The utilisation by major carriers of regional airlines with low cost bases to operate low-volume, short-haul feeder services is a concept that has been established in North America since the 1980s, but has only recently caught on in Europe. British Airways was the first European carrier to conclude a franchise "express" feeder arrangement when it signed up CityFlyer Express to feed its Gatwick hub in 1993, and now many European flag carriers have arranged for their feeds to be provided by regionals carrying their identity.
BA put its marker down in July 1993 with CityFlyer, and the regional airline immediately adopted BA's corporate identity for its aircraft and flight and ground crew, designated as "British Airways Express". The British flag carrier has since added eight other airlines to its franchise network, both UK-based and offshore, and the business is now worth £50 million ($80 million) annually.
According to Lewis Scard, BA's general manager Franchising and Alliances, the strategy was adopted to help the airline to gain a presence in cost-competitive markets which it was unable to serve competitively, and it enables the BA name and branding to be spread more widely. In return for franchise and handling fees, the franchisee has access to BA's brand, worldwide marketing and distribution network and the flag carrier's loyalty programme. The franchise airlines use BA's flight prefix, and provide products and services to its specifications.
Prospective partners
The success of BA's programme has seen a constant flow of prospective partners seeking similar link-ups. An airline wishing to franchise for BA must first be able to meet the airline's rigorous standards before winning approval.
"We have eight basic criteria that a potential franchisee must meet," says Scard. "These include operational standards, airworthiness, safety, security, financial fitness, ground handling, customer service and hygiene."
Parodixically, the largest BA franchisee is British Regional Airlines (BRAL, which incorporates Loganair and the Manx Airlines Europe division of Isle of Man-based Manx Airlines), which is closely affiliated to BA's UK rival British Midland (BM) through parent Airlines of Britain (ABH). A fleet of around 40 aircraft, mainly ATPs and Aero International (Regional) (AI(R)) Jetstream 41s, is operated on the franchise network, which was extended during 1996 to take over BA's loss-making Scottish Highlands and Islands operation.
Manx says that having direct links to two rival airlines has not posed problems: "When the franchise agreement was set up, certain 'Chinese walls' were agreed on," says BRAL and Manx managing director Terry Liddiard, who emphasises that BA marketing intelligence has never filtered through to BM.
In 1996, Manx's BA Express business accounted for 65% of its passenger traffic and about 50% of the profit generated. Manx carried 1.8 million passengers last year, and expects this to grow to around 2.1 million in 1997.
In February, ABH split off the regional airline division into a separate grouping, a move designed to free the operations to enable the franchise links with BA to be increased as BM moves closer to Lufthansa. "We see our future as being firmly in the BA camp, with growth mainly through the expansion of the franchise operations," says Liddiard.
BRAL has since signed an order for up to five Embraer EMB-145s, which will be introduced from June on both existing and new BA Express routes from Manchester and Southampton to points in the UK and mainland Europe.
Liddiard says the appeal of BA's Air Miles loyalty programme was a major attraction of the franchise agreement: "The loyalty programme link-up encourages business people to make use of our regional services, instead of travelling great distances to fly with BA from an airport such as Heathrow to earn Air Miles," he says.
Following BA's lead, other European carriers such as Lufthansa, Air France, Sabena, Air Europa, Alitalia and Iberia have established their own versions of franchise agreements. Last year, Air France introduced franchise links to the UK and Germany with incumbent airlines Jersey European Airways (JEA), CityJet and Eurowings. "Two years ago, we saw Air France was cutting back its UK regional operations so we made contact," says Jim French, JEA's deputy chief executive. "After a 'loose' relationship [i.e. a block-seat-purchase agreement with Air France Europe] which commenced in the middle of last year, we developed the connection and Air France approached us with firm plans to take over routes from Lyon and Toulouse to London Heathrow."
To launch its Air France Express routes, JEA leased two BAe 146-100s to add to the 12 -200s and -300s already used on its own services along with four Fokker F27s and two Shorts 360s.
JEA has recruited local French cabin crew and based a number of its British pilots in Toulouse. "We have also taken some of Air France's cadet pilots and put them in the right-hand seats of our BAe 146s," says French.
French says JEA is responsible for revenue control and the operation of the franchise flights, and pays a fee to Air France for the use of its brand and its sales and marketing services. "The link-up gets us into London Heathrow and expands our presence in Europe," he says. He acknowledges that the development of the franchise agreement could be an important way forward for the airline to expand and extend its own network. JEA has experienced 25% annual growth over the past six years.
The carrier has recently begun detailed studies of 150- to 170-seat aircraft, including the Airbus A320 and Boeing 737 families (Flight International 16-22 April, P11). "The slot restraints on our London routes may require a larger aircraft to cater for the growth," says French, who adds that a 50-seat regional jet is also being considered to replace the turboprops.
French says that a decision is six to 12 months away, but he does not rule out the possibility that a new aircraft could enter service in 1998. "We will use flexible acquisition methods and are prepared to move quickly to secure a deal," he says , adding that once a decision has been taken to move into a market "-availability can often drive aircraft selection".
Earlier this year, a new Spanish regional airline, Canarias Regional Air (CRA), launched operations with a fleet of leased BAe ATPs initially flying a network around the Balearic Islands, and an "air bridge" to various points in mainland Spain. It has since added a network in the Canaries, with all its flights operated as "Air Europa Express", providing regional feed to Spain's largest private airline Air Europa, which is a 50% shareholder in the new carrier.
Breaking the monopoly
According to Juan Socastro, CRA founder and president and a Canary Islands' resident, the formation of the new airline resulted from a need to improve regional services in the Canaries, which have been operated exclusively by Iberia subsidiary Binter Canarias. "We wanted to improve the islands' services and break the monopoly - fares were too high and the equipment was old", he says, adding that he was confident there was room for two airlines.
At the same time, Air Europa was examining its options to strengthen its position in the Spanish domestic market, and late last year linked up with the embryonic CRA, formed in May 1996 but yet to start operations.
Air Europa liked the concept of the new airline and took a 50% shareholding: "Being involved with the airline from the beginning was a great benefit," says Mario Hidalgo, director general of both Air Europa and CRA. He says a link with an existing regional such as Air Nostrum was also considered. "Starting from scratch [with Canarias] meant that we could have a say in the airline's fleet, in-flight service, interior arrangements, etc.," he says.
Although CRA is not strictly a franchise, its operations have been successful enough to elicit a reaction from the national airline, with Iberia having recently added its own franchise airline, Air Nostrum. Iberia is taking the Air Europa group threat very seriously, and the recent appointment of former Iberia chairman Juan Saez as Air Europa's director general has worried the state-owned airline's unions.
Canarias has now taken delivery of its initial batch of eight 64-seat BAe ATPs, all leased from BAe Asset Management Turboprops. The carrier now serves 14 destinations, and is aiming to carry 400,000 passengers in its first year, with load factors averaging 65%. If things go as planned, then more routes and aircraft will be added: "We aim to take a heck of a lot more ATPs and eventually connect Madrid to every major Spanish city," says Hidalgo. But he warns that slots restrictions at Madrid will probably impact this strategy and delay expansion.
Source: Flight International
