When it came to putting its tariff structure into the Swiss market British Midland, one of the main drivers of price competition in Europe, hit a brick wall.
The UK carrier launched its sixth European trunk route out of London/Heathrow into the lucrative Zurich market at the end of October 1995, but lost its main competitive tool because of the protectionist stance of the Swiss regulatory authorities. Alex Grant, sales and marketing director of British Midland, admits he persevered and tried to 'major on our reputation of breaking the mould even though we couldn't do it in the Swiss market.'
British Midland has gone after the business traveller on its other trunk routes out of Heathrow to Amsterdam, Brussels, Paris, Dublin and Frankfurt, by offering discounted business class fares with certain restrictions. Not only has the carrier stimulated these markets but it has also taken significant market share on what in most cases were duopolistic routes. The difference on the Zurich route is that Switzerland is not signatory to EU liberalisation rules (Swissair is pushing for access but surface transport issues are blocking negotiations), leaving British Midland's fare levels open to the single disapproval clause of the Swiss-UK bilateral.
The initial application to the Swiss authorities included three discounted fares in both business and economy, with the lowest business fare almost 30 per cent below the SFr1,366 (US$1,092) full fare charged by incumbents Swissair, British Airways and Air UK. But the Swiss disapproval of all the fares came with a classic statement of the obvious. The Swiss Federal Office for Civil Aviation (Foca) reportedly concluded that the 'proposed fares do not match existing fares. They would result in diversion of traffic from higher fares.' One insider observes that Swiss officials admitted they would have to run the proposed fares past Swissair, because Foca has no tariff department of its own.
British Midland turned to the European Commission in the hope Brussels could exert some pressure on the Swiss, as it was considering the approval of Swissair's 49.5 per cent investment in Sabena. The Commission told British Midland in no uncertain terms to 'go away.'
The carrier did find some short-lived support for its plight in Switzerland, however. 'The press complained the authorities weren't allowing competition, but promptly forgot because they just aren't used to competition,' says Grant. Any publicity is welcome because it is hard 'to sustain a presence in a country with one route, especially when competing against the likes of Swissair and British Airways,' he adds.
British Midland did pull off a small coup when the Swiss allowed the carrier to offer the Eurobudget fare in business class. The fare only comes in at SFr140 below the full C-class fare, but the three other carriers on the route restrict such fares to the back of the aircraft.
Austin Reid, British Midland's managing director, argues the Swiss stance is pointless, as the fares are available in the UK. 'The smart Swiss corporate boys will end up with the cheap fares anyway [by buying them in London]. It is the infrequent traveller who in the end is disadvantaged.'
The carrier currently operates four daily B737-500 flights on the route and Reid believes there is room for an additional frequency. After that Reid will look at increasing the aircraft size.
The carrier is already commanding an average market share of 18 per cent on the route with the best performance so far coming in December with 21 per cent. 'In pure passenger terms, April is back up to the December levels,' Reid adds. In the six months since start up to April, British Midland has carried 80,000 passengers on the route - a total of 860,000 passengers travelled the route last year, according to airport operator BAA.
British Midland's success in December also exemplifies one problem facing any newcomer - predicting seasonal traffic patterns. The Zurich route offers high yields because it links two of the world's major financial centres but the carrier's traffic mix on the route is currently top heavy in the leisure segment. Business traffic has grown from 20 per cent at the start to around 30 per cent and Grant expects it to reach 40 per cent in two years.
Swiss-originating traffic currently accounts for 'slightly' over 50 per cent of British Midland's passengers, because a new entrant 'tends to penetrate the leisure market first and London is more of a tourist destination than vice versa,' explains Grant.
Mark Odell
Source: Airline Business
