Air Europe
Encyclopedia
Air Europe was a wholly privately owned, independentindependent from government-owned corporation
s British
airline
, established in 1978 under the working title Inter European Airways. It adopted the Air Europe name the following year. Its head office was originally in Reigate
, Surrey
but moved to Crawley
, West Sussex
.
Its main operating base was at London Gatwick Airport
, where it commenced commercial airline operations in May 1979 with three brand-new Boeing 737
-200 Advanced jet aircraft
.
Air Europe was the brainchild of Errol Cossey and Martin O'Regan, two former Dan-Air
executives. Harry Goodman, who had founded Intasun Leisure during the early 1970s, became the airline's main financial backer as well as the chairman of the International Leisure Group (ILG), the parent company
of both Air Europe and Intasun Leisure.
Air Europe was the main supplier of charter seats to Intasun Leisure, which grew during the 1980s to become the UK
's second-largest package tour operator (after long-established market leader Thomson Holidays
).
Air Europe aggressively expanded during the 1980s to become one of the UK's leading charter airlines with a major scheduled presence on a number of short-haul Europe
an trunk routes out of Gatwick
.
Towards the end of the 1980s Air Europe became the first airline to acquire a pan-European
presence by setting up several subsidiaries on the Continent
. Air Europe also acquired two small regional airlines, forming the nucleus of a new Air Europe Express regional airline
subsidiary. The acquired slots at Gatwick enabled it to increase frequencies as well as launch new scheduled routes. By the end of the decade Air Europe had become Gatwick's largest resident airline operator.
Air Europe's stellar success came to an end when growing financial problems at its parent company began to undermine the financial performance of the airline and its sister companies from late 1989.
ILG and all its UK-based subsidiaries — including Air Europe — went bankrupt
on March 8, 1991.
The first two periods of major growth had occurred during the mid-1960s and early '70s, respectively. These were followed by a period of major contraction during the mid-'70s, mainly as a result of the 1973 oil crisis
. This, in turn, was followed by renewed expansion during the second half of the 1970s.
The industry's spurt of growth in the late '70s was accompanied by a growing shortage of whole-plane charter seats, which was further exacerbated by Laker Airways
' decision to drastically reduce its short- to medium-haul charter activities, as a result of that airline's increasing focus on its long-haul, transatlantic
Skytrain scheduled no frills
services, as well as by British Caledonian's decision to completely withdraw from the charter market.
Hence, the time to start a new charter airline seemed opportune.
series 4 in 1966 and continuing with the BAC One-Eleven
400 series in 1969, the Boeing 707
-320 "Intercontinental" in 1971, the Boeing 727
-100 in 1973 as well as the BAC One-Eleven 500 in 1975. He also had control over the entire charter fleet, which numbered 28 aircraft during the mid-1970s. At that time, Intasun used to contract a growing share of its business to Dan-Air. Intasun, like Dan-Air at that time, used to have a somewhat downmarket image. It was mainly competing on price with the other tour operator
s, notably market leader Thomson Holidays. The reason it was able to undercut the competition while continuing to expand profitably was that it first waited for all the other operators to place their business with Dan-Air and only then placed its contracts, fitting in with whenever aircraft and crews were available. This meant that a lot of Intasun's business involved mid-week and night flying. This, in turn, was a win-win for both operator and airline. It enabled Intasun to charter aircraft at substantially lower rates than its competitors, who had to pay a premium for chartering planes at week-end peak times, and it permitted Dan-Air to increase its fleet's utilisation, thereby boosting the company's overall profitability. However, the high fuel consumption of Dan-Air's "mix'n match" fleet — especially the Comets, which at that time made up the bulk of its charter fleet — against the backdrop of steeply rising jet fuel
prices in the aftermath of the 1973 oil crisis made it more and more difficult to offer Intasun the rates at which it was prepared to contract its business to Dan-Air.
Errol Cossey became convinced that he could offer Intasun these rates without difficulty, and do a lot more business with it, if Dan-Air had more modern aircraft with a substantially lower fuel-burn and overall lower direct operating cost
s in its fleet. He was also aware that Britannia Airways
, Thomson Holidays' sister airline and Dan-Air's main rival in the charter market, had already begun building up a fleet of brand-new Boeing 737-200 jet plane
s, which had lower operating costs and a better operational performance than the older, second-hand jet
s operated by Dan-Air.
Therefore, Errol Cossey, Martin O'Regan, the group finance director of Dan-Air parent Davies and Newman, and Alan Snudden, Dan-Air's managing director, tried to convince Fred Newman, Davies and Newman's majority shareholder
as well as Dan-Air's long-serving chairman, that operating a brand-new fleet of Boeing 737-200 Advanced series jet aircraft — at the time the very latest, state-of-the-art aircraft — was the only way to secure Dan-Air's long-term future as a major player in the charter airline industry. Their argument to Fred Newman was that operating the latest series 200 Advanced model of the 737 would not only give Dan-Air far better cost
figures than any of the existing aircraft types in its fleet but would also allow it to leap-frog Britannia
, which initially operated only the basic 200 model of the 737. That model lacked important enhancements, such as a short-field capability enabling operations at airfields whose runways were too short for the basic 737-200 model.
After several failed attempts to convince Fred Newman of their plan's merits, Errol Cossey, Martin O'Regan and Alan Snudden decided to leave Dan-Air.
As a first step, Errol Cossey approached Intasun founder and chairman Harry Goodman to elicit his response to the plan he had been working on with Martin O'Regan and Alan Snudden. It did not take long to convince Harry Goodman of the plan's merits. He agreed to support it as an equity
player. This was the point at which Air Europe was conceived, with both Errol Cossey and Martin O'Regan on board backed up by Harry Goodman's financial participation. (Alan Snudden, who had initially agreed to join the new airline project, eventually decided to join Monarch Airlines
.)
The fact that the charter airline industry generally and Dan-Air in particular were perceived to be at the bottom end of the market led to a decision to make the new airline people's first choice from the outset, especially in terms of overall on-board service, including the in-flight catering
. It was hoped that offering a service that was at least as good as that of the leading scheduled service airlines, with the ultimate aim of establishing a new benchmark
for the entire airline industry and for charter airlines in particular, would enable the new airline to fly longer seasons as tour operators were expected to cancel their contracts with other, less popular rival airlines. The resulting increase in aircraft utilisation would translate into higher profitability.
One of the ways in which the new airline was planning to set a new standard for high-quality in-flight service in the charter airline industry was by completely revamping the traditional seat-back catering concept as practised by most contemporary charter airlines. At the time, this consisted of serving Spam
salad on all flights out of the UK and sandwiches back to the UK. Although this seemed to be a low-cost way of providing a minimal catering service on inclusive tour flights, it was actually labour-intensive and costly, especially when taking into account that these meals needed to be prepared freshly several hours before departure. This meant that caterers were charging a premium for meals that needed to be prepared during the night for early morning departures as well as for seasonal produce. Besides, the salad leaves tended to wilt and the sandwiches acquired a stale taste as soon as the wrapping was removed due to the dry atmosphere inside an aircraft cabin
. As a result, from the passengers' point of view, the presentation of the meals most traditional charter airlines served them was unappetising, turning many of them off.
To move away from the charter airline industry's image of dreadful seat-back catering, the new airline resolved to serve proper, restaurant
-style meals including at least three courses — a starter, a hot main course
and a dessert
— on all flights, time permitting. Instead of paying caterers premium rates for limp Spam salads and stale sandwiches, the new airline would bulk-purchase deep-frozen ingredients only. This would enable it to take advantage of lower rates. And rather than relying on overseas caterers, who were often plying their trade only seasonally and over whose food hygiene and quality standards the airline would have no control, it would also enable it to carry the in-bound catering in the aircraft's holds, which would generally not be filled to capacity.
In addition to operating only brand-new aircraft from the very beginning, this new service concept marked the second major departure from the UK charter airline industry's established practices.
Improving the new airline's competitiveness, operational performance and profitability in a hyper-competitive market place characterised by low profit margin
s and excess capacity were not the only reasons for exclusively operating brand-new equipment from its inception.
Another important reason was that generous capital
allowances for new equipment reduced a company
's tax
liability, thereby increasing the enterprise value
.
Furthermore, being affiliated to an in-house tour operator would give the new airline access to the tour operator's customers' deposits, which could be used as working capital
. This was of particular importance to help a fledgling airline, whose first plane had not yet arrived and whose first flight was still in the planning stage, meet its up-front expenses. These deposits would also be an important source of working capital at a later stage when suppliers would have to be paid up-front in February, during the dead season, before the summer flying programme commenced in April.
To be able to attract a substantial amount of higher margin business from more upmarket tour operators that were Intasun's competitors as well as to avoid being overreliant on Intasun, the new airline would have to adopt a name not related to Intasun. Eventually, Air Europe was chosen from a shortlist of names that did not reveal the airline's link with Intasun.
As business opportunities for independent airlines were very limited during the early post-World War II
period, i.e. from the late 1940s until the early 1960s, this approach was typical for the independent airlines that had begun their existence during that period. Dan-Air, Errol Cossey and Martin O'Regan's previous employer, which belonged to that era, was a very typical exponent of this opportunistic approach to doing business. Over time, that airline expanded into almost every area of the commercial airline business. The result was a very high degree of diversification
into many unrelated activities, many of which never turned a profit
in their own right. The resulting lack of focus led to a great deal of valuable management time being expended on activities where the return on investment
was negative. Dan-Air used to justify this diversification strategy
by its low marginal cost
s as aircraft and crews were already available. The airline also used to justify it by the resulting increased utilisation of the fleet, which in turn resulted in a positive contribution to overall profitability. (At the time, for Dan-Air each aircraft type in its fleet represented a so-called "cost centre
line" that was financially accountable for itself.)
A typical example of Dan-Air's opportunistic diversification into activities unrelated to its core charter business was the airline's long-term commitment to build from scratch a comprehensive network of regional scheduled services linking secondary airports across Europe
, many of which operated on a seasonal basis only. This took up massive resources
, in terms of both finance
and management time. Despite dedicating vast resources to its regional scheduled operation, it never became a financial success.
Having witnessed the drawbacks of Dan-Air's opportunistically driven diversification strategy first-hand, Errol Cossey and Martin O'Regan resolved that their new airline venture would only ever commit itself to commercial activities that had genuine prospects of becoming profitable in their own right, from the very beginning itself. Errol Cossey and Martin O'Reagan furthermore resolved that their airline venture needed to remain focused on a few core activities, rather than grasping every available opportunity to expand into areas far removed from its chosen core activities, to attain this goal.
As a result, the long-term strategic
plan Air Europe eventually developed narrowly focused on the following core areas:
Due to the package tour industry's seasonality, Air Europe needed to ensure that it was in a position to take full advantage of the entire June—September peak season to be profitable during the first year of operation itself. In order to be able to do this, the airline needed to have the finance in place to pay up-front for the deposits to take over the delivery slots of three brand-new Boeing 737-200 Advanced aircraft that had originally been booked by another airline, which had cancelled its order. Financing these aircraft, which were due to roll off Boeing
's production line
during May 1979, was the biggest challenge Air Europe faced at that time.
In the late 1970s the traditional British financial institutions were not keen to provide start-up capital to newly constituted independent paper airlines, unless these were part of or enjoyed the backing of other, well-established organisations. These institutions considered lending substantial amounts of money to fledgling independent airlines too risky because of the high failure rate among those airlines in the UK.
Therefore, Air Europe's promoters were compelled to approach non-UK institutions and other potential lenders based overseas who could support the airline financially to help it get off the ground.
Ultimately, C. ITOH and the Marubeni Corporation, two Japan
ese conglomerates
, whose commercial activities included purchasing brand-new aircraft from the United States
and leasing them on to non-US
airlines as part of Japan
's effort to reduce the then huge trade imbalance with the US, were prepared to lend Air Europe the required amount, following complex and lengthy negotiations. The type of aircraft finance Air Europe procured from C. ITOH and Marubeni was known as "Samurai
" leasing. It consisted of a combination of mortgage
and hire purchase
finance spread over ten years for each aircraft. Boeing provided a deficiency guarantee that guaranteed a large proportion of the Japanese financier
s' outstanding loan
s, based on the expected resale value
s of the aircraft.
Air Europe's first-ever commercial air service took to the air on May 4, 1979. On that day a brand-new, 130-seat Boeing 737-2S3 Advanced, named Adam and bearing the registration G-BMHG, departed London Gatwick
for Palma de Mallorca
with a full passenger load, operating the airline's inaugural flight KS 1004.
This was coincidentally the same day Air Europe's second brand-new Boeing 737-2S3 Advanced (registration G-BMOR) arrived at the airline's Gatwick base.
The final example of the initial batch of three brand-new Boeing 737-2S3 Advanced (G-BMEC) arrived at Gatwick on May 31, 1979, just in time for the start of the peak operating season.
Air Europe opened a second base at Manchester
during its first year of operation itself. The Manchester base, which opened in the autumn of 1979, eventually became the airline's fastest growing UK departure point.
A major reorganisation was completed in 1981 when Intasun became a unified company as a result of merging its constituent parts, leading to the flotation
of Intasun Leisure Group plc on the London Stock Exchange
's Unlisted Securities Market
. (In 1987, the group, which by then had become the International Leisure Group (ILG), delisted from London
's stock exchange
.)
Another new base opened at Cardiff
in 1982. By that time, Air Europe's core fleet consisted of seven Boeing 737-200 Advanced aircraft, all of which were brand-new at the time they joined the fleet. A further three 737-200s operated under a swap-lease arrangement with Air Florida
complemented the core fleet between May and September, thus giving Air Europe an operational fleet of ten aircraft during the peak summer season. Air Europe expected to carry 1.2m passengers during 1982.
1982 was also the year Air Europe signed the purchase agreement with British Airways
for a pair of brand-new Boeing 757
-200 aircraft, for delivery in March 1983 and March 1984, respectively. These were part of an order for 19 the UK flag carrier
had placed with Boeing prior to starting the privatisation process and which had subsequently become surplus to its requirements.
1982 furthermore saw Air Europe placing its first order for five Boeing 737-300s with deliveries beginning in 1987.
Intasun Leisure Group plc's first set of annual results for the 1982/'83 financial year to the end of March 1983 was released in August of that year. These results showed that the group's pre-tax profit for that period was £6.8m (up 26% on the year-before period) and that the group carried 1.26m passengers, mostly on Air Europe. This set of figures also showed that Air Europe accounted for half of the Intasun Leisure Group's profits.
Air Europe's first Boeing 757, named Fiona and bearing the registration G-BKRM, operated its maiden commercial flight on April 24, 1983 between London Gatwick and Faro
. The airline's second 757 (G-BPGW) entered commercial service on March 29, 1984 between Gatwick and Milan
.
An order for an additional Boeing 757, the airline's third and the first directly ordered from Boeing, was placed during 1984 as well for delivery the following year. (Follow-on orders for further 757s were placed subsequently.)
During the early 1980s the Federal Aviation Administration
(FAA) began rethinking its policy on the minimum number of engines an aircraft needed to be permitted to fly long distances non-stop over water. The FAA's rethink had been prompted by the increasing reliability of jet engine
s powering new widebodied airliners
as well as other technological advances. This meant that mid-air engine shutdowns that necessitated an emergency landing
at the nearest diversion airfield and which could potentially endanger the safety of aircraft and occupants had become a rare phenomenon. The result was ETOPS, a set of rules permitting twin-engined aircraft to fly long over water routes, provided that there were usable diversion airfields within 120 minutes' non-stop flying distance plus a 15% margin from the aircraft's route.
Following the introduction of the new rules in the mid-1980s, Air Europe became one of the first airlines to have its 757s ETOPS-equipped to take advantage of the aircraft's design range
, which was sufficient to permit non-stop flights to the East coast of North America
, the Caribbean
and Central America
as well as certain parts of South America
and Asia
.
