The article below from NYTimes.com has been sent to you by psa188@xxxxxxxxx /--------- E-mail Sponsored by Fox Searchlight ------------\ I HEART HUCKABEES - OPENING IN SELECT CITIES OCTOBER 1 From David O. Russell, writer and director of THREE KINGS and FLIRTING WITH DISASTER comes an existential comedy starring Dustin Hoffman, Isabelle Hupert, Jude Law, Jason Schwartzman, Lily Tomlin, Mark Wahlberg and Naomi Watts. Watch the trailer now at: http://www.foxsearchlight.com/huckabees/index_nyt.html \----------------------------------------------------------/ Europe's Airlines Dreading the Winter September 29, 2004 By ALAN COWELL and HEATHER TIMMONS LONDON, Sept. 28 - When European airline executives look across the Atlantic at the industry's woes in the United States, they see a reflection of their own problems, but it is not an identical image. They have some troubles that are all their own. In recent times, European full-service airlines have confronted the double whammy of a global slowdown before and after Sept. 11, and a relentless challenge by an ever-increasing number of low-cost rivals. In the process some full-service European airlines, like the venerable Swissair and Sabena, have gone out of business. Alitalia is being split in two and is accepting a $490 million rescue package to avoid liquidation. Yet others have merged or are talking of merging. The low-cost carriers, led by easyJet and Ryanair, have embarked on brutal price wars, just as record high oil prices are cutting into profits. And, underlying the industry's woes is a sense that the era of high fares sustaining profligate operating costs is well and truly over. The combination of the competitive pressure that low-cost carriers are going to bring to the industry this winter, the current high price of fuel, and the traditionally lower sales during the season ensures that "a significant number" of European airlines are going to suffer, said Chris Avery, an analyst with J. P. Morgan in London. Particularly vulnerable are the dozens of start-up airlines that entered the market over the last few years, hoping to become the next low-cost success story, he said. Many of these airlines "will not survive through the winter," Mr. Avery said. Perhaps anticipating the fallout, British Airways sold its stake in Qantas this month and said it planned to use the £425 million ($768.7 million) it raised to strengthen its balance sheet for acquisitions in Europe. Just in the last few days, a series of events have again illuminated the ferocious competition in the European airline business as carriers seek to avoid the kind of turmoil roiling the industry in the United States. Last week, Michael O'Leary, the pugnacious chief executive of Dublin-based Ryanair, the Continent's biggest low-cost airline, unveiled a plan to offer in-flight entertainment consoles at a cost of around $9 a flight to lure passengers as the no-frills carrier readies for what he called a "blood bath'' of price-cutting. He also announced the opening of several new routes to Spain, with prices starting at less than $4 before airport taxes. Two days later, easyJet, Ryanair's biggest rival, coupled a scale-back in its fleet expansion plans with an announcement that it would open new routes for the first time from Britain into Ireland - Ryanair's home base - another sign of the tooth-and-claw competition for passengers. EasyJet and Ryanair are facing some stiff competition from a host of copy-cat competitors. A total of 67 low-cost airlines now operate in Europe, many of them start-ups replacing others that have already failed, according to industry figures. With names like Wizz Air, Snowflake, SkyEurope, Germanwings and Globespan, they are channeling an influx of new capital from private equity funds, banks and established airlines to try to attract passengers. Some of Europe's full-service airlines, like British Airways, are facing such fierce price competition from low-cost carriers that they are now offering discounted fares of their own. While the fares are not quite as low, tickets booked several months in advance for specific, unchangeable dates can lower fares on expensive European routes like London-Zurich to around $60 before taxes compared with $900 for a full-fare, fully flexible ticket on the same route. The challenge from the low-cost rivals is obvious enough. In Germany alone, Lufthansa is competing against more than 10 low-cost carriers whose share of the domestic German market has risen to over 17 percent from virtually zero in 2002, according to industry figures. Indeed, low-cost airlines are forecast to carry some 80 million passengers in Europe this year, a big increase over the 47 million passengers flown last year, according to the European Low Fares Airline Association. In response, Lufthansa