As KLM expands the low-cost activities of its Buzz operation at London Stansted, the Dutch carrier is considering whether to bring in partners to help develop the brand.
After studying its options in the low-cost sector, KLM will significantly grow Buzz in an effort to develop the third pan-European low-cost player after easyJet and Ryanair. Floris van Pallandt, the architect of its strategy, and the man who launched Buzz, says that although KLM is in no hurry to bring on partners for Buzz, it is the carrier's eventual "preferred option".
KLM has received several unsolicited approaches from potential investors in Buzz. "If you expand aggressively and rapidly, doing it with a partner has certain advantages," says van Pallandt. For example, helping to distance the operation from its full-service parent. "The separation means you can finance it in a more robust way and mitigate the risk associated with rapid expansion," he says. Possible partners could be from the airline, financial, aircraft manufacturer or lessor community, he says.
The strong brand awareness of Buzz in several markets, compared with its Amsterdam-based operation Transavia, was the main factor in KLM choosing Buzz as the centrepiece of its low-cost push, explains van Pallandt. In addition, Amsterdam is seen as too expensive as a low-cost base, and is too busy to achieve the fast turnarounds crucial to obtain high aircraft utilisation.
"In a sector with growth of 30% a year, if you want to expand you need to focus on markets where the dormant potential is biggest - such as France and Germany," he says. Buzz is already the number two low-cost carrier in these countries, as well as being number three in the UK. It will concentrate its expansion in these countries and Spain, says van Pallandt.
Buzz has already announced a second UK base at Bournemouth. It will base two aircraft and operate several routes to Europe from the airport in March 2003. A further two bases, another in the UK and one in Europe, will most likely be launched early in 2003, says van Pallandt.
At present Buzz operates eight 110-seat BAe 146-300s and two 150-seat Boeing 737-300s, but the 146s will be phased out and replaced by 737-300s during 2003. It has already signed leases with ILFC for six 737-300s, with the first arriving in December. With lease rates for 737-300s now low in today's depressed aircraft market, Buzz will expand with this type. "The difference in ownership costs with the 737 Next Generation is so big that even if you add the difference in fuel and maintenance the -300 is very attractive," says van Pallandt. By the beginning of 2006 he expects Buzz to be operating between 30 and 40 737-300s.
By the end of 2002, Buzz hopes to have carried 1.8 million passengers, and met its target of breaking even which was set when it was created in 2000, even though it is embarking on a major expansion, says van Pallandt.
"Our aim is to grow faster than the market and close the gap somewhat on easyJet and Ryanair and widen the gap with all the newcomers that are popping up," he says, adding that there is room in the market for a third pan-European low-cost player, and perhaps even a fourth.
KLM's review places Transavia firmly back in the charter market, where it will adopt a ticketless policy, exit the global distribution systems and focus on selling tickets through the Internet and call centers, says van Pallandt. It will stop operating its own scheduled routes that feed KLM at Amsterdam. "This will reduce distribution costs, enabling Transavia to add charter destinations and go into the seat-only market," he says.
For the time being, Transavia will continue to use its two-year-old Basiq Air "price-label" for several low-cost scheduled routes from Amsterdam.
MARK PILLING LONDON
Source: Airline Business
