Discount Airlines Defy ″Iraq Effect″ | Business| Economy and finance news from a German perspective | DW | 02.04.2003
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Discount Airlines Defy "Iraq Effect"

At a time when a war-related decline in business travel has prompted Lufthansa to ground 55 of its planes, the continued rise of low-cost airlines bucks the trend. But how?


Low-cost airlines are flying high, despite the war.

Low-cost airlines are calm and composed in the face of a war in Iraq: Although major airlines around the world are fighting for survival (Air Canada just declared bankruptcy and American Airlines has -- thus far -- narrowly avoided such a move), their discount-minded cousins are selling just as many tickets as before the war.

"The war hasn't interfered with business at all, " a spokeswoman for high-flying budget carrier Ryanair told the German press agency DPA.

The reason is simple. Low-cost airlines operate primarily in Europe's vacation destinations and they are profiting from an increased trend in city tourism. They are also benefiting from a thrifty streak among business travelers, the life blood of the majors, who used to pay top dollar for seats. But those days are now passé. While the major airlines are experiencing a sharp decline in business traffic, the number of business travelers on Hapag-Loyd Express, the low-cost subsidiary of TUI, has risen by 40 percent.

Clear skies ahead for low-cost carriers

Top brass at Germanwings, Air Berlin, and Europe's largest low-cost provider, Ryanair, are all singing the same song of success while at the same time predicting more to come. Sept. 11th may have sparked the biggest industry crisis in recent memory -- one which has cost over a million jobs so far -- but, year after year, low-cost airlines are reporting ever-increasing numbers of passengers. And this trend, according to recent figures, has not been interrupted by the latest wave of hostilities in Iraq.

"Our bookings are now back at the same level they were at before the war broke out," a spokesman for Hapag Lloyd Express told DPA.

Germanwings, a subsidiary of Eurowings, has sold over a million tickets since launching last October. The company has seen little difference in ticket sales since the war broke out. "People have been booking with shorter notice, but the war hasn't had any noticeable effects," a Germanwings spokesman told DPA.

Air Berlin is contemplating placing a major order with Boeing or Airbus for 40 new planes and its passenger load increased 20 percent in 2002, rising to 6.7 million (the company predicts the number will increase to 8.3 million by the end of this year).

Ryanair setting the pace

Ryanair, the super-successful Irish outfit that sets the pace for budget competitors across Europe, expanded in the German market, adding Niederrhein and Berlin to its list of German destinations, joining Hahn in Hunsrück, Lübeck and Friedrichshafen. What's more, Ryanair announced in January it would begin operating a fourth European hub in Stockholm-Stavsta (with 30 flights throughout Europe) and is in discussions with seven airports to open yet another. This has led to a 40 percent rise -- to a total of 15 million -- in the number of passengers flying with Ryanair. And company execs have their eyes on a bigger prize: they predict a passenger load of 40 million by 2013 -- more than doubling their current load in 10 years.

A harsh hand with losing ventures

Austere business practices may well keep these carriers on top, despite tough times. The example of Buzz is a case in point, showing what happens to low-cost carriers who lag behind. The subsidiary of KLM was sold to competitor Ryanair in January for €23.2 million. By the end of February, Ryanair announced a massive restructuring and the likely elimination of 400-600 jobs. Fearing for their jobs, Buzz pilots swallowed the less than ideal contract offered by their new mother ship, which surely will save Ryanair money over the long term.