2003 - Stijn - Vandermoere - Expanding Low-Cost Airline Routes Into Eastern Europe - A Risk-Benefit Analysis of Hungary and Poland

Stijn Vandermoere
Expanding low-cost airline routes into

Eastern Europe: a risk-benefit analysis of
Hungary and Poland
School of Engineering
MSc Thesis
School of Engineering
MSc Thesis
Academic year 2002-2003
Stijn Vandermoere
Expanding low-cost airline routes into

Eastern Europe: a risk-benefit analysis of
Hungary and Poland
Supervisor: Professor F. Alamdari
September 2003
This thesis is submitted in partial fulfilment of the requirements

for the degree of Master of Science
© Cranfield University 2003. All rights reserved. No part of this publication may be
reproduced without the written permission of the copyright owner
Abstract
The growth of low-cost carriers in Europe has been one of the most important
developments since the air transport market in the European Union (EU) was liberalised
in the 1980s and 1990s. In the meantime, Ryanair and easyJet have emerged as the
largest and most profitable players. While low-cost carriers have changed the
competitive dynamics within liberalised markets, the political environment around them
is also changing, as the EU will be enlarged from fifteen to twenty-five countries in
May 2004.
At present, a limited number of low-cost routes between Western and Eastern Europe
are offered. However, anecdotal evidence suggests that routes from the United
Kingdom to Prague (Czech Republic) have been very successful.
This study focuses on two other countries that constitute two thirds of the population
joining the EU, namely Hungary and Poland. It is investigated whether easyJet and
Ryanair can replicate the success of existing routes.
The research provides insight in the route selection process of no-frills carriers and
evaluates the countries on various criteria that affect the acceptance of low-cost routes.
Suitable airports are selected and six city-pairs are proposed, which are subsequently
assessed using quantitative and qualitative methods.
It is shown that there are significant opportunities in Hungary and Poland, both for
easyJet and Ryanair. Low-cost routes to Hungary offer the highest likelihood of
immediate success, although the number of available airports in Poland is much greater.
The inexpensive nature of the countries will appeal to travellers as well as airlines.
However, if routes to these countries were established from the UK, they may not be as
successful in the short term as current routes to the Czech Republic, due to consumers’
perceptions.
Entry of low-cost carriers will also affect the flag carriers, who will have to make
important strategic choices in an increasingly competitive arena.
i
Acknowledgements
This thesis is in many ways a synthesis of the vast amount of knowledge acquired
during the full-time MSc Air Transport Management course.
In the first place, I would like to thank my parents, grandparents and brother for all the
support during this demanding, but extraordinarily interesting year. You have made it
possible to further develop my understanding of the turbulent air transport industry.
I would also like to express my gratitude to the Air Transport Group staff for the high-
quality educational ‘experience’. I will always remember the personal touch and
readiness to share resources.
Specifically in the context of this thesis, I am indebted to my supervisor, Fariba

Alamdari, for her permanent support. She gave me the freedom to explore a very
topical subject and has provided me with helpful suggestions throughout the project.
A special word of thanks also goes to Ian Stockman, for supplying various data and for
the interesting chats.
The following people have shared invaluable insights as well:
 Ralph Anker, former head of Network Planning, Go Fly
 Bernard Berger, Director New Route Development, Ryanair
 Nigel Fanning, Business Development Manager, easyJet
 Peter Hind, Senior Consultant, RDC (Route Development Company)
 Helmut Mokosch, Senior Vice President Network Management, Germanwings
 Bill Swan, Chief Economist, Boeing Commercial Aircraft
 Simon Calder, Senior Travel Editor, The Independent newspaper
 Deena MacGregor, Aviation Manager, Cresta Holidays (MyTravel)
 Herman De Wulf, Journalist, Flight International
 Jacqueline De Smet, Office Manager, World Tui Travel Center Brugge (Belgium)
 Mieke Vanhauwere, Branch Manager, Atlas Reizen Waregem (Belgium)
Last but not least, I would like to thank my fellow students who have made this year
bright inside and outside the walls of Building 115. I sincerely hope you will fly high
wherever you land. Thanks also to Carol for meticulously proofreading this thesis.
ii
Glossary
4U: Germanwings
ACC: Accession Countries
AEA: Association of European Airlines
AMS: Amsterdam-Schiphol
ASK: Available Seat Kilometres
ATI: Air Transport Intelligence
ATPCO: Airline Tariff Publishing Company
BA: British Airways
BELF: Breakeven Load Factor
BER: Berlin
BGY: Milan-Bergamo
BUD: Budapest
BZG: Bydgoszcz-Szwederowo
CAA: Civil Aviation Authority
CAGR: Compound Annual Growth Rate
CGN: Cologne-Bonn
CIA: Central Intelligence Agency
CIS: Commonwealth of Independent States
cl.: centilitre
CZK: Czech Koruna
DEB: Debrecen
DOC: Direct Operating Costs
ECAA: European Common Aviation Area
EFTA: European Free Trade Association
EU: European Union
EU-15: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
Portugal, Spain, Sweden, The Netherlands, United Kingdom
EUR: euro
FCO: Rome-Fiumicino
FFP: Frequent Flyer Programme
FSC: Full-service carrier
FY: Financial Year
iii
Glossary
GABI: Global Aviation Business Intelligence

GBP: Pound sterling
GDN: Gdansk-Rebiechowo
GDP: Gross Domestic Product
GMID: Global Market Information Database
GVA: Geneva
HAM: Hamburg
HHI: Hirschmann-Herfindahl Index
HHN: Frankfurt-Hahn
HUF: Hungarian forint
IATA: International Air Transport Association
ICAO: International Civil Aviation Organisation
IEG: Zielona Gora Babimost
IFR: Instrument Flight Rules
km: kilometre
KRK: Krakow-Balice
KTW: Katowice-Pyrzowice
LCC: Low-cost carrier
LGW: London-Gatwick
LHR: London-Heathrow
LON: London
LSF: Low-cost Stimulation Factor
m: million
MAD: Madrid
MIDT: Market Information Data Transfer
NCI: Network Concentration Index
NYO: Stockholm-Skavsta
ORY: Paris-Orly
PLN: Polish zloty
POZ: Poznan-Lawica
PPP: Purchasing Power Parity
PPS: Purchasing Power Standard
PRG: Prague-Ruzyne
QSI: Quality of Service Index
RDC: Route Development Company
Glossary
RPK: Revenue Passenger Kilometres

RZE: Rzeszow-Jasionka
SOB: Balaton-Sarmellek
STN: Stansted
SWOT: Strengths, Weaknesses, Opportunities, and Threats
SZG: Salzburg
SZZ: Szczecin-Goleniow
t: tonne
TAFS: Turbine Airliner Fleet Survey
TTG: Travel Trade Gazette
U2: easyJet
UK: United Kingdom
US: United States
USA: United States of America
USD: US dollar
VFR: Visiting Friends and Relatives
VIE: Vienna
vs.: versus
WAW: Warsaw
WMRC: World Markets Research Centre
WRO: Wroclaw Strachowice
WTO: World Tourism Organisation
WTTC: World Travel and Tourism Council
WWW: World Wide Web
YoY: Year on Year
List of Contents
Abstract ........................................................................................................................ i
Acknowledgements .................................................................................................... ii
Glossary ..................................................................................................................... iii
List of Contents ......................................................................................................... vi
List of Figures ............................................................................................................. x
List of Tables............................................................................................................. xii
Chapter 1: Introduction .............................................................................................. 1
1.1 BACKGROUND .................................................................................................. 1
1.2 RESEARCH QUESTIONS ..................................................................................... 4
1.3 EXISTING LITERATURE ....................................................................................... 5
1.4 RESEARCH AIMS AND OBJECTIVES ...................................................................... 6
1.5 METHODOLOGY ................................................................................................ 6
1.6 THESIS STRUCTURE .......................................................................................... 7
PART 1: LOW-COST CARRIERS ................................................................................ 9
Chapter 2: Low-cost airline economics................................................................... 10
2.1 INTRODUCTION ............................................................................................... 10
2.2 HISTORICAL DEVELOPMENTS ........................................................................... 10
2.3 SUPPLY OF LOW -COST AIR TRANSPORT ............................................................ 12
2.3.1 No-frills capacity ................................................................................ 12
2.3.2 Ryanair .............................................................................................. 14
2.3.3 EasyJet.............................................................................................. 16
2.3.4 Characteristics of low-cost carriers .................................................... 19
2.3.5 Cost advantage.................................................................................. 21
2.4 DEMAND FOR LOW -COST AIR TRANSPORT ......................................................... 28
2.4.1 Evolution of demand .......................................................................... 28
2.4.2 Segments .......................................................................................... 30
2.5 CONCLUSIONS ................................................................................................ 34
Chapter 3: Route development at low-cost carriers............................................... 35
3.1 INTRODUCTION ............................................................................................... 35
3.2 REASONS FOR NEW ROUTE DEVELOPMENT ....................................................... 35
3.3 NETWORK DEVELOPMENT STRATEGIES ............................................................. 37
3.4 EVALUATION OF AIR ROUTES ............................................................................ 41
vi
List of Contents
3.4.1 Evaluation of demand characteristics................................................. 41

3.4.2 Evaluation of infrastructure ................................................................ 45
3.4.3 Evaluation of distribution channels..................................................... 46
3.5 CONCLUSIONS ................................................................................................ 46
PART 2: HUNGARY AND POLAND .......................................................................... 48
Chapter 4: Country profiles of Hungary and Poland .............................................. 49
4.1 INTRODUCTION ............................................................................................... 49
4.2 GEOGRAPHIC OVERVIEW ................................................................................. 49
4.2.1 Hungary ............................................................................................. 49
4.2.2 Poland ............................................................................................... 50
4.3 EU ACCESSION ............................................................................................... 52
4.4 ECONOMIC PERFORMANCE .............................................................................. 53
4.4.1 Gross domestic product ..................................................................... 53
4.4.2 Exports and imports ........................................................................... 57
4.4.3 Relative prices ................................................................................... 58
4.5 INTERNET AND CREDIT CARD USAGE ................................................................. 59
4.6 CONCLUSION .................................................................................................. 62
Chapter 5: Hungarian and Polish travel and tourism ............................................. 63
5.1 INTRODUCTION ............................................................................................... 63
5.2 TOURISM FLOWS TO AND FROM HUNGARY ........................................................ 63
5.3 TOURISM FLOWS TO AND FROM POLAND ........................................................... 67
5.4 BASKET OF TOURIST GOODS AND SERVICES ...................................................... 69
5.5 COMPOSITE ATTRACTIVENESS INDICATOR......................................................... 71
5.6 ACCESSION COUNTRIES AIR TRAFFIC FLOWS .................................................... 73
5.7 AIRLINES ........................................................................................................ 78
5.8 CONCLUSIONS ................................................................................................ 86
PART 3: LOW-COST CARRIERS AND HUNGARY/POLAND................................... 88
Chapter 6: Countries’ suitability for low-cost carriers ........................................... 89
6.1 INTRODUCTION ............................................................................................... 89
6.2 DEMAND CHARACTERISTICS............................................................................. 89
6.3 AIRPORTS ...................................................................................................... 92
6.3.1 Airport evaluation............................................................................... 92
6.3.2 Selection of airports ........................................................................... 96
6.4 COMPETITION ................................................................................................. 98
6.5 SWOT ANALYSIS OF HUNGARY AND POLAND FOR LCCS ................................. 100
List of Contents
6.6 CONCLUSION ................................................................................................ 101

Chapter 7: Evaluation of routes to Eastern Europe.............................................. 102
7.1 INTRODUCTION ............................................................................................. 102
7.2 PROPOSED ROUTES ...................................................................................... 102
7.3 DETERMINING SIMILAR DESTINATIONS ............................................................ 105
7.3.1 Detailed methodology ...................................................................... 105
7.3.2 Results ............................................................................................ 106
7.3.3 Selection of similar destinations ....................................................... 108
7.4 SIMILAR ROUTES ........................................................................................... 109
7.5 UK-PRAGUE CASE STUDY .............................................................................. 110
7.5.1 The market situation before the entry of Go ..................................... 110
7.5.2 Entry modalities ............................................................................... 110
7.5.3 The market situation after the entry of Go ........................................ 111
7.5.4 Implications for analysis hereafter.................................................... 115
7.6 ASSESSMENT OF SELECTED ROUTES .............................................................. 117
7.6.1 Forecasting methodology................................................................. 117
7.6.2 Fares comparison methodology....................................................... 122
7.6.3 Results for routes currently operated by traditional carriers.............. 123
7.6.4 Results for new routes ..................................................................... 131
7.7 CONCLUSIONS .............................................................................................. 136
Chapter 8: Summary and conclusions .................................................................. 137
References ............................................................................................................... xiv
Appendix ................................................................................................................. xxx
A. SECTOR LENGTH CALCULATIONS .................................................................... XXX
B. INTERVIEWS ON LOW -COST ROUTE DEVELOPMENT ......................................... XXXI
C. PROJECTED NUMBER OF ROUTES ................................................................ XXXIV
D. EASYJET AIRPORT TENDER ......................................................................... XXXVI
E. MAPS OF REGIONS IN HUNGARY AND POLAND ................................................... XL
F. WTTC COMPETITIVENESS MONITOR INDICATOR DEFINITIONS ............................ XLI
G. IATA DEFINITIONS OF W ESTERN AND EASTERN EUROPE ................................. XLIII
H. AIRLINE FACT SHEETS ................................................................................... XLIV
I. AIRLINE BENCHMARKING CALCULATIONS ......................................................... XLIX
J. AIRPORTS IN HUNGARY AND POLAND ................................................................ LI
K. CALCULATIONS OF AERONAUTICAL CHARGES ....................................................LIV
L. AIRPORT RATINGS AND CLASSES .................................................................... LVIII
List of Contents
M. ROUTE MAP ....................................................................................................LIX

N. NAMES AND TITLES OF SURVEY RESPONDENTS ................................................. LX
O. SURVEY INSTRUMENT AND RESULTS .................................................................LXI
P. LONDON-PRAGUE CAPACITY AND DEMAND ...................................................... LXVI
Q. QUALITY OF SERVICE INDEX (QSI) ............................................................... LXVIII
R. ROUTE FORECASTS ....................................................................................... LXIX
S. KEY DATA OF PROPOSED ROUTES ................................................................ LXXIII
T. STATISTICAL TESTS ..................................................................................... LXXIX
List of Figures
Figure 1.1: Thesis structure .......................................................................................... 8

Figure 2.1: Evolution of no-frills seat capacity in Europe (1995-2003)......................... 12
Figure 2.2: Ryanair passenger numbers (1997-2003) ................................................. 15
Figure 2.3: EasyJet passenger numbers 1995-2003................................................... 17
Figure 2.4: The revised value chain of low-cost carriers.............................................. 21
Figure 2.5: EasyJet’s cost advantage over bmi British Midland (FY2000) ................... 24
Figure 2.6: Ryanair’s cost advantage over easyJet (2002).......................................... 25
Figure 2.7: Growth of DOC and fares versus sector length for easyJet ....................... 26
Figure 2.8: Boxplot of easyJet and Ryanair network parameters. ............................... 28
Figure 2.9: Relationship between ethnics in the UK and number of VFR trips............. 34
Figure 3.1: Comparison of the evolution of easyJet and Ryanair routes...................... 37
Figure 3.2: easyJet network strategy .......................................................................... 41
Figure 3.3: Approaches to evaluate demand during the route selection process......... 44
Figure 4.1: Map of Hungary ........................................................................................ 49
Figure 4.2: Map of Poland........................................................................................... 51
Figure 4.3: Comparison of GDP at PPP of selected countries..................................... 54
Figure 4.4: Comparison of yearly disposable income per capita in selected countries
(2000-2002).......................................................................................................... 56
Figure 4.5: Internet penetration in Eastern and Western Europe................................. 59
Figure 5.1: Hungarian arrivals and departures by purpose of visit (2000-2001)........... 64
Figure 5.2: Competitiveness Monitor for selected Eastern European countries........... 72
Figure 5.3: Breakdown of air passenger share of EU countries for Hungary and Poland
(2001)................................................................................................................... 75
Figure 5.4: Traffic growth forecasts from Eastern to Western Europe (2002-2006) ..... 76
Figure 5.5: Relationship between GDP per capita and number of trips per 1,000
inhabitants (2001)................................................................................................. 77
Figure 5.6: Unit cost comparison for selected carriers (2000-2001) ............................ 84
Figure 5.7: Yield comparison for selected carriers (2000-2001) .................................. 84
Figure 5.8: Breakeven load factor comparison for selected carriers (2000-2001)........ 85
Figure 5.9: Labour cost per employee comparison for selected carriers (2000-2001) . 85
Figure 5.10: ASK per employee comparison for selected carriers (2000-2001)........... 85
x
List of Figures
Figure 5.11: ASK per USD 1,000 labour costs comparison for selected carriers (2000-
2001).................................................................................................................... 86
Figure 5.12: Aircraft utilisation comparison for selected carriers (2000-2001) ............. 86
Figure 6.1: Aeronautical charges at selected European airports ................................. 94
Figure 7.1: Evolution of yearly passengers on the London-Prague route (1997-2002)
........................................................................................................................... 112
Figure 7.2: Contrafactual analysis of monthly traffic on the London-Prague route (1997-
2002).................................................................................................................. 113
Figure 7.3: Derivation of a low-cost stimulation factor on routes to/from London....... 120
List of Tables
Table 1.1: Top 15 countries in terms of international tourism arrivals ............................ 2

Table 1.2: Top 15 countries in terms of international tourism spending ......................... 3
Table 2.1: Capacity shares of Western European low-cost carriers ............................ 13
Table 2.2: Ryanair fleet evolution (1995-2002)............................................................ 16
Table 2.3: Evolution of the easyJet fleet (1995-2002) ................................................. 18
Table 2.4: Comparison of the low-cost and full-service business model...................... 20
Table 2.5: Share of low-cost carrier slots at London Stansted..................................... 22
Table 2.6: Network parameters for easyJet and Ryanair............................................. 27
Table 2.7: Low-cost carrier passenger market share of air travel (2001-2003) ............ 29
Table 2.8: European Countries and cities visited for short breaks abroad (2001)........ 32
Table 3.1: Projected fleet and number of aircraft for easyJet and Ryanair .................. 36
Table 3.2: Low-cost carrier network strategies ............................................................ 38
Table 3.3: Network density of three low-cost carriers .................................................. 38
Table 3.4: Ryanair and easyJet top 10 airports in terms of passenger departures ...... 39
Table 4.1: Hungary’s five largest cities in 2003 ........................................................... 50
Table 4.2: Poland’s five largest cities in 2003 ............................................................. 52
Table 4.3: Regional GDP at PPP per capita in Hungary and Poland (2000)................ 55
Table 4.4: International trade of Hungary and Poland (2001) ...................................... 57
Table 4.5: Average and indexed exchange rates for selected currencies (1999-2003) 58
Table 4.6: Financial cards in Hungary (1999-2005)..................................................... 60
Table 4.7: Financial cards in Poland (1999-2005) ....................................................... 61
Table 5.1: Top 10 sending countries for Budapest (1999-2001).................................. 65
Table 5.2: Purpose of visits to Poland for EU citizens ................................................. 68
Table 5.3: Polish cities visited by EU citizens.............................................................. 68
Table 5.4: Mode of travel to Poland for EU citizens..................................................... 69
Table 5.5: Average ticket prices between the UK and selected Eastern European
countries............................................................................................................... 70
Table 5.6: Comparison of hotel prices per night in European cities ............................. 71
Table 5.7: Beer prices in Western and Eastern Europe (2002) ................................... 71
Table 5.8: Total passenger numbers and shares for the Accession Countries (2000-
2001).................................................................................................................... 73
Table 6.1: Number of air passengers between selected European countries .............. 89
xii
List of Tables
Table 6.2: Airports suitable for low-cost carrier operations .......................................... 93

Table 6.3: Scoring of Hungarian and Polish airports ................................................... 97
Table 6.4: Top scores of potential airports for easyJet and Ryanair ............................ 98
Table 7.1: Shortlist of potentially suitable city-pairs................................................... 104
Table 7.2: Routes similar to proposed routes ............................................................ 110
Table 7.3: Weekly frequencies between the UK and the Czech Republic ................. 114
Table 7.4: Low-cost stimulation coefficient for similar routes (first year of low-cost
operations) ......................................................................................................... 118
Table 7.5: Scenario assumptions.............................................................................. 121
Table 7.6: Actual and forecasted passenger numbers after easyJet entry on London-
Budapest ............................................................................................................ 125
Table 7.7: Actual and forecasted passenger numbers after easyJet entry on London-
Warsaw .............................................................................................................. 126
Table 7.8: Actual and forecasted passenger numbers after low-cost entry on London-
Krakow ............................................................................................................... 127
Table 7.9: Fare comparison for three Eastern European city-pairs............................ 128
Table 7.10: Fare comparison for four Eastern European city-pairs............................ 129
Table 7.11: Fare comparison for city-pairs with similar sector length ........................ 130
Table 7.12: Fare comparison of easyJet’s and Germanwings’s Eastern European
destinations ........................................................................................................ 130
xiii
Chapter 1: Introduction
1.1 Background
The introduction of the Third Package in 1993 and the associated deregulation of
international air services in the European Union (EU) paved the way for low-cost
carriers (LCCs) to enter markets where high fares had prevailed (Doganis, 2001: 136).
These no-frills carriers have changed the competitive dynamics by offering a stripped-
down air transport product at low prices, based on low costs (Lawton, 1999: 573).
Some airlines, such as Ryanair and easyJet, have been very successful at stimulating
markets and diverting passengers from traditional carriers. They have also benefited
from the economic downturn which started in 2001, as more travellers have become
more price-sensitive. Their success has resulted in significant expansion across Europe,
and in huge orders with aircraft manufacturers.
In May 2004, ten new members (Cyprus, the Czech Republic, Estonia, Hungary, Latvia,
Lithuania, Malta, Poland, Slovakia and Slovenia) are bound to join the current fifteen
EU Member States. Effective enlargement may even occur before that date if these
countries, together with Romania and Bulgaria join the European Common Aviation
Area (ECAA).
Linking the success of certain low-cost carriers and their ambitious fleet expansion
plans with these political developments leads to the question of whether there are any
opportunities to be reaped in the aforementioned countries for this new breed of airline.
This piece of research will concentrate on the two largest and most successful low-cost
airlines in Europe, namely Ryanair and easyJet. Moreover, since a detailed discussion
of all candidate countries would exceed the limits of an MSc thesis, it was decided to
make a selection of two Eastern European countries.1
1 Although certain former communist countries (e.g. Hungary, the Czech Republic) are sometimes classified as
‘Central European’ countries, the Author found the term ‘Eastern European’ countries more appropriate to label these
countries as a group.
1
After a careful study of country profiles, it became clear that there are considerable
economic differences between the new member states. Three countries systematically
emerge as the most promising: the Czech Republic, Hungary and Poland (see e.g.
Manrai et al., 2001). This trio was also the focus of Trade Partners UK’s ‘Opportunity
Czech Republic/Hungary/Poland’ campaign between 1999 and 2001 with the aim to
point out to British companies the opportunities for trade and investment in these
markets.2
After the takeover of Go, easyJet acquired several routes between the United Kingdom
(UK) and the Czech capital, while bmibaby also operates from East Midlands to Prague.
Managers at these carriers have declared this route to be performing ‘above average’
(Breyerova, 2002: 3). Therefore, the Author deems that this market has already proven
itself, which makes it more relevant as a case study but less so for a feasibility study.
International Tourist Change Market

Arrivals (million) (%) share (%)
Rank Country 2000 2001 2001/2000 2001
1 France 75.6 76.5 1.2 11.0
2 Spain 47.9 49.5 3.4 7.1
3 United States 50.9 45.5 -10.6 6.6
4 Italy 41.2 39.0 -5.3 5.6
5 China 31.2 33.2 6.2 4.8
6 United Kingdom 25.2 23.4 -7.4 3.4
7 Russian Federation 21.2 - - -
8 Mexico 20.6 19.8 -4.0 2.9
9 Canada 19.7 19.7 -0.1 2.8
10 Austria 18.0 18.2 1.1 2.6
11 Germany 19.0 17.9 -5.9 2.6
12 Hungary 15.6 15.3 -1.5 2.2
13 Poland 17.4 15.0 -13.8 2.2
14 Hong Kong (China) 13.1 13.7 5.1 2.0
15 Greece 13.1 - - -
Note: Eastern European countries in bold.

Source: World Tourism Organisation (2002).
Table 1.1: Top 15 countries in terms of international tourism arrivals
2 See the Department of Trade and Industry website http://www.dti.gov.uk/europe/enlarge/index.htm#top.
2
At the same time, it is relevant to note that Hungary and Poland figure in the World
Tourism Organisation’s Top 15 in terms of international arrivals (see Table 1.1),
providing further support for looking at these two countries.
The World Tourism Organisation also provides statistics on the top 15 countries with
the highest tourism spending abroad. Table 1.2 shows that nine of them are located in
Europe and are currently being served by Ryanair or easyJet.3 If low-cost air travel
links are established between these states and Eastern Europe, this may boost the
tourism industry of the latter countries.
International Tourism Change Market

Spend (billion USD) (%) share (%)
Rank Country 2000 2001 2001/2000 2001
1 United States 64.5 58.9 -8.7 12.7
2 Germany 47.8 45.9 -3.9 9.9
3 United Kingdom 36.3 36.9 1.8 8.0
4 Japan 31.9 - - -
5 France 17.7 17.5 -1.4 3.8
6 Italy 15.7 14.2 -9.3 3.1
7 China 13.1 - - -
8 Netherlands 12.2 - - -
9 Canada 12.1 - - -
10 Belgium/Luxembourg 10.2 - - -
11 Austria 9.3 9.7 4.0 2.1
12 Republic of Korea 6.2 6.9 11.5 1.5
13 Sweden 8.0 6.8 -15.1 1.5
14 Switzerland 6.2 6.6 5.2 1.4
15 Taiwan 6.4 - - -
Note: European countries with low-cost carrier activity in bold.

Source: World Tourism Organisation (2002).
Table 1.2: Top 15 countries in terms of international tourism spending
Thus, it is interesting to assess whether low-cost airlines will be able to benefit from
offering services between their current markets on the one hand, and Poland and
Hungary on the other. Such low-cost entry may reverse the decreasing trend in tourist
arrivals – especially in Poland (see Table 1.1).
It should be noted that SAS’s Snowflake started flying between Stockholm and
Budapest on 30 March 2003, while Germanwings has served the Hungarian capital
3 Belgium and Luxembourg are considered together.
3
since 22 May 2003 from its Cologne base and will link the Hungarian capital to its new
Stuttgart base from 15 September 2003 (ATI, 2003b; Flight International, 2003a;
Kaminski-Morrow, 2003b). This begs the question whether this destination is also
suitable for any of the budget carriers studied in this thesis.
Hungary and Poland are also two interesting countries because they differ considerably
in size, current tourism trends and participation of flag carriers in airline alliances. The
selection of Hungary and Poland does not imply, however, that there are no other
potentially attractive Eastern European markets for low-cost carriers. A prime example
is Slovakia, with Bratislava airport located only 50 kilometres from high-cost Vienna
airport, while the flag carrier Slovak Airlines does not serve Western Europe on a
scheduled basis. The local low-cost carrier SkyEurope currently uses this airport as a
base.
Although at present there is still scope to establish new routes in Western Europe,
Ryanair have already indicated that they consider expanding into Eastern Europe. This
seems indeed necessary if the Irish airline is to maintain its high growth rates and use
the aircraft it ordered at the beginning of 2003.
However, what are the risks and benefits easyJet and Ryanair will be facing?
This question will be looked at from a marketing and operational perspective, while an
attempt will also be made to forecast future traffic flows and resulting market shares
based on the competitive reaction of incumbents.
1.2 Research questions

 Should Ryanair/easyJet expand into Hungary/Poland?
 How do low-cost carriers evaluate and select routes?
– What operational and marketing factors are taken into account (e.g.
aircraft, airports, schedule, distribution channels, pricing, product
acceptance)?
– What strategic considerations play a role (e.g. first-mover
advantage)?
4
 Which countries and routes, if any, hold potential for low-cost carriers?
– What are the general country characteristics and what do the travel
and tourism markets look like?
– Which low-cost airline, if any, is best placed to benefit from the EU
enlargement?
– What traffic levels can be expected? Can the success of low-cost
routes to Prague be repeated?
 What will the impact of low-cost entry be for the Hungarian and Polish air transport
market?
 What are the implications for the (state-owned) flag carriers and how might
they react?
 Are the (state-owned) airports interested in low-cost services?
 What market shares can be expected after low-cost entry?
1.3 Existing literature

Not much has been written on expansion opportunities for low-cost carriers in Eastern
Europe. Occasionally, one finds authors indicating the potential of these markets. For
example, Lobbenberg et al. (2003a: 7) observe that “plenty of untapped growth remains
in Continental Europe and in the medium term in Central Europe.” The same authors
even estimate that low-cost carriers may become market leaders in Central and Eastern
Europe in terms of providing short-haul air transport (Lobbenberg et al., 2003a: 10).
Lately, the media have started to devote more attention to this topic as (1) the date of
EU enlargement nears, (2) the countries are more likely to join the EU and (3) certain
airports make known that they are talking to budget airlines. However, a detailed
analysis of market opportunities is lacking. Therefore, a gap in the current knowledge
of low-cost carriers exists.
Nevertheless, much has been written on this new breed of airlines in general (see e.g.
Doganis, 2001; Lawton, 2002; Barkin et al., 1995) and on the effects they have had on
existing routes (see e.g. Dresner et al., 1996; Barrett, 2000). There has also been some
research on the feasibility of setting up low-cost airlines in particular regions (see e.g.
Hoesch, 2001; Lin, 2001; Wittmer, 2001) and on the extension of the concept to long-
haul operations (e.g. Fagan, 2002).
5
An evaluation of the Eastern European air transport market and the impact of entry to
the EU can be found in Treskunov (2003).
In order to present a more structured discussion, the Author has opted to include a more
extensive literature review in the various chapters, where appropriate. By doing so, it is
felt that the coherence of the discussion will be enhanced.
1.4 Research aims and objectives

 To provide insight into the route selection process of low-cost carriers.
 To present airline managers, airports and governments with a well-founded analysis
of the Hungarian and Polish markets.4
 To inform stakeholders (e.g. employees, suppliers, governments, shareholders) of
low-cost airlines and full-service carriers on the desirability and implications for no-
frills carriers tapping into the Hungarian and Polish market.
1.5 Methodology
In order to gain more insight into the factors playing a role in route decisions,
interviews were undertaken with managers of low-cost airlines, as well as with
independent consultants.
A comprehensive benchmarking study was conducted to describe how Hungary and
Poland compare to other countries where low-cost carriers have obtained significant
market shares. The emphasis was on relevant country indicators and key aspects of the
low-cost business model. Airports were selected using an airport-scoring model.
Selection of potential city-pairs resulted from a document study. Next, traffic on
potential city-pairs was forecast by analogy for different scenarios based on statistical
techniques and judgement. A number of experts in the tourism industry were surveyed
to determine the analogous city-pairs. A case study of routes between the UK and
Prague served as an important yardstick against which proposed routes could be
assessed. Next, market shares were estimated using the concept of Quality of Service
4 Airports are also included in this list because low-cost airlines increasingly shift the task of demonstrating the
viability of new routes to airports. In this context, see e.g. easyJet’s campaign to seek low-cost airports.
6
Index (QSI), again for various scenarios. The scope for low-cost entry was also
evaluated by comparing fare levels on routes with and without low-cost carriers.
1.6 Thesis structure

Chapter 1 of this thesis provides background and justification for undertaking the
research. Research questions are formulated, followed by thesis aims and objectives.
An overview of the methodology used and of the overall thesis structure is presented as
well.
Chapter 2 analyses the low-cost business model. It explains who the suppliers are and
in which respect they differ from traditional airlines. The demand side is also
discussed, concentrating on evolution of demand and purpose of travel. Chapter 3 is
dedicated to route selection at low-cost carriers.
Subsequently, a closer look is taken at how Hungary and Poland compare with other
European countries in economic terms (Chapter 4) and as regards travel and tourism
(Chapter 5). In Chapter 6, key features of the low-cost business model are matched
with the Eastern European air travel market to assess compatibility. Chapter 7 identifies
city-pairs with potential to be served by low-cost carriers.
Chapter 8 draws conclusions, discusses limitations, and provides suggestions for further
research.
Figure 1.1 summarises the thesis structure graphically and indicates the techniques used.
7
Chapter 1
Potential for low-cost route expansion into

Eastern Europe after EU enlargement?
Chapter 2 Chapter 3 Chapter 4 Chapter 5

Low-cost carrier route/network Hungary and Poland: Hungary and Poland:
Low-cost carrier economics
development [Interviews] country profiles [Benchmarking] travel, tourism [Benchmarking]
Chapter 6
Country suitability for low-cost carriers

[SWOT Analysis]
Airport selection
[Airport Scoring M odel]
Chapter 7
Selection of similar cities and routes

[Survey]
Forecasting by analogy Fares comparison

Route selection
[Various techniques] [Significance tests]
M arket share modelling

[Scenarios; QSI]
Chapter 8
Conclusions
Note: Techniques used between square brackets

Figure 1.1: Thesis structure
8
PART 1:
LOW-COST CARRIERS
9
Chapter 2: Low-cost airline economics
2.1 Introduction
This chapter’s aim is to present information on the development and economics of low-
cost carriers. First, a brief historical overview of the origins and drivers of the low-cost
business model is provided. Next, the supply side of low-cost air travel is expounded.
Key data on current no-frills capacity in Europe are discussed, after which two airlines
(easyJet and Ryanair) are looked at in more detail. A summary of the key features of
low-cost airlines and how they differ from traditional carriers is also presented,
followed by a discussion of their cost advantages and the impact of sector length. A
third section studies the main demand characteristics of low-cost travel, detailing the
demand evolutions and the main segments.
2.2 Historical developments

In 1971, Southwest Airlines began flying in the State of Texas in the United States
(US), operating short point-to-point sectors at high frequencies with good on-time
performance, charging its passengers low and unrestricted fares without offering frills.
Because the carrier was the first to offer this kind of product, Southwest is generally
considered to be the first no-frills airline and has become the role model for many
present low-cost carriers (LCCs).5
The 1978 US Airline Deregulation Act heralded the beginning of the airline’s cautious
expansion beyond Texas and has allowed it to become the fourth largest US airline in
terms of domestic passengers carried.6 Many other ‘low-cost’ airlines have also tried to
take advantage of the deregulated US air transport market by starting operations during
the last 25 years. Few of these have survived, let alone have achieved success (Doganis,
2001: 128-129; 133).
5 No uniform definition exists for ‘low-cost carriers’. Rather, it is a generic term to designate airlines with a set of
common characteristics (see Section 2.3.4).
6 According to Air Transport Intelligence (ATI Airline Profile).
10
In Europe, there was also pressure for more liberal air transport markets. Deregulation
in the US provided an additional impetus for changes. However, it was not until the
mid-1980s that limited liberalisation started. Moreover, in contrast with the rapid
deregulation in the US, the evolution was more gradual in Europe, with the creation of
an ‘open’ intra-European market only happening in 1993 through the ‘Third Package’.
As a result, open market access was introduced, price controls were abolished, and the
criteria for granting operating licences and air operator certificates were harmonised
(Doganis, 2002: 49-51; 66-67).
Similar to what happened in the US, European no-frills carriers have used the freedoms
of the liberalised market to take on incumbents, based on lower cost structures and by
offering low prices and a stripped-down air transport product (Lawton, 2002: 92). They
have often succeeded in defining new markets, targeting people who had not travelled
by plane before or who had been flying less frequently, thus turning intra-European air
travel into a commodity (Barrett, 1999: 25; RDC, 2002:10). In Section 2.4.2 it will be
shown that business travellers are also increasingly using no-frills carriers. As the UK
Civil Aviation Authority (CAA, 1998: 125) notes, no-frills carriers have developed a
‘third way’ of doing business in the airline industry, by coupling lower costs achieved
through copying some charter practices with the convenience of scheduled services.
Currently, the fifteen members of the EU total 377 million people – 86 million more
than the 291 million in the US. The ten countries which are lined up to join the EU in
May 2004 will enlarge the Union by about 75 million people, of which around two
thirds live in Poland or Hungary (World Gazetteer, 2003; EuroTransport Intelligence,
2003 :10). The opening-up of these markets will be more radical than the gradual EU
liberalisation process described above, and thus it is interesting to analyse what the
likely impact will be for these countries.
11
2.3 Supply of low-cost air transport
2.3.1 No-frills capacity

The previous section described how liberalisation in the EU spurred the development of
no-frills start-ups. Figure 2.1 shows the evolution of no-frills capacity in the European
Union over the period 1995-2003. As can be seen, the growth has been spectacular,
with a compound annual growth rate (CAGR) over the nine years of 47%.
Low-cost carrier seat capacity (1995-2003)
1,600,000 1,495,694
1,400,000
1,200,000
Weekly seats
1,000,000 890,020
800,000 649,600
547,230
600,000
400,000
229,118 274,148 317,256
200,000 67,961 107,262
0
1995 1996 1997 1998 1999 2000 2001 2002 2003
Year
Note: Airlines included: Ryanair, Virgin Express, easyJet, Debonair, Go, Buzz, bmibaby, Hapag-Lloyd
Express, Germanwings, Basiq Air, Air Berlin, My TravelLite and Snowflake.
Source: AEA (2003: I-8) and additional information kindly provided by AEA.
Figure 2.1: Evolution of no-frills seat capacity in Europe (1995-2003)
ABN-AMRO (2003a) identified twenty LCCs in Western Europe at the beginning of

2003. However, in the meantime some have disappeared (e.g. Goodjet) or have been
taken over (e.g. Buzz by Ryanair), while new no-frills airlines have entered the market
(e.g. Snowflake, SAS’s low-cost subsidiary). Others, such as Now, were preparing to
launch services.
It is expected that over time a shakeout will occur among no-frills airlines, with more
carriers failing and more consolidation taking place. In this respect, the analysis
provided by Romero (2002) on the causes of failure of European airlines may provide
useful indications on who is more likely to survive.
12
Table 2.1 presents an overview of the ten largest low-cost carriers in Western Europe in
January 2003 along with their weekly capacity on an absolute and relative basis. Note
that the airlines included in this table and those in Figure 2.1 do not fully correspond,
reflecting diverging views on what constitutes a ‘low-cost carrier’.
EasyJet was the largest low-cost airline in terms of available seat kilometres (ASK),
representing about a third of no-frills capacity and accounting for 4.6% of ASK in
Western Europe. The airline was closely followed by Ryanair, who offered 30% of
low-cost capacity and represented 4.1% of ASK in the region. Both carriers have
boosted their market shares through recent takeovers (cf. infra).
Weekly low-cost available seat kilometres (ASK) Weekly

Carrier
ASK (million) % of LCC ASK % of W Europe ASK Frequency
EasyJet 195 19.7% 2.7% 1,828
Go 137 13.9% 1.9% 1,052
Total easyJet 332 33.7% 4.6% 2,881
Ryanair 270 27.4% 3.7% 2,302
Buzz 26 2.6% 0.4% 357
Total Ryanair 296 30.0% 4.1% 2,659
Air Berlin 131 13.3% 1.8% 827
Virgin Express 65 6.6% 0.9% 363
DBA 48 4.9% 0.7% 725
Bmibaby 48 4.8% 0.7% 523
Flybe 23 2.3% 0.3% 1,114
Germanwings 22 2.3% 0.3% 270
Norwegian 15 1.5% 0.2% 243
Germania 6 0.6% 0.1% 58
Total low-cost 986 100% 13.7% 9,663
Note: Figures for OAG scheduled services in January 2003. W Europe: ‘Western Europe’.
Source: Baker, C. (2003b).
Table 2.1: Capacity shares of Western European low-cost carriers
The two largest low-cost airlines identified above, namely Ryanair and easyJet, will be
discussed next. They are also the longest established no-frills carriers in Europe and
have achieved critical mass. In this context, Ryanair CEO Michael O’Leary has stated
that the two airlines with the greatest head start on new entrants will be the ones that
will ultimately survive (Tour hebdo, 2002: 7).
13
2.3.2 Ryanair
Ryanair started operations in 1995, and targeted the Irish ethnic market between Ireland
and the UK. Operating out of Dublin, it offered a traditional, two class product at lower
fares than the competition. Rapid growth was achieved. For instance, on the London-
Dublin route the number of passengers grew by 65% in two years after they had
remained stagnant for three years. However, the venture was not profitable. After a
visit to Southwest in 1991, it was decided to continue the low-fares strategy, but to cut
costs by doing away with frills (Doganis, 2001: 135-136; Barrett, 2000: 20). As part of
the relaunch, the Irish airline moved its London base from Luton to Stansted.
Between 1993 and 1997 the main focus was on expanding services between Ireland and
the UK. By 1997, the airline had become the largest carrier on all routes it served
between these two countries. From 1997 onwards the company began operating to
continental Europe from Dublin and Stansted (Barrett, 1999: 22). In 2001 it set up its
first base in mainland Europe at Charleroi (‘Brussels South’) in Belgium, followed by a
second at ‘Frankfurt’ Hahn in Germany in 2002. In 2003, ‘Milan’ Bergamo (Italy) and
‘Stockholm’ Skavsta (Sweden) were added. Taking into account the existing bases at
Dublin, Shannon, Stansted, and Prestwick, this has brought the total to eight bases.7
A clear pattern of geographical expansion can be discerned and thus, a study of the next
logical step – expansion into Eastern Europe – seems appropriate.
The Irish airline aims to offer the lowest fares, with an average one-way fare of €50 in
FY2002 and €46 in FY2003. This greatly appeals to price-sensitive passengers who can
now fly more frequently or who substitute other modes of transport for air travel.
Ryanair has become renowned for stimulating markets in this way, hence the term
‘Ryanair effect’ (Lawton, 1999: 584).
In order to offer such low fares, rigourous cost management is pursued by strictly
adhering to the original Southwest business model (see also Table 2.4). How great the
resulting cost advantage is relative to its competitors will be discussed in Section 2.3.4.
Apart from its direct distribution policy, another important ingredient of its strategy is
7Although the Ryanair website mentions London-Luton as a base, it is not included in the list, as there are only two
Ryanair routes at present, and Michael O’Leary has declared to consider establishing a base there (Dunn, 2003a).
14
the use of uncongested, secondary airports where it often (1) is a dominant carrier, (2)
pays very low landing fees, and (3) can achieve fast turnarounds.8 These airports are
often located some distance away from the cities their names refer to. For example,
‘Frankfurt’ Hahn is about 100 kilometres from Frankfurt. However, Barrett (2000: 21)
reports that a service from London-Stansted to a secondary airport in Continental
Europe is considered to be an alternative by between 20% and 33% of passengers flying
between London-Heathrow and respective major airports in Continental Europe.
Ryanair passengers 1997-2003

23.4
Number of passengers (millions)
25
20
15.8
15
11.1
10 8.1
5.3 6.1
4.3
5
0
1997 1998 1999 2000 2001 2002 F2003
Year
Note: Passenger numbers apply to financial years, i.e. to the nine last months of the indicated calendar
year plus three months of the next calendar year.
Source: Ryanair (2002); Ryanair (2003).
Figure 2.2: Ryanair passenger numbers (1997-2003)
The airline has been very successful since it reinvented itself as a no-frills carrier in
1991. As Figure 2.2 shows, the number of passengers flying Ryanair has risen
considerably between FY1997 and FY2002 – from 4.3 million to 15.8 million. On 31
January 2003 Ryanair announced that it was buying loss-making competitor Buzz from
KLM (Walker, 2003). If the carrier’s forecast for FY2003 proves correct then 23.4
million passengers will be transported, which would equal a compound annual growth
rate (CAGR) of 32.6% over the period 1997 to 2003.
8Some airports charge no landing fees to Ryanair, while others subsidise the airline, e.g. through marketing support
(Aviation Strategy, 1998: 12). This may change however, after a French court judged that route aid by the
Strasbourg Chamber of Commerce is illegal. Moreover, the European Commission is currently investigating the
agreement with Belgian Charleroi airport.
15
Strong passenger growth is not only expected for FY2003 but also for the coming years.
Within 7 to 8 years the airline wants to become the largest airline in Europe with over
40 million passengers per annum (Ryanair, 2002: 7). These ambitious plans are
evidenced by the huge aircraft orders the airline has placed with Boeing, now totalling
125 B737-800 aircraft with options for another 125 of the same type (ATI, 2003a).
Ryanair (2002b: 30) has declared that it aims to increase its fleet to a minimum of 131
Boeing 737-800 aircraft by December 2008.
Year 1995 1996 1997 1998 1999 2000 2001 2002

Number of aircraft at year end 11 12 18 21 26 33 39 49
Yearly fleet growth - 9% 50% 17% 24% 27% 18% 26%
Source: Airclaims (1996-2003).

Table 2.2: Ryanair fleet evolution (1995-2002)
Table 2.2 shows the evolution of Ryanair’s fleet between 1995 and 2002. Over time,
the airline has proved successful at matching passengers with its increasing capacity.
The load factor has evolved from 67% in 1999 to 84% in 2002. At the same time, the
break-even load factor (BELF) was very low, but faced upward pressure mainly due to
the erosion of yields. In 2000, the BELF was 54%, while it was 60% in 2001.
However, the gap between load factor and BELF has widened, which has resulted in
strong financial performance and profit growth. At the beginning of June 2003, the
carrier announced net profits of €239.4 million for the year ending 31 March 2003, up
59% on the previous year. This amounted to a net margin of a considerable 28%.9
Ticket revenues seem to become increasingly less important with more emphasis being
put on ancillary revenues. The latter came down to 11.7% of FY2002 revenues. In
comparison, this proportion was only 4.3% for easyJet, the airline that is discussed next.
2.3.3 EasyJet
In 1995, British-Cypriot entrepreneur Stelios Haji-Ioannou established easyJet as a low-
cost airline, flying out of London-Luton airport. The core low-cost concept was copied
from Southwest Airlines in the United States. Thus, the airline aims to achieve
9 Calculations by Author based on company financial information found on the ATI website.
16
sustainable growth and long term prosperity by operating a dense, high-frequency,

point-to-point network at low fares. ‘Convenient’ airports are used, i.e. often primary
airports (Fanning, 2003). According to Ray Webster, easyJet’s CEO, serving this type
of airport may command a premium. He points out that the airline has been able to
attract a ‘significant’ amount of business traffic, even though the product is not tailored
to a particular segment. Webster reckons that around 50% of passengers are travelling
midweek, and are “either business travellers or very wealthy” (Baker, 2002c: 31).
The low-cost carrier proclaims the “Nothing for free, all for sale” idea and has relied
exclusively on direct sales from the start of operations (Sull, 1999: 22). It also depends
heavily on outsourcing, strong branding and substantial advertising (Lawton, 2002: 17).
Since 1995, the airline has grown significantly by adding destinations, increasing
frequencies, and connecting existing destinations (‘joining the dots’). The airline now
has crews based at twelve airports in the network.10 Thus, it has moved away from the
single base at Luton to a multi-base network with high density, creating a strong
presence at its bases (Lawton, 2002: 117). EasyJet’s route network strategy will be
discussed further in the next chapter.
easyJet passengers 1995-2003

Number of passengers (millions)
30
25.0
25
20
15
11.4
10 7.7
6.0
5 3.7
1.1 1.9
0.03 0.4
0
1995 1996 1997 1998 1999 2000 2001 2002 F2003
Year
Note: Figures are for full year.

