LibertE, EgalitE, FraternitE?

France is Europe's largest tourist destination, with 75.5 million visitors annually including some 15.5 million Germans, 12.7 million Britons and 12 million Dutch flocking to the country. Per capita GDP is above the European average, and with 61 million inhabitants it has the largest population in Western Europe after Germany. Yet air travelers in France have fewer opportunities to take advantage of low-cost airlines than those in almost any other country in Europe.

Based on OAG data for the week of June 14, LCCs accounted for only 5% of domestic scheduled available seats in France compared to 31% in the UK, 23% in Germany and 15% in Italy. LCCs offered 20% of the seat capacity on intra-EU routes to/from France compared to 35% to/from the UK, 14% to/from Germany and 25% to/from Italy. Based on flight frequencies, the no-frills sector provided 3% of all scheduled flights in France compared to 19% in the UK, 18% in Germany and 11% in Italy. And LCCs operated 13% of scheduled intra-European flights to/from France against 31% to/from the UK, 11% to/from Germany and 20% to/from Italy.

Furthermore, according to research by Arthur D. Little Paris, as of Dec. 31, 2003, no LCCs were indigenous to France while UK/Ireland had nine, Germany six, Scandinavia and Italy three each and Belgium and the Netherlands one apiece.

This lack of penetration is not for want of trying, however. London Luton-based easyJet is quite vocal about its inability to gain more than a toehold in France and more specifically access to the Paris airports of Roissy Charles de Gaulle and Orly. Having announced plans to establish a base at Orly in 2002, it currently has just four aircraft based there and three at CDG, from whence it operates to eight and six destinations respectively. This compares with a selection of 13 routes using six aircraft from Berlin Schoenefeld, a base easyJet only launched at the end of April. "We want to know why it took only two months in Germany to achieve our current level in France after three years of operations," says easyJet Communications Manager Toby Nichols. "We could potentially base 40 to 50 aircraft in Paris."

Frustrated by the situation, easyJet in May initiated legal action against French slot allocator COHOR over its lack of independence from Air France. One week later the carrier submitted an appeal to the Court of First Instance in Luxembourg requesting that the court annul the European Commission's clearance of the Air France-KLM merger, which "in its current form strengthens the dominant position of AF." According to easyJet, Air France enjoys a "quasi-monopoly over the French sky," with a 74% share of the domestic market, a monopoly on 27 of 42 routes out of Paris and meaningful competition on only three routes: Marseilles, Nice and Toulouse.

The inability to gain share in France is not a dilemma exclusive to UK budget carriers. Ryanair, for example, has no aircraft based in France although Paris Beauvais is its largest nonaircraft base with an average of 20 daily roundtrips.

Following the demise of Air Lib last year, Virgin Express and French shipping group CMA CGM expressed interest in establishing an airline in France. "Our market analyses showed that the large Paris market, starved of 'value-for-money' fares, would allow Virgin Express significant opportunities to expand," Commercial Director Paul Sies tells ATW. The Brussels-based low-fare airline anticipated opening routes from Orly to some 18 domestic and international destinations and applied for 25,000 annual slots in order to set up a base with 12 aircraft, but it received a mere 5,840 slots for routes to Rome Fiumicino, Toulon and Bordeaux.

"It was a joke," Sies comments. "First, we put in an offer to take over part of Air Lib's assets and staff to get slots-as the government had indicated-but then COHOR decided not to take the argument into account. Then Virgin Express, acting independently, was allocated a set of slots which were, for the majority, absolutely useless, at least for the economics of an LCC. With the slots that were allocated to us we would achieve a daily aircraft utilization of around seven hours while we target 11. Also, in order to use the morning slots to Rome we would have to station an aircraft overnight, which was, needless to say, not our idea of establishing a base in Orly." Virgin Express returned the slots.

Ryanair has faced its own problems in trying to establish a foothold in France. AF subsidiary Brit Air successfully challenged its deal with Strasbourg Airport in the Strasbourg Administrative Tribunal and Ryanair subsequently moved its twice-daily Stansted service to nearby Baden-Baden in Germany. Separately, Air Mediterranee is suing Ryanair claiming that it suffered damage in the form of traffic losses on its route from Stansted to Tarbes Lourdes as a direct result of Ryanair's agreement with the Chamber of Commerce in nearby Pau.

