The low-cost carrier phenomenon may have started in the United States with Southwest Airlines but the biggest marketshare penetration has been in the United Kingdom. American Express reported that low-cost airlines have a 15 percent share of the U.S. domestic market. In the United Kingdom, they accounted for 25 percent of all short-haul passengers to overseas European Union destinations in 2001, according to the U.K.'s Civil Aviation Authority. CAA expects that figure to be significantly higher in 2002.
Low-cost carriers also compete on 62 percent of British Airways' European and domestic network. One small example explains their popularity: The midweek cost of a London to Salzburg flight next month is $74 for a 1,280-mile roundtrip.
Now this remarkable transformation is spreading to the rest of Europe. In Denmark, business travelers cross the new Oresund Bridge from Copenhagen to fly with Ryanair from Malmo in Sweden so they can avoid the full fares charged by SAS on its London route. In France, air commuters have welcomed a significant drop in prices between Paris and Nice, following the entry of EasyJet on the route.
Even more dramatic is the sudden explosion of the low-cost carrier market in Germany. Ryanair has operated a small network for two years from an airport it calls Frankfurt Hahn, even though it is 75 miles from the German financial capital. Now there are several new contenders. Last month, Air Berlin, which hitherto specialized in scheduled flights to Mediterranean holiday destinations, commenced service from five German airports to Stansted, London's principal low-cost airline airport.
TUI, the European travel giant that owns 50 percent of TQ3, also has announced a low-cost carrier, Hapag-Lloyd Express, a move that first was suggested publicly by TQ3 president Marc Hildebrand in a BTN interview last year
(BTN, June 11, 2001). Starting this December, it will use eight 148-seat Boeing 737-800s to fly from Cologne-Bonn to Berlin, Dresden, Munich and 10 international destinations, including Barcelona, Milan and Paris.
The unveiling of Hapag-Lloyd Express immediately prompted a response from Eurowings, a carrier in which Lufthansa has a 24.9 percent stake. Lufthansa has lent it the brand name Germanwings to launch a rival low-cost operation from Cologne-Bonn, which will fly five Airbus A319s to destinations that include Stansted, Paris, Milan, Rome and Zurich, starting Oct. 27. One-way fares will start at €29. On top of all this, Ryanair is adding four more services at Hahn, from where it also is stepping up its Stansted schedule from four to six daily.
Across Europe, travel buyers are figuring out what significance the budget airlines have for their programs. Without doubt, the most important consequence is an indirect one: The threat of low-cost competition has forced mainstream carriers to kick out their old short-haul fare structures and introduce much cheaper fares for business travelers. Most startling of all has been BA, BMI British Midland and a small number of continental European airlines scrapping the time-honored Saturday night stay rule. This has brought midweek fares tumbling by hundreds of pounds in some cases, although prices still tend to be high for travelers flying on short notice during peak hours
(BTN, July 15).As for the low-cost airlines themselves, obstacles remain for the corporate market. For the traveler, these include lack of interlining and sometimes—particularly in the case of Ryanair—use of secondary airports. For the travel manager, the main objections are inability to book through global distribution systems and the difficulties of gathering management information and tracking travelers.
European low-cost airlines claim that 30 percent to 50 percent of their passengers are business travelers, but many of these are self-employed or work for companies that have unmanaged travel programs. BTI UK said that in July only 2.67 percent of the flights that it booked were on low-cost carriers, although this was a significant increase from less than 1 percent that used them in the previous July. In part, these low figures reflect a leakage in policy, with some of its business travelers booking directly on airline Web sites. However, it also suggests a continuing problem with integrating the budget carriers into managed travel programs.
Now there are encouraging signs that some low-cost carriers recognize the problem and are willing to work with corporate buyers, a market they need to tap to meet their ambitious growth plans. Hapag-Lloyd Express, for example, has not yet detailed its distribution strategy, but promises to be "at the most helpful and friendly end of the spectrum for travel agents," which should, in turn, help corporate buyers.
Even more striking is EasyJet, which was attracting opprobrium this time last year for running press advertisements accusing travel agents and corporate travel managers of being redundant 'fat cat' intermediaries. This summer, EasyJet bought its former rival Go, which had a much more positive attitude toward both corporate buyers and agents. After three months of internal debate, EasyJet has decided to adopt many of Go's travel trade-friendly strategies. These include a business-to-business Web site with a password-protected area for corporate clients where they can download management information on a monthly basis.
Field sales manager Neil Mott described the data as "vanilla-flavored," but said it soon will be possible to slice and dice information in a more flexible manner. Another new feature is the ability to create mother-and-daughter subsets so travel managers can break down information by cost-centers.
EasyJet is dropping some of Go's innovations—most notably a 3 percent discount for corporate account holders and distribution through Galileo, which only started this summer. "The two airlines are moving to the EasyJet host system, which does not have a GDS interface," Mott said.
He acknowledged the difficulty that agents and online booking tools have in aggregating GDS and non-GDS fares. Mott had no objection to using screen-scraping solutions, but described them as "clunky" and liable to fail when an airline's Web site is being updated.
Yet, although much is made of the difficulty of integrating low-cost carriers into managed programs, several U.K. travel managers said they have little problem working with even the most uncooperative of them. Usually, they mandate travelers to book through their travel agency instead of directly via carrier Web sites.
"It requires a little bit more manual work for the agency, but it is all included in the management fee in the U.K., although there is an additional charge in some countries," said Rachel McDonald, international travel manager for a well-known global telecommunications company. "When you think about the money that we save, we could effectively employ an extra person at the agency for free to handle it." McDonald added that her company frequently saves $300 per ticket by sending travelers from London to Amsterdam on low-cost carriers.
Agricultural machinery maker CNH UK uses low-cost airlines for 20 percent of its schedule and similarly has no problems working with them, using Carlson Wagonlit Travel to make Internet bookings and collate data as part of its management fee agreement. "There is a lot of hype about this issue, but when you get down to it, it is simply booking a ticket in a different way," said European purchasing manager Dennis Bailey.
German travel managers are not yet so sure about what, at this stage, is an unknown quantity for them. Henkel purchasing manager Sascha Kluewel, who is based in Dusseldorf, said his travelers had not yet used budget carriers, mainly because they do not fly routes or schedules appropriate for Henkel.
"However, we think we will have travelers using low-cost carriers in 2003," he said. "We have not defined our strategy for them yet, but we are studying audits of how safe and reliable they are and how easy they will be to integrate into our online booking tool."
The low-cost carriers face other barriers in Germany. None of them has yet gained access to Frankfurt—Germany's biggest airport. There is also a cultural issue: Corporate travel buying decisions in Germany tend to be more mixed up with notions of status than in the United Kingdom or United States.
"That is true, but low prices are very persuasive and the economy in Germany is not performing well," said a spokesperson for Hapag-Lloyd Express.