Source: easyJet website; forecast for 2003 obtained from easyJet
Figure 2.3: EasyJet passenger numbers 1995-2003
10These airports are: Belfast, Bristol, East Midlands, Edinburgh, Geneva, Glasgow, Liverpool, London-Luton,
London-Gatwick, London-Stansted, Newcastle and Paris-Orly.
17
The evolution of easyJet’s passenger numbers is depicted in Figure 2.3. The compound
annual growth rate over the period 1995-2002 was similar to Ryanair at 33.6%. The
number of passengers in 2003 is expected to be more than double of those in 2002.
To achieve this growth, the fleet has expanded considerably over time. Not all growth
has been organic, however. In May 2002 easyJet announced that it was taking over
rival Go for £374 million (ATI, 2002).
Table 2.3 shows the evolution of the easyJet fleet between 1997 and 2002. According
to the Airclaims aircraft database, the easyJet fleet comprised 65 Boeing 737s (300 and
700 series) as of mid-June 2003. However, in October 2002 the airline ordered 120
A319-100s with options for another 120 as part of what is believed to be a very good
deal with Airbus. Ray Webster has indicated that the new aircraft will improve the
company’s cost base by 10% (Baker, 2002c: 30). The planes will be delivered over five
years from September 2003 at an average of two new aircraft per month. Even when
allowing for aircraft replacements, this is a considerable fleet increase, which will have
implications for the network. EasyJet estimates to operate 164 aircraft by the end of
2007 (Baker, 2002a).
Year 1995 1996 1997 1998 1999 2000 2001 2002

Number of aircraft at year end 2 4 6 11 14 17 23 60
Yearly fleet growth - 100% 50% 83% 27% 21% 35% 161%
Source: Airclaims TAFS (1996-2003).

Table 2.3: Evolution of the easyJet fleet (1995-2002)
Some observers have argued that easyJet is moving away from the low-cost model, as it
will be operating a mixed fleet and because it is growing through acquisitions (Aviation
Strategy, 2002b: 1). However, easyJet claims to have been given guarantees by Airbus
for the successful implementation of the aircraft during the first two years (Baker,
2002c: 30). Moreover, competitor Ryanair has also resorted to a takeover strategy when
it bought Buzz at the end of January 2003 (Walker, 2003).
Nevertheless, easyJet’s financial performance has generally been good. In financial
year 2002, the company posted a profit after tax of £49 million, up 29% from the
previous year. With an operating margin of 12.6% in FY2002 the airline performed far
18
better than most full-service carriers. In the first half of FY2003, however, the company
turned in a pre-tax loss of £48 million and announced that it was cautious on full year
results (Kaminski-Morrow, 2003a; Wagland, 2003).
2.3.4 Characteristics of low-cost carriers

Several authors (e.g. Barkin et al., 1995; Doganis, 2001; Gilbert et al., 2001; Williams,
2001; Lawton, 2002) have extensively described the characteristics of the low-cost
business model. Table 2.4 provides a summary of these features and compares them
with those of a typical full-service carrier. However, many variations on the low-cost
theme exist.
As can be seen from the table, the basic ingredients of low-cost airlines are simplicity,
efficiency, productivity and high utilisation of assets. However, as Calder (2002: 116)
points out, no two low-cost carriers are the same. Fagan (2002) has provided an
overview of how selected European and US low-cost airlines differ in their adherence to
typical characteristics of the model and has related this to financial performance.
Although the features in the table are classified into categories, it should be pointed out
that they are all inter-related. For example, the absence of frills, in combination with
free seating and the use of secondary airports results in faster turnarounds and less
personnel needed, which boosts utilisation and productivity.
In later chapters, the characteristics in the table will serve as a basis to assess the
potential of Hungary and Poland for low-cost airlines. The scope for cost reductions
that the various ingredients of the low-cost model provide, will be discussed in the next
section.
19
LOW-FARE CARRIERS FULL-SERVICE CARRIERS

MARKETING CHARACTERISTICS
Product
 Point-to-point passenger service; no interlining or  Hub & spoke networks; interlining important part of
freight transport. service.
 Simple ‘no-frills’ product – all traditional services  Complex integrated service product(s), e.g. ticket
and facilities charged for, e.g. drinks and snacks, flexibility, business lounges, FFP.
FFP, credit card bookings, late check-in.
 Focus on ancillary revenue generation, e.g.  Focus on primary product.
advertising (the plane as billboard), on-board
retailing.
 Single class, higher density.  Usually two or three classes with different in-flight
service.
Price
 Low, one-way fares; no or minimal restrictions.  Generally higher price; return fares with
restrictions (one-way fares increasingly available).
 Simple ticket price structure; aggressive yield  Complex fare structures; yield management by
management with various price levels and filling up set-price classes in order of bookings.
capacities depending on load factors and time of
purchase.
Branding & advertising

 Simple brand (“Go from A to B”).  Complex brand (passengers also pay for other
services such as ticket flexibility).
 High public awareness; use of (free) publicity.  Less aggressive use of publicity.
Distribution
 Direct booking, with emphasis on Internet  Mainly travel agents.
reservations.
 Ticketless check in.  Tickets produced for each booking.
OPERATIONAL CHARACTERISTICS
 Use of secondary, low-charging airports (some  Focus on primary airports.
exceptions).
 High aircraft utilisation – quick gate turnaround  Lower utilisation on short-haul routes (turnaround
time (about 25 minutes) due to reduced cleaning time of about 50 minutes).
time (no free catering), free seating, no freight.
 Minimum cabin crew (typically 3 people on a  Cabin crew more numerous (often 5 or 6 cabin
Boeing 737). crew).
 Mainly short-haul focus.  Often short and long-haul operations.
 Common fleet type acquired at very good rates.  Mixed fleet.
 Focus on core activities; outsourcing of most other  Less outsourcing of operations.
operations.
Source: Doganis (2001: 133-144); Gilbert et al. (2001: 314); Lawton (2002: 38-40); Williams (2001: 279).
Table 2.4: Comparison of the low-cost and full-service business model
20
2.3.5 Cost advantage
Sources of cost advantage

Barkin et al. (1995: 88-91) have classified the sources of cost advantage resulting from
the above business model into three categories:
 Lower input costs (e.g. reduced airport handling needs, single aircraft type, lower-
cost labour contracts, higher labour productivity)
 Cheaper product design (e.g. absence of ‘frills’, use of cheaper secondary airports,
denser seating allowing costs to be spread over more passengers per flight)
 Cheaper process design (e.g. direct distribution, efficient turnarounds, outsourcing,
simple management structure)
Borgo et al. (1998: 56-59) show how airlines have traditionally been the link in the
value chain not making attractive returns, i.e. profit margins are often less than the
weighted average cost of capital of about 8.5 to 9%. For example, in 2001, the world’s
top 50 airport groups achieved a net margin of 11%, while the top 50 airline groups
turned in a 4% net loss (Stewart et al., 2003: 19).
Catering (10-13%) Increased margins

Labour
Aircraft manufacturers (16%) Lessors (15%) Airline s GDS (>30%) Customer
Ground handling (11-14%)
Airports (10%)
Legend
Total elimination of link in value chain
Partial elimination of link in value chain through reduced use, better negotiation of rates or higher productivity
Note: Profit margins indicated between brackets based on 1992-1996 data.

Source: Author, based on Borgo et al. (1998: 55).
Figure 2.4: The revised value chain of low-cost carriers
21
The major low-cost airlines, however, have reshaped the traditional air transport value
chain, and have strived to develop bargaining power whenever they can in order to
reduce costs (see Figure 2.4). They have done so by diminishing or eliminating
partners’ importance (e.g. travel agents and Global Distribution Systems) and by
increasing their importance vis-à-vis suppliers (e.g. large orders for aircraft; using
unserved airports). In this way, they avoid other companies in the value chain from
achieving attractive returns at the expense of the airline. Risk-sharing (with airport
operators) and turning fixed costs into variable costs have been other methods to reduce
uncertainty for the airline (Hofton, 2002: 33; CAA, 1998: 138).
Bargaining power is sometimes opportunistic (e.g. purchase of aircraft during a

downturn), but often structural, as in the case of airports.
Some airports have developed as true low-cost ‘hubs’. For example, at London
Stansted, the three biggest low-cost operators hold 88% of the slots. Ryanair is the
largest operator with 57% of slots after the takeover of Buzz (see Table 2.5). As a
result, they can influence decisions.
Carrier Destinations Slot share

Ryanair 43 45%
Buzz 20 12%
EasyJet/Go 20 26%
Air Berlin 7 5%
Other - 12%
Note: Figures are for OAG scheduled services in January 2003
Source: Baker, C. (2003b).
Table 2.5: Share of low-cost carrier slots at London Stansted
Low-cost airlines such as Ryanair also have clout at smaller airports because they close
long-term contracts. Estimates indicate that there are around 200 such airports in the
EU. The terms are often very favourable for Ryanair, which pays minimal or no
passenger and aircraft handling charges and sometimes even gets paid to serve an
airport because it is believed that air services will help to develop local industry and
tourism (Aviation Strategy, 2001: 5). This reasoning is under increased scrutiny,
however (see Footnote 8 on p. 15). Lobbenberg et al. (2003a: 58) estimate that the Irish
airline pays on average 50% of the published airport charges.
22
It should be noted that the shift of bargaining power may have an adverse effect if
airports are struggling to survive. This may in turn have repercussions on the low-cost
carriers themselves. As Gillen et al. (2003) suggest, vertical integration between
airlines and airports may result. In this context, Tony Ryan, founder of Ryanair, has
bought a former Russsian military base at Milovice (25 miles from Prague) for
£275,000 and is investing £19 million to develop it into a no-frills and freight hub.
However, Ryanair has denied that it will open a base there (TTG, 2003: 14).
EasyJet has less bargaining power vis-à-vis airports because it is not a dominant carrier
at many of the airports it serves. Nevertheless, it has benefited from the economic
downturn and the problems of full-service carriers in its negotiations with airports.
Case studies on the impact of low-cost carriers on airports have been described by
Francis et al. (2003).
As they grow, low-fare airlines will probably be able to strengthen their bargaining
position, although their rapid growth and the completion of mergers will pose its own
problems. Moreover, no-frills airlines seem to have found new ways to leverage the
airline’s assets. Ryanair for example, is developing its website as a travel platform with
links to other companies (e.g. Hertz car rental) for which it receives a commission.
Quantification of the cost advantage

Several studies (e.g. CAA, 1998: 143-144; Doganis, 2001: 142-151; Binggeli et al.,
2002: 17) have compared the cost advantage of a typical low-cost carrier over full-
service carriers. Figure 2.5 provides a recent analysis by Lobbenberg et al. (2003b: 12).
Their study was based on data for easyJet and bmi British Midland for the year 2000
and revealed that the low-fare carrier’s costs are about 55% of the full-service carrier’s.
The main cost savings were derived from direct distribution, higher load factors, leaner
overhead and the absence of frills. Since easyJet increasingly concentrates on primary
airports and because discounts of airport charges are gradually unwinding, there is only
a small difference with bmi British Midland as regards airport charges.
Unfortunately, Malév Hungarian Airlines and LOT Polish Airlines could not be
included in the analysis due to lack of detailed information.
23
easyJet's cost advantage over bmi British Midland

100
90
3
80
Cost per passenger (£)
7 2
70 4 2
5
60
10
50 6
95 4
40
30
52
20
10
0
Midland
seating
Denser
High load
productivity
productivity
charges
service
In-flight
Distribution
Head office
Other
easyJet
British
Airport
factor
Aircraft
Crew
Source: Lobbenberg et al. (2003a: 33).
Figure 2.5: EasyJet’s cost advantage over bmi British Midland (FY2000)
Lobbenberg et al. (2003b: 13) have also compared the costs of easyJet and Ryanair
using data for 2002. Their findings are depicted in Figure 2.6. It is apparent that
Ryanair’s costs are only two thirds of its competitor. Lower airport charges account for
43% of the Irish airline’s cost advantage, while significant savings are also achieved in
maintenance and aircraft ownership. EasyJet, on the other hand, is more successful at
reducing costs through higher load factors.
Given that Ryanair’s costs are about a third of bmi’s costs, it is fair to say that low-cost
carriers on average have a cost base of about half those of full-service carriers. This is
in line with the findings of the other studies which calculated that costs of low-fare
carriers were between 41% and 48% of full-service carriers. This shows how LCCs are
able to charge low fares.
The importance of costs, rather than yields is emphasised by Michael O’Leary: “We do
not manage yields, we manage the load factor. Although Ryanair may periodically
experience declining yields, it also secures falling costs, suppresses its break-even load
factor, and therefore consistently turns a profit” (Lawton, 1999: 577).
24
Ryanair's cost advantage over easyJet

50
45
1 -1
Cost per passenger (£)
40
1 -4
35 6 1
2
30 3
25 4 1
42
20
15 28
10
5
0
easyJet
seating
Denser
High load
productivity
productivity
charges
Distribution
Head office
ownership
Maintenance
Other
Ryanair
Airport
Aircraft
factor
Aircraft
Crew
Note: Negative number denotes a cost disadvantage of Ryanair vis-à-vis easyJet.

Source: Lobbenberg et al. (2003b: 13).
Figure 2.6: Ryanair’s cost advantage over easyJet (2002)
Impact of stage length

Stage length (or ‘sector distance’) has an impact on an airline’s costs. Airline
economics textbooks describe how unit costs decrease degressively as the sector
distance increases (see e.g. Doganis, 2002: 128-133).
Figure 2.7 compares indexed direct operating costs (DOC) with indexed fare levels for
various sector lengths. On 20 August 2003 a snapshot of (inbound and outbound) fares
for 30 days out was obtained for six easyJet routes, and for each route an average of the
lowest available fares was calculated (see Appendix A).11 Although the averages
obtained in this way are not the same as the average route fares, comparing relative
levels of averages per route gives an indication of the airline’s ability to increase fares
on longer sectors. This assumes that booking classes and booking patterns are broadly
similar for the routes in the sample. As can be seen from the fitted curves, easyJet
seems to manage to increase its fares relatively more than the rate at which its direct
operating costs increase. For every extra 100 kilometre, the DOC index grows by about
These routes were: Belfast-Glasgow, London-Luton – Amsterdam, London-Stansted – Lyon, London-Luton –

11
Geneva, London-Luton – Madrid, and London-Luton – Athens.
25
8 index points and the fares index by about 9 index points. Thus, longer sector lengths
do not seem to negatively affect easyJet’s profit per flight.12
Growth of DOC and fares versus sector length

300
Index (Trip DOC @ 772 km = 100
250
= Fare @ 772 km)
200
R2 = 1.00 A319 75.5t DOC
150 Fare
100
R2 = 0.95
50
0
0 500 1,000 1,500 2,000 2,500 3,000
Sector length (km)
Note: 1,000 km ≈ 1h50 block time; 1,500 km ≈ 2h35 block time. DOC: Direct Operating Costs.
Source: Author, based on Airbus (2003) and fares compiled from http://www.skyscanner.net on 20/08/2003
Figure 2.7: Growth of DOC and fares versus sector length for easyJet
Nevertheless, the cost differential of low-cost carriers vis-à-vis full-service carriers

becomes smaller with increasing stage lengths (CAA, 1998: 142). Barkin et al. (1995:
93) point out that the advantage of faster turnarounds will become less important and
that better in-flight service may be needed. However, longer sector lengths also
increase the scope for LCCs to increase ancillary revenues (e.g. selling food on board).
Ultimately, the airline will have to weigh the benefits of increasing the average sector
length with the foregone revenue opportunities if an extra flight of shorter length were
to be added. Further research is needed to model this trade-off and to investigate
whether an ‘optimal sector length’ exists.
Seristö et al. (1997: 17) argue that apart from average sector length, variation may also
play a role. As part of a more general study on the drivers of airline costs using data
12Note that the slope rather than the position of the curves is important, i.e. the fact that the fare curve lies below the
DOC curve does not mean that short sector routes are unprofitable because the relative levels of two different
variables are compared.
26
from 42 airlines for the year 1991, they found correlation between the sector distance
coefficient of variation and operating expenses.13 In other words, airlines with a
network of very similar sector lengths appeared to have lower operating expenses than
those with highly varying sector lengths. It was calculated that when the coefficient of
variation of sector lengths was reduced by 0.1, the operating costs decreased by 7%
(Seristö et al., 1997: 21). Other relevant findings of the study were that (1) profitability
was chiefly determined by indirect operating costs, (2) fleet uniformity contributed to
good operating results, and (3) low utilisation was related to high operating expenses.
This study helps to explain why some low-cost carriers are successful today. However,
the analysis only pertained to one year (1991) and included a higher variation of sector
lengths because long-haul operations were included as well. Therefore, it may not be
valid to generalise the results.
Using the coefficient of variation measure, the networks of Ryanair and easyJet were
compared. Seristö et al. (1997: 16) suggest that calculating a weighted measure (e.g.
based on the number of passengers or flights) for the coefficient of variation does not
produce significantly different results from an unweighted measure, which is much less
laborious to calculate when using Official Airline Guide (OAG) data. As can be seen
from Table 2.6, easyJet has a higher coefficient of variation, which may be contributory
in explaining why Ryanair’s financial performance is better than easyJet’s.
EasyJet Ryanair
Unweighted average sector length (km.) 1,046 823
Standard deviation of sector lengths (km.) 507 376
Coefficient of variation 0.48 0.46
Source: OAG data for 2-9 June 2003
Table 2.6: Network parameters for easyJet and Ryanair
Some other key statistics on the respective networks can be represented graphically
using boxplots (see Figure 2.8). These summarise minimum, first quartile, median,
third quartile and maximum sector lengths for each carrier. Again, it is clear that
easyJet’s network has more variable stage lengths, which tend to be longer.
13 The coefficient of variation can be calculated by dividing the standard deviation of sector distances by their mean.
27
3,000
2,500 2,440
Sector length (km)
2,000
1,867
1,500 1,429
1,000 1,049 1,025

809
604
500 509
175 196
0
easyJet Ryanair
Note: Number of easyJet routes: 96; Number of Ryanair routes: 125.

Numbers show from bottom to top: minimum, first quartile, median (asterisk), third quartile, and
maximum sector length. Unit: kilometres.
Source: Author, based on OAG data for 2-9 June 2003.
Figure 2.8: Boxplot of easyJet and Ryanair network parameters.
2.4 Demand for low-cost air transport
2.4.1 Evolution of demand

Since Ryanair’s reinvention as a low-cost airline, demand for low-cost travel in Europe
has risen spectacularly. In the period 1996-2001, the European low-cost market grew
on average by 40% per year, whereas full-service carriers saw their number of
passengers increase by only 2%. RDC consultants estimated the number of passengers
travelling on European no-frills airlines above 20 million in 2002 (RDC, 2002: 5; 11).
In part, low fares divert passengers from full-service carriers and surface travel,
although the main impact comes from the stimulation and generation of demand
(Doganis, 2001: 151). Barrett (2000) presents case studies of mainly secondary
airports, providing evidence of significant traffic increases. He shows that low-cost
carriers often enlarge catchment areas significantly with their low fares, thereby
attracting people from further away. Their success is in general attributable to
exceeding the customer’s expectations at low prices. However, on a route by route
28
basis, Doganis (2001: 139) observes that growth rates often decrease after about three
years of very rapid growth.
Table 2.7 shows the no-frills market share evolution over the last three years for the
UK, split by domestic and international short-haul air travel. In just three years, low-
cost penetration jumped from about one fifth to well over a third in terms of passengers.
UK Domestic International (UK-EU)

February 2001 22.0% 21.6%
February 2002 30.4% 29.5%
February 2003 36.9% 38.4%
Source: Anker (2003b).
Table 2.7: Low-cost carrier passenger market share of air travel (2001-2003)
However, the UK low-cost market might be reaching saturation, as evidenced by recent

consolidation and declining yields. For example, during financial year 2002, revenues
per passenger decreased by 6% to £46.5 (€74) for easyJet and by 8% to €50 for Ryanair,
although traffic growth more than compensated, so that revenues grew strongly. In
FY2003, Ryanair reported an average fare of €46, i.e. a further decrease by 6%
compared to the previous year. Nevertheless, other analysts point out that there is still a
lot of potential in the rest of Europe, where low-cost travel hovers between 5 and 10%
(Lobbenberg et al., 2003a: 2; 30). Aviation Strategy (2002a: 5) calculates that the low-
cost share of the intra European scheduled market will surge from about 10% in 2002 to
33% by 2010. These predicted low-cost market shares are high compared to the ones of
the US domestic market (about 15-20%). These forecasts have been justified by (1) the
larger cost difference between European no-frills airlines and the flag carriers, (2) the
likely collapse of some full-service carriers, and (3) the larger scope for point-to-point
services rather than the use of hubs (Aviation Strategy, 2002a: 5). Ray Webster has
even claimed that: “In five to ten years all intra-European traffic will be on low-cost
carriers” (Flight International, 2002).
However, others reckon that even a 33% market share may be too optimistic. In this
respect, (1) the presence of a well-developed charter industry, (2) Europeans’ lower
propensity to travel, (3) the lower proportion of VFR traffic in Europe, (4) traditional
airlines adopting new practices, (5) the large proportion of ‘national businesses’, (6)
29
well-developed road networks, and (7) the spread of high-speed rail, are commonly
cited (Binggeli et al., 2002: 18).
2.4.2 Segments
In general, trips can be made for business, holiday or ‘visiting friends and relatives’
(VFR) purposes, each of which will briefly be discussed next (Doganis, 2002: 183).
Business travel
Business travellers are increasingly using low-cost carriers. Mason (2001: 108) found
that no-frills carriers have been able to attract passengers from traditional carriers, but
also that there is more business travel because of travel for speculative sales visits.
Nevertheless, evidence is also provided that business travellers switch between both
types of airlines. A survey by Company Barclaycard (2002) among a representative
sample of 2,500 business travellers in the UK revealed that 62% of them had used low-
cost carriers for business purposes – a doubling of the percentage in 1999. Of this
group, 86% stated that they would do so again. According to the IATA Corporate Air
Travel Survey (CATS) 2002, 57% of European business travellers using low-cost
airlines were fairly satisfied, while 28% claimed to be very satisfied. Sixty-two percent
of 120 European CATS respondents were willing to use a no-frills airline for their next
business trip while 15% did not know yet at the time of the survey (IATA, 2003b).
However, when Company Barclaycard (2002) gauged respondents for the airline they
used most frequently, 47% of them named British Airways, while easyJet and Ryanair
were quoted by only 6% and 3%, respectively. Of course, the fact that low-cost carriers
do not operate long-haul biased these numbers. EasyJet’s higher percentage compared
to Ryanair can be ascribed to the use of primary airports, higher frequencies and the
launch of a corporate booking engine on the website. Business travellers themselves
estimate that about 30% of short-haul business trips will be on no-frills airlines (Mason,
2002a: 62).
30
Holiday travel
As regards holiday travel, low-cost carriers have had the most significant effect on short
breaks.14 The impact of low-cost carriers has been twofold. First, they have made
already popular places more accessible and second, they have broadened the short
breaks market geographically by serving cities which had not been served or not
frequently. It is estimated that Britons made 5.6 million short breaks abroad in 2002,
i.e. about 15% of all UK holidays abroad. This number is on the rise, however, due to
changing travel habits (i.e. more frequent but shorter trips) and the stimulating effect of
no-frills carriers. By 2005, Britons are forecasted to total 7.2 million short breaks
abroad, thereby accounting for just below one fifth of their international holidays
abroad. Air transport is used for about 60% of UK short breaks abroad (Mintel, 2002).
Short breaks can be classified into four broad ‘themes’: (1) city breaks (about 50-60%
of the market in value terms); (2) activity breaks (e.g. visits to Disneyland Paris); (3)
sporting breaks (doing or seeing sports); and (4) cultural breaks (e.g. concerts,
exhibition, clubbing) (Mintel, 2002).
Plog (2001) argues that each holiday destination goes through a lifecycle, and appeals to
different types of visitors during every stage of this cycle. At the same time, however,
the evolution of visitor types who explore the place shapes its character and success.
Thus, there is a permanent interaction between the destination and its visitors.
There are no comprehensive statistics available on exact rankings of particular

destinations. Based on individual data provided by leading British operators, Mintel
(2002) compiled a list of the most frequently visited cities (see Table 2.8). It is,
however, certain that Paris is ranked in the first place, followed by Barcelona. Other
cities belonging to the European top 14 are shown in italics. Those cities which are
currently not served by easyJet or Ryanair are underlined. In this way, potential
opportunities for low-cost airlines become visible (e.g. Vienna, Porto). In view of the
EU enlargement the presence in the list of destinations in Estonia, Hungary, Latvia and
Poland gives a first indication of their potential attractiveness.
14 ‘Short break holiday’ or simply a ‘short break’, is defined by tourism research convention as a trip away from home,
which involves one, two or three nights in accommodation. Excluded from the definition are any other holidays –
‘long holidays’ – which last four nights or more (Mintel, 2002a).
31
Austria Belgium Denmark Czech Republic Estonia

Vienna, Salzburg Bruges, Brussels, Copenhagen, Prague Tall
Antwerp, Ostend Billund, Aarhus inn
Finland France Germany Gibraltar Greece
Helsinki Paris, Nice, Berlin, Munich, Gibraltar Athens
Bordeaux, Cannes Hamburg
Lille, Lyon, Monte
Carlo
Hungary Iceland Italy Latvia The Netherlands
Budapest Reykjavik Rome, Venice, Riga Amsterdam,
Florence, Bologna The Hague
Milan, Turin
Poland Portugal Republic of Spain Sweden
Warsaw, Krakow Lisbon, Oporto Ireland Barcelona, Madrid, Stockholm,
Dublin, Cork Alicante, Bilbao, Gothenburg
Jerez, Malaga,
Murcia, Palma,
Seville, Valencia
Switzerland Turkey
Geneva, Zurich Istanbul
Note: Underlined cities are not served by Ryanair or easyJet. Top 14 cities in italics.
Source: Based on Mintel (2002). Short Breaks Abroad; easyJet and Ryanair websites.
Table 2.8: European Countries and cities visited for short breaks abroad (2001).
Visiting friends and relatives (VFR)

Some observers estimate that the VFR market is essential for low-cost carriers because
this type of traffic offers large scope for growth. Market growth then mainly stems
from more frequent trips. Indeed, for this segment cost of travel is the most significant
expense on their trip, which makes their demand very price elastic. Thus, when lower
fares are available, more trips will be made (Guild, 1995). However, Lobbenberg et al.
(2003a: 11) note that there is less potential for VFR travel in Europe compared to the
US because people typically work in their own countries.
The impact of low-cost travel on the VFR market can be appreciated by considering
VFR traffic between the UK and Ireland. Between 1993 and 1999 traffic from Ireland to
the UK grew by 69% from 494,000 to 835,000. This resulted in an increase of the share
of Ireland as a VFR origin from 21% to 26%. The effect was even more spectacular for
VFR traffic from the UK to Ireland, which grew from 954,000 to 1.8m (+88%) during
32
that period. In 1999, 40% of VFR trips from the UK were to Ireland (1993: 34%)
(Mintel, 2000). Ryanair played a major role in this growth (Doganis, 2001: 135).
The UK VFR figures for a set of Eastern European countries were much lower in 1999:
94,000 to the UK and 174,000 from the UK, although these countries exhibited high
growth rates (+57% to and 77% from the UK).15 Reasons for the lower base are the less
strong ethnic links with some countries, the greater distance between the UK and these
countries, as well as the absence of low-cost air transport. Unfortunately, no separate
data are available for each of the countries. Nevertheless, a rough indication can be
obtained from other sources. Census data available for the year 2001 provide
information on the number of people born in Eastern Europe but living in the UK. This
source also presents figures for (only) Poles in the UK. According to the census there
were 239,934 native Eastern Europeans in the UK, of which 58,107 were Poles (Office
for National Statistics, 2003). Large concentrations of Poles can be found in Greater
London, the Midlands and the industrial North (Langlois et al, 1999: 465). For data on
Hungarians in the UK Mr László Takács, the Hungarian Consul in the UK was
contacted via e-mail. He provided an estimate of 20,000 to 25,000, and specified that
most of them live in and around London and in the Manchester/Liverpool area.
In order to assess VFR travel between the UK and Eastern Europe, data from the
Census 2001 on the number of ethnics in the UK were combined with information from
Mintel on VFR travel (the sum of outbound and inbound UK trips was used).
Figure 2.9 depicts a scatterplot of the six countries that matched, together with a line of
best fit for this sample. Aggregate information for Eastern Europe is depicted for
comparison purposes. It is clear that the number of trips taken by Eastern Europeans is
not in proportion when considering the number of ethnics born in the UK. Of course,
some distortions may have been introduced due to the use of two different years (1999
and 2001) and the availability of only six datapoints. However, the tentative conclusion
is that there seems to be some potential for more VFR travel to/from Eastern Europe.
15Mintel’s definition of ‘Eastern Europe’ includes Bosnia, Bulgaria, Croatia, Czech Republic, Slovakia, Hungary,
Poland, Russia, Slovenia and Yugoslavia.
33
Relationship between ethnics in the UK and VFR trips

Total yearly VFR trips to and from the UK 3,500,000
3,000,000
Republic of Ireland
2,500,000
R2 = 0.75
2,000,000
France
1,500,000
The Netherlands Germany

1,000,000
500,000
Spain Eastern Europe
Italy
0
0 100,000 200,000 300,000 400,000 500,000 600,000 700,000
Ethnics born in the UK
Source: Author, based on UK Census 2001 data and Mintel (2000).
Figure 2.9: Relationship between ethnics in the UK and number of VFR trips
2.5 Conclusions
Since the liberalisation of the EU market, low-cost carriers have seen dramatic growth
in the fifteen Member States, especially in the UK. This chapter has described their
characteristics and compared them with those of full-service carriers. Although there is
no single type of low-cost carrier, simplicity, efficiency, high productivity and asset
utilisation are common themes. In this way, their costs are typically half those of full-
service carriers, which enables them to offer low fares. As a result, demand has been
stimulated, not only for leisure travel but also for business purposes.
However, not all ventures have been profitable and the no-frills industry is currently in
flux. Ryanair and easyJet are established the longest, have posted the best results, have
recently taken over competitors, and have placed huge aircraft orders. Nevertheless, the
former is most aggressive at reducing costs by, among others, leveraging its bargaining
power at airports. This airline has also expanded more geographically. Whereas this
chapter has indicated the impact of (variations of) sector length, low-cost carriers also
take other factors into account when developing routes. These factors will be discussed
in the next chapter.
34
Chapter 3: Route development at low-cost carriers
3.1 Introduction
After the general discussion of low-cost carrier economics in the previous chapter, this
chapter builds on that knowledge to shed more light on low-cost carriers’ route
networks and how they go about selecting routes.
In June 2003, Anker (2003b) estimated that budget airlines offered 487 city-pairs, of
which about half were started in that calendar year. This begs the question as to why
new routes are launched. A first paragraph presents reasons for doing so. In another
paragraph it is discussed how easyJet’s and Ryanair’s network strategies differ and how
these determine the type of routes selected and the resulting network. Finally, the actual
process of evaluating and selecting individual routes is examined, drawing from
information obtained during interviews with managers of low-cost carriers. The names
and functions of the interviewees are included in Appendix B.
3.2 Reasons for new route development

Anker (2003b) identifies three main reasons why low-cost airlines decide to start new
routes. First, they may have spotted an opportunity. This can be an unserved niche or a
carrier may have withdrawn from the market. The low-cost airline may also feel
confident enough to compete with incumbent carriers. Second, setting up new routes
leads to growth and forms an alternative to adding frequencies on existing routes. In
this respect, there is a trade-off between the start-up costs of new routes and the dilution
of the profit margin of the route when frequencies are increased. Third, airports or local
governments may offer support to launch a route for their own economic interests,
although this may become increasingly difficult (cf. Footnote 8).
Of course, often a combination of the above reasons applies. It should also be noted
that ‘new routes’ may consist of the addition of entirely new destinations or may link
existing places in the network (‘joining the dots’).
35
Swan (2002: 350) argues that in general, competition will incite airlines to develop new
markets rather than compete with other airlines in existing markets. However, although
low-cost carriers sometimes open routes to unserved airports there is often indirect
competition on a given city-pair (e.g. London-Heathrow – Frankfurt-Main and London-
Stansted – Frankfurt-Hahn). Moreover, some passengers may be indifferent to certain
destinations if their primary objective is to go on a short break abroad cheaply (Doganis,
2001: 156). This may not only increase price competition among airlines, but may also
result in cannibalisation of routes at one airline. Some analysts estimate that the latter
effect is increasingly becoming a problem for low-cost carriers, but it is difficult to
estimate the impact of it (Hind, 2003).
easyJet Ryanair
20/08/2003 31/12/2007 20/08/2003 31/12/2008
Number of routes 106 252 127 282
Number of aircraft 69 164 59 131
Routes per aircraft 1.54 1.54 2.15 2.15
Note: See Appendix C for calculations.
Table 3.1: Projected fleet and number of aircraft for easyJet and Ryanair
The rationale for new route development can sometimes be predominantly supply-
driven. For example, at Ryanair, the yearly number of new routes depends on the
amount of aircraft that will be delivered as well as on the number of bases that the
airline opens (Berger, 2003). Assuming that the number of aircraft remains constant for
a given business model and in view of their fleet projections, this means that between
August 2003 and December 2007 easyJet will launch 4.9 new routes per month on
average. For comparison, easyJet added an average of 2.3 new routes per month
between January 2001 and August 2003. Similarly, Ryanair will start 4.4 new routes
per month on average between August 2003 and December 2008. Between January
2001 and June 2003 it added 2.7 routes on average (see Table 3.1 and Appendix C).16
Figure 3.1 compares the number of destinations of Ryanair and easyJet over time. As
can be seen, the evolution follows a similar trend for the two airlines from the year 1995
onwards. EasyJet’s pattern is less steady, however, as periods of moderate growth are
sometimes followed by rapid increases. With even higher growth expected for the
16 Note that this includes the acquisitions of Go and Buzz by easyJet and Ryanair, respectively.
36
future, it is important that these carriers select routes with sufficient potential if they are
to maintain past profit margins. If marginal routes are selected or too much capacity is
introduced on a city-pair, yields may come under pressure (Lawton, 2002: 53). It can
also be seen that easyJet’s number of routes is generally lower than Ryanair’s, even
though both carriers are transporting similar numbers of passengers. Indeed, easyJet
aims to offer high frequencies on its network. This difference of network strategies will
be discussed next.
Number of routes (1988-2003)

140
120
Number of routes
100
80 Ryanair
easyJet
60
40
20
0
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Year
Source: EasyJet website (August 2003); Ryanair information kindly provided to Author by the company.
Figure 3.1: Comparison of the evolution of easyJet and Ryanair routes
3.3 Network development strategies

Different airlines have selected different places to fly to. Table 3.2 shows a generic
matrix of route types, representing a combination of departure airports of different sizes
and the type of cities airlines serve from these airports. Examples of routes are also
provided. Although exceptions can be found, easyJet in general serves major cities that
can support high frequencies, while Ryanair opts for less well-known destinations.
37
From/To Major cities Minor cities

Capital airports LGW-BCN (easyJet) DUB-BLK (Ryanair)
Major regional airports STN-EDI (easyJet) STN-OST (Ryanair)
Minor regional airports BRS-NCE (easyJet) HHN-KIR (Ryanair)
Note: LGW: London-Gatwick; BCN: Barcelona; STN: London-Stansted; EDI: Edinburgh; BRS: Bristol;
NCE: Nice; DUB: Dublin; BLK: Blackpool; OST: Ostend; HHN: Hahn; KIR: Kerry.
Source: adapted from Anker (2003b).
Table 3.2: Low-cost carrier network strategies
Table 3.3 summarises some network characteristics of both carriers. On average,

easyJet has 4.8 daily frequencies per city-pair, while Ryanair has 3.8. This is still well
below role model Southwest (6.8). When average daily frequencies at the airport level
are calculated, it becomes clear that easyJet offers more departures per airport (13.2)
than Ryanair (5.5). Thus, easyJet’s network is more interconnected, although this ratio
is again low compared to Southwest Airlines (31.9).
High frequencies at the route and airport level result in a denser network. As a result,
market share may rise proportionally more than the increase in frequencies (S-curve
effect). More frequencies at a given airport also enable the airline to spread costs
(Pollack, 1982: 152).
Average daily Avg. daily

Weekly Number of Number of
frequencies frequencies
frequencies city-pairs airports
per city-pair per airport
EasyJet 3,225 96 4.8 35 13.2
Ryanair 3,388 128 3.8 88 5.5
Southwest Airlines 18,556 389 6.8 83 31.9
Source: OAG schedules June 2003 (accessed via ATI).
Table 3.3: Network density of three low-cost carriers
EasyJet’s dense network contrasts with Ryanair’s strategy of maximising the number of
city-pairs (Lawton, 2002: 52). These differences in strategy reflect divergent views on
first-mover advantages. Ryanair wants to build its presence in Europe quickly, whereas
easyJet concentrates on a high-frequency network first. Although easyJet recognises
that first-mover advantages may exist, it is deemed that the costs of flying to new
destinations often outweigh the benefits. Therefore, easyJet only adds one or two
38
destinations per year. Ryanair incurs less costs when adding destinations because of the
often favourable conditions at secondary airports (Berger, 2003; Fanning, 2003).
Apart from having developed a network with a wide range of destinations, Ryanair
typically also is the dominant airline on many of its routes, which are generally thin.
EasyJet by contrast, faces more competition and operates on denser routes (Mason,
2002b). Binggeli et al. (2002: 16) note that the share of routes where a low-cost carrier
is the only airline has increased from 22% of all operated routes in 1999 to 33% in
2002. In general, it has been found that the number of routes and airports with more
than one low-cost carrier is limited, suggesting that first-mover advantages may make it
difficult for new low-cost entrants to set up routes in markets which are already served
by other no-frills carriers (Francis et al., 2003: 269). Similarly, a well-known brand,
critical mass and resulting economies of scale in operations and marketing are believed
to be important barriers for new entrants (Berger, 2003).
An important aspect of network structure is its concentration. If one considers the top
ten airports in the networks of Ryanair and easyJet, one finds that these account for
72.8% and 70.2% of departing passengers, respectively (Table 3.4).
Ryanair EasyJet
Airport Daily departure share Airport Daily departure share
London-Stansted 29.4% London-Stansted 12.0%
Dublin 12.5% London-Luton 11.8%
Frankfurt-Hahn 7.6% Belfast 7.2%
Brussels-Charleroi 5.3% London-Gatwick 6.9%
Milan-Bergamo 5.1% Edinburgh 6.2%
Glasgow-Prestwick 4.2% Liverpool 6.2%
Rome-Ciampino 2.4% Amsterdam 5.5%
Paris-Beauvais 2.1% Geneva 5.3%
Gerona 2.1% Glasgow 4.9%
Pisa 2.1% Bristol 4.2%
Total 72.8% Total 70.2%
Source: Calculations by Author based on Lobbenberg et al. (2003a: 58) and data provided by easyJet.
Table 3.4: Ryanair and easyJet top 10 airports in terms of passenger departures
Although this indicates that Ryanair’s network is more concentrated, the difference is
only minor. Another concentration measure would be better able to capture the
different spread of daily departure shares, similar to how the Hirschmann-Herfindahl
39
Index is used to assess concentration on the market level. If we define the ‘Network
Concentration Index’ (NCI) as the sum of the squared daily departure shares across an
airline’s network then Ryanair and easyJet have values of 11.9% and 6.2%,
respectively.17 Thus, it becomes apparent that Ryanair’s network is much more
concentrated than easyJet’s, i.e. Ryanair relies on relatively fewer high traffic bases.
Nevertheless, the NCI measure does not take into account differences in geographical
spread of bases. While only three out of Ryanair’s top ten destinations are located on
the British Isles, this is eight out of ten for easyJet. Thus, in geographical terms,
easyJet’s network is more concentrated.
Ryanair has indicated that it wants to open more bases and that it does not rule out
airports in Eastern Europe. Several Eastern European countries have already been
considered, including Poland, Hungary, Slovenia, Croatia and the Baltic States.
Although the airline is flying to some relatively small destinations in Continental
Europe, it has declared it focuses on capitals and provincial cities in Eastern Europe.
(Berger, 2003). Ceteris paribus, this will decrease its network concentration and
increase its geographical scope even more.
Sector length is considered to be an important factor in the network. In Section 2.3.5

the cost implications were discussed. Both easyJet and Ryanair see flights of three hours
as the limit, because it otherwise becomes difficult to achieve four daily rotations per
aircraft and revenue opportunities are lost (Berger, 2003; Fanning, 2003; Hind, 2003).
In general, Ryanair sets up routes from Stansted. There are exceptions, though, for
instance the service between Stockholm-Skavsta and Tampere. However, the airline
does not exclude that it will launch new cities from its bases outside the British Isles
(Berger, 2003). EasyJet by contrast, has traditionally launched routes from all its bases
and does not necessarily launch routes out of London first. Route development
priorities for the Luton-based airline focus on linking destinations in the current
network and on high-demand new destinations. In a second phase, domestic markets
will be tapped. It is only after this that Eastern European markets will be exploited,
because the economies in these countries are believed to be not sufficiently developed
17 NCI can vary between 0% and 100%. A higher NCI value indicates a higher network concentration. Burghouwt et
al. (2003) suggest that the use of the Gini Index is an alternative method to measure network concentration.
40
and the market is believed to be too risky at present. Nevertheless, talks have been held
with airports in the region (Fanning, 2003).
Table 3.3 summarises easyJet’s overall network strategy. ‘Micro’ and ‘macro’ refer to
the level at which developments are taking place, while ‘tactical’ and ‘systematic’
pertain to the extent to which the decisions flow from taking advantage of opportunities
or from systematic planning. Whereas at present the focus is on the tactical level, about
80% of the attention will be devoted to planned route development in the future.
Micro Macro
 Paris Orly  Collapse of Swiss?
Tactical
 London Gatwick  Collapse of Olympic?
 Evaluation of ‘top European cities’
Systematic  10 routes ‘Joining the dots’
 EU enlargement
Source: Fanning, 2003; ‘EU enlargement’ added by Author.

Figure 3.2: easyJet network strategy
3.4 Evaluation of air routes
3.4.1 Evaluation of demand characteristics

In contrast with full-service carriers, route selection of no-frills airlines is mainly a
qualitative exercise. Especially when there has been no air transport link between cities
before, considerable judgement has to be exercised to determine future profitability.
This is often the case for Ryanair who assess interactions and mutual interest between
city-pairs to decide on routes. The Irish carrier does not use forecasting models. Nor
are any macro-economic variables explicitly taken into account, because the carrier
believes that it can grow a route based on low prices, supported by advertising. Thus, it
is often decided to take the risk and “have a go” (Berger, 2003). The risk is mitigated
by the fact that (1) Ryanair closes favourable deals on landing charges and marketing
support (which may even influence route decsisions), (2) the airline’s low cost base
enables it to lower fares to stimulate demand, and (3) linking the destination with other
41
airports in the network is less of a priority, so only one route at a time has to be
assessed. However, some of its agreements with airports specify that additional routes
will be opened over time.
During the interview with Mr Berger, Ryanair director ‘new route development’, the
Repertory Grid technique was used to discover which destination characteristics are
considered. Thus, a set of cards was prepared with three names of cities currently
served by LCCs written on each card. The manager was then asked to indicate two
destinations which were most similar and two destinations which were the most
dissimilar, and why this was so. An opportunity was given to specify the strength of
(dis)similarity. The purpose of this technique was to make decision criteria more
explicit.18 The following features were discovered (groups identified by the Author).
 Cultural factors: history, architecture, events, city image, beer price and quality,
opportunity for stag nights, food quality, ‘undiscovered’ city
 City size
 Climate
 Seasonal characteristics of the destination 19
Route evaluation at Go tended to be more formal, although the emphasis was also on
qualitative aspects. Typically, reasons for going to a certain destination and other
characteristics about the city were gathered. Such a shortlist included for instance:
 Number of museums
 The presence of theme parks, exhibitions, etc.
 Attractiveness for stag nights
 Possibility to practise hobbies
 Number of times mentioned in travel programmes on television
 Current trends and hypes
Broadly speaking, this qualitative assessment was similar to that of Ryanair.
18 At the same time, this exercise contributed to identifying similar cities for the forecasting part of this thesis (Section
7.3). See De Pelsmacker (1999) for more details on the technique.
19 Although seasonality has an impact on the number of passengers, Ryanair has found that it can achieve load
factors of 70% with VFR traffic, business passengers or owners of holiday homes during troughs (Berger, 2003).
42
The quantitative evaluation took elements such as gross domestic product (GDP), traffic
mix, alternative transport modes, indirect routings, propensity to travel, price elasticity
of demand, number and type of incumbents, existing fare levels and offered capacity
into consideration. Exchange rates were another factor, as they not only impact airline
profits but also the destination’s appeal to travellers.
Different destinations were then rated on the various qualitative and quantitative
characteristics and ranked according to attractiveness. However, Go often took risks
when it entered routes (Anker, 2003a; Anker, 2003b).
Go’s price levels were based on fares of comparable routes and, if possible, by looking
at fares between existing bases and the city in question. Nevertheless, stimulation
effects varied considerably by route (Anker, 2003a). Ryanair, by contrast, reckons that
it can stimulate traffic for any destination by lowering fares (Berger, 2003).
EasyJet on the other hand, adheres to a more cautious strategy as regards selecting new
destinations. Indeed, the airline has only added four new cities from January 2001 until
August 2003 (Newcastle, Paris, Toulouse, and Marseille), apart from the fifteen new
destinations it acquired through the merger with Go and which the latter had already
proven. Moreover, those four new cities are located in two countries that easyJet was
already serving, the UK and France. However, easyJet extensively ‘connects the dots’.
In general, this airline looks for favourable entry costs and large catchment areas. Flight
time, flight schedule, alternative modes of transport, price sensitivity of customers and
travellers’ value of time are all factors influencing the size of catchment areas. In
reality, catchment areas will vary over time and depend on the route.
Gross domestic product per capita, economic growth rates, major employers and degree
of unemployment are also considered by easyJet when evaluating routes. For the
airline, existing traffic flows with high demand are most appealing. However, similar to
Go, easyJet’s experience has learnt that not all markets are equally ‘expandable’
(easyJet, 2003; Fanning, 2003).
EasyJet does not use any advanced analytical tools to estimate demand. However,
starting from the relative cost difference with an incumbent carrier, an average fare is
assumed and the potential demand derived, based on assumptions of what in essence are
demand elasticities. A load factor of 85% is aimed for, although revenue forecasts are
43
more important. If revenue for a particular route is higher than expected, an extra
frequency will be added (Fanning, 2003).
Assumptions play an important role in forecasts. Airline route development consultants

use a stimulation factor which depends on the route type and which can be as much as
100%. This factor is based on price differences, changes in capacity, the type of market
(share of business and leisure passengers), and subsitute availability. Experience is also
an important input. While the Quality of Service Index (QSI) is used to predict market
shares, regression analysis is employed less to forecast route traffic (Hind, 2003).
No-frills airlines often require airports to provide a detailed breakdown of the type of
traffic (i.e. full-service, no-frills, and charter). Route opportunities should be specified
too, including traffic characteristics such as traffic mix, carrier types and history of
routes (easyJet, 2003). In this way, the route evaluation process is partially outsourced
to the airports.
Analytical Judgement,
methods and tools destination uncertainty
Low-
Low-cost carriers
QUALITATIVE PROCESS
QUANTITATIVE PROCESS
easyJet
Go
Ryanair
Full-
Full-service carriers
Note: Only the order of the set of airlines is indicated. The airline names should not be interpreted as
scaled on an interval, i.e. no conclusions should be drawn from the ‘distances’ between the names.
Source: Author, based on interviews with managers at low-cost carriers.
Figure 3.3: Approaches to evaluate demand during the route selection process
Figure 3.3 summarises the different approaches of selecting routes used by LCCs and
compares this to traditional airlines. Anker (2003b) provides evidence of some
riskiness of Go’s route selection strategy: while the latter launched fifty-one routes
between May 1998 and October 2002, eleven were discontinued. By contrast, easyJet
have only dropped two routes. Although Ryanair faces more uncertainty in the sense
44
that city-pairs often have not been served before, it manages this risk because of the
reasons outlined at the beginning of this section. Thus, as a no-frills carrier, it has
completely discontinued only one route after launching it (London-Stansted – Rimini).
Full-service carriers, on the other hand, approach route development in a more
quantitative fashion. Carriers with extensive networks, for example, use computer
models to assess the interaction between an additional route and the rest of the network
(Berger, 2003).
3.4.2 Evaluation of infrastructure

EasyJet and Ryanair have declared that they negotiate with airports in countries that are
or will be member of the EU. In June 2003, easyJet launched an advertising campaign
in newspapers and magazines in the EU-15 asking for airports to tender.20 The fact that
only current EU countries were included, reflects easyJet’s reluctance to expand into
Eastern Europe in the near future. In this campaign, the airline emphasised the
importance of efficient, low-cost infrastructure. Given that the airline mainly flies to
primary airports, the availability of slots is required. Ideally, the airport should be able
to handle up to six easyJet aircraft simultaneously and ten on a daily basis (easyJet,
2003).
Since low-cost carriers require less or cheaper airport infrastructure and use it more
efficiently, they demand reduced fees and charges. Marketing support often also forms
part of the negotiated package. In this respect, it is easyJet’s experience that size
matters during negotiations (Fanning, 2003; easyJet, 2003; see Section 2.3.5).
Ryanair is believed to be talking to about 40 airports at any one time all over Europe
(Francis et al., 2003: 269). Although many airports contact Ryanair, these do not cover
all the airports Ryanair wants to serve (Berger, 2003).
Of course, airports should be technically compatible with the airline’s operations, i.e.
sufficient runway length and adequate navigational aids should be available. This is
less of a problem for the airports easyJet is flying to, but Ryanair pays closer attention
to this issue. The latter tracks airports in a database with an indication of the suitability
for operating Boeing 737-800 aircraft into these places (Fanning, 2003; Berger, 2003).
20 The text as found on the easyJet website is included in Appendix D.
45
The availability of adequate ground transportation and hotel infrastructure at the

destination is also necessary, but this is not considered to be a top priority in the
decision process. For easyJet, the presence of infrastructure often flows from the size of
the cities it chooses. Ryanair seems to attach somewhat more importance to these
aspects because the airport is often some distance away from the city centre and because
traffic increases may put strains on accommodation. Moreover, at some destinations
hotels are not open year-round. It is, however, believed that over time, market forces
will absorb excess demand (Berger, 2003; Fanning, 2003).
3.4.3 Evaluation of distribution channels

Although low-cost carriers rely on direct distribution to get their products across,
easyJet and Ryanair do not consider the penetration of Internet technology and credit
cards a critical factor in the route evaluation process. EasyJet points out that the
markets in which they are present, are characterised by high usage and growth rates of
these booking instruments. Ryanair, on the other hand, is confident that the fares are
low enough to urge people to start using the Internet or to make their own arrangements.
In this respect, they refer to the evolution in Western Europe and to the fact that new
booking methods are established among young and educated people (Berger, 2003;
Fanning, 2003).
3.5 Conclusions
Low-cost carriers launch new routes for various reasons: to fill a ‘gap in the market’, to
achieve corporate growth, or to benefit from route support. For Ryanair, supply-related
and operational factors, as well as financial aid, play an important role in their
expansion. As a result, the airline mainly flies to regional airports. EasyJet, by contrast
predominantly serves major airports, and aims to spread costs by linking its destinations
and by offering high frequencies per route. Using the Network Concentration Index, it
has been demonstrated that Ryanair’s network is more concentrated than easyJet’s, with
the latter serving fewer airports. Ryanair has expanded more in Continental Europe and
is considering further eastward development.
46
Based on interviews with managers at low-cost airlines, it was found that differences in
network strategy clearly influence the actual route evaluation process, even though all
managers stressed the qualitative nature of selecting new routes. The destination
characteristics that play a role for each carrier have been outlined. Moreover, the extent
to which quantitative techniques are used, varied by carrier.
Ryanair faces the highest degree of uncertainty, not only because it adds more
destinations, but also because the routes are often entirely new and because
infrastructural issues have to be considered as well. However, the risk for the Irish
airline is compensated by favourable agreements with airports, the lower importance of
each individual destination in the network, and its ability to offer low ‘stimulation’ fares
based on their low cost base. The airline also often enjoys first-mover advantages at
destinations. Such advantages are believed to be beneficial for low-cost carriers.
EasyJet, by contrast, is more cautious given the importance each individual city has in
its network, and performs a detailed assessment of potential airports and catchment
areas.
Nevertheless, in view of the large amount of aircraft that will be introduced by easyJet
and Ryanair, the number of new routes added per month will have to be increased. This
will also increase the need to find new destinations. The next two chapters introduce
information on the Hungarian and Polish markets in order to assess whether they satisfy
the criteria set by low-cost carriers.
47
PART 2:
HUNGARY AND POLAND
48
Chapter 4: Country profiles of Hungary and Poland
4.1 Introduction
After the previous two chapters have shed light on low-cost carriers and how they select
routes, the next step is to provide insight into the countries in this study. This chapter
starts with a geographic overview, followed by a brief outline of the steps both countries
have taken in the EU accession process. Next, an analysis of some key economic
indicators is presented. Finally, Internet penetration, the usage of credit cards and the
propensity to buy online is assessed. Throughout this chapter, performance is
benchmarked with other countries.
4.2 Geographic overview
4.2.1 Hungary
Hungary is centrally located in Europe at the crossroads of Western Europe, Eastern
Europe and the Balkans, which makes it a potential transport hub to connect traffic from
all directions (Figure 4.1).
Source: CIA (2003).

