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Brussels Airlines to benefit from changed EU law that levels playing field for airlines

25-Apr-2012

Brussels Airlines will benefit from ongoing European Union legal changes that it argues will level the playing field for nationally based legacy carriers compared to European-wide low-cost carriers which establish outside their home bases. Under previous legislation, airline employees were subject to taxes and social security rules of their company’s home, and not their operating base. That meant, for example, that Ryanair staff in Belgium paid lower taxes and had a competitive advantage against Brussels Airlines staff even though living in the same country.

This disadvantage was pushed into the limelight recently by what Brussels Airlines deems was misinterpretation by the foreign press that the airline would move headquarters to a more favourable labour location like Luxembourg. The airline affirms it has no intention to move its staff or headquarters. Brussels Airlines will continue to call its namesake city home.

Cost disadvantages spotlighted in Belgium

Brussels Airlines had generated interest when it compared salary differences between Belgium and other European countries. The difference between gross and net salary in Belgium can be upwards of 60%, whereas it is only 30% in other European countries. Brussels Airlines raised these inequalities to stmulate public awareness – and ultimately pressure government to reverse the situation.

That was partially achieved on 18-Apr-2012 when the European Parliament voted that pilots and cabin crew would be subject to social security of the country they lived in and not the country their airline is based in. But still unresolved are different tax protocols, among other legal issues where LCCs are perceived as being advantaged.

Ryanair has condemned the change, saying it will increase its costs and reduce competitiveness – and its bargaining advantage – between EU states. Ryanair previously closed a Marseille base over similar tax and other payment disputes.

The change in legislation, and any future changes, will deliver some added comfort for Brussels Airlines as it sees its short haul market share increasingly threatened by LCCs while its fleet modernisation will result in reduced European capacity.

Brussels Airlines faces Ryanair’s growing Brussels South Charleroi network

Ryanair operates from Brussels’ secondary airport, Brussels South Charleroi, so has less than completely direct competition with Brussels Airlines. However, when the area overall is considered, there are considerable overlaps in the airlines’ networks. In total the carriers compete on 22 routes.

Brussels Airlines and Ryanair overlapping routes from Brussels: 16-Apr-2012 to 22-Apr-2012

Route

Brussels Airlines Frequency

Ryanair Frequency

Agadir Al Massira

Weekly

Twice weekly

Barcelona El Prat

26 times weekly

21 times weekly

Bologna Guglielmo Marconi

22 times weekly

Nine times weekly

Budapest Ferenc Liszt

18 times weekly

13 times weekly

Faro

Four times weekly

Four times weekly

Gothenburg Landvetter/Gothenburg Saeve

18 times weekly

Three times weekly

Krakow John Paul II Balice

Three times weekly

Six times weekly

Lamezia Terme

Weekly (from 21-May-2012)

Twice weekly

Madrid Barajas

19 times weekly

19 times weekly

Malaga

14 times weekly

Four times weekly

Manchester

24 times weekly

13 times weekly

Marrakech Menara

Weekly

Three times weekly

Marseille

19 times weekly

Five times weekly

Milan Linate/Milan Bergamo

11 times weekly

21 times weekly

Oslo/Oslo Moss Rygge

13 times weekly

Seven times weekly

Porto

Seven times weekly

Seven times weekly

Rome Fiumicino/Rome Ciampino

18 times weekly

17 times weekly

Sevilla

Weekly (ending 22-Apr-2012)

Six times weekly

Stockholm Bromma/Stockholm Skavsta

22 times weekly

Four times weekly

Turin Caselle

11 times weekly

Four times weekly

Venice Marco Polo/Venice Treviso

14 times weekly

16 times weekly

Brussels Airlines’ lower frequency on some of these routes is aggravated by operating lower capacity aircraft than Ryanair. Even on some routes where Ryanair offers less frequency, it consequently still offers more seat capacity than Brussels Airlines. According to Innovata, Brussels Airlines’ A319s are configured with 132 seats, A320s are configured with 168 seats, Avro RJ85s are configured with 82 seats, Avro RJ100s are configured with 97 seats. Ryanair’s Boeing 737-800s are configured with 189 seats.

