The futures bright!

[toontartcart]

well today the first ever low cost airline flew into ncl and flew out again with a full load! is it a sign of things to come with direct destinations into europe. i hope so considering the amount of qualified unemployed crew in the region.

i also hear on the grapevine that BE are thinking of LCY and an all year round JER service from ncl? great to see a regional airport doing so well, in so hard times!

airtours 2 based a/c for next summer also 320 and 757? :D

[The Guvnor]

It's all really rather logical when you think about it - and the amazing thing is that the majority of airlines still haven't grasped the concept.

If you charge people less, more people will fly with you.

Freddie Laker called it the "Forgotten Man theory".

I've spent the last couple of days trying to educate the management of an airport that if they stop trying to rip off their customers - the airlines - on landing and handling fees, then they in turn will be able to reduce their fares and as a result the airport will get considerably more pax going through it and paying for car parking, McMuffins, cafe-frappes and what have you.

Equally, a carrier such as Go, Ryanair or easyJet will find that if they offer tickets at £10 on a route where the previous fare had been over ten times that then, not too surprisingly, they will fly full.

Yet the 'full service' carriers persist in ripping off their passengers - charging hundreds of pounds more and for what? An all day deli bag? I'd rather save the money and have a candle-lit dinner with my girlfriend at the finest restaurant in town - and I'd still be saving money!! :D :D :D

[pdashley]

Guv

Filling flights isn't the issue, any idiot can fill a flight, the trick is to fill the seats profitably, so if you're offering seats at GBP10 each but it costs you GBP20 per seat to operate the flight you won't stay in business very long.

[Vref +50]

But if Go can go from zero to £4m profit in 3 years then I don't think you need worry about their yields...

VREF

[The Guvnor]

Pash - those introductory fares are part of the marketing tools at an airline's disposal (but which tend to be used by too few).

Let's look at two airlines, we'll call them A and B. A starts up a standard fares, full frills service, and does the usual advertising. "Fly with us from Geordieland to London for just £299 return!" trumpet the billboards and radio ads.

Well, wow, whoopee. If I have to fly urgently to London, I'll remember them. Possibly. Maybe. Unless I remember GNER first. Who I've used before and aren't too bad and OK, they take longer than flying but it's straight into Central London and ... what prompted this line of thought in the first place?

Airline A's initial flights are very lacklustre, with loadfactors averaging 10 - 20%. The pax are not wildly impressed, but hey, they're getting their Air Miles and the company's paying for it so who cares?

Airline B starts up its low fare operation, charging £10 from Geordieland to London. "Go with us for £10 each way!" the billboards trumpet.

Eeee, I must get online and book me ticket as soon as I get to a computer! Sheite, if I give me mates a call, we can all go down to London and see the match and have a brilliant time and it's a lot cheaper than that bloody GNER! Plus we all have to go and see the missus' family and they're all southern softies, so I'll book tickets for that as well at the same time...

Airline B's flights are 100% chokka. More importantly, word has got out about the company's services, so everyone has brand awareness. Even after fares are increased to more realistic levels, loads remain very high and Airline B adds extra frequencies. This attracts the pax who were flying Airline A who cease operating the route and claim that services between Geordieland and London are not economically viable.

Get the picture? :D :D :D

[LAVDUMPER]

Hey Guv,

I think GO's recent reduction in service in Scotland proves that low-fares alone ensure success.

Need to look at both sides of the equation - boost revenues (through either yield management or increased frequencies) and cut costs (reduce unit costs via economies of scale - and other means).

I don't think a 4 million Pound profit in 3 years is anything special - in fact, I think that amount is anemic in a volatile business like the airline business - not much of a cash cushion during bad times...

Easy wins because it has successfully built both an effective operating cost structure and an unbelievable brand name - its reputation precedes it... I am sure NCL residents knew precisely what to expect before Easy's first flight. I predict Easy will do VERY well there.

Cheers

[LAVDUMPER]

Whoops! Bad typo alert...


I really meant to say that low fares alone DO NOT ensure success...


My bad - I will type slower in the future...

