Low-cost airlines plan take off in Scandinavia

In a depressed Nordic air travel market, with Scandinavian flag carrier SAS cutting fares to lure back clients, budget airlines have found a window of opportunity and are seen expanding before business picks up.

SAS has been suffering particularly from a plunge in high-margin business traffic. It said last month that it would cut business fares by 30 per cent and introduce a new single class on board, fighting budget airline rivals.

The Irish no-frills carrier Ryanair has been almost the only low-cost player in a market dominated by Swedish, Danish and Norwegian flag carrier SAS which has been suffering from a severe drop in demand.

Industry experts believe at least one home-grown operator will now take advantage of a weakened SAS to start business this year as slots have become available even at the main capital city airports where traditional airlines have cut capacity.

"If travel starts to grow again, growth will come from low-cost operators," said Harald Rosen, head of industry organisation Svenskt Flyg.

He predicted the number of people travelling annually on low-cost carriers in Scandinavia would rise to five million by the end of 2004 from one million now.

Industry players in general believe that in five years the market share of low-cost carriers could leap to around 20 per cent in Sweden, Norway and Denmark. Currently, estimates of their market share range from half a per cent to four per cent.

Budget airlines are seen growing most on routes between big European cities to Nordic centres - precisely the flights SAS targets.

SAS announced a series of cost-cuts as it suffered its worst ever result in 2001, but its cumbersome structure built up during years of government dominance is slow to slim down.

Low-cost carriers squeeze profits out of a simple corporate structure, new technology such as electronic tickets and a fleet with only one plane type which simplifies pilot training.

Ryanair is the leading budget airline in Scandinavia, currently flying to four airports in Sweden, three in Denmark and one in Norway. It said it is in talks with several airports and expects to open new routes early next year.

Commercial Director Michael Cawley told Reuters that the company, already the market leader on routes between Sweden and London, was considering opening a base for its planes in Sweden or Norway as soon as 2003.

Dan Lundvall, marketing director at Swedish airport operator Luftfartsverket, said price was now the driver in the markets.

"There is an opportunity now if you want to enter the markets with force. Competitors are weak and there are slots available," Lundvall said.

Others, such as Denmark-based Sterling, are more cautious. Sterling, owned by Norwegian off-shore companies Ganger Rolf and Bonheur, started as a charter airline but has flown regular flights since January 2001, offering cheap prices to both business and leisure travellers.

"What happens to a market when low-cost carriers enter is that the market will grow," said managing director Johnnie Oberbye. But he said low-cost carriers could take a market share of a maximum of five per cent in the next few years.

The reason is geography - the Nordic market is less attractive than Continental Europe due to longer flight times.

KLM`s buzz budget airline ended its Helsinki-London flights although the route was popular because it could make better use of its planes on shorter routes than on the three-hour trip.

A rapidly changing market is also being targeted by charter airlines starting scheduled flights and other operators which sell only seats but lease both planes and staff.

Privately owned Goodjet, which says it is Sweden`s first discount airline, has just daily flights to Paris and Nice from Gothenburg. Critics say it is only a sales company as it leases its planes from a new firm, Transair.

Aircraft leasing companies are in fact eagerly encouraging the formation of new budget airlines as plenty of planes are now idle due to capacity cuts by traditional airlines.

The Swedish leasing company Transjet is, according to industry sources, currently in talks with investors to expand business that could see the start of a new budget airline.

Transjet is negotiating with US financial services group Finova Capital Group - from which it currently leases its nine-plane fleet - and a third-party financier.

While several companies are already offering cheap flights to holiday destinations, the biggest threat to SAS are carriers with frequent traffic between business centres.

Firms are saving by having staff fly budget, not business. "On flights lasting less than three hours there is no food or legroom in the world to justify an extra cost of 8,000 crowns ($774)," said Goodjet managing director Reidar Svedahl.

And established budget airlines, whether they are already in the Nordic market or not, say they eye it with interest.

Belgium`s Virgin Express hurt SAS last year when it won a contract from the Danish state - a SAS stakeholder - whose officials including ministers now fly Virgin on the Copenhagen-Brussels route.

Virgin, which also flies to Gothenburg and Stockholm from Brussels, said it is not currently planning any new routes. Britain`s easyJet Plc, Europe`s second-largest budget airline, said it considered Scandinavia an attractive market but would wait a couple of years before it would enter.

"We are not in the Scandinavian market but this is likely to change in the course of the next few years," said easyJet spokesman Toby Nicol, who said it would not be a permanent loss of opportunity if the firm did not rush in now.

"The market is still very immature in Scandinavia," he said.