Sat, Mar 16, 2002 page19

• Cheap airlines invade Europe

  Once scorned by the big air carriers, discount airlines are now showing a profit and even buying new planes, much to the chagrin of the rest of the world's struggling airline industry

  • DPA
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  That which would have been considered totally absurd a year ago by most European airlines' chief executives has become a reality.

  The much-scorned discount air carriers are soaring skyward and registering increasingly higher passenger numbers from month to month.

  

  One of the first planes with the ensign of VG Airlines, a company owned by Belgian Freddy Van Gaever, enters a hall near planes of the defunct Sabena airline on Thursday at Brussels' National Airport in Zaventem. Flemish manager Van Gaever created the company after the bankruptcy of the Belgian national carrier last December.

  PHOTO: AFP

  And not only that, but the so-called "low cost carriers" are mainly operating in the black despite the overall economic recession, which has been worsened by the Sept. 11 terror attacks in America -- something which the established large-sized airlines can't be claiming.

  The discount airlines are even buying new aircraft, predicting utopic-sounding growth rates and even becoming listed on the stock market.

  "We cannot underestimate the low cost carriers," admitted none other than Holger Haetty, chief of strategy planning at Deutsche Lufthansa, at a recent symposium attended by around 100 aviation industry experts from around the world.

  This warning is symptomatic of the new tones being heard at the German airline which until not too long ago was still looking down on the Irish "upstart," Ryanair. Lufthansa eventually found itself engaged in a hefty dispute with the aggressive small airline, and has now even repeatedly gone to court over Ryanair's practices.

  But there is now no longer any doubt about it: the cheap airlines have revolutionized aviation. It is not even 12 months ago that people were predicting that Ryanair and the others would not be able to survive in the market with their extremely cheap ticket prices.

  Instead, just the opposite has taken place. The "bargain basement" carriers are adding more and more destinations to their operations and are even increasing their fleets.

  Their big idol is the US air carrier Southwest Airlines, set up back in 1967. Operating with unprecedented cost-consciousness, the airline based in Dallas, Texas is generally looked on as the big winner to emerge from the deregulation of the US civil aviation sector. At the moment, Southwest is the only leading US airline to be operating at a profit.

  Southwest's business recipe is simple: a fleet consisting only of the twin-engine Boeing 737, no unprofitable long-distance routes, no service whatsoever on board, and minimal costs on the ground.

  What makes the development of this airline so interesting is not just that it has been successful as a low-cost carrier for three and one-half decades now, but that it has been able to hold its own against two other powerful companies which are also based in Texas -- American Airlines and Continental.

  There are many aviation industry experts who are convinced that exactly the same thing is coming to Europe. Many large airports may still be refusing to accept these cheap air carriers which pay little or no landing or ground services fees, but it is only a question of time until they do so.

  In the end, compromises will be made to the benefit of all sides. The low cost carriers will pay lower airport fees, but for that they will have to settle for the less desirable starting time slots outside the main air traffic hours.

  On the other hand, airports which are not now bursting at the seams can let the cheap airlines fill up the "dead" periods under the motto, better some small business than no business at all.

  In the midst of this scenario has come the recent courageous announcement by Ryanair that by three years' time at the latest it will be serving several inner-German routes. In all probability, this will take place a lot faster.

  Market research projections back this up. American studies predict that the number of passenger planes of all kinds on the planet will rise from the current 20,000 to more than 26,500 by the year 2011.

  At the same time, the share of regional jets in the total will rise from six per cent now to about 31 percent. It is in this segment where the low cost carriers will be increasingly active.

  `cannabilization of the markets'

  In this segment will be such names as Ryanair, EasyJet, Go and Buzz in Europe, Virgin Blue Airlines in Australia, and Southwest Airlines and JetBlue Airways in the US.

  Professor David Gillen of the University of California at Berkeley and one of the most highly-regarded American experts in the field, is convinced:

  "The low cost carriers have, with their elasticity in prices and strategies, fundamentally changed civil aviation. These airlines depend on those last five customers. That's why they are succeeding."

  Gillen calls this a "cannabilization of the markets" and says the consequences of it are logical to foresee. "The expensive, all-service airline companies must reduce their costs and reconsider their procedural and delivery strategies."
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