Advertisement
Advertisement

Cheap flights soar as big lines bleed

Europe's big airlines are hoping for a soft landing in the coming economic downturn. But for the no-frills airlines like Ireland's Ryanair or London-based Easy-Jet, a little economic turbulence may even come as something of a lift. Hard times make cheap flights seem more attractive.

In Zurich, Brussels - even in Frankfurt, if the rumours are true - big airlines are in trouble.

Swissair's parent group, SAir, has a debt problem. Sabena makes survival-threatening losses, and, according to the German Financial Times, Lufthansa is facing a massive drop in profits next year. The company has denied it, but the newspaper cites an internal company report predicting that operating profits will fall from 1.04 billion euros (about HK$7.24 billion) in 2000 to 650 million euros this year.

Yet the cheapies are soaring. They already have a 4 per cent share of the world passenger market, with 19 million passengers last year. Some estimates expect the figure to continue rising steeply to reach 10 per cent, or 45 million passengers, by 2005.

Cheap flights are so attractive they can claim to be adding to the overall air-fares cake rather than simply skimming off passengers from more expensive airlines.

One telling statistic serves to illustrate what happens when people who previously stayed at home or took a cheap package holiday somewhere are offered a discount fare. Between 1993 and 1997, the number of passengers flying from London to Venice rose from 300,000 to 350,000 a year. In the three years since an Irish no-frills operation, Ryanair, joined the competition on the route, the number has risen to more than 750,000.

Which is not to say the cheap airlines are crossing no-one's flight-path. The charter companies are hurting badly. They have little defence when the likes of British Airways' cheap-fares business, Go, or KLM's Basiq Air, run flights to Spanish holiday resorts at unheard-of prices.

Established airlines will think nothing of starting a deliberate, carefully aimed counter-attack where lucrative business fares are at stake. But the independents have learned to stay well clear of the national carriers' most prized business routes, for fear of the kind of backlash that has squeezed even Go out of big-city connections dominated by heavy-hitting opponents like Lufthansa.

Some cheapies are doing better than others. Richard Branson's Virgin Express, a no-frills Cinderella to its better-treated sister Virgin Atlantic, has been forced to close routes, look for a buyer for its Irish subsidiary and focus on a few profitable routes from its Brussels base.

Last year, passenger numbers on its scheduled services grew to just under three million, a measly 1.7 per cent increase compared with 1999. That is probably not as bad as it sounds, given the airline's shrinking network. Virgin has moved out of the unprofitable charter business almost completely in the past year. Its share price on the Brussels stock market has fallen steadily from nearly 14 euros in January 2000 to about one euro in March 2001.

By contrast, Michael O'Leary's Ryanair seems to be jetting along unstoppably at 10,000 metres and climbing. With perfect timing, Ryanair placed 10 million new shares at 11.6 euros a share on February 9, raking in a cool 116 million euros, just as the stock was soaring skywards to peak at 12.50 euros a few days later. Mr O'Leary himself profited from the opportunity by selling three million shares of his own to pocket about 35 million euros.

Ryanair expects passenger traffic to rise from seven million to nine million passengers this year, announced 13 new routes out of London and its new Belgian base at the end of last month and added five new planes to its fleet of Boeing 737s.

It has a worthy rival in Stelios Haji-Ioannou's EasyJet, another no-frills operation which clocked up six million passengers last year - almost exactly double Virgin Express' payload - after starting from scratch in 1995.

All of which raises the question of just what it is these airlines are doing right.

Part of the answer lies in the attitude symbolised by the EasyJet livery. While other airlines go in for fancy logos - or spend millions painting out previous, misunderstood efforts to represent ethnic diversity on colourful tailplanes - EasyJet splashes its telephone number in huge, garish orange figures along the length of the fuselage.

The new players are brash and go-ahead. They offer little or no refreshment on board and save themselves travel-agents' commissions by selling direct to the traveller via telephone or online. They waste no money on printing and distributing tickets and try to fly out of small, sometimes remote airports, with low handling charges, little traffic and swift turnaround times.

Unlike their big-carrier rivals, they have no complex networks to co-ordinate and do not try to make connections or transfer baggage to other airlines. As a result they can turn planes round much faster, pleasing passengers and fitting more scheduled flights into a day. The only thing they would not admit to saving money on is safety.

As a result, Ryanair boasts that its costs are 50 per cent below those of established operators. Passengers may dislike having to make their way to airports with poor connections to the big cities. It is tough on travellers who want to connect with another airline using the major hub.

But do they care, when they need pay just seven euros, say, for a return flight from Hahn - a remote airport to the West of Frankfurt - to London's Stanstead airport? Or 11 euros for a return flight from Dublin to Stanstead - plus, absurdly, more than twice that sum in airport taxes? Compare those prices with a ferry fare to Macau, for instance, or flight from Hong Kong to Guangzhou. The potential for cheap flights in Southeast Asia cannot be ignored.

Post