There are the Southwest and ValuJet copycats, offering low cost travel directly to the public. Then there are luxury business class only carriers. And there are the small regional operators feeding larger partners. Nearly all have chosen to occupy niche routes rather than compete head-to-head with the majors and established players. With the economic upswing generally acknowledged to be underway, investors are once again ready to gamble, this time in Europe's aviation casino. But, encouragingly, at least a few have their feet firmly fixed on the ground and are stressing the need to make a profit. François Arpels, founder and president of Fairlines in France, is one of them: 'Every route has objectives and must meet these. All routes must bring profitability,' he says.
Innovation and flexibility are the keys to survival. The entrepreneurs behind the new carriers are doing their homework, collecting lists of existing travellers to target with direct mail, using technology to offer passengers a cheaper fare if they buy in bulk, studying existing examples to understand the market's potential, targeting niche markets, and trying to maximise the use of their aircraft.
Until now things have been quiet. The UK's Civil Aviation Authority (CAA) notes in its latest report, The Single European Aviation Market, Progress So Far, that in December 1994 only 7 per cent of Europe's international scheduled city pairs were being served by more than two carriers. On domestic routes 11 per cent had two carriers operating, up from 8 per cent in December 1992. But only 2 per cent of domestic routes were served by more than two carriers.
The recession and the multiple barriers to entry in Europe - which include slot restrictions at several airports, the competitive weight of the major players, and difficulties over market access, to name but a few - have played a role in delaying the onset of the 'start ups trend'.
As usual a few were ahead of the rest, such as Ireland's Ryanair, which is now establishing a UK base with flights from London/ Stansted to Prestwick in Scotland. And seeing the success of southern Irish traffic, particularly on Dublin to London, Air Belfast launched services in March from Belfast International to London/ Stansted, and was planning to add Belfast-London/ Gatwick three times daily from the end of November. Like Ryanair, Air Belfast has low fares and markets itself as a no-frills carrier.
The success story of Ryanair as a no frills, low fares style carrier ranks alongside those of the US's Southwest Airlines and, more recently, ValuJet. Ryanair has successfully transported the concept to the Irish-UK market, but will it work elsewhere in Europe?
Stelios Haji-Iannou - the steering force behind London/Luton-based EasyJet - believes it will and says the new carrier is modelled on ValuJet. With initial flights from Luton to Glasgow and Edinburgh, EasyJet is aiming to grow the Scotland-London market in much the same way that Ryanair expanded London-Dublin.
With the lowest one-way fare of £29 ($46) to either destination, EasyJet quickly brought itself into the spotlight and attracted the attention of two rival operators, Air UK and British Midland. Both responded by lowering their return fares to £58 on selected flights, subject to availability.
The flaming bright orange livery on EasyJet's Boeing 737s may be evocative of a fiery price war against the incumbents, but the carrier may survive if it can offer more capacity at the lower fare than its rivals. Low costs will be the key and EasyJet claims it has plenty of financial staying power: 'Funding is not an issue for this airline,' says Haji-Iannou. EasyJet is wetleasing its B737s from GB Airways, using the UK carrier's operating licence as a quick way to enter the UK market while its waits for its own licence. EasyJet's start-up capital is £5 million ($7.9 million), with Stelmar Tankers, the Greek shipping company that Haji-Iannou owns with his brother and sister, as sole backer to the operation.
While shipping to airlines has been done before - for example Evergreen launched EVA Air in Taiwan - a jeweller can perhaps be expected to hold a different view of how passengers should be transported from A to B. François Arpels, son of the founders of internationally renowned jewellers van Cleef & Arpels, believes he has the answers for the business passenger. Arpels intends to launch Fairlines, based at Paris/Charles de Gaulle, in early 1996. Fairlines will initially serve Nice and Rome from Paris, with one or two further routes to be launched in November 1996. The carrier will target the business end of the market, flying B737s refurbished to fit just 56 seats and providing on board services such as telephones and faxes.
However Arpels stresses that Fairlines will be a niche player and does not want a fare war with the established carriers. 'I am looking for a very small niche in these markets,' he says. To achieve that niche Arpels is targeting his potential clientele with a good deal of accuracy. Arpels has obtained 50,000 names of frequent travellers on the Paris-Nice and Paris-Rome routes, which will enable him to address them directly in his advertising and marketing campaigns.
Major carriers obtain such information from frequent flyer programmes, but Arpels says he has compiled and refined his listing from several sources. 'We have got to move things forward more than some others have done. We cannot be average, we must be aggressive. I must use my influence from other fields, but Europe is now an open market and things are not that difficult anymore,' says Arpels.
Arpels has already invested FFr14 million ($2.8 million) in the airline, but says eventually there will be 51 per cent European Union investment with other foreign investors making up the remaining 49 per cent. Arpels stresses he will retain effective managerial control of the airline.
Interestingly for a country hitherto dominated by the Air France group and a number of regional carriers, another startup has already come on line in France. Higher aircraft utilisation was what chiefly motivated Jet Services Group to create Air Jet, which began carrying business traffic using a BAe146 twice daily between Charles de Gaulle and London City Airport in September. The aircraft were already used to carry freight for a sister cargo carrier at night and will continue to be converted for this purpose every evening.