This enabled Air Europe to become the first British charter airline to operate its 757s on transatlantic charter flights between various points in the UK and Orlando, Florida
, from 1989.
The first batch of three Boeing 737-200 Advanced aircraft delivered back in 1979 left the fleet in April 1985 to enable Air Europe to take advantage of the aircraft's rising dollar-denominated residual value
s. (Air Europe's policy of taking a substantial interest in its aircraft's residual values also had a secondary effect of keeping the fleet young. This was achieved by continuously rolling over planes whose residual values exceeded the costs of procuring replacements, including capacity temporarily leased in from other operators.)
Eventually, Air Europe placed an initial order for five, larger 400 series Boeing 737s. These aircraft were delivered during 1989.
ILG's 1989 annual report
, which covered the group's financial and operational performance during Air Europe's tenth anniversary, contained the following statistics
:
Each individual result represented a record performance.
from the very beginning.
Air Europe frequently used both operating leases as well as finance leases.
The former included both long-term swaps of surplus capacity with other airlines whose seasonality was opposite to Air Europe's as well as short-term leases to bridge temporary capacity shortfalls.
The latter was a profit-enhancing method to finance newly acquired aircraft, whereby these aircraft were sold to in-house or external lessor
s from whom they were then leased back, with the airline retaining a substantial interest in the aircraft's residual values.
Lease-swaps with other operators whose seasonality was opposite to Air Europe's own helped maintain a high aircraft utilisation during the lean winter season, thus permitting a year-round profitable operation.
The charter airline business was highly seasonal, with most of the annual commercial activity taking place over a relatively short period of barely four months between the end of May and the beginning of September. As Air Europe was operating a fleet of brand-new aircraft that incurred high financing charges unlike the older, second-hand jets operated by Dan-Air and many other rival airlines at the time, it could not afford to significantly reduce its aircraft fleet's utilisation over the lean winter months, without taking a major hit on its financial performance. (Dan-Air, for example, took half of its operational Comet fleet out of service at the end of the 1976 summer season and put the aircraft into storage at sister company Dan-Air Engineering
's main base at Lasham Airfield
for the duration of the following winter season. Dan-Air also operated the other aircraft types in its fleet at a much lower utilisation during the winter. Dan-Air was able to do this without incurring huge losses because these predominantly older, second-hand aircraft had much lower acquisition costs and were already largely or fully depreciated at the time they entered its fleet.)
Air Europe therefore began to look for potential business partner
s whose seasonality was counter-cyclical to its own so that Air Europe's surplus aircraft capacity could be leased out to other operators in winter and those operators' surplus capacity could be leased in for the busy summer period.
Eventually, Air Europe concluded an aircraft swap-lease with Air Florida, which commenced at the start of the 1980/'81 winter season. Under this deal, Air Europe leased three of its aircraft to Air Florida to cover that airline's peak season, which occurred in winter. In return, Air Florida leased two of its aircraft to Air Europe to cover the UK airline's summer peak period. The number of aircraft Air Europe leased from Air Florida during the summer months subsequently increased to three.
Although this arrangement initially worked to both airlines' satisfaction, Air Europe decided to terminate it at the end of the 1982/'83 winter season due to Air Florida's growing financial problems. (Air Florida had faced numerous difficulties to pay Air Europe for the leases on time. It also had difficulties to ensure the aircraft it had leased from Air Europe reached the UK along with the aircraft it was contractually obliged to supply to Air Europe from its own fleet in time at the start of the UK carrier's summer season.)
Air Europe replaced the defunct swap-lease with Air Florida with a similar arrangement with British Airways, which it had negotiated with the UK flag carrier in 1982. (This was part of a wider deal that had resulted in Air Europe purchasing two brand-new Boeing 757s from British Airways
(BA).)
The Air Europe—BA aircraft swap lease involved BA leasing back the two 757s it had sold to Air Europe along with a number of that airline's 737s to cover the shortfall resulting from aircraft being taken out of service during the winter when BA's scheduled maintenance occurred. This deal lasted from 1983 until 1986.
An example for a short-term lease to bridge a temporary capacity shortfall was Air Europe's intended lease of a pair of Boeing 747
s to enable the launch of a new long-haul charter programme in 1989.
The launch of this programme in May 1989 necessitated the temporary lease of suitable widebody aircraft capacity as Air Europe did not have any aircraft suited to this type of operation in its fleet. The original intention was to lease two 460-seat Boeing 747s.
In the event, Air Europe leased a single, 486-seat Boeing 747 from US supplemental carrierUS non-scheduled airlines as classified by the United States Congress
in 1963 Tower Air
to operate its long-haul charter services to Bangkok
, Barbados
, Orlando and Acapulco
on an ACMI basis.
It began with the creation of a Spanish
subsidiary, Air España S.A., based at Palma de Mallorca, in which ILG acquired a 25% stake, the maximum foreign entities or individuals could legally own in a Spanish airline at the time. This was followed by the acquisition of a 49% stake in German
regional carrier Nürnberger Flugdienst (NFD)
, the purchase of a 33% stake in Norwegian
charter carrier Norway Airlines
and the creation of a new Italian
carrier, Air Europe SpA
, in which ILG held a 35% stake.
With the exception of Air España, which traded as Air Europa, all the other airlines traded as Air Europe. All of their aircraft — including those operated by Air Europa — adopted Air Europe's livery. The only way to tell the aircraft apart, other than by their respective national registrations, was to look at the national flag
following the Air Europe/Air Europa name on the upper, white part of the fuselage.
ILG eventually created Dutch
-incorporated
Airlines of Europe BV as a joint management and holding company for all of these airlines.
ILG 's move to seek a pan-European presence, including the Spanish market, the most important destination market for its charter operations from the UK, was not only driven by its desire to take advantage of new business opportunities resulting from the gradual liberalisation
of Europe's air transport market. Another important factor leading to this decision was to ensure the widest possible UK coverage for its package tour operations to enable Intasun to compete better with market leader Thomson. ILG wanted to be able to do this without incurring the additional expense
of stationing aircraft and crews at regional UK airports to operate a small number of seasonal flights only or, alternatively, incurring the cost
of operating empty legs with aircraft repositioned from its two main bases at Gatwick and Manchester.
This resulted in an arrangement whereby Air Europa's aircraft were flying German and Scandinavia
n holidaymakers during daytime and Intasun's regional customers at night. The resulting higher aircraft utilisation and lower direct operating costs for Air Europa compared with Thomson sister company Britannia Airways, the UK's leading charter airline and Air Europe's most formidable competitor in the European charter market, in turn enabled Intasun to undercut Thomson's prices.
Low-frequency scheduled services on selected leisure routes to destinations already served by Air Europe's charter operation did eventually commence in 1985.
City-pair scheduled services plying the major international European trunk routes from Air Europe's Gatwick base began in 1987.
As part of a major scheduled service expansion, Air Europe launched a new business class
in 1988. This was accompanied by an increase in frequencies on most of its scheduled European trunk routes. It also introduced a new scheduled service aircraft type from late 1989.
At that time, work started on licence applications for several long-haul scheduled services.
's services from Heathrow
. The service was to commence at a frequency of five weekly return flights in summer and four weekly round-trips in winter. Air Europe proposed operating the service either with a McDonnell Douglas DC-10
30 series widebodied trijet
or a Rolls-Royce RB211
-powered Boeing 747-200B. Air Europe had already reserved delivery positions with both manufacturers. In support of its application, the airline stressed that any spare capacity would be filled with its tour operator affiliates' customers. It hoped that this would convince the CAA of the proposed operation's viability on a year-round basis, especially during off-peak periods.
In the event, the CAA rejected Air Europe's application. It argued that the airline was still in its infancy as this was only its second year of operation and, therefore, lacked the expertise to take on three competitors on a major, intercontinental long-haul scheduled service route.
as well as Manchester and Gibraltar in November 1985 and November 1986, respectively.
These route launches were part of Air Europe's initial scheduled service strategy to operate low-frequency services on selected leisure routes to destinations already served by Air Europe's charter operation.
Air Europe considered itself well-placed to take advantage of the new scheduled service opportunities that became available to independent airlines as a result of the gradual liberalisation of the European air transport market. It enjoyed substantially lower operating costs than the established flag carriers because of its much higher aircraft utilisation and labour productivity. This meant that the airline could afford to undercut its rivals' business class fares by about 10-15% on each route where it competed with them.
This, in turn, provided the impetus for the formulation of a new scheduled service strategy, which was internally known as the New European Airline Project (NEAP). The new strategy centred on Air Europe providing competitively priced and timed scheduled services on the eleven busiest international European trunk routes from its Gatwick base. The first batch of services was to be inaugurated with four brand-new Boeing 737-300s Air Europe had then on order, in a single-class, high-density configuration, at a frequency of two round-trips per day. All flights were to offer a full on-board service.
The early morning outbound service from Gatwick was to be the earliest flight of the day from any London airport to each of the destinations to be served. The late evening inbound service to Gatwick was to be the last flight of the day to any London airport. Air Europe hoped that offering the first flight out as well as the last flight back would strengthen its competitive position vis-à-vis its rivals by giving passengers a longer working day, thereby helping them to cut down on overseas accommodation costs.
Other important reasons for choosing these departure and arrival times at Gatwick for Air Europe's proposed network of short-haul, international European scheduled services were the availability of slots at an increasingly congested Gatwick and the in-built bias in travel agents' computer reservation systems.
The former meant that the only competitively timed slots that were then available at Gatwick due to the airport's tight slot situation were early morning and late evening slots.
The latter meant that operating the first flight of the day out of anywhere displayed that flight at the very top of the travel agent's VDU screen. This automatically accorded it the highest priority among all the flights listed on the agent's screen and, therefore, made it more likely to be booked in a typical travel agency's high-pressured work environment.
Air Europe submitted its application to launch scheduled services from Gatwick to Paris
, Amsterdam
, Brussels
, Frankfurt
, Munich
, Zürich
, Geneva
, Rome
, Oslo
, Stockholm
and Copenhagen
to the CAA in November 1986. It requested the CAA to approve its application in time for a spring 1987 launch.
Eventually, services commenced in December 1987 to Munich, followed by Paris Charles de Gaulle in February 1988 and Brussels in April 1988.
as of February 1, 1989.
ILG's decision to purchase Connectair was part of Air Europe's corporate strategy at the time to establish itself as a major short-haul scheduled operator at its Gatwick base. Gatwick had become very busy during the late 1980s. This meant that the much-coveted early-morning peak time slots, which Air Europe needed to be able to operate at times that were attractive to business travellers as well as competitive with its rivals' departure and arrival times, were in increasingly short supply. Connectair held a fairly large number of conveniently timed slots at Gatwick. ILG's acquisition of Connectair therefore represented a golden opportunity to substantially increase the number of slots the group's airlines controlled at Gatwick, thereby strengthening Air Europe's competitive position at that airport.
Air Europe Express flew under the same AE airline designator as its bigger sister airline.
Its scheduled services initially linked Gatwick with Antwerp, Düsseldorf
and Rotterdam
.
Larger Shorts 360
s gradually replaced the Shorts 330
s.
In April 1989 ILG purchased Guernsey Airlines, another small, independent regional airline, which operated scheduled services between Guernsey
and Gatwick as well as between Guernsey and Manchester at the time. On October 29, 1989 ILG fully integrated Guernsey Airlines into Air Europe Express.
These moves provided Air Europe with additional transfer traffic for its developing short haul European scheduled route network. They also enabled Air Europe to launch new routes where there was insufficient traffic to support its larger Boeing 737 and Fokker 100 jet aircraft or where these aircraft were too big to provide a frequent schedule during the start-up phase, such as Gatwick—Düsseldorf for instance.
Following the replacement of the Air Europe Express Shorts 360 turboprops with Air Europe's larger and faster Fokker 100 jets on the Gatwick—Düsseldorf route, Air Europe Express launched a new thrice-daily Gatwick—Birmingham
schedule with its Shorts 360s.
During the year ending August 1990 the Air Europe Express operation carried more than a quarter of a million passengers across its route network for the first time.
Air Europe Express was forced to halt its operations on March 8, 1991 along with its sister airlines in the ILG-controlled Airlines of Europe group as a result of its parent company's decision to put all the group's companies into administrative receivership
on that day, even though Air Europe Express itself had remained profitable throughout that period.
Following the receivership of ILG, the Air Europe Express operation was bought from the receivers by the original management of Connectair, who restarted operations as Euroworld Airways in May 1991. Euroworld was later renamed CityFlyer Express
, which became
a franchisee of British Airways
in June 1993 and was eventually acquired by British Airways in 1999.
At the same time, Air Europe decided that it would also need to launch a separate business class cabin on all scheduled routes that had the potential to attract a large number of business travellers to penetrate this market segment effectively and to maximise its profit potential. This led to the launch of a new business class on October 24, 1988, culminating in the refurbishment of seven aircraft and the kitting out of 800 staff with new uniforms.
At the end of a detailed performance evaluation of an updated, re-engined, Rolls-Royce Tay-powered version of the original BAC One-Eleven 500 featuring a 1990s style "glass cockpit", the BAe 146
-300 and the Fokker F100
, Air Europe decided to place an order for eleven RR
Tay-powered F100
s, including an option on a further eleven aircraft, in March 1988. Deliveries of the aircraft on firm order were to begin in late 1990. Air Europe primarily chose the F100 as its main scheduled aircraft to ply its business routes because it promised 25% lower trip costs than the 737-300/400. (It rejected both rival contenders because these had revealed serious range/payload shortcomings during the evaluation process.)
A subsequent change in KLM's short-haul fleet requirements unexpectedly released four F100s from an order that airline had originally placed with Fokker
. This enabled Air Europe to lease these aircraft, thereby bringing forward the date of the F100's introduction into its fleet by a year.
Air Europe's inaugural commercial F100 service departed Gatwick for Brussels on December 4, 1989.
The F100's introduction enabled Air Europe to increase frequencies to a minimum of three daily round-trips on most of the routes the aircraft served. (Higher frequencies were eventually offered on the Gatwick—Charles de Gaulle and Gatwick—Brussels routes following British Airways' release of slots formerly held by British Caledonian, as part of a deal to permit it to take over its erstwhile competitor.)
The F100's introduction also enabled Air Europe to introduce "mainline" jet services between Gatwick and Jersey
, following British Airways' withdrawal from what had always been one of British Caledonian
's few, genuinely profitable short-haul routes, as well as to replace the Air Europe Express service between Gatwick and Düsseldorf.
Furthermore, Air Europe's F100-operated scheduled services showed excellent load factors and enabled each new route launched with that aircraft to become profitable within three months.
-powered version of the McDonnell Douglas MD-11
in late 1989 when it announced its intention to place a firm order for six aircraft and to take an option on a further twelve. The first of these aircraft was to be delivered in 1993.
The airline intended to use these aircraft to operate a mix of long-haul charter and scheduled services, thereby helping sister company Intasun to reduce its dependence on third party suppliers to provide it with long-haul capacity.
Work on licence applications to launch new, long-haul scheduled routes from London Gatwick to New York
, the Caribbean, Australia
and New Zealand
to be operated with the new MD-11s commenced during the autumn of 1989. However, these never reached the hearing stage.
In addition to the MD-11 order, Air Europe had outstanding orders for an additional 22 Boeing 757-200s, eight Boeing 737-400s as well as eleven Fokker F100s during that period.
In April 1990 Air Europe furthermore signed a MoU
with Airbus
for a firm order covering the delivery of 40 A320
200 series twin-engined, narrowbodied aircraft for delivery between May 1995 and December 1998. (It also took options on another 40 aircraft, the deliveries of which would have stretched to November 2001 if confirmed.)
(BCal) in a new joint venture, which had taken place between ILG and British Caledonian Group since the end of 1985.) At the time BCal's senior management dismissed ILG's bid as "derisory" because it valued the entire British Caledonian Group's assets far below their minimum expectations.