[overstress]

Thanks Guv for providing us with that penetrating insight into the 'Loot' or 'Exchange & Mart' theory of airline economics. What fools we have all been! The shadows fall from our eyes as we reach out to grasp the morsels of wisdom emanating from your sticky keyboard...

By your logic, everyone wants to shop at Aldi, eat out at the local chippy and drive a Lada. Let's all wear cheap shellsuits and we'll all share the beach at Magaluf on our hols.

Had it not ocurred to you that some customers prefer a regular, reliable service from an company whose operation does not fall apart at the first sign of rime ice?

[The Guvnor]

Lavdumper - I think I'd prefer Go's £4m profit (and Ryanair's and easyJet's very much larger ones) to United's US$1.16 billion loss! :eek: :rolleyes: :eek:

Incidentally, I think you'll find that it was indeed Go - and not EZY - that toontartcart was referring to.

overstress - whilst some might prefer the full service airlines, they tend to flock to the cheap'n'cheerful crowd when economics dictate it. Like it or not, the only airlines that are making money right now are the regionals and the low fare carriers - everyone else is haemmoraging red ink.

So, whenever you travel, you always only pay full F, J or Y fares do you? If not, you're depending on others to subsidise you - which explains why those carriers aren't doing too well!

[starship]

Good to see things went successfully today, and I hear the bookings are doing well. Lets hope that GO may bring additional destinations in the future to a market which has been in need of it for some time.
(We had it at one point with DEBONAIR - a route which failed to work due to bad timings, hardly any advertising, and loads of about 15 pax).

WELCOME, AND GOOD LUCK GO!

cheers,

starship :)

[ 01 November 2001: Message edited by: starship ]

[LTN man]

Debonair was the first low cost airline to operate out of Newcastle with flights to London Luton. These only lasted a few months, as there wasn’t the demand. Go will always fill aircraft if they sell seats at next to nothing but when they start charging a more realistic price will they still keep their passengers?

[Redus Baronus]

The majority of the average passengers don't give a stuff whether they get a full 3 course meal and free drinks with their air ticket. What they care about is how convenient is it for them and how cheap. The average short haul flight is only around 2 hours. Most people can get by without drinking themselves into a stupor for this period with free booze provided by a full-price ticket. The downside is the airports the reduced fare carriers use. They are often not the convenient ones near the centre of the cities to which they are trying to travel to. But hey, the local cost of travel at destination is probably still cheaper than the difference between full-fare and cheap-fare. So who is the dummy here? Making £1 per seat is better than an empty aircraft. Good on GO and easyJet :)

[LYKA]

LAVDUMPER,

0 - 18 aeroplanes , 0 - 800+ staff , over 15 destinations . Business plan called for break even at best , so 4 mill ain't bad when you consider that GO was playing catch up to Easy & Ryan and the tough market that they joined . Just a few facts to enlightnen. ;)

[Go-arounder]

LTN man - Debonair hardly had any advertising, just didn't turn up some of the time, when they did were late and flew to an Airport which at the time did not have the best links to central London.
GO - Must have spent 100's thousands on adverts (half page in national and full page in local rags, just for the NCL route!), are flying a route already made successful by GIL and are flying to an airport with good links to London & rest low cost Europe.
Hope its the first of many for NCL.

P.S. they were also on time for both flights first day. :) ;)

[White Knight]

1) I can attest to Go's advertising at NCL itself - big billboards as you drive in, plus in the sides of all the bus shelters.
2) Having just operated in and out of NCL from Gatters (BA full frill) we had very good loads. Just remember that STN is a very different catchment area to LHR and LGW...

[crab]

GUVNOR
If you take your last paragraph to its logical conclusion,you should take your girlfriend to McDonalds and save even more money.This will eventually close the expensive candle lit restaurants,but using your criteria this should make for a better world,albeit with an awful lot less choice.

