Low Cost Carriers Sweep Across Europe

The European low-cost airline revolution, previously confined largely to the United Kingdom, is taking hold throughout the rest of the continent, slashing fares for corporate buyers in its wake.

The latest figures from airline schedule publisher OAG underscore how the trend gradually has shifted eastward from the United States. In the week commencing Nov. 10, the number of seats available on low-cost carriers in the United States was up 8 percent on the previous year. In the United Kingdom, the figure was up 25 percent and in Europe as a whole, including the U.K., it was up 55 percent.

When PricewaterhouseCoopers' Swiss procurement and travel manager Monique Mattlé late last month drew up a list of the low-cost carriers flying in her country, she found no fewer than 16—several of which have commenced operations in the past few weeks. Two years ago, there were only two or three. There are more to come.

EasyJet has announced it will set up a hub in Berlin, while Finnair has attacked the home market of SAS with a startup called Nordic Airlink. Nordic Airlink on Oct. 27 launched eight daily midweek flights from Stockholm to Oslo, with a lowest fare of $73 roundtrip, and on Nov. 24 began seven daily midweek flights from Stockholm to Copenhagen, starting from $72 roundtrip. Nordic Airlink claimed that its most expensive roundtrip fare of $266 is roughly half the usual midweek fare charged by SAS on what were, for many years, two near-monopoly routes.

Nordic Airlink is of particular significance for travel buyers because it flies to the same primary airports as its mainstream rival with a heavy frequency. It also induces another major benefit, which is the effect it exerts on its competitor's prices. "We had already seen a drop in the average fare on inter-Scandinavian routes of 10 percent to 12 percent, and now SAS has cut its fares a further 20 percent," said Thomas Lundberg, Nordic region managing director for TQ3 Travel Solutions.

German travel management association VDR has noticed a similar benefit. "It is not the low-cost carriers themselves that are so important so much as what they have done to the established airlines," said spokesperson Gerd Otto-Rieke. "Flights with Lufthansa are now cheaper."

British Sky Broadcasting also has reaped this dividend, even though its travelers overwhelmingly fly from nearby London Heathrow, which is not served by budget airlines. "It has driven much lower prices from British Airways, so we are getting the best of both worlds," said BSkyB travel procurement manager Ray Wooldridge.

The United Kingdom remains overwhelmingly the center of the European budget airline market for the time being. In September, 24.2 percent of short-haul overseas flights from the United Kingdom were on low-cost airlines, while the figure for the whole of Europe was 9.8 percent. This may explain why travel managers elsewhere have found the plethora of choices opening up to them such a shock. By any standards, however, the explosion of new offerings in Switzerland is extreme. Among the unfamiliar names PwC's Mattlé has found herself contending with in recent weeks are Baboo (triangular operation between Geneva, Lugano and Venice), City-air Germany (Zurich-Munster), European Air Express (Geneva-Cologne), Helvetic Airways (Geneva to Brussels, Vienna and various Spanish cities) and Jet2 (Geneva-Leeds/Bradford).

Mattlé attributed the explosion to retrenchment by flag-carrier Swiss. Asked whether the influx of new airlines was good news, she said: "I don't really know yet because there is no transparency. When we had travelers flying on corporate contracts with the traditional carriers, we knew exactly what we were going to pay. We won't be paying any more than we used to, but there probably won't be much of a saving for us. Most of our travel is at short notice, which is when the low-cost carriers often cost almost as much as a conventional airline. On the other hand, if we are sending people away for seminars or courses, then we know a clear date in advance, and it is definitely cheaper."

As most low-cost carriers are not available via the global distribution systems, PwC's processing costs will go up. All bookings made by PwC personnel in Switzerland are put on a passenger name record with travel locator number and forwarded to the medical, security and evacuation company International SOS. PwC's travel agency has to rebook those airlines manually in the GDS with a new locator.

GDS providers Amadeus and Galileo have signaled their intention to end such problems by signing the budget carriers. Amadeus has gone so far as to announce it will offer them lower fees paid for by cutting incentives to travel agents. Galileo has two of the larger European budget airlines onboard—Virgin Express and BMI British Midland subsidiary BMI Baby—and claimed that others are interested. "Some are at a stage of growth where they have to weigh the opportunities they are missing through not being with us," said a Galileo spokesperson. "In the past, they wouldn't even entertain discussions with us."

There is one cloud looming on the horizon for the LCCs which is that they are beginning to experience problems with regulatory authorities. One potential issue is that the European Commission has doubled the minimum compensation to be paid to travelers for delays, cancellations and denied boarding. These are flat rates, and the budget airlines say the penalties hit their low fares disproportionately hard.

Of great concern to Ryanair, in particular, is a forthcoming pronouncement from the EC on whether the subsidies paid to the Irish airline by Charleroi airport in Belgium are illegal. Ryanair has already pulled out of Strasbourg in France after Air France took legal action to block subsidies the local council paid to ensure service. Ryanair said fares from Strasbourg subsequently shot up. CEO Michael O'Leary warned that halting subsidies from public airports will end the low-fare revolution.

"The European Commission will find against Ryanair, but it is not important," said aviation analyst Chris Tarry. "The subsidy only amounts to a few euros per passenger."