Figure 4.1: Map of Hungary
49
With an area of 93,030 square kilometre, it is slightly larger than Ireland and Northern
Ireland together. The country is landlocked and borders seven countries, i.e. Croatia,
Slovenia, Austria, Slovakia, Ukraine, Romania and Serbia. Just over ten million people
live in Hungary, which is equivalent to 109 residents per square kilometre (World
Gazetteer, 2003a). Its road network is good and needs less rehabilitation than in most
other countries of the former Soviet bloc. (WMRC, 2003b: 38; 41).
Budapest is Hungary’s capital and lies on the banks of the Danube river. Apart from
being the country’s largest city by far, Budapest is also the main economic and cultural
centre. Table 4.1 gives an overview of the five largest cities in the country. It can be
seen that 17% of the population lives in the capital, whereas the other cities are much
smaller. Debrecen was the capital of Hungary during 1848-1849 and the Second World
War, and is the trade centre of a major agricultural region (EC, 2003a).
Place Administrative Division Population % of total population

Budapest Budapest 1,769,500 17.5%
Debrecen Hajdú-Bihar 210,500 2.1%
Miskolc Borsod-Abaúj-Zemplén 182,600 1.8%
Szeged Csongrád 173,200 1.7%
Pécs Baranya 163,900 1.6%
Source: World Gazetteer (2003a).
Table 4.1: Hungary’s five largest cities in 2003
Over time, the bulk of investment has taken place in Budapest and the northwest of the
country, i.e. along the axis Budapest-Vienna. The eastern part, by contrast, is still
mostly rural and is less developed. This has led to an increasing wealth gap between the
east and west of the country (WMRC, 2003b: 8; 21). Thus, both population and the
economic activity are concentrated in the northwest of the country.
4.2.2 Poland
Poland is the largest Candidate Country with a population of 39.4 million, i.e. 53% of
all people joining the EU in 2004. (WMRC, 2003a: 2). It has an area of 312,685 square
kilometres – sligthly larger than Italy. Population density is 124 inhabitants per square
kilometre, which is between the EU-15 average of 155 and Hungary’s 109. In the south
of the country lies the Carpathian mountain range, while in the north the country has
access to the Baltic Sea. Gdansk is Poland’s most important seaport.
50
Just as Hungary, the country is surrounded by seven countries: Russia (Kaliningrad),

Lithuania, Belarus, Ukraine, Slovakia, the Czech Republic and Germany (Figure 4.2).
Ground transportation in Poland is relatively poorly developed; both road and rail
networks are often old and deficient. Currently, investment programmes are being
drawn up, however. For example, the World Bank is supporting a rehabilitation
programme for the rail network, while the government is planning to grow the at present
limited motorway network to 2,500 kilometers by the year 2010 (WMRC, 2003a: 44).
Source: CIA (2003).

Figure 4.2: Map of Poland
Warsaw, the Polish capital, counts 1.6 million inhabitants, and is the country’s
economic and political centre. Although the centre of Warsaw has been restored in its
original state after most of it had been destroyed during the Second World War, Krakow
is generally considered as the cultural heart of Poland. The latter is the country’s third
largest city and has played an important cultural role since the Middle Ages. In 2000,
Krakow was the European City of Culture (EC, 2003a).
Poland counts several other sizable cities which are of European importance, e.g. Lódz,
Poznan and Wroclaw. The port city of Gdansk (cf. supra) numbers around 460,000
51
inhabitants and is the sixth largest city. However, together with nearby Gdynia and
Sopot it forms the ‘Tri-City’ with 758,000 inhabitants. Table 4.2 summarises data for
Poland’s five most populated towns. In comparison with Hungary, there are more
larger cities. Nevertheless, Budapest outnumbers Warsaw by about 200,000 people.
Place Administrative Division Population % of total population

Warsaw Mazowieckie 1,607,600 4.1
Lodz Lódzkie 778,200 2.0
Krakow Malopolskie 733,100 1.9
Wroclaw Dolnoslaskie 632,200 1.6
Poznan Wielkopolskie 581,200 1.5
Source: World Gazetteer (2003b).
Table 4.2: Poland’s five largest cities in 2003
4.3 EU accession
By 1989, communism had collapsed in Hungary and Poland, and both countries rapidly
recognised the importance of establishing trade links with Western Europe. Thus, the
two Eastern European countries concluded an agreement to become member of the
European Free Trade Association (EFTA) in 1991. This agreement covered trade-
related issues, political dialogue, the legal environment and other areas of co-operation
(e.g. transport). One of the objectives was to evolve to a free-trade area with the EU.
In March 1994, Hungary was the first country of the region to formally apply for EU
membership. One month later, Poland followed their example.
In 1997, it was decided that the so-called ‘Luxembourg Six’ countries (Cyprus, Czech
Republic, Estonia, Hungary, Poland and Slovenia) were eligible to participate in the
accession negotiations.21 Discussions with Poland and Hungary were launched in
March 1998. Since then, the countries have participated in several meetings of the
Accession Conference at ministerial level (WMRC, 2003a; WMRC, 2003b).
On 13 December 2002, the current fifteen EU members and the Candidate Countries
reached an agreement in Copenhagen on the modalities for the admission of ten new
member states to the Union. The Accession Treaty was signed in Athens on 16 April
21In December 1999, six additional countries (the ‘Helsinki Six’) joined the accession negotiations. These countries
were Bulgaria, Latvia, Lithuania, Romania, Slovakia and Malta.
52
2003, which allowed these ten countries to join the EU on 1 May 2004. The Treaty was
ratified in Hungary and Poland by means of referenda.
In Hungary, the plebiscite took place on 12 April 2003. Forty-six percent of voters
turned out and 83.8% voted in favour of joining the EU. In Poland, the referendum was
held on 7 and 8 June 2003. Although the turnout was higher than in Hungary (58.9% of
voters), somewhat less people voted ‘yes’ to EU accession (77.5%) (EC, 2003b).
Initially, it was intended to include the ten new member states in the European Common
Aviation Area (ECAA), the single European aviation market, before they would join the
EU. However, progress of the ECAA has been slow (Baker, 2002b). Thus, at present it
seems unlikely that ECAA enlargement will take place before May 2004, so the single
European aviation market will effectively enter into force from that date onwards as part
of EU legislation.22
4.4 Economic performance
4.4.1 Gross domestic product

Gross domestic product is an important indicator of economic activity of countries and
has been found to correlate with the amount of travel undertaken (e.g. Airbus, 2002:
14). The performance of Hungary and Poland was gauged by comparing with two EU-
15 countries of similar population size. These states were Belgium (10.3 million
people) and Spain (39.5 million inhabitants), respectively. The Czech Republic,
Germany and the UK were included as well to allow regional and further EU-wide
comparison. Due to the differences in cost of living across the countries, purchasing
power parities (PPP) were used (see Figure 4.3).
22As an exception, Hungary and Lithuania were allowed a transition period for the adoption of European aircraft
noise regulations.
53
GDP at PPP (2000-2001)
Germany
United Kingdom
Spain
2001
Poland
2000
Belgium
Hungary
Czech Republic
0 250 500 750 1,000 1,250 1,500 1,750 2,000 2,250

International USD (000)
Source: Author based on Euromonitor (2003) data.
Figure 4.3: Comparison of GDP at PPP of selected countries
Of the three Eastern European countries depicted, Poland had the highest GDP. Indeed,
this country accounts for 46% of GDP of the Accession Countries (ACC).
Nevertheless, although Poland counts four times as many inhabitants as Hungary, its
GDP is only about 2.7 times as high. Significant differences remain with current EU
members, as both Hungarian and Polish economic output was only about 45% of
equally populated EU countries.
Hungary’s GDP per capita measured using the purchasing power standard (PPS) was
around 11,200, i.e. 28% higher than the 8,800 figure for Poland. 23 Clearly, the nature of
activity plays a role. Twenty-two percent of the Polish working population is employed
in agriculture; the percentage equals almost 50% in the east of the country. By contrast,
in Hungary 6% of employed people works in agriculture (WMRC, 2003a: 16; EC,
2003b).
Diverging unemployment rates also help to explain the difference in GDP per capita.
While in 2002 only 5.2% of the economically active population in Hungary was jobless,
23 PPS (Purchasing Power Standard) is the artificial common currency unit used in the European Union to express
the volume of economic aggregates for the purpose of cross-country and regional comparisons. National currencies
are converted to PPS by conversion rates called PPP (Purchasing Power Parities) which eliminate the differences in
price levels between countries in the process of conversion (EC, 2003b). Note that Eurostat use their own definition
of PPP, which results in small differences compared to the data in Figure 4.3.
54
this figure amounted to a considerable 18.9% in Poland. In comparison, the EU average

was 6% (Euromonitor, 2003). Moreover, economists do not expect Polish
unemployment to decline (WMRC, 2003a: 26).
Within one country there are also differences of regional GDP. Table 4.3 lists the
regions in Hungary and Poland along with their GDP per capita. When comparing the
most affluent regions in the two countries – which coincide with the capital regions –
Hungary dominates. Indeed, Kozep-Magyarorszag is Hungary’s centre of industrial
activity and accommodates almost a third of the Hungarian population. Unemployment
in this region is only 2% (Infobase, 2002). However, GDP per capita of Kozep-
Magyarorszag is well below that of the Prague region (27,350). GDP per capita for the
Czech Republic as a whole (12,700) is also higher than the national Hungarian figure.
In comparison, average EU-15 GDP per capita was 22,603 (Behrens, 2003: 3).
Hungary 11,227 Poland 8,783

Central Hungary 17,094 Mazowieckie 13,316
Western Transdanubia 12,788 Slaskie 9,667
Central Transdanubia 11,279 Wielkopolskie 9,365
Southern Transdanubia 8,401 Dolnoslaskie 9,080
Southern Great Plain 8,070 Pomorskie 8,832
Northern Hungary 7,251 Zachodniopomorskie 8,666
Northern Great Plain 7,123 Lubuskie 7,879
Kujawsko-Pomorskie 7,875
Malopolskie 7,842
Lodzkie 7,791
Opolskie 7,506
Swietokrzyskie 6,872
Warminsko-Mazurskie 6,546
Podlaskie 6,528
Podkarpackie 6,248
Lubelskie 6,019
Note: Amounts expressed using PPS Eurostat definition. See Appendix E for location of regions.
Source: Behrens (2003: 3).
Table 4.3: Regional GDP at PPP per capita in Hungary and Poland (2000)
In terms of real GDP growth, the Eastern European countries under consideration
performed generally better than their Western European counterparts although there
have been marked fluctuations in their growth. Hungary exhibited the highest average
yearly growth rate over the period 1998-2002 (4.3%). Growth in 2002 declined slightly
to 3.3%, down 1.9 percentage points compared to the top growth of 5.2% in 2000. For
55
the period 2003-2007, growth rates of about 4% have been forecast (WMRC, 2003b:
12).
During 1998-2002, Poland averaged growth rates of 3.0% per year, although they have
been declining in recent years. Thus, while growth was 4.8% in 1998, it decreased to
4.0% in 2000 and dropped significantly in 2001 to just 1.0%, as it suffered from the
economic downturn in Germany. However, it is expected that growth will pick up
again, reaching levels of between 3% and 4% per year over the period 2003-2007.
Some observers are convinced that the country offers the greatest potential in Eastern
Europe because of its large population and its high GDP (WMRC, 2003a: 2; 16).
Personal disposable income is another relevant economic indicator, especially because

of its impact on leisure travel. According to this measure, a significant gap exists
between Eastern and Western Europe (Figure 4.4).
Yearly disposable income per capita
EU-15 average
United Kingdom
2002
Poland 2001
2000
Hungary
Czech Republic
0 5,000 10,000 15,000 20,000

EUR
Note: year-on-year exchange rates were used.

Source: Author, data compiled from Euromonitor (2003).
Figure 4.4: Comparison of yearly disposable income per capita in selected countries (2000-2002)
For example, whereas average personal disposable income in the EU-15 hovered around
EUR 14,800 per capita in 2002, this was only about EUR 3,700 in Poland and EUR
3,500 in Hungary. In the Czech Republic the figure amounted to EUR 4,300. Thus,
personal disposable income per capita in these Eastern European countries was only
around a fourth of the EU-15 average. Clearly, this has implications for the prospects to
56
travel and purchasing power in other countries. For example, a return flight with
Ryanair on average costs €92 and will thus require a representative Hungarian to spend
between 32% of his monthly disposable income. This is 30% for the average Pole.
Propensity to travel will be further analysed in Section 5.6.
Galgóczi (2002: 42) shows that real wage developments in the region have traditionally
lagged behind the evolution of labour productivity and GDP. This has especially been
the case in Hungary, and to a lesser extent, in Poland. Thus, it is likely that over time
pressure will mount to bring labour performance and pay in line with each other. This
will increase the purchasing power for Eastern Europeans taking trips abroad, while at
the same time this will raise the labour cost for companies in these countries. Recently,
it has been observed that real wages in Hungary are indeed starting to catch up, with
real wage growth well exceeding productivity increases (EC, 2003a).
4.4.2 Exports and imports

International trade is another important driver for air travel, particularly for business
trips (Doganis, 2002: 199). Table 4.4 shows that in 2001 Poland’s exports and imports
were higher than Hungary’s in value terms.
Hungary Poland
Export to Import from Export to Import from
Germany 38% Germany 14% Germany 36% Germany 25%
Austria 10% Austria 9% Italy 7% Italy 9%
Italy 6% Italy 6% Netherlands 5% France 7%
Russia 6% US 5% France 5% Russia 6%
Netherlands 5% France 5% UK 4% Netherlands 4%
Total exports 2001: Total imports 2001: Total exports 2001: Total imports 2001:
€33,983m €37,535m €40,335m €56,167m
Source: WMRC (2003a), WMRC (2003b), EC (2003a).
Table 4.4: International trade of Hungary and Poland (2001)
Both countries interact relatively much with EU-15 countries; 74% of Hungarian
exports went to the EU, while this was around 69% for Poland. Whereas 61% of the
latter’s imports originated in EU countries, this was 58% for the former (EC, 2003b).
Both countries were intensive trade partners of Germany, although the emphasis is on
export, especially for Hungary. Noteworthy is the high ranking of Italy, whereas the
UK only figured in Poland’s top five of buyer countries.
57
4.4.3 Relative prices

A first determinant of relative prices is currency exchange rate. Table 4.5 shows
Hungarian, Polish and Czech average exchange rate between 30 June 1999 and 30 June
2003, as well as fluctuations around this average as an index figure for six-month
intervals.
It is apparent that nowadays the Polish zloty has become cheaper in nominal terms for
Britons and especially for people of the euro zone. The Hungarian forint has fluctuated
less against the pound sterling and euro than the Polish zloty and is now relatively cheap
in nominal terms for people exchanging their euros but slightly more expensive than the
five year average for Britons. Conversely, the Czech Koruna has become relatively
more expensive for owners of both pounds sterling and euros since the second half of
2001. Compared to June 2001, the pound has lost about 20% of its nominal value
against the Czech currency, while the fluctuations around the average were more
pronounced than the other currencies considered.
Avg. 30/06/99 31/12/99 30/06/00 31/12/00 30/06/01 31/12/01 30/06/02 31/12/02 30/06/03
GBP/HUF 401.5 95 102 104 105 101 100 94 90 96
EUR/HUF 253.0 99 101 103 105 96 97 97 93 105
GBP/PLN 6.3 99 107 107 99 91 92 99 99 103
EUR/PLN 4.0 102 105 106 99 86 89 102 102 113
GBP/CZK 53.5 105 109 106 105 106 98 85 90 85
EUR/CZK 33.7 109 107 106 105 101 95 87 94 94
Note: ‘Avg.’: ‘average exchange rate over the period 30/06/99 to 30/06/03’ = 100 (index).
Source: Author, based on Oanda data (www.oada.com).
Table 4.5: Average and indexed exchange rates for selected currencies (1999-2003)
A second factor affecting prices is the rate of inflation. High inflation rates are a
particular problem in Hungary. In 2001, the figure amounted to 9.2% and was about
6% in 2002 and 2003 – a high figure compared to the European Monetary Union, but a
logical side-effect of the continued high growth rates during the last decade. It is
expected that inflation will still be around 4% by 2006.
Although Polish inflation used to be at a high 10% in 2000, this was successfully
brought down to 5.5% in 2001 and 2.1% in 2002. It is forecast to remain around 2%
over the period 2003-2007. Government measures to achieve price stability were
helped by the economic slowdown and the high level of unemployment (WMRC,
2003a: 16; 21).
58
Real exchange rates are most relevant when comparing emerging economies. These can
be calculated by combining the evolution of nominal exchange rates and inflation.
Thus, between January 2001 and June 2003 the pound sterling depreciated by 19% and
24%, and the euro by 7% and 12% in real terms against the forint and koruna,
respectively. Over the same period, the pound appreciated by 3% in real terms versus
the zloty, while the euro’s appreciation was more pronounced (19%).24
In Section 5.4, the prices of goods and services purchased in the context of travel will
be compared for several countries.
4.5 Internet and credit card usage

As described in Section 2.3.4, the low-cost business model depends on direct
distribution. Internet, credit cards, and to a lesser extent, call centres thus play an
important role in marketing seats.
Internet penetration (1998-2006)

900
Forecast
800
Internet users per 1,000 people
700 France
600 Germany
United Kingdom
500
Czech Republic
400
Hungary
300 Poland
200 EU-15 average
100
0
1998 1999 2000 2001 2002 2003 2004 2005 2006
Year
Source: Compiled by author from Euromonitor (2003) data.
Figure 4.5: Internet penetration in Eastern and Western Europe
Figure 4.5 compares current and forecasted Internet usage in different countries relative
to the number of inhabitants. Clearly, Internet penetration is lower in the Eastern
24 Calculations by Author. Estimates for 6 month inflation in 2003 provided by WMRC (www.wmrc.com) were used.
59
European countries under consideration, when compared to EU-15 members.

Nevertheless, with 250 Internet users per 1,000 inhabitants in 2002, Hungary seems to
be a clear forerunner although usage levels had been comparable with its peers during
1998 and 1999. Since 2000 it has kept pace with figures for France. In future years,
Internet users will rise further to around 40% of the population in 2006 – still below the
53% EU-15 average and the 65% figure for the UK. The gap with Poland and the
Czech Republic, who are forecasted to achieve an Internet penetration of 13% and 17%
respectively by 2006 will widen, though.
Of course, Internet penetration is not the same as propensity to buy goods and services
over the Internet. Unfortunately, information on this is scarce, especially for the
Accession Countries. However, the usage of credit cards may give an indication of the
opportunity to buy flight tickets online.
In 2001, total financial card circulation in Hungary amounted 5 million. This number is
expected to rise to over 6 million by 2004. However, the share of credit cards is low. It
was only 6.7% in 2001, but forecast to climb to just below 10% by 2005 (Table 4.6).
1999 2000 2001 2002 2003 2004 2005

Total financial cards (million) 3.72 4.39 5.08 5.54 5.91 6.21 6.52
Credit cards (million) 0.14 0.27 0.34 0.39 0.47 0.52 0.63
Credit card growth - 92.9% 25.9% 14.7% 20.5% 10.6% 21.2%
Credit card share 3.8% 6.2% 6.7% 7.0% 8.0% 8.4% 9.7%
Average number of credit
1.4 2.7 3.3 3.8 4.6 5.1 6.2
cards per 100 inhabitants
Note: Actual data for 1999-2001; forecasted data for 2002-2005.
Source: Compiled by Author from Euromonitor (2001a).
Table 4.6: Financial cards in Hungary (1999-2005)
Although there were comparatively less financial cards per capita in Poland than in
Hungary, the proportion of credit cards relative to all financial cards was 2.6 percentage
points higher than for its peer country in 2001, and the share was expected to increase to
15% by 2005. As a result, in 2002, the average number of credit cards per hundred
inhabitants in Poland (4.1) overtook the Hungarian number (3.8), although the figures
60
did not differ much between the two countries (Table 4.7; Euromonitor, 2001a;
Euromonitor, 2001b).
1999 2000 2001 2002 2003 2004 2005

Total financial cards (million) 7.64 10.77 12.6 14.44 16.22 17.84 19.45
Credit cards (million) 0.43 0.75 1.17 1.57 2.02 2.47 2.92
Credit card growth - 74.4% 56.0% 34.2% 28.7% 22.3% 18.2%
Credit card share 5.6% 7.0% 9.3% 10.9% 12.5% 13.8% 15.0%
Average number of credit
1.1 1.9 3.0 4.1 5.2 6.4 7.6
cards per 100 inhabitants
Note: Actual data for 1999-2001; forecasted data for 2002-2005.
Source: Compiled by Author from Euromonitor (2001b).
Table 4.7: Financial cards in Poland (1999-2005)
Still, the two Accession Countries have a long way to go before they reach the
European average of one out of three financial cards being a credit card. But in Europe
too, there are quite large variations among states. For example, while in the UK every
citizen on average holds more than one credit card, only one in five Italians does so
(Krudy, 2002).
As far as purchasing goods on the Internet is concerned, use of financial cards is not
widespread among Hungarians and Poles. For example, in Poland, almost 90% of
Internet transaction value was paid in cash on delivery. In Hungary, payments by credit
card accounted for around 25% of e-commerce value in 2001. By contrast, on a global
scale 90% of Internet purchases were made using financial cards. The main reasons
behind this are the low ownership levels of financial cards and security concerns
regarding payments over the Internet. A contributing factor is that some online retailers
(in Hungary up to 20%) do not have adequate facilities to process payments by credit
card (Euromonitor, 2001a; Euromonitor, 2001b).
In 2001, a law on Internet security was introduced in Hungary. One year later, similar
legislation took effect in Poland (WMRC, 2003a; WMRC, 2003b). Banks in these
countries have also reacted and introduced secure debit cards or arrangements to make
online shopping more secure. It should be noted that this enhanced security has formed
part of debit cards, as opposed to credit cards, so Internet shoppers are more inclined to
pay with debit cards over the Internet.
61
4.6 Conclusion
Hungary and Poland are both centrally located in Europe and are gateways between the
EU-15 countries and other major Eastern European countries such as Romania and the
Commonwealth of Independent States (CIS). However, both states differ in many
respects. Hungary is a relatively small country with a large proportion of the population
concentrated in the northwest. Conversely, Poland counts four times as many people
and has population centres spread over the country. Nevertheless, the motorway
network in the latter country is less developed than in the former.
Both countries have been forerunners in the EU enlargement process and recent
referenda have cleared the path to join the EU in May 2004. Currently, EU-15 countries
and Germany in particular are already important trade partners.
However, Hungary and Poland are still emerging economies and as such, large
differences remain with present EU-15 members as regards GDP and disposable
income, even though their economic growth has been relatively strong. The economies
have their own problems, however, as inflation rates are high (Hungary), exchange rates
are volatile (Poland), or employment is considerable (Poland).
At present, Internet penetration in Hungary is about two thirds of the EU average.
Compared to other Eastern European countries, this is relatively high and further growth
is expected. By contrast, the Internet penetration level for Poland is much lower and
growth will be slow. Moreover, credit card penetration and its usage for Internet
shopping stands at low levels in both countries.
After this general introduction of Hungary and Poland, the travel and tourism markets
of these two countries will be examined in more detail.
62
Chapter 5: Hungarian and Polish travel and tourism
5.1 Introduction
The previous chapter aimed to give a general overview of Hungary and Poland. This
chapter continues the discussion at the country level, but zooms in on the travel and
tourism markets. In the first two sections, the level and make-up of inbound and
outbound tourism flows is assessed, and the most important tourist areas are outlined.
Next, an indication of the cost of holiday-taking is provided using a basket of tourism
goods and services. Price information and other relevant aspects of tourism are then
combined in an overall competitiveness indicator to evaluate global attractiveness of the
respective tourism industries. Subsequently, the level, composition and evolution of the
two countries’ air traffic are compared and the propensity to fly is discussed. Finally, a
brief overview is presented of airlines operating in Hungary and Poland, and their
operational performance is benchmarked against peer and low-cost carriers. Another
aspect of air transport, airports, will be discussed in Chapter 6 in the context of low-cost
carriers.
5.2 Tourism flows to and from Hungary

Tourism plays an important role for Hungary. It accounts for around 10% of GDP and
the government plans to develop the sector further. In 2001, 15.3 million people visited
Hungary, about 2% less than the previous year. As shown in Table 1.1 (page 2), the
country is ranked twelfth in terms of international tourist arrivals. Figure 5.1 indicates
that Hungary is a net recipient of tourists, with arrivals exceeding departures by over
four million in 2001. Around half of the inbound visitors travelled for leisure purposes.
The top five countries in terms of originating tourists in 2000 were: Austria (2.6m),
Romania (2.3m), Slovakia (2.0m), Croatia (1.6m) and Germany (1.5m). The UK was
ranked fourteenth with 115,000 visitors (Euromonitor, 2002a).
It is expected that the total number of arrivals will rise slightly in future years, with
growth increasing from 1.1% in 2002 to 3.3% in 2006. Although tourism from
63
neighbouring countries is forecast to decline, this evolution would be more than offset
by the arrival of more Western Europeans and visitors from further abroad
(Euromonitor, 2002a). In this respect, the enlargement of the EU presents significant
opportunities to strengthen the country’s position on the European and global tourism
map. For example, Hungary has set up a marketing campaign in the UK, dubbed
‘Magyar Magic – Hungary in Focus 2004’, which will start in November 2003, to
celebrate the accession to the EU and promote the country.25
Arrivals and Departures by purpose of visit

18,000
16,000
14,000 20%
23%
Number (000)
12,000 Others
19%
10,000 20% VFR
32% 29%
9%
8,000 9% Business
10% 13%
6,000 Leisure
53%
4,000 49%
58% 58%
2,000
0
Arr. 2000 Arr. 2001 Dep. 2000 Dep. 2001
Year
Note: Arr.: ‘Arrivals’; Dep.: ‘Departures’. ‘Others’ category negligible for Departures.
Source: Author, compiled from Euromonitor, 2002a.
Figure 5.1: Hungarian arrivals and departures by purpose of visit (2000-2001)
The main areas of touristic interest are the capital Budapest (in Central Hungary), Lake
Balaton (in Western Hungary), the Great Plain (in Eastern Hungary), and the hills in the
north. However, the first two regions together represent over 50% of hotel beds in the
country, with tourist infrastructure in the rest of Hungary often being inadequate
(Euromonitor, 2002a). Budapest accounts for 60% of incoming tourism revenues, while
this is 17% for the Balaton area (Somogy, 2003b).
25 See http://www.hungary.org.uk.
64
Budapest attracts tourists for its history, unique sights and culture, and is becoming
quite popular with youth travellers. The annual Formula 1 Grand Prix in Budapest
attracts over 200,000 foreign visitors every year (Euromonitor, 2002a).
Detailed statistics are available for the number of guests staying at different types of
accommodation in Budapest with an indication of nationality. Table 5.1 provides
information on their total number during the period 1999 to 2001, as well as the top ten
visitor countries. It is apparent that although the countries in the ranking have remained
the same over the period, positions have changed. Germans were the largest group by
far, and their number increased by 22% in two years’ time. Great Britain had about the
same growth rate, but the number of Britons (122,000) stood at only 44% of German
guests. Italians have soared by a spectacular 78% over the period and ranked second in
2001. Spain and France are also well represented and grew fast at rates of 64% and
55% over 1999-2001, respectively. In comparison, the total number of guests in
Budapest increased by 15% over that period. As a result, the top ten countries have
increased their share from around 52% to 61% of guests. Of all guests, 83% were
foreigners (Budapest Tourism Office, 2003).
1999 2000 2001

Total: 1.70m Total: 1.90m Total: 1.96m
1. Germany 225,462 1. Germany 235,674 1. Germany 280,502
2. USA 120,797 2. USA 139,832 2. Italy 172,039
3. Great Britain 100,057 3. Italy 117,997 3. USA 122,332
4. Italy 96,646 4. Great Britain 101,246 4. Great Britain 121,932
5. Japan 67,810 5. Japan 85,620 5. Spain 102,635
6. Austria 64,387 6. Spain 82,485 6. Israel 90,392
7. Spain 62,640 7. Austria 69,073 7. France 79,674
8. Yugoslavia 52,777 8. France 58,274 8. Austria 76,777
9. France 51,316 9. Israel 57,305 9. Japan 74,278
10. Israel 42,487 10. Yugoslavia 48,038 10. Yugoslavia 67,752
Source: Budapest Tourism Office (2003).
Table 5.1: Top 10 sending countries for Budapest (1999-2001)
It is interesting to consider the above figures relative to the total number of arrivals from
these countries. Based on WTO figures on total inbound tourism by country for the
year 2000 found in Euromonitor (2002a), it is estimated that about 60% of French and
Italians visiting Hungary, go to Budapest. For Britons, this figure rises to 88%.
Although no detailed data were available for Spanish arrivals in Hungary, the
65
percentage is probably even higher than for the UK. For Germany and Austria it was
16% and 3%, respectively.
Lake Balaton is the largest lake in Eastern Europe and a typical relaxing leisure
destination with its beaches near the warm shallow waters. There are also vineyards,
historic towns and museums in this region. In 2000, Hungarians made up 49% of all
Balaton visitors, while Germans accounted for 31%. Other important sending countries
were Austria (5.4%) and the Netherlands (3%). Britons represent only 0.5% of all
Balaton visitors. It is estimated that Western Europeans own around 200,000 holiday
homes in the region (Studentuniverse, 2003; Euromonitor, 2002a; Somogy, 2003a).
Both Budapest and the Balaton region boast spas and the government is increasingly
stimulating wellness tourism, because this kind of visitor spends more and returns more
regularly. Moreover, this type of tourism is less seasonal. Conference tourism is
another focus area of tourism policy which should ensure the growth of visitors to
Hungary (Euromonitor, 2002a).
Although Hungarians totalled 11 million visits abroad in 2001, these were taken by only
a third of the population. People between 25 and 44 of age accounted for half of all
visits outside the country. The low proportion of people travelling abroad can be
explained by the fact that many Hungarians own holiday houses in the country. Those
who do travel, mainly visit neighbouring and European destinations. In 2001, 88% of
outbound travellers used ground transportation, while 7.8% travelled by air. Charter
capacity (380,000 seats) accounted for about 12% of total Hungarian airline capacity in
2001, and grew strongly at a CAGR of 11% over the period 1997-2001. For
comparison, CAGRs for scheduled capacity during that period were 7%. Beach and
mountain holidays are in particular demand and accounted for 84% of tour operator
sales in 2001, although growth is expected for city breaks and fly-drive holidays due to
improved living standards and increasingly diverse tastes. The most popular countries
in the EU-15 for that year were Italy (1.6m visits or 14% of visits abroad), Austria
(1.2m visits), Greece (1.1m visits), Germany (1.1m visits) and Spain (0.4m visits)
(Euromonitor, 2002a).
66
5.3 Tourism flows to and from Poland

According to the Polish Institute of Tourism, 14 million tourists arrived in Poland in
2002 – a 6.8% decline compared to the previous year. Germans represented 4.2m or
30% of arrivals, although they had numbered 5.9m in 2000, i.e. a 30% drop in two
years.26 However, Germans remained the largest group by far, followed by visitors
from Ukraine (2.9m), Belarus (1.7m), Russia (0.9m) and Lithuania (0.8m). The number
of British tourists was much lower and amounted only 202,000 in 2002, i.e. a decrease
of about 8% per year on average, from 2000 onwards (Instytut Turystyki, 2003b).
Nevertheless, the UK was ranked tenth in terms of visitors’ originating countries and
provided the second most tourists to Poland of all EU-15 countries in that year.
As regards the main purpose of visits to Poland for the year 2002 (Table 5.2), many EU
citizens go for business purposes: the proportion is 27.7% for Germans and 39.1% for
other EU citizens. In comparison, business travel accounted for only 9% of visits to
Hungary. The share of leisure traffic from the EU to Poland seems not too high at
around 29%. Furthermore, more than a quarter of visits from the EU were inspired by
VFR motives. Indeed, other figures from the Polish Institute of Tourism indicate that
more than a quarter of EU originating tourists find lodging with Polish friends or family
(Instytut Turystyki, 2003d). The high share of VFR traffic is logical, since a lot of
Poles have emigrated over the last two hundred years. Currently, there are
approximately 25 million people of Polish origin living all over the world. Almost half
of these live in the US, while the three EU countries with the highest concentration of
people with Polish origins are Germany (2m), France (1m) and the UK (200,000)
(Polish Genealogy, 2003).
In summary, these data suggest that leisure traffic to Poland is not so developed, but that
the country is characterised by significant VFR and business visitor flows.
This is in line with British research which found that Poland still has to prove itself as a
holiday destination for UK tourists. Although the country ranked third among Eastern
European countries as regards the number of inbound British visitors, many Britons
travelled for business and VFR purposes. Indeed, it has been reported that 85% of
26 This figure excludes daytrips.
67
British visits to Poland were for VFR purposes. Nevertheless, it is suggested that
historic cities such as Krakow could be exploited further (R&M, 1999; Langlois et al.,
1999: 466).
Leisure VFR Business Others

EU excl. Germany 29.4% 26.3% 39.1% 5.2%
Germany 28.5% 29.3% 27.7% 14.5%
Note: ‘Other’: includes e.g. shopping, religious motives, odd jobs.
Source: Instytut Turystyki (2003d).
Table 5.2: Purpose of visits to Poland for EU citizens
The 2002 survey of the Institute of Tourism also provides data on visits to cities. In
general, 75.4% of EU citizens (excluding Germans) visited a Polish city. This
percentage was somewhat lower for Germans at 60%. Table 5.3 gives an overview of
the five most frequently visited cities. Warsaw stands out in the first position. This was
especially the case for visitors originating in the EU (excluding Germany) of whom
almost 30% visited the capital. Krakow was the second most important for that set of
countries with 8.5%. The Germans’ visits seem to be more spread across the country
while the four cities of Warsaw, Krakow, Poznan and Lodz account for over half of
visits from the other EU countries. Although also the most important destination for
Germans, the share of Warsaw is much lower (13.8%). Moreover, Germans visit
Krakow proportionally less than other EU citizens. Poznan and Gdansk, on the other
hand, play a more significant role (9% and 7.4%, respectively) (Instytut Turystyki,
2003d). Unfortunately, no more detailed figures are available by country of origin.
In general, tourist accommodation and infrastructure in Poland often remain inadequate.
Warsaw and Krakow, however, have attracted most investment and have been best
developed. The Warsaw and Krakow regions accounted for 24% of beds in 2000. This
share is likely to increase because some international hotel chains have built additional
infrastructure in these cities (Euromonitor, 2002b).
Warsaw Krakow Poznan Lodz Gdansk

EU excl. Germany 29.0% 8.5% 7.8% 7.5% 3.0%
Germany 13.8% 3.5% 9.0% 6.1% 7.4%
Table 5.3: Polish cities visited by EU citizens
68
The lion’s share of EU citizens visit Poland by car. Eighty-five percent of Germans do
so, while another 6% takes the coach. This can be explained by the proximity of the
two countries. Two thirds of people from the rest of the EU elect to come by car, while
plane and ferry account for 17.1% and 15%, respectively. The proportion of Britons
travelling by plane is much higher at around 77% (Langlois, 1999: 465).
Car Plane Ferry Coach Others

EU excl. Germany 66.1% 17.1% 15.0% 0.4% 1.4%
Germany 85.0% 4.1% 0.0% 6.2% 4.7%
Table 5.4: Mode of travel to Poland for EU citizens
In 2001, approximately 10 million departures of Poles (excluding one-day trips) were

registered. Travel for business and VFR purposes accounted for 19% each, while 49%
went abroad for leisure purposes. The remaining 13% travelled for other reasons
(Euromonitor, 2002b). In 2002, 14% of the Polish population older than 15 years took a
trip abroad and stayed there at least one night (Instytut Turystyki, 2003c). Air transport
made up 2.3% of total departures, while 92% of departures were over land.
Holidays abroad are increasing in popularity, helped by increasing wealth. Germany
(2.65m), the Czech Republic (0.7m), France (0.55m), Greece (0.55m), Slovakia
(0.55m), and Italy (0.45m) were the most important tourist destinations in 2001 (Instytut
Turystyki, 2003a).
In 2001, about 800,000 charter seats were sold in Poland, while charter capacity stood at
955,000 seats, i.e. 10.5% of total Polish aircraft seats. There has been a surge in the
popularity of package holidays, mainly to Mediterranean beach destinations, which
accounted for 54% of tour operator value sales in 2001. It is expected that an increasing
number of Poles will buy package holidays or charter flights. Although short breaks are
becoming more popular, the current consumer base is reported to be very small, mainly
because they are more expensive than long holidays on a per day basis. Furthermore,
most Poles can only afford to take one holiday per year (Euromonitor, 2002b).
5.4 Basket of tourist goods and services

In order to analyse the cost of visiting Eastern European countries, a basket of tourist
goods and services was composed, which comprised air tickets, hotel stays and beer.
69
The latter category was chosen based on various interviewees’ suggestions that beer
price and quality is believed to play a role for (British) tourists when selecting city
break destinations.
For the comparison of ticket prices, the British Airways website was consulted. The
lowest available fares for 69 days spanning the months of June, July and August were
compiled for routes between London on the one hand, and Prague, Budapest, Warsaw
and Krakow on the other hand. A summary of the average ticket prices is presented in
Table 5.5. Flights to and from Budapest had the highest fares, while relatively cheaper
tickets were available between London and Prague. The fares for the Polish cities lay
between the other two cities and were comparable. The collected data will be revisited
in more detail in Section 7.6.3 when route potential is evaluated.
From London To London

Prague £54.6 £67.6
Budapest £86.7 £121.3
Warsaw £82.0 £93.3
Krakow £83.0 £97.4
Source: Author, compiled from BA website (www.ba.com) on 3 June 2003.
Table 5.5: Average ticket prices between the UK and selected Eastern European countries
As far as hotel prices are concerned, rates for two nights during July and August at the
three star Ibis chain were looked up for a sample of cities. This mid-class hotel chain is
likely to be considered by low-cost travellers. The fact that the hotels for the selected
cities are located in the city centre, made the comparison more valid. The results for
simulated stays during weekend and weekdays are summarised in Table 5.6.
Hotel nights in Polish cities were generally cheaper, although prices for a stay in
Warsaw and Lodz during the week were about 50% more expensive than at weekends.
This suggests that the Polish capital and Lodz are mainly destinations for business
travellers, who tend to travel during the week. The same pattern of higher-priced
weekday stays also prevails in London, an important global business centre. It is
striking that hotel prices in Prague do not seem to differ much from those in London,
70
which does not make the destination cheap. Hotel prices in Budapest lay between those
in Prague and the Polish cities, and were the same during weekend and weekdays.
Fri 18/7 - Sun 20/7 Mon 21/7 - Wed 23/7 Fri 15/8 - Sun 17/8 Mon 18/8 - Wed 20/8
Prague €86 €86 €105 €86
Budapest €69 €69 €69 €69
Warsaw €49.5 €76.9 €49.5 €76.9
Krakow €56.3 €56.3 €56.3 €56.3
Lodz €37.3 €55.4 €37.3 €55.4
London €86.8 €115.8 €86.8 €115.8
Source: Data compiled by Author from Ibis website (http://www.ibishotel.com/ibis), on 13 July 2003.
Table 5.6: Comparison of hotel prices per night in European cities
Considerable differences exist as regards beer prices. Although exchange rates affect
comparisons, it is apparent from Table 5.7 that beer in Eastern Europe is markedly
cheaper than the EU average and especially in comparison with the UK. Hungary
seems particularly cheap, while the quality of the beer is reported to be good.27
However, Hungary is more renowned for its wines, while Poland has reputable vodkas.
UK EU-15 average Czech Republic Poland Hungary

Beer price
1.5 0.6 0.3 0.4 0.2
(USD per 33 cl.)
Table 5.7: Beer prices in Western and Eastern Europe (2002)
Thus, although British Airways fares to Hungary and Poland appear to be more
expensive than to the Czech Republic, hotel stays in the former two countries seem to
cost less. In general, beer is cheap in all Eastern European countries, especially for
Britons.
5.5 Composite attractiveness indicator

Every year, the World Travel and Tourism Council publishes a ‘Competitiveness
Monitor’ for over two hundred countries, including Eastern European states. This
27 http://www.euromonitor.com/Alcoholic_Drinks_in_Hungary#
71
indicator shows the extent to which a country offers a competitive environment for
travel and tourism development, and summarises information provided in this and the
previous chapter. Figure 5.2 compares the performance of the UK, Hungary, Poland
and the Czech Republic. Definitions of the measures can be found in Appendix F.
Competitiveness Monitor 2003

Least competitive..............Most competitive
100
90
80
70
Hungary
60
Poland
50
Czech Republic
40
United Kingdom
30
20
10
0
competitiveness
Human tourism
Infrastructure
Environment
Technology
resources
Openness
Social
Human
Price
Note: No data available for ‘infrastructure’ for Poland and the Czech Republic.
Source: Author, based on WTTC (2003).
Figure 5.2: Competitiveness Monitor for selected Eastern European countries
Oddly enough, price competitiveness of Eastern European countries, especially Poland,

is rather low despite the depreciation of the zloty. This conflicts with beliefs that
Eastern European destinations are very cheap. Particularly Warsaw is regarded as being
relatively expensive (IYP, 2002b). However, the UK performs worse on this measure.
It is also apparent that the three new EU members’ scores on the other measures are in
the high regions and broadly similar, bar the ‘technology’ factor, on which Poland
performs less well. In many respects, the Eastern European countries obtain
competitive scores compared with the UK. Their main advantages lie in the higher
suitability for human tourism and the better price competitiveness. However, there is
still a gap as regards the social standard of living (e.g. availability of newspapers,
computers, etc.) and, to a lesser extent, human resources (e.g. education and
employment).
72
5.6 Accession Countries air traffic flows

Table 5.8 shows key data on (scheduled and charter) passengers who travelled to and
from the accession countries (ACC) for the period 2000-2001. In 2001, the three largest
Eastern European countries in terms of passengers were the Czech Republic, Poland and
Hungary. Together, they had a share of 57.6%, slightly more than the previous year
(57.0%). The Czech Republic and Poland each accounted for about 20%, Hungary for
15.5%. The latter saw total traffic decline over 2000-2001 by about 2.5%, while Czech
and Polish traffic soared by 10% and 7.5%, respectively. The decrease in Hungarian
traffic can partly be explained by restructuring measures at Malév.
Budapest-Ferihegy airport handled all traffic to and from Hungary, while there were six
airports with over 100,000 passengers in Poland. Warsaw-Okecie was the most
important airport with 70% of the traffic. According to Polish Airport Authority
statistics, 42% of passengers at Polish airports travelled for business purposes, while
VFR and leisure travel accounted for 22% each (other purposes: 14%). These results
are broadly in line with Section 5.3, and indicate that air travel for leisure purposes to
and from Poland is less common (Polish Airports, 2003).
2000 2001
Main % pax Nr. of airports
Share of Share of airport to/from with > 100,000
Country Pax (000) ACC pax Pax (000) ACC pax share EU pax
Cyprus 6,125 21.6% 6,530 22.0% 76.5% 79% 2
Czech Rep. 5,759 20.3% 6,325 21.4% 96.1% 61% 3
Poland 5,733 20.2% 6,164 20.8% 70.2% 50% 6
Hungary 4,697 16.5% 4,582 15.5% 100.0% 61% 1
Malta 2,951 10.4% 2,836 9.6% 100.0% 84% 1
Slovenia 991 3.5% 886 3.0% 100.0% 51% 1
Lithuania 581 2.0% 650 2.2% 100.0% 64% 1
Latvia 576 2.0% 625 2.1% 99.8% 60% 1
Estonia 560 2.0% 584 2.0% 97.6% 84% 1
Slovakia 430 1.5% 438 1.5% 65.8% 27% 2
Total 28,403 100% 29,620 100% - - -
Source: Compiled by Author from Tronet (2003a).

