Riding out turbulence in aviation sector

Date: 30/05/1996

By Tim Jones

FLAG-CARRYING airlines have all been shocked by the onset of EU-inspired liberalisation, but some more so than others.

Sabena, Belgium's 73-year-old national airline, falls squarely into the former category.

Once christened 'Such a Bad Experience, Never Again', the airline was famed for its poor service. The bottom line was not much better. In 1983, the company reported its first profit in 26 years only after huge wage cuts, a round of job-shedding and a capital injection from the Belgian state.

This was bad enough in a climate of bilateral aviation deals between governments, designated landing rights and routes, and shared schedules between flag carriers. Once this protection began to be stripped away in 1988 - with full liberalisation staring it in the face in 1997 - the future began to look very frightening for Sabena.

In November 1994, EuroBelgian Airlines (EBA) started to offer cheap 'no frill' flights to attractive destinations, shunning on-flight meals and fancy ticketing to keep the costs down.

Sabena has so far coped by cutting costs through wage-reductions and redundancies, and by leaping into the arms of Swissair, one of the few - until this year at least - profitable state airlines in Europe.

Last year, the Swiss airline took a 49.9&percent; stake in Sabena because it wanted a foot in the liberalised EU market and because it believed it could make the Sabena operation profitable.

For Rudy Maex, Sabena's director of sales for Belgium and Luxembourg, the strategy depends on redefining Sabena.

Making money out of simply flying in and out of Zaventem airport can no longer be guaranteed by governments, once financially strong or low-cost carriers start competing with national airlines.

“We will try to improve our product, showing it to be a 'total travel experience' and so differentiating ourselves from low-cost operators which are already entering our markets and will do so even more,” says Maex.

This has become even more pressing since Richard Branson's Virgin bought EBA in April, and turned it into Virgin Express - aiming to create the European equivalent of the bargain US carrier ValuJet.

EBA was already offering return flights, starting at 170 ecu, to Milan, Madrid, Vienna, Nice and Barcelona - and the proven marketing skills of Virgin could make it a real threat at Zaventem.

Maex recognises that costs have to be cut. “Already, from 1991 to 1995, staff numbers have been reduced by 25&percent; and, with a dramatic increase in turnover, we have increased our productivity by 65&percent;,” he explains. “We are preparing the ground for a major productivity improvement in the future because liberalisation will force us to keep lowering costs.”

But Maex realises that cost-cutting alone will not do the trick against low-cost airlines that carefully select their destinations.

“We are preparing ourselves by developing a unique product - a niche market - in the way we are linking regional points in Europe”, using Zaventem as a linking point or 'hub', he says.

“Although it's a hubbing strategy, it is not a classical one whereby you feed long-haul traffic into short-haul traffic.

“We are exceptional in the way we have developed an intra-European hub linking regional European points such as from Bilbao to Hanover or Billund to Florence. By doing this where there is definitely not enough volume to develop a point-to-point service, we will be able to carve out our market even in the liberalised environment.”

This, he hopes, will keep the Virgin-EBA wolf from Sabena's door. Indeed, Maex believes the arrival of EBA has actually helped Sabena.

“What comforts us is that in the markets they have entered - and they are obviously markets where there is quite a bit of point-to-point traffic - we have benefited from new market segments they seem to have created. They have attracted people who previously would have travelled by train or bus and got them on to planes, and some of the market that has been created is also part of our current business,” he says.

As a result, Sabena is aggressively marketing flights at EBA-level prices to Nice and Milan. “We have learned from the experience of EBA that in certain markets, lowering the price can generate a lot of additional traffic.”

At the same time, Sabena hopes that coordination with Swissair will further increase company productivity and feed through into joint marketing.

“We have been trying to coordinate our schedules, especially on the long-haul routes, for example to Africa. Before, we were operating on the same days and now we have nearly avoided all clashes. That is a prerequisite before something in sales can work. By coordinating schedules, it becomes much easier to achieve the synergies you are hoping for.”