[flypastpastfast]

I wish Go well from Newcastle. Despite the 'noddy guide to airline economics' given above, the problem with newcastle lies on many levels. Not least of these is the good fast rail service from central Newcastle to Central London in around three hours (one train every hour). So ,although initially, their may be takers for ultra cheap fares, whether the demand can be sustained is another matter. Newcastle railway station is EXTREMELY well connected to the North East and suburbs of Newcastle (via the Metro)(unlike most of UK railways). I am no fan of railways, but the service between Newcastle and London is very very good.

But I'm sure Go have already thought this through. Good luck to them. Newcastle to other European countries would be a different matter altogether.

Just a final point, I agree with an earlier posting above, that not everyone will want to travel with budget airlines. It is a different market sector, which overlaps with some 'premium travellers' and railways. I repeat once more, the price difference is not due to food or drinks (an urban myth), and budget airlines are not always cheaper - check all prices before booking, and you will be astonished.

[52049er]

Sorry to dampen the barbie - but people do not book on a full fare airline because of the sarnies/free drinks. My buddies in the worlds of finance and trade always book full fare on business and pleasure - not because of a free deli bag or air miles or because the company is paying but because if the flight goes tech, or is delayed,or you miss your flight, or it is full the company will do their utmost to get you home - booking on another carrier or a later flight. Cheapo carriers will not do this, and that is a risk thats fine for a student seeing his girlfriend on a weekend, but not a knackered businessman who wants to get home.

[The Guvnor]

All very true, but we're talking airline economics here not passenger convenience. The fact is that - to generalise somewhat - the low fare carriers are making profits and the full service airlines are losing it by the tonne.

Doesn't this say something to you?

[yaffel1]

You're being a little simplistic here Guv (deliberate?), as you are suggesting that the low cost carrier will always wipe the floor with the full fare one. It's not necessarily true. The promotional fares will certainly get Go noticed and will have the usual effect of growing the market.

The schedule is all important to the key business pax and Go's is OK southbound, but not northbound (where the bigger market is) at the present time. The existing carrier can respond by discounting the off peak flights and keeping the peak flights for the business pax, who are the key to the success or otherwise of the route.

Sadly, we're talking about BA here who will do the usual thing of a) not reacting at all and getting stuffed and b) panicking and opening the key flights so that the business pax will also be able to buy the cheapest fares.

It's their usual response and the reason why they always get thumped. But it doesn't have to be like this if only they would learn.

The reason why they always lose out is not because it's inevitable but because they are commercially inept at shorthaul.

[pdashley]

Guvnor

I have to agree with Papillon you're being to simplistic not taking into account any other factors than pure economics i.e. price in dictating peoples choice of mode of transport. Using your theory it doesn't matter which airports on a route I fly from or at what time of day I fly or how on time my performance is or anything else as long as my fares are the cheapest, this is quite frankly nonesense.

[ 02 November 2001: Message edited by: Pash ]

[The Guvnor]

And yet more proof (if proof were needed) that it's the low cost carriers that are reigning supreme at the moment - can anyone imagine BA, bmi or any other 'full service' carrier bleeding red ink everywhere trying a rights issue/placing at present? :D :D :D

From today's Scotsman

EasyJet to gain £93m from shares
Miriam Hils-Cosgrove
EUROPE’S second-largest budget airline, easyJet, has unveiled plans to price its shares at £3.75 each in a sale expected to net £93 million for the carrier and its founder, Stelios Haji-Ioannou.

The airline and Haji-Ioannou are cashing in on a recent rise in easyJet’s share price as no-frills carriers continue to outpace their increasingly troubled full-service rivals.

Even in the wake of the 11 September terrorist attacks on the US, easyJet and its low-cost competitor Ryanair have seen passenger numbers rise as they slashed fares to get travellers back in the air.

Haji-Ioannou stands to pocket at least £50 million from the complex sale of new and existing shares. The easyJet chairman is selling around a net 13 million shares in the airline, thereby cutting his stake from 36 per cent to 29 per cent.

The proceeds of the sale will be used to fund Haji-Ioannou’s other ventures, which include a car rental business and a chain of internet cafes.

Under the terms of the sale, easyJet has placed 6.5 million new shares and Haji-Ioannou’s holding company easyGroup has placed 32.53 million existing shares with institutional investors.

