Air pressure
For frequent travelers the decline of the airline industry should not be a novelty, since they have experienced it on their own stomachs. A free, dry piece of toast garnished with an extremely thin slice of cheese and accompanied by an aging cake has become the pitiful standard on many European flights. That is, of course, unless you chose a no-frills carrier, in which case they make you pay for the privilege. In Poland, national operator LOT sparked a major outcry some time ago by cutting the number of so-called sick bags on board. The absurdity of asking a fellow passenger for permission to use his or her bag in the moment of need hit home for the airline's decision makers (with the help of local media) and the idea was withdrawn. Nevertheless, the growing group of airline travelers should expect more of this sort of crafty cost cutting in the future.
Why? Among the difficulties facing airlines are terrorist threats, high oil prices and regulatory legislation. However, one of the biggest threats to a flyer's financial state is the corporate body itself. Many are weighed down by the fat that grew on the organizations throughout the golden era of air travel. As a result, the industry is expected by IATA to produce $5.5 (zł.17.76) billion in losses worldwide this year alone.
"The high price of fuel is robbing our profitability," said CEO of IATA Giovanni Bisignani at the beginning of this month, while airline presidents nodded in agreement.
Name the game
Consequently everyone from traditional global network operators to the smallest low-costs carriers is driving towards lower expenses. Polish LOT is implementing a restructuring plan that aims to cut its cost base by zł.500 million before 2006. In accordance with this "product rationalization" the Polish national carrier has introduced the buy-on-board concept to its economy class - all this to lift efficiency and keep pace with low-cost operators.
"The codename of the game is competition," says management board member at LOT Piotr Dubno. Although he admits network carriers lack the low-cost flexibility of point-to-point, layover-less flights, Dubno is also keen to highlight that the Polish aviation market is growing at a double-digit rate - both in terms of aircraft and passenger traffic. The Civil Aviation Office makes the conservative forecast that 35 million passengers will fly in Poland by 2020.
"The name of the game: achieving the lowest cost," postulates CEO of Wizz Air József Váradi. Originating in Hungary, his company has quickly ensnared 35-40 percent of the Polish market and could be the only one already profiting from local bookings. For Váradi the key is flexibility, which allows low-costs to withdraw quickly from unprofitable routes. British Airways sales manager for CEE Darren Peek admits the Brits struggle with profitability on short-haul, but adapting some low-cost ideas made BA operating-profit leader among traditional airlines in 2004. And typical carriers still have a card up their sleeves.
The ace
'Ready, set: consolidate' - remains the business rule when revenues fall and costs mount up. However, due to their special status airway companies were tightly protected from foreign capital by national governments. In effect, the airline market is fragmented to an extent previously unknown in global entrepreneurship. Alliances are supposed to become a way to amend this.
"Alliances integrate to subsidize mergers and acquisitions," says Piotr Dubno from LOT. Cooperating tightly with Lufthansa, the Poles aligned with the Star Alliance in 2002, which so far remains the largest aviation cooperative, servicing more than a quarter of the 1.3 billion passengers who travel every year. According to the LOT manager, this alliance means that even the most unusual travel needs can be addressed. From Bydgoszcz, in central Poland to Khon Kaen, in Thailand, one can fly within the Star Alliance, using just one baggage claim number, constant tracking and assistance throughout the journey. Whether it is Star Alliance, oneworld or Skyteam, travelers have a 64 percent chance of flying as a group member.
Despite the makeshift alliance solution, few doubt mergers will eventually break down the fortress walls of the national airlines. A prime example is the recent wedding of Air France and Dutch KLM, which face high convergence risks but high profit prospects too on the balance side. Polish LOT, burned by the alliance with bankrupt SAirLines, has turned to Star Alliance leader Lufthansa, implementing an IT and sales system convergence of their daughter low-costs, Centralwings and Germanwings, respectively. Time is running out, however, as the no-frills operators take larger and larger bites from their parent companies' customer base.
Tourism vs business
Some 30 percent of Germanwing's customers are newcomers to airline travel. Another one third swapped trains or cars to fly cheap. But a massive 40 percent are the ex-customers of the classic airlines.
Polish Centralwings, which will soon be facing a similar cannibalization issue, is placing its bet on tourists and expanding its summertime network in the Mediterranean basin. Some seasonal routes, like Palma de Mallorca or Egypt, might even become permanent connections, but everything depends on load factors. For vacation purposes, Centralwings has also launched probably the longest no-frills connection in Europe, from Warsaw to Lisbon.
