Does the worlds favourite airline really want a low-cost carrier?
These words, at the top of full-page newspaper advertisements were recently released by EasyJet, the London-based cut-price airline.
EasyJet was protesting at the news that British Airways, the national carrier was considering launching a low-cost airline of its own. EasyJet alleged that, if British Airways did start a budget airline, its aim would be to eliminate small carriers, so that it could raise prices again.
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Not everyone in the aviation industry is impressed by EasyJets campaign. EasyJet always said its in favour of competition, so its disappointing to see it squealing at the thought of some real competition arriving, said one industry executive, who does not work for British Airways.
But EasyJets fears show how fragile Europes new low-cost airline industry is. Several cut-price airlines have begun to appear in the recent years, prompted by the liberalisation of the European Union aviation market which was completed in April.
The liberalisation allows European airlines to start services anywhere in the European Union without government permission.
The new European carriers have modelled themselves on the US no-frills airlines that appeared in the wake of the liberalisation of the American aviation market
in 1978. EasyJet, Ryanair and Debonair have helped to reduce airfares in the United Kingdom and Ireland, persuading people who had not flown before, to do so. Brussels-based Virgin Express, part of Richard Bransons group, is doing the same in continental Europe. Airlines such as Air One of Italy have been competing against national carriers elsewhere in Europe.The low-cost carriers say that a high proportion of their customers are business travellers. Stelios Haji-Ioannou, chairman of EasyJet says, Many of these are owners of businesses, paying fares out of their own pockets.
These travellers have been offered some enticing fares. Ryanair is offering flights from London to Glasgow for 9 one way (before tax). Apart from promising to fly their customers safely to their destinations, the low-cost airlines offer little else. Most do not offer meals on board; if passengers want a snack or a drink, they have to pay for them.
But the airlines argue that on short journeys this hardly matters. Passengers are happy for the opportunity to travel cheaply. The low-cost carriers say they make a substantial difference to the pattern of air-travel.Ryanair, the best established of the new airlines, says that every time it flies to a new destination, the numbers of people travelling on the route soars.
What is sometimes forgotten in the rush to establish low-cost airlines, however, that many of the no-frills carriers set up in the US after liberalisation failed. Some of the new low-cost European carriers might survive; others will not.
The budget sector is a difficult market in which to thrive. Debonair, which was floated on Easdaq, the pan-European stock exchange earlier this year, warned recently that it would make a loss this year rather than the 3.1 million profit it had forecast.
British Airways is unlikely to be the only large airline to consider whether it should enter the no-frills business itself. Lufthansa, of Germany, is also looking at entering the low-cost business.
Even if they dont enter the budget market themselves, the national carriers themselves exert immense power. They dominate the large airports in their home markets. Small airlines are finding it difficult to obtain take-off and landing slots at Europes most important airports, even though some of these are not full.
The large carriers also have the financial resources to match the low fares offered by the budget carriers for sustained periods. When EasyJet decided last year to start flying from its base at Luton Airport near London to Schipol in Amsterdam, the Dutch airport warned the airline that it would find the going tough. And so it has proved.
EasyJet has complained to the European Commission that KLM, the Dutch airline, has been engaging in predatory pricing designed to drive it off the route. The European Commission raided KLMs offices in search of documents and has mounted an investigation.
Franco Mancassola, Debo-nairs chairman, says he does not understand why the large carriers are devoting so much attention to trying to compete with the no-frills airline. The small carriers profits and networks are so much smaller than those of giants, he says. It is a futile exercise for them. It is not worth the hassle. They are stooping down to fight for breadcrumbs.
Mr Mancassola that even if the large airlines succeed in eliminating the smaller carriers, new ones will emerge. The market is now open, he says, and there will always be entrepreneurs ready to compete. The business travellers now enjoying low fares must hope he is right.n
Reprinted from Financial Times, London