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Thu, Sep 23, 2004 - Page 12 News List

Europe's budget airlines prepare for war


Ryanair and easyJet, Europe's two leading low-cost airlines, are on a mission to reinvigorate their businesses in the face of increasingly fierce competition from traditional carriers and new entrants.

The two carriers have helped transform European air travel by offering cheap fares on short-haul routes in Europe, but their success story has soured of late amid cut-throat competition in the no-frills sector.

Ryanair chief executive Michael O'Leary warned the World Low Cost Airlines Congress on Tuesday "there will a bloodbath in Europe this winter" in the budget air sector.

"The bloodbath will reach all the companies," said O'Leary, who has previously predicted that only one or two large low-fares airlines will be left flying the skies of Europe in the medium term.

The Dublin-based carrier has warned investors it expects its revenue per passenger to plunge by 20 percent in the three months to September, the second quarter of its financial year.

Ryanair shares have tumbled by about 45 percent since mid-January.

Meanwhile arch-rival easyJet has seen its share plunge by over 60 percent over the same period, a victim of what its chief executive Ray Webster has described as "unprofitable and unrealistic" pricing by airlines in Europe.

The airlines' margins and profits are under pressure from reductions in fares as well as soaring fuel costs.

Competition in the sector is intensifying. In 2000 there were just five low-cost airlines in Europe. Now there are 49, according to Wolfgang Kurth, president of the European Low Fares Airline Association and chief executive of no-frills carrier Hapag-Lloyd Express.

Webster told the conference that low-cost airlines could take advantage of short-haul routes likely to be neglected by the larger, established carriers.

"The real growth is to link major catchment zones to main routes. It's a market big airlines will have deserted in the next five or 10 years to focus on the point-to-point, transatlantic or long haul flights," he said.

For O'Leary, "our growth is not determined by who we are competing against. Our growth is determined by which airport we fly to. Our strategy is to keep prices down."

Though both bosses say they are unfazed by the competition, they have been back to the drawing board in recent weeks to tinker with their business models.

Ryanair said on Tuesday it intends to introduce inflight entertainment on all its flights, but customers will have to pay for the privilege.

Meanwhile, easyJet has been revamping its fight program.

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