In three years, Deutsche BA has become the second-biggest German scheduled carrier.
Andrzej Jeziorski/MUNICH
Not quite three years since its launch, Deutsche BA is firmly established as Germany's second-biggest scheduled carrier, behind the formidable Lufthansa.
It has achieved this by maintaining a steady expansion policy, despite the recent depression in the air-transport market. Deutsche BA is now out to prove that it has an identity of its own, and a future as a low-cost high-quality carrier independently of its giant parent company, British Airways.
Deutsche BA traces its history back to the founding of its Friedrichshafen-based predecessor, Delta Air Regionalflugverkehr, by Alfred Scholpp in 1978. Delta began by operating a commuter service with a de Havilland Twin Otter from Friedrichshafen to the hubs of Stuttgart and Zurich, as well as a turboprop business-charter service.
In 1982, Swiss regional carrier Crossair acquired a 25% stake in the company and a co-operation agreement was signed. The airline began scheduled services with Fairchild Metroliner IIs between Zurich and Bremen the same year.
In 1986, Delta replaced the Metroliners with two 33-seat Saab 340As, signing a co-operation agreement with Lufthansa to operate between Friedrichshafen and Frankfurt. The airline's capital was boosted from DM8 million ($5.8 million) to DM20 million, to finance new investments, and Crossair's share was increased to 40%. Delta increased its co-operation with Lufthansa in the following years, expanding its own network and buying more 340s to meet its new route requirements.
In March 1992, Delta Air was bought by a consortium of three German banks, together with BA, which took a 49% stake in the new company, with Commerzbank taking 19%, and 16% each going to Bayerische Vereinsbank and Berliner Bank. The company was renamed Deutsche BA Luftfahrtgesellschaft the following May.
PROSPEROUS MARKET
BA had been operating four internal German routes since the end of the Second World War as a result of Berlin's post-war political status. The rights to these routes were due to be lost following the re-unification of Germany, but the UK flag carrier decided instead to maintain its presence through the formation of this new German subsidiary, thus investing in the potentially highly prosperous German domestic market.
Some observers are now asking whether the completion of European air-transport liberalisation in 1997 will make Deutsche BA redundant - why should BA bother to maintain a German subsidiary, when it will itself be able to operate with full traffic rights in the German internal market?
"The main aspect of having a German company as regards traffic rights, is to be able to fly to markets which are not liberalised," says Deutsche BA managing director Richard Heideker. Markets such as Eastern Europe, for instance, could not be operated under BA's traffic rights from Germany to Moscow. The cost advantage of being smaller is another advantage.
"I definitely see even an increasing role for Deutsche BA [after 1997], because BA is not as cost-effective as we are. In the end, if you want to grow in these very competitive markets, you have to have a very low cost basis...and as long as we can keep this difference between British Airways and our company, then we have a very big future," Heideker adds.
He stresses that Deutsche BA was always intended to be more than just a feeder into its UK parent's network. The airline is now operating domestic trunk routes "in heavy competition" with Delta's former partner Lufthansa, but increasing stress is being placed on developing its international network.
"We see our domestic network...as a clear necessity for market awareness and we want to grow internationally," says Heideker. Deutsche BA wants to be seen as an international operator, which also serves Germany's most important domestic routes.
The airline has recently expanded its East European network with new services from Berlin-Tegel Airport into the Baltic States - four weekly flights to Latvian capital Riga, and two to Lithuanian capital Vilnius. Heideker maintains ambitions to introduce routes to Poland and Ukraine but is battling, strict restrictions on traffic rights, which for the moment offer German carriers no additional capacity into these countries.
The airline is considering how to continue its expansion in 1996. While it is too early to say precisely where Deutsche BA intends to go, Heideker says that the direction of expansion from Berlin will be primarily north-eastwards but - with the possibility of introducing a service to London Gatwick, depending on how the new Munich-Gatwick service develops.
Heideker predicts that the network from Munich will expand towards the south: to Italy and Spain, for instance, where the airline is looking at Barcelona as a possible destination.