Jet Services Group, 100 per cent owned by businessman Roger Caille, insists that further expansion will follow the same cargo-led example. At present the only other route planned is to serve Nice from London City, says Richard Gamberini, director of marketing and sales promotion. Jet Services Group has a FFr1.37 billion ($279 million) turnover and, like Arpels, sees profitability as a priority. 'The aim [of the passenger service] is to use the aircraft better,' says Gamberini.
Due to the cargo operation, Air Jet's break even is low, at only 28 passengers. There are no advance reservations and seats are sold via a ticketless credit card booking service. The passenger is encouraged to buy a smart card through the travel agent which costs £750 ($476) for five flights, though the card can also be purchased directly. Air Jet is listed in Amadeus but there is no reservations option.
Passengers can turn up at the airport up to 5 minutes before their flight and boarding is guaranteed up to 15 minutes before departure through contracts with private operators to carry Air Jet passengers if its own aircraft are full.
Air Jet's approach has kept the total investment to FFr5.5 million ($1.1 million), including the purchase of five smart card reading machines at a cost of FFr300,000, the fitting of the aircraft interiors at FFr1.2 million per aircraft, and the FFr4 million route launch costs, says Gamberini.
London City Airport has also attracted another start-up in the form of World Airlines, headed up by Captain Raymond Johnson, which will begin operations in February 1996 using two BAe 146-200s. The carrier's rather complicated route structure will involve four daily flights operating to Amsterdam, including two flights over the weekend. Again, to maximise aircraft utilisation, additional services will operate on Saturday to Innsbruck and to Salzburg on Sunday, until the beginning of the summer season, when Nice will replace the weekend flights. The second aircraft will concentrate on three daily flights to Copenhagen, with weekend flights in the winter going to Grenoble and in the summer to Venice. This mixed route structure caters to the business market during the week, and the 'top end of the leisure market' at the weekends, says Johnson.
Meanwhile a number of regional startups are looking for hub feeder roles and avoiding direct competition with established players.
Norwich-based Interline feeds business traffic into Manchester and plans to join Lufthansa, and its partners Business Air and Lauda Air, when they open their Superhub in 1996. There is already a loose alliance between Interline and the German flag carrier's allies, including Business Air, the Glasgow-based regional carrier which feeds traffic from Scotland and Belfast into Manchester. Interline wants to be the southern version of Business Air, says Peter Bucknell, marketing and public relations manager, adding that a new destination in the southwest of England is due to open at the end of March. Currently the airline uses Shorts 330s, but was hoping to switch to the Shorts 360 by the end of the year. The link to Lufthansa will be formalised as a codeshare when the new hub opens and once Interline has proved it can survive, says Bucknell.
Markus Casey, managing director of Galway-based Eurowest, plans to begin operations by January 1996 with two ATR 42s and is awaiting final approvals from the Irish and UK civil aviation authorities. The plan is to start with Galway to London/Stansted twice daily, opening from Galway to Birmingham once a day in March or April, and bringing Waterford-Birmingham and Sligo-Stansted on line with the summer tourist traffic. Casey believes listing in the major central reservations systems is a vital element to success. 'I do not think we can get away with not using the CRS . . . 80 per cent of all traffic from the west of Ireland originates in the UK, so that is where the market really is,' he says.
Meanwhile Mesa Airlines has invested 49 per cent in Birmingham-based Community Express, another new UK regional carrier. Community Express wants to boost frequencies on its East Midlands-Birmingham-London/
Gatwick route, which it currently serves three times daily Monday to Friday with its Shorts 360-300s. It, too, is a niche player. 'We are looking to pick up niches that others have left or have not filled,' says commercial director John Hepworth. The carrier was planning to launch a Birmingham to Belfast service on 20 November.
It would be a mistake to believe that the only potential for niche routes is in the UK and French markets. Elsewhere, other carriers are beginning to combat the incumbency of state-owned carriers. In Greece, despite the ruling that no scheduled rival can emerge until 1997, there are several charters and Constantinos Piladakis, the force behind the now defunct Southern European Airlines, is working on establishing a new carrier called Skybus to serve the Athens-Thessoloniki route.
In Spain, the growth in competition has been staggering. According to the UK CAA's report, the proportion of routes with two or more carriers increased from zero in 1992 to 26 per cent in December 1994. Air Nostrum is a Valencia-based carrier, offering a growing route network with its seven Fokker 50s from eastern Spain to the south of France. Recent route launches include Seville-Valencia, Madrid and Barcelona to Biarritz, and Barcelona to Toulouse.
In Germany, Eurocity Lines is a small Metroliner operator, but began in May to serve business markets from Stuttgart to Bologna, Rotterdam and Munich. And out of the ashes of Eurodirect has emerged Eurodirect Belgium, which operates just one route, Brussels-Humberside, twice daily using a Jetstream 31.
Though all of these carriers have yet to prove themselves, the growth in new carriers appears to be Europe-wide. Only time will tell whether their strategies can hold off the competition and put black ink on the bottom line. But incumbent carriers will do well to pay close attention to these new upstarts. One has only to look at the dent Southwest has put in some US majors' markets to realise the enormity of ignoring the new generation of airlines in Europe.
Source: Airline Business
