KLM insists that it can operate a full service product alongside its buzz/Basiq Air low-cost offerings, despite recent moves to cut fares at the mainline carrier.

The Dutch carrier says the decision to cut economy fares on 20 out of its 66 European routes is an effort to capture more of the fast-growing leisure market, and is not a direct response to the low-cost threat. "Our direct response to low-cost carriers is with our own low-cost carrier," says KLM. However, although the cheaper and simplified fare structure mirrors moves by British Airways, bmi british midland and SAS, it does not go as far in scrapping restrictions like the Saturday night stay.

"What makes us different is that we are mainly a transfer carrier," says KLM, noting that over 50% of its traffic at Amsterdam Schiphol airport is connecting. "This means we are less affected by the low-cost product," it says. To emphasise its full service airline status, it is beefing up its product with a "service recovery package" in the event of a delay that includes a letter of apology, a telephone call and meal coupon and other benefits.

By September or October KLM aims to have formulated its low-cost brand, network, fleet and organisation strategy. At present its low-cost operators are UK-based buzz and Schiphol-based Basiq Air.

In an advance move, buzz has taken over the five-times-daily London Stansted-Amsterdam service from KLM uk. This carrier will concentrate on expanding frequencies from London City and regional UK airports.

"Flag carriers need to go through the process of simplifying their short-haul product offering and that includes pricing," says Mike Powell, an aviation analyst at Dresdner Kleinwort Wasserstein. "It has been notoriously obscure and there is a need to make it more transparent for consumers if these carriers want to compete [with low-cost carriers]. Other flag carriers in Europe are going to have to do it, and KLM is being proactive in its approach."

The other, more difficult side of the equation is simplifying the airline's cost base to make it cheaper and more efficient and move towards matching the cost structure of low-cost operators, Powell adds.

Source: Airline Business