You say you want a REVOLUTION

The 737 leads Europe's low-fare airline revolution

BY CHERYL ADDAMS

Southwest Airlines probably didn't realize it was starting a revolution back in 1971, when it introduced a little low-fare carrier in Texas, and launched a profitable new airline business model at the same time.

The model called for an airline to fly one type of airplane — the Boeing 737; use secondary airports; and offer passengers inexpensive, point-to-point, no-frills flights.

The low-fare revolution hit Europe some 20 years later, starting first in Ireland and then in Great Britain, two island nations that are home base for Ryanair and easyJet, respectively.

Today, the European low-fare revolution is going strong as these two profitable operators add airplanes to their fleet; buy out their competitors; add hubs in Switzerland, Belgium, Germany and France; and bring their cheap tickets to new passengers in continental Europe. Both carriers are challenging the larger, established airlines that have ruled European skies for decades.

"Low-fare airlines now account for about nine percent of the passengers flying within Europe," said Randy Baseler, vice president of Marketing, Boeing Commercial Airplanes. "We expect that to more than double in the next 10 years."

Some analysts predict it will become a bigger percentage — perhaps 20 percent to even 50 percent over the coming years. It's no wonder that several older European airlines are beginning to jump on the low-fare bandwagon.

As late as 1995, though, Ryanair and easyJet were the only low-cost airlines operating in Europe. Following the Southwest model, they offered no-frills service, sold tickets directly to passengers and flew only Boeing 737s, which offer high reliability and low operating and maintenance costs. Both had major bases in the United Kingdom.

The following year, Virgin Express joined the fray when British entrepreneur Richard Branson bought the Belgian carrier EuroBelgium, re-launching it as a low-fare airline based in Brussels. In 1998, another low-cost carrier was added to the roster when British Airways spun off an operation called Go Fly — often called Go — that was based at London Stanstead Airport. Both airlines chose 737s for their fleets.

It didn't take long for KLM to enter the competition. In 2000, the giant Dutch carrier launched Buzz, a low-fare subsidiary that also operates out of Stanstead with 737 and BAe 146 airplanes. Then, Transavia, a Dutch airline that is 80 percent owned by KLM, introduced a no-frills service called Basiq Air that flies 737s out of Schiphol Airport near Amsterdam.

The Irish-British invasion

The Irish-British low-fare invasion of the continent began slowly. Ryanair, easyJet and Go, all of whom had major bases at one of the outlying London airports, initially flew passengers mainly from Britain to destinations throughout Europe.

The first to open a base in continental Europe was easyJet; it began scheduling flights out of Geneva, Switzerland, in 1999.

It wasn't until April 2000, however, that Ryanair opened a base at Charleroi, a Belgian airport about 45 miles south of Brussels. Ryanair's aggressive advertising rankled competing Belgian airlines, which soon took the Irish carrier to the courts. Eventually, Ryanair won the lawsuits.

Ryanair created its second continental European base in November 2001 at Frankfurt Hahn Airport, a former military air base some 60 miles from Frankfurt.

While Ryanair follows the Southwest example of using secondary airports, easyJet flies to mostly major airports. Last month, easyJet, which is headquartered at London Luton Airport, added bases at Orly and Charles de Gaulle airports in Paris, offering French passengers low-fare flights to England and Switzerland.

A year of surprises

The past year has been full of surprises in the European low-fare airline industry.

First, there have been big changes for the three largest and most profitable European no-frills carriers. In January, Ryanair announced it was ordering a record 100 737-800 jetliners from Boeing to help it maintain its expected traffic growth rate of 25 percent per year.

"We have found through experience that the 737 provides the unbeatable cost economies and reliability you need to run a profitable low-fare airline," said Michael O'Leary, Ryanair chief executive.

Ryanair just announced that its profits for the year ending March 31 jumped 44 percent over the previous year and that its traffic grew by 38 percent. It is now considered the most profitable airline in Europe.

