Virgin Express goes back to basics in fare war

Date: 26/09/1996

VIRGIN Express is putting the liberalisation of Europe's skies to its toughest test yet. Since it became possible for start-up airlines to carve out niche markets in competition with the big boys, many have emerged to take advantage of the new environment.

Most, however, have been the tiny brainchildren of a single entrepreneur and vulnerable to the storms that can engulf civil aviation.

Virgin Express is the first of the new entrants into the EU's cross-border market to have a 3-billion-ecu commercial empire behind it. Virgin's owner, flamboyant British billionaire Richard Branson, is not going into this new market to play games.

His ambition is to make Virgin Express the Southwest Airlines of the EU. Founded in Texas in 1971, Southwest only uses Boeing 737s and specialises in point-to-point flights at bargain fares.

By shunning on-board meals, turning planes around within 30 minutes, low-cost maintenance and groundhandling operations and ticketless reservations, Southwest has become the cheapest airline in the US.

In April, inspired by Southwest's success, Branson bought Brussels-based no-frills carrier EuroBelgian Airlines for 45 million ecu. He also brought in Southwest's Jonathan Ornstein to run the new airline in a no-nonsense American way.

Inheriting routes from Brussels to Madrid, Milan, Rome, Barcelona and Vienna from EBA, Virgin added a Rome to Madrid service at the beginning of this month and then set its sights on Europe's most expensive routes.

It was then that its troubles began.

Ornstein had two obvious targets in Europe, two destinations that were crying out for competitive fares: Scandinavia and Switzerland. Virgin Express proudly announced that it would begin daily flights to Copenhagen and Geneva with 70-ecu single fares on 5 September.

Not so fast. The company had forgotten that Switzerland was outside the EU and, although Swissair owns half of Belgian airline Sabena, it is not subject to the same liberalisation rules as the Union's 15 member states.

In a taste of the old pre-liberalisation days, Ornstein went to the Swiss authorities and asked whether he could offer fares which undercut Swissair's by 70&percent;. When Berne baulked at this and suggested only 20&percent;, Virgin refused and switched its planes to Rome and Copenhagen.

The flights to the Danish capital went ahead and proved successful, with inquiries about services even coming in from southern Sweden.

But the honeymoon was short. SAS, which has dominated this route for 50 years, did not want to lose customers. On hearing that Virgin was offering Brussels-Copenhagen single tickets for 70 ecu, SAS responded by halving its return economy-class fare on the one daily flight that competed directly with Virgin.

Branson and Ornstein were incensed, detecting the same kind of spoiling tactics the US majors had used against new entrants when liberalisation began in the US in 1978-79. Branson quickly fired off a letter of complaint to Transport Commissioner Neil Kinnock.

SAS should not expect a smooth ride. If Branson's bare-knuckle fighting with British Airways is anything to go by, the Scandinavian carrier will have to work hard to protect its market base.