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EUROPES LOW COST AIRLINES

No other European destination has as much potential for low cost flights as the route between London and Dublin. At the beginning of the nineties only two national carriers offered this route and they were able to demand extortionate prices. The cheapest one-way fare was then #189, which is at today's rate DM 570. There were only two possibilities for passengers, among them hundreds of thousand of Irish, who worked in Great Britain. They either had to spend a lot of money on a flight, which barely lasted an hour, or put up with a 12 hour odyssey by ferry and train. Finally Ryanair, a company which had been founded as an offshoot of the Leasing Firm Guinness Peat Aviation in 1985, decided to offer cheap scheduled flights without on board service between the two island states. The US based Southwest Airlines served as a model for Ryanair, which had until then, run at a loss. In 1991 the Irish reduced the number of destinations from 20 to just four and lowered their costs drastically. This is how a unique success story in European aviation began.

Ryanair, which had been unknown on the Continent for a long time, managed to increase the number of passengers it transported between the two capitals from two to six million per annum. Only recently this European connection has advanced to be the most used route and is at the same time the leader of all international destinations in the world, after London-Paris had been the favourite for a long time. The reason for this is mostly the price. Today the cheapest one-way ticket from Ryanair's hub in London-Stansted to Dublin costs #10, (around DM30), which is about a twentieth of the cost eight years ago. Ryanair has now managed to take the lead from the Irish Carrier Aer Lingus as the market leader on all connections between Ireland and Great Britain. The low-cost carrier manages to reach a market share of almost 40 per cent on these routes. Kell Ryan, brother of the founder Tony Ryan and Manager in London-Stansted, claims, "Aer Lingus only dares to go to Stansted with small Avro planes five times a day, while we fly Boeing 737's up to 15 times daily. We transport more passengers than Aer Lingus, although this company has twice as many aircraft and six times as many staff".

Until 1997 Ryanair concentrated exclusively on routes between the two islands and business was good. The fleet consisted entirely of Boeing 737-200's, (at the moment there are 21, some of them Lufthansa stock). As early as in 1997 the company transported about three million passengers successfully, in 1999 the number is said to have doubled. Since 1991 Ryanair has managed to be in profit and for 1999 the company, which is quoted on the stock market, expects a profit of around DM140 million. The recipe for success is simple: On offer are only point-to-point flights to secondary airports. At a small cost, bus transfer is arranged into the relevant cities. The ground times are extremely short at only 25 minutes, which means that every aircraft can be in the air for twelve hours each day. This is only possible, because there is hardly any on-board service. "Our service is even scarcer than at Southwest, because they still serve soft drinks and peanuts on board", says Kell Ryan. At Ryanair refreshments are only served for cash, only water is free, Coffee and tea are not available. "That would be too expensive. We need to use the time to sell duty free goods on board", the manger explains. In contrast to other low-cost carriers Ryanair works in conjunction with travel agencies and pays them a commission of 7.5 percent. However, some travel agents in England refuse to sell the cheap tickets.

Ryanair has set itself the target to work profitably on every route from the very first day and expand every year by 25 to 30 per cent. "In order to achieve this we need to open five to six new destinations per year", is how Kell Ryan describes the company's ambitious plans. Negotiations are taking place with 35 airports in Europe. In order to cope with expansion, Ryanair ordered 25 Boeing 737-800 valued at $1.2bn. with options on 20 further aircraft. The first was handed over in March 1999. Each year another five new Boeing Jets are to be added.

Ryanair became established on the European Continent only two years ago. The routes Dublin-Beauvais near Paris and Charleroi near Brussels were opened. Today the Irish fly to nine European destinations. After the current home airport Dublin threatens to increase its fees by up to 20 percent, because duty-free turnover will be discontinued, Ryanair is concentrating on the hub in London-Stansted for its entire growth. Today the airline flies 2.2 million customers there annually. Kell Ryan complains that, "we can only operate credibly and enduringly if we keep our prices constantly on this low level. We are unable to do this if airports all of a sudden increase their fees so drastically".

Long lasting agreements with the target destinations are a prerequisite, and these airports are keen to attract the cheap Irish. "The airports see that they can develop their business through us and that we attract other business," explains the man from Ryanair. This is very obvious in Stansted, which used to be a sleepy provincial airstrip situated to the north of London. The Irish have now been followed to Stansted by SAS, Lufthansa, Alitalia and other big companies. Michael O'Leary, 27-year-old Boss of Ryanair likes to point out the "Ryanair effect": As soon as his company gets a stake in one route, the entire market volume is pushed up in many cases. There is for example the route London-Venice: In 1997 as in previous years around 200,000 passengers only were recorded. Once Ryanair got involved the number increased to over 300,000 passengers, and the Irish secured 22 per cent of the market share, although they served the smaller neighbouring airport Treviso. The cheap flights obviously attract customers, who would not normally have travelled.