The domestic network has proved to be a thornier issue in the past year, however, with an aggressive fares-war blowing up between Deutsche BA and Lufthansa as the main combatants, and dragging carriers such as Eurowings into the fray.
FARES-WAR VICTORY
In 1994, Lufthansa introduced a headline-grabbing ticket-price initiative on its Lufthansa Express routes, which offered domestic passengers limited-availability DM99 single fares. Deutsche BA responded and is now claiming victory in this round of the battle.
In a domestic market, which has grown by 15% following the introduction of the new low fares, Heideker says that his company's share has increased, from 31% in June 1994, to 38% in January this year.
"We have gained additional traffic and Lufthansa hasn't gained anything," says Heideker. He does not believe that his larger rival can maintain its present fare structure, saying that, "Lufthansa is faced with heavy losses on its Express network."
The German flag carrier, counters that it is "quite satisfied" with its Express service, which it says, is carrying 15% more passengers now than in September 1994 - an increase corresponding to Heideker's assessment of the growth of the overall domestic market, caused by the fare cuts - and wants to extend the concept to cover all of its domestic routes. The airline has recently begun to consider dropping its shorter internal routes, however, such as the links from Frankfurt to Cologne, Hamburg and Stuttgart, because of losses.
Deutsche BA is now considering adding a Munich-Hamburg service to its domestic network in 1996, but this decision will depend on how fare levels develop over the coming six months or so. An easing of the fares war, would certainly be welcomed by Deutsche BA, which - unlike the now-resurgent Lufthansa - has yet to turn a profit.
Heideker had hoped to break even by mid-1994, but, although market share has risen beyond expectations, the past year's intense competition has cheated him of that goal. The new target date to reach profitability is 1996.
No formal results have yet been released for the financial year ending 31 March 1995, but the company says that it has increased its turnover from DM300 million in the year 1993/4, to some DM450 million in the year just gone. The number of passengers carried has increased from 1.1 million in the business year ending 31 March, 1994, to 1.75 million in 1994/5, and the airline has been flying with 50% load factors on international routes, and about 56% on domestic services.
FLEET STRATEGY
Deutsche BA is also modernising its turboprops, and establishing a jet-fleet strategy. The company now operates an all-Saab turboprop fleet alongside its mixed Boeing/ Fokker jets.
The first high-speed, 50-seat, Saab 2000 turboprop was introduced to service at the end of March. A further four are to be delivered by the end of this year, replacing five of the airline's Saab 340s and leaving three, still in service. These may eventually be replaced, by more 2000s Deutsche BA has five options with Saab on top of the firm orders. Heideker says that one of the advantages of the 2000 is its suitability for charter operations.
"Our charter destinations are all within the Mediterranean area, [and] are all in the range of the 340 with a flight time of over 2.5h: with the 2000 we can do such routes in under 2h," he explains. Payload restrictions over these ranges would also increase the 340's cost per seat over that of the 2000.
The airline's jet-airliner fleet now consists of seven 130-seat Boeing 737-300s and five 100-seat Fokker 100s, but Heideker says that the company is considering making this an all-Boeing fleet over the next three to five years.
"For market development, it is nice to have a 50-seater to begin with [on new routes], a 100-seater to continue and then a 130- to 140-seater to consolidate the new routes, but this is in conflict with cost-effectiveness," he says. A mixed fleet costs an airline more for maintenance and training, and Deutsche BA is now weighing up whether the potential cost benefits of a single-type fleet will outweigh the risks of starting up new services with such a large aircraft. For now, Deutsche BA's policy of expansion appears set to continue, driven by Heideker's positive view of the future of the air-transport market.
"I think the worst is over in the short term - a lot of companies are claiming that they are making profits again. There have also been big achievements in restraining capacity, which was one of the biggest reasons for the dramatic losses [in recent years]," he says. Yet the consolidation process in Europe "...is just beginning", he believes, and one of the biggest remaining problems is inefficient airlines which remain in business supported by state subsidies.
Until this changes, states Heideker, then "...the market will not really work like a normal market, where only the best survive".
Source: Flight International