Table 5.8: Total passenger numbers and shares for the Accession Countries (2000-2001)
In comparison with the other accession countries, the share of passengers on routes
between the Czech Republic, Hungary and Poland on the one hand and the EU on the
other hand is only moderate. For Poland the proportion is about half, while it is 61% for
both Hungary and the Czech Republic. However, in absolute terms, more people
73
travelled between Poland and the EU than between Hungary and the EU (3 million
versus 2.8 million).
Based on traffic data available for the year 2000 in Tronet (2003a) and Tronet (2003b),
the Author estimates that total air traffic amounted to about 18 million passengers
between the EU and the accession countries. Thus, in that year, EU-15 – ACC air
traffic had a share of 4.2% of all international EU-15 air traffic flows, and 8.8% when
expressed in terms of total extra-EU-15 air travel.
Figure 5.3 zooms in on specific origins and destinations in the EU for Hungary and
Poland. In 2001, traffic flows to and from Germany were very important for both
countries: travel to and from this country accounted for 30% (835,000 passengers) of
EU-15–Hungary air travel and for 24% (731,000 passengers) of EU-15–Poland air
travel. The UK was the second largest market with an EU traffic share of
approximately 15% to/from each of the two Eastern European countries. This was
equivalent to about 385,000 (Hungary) and 455,000 (Poland) passengers. In contrast,
the UK had the largest share of travel between the EU-15 and the Czech Republic (19%;
735,000 passengers), although Germany followed closely with 17% (656,000
travellers). France is also a major market with a share of around 10% for all three
Eastern European countries mentioned (Tronet, 2003a).
It should be noted that code-share agreements may cloud comparisons of traffic flows.
In this respect, city-pair interactions between Hungary on the one hand, and Italy and
France on the other hand, may be overstated because Malév has partnerships with
Alitalia and Air France. Similarly, LOT cooperates with Lufthansa as part of the Star
Alliance. Thus, point-to-point traffic between Poland and Germany may be smaller.
74
Share of EU-15 countries to/from Hungary Share of EU-15 countries to/from Poland
Other EU-15 Germany

Germany Other EU-15
27% 24%
30% 26%
Belgium The
Netherlands United
5%
7% Kingdom
Italy United 15%
6% Greece
Kingdom Denmark
France 7%
Greece 14% 11%
11%
7% France
10%
Source: Tronet (2003a: 5-6).
Figure 5.3: Breakdown of air passenger share of EU countries for Hungary and Poland (2001)
The evolution of traffic growth between Western and Eastern Europe is depicted in
Figure 5.4.28 On an aggregate scale, the traffic between the two regions is expected to
increase by 5.3% on average over the period 2002-2006, which is higher than the 4.2%
average annual growth forecasts within Western Europe, but lower than the 5.8%
predicted within Eastern Europe. When considering individual Eastern European
countries, Poland stands out as exhibiting the highest growth rates: 7.1% on average
over the period. This percentage is forecast to be 6.6% for the Czech Republic. Traffic
increases to and from Hungary, however, will be lower than the regional average at
4.4% on average. The unhealthy situation of Malév, the Hungarian flag carrier,
probably played a role in these forecasts. A general conclusion is that the Western
European market seems to evolve to maturity, while Eastern Europe is still in a growth
phase. With hindsight of the year 2002 and part of 2003, it can be argued that the high
predicted growth rates have not yet materialised but that the effect will be lagged.
28 See Appendix G for IATA definitions of Western and Eastern Europe.
75
Country growth forecasts to Western Europe (2002-2006)

12%
10%
8%
6% Czech Republic
Growth (%)
Poland
4%
Hungary
2% Eastern Europe
0%
2002 2003 2004 2005 2006
-2%
-4%
Year
Source: IATA (2003b).
Figure 5.4: Traffic growth forecasts from Eastern to Western Europe (2002-2006)
In air transport, the relationship between GDP per capita and the number of flights taken
is important (Swan, 2003). Figure 5.5 contains a scatterplot for 125 countries with data
for the year 2001.29 Although there are clear variations among countries, there is a
general positive relation between the two variables. For the Czech Republic, Hungary
and Poland, additional datapoints for the years 1997 until 2000 were added to the graph.
A trendline was then fitted through each of these countries’ datapoints. It can be seen
that the number of passengers carried per 1,000 inhabitants is lower for this group of
three than for the whole sample. This is especially so for Poland, which did not exceed
the USD 10,000 GDP per capita threshold that is sometimes used as a rule of thumb by
airlines to evaluate people’s propensity to travel. The other two countries exceeded this
threshold.
In 2001, Hungary’s GDP per capita reached the level the Czech Republic was at in
1999. However, it can be seen that this resulted in relatively more trips for the former
(213 vs. 180 trips per 1,000 inhabitants).
29 Some large outliers such as Iceland, New Zealand, Malta and Ireland (‘island effect’) and Singapore (‘hub effect’)
were removed from the sample. For other countries not all information was available. The year 2001 was chosen
because it was the most recent year for which data were available; the graph looks similar for the year 2000, and the
trend lines had almost identical equations.
76
Relationship between GDP per capita (PPP) and air travel

3,500
Norway
Passengers carried per 1,000 inhabitants
3,000
Switzerland
2,500
USA
Hong Kong
2,000
R2 = 0.7105
1,500
Trinidad and Tobago
1,000 Hungary
Poland Canada
Chile
500
Slovenia
Czech Republic
0
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000
GDP per capita (PPP - International USD)
Figure 5.5: Relationship between GDP per capita and number of trips per 1,000 inhabitants (2001)
There is a marked difference in the strength of the relationship between GDP per capita
and the number of trips per thousand people. For Poland, it appears to be weak, i.e. a
flat curve over time. The time series data for the Czech Republic on the other hand, is
about parallel with the cross-sectional data. Hungary is somewhere in between.
Thus, there seems to be a relatively lower propensity to fly, especially by Poles. For
Hungary it is highest, relative to GDP per capita (i.e. the ‘Hungary curve’ lies higher for
the same GDP per capita in Poland and the Czech Republic). However, the relationship
is more pronounced for the Czech Republic (i.e. the slope of the Czech curve is more
positive). The proportionally lower number of departures in these countries may be
attributed to their central location on the continent, which makes the use of alternative
modes of transport feasible. Prices of air transport in a regulated market may also have
been too high for more people to travel by plane. Package holidays and charters may
have also distorted the above data, which only included scheduled seats. It should also
be noted that there are considerable regional economic differences, which may make
certain parts of the country more favourably disposed to air travel (see Section 4.4.1).
77
5.7 Airlines
In the following paragraphs, airlines registered in Hungary and Poland will be discussed
in brief. For the two flag carriers, a benchmarking analysis was conducted in order to
compare their performance on key operational measures with that of low-cost carriers
and bmi British Midland. The latter carrier was selected because of the similarity of
business model with the Eastern European carriers. Indeed, these full-service airlines
mainly operate a short to medium haul network and some long-haul routes. Data for the
latest two years available, namely 2000 and 2001 were used. Fact sheets of the airlines
in the study and detailed calculations can be found in Appendix H and I, while
benchmarking graphs are included at the end of this chapter. Since the main aim of the
benchmarking exercise is to compare how Malév and LOT perform relative to low-cost
carriers in order to be able to assess their competitiveness, a detailed explanation of all
factors influencing the measures is outside the scope of this thesis. In general, all
airlines were to a certain extent affected by the events of 11 September 2001.
Hungary
Malév Hungarian Airlines started operating in 1947 and is the flag carrier. At present,
97.9% of the company is owned by the Hungarian Government through the State
Privatisation and Assets Handling Company, while the rest is in the hands of
municipalities and private shareholders (AEA, 2003: IV-26). The government has been
looking to other investors, but has been unsuccessful as of yet.
In 2001, the airline transported 2.2 million passengers on scheduled services, down 3%
from the previous year. The great majority of these passengers travelled within Europe;
Western Europe accounted for about 66% of travellers, while the share of Eastern
European destinations was 19% (Malév, 2002: 23). In 2002, the number of scheduled
passengers increased by 1% compared to 2001, and stood at 2.2m (Malév, 2003).
At present, Malév is not a member of an international airline alliance, although it has

expressed interest in doing so after its restructuring. In the meantime, the company has
clinched marketing agreements with KLM and Northwest. Moreover, several codeshare
agreements are in place, of which a high number have been concluded with current
78
members of the Skyteam alliance (e.g. Air France, Alitalia, CSA). If Northwest
Airlines and KLM join this alliance, Malév may do the same over time as well.
In 2001, Malév was the market leader as regards traffic to and from Hungary with a
market share of 55%. Lufthansa was second, accounting for about 10% of traffic.
Other carriers each had a market share of 5% or less.
Despite its market leadership, the flag carrier has posted operating losses during the last
five years. In 2002, the operating loss amounted HUF 4.5 billion (USD 20 million), an
improvement, however, compared to the operating loss in 2001 of HUF 11.2 billion
(USD 40.5 million) (Dunn, 2003b; Malév, 2003).
When comparing Malév’s performance with full-service airlines and low-cost carriers,
it becomes apparent that the Hungarian airline has similar unit costs as its Eastern
European full-service peers. In 2001, its unit costs of 7.8 US cents per ASK were
slightly lower than LOT Polish Airlines and CSA Czech Airlines. Relative to bmi
British Midland, unit costs were about one third less in 2000, although the gap
decreased somewhat in 2001 when bmi started operating transatlantic flights. Still,
Malév’s unit costs remained well above those of easyJet (36% higher) and Ryanair
(71% higher) in the year 2001.
The disparity between Malév and the low-cost carriers as regards yields was somewhat
smaller. Yields were 21% higher than easyJet’s and 40% above those of Ryanair in
2001. However, there was a considerable difference with bmi British Midland, whose
yields were 47% higher in 2001. Unfortunately, no detailed information was available
by region, so yields on, for example, European routes could not be analysed.
Nevertheless, since two thirds of passengers travelled to or from Western Europe, these
figures might give a first indication. The relatively low yields may be explained by the
lower purchasing power of Hungarians.
The breakeven load factor combines unit costs and yields. This measure was broadly
similar for bmi, easyJet and CSA. In both years, Malév had a relatively high breakeven
load factor of 73%, well above Ryanair’s figure of 60% in 2000 and 54% in 2001. In
comparison, Malév’s load factors were 63% and 64% in 2001 and 2000, respectively.
As a result, the Hungarian airline made losses in the years under consideration.
79
Between 1998 and 2002, Malév received about USD 200m in subsidies (Horner, 2003).
Labour costs per employee are markedly lower in Eastern Europe than in Western
Europe. For Malév, these amounted about USD 20,000 per employee, which is
approximately 40% lower than at bmi. Comparisons with low-cost carriers are not
entirely valid since these airlines have a very lean organisation and outsource activities
to third parties to a greater extent.
As far as labour productivity is concerned, Malév’s available seat kilometres (ASK) per
employee (2001: 2 million) are around 30% higher than bmi’s (2001: 1.6 million), but
much lower than what no-frills carriers achieved (around 5 million). Nevertheless, the
same remark as to differences in organisation and outsourcing apply here.
Due to the differences in labour costs in Western and Eastern Europe, it is more relevant
to assess productivity in terms of ASK per USD 1,000 of labour costs. Using this
measure, Malév and its Eastern European peers perform much better. For example,
employees at the Hungarian flag carrier were more than twice as productive as those of
bmi British Midland. Interestingly, the numbers are not too far off those of low-cost
carriers – especially easyJet. Given that Ryanair and easyJet employ fewer people,
lower labour costs in Hungary present an opportunity to further reduce costs by
employing local staff. Similarly, third-party services may be cheaper to purchase.
Malév’s average aircraft utilisation of 8.5 hours per day is relatively high in comparison
with its Eastern European peers, who fly their aircraft about one hour less per day.
Although this performance is slightly better than bmi’s average of eight hours, low-cost
carriers such as easyJet achieve a daily aircraft utilisation of ten hours.30
In May 2001, the Hungarian flag carrier started a comprehensive restructuring

programme in order to boost its financial and operational performance. The new
strategy was to transform the carrier into one of the leading carriers in Central and
Eastern Europe. A cornerstone of this regional expansion strategy has been the
establishment in 2002 of Malév Express, a regional carrier operating Canadair CRJ-
200s to smaller cities in neighbouring countries. Ultimately, these restructuring
measures should increase the attractiveness of the airline to private investors. In this
30 Ryanair’s figures are somewhat distorted due to aircraft being added during the year.
80
context, the Hungarian state holding announced in April 2003 that preparations for
privatisation were to start in the summer of 2003 (Dunn, 2003b).
Apart from government-owned Malév, at present only one airline, ‘Farnair Hungary’, is
registered in Hungary. This carrier mainly operates cargo flights out of Budapest-
Ferihegy airport using Let 410 aircraft and is part of the bigger Farnair Group of
European cargo carriers, with base in Basel (Switzerland).
However, another privately owned airline, Arc Air, is bound to enter the Hungarian
market in September 2003. This carrier will be a ‘regional no-frills airline’ flying to
several destinations in nearby Eastern European countries, as well as to Germany and
Italy, initially using four ATR 42s but evolving to a fleet of ten of these aircraft within
two years. Although Arc Air will use the same base airport as Malév (Budapest
Ferihegy), direct competition with the flag carrier will be avoided by serving niche
destinations, such as Osijek (Croatia) and Leipzig (Germany) (Benko, 2003: 6; Horner,
2003). Meanwhile, Malév has launched services to cities (e.g. Krakow) which Arc Air
was planning to serve as well, so competition may be unavoidable on some routes. It
will be interesting to see how the flag carrier reacts to the low-cost threat.
Poland
Five airlines have their home base in Poland: Air Polonia, Silesian Air, White Eagle
Aviation, LOT Polish Airlines and EuroLOT.
Silesian Air is a regional carrier operating passenger and cargo services with turboprop
aircraft. In August 2003 the owner of this airline, TSB holding, announced Poland’s
first low-cost carrier called GetJet, which would link Katowice with London (Stansted
or Luton), Paris (Beauvais or Orly) and Rome-Ciampino on a daily basis. In an e-mail
correspondence with the Author, the company stated that flights would also be offered
from Gdansk, Poznan, and maybe Warsaw. Operations were scheduled to commence in
November 2003 with two Airbus 320 aircraft, possibly moving to eight aircraft after
one year. Fares were anticipated to start at 99 zlotys (£16) (Kaminski-Morrow, 2003d).
Air Polonia is a freight operator and provider of air taxi services based at Warsaw. At
the end of March 2003, charter operations were started with two leased Boeing 737-400
aircraft, benefiting from the decision of tour operator TUI to suspend operations with
White Eagle Aviation, a charter and cargo airline in which the tour operator has a 29%
81
stake. Moreover, Air Polonia plans to start scheduled services from Rzeszow to London
and Germany although no date has been specified. Another low-cost airline, Wroclaw-
based Dream Air, intends to serve European destinations, but no further information
was available at the time of writing this thesis (Flight International, 2003b).
The largest player in Poland is the flag carrier LOT Polish Airlines, with a market share
in 2001 of 49% in terms of international flights to and from Poland (Euromonitor,
2002b). The airline transported 3.27m passengers in 2002, 55% of which travelled
within Europe (AEA, 2003: IV-23).
The state-owned airline began operating in 1929, but it was only in 1945 that scheduled
services were started. In 1991, the Polish parliament decided to transform the airline
into a joint-stock, sole shareholder company in preparation of privatisation. Eight years
later, in 1999, the government reached an agreement with the SAir Group to become a
strategic investor buying 10% of the shares. In 2000, the Swiss increased their stake to
37.6% and LOT became member of the Qualiflyer alliance. When Swissair got in
financial difficulties in September 2001, the Polish government assisted LOT to prevent
liquidity problems. Subsequently, another alliance was looked for and in mid-2002 the
Polish airline was expected to join the Star Alliance in the the fourth quarter of 2003.
Interestingly, SAirlines still has a stake of 25.1%. The Polish State Treasury owns
67.96% of the shares; the rest (6.94%) is in hands of employees.
In general, the carrier is well respected and has invested considerably in a modern fleet
since 1989. The company has several subsidiaries, among others EuroLOT. The latter
was set up as a domestic and regional carrier, and enables LOT to provide air services
on thin routes at a lower cost (Kaminski-Morrow, 2003c, Euromonitor, 2002b; WMRC,
2003a; AEA, 2003: IV-23).
Although LOT improved its operating result from USD -15.4m in 1999 to USD -1.5m
in 2000, operating losses climbed to USD 168.7m the following year. In 2002, the
company achieved an operating profit of USD 39.2m (LOT, 2003). In the first half of
2003, the carrier announced an operating profit of USD 2.34m (Kaminski-Morrow,
2003c).
82
The carrier’s unit costs of eight US cents per ASK are generally comparable to those of
Malév and CSA, although they were slightly higher than the figure for these two
carriers in the year 2001. However, this was still 20% lower than bmi’s 10 US cents per
ASK, but 43% and 79% more than easyJet’s and Ryanair’s unit costs, respectively.
LOT’s yields climbed by 8% from 10 US cents in 2000 to 11 US cents in 2001 and
reached a similar level as Malév’s yields in the latter year. Nevertheless, this was 30%
lower than bmi British Midland.
In the period under consideration, the Polish flag carrier had the highest breakeven load
factors of all airlines in the benchmarking study: 73% in 2000 and 78% in 2001. In
these years, the load factor slid from 65% to 62%, thereby widening the company’s
operating loss from USD 1.5 million to USD 168.7 million. A contributory factor was
the surge in labour costs per employee, which increased from USD 20,000 to
USD 30,000. This rise was caused by increased costs related to restructuring measures,
the payment of retirement bonuses and the strengthening of the zloty.31
Labour productivity in terms of ASK per employee stood at 2 million and was
approximately the same as Malév’s figure, i.e. 30% higher than bmi. As mentioned
before, ASK per USD 1,000 is a better measure because it incorporates output and
labour cost. Although with 102,000 ASK per USD 1,000 LOT performed about 6%
better than Malév in 2000, this figure dropped to 73,000 in 2001.32 In contrast, the
company improved its aircraft utilisation from 6.4 to 7.7 hours per day, but fell short of
Malév’s aircraft utilisation of 8.5 hours per day.
31 Nevertheless, caution should be exerted when interpreting the figures for labour costs, because the company also
changed accounting practices during the course of 2001.
32 The same qualification as regards labour costs applies here, however.
83
Benchmarking graphs
Unit cost
bmi
easyJet
Ryanair 2000
Malev 2001
LOT
CSA
0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14

Unit cost (US$)
Figure 5.6: Unit cost comparison for selected carriers (2000-2001)
Yield
bmi
easyJet
Ryanair 2000
Malev 2001
LOT
CSA
0.00 0.05 0.10 0.15 0.20

Yie ld (US$)
Figure 5.7: Yield comparison for selected carriers (2000-2001)
84
Breakeven Load Factor
bmi
easyJet
Ryanair 2000
Malev 2001
LOT
CSA
0% 20% 40% 60% 80% 100%

Bre akev en Load Factor (%)
Figure 5.8: Breakeven load factor comparison for selected carriers (2000-2001)
Labour cost per employee
bmi
easyJet
Ryanair 2000
Malev 2001
LOT
CSA
0 10 20 30 40 50 60
Labour cost/e mploye e (US$ 000)
Figure 5.9: Labour cost per employee comparison for selected carriers (2000-2001)
ASK per employee
bmi
easyJet
Ryanair 2000
Malev 2001
LOT
CSA
0 2,000 4,000 6,000 8,000

ASK (000) per e mployee
Figure 5.10: ASK per employee comparison for selected carriers (2000-2001)
85
ASK per US$1000 labour costs
bmi
easyJet
Ryanair 2000
Malev 2001
LOT
CSA
0 20,000 40,000 60,000 80,000 100,000 120,000 140,000
ASK/US$1000 labour costs
Figure 5.11: ASK per USD 1,000 labour costs comparison for selected carriers (2000-2001)
Aircraft utilisation
bmi
easyJet
Ryanair 2000
Malev 2001
LOT
CSA
0 2 4 6 8 10 12
Aircraft utilisation pe r day (hrs)
Figure 5.12: Aircraft utilisation comparison for selected carriers (2000-2001)
5.8 Conclusions
Hungary and Poland are both important tourism destinations ranked within the top
fifteen of the World Tourism Organisation. Although at present a large share of tourists
originate in neighbouring countries, Hungary has been trying to diversify the
composition of tourist nationalities to include more Western visitors. In the latter
country, tourism is mainly concentrated on Budapest and Lake Balaton.
86
Krakow and, to a lesser extent, Warsaw are popular leisure destinations in Poland.
However, visits for business and VFR purposes make up a considerable part of inbound
flows to Poland.
The fact that Hungary is more orientated towards leisure travel is reflected in its high
scores on a composite attractiveness indicator. Although Poland’s scores are somewhat
lower, the country does well on a global scale. Moreover, a sample of prices for tourist
goods and services suggested that prices in the two countries are relatively low.
However, air fares appeared to be comparatively high and will be investigated further in
Chapter 7. Even so, Hungary and Poland have the largest air transport markets of the
Accession Countries, after the Czech Republic. For both states, the largest air traffic
flows are to and from Germany and the UK, although Hungary has a higher share of
traffic to and from the EU.
Inhabitants of the two countries, especially Poland, have a relatively low propensity to
fly, although the Polish air transport market is forecast to exhibit the highest growth. At
present, package holidays are very popular in Poland.
The flag carriers have a large market share in their respective countries. However, their
financial performance has been poor, although LOT Polish Airlines returned to
profitability in 2002. At Malév, restructuring measures have not yet led to profits.
Whereas yields are relatively low for both carriers in comparison with peer airlines,
costs are lower as well. Productivity in monetary terms is very good.
Local no-frills carriers have announced plans to set up in both countries. In Hungary, a
regional low-cost airline is preparing to launch services, while Polish GetJet has a
business model resembling the Western European no-frills carriers more closely. This
does not exclude, however, that other more established low-cost carriers such as
Slovakian SkyEurope will also enter these markets in a liberalised EU-25.
87
PART 3:
LOW-COST CARRIERS AND HUNGARY/POLAND
88
Chapter 6: Countries’ suitability for low-cost carriers
6.1 Introduction
This chapter combines the information presented in previous chapters on low-cost
carriers and the Polish and Hungarian markets to evaluate whether the countries offer
fertile ground to be included in the networks of easyJet and Ryanair. First, (potential)
demand for air travel is assessed. Second, airports are evaluated and a model is
developed to select those with the highest potential. It is also indicated which may be
most suitable for particular low-cost airlines. Third, (future) competition is considered.
A summary is provided through a SWOT analysis.
6.2 Demand characteristics

Even though Hungary and Poland are important tourism destinations, the air passenger
market to and from the EU is larger for the Czech Republic than it is for these two
countries (see Section 5.6). This reflects the fact that Hungary and Poland are very
popular with neighbouring Eastern European countries. Yet, the growth rates of travel
between Western Europe and Poland are forecast to be relatively high at an average of
7.1% between 2002 and 2006 (Hungary: +4.4%).
Czech Rep. Hungary Poland

Number Number Relative to CZ Number Relative to CZ
United Kingdom 735,000 385,000 52% 455,000 62%
Germany 656,000 835,000 127% 731,000 111%
Note: CZ: ‘Czech Republic’. Data for 2001.

Source: Compiled by Author from Tronet (2003a).
Table 6.1: Number of air passengers between selected European countries
Table 6.1 zooms in on air traffic flows between the Czech Republic, Hungary and
Poland on the one hand, and their most important Western European markets (Germany
and the UK) on the other hand. Clearly, air routes between the UK and Hungary are
less dense than between the UK and the Czech Republic. To a lesser extent this is also
89
true for traffic between the UK and Poland. The opposite holds for routes to/from
Germany: the Polish and especially the Hungarian market are more important than the
Czech market.
Although the figures may be distorted due to connecting traffic, this suggests that routes
from Germany offer more scope in terms of passenger numbers.
There is a marked difference in motivation for trips to the two Eastern European
countries. Hungary is in general a popular leisure destination, while a large share of EU
visitors travel to Poland for business purposes or to visit friends and relatives (see
Sections 5.2 and 5.3). Thus, on a country level, low-cost expansion into Hungary seems
to hold somewhat more potential because leisure travel lends itself better to traffic
stimulation. Nevertheless, the VFR proportion for Poland is sizable and forms an
opportunity to increase the number of air passengers, as no-frills airlines have proven
(e.g. on Dublin-London). Moreover, Krakow and to a lesser extent Warsaw, have set
themselves up as leisure destinations and have the best tourism infrastructure in Poland.
In this respect, Poland provides sufficient elements to withhold it for further analysis.
Similar to the Czech Republic, Poland and especially Hungary are cheap destinations
for tourists seeking a low-cost holiday. High Hungarian inflation rates may become a
problem, though. Furthermore, according to the WTTC Competitiveness Monitor the
Hungarian and Polish tourism industries are both competitive in comparison with other
countries, with Hungary doing slightly better (see Section 5.5).
Despite this largely positive performance of the two countries, some Western European
consumers are still hesitant to travel to Eastern Europe. According to research on
consumers’ experience of, and attitudes towards holiday taking in Eastern Europe, 44%
of British respondents declared not to be interested in going on holiday to Eastern
Europe. Only 10% of interviewees had taken a holiday in this region in the previous
five years (R&M, 1999).33 Research by Langlois et al. (1999: 465) on travel from the
UK to Poland indicated that only 7% of the visitors had no previous ties to the country,
suggesting that awareness with other Britons is low.
33 Unfortunately, no information is available on size and composition of the sample.
90
Thus, although attitudes may have changed over time and will probably do so once the
EU is enlarged, there is still some way to go in promoting the positive characteristics of
these destinations. Nevertheless, these reluctant attitudes may affect low-cost carriers
less if they fly to this region because they lower the psychological ‘cost threshold’ with
their low ticket prices. Moreover, short breaks also reduce the ‘risk’ for travellers, who
do not immediately want to commit many days of their holidays to an ‘uncertain’
destination.
In Hungary, Budapest forms one large catchment area, where 17% of the country’s
population lives (1.8m people). This is attractive to (low-cost) airlines and significantly
more than Prague for example, which has 1.2m inhabitants. Conversely, Poland is a big
country consisting of several medium to large cities. Hence, the catchment area for
each of these is smaller compared to Budapest, and even more so because the motorway
network is underdeveloped (and thus lengthens travel times). On the other hand,
Poland’s characteristics increase the scope for future (low-cost) domestic flights.
Even though Ryanair has found that some Eastern Europeans travel across the border in
order to board flights in Western Europe, the share of Poles and Hungarians on low-cost
flights is likely to be less than half. First, the economic performance of these countries
is significantly lower on a per capita basis than in the EU-15. Even if air transport were
available at low prices the total cost of travelling would still be perceived as high.
Besides having a comparatively low GDP per capita, Poland as a whole has a lower
propensity to fly than Hungary. At present a mere 14% of Poles above fifteen years and
only one in three Hungarians take a holiday outside their home countries (see Sections
5.2 and 5.3). However, low-cost carriers may reduce the total cost of VFR travel
dramatically. Second, there is a low penetration of Internet, credit cards and online
shopping in these countries (see Section 4.5). Although in Hungary Internet usage is at
a relatively advanced level, the main problem is the low adoption of credit cards. Thus,
in general, distribution in these countries will have to focus more on call centres
(especially in Poland) and intermediaries, such as travel agents and Internet cafés who
allow customers to choose their form of payment and to interact in person. However,
low-cost carriers need not change their business model to allow for these intermediaries.
91
EasyJet, though, makes life easier for middlemen by offering a dedicated portal on their
website. Third, charter flights as part of packaged holidays to Southern Europe are
popular with Poles and Hungarians. Due to restricted budgets, people often go on
holiday only once a year, and may find additional travel too expensive. If low-cost
carriers decided to launch routes between Eastern and Southern Europe, they would be
confronted with a very seasonal market and fierce competition from charters.
Market research firm Taylor Nelson Sofres presents an argument in favour of low-cost
airline acceptance among Hungarians and Poles. In a 2002 survey among 5,000
consumers in four Eastern European countries and the UK, it was found that Poles and
especially Hungarians are more inclined to buy cheap products and ‘unknown’ brands
than Britons or Czechs. The functionality and the price were found to be most
important. If this behaviour also applies to air tickets, no-frills airlines are in an
advantageous position (TNS, 2002).
6.3 Airports
6.3.1 Airport evaluation

Appendix J includes key data on all airports in Hungary and Poland. In order to assess
the possibility for low-cost carriers to fly to these destinations, the records were filtered
on different criteria. First, airports should be open for civil aircraft. Second, paved
runways are required. Third, the airport must be suitable to accommodate aircraft flying
under instrument flight rules (IFR). Finally, the available runway length should be
sufficient. Based on available performance data for the Airbus 319-100 and the Boeing
737-800 it was decided to keep airports with a runway length of more than 2,300 metres
(Airbus, 2003; UranusJay, 2003).
The airports in Table 6.2 satisfied the operational criteria. For reference, information on
passenger numbers at these airports and distances to some no-frills base airports have
been included.
92
IATA Passengers Distance (kilometres) from

Airport name Country
code 2002 STN HHN NYO BGY
Balaton-Sarmellek34 SOB Hungary 16,260 1,352 815 1,345 585
Budapest-Ferihegy BUD Hungary 4,482,000 1,450 922 1,270 756
Debrecen35 DEB Hungary 7,000 1,606 1,085 1,293 932
Bydgoszcz-Szwederowo BZG Poland 13,145 1,206 819 635 1,019
Gdansk-Rebiechowo GDN Poland 318,104 1,243 907 500 1,150
Katowice-Pyrzowice KTW Poland 202,430 1,319 841 933 876
Krakow-Balice KRK Poland 500,817 1,378 893 985 896
Poznan-Lawica POZ Poland 227,405 1,130 720 707 911
Rzeszow-Jasionka RZE Poland 51,922 1,530 1,052 1,019 1,039
Szczecin-Goleniow SZZ Poland 76,897 1,004 663 591 956
Warsaw-Okecie WAW Poland 4,936,532 1,413 987 778 1,093
Wroclaw-Strachowice WRO Poland 235,949 1,152 691 854 802
Zielona Gora-Babimost IEG Poland 7,887 1,063 643 743 845
Note: STN: London-Stansted; HHN: Frankfurt-Hahn; NYO: Stockholm-Skavsta; BGY: Milan-Bergamo.
Source: Compiled by author from ATI, airport websites, Air Broker Center (2003) and CEEBICnet (2003).
Table 6.2: Airports suitable for low-cost carrier operations
In a next stage, the aeronautical charges at these and some other European airports were
looked up in the IATA ‘Airport and Air Navigation Charges Manual’ and on the
airport’s websites. Calculations were performed for the Boeing 737-800 and the two
A319 versions easyJet will be using. Figure 6.1 depicts the results of this exercise (see
Appendix K for calculations of aeronautical charges).
In general, the airports listed above compare favourably to the others included in the
sample. For example, aeronautical charges are less than at Prague-Ruzyne, Paris-Orly
and certainly Amsterdam-Schiphol. However, Warsaw is slightly more expensive than
Stansted, while Budapest has charges comparable to the London airport. As one would
expect, the charges at regional airports are lower.
Discounts are not taken into account in the calculations in Appendix K but they will be
included in the airport selection analysis (Section 6.3.2). Similarly, ground handling
charges are excluded because they are typically negotiated by low-cost carriers and
hence it is not possible to use exact numbers.
34 No ILS equipment is currently available at the airport. At the moment of writing, investment funds were being
collected to install additional navigational facilities and upgrade the terminal.
35 Category I Instrument Landing System (ILS) equipment will be installed by the end of 2003.
93
Aeronautical charges at selected airports
ORY
AMS
STN
PRG
B737-800
PL-Class III
A319-100 75.5t
PL-Class II
A319-100 64t
PL-Class I
DEB
SOB
BUD
0 1,000 2,000 3,000 4,000 5,000 6,000

Aeronautical charges (EUR)
Note: ORY: Paris Orly; AMS: Schiphol Amsterdam; STN: Stansted; PRG: Prague Ruzyne; DEB:
Debrecen; SOB: Balaton; BUD: Budapest. See Appendix K for airports in PL-classes.
Source: Author, based on IATA (2003a).
Figure 6.1: Aeronautical charges at selected European airports
Another requirement to serve airports is the availability of slots and adequate terminal
facilities. At the larger airports (i.e. Budapest, Warsaw, Krakow and Gdansk), terminal
facilities do not pose a problem because they are already suitable or are in the process of
being upgraded. For example, Budapest’s ‘low-cost’ Terminal 1 can accommodate one
million passengers per year (Smyth et al., 2003: 22). As regards slots, Budapest-
Ferihegy airport currently has ‘Level 2’ status, meaning that demand is approaching
capacity limits. However, saturation will probably not occur for some time, as yearly
terminal capacity is calculated at 5.5 million passengers and the aircraft movement
capacity at 40 movements per hour (Hungarocontrol, 2003). In 2002, there were 4.5
million passengers and maximum 24 aircraft movements per hour (Budapest Airport,
2003). Based on analysis of ATI movement data, Warsaw Okecie airport seems slightly
more congested. However, there should be sufficient opportunities for airlines wanting
to fly to this airport, too. Traffic at the other airports is currently low enough not to
pose a problem.
94
Investment is needed for the Hungarian regional airports to make them technically
suitable to the needs of no-frills carriers. At the time of writing, funds were being
collected (Balaton-Sarmellek) or infrastructure was being upgraded (Debrecen).
According to media reports, both Ryanair and easyJet have expressed interest in flying
to Eastern Europe and have held talks with various airports in Hungary and Poland.
The former is reported to have negotiated with the most airports and at first sight seems
to be in a more advantageous position than easyJet because of its higher number of
continental European bases. This will allow it to launch more routes with sector lengths
that enable high aircraft utilisation.
At present, Budapest-Ferihegy airport seems most keen on attracting low-cost carriers.
Indeed, excess capacity is available at the old Terminal 1. This attitude has been
welcomed by Germanwings, who claim that airport and ground handling charges are on
average cheaper at Ferihegy than at their other destinations (Mokosch, 2003). As noted
above, the airport also has a large catchment area. Although this airport certainly has
the potential to develop into a low-cost base, Bratislava Airport (Slovakia) is also eager
to attract no-frills carriers.
Recently, solutions have been devised to provide low-cost infrastructure terminals at
Krakow and Warsaw airports too. The local Krakow government will build a ‘low-
cost’ terminal by mid-2004, while the Ministry of Infrastructure will allow no-frills
airlines to use the domestic terminal at Warsaw-Okecie (Dow Jones Polish Press, 2003;
Warsaw Daily, 2003).
The above set of airports portrays only a static picture. For example, Lodz-Lublinek
airport in Poland is planning to extend the 1,400 metre runway to make it suitable for
larger aircraft. These modifications will cost around USD 10 million and make the
airport appealing to low-cost carriers such as Ryanair because it could be marketed as a
secondary airport for Warsaw (about 100 km away), while it is also close to the second
largest Polish city. The works were scheduled to start in 2004 (Infopolen, 2003).
Another alternative in Poland would be the military airport of Radom, which will be
converted to a civil airport (Kitowska, 2003). However, Lodz airport seems a more
attractive option, because of the larger catchment area and better road connections.
95
6.3.2 Selection of airports

In order to select the airports which hold opportunities for low-cost routes, information
on the availability of suitable infrastructure, distance to nearby cities, the size of nearby
population centres, appeal of these cities to European tourists, the regional economic
activity and aeronautical charges was compiled. These criteria take operational as well
as demand-related factors into consideration. These data have been presented before in
various chapters.
‘Tourism appeal’ refers to people from EU countries finding the country interesting to
visit. This category was based on a comprehensive information search on the Internet
and in travel guides, as well as on insights gained during various interviews and the
mini-survey organised in the context of this thesis (cf. infra). Nevertheless, some
subjectivity could presumably not be avoided.
‘Nearby population centre’ refers to the city (or the ‘Tri-City’ in the case of Gdansk
airport) that the airport serves. In general, this was straightforward since the cities are
clearly separated from each other. For Lake Balaton, however, the nearest largest city
(Zalaegerszeg, at about 25 km from the airport) was chosen, although this is likely to
result in an underestimation.
For Ryanair it was assumed that the carrier negotiated a 50% discount as part of a long-
term contract at all but the capital airports.36 This is consistent with estimates of
Lobbenberg et al. (2003a; see Section 2.3.5). In the case of easyJet, a reduction of 40%
on aeronautical charges was used in the calculations, reflecting the fact that this carrier
is believed to be somewhat less aggressive when negotiating airport deals.
In a next phase, all data in the table were transformed to values on a scale of one to five
for each characteristic. Care was taken that relevant classes were determined. These
ratings and classes for all airports can be found in Appendix L.37
36 This is not to say that major airports do not offer any discounts. After one to three years, however, these often
expire. Moreover, competing carriers would object discriminatory pricing.
37 The attentive reader will have noticed that data measured on different scales are transformed to an ordinal scale.
‘Tourism appeal’ is already ordinally scaled, while ‘distance from nearby city centre’, ‘size of population centre’,
‘regional economic activity’, and ‘aeronautical charges’ are ratio scaled. Transformation to a lower-level scale is not
a problem, though. Although strictly speaking, no calculations can be performed on ordinal scales, some authors
argue that this is not a problem when there are sufficient classes (i.e., five or more). In this case, the assumption of
‘equal appearing intervals’ applies (De Pelsmacker et al., 1999: 227). Care was also taken that the same classes
applied to easyJet and Ryanair. Given the qualitative nature of route development, the main aim of the calculations
is to give an indication of suitability, however.
96
After this transformation, an independent consultant (Peter Hind) weighted the factors
according to the importance easyJet and Ryanair are believed to attach to them. From
this, weighted scores could be calculated for each of the two low-cost carriers (see
Table 6.3).
(40% reduction of aeronautical charges)
(50% reduction of aeronautical charges)

Level of aeronautical charges (easyJet)
Level of aeronautical charges (Ryanair)

Distance from main city/tourist centre
Weighted average easyJet score

Size of nearby population centre
Weighted average Ryanair score

Regional economic activity
Tourism appeal
Airport
Balaton-Sarmellek 5 5 1 4 4 4 3.75 3.70
Budapest-Ferihegy 5 5 5 5 3 2 4.60 3.95
Debrecen 5 2 2 1 4 4 2.75 2.85
Bydgoszcz-Szwederowo 5 1 3 2 4 4 3.05 3.00
Gdansk-Rebiechowo 5 3 4 2 4 4 3.55 3.60
Katowice-Pyrzowice 4 2 3 2 4 4 3.00 3.10
Krakow-Balice 5 5 4 2 4 4 3.85 4.00
Poznan-Lawica 5 3 4 2 4 4 3.55 3.60
Rzeszow-Jasionka 5 1 2 1 4 4 2.60 2.65
Szczecin-Goleniow 4 3 3 2 4 4 3.15 3.30
Warsaw-Okecie 5 4 5 4 3 2 4.20 3.60
Wroclaw-Strachowice 5 3 4 2 4 4 3.55 3.60
Zielona Gora Babimost 4 1 1 2 4 4 2.45 2.50
easyJet weights 0.20 0.15 0.20 0.25 0.20 - - -
Ryanair weights 0.10 0.20 0.20 0.15 - 0.35 - -
Note: Scores on a scale of 1 (low rating) to 5 (high rating). No discounts at capital airports.
Source: Compiled by Author from various sources presented in previous chapters.
Table 6.3: Scoring of Hungarian and Polish airports
Table 6.4 summarises the airports that received the highest score. As can be seen, the
set of top airports is the same for Ryanair and easyJet. Nevertheless, some of the
airports will fit better with easyJet or Ryanair. For example, the two capital airports
have higher ratings from easyJet’s point of view. Moreover, Ryanair tends to avoid
primary airports as explained in Section 2.3.2, so it is unlikely that they will fly there, as
was confirmed during the interview with Bernard Berger. Krakow is a destination that
97
can be served by both airlines, although Ryanair’s score was somewhat higher. Even
though this is in essence a primary airport, the new low-cost terminal may appeal to
both airlines. Furthermore, the airport’s score probably underestimates its true
attractiveness because a motorway connects Krakow with Katowice. These two cities
are separated by about 70 kilometres.
The other airports – Balaton, Gdansk, Poznan, and Wroclaw – may better suit Ryanair
because the difference in ratings is most likely to be too large for easyJet in comparison
with its two highest ranked airports. The lower popularity of these destinations in the
countries where the airline has its bases, as well as the smaller population centres these
airports serve, would probably not satisfy easyJet’s requirements.
Airport easyJet Airport Ryanair

1 Budapest-Ferihegy 4.60 1 Krakow-Balice 4.00
2 Warsaw-Okecie 4.20 2 Budapest-Ferihegy 3.95
3 Krakow-Balice 3.85 3 Balaton-Sarmellek 3.70
4 Balaton-Sarmellek 3.75 4 Warsaw-Okecie 3.60
5 Gdansk-Rebiechowo 3.55 5 Gdansk-Rebiechowo 3.60
6 Poznan-Lawica 3.55 6 Poznan-Lawica 3.60
7 Wroclaw-Strachowice 3.55 7 Wroclaw-Strachowice 3.60
Source: Author (see Appendix L for full calculations).

