Page last updated at 13:59 GMT, Monday, 22 February 2010

Staff and customers weary as airlines change

Analysis
By Jorn Madslien
Business reporter, BBC News

Man polishing the window of an aircraft
Legacy airlines are struggling to polish up their image

Recent years have seen a downturn in aviation that has hit flagship carriers such as Lufthansa and British Airways (BA) particularly hard.

"They are both legacy carriers struggling with life in the 21st Century," observes John Strickland, director of the aviation consultancy JLS Consulting.

The deep - and in many places, continuing - economic recession has forced ever more business travellers to curb their expenses, with many opting for economy seats or flights with budget carriers such as Easyjet or Ryanair as efficient alternatives.

Lufthansa, BA and their ilk have thus been forced to ask themselves not when earnings from first-class and business-class passengers will recover, but whether it will happen at all.

They have concluded that they can no longer rely on old business models, where those in front of the curtains subsidise economy-class passengers.

So in order to secure profits, or indeed survival, in the future, they want to change the way they operate.

'Crippling strikes'

Doing so has proven to be hugely challenging, as many of the proposed changes have been met with angry resistance by their workforces.

Business class seats in an Airbus A380
Many business travellers are being forced to forgo the comforts of business class

"They are finding it hard to win the hearts and minds of their staff," observes Mr Strickland.

The continuing Lufthansa strike and the still-to-be-resolved BA dispute are just the latest of many recent occasions when these and other European flagship carriers have been "routinely held hostage to strike action", according to Saj Ahmad, airline analyst at FBE Aerospace.

"Air France, Lufthansa, British Airways and Alitalia are just a few players that have been crippled by stoppages," he says.

Losing business

BA has been facing a strike threat for months, while in the case of Lufthansa, "the conflict is very difficult to solve and ongoing strike action could not be ruled out," according to Equinet analyst Jochen Rothenbacher.

Ryanair chief executive Michael O'Leary
Ryanair flies more than twice as many passengers globally than BA

This, in turn, has a knock-on effect on the airlines' earnings, as many customers prefer to book with rival, less strike-prone airlines.

"Customers are taking their money to low-cost and Middle Eastern airlines that provide much better and much more reliable services," observes Mr Ahmad.

In the market for long-haul flights, "a swathe of Arab airlines [are] looking to dominate transfer traffic from Europe to the southern hemisphere and beyond," he says.

Customers are often attracted by "slick hub facilities" in the Middle East, which compare favourably with "potentially more aggravating European hubs", Mr Strickland adds.

And many Asian and Middle Eastern airlines, such as Singapore Airlines, Emirates, Qatar Airways and Etihad Airways, offer superior service and facilities for top-paying customers, Mr Strickland and Mr Ahmad agree.

Within Europe, meanwhile, the no-frills carriers have taken large chunks out of the incumbents' market shares.

Both Ryanair and Easyjet have long since outgrown BA when measured by passenger numbers, with Ryanair flying more than twice as many as the UK carrier, according to Mr Strickland.

Hard-nosed rivals

Europe's legacy carriers have already responded by joining forces.

Interior view of Suite Class on the new Singapore Airlines Airbus A380 jumbo
Luxury air travel is a lucrative but hugely competitive market

Air France and the Dutch airline KLM merged in 2004, Lufthansa has been buying up several smaller rivals, and BA is working towards an all-out merger with Iberia of Spain and an alliance with American Airlines.

Mergers between troubled airlines can help them cut costs, although, as substantial job cuts are usually involved, they have been met with much opposition from staff.

Continuing efforts to cut costs further, by changes to working practices, including reduced pay or perks, have also proved unpopular with their unionised workforces.

By contrast, low-cost airlines make extensive use of non-unionised, flexible agency workers, which also help them avoid pension costs, while Asian and Middle Eastern carriers "take a hard line on contract negotiations", Mr Ahmad says.

Loyalty schemes

Europe's flagship carriers have also linked up with airlines across the world through the SkyTeam, Star Alliance and Oneworld Alliance.

This makes it possible for travellers to plan trips that involve the use of more than one airline, all on one ticket, while also earning frequent flyer miles for the entire trip.

"That helps to lock in many of the valuable business travellers," Mr Strickland explains.

However, relying on high-paying executives' loyalty is unlikely to be enough to revive their fortunes.



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