Flying into budget airline battle

With a budget airline boom rapidly taking shape in Germany, low-cost carriers are moving to transform the nation’s capital into Europe’s hub for no-frills airlines.

In April easyJet became the latest discount carrier to launch operations from Berlin’s Schoenefeld Airport.

“Today is the starting point for a major, long-term investment in the German capital,” said Dieter Johannsen-Roth, the chief executive of Berlin’s airports. “EasyJet has landed. A heartfelt welcome to Berlin.”

It already operates 115 routes in 11 nations, flies to 39 airports and has added services to the west German cities of Cologne and Dortmund.

While easyJet has managed to arrange its own terminal remodelled in its trademark orange, seven other smaller carriers began services to Berlin this year as well.

As a measure of the success of budget carriers in Germany, one of the nation’s most prominent no-thrills airlines, Air Berlin, has consolidated its position as number two in the nation’s aviation sector with a 33.9 percent rise in passenger numbers to 2.27 million in the first quarter of this year.

“We are operating clearly better than planned,” Air Berlin chief executive Joachim Hunold said. “In view of our advance bookings we can expect good results for the year 2004.”

Air Berlin last year flew 9.6 million passengers – 44 percent more than in 2002 – mainly from Germany to destinations in southern Europe, such as Mallorca, where it has its own terminal.

Air Berlin dramatic growth has turned into Germany’s second-biggest carrier after Lufthansa,   which flew 44.4 million passengers in 2003.

But underscoring the pressure on budget airlines, eastJet reported a net loss of GBP 19.7 million in the first half of its fiscal year due in part the airline said to tough competition.

This was despite a 16 per cent rise in passenger numbers to 10.8 million and a 1.1 per cent rise in the carrier’s load factor. EasyJet’s fares, however, were five percent lower over the period.

And as rivalry between the low-cost carriers has intensified Air Berlin has been complaining that budget airlines flying to Berlin’s Schoenefeld airport pay lower landing fees than it does  at Tegel airport, which is in the city’s western half.

Given that Schoenefeld, in the eastern part of Berlin, is less popular with travellers, Hunold alleges it has cut “secret” deals on cheaper landing rights for his low-cost competitors such as easyJet.

With so many carriers entering the market simultaneously, a fare war is likely, making consumers the real winners, at least in the short term.

Indeed, easyJet marked the launch of its new German service this week by predicting that airline ticket prices will sink further in the next years.

Speaking in Berlin easyJet chief Ray Webster said flying will be cheaper as a result of falling airport taxes and new technologies.

Webster wants to cut airport costs from their present level of about 32 percent of the total costs to 20 percent in the next two years.

His remarks follow similar predictions by Michael O’Leary, the chief of rival Ryanair, who said that over-capacity was exerting downward pressure on prices.

Further highlighting the growing competition, Air Berlin has already responded to the launch of easyJet’s Berlin services by cutting prices on its Mallorca routes.

But behind jubilation of Berlin’s booming low-cost carrier business lies the real possibility the city will never be home base for a major airline with worldwide connections, a fact not lost on easyJet.

“One of the things we will not do is try to develop a business at a large international terminal,” easyJet chief executive Ray Webster told Deutsche Presse-Agentur dpa.

Nearly 15 years after the fall of the Berlin Wall, plans to build a mega-airport are still grounded, leaving Berlin’s 3.4 million residents terribly underserved.

There is not a single non-stop flight between the capital of the world’s third-largest economy and the United States or Japan.

Berlin’s air transport system, a remnant of the city’s division, consists actually of three separate, smaller airports.

Schoenefeld, the former East Berlin airport easyJet is using, is furthest from the city centre in eastern Berlin, and until now embarrassingly underused.

Tegel airport in former West Berlin is the major airport used by most airlines, but it is woefully inadequate by international standards.

And Tempelhof Airport, the historic downtown airport where Hitler flew into and out of town and formed the focal point of the Berlin Airlift during the early Cold War years, is a relic of a bygone age and will soon be closed to commercial traffic.

“I have often said that one could picnic on the landing strip and would not be hit,” Berlin Mayor Klaus Wowereit said. “That will change.”

Eager for low-cost carriers like easyJet to help bring in visitors from around Europe, Berlin officials have done their best to sweeten the deal.

“Our approach now is that we only select airports that share our passion for being efficient,” easyJet CEO Webster said.

As things stand now, Schoenefeld is slated to eventually become Berlin’s main airport. But after a decade of squabbling, it’s anyone’s guess when that will happen.

More than EUR 42 billion in debt, Berlin is essentially bankrupt, leaving no money to build a new international airport.

The latest target date to complete such a project is 2010.

In the meantime, the city will have to make the most of service expansions like easyJet’s. The Berlin launch is the largest in the carrier’s history.

Within two months, the airline plans to have six aircraft serving 13 European routes to and from the German capital.

The airline estimates it will fly over 1.5 million passengers through the airport in the first year.

“And that means a lot more easyJet orange,” Webster said, “and a lot less Lufthansa trademark yellow.”

May 2004

[Copyright DPA with Expatica]