Europe's regional carriers aim to make their voice heard as they battle against perceived injustices
Times are hard in the European regional airline industry. On top of plummeting yields for business traffic - the bread-and-butter of the average European regional - the challenge of the low-cost sector is hotter than ever.
Against this background, it was perhaps not surprising that airline heads meeting at the inaugural European Regional Airlines (ERA) conference, held in Stuttgart in March, were in belligerent mood. In particular, the region's carriers feel that regulators are discriminating against them, arguing that Brussels appears to favour rail over air transport. They also feel that they are overburdened by environmental and operational restrictions.
These accusations have been a familiar theme at past ERA general assemblies, but seldom have the association and its member presidents made their feelings felt so strongly. This was not just due to the tough economic climate; the presence of Eckard Seebohm, head of the aviation and environment unit at the European Commission (EC), who was given a rough ride by the attending ERA members, no doubt fired up the debate.
Seebohm undoubtedly faced a daunting task talking about future environmental measures to an audience of airline executives whose main priority at the moment is economic survival. Seebohm remains careful about promising too much in public. Nevertheless, he hinted strongly that Brussels is willing to see the timetable for further environmental measures pushed back. Welcome as these comments may be, they did not stop Seebohm from coming under fire from his audience, which relished the opportunity to put their grievances to Brussels.
The anti-regulator theme was picked up by ERA president, and head of regional carrier PGA Portugalia, Joao Ribeiro da Fonseca. Giving the keynote speech at the conference dinner, he said: "The time is right for our sector to shout foul and shout it loudly."
Brussels strongly refutes the suggestion that it is biased towards the rail sector. "The EC's white paper [on transport] in essence is about dealing with road congestion and bottlenecks," says Seebohm. The ERA estimates that the rail industry benefits to the tune of €32.5 billion ($36 billion) in subsidies each year.
However, Brussels says that three-quarters of this is for urban transportation, where rail is competing with the car, rather than airlines. "In my opinion, the car user is the most heavily discriminated against type of transport," says one Brussels insider.
While regulators are taking much of the flak, many of the issues facing the regional sector come from closer to home. The trend for major carriers to take increasing control of the European regional sector has been a feature of the industry in recent years, and Jacques Bankir, chairman of Air France's Régional, warns that this relationship can bring problems. For instance, he says that his airline is forced to use Air France check-in facilities, which can be less than ideal. "They know how to check-in a [Boeing] 747, but not a 50-seater," he says.
Internal competition
At least Bankir does not face the prospect of competing against a low-cost carrier ultimately controlled by his parent company. This is the situation faced by Lufthansa CityLine, the regional arm of the German flag carrier. Lufthansa took part-control of Dortmund-based regional Eurowings in 2000, and launched low-cost carrier Germanwings last year. Sources at CityLine say that while they have no problem with Eurowings - the two carriers operate on different routes - they are unhappy about losing traffic to Germanwings, given that the latter is essentially a sister carrier.
Of course, CityLine is in no position to respond in kind, given its role feeding the Lufthansa network. The fact that so many of Europe's regional carriers are now controlled by majors means that few have been able to take on the low-cost at their own game.
Eurowings was able to use its charter fleet to set up its low-cost subsidiary, but those carriers that have made the most aggressive replies have one thing in common: independence. Norwegian Air Shuttle is a dramatic example. Over the last year the carrier has decided to exit its regional business based on the Fokker 50 and moved over to a Boeing 737 low-cost operation under the brand name Norwegian. Flybe, the former British European, has also reinvented itself as a low-cost carrier.
Bombardier vice-president Europe, James Hoblyn told the conference that more could go down this route. "The low-fare option is an opportunity for many people in this room," he claimed, pointing to the low trip costs of regional carriers.
Critics of this option have argued that it is difficult for regionals to compete with the lower seat-mile costs of a low-cost carrier operating a 737 or an Airbus equivalent. However, Hoblyn gives the example of Horizon in the USA, which competes head-to-head with Southwest Airlines, and manages to achieve a fare premium. "Right now, you can't beat the economies of a new generation turboprop," he says. Horizon's fleet is based around the Bombardier Dash 8 series, an aircraft also used by flybe, and which is also trying to use the turboprop's lower unit costs to take on the low-cost sector directly.
A question many regionals are asking, however, is whether they can take on the low-cost sector on a level playing field? Ryanair has struck several favourable deals with secondary airports around Europe, and Brussels is currently investigating its arrangement with Charleroi in Belgium. Overall, Bankir estimates that Ryanair is effectively subsidised to the tune of €20 per passenger, or €240 million for the 12 million passengers it carries each year. "This is €20 per passenger more than other airlines," he says. However, Ryanair counters any criticism by pointing out that many of these airports have tried and failed to bring in other carriers.
John Horne, managing director of Cardiff International Airport, which recently saw UK flag carrier British Airways pull its regional services, says the low-cost sector "is the growth game in town. If we want to remain competitive, we can't ignore them." He also says that it is possible for the two to compete side by side, pointing to regional Air Wales, which competes on the Cardiff-Dublin route using ATR-42s against Ryanair's 737 operations. Air Wales beats Ryanair on frequencies, offering 11 per week against Ryanair's seven.
While many small regional airports have learnt to survive in the low-cost era, the future is less certain for some of the larger regional hubs, such as Basle on the Swiss-French border. This was built up as a Crossair hub by Mauritz Suter, the charismatic founding chairman, who quit in 2001 shortly before the collapse of parent Swissair. Crossair was once a leading light in the ERA, which Suter helped to found, but Swiss plays a far lower profile and is cutting capacity at its Basle regional hub by 31% in terms of available seat kilometres - putting a question mark over the airport's hub status.
Expensive model
Bankir says that Basle is one of the few European airports with adequate regional facilities, but is "an expensive model." He says that his own carrier's Clermont-Ferrand hub in France is a "reasonable" model, but says that the airline would be profitable without it" - casting doubt on the long-term future of that French airport's hub role.
Bankir feels Europe's regional airports could do more to serve the regional sector. "Even small airports manage to impose bus transfers because of poor design and unjustified security considerations," he says, noting that they can represent a 15-30% surcharge on handling costs. "In Europe, terminals often provide close in parking for only large aircraft. Regional aircraft are parked further and further away."
He adds that there is a conflict developing between major airports that simply do not want regional services due to slot constraints, such as London Heathrow and Frankfurt, or do not understand their contribution, such as Paris Charles de Gaulle (CDG), and secondary airports whose development is linked to regional aircraft efficiency. "An airport that offers enough capacity enhances its connection potential by favouring regional traffic," says Bankir, noting that 25 cities in Europe are linked to CDG only by regional aircraft.
With airport capacity constraints back on the agenda, this may be one of many areas where regionals will have a tough time arguing their case. "Is it discrimination against regional airlines or a product of market forces? It depends on how you view it," says Cardiff's Horne, referring to Heathrow's attitude to regional traffic.
What is certain is that the European regional sector is going to fight perceived discrimination. "I have no intention of presiding over the funeral of regional air transport," says ERA director general, Mike Ambrose. Bankir told delegates that a mixture of navigation charges, airport and passenger taxes alone had increased regional's costs by 7.5% per seat over the last year, and warned the industry cannot go on absorbing these costs.
A particular grievance is the proposed passenger rights legislation. "No other form of transport is penalised in this way," Ambrose says. Regional carriers clearly feel under pressure from many directions at the moment - and are more ready than ever to voice their grievances.
Source: Airline Business