ILG decided to launch a new counter bid for the entire British Caledonian Group at the end of July 1987, following British Airways' outright rejection of ILG chairman Harry Goodman's offer to purchase BCal's short-haul operation for a fair price and to merge that operation with the short-haul operations of ILG subsidiary Air Europe, in return for not having the proposed BA-BCal deal referred to the Monopolies and Mergers Commission (MMC).
Air Europe was concerned that a new entity combining BA and BCal had the power to destroy the UK's remaining independent airlines, especially with regard to their ability to compete with such a behemoth. At the time Air Europe had ambitions of its own to become a major short-haul scheduled operator. It was planning to launch eleven new routes from Gatwick to Europe, thereby replacing and enhancing the services BCal had provided. Given a combined BA-BCal's superior financial strength, considerably lower borrowing costs and far greater economies of scale
, Air Europe's management felt that it would be imprudent to launch these new routes if it had to compete with BA out of Heathrow and Gatwick as well. Therefore, its parent ILG had decided to make a counter bid, which it hoped would either kill off BA's proposal to take over BCal lock, stock and barrel or result in it being referred to the MMC.
To enhance its credibility as a serious contender, Air Europe's bid contained a detailed proposal to return BCal to profitability by way of a reorganisation. This proposal had been prepared by a retired BA head of route planning whom ILG had specifically hired for this purpose. The proposal itself entailed separating BCal into four discrete businesses, each of which would have had its own management who would have been accountable for the performance of their own business unit. The businesses into which BCal was to be split included a long-haul operation using the existing BCal brand, a short-haul operation to be merged into Air Europe's existing short-haul operation using the BCal brand to serve business routes and the Air Europe brand to serve leisure markets as well as an engineering and a ground handling unit.
BCal's senior management rejected ILG's renewed bid on the grounds that it still did not adequately reflect the value of the group's assets, in particular those of BCal. In addition, BCal's senior management felt that both airlines' nature of operations and their business strategies were incompatible and that therefore there were no synergies
to be gained from combining BCal with what they regarded as "essentially a charter company".
In addition, the CAA's decision to re-allocate the licences for several of British Caledonian's short-haul Gatwick feeder routes, which British Airways had agreed to return to the licensing process as a concession to have its takeover of that airline approved, to Air Europe, Air UK and Dan-Air weakened the overall performance of the airport's scheduled services. As a result of this decision, Air Europe was excluded from the two main London—Scotland
trunk routes and it was forced to compete head-on with Dan-Air to Paris Charles de Gaulle and Jersey.
Dan-Air's growing financial problems at the time provided the impetus for ILG's high-profile publicity campaign not to miss an opportunity to run down its ailing competitor in the press
, accusing it of operating old, "gas-guzzling" aircraft. As part of this 'anti-Dan-Air' campaign, ILG had already announced that Intasun was going to reduce the number of aircraft it chartered from Dan-Air from six to three for the 1989/'90 winter season. ILG made a further announcement in this regard, stating that Intasun was no longer going to charter any Dan-Air aircraft for the 1990 summer season and that Air Europe was going to cancel its maintenance contract with Dan-Air Engineering.
However, ILG's campaign to deal a fatal blow to Air Europe's main rival suffered a major setback in October 1990 when Dan-Air's beleaguered management appointed "company doctor" David James
, who immediately set about refinancing
Dan-Air's parent organisation Davies and Newman Holdings in order to save the airline.
ILG's commercial attack on Dan-Air ultimately failed when David James's attempt to refinance Davies and Newman succeeded, with sufficient funds to allow Dan-Air to carry on its business for another two years.
resulting in 4,000 job losses. Many of the aircraft operated by Air Europe and its regional Air Europe Express affiliate were impounded, leaving a large number of passengers stranded at various airports in the UK and overseas.
The pan-European Airlines of Europe alliance quickly unravelled, with Norway Airlines following its former UK-based parent into liquidation
.
Hans Rudolf Wöhrl, NFD's founder and original majority shareholder, bought back the stake he had sold to ILG from the UK group's administrators, thereby saving the airline.
Air Europa not only managed to survive ILG's spectacular collapse but also successfully established itself as one of the leading charter and scheduled operators in Spain
.
Similarly, Air Europe Italy
became one of the leading independent airlines in that country following ILG's failure.
(In fact, for many years the aircraft of Air Europe's Spanish and Italian sister airlines remained a visible reminder of their Air Europe heritage
through their proud display of the erstwhile UK carrier's livery at numerous airports throughout Europe and farther afield.)
Against the background of a looming war
in the Gulf
as a result of Iraq
's invasion of Kuwait
during the summer of 1990 and a major recession in the UK at that time, ILG began suffering heavy losses and mounting debts.
ILG/Air Europe's senior management was aware that ILG had been facing a cash crunch from as early as 1989. This had made it more and more difficult for the group to finance the aircraft it already had on order, notably the F100s and the MD-11s. It was also clear to them that ILG did not have sufficient funds to run a fully fledged, rapidly growing scheduled operation in addition to a major charter operation.
ILG's opaque financial structure and the fact that as a privately held company its ultimate owners, some of whom were residing abroad, were not subject to the same kind of strict financial disclosure requirements as the owners of publicly listed firms further exacerbated the group's financial instability, thereby contributing to its collapse as well.
In addition to the group's undercapitalisation and its overstretched finances, ILG generally and Air Europe in particular were not backed up by any significant assets.
For instance, Air Europe did not own any of the shiny, new aircraft in its fleet. (These were usually procured on highly favourable terms from the manufacturers and then sold upon delivery to ILG's in-house leasing subsidiaries, such as AE Finance or AE Norsk, or to third party lessors, such as Guinness Peat Aviation
(GPA), from whom the airline subsequently leased them back. This enabled it to keep them off its balance sheet
, thereby being relieved of the financial burden resulting from the aircraft's depreciation
, while keeping a substantial interest in the aircraft's residual values, which were booked as profits. This sale-and-lease-back activity was a central plank of ILG's corporate strategy. It also constituted a major part of ILG's business and accounted for a large slice of its profits.)
Neither did the group hold the titles to the freehold of any of the properties that housed its offices and other facilities that formed an integral part of the business.
Air Europe's massive expansion into high-profile scheduled services plying trunk routes between major European cities towards the end of the 1980s, the airline's huge aircraft commitments lasting well into the 1990s, and ILG's increasing reliance on profits arising from its interest in the US dollar-denominated residual values of the aircraft operated by its airline subsidiaries for the group's overall profitability from 1989 represented a high-risk strategy for an undercapitalised company. This marked a major shift from the original focus on establishing Air Europe and Intasun as a major force in the UK charter airline/package tour market as well as Air Europe's excursion into operating scheduled services on selected leisure routes only. Although ILG had justified this strategic shift by the new strategy's far greater rewards compared with the old one, some members among its senior management suspected that there was an ulterior motive to all this. It was well known among senior company insiders that several sets of exploratory talks had taken place at various times, involving ILG and British Airways, as well as ILG and American Airlines
. ILG had also held similar talks with a number of other interested parties. These talks had centred on how to intensify those parties' co-operation with ILG/Air Europe, including proposals for a full-scale merger/takeover.
This lack of being an asset-backed organisation with a high-risk strategy made lending money to ILG and its subsidiaries a far riskier proposition than lending to Davies and Newman Holdings, the parent company of Air Europe's ailing rival Dan-Air. Not only did Davies and Newman/Dan-Air actually own many of the aircraft in the ailing airline's fleet, which were mainly older, less efficient planes with a generally low re-sale value, but it also held the title to the freehold of a number of commercial properties, including prime real estate
in the City of London
. Moreover, Davies and Newman was the owner of Dan-Air Engineering, a sister company of the airline as well as the UK's second-biggest and one of the world's best-equipped aircraft engineering organisations at the time.
These were the main reasons ILG's lenders, notably Lloyds Bank
plc, which also had a substantial financial exposure to Davies and Newman, ultimately decided to pull the plug on the former rather than the latter, despite Air Europe being perceived as operationally far superior and financially stronger than Dan-Air by many of those who had no intimate knowledge of the true state of ILG's finances. This included many well-reputed industry analysts as well as seasoned observers.
Air Europe was also typical of the trend which dominated the British holiday market in the 1980s, with tour companies operating their own in-house airlines, which, although accruing considerable capital expense in the first instance, enabled these companies to offer lower prices by effectively cutting out the "middle man".
Intasun and its associated ILG-owned tour companies, Global and Lancaster, became what many consumers saw as the cheaper alternative to the other main British tour operator of the time, Thomson Holidays.
The existence of these two major brands helped open up the foreign holiday market. The fierce competition between them provided families with affordable and competitive packages.
Air Europe and Intasun were used as a template for many aspiring British tour operators, such as Cardiff-based Aspro Holidays, which launched its own in-house airline, Inter European Airways, in 1987, as well as Airtours (later rebranded as MyTravel
), which merged with Aspro in 1993, to create the second largest tour operator in the UK and which was widely recognised as the direct successor to Intasun and Air Europe.
Air Europe's Boeing 737-200 Advanced had the following out of sequence registrations and names:
Air Europe's first two Boeing 757s had the following out of sequence registrations and names:
Air Europe's final batch of Boeing 757s, delivered from mid-1990, were also allocated out of sequence registrations, beginning with:
Air Europe's first British-registered F100 had the following out of sequence registration:
Air Europe's first MD-11 was allocated the following out of sequence registration:
Air Europe clocked up its first 1m miles on July 26, 1979, its load factor averaged 94% during the peak month of August and the 100,000th passenger boarded in September.
Air Europe made an operating profit after only nine weeks of trading.
Air Europe was allocated the two-letter AE airline identification designator in October 1980, allowing it to replace the initial KS designator.
Air Europe's application to the CAA requesting permission to carry mail and newspapers on its regular charter services from London Gatwick to Gibraltar on days when there were no scheduled flights was approved on November 7, 1980.
Air Europe introduced a separate premium class cabin branded Premier Class on its charter flights between London Gatwick and Funchal
in November 1983.
Air Europe became the first customer in the then brand-new American Airlines flight training centre near Gatwick Airport
in 1983.
Air Europe won the prestigious Travel Trade Gazette Top Charter Airline of the Year award twice in two consecutive years, 1983 as well as 1984.
Air Europe achieved full Category III compliance in 1985.
Air Europe operated its own airside executive lounge at Gatwick's South Terminal.
Air Europe staff working on the Boeing 747 leased from Tower Air during 1989-'90 nicknamed the aircraft "Fat Freddie" after the last two letters of its US registration N602FF.
ILG was estimated to have gross liabilities of £460m at the end of October 1990 and it lost £56m in its last three months of trading.
During that time there never was a fatal accident involving an Air Europe aircraft as a result of good airmanship and an extremely high safety consciousness throughout the organisation. It was one of the company's greatest contributions to European commercial aviation.
However, there was one noteworthy non-fatal incident involving an Air Europe aircraft.
Government-owned corporation
A government-owned corporation, state-owned company, state-owned entity, state enterprise, publicly owned corporation, government business enterprise, or parastatal is a legal entity created by a government to undertake commercial activities on behalf of an owner government...
s British
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
airline
Airline
An airline provides air transport services for traveling passengers and freight. Airlines lease or own their aircraft with which to supply these services and may form partnerships or alliances with other airlines for mutual benefit...
, established in 1978 under the working title Inter European Airways. It adopted the Air Europe name the following year. Its head office was originally in Reigate
Reigate
Reigate is a historic market town in Surrey, England, at the foot of the North Downs, and in the London commuter belt. It is one of the main constituents of the Borough of Reigate and Banstead...
, Surrey
Surrey
Surrey is a county in the South East of England and is one of the Home Counties. The county borders Greater London, Kent, East Sussex, West Sussex, Hampshire and Berkshire. The historic county town is Guildford. Surrey County Council sits at Kingston upon Thames, although this has been part of...
but moved to Crawley
Crawley
Crawley is a town and local government district with Borough status in West Sussex, England. It is south of Charing Cross, north of Brighton and Hove, and northeast of the county town of Chichester, covers an area of and had a population of 99,744 at the time of the 2001 Census.The area has...
, West Sussex
West Sussex
West Sussex is a county in the south of England, bordering onto East Sussex , Hampshire and Surrey. The county of Sussex has been divided into East and West since the 12th century, and obtained separate county councils in 1888, but it remained a single ceremonial county until 1974 and the coming...
.
Its main operating base was at London Gatwick Airport
London Gatwick Airport
Gatwick Airport is located 3.1 miles north of the centre of Crawley, West Sussex, and south of Central London. Previously known as London Gatwick,In 2010, the name changed from London Gatwick Airport to Gatwick Airport...
, where it commenced commercial airline operations in May 1979 with three brand-new Boeing 737
Boeing 737
The Boeing 737 is a short- to medium-range, twin-engine narrow-body jet airliner. Originally developed as a shorter, lower-cost twin-engine airliner derived from Boeing's 707 and 727, the 737 has developed into a family of nine passenger models with a capacity of 85 to 215 passengers...
-200 Advanced jet aircraft
Jet aircraft
A jet aircraft is an aircraft propelled by jet engines. Jet aircraft generally fly much faster than propeller-powered aircraft and at higher altitudes – as high as . At these altitudes, jet engines achieve maximum efficiency over long distances. The engines in propeller-powered aircraft...
.
Air Europe was the brainchild of Errol Cossey and Martin O'Regan, two former Dan-Air
Dan-Air
Dan-Air was a leading private, independentindependent from government-owned corporations airline based in the United Kingdom....
executives. Harry Goodman, who had founded Intasun Leisure during the early 1970s, became the airline's main financial backer as well as the chairman of the International Leisure Group (ILG), the parent company
Parent company
A parent company is a company that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors; the second company being deemed as a subsidiary of the parent company...
of both Air Europe and Intasun Leisure.
Air Europe was the main supplier of charter seats to Intasun Leisure, which grew during the 1980s to become the UK
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
's second-largest package tour operator (after long-established market leader Thomson Holidays
Thomson Holidays
Thomson Holidays is a UK based travel operator and part of TUI Travel PLC. The company was founded as part of the Thomson Travel Group in 1965 following the acquisition of three package holiday travel agencies and the airline Britannia Airways by Roy Thomson...
).
Air Europe aggressively expanded during the 1980s to become one of the UK's leading charter airlines with a major scheduled presence on a number of short-haul Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
an trunk routes out of Gatwick
London Gatwick Airport
Gatwick Airport is located 3.1 miles north of the centre of Crawley, West Sussex, and south of Central London. Previously known as London Gatwick,In 2010, the name changed from London Gatwick Airport to Gatwick Airport...
.
Towards the end of the 1980s Air Europe became the first airline to acquire a pan-European
International Paneuropean Union
The International Paneuropean Union claims to be the oldest European unification movement and is also referred to as the Paneuropean Movement and the Pan-Europa Movement...
presence by setting up several subsidiaries on the Continent
Continent
A continent is one of several very large landmasses on Earth. They are generally identified by convention rather than any strict criteria, with seven regions commonly regarded as continents—they are : Asia, Africa, North America, South America, Antarctica, Europe, and Australia.Plate tectonics is...
. Air Europe also acquired two small regional airlines, forming the nucleus of a new Air Europe Express regional airline
Regional airline
Regional airlines are airlines that operate regional aircraft to provide passenger air service to communities without sufficient demand to attract mainline service...
subsidiary. The acquired slots at Gatwick enabled it to increase frequencies as well as launch new scheduled routes. By the end of the decade Air Europe had become Gatwick's largest resident airline operator.
Air Europe's stellar success came to an end when growing financial problems at its parent company began to undermine the financial performance of the airline and its sister companies from late 1989.
