Test case

Source:
This story is sourced from Airline Business
Subscribe today »

Zoom Airlines may be a forerunner of things to come, but plenty of questions remain about the future of the long-haul-low-cost model

Kris Dolinki, Zoom Airlines chief executive recognises his Ottawa-based airline is a pioneer. But he is also the first to admit it is "a bit of a hybrid". This is partly because "we didn't consciously set out to become a transatlantic low-cost carrier. We set out to become a niche player, and one of the keys to success is being low cost," says Dolinki.

"The first challenge anyone faces in launching a long-haul low-cost airline is to decide what that means," he says. "Charters have been around for a long time, and increasingly operate long-haul low-cost. But the talk is about prospects for scheduled carriers. Zoom is two-thirds scheduled, and would be 100% except for regulatory constraints.

"We charter into places like Cuba because the bilaterals don't allow designation of any more scheduled carriers," Dolinki explains. "There is no significant difference in operations." Carriers such as JAL ways and Australian Airlines are also long-haul low-cost, but they are divisions of major airlines.

For his part, Dolinki prefers his independence – and his experiment with Zoom may finally offer some insight into the possible keys to success for that often-discussed model: a long-haul, low-cost, scheduled, standalone airline.

Foremost, because its appeal is to leisure travellers, it has close links with tour operators that funnel passengers to it. Indeed, Zoom was formed for that reason. When Hugh Boyle, one of Zoom's principal owners, sold his tour business in Scotland and migrated to Canada, he noticed that direct sale leisure travel, while common in the UK, was non-existent in Canada even though internet use was higher.

He formed Go Travel Direct, the first such Canadian tour operator. But travel agents saw it as a threat and pressured airlines to boycott his clients. In response, he and his brother launched Zoom in 2002.

Initially their plan was to carry Canadians to the US sunbelt and Caribbean during the winter on tour packages sold by Go Travel Direct. But the Boyle brothers still had contacts with UK tour operators looking for cheaper transatlantic flights. In response, Zoom launched service last year between major Canadian and UK cities plus Paris. Carrying 125,000 passengers, it was an unexpected success. Some 60% of passengers came from Europe.

Zoom thus satisfied the first axiom of Canadian aviation – focus east-west in summer and north-south in winter. It is also trying to build the east-west winter market by offering ski packages.

The steady referrals from tour operators and repeat customers are Zoom's lifeblood. It has also copied the low-cost model in some respects. With all bookings online or through call centres, distribution costs are low.

Zoom's launch coincided with the bottom of the market for operating leases and it locked in bargain rates on five- and 10-year leases. It flies two Boeing 767-300ERs, with a third coming in May and a fourth next January. None were more than 10 years old when leased, and they all had common engines and good pedigrees.

It also followed the collapse of Canada 3000, which gave access to a pool of seasoned managers as well as flightcrews eager to work. Only two years old, Zoom has yet to experience the costs that follow staff seniority.

The carrier flies only point-to-point without interlining. Overall, Dolinki believes Zoom's costs are 40% lower than the majors, with fares 25-35% lower. But parts of the short-haul low-cost model simply do not fit long haul.

Dolinki explains: "With 9-10h sector lengths, you can't use an easyJet or Ryanair seat pitch. And people wouldn't tolerate a lack of meals or having to pay for drinks. So we offer a full service meal, complimentary wine, and a reasonable seat pitch. Both 767s are in an economy/premium-economy configuration, with 62 seats up front and 268 in total. Seat assignments cost extra."

Another unexpected revenue boost comes from the 767's cargo potential. "Cargo wasn't a primary consideration when we chose this aircraft," Dolinki admits, although it brought in an extra million dollars last year.

Doubling its fleet over the next 10 months is unlikely to change Zoom's outlook. "We're focused on high loads – in excess of 90% last year. We met our target to become profitable in 2004. We'll probably go to a daily service to London Gatwick. But I doubt we'll do anything dramatically different," Dolinki says.

"