Under pressure from no-frills carriers to cut costs to the bone, airports in Europe and beyond are finding new ways to serve this fast-growing sector
Ryanair's chief operating officer Michael Cawley could not have had a clearer message for Europe's would-be low-cost airports: "We are dealing with a commodity product. Nobody will pay more to visit your area than somewhere else." The message was addressed to an audience of French regional airports, gathered in Liverpool for the French Connect seminar, a forum designed to bring them together with the UK low-cost carriers that have been pouring passengers into Europe.
Cawley's comments demonstrate the double-edged sword that the low-cost phenomenon has become for airports, particularly regional airports. While they have delivered tremendous growth, they have dictated the terms. "You do not own the passengers. We own the passengers," says Cawley.
Ryanair's base at London Stansted was a white elephant 10 years ago, but is now in the world's top 50 passenger ranking. Cologne/Bonn has grown traffic by 44% last year on the back of expanding Hapag-Lloyd Express and germanwings, while Southampton saw growth of over 50% as flybe expanded. Ryanair has opened up many virtually unknown airports. Dinar in Brittany, France, being just one example.
Cawley makes it clear that Ryanair will continue to strike hard bargains. "We are dissatisfied people by nature." Other budget carriers may not be quite as forthright as Ryanair, but competition is hotting up. Phillip Meeson, chairman of fledgling UK budget carrier Jet2.com points out to the French airports: "We have to be competitive with other airlines that may only be 50-60km away."
Against this background, Marseille and Geneva are planning low-cost terminal projects, while Glasgow International has just opened a low-cost facility. In Asia, where the no-frills explosion has just begun, Singapore's Changi Airport is planning a budget terminal.
Geneva is planning to transform its second terminal, which has been used for cargo and ski-season charter services, into a low-cost facility with landing charges reduced from €11 ($13) to €6 per passenger.
Marseille is planning to transform an existing cargo facility into a 3.5 million capacity low-cost terminal to become operational for the summer season in 2006. It will be able to handle six 150-seat aircraft simultaneously, served by a maximum of 12 check-in desks. In the longer term, it is possible that the terminal may be entirely self-service - with no desks. Indeed, the airport's marketing director Philippe Wilmart stresses that the facility will be a "do-it-yourself" terminal, with passengers carrying their baggage to the aircraft after check-in.
Passenger charges will be €1 per head, compared with Marseille's current rate of €5.96 for international and €2.75 for domestic services. Handling charges will also be reduced. Wilmart says that the decision to build the terminal is a response to market demands. "It is the right moment. You cannot have segmentation everywhere in the industry except the airport," he says. "There are different types of customer, with different expectations and different needs. Some need full service. Others just need a fast turnaround," he says.
Low-cost facility for all
Some warn that full-service carriers, which have been cutting the frills on short-haul routes in response to low-cost competition, will want the same deal. Wilmart makes it clear that the new facility will be available to all airlines. "We have never been discriminatory," he says.
Other French airports make it clear that they are watching events closely and some may go down the same route. They were given plenty of encouragement by bmibaby managing director Tony Davis. The UK low-cost carrier has developed a service proposition above the likes of Ryanair and prefers city pairs with business links. However, Davis makes it clear that he too would be very interested in a low-cost terminal. "If it means charges will be lower - yes. We would take it," he says. "If it means cutting out some of the frills, then you've got to do it."
In Singapore, low-cost operator Valuair has said that it wants its customers to have the facilities of the existing terminals. Valuair also has interline agreements with other airlines - very much the exception for budget carriers, which would make a move to a low-cost terminal problematic. The planned Singapore Airlines low-cost affiliate Tiger Airways has thrown its weight behind the low-cost terminal plan.
While Valuair may want to provide its customers with the same facilities as mainline carriers, Davis at bmibaby thinks that "even if services are downgraded, you can still provide good services in a basic facility. If people are getting good fares, they expect things not to be as glamorous." He says that the task for airports is to turn these terminals "into shopping malls".
