Charter airlines flying to the main European package-tour destinations have traditionally had a steady flow of ticket-only travellers to fill up any remaining seats. Low-cost airlines are mounting a stiff challenge for this traffic Colin Baker/LONDON

Ever since low-cost airlines burst onto the scene in Europe during the mid-1990s, there has been a debate about the extent to which charter traffic would be hit. A common refrain from both sides of the industry is that the two business sectors cater for different markets, and there is much truth in this.

The European market is dominated by major charter carriers tied to integrated travel groups (see ranking on p81) and predominantly serves the package holiday market. By contrast, the low-cost carriers have carved out a strong niche in city-break locations, attracting the independent travellers who shun the pre-organised tours.

But the two sides do clash at the periphery of their business areas. The low-cost carriers have already severely affected charter traffic going to the Italian cities from the UK, for instance. The number of passengers travelling on charter flights between London and Pisa last year was less than half of that a decade ago. Go flies to five Italian destinations and Ryanair, arguably the most aggressive of the low-cost carriers, has penetrated Italy more than anywhere with flights to nine cities.

Similarly, in the upmarket French resort destination of Nice, the charter market from London has all but been wiped out as UK no-frills operator easyJet has moved in. The latter now has 41 flights per week from Luton to Nice, and accounted for 32.7% of London-Nice traffic in 1999.

These destinations display many of the characteristics best suited to low-cost scheduled operations - year-round traffic, a mixture of tourists and business fliers, and a large number of independent travellers, attracted by the flexibility that the no-frills sector offers.

It is this independent travel market that has attracted low-cost carriers Go and easyJet to the main tourist destinations in Spain such as Malaga and Palma de Mallorca. "We concluded that there was strong demand for seat-only traffic to these destinations," says David Magliano, sales and marketing director at Go. "There are a number of people who have either time-shares or their own villas, or access to these through friends and relatives."

Another attraction for Go was that that the charter airlines were perhaps a little too complacent. "We thought there was an opportunity. The charter prices were not, in the absence of competition, set at an attractive rate. We could undercut them," says Magliano.

Go has added Tenerife to its winter schedule this year, served by a Boeing 737-300 operating out of its London Stansted hub. This is significant because Tenerife is a medium-haul destination, in contrast to the short-haul routes that are the mainstay of the low-cost sector. It begs the question, will the low-cost carriers move into charter destinations even further afield, such as Greece?

If this scenario were to materialise, easyJet could well be involved. The Luton-based carrier, which operates 14 737-300s, has an order for 32 737-700, which have a range of 5,900km (3,200nm). The airline already serves Athens, and George Williams of Cranfield University's air transport group says that it could extend its operations to Cyprus and the Greek islands, traditional bastions of the package tour business.

Go's Magliano says that the Greek islands have not been ruled out as possible future destinations, but he emphasises that resort destinations remain peripheral to the core business of city-break destinations. The reason for this, he explains, is that they lack a number of the key components that low-fare operators look for. These include year-round traffic, a healthy business-leisure mix, and balanced directional traffic.

One of the main benefits of the Tenerife market was stable all-year-round traffic levels says Magliano. Go's services from London Stansted to Palma, Ibiza and Alicante, introduced to its summer schedule last year, do not enjoy this same advantage, although the carrier has decided to keep the Alicante route in its winter schedule, albeit with a vastly reduced service (four times a week compared with 15 in summer). Malaga is also served on a year-round basis.

Holding their own

Although competition may have intensified for seat-only business, the charter airlines seem to be holding their own. Williams says that, in general, there has been little evidence of a decrease in charter traffic. On the other hand, he points out that some of the growth in seat-only business that in the past would have gone to charter airlines has instead gone to low-cost carriers. Although accurate data here is hard to come by, Williams estimates that seat-only traffic forms up to 20% of business for the charter airlines.

An interesting example of a destination that has become the focus of low-cost/charter competition is Palma, which has been a particular target of easyJet, and is also served by Go. The strong competition has forced Monarch to cancel its Luton-Palma service operated by its scheduled arm, Crown Service.

But Monarch is not taking this set- back lying down. It has beefed up its Luton-Malaga service, where, in addition to the charter side of the business, it built up its scheduled services throughout the last decade. The arrival of easyJet on this route in 1998 has seen the two carriers competing head-to-head. easyJet is offering 17 flights per week on 148-seat Boeing 737-300s, while Monarch is offering eight services, five with 220-seat Airbus 321s and three with 180-seat Airbus A320s. Monarch has also increased operations out of Manchester to Spanish destinations this spring.

Also fighting back is Britannia Airways, the charter arm of the UK's Thomson Travel Group (now itself within the German conglomerate Preussag). Again, the target market is the Iberian resort destinations - Malaga, Alicante, Tenerife and Faro. Britannia has developed a separate product for the independent travel market, Britannia Direct, which operates through another subsidiary of the Thomson Group, Manchester Flights. Despite this, travellers who book on thisservice will end up sitting next to charter customers on a standard Britannia charter flight. Tickets can be booked through a separate Internet site, over the phone or through a travel agent. Prices are variable, although broadly in line with those offered by low-cost carriers.

Advantage charter

Although charter airlines may have lost a proportion of their seat-only business to their low-fare competitors, they enjoy a number of advantages that are hard to match. One of these is the size of aircraft. According to a study carried out by Cranfield University, the average seating capacity in the UK charter fleet (the largest in Europe) in 1999 was 224. The Boeing 737-300, which is the most popular model in the no-frills sector, provides 148 seats. Charter carriers are thus able to operate with a lower cost per seat. For instance, Cranfield estimates that easyJet achieved a unit cost of 7.56ó per available seat kilometre (ASK) - or ó12.16 per mile - in 1997, operating a fleet entirely composed of 737-300s. UK charter operator Air 2000, with a mixture of 757s and airbus A320s, managed 3.32ó/ASK in the same period, a 56% reduction on the easyJet figure.

Another key difference lies in average sector distance. Integrated charter airlines, which are part of a larger travel group, tend to fly on medium- and long-haul routes, while the low-fare carriers generally concentrate on routes of less than 1,000km to squeeze the maximum number of journeys out of their aircraft. Again, the-unit cost advantage lies with the charter airlines. But on routes where the two types of carrier are competing, such as the Iberian peninsular, this advantage is obviously nullified.

Aircraft utilisation is another area where charter airlines have traditionally had the advantage over scheduled services, partly due to the amount of night-time flying they do. Even with the quick turnarounds that characterise the no-frills sector, this is hard to match. Go operates a night-time service to Rekjavik, although Magliano says this will not be extended to other destinations, although a few night-time flights went to Ibiza last year.

Although charter airlines run a different type of operation to the low-cost carriers, serving, in the main, different types of customer, a useful, and at 20%, sizeable part of their business comes from the independent travel market. Understandably, they will be loathe to lose this without a fight, particularly if the likes of Go and easyJet start flying to the Greek islands.

Source: Airline Business