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Aviation History
1994
1994 - 0031.PDF
UK CHARTER AIRLINES Cost reduction is now the single most important issue for scheduled carriers, but the charters have always operated in a low-yield, low-cost environment and have a head start which they are likely to maintain. Charter economics are under pinned by high aircraft utilisation, seating densities and load factors, together with low overheads. CONTAINING COSTS "The task for charter airlines is to make sure their costs do remain under control," says George Blundell-Pound, general man ager commercial at Caledonian Airways. Caledonian benefits from the bulk-buying power of its parent British Airways in areas such as fuel and hull insurance, adding in charter-mode efficiencies to maintain a cost advantage over the larger carrier. Britannia has shed staff and streamlined its fleet to operate the com mon-rated Boeing 767 and 757, while Airtours International has absorbed Inter European Airways and has also rational ised the combined operation. This honing of costs is not only a long-term strategy, but is also a reaction to the changed position of charter carriers versus their immediate customers, the tour operators. In the late 1980s, the UK's major tour operators contracted more aircraft, flooded the market with inclusive tours (ITs) and engaged in a battle for market share. The tour operators bore the cost of discounting to fill the extra seats, while the airlines maintained margins. Now, the balance of market power has shifted. The top 30 air-travel organisers moved from a collective loss in 1989 to profit margins of 1.5% in 1990 and 3.8% in 1991 by cutting back on IT programmes, leading to pressure on air line-seat rates. There was a return to vol- y ume growth in 1992, with margins dipping to 2.8%. This growth continued in 1993, although the financial results are not yet available. "There is still an excess of aircraft capacity in the market," says Airtours International chief executive Michael Lee, who adds that being part of a vertically integrated tour operation offers protection only in terms of filling the aircraft, not the seat rate. Airtours, the UK's second-largest tour operator, contracts its capacity only in- house, although the tour-operating divi sion sometimes sells on blocks of seats to other operators. The airline operates 60% of the Airtours group's northern-summer flying and is sized to match the group's winter requirement. These proportions are expected to remain stable as two Boeing 767-300ERs are added for summer 1994 and the programme is expanded. In recent years, both market leader Thomson and third-ranking Owners Abroad have increased their proportion of in-house flying. At Air 2000, for example, parent company Owners Abroad ac counted for around 65% of business in 1990 and the figure is now 75-80%. Globus Gateway of Switzerland, which is the ultimate owner of Cosmos and Monarch, also moved to add seat-only operator Avro to its UK stable. Monarch's Bernstein, however, says that Avro and Cosmos account for less than 50% of Monarch's business and he describes them as sister companies rather than as part of a vertically integrated group. Increasing the amount of in-house fly ing squeezes those charter carriers which lack major-tour operator feed. Dan-Air was obviously exposed and British Air ways was interested in taking over only its scheduled operation. Moreover, BA's ex isting charter subsidiary is cutting its fleet by one Lockheed L-1011 for the 1994 northern summer. "We have started to consolidate our business," explains Caledonian's Blundel Pound. "We do fly for all the larger companies, but at the margin of their business and the margin of ours. Our customer base in the IT charter market is the next level down." He says that Caledonian's commercial department has been re-focused to ad dress the needs of smaller operators. A subsidiary called Golden Lion Travel has been set up to sell surplus seats on consolidation flights direct to the public. Approximately one-third of the carrier's flying programme is operated on a consol idation basis, where small blocks of seats are sold to a range of tour operators. Caledonian has also been liaising with Excalibur Airways, which shares its lack of tour-operator feed and operates an Airbus A320 fleet complementing the larger Caledonian aircraft. In summer 1993, when a Caledonian charter to Luxor, Egypt, was scaled down, the busi ness went to Excalibur, which, in return, put a larger Caledonian unit on a popular Tenerife series. PROTECTING SEAT-SUPPLY As the larger operators have brought more of their aircraft capacity in-house, some of their former out-house tour-operator cus tomers have moved to safeguard a supply of seats. The Best Group used to be a significant charter of Britannia Airways aircraft and has now set up Ambassador Airways, which began operations in May 1993 with two 757s. Sunseeker Leisure also ex panded into flying operations in summer 1993 by leasing a Boeing 737-300, which was operated on its behalf by Air Foyle. The 737 is due for return to its lessor in January 1994 and Sunseeker's chairman and managing director David Hoyle aims to replace it with two aircraft for summer 1994. "We are looking at setting up a joint-venture company between ourselves and an airline with an air-operator's certif- ! RRITORY T FLIGHT INTERNATIONAL 5-11 January. 1994 29
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