The search for new market opportunities April 1998
Europe’s new entrant carriers are desperately seeking out new market opportunities before the new "light" versions of the Euro–Majors arrive on the scene.
The new entrants are at least proving that they are genuinely transnational carriers, not tied to their home bases. Ryanair, for instance, is expanding from London Stansted to secondary points in France, Italy and Norway. Part of the logic behind this growth must be to establish a broader network before it starts taking delivery of 25 737–800s next year.
EasyJet’s growth strategy is now partly based on acquisition. Having failed to gain control of Air Holland, easyJet switched its attention to Geneva–based charter airline TEA Switzerland, buying 40%, with an option for a further 50% in late March 1998. The idea is to quickly convert TEA Switzerland into a low–cost scheduled operator — an easyJet Switzerland — operating a fleet of four 737s.
This move, if successful, will position easyJet at the centre of the highest fare region in Europe, exploiting the gap left at Geneva by Swissair’s centralisation of its operations at Zurich. Chairman Stelios Haji- Ioannou has stated that he intends to push for lower airport charges and renegotiate lower rentals with ILFC, the lessor of TEA’s equipment. This tactic worked well for the new entrants in 1992–94 when they were in a buyers' market, but concessions will be harder to achieve now.
EasyJet is scheduled to take delivery of 12 new 737s in the period up to the end of next year. This will provide the capacity needed for a further geographical expansion, probably into the Greek market, operating on the main (and relatively unseasonal) Athens–Salonika route with additional, perhaps seasonal, operations to the islands now that this market has finally been opened up to competition.
Virgin Express is also considering relocation, but for rather different reasons. Before he resigned at the end of March to return to the US to run Mesa, chief executive Jonathon Ornstein complained bitterly about the level of local taxes, government interference and union power in Belgium.
Quoted in the Financial Times, he said: "The unions told us there’s no future for low cost airlines in Belgium. We're trying to decide whether we agree with them".
Moving from Brussels would be a very serious move for Virgin Express as it would mean breaking the code–share/franchise agreement that it has with Sabena — and with that would go access to Heathrow slots.
Virgin’s frustration does highlight one of the continuing anomalies in the European market: in the places that the low–cost entrants are most needed — Brussels, Rome, Madrid etc — their effective development is still being blocked by a combination of unions and flag–carriers. Perhaps the next stage of new entrant evolution will involve consolidation in order to obtain the presence to confront the incumbents. Also, the new entrants should be looking at ways of achieving economies of scale to help defray the additional costs of their new equipment.