23. February 2003

European Low-Cost, Part II

Since our last European Low Cost report, the market has seen some massive changes. There were new entrants, takeovers and crisis. And due to the big success of our first article on this topic, here is part II. Michael Meier reports.

The new ones...

During the past months, the European low cost market has seen new entrants, mergers, takeovers, losses, crises and much more. But let's face on the new ones first. For example there's Bmibaby, which started operations less than twelve months ago. The airline is expanding fast and spreads its wings over the UK and Europe. In February, the airline announced that it will open a new base at Manchester Airport by May 1st. From its new hub, Bmibaby will initially fly to six European destinations with almost 50 outbound flights a week. Daily services will depart to Spanish destinations Alicante, Malaga and Palma de Majorca, whilst Murcia, also in southern mainland Spain will have a weekly link from Manchester. In the first stage, two Boeing 737 aircraft will be based at the Manchster.

Another new arrival is Air Berlin. An airline with a long history as a charter airline is now expanding into the market of cheap flights. Since February 1st, the Air Berlin City Shuttle flies daily from Hamburg to Vienna and from Berlin-Tegel to Rome, Vienna and Zurich. In March, Düsseldorf-Mönchengladbach airport will be incorporated into the route network: initially with daily flights from London-Stansted, Milan-Bergamo and Zurich. Because of the short runway, the airline has leased three BAe 146 from WDL Aviation of Cologne. These jets will join the existing fleet of more than 30 Boeing 737 (27 x 737-800, 5 x 737-400).

The two other new airlines in the German market, Germanwings and Hapag Lloyd Express, have also experienced a smooth start and it will be interesting to see how they are performing in during the next time. However we do not expect big troubles for them, both are backed by large companies. Germanwings has been founded by Eurowings, which is partly owned by Lufthansa. And Hapag Lloyd Express is part of TUI AG, the world's largest travel and tourism group.

Takeovers and Mergers

Let's move over to the takeovers now. As announced, easyJet has acquired its competitor Go. In the meantime, the name Go disappeared and all the flights are now operated as easyJet. The last remaining planes in Go's colours will soon be repainted in bright orange.

But there is more to tell about easyJet. The airline placed a record-breaking order for 120 Airbus A319 planes. The contracts were signed by the end of December 2002. Of course, the airline got a really good deal for the planes, as Airbus urgently wanted an order from a low cost carrier. The A319s will be introduced initially via easyJet's Geneva base from August 2003 operating under easyJet's Swiss air operator's licence. Eventually both the Airbus A319s and Boeing 737-700s will be interchangeable on all easyJet routes maintaining the "any aircraft, any route" aspect of the easyJet business model.

A Buzz plane at Frankfurt

Another takeover took place during the last weeks. Ryanair announced to take over Buzz from KLM for Euro 23.9 Millions. Buzz currently operates a network of 21 routes from London Stansted to points in Germany, Holland, France and Spain, as well as two

French domestic routes. In Summer 2003, the company will operate a fleet of 6 x BAe 146 aircraft and 6 x Boeing 737-300's. As part of the transaction KLM have agreed to take back all of the remaining BAe146 aircraft in 2004.

Ryanair is mainly interested in Buzz's slots at London Stansted, which is Ryanair's main base in the UK. In their typical altitude, the Irish carrier announced that 400 out of 600 jobs at Buzz will be slashed. The remaining staff of 200 employees will have to agree to new employment terms. In case they don't agree, Ryanair will not have any concerns to close down Buzz completely and just take over the lucrative valuables such as the landing slots. They have just annouced that they will halt all flights and ground the whole fleet of Buzz in April 2003. Business as usual for Ryanair founder Michael O'Leary.

Crises in Germany

Finally, we have a look to the crises at German carrier Deutsche BA (DBA). The Airline has recently transferred itself into a low cost carrier. The only problem is, the fares went down, but not the costs. While the airline is reporting a massive increase of passengers, the losses are now three times over the budget. In February, two Boeing 737s were taken out of service and 500 flights per month have been axed.

The airline's negotiations with the German pilots union "Cockpit" were aborted last week as the two parties could not reach a contract. A new contract with the pilots is very crucial for DBA. EasyJet has an option to take over DBA but it is unlikely that they will make use of it under these circumstances. British Airways, the owner of DBA said that there are more parties interested in DBA, but due to the exclusive agreement, there are no further negotiations with them at this time. Anyway, without the easyJet merger, it looks quite dark for DBA and concerns that the airline will be closed down are getting bigger.

Michael Meier

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Airsider Resources:

• European Low Cost, Part 1

Web Resources:

• BMIbaby
• Buzz
• Deutsche BA (dba)
• EasyJet
• Germanwings
• Ryanair

Pictures:
Deutsche BA (1), Michael Meier (2)