Table 6.4: Top scores of potential airports for easyJet and Ryanair
In the next chapter, routes to and from five airports will be proposed. Thus, two airports
in Table 6.4 had to be excluded from further analysis. The Author estimates that of the
three Polish airports with an equal score, Gdansk-Rebiechowo offers the best
opportunities for air services in the short to medium term, because (1) the city is better
known (cf. e.g. Langlois, 1999: 461), (2) driving distance from Germany is longer, and
(3) its proximity to the Baltic Sea offers scope for shortening ferry travel times. Thus,
Poznan and Wroclaw were not analysed further.
6.4 Competition
The financial performance of the Polish and Hungarian flag carriers has been poor
because even though their unit costs are relatively low, soft yields have resulted in high
98
breakeven load factors. LOT Polish Airlines will probably be better able to cope with
low-cost competition as it (1) has posted profits for 2002 and the first half of 2003; (2)
is member of an airline alliance; and (3) only 55% of its passengers were flying on
scheduled services in Europe. Malév is more vulnerable, especially in the short term
because (1) although its financial results show signs of improvement, the airline is not
profitable, (2) its traffic is concentrated on one Hungarian airport, (3) a large proportion
of its total passengers (over 80%) travelled on scheduled flights within Europe, and (4)
it is not a member of an alliance group.
Even so, the advantage of Eastern European carriers is that labour costs are low, leading
to levels of labour productivity in terms of ASK per $1,000 which are comparable to
no-frills carriers. For low-cost carriers, it would be a natural extension of their model to
establish a base in these countries and take advantage of those favourable conditions,
although over time this regional advantage may erode due to pressure for higher wages.
Since most interviewed low-cost airline managers agreed that first-mover advantages
are important, the airline that is first to offer low-cost services in a country will enjoy
high awareness and it will be more difficult for competitors to enter the same routes.
Because Germanwings and Snowflake are already offering low-cost services out of
Budapest, such an advantage will be more difficult to achieve in Hungary. However, on
a route basis (e.g. to the UK) there are still opportunities. Conversely, no low-cost
carriers are currently active on the Polish market, leaving opportunities for a first
mover. GetJet may well be this first budget carrier if it indeed starts Polish operations
before Ryanair or easyJet. Alternatively, the latter two may face more competition on
routes to and from Poland.
Arc Air, the planned Hungarian low-cost start-up is less likely to increase competition
for any no-frills carrier flying to Hungary. Rather, their network of niche routes may be
complementary with a low-cost carrier operating to Budapest.38
38 See Ibarra (2003) for a methodology to assess low-cost carrier connections.
99
6.5 SWOT analysis of Hungary and Poland for LCCs

Strengths Weaknesses
 Strong tourism markets with room for  Western European attitudes towards Eastern
stimulation Europe
 Cheap destinations (Warsaw less so)  Low travel budgets; low propensity to fly (e.g.
 Significant current air traffic to/from Germany, Poland: high unemployment and importance of
and to a lesser extent, the UK agriculture)
 Relatively weak competition (especially Malév)  Low Internet and credit card penetration
 Price conscious local consumer markets  Underdeveloped Polish motorway network
reduces size of catchment areas of some
 Large catchment area of capitals airports
 Interest of airports  Relatively long sector times from the UK
Opportunities Threats
 Plans for airport upgrades (e.g. Lodz-Lublinek)  Uncertainty regarding sources of finance for
 Achieving first-mover advantage some airports wanting to upgrade infrastructure
 Low labour cost and high labour productivity  Emergence of low-cost carriers with similar
suitable for setting up no-frills base business models
 Domestic flights in Poland
 Regional low-cost carriers’ presence increase
attractiveness of major low-cost carriers for
‘voluntary hubbers’
For low-cost carriers, the strengths of the countries will outweigh their weaknesses.
Attitudes of Western Europeans towards Eastern European destinations will probably
not be a major problem due to the generally shorter nature of passengers’ holidays and
the (future) status of the countries as EU members.
It was shown that demand will predominantly come from Western Europeans travelling
to Eastern Europe. Thus, the lower suitability of local markets will have a
proportionally smaller impact. Low-cost carriers’ experiences have also proven that
lower usage of Internet or credit cards does not form a barrier to their success. Also, as
the economies keep on growing, propensity to travel will increase further. Finally, the
analysis in Section 2.3.5 showed that, although fewer rotations may be possible per day,
longer sector lengths do not negatively affect profit contribution on a route basis.
The opportunities also seem to outweigh the threats. EasyJet and Ryanair are more
established, have a larger customer base, and better developed brands than start-ups. At
the time of writing, prospects for necessary investments at airports were also good.
100
6.6 Conclusion
Germany and the UK account for the largest air traffic flows to and from the two
countries in this study. The number of passengers travelling between Germany and
each of the two Eastern European countries is greater than between Germany and the
Czech Republic. However, for the UK it is the other way around: the UK-Czech
Republic air passenger market is larger than the UK-Poland and UK-Hungary markets.
On an aggregate basis, too, the Hungarian and Polish air transport markets are not as
large as that of the Czech Republic in terms of traffic to and from the EU-15.
Even though people travel to Hungary and Poland for different purposes, low-cost
carriers should be able to stimulate traffic. Traffic to Hungary will consist of a lot of
leisure travellers. For Poland, VFR traffic is expected to be more important. Indeed,
Chapter 2 suggested that about 25% of Eastern European ethnics in the UK were Polish
and that there is scope for more VFR travel between the UK and Eastern Europe. In
light of the increased business opportunities in Eastern Europe offer after enlargement,
business travel may also be stimulated, although based on experiences with other low-
cost routes the effect will be proportionally less than for the other travel purposes.
Attitudes to Eastern Europe as a holiday destination might pose a problem, although the
‘exotic’ characteristics will attract short-break travellers. The relative cheapness of the
destinations will appeal to travellers looking for a low-cost holiday, as well as to low-
cost carriers who will be able to purchase some services at lower prices. Opening a
base in an Eastern European country would present further cost reduction opportunities
through lower local salaries. Nevertheless, the proportion of Eastern Europeans will
probably be less due to the lower propensity to fly. The popularity of package holidays
and the low penetration of Internet and credit cards may also pose barriers for the
acceptance of low-cost carriers, especially in the short term. Hungary performs
somewhat better than Poland on these aspects. Moreover, a large share of the
Hungarian population is concentrated around the capital (Budapest).
Since both countries presented sufficient positive indications for low-cost carriers, their
airports were evaluated using a weighted scoring model, taking into account various
criteria. Krakow, Balaton and Gdansk appeared to be the most suitable airports for
Ryanair. For easyJet, Krakow was also withheld, as were the airports of Budapest and
Warsaw. A SWOT analysis evaluated the two countries a being positive overall.
101
Chapter 7: Evaluation of routes to Eastern Europe
7.1 Introduction
In the previous chapter, five airports in Hungary and Poland were withheld (Budapest,
Warsaw, Krakow, Balaton and Gdansk). Based on this selection of airports, a number
of routes will be proposed in this chapter, and subsequently assessed through traffic
forecasts by analogy and fares comparisons. To this end, similar city-pairs are used
which were derived from a survey among people in the travel industry. A separate case
study is devoted to current routes between the UK and Prague to determine what
developments may ensue after entry of a low-cost carrier, as well as to calibrate a
market share model for new routes to Eastern Europe. Various scenarios are devised to
ascertain the implications of variations in demand and incumbents’ reactions for market
shares.
A schematic overview of the chapter’s structure and methodology used can be found in
Figure 1.1 on page 8.
7.2 Proposed routes

When considering the five selected Eastern European airports and the fifteen unique
cities where easyJet and Ryanair have crew based, in theory, 75 unique city-pairs
(15×5) can be suggested. Clearly, evaluating all of these is outside the scope of this
thesis. In order to narrow down this list to five or so routes, it was decided in a first
stage to consider only one city for the British Isles, namely London, because of its large
population and its position as the focal point of present low-cost travel. Moreover,
sector times between other British cities and the proposed destinations would exceed 2.5
hours. As Ryanair and easyJet have significant presence at London-Stansted, this
airport was chosen. Thus, the list was shortened to 35 routes to and from base airports
in London, Geneva, Paris, Frankfurt-Hahn, Milan-Bergamo, Stockholm-Skavsta and
Brussels-Charleroi.
102
It is, however, unlikely that routes would be launched initially from Geneva and
Brussels-Charleroi, because travel and tourism figures for Hungary and Poland show
that these countries do not generate large flows. By contrast, tourism data for France
and passenger data for Parisian airports indicate that interaction with both Poland and
Hungary is relatively high, although flows are still well below those to and from the UK
and Germany. If easyJet further develops its base at Paris-Orly and Eastern European
routes prove successful from the UK then this airport would be a likely candidate for
‘joining the dots’. Similarly, Hungary seems appealing to Italians. However, it was
shown earlier that a large proportion of Italians visit the Hungarian capital. In view of
the fact that Ryanair would probably not fly to Budapest, this reduces the immediate
potential of routes to and from Italy somewhat. Nevertheless, it is believed that the
Italian market could also offer opportunities after other routes have demonstrated their
success.
Even so, Germany and the United Kingdom seem to be the best candidates to link with
Hungary and Poland because of their current large traffic flows with these countries. As
outlined in Section 5.6, these two EU-15 members together account for 44% and 39%
of air passenger travel to and from Hungary and Poland, respectively. Moreover, the
United Kingdom and Germany have the best developed low-cost markets. Even though
Table 6.1 has shown that Germany has higher traffic with Hungary and Poland, it was
decided that the emphasis of the analysis would be on routes to and from the UK, taking
into consideration the availability of statistical data in the public domain. Another
reason was that both easyJet and Ryanair use base airports in the London area, while
only Ryanair has a base in Germany after easyJet decided not to go ahead with plans to
take over Deutsche BA. Additionally, Budapest is currently served by Germanwings
from Cologne-Bonn and Stuttgart, which makes it less interesting to study another low-
cost route from Germany to the Hungarian capital. By contrast, no low-cost carriers
currently serve Hungary or Poland from the UK.
Interestingly, Go considered flying to Budapest, Warsaw and Krakow before it was

taken over by easyJet. However, bilateral agreements were found to be rather
restrictive, especially in comparison with the Czech bilateral agreements. Still, had the
103
airline not been taken over by easyJet, a route between London and Budapest would
probably have been launched during the summer of 2003 (Anker, 2003a).39
Considering the popularity of the Balaton area with Germans and the small number of
British tourists visiting this region, the Author deemed it would make more sense to
evaluate this destination in relation to Frankfurt-Hahn airport (see Section 5.2). In the
medium term, a route could be launched from the UK as well. It may be argued that
this decision is too conservative, given that Ryanair have successfully launched services
to less well-known destinations from the UK before (e.g. Friedrichshafen, Klagenfurt).
In general, the proposed methodology – which will be mainly applied to the UK – could
easily be extended to other countries.
Up until now, nothing has been said about Stockholm-Skavsta. Research on transport to
Poland revealed that a ferry line exists between Nynäshamn (60 km south of
Stockholm) and Gdansk, with three to four frequencies a week, depending on the time
of year. Given the successes that Ryanair has achieved in diverting ferry travellers to
air travel, it was decided to tentatively include Skavsta-Gdansk in the route evaluation
as well, bringing the number of city-pairs to be evaluated to six.
The preceding analysis is summarised in Table 7.1. Appendix M shows the routes on a
map.
Budapest Balaton Warsaw Krakow Gdansk
London     
Frankfurt-Hahn     
Stockholm-Skavsta    
Paris-Orly   
Milan-Bergamo  
Note:  : Apparently suitable characteristics in the short term; potential will be assessed.
 : Apparently suitable characteristics in the medium term; potential will not be assessed now.
 :Apparently suitable characteristics; potential will not be assessed because of lack of fit of
Eastern European airport with low-cost carrier’s business model.
Table 7.1: Shortlist of potentially suitable city-pairs
39The takeover by easyJet thwarted these plans as they were not interested in expanding to these destinations. In a
conversation with the Author, Ray Webster declared that Eastern European countries will only be considered once
they become fully-fledged members of the European Union.
104
Through interviews with route development personnel of both low-cost and full-service
carriers, it became apparent that route evaluation and selection is sometimes more an art
than a science. The interviewees most often suggested adopting a qualitative approach
by looking at similar cities and city-pairs in order to forecast traffic on (low-cost)
routes. The Author decided to follow this methodology (see Section 7.6.1). However,
first these similar cities and city-pairs had to be determined – the process of which is
outlined in the following paragraphs.
7.3 Determining similar destinations
7.3.1 Detailed methodology

In order to obtain an objective input, people with various backgrounds were contacted
individually by e-mail. Thus, the sample consisted of a route development manager of a
low-cost airline, a travel journalist, an air transport journalist, an aviation manager of a
large tour operator, and two travel agents.40
Questions were asked in two rounds. First, the respondents were requested to list five
similar cities in the EU-15 for each of the five destinations that were identified above,
i.e. Budapest, Lake Balaton, Warsaw, Krakow and Gdansk. The restriction to only
consider EU-15 countries was inspired by the fact that this region has been the main
focus of easyJet and Ryanair.41 The purpose of the first question was to introduce the
respondents to the research and to get him or her to think about the cities in this
research. At the same time, it was possible to get a first indication of the awareness of
the destinations and to improve the validity of the second question.42 The respondents
were given the opportunity to motivate their answers.
A second e-mail was sent out after the first question had been answered. For this round,
the Author compiled a list of around ten places which were served by Ryanair or easyJet
at the time of the research, for each of the five shortlisted destinations. The respondents
40 The names and the functions of these people can be found in Appendix N. An assessment of destinations by the
airline manager was performed in a different format during an interview (see Section 3.4.1).
41 A separate section (7.4) will be devoted to an interesting exception to this rule, namely Prague (Czech Republic).
42 For example, Lake Vattern in Sweden was found to be a valid suggestion, but unfortunately neither Ryanair nor
easyJet serve any airports in the vicinity of this lake, so the suggestion could not be used.
105
were asked to rate the degree of similarity of each potential destination with the places
in the list on a five point Likert scale. The questions and responses for both exercises
can be found in Appendix O.
7.3.2 Results
The answers to the first question were quite varied. This was in part because three of
the five respondents had listed non-EU destinations as well. Of course, there are many
large cities in the EU-15, let alone in Europe, which explains the great number of
different places that were named. It is also likely that some answers were influenced by
personal experience, and by the nationality of the respondent. Nevertheless, some clear
patterns could be discerned. First, a large number of Austrian and German places were
listed, suggesting that similarity was in part interpreted as geographical proximity.
Second, the highest level of agreement was found for Budapest as all respondents
mentioned Vienna, Berlin and, even though not yet in the EU, Prague. Third, it was
apparent from the comments that they were less familiar with Lake Balaton and Gdansk,
although quite a few medieval ‘Hansestädte’ were mentioned for the latter (e.g. Lübeck
and Bruges).
The results for the second question broadly confirmed those for the first exercise. In
line with the first question, the Gdansk and Balaton scores were generally lower than for
the other destinations. On the one hand, some respondents left blanks because they
were not familiar with the destinations, thus lowering total scores. On the other hand,
not many cities in the current networks of low-cost carriers may be like the two places.
The answers to the second question are discussed next by destination.
Budapest
Again, there was a lot of agreement on Vienna, Prague and Berlin being very similar to
Budapest. This became apparent through the high sum of scores and the high
correlations among respondents’ answers.43 Respondents commented that these were all
big, busy cities with quite a lot of commerce, but at the same time offering considerable
opportunities for leisure travel.
43As regards summing ordinal responses, the same remark as in Footnote 37 on page 96 applies. The results may
be less valid if people used different definitions of ‘similarity’. This is why correlations were also analysed.
106
It was also noted that these cities shared an ‘Eastern European outlook’ in terms of
architecture and culture. For the airline route development manager, Prague and
Budapest were most comparable because of analogies in architecture, history, food and
the perception of being ‘exotic’ destinations, suitable for stag nights.
Krakow
The comparability with some listed cities was also high in the case of Krakow. Prague,
Salzburg (Austria) and Bruges (Belgium) were believed to best resemble the city.
However, the correlation of the respondents’ answers was lower than for Budapest.
During the interview with the airline manager, Graz was also labelled as fairly similar
because of its cultural appeal. In the manager’s opinion, Krakow has the potential to
become ‘another Prague’.
Warsaw
Warsaw was found to be like Berlin, Prague, and to a lesser extent, Vienna and
Brussels. Some respondents indicated that the ‘Germanic appeal’ of the city had
determined their answers. The total scores were lower in comparison with Budapest
and Krakow, although the respondents’ scores correlated to about the same degree as in
the case of Krakow. Interestingly, the Ryanair manager believed that Warsaw was more
like Vienna than Prague, because their ‘appeal’ corresponds better and because Prague
is smaller than the two other cities. He also found that the Polish capital is underrated
and in this respect likened it to Brussels.
Lake Balaton
There was no clear agreement among the experts on Lake Balaton, as the correlations
were around 0.5, and in one case even negative. Tentatively, it can be said that
Friedrichshafen (Germany), Geneva (Switzerland), and Klagenfurt (Austria) are like
Lake Balaton. Geneva seems a less appropriate choice in the context of this thesis
because many tourists go there for skiing as well, which may introduce distortions in the
forecasts since there are no mountains in the Balaton area. One person indicated that
the French part of Lake Geneva may be more similar than the Swiss part. All
respondents agreed on the fact that Balaton is a typical leisure destination. The airline
route development manager pointed out that although Klagenfurt is also mainly a
leisure destination, it is less seasonal than Balaton because it lies close to both the
107
Wörthersee, which attracts tourists in the summer, and the Alps, which are especially
popular in the winter. His explanation for the similarity of Balaton and Friedrichshafen
was that both are smaller, have a microclimate, but no mountains.
Gdansk
Although some respondents did not rate all cities for the comparison with Gdansk, the
total scores for the different places were generally higher than for Lake Balaton. As in
the first exercise, the similarities with ‘Hansestädte’ Bruges and Lübeck are clear. The
Ryanair manager cited the analogies in ‘atmosphere’ of Gdansk and Lübeck, which
underscores the fact that this exercise is very qualitative. Prague also featured among
the top three of most comparable places.
However, respondents differed markedly in the scores they gave, resulting in low and
even negative correlations. It is also noteworthy that the Belgian raters gave relatively
high similarity scores for Bruges, while their English counterparts gave a low mark.
Furthermore, the data may have been distorted because the Belgian city received one
rating more than the other places. Because of this reason and the lack of sufficient
historic air passenger data available for Bruges, that city was not used.
An additional explanation for the rather low correlations in the case of Lake Balaton,
Gdansk, and to a lesser degree, Krakow is that even though the Author’s shortlist was
compiled in a rigorous fashion using the Time Out (2002) short break city guide and
was conservative in the sense that in case of doubt a city was indeed included, some
other similar places may have been inadvertently left out.
7.3.3 Selection of similar destinations

Even though respondents seemed to largely agree on some destinations (e.g. Budapest
and Krakow), the disparity in some cases shows that determining similar cities is not an
easy exercise, but is very qualitative and subjective. Indeed, as one respondent
formulated it, “each city tends to be unique”.
Nevertheless, for the forecasting stage the following cities will be used as analogous to
the five destinations (comparable cities ranked in order of similarity):
 Budapest: Prague, Vienna, Berlin
 Lake Balaton: Friedrichshafen, Klagenfurt
108
 Warsaw: Berlin, Prague, Vienna

 Krakow: Prague, Salzburg, Graz
 Gdansk: Lübeck, Prague
7.4 Similar routes

Based on the proposed routes in Section 7.2 and the similar cities in Section 7.3.3,
similar city-pairs were determined. Although route characteristics were matched as
closely as possible, differences remained. Indeed, due to variations in sector lengths
and variations in the proportion of business/leisure traffic, comparability may be more
difficult. For example, the London-Warsaw route is characterised by more business
travel than London-Prague.44 Another difficulty was that no routes that are currently
served by Ryanair from Frankfurt-Hahn, were found to be able to act as a proxy for the
Frankfurt-Hahn – Balaton route.
Thus, the Author had to resort to destinations which were found similar to Balaton, but
which are currently served from London-Stansted. However, analysis of passenger
numbers revealed that Ryanair routes perform reasonably consistently. This confirms
statements by Ryanair’s Bernard Berger that the fare is the main variable that is
changed, so as to get a fairly constant load factor. Even so, there must be sufficient
indications of interest between two regions, if the route is to be profitable over time.
Such indications will be qualitatively assessed.
Finding similar routes served by low-cost carriers proved difficult as well for
Stockholm-Skavsta. Skavsta–Lübeck was found to be the best match, but this route was
only started on 4 April 2003 and not enough historic data are available to evaluate other
routes. Thus, forecasts for this city-pair will be based on traffic data for the ferry line.
The following similar routes were withheld. All, except the similar route for
Stockholm-Skavsta – Gdansk, had low-cost competition.
44 Although one can argue that this is in part a result of the presence of low-cost carriers operating to Prague.
109
London – Budapest: London – Warsaw: London – Krakow:

1. London – Prague 1. London – Berlin 1. London – Prague
2. London – Vienna 2. London – Prague 2. London – Salzburg
3. London – Berlin 3. London – Vienna 3. London – Graz
London – Gdansk: Frankfurt-Hahn – Balaton: Stockholm-Skavsta – Gdansk:
1. London – Lübeck 1. London – Friedrichshafen 1. Nynäshamn – Gdansk
2. London – Prague 2. London – Klagenfurt
Table 7.2: Routes similar to proposed routes
Because of the importance of Prague as a benchmark, a case study on routes between

the UK and the Czech capital is presented in the next section.
7.5 UK-Prague case study
7.5.1 The market situation before the entry of Go

At the time of Go’s entry to the London-Prague route on 23 September 1999, three
carriers were offering services. These comprised the two flag carriers, British Airways
and CSA Czech Airlines, as well as British Midland, which had entered the route in
1995. All three carriers operated flights out of London-Heathrow, although CSA also
offered five frequencies per week out of London-Stansted. Until September 1999,
frequency shares had been fairly constant, with British Airways accounting for a third
of weekly frequencies, British Midland for about a fifth, and CSA for the rest (i.e.
47%). The shares in terms of capacity differed markedly, though. While British
Airways and CSA each provided 42% of seats in 1997, the British flag carrier had
increased its capacity share to 50% by June 1999 through the use of larger aircraft.
They did so mainly on the back of CSA, whose capacity share declined to 36%. British
Midland’s proportion of weekly seats remained constant at about 15% (cf. Appendix P).
7.5.2 Entry modalities

Ryanair and easyJet have repeatedly declared that they only launch routes to European
Common Aviation Area member countries. For Go, by contrast, this was not a
requirement, although bilaterals had to be sufficiently liberal. According to Ralph
Anker, Go’s former head of Network Planning, this was indeed the case for the London-
110
Prague route, because there was a double disapproval bilateral agreement regulating
fares and capacity. Since the UK authorities favoured more route competition and
stimulation of demand for air transport, Go could start the route. Moreover, the fact that
routes would be launched from Stansted, where capacity was less of a problem than at
Heathrow or Gatwick, was also welcomed by the UK Civil Aviation Authority.
Nevertheless, the Czech Ministry of Transport feared increased competition for state-
owned CSA and was reluctant to let the low-cost carrier operate on the route. Although
the Ministry initially pressed for Go to increase its fares, they eventually had to back
down because of the double disapproval clause in the bilateral agreement. Moreover,
according to Ralph Anker, the Czechs were also convinced by the argument that foreign
currency would be brought into the country and that mainly new traffic would be
generated (Anker, 2003a; Bennet, 1999).
As regards landing charges, Go benefited from a 50% discount during the first year of
operations, which was available to all airlines starting new routes (Anker, 2003a).
Go launched the London-Prague route on 23 September 1999.
7.5.3 The market situation after the entry of Go

Go entered the market with a daily service using Boeing 737-300s configured in a
single-class layout with 148 seats. The launch price for a return ticket between London-
Stansted and Prague was £89, i.e. 30% below the lowest price in the market at that time
(£128). However, the entry of the low-cost airline triggered a price war with Czech
Airlines and British Midland, causing the prices to drop to as low as £53. Seven months
after the low-cost airline had started services, British Midland exited the market,
attributing its move to the impossibility of getting the twice daily frequency it wanted.
Subsequently, Go doubled its frequency and the lowest round-trip fare stabilised
between £71 and £89 (Bennett, 1999; Levy, 2001; Dunn, 2000). Generally, Go claimed
that their fares were 30 to 40% lower than those of incumbents (Breyerova, 2002: 3).
In June 2003, the lowest published return economy fare was £55 while the highest
published business return fare cost £615 (ATPCO, 2003).
111
Figure 7.1 shows the evolution of yearly passenger numbers on the route. Clearly, the
total market grew after 1999 due to increased passengers to and from Stansted. Total
traffic on the route was 21.5% higher in 2000 than in 1999.
London-Prague
700,000
Yearly passengers (number)
600,000
500,000
400,000
300,000
200,000
100,000
0
1997 1998 1999 2000 2001 2002
Year
London-Heathrow - Prague London-Stansted - Prague
Source: Author, based on CAA statistics.
Figure 7.1: Evolution of yearly passengers on the London-Prague route (1997-2002)
In order to assess the impact of the entry of the low-cost carrier in more detail, a
contrafactual analysis was conducted, i.e. hypothetical traffic without low-cost carrier
was forecast based on historic data using seasonally decomposed time series (Figure
7.2). Although traffic was stimulated by on average 7.7% above what could be
expected year-on-year during the first four months of operation, extra year-on-year
growth averaged 11.2% during the following twelve months, even though British
Midland had withdrawn from the route. Strong growth also occurred in subsequent
months. Indeed, as is visible in the graph, actual traffic was generally higher than was
expected based on previous years. Thus, traffic was stimulated considerably and
London became the most important market out of Prague (Czech Airports Authority,
2003). Of course, other factors such as the general economic climate, increased
advertising or changed consumer preferences may have played a role, but interviews
and press articles indicate that the difference can be mainly attributed to the entry of the
low-cost carrier. Nevertheless, certain events such as the attacks of 11 September 2001
and the floods in mid-July in Prague clearly affected traffic, causing actual numbers to
112
drop below the forecasted figures. Interestingly, approximately two months after each
of these events, traffic bounced back to the levels that had prevailed before they
occurred.
London-Prague
90,000
80,000
76,903
71,040 73,971
70,000
2 May 2000: British Midland exit
Passengers (number)
60,917
60,000
57,703
50,000 Actual
Forecast
40,000
June capacity
30,000
11 September 2001
20,000
23 September 1999: Go entry
10,000
Mid-August: Prague floods
0
Jan-97
May-97
Sep-97
Jan-98
May-98
Sep-98
Jan-99
May-99
Sep-99
Jan-00
May-00
Sep-00
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Note: Seasonally decomposed time series (additive method).
Source: Author, based on CAA statistics.
Figure 7.2: Contrafactual analysis of monthly traffic on the London-Prague route (1997-2002)
In March 2002, Go connected Prague with its bases at Bristol and East Midlands.
However, a few days ahead of Go, bmi British Midland’s low-cost carrier bmibaby also
started operations to the Czech capital out of East Midlands.
Both carriers have claimed success on their routes from the UK to Prague, with
passenger numbers exceeding expectations (Anker, 2003a; Breyerova, 2002: 3). For
example, while the London-Stansted passenger load factor in 2002 across all carriers
was 74%, the Author calculates that Go’s passenger load factors averaged 82% for the
whole year and fluctuated between 74% (January and August) and 89% (October). In
comparison, Go’s breakeven load factor for the financial year ending 31 March 2002
was 73%.45 This confirms statements by former Go CEO Barbara Cassani that the route
was profitable (Levy, 2001).
45Calculations based on OAG data and on passenger numbers provided by Ralph Anker. The load factor for the
whole Go network was 76.4% over the same period (Author, based on CAA data).
113
At present, easyJet rates Prague as “one of its most profitable destinations” (Reuters,
2003). Thus, it is not surprising that Go/easyJet added an extra frequency between
Stansted and Prague from 30 October 2002 and that they have announced to link further
UK cities. EasyJet’s manager for the Czech Republic has even declared that the airline
considers connecting the city with all existing destinations in the network (Reuters,
2003).
Meanwhile, bmibaby has announced new routes to Prague from Manchester and
Cardiff. Table 7.3 provides an overview of flight frequencies offered between the UK
and the Czech Republic in 2003. In general, low-cost carriers have not only increased
frequencies, but have also opened up more regional airports in the UK. This is likely to
make catchment areas smaller for routes from airports that were already offering
services. In view of the fact that Tony Ryan has bought an airport near Prague, it is
interesting to see whether Ryanair will also start serving the Czech Republic.
British Airways CSA Czech Airlines easyJet bmibaby

London 21 (LHR) 14 (LHR) + 12 (STN) 20 (STN) -
Birmingham - 6 - -
Edinburgh - 5 - -
Manchester - 10 - 7*
East Midlands - - 7 7
Bristol - - 7 -
Newcastle - - 7 -
Cardiff - - - 4*
(*): Route will be launched in October 2003
Source: OAG data for the week starting 28 July; company media reports.
Table 7.3: Weekly frequencies between the UK and the Czech Republic
During 2002, Go/easyJet carried 307,000 passengers between the UK and Prague,
which amounted to a market share of 34%. On London-Prague the carrier accounted for
a 29% share of the market. The plans for 2003 were ambitious, though, as the airline
wanted to boost passenger numbers between Britain and Prague to almost half a million
(Reuters, 2003). With a third daily frequency from Stansted, easyJet has increased its
(passenger) market share on London-Prague to 35% (Dragomir, 2003: 3). According to
easyJet, this has resulted in considerable bargaining power.
114
On London-Prague, incumbents have reacted by increasing frequencies. Nevertheless,

their passenger numbers have declined by a compound 3.9% every year after the no-
frills carriers entered. Moreover, although the total market has been stimulated in the
first two years of low-cost routes, figures for 2002 indicate that the total number of
passengers stagnated at around 660,000 (see Figure 7.1). In that year, Stansted mainly
cannibalised Prague traffic from Heathrow. Nevertheless, neither CSA nor British
Airways have withdrawn from the route. The stagnation may be attributed to the
opening of new routes from regional airports or may herald the beginning of maturation
of the London-Prague market.
Prague has proved to be very popular as a leisure break destination. However, whereas
Go management had initially expected that its UK passengers would be mainly
interested in admiring the architecture and other cultural aspects of the Czech capital,
anecdotal evidence from cabin crew suggests that many Britons went there for
organising ‘booze parties’ and stag nights. It appears that the low price and the high
quality of the beer, combined with the attractive setting are the most important factors to
pay the city a visit (Anker, 2003a).
Although the routes have clearly been a success for low-cost carriers, the share of Czech
passengers between Prague and the UK has not been very high, accounting for only
about 15% of all travellers. This proportion has remained about the same since 1999.
In order to boost the number of Czechs on its flights, easyJet announced in February
2003 that it would offer a Czech language on its website as from spring 2003 (Levy,
2001; Reuters, 2003). However, at the end of August 2003 , such a facility was not yet
available. Bmibaby has opted for an alternative approach and hopes to attract more
Czech passengers by letting travel agencies assist in case prospective travellers do not
have Internet or credit cards.
7.5.4 Implications for analysis hereafter

The fact that Prague has been the only destination in Eastern Europe served by a low-
cost carrier studied in this thesis, makes it an important yardstick for any new routes
that would be launched to this region. Thus, the analysis in the following sections will
115
refer back to the previous discussion. However, before starting a numerical analysis of
the proposed routes, the available data for the London-Prague route were used to
calibrate the factors of the Quality of Service Index (QSI) method to determine market
shares. A detailed discussion of QSI can be found in Appendix Q and Murray (1988).
The following specification for the QSI model was proposed:
Fi  Ai  Qi
QSI i 
Pi
where:
Fi : Frequency, i.e. the number of weekly round trips by service i on a given city-pair
Ai : Aircraft size (number of seats) offered by service i on a given city-pair
Qi : Quality factor for service i on a given city-pair (1 for FSCs, 0.85 for LCCs)
Pi : Round-trip fare offered by service i on a given city-pair
Data for Fi and Ai were obtained from OAG. Fare data are, however, very difficult to
determine since prices vary dynamically depending on day, week, season and year.
Moreover, they also differ according to the degree of flexibility offered. Furthermore,
airlines are reluctant to disclose average fares for individual routes. Thus, assumptions
had to be made regarding the fares that applied. However, a Go manager declared in
2002 that their ticket prices were 30 to 40% below those of traditional airlines
(Breyerova, 2002: 3). Thus, the Author assumed that Go’s fares were 35% below the
pre-entry market price. Moreover, it was estimated that incumbent carriers lowered
their fares by 5% as a reaction to the new entrants.46
Since budget carriers do not offer ‘frills’ (e.g. complimentary food, newspapers,
frequent flyer points, generous seat pitch, …), a ‘quality factor’ Qi was introduced. This
was initially judged to be 0.90. The predicted market shares for 2002 and 2003 were
then compared with actual market share data. Although the results lay within a range of
2 percentage points, it was decided to recalibrate the model using a quality factor of
0.85, resulting in deviations of less than one percentage point.
46Note that in market share modelling relative fares can be used. While the absolute numbers will affect the
eventual QSI score of each carrier, only the relative differences among carriers will impact market shares.
116
7.6 Assessment of selected routes
7.6.1 Forecasting methodology
Forecasting techniques
Kotler et al. (1996: 344-345) define forecasting as “the art of estimating future demand
by anticipating what buyers are likely to do under a given set of conditions.” However,
they also point out that very few products or services lend themselves to easy
forecasting. This is why various scenarios were used (cf. infra).
Cherif (1978) reviewed several methods for forecasting traffic. He argued that if there
is a possibility that a past traffic trend may not continue in the future because of
modified economic, social or technological developments, forecasts should be based on
a study of significant factors that affect traffic flows, e.g. through econometric analysis.
In this way, relationships between demand and certain variables can be determined.
Since low-cost carriers often dramatically alter the competitive dynamics upon entering
routes, such multiple regression techniques were used. To this end, the following
variables were withheld to explain the number of scheduled passengers on the ‘similar
routes’ identified in Section 7.4: frequency, low-cost frequency share, and GDP of
origin and destination countries. Average fares were not included due to the difficulties
to obtain this information (cf. supra).
Unfortunately, the regression analysis could not be carried out on the route level
because of the paucity of available data. Indeed, while the UK CAA provided monthly
passenger data for the period 1997 to 2002, OAG data were only available for June of
these years. Thus, it was decided to perform a cross-sectional analysis of the data
available for the sample of routes determined in Section 7.4. Thirty-two measurements
of usable June data were available across eight routes over the period 1997-2002.
However, this approach could only identify frequency as a statistically significant
factor, even when dummy variables were introduced or logarithmic transformations
were carried out. Thus, the ‘low-cost effect’ could not be discovered in this way.
The difficulties in modelling a statistical relationship did not come as a complete

surprise, bearing in mind statements of people who have been involved in low-cost
117
route development. Moreover, low-cost carriers have had a different impact on

different routes. For example, on some routes they have been able to divert passengers
from charter operations, while no charters had been operating on other routes. There are
also indications of differences in stimulation effects by carrier. On the London-Vienna
route, total traffic actually declined even though Buzz had entered. The fact that Lauda
Air pulled out in March 2000 may have played a role. In this respect, the sample was
probably too small to compensate for this outlier. Furthermore, OAG data were not
available at smaller intervals. Route-specific factors (e.g. the withdrawal of a carrier or
floods) may have prevented finding a statistical relationship as well. As mentioned
above, fare data were not available either. Since this is an important factor affecting
consumer demand, especially for low-fare carriers, this probably affected the results.
Thus, the Author had to use other techniques to give an indication of future traffic levels
after low-cost entry. The first alternative technique was a contrafactual analysis,
comparable to the one performed in Section 7.5.3 to derive the increase in traffic by
comparing actual traffic levels after entry by a low-cost carrier, with the forecasted
number of passengers in the case no no-frills carrier entered the market and assuming all
other factors remained the same. The average stimulation effect during the first twelve
months after entry of a low-cost carrier was then calculated for each similar route which
already had scheduled services when the no-frills carrier entered the route. The
resulting growth rates (see Table 7.4) varied widely and prompted the Author to take the
change in capacity into consideration as well.
Average YoY traffic growth in

Route Launch date Low-cost entrant
first year of LCC operation
London-Prague 23/09/1999 Go +9.9%
London-Vienna 04/01/2000 Buzz -6.4%
London-Berlin 04/01/2000 Buzz +32.2%
London-Salzburg 05/04/2001 Ryanair +398.5%
Note: YoY: ‘Year on Year’. Only scheduled traffic is considered.
Source: Calculations by Author (see Appendix R).
Table 7.4: Low-cost stimulation coefficient for similar routes (first year of low-cost operations)
Thus, a second alternative technique was used to establish a more general relationship.
In order to increase the sample, three other routes out of London where low-cost carriers
118
have entered in the past – London-Hamburg, London-Geneva and London-Madrid –

were also included, apart from the four city-pairs above.47 Figure 7.3 plots the relation
between the growth in seat capacity and passenger numbers before and after a low-cost
carrier entered the route. Growth in total capacity was found to be the best measure
because this affected the ‘stimulation analysis’ less in case an incumbent carrier
withdrew from the market during the one-year period. June capacity and passenger data
were compared for each city-pair. The equation was 48:
y = 0.9144x – 0.0004 (R2 = 0.999)
(69.52) (-0.016)
where:
x : total seat capacity growth after low-cost entry (%)
y : growth in scheduled passengers after low-cost entry (%)
However, it was decided not to include London-Salzburg because the datapoint affects
the equation considerably due to its ‘outlier’ characteristics.
Thus, the following (more conservative) equation was used:
y = 0.8367x + 0.0174 (R2 = 0.9247)
(7.01) (0.461)
where:
x : total seat capacity growth after low-cost entry (%)
y : growth in scheduled passengers after low-cost entry (%)
In words, for every 100 seats that were added on this sample of routes, on average 84
extra passengers opted to fly. In general, if the no-frills airline’s load factors exceeded
84%, ceteris paribus, passengers were diverted from incumbents; if they were lower, the
other carriers’ traffic was boosted. In the further analysis, this ‘low-cost stimulation
factor’ (LSF) will be applied to the extra capacity the LCC is adding, to arrive at an
indication of extra passengers.49 This analysis helps explaining why Ryanair’s capacity-
47 Although charters also operate on the London-Geneva route, this did not distort the analysis because only June
data were used. During this month, there was virtually no charter traffic on the route. EasyJet launched London-
Luton – Geneva on 18 December 1997 and London – Madrid on 10 September 1998. Buzz started its London-
Stansted – Hamburg route on 26 March 2000.
48 The numbers in brackets below the equations show t-values. Significant results are underlined.
49 Note that the causality lies with capacity, rather than with demand. The mechanism through which this occurs in
reality is the reduction of fares.
119
driven route development strategy works. The CAA (1998: 369) came to the same
conclusion, pointing out that low-cost entrants are less dependent on existing market
conditions. They also found that low-cost carriers have had different impacts depending
on the route.
60%
Scheduled passenger growth (%)
y = 0.8367x + 0.0174
50% R2 = 0.9247
40% HAM
BER
30%
PRG
MAD
20%
GVA
10%
VIE
0%
0% 10% 20% 30% 40% 50% 60%
-10%
Seat capacity growth (%)
Note: VIE: Vienna; GVA: Geneva; MAD: Madrid; PRG: Prague; BER: Berlin; HAM: Hamburg.
Source: Author based on CAA and OAG data for June.
Figure 7.3: Derivation of a low-cost stimulation factor on routes to/from London
The problem with this stimulation coefficient is that it is somewhat simplistic, because
it is based on capacity only. The ability to stimulate a market is, surely, rarely finite.
Thus, a third alternative method can be used which is basically similar to gravity
modelling.50 First, a route A-B is chosen which has a low-cost carrier operating and
which resembles the route to be forecast, say A-C, as close as possible in terms of sector
length, alternative modes of transport, type of traffic, etc. Next, the GDP at PPP of city
C is divided by that of B to arrive at a correction factor, which is then multiplied by the
passenger numbers on A-B for the years where a no-frills carrier has been operating.
Thus, apart from the LSF, the ‘GDP coefficient’ method just described will be used
where possible, using the similar city-pairs identified in Section 7.4. The figures will
subsequently be qualitatively adjusted, if necessary. The results were fine-tuned based
on present traffic levels and the stimulation coefficient mentioned earlier.
50 This method was suggested by William Swan (Chief Economist at Boeing).
120
However, if a route is not served yet, there is no base figure available to apply the GDP
coefficient to. Judgement then becomes more important.
Alternatively, a Delphi method or a survey of buyer intentions could be used to forecast
traffic on routes after entry of a low-cost carrier. However, these methods are outside
the scope of this thesis and may not necessarily produce more valid results.
Airline entry strategy

EasyJet’s entry strategy was modelled after London-Stansted–Prague. It is assumed
that the airline will start with a daily frequency and will increase services if traffic is
sufficient, and that its average price is 35% below the incumbents’ average fare.
Ryanair typically launches routes with one daily frequency. Moreover, in this analysis
it is assumed that the Irish carrier will on average charge half the average price of the
incumbent carrier, i.e. 25% below what easyJet would ask. This is a conservative
assumption in view of the fact that Ryanair’s costs are a third lower than easyJet’s (see
Section 2.3.5).
Scenarios
In order to present a range of likely traffic figures (and hence, load factors) for the low-
cost carrier, rather than ‘exact’ numbers, three scenarios were devised (Table 7.5): 51
The results of the analysis based on these scenarios can be found in Section 7.6.3.
In Chapter 3 it was argued that low-cost carriers aim for a constant load factor. In this
scenario analysis, however, the reasoning is the other way around: the low-cost carrier’s
fare is assumed to be a fixed percentage lower than that of full-service carriers, and then
load factors are derived. For the purpose of assessing potential of a route the impact in
terms of total revenue is likely to be the same, though.
Base case Optimistic Pessimistic

Demand forecasts ‘Middle of the road’ Optimistic Pessimistic
Incumbent frequency change None -10% +10%
Incumbent fare change -5% None -15%
Table 7.5: Scenario assumptions
51 ‘Optimistic’ and ‘pessimistic’ refer to the situation from the point of view of the low-cost carrier.
121
7.6.2 Fares comparison methodology

Another way to look at the potential of routes is to compare the fares that are currently
charged by incumbent carriers on routes where no low-cost carrier operates, with the
fares that are set in case there is competition from a no-frills airline. According to
economic theory, fares on routes with less competition (e.g. a duopoly) will be higher.52
To this end, highest published business return fares available in June 2003 were
collected from ATPCO. Additionally, a snapshot of the lowest available fares was
taken from the British Airways website on 3 June 2003. This was done for the
following city-pairs:
 London-Prague
 London-Budapest
 London-Warsaw
 London-Krakow
 London-Gdansk (only June 2001 ATPCO data; route was stopped in October 2001)
For the first three routes in the list, 69 fares were gathered (i.e. one per day from 3 June
until 10 August 2003), to obtain an indication of relative price differences.
For a day-by-day comparison across all four routes, only 30 measurements were
available since BA offers only three weekly frequencies on London-Krakow, whereas
there is at least one flight per day for the others.
Because the sector length of the London-Prague route is up to 30% shorter than the
other routes, lowest available fares for London-Rome, London-Madrid, London-
Budapest and London-Warsaw were obtained on 23 July for the period from 23 July
until 10 September 2003 (i.e. 50 days) to verify whether prices differed when there was
low-cost competition on a route of similar sector length.53
52 Note that this assumption implies that contestability theory does not apply.
53 No fare data for London-Krakow was collected, because the two routes to the Eastern European cities more
closely match with London-Rome in terms of sector length and because they are capital cities.
122
Fare data were also gathered for Germanwings and easyJet for sixty days beginning
1 June 2003. Because the German budget airline flies to Prague as well as to Budapest,
it was deemed useful to analyse fares on both routes from Cologne-Bonn. In addition,
the easyJet data for London-Stansted – Prague were compared with Germanwings’s
Cologne-Prague route to assess whether inferences could be made about a hypothetical
London-Stansted – Budapest route.
As regards the statistical tests used, it had to be established first whether all the
collected fare data were normally distributed. To this end, a Kolmogorov-Smirnov test
was run for each route (see Appendix T). With some exceptions, the data were not
normally distributed. The fact that different distributions would be compared, thus
necessitated the use of non-parametric tests.
For comparison of two related samples the Wilcoxon test was employed, while the
Friedman test was used to compare more than two related samples. For higher validity,
outbound fares from a base airport were not mixed with inbound fares to a base airport,
but considered separately.54 The statistical software package SPSS was employed for
all the tests mentioned.
7.6.3 Results for routes currently operated by traditional carriers55
London – Budapest
In June 2003, a total of 9,646 seats per week were offered on the route between London
and Budapest. Assuming that easyJet enters the route by offering a daily frequency – as
Go did when it started London-Prague – capacity would increase by 2,100 weekly seats
(+22.6%) if a 150-seat Airbus 319 was used.56 Applying the stimulation factor
calculated above, this would result in 1,765 extra passengers per week (i.e. 0.84*2,100).
The extra 92,000 passengers during the first year of the low-cost operation would bring
total scheduled traffic to about 446,000 passengers (92,000 + 354,000 [actual 2002]).
54 E.g. London-Prague was compared with London-Budapest, and Prague-London with Budapest-London. In other
words, no return trips were constructed.
55 Forecasting results can be found in Appendix R. Demand and capacity data, as well as market share calculations
can be found in Appendix S. Charter traffic was insignificant on the proposed routes, except on flights between
Germany and Lake Balaton.
56 Germanwings also started flying between Cologne and Prague with a daily frequency.
123
The ‘GDP coefficient’ method produced a wide range of results. According to this
model, the number of passengers in the first year of operation of a low-cost carrier could
rise to 560,000 passengers, based on the experiences with the London-Prague route.
However, in the Author’s opinion this number overstates the likely traffic on the route
because (1) Prague was a more popular destination at the time when Go started
operating there; (2) the Western economy was more buoyant in 1999 than it is expected
to be in 2004, with knock-on effects on consumer confidence; (3) less alternative city-
break destinations were available. On the other hand, acceptance of low-cost carriers is
currently higher and EU accession may boost awareness of the Hungarian capital.
Although the total number of scheduled passengers actually shrank on London-Vienna
after Buzz’s entry, this route is still relevant to get an indication of traffic levels from
London to a city which was rated to be very similar. Thus, 438,000 passengers were
forecast using the GDP coefficient. Taking into account that quite a few Britons go on a
short break to discover a country’s local beers and nightlife in addition to its cultural
assets, Budapest may be more appealing than Vienna because of its cheap alcoholic
drinks and the more ‘exotic’ setting (Berger, 2003). This would result in a higher
impact on demand than has been the case for Vienna.
Using the London-Berlin route as a yardstick, only 291,000 passengers were forecast on
the route one year after entry by a budget airline. This number clearly underestimates
the market size since in 2002 alone, already 354,000 passengers flew between London
and Budapest. Reasons for the underestimation may be that Budapest is the focal point
of Hungary, whereas in Germany, other cities are important as well (e.g. Frankfurt) and
assume some of the (e.g. economic) functions which can be found in the Hungarian
capital. Since Eastern European economies are still catching up, large differences in
city GDP remain. These may have affected the forecast as well, even though actual
traffic has already proved to be present (e.g. tourism, investors, etc.). The gap between
actual and expected passenger numbers also suggests that the use of city GDP as a
correction factor may not always be the most appropriate.
Table 7.6 shows actual and forecasted passenger numbers between London and
Budapest based on the discussion above and the Author’s judgement of city appeal.
124
Actual 2002 Base case forecast 2004 Optimistic forecast 2004 Pessimistic forecast 2004
354,000 435,000 460,000 410,000
Table 7.6: Actual and forecasted passenger numbers after easyJet entry on London-Budapest
In the base case, easyJet would be able to grab a 21% market share, resulting in a load
factor of 85% for the airline. If the pessimistic scenario applied, this would entail an
18% market share and an average passenger load factor of 69%. In contrast, if the
optimistic scenario became reality, the carrier should increase frequencies because
demand would exceed supply. In this case, boosting frequencies to twice daily would
bring the load factor to 81%, ceteris paribus. EasyJet would then command 38% of the
market. However, the extra capacity may stimulate demand even further.
London – Warsaw
According to OAG data for June 2003, British Airways and LOT Polish Airlines
offered 11,078 seats between London and Warsaw in that month. If the same entry
strategy was followed as in the case of Budapest, total yearly capacity would increase
by 19%. As the absolute capacity increase would be the same as for Budapest, 92,000
extra passengers could be expected on application of the stimulation factor. This would
yield a total of about 481,000 filled seats on a yearly basis.
Since the Author estimates that in 2003, 397,000 passengers will fly between London
and Warsaw, all ‘GDP coefficient’ forecasts underestimated traffic flows even without
low-cost carrier present on the route. The error in the forecast is expected to be even
greater when a budget airline effectively enters the market.
Using London-Prague as a basis suggests 396,000 passengers, while using London-
Vienna leads to about 310,000 passengers. As was the case with Budapest, estimates
based on London-Berlin are the lowest (206,000 passengers). The same reasoning as in
the previous section applies to explain the large discrepancy with actual London-
Warsaw traffic when using the latter route as a reference.
Again, the fact that this method of forecasting produces relatively large differences with
known numbers, raises questions about the validity of it for comparisons of cities with
widely varying GDPs. Indeed, when reviewing the factors for Warsaw and Budapest,
those with values closer to one, generally produced more reasonable results. More
research is required to verify the circumstances in which this method is valid.
125
Another explanation may be that the London-Warsaw market is gradually reaching

maturity, hence the rather low numbers.
In Chapter 5 it was argued that Warsaw has a relatively high proportion of business
travellers, a segment which is more difficult to stimulate. Other factors indicate that the
Polish capital may be less attractive to low-cost travellers. For example, night life is
reported to be less vibrant compared with neighbouring capitals, and food and
accommodation is relatively expensive (IYP, 2002b). On the other hand, more VFR
traffic is likely. Table 7.7 includes forecasts derived from the combination of
quantitative and qualitative information.
389,000 455,000 480,000 435,000
Table 7.7: Actual and forecasted passenger numbers after easyJet entry on London-Warsaw
Using ‘base case’ assumptions, easyJet would grab a market share of 19%, with the rest
equally split between the two flag carriers. This corresponds to an average load factor
of 79%. In a pessimistic scenario, the no-frills airline would hold a market share of
16%, resulting in 64% of its seats being filled. On the route level, the average load
factor is then forecast to amount 59%, but this may not be a stable competitive outcome.
In an optimistic scenario, easyJet could obtain a market share of 22%, in which case
95% of seats would be filled. However, it can be argued that on a route with a relatively
high proportion of business travellers, more frequencies should be offered.
Supposing the carrier offered two flights a day in the optimistic scenario, the load factor
would stand at 82%, while the market share would be 35%. The base case with two
flights per day would lead to a passenger load factor of 67% for easyJet (32% market
share). Again, the extra capacity may stimulate even more passengers than assumed.
London – Krakow
Section 6.3.2 demonstrated that Krakow suits both Ryanair and easyJet. Therefore, the
London-Krakow route was analysed for each carrier.
Taking into account the current traffic on the route and the LSF, traffic could amount
170,000 if Ryanair entered, or 146,000 if easyJet operated the route. This would
increase passenger numbers by 214% and 170%, respectively, over 2002.
126
Three similar routes were used for the forecasts based on the GDP coefficient (see
Section 7.4). At first sight, the results differed significantly from each other. Using
Prague as a reference, the number of passengers was forecasted to be around 106,000,
while the London-Graz model predicted 130,000 passengers. By contrast, when
compared with Salzburg, 259,000 passengers were expected. This difference can be
attributed to Ryanair’s ability to stimulate traffic with a twice-daily frequency and the
fact that the GDP coefficient of 1.35 may understate Salzburg’s importance as a tourist
destination. However, supposing that Ryanair would have attracted half the passengers
on the London-Salzburg route if it had offered one frequency, and subsequently
applying the GDP factor of 1.35, results in a figure of 129,000 passengers – very close
to what was calculated based on the other routes.
The estimates in Table 7.8 are based on the assumption that total traffic after entry of a
low-cost carrier will lie somewhere between the mere sum of existing traffic and
stimulated traffic on the one hand, and purely generated traffic in case no carrier had
been operating on the route. The stimulation effect is estimated to be greater than for
London-Warsaw because of its greater appeal to tourists of all kinds. Moreover,
Krakow is described by some as a real rival to Prague. Also, some Britons have
discovered this city for organising stag nights. Another factor is that the Krakow airport
authorities have been keener than their Warsaw counterparts on attracting low-cost
carriers (IYP, 2002a).
54,000 135,000 155,000 115,000
Table 7.8: Actual and forecasted passenger numbers after low-cost entry on London-Krakow
If Ryanair entered the route with a daily frequency, two thirds of total passengers on the
route would fly on this airline in a base case scenario. Their resulting load factor would
be 65%. Using the same scenario for easyJet, the load factor would be two percentage
points higher (67%) but their market share would be lower (54%).
In an optimistic scenario, the low-cost carriers could increase their markets shares
further to 69% (Ryanair) and 58% (easyJet). This would result in a load factor of 78%
for Ryanair and 82% for easyJet.
127
Using pessimistic assumptions, Ryanair would grab 61% of the market and easyJet
around half. Load factors for each carrier would then drop to slightly over 50%.
When considering the breakeven load factors of full-service airlines (e.g. 78% in 2001
for LOT), it is unlikely that the pessimistic scenario would result in a sustainable
situation for the incumbent airlines. The same reasoning would probably apply in the
base case scenario with entry by Ryanair, or if both low-cost airlines decided to serve
Krakow from London. A shake-up on the route would then be likely.
Given that Ryanair has a lower breakeven load factor than easyJet (60% vs. 65% in
2001) the Irish carrier may be better placed to enter the market and operate it profitably.
Fares comparison
Comparison of fares (excluding taxes, fees and charges) on routes between London and
the Czech, Hungarian, and Polish capitals shows that the lowest ticket prices differed on
a day-by-day basis in both directions, i.e. the following rankings were proved to be
statistically significant.57
FLHR-BUD > FLHR-WAW > FLHR-PRG
FBUD-LHR > FWAW-LHR > FPRG-LHR
With Fi : British Airways’s lowest fare on route i.
The table below summarises the average sample prices for each leg. Routes between
London and Budapest were most expensive, with the average lowest outbound fare 59%
above that on London-Prague and the average lowest inbound fare 80% higher than on
Prague-London. London-Warsaw average lowest fares were 50% more expensive than
London-Prague, while average lowest prices in the other direction were 38% higher.
LHR-PRG LHR-BUD LHR-WAW PRG-LHR BUD-LHR WAW-LHR

