The latest Routes network planning event in Madrid highlighted a sharp upturn in capacity expansion, with special emphasis on developments in China and among low-cost carriers
Two of the airline industry's fastest growing and most dynamic sectors - European low-cost and China - made the headlines at the 10th World Route Development Forum, held in Madrid in late September. They also had an unexpected connection, with Air China representatives sounding out Germany's new breed of low-fare operator on possible feed opportunities for its 26 weekly flights into Frankfurt and Munich.
The atmosphere at Routes, an event supported by this magazine to bring together airline and airport planners, was the most optimistic since 2001. After a few years of capacity cutting and network trimming, carriers are adding routes and frequencies at a healthy rate. "This year airlines have got capacity to place and genuinely want to find suggestions of where to place it because they don't always know," says David Stroud, managing director of UK-based Airport Strategy & Marketing, which works on behalf of airports to attract more service.
Malaysia's Kuala Lumpur Inter-national Airport (KLIA) is typical of an airport seeing strong demand. "We are above target on passenger and commercial revenue growth so far this year," says Dato Bashir Ahmad, managing director of Malaysia Airports Holdings, which runs the country's airports.
Another indication of confidence flowing back to the network planners was the attendance from countries that have previously only had a minor presence at Routes. For the first time China had a large delegation, while there was also strong representation from Indian and African carriers.
A presentation by the leader of the Chinese group, Zhang Guang Hui, director general airports for the Civil Aviation Administration of China (CAAC), demonstrated why the country is so keen on fostering more international ties. According to Zhang, China's air transport market is set to boom over the next two decades, fed in large part by a huge rise in outbound and inbound tourism. Last year, the 132 commercial airports in China handled 87 million passengers and 2.2 million tonnes of cargo, he says. By 2020 there will be over 200 airports and passenger numbers could reach 450 million.
In a gradual liberalisation process, the government is opening up China's market to foreign carriers and investment to ensure the country's infrastructure can cope with such growth, says Zhang. Airports are being encouraged to float on the stock market - six have already done so - and seek foreign investors for their ambitious expansion plans. Management responsibility has largely been transferred from the CAAC to the airports themselves, he adds.
In another major policy shift, Zhang announced at Routes that the CAAC is preparing to deregulate the country's airport pricing system and allow individual airport managers more pricing freedom. Today, airports have some flexibility on setting landing fees for international services, but have to follow centrally fixed levels for domestic flights.
Chen Long, vice-president of Shanghai Airports Authority, welcomes the move: "I strongly believe it will benefit our airport if we can decide the price according to market demand. Today our slots are not evenly allocated throughout the day, but if the pricing system is changed we can encourage airlines to fly during non-rush hours. This will enable us to use resources more effectively."
The desire of Air China to fill empty seats on its German services is another example of hard business requirements coming to the fore among Chinese aviation interests. It is an intriguing prospect as the carrier has been codesharing with Lufthansa on these services since 2000. But collaborating with a low-cost carrier brings its own challenges, not least because they tend not to offer interlining and baggage transfer.
Low-cost connections
However, as many low-cost players and airports are discovering, a surprisingly large number of smart travellers are creating trips that include transferring from one low-cost operator to another to obtain the cheapest fares. With no formal interlining taking place, passengers have to collect their luggage at the transfer airport and check it in again for their onward flight.
This is becoming commonplace at London Stansted and Copenhagen, named as hosts for Routes 2005. For years the BAA airport saw around 5% of its passengers transfer, says Geoff Conlon, business development manager. But recently, as Stansted's low-cost network has expanded, passenger surveys show transfer volume has grown to 15% of traffic.
At Copenhagen, Danish low-cost carrier Sterling is deliberately using the airport as a transfer hub. "We cannot apply the same model as easyJet or Ryanair because we don't have the population densities," explains Stefan Vilner, commercial director at Sterling. It operates a system of three waves at Copenhagen, delivering passengers from around Scandinavia into Copenhagen for onward travel to southern Europe.
This strategy helps to develop new routes that would otherwise be too risky to try. For example, Sterling found that when it started a Copenhagen to Paris Beauvais service, around 25% of passengers on its Oslo-Copenhagen flight were transferring to the French destination, says Vilner. "This led us to introduce a three times weekly Oslo-Beauvais service because we can see the market demand."
Sterling interlines with itself on these transfers and handles passenger bags. But other carriers do not offer this service for the simple reason of cost. Hubs like Copenhagen have the infrastructure for a full transfer product, but again low-cost carriers do not want to pay for it. The airport is talking with carriers about somehow improving the transfer process, says Trille Tang Dalsgaard, head of airline relations.
One of the barriers to low-cost transfers is the fear that the connection will be missed. Sterling has come up with a novel approach to tackle this issue. It has signed a deal with an insurance firm enabling travellers to insure valid connections for €5 ($6.2), says Vilner. This will cover passengers if they miss a connection because of a delayed flight or if the departure is missed through unavoidable factors like sudden weather changes.
The low-cost transfer trend is evolving rapidly. "It's clearly what people are doing and what people want," says Stansted's Conlon. "We need some long-haul scheduled operations to make the most of it."
Routes
ELFAA makes waves
Looking back at eight months of existence, the European Low Fare Airlines Association (ELFAA) is pleased with its progress and profile. "Whatever happens in Brussels now, we are approached," says Wolfgang Kurth, ELFAA president and chief executive of Hapag-Lloyd Express, speaking after its first annual general meeting, held during Routes. It will soon publish a study designed to show the benefits low-fare carriers bring to consumers, regions, airports and the environment.
Routes breaks records
With 240 airlines, 350 airports and a total of 1,200 delegates in attendance, Routes 2004 was 25% larger than last year's record-breaking event in Edinburgh, says Mike Howarth, Routes managing director, who is already targeting a similar rise in numbers again next year. Apart from a visit to Abu Dhabi in the 1990s, Routes has always been held in Europe. However, most likely from 2006 or 2007, Routes will move elsewhere, says Howarth. The event will move to a cycle, with it being hosted outside Europe, possibly in Asia or North America, once every three years. The host of Routes 2005 will be Denmark's Copenhagen airport.
Barcelona opens new runway
During the gala dinner at Routes, Javier Marin, Spanish airports director for AENA, host of the event, announced that Barcelona's third runway was to open just days later. In tandem with another terminal, scheduled to open in 2007, the new runway will help boost Barcelona's capacity to 40 million passengers. A new terminal and two further runways at Madrid are also under construction. Marin says Spain's airports will handle 165 million passengers this year, 7.6% up on 2003.
Start-ups flock to Madrid
Some 15 aspiring carriers, from Bucharest's Blue Air to UK/Uganda backed Dairo Air Services, took part at Routes in the OAG-sponsored New Airline Hall. According to OAG managing director Duncan Alexander, the organisation is currently assisting 140 start-up airlines with schedule and distribution needs - a 50% increase over the number last year.
REPORT BY MARK PILLING IN MADRID
Source: Airline Business
