Airlines Expect to Find Start-Up Haven in Europe

Article excerpt

LONDON -- When Stelios Haji-Iannou began a U.K. low-fare airline last November, he had a ready-made sales pitch: His airline, he told investors, would be just like ValuJet Inc.

The Greek shipping heir's main difficulty is in explaining how EasyJet, his creation, is different from the Atlanta-based carrier that was grounded by U.S. authorities five weeks after a May crash that killed 110 people.

While Haji-Iannou now stresses his carrier's own identity, he told investors at a London conference that he remains upbeat about the market: Europe will prove just as fertile for upstarts as the U.S. market has been for the past decade, he said.

"Most of the traditional European airline people told me, `You must be crazy -- Europe is different," Haji-Iannou said of starting EasyJet. "These are the same types who must have said, `People will never eat hamburgers' before McDonald's came."

EasyJet, which began with two Scottish routes and now serves six cities from its base at London's Luton Airport, is one of 80 new airlines started in Europe since 1993. It is one of only 20 that have survived, according to the European Commission.

The new carriers are taking advantage of deregulation, which allows new entrants to compete head-to-head against long-cosseted national airlines for the first time.

The startups have significant advantages. Their costs can be as much as 85 percent lower than state-owned carriers such as Sabena SA of Belgium or Iberia SA of Spain, whose unions are used to the comfortable days of regulated markets.

"There are plenty of airlines in Europe which, with their captive customers, do a pretty crummy job," said Hugh Welburn, the project director of Brussels-based Virgin Express.

The carrier, backed by Richard Branson's Virgin Group Ltd., now serves five cities and plans to expand by targeting routes served by such state-owned carriers as Alitalia SpA, Austrian AG and Olympic Airways of Greece, Welburn said.

EasyJet and other no-frills airlines can save as much as 25 pounds ($38.50) per person, each round-trip flight, by selling tickets directly to customers, charging for in-flight snacks and using less- expensive outlying airports, Haji-Iannou said.

That figure is almost half the price of EasyJet's 59-pound round- trip fare between London and Glasgow or Edinburgh -- about a fourth of the 230-pound unrestricted round-trip fare charged by British Airways Plc for the same routes.

But those savings are countered by potentially disastrous hurdles, said airline executives, bankers and industry analysts who attended the London conference, which was hosted by Avmark International Ltd., an aviation consulting firm.

"It is really too soon to say whether their strategy will be successful," said Ludolf van Hasselt, the No. …