ILG and all its UK-based subsidiaries — including Air Europe — went bankrupt
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
on March 8, 1991.
History
Background to formation
Since its beginning in the 1950s, the UK package tour industry has been characterised by its cyclicality. There were pronounced periods of growth and contraction.The first two periods of major growth had occurred during the mid-1960s and early '70s, respectively. These were followed by a period of major contraction during the mid-'70s, mainly as a result of the 1973 oil crisis
1973 oil crisis
The 1973 oil crisis started in October 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC proclaimed an oil embargo. This was "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war. It lasted until March 1974. With the...
. This, in turn, was followed by renewed expansion during the second half of the 1970s.
The industry's spurt of growth in the late '70s was accompanied by a growing shortage of whole-plane charter seats, which was further exacerbated by Laker Airways
Laker Airways
Laker Airways was a wholly private, British independentindependent from government-owned corporations airline founded by Sir Freddie Laker in 1966. It originally was a charter airline flying passengers and cargo worldwide...
' decision to drastically reduce its short- to medium-haul charter activities, as a result of that airline's increasing focus on its long-haul, transatlantic
Transatlantic flight
Transatlantic flight is the flight of an aircraft across the Atlantic Ocean. A transatlantic flight may proceed east-to-west, originating in Europe or Africa and terminating in North America or South America, or it may go in the reverse direction, west-to-east...
Skytrain scheduled no frills
No frills
No-frills or no frills is a term used to describe any service or product for which the non-essential features have been removed to keep the price low. The use of the term "frills" refers to a style of fabric decoration...
services, as well as by British Caledonian's decision to completely withdraw from the charter market.
Hence, the time to start a new charter airline seemed opportune.
Radical departure from established practices in the charter airline industry
During his time as Dan-Air's associate director in charge of the airline's operations, Errol Cossy had overseen the successful introduction of several new jet aircraft types into Dan-Air's fleet, beginning with the de Havilland CometDe Havilland Comet
The de Havilland DH 106 Comet was the world's first commercial jet airliner to reach production. Developed and manufactured by de Havilland at the Hatfield, Hertfordshire, United Kingdom headquarters, it first flew in 1949 and was a landmark in aeronautical design...
series 4 in 1966 and continuing with the BAC One-Eleven
BAC One-Eleven
The British Aircraft Corporation One-Eleven, also known as the BAC-111, BAC-1-11 or BAC 1-11, was a British short-range jet airliner of the 1960s and 1970s...
400 series in 1969, the Boeing 707
Boeing 707
The Boeing 707 is a four-engine narrow-body commercial passenger jet airliner developed by Boeing in the early 1950s. Its name is most commonly pronounced as "Seven Oh Seven". The first airline to operate the 707 was Pan American World Airways, inaugurating the type's first commercial flight on...
-320 "Intercontinental" in 1971, the Boeing 727
Boeing 727
The Boeing 727 is a mid-size, narrow-body, three-engine, T-tailed commercial jet airliner, manufactured by Boeing. The Boeing 727 first flew in 1963, and for over a decade more were built per year than any other jet airliner. When production ended in 1984 a total of 1,832 aircraft had been produced...
-100 in 1973 as well as the BAC One-Eleven 500 in 1975. He also had control over the entire charter fleet, which numbered 28 aircraft during the mid-1970s. At that time, Intasun used to contract a growing share of its business to Dan-Air. Intasun, like Dan-Air at that time, used to have a somewhat downmarket image. It was mainly competing on price with the other tour operator
Tour operator
A tour operator typically combines tour and travel components to create a holiday. The most common example of a tour operator's product would be a flight on a charter airline plus a transfer from the airport to a hotel and the services of a local representative, all for one price. Niche tour...
s, notably market leader Thomson Holidays. The reason it was able to undercut the competition while continuing to expand profitably was that it first waited for all the other operators to place their business with Dan-Air and only then placed its contracts, fitting in with whenever aircraft and crews were available. This meant that a lot of Intasun's business involved mid-week and night flying. This, in turn, was a win-win for both operator and airline. It enabled Intasun to charter aircraft at substantially lower rates than its competitors, who had to pay a premium for chartering planes at week-end peak times, and it permitted Dan-Air to increase its fleet's utilisation, thereby boosting the company's overall profitability. However, the high fuel consumption of Dan-Air's "mix'n match" fleet — especially the Comets, which at that time made up the bulk of its charter fleet — against the backdrop of steeply rising jet fuel
Jet fuel
Jet fuel is a type of aviation fuel designed for use in aircraft powered by gas-turbine engines. It is clear to straw-colored in appearance. The most commonly used fuels for commercial aviation are Jet A and Jet A-1 which are produced to a standardized international specification...
prices in the aftermath of the 1973 oil crisis made it more and more difficult to offer Intasun the rates at which it was prepared to contract its business to Dan-Air.
Errol Cossey became convinced that he could offer Intasun these rates without difficulty, and do a lot more business with it, if Dan-Air had more modern aircraft with a substantially lower fuel-burn and overall lower direct operating cost
Operating cost
Operating costs can be described as the expenses which are related to the operation of a business, or to the operation of a device, component, piece of equipment or facility.-Business operating costs:...
s in its fleet. He was also aware that Britannia Airways
Britannia Airways
Britannia Airways was the largest charter airline in the United Kingdom, rebranded as Thomsonfly in 2005. Its main bases were Gatwick, London Luton, Birmingham, Manchester, Newcastle and Glasgow...
, Thomson Holidays' sister airline and Dan-Air's main rival in the charter market, had already begun building up a fleet of brand-new Boeing 737-200 jet plane
Jet aircraft
A jet aircraft is an aircraft propelled by jet engines. Jet aircraft generally fly much faster than propeller-powered aircraft and at higher altitudes – as high as . At these altitudes, jet engines achieve maximum efficiency over long distances. The engines in propeller-powered aircraft...
s, which had lower operating costs and a better operational performance than the older, second-hand jet
Jet aircraft
A jet aircraft is an aircraft propelled by jet engines. Jet aircraft generally fly much faster than propeller-powered aircraft and at higher altitudes – as high as . At these altitudes, jet engines achieve maximum efficiency over long distances. The engines in propeller-powered aircraft...
s operated by Dan-Air.
Therefore, Errol Cossey, Martin O'Regan, the group finance director of Dan-Air parent Davies and Newman, and Alan Snudden, Dan-Air's managing director, tried to convince Fred Newman, Davies and Newman's majority shareholder
Shareholder
A shareholder or stockholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself ....
as well as Dan-Air's long-serving chairman, that operating a brand-new fleet of Boeing 737-200 Advanced series jet aircraft — at the time the very latest, state-of-the-art aircraft — was the only way to secure Dan-Air's long-term future as a major player in the charter airline industry. Their argument to Fred Newman was that operating the latest series 200 Advanced model of the 737 would not only give Dan-Air far better cost
Cost
In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this...
figures than any of the existing aircraft types in its fleet but would also allow it to leap-frog Britannia
Britannia Airways
Britannia Airways was the largest charter airline in the United Kingdom, rebranded as Thomsonfly in 2005. Its main bases were Gatwick, London Luton, Birmingham, Manchester, Newcastle and Glasgow...
, which initially operated only the basic 200 model of the 737. That model lacked important enhancements, such as a short-field capability enabling operations at airfields whose runways were too short for the basic 737-200 model.
After several failed attempts to convince Fred Newman of their plan's merits, Errol Cossey, Martin O'Regan and Alan Snudden decided to leave Dan-Air.
As a first step, Errol Cossey approached Intasun founder and chairman Harry Goodman to elicit his response to the plan he had been working on with Martin O'Regan and Alan Snudden. It did not take long to convince Harry Goodman of the plan's merits. He agreed to support it as an equity
Ownership equity
In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists...
player. This was the point at which Air Europe was conceived, with both Errol Cossey and Martin O'Regan on board backed up by Harry Goodman's financial participation. (Alan Snudden, who had initially agreed to join the new airline project, eventually decided to join Monarch Airlines
Monarch Airlines
Monarch Airlines, often shortened to and trading as Monarch, is a British charter and scheduled airline based at London Luton Airport in Luton. It is one of the United Kingdom's largest charter airlines, operating to Europe, the United States, the Caribbean, India and Africa, serving mainly leisure...
.)
The fact that the charter airline industry generally and Dan-Air in particular were perceived to be at the bottom end of the market led to a decision to make the new airline people's first choice from the outset, especially in terms of overall on-board service, including the in-flight catering
Catering
Catering is the business of providing foodservice at a remote site or a site such as a hotel, public house , or other location.-Mobile catering:A mobile caterer serves food directly from a vehicle or cart that is designed for the purpose...
. It was hoped that offering a service that was at least as good as that of the leading scheduled service airlines, with the ultimate aim of establishing a new benchmark
Benchmarking
Benchmarking is the process of comparing one's business processes and performance metrics to industry bests and/or best practices from other industries. Dimensions typically measured are quality, time and cost...
for the entire airline industry and for charter airlines in particular, would enable the new airline to fly longer seasons as tour operators were expected to cancel their contracts with other, less popular rival airlines. The resulting increase in aircraft utilisation would translate into higher profitability.
One of the ways in which the new airline was planning to set a new standard for high-quality in-flight service in the charter airline industry was by completely revamping the traditional seat-back catering concept as practised by most contemporary charter airlines. At the time, this consisted of serving Spam
Spam (food)
Spam is a canned precooked meat product made by the Hormel Foods Corporation, first introduced in 1937. The labeled ingredients in the classic variety of Spam are chopped pork shoulder meat, with ham meat added, salt, water, modified potato starch as a binder, and sodium nitrite as a preservative...
salad on all flights out of the UK and sandwiches back to the UK. Although this seemed to be a low-cost way of providing a minimal catering service on inclusive tour flights, it was actually labour-intensive and costly, especially when taking into account that these meals needed to be prepared freshly several hours before departure. This meant that caterers were charging a premium for meals that needed to be prepared during the night for early morning departures as well as for seasonal produce. Besides, the salad leaves tended to wilt and the sandwiches acquired a stale taste as soon as the wrapping was removed due to the dry atmosphere inside an aircraft cabin
Aircraft cabin
An aircraft cabin is the section of an aircraft in which passengers travel. At cruising altitudes of modern commercial aircraft the surrounding atmosphere is too thin to breathe without an oxygen mask, so cabins are pressurized at a higher pressure than ambient pressure at altitude.In commercial...
. As a result, from the passengers' point of view, the presentation of the meals most traditional charter airlines served them was unappetising, turning many of them off.
To move away from the charter airline industry's image of dreadful seat-back catering, the new airline resolved to serve proper, restaurant
Restaurant
A restaurant is an establishment which prepares and serves food and drink to customers in return for money. Meals are generally served and eaten on premises, but many restaurants also offer take-out and food delivery services...
-style meals including at least three courses — a starter, a hot main course
Main course
A main dish is the featured or primary dish in a meal consisting of several courses. It usually follows the entrée course, and the salad course. In North American usage it may in fact be called the "entree"....
and a dessert
Dessert
In cultures around the world, dessert is a course that typically comes at the end of a meal, usually consisting of sweet food. The word comes from the French language as dessert and this from Old French desservir, "to clear the table" and "to serve." Common Western desserts include cakes, biscuits,...
— on all flights, time permitting. Instead of paying caterers premium rates for limp Spam salads and stale sandwiches, the new airline would bulk-purchase deep-frozen ingredients only. This would enable it to take advantage of lower rates. And rather than relying on overseas caterers, who were often plying their trade only seasonally and over whose food hygiene and quality standards the airline would have no control, it would also enable it to carry the in-bound catering in the aircraft's holds, which would generally not be filled to capacity.
In addition to operating only brand-new aircraft from the very beginning, this new service concept marked the second major departure from the UK charter airline industry's established practices.
Improving the new airline's competitiveness, operational performance and profitability in a hyper-competitive market place characterised by low profit margin
Profit margin
Profit margin, net margin, net profit margin or net profit ratio all refer to a measure of profitability. It is calculated by finding the net profit as a percentage of the revenue.Net profit Margin = x100...
s and excess capacity were not the only reasons for exclusively operating brand-new equipment from its inception.
Another important reason was that generous capital
Financial capital
Financial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, etc....
allowances for new equipment reduced a company
Company
A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...
's tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
liability, thereby increasing the enterprise value
Enterprise value
Enterprise value , Total enterprise value , or Firm value is an economic measure reflecting the market value of a whole business. It is a sum of claims of all the security-holders: debtholders, preferred shareholders, minority shareholders, common equity holders, and others...
.
Furthermore, being affiliated to an in-house tour operator would give the new airline access to the tour operator's customers' deposits, which could be used as working capital
Working capital
Working capital is a financial metric which represents operating liquidity available to a business, organization or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Net working capital is...
. This was of particular importance to help a fledgling airline, whose first plane had not yet arrived and whose first flight was still in the planning stage, meet its up-front expenses. These deposits would also be an important source of working capital at a later stage when suppliers would have to be paid up-front in February, during the dead season, before the summer flying programme commenced in April.
To be able to attract a substantial amount of higher margin business from more upmarket tour operators that were Intasun's competitors as well as to avoid being overreliant on Intasun, the new airline would have to adopt a name not related to Intasun. Eventually, Air Europe was chosen from a shortlist of names that did not reveal the airline's link with Intasun.
Long-term strategic planning instead of opportunistic growth
Errol Cossey and Martin O'Regan's new airline venture not only marked a radical departure from traditional charter airline industry practices, such as operating old, second-hand aircraft and providing an uninspiring, very basic standard of on-board service. It also broke with the industry's long-standing tradition of defining its long-term strategies purely in terms of opportunistic expansion, i.e. making use of whatever opportunities to grow the business were available, regardless of whether these opportunities actually presented a good fit with existing activities.As business opportunities for independent airlines were very limited during the early post-World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
period, i.e. from the late 1940s until the early 1960s, this approach was typical for the independent airlines that had begun their existence during that period. Dan-Air, Errol Cossey and Martin O'Regan's previous employer, which belonged to that era, was a very typical exponent of this opportunistic approach to doing business. Over time, that airline expanded into almost every area of the commercial airline business. The result was a very high degree of diversification
Diversification (marketing strategy)
Diversification is a form of corporate strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets. Diversification can occur either at the business unit level or at the corporate level. At the business unit level, it is most...
into many unrelated activities, many of which never turned a profit
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
in their own right. The resulting lack of focus led to a great deal of valuable management time being expended on activities where the return on investment
Return on investment
Return on investment is one way of considering profits in relation to capital invested. Return on assets , return on net assets , return on capital and return on invested capital are similar measures with variations on how “investment” is defined.Marketing not only influences net profits but also...
was negative. Dan-Air used to justify this diversification strategy
Strategy
Strategy, a word of military origin, refers to a plan of action designed to achieve a particular goal. In military usage strategy is distinct from tactics, which are concerned with the conduct of an engagement, while strategy is concerned with how different engagements are linked...
by its low marginal cost
Marginal cost
In economics and finance, marginal cost is the change in total cost that arises when the quantity produced changes by one unit. That is, it is the cost of producing one more unit of a good...
s as aircraft and crews were already available. The airline also used to justify it by the resulting increased utilisation of the fleet, which in turn resulted in a positive contribution to overall profitability. (At the time, for Dan-Air each aircraft type in its fleet represented a so-called "cost centre
Cost centre
In business, a cost centre or cost center is a division that adds to the cost of an organization, but only indirectly adds to its profit. Typical examples include research and development, marketing and customer service. There are some significant advantages to classifying simple, straightforward...
line" that was financially accountable for itself.)
A typical example of Dan-Air's opportunistic diversification into activities unrelated to its core charter business was the airline's long-term commitment to build from scratch a comprehensive network of regional scheduled services linking secondary airports across Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
, many of which operated on a seasonal basis only. This took up massive resources
Resource (project management)
In project management terminology, resources are required to carry out the project tasks. They can be people, equipment, facilities, funding, or anything else capable of definition required for the completion of a project activity. The lack of a resource will therefore be a constraint on the...
