Major airlines try to keep upstarts grounded

Date: 12/03/1998

By Chris Johnstone

BUY, ally, or set up your own rival operation: these are the options available to major airlines faced with low-cost competition.

Most of Europe's majors are looking at the last scenario, although British Airways had its chequebook at the ready to purchase rival easyJet in early 1997, according to the Luton-based carrier.

Swissair, frozen out of the EU and the ability to take a majority stake in other airlines after Swiss voters snubbed Union membership, is, however, looking at the former.

Management in Zurich has set an end-of-the-month deadline to decide what size stake it will take in low-cost Italian carrier Air One.

Air One has proved a thorn in the side of the state airline Alitalia by preying on its highest volume route between Milan and Rome - the fifth busiest route in Europe.

In a land where low-cost travel has not been a feature since the film Ladri di Biciclette (Bicycle Thieves) was made in 1948, Air One has grabbed a large share of the market.

Passenger numbers doubled last year to 1.3 million, but the company is still struggling to make its first profits since it was launched three years ago.

Alitalia responded to the threat not by creating its own low-cost subsidiary but by cutting fares on routes where it competed directly with Air One.

The regulatory route is not very promising for airlines trying to prove that they are victims of predatory pricing. Such cases are time-consuming and difficult to prove.

Unfortunately for Alitalia, however, the European Commission had extra leverage over the airline: the conditions attached to its 1.4-billion-ecu state aid. This time at least, one of Europe's leading carriers was put in its place.