German leisure carrier Condor is looking to move towards a business model resembling that of charter/seat-only hybrid carrier Air Berlin as it anticipates a return to profitability.
Thomas Cook board member Ralf Teckentrup, who has been in charge of the group’s airlines since 2004, says that the over-reliance on seasonality means that charter carriers will have to change their strategy and attract a higher proportion of seat-only business. “If we do without a big amount of seat-only business, then seats will be 100% full in the summer and 50% full in winter. That way we would have a cost problem for ever,” he warns.
In 2004, seat-only accounted for 20% of Condor’s business, but is expected to account for over 40% in 2006. The long-term aim is to have more than half of tickets sold as seat-only.
Teckentrup says that some destination airports, including Malaga, Jerez de la Frontera and Barcelona, are already mainly seat-only, but Condor needs more of the same. “We have to increase the number of city pairs where traditional tour operating business is not the main driver,” he explains.
He makes clear that Condor’s future was on the line during the post-9/11 downturn in the leisure industry, with the carrier making an operating loss of €101 million ($100 million) on turnover of €1.1 billion in 2002-03. In early 2004, Teckentrup spoke to the carrier’s employees in groups of around 100. “I told them, we were fighting for survival,” he says. “The question was not whether, but how to reduce costs drastically. If not, management would look for the cheapest way to close the airline down.”
Teckentrup is confident of a return to the black this year on the back of a restructuring programme launched in the first half of 2004, expected to improve the airline result by €240 million in the course of three years. Teckentrup says: “€100 million is needed to break even. €60 million of the improvement will most likely be eaten up by further yield decreases caused by the overcapacity in the airline market. That will leave us with a positive result of €80 million, which will allow investment in the growth of the company again.“
The €240 million total is expected to come from an €80 million improvement in revenues, driven by higher load factors, and €160 million of cost savings, nearly half of which are due to new productivity agreements with the workforce.
Teckentrup says the last €60 billion of the €240 million revenue-boosting programme will be delivered in 2006, after which there will be a similar cost-base to the likes of Air Berlin and easyJet. “I am convinced our cost base is more or less at a competitive level.”
The carrier has trimmed its fleet from 48 to 37 aircraft since the start of 2004. It is made up of Airbus A320s and A330s, and Boeing 737-800s, 757-200/300s and 767s. “The fleet structure has come about through acquisition rather than plan,” says Teckentrup. In the long term, a more simplified group-wide fleet structure is a possibility. “The question is, are the UK and German markets so different that we really need two different short-haul fleets,” Teckentrup explains.
He says that moves into other European markets, such as Scandinavia and The Netherlands are not on the agenda – they will have to wait until the carrier is in a healthier financial position.
Thomas Cook is looking to offer consumers more in the way of dynamic packaging, whereby the consumer puts together individual components of a holiday. “It is something we are thinking about. We will offer more individually packaged services on different sites in the future. How and when is under discussion,” says Teckentrup.
Condor will maintain its full service offering. “I don’t believe that positioning Condor as a low-cost carrier is the best option. Condor has to be a carrier with a very high product quality at very competitive prices,” says Teckentrup.
COLIN BAKER/FRANKFURT
Source: Airline Business
