Johan Vanneste: Finding a niche for VLM at London City

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VLM Airlines is not exactly a household name but under managing director Johan Vanneste it has quietly made a name for itself in London’s financial district. The once small Dutch carrier now operates over 100 flights every weekday from London City, wooing business travellers heading to or from 11 European destinations that would traditionally use congested Heathrow.

Antwerp-based VLM began serving close-in London City in May 1993, only 15 months after it launched services. But it is in the last three years that its London City service has really taken off, adding five routes since Vanneste took over as managing director and becoming easily the airport’s biggest operator.

Earlier this month VLM became the first airline at London City to carry 4 million passengers from the tiny but conveniently located airfield at London’s Docklands.

The convenience factor, including short security and check-in queues, allows VLM to charge a premium. Thanks to a new rail link to the airport which opened one year ago businessmen can leave their offices in London’s financial district less than one hour prior to departure.

“It’s still a reasonably fast airport to travel through,” Vanneste says, adding VLM’s services received a traffic boost in August after the UK terrorist scare, which persuaded even more passengers away from much busier Heathrow.

London City, which was recently acquired by a consortium led by US insurance firm AIG, is one of the costliest airports to operate from in Europe. But Vanneste says the costs are more than offset by relatively high air fares and yields.

“It’s a very specialised airport. It’s a very expensive location. Specialised manpower is very expensive there,” he says. “London City is the way it is.”

As it accounts for about two-thirds of VLM’s routes, London City is primarily responsible for VLM’s eight-year string of consecutive profits. In 2005 VLM turned a net profit of €1.35 million ($1.78 million) on €88.5 million in revenues. Back in 1998 the carrier generated less than €30 million in revenues. Its fleet also has grown as it has steadily added London City frequencies, going from eight Fokker 50s in 2001 to 15 in 2005 and 19 currently.

But VLM’s continued expansion is threatened by capacity constraints at the airport.

London City is now full,” Vanneste says, adding no peak hour slots are available although they come on the market occasionally.

New plans unveiled this month by the airport’s operator will increase capacity from 2.4 to 3.5 million passengers per year in 2015. The capacity increase will be achieved by increasing the parking area, extending the current terminal and building a parallel taxiway. Currently aircraft must taxi on the runway before taking off and after landing, limiting the number of flights the airport can handle.

To increase its London City traffic prior to 2015, VLM will need to upgrade its fleet. While London City can only be accessed by aircraft with short takeoff and landing capability, aircraft with this capability can seat up to 100 passengers, compared to 50 on the Fokker 50.

VLM has received briefings on regional jets and larger turboprops which have or are expected to secure London City certification. But VLM prefers a turboprop and is considering testing out a larger turboprop at London City in 2007 by wet leasing an 80-seat Bombardier Dash 8 Q400 from Denim Air.

“We like turboprops. They are much more fuel efficient. With the fuel costs these days we’ve been a lot less hard hit than jet operators,” Vanneste says.

VLM’s parent, Panta Holdings, acquired Denim in 2005. While the two carriers continue to operate independently and pursue separate niches, the two are looking to pool resources. Denim already operates four of VLM’s 19 Fokker 50s.

“Because of the different business models [Panta] wants to keep the two carriers separate but we are looking for synergies,” Vanneste says.

The two carriers have already decided to create a merged maintenance operation, which will open early in 2007 and be known as Panta Aircraft Maintenance. The maintenance unit will be in charge of maintaining Denim and VLM Fokker 50s up to B check level. Heavy C and D checks will continue to be outsourced.

“We’re bringing the maintenance arms together. Fokker 50 expertise is very scarce and we’re very experienced,” Vanneste says.

The new maintenance division will initially work out of VLM’s two Antwerp hangars, one of which it owns and one of which is rented. But VLM is now discussing with Antwerp airport authorities a proposal to build a new two-bay hangar and headquarters complex at Antwerp. The new hangar will be large enough to accommodate larger regional aircraft which VLM may acquire if the proposed trial service is successful.

Vanneste wants to keep VLM small but with over 400 employees and 19 aircraft the carrier is poised to become one of Europe’s larger regional carriers. Vanneste joined VLM at the beginning of 2003 after a stint as chief operating officer for SN Brussels under Peter Davies, now the chief executive of Caribbean Airlines. Vanneste previously was chief executive of former Sabena regional affiliate Delta Air Transport, which was folded into SN Brussels in 2001. “I witnessed bankruptcy from the front row. I restarted it after four days on ground,” he says.

As SN Brussels expanded and launched long-haul operations, Vanneste missed being part of a smaller regional operation. “Personally I like smaller companies. You have an opportunity to know your staff personally.”