"This kind of situation makes a carrier very nervous," comments Alex Hunter, chief commercial officer of ThomsonFly.com, the LCC startup of Britannia Airways. "If for no real obvious reason you have to withdraw from an airport, you might think twice before penciling in your investment there."

"We had low-cost carriers in France," claims Jacques Sabourin, delegate general of UCCEGA, the association of French airports. "But they had a major dilemma: They did not have the low costs" and so failed. Air Lib/AOM closed down in February 2003, Euralair Horizons and Aeris followed in November, Air Atlantique stopped operations in January and Air Littoral in February. In truth, however, none of these was a low-cost carrier although all offered low fares in an effort to find a market niche.

"The demise of several low-fare airlines in France caused a certain negativism around LCCs," notes Laurent Delarue, senior manager at Arthur D. Little Paris, who has studied the French LCC market. "For the last 18 months, it has been virtually impossible to find financing" for a French LCC, he says.

When asked about the paucity of LCCs in France, Air France chairman and CEO Jean-Cyril Spinetta argued to this magazine (ATW, 10/02, p.22) that "besides Air France and the [high speed train] TGV there is no significant market left." He well could be right, and for Sies this demonstrates the protectionist attitude of the French government. "We're not even speaking about nationalism here because privately owned airlines like Air Lib and Aeris are allowed to go down," he says. "The French government manifestly protects its national carrier Air France and its heavily subsidized prestige project TGV. There is no room for consumer choice."

Much to easyJet's irritation, while Air France might hold a dominant share of the domestic air travel market, the TGV is the dominant actor overall. In 2003 it accounted for almost 80% of France's combined air and rail traffic, Air France about 17% and other carriers 3%.

The French DGAC notes that domestic air travel in France last year fell 5% to its level of 1997 and has dropped 15% over the last three years. "This is 4 million passengers, or one in seven passengers," it says. It cites three reasons for the decline: "Severe recession of French domestic air travel," competition from TGV Sud-Est that drains more than 1 million passengers yearly from airlines, and the demise of Air Lib and Aeris and the subsequent rise in domestic airfares.

The DGAC remarks that despite the collapse of Air Lib and Aeris, LCCs gained ground in France in 2003 with an "impressive" 41.7% increase in traffic to 7.85 million passengers, of which 6.71 million traveled on intra-European routes and 1.14 million on domestic segments. Also noteworthy, it says, is the fact that easyJet became the second-largest carrier in France last year, increasing its passenger totals by 66% to 3.2 million. Traffic at Air France, including franchise partners, was virtually flat in 2003 yet still accounted for 44.19 million passengers.

With 29% of its passenger throughput generated by budget airlines, Nice Cote d'Azur is very "atypical" among French airports, admits Marketing Director Filip Soete. Some 13 LCCs, of which easyJet is the largest with 1.65 million passengers in 2003, fly to the airport, though none has established a base there. "Nice is the exception that proves the rule," Soete says. "Most LCC traffic flows in Europe are still north to south, thus France, including Nice, is mainly an inbound market. We have a small leisure outbound market compared to other big countries like Germany, the UK and Scandinavia, or even compared to smaller countries like Belgium or the Netherlands. It's not so easy for a low-cost operator to develop a market on an inbound base. It would have to include Paris," he acknowledges, as France is economically and politically a very centralized country. "But access to Paris is very difficult."

Paris Orly has been-politically-slot-capped since 1994 at 250,000 movements per year. At present, LCCs represent some 12% of flights and 13% of seat capacity based on OAG data for the week of June 14, up 832% and 1,084% respectively on the year-ago period. At CDG, LCCs increased their seat capacity by 24%, compared to a 5% increase by full-service carriers. "There is a change of attitude," Delarue believes. "For 40 years the government, the DGAC and Air France had the same targets, as did the airports [which are all state-owned] . . . It's different now. Many airports are urging the

DGAC to authorize new tariff structures and the DGAC is actually authorizing many airports to adopt new pricing models to try to accommodate LCCs."

Nevertheless, he concedes, there are still some "brakes" on the development of the low-cost sector. "It's a historic state of mind," he says. "Airports' traffic has been for a long time generated by a few carriers. When airports consider developing LCC traffic, they naturally fear that they are giving up what they have already for some uncertain alternative."