Kevin O'Toole/BRUSSELS
IT WAS ONLY a matter of time before the US "no-frills" experiment began to take root in Europe's rapidly deregulating market. Pioneers have already emerged, offering the kind of no-frills point-to-point services which shot Southwest Airlines, ValuJet and others to fame in the USA.
Now, after two years of agonising, Richard Branson's Virgin group has entered the fray. On 23 April, Branson signed to take a 90% stake in Euro Belgian Airlines (EBA), with the aim of turning the fledgling carrier into a fully blown low-cost airline under the Virgin Express banner.
If it lives up to the ambitions of its new owner, within the next few years Virgin Express could be flying a sizeable fleet of Boeing 737s on scheduled services between Europe's major cities for fares in the region of $100.
"We're going to take up the baton from EBA and make sure that we provide lower air fares throughout Europe," says Branson, giving notice to the region's flag carriers that the days of "over-priced" air travel are over. The nagging question is how easily the US experience will transfer to Europe's more congested and protected skies.
Virgin does start with a few natural advantages, not least the fact that EBA is already in pretty good shape. The airline was set up in 1992 by Victor Hasson, a canny Belgian entrepreneur, out of the ashes of the failed Trans European Airways.
Hasson, who runs Belgian's fast-growing City Hotels group, admits that he knew little about aviation at the start, but had been impressed by the services being offered by Morris Air, now part of Southwest, during jaunts to the USA to expand his hotel chain.
Initially, EBA was set up as a charter operation, but Hasson launched into low-cost scheduled services in 1994. Impressed by Morris Air's pioneering ticketless concept, he eschewed the traditional listing on a computer reservation system (CRS). Instead, a multi-lingual team at the EBA headquarters in Brussels takes credit-card bookings from passengers across Europe.
Despite shunning the CRS, Hasson was shrewd enough not to make an enemy of the traditional travel agents, who were offered a respectable 9% commission for taking bookings. The proportion of sales direct to the passenger has nevertheless risen sharply. At the start, agencies accounted for 90% of sales: now the proportion is down to 67% and falling.
EBA has clearly thrived on the concept. Services were profitable from the start and, this year, Hasson estimates pre-tax profits of about $15 million on $200 million sales.
The founder, now left with a 10% stake, will continue to run the charter business, for which he sees healthy growth, while leaving the Virgin Express venture to a new team brought in by Branson from the US industry.
At its head is the irrepressible Jonathan Ornstein, a seasoned campaigner in the US airline industry and most recently brought in at Continental Express to help the group's escape from bankruptcy.
The airline starts with a fleet of 12 single-class 737s, but Ornstein expects that to grow to around 18-20 over the next couple of years. If all goes well, he is considering a total re-equipment within the next four or five years as the existing aircraft leases expire.
Scheduled services account for no more than one-third of EBA's business but sales have been more than doubling each year and the aim is that it should reach at least half of revenues within the foreseeable future.
The aim is to continue fanning out from the Brussels base, where services are already being offered to cities such as Barcelona, Madrid, Milan, Nice, Rome and Vienna, but also to begin forging links between these destinations. For example, once customer bases are sufficiently strong in Italy and Spain, the airline could move to link Rome with Madrid, or Milan with Barcelona.
Ornstein acknowledges that services to Paris and, especially London, are a tougher proposition, but believes that this must be a long-term ambition.
Ornstein is determined that what Virgin Airways will not do is be distracted by the superficial attractions of raising service standards, or by forging a feeder role with Virgin Atlantic. The effort, he says, will remain single-mindedly focused on providing lowest-cost operations. Fares over the carrier's typical 1,000km (540nm) segment will be pegged at no more than one-quarter of existing fares.
Despite Europe's notoriously expensive operating environment, EBA has already done surprisingly well. Yields come in at above 9¢ per revenue-passenger kilometre (RPK), while seat costs have been held at around 5.5-6¢. While not quite at the 4.5¢ RPK being achieved by the US no-frills operators, Europe's state-owned flag carriers are running at costs of perhaps twice that amount.
One of the less tangible, but most powerful, benefits which Branson brings to the business is the Virgin name. Branson, a past-master at cross-marketing the Virgin brand, is talking about publicising the airline within his growing chain of music stores among others.
He admits that the new airline represents a gamble, the bet being that the European Commission will back up its good intentions on competition by supporting Virgin Express against the vested interest of the region's traditional flag carriers. By basing it in Brussels he hopes that the airline will be a reminder that fares have been "too high for too long" in Europe.o
Virgin plans to bring the US low-fares revolutionto Europe. Can it succeed?
Source: Flight International
