Regional networks slow to take off

Date: 26/09/1996

By Bruce Barnard

AT first glance, the European Union's open skies regime appears to be working - albeit at a slower pace than the pioneering US deregulation in the late Seventies.

Published airline tariffs long ago became an irrelevancy on long-haul flights out of Europe after Freddie Laker's UK-based Skytrain punctured the cosy airline cartel across the North Atlantic.

Now the habit has spread to intra-European routes, with some 70&percent; of 150 million scheduled passengers last year flying on discounted fares.

True, it is getting harder to find a bargain, but ten years ago, the whole idea of declining intra-European fares was dismissed as fantasy.

However, the onrush of liberalisation has singularly failed to live up to expectations in another key area, confounding the predictions of those who believed it would lead to the creation of a genuine second-tier network linking Europe's smaller cities.

The high-profile probes of multi-billion ecu state subsidies to Air France and Iberia, the row over bilateral 'open skies' agreements with the United States, and the controversy over the proposed mega-alliance between British Airways and American Airlines will not change the fact that the small businessman wanting to fly from Gothenburg to Bilbao to clinch a deal will spend the best part of the day in the air or at airports - and pay dearly for doing so.

The 'open skies' environment has spawned a new breed of airline entrepreneurs fired up by the example of the US upstarts ValuJet and Southwest Airlines, and the failure rate is falling.

According to the UK's Reed Travel Group, 56 new scheduled airlines were launched last year and 19 went bust, compared with 57 start-ups and 37 flops in 1994.

But the newcomers are focusing almost exclusively on the main routes linking business centres where decades of monopoly have produced sky-high profits which the monopolists have protected by dominating landing rights at congested airports.

Fares are tumbling on the route between Rome and Milan as Air One lures passengers with fares as much as 50&percent; lower than sluggish Alitalia. Iberia is being humbled by Spanair on the Madrid-Barcelona corridor, and Air Outre Mer and Air Liberté are upstaging Air France Europe on French domestic routes.

This new competition is giving passengers on these routes what travellers on services between London, Amsterdam and Paris have enjoyed for several years.

But hopes that traffic between regional airports would blossom as carriers took advantage of rights to offer services between airports in another EU country - so-called cabotage - have been dashed.

The launch of new intra-EU services by Richard Branson's Virgin Express may have generated waves of publicity, but its impact will simply be to introduce long-overdue price competition on key routes.

British Airways has led the way in the creation of a truly pan-European carrier with the acquisition of Deutsche BA and TAT, the French carrier. But they have operated on conventional trunk routes and racked up bumper losses - a combined 193 million ecu in the past two years.

KLM is desperate to boost its modest European market share, but has ruled out a BA-style strategy, opting instead to trawl for traffic from its Amsterdam hub. Lufthansa and Air France will also concentrate on protecting their domestic turfs. In fact, Air France's drastic cost-cutting strategy has involved axing several regional services.

Despite the formidable obstacles, several airlines are launching new regional air services. People in western Denmark, for example, no longer have to journey to Copenhagen to connect with international flights. Maersk Air has developed Billund airport in Jutland into a buzzing hub with scheduled services to Paris Charles de Gaulle, London, Frankfurt, Amsterdam, Brussels and Stockholm.

Another trailblazer is Suckling Airways, a small family-owned carrier, which runs scheduled services from its 'hub' in the English university town of Cambridge to Manchester, Amsterdam and Waterford in Ireland.

Regional airports offer the best prospect for the development of a second-tier airline network as major airports such as London Heathrow and Frankfurt become increasingly congested. Growing public opposition to expanding the large airports will also increase pressure on governments to promote their smaller rivals.

Luton Airport, north of London, has become the springboard for a new breed of brash no-frills carriers like Easy Jet, which flies orange painted Boeing 737s with telephone numbers painted on the fuselage and offers fares at a third of British Airways' prices to a string of UK and European destinations.

It has recently been joined by Debonair, a carrier with equally low fares which do not require a Saturday night stay-over - a boon to the cash-strapped small businessman.

These upstarts risk being shot down by the big players, but they have started an unstoppable trend which offers the best chance of achieving a genuine single European air market.