, in terms of both finance
Finance
"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...
and management time. Despite dedicating vast resources to its regional scheduled operation, it never became a financial success.
Having witnessed the drawbacks of Dan-Air's opportunistically driven diversification strategy first-hand, Errol Cossey and Martin O'Regan resolved that their new airline venture would only ever commit itself to commercial activities that had genuine prospects of becoming profitable in their own right, from the very beginning itself. Errol Cossey and Martin O'Reagan furthermore resolved that their airline venture needed to remain focused on a few core activities, rather than grasping every available opportunity to expand into areas far removed from its chosen core activities, to attain this goal.
As a result, the long-term strategic
Strategy
Strategy, a word of military origin, refers to a plan of action designed to achieve a particular goal. In military usage strategy is distinct from tactics, which are concerned with the conduct of an engagement, while strategy is concerned with how different engagements are linked...
plan Air Europe eventually developed narrowly focused on the following core areas:
- Short-/medium-haul charter flights.
- Long-haul charter flights.
- Scheduled services serving markets where half of the available capacity could be profitably filled with Intasun customers.
- Air Europe branded airlines in other European countries.
- Financing aircraft acquisitions through highly favourable finance leaseFinance leaseA finance lease or capital lease is a type of lease. It is a commercial arrangement where:* the lessee will select an asset ;* the lessor will purchase that asset;...
s that helped boost Air Europe's profitability by allowing it to take advantage of surplus aircraft valuations arising from the aircraft's residual dollar values.
Beginning
Air Europe became the first British charter airline using brand-new equipment right from the very beginning, as well as the first UK charter airline offering a standard of service that was comparable to the best service offered by the leading contemporary scheduled carriers. Air Europe also had the distinction of being the first new UK charter airline to become profitable during its first year of operation.Due to the package tour industry's seasonality, Air Europe needed to ensure that it was in a position to take full advantage of the entire June—September peak season to be profitable during the first year of operation itself. In order to be able to do this, the airline needed to have the finance in place to pay up-front for the deposits to take over the delivery slots of three brand-new Boeing 737-200 Advanced aircraft that had originally been booked by another airline, which had cancelled its order. Financing these aircraft, which were due to roll off Boeing
Boeing
The Boeing Company is an American multinational aerospace and defense corporation, founded in 1916 by William E. Boeing in Seattle, Washington. Boeing has expanded over the years, merging with McDonnell Douglas in 1997. Boeing Corporate headquarters has been in Chicago, Illinois since 2001...
's production line
Assembly line
An assembly line is a manufacturing process in which parts are added to a product in a sequential manner using optimally planned logistics to create a finished product much faster than with handcrafting-type methods...
during May 1979, was the biggest challenge Air Europe faced at that time.
In the late 1970s the traditional British financial institutions were not keen to provide start-up capital to newly constituted independent paper airlines, unless these were part of or enjoyed the backing of other, well-established organisations. These institutions considered lending substantial amounts of money to fledgling independent airlines too risky because of the high failure rate among those airlines in the UK.
Therefore, Air Europe's promoters were compelled to approach non-UK institutions and other potential lenders based overseas who could support the airline financially to help it get off the ground.
Ultimately, C. ITOH and the Marubeni Corporation, two Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
ese conglomerates
Conglomerate (company)
A conglomerate is a combination of two or more corporations engaged in entirely different businesses that fall under one corporate structure , usually involving a parent company and several subsidiaries. Often, a conglomerate is a multi-industry company...
, whose commercial activities included purchasing brand-new aircraft from the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
and leasing them on to non-US
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
airlines as part of Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
's effort to reduce the then huge trade imbalance with the US, were prepared to lend Air Europe the required amount, following complex and lengthy negotiations. The type of aircraft finance Air Europe procured from C. ITOH and Marubeni was known as "Samurai
Samurai
is the term for the military nobility of pre-industrial Japan. According to translator William Scott Wilson: "In Chinese, the character 侍 was originally a verb meaning to wait upon or accompany a person in the upper ranks of society, and this is also true of the original term in Japanese, saburau...
" leasing. It consisted of a combination of mortgage
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
and hire purchase
Hire purchase
Hire purchase is the legal term for a contract, in this persons usually agree to pay for goods in parts or a percentage at a time. It was developed in the United Kingdom and can now be found in China, Japan, Malaysia, India, South Africa, Australia, Jamaica and New Zealand. It is also called...
finance spread over ten years for each aircraft. Boeing provided a deficiency guarantee that guaranteed a large proportion of the Japanese financier
Financier
Financier is a term for a person who handles typically large sums of money, usually involving money lending, financing projects, large-scale investing, or large-scale money management. The term is French, and derives from finance or payment...
s' outstanding loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
s, based on the expected resale value
Opportunity cost
Opportunity cost is the cost of any activity measured in terms of the value of the best alternative that is not chosen . It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. The opportunity cost is also the...
s of the aircraft.
Air Europe's first-ever commercial air service took to the air on May 4, 1979. On that day a brand-new, 130-seat Boeing 737-2S3 Advanced, named Adam and bearing the registration G-BMHG, departed London Gatwick
London Gatwick Airport
Gatwick Airport is located 3.1 miles north of the centre of Crawley, West Sussex, and south of Central London. Previously known as London Gatwick,In 2010, the name changed from London Gatwick Airport to Gatwick Airport...
for Palma de Mallorca
Palma de Mallorca
Palma is the major city and port on the island of Majorca and capital city of the autonomous community of the Balearic Islands in Spain. The names Ciutat de Mallorca and Ciutat were used before the War of the Spanish Succession and are still used by people in Majorca. However, the official name...
with a full passenger load, operating the airline's inaugural flight KS 1004.
This was coincidentally the same day Air Europe's second brand-new Boeing 737-2S3 Advanced (registration G-BMOR) arrived at the airline's Gatwick base.
The final example of the initial batch of three brand-new Boeing 737-2S3 Advanced (G-BMEC) arrived at Gatwick on May 31, 1979, just in time for the start of the peak operating season.
Becoming a major player in the charter airline industry
This initial success provided the impetus and financial platform for Air Europe to continually expand its charter activities over the coming years.Air Europe opened a second base at Manchester
Manchester
Manchester is a city and metropolitan borough in Greater Manchester, England. According to the Office for National Statistics, the 2010 mid-year population estimate for Manchester was 498,800. Manchester lies within one of the UK's largest metropolitan areas, the metropolitan county of Greater...
during its first year of operation itself. The Manchester base, which opened in the autumn of 1979, eventually became the airline's fastest growing UK departure point.
A major reorganisation was completed in 1981 when Intasun became a unified company as a result of merging its constituent parts, leading to the flotation
Initial public offering
An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...
of Intasun Leisure Group plc on the London Stock Exchange
London Stock Exchange
The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...
's Unlisted Securities Market
Unlisted Securities Market
The Unlisted Securities Market , which ran from 1980 to 1996, was a stock exchange set up by the London Stock Exchange to cater for companies too small to qualify for a full listing....
. (In 1987, the group, which by then had become the International Leisure Group (ILG), delisted from London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
's stock exchange
Stock exchange
A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...
.)
Another new base opened at Cardiff
Cardiff
Cardiff is the capital, largest city and most populous county of Wales and the 10th largest city in the United Kingdom. The city is Wales' chief commercial centre, the base for most national cultural and sporting institutions, the Welsh national media, and the seat of the National Assembly for...
in 1982. By that time, Air Europe's core fleet consisted of seven Boeing 737-200 Advanced aircraft, all of which were brand-new at the time they joined the fleet. A further three 737-200s operated under a swap-lease arrangement with Air Florida
Air Florida
Air Florida was an American low-cost carrier that operated from 1971 to 1984. In 1975 it was headquartered in the Dadeland Towers in what is now the Kendall CDP in unincorporated Miami-Dade County, Florida.-History:...
complemented the core fleet between May and September, thus giving Air Europe an operational fleet of ten aircraft during the peak summer season. Air Europe expected to carry 1.2m passengers during 1982.
1982 was also the year Air Europe signed the purchase agreement with British Airways
British Airways
British Airways is the flag carrier airline of the United Kingdom, based in Waterside, near its main hub at London Heathrow Airport. British Airways is the largest airline in the UK based on fleet size, international flights and international destinations...
for a pair of brand-new Boeing 757
Boeing 757
The Boeing 757 is a mid-size, narrow-body twin-engine jet airliner manufactured by Boeing Commercial Airplanes. Passenger versions of the twinjet have a capacity of 186 to 289 persons and a maximum range of , depending on variant and cabin configuration...
-200 aircraft, for delivery in March 1983 and March 1984, respectively. These were part of an order for 19 the UK flag carrier
Flag carrier
A flag carrier is a transportation company, such as an airline or shipping company, that, being locally registered in a given country, enjoys preferential rights or privileges, accorded by the government, for international operations. It may be a state-run, state-owned or private but...
had placed with Boeing prior to starting the privatisation process and which had subsequently become surplus to its requirements.
1982 furthermore saw Air Europe placing its first order for five Boeing 737-300s with deliveries beginning in 1987.
Intasun Leisure Group plc's first set of annual results for the 1982/'83 financial year to the end of March 1983 was released in August of that year. These results showed that the group's pre-tax profit for that period was £6.8m (up 26% on the year-before period) and that the group carried 1.26m passengers, mostly on Air Europe. This set of figures also showed that Air Europe accounted for half of the Intasun Leisure Group's profits.
Air Europe's first Boeing 757, named Fiona and bearing the registration G-BKRM, operated its maiden commercial flight on April 24, 1983 between London Gatwick and Faro
Faro, Portugal
Faro is the southernmost city in Portugal. It is located in the Faro Municipality in southern Portugal. The city proper has 41,934 inhabitants and the entire municipality has 58,305. It is the seat of the Faro District and capital of the Algarve region...
. The airline's second 757 (G-BPGW) entered commercial service on March 29, 1984 between Gatwick and Milan
Milan
Milan is the second-largest city in Italy and the capital city of the region of Lombardy and of the province of Milan. The city proper has a population of about 1.3 million, while its urban area, roughly coinciding with its administrative province and the bordering Province of Monza and Brianza ,...
.
An order for an additional Boeing 757, the airline's third and the first directly ordered from Boeing, was placed during 1984 as well for delivery the following year. (Follow-on orders for further 757s were placed subsequently.)
During the early 1980s the Federal Aviation Administration
Federal Aviation Administration
The Federal Aviation Administration is the national aviation authority of the United States. An agency of the United States Department of Transportation, it has authority to regulate and oversee all aspects of civil aviation in the U.S...
(FAA) began rethinking its policy on the minimum number of engines an aircraft needed to be permitted to fly long distances non-stop over water. The FAA's rethink had been prompted by the increasing reliability of jet engine
Jet engine
A jet engine is a reaction engine that discharges a fast moving jet to generate thrust by jet propulsion and in accordance with Newton's laws of motion. This broad definition of jet engines includes turbojets, turbofans, rockets, ramjets, pulse jets...
s powering new widebodied airliners
Wide-body aircraft
A wide-body aircraft is a large airliner with two passenger aisles, also known as a widebody aircraft or twin-aisle aircraft. The typical fuselage diameter is . In the typical wide-body economy cabin, passengers are seated seven to ten abreast, allowing a total capacity of 200 to 850 passengers...
as well as other technological advances. This meant that mid-air engine shutdowns that necessitated an emergency landing
Emergency landing
An emergency landing is a landing made by an aircraft in response to a crisis which either interferes with the operation of the aircraft or involves sudden medical emergencies necessitating diversion to the nearest airport.-Types of emergency landings:...
at the nearest diversion airfield and which could potentially endanger the safety of aircraft and occupants had become a rare phenomenon. The result was ETOPS, a set of rules permitting twin-engined aircraft to fly long over water routes, provided that there were usable diversion airfields within 120 minutes' non-stop flying distance plus a 15% margin from the aircraft's route.
Following the introduction of the new rules in the mid-1980s, Air Europe became one of the first airlines to have its 757s ETOPS-equipped to take advantage of the aircraft's design range
Range (aircraft)
The maximal total range is the distance an aircraft can fly between takeoff and landing, as limited by fuel capacity in powered aircraft, or cross-country speed and environmental conditions in unpowered aircraft....
, which was sufficient to permit non-stop flights to the East coast of North America
North America
North America is a continent wholly within the Northern Hemisphere and almost wholly within the Western Hemisphere. It is also considered a northern subcontinent of the Americas...
, the Caribbean
Caribbean
The Caribbean is a crescent-shaped group of islands more than 2,000 miles long separating the Gulf of Mexico and the Caribbean Sea, to the west and south, from the Atlantic Ocean, to the east and north...
and Central America
Central America
Central America is the central geographic region of the Americas. It is the southernmost, isthmian portion of the North American continent, which connects with South America on the southeast. When considered part of the unified continental model, it is considered a subcontinent...
as well as certain parts of South America
South America
South America is a continent situated in the Western Hemisphere, mostly in the Southern Hemisphere, with a relatively small portion in the Northern Hemisphere. The continent is also considered a subcontinent of the Americas. It is bordered on the west by the Pacific Ocean and on the north and east...
and Asia
Asia
Asia is the world's largest and most populous continent, located primarily in the eastern and northern hemispheres. It covers 8.7% of the Earth's total surface area and with approximately 3.879 billion people, it hosts 60% of the world's current human population...
.
This enabled Air Europe to become the first British charter airline to operate its 757s on transatlantic charter flights between various points in the UK and Orlando, Florida
Orlando, Florida
Orlando is a city in the central region of the U.S. state of Florida. It is the county seat of Orange County, and the center of the Greater Orlando metropolitan area. According to the 2010 US Census, the city had a population of 238,300, making Orlando the 79th largest city in the United States...
, from 1989.
The first batch of three Boeing 737-200 Advanced aircraft delivered back in 1979 left the fleet in April 1985 to enable Air Europe to take advantage of the aircraft's rising dollar-denominated residual value
Residual value
Residual value is one of the constituents of a leasing calculus or operation. It describes the future value of a good in terms of percentage of depreciation of its initial value....
s. (Air Europe's policy of taking a substantial interest in its aircraft's residual values also had a secondary effect of keeping the fleet young. This was achieved by continuously rolling over planes whose residual values exceeded the costs of procuring replacements, including capacity temporarily leased in from other operators.)
Eventually, Air Europe placed an initial order for five, larger 400 series Boeing 737s. These aircraft were delivered during 1989.
ILG's 1989 annual report
Annual report
An annual report is a comprehensive report on a company's activities throughout the preceding year. Annual reports are intended to give shareholders and other interested people information about the company's activities and financial performance...
, which covered the group's financial and operational performance during Air Europe's tenth anniversary, contained the following statistics
Statistics
Statistics is the study of the collection, organization, analysis, and interpretation of data. It deals with all aspects of this, including the planning of data collection in terms of the design of surveys and experiments....
:
- A group operating profit of £35.5m.
- Total passenger numbers for all the group's airlines of 5.8m.
- Total passenger numbers for all the group's tour operators of 2.7m.
- A total number of 31 jet aircraft operated across the group.
- A total number of 20 scheduled routes.
- A combined share of 20% of all slots at London Gatwick.
- Total surplus aircraft valuations of £360m.
Each individual result represented a record performance.
Aircraft leasing
Leasing played a prominent role in ILG/Air Europe's corporate strategyStrategic management
Strategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments...
from the very beginning.
Air Europe frequently used both operating leases as well as finance leases.
The former included both long-term swaps of surplus capacity with other airlines whose seasonality was opposite to Air Europe's as well as short-term leases to bridge temporary capacity shortfalls.