In contrast Sky Europe is reaching out to corporate travelers.
"Business people will fly once a week, tourists once a year," says founder and owner of Slovakian Sky Christian Mandl. The second-placed operator in Poland after Wizz Air is tempting companies with business to business, or B2B, agreements, just as the one it signed with PSA Peugeot Citroen to transfer managers from Paris to the new car plant in Slovakia. At the moment tourists still constitute the majority of Sky's clients and despite their limited air travel needs in the emerging Europe, they can expect special care as well.
In a bundle
For an Eastern European tourist usually operating on a tight budget, total trip cost is what eventually counts. An affordable flight to London becomes less attractive if one has to pay for a high-priced B&B or an excessively expensive hotel. That is why discount airlines cooperate with tour operators to provide inexpensive lodging or car rental all through the same air reservations server.
"[We are starting] to consider our dotcoms as travel portals. It's also a way of expanding the market," claims Mandl from Sky Europe.
President of Centralwings Piotr Kociołek praises his virtual travel assistant, which guides customers from ticket reservation, through an accommodation offer and ends with calendar of recent cultural events in the destination city. Germanwings claims to earn a modest ?2-3 (zł.8.4-12.6) million from lodging commissions, but its managers claim that the bundle model is still in the early stages of development.
In all, no-frills carriers, capitalizing on their background in internet technology and fast adaptation to market challenges, may in the future change the way in which we satisfy our tourism and travel needs. There may be a few clouds on the horizon, however, as the low-cost/high-safety model is being questioned yet again.
Blue moon
Contrary to what B class Hollywood productions may feed us with, flying remains significantly safer than road transport. According to a report by Captain Tomasz Smolicz, PhD, a small accident, like undercarriage damage resulting in no serious injury to a single passenger, has a 0.0001 percent chance of occurring. And even this only if the pilot decides to proceed with the landing, despite below-minimal weather conditions, which in our climate average at about four days a year. In effect, the fear of being struck by lighting is about as justified.
Despite that, the report spells out: "Excessive drive for profits may not allow a reasonable balance between safety and economy." The safety of passengers and crew may lie directly in the pilot's hands, but indirectly it always remains the manager's responsibility, whether deciding to use more fuel, or choosing to invest in catering instead of rescue procedures training. There might be no easy choices and, naturally, low cost carriers implement the same level of safety procedures as traditional ones. But even a hint of risk would probably turn clients away from air transport as it has done in the past.
So far airlines, struggling for profitability and keeping themselves - and more literally, their customers - on a diet, luckily only need listen to the sound of passengers complaining about the dried out sandwiches.
Why? Among the difficulties facing airlines are terrorist threats, high oil prices and regulatory legislation. However, one of the biggest threats to a flyer's financial state is the corporate body itself. Many are weighed down by the fat that grew on the organizations throughout the golden era of air travel. As a result, the industry is expected by IATA to produce $5.5 (zł.17.76) billion in losses worldwide this year alone.
"The high price of fuel is robbing our profitability," said CEO of IATA Giovanni Bisignani at the beginning of this month, while airline presidents nodded in agreement.
Name the game
Consequently everyone from traditional global network operators to the smallest low-costs carriers is driving towards lower expenses. Polish LOT is implementing a restructuring plan that aims to cut its cost base by zł.500 million before 2006. In accordance with this "product rationalization" the Polish national carrier has introduced the buy-on-board concept to its economy class - all this to lift efficiency and keep pace with low-cost operators.
"The codename of the game is competition," says management board member at LOT Piotr Dubno. Although he admits network carriers lack the low-cost flexibility of point-to-point, layover-less flights, Dubno is also keen to highlight that the Polish aviation market is growing at a double-digit rate - both in terms of aircraft and passenger traffic. The Civil Aviation Office makes the conservative forecast that 35 million passengers will fly in Poland by 2020.
"The name of the game: achieving the lowest cost," postulates CEO of Wizz Air József Váradi. Originating in Hungary, his company has quickly ensnared 35-40 percent of the Polish market and could be the only one already profiting from local bookings. For Váradi the key is flexibility, which allows low-costs to withdraw quickly from unprofitable routes. British Airways sales manager for CEE Darren Peek admits the Brits struggle with profitability on short-haul, but adapting some low-cost ideas made BA operating-profit leader among traditional airlines in 2004. And typical carriers still have a card up their sleeves.
