So British Airways' no-frills start-up is "Go"; but will it - and what sort of response will it attract from powerful European competitors like Lufthansa? Even more important, from where will the passengers come to make these no-frills airlines work?
The justification for an existing airline to launch a low-fares operation is that it will attract people who would not otherwise fly, and thus grow the market at the margin, or that it will stop other low-fares carriers from stealing its existing traffic. It is questionable, however, whether either is justified.
In a mature market (such as those of Europe or the USA) it is extremely difficult to grow business at the margin - and even more difficult to do it profitably. That has been proved yet again in Europe through the experience of cross-Channel rail operator Eurostar. It has attracted around half of the combined air/sea/rail UK-Europe passenger traffic, but has done so largely through taking business away from sea and air, rather than through growing the market - and it is unprofitable, even with that traffic share.
That is not to say it is impossible: there are routes, even in the UK, where the introduction of competition has increased the traffic so much that even the incumbent airline has experienced growth - but at what price?
Going into a market with a cut-price operation in an effort to stop other cut-price operators from stealing your existing business has an air of self-defeat about it. It is most unlikely that such an operation will generate better yields than the existing business does: even with cheaper crews, no frills, lower distribution costs, etc, the cut-price airline still has to pay the real cost of acquiring and operating an airliner. If the passengers on your existing airline were going to be attracted by a low-cost alternative, then they will also be attracted by your own low-cost offering, so keeping them in the family will not mean the same as keeping them in the original high-price seats. An in-house low-cost operation will inevitably steal passengers from its parent, and thus harm its chances of making money.
Some airlines and manufacturers are already successfully marshalling this sort of argument as justification for not investing in a next-generation supersonic airliner. Such an aircraft would have to be bigger and longer-reaching than the Concorde to deliver reduced seat-kilometre costs. To fill it, an operator would have to raid more of the high-yield business- and first-class passengers from its existing subsonic operations, thus damaging or destroying their profitability.
BA, of course, is not new to the no-frills game. In 1975, it brought to Europe the revolutionary idea of replacing traditional scheduled services with a new type of no-frills operation. Cheap, written-down, airliners would be used to provide a high-frequency service with no seat reservations or fancy meals; customers could just turn up to fly, and even pay for their tickets on board. If there were too many passengers for a particular flight, a back-up aircraft would be put quickly into service.
This Shuttle service transformed traffic on the company's internal UK routes, as similar services had done in the USA, but competitors soon put paid to the idea by bringing back to those routes all the frills that BA had dropped, and BA had to follow suit. Competition became features-oriented rather than price-dominated - in turn leading to the more recent arrival of low-price start-ups like Ryanair, easyJet and Debonair.
That history in itself should give cause for concern in those launching these new services: what works for one price-cutter in an overpriced market doesn't necessarily work for two price-cutters offering similar services. Give customers a choice between being uncomfortably crammed in and having a few creature comforts, and they will go for comfort - especially if the price penalty is low. For all their price attractiveness, low-cost start-ups in general have a poor survival record around the world. In going down this route, Europe's majors stand more chance of hurting themselves than their competitors. As the first to try in this latest round, BA must be careful that it doesn't earn the classic epitaph: "As start-ups go, it went."
Source: Flight International