£54.6 £86.7 £82.0 £67.6 £121.3 £93.3
Note: N = 69. Data collected by the Author on 3 June 2003.
Table 7.9: Fare comparison for three Eastern European city-pairs
57Significance is at the 1% level, unless otherwise stated. Note that due to the non-parametric nature of the tests,
only paired ranks are tested for significant differences. As such, no absolute numbers are used.
128
With the route between London and Krakow included in the analysis, rankings also
turned out to be statistically significant. However, the results for the inbound and
outbound London flights did not entirely point in the same direction:
FLGW-KRK > FLHR-BUD > FLHR-WAW > FLHR-PRG
FBUD-LHR > FKRK-LGW > FWAW-LHR > FPRG-LHR
Considering the four routes from London, travelling to Krakow was generally more
expensive on a day-by-day basis. In the opposite direction, the fares from Budapest
were typically highest. However, when average fares were calculated, price levels
between London and Budapest were above those of other routes. The difference in
results is due to the non-parametric nature of the test, which only takes rankings into
account and not absolute values.
It should be reiterated that due to lower frequencies between London and Krakow the
comparison of the four routes only includes 30 fare measurements, which is less than
half the number used in the previous case. This seems to have had an impact on the
average price for London to Prague.
As regards the highest return business fares, London-Gatwick – Krakow was most
expensive (£956). London-Heathrow – Warsaw and London-Heathrow – Budapest cost
£758 and £732, respectively. London-Heathrow – Prague was least expensive (£615).
LHR-PRG LHR-BUD LGW-KRK LHR-WAW PRG-LHR BUD-LHR KRK-LGW WAW-LHR

£46.7 £88.0 £83.0 £79.0 £66.0 £119.6 £97.4 £89.7
Table 7.10: Fare comparison for four Eastern European city-pairs
Sample data on 23 July 2003 confirmed that lowest prices between London and
Budapest were indeed more expensive than between London and Warsaw, and London-
Warsaw fares (vice versa) were more expensive than between London and Prague.
Moreover, fares for the two former city-pairs were in turn higher than between London
and Rome (FCO), a route of comparable length. Similar results were achieved when
compared with flights between London and Madrid, which also has a similar sector
distance. This suggests that links between London and the Eastern European cities are
129
more expensive, even when corrected for stage length. The absence of competition
from a low-cost carrier seems to result in relatively higher prices, enabling British
Airways to extract more profits.
FLHR-BUD > FLHR-WAW > FLON-FCO and FLHR-BUD > FLHR-WAW > FLON-MAD
FBUD-LHR > FWAW-LHR > FFCO-LON and FBUD-LHR > FWAW-LHR > FMAD-LON
LON-FCO LON-MAD LHR-BUD LHR-WAW FCO-LON MAD-LON BUD-LHR WAW-LHR

£101.7 £91.4 £119.6 £105.3 £95.5 £77.2 £140.7 £115.4
Note: N = 50. Data collected by the Author on 23 July 2003. LON includes both Gatwick and Heathrow.
Table 7.11: Fare comparison for city-pairs with similar sector length
When the sampled fares of Germanwings were tested, it became apparent that they were
significantly higher on the route between Cologne and Budapest than between Cologne
and Prague, while the hypothesis that easyJet’s fares58 were significantly different on a
day-by-day basis could not be withheld for flights from Prague.
F4U, CGN-BUD > F4U, CGN-PRG and F4U, CGN-PRG > FU2, STN-PRG 59
F4U, BUD-CGN > F4U, PRG-CGN and F4U, PRG-CGN = FU2, PRG-STN
With Fx,i : Lowest fare on route i for carrier x (U2: easyJet; 4U: Germanwings).
CGN-PRG CGN-BUD STN-PRG PRG-CGN BUD-CGN PRG-STN

£52.0 £76.0 £55.9 £54.1 £76.6 £56.2
Table 7.12: Fare comparison of easyJet’s and Germanwings’s Eastern European destinations
If making inferences across bases is indeed valid, this suggests that easyJet might be
able to charge somewhat higher prices on future flights between London and Budapest,
since Germanwings’s fares for Budapest are well above those for Prague. Alternatively,
the UK low-cost carrier could opt for a higher volume of passengers, rather than an
increased margin per ticket sold.
58 Since Germanwings served Prague only once a day (out of Cologne) and easyJet three times per day (out of
Stansted), averages were calculated in the case of easyJet.
59 F4U, CGN-PRG > FU2, STN-PRG significant at the 5% level.
130
However, Germanwings’s price differences on the Cologne-Prague city-pair might be a

result of competition from other modes of transport. On the other hand, it can be argued
that easyJet now faces a similar situation, as new routes are started to Prague from
regional airports, which makes the Stansted catchment area for this route smaller.
7.6.4 Results for new routes

At present no airlines operate on the three routes that will be discussed next. Thus, it is
extremely tedious to forecast traffic levels. On the other hand, when looking at past
Ryanair traffic levels on entirely new routes, they have managed to obtain a fairly
consistent load factor. For example, during the first year of operation, the Irish carrier
achieved load factors of 77% on London-Stansted – Friedrichshafen, 79% on London-
Stansted – Graz, and 70% on London-Stansted – Klagenfurt.60 Indeed, as mentioned
before, Ryanair sets the number of passengers on a route as a target and adjusts fares
accordingly. Thus, the following discussion will concentrate on qualitative information
to determine whether operating the route would be sustainable. Furthermore, analysing
likely market shares is not relevant since the airline would be the only operator on these
routes.
London – Gdansk
Although London – Gdansk is currently not served by air, there used to be services from
1998 until 2001 out of London-Gatwick. Mid-1998, LOT Polish Airlines began flying
the route twice weekly. In the same year, a codeshare agreement was struck with
British Airways and frequencies were increased to three times per week (Doyle, 1998).
From 28 March 1999, British Airways took over the service, but it axed the route in
2001 as part of a drastic capacity reduction programme in the wake of the September 11
attacks (Kapur, 2001). The lowest economy return fares started at £165, while the
highest business class return fares amounted £720 (ATPCO, 2003).
Due to the various changes in capacity, estimating load factors on a yearly basis is only
valid for 2000, in which year the figure amounted 62%. Taking into account monthly
figures, the Author estimates that the load factor for the whole period was 55% on
60 Nine months until March 2003 for London-Stansted – Klagenfurt.
131
average. From May until September, load factors generally climbed above 60% but
during most of the rest of the year, aircraft were filled for only 40 to 50%.
According to a survey in July 1999, passengers to and from London accounted for 8.8%
of all traffic at the airport. This was the second most important route after Gdansk-
Warsaw, which accounted for 13.5% of passenger journeys at Gdansk (Gdansk Airport,
2003).
Currently, only connecting flights via Warsaw are available. This lengthens the trip
duration considerably. For instance, travelling from London to Gdansk on Wednesday
20 August and returning on Saturday 29 August, took at least 4 hours 15 minutes. In
the worst case, the outbound journey could take 6 hours 15 minutes from London, and 6
hours 40 minutes to London. Unfortunately, the LOT booking engine did not allow to
check fares on these routes.
It can be expected that if a low-cost operator started to offer direct flights of about two
hours at low fares, a high proportion of travellers would choose this alternative.
However, it should be borne in mind that while a total of 684 seats was available on a
weekly basis in each direction in June 2001, the number of seats would be fourfold if
Ryanair introduced services on a daily basis using a Boeing 737-800. Nevertheless, the
Irish carrier might well be able to fill these seats profitably because:
 The route used to be served during four consecutive years and achieved moderate
load factors. More (direct) frequencies at lower fares, combined with the integration
of Poland in the European Union may boost traffic.
 There are certain similarities with the London-Salzburg route. Until October 2000,
British Airways operated 4 times weekly on this city-pair (896 weekly seats). In
April 2001, Ryanair started a twice-daily service, which has seen a load factor of
76% on average. However, this route also has significant (but seasonal) ski charter
traffic. According to CAA statistics, the number of charter passengers in 2002 had
decreased by about 38,000 compared to 2000. If one adjusts for the fact that (1)
Salzburg is probably more appealing to Western European tourists than Gdansk at
present, and that (2) the second daily Stansted-Salzburg frequency in part diverted
passengers that would have taken a charter otherwise, sufficient demand for a daily
frequency is likely to be generated.
132
 Comparing the characteristics of Gdansk with Friedrichshafen, Graz, Klagenfurt and

Lübeck (all served by Ryanair from London-Stansted) suggests that total route
traffic between 105,000 and 109,000 should be achievable. The higher number of
people living in the Tri-City (759,000) relative to these other destinations is a
positive factor.
The fact that Polish low-cost carrier GetJet has announced that it plans to operate out of
Gdansk in the future might introduce competition if they start flying to London. In this
context, Ryanair is in a more advantageous position because it has higher brand
recognition, has achieved critical mass with more scope for cost reductions, and because
the proportion of traffic from the UK to Poland will probably predominate.
Frankfurt-Hahn – Balaton
As mentioned in Section 5.2, the Balaton area is a popular holiday destination with
Germans. According to Germanwings, 5 to 10% of its passengers travelling to
Budapest connect to Lake Balaton, which is about an hour’s drive from the Hungarian
capital. Thus, a direct service to Lake Balaton could reduce trip time within Hungary.
However, due to the remote location of Frankfurt-Hahn, the total trip time will be
approximately the same. Moreover, coach connections from Budapest to Lake Balaton
are reported to be convenient. This is why Germanwings does not fear Ryanair linking
Hahn with Sarmellek airport (Mokosch, 2003).
In 2002, the airport handled 16,260 passengers on 105 charter flights, operated among
others by Lufthansa Cityline and Eurowings. In 2003, the airport expected to welcome
20,000 passengers, i.e. 23% more than the previous year. Flights from Germany take
place between April and October from Berlin Tegel, Leipzig, Düsseldorf, Frankfurt and
Stuttgart. The one-way fare is €135 (Horner, 2003; Ungarisches Tourismusamt, 2003).
Ryanair has already indicated that it is interested in starting a daily service to the airport.
In the Author’s view, a scheduled link between Hahn and Balaton holds sufficient
potential to divert people from existing charter services, and especially from ground
transportation. The Author calculated that a direct Ryanair flight between Hahn and
Balaton will take about 1.5 hours. In comparison, a person travelling by car from
Frankfurt am Main to Siofok (Lake Balaton) currently needs around nine hours. Thus,
an air service would make it more convenient for German residents to travel to Balaton.
133
Germans owning houses near the lake may also take more frequent trips. Nevertheless,
the bulk of tourists visit Balaton during the summer. Although there are other
interesting attractions during the rest of the year, the weather is not so favourable from
October until April. During this period, many hotels, bars and restaurants are closed
(Budapest Sun, 2003). However, Ryanair claims that sufficient traffic can be generated
to seasonal destinations through VFR traffic 61, owners of holiday houses, and business-
related travel. Some people might also opt to travel onwards to Budapest, but the
Germanwings routes from Cologne and Stuttgart to Budapest will be perceived as more
convenient. Moreover, the Author estimates that on this route the proportion of
Hungarian residents will be relatively low because the region is less populated and less
prosperous than Budapest. Thus, it is expected that yields will be soft during this
period, although this can be compensated during the peak season. Alternatively, the
airline could opt to fly only from April until October but this will make it more difficult
to negotiate favourable terms with the airport.
In sum, with a daily frequency between Hahn and Balaton, Ryanair will manage to
generate traffic of between 100,000 and 109,000, as it has done on other routes.
Stockholm – Gdansk
At present, no direct flights are available between Stockholm and Gdansk. People
wanting to travel by air between these two cities have two options. First, they can use
SAS, who fly via Copenhagen. One-way journeys then take three to four hours. The
lowest return fare for a trip from Stockholm, departing 29 August, until 6 September
2003 in Economy Class amounted SEK 3,208 (£290) on 12 August 2003. On the same
day, a fare lookup was performed for a trip from 16 till 20 September 2003. In this case
a ‘campaign fare’ of SEK 2,080 (£159) was offered. However, these promotional prices
were not available every day of the week. LOT presents a second option whereby
passengers connect at Warsaw. Journey times tend to be half an hour or so longer than
those offered by SAS. The same journey dates were chosen as in the case just
described. Thus, a return trip Stockholm-Gdansk cost SEK 7,358 (£561) when leaving
on 29 August and returning on 6 September 2003. For the second sample trip, the
61 About 100,000 Hungarians live in Germany (estimate provided by László Takács, Hungarian consul in the UK).
134
Polish flag carrier also offered a promotional price: SEK 2,258 (£172). Both airlines
offered more than one flight per day.
Another mode of transport that connects the two cities is the ferry line between
Stockholm (Nynäshamn) and Gdansk. A ferry trip to cross the 400 kilometres
trajectory takes 18.5 hours with frequencies of three to four times per week. Depending
on the season, return tickets for individual passengers cost €97 (£69) or €106 (£75).
According to Polferries, the shipping company operating the line, 125,000 passengers
were transported between Gdansk and Stockholm in 2002. Although the ferry prices
are relatively cheap, the trip takes a long time and the frequencies are not so high.
It is expected that a low-cost carrier would improve the ‘quality of service’ for this route
because (1) direct flights may reduce travel times to just over one hour, and (2) more
frequencies will be available at a lower price.
Traffic numbers are extremely difficult to calculate, however. Firstly, no passenger
numbers are publicly available for the connecting services by SAS and LOT. It would
be interesting to know how many passengers at present connect through other airports,
but unfortunately this information is not available in the public domain. In this respect,
Market Information Data Transfer (MIDT) data might be useful but the cost is very
high. Secondly, passengers may still opt to use full-service carriers if the availability of
a frequent flyer programme and other frills is more important than low prices or a direct
flight. Finally, more information is needed on demand drivers, especially for the ferry
service. In this respect, the proportion of business, leisure and VFR travel would be
helpful. The direction of flows and the importance of ‘duty-free shopping’ should also
be assessed. Moreover, it has to be established how keen people are on taking the
ferryboat due to the fact they can bring their car.
Even though certain pieces of information on this route are lacking, there seems to be
scope to divert both ferry and air passengers from existing services through improved
quality of service. Moreover, it is very likely that extra traffic will be generated. The
lack of suitable alternative modes of transport, as well as the proximity of the two
countries and the accession of Poland to the EU are additional factors which strengthen
the case for this route.
135
7.7 Conclusions
After a narrow-down process, six routes were analysed in a qualitatitive and quantitative
manner using forecasting techniques and fare comparisons of similar routes.
London-Budapest offers considerable scope for an entrant such as easyJet, which could
achieve load factors of 85% and slightly over a fifth of the market in a middle of the
road scenario. Moreover, fares research showed that the ‘lowest’ fares on this route are
relatively high, suggesting that incumbents make excess profits. Forecasted load factors
indicated that full-service competitors would probably be able to hold out on the route.
Indications of excess profits were also found on the London-Krakow route. Although
predicted load factors for both Ryanair and easyJet would be sustainable for a single
carrier, entry of both low-cost carriers would probably not be. Moreover, no-frills
carriers may be able to grab a higher market share than predicted because the fare
differential will probably be larger than assumed. This would result in considerable
market growth, but competitive pressures on incumbents will increase dramatically
when more frequencies are offered at far lower fares, probably leading to a
rationalisation of the market.
London-Warsaw is another route that holds potential, especially because business fares
seem to be relatively high. In order to appeal to this type of passengers, easyJet would
have to offer twice daily flights. Even though the route would also be popular with
VFR travellers, total passenger numbers will probably be less ‘stimulatable’ than
between London and Budapest due to Warsaw’s lower appeal as a city break
destination. However, total revenues may be similar due to higher achievable prices per
passenger. Furthermore, incumbents will probably not be driven out of the market,
although they may have to decrease capacity.
The three other routes, London-Stansted–Gdansk, Frankfurt-Hahn–Balaton-Sarmellek
and Stockholm-Skavsta–Gdansk are currently not served and appear suitable for a
carrier such as Ryanair because of the scope for reductions in travelling time, in price,
and in frequency, despite the fact that there is some ‘destination uncertainty’.
136
Chapter 8: Summary and conclusions
The growth of low-cost carriers in Europe has been one of the most important
developments since the European Union (EU) air transport market was liberalised in the
1980s and 1990s. While no uniform definition exists of ‘low-cost carriers’, these
airlines all pursue simplicity, efficiency, productivity and high utilisation of assets to
offer low fares. Although they have exhibited significant growth rates, the low-cost air
transport market is in flux. Ryanair and easyJet have emerged as the largest and most
profitable players, helped by their longer histories and strong expansion strategies,
which have included takeovers. The economic downturn that started in 2001 has not
only made people more price-conscious but it has also enabled these carriers to close
favourable contracts with airports and aircraft manufacturers. In this context, Ryanair
and easyJet have placed large aircraft orders, which will lead to the addition of four to
five new routes per month in coming years.
While low-cost carriers have reshaped the air transport value chain and have changed
the competitive dynamics within liberalised markets, the political environment around
them is also changing. In May 2004, ten new countries are joining the current fifteen
Member States of the European Union and will enlarge the Single Market by 75 million
people to 452 million inhabitants. This study has focused on two countries who
constitute about two thirds of the population joining the EU, namely Hungary and
Poland. At the same time, these two countries figure in the World Tourism
Organisation’s ‘Top-15 inbound tourism destinations’.
Thus, it was examined whether Hungary and Poland hold opportunities to be included
in easyJet’s and Ryanair’s networks.
In a first stage, it was investigated how low-cost carriers go about evaluating and
selecting routes (Chapter 3). Interviews with various managers at low-cost airlines
learnt that route evaluation and selection is mainly a qualitative exercise for this type of
carriers. However, there are clear differences in the way the airlines conceive the
process. In this respect, the overall network strategy is an important influencing factor.
137
Since easyJet adheres to a ‘join-the-dots’ strategy, in which every destination has to be

able to generate significant demand, it uses a relatively structured way of evaluating
destinations. Thus, more quantitative information, among others on (potential)
competitors, is used in the analysis. Their network strategy explains why they have
been cautious to expand into new cities and have declared to only launch one or two
new destinations per year.
Ryanair on the other hand, use considerable judgment for their route evaluation and
cannot always rely on figures of past traffic because their routes are often new. The
‘destination uncertainty’ is compensated by favourable agreements with airports, and
the lower importance of each individual destination, as their network is more
concentrated around a few ‘hub’ airports, such as London-Stansted. They are also able
to stimulate the market with very low fares based on their low costs. Thus, the airline
has achieved remarkably consistent passenger numbers on new routes. Moreover, in
geographic terms, they have expanded more than easyJet, and as such often enjoy first-
mover advantages on routes.
In a second stage, Hungary and Poland were assessed in general terms and in terms of
their travel and tourism markets (Chapters 4 and 5). Both countries differ in many
respects. Hungary is a relatively small country with a large proportion of the population
concentrated in the northwest, while Poland counts four times as many people and has
medium-to-large population centres spread over the country. Similarly, inbound
tourism to Hungary is more concentrated on Budapest and Lake Balaton. In Poland,
Krakow, and to a lesser extent, Warsaw are popular cities for short breaks.
Both states, but especially Hungary, are rated as attractive tourist destinations, among
others due to their price competitiveness. However, a large proportion of visits to
Poland is inspired by business and VFR motives. Nevertheless, it was shown that there
seems to be some scope to develop VFR travel between the UK and Eastern Europe.
Notwithstanding the large inbound visitor flows to Poland and Hungary, each has
smaller air traffic flows to and from the EU than the Czech Republic has. For the
former two states, the largest air traffic flows are to and from Germany and the UK,
although travel to/from the EU accounts for a higher share of air traffic for Hungary
than for Poland (61% vs. 50%, respectively).
138
Although the flag carriers are at present operating in a relatively protected regime of
bilateral agreements, their financial results in recent years have been poor. They may be
affected by increased (low-cost) competition. Especially Malév’s financial performance
has been weak, while LOT Polish Airlines returned to profitability in 2002.
In 2003, plans for the launch of low-cost carriers were announced in both countries. In
this respect, Polish GetJet is most advanced in the set-up process and will probably form
the greatest competitive threat to easyJet or Ryanair because they will be operating a
more similar business model. Hungarian Arc Air, by contrast, will fly regional low-cost
services and could be even complementary with an airline serving Budapest-Ferihegy.
However, it remains to be seen whether these local airlines will be successful. Indeed,
they do not have the scale, brand awareness, resources and experience that Ryanair and
easyJet possess. On the other hand, the local labour force is cheap and productive. At
the same time, this presents opportunities for Western European carriers to establish a
base in Eastern Europe, and in this respect, several airports in the region are competing.
There are also market characteristics that will impact all low-cost carriers. Firstly, a
significant gap remains between the economic indicators of the two countries and EU-
15 members, for example in terms of GDP, disposable income, inflation rates
(especially high in Hungary) and unemployment (especially high in Poland), even
though their economic growth has been strong. Thus, a low-fare ticket will represent a
higher proportion of the family budget than in EU-15 countries. Secondly, inhabitants
of the two countries, especially Poland, have a relatively low propensity to fly, although
the Polish air transport market is forecast to exhibit the highest growth. Thirdly, it will
be interesting to see whether low-cost carriers will be able to set themselves up as an
alternative for package holidays to Mediterranean destinations, which are particularly
popular in Poland. Fourthly, traditional distribution strategies of the low-fare ‘product’
may prove inadequate. Although Internet usage in Hungary is at levels comparable to
some European countries, credit card penetration is low. Conversely, in Poland,
somewhat more people have credit cards but the number of Internet users is limited. As
a result, Internet shopping using credit cards is not so common. However, it is likely
that this will not be a major barrier for people wanting to travel low-cost. Budget
139
carriers may even stimulate Internet and credit card usage. Alternatively, entrepreneurs
may act as intermediaries to help people with the booking of their ticket.
Based on an airport-scoring model involving demand and supply related factors, five
airports were shortlisted. Budapest-Ferihegy and Warsaw-Okecie received the best
scores for easyJet, while Balaton-Sarmellek and Gdansk suited Ryanair best. Krakow is
attractive to both carriers. All airports have expressed interest in low-cost services.
In a third stage, out of a multitude of possible combinations, six city-pairs were

proposed and evaluated:
 London – Budapest
 London – Krakow
 London – Warsaw
 London – Gdansk
 Frankfurt-Hahn – Balaton
 Stockholm-Skavsta – Gdansk
A qualitative assessment analogous to the methodology used by low-cost carriers was
augmented with quantitative analysis. Passenger numbers and market shares on the
route level were forecast for various scenarios and fares were compared to discover
opportunities for new entrants.
In line with the country analysis, London-Budapest and Frankfurt-Hahn – Balaton came
out as city-pairs with considerable potential for easyJet and Ryanair, respectively. For
the former city-pair, traffic stimulation would stem from the reduction in fares, both
cities’ status as capitals and Budapest’s appeal as a city-break destination. The large
Budapest catchment area would help to increase the number of Hungarians on flights.
Moreover, Germanwings has reported positive experiences with its routes to Budapest.
Traffic between Frankfurt-Hahn and Balaton will be generated through diversion from
other modes of transport and more frequent trips. The seasonal characteristics of this
route may pose a problem, though.
London-Krakow also holds potential as a city-break destination, although traffic for
low-cost carriers is expected to be less than on London-Budapest. Fares were found to
be high, while frequencies were relatively low. In contrast to the London-Budapest
route, incumbents will have to reduce capacity or drastically cut prices, and may
140
eventually have to leave the market. Ryanair is probably best placed to make the route
profitable due to its lower cost structure.
Although there are indications that Budapest and Krakow could become rivals to
Prague, they will probably not match its popularity with Britons over the next two to
three years, as Prague’s popularity was already higher before low-cost carriers opened
routes, and the underlying air traffic flows between the UK and the Czech Republic
were already significantly higher. Low-cost carriers will have to take into account,
however, that some short-break travellers may substitute destinations. Thus, some
cannibalisation among destinations may take place. In this respect, air fares and relative
prices of the destinations are influencing factors.
If Prague reaches the ‘maturity phase’ in its lifecycle as a destination, Budapest and
Krakow could become more permanent substitutes.
London-Warsaw offers scope for easyJet entry, especially because business fares seem
to be relatively high. As regards lowest available fares, however, the differences with
similar destinations currently served by low-carriers were much smaller. Moreover, in
order to appeal to this type of passengers, easyJet would have to offer twice daily
flights. This may increase the risk of the decision, since stimulation by promoting
Warsaw as a leisure destination may prove more difficult. On the other hand, VFR
travel between the UK and Poland could be further developed.
Incumbents on this route will probably not be driven out of the market, although they
may have to decrease capacity.
The two routes to Gdansk, i.e. London-Stansted–Gdansk and Stockholm-Skavsta–
Gdansk, are currently not served and appear suitable for a carrier such as Ryanair
because of the scope for reductions in travelling time, in price, and in frequency.
Thus, both Hungary and Poland present opportunities for low-cost carriers, although
negative attitudes of some consumers towards Eastern Europe will have to be overcome.
The benefits of serving Hungary appear more straightforward, though – at least in the
short term. However, the Polish market has the advantage of its larger size with a high
number of suitable airports, which has led to more routes to Poland being proposed in
this study. Thus, in a few years time, this country may prove to be a ‘sleeping giant’,
with scope for domestic flights.
141
Although the airport-scoring model suggests that easyJet has a better fit with the
destinations proposed for this airline, a larger number of all analysed routes suit
Ryanair. Indeed, due to their geographically balanced network, they can offer flights to
Eastern Europe which allow sufficient utilisation, even though it was shown that longer
sector lengths do not seem to decrease profits on a route basis for easyJet.
In view of the importance of first-mover advantages, airlines may opt to enter the
Eastern European market before the EU enlargement. This would be possible for flights
between the UK and Poland, as the bilateral agreement does not limit frequency or
capacity (The UK Parliament, 2003). Ryanair could use Buzz’s British Air Operator’s
Certificate to do so. Thus, Western European airlines could enter before GetJet. Earlier
low-cost flights to Hungary will be more difficult, as restrictive bilaterals are in place
(Horner, 2003).
In the meantime, all different actors in the air transport industry will have to weigh the
risks and benefits of the enlargement of the EU, and assess the impact of low-cost
entrants.
Limitations of the research

 Only two countries have been discussed in this thesis. However, including more
countries would have exceeded the scope of the study because it would not have
allowed to investigate each country in as much detail as is necessary for a well-
founded analysis.
 Only Ryanair and easyJet have been considered. Other airlines in the UK (e.g. Jet2)
and Germany (e.g. Germania Express) have also expressed interest in serving
Poland and/or Hungary. Moreover, entry of only one low-cost carrier on each route
was analysed.
 Although airports were selected based on a quantitative scoring model, other
variables may also play a role. Moreover, certain assumptions had to be made with
regards to aeronautical charges. Significant discounts or government subsidies may
change the actual selection of airports.
 For the survey to discover similar cities, it was necessary to draw up a list of
destinations that are currently served by Ryanair and easyJet. Even though the list
142
was compiled in a rigourous fashion, some potentially similar cities may have been
left out. However, this is why the first question in the survey gauged for ‘top-of-
mind’ similar cities.
 Only a set of six city-pairs was discussed, although more possible combinations
could have been analysed. Moreover, it was assumed that routes would be lauched
from existing bases. As low-cost carriers expand, they may add new bases.
 Quantitative information had to be augmented with judgement for forecasting
purposes. Even though different scenarios were assessed, forecasting is very
difficult. Instead of a top-down method, a bottom-up method could have been used,
gauging consumer preferences. Moreover, passenger numbers were predicted for
only one year. However, the methodology used is in essence the same.
Furthermore, the ultimate measure of performance is profitability, and not the
number of passengers.
 Some data sources remained outside the reach of the Author. In particular, MIDT
data on connecting traffic and average fares on routes could not be obtained.
Similarly, more detailed insight in the motives for ferry traffic between Nynäshamn
and Gdansk is required. Managers at low-cost carriers also indicated that they could
not disclose more details on expansion plans to Eastern Europe.
Suggestions for further research

 Further research can concentrate on the potential for routes between other countries.
Germany seems an interesting choice, as it is setting itself up as an important no-
frills market. Other Eastern European countries such as Slovenia and Latvia might
also be considered. To this end, the methodology presented in this thesis can be
used and further developed.
 There is still scope to explore the feasibility of domestic flights in Poland.
 It might be interesting to analyse which carriers effectively expand into Eastern
Europe and how this affects their financial performance. In this context, the impact
of first-mover advantage can be studied. At the same time, the effects of actual
entry, and the resulting traffic levels and market shares can be compared with the
predictions made in this thesis. This may in turn help to improve the proposed
models.
143
 Forecasting was, among others, based on a ‘low-cost stimulation factor’. Further

research could concentrate on the range of extra capacity within which this factor is
valid, and whether this factor can be applied across all types of market. Other ways
of forecasting could also be proposed.
 More research is also needed into the topic of sector lengths. In this respect, it can
be studied whether the UK is located too far away from some Eastern European
countries to guaranteee sufficient utilisation of assets, and whether an ‘optimal
sector length’ exists for low-cost carriers.
 Two types of business model are emerging in Eastern Europe: regional no-frills
airlines (e.g. Arc Air) and the ‘classic’ budget airline (e.g. GetJet). Further analysis
could investigate which type is best suited to the local market needs, and whether
the transition of a regional low-cost airline to a ‘classic’ no-frills carrier is critical
for its success (cf. the evolution of Slovakian SkyEurope).
 It has been argued that substitution between destinations might be an issue. Further
research could try to quantify the extent of this phenomenon with travellers, and test
whether there are significant differences between people travelling on low-cost
airlines and short-haul full-service carriers.
  
144
References
AIR BROKER CENTER. (2003). Airports in Europe (WWW document).

http://www.aircraft-charter-world.com/airports/europe/ (accessed 28 July 2003).
AIR TRANSPORT GROUP & THE CYPRUS DEVELOPMENT BANK LTD. (1998). Study of the
Harmonisation of the Cyprus Air Transport Sector, February.
AIR TRANSPORT INTELLIGENCE (ATI). (2002). EasyJet confirms £374 million deal for
Go, Air Transport Intelligence News, 16 May. (WWW document).
http://www.rati.com (accessed on 25 June 2003 via ATI).
AIR TRANSPORT INTELLIGENCE (ATI). (2003a). Ryanair orders 22 more 737-800s,

options 78, Air Transport Intelligence News, 31 January (WWW document).
AIR TRANSPORT INTELLIGENCE (ATI). (2003b). Germanwings to launch Budapest

flights, Air Transport Intelligence News, 7 April (WWW document).
AIRBUS. (2002). Global Market Forecast 2001-2020, September.
AIRBUS. (2003). A319 for easyJet – Performance and Cost Data (sent to the Author via
e-mail).
AIRCLAIMS. (1997). Turbine Airliner Fleet Survey (TAFS), Spring.
AIRLINE TARIFF PUBLISHING COMPANY (ATPCO) (2003). Econnect fares database

(accessed via http://www.atpco.net).
xiv
References
ANKER, R. (2003a). Interview: Go Fly – route selection and expansion into Eastern
Europe, Cranfield University, 24 January.
ANKER, R. (2003b). Traffic Forecasting for Low-Cost Airlines, Air Transport

Forecasting Seminar, Cranfield University, 4 June.
ASSOCIATION OF EUROPEAN AIRLINES (AEA). (2003). Yearbook 2003 (obtained from

http//www.aea.be).
AVIATION STRATEGY. (1998). Will expansion spoil the Ryanair success story?, Aviation
Strategy, June, pp. 10-13.
AVIATION STRATEGY. (2001). Ryanair: role of its secondary airport policy, Aviation
Strategy, March, pp. 5-6.
AVIATION STRATEGY. (2002a). Europe’s low-cost carriers – where will it all end?,
Aviation Strategy, February, pp. 1-5.
AVIATION STRATEGY. (2002b). Easyjet’s expansion plans: aberration or innovation,

Aviation Strategy, May, pp. 1-3.
AVIATION STRATEGY. (2002c). Low-cost subsidiaries: compromise carriers, Aviation

Strategy, May, pp. 4-5.
BAKER, C. (2002a). EasyJet goes for Airbus, Airline Business, November (WWW
document). http://www.rati.com (accessed on 25 June 2003 via ATI).
BAKER, C. (2002b). Ten new states set to join EU air market in 2003, Airline Business,
November (WWW document). http://www.rati.com (accessed on 25 June 2003
via ATI).
BAKER, C. (2002c). Easy does it, Airline Business, December, pp. 28-31.
BAKER, C. (2003a). Budget options, Airline Business, February, pp. 56-58.
BAKER, C. (2003b). Ryanair snaps up Buzz, Airline Business, March, p. 19.
xv
References
BARKIN, T., HERTZELL, S. & YOUNG, S. (1995). Facing low-cost competitors: lessons
from US airlines, The McKinsey Quarterly, No. 4, pp. 86-99.
BARRETT, S. (1999). Peripheral market entry, product differentiation, supplier rents and
sustainability in the deregulated European aviation market – a case study, Journal
of Air Transport Management, Vol. 5 (1999), pp. 21-30.
BARRETT, S. (2000). Airport competition in the deregulated European aviation market,

Journal of Air Transport Management, Vol. 6 (2000), pp. 13-27.
BEHRENS, A. (2003). Regional Gross Domestic Product in Candidate Countries 2000,

Statistics in focus, Eurostat.
BENNETT, P. (1999). Czechs back down in row over Go’s fares to Prague, Air Transport
Intelligence News, 25 August (WWW document). http://www.rati.com (accessed
on 31 July 2003 via ATI).
BERGER, B. (2003). Interview: Ryanair – route selection and expansion into Eastern
Europe, 10 June.
BINGGELI, U. & POMPEO, L. (2002). McKinsey on LCCs: a European gold rush?,

Aviation Strategy, June, pp. 16-18.
BORGO, A. & BULL-LARSEN, T. (1998). Losses: What losses?, Airline Business, August,
pp. 54-59.
BREYEROVA, P. (2002). Low-cost airlines take off on Prague routes, Prague Business
Journal, 6-12 May, p. 3.
BUDAPEST AIRPORT. (2003). Company information – statistics (WWW document).

http://www.bud.hu (accessed 29 July 2003).
BUDAPEST SUN. (2003). Lake Balaton – the Hungarian Sea, The Budapest Sun. (WWW
document). http://www.budapestsun.com/visitorsguide.asp?Detail=Balaton
(accessed 5 June 2003).
xvi
References
BUDAPEST TOURISM OFFICE. (2003). Touristical statistics of Budapest, Information for

the tourism industry (WWW document).
http://www.budapestinfo.hu/en/index.html (accessed 21 July 2003).
BURGHOUWT, G., HAKFOORT, J. & VAN ECK, J. (2003). The spatial configuration of
airline networks in Europe, Journal of Air Transport Management, Volume 9 (5),
September, pp. 309-323.
BUYCK, C. (2002). An Anglo-Saxon lead, Air Transport World, August, pp. 24-25.
CEEBICNET. (2003). Civil aviation market (WWW document).

http://www.mac.doc.gov/ceebic/countryr/Hungary/RESEARCH/CIVILAVIATIONMARKET.htm
(accessed 28 July 2003).
CENTRAL INTELLIGENCE AGENCY (CIA). (2003). The World Factbook (WWW

document). http://www.cia.gov/cia/publications/factbook/ (accessed 18 August
2003).
CHERIF, T. (1978). Air travel demand forecasting models, MSc Thesis, Cranfield
Institute of Technology, Flight Division.
CIVIL AVIATION AUTHORITY (CAA). (1998). The Single European Aviation Market: the
first five years, CAP 685, June, London.
COMPANY BARCLAYCARD. (2002). The Annual Company Barclaycard Survey of

Business Travel – Travel in Business Survey 2001/2002 (WWW document),
http://www.company.barclaycard.co.uk/info_centre/press/survey_results.htm# and
http://www.company.barclaycard.co.uk/info_centre/press/pr_low_cost_airlines.htm
(accessed on 7 June 2003).
CZECH AIRPORTS AUTHORITY (2003). Annual Report 2002, Prague.
DE PELSMACKER, P. & VAN KENHOVE, P. (1999). Marktonderzoek: methoden en

toepassingen, Garant, Leuven.
DOGANIS, R. (2001). The Airline Business in the 21st Century, Routledge, London.
xvii
References
DOGANIS, R. (2002). Flying off Course – The economics of international airlines, Third
Edition, Routledge, London.
DOW JONES POLISH PRESS. (2003). Krakow to woo Ryanair with new air terminal. Dow
Jones Newswires, 20 August (WWW document).
http://www.djnewswires.com/cgi-bin/displayStory.pl?storyId=20030820DN002704.xml
(accessed 26 August 2003).
DOYLE, A. (1998). BA/LOT expand code-share to cover Gatwick-Krakow, 15 October.

(WWW document). http://www.rati.com (accessed on 8 August 2003 via ATI).
DRAGOMIR, M. (2003). easyJet taking off eastward with plans to attack carriers’
‘monopoly’, Prague Business Journal, 3 March, p. 3 .
DRAKE, J. (1974). Social, political and economic constraints on airline fuel optimization,
Transportation Research, Vol. 8, pp. 443-449.
DRESNER, M., LIN J. & WINDLE, R. (1996). The impact of low-cost carriers on airport
and route competition, Journal of Air Transport Economics and Policy,
September, pp. 309-328.
DUNN, G. (2000). British Midland swaps Prague/Warsaw for Italy/Spain, Air Transport
Intelligence News, 2 March (WWW document). http://www.rati.com (accessed on
2 August 2003 via ATI).
DUNN, G. (2003a). Ryanair not targeting easyJet, but Luton an option: O’Leary, Air
Transport Intelligence News, 22 April (WWW document). http://www.rati.com
(accessed on 30 July 2003 via ATI).
DUNN, G. (2003b). Hungary keen on Malév sale in 2003, Air Transport Intelligence
News, 23 April (WWW document). http://www.rati.com (accessed on 27 July
2003 via ATI).
EASYJET. (2002). Annual Report and Accounts 2002 (WWW document).

http://www.easyjet.com/en/about/2001-2002FullYearResults.pdf (accessed on 26
February 2003).
xviii
References
EASYJET. (2003). EasyJet launches European campaign to seek low-cost airports, 12

June, (WWW document). http://easyjet.com/EN/news/20030612_01.html with
link to http://easyjet.com/en/newairports.html (accessed on 12 June 2003).
EUROMONITOR (2000). The market for beer in Eastern Europe, Global Market
Information Database, December.
EUROMONITOR. (2001a). Financial Cards in Hungary, December 2001 (WWW

document) http://www.euromonitor.com/gmid (accessed via GMID on 18 July
2003).
EUROMONITOR. (2001b). Financial Cards in Poland, December 2001 (WWW

document) http://www.euromonitor.com/gmid (accessed via GMID on 18 July
2003).
EUROMONITOR. (2002a). Travel and Tourism in Hungary, Country Report, September

(WWW document) http://www.euromonitor.com/gmid (accessed via GMID on 8
March 2003).
EUROMONITOR. (2002b). Travel and Tourism in Poland, Country Report, September

(WWW document) http://www.euromonitor.com/gmid (accessed via GMID on 8
March 2003).
EUROMONITOR. (2003). Global Market Information Database (GMID). (database

accessed between November 2002 and August 2003).
EUROPEAN COMMISSION (EC) (2003a). Candidate Countries. (WWW document).

http://europa.eu.int/comm/enlargement/candidate.htm (accessed on 25 June 2003).
EUROPEAN COMMISSION (EC) (2003b). The Accession Process. (WWW document).

http://europa.eu.int/comm/enlargement/negotiations/accession_process.htm, 16
June (accessed on 25 June 2003).
EUROTRANSPORT INTELLIGENCE. (2003). Norway, Iceland, Liechtenstein Pay

Enlargement Dues, EuroTransport Intelligence, Vol. 1(16), 16 June, p. 10.
xix
References
FAGAN, S. (2002). The Feasibility of a Low-cost Operation on Longer-haul routes: A

North Atlantic Case Study, MSc Thesis, Cranfield University.
FANNING, N. (2003). Interview: easyJet – route selection and expansion into Eastern
Europe, 23 June.
FLIGHT INTERNATIONAL. (2002). Rebel skies – Case study – Easyjet, Flight

International, 9 April (WWW document). http://www.rati.com (accessed on 10
June 2003 via ATI).
FLIGHT INTERNATIONAL. (2003a). Snowflake goes it alone, Flight International, 25

March (WWW document). http://www.rati.com (accessed on 15 June 2003 via
ATI).
FLIGHT INTERNATIONAL. (2003b). Silesian plans new life as low-cost carrier GetJet,
Flight International, 19 August (WWW document). http://www.rati.com
(accessed on 20 August 2003 via ATI).
FRANCIS, G., FIDATO A. & HUMPHREYS I. (2003). Airport-airline interaction: the impact
of low-cost carriers on two European airports, Journal of Air Transport
Management, Vol. 9(2003), pp. 267-273.
GALGÓCZI, B. (2002). Wage trends in Central and Eastern Europe, Labour Education,
International Labour Organisation, Number 128, pp. 39-44. (WWW document).
http://www.ilo.org/public/english/dialogue/actrav/publ/128/8.pdf (accessed 4 July
2003).
GDANSK AIRPORT. (2003). Air Traffic – Structure of passenger turnover in July 1999
(WWW document)
http://www.airport.gdansk.pl/eng/index1.php3?p=structureofpassengerturnover
(accessed 15 August 2003).
GILBERT, D., CHILD, D. & BENNETT M. (2001). A qualitative study of the current
practices of ‘no-frills’ airlines operating in the UK, Journal of Vacation
Marketing, Vol. 7, No. 4, pp. 302-315.
xx
References
GILLEN, D. & MORRISSON, W. (2003). Bundling, integration and the delivered price of
air travel: are low cost carriers full service competitors?, Journal of Air Transport
Management, 9(2003), pp. 15-23.
GUILD, S. (1995). Not so easy, Airline Business, June, (WWW document).

