12 December 2022, etc.venues Monument, London
Business Travel Show Europe, presented by The BTN
21 November, London Hilton Metropole
Alison Chambers of Emerald Media reports
As yields continue to decline throughout Europe and competition intensifies from the low cost carriers, the need to cut costs and adapt their business models was high on the agenda at the European Regions Airline Association spring meeting in Barcelona last week.
Regional airlines are feeling the turbulence on both sides - directly from the low costs as they move into traditional regional airline markets and their uncertain role as feeder partners to major airline partners. The majors are hurting too from the low costs and are escalating cost cutting measures and reducing service standards as their financial worries deepen.
”It is important to keep our costs down, well below those of Boeing 737 operations and for regionals to be innovative and realise new initiatives,” stated Elfrieke van Galen, Managing Director of KLM CityHopper, which is owned by KLM. She highlighted increased aircraft utilisation; a move towards a constant hub feed, rather than a ”wave” system which often left aircraft idle at banks and the introduction of a charge for transfer passengers who wanted to have their bags through-checked to their final destinations as effective measures to help reduce costs. Van Galen confirmed that there had been suggestions for CityHopper to take over KLM”s B737 operations in Europe ” but so far she has resisted this.
The recent restructuring of the Lufthansa partner airlines under the Lufthansa Regional umbrella was held up as a good example of co-operation, designed to save costs. This grouping ” embracing Augsburg Airways, Air Dolomiti (of Italy), Contactair, Eurowings and Lufthansa CityLine - now operate on an ACMI charter arrangement, each earning bonuses (or incurring penalties) depending on their performance. Lufthansa has full commercial responsibility for the flights and LH Regional is in charge of the production.
Senior vice president Werner Knorr, quipped that ”by flying in close formation ” we are able to reduce total drag,” but stressed that the grouping should generate some 100 million Euros in cost saving benefits over the next five years. The new Lufthansa Regional brand should be widely visible over the next couple of years with the paint scheme applied to each aircraft coinciding with major maintenance. Air Dolomiti will retain its own colours, but will adopt the Lufthansa Regional titles.
Consultant Kjell Fredheim, former boss of Air Baltic and Air Botnia (Blue 1) stated there were too many layers of airline management and advocated airline personnel should do more than one job in order to further take out costs. Further cost reductions can be made by simplifying the company structure and making every subsidiary a production company. Revenue, capacity and yield management can be boosted with a simple fare structure based on one way fares, including travelling via a hub and there should be a charge for interlining,he said.
FlyBE praised by Lufthansa CityLine CEO Karl-Heinz Koepfle, for responding quickly to the low cost challengers and carving out a new role as a low cost regional airline, said that the internet has greatly helped it increase seat sales. In 2002 web bookings accounted for just 9% of its business. Today it is 85% (peaking early this year following a massive seat sale at 92%). IT Director Dave Williams says the company is now amassing some 900 online bookings an hour. It is also generating sizeable third party revenue by offering passengers a range of services and consumer goods on its site.
FlyBE says that some 26% of travel trade bookings are now via the internet and it has been encouraged at the response it has received from GDS (Global Distribution System) users. ”Eighteen months ago I thought there may not be a future with them, but they are responding and bringing their costs down. As a result, over the next few months we plan to put some of our lowest fares on the GDS,” Williams said.
Travellers using low cost carriers may be fastidious about getting the best ticket price, but this sector is the one that spends the most money on car parking, observed Southampton Airport managing director David Cumming, noting ”a high yield airline is often low yield for an airport.”
Highlighting some avenues open to airports to operate more cost effectively and offer a better service to their airlines, he noted that the three sectors ” full service, low cost and charter carriers - all have separate demands on airports.
Retail outlets are today their primary source of revenue. Southampton Airport takes an average ”3.45 per passenger from its two shops, but not every regional airport has the room for commercial outlets. Cumming emphasised the importance for airlines, at senior level, to work closely with airport management on future airport/terminal development projects. ”Everyone wants top quality facilities at low cost,” he said, but ongoing investment is needed if we are to keep up with infrastructure demands in the long term. He advocates such cost saving solutions as self service check in (to be used by a number of airlines); internet check in, fast baggage drop and fast track security processes that some airlines want, as solutions for the future.
BAA is also endorsing the concept of a low cost regional airport terminal ” an easy to build, modular terminal construction which is a basic shell, capable of supporting 4.5 million to 6 million passengers a year. This depends on having the acreage to support this, ideally a green field site, rather than building on to an existing terminal, he said. Southampton Airport was faced with this problem 10 years ago when it built its new terminal. It helped raise money for the project by knocking down the old terminal and selling off acreage that was developed into a business park.
Solutions for survival in this uncertain environment were of great interest to the notable and welcome new airline faces in the audience from Eastern Europe. They start out with a natural cost advantage when their countries become part of the European Union on 1 May. They are also breathing new life into turboprops and ATR especially looks set to enjoy a resurgence of demand, with both Aero Airlines of Tallinn and JAT Airways” new Interair Link of Belgrade, confirming here their intentions to grow their fleets.
There was also talk at ERA that Moritz Suter, the founding father of the association and honorary president is ready to start a new airline. ”Hello” is set to re-emerge this summer in a new guise - a charter airline, based at EuroAirport Basel, serving Europe and North Africa, flying three Boeing MD-90 aircraft. Moritz will be chairman and Markus Seiler, former boss of TEA Switzerland, will be the airline”s CEO.