Overall, Brussels Airlines and Ryanair offer very similar capacity each week between Belgium and the rest of Europe. Brussels Airlines’ long-haul network adds an additional approximately 20,000 weekly seats.

Top 10 airlines between Belgium and Europe (seats per week): 16-Apr-2012 to 22-Apr-2012

Rank

Airline

Total Seats

1

SN

Brussels Airlines

161,648

2

FR

Ryanair

139,671

3

TB

Jetairfly

29,948

4

LH

Lufthansa

26,700

5

U2

easyJet

20,904

6

BA

British Airways

12,838

7

TK

Turkish Airlines

11,406

8

SK

SAS

10,748

9

W6

Wizz Air

10,440

10

LX

SWISS

10,280

Ryanair route network from Brussels South Charleroi

Brussels Airlines' main focus is on African long haul while reducing its short haul network

Based at Brussels Airport, Brussels Airlines is currently simplifying and modernising its short haul fleet with the removal of 737-300/400s and Avro RJ aircraft in favour of A319s and A320s. The airline expects its short haul fleet to reduce by up to six aircraft in 2012.

Recently Brussels Airlines’ winter 2012/2013 schedule showed at least six routes are to be cut, including those to Athens, Catania, Faro, Florence, Naples and Porto. Of these, the airline faces direct competition from Aegean Airlines on Brussels-Athens; Jetairfly on services to Catania, Faro and Naples; and TAP Portugal on Brussels-Porto. Ryanair competes with Brussels Airlines on Faro and Porto.

As Brussels Airlines CEO Bernard Gustin told CAPA late last year, “We need to invest where we are strong – which is long-haul in Africa – and we need to reduce a little bit in Europe because of the low-cost competition.”

See related article: Brussels Airlines to further expand in Africa and launch New York but cut back in Europe

Africa holds large potential for Brussels Airlines due to it being an emerging market with limited competition. From Apr-2012 the airline planned to increase frequency to Yaounde and Douala (Cameroon) by four times weekly each while it would also add a third weekly frequency to Brussels-Bujumbura (Burundi). Service to Kinshasha (Democratic Republic of the Congo) increased to six times weekly and service to Nairobi (Kenya) increased by one weekly frequency. Brussels-Abidjan (Côte d'Ivoire) was also to increase from Apr-2012. In summer 2012 frequency to Kigali (Rwanda) and Entebbe (Uganda) will increase.

Along with these frequency increases, Brussels Airlines plans to operate its new in-flight product on its African services which features its new lie-flat business class seating and improved economy seating and entertainment. In Jun-2012 it will open a New York route and hopes to capture traffic going from the US to Africa.

Korongo Airlines JV will enhance Brussels' African penetration

Brussels Airlines’ African focus is not only on its own network, but also on that of its new start up joint venture in Africa, Korongo Airlines. Launched on 16-Apr-2012, Korongo Airlines is a joint venture between Brussels Airlines and Forrest International Group, based in the Democratic Republic of the Congo. The carrier will initially operate Kinshasa-Lubumbashi service before adding other domestic destinations including Bukavu, Kisangani and Mbuji Maji. International route plans include Luanda, Johannesburg, Kigali and Bujumbura.

See related article: Brussels Airlines to further expand in Africa and launch New York but cut back in Europe

Brussels Airlines reflects the dilemma of many other European full-service carriers in that it has a successful long-haul network – and in Brussels’ case, with little competition – but faces challenges on its short-haul network. It is responding by cutting capacity and modernising its fleet. Like with other carriers, it has to find a balance between losses and and cutting so much that it loses feed for its long-haul services.

At least the recent EU measures will reduce the Belgian flag carrier disadvantage against Ryanair as employee claims are achieved, a welcome move for it and other carriers.


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