Travel: Game changing

Airlines such as Lufthansa, Air France and BA have one problem with their European flights; they lose money with them – a lot of money. Their European flights are to all intents “loss leading feeder flights” for their profitable long haul networks.

Most people are probably unaware that for Lufthansa, about 60 per cent of all passengers are not travelling to Frankfurt or Munich; they are passing through it on their way to somewhere else. BA and Air France have similar percentages. If there were any doubt that flying around Europe verges on the edge of suicidal for airlines, then ask Malev and many other smaller operators who bit the dust. One can, however, already here the question in readers minds of “what about Ryanair and Easyjet?”

The answer is, of course, these latter two have a totally different business model than the likes of BA, Air France and Lufthansa: but it’s a model that works for the former two whereas the traditional business model of the latter three clearly does not work. That may be until now.

Lufthansa were first off the mark and they have now been joined by Air France in totally re-engineering their European operations in a manner that, while it may radically alter how people book travel, the new offerings look enticingly simplistic.

In short, Lufthansa have set up a hybrid Low Cost/Traditional airline based on their existing Germanwings operation that will operate all Lufthansa’s European flights from all (German) airports except the main connecting hubs at Frankfurt and Lufthansa (one gets the feeling that the answer of how to structure European operations from these two airports is still on the drawing board). Air France have just followed suit and have merged its own three regional carriers that operate the short haul flights on Air France’s behalf and renamed it HOP! European and domestic flights in and out of Paris CDG will, like Lufthansa, still be largely (though not entirely) operated by the main Air France brand but all point to point flights from Paris Orly and all domestic flights will operate under the HOP! brand. Expect European flights in and out of Paris CDG to also change to the new brand soon.

The real crux of all this is that, aside from the lower cost base that these new set ups have, the booking process is simplified. Rather than having scores of different booking classes they will in both cases have just three booking levels which broadly allow for more privileges (baggage allowance, frequent flyer points and re-bookings) and more flexibility the higher of the three levels you go.

No doubt the yield management people will still be lurking around to ensure the fares paid are fluid and maximized, but the move by Lufthansa and Air France is likely to have BA scampering around to follow suit. We speculate that these moves will have a significant impact on regular travellers booking habits as well as on the longer term profitability within Europe of both Air France and Lufthansa. Put it another way, it has to otherwise neither will be around to try something else. If you think this is an exaggeration, think Middle East carriers and their continued expansion into those markets that formed the core of all the European airlines profits: the (profitable) long haul routes.

(Photo: Pablo Barrios)





Mark Thomas

Mark Thomas is Managing Director of Jamadvice Travel / BCD Bulgaria, one of Bulgaria’s leading Travel Management Companies with 28 years market leading presence on the Bulgarian market.