraft
this winter if fuel prices remain at their current high levels
because the carrier sees it as more profitable to ground the
planes than to fly them.
Ultimately, oil prices need to come down to make LCCs
viable. Unfortunately, LCCs rely too much on discretiona-
ry traffic, and during a period of high energy prices, fewer
customers will be willing to pay for jet fuel when they
need to pay for other, more basic, necessities. Oil at these
levels could lead to long-term reductions in travel and
capacity. What is needed is a better energy policy from
the US and EU, and it’s up to business leaders, especially
those in hard-hit industries like commercial aviation, to
lobby for it. An energy policy that offers incentives for
developing nations, such as China, India, and those in the
Middle East, to adopt alternative technologies for trans-
portation and energy will reduce the world’s need for oil,
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19 Air Scoop - May 2008
helping to lower the price. It’s absolutely ludicrous that
airlines (or any business for that matter) are not making a
sustainable energy policy their number one lobbying prio-
rity. This issue will affect all businesses much sooner than
most people (and especially politicians) realize. Business
leaders need to do all they can to prevent a future energy
shortage from harming their companies, because such a
shortage could come with little warning, and could seve-
rely hamper many business activities. Once the crisis hits,
it may be too late to do anything about it.
Moreover, a foreign policy that helps to reduce the threat
of terrorism will help shrink the substantial risk premium
that buyers currently pay on each barrel of oil. Unfortuna-
tely, there is no viable alternative yet to petroleum-based
fuels in the airline industry. But, there are alternative
sources of energy for automobiles, and these should be
pushed as a way to reduce oil demand in the short-term,
until viable alternatives for aviation can be developed.
There is no reason why oil prices have to come down
substantially anytime soon. LCCs need to have low fares
in order to generate sufficient demand, but they will be
unable to provide those with high fuel costs. LCCs must
mitigate current prices with efficiency and conservation
measures, as well as hedging. Nevertheless, LCCs must
also adapt to a changed environment. Higher-yielding,
non-discretionary traffic needs to be targeted as a way
of softening the blow. But ultimately, the LCC industry
could look very different in a few years. By that time, oil
could easily hit $200, and carriers need to prepare them-
selves for that reality.
Remarks, questions… Join Sam by email (samsellers@
gmail.com) or on his website to comment this article…
http://www.airlinebulletin.com.
Sam Sellers provides analysis and commentary on the
airline industry at his website, www.airlinebulletin.com,
and 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.
www.air-scoop.com