European Low-Cost Carriers Begin To Gain Ground

<B> European Low-Cost Carriers Begin To Gain Ground</B>

By Amon Cohen

Much as in the United States, low-cost European airlines are finding that the question of whether they are deemed appropriate for the business traveler seems to come down to who is paying for the ticket.

As their number slowly grows, the new entrants claim they are doing particularly well at attracting small-company and self-employed business travelers. It's the blue chip clients that are proving hard to win.

Ironically, the low-cost carriers have British Airways to thank for the growth in sales via travel agents. Most of the no-frills airlines pay no commission, but U.K. agents rapidly are moving their clients to fee-based compensation systems following BA's commission cuts at the beginning of the year. Consequently, an agent loses nothing by booking a ticket with a low-cost carrier and might just as well book EasyJet as BA.

That is one reason why the London market has yet another new entrant in the form of Go, wholly owned by BA. It will operate initially to Milan, Rome and Copenhagen from Stansted, London's third airport. Go is resorting to many familiar strategies to hold down cost, including e-tickets sold only through a direct telephone line (to be augmented shortly by sales through its Website) and charging for in-flight refreshments.

The arrival of Go means that Stansted is developing as a point-to-point airport for cheap European travel. It is also home to several routes operated by low-cost Irish carrier Ryanair, while Virgin Express is moving in with thrice daily service to Brussels. This latter is operated in conjunction with the Belgian flag-carrier. The arrangement is similar to that shared by the two airlines from Gatwick and Heathrow to Brussels: Sabena operates the business class cabin, with lower business class fares than its competitors, while both carriers sell seats in economy, with Virgin Express generally offering cheaper fares but less flexibility.

Stansted is also the base for most flights by short-haul carrier KLM UK, a subsidiary of the Dutch national airline. KLM UK claims a middle ground between no-frills carriers and premium fare airlines. "There are literally tens of thousands of travelers whose personal requirements are not being met," said KLM UK chief executive Henny Essenberg. "Who caters for the needs of the smaller businessman or woman who has to get to the other end of the country for a meeting first thing in the morning but does not have the travel budget of a blue chip company?"

KLM UK operates only one cabin and has simplified its fare structure to just three types. Flexi is full-fare and unrestricted and Saver is highly restricted. In the middle is Regular, a medium-priced fare band that is up to 40 percent cheaper than the full fare but still appropriate for the business traveler. It allows departures on any flight and schedule alterations, but carries a 50 percent cancellation fee and does not entitle the passenger to lounge access or extra baggage allowance.

Outside the United Kingdom, the spread of the low-cost philosophy has been limited. Virgin Express has its hub at Brussels, while Debonair operates a small network of domestic and international flights from Munich and Dusseldorf. Perhaps the most successful operator anywhere in Europe, however, has been Air One, which succeeded in reducing prices dramatically on the Milan-Rome route a couple of years ago when it gate-crashed Alitalia's monopoly. Alitalia faces more competition next year: Virgin Express is considering establishing its second hub in Rome.

The next country to receive a fares shake-up will probably be Switzerland. EasyJet has taken a 40 percent stake, the maximum allowable by a foreign airline under the laws of Switzerland, in a small carrier called TEA Switzerland. It plans to increase its share to 90 percent if, as expected, Switzerland joins the European single aviation market this fall.

EasyJet believes it has spotted a golden opportunity to turn TEA into a low-cost carrier. On Oct. 1, Swissair will lose long-standing exclusivity of scheduled services on many routes. It therefore plans to launch flights to several points in Europe from Zurich and Geneva and, most lucratively of all, between the two major domestic airports. Swissair's monopoly on Zurich-Geneva means that the route is one of the most expensive per mile in the world. EasyJet claims it will charge half as much each way. At that price, maybe even a few Swiss bankers accustomed to first class travel will sit up and take notice.

Still, insiders predict that the overall growth of low-cost carriers will proceed slowly in Europe. The lack of frills is only one reason for the failure to break through into the top end of the corporate market, claimed Mike Platt, director of commercial affairs for BTI Hogg Robinson and recently appointed chief operating officer for worldwide travel management organization Business Travel International. Major schedule convenience is the other.

"It is going to take longer than in the U.S. because in Europe most of the low-cost carriers do not have peak-time slots on major routes," he said.

The primary airports, such as London Heathrow and Frankfurt, are not admitting new entrants, leaving the low-cost carriers seeking secondary airports, which also charge lower landing fees. With patchy frequencies and no alternative carriers at these airports, the flexibility many business travelers require simply is not there, Platt said.

Robert Tilson, worldwide research and development director for consumer health care company Scholl, disagreed. However, his office is based next to Luton Airport, 35 miles from London, which is home to low-cost carriers EasyJet and Debonair.

"I find the low-cost carriers very much appropriate for any trip up to two hours," said Tilson, who controls the travel budget for Scholl's research and development division. "I have flown with these airlines to Edinburgh, Amsterdam, Paris and other European cities and they tend to fly at the beginning and end of the business day. The only time I had a problem with punctuality was coming home from Edinburgh. I transfered to British Airways and claimed a refund from EasyJet."

Still, the discount carriers claim that 30-50 percent of their passengers are traveling for business. What is more, their services are increasing, particularly in the London area, which has attracted the vast majority of low-cost operations in Europe.

U.K. Guild of Business Travel Agents chairman Tony Hughes said the intensification of services has improved the quality of the carriers. "They have now got competition in their own marketplace, which has concentrated their minds," said Hughes, who is also managing director of P&O Business Travel. "We are certainly using them for customers.