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Aviation History
2002
2002 - 1146.PDF
Cover story based outside mainland Europe at a serious disadvantage compared to the mainland LCCs which will soon spring up. The struc ture of European aviation is still changing rapidly. Brussels, for example, has seen a 40% drop in traffic since the collapse of the Belgian national airline Sabena. If other flag carriers cut back drastically, or even collapse, the problems of the airport opera tors will represent opportunities for no-frills airlines. Surface transport could also replace air travel over short sectors. Long-distance high-speed rail links, very rare in the USA, are being pushed hard by European authorities - meaning that, for sectors of less than 3h by train, even LCCs will be unable to compete. In the short term, too, these routes will almost without exception be operated by state-owned and state- subsidised rail companies. Rail/air competition But the high-speed rail links do not only represent direct competition for the shorter sectors. Rail/air links are becoming increasingly popular in Europe and a car rier with a feeder network composed of subsidised rail links, with platform check- in and co-operation on timetables, will have a huge advantage over its competi tion. Flag carriers, rather than upstart air lines or incomers, will probably receive the readiest help from the state rail networks. High-speed rail is not a serious competi tor in every sector. Across the English Channel, the high-speed service is limited and runs only between London, Paris and Brussels. The UK has no high-speed links and is unlikely to build significant num bers in the near future - indeed, many ana lysts regard the slow and unreliable UK rail network as an important reason for the growth of the UK low-cost carrier market. There are other barriers, such as mountains and borders, to universal high-speed rail service. All the same, warns Easyjet chief executive Ray Webster, LCCs will have to be careful: "Using scarce slots to compete against short high-speed train routes is nonsensical." Pulling out of the unprofitable short- haul market must be tempting for many full-service carriers. However, the unhappy history of other airlines - such as Pan Am and TWA - which followed the same strat egy into collapse, is not encouraging. Equally, there are few good examples of full-service carriers successfully operating low-cost subsidiaries. British Airways sold its Go subsidiary before it could prove the point either way, although KLM remains optimistic about its Buzz and Basiq Air operations. Allying with low-cost carriers to obtain feeder services is possible, but no airline in either category EasyJet so far appears interested. An alliance - or a founder merger - would be easier than attempting Stelios Haji- to cut costs from full-service to low-cost loannou has levels, however. kept the Too much of the low-cost base of an LCC airline in the depends on the point-to-point short-haul spotlight strategy for it to be easily reproduced by a since day full-service carrier. Offering an improved one service for a higher price is, effectively, what the full-service carriers are already doing - but the cost/benefit trade-off is not appeal ing enough to passengers. The growth of alliances between international full-service carriers will increase their standards of ser vice further and may allow them to keep their intra-European customers. The full-service airlines themselves tend to treat the no-frills airlines with a certain disdain. Air France chief financial officer Phillippe Calavia said late last year: "Easyjet chief executive Ray Webster says that the low-costs will have 80% of the market - he is wrong. I do not think any way there is any room in Europe for several low-cost operators. They will face consoli- "The service offered by major carriers cannot be compared with what low-cost airlines offer" JEAN-CYRIL SPINETTA, AIR FRANCE CHAIRMAN dation." At an Aviation Club of the UK address last year, Air France chairman Jean- Cyril Spinetta said: "I am often asked: Does Air France feel threatened by the [LCCs') success? We are not in the same business. The flexibility, service and frequencies offered by major carriers cannot be com pared with what low-cost airlines have to offer." LCC customers were initially similar to the passengers on their predecessors, the charter services. However, as the sector grew, businesses increasingly began recog nising the value of low-cost travel and the European market is now divided roughly 50-50 between leisure and business travel. It is likely that LCCs will themselves start to specialise. The business low-cost carriers - possibly including Easyjet and Virgin Express - will provide a rather more expen sive, flexible service between primary and secondary airports, while the leisure carri ers - such as Ryanair - will provide cheaper services to tertiary destinations. Both areas have their own challenges. Keeping costs low while flying frequent services into some of Europe's most con gested and most expensive airports will be a challenge for the business carriers, which will also have to resist the temptation to provide "business-class" type services, so losing customers either to the full-service regionals or to lower-cost rivals. No turning back It seems unlikely, however, that the cur rent dramatic growth of low-cost traffic represents only a temporary benefit of tightened travel budgets during an eco nomic recession. Once the economy starts to pick up again, companies are unlikely to switch straight back to more expensive full-service travel for their employees. The leisure carriers, for whom low prices are the brand image, will face losing a cus tomer base with little brand loyalty to any rival that manages to undercut them, as Deutsche BA's former chief executive Carl Michel points out: "If your brand is only having low prices, then nobody really owns the market." Buzz commercial director Tony Comacho differentiates Ryanair from Buzz, Go and Easyjet: "These airlines are relative value low-fare carriers, but Ryanair is an absolute value carrier. Ryanair's prices are not just lower than other carriers' fares - they are simply cheap. Easyjet is not always cheap, it is just lower than the rivals," he says. British Airways chief executive Rod Eddington believes the consolidation of the US sector will be mirrored in Europe: "There will be a consolidation process with some airlines closing and others merging, leaving just one or two players," he says. 38 9-15 APRIL 2002 FLIGHT INTERNATIONAL www.fliqhtinternational.com
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