Low cost carriers: Plane & simple

Cheap and cheerful, or something a bit more upmarket? Colin Ellson looks at the short-haul battle for hearts and minds...and wallets

The ash cloud spewing from that unpronounceable volcano in Iceland, which grounded airlines across Europe earlier this year, has been blamed for many of the industry's woes. Coming at a time when it was starting to recover from the economic apocalypse of 2009, it could ill afford the serious decline in revenue caused by cancelled flights, schedule disruptions and adverse publicity.

Ryanair, for example, has reported a 24 per cent drop in net profits for the first quarter of 2010, accusing the authorities of heel-dragging in not permitting the resumption of normal services considerably earlier.

While the airlines attempted to cut through the smoke, they did not allow the drifting ash to obscure another of the major issues in short-haul travel today: the all-out war between low-cost carriers such as Ryanair and the traditional operators, both determined to corner the business travel market.

On the one hand, the budget brigade say their rivals' packages of extras are an extravagance in a climate of corporate austerity; on the other, those airlines which have resisted the trend to phase out shorthaul Business Class in favour of a one-class system take a firm stance.

Hard-pressed business travellers, they say, tasked with ensuring the UK stays ahead of fierce competition in Europe, deserve more than long check-in queues, a tussle to board the aircraft, and paying over the odds for a coffee, sandwich and bag of crisps.

It all comes down to cost, of course, with travel buyers caught in the middle. They must weigh up what seems at first glance to be peppercorn tariffs against the extras included in the legacy carriers' Business Class cabins, where staff have the space to work on a laptop, and the benefits come in the shape of flexible fares and the ability to negotiate corporate deals.

The low-cost versus traditional carrier argument is outdated, according to Paul Simmons, budget airline Easyjet's UK general manager, who believes the shorthaul Business Class cabin has passed its sell-by date.

"There will always be a small proportion of people for whom money is no object or who are really determined to get a hot meal on British Airways after 10am.

But for the majority, the game is essentially up," he claims.

"At Easyjet, we have proved two years running, via third-party research, that we are cheaper than negotiated BA corporate Economy rates on four-fifths of occasions. On 40 per cent of flights the difference is over £100. That's a lot of money per short-haul sector - and it still leaves the business traveller with plenty of change to buy a delicious hot chilli or panini on board during the flight home."

BA customers, relaxing in the relative comfort of its Club Europe cabin, would no doubt suggest where Easyjet put its panini. They might have paid more, but in return they get a fast-track channel through security if departing from London, can access over 70 airport lounges across Europe, and on board enjoy leather seats with extra he ash cloud spewing from that unpronounceable volcano in Iceland, which grounded airlines across Europe earlier this year, has been blamed for many of the industry's woes. Coming at a time when it was starting to recover from the economic apocalypse of 2009, it could ill afford the serious decline in revenue caused by cancelled flights, schedule disruptions and adverse publicity.

Ryanair, for example, has the UK stays ahead of fierce competition in Europe, deserve more than long check-in queues, a tussle to board the aircraft, and legroom, a selection of menu options and room to work.

It's a product BA intends to offer for the foreseeable future, although the airline keeps an eagle eye on a changing market. Says BA consumer PR manager Amanda Allan: "Our latest review confirmed the Club Europe cabin is still viable.

Apart from all the benefits it offers, there is marked demand from business travellers for connections to our long-haul services." SAS is equally adamant.

"We are proud to offer a three class configuration - Business, Economy Extra and Economy," says business marketing and PR manager Jeff Rebello. "The hectic business traveller, who wants additional flexibility and to use every opportunity to ensure he or she uses their time in the most valuable way, can opt for Business Class or Economy Extra.

Whatever they choose, they don't need to compromise on comfort or service." Lufthansa, too, is showing faith in the future of its Business Class product on European routes and, going further, is to introduce a new cabin and seat layout on Airbus A320 and Boeing 737 aircraft towards the end of this year.

"It will be the same seat for the whole airplane," explains director of corporate communications Europe Aage Dunhaupt. "We will leave the middle seat free in Business Class and will also offer a special catering service to our guests upfront. I can also confirm that Lufthansa has no plans at the moment for a Premium Economy Class."

But in the smoke and mirrors world of aviation, what's in a name? At the beginning of 2010, Bmi replaced its short-haul Business Class with a one-class, all-Economy cabin, launching enhanced services for those travelling on a new Flexible Economy ticket.