The ace
'Ready, set: consolidate' - remains the business rule when revenues fall and costs mount up. However, due to their special status airway companies were tightly protected from foreign capital by national governments. In effect, the airline market is fragmented to an extent previously unknown in global entrepreneurship. Alliances are supposed to become a way to amend this.
"Alliances integrate to subsidize mergers and acquisitions," says Piotr Dubno from LOT. Cooperating tightly with Lufthansa, the Poles aligned with the Star Alliance in 2002, which so far remains the largest aviation cooperative, servicing more than a quarter of the 1.3 billion passengers who travel every year. According to the LOT manager, this alliance means that even the most unusual travel needs can be addressed. From Bydgoszcz, in central Poland to Khon Kaen, in Thailand, one can fly within the Star Alliance, using just one baggage claim number, constant tracking and assistance throughout the journey. Whether it is Star Alliance, oneworld or Skyteam, travelers have a 64 percent chance of flying as a group member.
Despite the makeshift alliance solution, few doubt mergers will eventually break down the fortress walls of the national airlines. A prime example is the recent wedding of Air France and Dutch KLM, which face high convergence risks but high profit prospects too on the balance side. Polish LOT, burned by the alliance with bankrupt SAirLines, has turned to Star Alliance leader Lufthansa, implementing an IT and sales system convergence of their daughter low-costs, Centralwings and Germanwings, respectively. Time is running out, however, as the no-frills operators take larger and larger bites from their parent companies' customer base.
Tourism vs business
Some 30 percent of Germanwing's customers are newcomers to airline travel. Another one third swapped trains or cars to fly cheap. But a massive 40 percent are the ex-customers of the classic airlines.
Polish Centralwings, which will soon be facing a similar cannibalization issue, is placing its bet on tourists and expanding its summertime network in the Mediterranean basin. Some seasonal routes, like Palma de Mallorca or Egypt, might even become permanent connections, but everything depends on load factors. For vacation purposes, Centralwings has also launched probably the longest no-frills connection in Europe, from Warsaw to Lisbon.
In contrast Sky Europe is reaching out to corporate travelers.
"Business people will fly once a week, tourists once a year," says founder and owner of Slovakian Sky Christian Mandl. The second-placed operator in Poland after Wizz Air is tempting companies with business to business, or B2B, agreements, just as the one it signed with PSA Peugeot Citroen to transfer managers from Paris to the new car plant in Slovakia. At the moment tourists still constitute the majority of Sky's clients and despite their limited air travel needs in the emerging Europe, they can expect special care as well.
In a bundle
For an Eastern European tourist usually operating on a tight budget, total trip cost is what eventually counts. An affordable flight to London becomes less attractive if one has to pay for a high-priced B&B or an excessively expensive hotel. That is why discount airlines cooperate with tour operators to provide inexpensive lodging or car rental all through the same air reservations server.
"[We are starting] to consider our dotcoms as travel portals. It's also a way of expanding the market," claims Mandl from Sky Europe.
President of Centralwings Piotr Kociołek praises his virtual travel assistant, which guides customers from ticket reservation, through an accommodation offer and ends with calendar of recent cultural events in the destination city. Germanwings claims to earn a modest ?2-3 (zł.8.4-12.6) million from lodging commissions, but its managers claim that the bundle model is still in the early stages of development.
In all, no-frills carriers, capitalizing on their background in internet technology and fast adaptation to market challenges, may in the future change the way in which we satisfy our tourism and travel needs. There may be a few clouds on the horizon, however, as the low-cost/high-safety model is being questioned yet again.
Blue moon
Contrary to what B class Hollywood productions may feed us with, flying remains significantly safer than road transport. According to a report by Captain Tomasz Smolicz, PhD, a small accident, like undercarriage damage resulting in no serious injury to a single passenger, has a 0.0001 percent chance of occurring. And even this only if the pilot decides to proceed with the landing, despite below-minimal weather conditions, which in our climate average at about four days a year. In effect, the fear of being struck by lighting is about as justified.
Despite that, the report spells out: "Excessive drive for profits may not allow a reasonable balance between safety and economy." The safety of passengers and crew may lie directly in the pilot's hands, but indirectly it always remains the manager's responsibility, whether deciding to use more fuel, or choosing to invest in catering instead of rescue procedures training. There might be no easy choices and, naturally, low cost carriers implement the same level of safety procedures as traditional ones. But even a hint of risk would probably turn clients away from air transport as it has done in the past.
So far airlines, struggling for profitability and keeping themselves - and more literally, their customers - on a diet, luckily only need listen to the sound of passengers complaining about the dried out sandwiches.