Go, which was sold last year to investors led by venture capital fund 3i Group, began talking with both Airbus and Boeing about adding airplanes to its fleet. In May, the month Go celebrated its fourth anniversary of operations, the European press reported the airline was negotiating solely with Airbus to buy Airbus A320s.

Days later, easyJet announced that, in fact, it was planning to acquire Go. "Combining easyJet and Go will provide additional critical mass and enable us to move forward faster," said Ray Webster, easyJet chief executive, in a news release.

If all that news hadn't already set enough heads spinning, easyJet stunned the market just a few days later by announcing an option to acquire Deutsche BA, the unprofitable German domestic airline owned by British Airways. Like easyJet and Go, Deustche BA has a fleet of Boeing 737s.

The acquisition is expected to give easyJet an inroad into the lucrative German market. "Germany is the biggest domestic air market in Europe," Webster told Reuters, "but it is poorly served by low-cost airlines, especially in comparison to the U.K."

The merger of the three carriers will more than double the size of the easyJet airplane fleet and make it by far Europe's biggest low-cost carrier.

The past year has been kind to established low-fare carriers Ryanair, easyJet, Go and Buzz. Combined, the four carriers last year hauled 25 percent of scheduled passengers between the United Kingdom and the rest of the European Union countries, a 25 percent increase from the previous year. And, the number of passengers traveling on those routes during the same time frame also jumped by 28 percent. The four, however, made their biggest gains on domestic routes within the United Kingdom, where they now have a 22 percent share of that market compared to 15 percent in the previous year.

New arrivals in the low-fare arena

The popularity of the big low-fare airlines has caused several European airlines to add low-fare elements of their own.

Earlier this year, BMI British Midlands, a carrier based in northern England, introduced a low-fare subsidiary called Bmibaby to counter the arrival of Go in its local market. About the same time the German leisure carrier Germania began offering low-fare flights within Germany, and French carrier Air Lib began remarketing five of its domestic routes under a new low-fare brand called AirLib Express.

Preussag, the largest travel company in Europe, which owns charter carriers Britannia in England and Hapag-Lloyd in Germany, may soon make a decision to enter the budget market with its own airline. "The market has radically changed with the arrival of Ryanair and easyJet," Preussag Chairman Michael Frenzel told The Times of London in June. "We must address this question."

My Travel, the huge travel company formerly known as Airtours, announced in May that it plans to launch a low-cost airline in October. It will focus on leisure routes.

BMI, Germania, Airlib Express and My Travel all have Boeing airplanes in their fleets. Bmibaby operates 737 "classics," or models delivered prior to the introduction of current-production Next-Generation 737-600, -700, -800 and -900 versions. Both Preussag airlines are Boeing customers.

In addition, British Airways and SAS have become the first mainline carriers to modify their fare structures in response to the threat from the no-frills competitors. "We want to compete profitably and intelligently alongside the no-frills carriers by adopting what they do well — online booking and price simplicity," Tiffany Hall, head of British Airways U.K. and Ireland Sales, told Airline Business recently.

What happens next?

All of this activity spurs questions. What airplanes will these low-fare airlines fly as they expand? Will many maintain the true Southwest model that has been successful for 30 years and specifies the 737? Will the 737 remain the airplane of choice for low-cost carriers?

Some airlines, like Ryanair, have made their decisions.

Others have yet to decide. Peter Hartman, KLM chief operating officer, said in May that Buzz and Basiq Air, the two low-fares KLM owns, will consolidate around a single fleet type. Though KLM has a longstanding relationship with Boeing, the competition will be open between Boeing and Airbus, he said.

At press time for this issue of Boeing Frontiers, easyJet was negotiating to purchase more airplanes to fill the expanded fleet it will need after its acquisitions. The choices are Next-Generation 737s or Airbus A320 family members.

The low-fare revolution has only begun on the European Continent, and for the moment — and the foreseeable future — the 737 is leading it.

cheryl.adamscheck@boeing.com