HIND, P. (2003). Telephone interview: Route selection and traffic forecasting at low-
cost carriers, 28 May.
HOESCH, J. (2001). Feasibility study of the low cost airline concept in Germany, MSc
Thesis, Air Transport Group, School of Engineering, Cranfield University.
HOFTON, A. (2002). Choosing the right business model, Airline Fleet & Asset
Management, September/October, pp. 30-36.
HORNER, N. (2003). Balaton West Airport expects 23% rise in passenger traffic in 2003,
Business Hungary, Vol. 17 (4). (WWW document).
http://www.amcham.hu/BusinessHungary/17-04/articles/17-04_05.asp (accessed
on 15 August 2003).
HUNGAROCONTROL. (2003). Airport coordination – slot allocation (WWW document).

http://www.hungarocontrol.hu (accessed 29 July 2003).
IBARRA, G. (2003). Cost and Benefit analysis of European low cost airlines handling
connecting passengers , MSc Thesis, Air Transport Group, School of
Engineering, Cranfield University.
IN YOUR POCKET (IYP). (2002a). Instant Krakow, In Your Pocket Essential Mini
Guides, Winter 2002/2003. (WWW document).
http://www.inyourpocket.com/poland/krakow/en/ (accessed on 3 August 2003).
IN YOUR POCKET (IYP). (2002b). Instant Warsaw, In Your Pocket Essential Mini
Guides, Winter 2002/2003. (WWW document).
http://www.inyourpocket.com/poland/warsaw/en/ (accessed on 3 August 2003).
xxi
References
INFOBASE. (2002). Regional Unemployment in EU Member States and CECCs,

Infobase Europe Flash, No. 169, September. (WWW document).
http://www.ibeurope.com/Flash/flash169a.htm (accessed on 12 July 2003).
INFOPOLEN. (2003). Ehrgeizige Pläne für Flughafen Lódż-Lublinek, Infopolen, 10 April,

(WWW document),
http://www.infopolen.de/wDeutsch/1_news/kurzinfo/2003_04_10_1.asp?navid=2
INSTYTUT TURYSTYKI. (2003a). Foreign departures of Polish residents (WWW

document). http://www.intur.com.pl/itenglish/departur.htm (accessed 20 August
2003).
INSTYTUT TURYSTYKI. (2003b). Inbound Traffic to Poland (WWW document).

http://www.intur.com.pl/itenglish/arrivals.htm (accessed 7 July 2003).
INSTYTUT TURYSTYKI. (2003c). Participation in Tourism (WWW document).

http://www.intur.com.pl/itenglish/particip.htm (accessed 2 August 2003).
INSTYTUT TURYSTYKI. (2003d). Results 2002 – Detailed Tables (WWW document).

http://www.intur.com.pl/itenglish/pdfs/tables2002.pdf (accessed 7 July 2003).
INTERNATIONAL AIR TRANSPORT ASSOCIATION (IATA). (2003a). Airport and Air

Navigation Charges Manual, July, Montreal-Geneva.
INTERNATIONAL AIR TRANSPORT ASSOCIATION (IATA). (2003b). Global Aviation

Business Intelligence, online database (WWW document).
http://www.iatagabi.com (accessed between 25/02/2003 and 04/03/2003).
KAMINSKI-MORROW, D. (2003a). EasyJet posts heavy first-half pre-tax losses, Air

Transport Intelligence News, 7 May. (WWW document). http://www.rati.com
KAMINSKI-MORROW, D. (2003b). Germanwings to launch seven routes from Stuttgart,

Air Transport Intelligence News, 30 July (WWW document). http://www.rati.com
xxii
References
KAMINSKI-MORROW, D. (2003c). LOT back in profit after first half, Air Transport
Intelligence News, 13 August (WWW document). http://www.rati.com (accessed
on 19 August 2003 via ATI).
KAMINSKI-MORROW, D. (2003d). Poland’s Silesian plans budget carrier GetJet, Air

Transport Intelligence News, 18 August (WWW document). http://www.rati.com
KAPUR, U. (2001). BA details network cuts, Air Transport Intelligence News, 27

September. (WWW document). http://www.rati.com (accessed on 8 August 2003
via ATI).
KITOWSKA, R. (2003). Radom – fast track to the future, Panorama Polskich Miast,
(WWW document). http://www.panorama-miast.com.pl/42/html/radom.htm
(accessed 29 July 2003).
KOTLER P., ARMSTRONG G., SAUNDERS J. & WONG V. (1996). Principles of marketing:
the European edition, Prentice-Hall, Europe.
KRUDY, E. (2002). Cashing in on plastic, Business Hungary, Vol. 16(9), October

(WWW document). http://www.amcham.hu/businesshungary/16-09/articles/16-
08_26.asp (accessed 20 July 2003).
LANGLOIS, S., THEODORE, J. & INESON, E. (1999). Poland: in-bound tourism from the
UK, Tourism Management, Vol. 20 (1999), pp. 461-469
LAWTON, T. (1999). The Limits of Price Leadership: Needs-based Positioning Strategy

and the Long-term Competitiveness of Europe’s Low Fare Airlines, Long Range
Planning, Vol. 32(6), pp. 573-586.
LAWTON, T. (2002). Cleared for take-off – Structure and strategy in the low fare airline
business, Ashgate.
LEVY, A. (2001). All signals Go: Airline sold, The Prague Post, 20 June, (WWW
document), http://www.praguepost.cz/busi062001f.html (accessed on 31 July
2003).
xxiii
References
LIN, E. (2001). The feasibility of a low cost airline in Hong Kong, MSc Thesis, Air
Transport Group, School of Engineering, Cranfield University.
LOBBENBERG, A., COWLEY, C., OAKLEY, P. & BROOKER, S. (2003a). The emperor is
stark naked, ABN-AMRO, 8 May.
LOBBENBERG, A., COWLEY, C., OAKLEY, P. & TINNELLY L. (2003a). Low-cost airlines:
Stack ‘em high, sell ‘em cheap, ABN-AMRO, 10 February.
LOT POLISH AIRLINES (LOT). (2000). Annual Report 1999.
MALÉV. (2001). Annual Report 2000, Budapest, 31 May.
MALÉV. (2002). Annual Report 2001, Budapest, 11 March.
MALÉV. (2003). Malév registers improved results in 2002, Malév website news section
(WWW document). http://www.Malév.hu.
MANRAI, L., MANRAI, A. & LASCU, D. (2001). A country-cluster analysis of distribution

and promotion infrastructure in Central and Eastern Europe, International
Business Review, Vol. 10, pp. 517-549.
MASON, K. (1999). The effects of corporate involvement in the short haul business
travel market, Journal of Transportation Worldwide, Vol. 4 (2), pp. 66-83.
MASON, K. (2000). The propensity of business travellers to use low-cost airlines,

Journal of Transport Geography, Vol. 8 (2), pp. 107-119.
MASON, K. (2001). Marketing low-cost airline services to business travellers, Journal of

Air Transport Management, Vol. 7 (2001), pp. 103-109.
xxiv
References
MASON, K. (2002a). Future trends in business travel decision making, Journal of Air
Transportation, Vol. 7 (1), pp. 47-68.
MASON, K. (2002b). Low Cost Airlines, Lecture notes, Cranfield University, 7 October.
MINTEL. (2000). Visiting Friends and Relatives – UK, December.
MINTEL. (2002). Short breaks abroad, June.
MOKOSCH, H. (2003). Telephone interview: Germanwings – route selection and

expansion into Eastern Europe, 14 July 2003.
MURRAY, S. (1988). Review of the quality of service index (QSI) and its use in the
allocation of airline traffic amongst routes and airlines, MSc Thesis, Cranfield
Institute of Technology, College of Aeronautics, Cranfield University.
OFFICE FOR NATIONAL STATISTICS. (2003). Census 2001: National Report for England
and Wales (WWW document),
http://www.statistics.gov.uk/downloads/census2001/National_report_EW_Part1.pdf
PLOG, S. (2001). Why destination areas rise and fall in popularity: an update of a
Cornell Quarterly classic, The Cornell Hotel and Restaurant Administration
Quarterly, Vol. 42 (3), June, pp. 13-24.
POLISH AIRPORTS. (2003). Warsaw Frederic Chopin Airport – Facts and Figures
(WWW document). http://www.polish-airports.com (accessed 15 July 2003).
POLISH GENEALOGY. (2003). Emigrants from Poland.

http://www.polishgenealogy.com.pl/emigrants.htm (accessed 7 July 2003).
POLLACK, M. (1982). Airline route-frequency planning: some design trade-offs,

Transportation Research, Vol. 16A (2), pp. 149-159.
RESEARCH AND MARKETS (R&M). (1999). UK Market for Travel to Eastern Europe
Market Assessment, 1 October (WWW document)
xxv
References
http://www.researchandmarkets.com/reports/3932/3932.pdf. (accessed on 8 July

2003).
REUTERS. (2003). Prague a most profitable route, Skytrax Global Airline Ranking, 22
February (WWW document). http://www.airlinequality.com/news/easyjet.htm
(accessed on 1 August 2003).
RYANAIR. (2002). Annual Report & Financial Statements 2002. http://www.ryanair.com

(accessed on 1 March 2003).
RYANAIR. (2003). 2003 End of Year Results, Powerpoint Presentations, 3 June, (WWW
document). http://www.ryanair.com (accessed on 15 June 2003 via ATI).
SERISTÖ, H. & VEPSÄLÄINEN, A. (1997). Airline cost drivers: cost implications of fleet,
routes, and personnel policies, Journal of Air Transport Management, 3 (1), pp.
11-22.
SMYTH, R. & BENKO, A. (2003). Budapest eyed as center for budget flights, Budapest
Business Journal, 3-9 February.
SOMOGY. (2003a). Main indicators of Balatoni tourism disaggregated according to the

most important sending regions. Region totals (1999-2000), Somogy Country
Tourism Office Statistics (WWW document).
http://www.somogytourism.hu/english/eng-statisztika.html (accessed 15 August
2003).
SOMOGY. (2003b). Regional foreign tourism traffic in 2000, Somogy Country Tourism
Office Statistics (WWW document).
http://www.somogytourism.hu/english/eng-statisztika.html (accessed 15 August
2003).
SONG, H. & WITT, S. (2000). Tourism Demand Modelling and Forecasting – Modern
Econometric Approaches, Pergamon, Oxford.
STEWART, D. & MICHAELS, K. (2003). LCC growth: implications for the suppliers,
Aviation Strategy, March, pp. 17-19.
xxvi
References
STUDENT UNIVERSE (2003). Lake Balaton – Hungary’s playground, (WWW document)

http://www.studentuniverse.com/travel_guides/europe/hungary/lake_balaton.jsp
(accessed on 28 July 2003).
SULL, D. (1999). Case Study: easyJet’s $500 Million Gamble, European Management
Journal, Vol. 17(1), February, pp. 20-38.
SWAN, W. (2002). Airline route developments, Journal of Air Transport Management,

Vol. 8 (2002), pp. 349-353.
SWAN, W. (2003). Three mistakes (we made) in forecasting, Operations Research

Seminar, Cranfield University, 18 March.
TAYLOR NELSON SOFRES (TNS). (2002). Does a Brand Matter? – Consumers’ Loyalty
to Product Brands in Britain and Central Europe, 14 May. (WWW document)
http://www.tnsofres.com/press/pressstory.cfm?storyID=581 (accessed on 17
August 2003).
THE ROUTE DEVELOPMENT COMPANY (RDC). (2002). Low Cost Monitor 2002,
Leicester.
THE UK PARLIAMENT. (2003). Regional airports, 14 July (WWW document)

http://www.parliament.the-stationery-office.co.uk/pa/cm200203/cmhansrd/cm030714/text/30714w08.htm
(accessed on 2 September 2003).
TIME OUT. (2002). European Breaks by Budget Airline, Time Out Guides, London.
TOUR HEBDO (2002). Jusqu’où iront les compagnies low cost?, Tour hebdo, No. 1054, 8
November, pp. 6-7.
TRAVEL TRADE GAZETTE (TTG). (2003). Ryanair rejects talk of flights to Prague, Travel
Trade Gazette, 17 February, No. 2551, p. 14.
TRESKUNOV, Y. (2003). Assessment of the EU accession effect on the civil aviation of

Central and Eastern European countries. Case study: the Czech Republic, MSc
Thesis, Air Transport Group, School of Engineering, Cranfield University.
xxvii
References
TRONET, V. (2003a). , Air transport in the Candidate Countries 2001, Statistics in focus
– Transport Statistics in focus, Theme 7 – 1/2003, Eurostat.
TRONET, V. (2003b). International air transport of passengers 1993-2000, Statistics in

focus – Transport, Theme 7 – 2/2003, Eurostat.
UNGARISCHES TOURISMUSAMT. (2003). ‘Balaton Air’ hebt wieder ab Ostersonntag gen

Ungarn ab. (WWW document).
http://www.travelbook.de/content/news/newstext.php?bid=1408&nid=1 (accessed
on 23 April 2003).
URANUSJAY. (2003). Aircraft technical data, 21 July (WWW document).

http://www.januranusjaymartin.de/airdocuments.html (accessed 19 August 2003)/
WAGLAND, M. (2003). EasyJet cautious on full year citing uncertain Q4, Air Transport
Intelligence News, 22 July. (WWW document). http://www.rati.com (accessed on
8 August 2003 via ATI).
WALKER, K. (2003). Ryanair to buy KLM’s Buzz, Air Transport Intelligence News, 31
January. (WWW document). http://www.rati.com (accessed on 25 June 2003 via
ATI).
WARSAW DAILY. (2003). Cheap flying from Okecie. Warsaw daily, 22 August.
WILLIAMS, G. (2001). Will Europe’s charter carriers be replaced by ‘no-frills’ scheduled

airlines?, Journal of Air Transport Management, Vol. 7, pp. 277-286.
WITTMER, A. (2001). Scope for a low cost airline in France, MSc Thesis, Air Transport
Group, School of Engineering, Cranfield University.
WORLD GAZETTEER. (2003a). Country Information. (WWW document).

http://www.world-gazetteer.com/fr/fr_hu.htm (accessed on 12 July 2003).
WORLD GAZETTEER. (2003b). Country Information. (WWW document).

http://www.world-gazetteer.com/fr/fr_pl.htm (accessed on 12 July 2003).
xxviii
References
WORLD MARKETS RESEARCH CENTRE (WMRC). (2003a). Country Analysis and

Forecast Country Report: Poland, 16 January 2003.
WORLD MARKETS RESEARCH CENTRE (WMRC). (2003b). Country Analysis and

Forecast Country Report: Hungary, 31 January 2003.
WORLD TRAVEL AND TOURISM COUNCIL (WTTC). (2003). Country Reports, The 2003
Travel & Tourism Economic Research. (WWW document)
http://www.wttc.org/measure/TSACountryRpt.htm (accessed 16 March 2003).
xxix
Appendix
A. Sector length calculations

In order to compare the evolution of fares and direct operating costs for various stage
lengths, data on direct operating costs and on fares was be collected.
For the direct operating costs, the Author used A319-100 data provided by Airbus:
Sector length (km) Direct operating costs (DOC) DOC Index (DOC772km = 100)
463 £2,196 75
556 £2,412 83
648 £2,628 90
772 £2,916 100
926 £3,276 112
1,389 £4,310 148
1,852 £5,325 183
2,315 £6,333 217
2,778 £7,338 252
Source: Airbus (2003).
As regards the ticket prices, a snapshot of fares was taken on 20 August 2003 for six
routes with varying sector lengths. In each case, the lowest available (one-way) prices,
excluding taxes were gathered. This information is included in the table below:
Route Sector length (km) Average fare (F) Fare index (F772km = 100)
Belfast – Glasgow 176 £10 21
London-Luton – Amsterdam 354 £24 54
London-Stansted – Lyon 772 £45 100
London-Luton – Geneva 784 £24 52
London-Luton – Madrid 1,291 £52 114
London-Luton – Athens 2,437 £103 228
Note: Average fare applies to average of 30 inbound and 30 outbound sectors for each city-pair.
Source: compiled by Author from http://www.skyscanner.net
xxx
Appendix B: Interviews on low-cost route development
B. Interviews on low-cost route development

The following people were interviewed:
 Ralph Anker
former head of Network Planning, Go Fly
Personal interview on 24 January 2003 at Cranfield University
 Bernard Berger
Director New Route Development, Ryanair
Personal interview on 10 June 2003 at the Ryanair Head Office, Dublin
 Nigel Fanning
Business Development Manager, easyJet
Personal interview on 23 June 2003 at easyJet Head Office (easyLand), Luton
 Peter Hind
Senior Consultant, RDC (Route Development Company)
Telephone interview on 28 May 2003
 Helmut Mokosch
Senior Vice President Network Management, Germanwings
Telephone interview on 14 July 2003
The topic list below was used for the first four interviewees.
Evaluation and selection of destinations

 How does Ryanair find new destinations?
 How does Ryanair evaluate the attractiveness of destinations?
o Is it a formal process?
o Is it mainly a qualitative or quantitative exercise?
 Which data and methods are used to this end?
o Which forecasting methods are used, if any?
 Have the results been evaluated? How accurate are the results
achieved?
o Which variables are included?
xxxi
 GDP
 Propensity to travel
 Fares
 Frequency
 Number of competitors
 Other
o What is the importance of demographics (e.g. ageing population) and
population density in decisions?
 Which airports are considered?
o How is the radius of the catchment area defined (time, distance?)
o How does available infrastructure such as rail and road network affect
destination decisions?
o How does available hotel infrastructure affect destination decisions?
o Have any Eastern European destinations been considered so far?
o Does the match between flight time and scheduling play a role, i.e. ‘fit
into network’?
o What is the role of existing bases?
o What is the entry strategy on new routes (e.g. “Stansted always first”)?
 Which factors affect the timing of route entry (is there a ‘first-mover advantage’)?
 How does the existence of low-cost carriers in Eastern Europe affect decisions (cf.
SkyEurope)?
 Are Ryanair partners such as Hertz involved in any way in the decisions?
 Do language/cultural barriers sometimes play a role in route selection?
Distribution
 Does Ryanair set any requirements as regards Internet penetration at the
destinations?
 Does Ryanair set any requirements as regards the usage of credit cards?
 Do destination characteristics really matter, or does Ryanair aim in particular for
traffic from their ‘home’ markets (e.g. Ireland, UK, Germany)?
xxxii
Pricing
 How are decisions on price levels made for new routes?
 What average fare would Ryanair aim to achieve?
 What average load factor would Ryanair aim to achieve?
 Is lower purchasing power of Central and Eastern Europeans an issue?
Stakeholders’ reaction
 Is the possible reaction of employees (e.g. pilots) taken into consideration should
Ryanair opt to increasingly employ locals?
The topic list below was used for the telephone interview with Mr Mokosch.
 What is Germanwings’s experience with Budapest airport?

 What is the relative level of airport charges and ground handling costs?
 How has the Cologne-Budapest route performed?
 How have Hungarians reacted to the entry of a low-cost carrier?
 Do you think that first-mover advantages are important for low-cost carriers?
 What is the proportion of Hungarians using Germanwings between Cologne and
Budapest?
 Have any other destinations in Eastern Europe been considered?
 Do you think that Ryanair could be successful with a route from Frankfurt-Hahn to
Lake Balaton? Would this carrier pose a threat to Germanwings’s routes to
Hungary?
 Do you think that Ryanair could successfully start a route between the UK and Lake
Balaton?
xxxiii
Appendix C: Projected number of routes
C. Projected number of routes
Formulas
projected number of routes 
current number of routes  projected number of additional routes
projected number of additional routes 

number of routes per aircraft   projected number of aircraft  current number of aircraft 
Assumptions
 ‘Current’: as of 20 August 2003. Thus, easyJet’s projections have a horizon of 52
months (until 31/12/2007), while the horizon is 64 months (until 31/12/2008) for
Ryanair.
 The number of routes per aircraft remains constant, i.e. the business model does not
change. This ratio is 1.54 for easyJet and 2.15 for Ryanair.
Calculations
For easyJet:
Projected number of additional routes = 1.54*(164-69) = 146
Projected number of routes = 106 + 146 = 252
 on average 4.9 new routes per month (= 252  52 month horizon)  58 new routes
per year.
For Ryanair:
Projected number of additional routes = 2.15*(131-59) = 155
Projected number of routes = 127 + 155 = 282
 on average 4.4 new routes per month (= 282  64 month horizon)  53 new routes
per year.
xxxiv
Appendix C: Projected number of routes
Route addition history

easyJet Ryanair
Routes added in 2001 9 12
Routes added in 2002 49 25
Routes added in 2003* 17 44
Average routes added per month 2.3 2.7
(*): Until August 2003 for easyJet; until June 2003 for Ryanair.
xxxv
Appendix D: EasyJet airport tender
D. EasyJet airport tender

The following text was taken from the easyJet website on 12 June 2003 (‘News’ section
at http://www.easyjet.com).
easyJet, Europe’s number one low-cost airline, has today begun a Europe-wide search
for airports to be part of its ambitious expansion plans. Adverts have been placed in
selected national newspapers in countries throughout Europe asking airports to tender
for easyJet’s business.
easyJet applies strict criteria to its airport development. Unlike some low-cost airlines
we’re not looking for irrelevant airstrips miles from anywhere - we only want airports
prepared to offer easy-to-use facilities with good access to a large, attractive
population.
Only airports that can say yes to the following criteria will be considered:
 Does the airport want to grow in the low-cost market, or is it an existing easyJet
airport?
 Could the airport develop to take up to six easyJet aircraft simultaneously?
 Is there a large population catchment within a one-hour drive of the airport?
 Can the airport support rapid aircraft turnarounds?
 Can the airport demonstrate market opportunities to multiple easyJet destinations?
 Is low-cost part of the airport’s strategy?
 Is the airport seeking to improve the efficiency of its business?
 If the airport conforms to these criteria they should proceed to our dedicated web
page to continue the self-selection process by finding out what additional
information we require.
Speaking at the ACI EUROPE Annual conference today in London, Ray Webster,
easyJet Chief Executive, said:
“There are numerous opportunities for growth in Europe and at any one time we are
always talking to scores of airports. Our only dilemma is narrowing down the mountain
of opportunities to the one or two airports that we will select each year. We are in a
buyer’s market in Europe and, just as we negotiated a great deal on aircraft recently,
we aim to do the same with airports.
“In line with the way we run all aspects of our business, we have decided to be open
with our requirements rather than doing everything behind closed-doors. By applying
xxxvi
very strict criteria, we are essentially outsourcing the selection process to the airports
themselves. Airports that don’t conform to our requirements will not be considered in
our beauty parade.
“Low-cost airlines are the only game in town - and we’re the leader. We’re inviting
Europe’s airports to be part of that growth.”
The following text was taken from the easyJet website on 12 June 2003 (dedicated ‘New
Airports’ section at http://easyjet.com/en/newairports.html).
be part of Europe’s low-cost revolution

easyJet, Europe’s largest low-cost airline, is looking for airports to tender for its fast-
growing business. easyJet applies strict criteria to its airport selection. Unlike some
low-cost airlines we’re not looking for irrelevant airstrips miles from anywhere - we
only want airports prepared to offer efficient, low-cost facilities with access to a large
population catchment.
Only airports that can say yes to the following criteria will be considered:
 Does your airport want to grow in the low-cost market, or is it an existing easyJet
airport?
 Could your airport develop to take up to six easyJet aircraft simultaneously?
 Is there a large population catchment within a one-hour drive of the airport?
 Can your airport support rapid aircraft turnarounds?
 Can your airport demonstrate market opportunities to multiple easyJet
destinations?
 Is low-cost part of your strategy?
 Are you seeking to improve the efficiency of your business?
If you have answered yes to all of the above questions, then yours could be the kind of
airport easyJet is looking for.
Please supply us with the following information by email so that we can evaluate the
potential for us to work together.
xxxvii
the catchment
 Will your airport be part of the EU, EFTA by May 2004?
 Characterise the airport’s local catchment and demographics within 60, 90 and 120
minutes drive time.
 Within this catchment please give details of:
 GDP per capita and percentage growth rates
 major employers
 unemployment.
the airport
 Who are the current owners of or major shareholders in the airport?
 Who are the main airport and local government contacts?
traffic
 What are your airport’s current passenger throughputs, split by:
 existing charter
 connecting
 low-cost
 full-service, point-to-point traffic.
 Provide information by passenger volumes on:
 largest routes
 potential market opportunities to existing easyJet cities
 opportunities that the airport considers underserved
 potential routes currently not served.
 For each of the above route categories please provide:
 total traffic and seasonality
 the splits between scheduled and charter carriers
 recent changes in capacity on each route
 the proportion of existing point-to-point traffic
 the mix of business, leisure and VFR traffic
 where available, information on historical load factors, incumbent frequencies,
fares and aircraft type.
xxxviii
charges and support

 Provide specific details on all charges including:
 start-up charges
 all passenger and non-passenger charges, e.g. aircraft landing charges,
security, passenger tax
 ground handling suppliers (companies and typical rates for A319/737 - 156
seat, 64t MTOW operations)
 Provide specific details on any marketing support you offer including:
 marketing support related to growth and growth-related discounts
 is your airport prepared to enter into a long-term contractual agreement
including service level agreements (e.g. 20 years)?
operations
 What are the airport’s current operational hours?
 What is the airport’s current runway length and runway capacity? What plans does
the airport have to develop this?
 What is the airport’s current terminal design capacity? What plans does the airport
have to develop this?
 Is the airport slot-constrained? Indicate the airport’s current utilisation of landing
and take-off slots during the summer and winter seasons.
 Is your airport constrained by any environmental restrictions?
 What are your current aircraft turnaround times?
 Is the airport able to embrace the low-cost model by providing efficient services at
a low cost?
 Is your airport able to offer a low-cost terminal, or differentiated facilities and
charges?
If your answers match our needs, your airport could soon be part of Europe’s no.1 low-
cost network.
Please send responses to newairports@easyJet.com.
We regret that we are unable to accept any submissions by post.
The closing date for responses is 18 June 2003. A shortlist will then be drawn, and
successful airports contacted by 30 July 2003.
xxxix
Appendix E: Maps of regions in Hungary and Poland
E. Maps of regions in Hungary and Poland
Source: http://www.gkm.hu/site/kulfold/english/economy/counties/
Source: http://www.topkart.com.pl/english/strony_introduce.html
xl
Appendix F: WTTC Competitiveness Monitor Indicator definitions
F. WTTC Competitiveness Monitor Indicator definitions
Price Competitiveness
Tourism Price Competitiveness Index (TPCI) shows the tourism price index across
countries where the index value of ‘0’ shows the least price competitive country and
‘100’ represents the most price competitive country. It is computed using the Hotel
Price Index and Purchasing Power Parity Index.
Human Tourism
The International Human Tourism Index measures the achievement of human
development in terms of tourism activity. The Travel & Tourism Sector takes account
of people’s influence in various areas of tourism activity. It includes indices that look at
the economic impact of Travel & Tourism demand, consumption, exports, imports,
balance, personal and business travel and the numbers of arrivals and departures.
Infrastructure
Infrastructure Index shows the level of infrastructure development, combining the Road
Index, the Sanitation Index and the Water Access Index. The Railway Index is not
included because of the limited data available. Index value of ‘0’ represents the country
with the least infrastructure while the value of ‘100’ is for the country with the highest
infrastructure. The source is the World Bank (2001), World Development Indicators.
Environment
This indicates governments’ awareness towards environmental aspects of development
using population density, CO2 emissions and the ratification of environmental treaties as
appropriate indicators.. An index value of ‘0’ shows the least environmentally friendly
country and ‘100’ is for the most environmentally friendly country.
Technology
This shows the advances in modern technological systems and infrastructure using data
regarding telephone mainlines, mobile phones, high technology exports and Internet
xli
Appendix F: WTTC Competitiveness Monitor Indicator definitions
hosts. An index value of ‘0’ shows the least technologically advanced country and ‘100’
is for the most technologically advanced country.
Human Resources
Human resources development is an important part of Travel & Tourism. Using data
regarding life expectancy, illiteracy rates, education, employment, population, training,
skills and gender indicators this shows the competitiveness of the quality of human
resources in each country.
Openness
These indices take into account tourism openness using data including: visa
requirements, the extent to which a country is open to international tourism, trade
openness and taxes on international trade. This information has often been ignored in
past research. It accords with the economic growth literature findings that a country’s
openness to trade is a further significant determinant of growth.
Social
Social Development is an important index that indicates a country’s development in
social issues using data from daily newspapers, personal computers, television sets and
total crimes recorded.
Source: WTTC (2003).
xlii
Appendix G: IATA definitions of Western and Eastern Europe
G. IATA definitions of Western and Eastern Europe

‘Western Europe’ includes:
Andorra, Austria, Belgium, Cyprus, Denmark, Faeroe Islands, Finland, France
(excluding overseas territories), Germany, Gibraltar, Greece, Greenland, Iceland,
Ireland, Italy, Liechtenstein, Luxembourg, Malta, Monaco, Netherlands, Norway,
Portugal (including Azores and Madeira), San Marino, Spain (including Canary
Islands), Sweden, Switzerland, Turkey, United Kingdom.
‘Eastern Europe’ includes:

Albania, Armenia, Azerbaijan, Belarus, Bosnia-Herzegovina, Bulgaria, Croatia, Czech
Republic, Estonia, Former Yugoslav Republic of Macedonia, Georgia, Hungary, Latvia,
Lithuania, Republic of Moldova, Poland, Romania, Russian Federation (West of the
Urals), Slovakia, Slovenia, Ukraine, Yugoslavia (Serbia and Montenegro).
xliii
Appendix H: Airline fact sheets
H. Airline fact sheets
Malév Hungarian Airlines
Traffic statistics
Malév Hungarian Airlines 1998 1999 2000 2001 2002

Passenger (millions) 2.03 2.19 2.24 2.25 2.4
Passenger growth - 7.9% 2.3% 0.4% 6.7%
Revenue passenger km (RPK) (mill) 3,046.00 3,280.80 3,556.02 3,451.00 3,547.00
RPK growth - 7.7% 8.4% -3.0% 2.8%
Available seat km (ASK) (mill) 4,639.75 5,048.50 5,540.80 5,542.00 5,295.00
ASK growth - 8.8% 9.8% 0.0% -4.5%
Passenger load factor 65.7% 65.0% 64.2% 62.3% 67.0%
Source: ATI airline profile.
Fleet
Malév Hungarian Airlines 2000 2001 2002

Boeing 737-300 6 7 7
Boeing 737-400 3 6 6
Boeing 737-500 2 2 2
Boeing 767-200ER 2 2 2
Boeing 767-300ER 1 0 0
Fokker 70 6 6 6
Tupolev Tu-154B 5 5 3
Total 25 28 26
Source: Airclaims, 2001; Airclaims, 2002; Airclaims, 2003.
xliv
Destinations
Budapest-Ferihegy (main base)

Africa (2 airports)
Cairo Tripoli
Europe (42 airports)
Amsterdam Athens Eleftherios Venizelos Intl Berlin Tegel
Bologna Brussels National Bucharest Otopeni
Budapest Copenhagen Dublin
Dusseldorf Rhein Ruhr Frankfurt International Geneva
Hamburg Fuhlsbuettel Helsinki Istanbul
Kiev Borispol Krakow Larnaca
London Gatwick London Heathrow Madrid Barajas
Milan Malpensa Moscow Sheremetyevo Munich International
Odessa Paris Charles de Gaulle Prague
Pristina Rome Fiumicino Sarajevo
Skopje Sofia Split
Stockholm Arlanda Stuttgart Echterdingen Thessaloniki
Timisoara Tirana Venice Marco Polo
Warsaw Zagreb Zurich
Middle East (3 airports)
Beirut Damascus Tel Aviv Ben Gurion International
North America (2 airports)
New York J F Kennedy Toronto Lester B Pearson Intl
LOT Polish Airlines
Traffic statistics
LOT Polish Airlines 1998 1999 2000 2001 2002

RPK growth - 8.0% 2.8% 1.9% 0.8%
ASK growth - 4.6% 6.6% 11.5% -10.6%
xlv
Destinations
Warsaw-Okecie (main base)

Europe (47 airports)
Amsterdam Athens Eleftherios Venizelos Intl Barcelona
Berlin Tegel Brussels National Bucharest Otopeni
Budapest Bydgoszcz Copenhagen
Dusseldorf Rhein Ruhr Frankfurt International Gdansk
Hamburg Fuhlsbuettel Helsinki Istanbul
Kaliningrad Katowice Kiev Borispol
Krakow Larnaca London Gatwick
London Heathrow Lyon Saint Exupery Madrid Barajas
Manchester International Milan Malpensa Minsk International
Moscow Sheremetyevo Munich International Nice
Odessa Oslo Paris Charles de Gaulle
Poznan Riga FCO Rome Fiumicino
Sofia St Petersburg Pulkovo Stockholm Arlanda
Szczecin Tallinn Vienna
Vilnius Warsaw Wroclaw
Zagreb Zurich
Middle East (2 airports)
Beirut Tel Aviv Ben Gurion International
North America (4 airports)
Chicago O'Hare International New York J.F. Kennedy Newark Liberty International
Toronto Lester B Pearson Intl
Fleet
LOT Polish Airlines 2000 2001 2002

Boeing 737-300 2 2 2
Boeing 737-400 7 7 7
Boeing 737-500 9 10 10
Boeing 767-200ER 2 2 2
Boeing 767-300ER 3 2 2
Embraer ERJ145 10 13 14
Total 33 36 37
Source: Airclaims, 2001; Airclaims, 2002; Airclaims, 2003.
xlvi
CSA Czech Airlines
Traffic statistics
CSA Czech Airlines 1998 1999 2000 2001 2002

RPK growth - 8.2% 15.0% 10.6% 4.5%
ASK growth - 9.0% 7.5% 9.8% 4.0%
bmi British Midland
Traffic statistics
bmi British Midland 1998 1999 2000 2001 2002

Passenger growth - 5.7% 9.2% -2.0% 13.5%
RPK growth - 10.7% 8.9% 57.9% 2.2%
ASK growth - 9.1% 7.7% 50.8% -1.4%
easyJet
Traffic statistics
easyJet 1998 1999 2000 2001 2002

ASK growth - 65.5% 66.4% 20.7% 53.8%
xlvii
Ryanair
Traffic statistics
Ryanair 1998 1999 2000 2001 2002

RPK growth - 28.1% 47.4% 45.3% 40.7%
ASK growth - 36.7% 39.1% 27.1% 36.1%
xlviii
Appendix I: Airline benchmarking calculations
I. Airline benchmarking calculations

Exchange rates
USD 1 = … Pound sterling Euro Forint Zloty Koruna
31/12/2000 GBP 0.670 EUR 1.062 HUF 281.1 PLN 4.135 CZK 37.65
31/12/2001 GBP 0.689 EUR 1.129 HUF 277.5 PLN 3.982 CZK 36.13
Example: on 31/12/2000 USD 1 was worth GBP 0.670
Source: Oanda (http://www.oanda.com/convert/classic)
easyjet Ryanair bmi

2000 2001 2000 2001 2000 2001
Unit cost/ASK 0.0521 0.0572 0.0500 0.0457 0.1223 0.1049
Total operating expenses (000) 302,216 400,816 351,595 408,430 1,012,921 1,035,907
ASK (000) 5,801,000 7,003,000 7,026,760 8,930,400 8,280,947 9,875,382
Yield 0.0832 0.0877 0.0920 0.0762 0.1864 0.1562

Total operating expenses (000) 393,573 517,938 458,950 552,746 1,025,869 1,001,647
RPK (000) 4,730,000 5,903,000 4,989,000 7,251,500 5,504,601 6,411,128
Breakeven load factor 62.6% 65.2% 54.4% 60.0% 65.6% 67.1%

Unit costs 0.0521 0.0572 0.0500 0.0457 0.1223 0.1049
Yield 0.0832 0.0877 0.0920 0.0762 0.1864 0.1562
Load factor 81.5% 84.3% 71.0% 81.2% 66.5% 64.9%
ASK/empl. 5,089 4,380 4,790 5,773 1,289 1,578

ASKs (000) 5,801,000 7,003,000 7,026,760 8,930,400 8,280,947 9,875,382
Number of employees 1,140 1,599 1,467 1,547 6,422 6,257
Labour as % of total costs 18.0% 18.8% 16.4% 17.0% 22.6% 20.1%

Total labour expenses (000) 54,445 75,396 57,648 69,300 229,031 207,894
Total op. expenses (000) 302,216 400,816 351,595 408,430 1,012,921 1,035,907
Labour cost per employee 47.8 47.2 39.3 44.8 35.7 33.2
Total labour exp. (000) 54,445 75,396 57,648 69,300 229,031 207,894
ASKs per US$1000 labour costs 106,548 92,883 121,891 128,865 36,156 47,502
ASKs (000) 5,801,000 7,003,000 7,026,760 8,930,400 8,280,947 9,875,382
Daily aircraft utilisation 9.6 10.1 6.8 7.3 8.0 8.1

Total aircraft hours 59,679 81,351 89,615 108,945 131,929 135,491
Number of aircraft 17 22 36 41 45 46
Note: amounts in US Dollar, converted using the exchange rates of 31/12/2000 and 31/12/2001.
xlix
Appendix I: Airline benchmarking calculations
Malev LOT CSA

2000 2001 2000 2001 2000 2001
Unit cost/ASK 0.0804 0.0781 0.0774 0.0817 0.0753 0.0773
Total operating expenses (000) 445,560 431,977 664,896 769,991 387,577 435,853
ASK (000) 5,540,800 5,532,000 8,585,300 9,422,300 5,146,736 5,637,714
Yield 0.1095 0.1064 0.1056 0.1044 0.1206 0.1162

Total operating expenses (000) 389,411 371,688 588,685 608,315 436,898 463,959
RPK (000) 3,556,020 3,493,720 5,576,500 5,824,200 3,622,632 3,994,287
Breakeven load factor 73.4% 73.4% 73.4% 78.2% 62.4% 66.6%

Unit costs 0.0804 0.0781 0.0774 0.0817 0.0753 0.0773
Yield 0.1095 0.1064 0.1056 0.1044 0.1206 0.1162
Load factor 64.2% 63.2% 65.0% 61.8% 70.4% 70.8%
ASK/empl. 1,804 2,023 2,045 2,164 1,290 1,275

ASKs (000) 5,540,800 5,532,000 8,585,300 9,422,300 5,146,736 5,637,714
Labour as % of total costs 13.0% 13.1% 12.7% 16.8% 10.4% 12.1%

Total op. expenses (000) 445,560 431,977 664,896 769,991 387,577 435,853
Labour cost per employee 18.9 20.7 20.1 29.7 10.1 11.9
Total labour exp. (000) 57,889 56,611 84,233 129,349 40,167 52,750
ASKs per US$1000 labour costs 95,714 97,720 101,923 72,844 128,133 106,876
ASKs (000) 5,540,800 5,532,000 8,585,300 9,422,300 5,146,736 5,637,714
Daily aircraft utilisation 8.4 8.8 6.4 7.7 6.7 6.8

Total aircraft hours 77,060 73,597 107,752 140,408 68,809 74,968
Number of aircraft 25 23 46 50 28 30
Note: amounts in US Dollar, converted using the exchange rates of 31/12/2000 and 31/12/2001.
Source: ATI, Airline Annual Reports, Airclaims TAFS (2001-2002).
l
Appendix J: Airports in Hungary and Poland
J. Airports in Hungary and Poland
Airports in Hungary
Runway
Town Airport name ICAO IATA Usage Customs Runway IFR
length (m.)
Budapest Ferihegy LHBP BUD Civ. Yes Paved Yes 3,709
Debrecen Debrecen LHDC DEB Civ. O/R Paved Yes 2,501
Gyor Gyor-Per LHPR QGY Civ. O/R Paved Yes 1,434
Kaland Taszar LHTA Mil. No Paved No 2,502
Kecskemet Kecskemet LHKE Priv. Paved No 2,532
Nyiregyhaza Nyiregyhaza LHNY Civ. No Paved No 976
Papa Papa LHPA Priv. Paved No 2,379
Sarmellek Balaton LHSM SOB Civ. O/R Paved Yes 2,501
Siofok Kiliti-Sagvar LHSK Civ. O/R Unpaved Yes 2,501
Szeged Szeged LHUD Civ. O/R Unpaved Yes 1,495
Szentkiralyszabadja Szentkiralyszabadja LHSA Priv. Paved No 1,983
Szolnok Szolnok LHSN Priv. Paved No 1,983
Tokol Tokol LHTL Priv. Paved No 2,502
Note: Airports technically suitable for low-cost operations in bold.
Source: Air Broker Center (2003).
Airports in Poland
Runway
length (m.)
Bialystok Krywlany EPBK Civ. No Unpaved No 946
Bielsko-Biala Aleksandrowice EPBA Civ. No Unpaved No 641
Bydgoszcz Szwederowo EPBY BZG Civ. O/R Paved Yes 2,501
Czestochowa Rudniki EPCH Civ. No Paved No 1,983
Deblin Deblin Mil EPDE Mil. No Paved No 2,501
Elblag Elblag EPEL Civ. No Unpaved No 885
Gdansk Rebiechowo EPGD GDN Civ. Yes Paved Yes 2,802
Gliwice Gliwice EPGL Civ. No Unpaved No 763
Grudziadz Lisie Katy EPGI Civ. No Unpaved No 885
Inowroclaw Inowroclaw EPIN Civ. No Unpaved No 732
Iwonicz Iwonicz EPIW Civ. No Unpaved No 1,098
Jelenia Gora Jelenia Gora EPJG Civ. O/R Unpaved No 610
Katowice Muchowiec EPKM Civ. No Paved No 885
Katowice Pyrzowice EPKT KTW Civ. O/R Paved Yes 2,381
Kielce Maslow EPKA Civ. O/R Paved No 885
Zegrze
Koszalin Pomorskie Mil EPKO Mil. No Paved No 2,501
Krakow Balice Jps Intl EPKK KRK Civ. Yes Paved Yes 2,552
Krosno Krosno EPKR Civ. O/R Unpaved No 1,037
Leszno Leszno EPLS Civ. No Unpaved No 915
Lodz Lublinek EPLL LCJ Civ. O/R Paved Yes 1,444
Lubin Lubin EPLU Civ. No Paved No 976
Lublin Radawiec EPLR Civ. No Unpaved No 946
Malbork Malbork Mil EPMB Mil. No Paved No 2,501
Mielec Mielec EPML Civ. O/R Paved No 2,471
li
Runway
length (m.)
Modlin Modlin Mil EPMO Mil. No Paved No 2,501
Nowy Sacz Lososina Dolna EPNL Civ. No Unpaved No 793
Nowy Targ Nowy Targ EPNT Civ. No Unpaved No 1,678
Olsztyn Dajtki EPOD Civ. No Unpaved No 824
Polska Nowa
Opole Wies EPOP Civ. No Unpaved No 732
Ostrow
Wielkopolski Michalkow EPOM Civ. No Unpaved No 885
Piotrkow Piotrkow
Trybunalski Trybunalski EPPT Civ. No Unpaved No 1,007
Plock Plock EPPL Civ. No Unpaved No 671
Pobiednik Wielki Pobiednik Wielki EPKP Civ. No Unpaved No 1,037
Poznan Kobylnica EPPK Civ. No Unpaved No 732
Poznan Lawica EPPO POZ Civ. Yes Paved Yes 2,506
Pruszcz Gdanski
Pruszcz Gdanski Mil EPPR Mil. No Paved No 1,983
Radom Piastow EPRP Civ. No Unpaved No 702
Rybnik Gotartowice EPRG Civ. No Unpaved No 641
Rzeszow Jasionka EPRZ RZE Civ. O/R Paved Yes 2,504
Rzeszow Rzeszow EPRJ Civ. No Unpaved No 671
Slupsk Redzikowo Mil EPSK Mil. No Paved No 2,196
Stalowa Wola Turbia EPST Priv. No Unpaved No 885
Suwalki Suwalki EPSU Civ. No Unpaved No 641
Swidnik Swidnik EPSW Civ. O/R Unpaved No 793
Szczecin Dabie EPSD Civ. No Unpaved No 885
Szczecin Goleniow EPSC SZZ Civ. Yes Paved Yes 2,502
Szczytno Szymany EPSY SZY Civ. O/R Paved Yes 1,983
Torun Torun EPTO Civ. No Paved No 1,251
Fryderyka
Warsaw Chopina EPWA WAW Civ. Yes Paved Yes 3,692
Wloclawek Kruszyn EPWK Civ. No Unpaved No 976
Wroclaw Strachowice EPWR WRO Civ. Yes Paved Yes 2,502
Zamosc Mokre EPZA Civ. No Unpaved No 1,190
Zar Zar EPZR Civ. No Unpaved No 427
Zielona Gora Babimost EPZG IEG Civ. O/R Paved Yes 2,502
Zielona Gora Przylep EPZP Civ. O/R Unpaved No 854
Note: Airports technically suitable for low-cost operations in bold.
Legend
ICAO-code
International Civil Aviation Organization (ICAO), a 4-letter airport location indicator. The field above is left
blank if no ICAO location indicator is available for the selected airport.
lii
IATA-code
International Air Transport Association (IATA), a 3-letter identifier for the relevant airport. The field above
is left blank if no IATA code is available for the selected airport.
Usage
Airports are classified in three categories: civil airports open for public use, military airports and private
airports not open to the public. Airports that are joint use, both civil and military, are shown as civil airports.
Civ.: Civil airport, open for public use (including joint use).
Mil.: Military airport, not open for public use.
Priv.: Private airport, not open for public use.
Customs
Yes: Customs service available during airport operating hours.
No: Customs service not available.
O/R: Airport has customs service, prior notification is required.
Runway
Identification of the surface of the longest runway available:
Paved: Paved (hard surface) runway
Unpaved: Unpaved (soft surface) runway (Only lighter aircraft)
IFR
This field indicates if the airport has any officially published instrument approach procedure.
Yes Instrument approach procedure is published.
No Instrument approach procedure is not published. (Airport not suitable for traffic during bad
weather or darkness.)
Runway Length
Shows the length in feet of the longest runway available at the selected airport, rounded down to the next
full hundred feet. If the airport has both hard (paved) and soft (unpaved) runways, the length of the longest
hard surface runway is shown. If the longest runway is both, hard and soft surface, the length of the hard
surface portion is shown.
liii
Appendix K: Calculations of aeronautical charges
K. Calculations of aeronautical charges

PL-Class I: Warsaw
PL-Class II: Gdansk, Katowice*, Krakow, Poznan, Wroclaw
PL-Class III: Bydgoszcz*, Lodz, Rzeszow, Szczecin*, Szczytno, Zielona Góra
The airports marked with an asterisk (*) in the Polish Airport Classes II and III have
been excluded from their respective classes in the July issue of the IATA ‘Airport and
Air Navigation Charges Manual’, and do not figure in the Manual anymore. No up-to-
date information on charges was available on these airports’ websites, so in the further
analysis it was assumed that these airports still belonged to their original classes as
found in the February issue of the ‘Airport and Air Navigation Charges Manual’.
For the calculations a load factor of 85% and a turnaround time of thirty minutes were
assumed. All amounts are expressed in euro.
Budapest-Ferihegy (BUD)
64t
A319-100
75.5t
A319-100
B737-800
Item Remarks
Landing charge €10.6/tonne 678.4 800.3 829.3
Lighting surcharge Included in landing charge - - -
Parking charge First three hours free at off-gate position - - -
Passenger charge €13.35/departing passenger 1,708.8 1,708.8 2,149.4
Terminal navaid charge Not specified - - -
Noise charge Not specified - - -
Security charge €1.5/departing passenger 192 192 241.5
Total 2,579.2 2,701.1 3,220.2
liv
Balaton (SOB)
64t
A319-100
75.5t
A319-100
B737-800
Item Remarks
Landing charge €12/tonne 768.0 906.0 938.9
Lighting surcharge - - -
Parking charge First three hours free - - -
Passenger charge €10/departing passenger 1,280.0 1,280.0 1,610.0
Terminal navaid charge - - -
Noise charge - - -
Security charge - - -
Total 2,048.0 2,186.0 2,549.0
Debrecen (DEB)
64t
A319-100
75.5t
A319-100
B737-800
Item Remarks
Airport tax €4.46/departing passenger 570.9 570.9 718.1
Parking charge First three hours free - - -
Passenger charge €6.24/departing passenger 798.7 798.7 1,004.6
Terminal navaid charge - - -
Noise charge - - -
Security charge - - -
Total 1,825.9 1,907.9 2,280.6
Poland Class I Airports

64t
A319-100
75.5t
A319-100
B737-800
Item Remarks
Landing charge €13.4/tonne 830.8 984.9 1,021.6
Lighting surcharge Not specified - - -
Parking charge First four hours free - - -
Terminal navaid charge Formula based on unit rate of €80.3 90.8 98.7 100.4
Security charge Not specified - - -
Total 2,752.0 2,914.0 3,424.4
lv
Poland Class II Airports
64t
A319-100
75.5t
A319-100
B737-800
Item Remarks
Landing charge €15.16/(tonne of MTOW over 2t) 939.9 1,114.3 1,155.8
Terminal navaid charge Formula based on unit rate of €23.19 26.2 28.5 29.0
Security charge Not specified - - -
Total 1,878.8 2,055.4 2,332.7
Poland Class III Airports
64t
A319-100
75.5t
A319-100
B737-800
Item Remarks
Landing charge €14.3/(tonne of MTOW over 2t) 886.6 1,051.1 1,090.2
Lighting surcharge Not specified - -
Terminal navaid charge Not applicable - -
Noise charge Not specified - -
Security charge Not specified - -
Total 1,685.3 1,849.8 2,094.9
Prague-Ruzyne (PRG)
64t
A319-100
75.5t
A319-100
B737-800
Item Remarks
Parking charge One hour free - - -
Passenger charge €14.68/departing passenger 1,879.0 1879.0 2,363.5
Terminal navaid charge €6.96/(tonne over 2 tonnes) 431.5 511.6 530.6
Noise charge €0.53/(tonne of MOTW over 9 tonne) 29.2 35.2 36.7
Security charge Included in passenger charge - - -
Total 2,922.1 3,112.9 3,642.8
lvi
Stansted (STN)
64t
A319-100
75.5t
A319-100
B737-800
Item Remarks
Landing charge Fixed charge 235.0 235.0 235.0
Lighting surcharge None
Parking charge €3.18 fixed/15’ + €0.2 per tonne/15’ 32.0 36.6 37.7
Terminal navaid charge €1.78/tonne 113.9 134.4 139.3
Noise charge Not applicable - - -
Security charge Included in passenger charge - - -
Air passenger tax €7.12/departing passenger 911.4 911.4 1,146.3
Total 2,521.0 2,546.1 3,103.8
Amsterdam-Schiphol (AMS)
64t
A319-100
75.5t
A319-100
B737-800
Item Remarks
Lighting surcharge Not applicable - - -
Parking charge First six hours free - - -
Terminal navaid charge €76.2 fixed charge + €5.5/(tonne over 20t) 318.2 381.5 396.5
Noise charge Based on formula 231 259 265
Security charge €10.8/departing passenger 1,382.4 1,382.4 1,738.8
Total 3,890.0 4,060.6 4,848.0
Paris-Orly (ORY)
64t
A319-100
75.5t
A319-100
B737-800
Item Remarks
Landing charge Based on formula 266.4 347.6 366.9
Lighting surcharge €34.23 fixed fee 34.23 34.23 34.23
Parking charge First hour free - - -
Terminal navaid charge Based on formula 233.3 270.7 279.5
Noise charge Based on formula 18.7 19.5 19.6
Security charge None - - -
Airport tax €8.05/departing passenger 1,030.4 1,030.4 1,296.1
Civil Aviation Tax €3.92/departing passenger 501.8 501.8 631.1
Total 3,096.0 3,215.3 3,899.3
lvii
Appendix L: Airport ratings and classes
L. Airport ratings and classes
Level of aeronautical charges for easyJet
Rynair B737-800 - 50% reduction (EUR)

Distance from main city/tourist centre
A319-100 75.5t (EUR) - 40% reduction

Level of aeronautical charges for
Level of aeronautical charges for

Size of nearby population centre
Level of aeronautical charges

easyJet A319-100 75.5t (EUR)
for Ryanair B737-800 (EUR)

