Budget airlines eye up business travellers as fares go sky-high

FREQUENT flyers who thought the deregulation of European air routes completed last year would bring down fares have received a nasty surprise: even as low-cost carriers proliferate, the cost of full-fare business tickets is still rising.

Prodded by start-ups such as London-based easyJet, the price of leisure tickets in Western Europe has dropped 5 per cent over the past two years, according to American Express Corporate Services. But full-fare tickets have jumped 5 per cent and are 40 per cent more costly mile-for-mile than in the US.

"Business class fares in Europe are still outrageous," says David Steyn, who flies frequently as chief executive of Quaestor Investment Management, a fund management company. "It's beyond annoyance. I still think that the market is essentially a cartel."

It also worries regulators in Brussels, who plan a campaign to force the airlines to change course. The European Commission recently hired Cap Gemini, Europe's biggest computer services company, to build computer models to see whether carriers are charging "unjust" prices on certain routes.

The commission says it will use the results of the study, due to be announced in October, to prod airlines to cut fares. Such heavy-handed intervention may run counter to the ideal of a truly deregulated market but Brussels wants to use a successful airline policy to win popular support for plans to free up other industries such as telecommunications.

There's ample evidence that prices are rising. On the London to Paris route, the most heavily travelled in Europe, business fares have risen 6 per cent in the past 12 months despite competition from Eurostar. On London-Amsterdam the price of a business class ticket is up 8 per cent, while London-Frankfurt prices are up 6 per cent.

The regulators have their work cut out for them, according to analysts and industry executives. Few companies are more opaque in their pricing practices than airlines, which typically offer a welter of special discounts.

"Fares are in a constant state of flux," says David Henderson, of the Association of European Airlines, an industry lobbying group.

Frederik Sorensen, the commission's air transport policy chief, acknowledged that he holds little formal power to order the airlines to bring down fares. But he said the commission holds considerable power of persuasion. He pointed to a row between easyJet and KLM Royal Dutch Airlines over prices on the London-Amsterdam market.

Faced with easyJet's complaint of price-dumping and a surprise "dawn raid" by commission officials who confiscated KLM documents, the Dutch carrier raised its fares. Once the commission makes "sufficient noise", Mr Sorensen said, "airlines find that there are certain things they cannot do".

But industry experts say that talk alone won't be enough to bring down fares. The key, they say, is opening up competition at Europe's congested airports to give its growing ranks of small start-up carriers a chance to add more frequent services.

What matters for the business flyer is "schedule, schedule, schedule", said Kyle Davis, vice-president of the American Express purchasing management group in Europe. Business travellers need carriers with several flights a day, in particular at peak morning and evening hours, so they can grab any flight and change it at a moment's notice. So far, the likes of easyJet and Ireland's Ryanair Holdings do not carry that clout with business people - and their rivals know it.

Henri Hourcade, the head of a medium-haul division at Air France, said he responded with lower leisure fares once Ryanair began offering a few weekly flights from Dublin to France's Beauvais Airport outside Paris. But he didn't bother with business tickets - "they weren't in competition."It is a two-tier system the industry seems eager to protect. Big airlines say they need to charge business travellers higher fares to balance out the bargains offered to leisure flyers, who account for 75 per cent of all traffic.

"The business traveller has to pay for all those special prices offered on the leisure market," said Monika Goebel, a spokeswoman for Lufthansa. "We airlines earn our money on the business sector," she added. "Like other carriers Lufthansa, too, tries to get what it can get" from the business traveller.

The low-fare airlines say they are not content with that state of affairs. But to have a chance, they say, regulators need to do more than just talk - they need to take firm action to loosen the big carriers' stranglehold on busy airports such as Heathrow and Gatwick.

That means streamlining Europe's fragmented air traffic control system to lift the number of permitted flights and rationalising a tangled system of awarding take-off and landing slots at the airports, now largely controlled by large airlines such as British Airways and Lufthansa. Regulators "need to open up barriers to entry", said Mr Davis, the American Express travel planner.

It is a problem that confronts regulators on both sides of the Atlantic. In the US business fares have jumped 41 per cent over the past two years, according to American Express, and the larger airlines are muscling out start-ups that sprang up in the overnight deregulation in 1978.

The Department of Transportation is weighing measures to decrease the dominance of the bigger airlines at their hub airports, but it has been resisted by the airlines. In Europe regulators have not yet delivered promised measures to reform the award of airport take-off and landing slots.

Low-fare rivals say they expect to win business flyers; it will just take time. Stelios Haji-Ioannou, the chairman and founder of four-year- old easyJet, said: "Ninety per cent of the plane are wearing suits," on his London-Glasgow route now that the number of flights is four a day.

He expects more suits on services to Edinburgh, Amsterdam and Madrid, where he is also boosting flights. If they do not come immediately, they may once an economic downturn forces companies to become more cost-conscious.

Most of easyJet's business flyers, he said, "are people working for themselves, small companies or departments of large companies where they're responsible for their own travel budgets".

Copyright: IOS & Bloomberg

Start your day with The Independent, sign up for daily news emails
England's women celebrate after their 3rd place play-off win against Germany
Women's World CupFara Williams converts penalty to secure victory and bronze medals
Arts and Entertainment
Ricardo by Edward Sutcliffe, 2014
artPortraits of LA cricketers from notorious suburb go on display
newsHillary Clinton comments on viral Humans of New York photo of gay teenager
Arts and Entertainment
The gang rape scene in the Royal Opera’s production of Gioachino Rossini’s Guillaume Tell has caused huge controversy
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
10 best statement lightbulbs

10 best statement lightbulbs

Dare to bare with some out-of-the-ordinary illumination
Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

Briton pumped up for dream meeting with world No 1
Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

Nick Bollettieri's Wimbledon Files

It's time for big John Isner to produce the goods to go with his thumping serve
Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

Dustin Brown

Who is the German player that knocked Nadal out of Wimbeldon 2015?
Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

Damien Martyn: 'England are fired up again, just like in 2005...'

Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test