"These small airports are very hungry for business and want a scheduled flight connection to London whatever happens", informs Kell Ryan. He confides, "compared with big airports we often manage to get brilliant deals. Airports frequently make us the offer to land there free of charge". This generosity sometimes goes even further: in Thorp, 100km south of Oslo, the airport even pays the staff of the Ryanair call centre. Not long ago Ryanair made some steep demands in Germany. Andreas Dietrich, airline representative from Cologne, who knows the industry well, recalls that, "the Irish recently demanded not only free landing at Münster/Osnabrück, but additionally wanted DM7.50 per transported passenger. After all they were bringing a lot of buying power into the terminal". The representatives from Dublin made similar demands elsewhere. However, they only made a successful deal in one place. Since 22 April the airline uses the former US military airfield Hahn in Rhineland-Palatinate twice daily. This will increase later to three times a day.

"One has to be flexible as far as low-cost carriers are concerned", claims Hahn's Manager Jörg Schumacher. "We will only earn money at the airport once our customer Ryanair earns money. However, Ryanair does pay us, we are not a social welfare organisation". It remains to be seen whether Ryanair will manage to make profit with the Hahn route, since until the end of May 50 per cent of all seats from Hahn were to be had at DM99 plus charges for the round trip to London. From the beginning of June half of all seats will be permanently available at DM199.

To date, low-cost carriers have been only sparsely represented in the German market. The first one was the English airline Debonair. This company opened routes from and between Munich and Mönchengladbach as early as 1996. Since then the airline, which is situated at London-Luton and is owned by private shareholders mainly in the USA, has reduced flights from Germany drastically. From this summer there will only be flights from Munich and Mönchengladbach to London-Luton, and from the lower Rhine to Barcelona. The majority of the company's twelve BAe 146 Jets and their crew are now being leased to the big airliners, which Debonair originally wanted to challenge with its cheap fares. Six aircraft fly for the Lufthansa City Line from Munich, one serves as Swissair Express. One insider reveals, "Leasing is the final straw for Debonair. The income pays off the company's interest. During operations they only flew in losses and have blown their investors' money". The market has not reacted in the desired way, and the strong British pound has done the rest. What is more, co-operation with AB Airlines on the Luton-Berlin/Schönefeld route fell through. However, there is an AB-Boeing 737-300, which flies under Debonair colours from Luton.

Since November 1998 the new company Go can be found on the German market with flights to and from Munich. She is entirely a daughter of British Airways. It remains to be seen whether Go, which has a starting capital of #25 million (British), will manage to become a classic low-cost carrier, or whether it will mutate into a BA franchise company. She might then take on her "mother's" short routes at cheaper fares. Many experts predict this outcome. Ryanair's Kell Ryan is certain that, "Go is cannibalising BA routes and will only service big airports. They will not influence our markets".

The most radical representative of the low-cost philosophy is easyJet. This company is situated in London-Luton and manages to avoid travel agencies completely. The airline belonging to Stelios Haji-Ioannou, the heir of a Greek Shipping company, is regarded as the best-positioned cheap airline next to Ryanair. There have, however, been rumours of take-overs in the past. Despite having a share in the Swiss TEA, which will, in future, service the route Geneva-Munich as easyJet Switzerland, the airline is lacking in critical mass. Initially even British Airways intended to take over the company as base for its low-cost operations and is currently being taken to court by Haji-Ioannou.

Virgin Express, which is based in Brussels and evolved from Eurobelgian Airlines, has to cope with high costs in Belgium and is now planning to relocate part of its flight operations to another country, possibly to Ireland. Virgin Express has put the doctrine of being truly low-cost behind her, since she services routes to expensive and over- filled airports like London-Heathrow and Gatwick for Sabena. The Belgians nowadays make 30 per cent of their turnover through the Sabena connection.

Compared with the USA, the home country for cheap flights, this segment in Europe is, six years after the liberalisation in aviation, still in its infancy. While in America about a quarter of all domestic flight passengers use low-cost carriers, the number in Europe is barely 5 per cent. However, experts estimate the potential for this market segment at 15 per cent, although the Old World does not have as many frequently visited town pairs as the USA. Furthermore fees are higher, better alternatives are at passengers' disposal (e.g. trains) and people make fewer private visits by plane. In real terms 15 per cent would mean almost DM2 bn. turnover for this industry - enough mass to realise Ryanair's lofty plans for expansion.

From page 36 of FLUG REVUE 6/99