Travel providers to feel air wars heat

AUSTRALIAN travel providers will suffer the same margin erosion as their UK counterparts experience while discount airlines carve up the market, the chief of Flight Centre's British operations says.

Chris Galanty, the new managing director of the Brisbane-based chain's UK division, said the Australian market would take time to adjust to the introduction of no-frills airlines. Cheap carriers, particularly EasyJet and Ryanair, dominate the UK market and have pushed flagship carriers British Airways and Air France into lowering costs to compete.

Flight Centre has established 74 branded stores, predominantly in High Street locations, and experienced 35 per cent profit growth in the last financial half.

Mr Galanty said travel providers, including Flight Centre's competitors, had survived the worst of the margin erosion prompted by the fare cost-cutting.

He said: "This is a much more complex travel market than Australia.

"We are able to protect our margins by strategic selling and there are also options for us to sell ancillary products.

"The UK industry is big on traditional packages which we sell a lot of as well while airlines look at their distribution costs."

Mr Galanty said the battle in Australia between Virgin Blue, now under the control of Patrick's boss Chris Corrigan, and Jetstar, the Qantas offshoot, was a similar situation to what had previously unfolded in the UK.

Jetstar's creation was based on the EasyJet business model and includes cost-cutting methods such as using secondary airports, ticketless flights and emphasis on Internet bookings.

Mr Galanty said: "The discount market is a bit more advanced here. Ryanair and EasyJet, they are an established part of the market, whereas in Australia the discount carriers have only started in the past couple of years.

"In Europe there are 14 to 15 low-cost carriers with the charter groups and the network carriers. It's an established part of the market.

"Business in the UK has become quite used to it for several years. Australia is probably at the point now that the UK was five to six years ago. We now take discount travel for granted."

Flight Centre UK has tipped double digit full-year profit growth and plans to embark upon an aggressive expansion plan in UK regional areas.

Unlike Virgin Blue, the UK discount carriers are gaining strength on the London market and in customer numbers.

Virgin Blue revealed this week that its February numbers showed a 15.8 per cent increase in traffic but its revenue load factors dropped 3.8 per cent for February.

Ryanair told the UK market this week that its customer numbers rose 20 per cent for the same month while revenue factor was 2 per cent higher on last year.

Discount airlines in the UK are also in favour with the market, again unlike Virgin Blue, which has suffered several downgrades.

French investment bank Exane BNP Paribas has a buy recommendation on EasyJet, the majority of which is still owned by founder Stelios Haji-ioannou, a Greek entrepreneur.

Geoff Van Klaveren, a London-based aviation analyst at the firm, said the market had discounted EasyJet but "once people get over fears about fuel they will start to buy into the airlines."

Flight Centre shares fell 39¢ to $15.01 yesterday while Virgin Blue dropped 2.5¢ to $1.87.

Source: http://www.thecouriermail.news.com.au/