MARK PILLING / LONDON
Pan-European leisure travel groups are increasingly looking for ways to share aircraft, flightcrew and buying power across their airline subsidiaries
For a leisure travel group such as TUI, which has airline units in six European countries, the future looks clear if it wants to compete in the new world of low-cost airlines: merge them into one unified carrier.
It is a conclusion that other groups such as Thomas Cook, with airlines in four countries, are also coming to.
"It is the logical way to go," says Tim Mallorie, chairman of the Britannia Airways Company Council and a pilot with the TUI-owned, UK-based airline. "There could be a single European airline with a single European workforce operating under a single European governance. If the business was subject to a single air operator's certificate, all the layers of management in each airline would disappear, with a massive reduction in overheads."
Whatever the logic behind such a proposition, the reality is more complex and involves more than a paint job to create a common brand across the fleet. With one eye on the labour front, it probably does not suit these companies to move so far at present, even if they could.
However, low-cost carriers such as EasyJet and Ryanair, with their ability to open bases across Europe, have shown how start-ups can create cost-effective operations in different countries. For leisure giants MyTravel, Thomas Cook and TUI, the task is to maximise the benefit from the size and scale of their combined airline operations to match their low-cost rivals. Thomas Cook and TUI already plan to use their bulk-buying power for major re-equipment orders across their fleets (Flight International, 8-14 April).
This year, Thomas Cook has begun to form teams across its airline units - Thomas Cook Airlines Germany (TC Germany, formerly Condor/Condor Berlin), Thomas Cook Airlines UK (TCUK, formerly JMC Airlines), SunExpress and Thomas Cook Airlines Belgium (TC Belgium) - to find ways to leverage their combined buying power in areas such as ground handling and catering, says Ian Smith, director operations control at TCUK. There are groups examining ways to find operational advantages.
The quick wins will be taken first. For instance, one of the largest destinations for TC Germany and TCUK is Palma, Majorca, and the joint purchasing of services at this airport would produce considerable savings. One of the first group actions saw Lufthansa - which has a 50% stake in Thomas Cook - buy all the fuel for member carriers.
TUI appears to have made more progress. "There is a vertical model in each country where each airline exists to serve their home market and is sized accordingly," says Maurice Boyle, chief operating officer at Britannia UK. "The profit responsibility rests with the source market tour company and the airline job is to be the production unit that delivers it the lowest cost seats."
The horizontal part of the model has seen the formation of TUI Airline Management, which seeks to draw maximum efficiencies across the group in areas including the purchasing of fuel and spare parts, and in training and fleet planning. With the establishment of the Hanover-based Group Global Operations Centre in Germany last year, TUI is starting to centralise the operational control of some of its airlines.
Flight management
This centre manages the daily flights of Britannia Airways AB of Sweden, Hapag-Lloyd and NEOS of Italy. Britannia UK will transfer operations control from its London Luton base to Hapag-Lloyd's headquarters in Hanover in the third quarter.
As these companies pick off the first gains, the tougher task is to address issues with a labour dimension. But it is a task many realise they must tackle, particularly in terms of pilot productivity and their reward mechanisms. "There is a challenge going forward for traditional and charter carriers as the no-frills airlines are re-writing the rulebook," says Boyle. For instance, pilots at low-cost carriers often earn the same total amount as pilots at longer-established airlines. They "just receive a lower fixed element and a larger productivity based element," he says.
For the last few years, at TUI Group level and specifically at Britannia UK, unions and management have been forging a partnership that is moving some way towards re-writing the rulebook. According to Mallorie, Britannia UK's pilots were heavily influenced by the Southwest Airlines Pilots' Association in the USA, which shared the union's experiences and philosophies with their UK-based counterparts in the late 1990s. Although a low-cost carrier, Southwest's pilots are among the highest paid in the USA, and one of the most productive.
"We drew a lot of inspiration from them. At the time, Britannia pilots had good pay and conditions, but we realised that as the business gets harder and more competitive we would need to work harder and smarter," says Mallorie.
Fractious beginning
But the partnership with management did not start promisingly, with fractious labour relations at the end of 1990s as The Thomson Group, then owner of Britannia UK, formed a German version of Britannia and bought a Swedish tour firm that operated carrier Blue Scandinavia, renamed Britannia Airways AB. Britannia UK's pilots threatened to strike over how the pilot force at the German operation was going to be formed. At the same time, the pilot unions at the various carriers banded together to form what has since become the TUI Pilots Group to enable them to present a co-ordinated face to the company.
"It turned out to be a turning point in our working relationship," says Mallorie. "We agreed on how to proceed in setting up the German airline. It put pressure on the company to reconsider trade unions." In 1999, pilot union representatives from the German, Swedish and UK airlines and management conferred to discuss how they should work together. The result was a group production committee, an extension of a concept already used by Britannia AB. This committee goes into intricate detail on how pilots can be moved around the various elements of the group, covering areas such as pilot rosters, hotel accommodation, transport and so on.
"Pilots and aircraft are the most expensive assets in the business, so it is crucial for the business to make the best use of them," says Boyle. "It is easy to move aircraft around, so while each business sizes its fleet to meet the needs of its own national market, there are times and opportunities when it is useful to do so." Moving people around is another issue. Pilots, like most people, prefer to live and work in one place. "However, there are opportunities for short-term deployments, and having these arrangements to move pilots in limited numbers has proved beneficial," says Boyle.
Rule compliance
The first opportunity came when the Swedish operation was short of crews to fly its Boeing 757s on some long-haul routes, and needed UK pilots to fly from Sweden, using Swedish-registered aircraft. The complexity of what on the face of things appears relatively straightforward is shown by the need to deal with four different sets of rules to make it work: UK and Swedish flighttime limitations, and Swedish and UK pilot union rules. A filter was applied to settle on a formula that mets all the rules and satisfied civil aviation authority requirements.