Passengers paying this fare benefit from no change-fees, use of business lounges, guaranteed seating at the front of the aircraft, and complimentary food and drink on board.

If that sounds remarkably like Business Class under another title, an airline spokesman explains the thinking behind the move. "Bmi recognises the importance of both value for money and time for our customers," he says," and is pleased to offer a flexible product to suit the needs of the modern business traveller."

Similarly, Flybe, which claims up to 50 per cent of its passengers are flying on business, offers Economy Plus as an extra in a one class cabin. Passengers paying the Premium score over those in Economy in enjoying flexible fares, and complimentary bonuses such as lounge access, free baggage allowance, pre-assigned seats, and drinks and snacks on the aircraft.

Both Bmi and Flybe's variations on a theme are a shrewd marketing ploy, according to Nigel Turner, director of public sector and industry affairs UK at Carlson Wagonlit Travel (CWT). "If a company's travel policy is led by class," he points out, "staff will often be unable to use the short-haul Business cabin.

Perhaps the future is to re-grade the product with a new and acceptable name. It makes economic sense to keep the differential." Nevertheless, it's the differential that dictates corporate travel policies. Many were rewritten in 2009 to take account of the prevailing recession, with travellers often persuaded to play their part in a company's survival by downgrading from Business to Economy or taking the low-cost path. In fact, the terms on which company business travel is based vary across the board, from downright rigid to relatively relaxed.

For Angela Smith, travel manager at construction and support services company Carillion, room to manoeuvre is virtually non-existent.

"We never use Business Class on short-haul routes but always book the lowest budget carrier fare on the day," she confirms. "All you get in Business Class is flexibility and food - and we believe it has no future."

Which is in sharp contrast to the rules and thinking at Serco, which operates services like the Docklands Light Railway, speed cameras and prison vans on behalf of the government. While it might incarcerate criminals, the company has no intention of locking its staff into a travel regime ringed round by bars. Says Serco's director of global travel services, Margaret Birse: "Our policy is to go for the lowest available fare, but executives can still use Business Class on shorthaul routes if they choose. We feel that such a service offers many benefits compared to low-cost carriers, and intend to keep using the scheduled airlines." Tony Berry, industry and fare distribution director at HRG enters the short-haul business travel fracas on a note of optimism.

"There is no doubt the recession has changed airline strategy on premium seating, with a tightening of client travel policy placing a strain on their revenues, " he says. "However, there are signs that restrictions may be relaxed, allowing some executives to return to the premium cabin.

"It's not about the food - it's about space, privacy and being fit to do business at the end of the journey. And given the propensity for unbundling services in the Economy cabin, fares in Business Class may provide a better return on overall travel cost." Better times for both consumer and carrier may be just over the horizon, according to the findings of various industry sources.

The International Air Transport Association (IATA), for example, reports that European premium travel in May this year was up by 23 per cent compared to the same month in 2009. CWT also recorded growth in clients' Business Class travel spend in Europe, its half-year results for 2010 showing a 15 per cent year-on-year increase in the second quarter as buyers lifted their foot off the brake.

Paul Tilstone, CEO of the Institute of Travel & Meetings (ITM) is another seeing an increase in demand for Business Class, albeit at a slower pace than the fall in demand as the recession began to bite last year.

At the same time, Tilstone notes a sea change in the short-haul market. "As legacy carriers have reacted to the low-cost model," he says, "and new entrants work towards GDS representation, in some cases the difference between what was termed 'low-cost' and 'legacy' is decreasing, to the point that many of the latter carriers offer a no-frills service, and additional elements are unbundled as per the budget model.

"The term 'low-cost carrier' doesn't really exist anymore. For short-haul, the choice these days is about quality of airline and the level of comfort you want for the price you pay." Whatever the terminology, the debate is likely to run and run, with corporate travel buyers making their choice and paying the price. Meanwhile, Andrew Phillips, senior account manager at Giles Travel, has a radical solution which would kill the controversy stone dead.

"Perhaps there is an argument to say that all legacy airlines pull out of Europe," he says, not completely tongue-in-cheek, "thereby leaving the air space to budget carriers with a one-cabin service. The legacy airlines could then focus on more lucrative long-haul flights."

Ryanair's ever-combative boss, Michael O'Leary, would no doubt drink to that suggestion, but BA chief Willie Walsh might have something else to say on the matter...