The latter was a profit-enhancing method to finance newly acquired aircraft, whereby these aircraft were sold to in-house or external lessor
Lease
A lease is a contractual arrangement calling for the lessee to pay the lessor for use of an asset. A rental agreement is a lease in which the asset is tangible property...
s from whom they were then leased back, with the airline retaining a substantial interest in the aircraft's residual values.
Lease-swaps with other operators whose seasonality was opposite to Air Europe's own helped maintain a high aircraft utilisation during the lean winter season, thus permitting a year-round profitable operation.
The charter airline business was highly seasonal, with most of the annual commercial activity taking place over a relatively short period of barely four months between the end of May and the beginning of September. As Air Europe was operating a fleet of brand-new aircraft that incurred high financing charges unlike the older, second-hand jets operated by Dan-Air and many other rival airlines at the time, it could not afford to significantly reduce its aircraft fleet's utilisation over the lean winter months, without taking a major hit on its financial performance. (Dan-Air, for example, took half of its operational Comet fleet out of service at the end of the 1976 summer season and put the aircraft into storage at sister company Dan-Air Engineering
Dan-Air Engineering
Dan Air Engineering Limited was the maintenance arm of Dan Air Services Limited, one of Britain's foremost wholly privately owned, independentindependent from government-owned corporations airlines during the 1970s and 80s....
's main base at Lasham Airfield
Lasham Airfield
Lasham Airfield is located north-west of Alton in Hampshire, England, in the village of Lasham.It was built in 1942 and it was an operational RAF during the Second World War. It was used for recreational gliding from 1951. The airfield is now owned by the world's largest gliding club, Lasham...
for the duration of the following winter season. Dan-Air also operated the other aircraft types in its fleet at a much lower utilisation during the winter. Dan-Air was able to do this without incurring huge losses because these predominantly older, second-hand aircraft had much lower acquisition costs and were already largely or fully depreciated at the time they entered its fleet.)
Air Europe therefore began to look for potential business partner
Business partner
Business partner is a term used to denote a commercial entity with which another commercial entity has some form of alliance. This relationship may be a highly contractual, exclusive bond in which both entities commit not to ally with third parties...
s whose seasonality was counter-cyclical to its own so that Air Europe's surplus aircraft capacity could be leased out to other operators in winter and those operators' surplus capacity could be leased in for the busy summer period.
Eventually, Air Europe concluded an aircraft swap-lease with Air Florida, which commenced at the start of the 1980/'81 winter season. Under this deal, Air Europe leased three of its aircraft to Air Florida to cover that airline's peak season, which occurred in winter. In return, Air Florida leased two of its aircraft to Air Europe to cover the UK airline's summer peak period. The number of aircraft Air Europe leased from Air Florida during the summer months subsequently increased to three.
Although this arrangement initially worked to both airlines' satisfaction, Air Europe decided to terminate it at the end of the 1982/'83 winter season due to Air Florida's growing financial problems. (Air Florida had faced numerous difficulties to pay Air Europe for the leases on time. It also had difficulties to ensure the aircraft it had leased from Air Europe reached the UK along with the aircraft it was contractually obliged to supply to Air Europe from its own fleet in time at the start of the UK carrier's summer season.)
Air Europe replaced the defunct swap-lease with Air Florida with a similar arrangement with British Airways, which it had negotiated with the UK flag carrier in 1982. (This was part of a wider deal that had resulted in Air Europe purchasing two brand-new Boeing 757s from British Airways
British Airways
British Airways is the flag carrier airline of the United Kingdom, based in Waterside, near its main hub at London Heathrow Airport. British Airways is the largest airline in the UK based on fleet size, international flights and international destinations...
(BA).)
The Air Europe—BA aircraft swap lease involved BA leasing back the two 757s it had sold to Air Europe along with a number of that airline's 737s to cover the shortfall resulting from aircraft being taken out of service during the winter when BA's scheduled maintenance occurred. This deal lasted from 1983 until 1986.
An example for a short-term lease to bridge a temporary capacity shortfall was Air Europe's intended lease of a pair of Boeing 747
Boeing 747
The Boeing 747 is a wide-body commercial airliner and cargo transport, often referred to by its original nickname, Jumbo Jet, or Queen of the Skies. It is among the world's most recognizable aircraft, and was the first wide-body ever produced...
s to enable the launch of a new long-haul charter programme in 1989.
The launch of this programme in May 1989 necessitated the temporary lease of suitable widebody aircraft capacity as Air Europe did not have any aircraft suited to this type of operation in its fleet. The original intention was to lease two 460-seat Boeing 747s.
In the event, Air Europe leased a single, 486-seat Boeing 747 from US supplemental carrierUS non-scheduled airlines as classified by the United States Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
in 1963 Tower Air
Tower Air
Tower Air was a certificated FAR 121 schedule and charter U.S. airline that operated from 1983 until 2000, when the company declared bankruptcy and was liquidated. Scheduled flights were initially offered over a New York - Brussels - Tel Aviv route in addition to charter flights to Athens,...
to operate its long-haul charter services to Bangkok
Bangkok
Bangkok is the capital and largest urban area city in Thailand. It is known in Thai as Krung Thep Maha Nakhon or simply Krung Thep , meaning "city of angels." The full name of Bangkok is Krung Thep Mahanakhon Amon Rattanakosin Mahintharayutthaya Mahadilok Phop Noppharat Ratchathani Burirom...
, Barbados
Barbados
Barbados is an island country in the Lesser Antilles. It is in length and as much as in width, amounting to . It is situated in the western area of the North Atlantic and 100 kilometres east of the Windward Islands and the Caribbean Sea; therein, it is about east of the islands of Saint...
, Orlando and Acapulco
Acapulco
Acapulco is a city, municipality and major sea port in the state of Guerrero on the Pacific coast of Mexico, southwest from Mexico City. Acapulco is located on a deep, semi-circular bay and has been a port since the early colonial period of Mexico’s history...
on an ACMI basis.
Pan-European presence
Further expansion and diversification occurred between 1986 and 1989.It began with the creation of a Spanish
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
subsidiary, Air España S.A., based at Palma de Mallorca, in which ILG acquired a 25% stake, the maximum foreign entities or individuals could legally own in a Spanish airline at the time. This was followed by the acquisition of a 49% stake in German
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
regional carrier Nürnberger Flugdienst (NFD)
Eurowings
Eurowings Luftverkehrs AG, part of Lufthansa Regional, is an airline with its head office in the Düsseldorf Administrative Center in Düsseldorf, Germany...
, the purchase of a 33% stake in Norwegian
Norway
Norway , officially the Kingdom of Norway, is a Nordic unitary constitutional monarchy whose territory comprises the western portion of the Scandinavian Peninsula, Jan Mayen, and the Arctic archipelago of Svalbard and Bouvet Island. Norway has a total area of and a population of about 4.9 million...
charter carrier Norway Airlines
Norway Airlines
Norway Airlines was a Norwegian airline based in Oslo, Norway. The airline was established in 1987, with its first route from Oslo Airport, Fornebu, to London Gatwick...
and the creation of a new Italian
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
carrier, Air Europe SpA
Air Europe (Italy)
Air Europe was an airline based in Malpensa International Airport, Italy. It was at the time of closure part of the Alitalia S.p.A. group.Air Europe suspended operations in December 2008 after Compagnia Aerea Italiana decided to close down the Air Europe brand...
, in which ILG held a 35% stake.
With the exception of Air España, which traded as Air Europa, all the other airlines traded as Air Europe. All of their aircraft — including those operated by Air Europa — adopted Air Europe's livery. The only way to tell the aircraft apart, other than by their respective national registrations, was to look at the national flag
Flag
A flag is a piece of fabric with a distinctive design that is usually rectangular and used as a symbol, as a signaling device, or decoration. The term flag is also used to refer to the graphic design employed by a flag, or to its depiction in another medium.The first flags were used to assist...
following the Air Europe/Air Europa name on the upper, white part of the fuselage.
ILG eventually created Dutch
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
-incorporated
Incorporation (business)
Incorporation is the forming of a new corporation . The corporation may be a business, a non-profit organisation, sports club, or a government of a new city or town...
Airlines of Europe BV as a joint management and holding company for all of these airlines.
ILG 's move to seek a pan-European presence, including the Spanish market, the most important destination market for its charter operations from the UK, was not only driven by its desire to take advantage of new business opportunities resulting from the gradual liberalisation
Liberalization
In general, liberalization refers to a relaxation of previous government restrictions, usually in areas of social or economic policy. In some contexts this process or concept is often, but not always, referred to as deregulation...
of Europe's air transport market. Another important factor leading to this decision was to ensure the widest possible UK coverage for its package tour operations to enable Intasun to compete better with market leader Thomson. ILG wanted to be able to do this without incurring the additional expense
Expense
In common usage, an expense or expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs. For a tenant, rent is an expense. For students or parents, tuition is an expense. Buying food, clothing, furniture or an automobile is often...
of stationing aircraft and crews at regional UK airports to operate a small number of seasonal flights only or, alternatively, incurring the cost
Cost
In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this...
of operating empty legs with aircraft repositioned from its two main bases at Gatwick and Manchester.
This resulted in an arrangement whereby Air Europa's aircraft were flying German and Scandinavia
Scandinavia
Scandinavia is a cultural, historical and ethno-linguistic region in northern Europe that includes the three kingdoms of Denmark, Norway and Sweden, characterized by their common ethno-cultural heritage and language. Modern Norway and Sweden proper are situated on the Scandinavian Peninsula,...
n holidaymakers during daytime and Intasun's regional customers at night. The resulting higher aircraft utilisation and lower direct operating costs for Air Europa compared with Thomson sister company Britannia Airways, the UK's leading charter airline and Air Europe's most formidable competitor in the European charter market, in turn enabled Intasun to undercut Thomson's prices.
Scheduled services
Air Europe took its first tentative steps to become a scheduled service airline in 1980, its second year of operation. However, the attempt failed.Low-frequency scheduled services on selected leisure routes to destinations already served by Air Europe's charter operation did eventually commence in 1985.
City-pair scheduled services plying the major international European trunk routes from Air Europe's Gatwick base began in 1987.
As part of a major scheduled service expansion, Air Europe launched a new business class
Business class
Business class is a travel class available on many commercial airlines and rail lines, known by brand names which vary by airline or rail company. In the airline industry, it was originally intended as an intermediate level of service between economy class and first class, but many airlines now...
in 1988. This was accompanied by an increase in frequencies on most of its scheduled European trunk routes. It also introduced a new scheduled service aircraft type from late 1989.
At that time, work started on licence applications for several long-haul scheduled services.
Abortive attempt to go long-haul
Air Europe prepared to enter the scheduled service market as early as April 1980 when it applied to the Civil Aviation Authority (CAA) for a licence to begin a year-round scheduled operation between London Gatwick and Miami, challenging Laker Airways' rival application to become the UK's second designated flag carrier on the route in direct competition with Air Florida as well as in indirect competition with British Airways' and Pan AmPan American World Airways
Pan American World Airways, commonly known as Pan Am, was the principal and largest international air carrier in the United States from 1927 until its collapse on December 4, 1991...
's services from Heathrow
London Heathrow Airport
London Heathrow Airport or Heathrow , in the London Borough of Hillingdon, is the busiest airport in the United Kingdom and the third busiest airport in the world in terms of total passenger traffic, handling more international passengers than any other airport around the globe...
. The service was to commence at a frequency of five weekly return flights in summer and four weekly round-trips in winter. Air Europe proposed operating the service either with a McDonnell Douglas DC-10
McDonnell Douglas DC-10
The McDonnell Douglas DC-10 is a three-engine widebody jet airliner manufactured by McDonnell Douglas. The DC-10 has range for medium- to long-haul flights, capable of carrying a maximum 380 passengers. Its most distinguishing feature is the two turbofan engines mounted on underwing pylons and a...
30 series widebodied trijet
Trijet
A Trijet is an aircraft powered by three jet engines. Early twin-jet designs were limited by the FAA's "60-minute rule", whereby the flight path of twin-engined jetliners was restricted to within 60 minutes' flying time from a suitable airport, in case of engine failure. In 1964 this rule was...
or a Rolls-Royce RB211
Rolls-Royce RB211
The Rolls-Royce RB211 is a family of high-bypass turbofan engines made by Rolls-Royce plc and capable of generating 37,400 to 60,600 pounds-force thrust. Originally developed for the Lockheed L-1011 , it entered service in 1972 and was the only engine to power this aircraft type...
-powered Boeing 747-200B. Air Europe had already reserved delivery positions with both manufacturers. In support of its application, the airline stressed that any spare capacity would be filled with its tour operator affiliates' customers. It hoped that this would convince the CAA of the proposed operation's viability on a year-round basis, especially during off-peak periods.
In the event, the CAA rejected Air Europe's application. It argued that the airline was still in its infancy as this was only its second year of operation and, therefore, lacked the expertise to take on three competitors on a major, intercontinental long-haul scheduled service route.
Launching low-frequency services on leisure routes
Air Europe's first successful scheduled route launch occurred on May 2, 1985. On that day the airline launched a four times weekly scheduled service between London Gatwick and Palma de Mallorca. This was followed by further scheduled route launches between Gatwick and GibraltarGibraltar
Gibraltar is a British overseas territory located on the southern end of the Iberian Peninsula at the entrance of the Mediterranean. A peninsula with an area of , it has a northern border with Andalusia, Spain. The Rock of Gibraltar is the major landmark of the region...
as well as Manchester and Gibraltar in November 1985 and November 1986, respectively.
These route launches were part of Air Europe's initial scheduled service strategy to operate low-frequency services on selected leisure routes to destinations already served by Air Europe's charter operation.
Taking on the big boys
The gradual liberalisation of the regulatory framework governing the airline industry in Europe from December 1987 provided the legal basis for Air Europe to become the first wholly privately owned, independent airline to take advantage of the new relaxed policies regarding the operation of fully fledged scheduled services on major European trunk routes in direct competition with the established flag carriers.Air Europe considered itself well-placed to take advantage of the new scheduled service opportunities that became available to independent airlines as a result of the gradual liberalisation of the European air transport market. It enjoyed substantially lower operating costs than the established flag carriers because of its much higher aircraft utilisation and labour productivity. This meant that the airline could afford to undercut its rivals' business class fares by about 10-15% on each route where it competed with them.
This, in turn, provided the impetus for the formulation of a new scheduled service strategy, which was internally known as the New European Airline Project (NEAP). The new strategy centred on Air Europe providing competitively priced and timed scheduled services on the eleven busiest international European trunk routes from its Gatwick base. The first batch of services was to be inaugurated with four brand-new Boeing 737-300s Air Europe had then on order, in a single-class, high-density configuration, at a frequency of two round-trips per day. All flights were to offer a full on-board service.
The early morning outbound service from Gatwick was to be the earliest flight of the day from any London airport to each of the destinations to be served. The late evening inbound service to Gatwick was to be the last flight of the day to any London airport. Air Europe hoped that offering the first flight out as well as the last flight back would strengthen its competitive position vis-à-vis its rivals by giving passengers a longer working day, thereby helping them to cut down on overseas accommodation costs.
Other important reasons for choosing these departure and arrival times at Gatwick for Air Europe's proposed network of short-haul, international European scheduled services were the availability of slots at an increasingly congested Gatwick and the in-built bias in travel agents' computer reservation systems.
The former meant that the only competitively timed slots that were then available at Gatwick due to the airport's tight slot situation were early morning and late evening slots.
The latter meant that operating the first flight of the day out of anywhere displayed that flight at the very top of the travel agent's VDU screen. This automatically accorded it the highest priority among all the flights listed on the agent's screen and, therefore, made it more likely to be booked in a typical travel agency's high-pressured work environment.
Air Europe submitted its application to launch scheduled services from Gatwick to Paris
Paris
Paris is the capital and largest city in France, situated on the river Seine, in northern France, at the heart of the Île-de-France region...