In turn, the company is making a three-for-40 rights offer to current shareholders of 19.53 million new shares at the same price of £3.75 per share, with easyGroup subscribing for 13.99 million shares, as well as underwriting the rest of the offer.

Ray Webster, chief executive of easyJet, said the offer, which closes on 20 November, was 4.5 times oversubscribed.

EasyJet shares rose 3 per cent to 394p in yesterday’s trading, their highest price since 11 September, before settling back to 385p. EasyJet has outperformed the FTSE transport sector by more than 50 per cent since the start of the year.

The budget airline, which has been hot on the heels of its more established long-haul competitors, said money raised from the share sale would help buy new planes and apply for more slots at airports, as it continues to expand in Europe.

Analysts said the deal was a canny way for Haji-Ioannou to bring in cash for his other business interests.

Founded in 1995, easyJet currently operates more than 30 routes in Europe from airport bases including London Luton, Geneva, and Amsterdam.

[Magnus Picus]

Who said the full frills were flying out of NCL with only 10-20% loads?
I operated out of there yesterday and it was full. BA! so ner ner, n-n-ner ner, Guv.

[fudpucker]

Of course, an alternative headline could have read,


"Stavros, realising the true state of his airline, starts to cash in before anybody else finds out".

I'm sure Guv can tell us how many low cost carriers started up in the USA when deregulation first started, and how many now survive. Market conditions are completely different "over there", and what works in one place will not necessarily work in another.

MP, I think I may have been parked next to your 757 yesterday. If it was you, and BA are filling a 75, I'm impressed(and relieved). It reinforces my opinion that there is a lot of balloney being spouted about this downturn. My company is flying around pretty much full most the time, certainly above break-even 99% of the time.

[yaffel1]

Well, it isn't true that just because the flight's full it's turning a profit by any means, there are plenty of routes that operate at 90% loads and lose money, and others that cannot (on current passenger mix) ever make a profit.

Also, a route like LHR-NCL is fairly well down the priority order for fleet allocation and often gets what is left over, rather than a deliberate policy to fit 757 capacity to the route.

Incidentally, I'm sure that passengers are delighted that the EI monopoly on Scotland-DUB has been broken and I'm not defending a high fare single operator by any means. But it's a slightly false position at the moment because FR and GO are in a private spat on a lot of the routes, the market is not sustainable at those levels in the long term.

Nevertheless, the point I was making is that it is not inevitable the full frills carriers will get duffed up by the low cost boys providing they get their act together. Some lowering of overhead is required of course (and this is not intended as a green light for certain people to blame everything on pilots) but the likes of GB Airways have shown that it is possible to remain successful even with such heavy competition.

[fmgc]

You must not underestimate the requirements for business men to have fully flexible tickets, which come at a price.

[SkyCruiser]

Full fares or no frills, who cares. I think it is good that some airlines are doing well at the moment. All we are hearing about is the aviation industry going through a hard time, good luck to every airline during this uphill struggle. :p :p :p :p

[aidybennett]

SKYCRUISER-You are right, who cares whether its a full fares or low cost airline (unless its your own company, presumably) If someone or several are doing well that it very good news, is it not?
Of course in a perfect world, BA, BMi etc would get all the passangers they need on the full fare, fully flexible and reliable tickets, and Easyjet et al would get loads of Gordies-on-a-**** -up and others looking for the cheapist possible fare and everyone could go home happy. Its obviously not going to ever work like that, and ineviatably there will be winners and losers. But as long as there are some winners, (and it isn't just BA bullying the small airlines into submission/bancrupcy)then it is cause for celibration. (I'm not wishing BA ill, by the way, but it is undeniable that they have done that in the past)

P.S. Was the blanking of the (word meaning 'to drink heavily' or to relieve oneself) edited automatically or by the moderators? Just curious.

[ 05 November 2001: Message edited by: Captain James Bigglesworth ]

[thegirth]

The future may be brighter for FE's from BA and displaced Classic crews from Virgin........
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