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Friday, May 22, 1998 Published at 12:55 GMT 13:55 UK

Business: The Company File

Will discount rivals just Go away?

British Airways' discount off-shoot, Go, takes off on Friday after its cut-price rivals failed in a last-minute legal challenge.

The arrival of Go in the crowded skies above Europe is set to kick off a price war but in the long-term it could lead to the demise of the discount flight pioneers.

[ image: EasyJet boss Stelios Haji-Ioannou claims Go is illegally subsidised by British Airways]
EasyJet boss Stelios Haji-Ioannou claims Go is illegally subsidised by British Airways
Jackie Gibson, of the Association of British Travel Agents, says: "At the moment there seem to be enough passengers for the flights we have and there is no spare capacity."

She says the time to worry will be if the market grows too quickly and airlines are left with half-empty planes.

Go plans to have eight Boeing 737s flying on a number of routes - starting with Rome, Milan and Copenhagen - by the end of this year.

Pressure on rivals

If successful it will put pressure on rivals EasyJet, Debonair, Ryanair and Virgin Express.

EasyJet, based at Luton, failed to persuade a High Court judge to stop Go on the grounds of unfair competition but a full hearing will take place in the autumn.

Stelios Haji-Ioannou, the son of a Greek shipping tycoon, set up EasyJet in 1995 and the company made a profit for the first time last year.

He claims British Airways is using Go as a loss leader in a deliberate attempt to break discount airlines such as his own.

Go chief executive Barbara Cassani refutes the charge and says BA will get an "appropriate return" on its investment.

Debonair, which also operates out of Luton, is thought to be more vulnerable. Its shares have halved in value since 1996 but owner, Franco Mancassola, says: "I don't see any vultures above me."

[ image: Richard Branson...has called on consumers to boycott Go]
Richard Branson...has called on consumers to boycott Go
Virgin Express boss Richard Branson claims Go is a cynical bid to put BA's rivals out of business and has called on travellers to boycott it.

He claims prices will soar if the independent discount airlines go bust.

'More choice to more people'

But Simon Evans, of the Air Transport Users' Council, welcomes Go and says: "It's giving more choice to more people."

He does not believe it will lead to a price war and thinks the market can expand further without airlines going out of business.

Mr Evans says the introduction of no-frills, low-cost fares has encouraged more people to fly.

He says: "The propensity to fly has always been higher in the US than in Europe but with the UK economy doing well and an increased sense of affluence the market is now maturing."

Some people are switching from trains, ferries and coaches while others are going on short breaks they would not otherwise have contemplated.

Streamlining process

Analysts expect the industry to go through a streamlining process during which the weaker firms will be weeded out.

[ image: Go's first plane takes off from Stansted bound for Rome]
Go's first plane takes off from Stansted bound for Rome
One potentially fatal blow is expected to be delivered in 1999 when duty-free merchandise is abolished.

Mr Evans says another key factor is airport landing fees, which are much lower at Luton and Stansted than at Heathrow and Gatwick.

He says some firms were tempted to Luton with special discounts which were designed to let them build up their businesses.

"Soon they will revert to normal charging, which could make a big difference," says Mr Evans.

The discount airlines also save money in other ways:

  • Not serving meals or drinks, which also means less cabin crew are required.

  • Not issuing boarding passes (passengers are seated on a first-come-first-served basis.)

  • Not issuing tickets (although there is a statutory requirement to accept written liability for passengers).

  • Selling tickets directly (travel agents charge around 9% commission).

    Go will not be going head to head with its competitors to start with but the crunch will come later this summer when it announces a list of other destinations.

    If these include the most hotly contested routes - Dublin, Glasgow, Paris and Amsterdam - consumers can expect an air war to develop.

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