The Man Who Pays His Way: Air France's new tradition - devour thy neighbour
Saturday 22 March 2008
Venice fell off the flight map from London, at least from Alitalia's point of view, a decade ago: the Italian airline was losing a fortune on flights to the city's Marco Polo airport. Alitalia also scrapped Pisa and Naples. Now, its only UK flights link Heathrow with Milan and Rome. But so precious are the slots at Britain's busiest airport that the portfolio of permissions to take off and land at Heathrow could be worth up to half a billion pounds. Which is rather more than anyone is prepared to pay for the entire Italian airline. Air France, which is the only serious bidder, values Alitalia at just €138m (£107m). This shows what a shocking state this sub-prime carrier is in.
Day in, day out, Alitalia loses about a million euros; its debts currently total more than one billion pounds. The Italian airline has had little reason to care, mind, since for years it has been propped up – with flagrant disregard for EU competition rules – by cash pumped in by the government in Rome.
This week the Italian government finally approved the Air France bid. If (and it's a big "if") agreement can be reached with Alitalia's unions, the France carrier will be further along the road to world domination.
AIR FRANCE reigns supreme at plenty of airports: Paris Charles de Gaulle, Lyon and – thanks to its subsidiary, KLM – Amsterdam. Soon, it should prevail at Fiumicino in Rome and Milan Linate, too. More surprisingly, Air France is the biggest carrier at one of the UK's key gateways: London City.
When the Docklands airport was first opened, British Airways dismissed the prospect of using it. Today, BA is pumping more and more flights in: Amsterdam, Barcelona, Nice and Warsaw will be added to its London City network this spring. And next year its business-class passengers will be able to fly direct from Docklands to New York (with a refuelling stop in Ireland). But BA is fighting a losing battle on its home turf with Air France – which sees itself as possessing lifelong rights to the Docklands airport.
"We are really loyal," says the airline's UK general manager, Christine Ourmières. "We were the first." That virtuous assertion may not be entirely accurate; if I am not mistaken, Brymon Airways and Eurocity Express were the original carriers when London City opened in 1987 But Air France has been a tenant for 20 years. "It's a long story," she says. "I don't know if it's a love story, but it could be."
A romance with an airport terminal in London E16 may sound far-fetched, but Air France's commitment to the relationship is unquestionable. The French airline does more than connect London City with Paris, Strasbourg and Nice. It also shuttles seven times a day from London E16 to Edinburgh and back, and flies to many more places that are away from home territory: Dublin, Dundee and Zurich, for example. When you add in its Low Country subsidiaries – KLM and the Flemish carrier, VLM – Air France's domination looks, er, terminal. "It's a fantastic market," concludes Madame Ourmières – who finds herself running one of the top 10 airlines in terms of UK arrivals and departures.
Airlines are predisposed to expand. The bigger they are, the lower their costs. Economies of scale apply to everything from buying aircraft to marketing. Part of the Ryanair model has always been to "join the dots" on its network, for example connecting Edinburgh with Pisa – one of the many new routes for this summer. Not only do handling costs fall rapidly when an airline is operating multiple flights from a single airport, but even advertising is better value: an extra destination can be added to a newspaper ad or billboard for no extra cost.
British Airways, in contrast, is giving the impression of shrinking. For years, GB Airways has flown very competently and professionally in BA colours, providing an excellent service to destinations around the Mediterranean and beyond. But from the end of this month, when the franchise agreement ends, British Airways will surrender its dominance at Gatwick to easyJet, which has bought GB Airways. While BA is muscling in to compete on some former GB Airways routes, such as Heathrow and Gatwick to Malaga, others – the Canaries, the Greek islands, Egypt's Red Sea coast – will disappear from the airline's network. BA still intends to grow over the next few years, but compared with Air France it will look like a laggard.
Air France-KLM-VLM already flies more passengers internationally than any other airline; Ryanair tops the list only if you treat the trio as separate carriers. Once Alitalia is digested, even with some flights axed Air France should inherit a further 20 million passengers a year. But the French carrier will do what it has done with KLM, by preserving the illusion that the Dutch still have an airline of their own. The Italians can be reassured that Alitalia will still be the most visible presence at Rome's main airport, even if the airline is controlled by Paris.
Cheekily, Air France is not stopping at hoovering up smaller airlines; it is also muscling in on the richest international aviation market, between the UK and US. From 1 April, the airline will fly between London and Los Angeles every day, under the "open skies" agreement that unlocks Heathrow.
British Airways has promised reprisals: its own offshoot, OpenSkies, will fly from Paris to New York. But that operation will use a small, old Boeing 757. In contrast, Air France offers a 777 carrying three times as many passengers. Where next? Don't bet against Air France starting flights from its UK hub, London City, to Venice.
The Orange Paint Awaits
Football and aviation share a common disinclination to abide by the normal rules of business. David Beckham (right), who this week was recalled to the England squad, has a contract with a mediocre Californian football team, LA Galaxy, that is worth £125m over five years – more than enough to buy an airline.
GB Airways makes its final flight next Saturday. For the last decade has operated as a franchisee for British Airways, but it has been taken over by easyJet and will be erased when the summer schedules take effect on 30 March. It was sold to easyJet for £103.5m, which to its considerable credit is almost the value placed on the much larger airline, Alitalia.
"Consolidation" is the name of the game. GB Airways' owners concluded that an airline of its scale had no future in the ultra-competitive aviation market, British Airways had first refusal. When the BA board decided not to buy, easyJet swooped: it saw an opportunity to eliminate a competitor and displace British Airways as the leading airline at Gatwick.
Since the takeover, the GB Airways fleet has been progressively painted plain white. This intermediate stage was necessary before the full easyJet orange treatment; it was felt that BA's premium passengers (David Beckham included) would resist boarding a plane in easyJet colours.
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