, Amsterdam
Amsterdam
Amsterdam is the largest city and the capital of the Netherlands. The current position of Amsterdam as capital city of the Kingdom of the Netherlands is governed by the constitution of August 24, 1815 and its successors. Amsterdam has a population of 783,364 within city limits, an urban population...
, Brussels
Brussels
Brussels , officially the Brussels Region or Brussels-Capital Region , is the capital of Belgium and the de facto capital of the European Union...
, Frankfurt
Frankfurt
Frankfurt am Main , commonly known simply as Frankfurt, is the largest city in the German state of Hesse and the fifth-largest city in Germany, with a 2010 population of 688,249. The urban area had an estimated population of 2,300,000 in 2010...
, Munich
Munich
Munich The city's motto is "" . Before 2006, it was "Weltstadt mit Herz" . Its native name, , is derived from the Old High German Munichen, meaning "by the monks' place". The city's name derives from the monks of the Benedictine order who founded the city; hence the monk depicted on the city's coat...
, Zürich
Zürich
Zurich is the largest city in Switzerland and the capital of the canton of Zurich. It is located in central Switzerland at the northwestern tip of Lake Zurich...
, Geneva
Geneva
Geneva In the national languages of Switzerland the city is known as Genf , Ginevra and Genevra is the second-most-populous city in Switzerland and is the most populous city of Romandie, the French-speaking part of Switzerland...
, Rome
Rome
Rome is the capital of Italy and the country's largest and most populated city and comune, with over 2.7 million residents in . The city is located in the central-western portion of the Italian Peninsula, on the Tiber River within the Lazio region of Italy.Rome's history spans two and a half...
, Oslo
Oslo
Oslo is a municipality, as well as the capital and most populous city in Norway. As a municipality , it was established on 1 January 1838. Founded around 1048 by King Harald III of Norway, the city was largely destroyed by fire in 1624. The city was moved under the reign of Denmark–Norway's King...
, Stockholm
Stockholm
Stockholm is the capital and the largest city of Sweden and constitutes the most populated urban area in Scandinavia. Stockholm is the most populous city in Sweden, with a population of 851,155 in the municipality , 1.37 million in the urban area , and around 2.1 million in the metropolitan area...
and Copenhagen
Copenhagen
Copenhagen is the capital and largest city of Denmark, with an urban population of 1,199,224 and a metropolitan population of 1,930,260 . With the completion of the transnational Øresund Bridge in 2000, Copenhagen has become the centre of the increasingly integrating Øresund Region...
to the CAA in November 1986. It requested the CAA to approve its application in time for a spring 1987 launch.
Eventually, services commenced in December 1987 to Munich, followed by Paris Charles de Gaulle in February 1988 and Brussels in April 1988.
Establishing a regional airline operation
In June 1988 ILG took over Connectair, a small, Gatwick-based regional airline. Following that airline's acquisition by ILG, Connectair was re-branded Air Europe Express and adopted a new corporate identityCorporate identity
In Corporate Communications, a corporate identity is the "persona" of a corporation which is designed to accord with and facilitate the attainment of business objectives...
as of February 1, 1989.
ILG's decision to purchase Connectair was part of Air Europe's corporate strategy at the time to establish itself as a major short-haul scheduled operator at its Gatwick base. Gatwick had become very busy during the late 1980s. This meant that the much-coveted early-morning peak time slots, which Air Europe needed to be able to operate at times that were attractive to business travellers as well as competitive with its rivals' departure and arrival times, were in increasingly short supply. Connectair held a fairly large number of conveniently timed slots at Gatwick. ILG's acquisition of Connectair therefore represented a golden opportunity to substantially increase the number of slots the group's airlines controlled at Gatwick, thereby strengthening Air Europe's competitive position at that airport.
Air Europe Express flew under the same AE airline designator as its bigger sister airline.
Its scheduled services initially linked Gatwick with Antwerp, Düsseldorf
Düsseldorf
Düsseldorf is the capital city of the German state of North Rhine-Westphalia and centre of the Rhine-Ruhr metropolitan region.Düsseldorf is an important international business and financial centre and renowned for its fashion and trade fairs. Located centrally within the European Megalopolis, the...
and Rotterdam
Rotterdam
Rotterdam is the second-largest city in the Netherlands and one of the largest ports in the world. Starting as a dam on the Rotte river, Rotterdam has grown into a major international commercial centre...
.
Larger Shorts 360
Shorts 360
The Short 360 is a commuter aircraft built by Short Brothers. The Short 360 seats up to 36-39 passengers and was introduced into service in 1981. It is a larger version of the Short 330.-Development:...
s gradually replaced the Shorts 330
Shorts 330
|-See also:-Bibliography:* Barnes C.H. and James Derek N. Shorts Aircraft since 1900. London: Putnam, 1989. ISBN 0-85177-819-4.* Donald, David, ed. The Encyclopedia of Civil Aircraft. London: Aurum, 1999. ISBN 1-85410-642-2....
s.
In April 1989 ILG purchased Guernsey Airlines, another small, independent regional airline, which operated scheduled services between Guernsey
Guernsey
Guernsey, officially the Bailiwick of Guernsey is a British Crown dependency in the English Channel off the coast of Normandy.The Bailiwick, as a governing entity, embraces not only all 10 parishes on the Island of Guernsey, but also the islands of Herm, Jethou, Burhou, and Lihou and their islet...
and Gatwick as well as between Guernsey and Manchester at the time. On October 29, 1989 ILG fully integrated Guernsey Airlines into Air Europe Express.
These moves provided Air Europe with additional transfer traffic for its developing short haul European scheduled route network. They also enabled Air Europe to launch new routes where there was insufficient traffic to support its larger Boeing 737 and Fokker 100 jet aircraft or where these aircraft were too big to provide a frequent schedule during the start-up phase, such as Gatwick—Düsseldorf for instance.
Following the replacement of the Air Europe Express Shorts 360 turboprops with Air Europe's larger and faster Fokker 100 jets on the Gatwick—Düsseldorf route, Air Europe Express launched a new thrice-daily Gatwick—Birmingham
Birmingham
Birmingham is a city and metropolitan borough in the West Midlands of England. It is the most populous British city outside the capital London, with a population of 1,036,900 , and lies at the heart of the West Midlands conurbation, the second most populous urban area in the United Kingdom with a...
schedule with its Shorts 360s.
During the year ending August 1990 the Air Europe Express operation carried more than a quarter of a million passengers across its route network for the first time.
Air Europe Express was forced to halt its operations on March 8, 1991 along with its sister airlines in the ILG-controlled Airlines of Europe group as a result of its parent company's decision to put all the group's companies into administrative receivership
Administration (insolvency)
As a legal concept, administration is a procedure under the insolvency laws of a number of common law jurisdictions. It functions as a rescue mechanism for insolvent entities and allows them to carry on running their business. The process – an alternative to liquidation – is often known as going...
on that day, even though Air Europe Express itself had remained profitable throughout that period.
Following the receivership of ILG, the Air Europe Express operation was bought from the receivers by the original management of Connectair, who restarted operations as Euroworld Airways in May 1991. Euroworld was later renamed CityFlyer Express
CityFlyer Express
CityFlyer Express was an independentindependent from government-owned corporations, short-haul regional airline with its head office in the Iain Stewart Centre adjacent to London Gatwick Airport in Crawley, West Sussex, England....
, which became
a franchisee of British Airways
British Airways
British Airways is the flag carrier airline of the United Kingdom, based in Waterside, near its main hub at London Heathrow Airport. British Airways is the largest airline in the UK based on fleet size, international flights and international destinations...
in June 1993 and was eventually acquired by British Airways in 1999.
Introducing a new aircraft type to compete on frequency as well as price
In early 1988 Air Europe began evaluating several aircraft types that had a lower seat capacity as well as lower direct operating costs per round-trip than the airline's Boeing 737-300/400s to enable it to penetrate the high-yield business travel market more effectively with a tailor-made product. Operating a fleet of dedicated, lower capacity scheduled aircraft with lower trip costs in a lower density configuration at higher frequencies on the main short-haul European trunk routes from Gatwick had the potential to attract a far greater share of the highly profitable business travel market, thereby transforming the financial performance of the scheduled routes.At the same time, Air Europe decided that it would also need to launch a separate business class cabin on all scheduled routes that had the potential to attract a large number of business travellers to penetrate this market segment effectively and to maximise its profit potential. This led to the launch of a new business class on October 24, 1988, culminating in the refurbishment of seven aircraft and the kitting out of 800 staff with new uniforms.
At the end of a detailed performance evaluation of an updated, re-engined, Rolls-Royce Tay-powered version of the original BAC One-Eleven 500 featuring a 1990s style "glass cockpit", the BAe 146
BAe 146
The British Aerospace 146 is a medium-sized commercial airliner formerly manufactured in the United Kingdom by British Aerospace, later part of BAE Systems. Production ran from 1983 until 2002. Manufacture of an improved version known as the Avro RJ began in 1992...
-300 and the Fokker F100
Fokker F100
The Fokker 100 is a medium size twin-turbofan airliner from the Fokker company. Low operational costs and almost no competition in the 100-seat short-range class made it a best seller when it was introduced in the late 1980s, but decayed due to increasing competition. Production ended in 1997 with...
, Air Europe decided to place an order for eleven RR
Rolls-Royce plc
Rolls-Royce Group plc is a global power systems company headquartered in the City of Westminster, London, United Kingdom. It is the world’s second-largest maker of aircraft engines , and also has major businesses in the marine propulsion and energy sectors. Through its defence-related activities...
Tay-powered F100
Fokker F100
The Fokker 100 is a medium size twin-turbofan airliner from the Fokker company. Low operational costs and almost no competition in the 100-seat short-range class made it a best seller when it was introduced in the late 1980s, but decayed due to increasing competition. Production ended in 1997 with...
s, including an option on a further eleven aircraft, in March 1988. Deliveries of the aircraft on firm order were to begin in late 1990. Air Europe primarily chose the F100 as its main scheduled aircraft to ply its business routes because it promised 25% lower trip costs than the 737-300/400. (It rejected both rival contenders because these had revealed serious range/payload shortcomings during the evaluation process.)
A subsequent change in KLM's short-haul fleet requirements unexpectedly released four F100s from an order that airline had originally placed with Fokker
Fokker
Fokker was a Dutch aircraft manufacturer named after its founder, Anthony Fokker. The company operated under several different names, starting out in 1912 in Schwerin, Germany, moving to the Netherlands in 1919....
. This enabled Air Europe to lease these aircraft, thereby bringing forward the date of the F100's introduction into its fleet by a year.
Air Europe's inaugural commercial F100 service departed Gatwick for Brussels on December 4, 1989.
The F100's introduction enabled Air Europe to increase frequencies to a minimum of three daily round-trips on most of the routes the aircraft served. (Higher frequencies were eventually offered on the Gatwick—Charles de Gaulle and Gatwick—Brussels routes following British Airways' release of slots formerly held by British Caledonian, as part of a deal to permit it to take over its erstwhile competitor.)
The F100's introduction also enabled Air Europe to introduce "mainline" jet services between Gatwick and Jersey
Jersey
Jersey, officially the Bailiwick of Jersey is a British Crown Dependency off the coast of Normandy, France. As well as the island of Jersey itself, the bailiwick includes two groups of small islands that are no longer permanently inhabited, the Minquiers and Écréhous, and the Pierres de Lecq and...
, following British Airways' withdrawal from what had always been one of British Caledonian
Reasons for the failure of British Caledonian
In December 1987, following substantial losses, the private, British independentindependent of government-owned corporations airline British Caledonian was taken over by newly privatised British Airways ....
's few, genuinely profitable short-haul routes, as well as to replace the Air Europe Express service between Gatwick and Düsseldorf.
Furthermore, Air Europe's F100-operated scheduled services showed excellent load factors and enabled each new route launched with that aircraft to become profitable within three months.
Ordering a new long-haul fleet and other aircraft commitments
Air Europe decided to become the launch customer for the Rolls-Royce TrentRolls-Royce Trent
Rolls-Royce Trent is the name given to a family of high bypass turbofan aircraft engines manufactured by Rolls-Royce plc. All are developments of the RB211 with thrust ratings of . Versions of the Trent are in service on the Airbus A330, A340, A380, Boeing 777, and 787, and variants are in...
-powered version of the McDonnell Douglas MD-11
McDonnell Douglas MD-11
The McDonnell Douglas MD-11 is a three-engine medium- to long-range widebody jet airliner, manufactured by McDonnell Douglas and, later, by Boeing Commercial Airplanes. Based on the DC-10, it features a stretched fuselage, increased wingspan with winglets, refined airfoils on the wing and smaller...
in late 1989 when it announced its intention to place a firm order for six aircraft and to take an option on a further twelve. The first of these aircraft was to be delivered in 1993.
The airline intended to use these aircraft to operate a mix of long-haul charter and scheduled services, thereby helping sister company Intasun to reduce its dependence on third party suppliers to provide it with long-haul capacity.
Work on licence applications to launch new, long-haul scheduled routes from London Gatwick to New York
New York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
, the Caribbean, Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
and New Zealand
New Zealand
New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...
to be operated with the new MD-11s commenced during the autumn of 1989. However, these never reached the hearing stage.
In addition to the MD-11 order, Air Europe had outstanding orders for an additional 22 Boeing 757-200s, eight Boeing 737-400s as well as eleven Fokker F100s during that period.
In April 1990 Air Europe furthermore signed a MoU
Memorandum of understanding
A memorandum of understanding is a document describing a bilateral or multilateral agreement between parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It is often used in cases where parties either do not imply a legal commitment or in...
with Airbus
Airbus
Airbus SAS is an aircraft manufacturing subsidiary of EADS, a European aerospace company. Based in Blagnac, France, surburb of Toulouse, and with significant activity across Europe, the company produces around half of the world's jet airliners....
for a firm order covering the delivery of 40 A320
Airbus A320 family
The Airbus A320 family is a family of short- to medium-range, narrow-body, commercial passenger jet airliners manufactured by Airbus Industrie.Airbus was originally a consortium of European aerospace companies, and is now fully owned by EADS. Airbus's name has been Airbus SAS since 2001...
200 series twin-engined, narrowbodied aircraft for delivery between May 1995 and December 1998. (It also took options on another 40 aircraft, the deliveries of which would have stretched to November 2001 if confirmed.)
ILG's abortive attempts to take over British Caledonian Group
ILG launched its first takeover bid, which valued British Caledonian Group at £36m, in May 1986. (That bid materialised after several rounds of inconclusive talks exploring ways of combining the short-haul businesses of Air Europe and British CaledonianBritish Caledonian
British Caledonian was a private, British independentindependent from government-owned corporations airline, operating out of Gatwick Airport in the 1970s and 1980s...
(BCal) in a new joint venture, which had taken place between ILG and British Caledonian Group since the end of 1985.) At the time BCal's senior management dismissed ILG's bid as "derisory" because it valued the entire British Caledonian Group's assets far below their minimum expectations.
ILG decided to launch a new counter bid for the entire British Caledonian Group at the end of July 1987, following British Airways' outright rejection of ILG chairman Harry Goodman's offer to purchase BCal's short-haul operation for a fair price and to merge that operation with the short-haul operations of ILG subsidiary Air Europe, in return for not having the proposed BA-BCal deal referred to the Monopolies and Mergers Commission (MMC).
Air Europe was concerned that a new entity combining BA and BCal had the power to destroy the UK's remaining independent airlines, especially with regard to their ability to compete with such a behemoth. At the time Air Europe had ambitions of its own to become a major short-haul scheduled operator. It was planning to launch eleven new routes from Gatwick to Europe, thereby replacing and enhancing the services BCal had provided. Given a combined BA-BCal's superior financial strength, considerably lower borrowing costs and far greater economies of scale
Economies of scale
Economies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit...
