Budget airlines struggle for air

The plethora of low-cost carriers now taxiing onto the runway suggests a fierce aerial dogfight in the making. Those few who survive the combat will do so by agile manoeuvring – not least in the marketing department; for the rest, it will be a trip to the scrapyard. So, who will the winners be? The history of budget airlines is littered with failures, like Laker Airways or Harry Goodman’s Air Europe. Essentially they failed because they were under-resourced and incapable of fighting off competition – fair and foul – from the big-battalion national carriers like BA. But the world – now that deregulation is in and government bail-outs are firmly ruled out – is a lot less friendly to the beleaguered national carrier. In BA’s case, its relative weakness is compounded by the strategic error it made (hindsight is a wonderful thing) in disposing of Go just as the budget concept was beginning to take off big time.

Full-service carriers may draw comfort from the reflection that, while the no-frills concept has created a niche for itself, it is enjoying unsustainable popularity. In other words, sooner or later the September 11 effect will wear off, economic growth will resume and the bigger airlines will be able to throw their weight around again.

Undoubtedly a cyclical upturn will occur at some point, persuading more people to spend more money on the more luxurious aspects of air travel. Whether this will be tantamount to a return to the ‘good old days’ is unlikely, however. The travelling public seems to have developed a thirst for low-cost travel, and industry experts are predicting further expansion.

How it progresses depends very much upon the behaviour of individual operators. Long ago, Southwest Airlines – the Texas-based carrier that pioneered no-frills flights and continues to be one of the few profitable airlines – laid down some ground rules. It built its offer upon fast turnaround from uncongested airports; it used one type of airframe, to cut pilot-training and maintenance costs; it embraced Internet transactions to suppress paperwork and administrative overheads; and it eschewed corporate acquisitions in favour of organic growth.

Yet very few of the new breed seem likely to stick to the purity of this successful blueprint, with unpredictable results for the industry. Take easyJet, which at first sight looks an obvious winner. It has embarked on an ambitious acquisition, with the capture of Go; it plans a foray into congested Gatwick; it is considering buying airframes from both Boeing and Airbus… It may be that the European model of development requires a more aggressive approach than Southwest’s; or alternatively, that easyJet will end in a strategic quagmire.

Different issues affect other brands, such as Buzz and bmibaby. Here, the problem is that they are owned by full-service airlines, which must juggle with the results of potential profit cannibalisation. One last factor, which does not play in the US, is the existence in Europe of a sophisticated high-speed railway system. In moving directly from one city-centre to another, the TGV does away with much of the stress involved in air travel. And that’s something which price alone cannot compete.


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