The experience gained was useful when the Next Generation 737 was being introduced to the group, with two aircraft for the UK and five for Sweden. "The 737NG was effectively treated as one fleet across both carriers," says Mallorie, with an agreement reached to allow pilots from each carrier to fly in either country on this type. This was particularly beneficial during the pilot training phase. It aided the smooth introduction of the aircraft and avoided the need to hire expensive temporary pilots.
The process has continued. There was not enough work for Britannia AB's two 767-300ERs from Sweden, so the aircraft were transferred to the UK register and now work for Britannia UK. However, from TUI's winter 2002-3 season, one of the 767s has been operating with its original carrier from Stockholm to Phuket in Thailand. "This created another unprecedented situation, with a UK-registered aircraft being flown from Scandinavia, mostly by Scandinavian-employed pilots," says Mallorie. The UK Civil Aviation Authority required some UK pilots to operate on these flights for a degree of regulatory oversight.
Of the 10 joint operations conducted across the TUI Group, most have been between the Scandinavian and UK carriers. But some German pilots have flown for Britannia AB on routes from Malmo in Sweden, while the bankruptcy of Air Lib in France in February has brought Corsair - the airline arm of TUI's French tour subsidiary Nouvelles Frontiers - into the frame.
French gap
Air Lib's failure meant Nouvelles Frontiers had extra work for Corsair, but did not have the capacity. "By coincidence, the UK business has spare aircraft that can fill the gap, enabling us to keep the work inside the group," says Mallorie. Accordingly, one Britannia UK 767-300ER, crewed by UK pilots with Corsair cabin crew, is operating to the French Caribbean until September.
To date, the other carriers in which TUI has a stake, NEOS and Poland's White Eagle Aviation, have not been included in any joint operations. "We have no formal contact with them, primarily because they are non-unionised," says Mallorie. In addition, in March, TUI suspended the passenger operations of White Eagle, citing a lack of demand in the Polish charter market.
Although the number of joint operations is still relatively small, Mallorie believes they are important. "All these activities are in essence at the margins of the main business, but I argue that the margins are where the profits and losses are to be made. Being smart at the margins may be enough to tip the balance," he says.
According to Boyle: "Anything you can do to improve pilot and aircraft utilisation has got to be a good thing. But it is a short-term tactical benefit that evens out the peaks and troughs in flight programmes. It buys limited flexibility at very little cost." While these operations require detailed planning and are time-consuming to organise, they do "deliver benefits in utilisation across borders which we would not otherwise have achieved", he adds.
The process has also enabled both sides to develop a pan-European level of industrial relations experience and harmony few others have achieved. But, says Boyle: "A company pan-European pilot workforce is not on our radar scope. We have been able to achieve limited flexibility - the key is not paying for total flexibility." For their part, the unions see possible advantages in moving towards a more unified workforce, enabling them to harmonise terms and conditions across the group.
Few have attempted to follow TUI's lead in the area, often daunted by the array of rules and regulations between different carriers and in different countries. TCUK's Smith notes that there are similar complexities relating to issues of aircraft standardisation and operation across the Thomas Cook group. For instance, TC Germany and TCUK operate 757-200s and -300s, but a basic stumbling block for joint operations is the different seating capacities each carrier adopts for their local markets. TCUK operates its 757s with 235 seats, while TC Germany configures its aircraft for 217-226 seats. "This makes it difficult to align operations," he says. Other areas that are part of the standardisation exercise are seat pitch, cabin crew working practices, and a variety of technical issues, including standard operating procedures, manuals and training.
Thomas Cook did, however, accidentally make its debut in joint operations in 2001 when Brussels-based CityBird entered bankruptcy protection in mid-2001. This charter carrier was contracted to fly Thomas Cook's leisure programme from Belgium. Thomas Cook considered buying CityBird, but chose instead to launch its own carrier, TC Belgium, starting in March 2002 with five Airbus A320s from JMC, which was looking to shed this aircraft type. Before the start of the new Belgian operation and the aircraft moving to the Belgian register, the A320s flew from Brussels with TCUK pilots.
Thomas Cook and TUI are working towards fleet planning across their airlines to obtain these benefits. "We will harmonise on aircraft types and standard operating procedures so that if the need exists for limited cross-border seasonal operations, we can exploit them," says Boyle. TUI, for example, is studying a group purchase of both narrowbody and widebodies to standardise on two basic aircraft families, replacing the 14 aircraft and 11 engine models in operation.
Fleet reviews
Thomas Cook is also in the early stages of evaluating its group aircraft requirements, while MyTravel Airways is midway into a fleet-renewal programme planned across its Scandinavian and UK airline operations. It is acquiring eight A320s and 13 A321s to replace aircraft with leases expiring this year and next. All will be branded as MyTravel Airways, completing the full transition from the former UK-based Airtours International and Scandinavian division Premiair brands announced in late 2001.
Although loss-making MyTravel Group declared in March that it is seeking to increase the utilisation of its aircraft as part of its turnaround strategy, it is too early to say to what extent this will feature cross-border operations in the TUI mould. However, the group's centralised aircraft purchasing strategy, which brings in benefits such as common cockpits and engine types, at least positions it for the possibility.
MyTravel's main example of inter-group co-ordination is the formation of its low-cost arm. The UK airline division of the group transferred two A320s to MyTravelLite for its start-up from Birmingham in October 2002. Flight and cabin crew are seconded from the mainline carrier. Two more A320s joined the no-frills operation from the mainline airlines for the 2003 summer season as the route network expands.
Source: Flight International
