Tense countdown to open skies

Date: 30/01/1997

By Bruce Barnard

EUROPE'S airlines are jostling for position in a vicious battle for market share in the countdown to 'open skies' in April.

But formidable obstacles stand in the way of a permanent regime of cheaper fares and improved services.

The accelerating competition on European short-haul flights has been overshadowed by well-publicised dog fights between the European Commission and member states over bilateral open skies accords with the US and, more recently, the row between Brussels and London over the planned mega-alliance between British Airways and American Airlines.

These are distractions from the decade-long struggle in Brussels to dismantle Europe's notorious airline cartel.

Consumers have never had it so good on long-haul flights, particularly across the Atlantic where fares have fallen to new lows: it is cheaper to fly economy class from London to New York than to Paris or Frankfurt. But passengers still pay a high price for travelling on intra-EU routes.

The Union can only claim its open skies regime is working when the price of scheduled tickets between EU destinations tumbles, benefiting the small business traveller - the backbone of the much-hyped single market.

There are already encouraging signs that open skies will become a reality as a new breed of airline entrepreneurs takes advantage of the easier entry rules. Last year, 56 new scheduled airlines took to the skies and 17 went bust, a failure rate that has fallen steadily over the past few years.

There is, however, still a long way to go before competition spreads from a cluster of routes - notably between London, Brussels, Paris and Amsterdam - to blanket the entire Union network. Only 60 of 450 intra-EU routes are served by three or more carriers.

The established lines are trying to squeeze out the upstarts before they build up a loyal customer base, helped by a cyclical global boom: the International Air Transport Association's 250 member carriers are set to report record profits of 4.58 billion ecu for 1996.

But the flag-carriers' ability to swat the competition is steadily being eroded by fast moving changes in the industry.

The newcomers have a much lower cost base, with bargain-basement second-hand planes, ticketless reservation systems and more flexible, usually non-unionised employees.

Crucially, these no-frills carriers fly from second-tier airports with an abundance of (cheap) take-off and landing slots, less congestion and lower groundhandling fees.

The newcomers are not simply fly-by-night cowboys or maverick businessmen satisfying a yearning to run an airline. Big money is moving into the no-frills sector.

Virgin Express, billionaire Richard Branson's European carrier, is doing bumper business from its Brussels base to several cities including Copenhagen, Vienna, Rome and Barcelona.

Ryanair, the Irish cut-price airline which carried over 3 million passengers last year, is now 20&percent; owned by an investor group headed by David Bonderman, chairman of Continental Airlines, the fourth-largest US carrier. EasyJet is owned by the son of a Greek tanker tycoon.

With their offer of unrestricted one-way tickets with tiered pricing based on availability, the no-frills operators have found a successful marketing ploy which has totally wrong-footed the established airlines whose cheap return tickets require a Saturday stay-over - a bane to the cash-strapped small business traveller.

This new-found flexibility has forced the larger carriers to respond. Air UK is matching the one-way tickets offered by easyJet and Debonair, but eligibility is restricted to flights which are not convenient to the business market and the offer will probably end in mid-March.

The official launch of open skies in April is not going to make a great difference, say industry analysts, although it is certain to give a psychological boost to competition and, crucially, increase consumer awareness.

Meanwhile, considerable obstacles to a seamless, competition-driven single air market remain. The EU's failure to liberalise groundhandling before 2003 and the current impasse within the Commission over the future allocation of landing slots is tipping the balance against the newcomers.

Tim Jeans, Ryanair's marketing director, says he is considering offering new services between the UK and continental Europe, but only from second-tier airports. Thus the 689-ecu round-trip fare between Brussels and Dublin that astounded Transport Commissioner Neil Kinnock will go unchallenged because rivals cannot afford charges at the two airports. “Dublin is three times more expensive that Stansted,” complains Jeans.

But the newcomers are determined to stay the course. In Germany, France and Italy they are restricted to key trunk routes, but there are signs they too will branch out like their British-based counterparts. EasyJet is looking for new destinations, with the traditionally pricey Nordic cities top of its list, and with Richard Branson moving into Europe, airline passengers can look forward to an era of cheaper travel.