Carriers Expect Little Change After Deregulation

A shortage of airline slots coupled with enormous start-up costs means the face of European aviation is unlikely to change now that open skies has finally arrived.

Despite years of anticipation from business travelers, few carriers are expected to take advantage of air liberalization rights, which came into full force on April 1. Some major airlines are shunning the opportunity to operate in new markets, claiming it is too costly, while smaller start-up carriers are more optimistic. SAS and KLM have indicated they prefer to concentrate on strengthening existing hubs.

But fledgling airlines such as Debonair International Airways fully intend to cash in on cabotage--the chance to fly domestically in non-home-market countries. The airline, which offers low fares and flexible ticketing but whose flights lack meals and other extras, has built up a European network. It flies from Munich to Barcelona and from Luton to Newcastle, Barcelona and Madrid.

"We have already taken up the opportunities of cabotage," a Debonair spokeswoman said. "At the moment, our Dusseldorf-to-Munich flight is only allowed to take 50 percent of German originating traffic. Come April 1, we will be taking 100 percent. We also see this as an opportunity to establish our hubs at Munich and Rome."

A package of EU measures agreed upon in 1993 allowed carriers automatic fifth freedom rights--which meant flying between non-home-market countries--as well as cabotage rights. However, the services could be operated only as part of a route starting in the airline's country of origin, and half the aircraft load had to be traffic originating in the carrier's home market. These restrictions have now been lifted.

Scandinavian airline SAS has added a range of fifth-freedom international sectors such as Brussels-Lyons, Manchester-Dublin and Stuttgart-Thessaloniki to flights originating in Copenhagen. And Air France added cabotage sectors including Thessaloniki-Athens and Turin-Bari to Paris-originating flights.

But the International Air Transport Association said a shortage of airport slots, together with high start-up costs for new carriers, means the final phase of liberalization is only a theoretical freedom. "It is the final piece of the jigsaw, but the rights have in fact existed for four years," said IATA spokesman Tim Goodyear. "We have had the ability since 1993 subject to financial and safety fitness, but it was a paper right rather than a practical right because there is a shortage of infrastructure. The borders on the ground may have come down, but they are still there in the sky."

The Association of European Airlines agreed that nothing will change in practice, and said that cabotage is not a commercial reality. "April 1 is significant in terms of the completion of airline liberalization," said AEA spokesman David Henderson. "It marks the end of what has been a total revolution in the way airlines operate. But most experts agree it is very unlikely that airlines will go into other people's domestic markets on a significant scale. Commercial prudence will stop Lufthansa flying 10 times a day between London and Glasgow." The AEA believes airlines will instead concentrate on strengthening their networks by building up their hubs.

SAS said it will not be affected by liberalization. "We will not be using this opportunity, and we hardly think foreign carriers will come into Scandinavia because of the costs involved," said SAS spokesman Knut Lovstuhagen. "It is hard to break into new markets. We have no plans to do anything."

And KLM spokeswoman Marjorie Wenting said, "we do not see an interesting market for us to serve. An element of the KLM policy is to cooperate with other carriers, and we will continue to do that."

Wenting said KLM's future lay in its ability to forge strategic alliances with regional airlines, which would enable the carrier to offer better service to its customers.