GDP per capita 2000 (PPS)
Tourism appeal
Airport
Balaton-Sarmellek 20 high 68,300 12,788 2,186 1,312 2,549 1,274
Budapest-Ferihegy 15 high 1,769,500 17,094 2,701 2,701 3,220 3,220
Debrecen 8 low-medium 210,500 7,123 1,908 1,145 2,281 1,140
Bydgoszcz-Szwederowo 5 low 384,700 7,875 1,850 1,110 2,095 1,047
Gdansk-Rebiechowo 8 medium 758,000 8,832 2,055 1,233 2,333 1,166
Katowice-Pyrzowice 27 low-medium 334,200 9,667 2,055 1,233 2,333 1,166
Krakow-Balice 20 high 733,100 7,842 2,055 1,233 2,333 1,166
Poznan-Lawica 8 medium 581,200 9,365 2,055 1,233 2,333 1,166
Rzeszow-Jasionka 5 low 167,000 6,248 1,850 1,110 2,095 1,047
Szczecin-Goleniow 27 medium 415,700 8,666 1,850 1,110 2,095 1,047
Warsaw-Okecie 20 medium-high 1,607,600 13,316 2,914 2,914 3,424 3,424
Wroclaw-Strachowice 10 medium 632,200 7,506 2,055 1,233 2,333 1,166
Zielona Gora Babimost 37 low 120,000 7,879 1,850 1,110 2,095 1,047
Note: Scores on a scale of 1 (low rating) to 5 (high rating). No discounts at capital airports.
The following scheme was used to transform the numbers in the table above to ratings
from 1 to 5:
GDP per capita 2000 (PPS)
Level of aeronautical
Distance from main
city/tourist centre
population centre
Tourism appeal
charges (EUR)
Size of nearby
Rating
1 > 100 km low < 150,000 < 7,500 > 4,000
2 76-100 km low-medium 150,000-300,000 7,500-10,000 3,001-4,000
3 51-75 km medium 300,001-500,000 10,001-12,500 2,001-3,000
4 25-50 km medium-high 500,001-1,000,000 12,501-15,000 1,000-2,000
5 < 25 km high > 1,000,000 > 15,000 < 1,000
lviii
Appendix M: Route map
M. Route map
Stockholm-
Skavsta
Gdansk
London
Warsaw
Frankfurt- Krakow
Hahn
Budapest
Balaton
lix
Appendix N: Names and titles of survey respondents
N. Names and titles of survey respondents
 Herman De Wulf
Journalist Flight International
 Jacqueline De Smet
Office Manager
World of Tui Travel Center
Brugge (Belgium)
 Simon Calder
Senior Travel Editor
The Independent
 Mieke Vanhauwere
Atlas Reizen
Waregem (Belgium)
 Deena MacGregor
Aviation Manager
Cresta Holidays (My Travel)
United Kingdom
lx
Appendix O: Survey instrument and results
O. Survey instrument and results

Question 1:
“Please list five places which have similar characteristics, for each of the following five
destinations: Budapest, Lake Balaton, Warsaw, Krakow and Gdansk. ‘Similar’ may be
interpreted freely.”
Results for Question 1:
Herman Jacqueline Simon Mieke Deena

De Wulf De Smet Calder Vanhauwere MacGregor
Budapest 1. Vienna 1. Vienna 1. Vienna 1. Vienna 1. Vienna
2. Paris 2. Prague 2. Lyon 2. Prague 2. Berlin
3. Dresden 3. Berlin 3. Cologne 3. Salzburg 3. Munich
4. Bruges 4. Sofia 4. Linz 4. - 4. Warsaw
5. Amsterdam 5. Athens 5. Paris 5. Barcelona 5. -
Lake Balaton 1. Chiemsee 1. Nice 1. Lough Neagh 1. - 1. The Italian Lakes
2. Bodensee 2. Helsinki 2. Vattern 2. - 2. Interlaken
3. Lemansee 3. Stockholm 3. Lake Geneva 3. - 3. Lucerne
4. Wolfgangsee 4. Istanbul 4. Camargue 4. - 4. Montreux
5. Lago Maggiore 5. Cannes 5. Hessen 5. - 5. -
Warsaw 1. Brussels 1. Prague 1. Düsseldorf 1. - 1. Leipzig
2. Vienna 2. Krakow 2. Berlin 2. - 2. Dresden
3. Paris 3. Gdansk 3. Frankfurt 3. Dresden 3. Munich
4. Amsterdam 4. Sofia 4. Manchester 4. Berlin 4. Cologne
5. Dublin 5. Istanbul 5. Rotterdam 5. Madrid 5. -
Krakow 1. Dresden 1. Warsaw 1. Lübeck 1. Prague 1. Prague
2. Bruges 2. Florence 2. Graz 2. Vienna 2. Cologne
3. Ghent 3. Venice 3. Innsbruck 3. Salzburg 3. Tallinn
4. Mechelen 4. Salamanca 4. Heidelberg 4. - 4. Heidelberg
5. Antwerp 5. Lisbon 5. Salzburg 5. - 5. -
Gdansk 1. Lübeck 1. Krakow 1. Lübeck 1. - 1. Hamburg
2. Bremen 2. Prague 2. Esbjerg 2. - 2. Helsinki
3. Hamburg 3. Porto 3. Trieste 3. - 3. Frankfurt
4. Antwerp 4. Sofia 4. Cadiz 4. - 4. -
5. Strasbourg 5. Bruges 5. Cork 5. - 5. -
lxi
Question 2:
“Please rate for all five destinations, the places in the list according to their degree of
similarity with the respective destinations on a scale from 1 (low similarity) to 5 (high
similarity). Please put a tick () in the appropriate column.”
low similarity high similarity

Budapest 1 2 3 4 5
Amsterdam
Barcelona
Berlin
Brussels
Copenhagen
Madrid
Milan
Munich
Naples
Oslo
Prague
Vienna
Stockholm

Lake Balaton 1 2 3 4 5
Bergerac
Dinard
Friedrichshafen
Geneva
Gothenburg
Kerry
Klagenfurt
Murcia
Reims
Tours

Warsaw 1 2 3 4 5
Amsterdam
Barcelona
Berlin
Brussels
Copenhagen
Madrid
Milan
Munich
Naples
Vienna
Oslo
Prague
Stockholm
lxii

Krakow 1 2 3 4 5
Leipzig
Bilbao
Carcassonne
Forli
Graz
Lübeck
Malmö
Oslo
Bruges
Pisa
Prague
Salzburg
Florence
Stockholm

Gdansk 1 2 3 4 5
Leipzig
Bilbao
Carcassonne
Forli
Graz
Lübeck
Malmö
Oslo
Bruges
Pisa
Prague
Salzburg
Florence
Stockholm
lxiii
Results for Question 2:
Budapest
Herman De Wulf Jacqueline De Smet Simon Calder Mieke Vanhauwere Deena MacGregor Sum of scores
Amsterdam 3 3 2 1 1 10
Barcelona 1 3 1 3 1 9
Berlin 4 4 3 2 5 18
Brussels 4 3 2 2 3 14
Copenhagen 4 2 3 2 2 13
Madrid - 1 1 2 1 5
Milan 3 1 1 2 1 8
Munich 3 2 3 2 4 14
Naples 1 1 1 1 1 5
Oslo 3 1 2 1 2 9
Prague 5 5 4 4 2 20
Vienna 5 5 4 3 5 22
Stockholm 3 2 2 1 2 10
Herman De Wulf Jacqueline De Smet Simon Calder Mieke Vanhauwere Deena MacGregor Average correlation
Herman De Wulf - 0.64 0.86 0.44 0.60 0.63
Jacqueline De Smet 0.64 - 0.76 0.69 0.57 0.67
Simon Calder 0.86 0.76 - 0.50 0.72 0.71
Mieke Vanhauwere 0.44 0.69 0.50 - 0.24 0.47
Deena MacGregor 0.60 0.57 0.72 0.24 - 0.53
Warsaw
Amsterdam 3 1 2 3 1 10
Barcelona 1 1 1 1 1 5
Berlin 3 2 3 4 4 16
Brussels 4 2 2 3 2 13
Copenhagen 3 1 2 3 2 11
Madrid 3 2 1 3 1 10
Milan 1 1 1 1 1 5
Munich 1 1 2 2 4 10
Naples 1 1 1 1 1 5
Vienna 4 2 3 2 2 13
Oslo 3 1 2 2 2 10
Prague 4 4 3 3 1 15
Herman De Wulf - 0.65 0.70 0.70 0.02 0.52
Jacqueline De Smet 0.65 - 0.58 0.46 -0.07 0.41
Simon Calder 0.70 0.58 - 0.61 0.50 0.60
Deena MacGregor 0.02 -0.07 0.50 0.38 - 0.21
Krakow
Leipzig 4 3 3 3 1 14
Bilbao 1 2 1 3 1 8
Carcassonne 4 1 3 3 1 12
Forli - - 2 - - 2
Graz 4 2 4 3 - 13
Lübeck 4 3 4 - - 11
Malmö - 3 3 - - 6
Oslo - 2 2 2 1 7
Bruges 4 4 3 4 2 17
Pisa 1 3 1 3 1 9
Prague 5 4 4 5 4 22
Salzburg 4 3 4 3 4 18
Florence 3 4 1 4 1 13
lxiv
Herman De Wulf - 0.22 0.86 0.35 0.58 0.50
Jacqueline De Smet 0.22 - 0.08 0.69 0.40 0.35
Simon Calder 0.86 0.08 - 0.27 0.75 0.49
Deena MacGregor 0.58 0.40 0.75 0.34 - 0.52
Lake Balaton
Bergerac - - 1 1 - 2
Dinard 1 3 1 1 - 6
Friedrichshafen 5 1 4 2 - 12
Geneva 5 1 3 3 - 12
Gothenburg - 1 2 3 - 6
Kerry - - 1 1 - 2
Klagenfurt - 2 4 3 - 9
Murcia - - 1 1 - 2
Reims 1 1 1 1 - 4
Tours 1 1 1 1 - 4
Herman De Wulf - -0.41 0.97 0.92 - 0.49
Jacqueline De Smet -0.41 - -0.13 -0.21 - -0.25
Simon Calder 0.97 -0.13 - 0.79 - 0.54
Mieke Vanhauwere 0.92 -0.21 0.79 - - 0.50
Deena MacGregor - - - - - -
Gdansk
Leipzig 2 3 2 - 3 10
Bilbao 2 3 1 - 3 9
Carcassonne 2 1 1 - 1 5
Forli - - 1 - - 1
Graz - 2 2 - - 4
Lübeck 5 3 4 - - 12
Malmö 2 3 2 - - 7
Oslo 4 2 2 - 2 10
Bruges 3 4 1 4 1 13
Pisa 3 3 1 - 1 8
Prague 3 4 3 - 1 11
Salzburg 3 3 3 - 1 10
Florence 3 3 1 - 1 8
Stockholm 4 3 2 - 1 10
Herman De Wulf - 0.12 0.57 - -0.44 0.08
Jacqueline De Smet 0.12 - 0.20 - -0.07 0.08
Simon Calder 0.57 0.20 - - -0.08 0.23
Mieke Vanhauwere - - - - - -
Deena MacGregor -0.44 -0.07 -0.08 - - -0.20
lxv
Appendix P: London-Prague capacity and demand
P. London-Prague capacity and demand

Weekly capacity Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03
British Airways 5,040 5,964 7,056 7,056 8,424 7,390 7,256
CSA 5,028 5,244 5,096 5,376 5,376 5,726 6,136
British Midland 1,908 2,256 2,062 0 0 0 0
Go/easyJet 0 0 0 4,144 4,144 4,144 5,920
Total 11,976 13,464 14,214 16,576 17,944 17,260 19,312
Yearly seats 1997 1998 1999 2000 2001 2002 2003

British Airways 262,080 310,128 366,912 366,912 438,048 384,280 377,312
CSA 261,456 272,688 264,992 279,552 279,552 297,752 319,072
British Midland 99,216 117,312 107,224 0 0 0 0
Go/easyJet 0 0 0 215,488 215,488 215,488 307,840
Total 622,752 700,128 739,128 861,952 933,088 897,520 1,004,224
Yearly seats (%) 1997 1998 1999 2000 2001 2002 2003
British Airways 42.1% 44.3% 49.6% 42.6% 46.9% 42.8% 37.6%
CSA 42.0% 38.9% 35.9% 32.4% 30.0% 33.2% 31.8%
British Midland 15.9% 16.8% 14.5% 0.0% 0.0% 0.0% 0.0%
Go/easyJet 0.0% 0.0% 0.0% 25.0% 23.1% 24.0% 30.7%
Total 100% 100% 100% 100% 100% 100% 100%
Frequencies Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03

British Airways 14 14 14 14 21 21 21
CSA 19 20 20 21 21 21 25
British Midland 9 9 9 0 0 0 0
Go/easyJet 0 0 0 14 14 14 20
Total 42 43 43 49 56 56 66
Frequencies (%) Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03

British Airways 33.3% 32.6% 32.6% 28.6% 37.5% 37.5% 31.8%
CSA 45.2% 46.5% 46.5% 42.9% 37.5% 37.5% 37.9%
British Midland 21.4% 20.9% 20.9% 0.0% 0.0% 0.0% 0.0%
Go/easyJet 0.0% 0.0% 0.0% 28.6% 25.0% 25.0% 30.3%
Total 100% 100% 100% 100% 100% 100% 100%
Scheduled traffic 1997 1998 1999 2000 2001 2002

London Heathrow 412,633 451,073 456,611 436,615 426,487 406,728
London Stansted 24,815 23,394 41,699 168,879 231,822 255,421
Total 437,448 474,467 498,310 605,494 658,309 662,149
Load factor 1997 1998 1999 2000 2001 2002

70.2% 67.8% 67.4% 70.2% 70.6% 73.8%
lxvi
Appendix P: London-Prague capacity and demand
QSI 1997 1998 1999 2000 2001 2002 2003

British Airways 25.2 29.8 35.3 37.1 44.3 38.9 38.2
CSA 25.1 26.2 25.5 28.3 28.3 30.1 32.3
British Midland 9.5 11.3 10.3 0.0 0.0 0.0 0.0
Go/easyJet 0.0 0.0 0.0 31.9 27.1 27.1 38.7
Total QSI 59.9 67.3 71.1 97.3 99.7 96.1 109.2
Market shares* 1997 1998 1999 2000 2001 2002 2003

British Airways 42% 44% 50% 38% 44% 40% 35%
CSA 42% 39% 36% 29% 28% 31% 30%
British Midland 16% 17% 15% 0% 0% 0% 0%
Go/easyJet 0% 0% 0% 33% 27% 28% 35%
Total 100% 100% 100% 100% 100% 100% 100%
(*): estimates based on QSI
lxvii
Appendix Q: Quality of Service Index (QSI)
Q. Quality of Service Index (QSI)
QSI is a composite unit which can be expressed as:

Fi  Ai  Qi
QSI i 
Pi
where:
Fi : Frequency, i.e. the number of weekly round trips by service i on a given city-pair
Ai : Aircraft size (number of seats) offered by service i on a given city-pair
Pi : Round-trip fare offered by service i on a given city-pair
Qi : Quality factor for service i on a given city-pair (1 for FSC, 0.85 for LCC)
For a given city-pair, with n services operating the total QSI is:
n
QSI total   QSI i
i 1
Assumption:
Other factors being equal, passenger demand will distribute amongst the services
offered in direct proportion to the QSI values of the various services.
Therefore, the market share for carrier i (MKi) is equal to the proportion of its QSI value
relative to QSItotal.
QSI i
MK i  T
QSI total
where:
QSIi : Quality of Service Index for carrier i.
QSItotal : Sum of the Quality of Service Indices of competing carriers
T : Total traffic
Source: Air Transport Group et al. (1998).
lxviii
Appendix R: Route forecasts
R. Route forecasts
Contrafactual analysis: graphs

London-Prague
London-Prague
90,000
80,000
76,903
71,040 73,971
70,000
Passengers (number)
60,917
60,000
57,703
50,000 Actual
Forecast
40,000 June capacity
30,000
20,000
10,000
0
Jan-97
May-97
Sep-97
Jan-98
May-98
Sep-98
Jan-99
May-99
Sep-99
Jan-00
May-00
Sep-00
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Note: Seasonal decomposition – additive method fitted the pre-entry data best.
Average year-on-year traffic growth in first year of low-cost carrier operation: +9.9%.
London-Vienna
London-Vienna
100,000
90,000 91,783
87,514 88,963
84,240
80,000 80,263
Passenger numbers
70,000 68,537
60,000
Actual
50,000 Forecast
Capacity
40,000
30,000
20,000
10,000
0
Jan-97
May-97
Sep-97
Jan-98
May-98
Sep-98
Jan-99
May-99
Sep-99
Jan-00
May-00
Sep-00
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Note: Seasonal decomposition – multiplicative method fitted the pre-entry data best.
Average year-on-year traffic growth in first year of low-cost carrier operation: -6.4%.
lxix
London-Berlin
London-Berlin
90,000
83,494 82,483
80,000 79,877 80,837
70,000
67,046
Passenger numbers
60,000
55,269
50,000
Actual
Forecast
40,000 Capacity
30,000
20,000
10,000
0
Jan-97
May-97
Sep-97
Jan-98
May-98
Sep-98
Jan-99
May-99
Sep-99
Jan-00
May-00
Sep-00
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Note: Seasonal decomposition – additive method fitted the pre-entry data best.
London-Salzburg
London-Salzburg
45,000
40,000
35,000
Passenger numbers
30,000
25,000 Actual
22,680 22,680 Forecast
20,000 Capacity
15,000
10,000
5,000 4,526 3,703 3,840

0 0
Jan-97
May-97
Sep-97
Jan-98
May-98
Sep-98
Jan-99
May-99
Sep-99
Jan-00
May-00
Sep-00
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Note: Seasonal decomposition – multiplicative method fitted the pre-entry data best.
lxx
Forecasts using GDP coefficient

Assumption
If route A-B currently has low-cost carriers operating and is similar to a route A-C
without low-cost carrier operating, then the number of passengers on the route A-C with
a low-cost carrier operating can be calculated as the traffic on route A-B corrected for
differences in GDP between city B and C:
GDPC
Traffic( A  C ) LC  Traffic( A  B) LC 
GDPB
With:
LC: ‘Low-cost carrier presence’
GDPB: Gross Domestic Product of city B
GDPC: Gross Domestic Product of city C
Calculations
Note: the ‘common city’ (A in the previous paragraph) is London.
London-Budapest
Data for routes similar to Budapest with low-cost carrier (LCC):
Passengers Passengers
GDP/capita City population City GDP GDP Date of to/from LON 1 year to/from LON
Name PPS (number) (m PPS) coefficient LCC entry before LCC entry first LCC year
Target city: Budapest 17,094 1,769,500 30,248 1.00 - 353,746 -
Similar city 1: Prague 27,354 1,169,800 31,999 0.95 23-Sep-99 475,135 592,517
Similar city 2: Vienna 35,483 1,523,600 54,062 0.56 4-Jan-00 795,715 782,706
Similar city 3: Berlin 21,616 3,274,500 70,782 0.43 4-Jan-00 503,130 681,486
Forecasts for Budapest:

1 year before low-cost entry First year after low-cost entry
Based on Prague 449,137 560,096
Based on Vienna 445,205 437,927
Based on Berlin 215,008 291,226
London-Warsaw
Data for routes similar to Warsaw with low-cost carrier (LCC):
Target city: Warsaw 13,316 1,607,600 21,407 1.00 - 388,896 -
Similar city 1: Berlin 21,616 3,274,500 70,782 0.30 4-Jan-00 503,130 681,486
Similar city 3: Vienna 35,483 1,523,600 54,062 0.40 4-Jan-00 795,715 782,706
lxxi
Forecasts for Warsaw:

Based on Berlin 152,164 206,105
Based on Vienna 315,078 309,927
London-Krakow
Data for routes similar to Krakow with low-cost carrier (LCC):
Target city: Krakow 7,842 733,100 5,749 1.00 - 54,368 -
Similar city 2: Salzburg 29,567 144,000 4,258 1.35 5-Apr-01 22,874 191,503
Forecasts for Krakow:

Based on Salzburg 30,886 258,581
lxxii
Appendix S: Key data of proposed routes
S. Key data of proposed routes
Airline entry strategy

 EasyJet entry with a daily frequency and an average price 35% below the
incumbents’ average fare. Frequency increase if sufficient demand.
 Ryanair entry with a daily frequency and an average price 35% below the
incumbents’ average fare.
Scenario assumptions
Base case Optimistic Pessimistic
Demand forecasts ‘Middle of the road’ Optimistic Pessimistic
Incumbent frequency change None -10% +10%
Incumbent fare change -5% None -15%
lxxiii
London-Budapest
Optimistic Base Pessimistic

Weekly capacity Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-04 Jun-04
British Airways 5,040 5,502 6,048 6,048 7,560 5,148 5,292 4,914 5,292 5,670
Malév 3,416 4,466 4,354 4,354 4,354 4,220 4,354 3,939 4,354 4,769
British Midland 0 0 1,638 1,638 0 0 0 0 0 0
Syrianair 0 0 302 0 0 0 0 0 0 0
easyJet 0 0 0 0 0 0 0 2,100 2,100 2,100
Total 8,456 9,968 12,342 12,040 11,914 9,368 9,646 10,953 11,746 12,539

Yearly seats 1997 1998 1999 2000 2001 2002 2003 2004 2004 2004
British Airways 262,080 286,104 314,496 314,496 393,120 267,696 275,184 255,528 275,184 294,840
Malév 177,632 232,232 226,408 226,408 226,408 219,440 226,408 204,845 226,408 247,971
British Midland 0 0 85,176 85,176 0 0 0 0 0 0
Syrianair 0 0 15,704 0 0 0 0 0 0 0
easyJet 0 0 0 0 0 0 0 109,200 109,200 109,200
Total 439,712 518,336 641,784 626,080 619,528 487,136 501,592 569,573 610,792 652,011

Yearly seats (%) 1997 1998 1999 2000 2001 2002 2003 2004 2004 2004
British Airways 59.6% 55.2% 49.0% 50.2% 63.5% 55.0% 54.9% 44.9% 45.1% 45.2%
Malév 40.4% 44.8% 35.3% 36.2% 36.5% 45.0% 45.1% 36.0% 37.1% 38.0%
British Midland 0.0% 0.0% 13.3% 13.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Syrianair 0.0% 0.0% 2.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
easyJet 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 19.2% 17.9% 16.7%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Frequencies Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-04 Jun-04
British Airways 14 14 14 14 21 14 14 13 14 15
Malév 14 20 21 21 21 20 21 19 21 23
British Midland 0 0 7 7 0 0 0 0 0 0
Syrianair 0 0 1 0 0 0 0 0 0 0
easyJet 0 0 0 0 0 0 0 7 7 7
Total 28 34 43 42 42 34 35 39 42 45

Frequencies (%) Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-04 Jun-04
British Airways 50.0% 41.2% 32.6% 33.3% 50.0% 41.2% 40.0% 33.3% 33.3% 33.3%
Malév 50.0% 58.8% 48.8% 50.0% 50.0% 58.8% 60.0% 48.7% 50.0% 51.1%
British Midland 0.0% 0.0% 16.3% 16.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Syrianair 0.0% 0.0% 2.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
easyJet 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 17.9% 16.7% 15.6%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Scheduled traffic 1997 1998 1999 2000 2001 2002 2003 2004 2004 2004
London Heathrow 322,621 339,461 368,863 374,273 346,056 329,780 - - - -
London Gatwick 0 13,555 26,431 25,154 26,257 23,236 - - - -
London Stansted 0 0 0 0 0 0 - - - -
Total 322,621 353,016 395,294 399,427 372,313 353,016 356,130 460,000 435,000 410,000

Load factor 1997 1998 1999 2000 2001 2002 E2003 2004 2004 2004
All carriers 73.4% 68.1% 61.6% 63.8% 60.1% 72.5% 71.0% 81% 71% 63%
easyJet - - - - - - - 100% 85% 69%
lxxiv

QSI 1997 1998 1999 2000 2001 2002 E2003 2004 2004 2004
British Airways 25.2 27.5 30.2 30.2 37.8 25.7 26.5 24.6 27.9 33.4
Malév 17.1 22.3 21.8 21.8 21.8 21.1 21.8 19.7 22.9 28.1
British Midland 0.0 0.0 8.2 8.2 0.0 0.0 0.0 0.0 0.0 0.0
Syrianair 0.0 0.0 1.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0
easyJet 0.0 0.0 0.0 0.0 0.0 0.0 0.0 13.7 13.7 13.7
Total QSI 42.3 49.8 61.7 60.2 59.6 46.8 48.2 58.0 64.5 75.1

Market shares* 1997 1998 1999 2000 2001 2002 E2003 2004 2004 2004
British Airways 60% 55% 49% 50% 63% 55% 55% 42% 43% 44%
Malév 40% 45% 35% 36% 37% 45% 45% 34% 36% 37%
British Midland 0% 0% 13% 14% 0% 0% 0% 0% 0% 0%
Syrianair 0% 0% 2% 0% 0% 0% 0% 0% 0% 0%
easyJet 0% 0% 0% 0% 0% 0% 0% 24% 21% 18%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
London-Warsaw
British Airways 5,040 5,040 5,040 5,040 6,804 5,292 5,606 5,072 5,606 6,140
LOT Polish Airlines 4,548 4,764 5,862 5,628 7,140 5,550 5,472 4,951 5,472 5,993
British Midland 0 0 3,276 0 0 0 0 0 0 0
easyJet 0 0 0 0 0 0 0 2,100 2,100 2,100
Total 9,588 9,804 14,178 10,668 13,944 10,842 11,078 12,123 13,178 14,233

Yearly seats 1997 1998 1999 2000 2001 2002 2003 2004 2004 2004
British Airways 262,080 262,080 262,080 262,080 353,808 275,184 291,512 263,749 291,512 319,275
British Midland 0 0 170,352 0 0 0 0 0 0 0
easyJet 0 0 0 0 0 0 0 109,200 109,200 109,200
Total 498,576 509,808 737,256 554,736 725,088 563,784 576,056 630,394 685,256 740,118

Yearly seats (%) 1997 1998 1999 2000 2001 2002 2003 2004 2004 2004
British Airways 52.6% 51.4% 35.5% 47.2% 48.8% 48.8% 50.6% 41.8% 42.5% 43.1%
LOT Polish Airlines 47.4% 48.6% 41.3% 52.8% 51.2% 51.2% 49.4% 40.8% 41.5% 42.1%
British Midland 0.0% 0.0% 23.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
easyJet 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 17.3% 15.9% 14.8%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

British Airways 14 14 14 14 21 21 21 19 21 23
LOT Polish Airlines 16 17 21 21 28 21 21 19 21 23
British Midland 0 0 14 0 0 0 0 0 0 0
easyJet 0 0 0 0 0 0 0 7 7 7
Total 30 31 49 35 49 42 42 45 49 53

Frequencies (%) 1997 1998 1999 2000 2001 2002 2003 2004 2004 2004
British Airways 46.7% 45.2% 28.6% 40.0% 42.9% 50.0% 50.0% 42.2% 42.9% 43.4%
British Midland 0.0% 0.0% 28.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
easyJet 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 15.6% 14.3% 13.2%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Scheduled traffic 1997 1998 1999 2000 2001 2002 E2003 2004 2004 2004
London Heathrow 293,779 336,835 400,823 391,208 338,479 388,807 - - - -
London Gatwick 0 1,598 2,369 2,727 20,450 0 - - - -
Total 293,779 338,433 403,192 393,935 358,929 388,807 397,479 480,000 455,000 435,000

Load factor 1997 1998 1999 2000 2001 2002 E2003 2004 2004 2004
All carriers 59% 66% 55% 71% 50% 69% 69% 76% 66% 59%
easyJet - - - - - - - 95% 79% 64%
lxxv
QSI 1997 1998 1999 2000 2001 2002 E2003 2004 2004 2004
British Airways 25.2 25.2 25.2 25.2 34.0 26.5 28.0 25.4 29.5 36.1
LOT Polish Airlines 22.7 23.8 29.3 28.1 35.7 27.8 27.4 24.8 28.8 35.3
British Midland 0.0 0.0 16.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0
easyJet 0.0 0.0 0.0 0.0 0.0 0.0 0.0 13.7 13.7 13.7
Total QSI 47.9 49.0 70.9 53.3 69.7 54.2 55.4 63.8 72.0 85.1

Market shares* 1997 1998 1999 2000 2001 2002 E2003 2004 2004 2004
British Airways 53% 51% 36% 47% 49% 49% 51% 40% 41% 42%
LOT Polish Airlines 47% 49% 41% 53% 51% 51% 49% 39% 40% 41%
British Midland 0% 0% 23% 0% 0% 0% 0% 0% 0% 0%
easyJet 0% 0% 0% 0% 0% 0% 0% 22% 19% 16%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
London-Krakow
Ryanair
British Airways 488 976 0 0 0 0 684 684 684 684
LOT Polish Airlines 864 864 1,452 1,824 1,512 1,512 1,512 1,296 1,512 1,728
Ryanair 0 0 0 0 0 0 0 2,646 2,646 2,646
Total 1,352 1,840 1,452 1,824 1,512 1,512 2,196 4,626 4,842 5,058

Yearly seats 1997 1998 1999 2000 2001 2002 2003 2004 2004 2004
British Airways 25,376 50,752 0 0 0 0 35,568 35,568 35,568 35,568
Ryanair 0 0 0 0 0 0 0 137,592 137,592 137,592
Total 70,304 95,680 75,504 94,848 78,624 78,624 114,192 240,552 251,784 263,016

Yearly seats (%) 1997 1998 1999 2000 2001 2002 2003 2004 2004 2004
British Airways 36.1% 53.0% 0.0% 0.0% 0.0% 0.0% 31.1% 14.8% 14.1% 13.5%
Ryanair 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 57.2% 54.6% 52.3%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

British Airways 2 4 0 0 0 0 3 3 3 3
Ryanair 0 0 0 0 0 0 0 7 7 7
Total 6 8 6 7 7 7 10 16 17 18

Frequencies (%) 1997 1998 1999 2000 2001 2002 2003 2004 2004 2004
British Airways 33.3% 50.0% 0.0% 0.0% 0.0% 0.0% 30.0% 18.8% 17.6% 16.7%
Ryanair 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 43.8% 41.2% 38.9%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

London Heathrow 1,609 0 0 0 0 0 - - - -
London Gatwick 28,970 48,376 54,163 57,431 51,737 53,429 - - - -
Total 30,579 48,376 54,163 57,431 51,737 53,429 71,941 155,000 135,000 115,000

Load factor 1997 1998 1999 2000 2001 2002 E2003 2004 2004 2004
All carriers 43.5% 50.6% 71.7% 60.6% 65.8% 68.0% 63.0% 64% 54% 44%
Ryanair - - - - - - - 78% 65% 51%
lxxvi

QSI 1997 1998 1999 2000 2001 2002 E2003 2004 2004 2004
British Airways 2.4 4.9 0.0 0.0 0.0 0.0 3.4 3.4 3.6 4.0
Ryanair 0.0 0.0 0.0 0.0 0.0 0.0 0.0 22.5 22.5 22.5
Total QSI 6.8 9.2 7.3 9.1 7.6 7.6 11.0 32.4 34.0 36.7

Market shares* 1997 1998 1999 2000 2001 2002 E2003 2004 2004 2004
British Airways 36% 53% 0% 0% 0% 0% 31% 11% 11% 11%
Ryanair 0% 0% 0% 0% 0% 0% 0% 69% 66% 61%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
easyJet
British Airways 488 976 0 0 0 0 684 684 684 684
LOT Polish Airlines 864 864 1,452 1,824 1,512 1,512 1,512 1,296 1,512 1,728
easyJet 0 0 0 0 0 0 0 2,100 2,100 2,100
Total 1,352 1,840 1,452 1,824 1,512 1,512 2,196 4,080 4,296 4,512

Yearly seats 1997 1998 1999 2000 2001 2002 2003 2004 2004 2004
British Airways 25,376 50,752 0 0 0 0 35,568 35,568 35,568 35,568
easyJet 0 0 0 0 0 0 0 109,200 109,200 109,200
Total 70,304 95,680 75,504 94,848 78,624 78,624 114,192 212,160 223,392 234,624

Yearly seats (%) 1997 1998 1999 2000 2001 2002 2003 2004 2004 2004
British Airways 36.1% 53.0% 0.0% 0.0% 0.0% 0.0% 31.1% 16.8% 15.9% 15.2%
easyJet 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 51.5% 48.9% 46.5%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

British Airways 2 4 0 0 0 0 3 3 3 3
easyJet 0 0 0 0 0 0 0 7 7 7
Total 6 8 6 7 7 7 10 16 17 18

Frequencies (%) 1997 1998 1999 2000 2001 2002 2003 2004 2004 2004
British Airways 33.3% 50.0% 0.0% 0.0% 0.0% 0.0% 30.0% 18.8% 17.6% 16.7%
easyJet 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 43.8% 41.2% 38.9%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

London Heathrow 1,609 0 0 0 0 0 - - - -
London Gatwick 28,970 48,376 54,163 57,431 51,737 53,429 - - - -
Total 30,579 48,376 54,163 57,431 51,737 53,429 71,941 155,000 135,000 115,000

Load factor 1997 1998 1999 2000 2001 2002 E2003 2004 2004 2004
All carriers 43.5% 50.6% 71.7% 60.6% 65.8% 68.0% 63.0% 73% 60% 49%
easyJet - - - - - - - 82% 67% 52%
lxxvii

QSI 1997 1998 1999 2000 2001 2002 E2003 2004 2004 2004
British Airways 2.4 4.9 0.0 0.0 0.0 0.0 3.4 3.4 3.6 4.0
easyJet 0.0 0.0 0.0 0.0 0.0 0.0 0.0 13.7 13.7 13.7
Total QSI 6.8 9.2 7.3 9.1 7.6 7.6 11.0 23.6 25.3 27.9

Market shares* 1997 1998 1999 2000 2001 2002 E2003 2004 2004 2004
British Airways 36% 53% 0% 0% 0% 0% 31% 14% 14% 14%
easyJet 0% 0% 0% 0% 0% 0% 0% 58% 54% 49%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
London-Gdansk
Weekly capacity Jun-98 Jun-99 Jun-00 Jun-01
British Airways 0 366 336 342
LOT Polish Airlines 216 0 0 0
Total 216 366 336 342
Weekly capacity Jun-98 Jun-99 Jun-00 Jun-01

Total 432 732 672 684
Yearly seats 1998 1999 2000 2001

British Airways 0 38,064 34,944 35,568
LOT Polish Airlines 22,464 0 0 0
Total 22,464 38,064 34,944 35,568
Yearly seats (%) 1998 1999 2000 2001

British Airways 0.0% 100.0% 100.0% 100.0%
LOT Polish Airlines 100.0% 0.0% 0.0% 0.0%
Total 100% 100% 100% 100%
Frequencies Jun-98 Jun-99 Jun-00 Jun-01

Total 2 3 3 3
Frequencies (%) 1998 1999 2000 2001

British Airways 0.0% 100.0% 100.0% 100.0%
LOT Polish Airlines 100.0% 0.0% 0.0% 0.0%
Total 100% 100% 100% 100%
Scheduled traffic 1998 1999 2000 2001

London Gatwick 6902 15804 21659 15,956
Total 6,902 15,804 21,659 15,956
Load factor 1998 1999 2000 2001

All carriers - - 62.0% -
lxxviii
Appendix T: Statistical tests
T. Statistical tests
 Variables normally distributed? (Kolmogorov-Smirnov test)
One-Sample Kolmogorov-Smirnov Test
BA LON-PRG BA PRG-LON BA LON-BUD BA BUD-LON BA LON-WAW BA WAW-LON

N 69 69 69 69 69 69
Normal Parameters a,b Mean 54.6377 67.5797 86.6667 121.2899 82.0870 93.3478
Std. Deviation 29.57989 39.91034 37.74593 72.58283 50.47385 47.43938
Most Extreme Absolute .287 .230 .320 .275 .420 .253
Differences Positive .287 .230 .320 .275 .420 .253
Negative -.253 -.200 -.240 -.199 -.310 -.222
Kolmogorov-Smirnov Z 2.383 1.910 2.657 2.288 3.487 2.105
Asymp. Sig. (2-tailed) .000 .001 .000 .000 .000 .000
a. Test distribution is Normal.
b. Calculated from data.
BA LON-PRG BA PRG-LON BA LON-BUD BA BUD-LON BA LON-WAW BA WAW-LON

(on KRK (on KRK (on KRK (on KRK (on KRK (on KRK
BA LON-KRK BA KRK-LON service days) service days) service days) service days) service days) service days)
N 30 30 30 30 30 30 30 30
Normal Parameters a,b Mean 83.1667 97.3667 46.7000 65.9667 87.9667 119.6000 78.9333 89.6667
Std. Deviation 26.32959 65.58200 15.27258 33.78072 44.18806 76.44859 47.94460 42.11506
Most Extreme Absolute .403 .312 .278 .226 .348 .251 .391 .239
Differences Positive .403 .312 .278 .226 .348 .251 .391 .239
Negative -.231 -.274 -.222 -.172 -.263 -.218 -.324 -.219
Kolmogorov-Smirnov Z 2.206 1.706 1.524 1.236 1.908 1.373 2.141 1.308
Asymp. Sig. (2-tailed) .000 .006 .019 .094 .001 .046 .000 .065
U2 STN-PRG U2 PRG-STN 4U CGN-PRG 4U PRG-CGN 4U CGN-BUD 4U BUD-CGN

N 60 60 60 60 60 60
Std. Deviation 15.39851 18.84202 16.96732 19.71734 18.33742 20.76250
Negative -.085 -.100 -.137 -.106 -.131 -.179
Asymp. Sig. (2-tailed) .157 .154 .002 .007 .000 .021
LONFCO FCOLON LONBUD BUDLON LONWAW WAWLON

N 50 50 50 50 50 50
Std. Deviation 70.62388 42.20466 58.93026 68.98845 69.03315 46.52587
Negative -.219 -.125 -.168 -.134 -.242 -.166
Asymp. Sig. (2-tailed) .000 .063 .000 .000 .000 .006
lxxix
 Significant difference in British Airways fares from London to

Prague/Budapest/Warsaw? (Friedman test)
Descriptive Statistics
N Mean Std. Deviation Minimum Maximum

BA LON-PRG 69 54.6377 29.57989 35.00 244.00
BA LON-BUD 69 86.6667 37.74593 60.00 251.00
BA LON-WAW 69 82.0870 50.47385 57.00 295.00
Test Statisticsa
Ranks N 69
Chi-Square 73.855
Mean Rank
BA LON-PRG df 2
1.19
BA LON-BUD Asymp. Sig. .000
2.61
BA LON-WAW 2.20 a. Friedman Test
 Significant difference in British Airways fares from Prague/Budapest/Warsaw to

London? (Friedman test)

BA PRG-LON 69 67.5797 39.91034 34.00 244.00
BA BUD-LON 69 121.2899 72.58283 60.00 304.00
BA WAW-LON 69 93.3478 47.43938 57.00 295.00
Test Statisticsa
Ranks N 69
Chi-Square 59.478
Mean Rank
BA PRG-LON 1.30 df 2
BA BUD-LON 2.61 Asymp. Sig. .000
BA WAW-LON 2.09 a. Friedman Test
lxxx

Prague/Budapest/Warsaw/Krakow? (Friedman test)

BA LON-KRK 30 83.1667 26.32959 59.00 164.00
BA LON-PRG (on
30 46.7000 15.27258 35.00 96.00
KRK service days)
BA LON-BUD (on
30 87.9667 44.18806 60.00 251.00
KRK service days)
BA LON-WAW (on
30 78.9333 47.94460 57.00 295.00
KRK service days)
Ranks
Mean Rank
BA LON-KRK 3.37 Test Statisticsa
BA LON-PRG (on
1.10 N 30
KRK service days)
Chi-Square 58.120
BA LON-BUD (on
3.20 df 3
KRK service days)
BA LON-WAW (on Asymp. Sig. .000
2.33
KRK service days) a. Friedman Test
 Significant difference in British Airways fares from

Prague/Budapest/Warsaw/Krakow to London? (Friedman test)

BA KRK-LON 30 97.3667 65.58200 58.00 394.00
BA PRG-LON (on
30 65.9667 33.78072 34.00 165.00
KRK service days)
BA BUD-LON (on
30 119.6000 76.44859 60.00 304.00
KRK service days)
BA WAW-LON (on
30 89.6667 42.11506 57.00 202.00
KRK service days)
Ranks
Mean Rank
BA KRK-LON 2.83 Test Statisticsa
BA PRG-LON (on
1.53 N 30
KRK service days)
Chi-Square 32.040
BA BUD-LON (on
3.33 df 3
KRK service days)
BA WAW-LON (on Asymp. Sig. .000
2.30
KRK service days) a. Friedman Test
lxxxi
 Significant difference in Germanwings fares between Cologne-Bonn and

Prague/Budapest? (Wilcoxon test)

4U CGN-PRG 60 51.9512 16.96731 27.53 86.23
4U PRG-CGN 60 54.0735 19.71734 27.53 130.77
4U CGN-BUD 60 75.9783 18.33742 42.39 115.27
4U BUD-CGN 60 76.5860 20.76250 42.39 129.34
Ranks
N Mean Rank Sum of Ranks

4U CGN-BUD - Negative Ranks 0a .00 .00
4U CGN-PRG Positive Ranks 58b 29.50 1711.00
Ties 2c
Total 60
4U BUD-CGN - Negative Ranks 4d 17.75 71.00
4U PRG-CGN Positive Ranks 54e 30.37 1640.00
Ties 2f
Total 60
a. 4U CGN-BUD < 4U CGN-PRG
b. 4U CGN-BUD > 4U CGN-PRG
c. 4U CGN-PRG = 4U CGN-BUD
d. 4U BUD-CGN < 4U PRG-CGN
e. 4U BUD-CGN > 4U PRG-CGN
f. 4U PRG-CGN = 4U BUD-CGN
Test Statisticsb
4U CGN-BUD 4U BUD-CGN
- 4U - 4U
CGN-PRG PRG-CGN
Z -6.624a -6.075a
Asymp. Sig. (2-tailed) .000 .000
a. Based on negative ranks.
b. Wilcoxon Signed Ranks Test
lxxxii
 Significant difference between fares of Germanwings (to/from Cologne/Bonn) and

easyJet (to/from Stansted)? (Wilcoxon test)

U2 STN-PRG 60 55.8917 15.39851 34.80 101.50
U2 PRG-STN 60 56.1700 18.84202 29.80 99.80
4U CGN-PRG 60 51.9512 16.96731 27.53 86.23
4U PRG-CGN 60 54.0735 19.71734 27.53 130.77
Ranks
N Mean Rank Sum of Ranks

4U CGN-PRG - Negative Ranks 42a 28.52 1198.00
U2 STN-PRG Positive Ranks 18b 35.11 632.00
Ties 0c
Total 60
4U PRG-CGN - Negative Ranks 36d 29.47 1061.00
U2 PRG-STN Positive Ranks 24e 32.04 769.00
Ties 0f
Total 60
a. 4U CGN-PRG < U2 STN-PRG
b. 4U CGN-PRG > U2 STN-PRG
c. U2 STN-PRG = 4U CGN-PRG
d. 4U PRG-CGN < U2 PRG-STN
e. 4U PRG-CGN > U2 PRG-STN
f. U2 PRG-STN = 4U PRG-CGN
Test Statisticsb
4U CGN-PRG 4U PRG-CGN
- U2 - U2
STN-PRG PRG-STN
Z -2.083a -1.075a
Asymp. Sig. (2-tailed) .037 .282
a. Based on positive ranks.
b. Wilcoxon Signed Ranks Test
lxxxiii

Rome/Budapest/Warsaw? (Friedman test)

LONFCO 50 101.6800 70.62388 47.00 278.00
LONBUD 50 119.6000 58.93026 60.00 304.00
LONWAW 50 105.3400 69.03315 57.00 295.00
Test Statisticsa
Ranks N 50
Chi-Square 23.880
Mean Rank
LONFCO 1.66 df 2
LONBUD 2.56 Asymp. Sig. .000
LONWAW 1.78 a. Friedman Test
 Significant difference in British Airways fares from Rome/Budapest/Warsaw to


FCOLON 50 95.5400 42.20466 47.00 173.00
BUDLON 50 140.6800 68.98845 40.00 303.00
WAWLON 50 115.4200 46.52587 57.00 295.00
Test Statisticsa
Ranks N 50
Chi-Square 21.640
Mean Rank
FCOLON 1.50 df 2
BUDLON 2.42 Asymp. Sig. .000
WAWLON 2.08 a. Friedman Test

Madrid/Budapest/Warsaw? (Friedman test)

LONBUD 50 119.6000 58.93026 60.00 304.00
LONWAW 50 105.3400 69.03315 57.00 295.00
LONMAD 50 91.4400 76.38922 33.00 289.00
lxxxiv
Test Statisticsa
Ranks N 50
Chi-Square 36.120
Mean Rank
LONBUD 2.62 df 2
LONWAW 1.96 Asymp. Sig. .000
LONMAD 1.42 a. Friedman Test
 Significant difference in British Airways fares from Madrid/Budapest/Warsaw to


BUDLON 50 140.6800 68.98845 40.00 303.00
WAWLON 50 115.4200 46.52587 57.00 295.00
MADLON 50 77.2200 44.55920 33.00 289.00
Test Statisticsa
Ranks N 50
Chi-Square 49.960
Mean Rank
BUDLON 2.54 df 2
WAWLON 2.26 Asymp. Sig. .000
MADLON 1.20 a. Friedman Test
  
lxxxv

2003 - Stijn - Vandermoere - Expanding Low-Cost Airline Routes Into Eastern Europe - A Risk-Benefit Analysis of Hungary and Poland

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

2003 - Stijn - Vandermoere - Expanding Low-Cost Airline Routes Into Eastern Europe - A Risk-Benefit Analysis of Hungary and Poland

Uploaded by

Copyright:

Available Formats

Stijn Vandermoere

Expanding low-cost airline routes into

Academic year 2002-2003

Expanding low-cost airline routes into

Supervisor: Professor F. Alamdari

This thesis is submitted in partial fulfilment of the requirements

Specifically in the context of this thesis, I am indebted to my supervisor, Fariba

GABI: Global Aviation Business Intelligence

RPK: Revenue Passenger Kilometres

3.4.1 Evaluation of demand characteristics................................................. 41

6.6 CONCLUSION ................................................................................................ 101

M. ROUTE MAP ....................................................................................................LIX

Figure 1.1: Thesis structure .......................................................................................... 8

Table 1.1: Top 15 countries in terms of international tourism arrivals ............................ 2

Table 6.2: Airports suitable for low-cost carrier operations .......................................... 93

International Tourist Change Market

Note: Eastern European countries in bold.

Table 1.1: Top 15 countries in terms of international tourism arrivals

2 See the Department of Trade and Industry website http://www.dti.gov.uk/europe/enlarge/index.htm#top.

International Tourism Change Market

Note: European countries with low-cost carrier activity in bold.

Table 1.2: Top 15 countries in terms of international tourism spending

3 Belgium and Luxembourg are considered together.

1.2 Research questions

1.3 Existing literature

1.4 Research aims and objectives

1.6 Thesis structure

Potential for low-cost route expansion into

Chapter 2 Chapter 3 Chapter 4 Chapter 5

Country suitability for low-cost carriers

Selection of similar cities and routes

Forecasting by analogy Fares comparison

M arket share modelling

Note: Techniques used between square brackets

2.2 Historical developments

2.3 Supply of low-cost air transport

2.3.1 No-frills capacity

Low-cost carrier seat capacity (1995-2003)

Figure 2.1: Evolution of no-frills seat capacity in Europe (1995-2003)

ABN-AMRO (2003a) identified twenty LCCs in Western Europe at the beginning of

Weekly low-cost available seat kilometres (ASK) Weekly

Table 2.1: Capacity shares of Western European low-cost carriers

Ryanair passengers 1997-2003

Figure 2.2: Ryanair passenger numbers (1997-2003)

Year 1995 1996 1997 1998 1999 2000 2001 2002

Source: Airclaims (1996-2003).

sustainable growth and long term prosperity by operating a dense, high-frequency,

easyJet passengers 1995-2003

Note: Figures are for full year.

Figure 2.3: EasyJet passenger numbers 1995-2003

Year 1995 1996 1997 1998 1999 2000 2001 2002

Source: Airclaims TAFS (1996-2003).

2.3.4 Characteristics of low-cost carriers

LOW-FARE CARRIERS FULL-SERVICE CARRIERS

Branding & advertising

2.3.5 Cost advantage

Sources of cost advantage

Catering (10-13%) Increased margins

Aircraft manufacturers (16%) Lessors (15%) Airline s GDS (>30%) Customer

Ground handling (11-14%)

Total elimination of link in value chain

Note: Profit margins indicated between brackets based on 1992-1996 data.