has announced that it will increase capacity on European flights by 4 percent this winter and by 6 percent on the long-haul flights, where low-cost carriers do not generally compete. The low-cost carriers' ascendancy could hardly have come at a worse time for full-service carriers, reeling from the global slowdown in the industry since 2000, compounded by the impact of Sept. 11. some airline executives argue that in contrast to carriers in the United States , the European airlines cannot shelter behind Chapter 11 protection from creditors, and thus are forced to solve their problems, merge or go under. That shakeout has forced the disappearance of some airlines and their replacement by successors created in rescue packages. Among those still standing, Air France merged with KLM, the Dutch carrier, and there is talk of deals in the offing between British Airways and Iberia, the Spanish carrier. Virgin Express, a Belgium-based discount airline owned by Sir Richard Branson, is in talks with SN Brussels Airlines, the successor to Sabena. Both are under pressure from Ryanair's operations at Charleroi in Belgium. And Alitalia, the beleaguered state-owned Italian carrier, which just last Friday announced a major overhaul aimed at staving off liquidation, has also spoken of partnerships with Air France and Lufthansa of Germany. Lufthansa itself has reportedly been eyeing the successor to Swissair, Swiss International Airlines, known as Swiss. "This is just speculation, and we don't comment on this issue," said Stefan Schaffrath, a Lufthansa spokesman. Add rising fuel costs to the already roiling mix. Jet fuel traded at about $1.49 a gallon in northwest Europe last week, according to Jet Fuel Intelligence, up from about 83 cents a gallon at the beginning of the year. There is one bright spot here, though. Unlike their American counterparts, European airlines have managed to pass along some of the rising fuel charges directly to consumers. British Airways, KLM and Lufthansa are among the airlines that have added several euros per flight segment to cover the cost of fuel. Compared with American carriers, European airlines also more consistently use oil price hedging, the purchase of securities to lock in low fuel prices. But hedging varies widely from company to company, and few airlines seem to have predicted the prolonged high prices: Swiss, for example, sold its fuel hedges in March to raise money. Ryanair has hedged fuel prices only till the end of October. The company says that it can counteract any profit loss by cutting costs, a strategy that analysts expect other already lean airlines to follow. "The issue is how much do fuel costs dent into the earnings recovery?" said Nick van den Brul, an airline analyst for BNP Paribas in London. The rising price of fuel "neutralizes the effect of cost-cutting," Mr. van den Brul said. At the same time, both Ryanair and easyJet have said they will continue to cut prices even though that will eat into profit. Ultimately, Mr. O'Leary has forecast, the two giants of the low-cost business will compete on an ever greater number of routes to take market share from the smaller no-frills airlines and from the full-service airlines. "What we have seen is a structural shift in revenue," said Chris Tarry, an independent airline analyst in London. "People are not prepared to pay as much as they did to travel, so the challenge is to get costs out of the business." The cost pressures on the big airlines have already had an impact. In August, British Airways discovered that a combination of absenteeism and cost-saving staff reductions had left it short of personnel to operate check-in counters at Heathrow Airport outside London. In a chaotic week, around 100 flights were canceled and over 10,000 passengers were stranded, damaging the airline's image for reliability. Some executives have suggested that the challenge from the low-cost airlines will be less severe than Mr. O'Leary predicts. Jean-Cyril Spinetta, the chairman of Air France, for instance, has said the low-cost carriers are limited to around 10 percent to 15 percent of the market because they do not fly long-haul routes. Those routes are often made more lucrative by high business-class fares. Indeed, British Airways once based its strategy exclusively on winning high-ticket business travelers, a strategy it was forced to abandon by the low-cost carriers. http://www.nytimes.com/2004/09/29/business/worldbusiness/29euroair.html?ex=1097553260&ei=1&en=fa6d3e7949d463ac --------------------------------- Get Home Delivery of The New York Times Newspaper. Imagine reading The New York Times any time & anywhere you like! Leisurely catch up on events & expand your horizons. Enjoy now for 50% off Home Delivery! 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