One advantage that airports have with low-cost passengers is that budget carriers have strict cut off times for check-in, and in many cases sporadic ground transport links to city centres. As a result, passengers tend to arrive early and spend a lot of time - and money - in shops, restaurants and bars.
Not surprisingly perhaps, the Marseille terminal will have 1,000m2 (10,800ft2) of retail space as it takes heed of the message from low-cost carriers that airports need to make a considerable proportion of their profits from retail. An alternative approach has been taken by Glasgow Airport, however, which has just opened its Terminal 2 as a low-cost/charter facility with no retail facilities. Once they have checked-in at T2, passengers can use a covered walkway to cross over to the main T1 with its retail facilities.
Spare terminal capacity
With low-cost carriers putting pressure on costs, and the likes of bmibaby making clear that service differentiation is more important in the aircraft than it is in the airport, others may follow suit. For many with capacity to spare, this may not be an option for the time being. Manchester Airport in the UK looked at the possibility of a low-cost offering, but decided that with extra space still available in its existing facilities, this did not make sense. Many others will undoubtedly be in a similar position.
In pursuit of a low cost-base, German travel group TUI has taken the radical step of purchasing the UK's Coventry Airport earlier this year. The move came as the airport's previous owner Air Atlantique faced problems with local authorities over the way it was managing the transformation of the airport from a largely freight-focused operation to a base for TUI's low-cost subsidiary ThomsonFly. However, since this deal was announced, TUI's German low-cost arm Hapag-Lloyd Express has received offers from German airports offering similar deals.
What is certain is that the pressure from low-cost carriers for airports to cut charges to the bone will continue. Ryanair's Cawley warns the French airports that they are well behind their Spanish counterparts. "It is no coincidence that Spain is by far the busiest low-cost market outside London," he says. "They have the cheapest airports by some considerable margin." He says that Gerona (Ryanair's airport for Barcelona) has grown from 600,000 to three million passengers a year since Ryanair started flying there at the end of 2002. "We can get Gerona to 8-10 million passengers with little difficulty." Until it started flying into Gerona, Ryanair had steered clear of Spain, in part at least because it had failed to reach what it regarded as satisfactory airport deals.
Ryanair is clearly pleased with the deal it is getting from Spanish airports, and warns their French counterparts: "You have sun. But Spain, Italy and Portugal have sun as well." If it is any consolation to French airports, Cawley puts most of the blame on the French government. He says that in some cases, taxes amount to €14 per passenger, which he warns is unsustainable when average fares are around the €40 mark and expected to drop. "Some routes in France will not exist in five years if taxes don't come down," he says.
As they digested Ryanair's warning, airports at French Connect expressed interest in the route development funds that have been set up in the UK to support new services. So far these have been launched in Scotland (November 2002) and Northern Ireland (in September last year). The scheme is due to be extended to all parts of the UK outside the congested London area as part of the government's policy of taking pressure off airports in the southeast of England. Scotland's £6.8 million ($12 million) development funds have brought in 17 destinations, although five of these have ceased after the collapse of UK-based regional Duo in May. Another two have also been closed.
Investment benefits
The fund has helped attract intercontinental service too, with Continental Airlines and Emirates coming into Glasgow from Newark and Dubai. In total, the Scottish Executive estimates that the investment has brought benefits worth £300 million, including £100 million from the Emirates deal. Northern Ireland, meanwhile, is hoping to secure its first transatlantic service with the help of its own development fund.
The UK government has liaised closely with Brussels in developing the funds. It is confident that they will conform with the European Commission's guidelines on start-up aid which are being clarified in the wake of the Charleroi airport case involving Ryanair.
For French airports, the more dynamic situation in the UK, exemplified by Liverpool John Lennon Airport which hosted the event, and which Ryanair's Cawley pointed out would struggle to exist without its low-cost base, was seen as something to work towards. With competition in the low-cost sector likely to get tougher, initiatives such as the low-cost terminal at Marseille may well become the norm.
REPORT BY COLIN BAKER IN LIVERPOOL
Source: Airline Business