, Air Europe's management felt that it would be imprudent to launch these new routes if it had to compete with BA out of Heathrow and Gatwick as well. Therefore, its parent ILG had decided to make a counter bid, which it hoped would either kill off BA's proposal to take over BCal lock, stock and barrel or result in it being referred to the MMC.
To enhance its credibility as a serious contender, Air Europe's bid contained a detailed proposal to return BCal to profitability by way of a reorganisation. This proposal had been prepared by a retired BA head of route planning whom ILG had specifically hired for this purpose. The proposal itself entailed separating BCal into four discrete businesses, each of which would have had its own management who would have been accountable for the performance of their own business unit. The businesses into which BCal was to be split included a long-haul operation using the existing BCal brand, a short-haul operation to be merged into Air Europe's existing short-haul operation using the BCal brand to serve business routes and the Air Europe brand to serve leisure markets as well as an engineering and a ground handling unit.
BCal's senior management rejected ILG's renewed bid on the grounds that it still did not adequately reflect the value of the group's assets, in particular those of BCal. In addition, BCal's senior management felt that both airlines' nature of operations and their business strategies were incompatible and that therefore there were no synergies
Synergy
Synergy may be defined as two or more things functioning together to produce a result not independently obtainable.The term synergy comes from the Greek word from , , meaning "working together".-Definitions and usages:...
to be gained from combining BCal with what they regarded as "essentially a charter company".
Air Europe's unsuccessful attempt to see off ailing Dan-Air
The presence of Dan-Air, a major scheduled and charter operator at Gatwick and Manchester, Air Europe's two largest bases, meant that Air Europe was facing a potential competitor for every additional scheduled service and charter contract that became available. Dan-Air's large-scale presence at Gatwick, the airport's increasing scarcity of early morning peak time slots, and the fact that Dan-Air had already been licensed to operate scheduled services to some of the destinations Air Europe wanted to serve as well while only a quarter of London's and a third of the entire Southeast's population lived in Gatwick's catchment area also meant that attaining the "critical mass" to make its scheduled operation viable became an uphill struggle for Air Europe. This situation was made worse by the state of the British economy in the late 1980s, which was overheating and going to give way to a major recession during the early years of the following decade.In addition, the CAA's decision to re-allocate the licences for several of British Caledonian's short-haul Gatwick feeder routes, which British Airways had agreed to return to the licensing process as a concession to have its takeover of that airline approved, to Air Europe, Air UK and Dan-Air weakened the overall performance of the airport's scheduled services. As a result of this decision, Air Europe was excluded from the two main London—Scotland
Scotland
Scotland is a country that is part of the United Kingdom. Occupying the northern third of the island of Great Britain, it shares a border with England to the south and is bounded by the North Sea to the east, the Atlantic Ocean to the north and west, and the North Channel and Irish Sea to the...
trunk routes and it was forced to compete head-on with Dan-Air to Paris Charles de Gaulle and Jersey.
Dan-Air's growing financial problems at the time provided the impetus for ILG's high-profile publicity campaign not to miss an opportunity to run down its ailing competitor in the press
Mass media
Mass media refers collectively to all media technologies which are intended to reach a large audience via mass communication. Broadcast media transmit their information electronically and comprise of television, film and radio, movies, CDs, DVDs and some other gadgets like cameras or video consoles...
, accusing it of operating old, "gas-guzzling" aircraft. As part of this 'anti-Dan-Air' campaign, ILG had already announced that Intasun was going to reduce the number of aircraft it chartered from Dan-Air from six to three for the 1989/'90 winter season. ILG made a further announcement in this regard, stating that Intasun was no longer going to charter any Dan-Air aircraft for the 1990 summer season and that Air Europe was going to cancel its maintenance contract with Dan-Air Engineering.
However, ILG's campaign to deal a fatal blow to Air Europe's main rival suffered a major setback in October 1990 when Dan-Air's beleaguered management appointed "company doctor" David James
David James, Baron James of Blackheath
David Noel James, Baron James of Blackheath CBE is a British businessman and corporate troubleshooter and Conservative life peer.-Career:...
, who immediately set about refinancing
Refinancing
Refinancing may refer to the replacement of an existing debt obligation with a debt obligation under different terms. The terms and conditions of refinancing may vary widely by country, province, or state, based on several economic factors such as, inherent risk, projected risk, political...
Dan-Air's parent organisation Davies and Newman Holdings in order to save the airline.
ILG's commercial attack on Dan-Air ultimately failed when David James's attempt to refinance Davies and Newman succeeded, with sufficient funds to allow Dan-Air to carry on its business for another two years.
End
At the end of the first week of March 1991 ILG and all of its UK-based subsidiaries entered administrationAdministration (insolvency)
As a legal concept, administration is a procedure under the insolvency laws of a number of common law jurisdictions. It functions as a rescue mechanism for insolvent entities and allows them to carry on running their business. The process – an alternative to liquidation – is often known as going...
resulting in 4,000 job losses. Many of the aircraft operated by Air Europe and its regional Air Europe Express affiliate were impounded, leaving a large number of passengers stranded at various airports in the UK and overseas.
The pan-European Airlines of Europe alliance quickly unravelled, with Norway Airlines following its former UK-based parent into liquidation
Liquidation
In law, liquidation is the process by which a company is brought to an end, and the assets and property of the company redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation...
.
Hans Rudolf Wöhrl, NFD's founder and original majority shareholder, bought back the stake he had sold to ILG from the UK group's administrators, thereby saving the airline.
Air Europa not only managed to survive ILG's spectacular collapse but also successfully established itself as one of the leading charter and scheduled operators in Spain
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
.
Similarly, Air Europe Italy
Air Europe (Italy)
Air Europe was an airline based in Malpensa International Airport, Italy. It was at the time of closure part of the Alitalia S.p.A. group.Air Europe suspended operations in December 2008 after Compagnia Aerea Italiana decided to close down the Air Europe brand...
became one of the leading independent airlines in that country following ILG's failure.
(In fact, for many years the aircraft of Air Europe's Spanish and Italian sister airlines remained a visible reminder of their Air Europe heritage
Tradition
A tradition is a ritual, belief or object passed down within a society, still maintained in the present, with origins in the past. Common examples include holidays or impractical but socially meaningful clothes , but the idea has also been applied to social norms such as greetings...
through their proud display of the erstwhile UK carrier's livery at numerous airports throughout Europe and farther afield.)
Causes of collapse
The main causes leading to the collapse of ILG and its UK-based subsidiaries, including Air Europe and Air Europe Express, were:- A major, unforeseen downturn in traffic as a result of the recessionary economic conditions in the UK and a looming war to liberate KuwaitLiberation of Kuwait campaignThe Liberation of Kuwait was the campaign to retake Kuwait from Iraq after the massive air campaign, between 24–28 February 1991. U.S. troops and the Coalition entered to find the Iraqis surrendering en masse; however, pockets of resistance existed, particularly at Kuwait International Airport...
from Iraqi occupationInvasion of KuwaitThe Invasion of Kuwait, also known as the Iraq-Kuwait War, was a major conflict between the Republic of Iraq and the State of Kuwait, which resulted in the seven-month long Iraqi occupation of Kuwait, which subsequently led to direct military intervention by United States-led forces in the Gulf...
.
- Undercapitalisation.
- An unsound financial structure.
- Being financially overextended.
- Lack of ownership of any significant assets.
- A high-risk strategy.
Against the background of a looming war
Gulf War
The Persian Gulf War , commonly referred to as simply the Gulf War, was a war waged by a U.N.-authorized coalition force from 34 nations led by the United States, against Iraq in response to Iraq's invasion and annexation of Kuwait.The war is also known under other names, such as the First Gulf...
in the Gulf
Persian Gulf
The Persian Gulf, in Southwest Asia, is an extension of the Indian Ocean located between Iran and the Arabian Peninsula.The Persian Gulf was the focus of the 1980–1988 Iran-Iraq War, in which each side attacked the other's oil tankers...
as a result of Iraq
Iraq
Iraq ; officially the Republic of Iraq is a country in Western Asia spanning most of the northwestern end of the Zagros mountain range, the eastern part of the Syrian Desert and the northern part of the Arabian Desert....
's invasion of Kuwait
Invasion of Kuwait
The Invasion of Kuwait, also known as the Iraq-Kuwait War, was a major conflict between the Republic of Iraq and the State of Kuwait, which resulted in the seven-month long Iraqi occupation of Kuwait, which subsequently led to direct military intervention by United States-led forces in the Gulf...
during the summer of 1990 and a major recession in the UK at that time, ILG began suffering heavy losses and mounting debts.
ILG/Air Europe's senior management was aware that ILG had been facing a cash crunch from as early as 1989. This had made it more and more difficult for the group to finance the aircraft it already had on order, notably the F100s and the MD-11s. It was also clear to them that ILG did not have sufficient funds to run a fully fledged, rapidly growing scheduled operation in addition to a major charter operation.
ILG's opaque financial structure and the fact that as a privately held company its ultimate owners, some of whom were residing abroad, were not subject to the same kind of strict financial disclosure requirements as the owners of publicly listed firms further exacerbated the group's financial instability, thereby contributing to its collapse as well.
In addition to the group's undercapitalisation and its overstretched finances, ILG generally and Air Europe in particular were not backed up by any significant assets.
For instance, Air Europe did not own any of the shiny, new aircraft in its fleet. (These were usually procured on highly favourable terms from the manufacturers and then sold upon delivery to ILG's in-house leasing subsidiaries, such as AE Finance or AE Norsk, or to third party lessors, such as Guinness Peat Aviation
Guinness Peat Aviation
Guinness Peat Aviation was a Commercial Aircraft Sales and Leasing company set up in 1975 by Aer Lingus, the Guinness Peat Group and Tony Ryan, then an Aer Lingus executive.-History:...
(GPA), from whom the airline subsequently leased them back. This enabled it to keep them off its balance sheet
Balance sheet
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...
, thereby being relieved of the financial burden resulting from the aircraft's depreciation
Depreciation
Depreciation refers to two very different but related concepts:# the decrease in value of assets , and# the allocation of the cost of assets to periods in which the assets are used ....
, while keeping a substantial interest in the aircraft's residual values, which were booked as profits. This sale-and-lease-back activity was a central plank of ILG's corporate strategy. It also constituted a major part of ILG's business and accounted for a large slice of its profits.)
Neither did the group hold the titles to the freehold of any of the properties that housed its offices and other facilities that formed an integral part of the business.
Air Europe's massive expansion into high-profile scheduled services plying trunk routes between major European cities towards the end of the 1980s, the airline's huge aircraft commitments lasting well into the 1990s, and ILG's increasing reliance on profits arising from its interest in the US dollar-denominated residual values of the aircraft operated by its airline subsidiaries for the group's overall profitability from 1989 represented a high-risk strategy for an undercapitalised company. This marked a major shift from the original focus on establishing Air Europe and Intasun as a major force in the UK charter airline/package tour market as well as Air Europe's excursion into operating scheduled services on selected leisure routes only. Although ILG had justified this strategic shift by the new strategy's far greater rewards compared with the old one, some members among its senior management suspected that there was an ulterior motive to all this. It was well known among senior company insiders that several sets of exploratory talks had taken place at various times, involving ILG and British Airways, as well as ILG and American Airlines
American Airlines
American Airlines, Inc. is the world's fourth-largest airline in passenger miles transported and operating revenues. American Airlines is a subsidiary of the AMR Corporation and is headquartered in Fort Worth, Texas adjacent to its largest hub at Dallas/Fort Worth International Airport...
. ILG had also held similar talks with a number of other interested parties. These talks had centred on how to intensify those parties' co-operation with ILG/Air Europe, including proposals for a full-scale merger/takeover.
This lack of being an asset-backed organisation with a high-risk strategy made lending money to ILG and its subsidiaries a far riskier proposition than lending to Davies and Newman Holdings, the parent company of Air Europe's ailing rival Dan-Air. Not only did Davies and Newman/Dan-Air actually own many of the aircraft in the ailing airline's fleet, which were mainly older, less efficient planes with a generally low re-sale value, but it also held the title to the freehold of a number of commercial properties, including prime real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
in the City of London
City of London
The City of London is a small area within Greater London, England. It is the historic core of London around which the modern conurbation grew and has held city status since time immemorial. The City’s boundaries have remained almost unchanged since the Middle Ages, and it is now only a tiny part of...
. Moreover, Davies and Newman was the owner of Dan-Air Engineering, a sister company of the airline as well as the UK's second-biggest and one of the world's best-equipped aircraft engineering organisations at the time.
These were the main reasons ILG's lenders, notably Lloyds Bank
Lloyds Bank
Lloyds Bank Plc was a British retail bank which operated in England and Wales from 1765 until its merger into Lloyds TSB in 1995; it remains a registered company but is currently dormant. It expanded during the nineteenth and twentieth centuries and took over a number of smaller banking companies...
plc, which also had a substantial financial exposure to Davies and Newman, ultimately decided to pull the plug on the former rather than the latter, despite Air Europe being perceived as operationally far superior and financially stronger than Dan-Air by many of those who had no intimate knowledge of the true state of ILG's finances. This included many well-reputed industry analysts as well as seasoned observers.
Legacy
Unlike many of its contemporary charter airline rivals, as exemplified by Dan-Air, one of its chief rivals, Air Europe had made a name for itself by becoming a pioneer in offering genuinely enjoyable as well as affordable jet travel for the average holidaymaker, which decisively broke with the charter airline industry's "cheap but cheerful" image.Air Europe was also typical of the trend which dominated the British holiday market in the 1980s, with tour companies operating their own in-house airlines, which, although accruing considerable capital expense in the first instance, enabled these companies to offer lower prices by effectively cutting out the "middle man".
Intasun and its associated ILG-owned tour companies, Global and Lancaster, became what many consumers saw as the cheaper alternative to the other main British tour operator of the time, Thomson Holidays.
The existence of these two major brands helped open up the foreign holiday market. The fierce competition between them provided families with affordable and competitive packages.
Air Europe and Intasun were used as a template for many aspiring British tour operators, such as Cardiff-based Aspro Holidays, which launched its own in-house airline, Inter European Airways, in 1987, as well as Airtours (later rebranded as MyTravel
MyTravel Airways
MyTravel Airways was a United Kingdom scheduled and charter airline with headquarters in Manchester, England. It operated worldwide holiday charter services mainly for its parent company, the MyTravel Group....
), which merged with Aspro in 1993, to create the second largest tour operator in the UK and which was widely recognised as the direct successor to Intasun and Air Europe.
Facts
Many Air Europe aircraft had out of sequence registrations, especially in the early years. These aircraft's registrations generally followed the initials of its executives, financial backers and/or promoters. The aircraft were also named after these people's spouses or children.Air Europe's Boeing 737-200 Advanced had the following out of sequence registrations and names:
- G-BMHG - Harry Goodman, Intasun (later ILG) and Air Europe's chairman. The aircraft was named Adam (after Errol Cossey's son and following Air Europe's first initial).
- G-BMOR - Martin O ' Regan, Air Europe's chief executive. The aircraft was named Eve (following Air Europe's second initial).
- G-BMEC - Errol Cossey, Air Europe's commercial director. The aircraft was named Joy (after Harry Goodman's wife).
- G-BJFH - Sir James F. Hill, Executive Director. The aircraft was named Roma.
- G-BMSM - Stephen Matthews, ILG Finance Director. The aircraft was named Sandy (after Stephen Matthews' sister).
- G-BRJP - Roy J. Phillips, Air Europe's chief engineer. The aircraft was named Louise (after Roy Phillips' wife).
- G-DDDV - Desmond de Verteuil, Air Europe's first chief pilot. The aircraft was named Peggie (after Des de Verteuil's wife).
Air Europe's first two Boeing 757s had the following out of sequence registrations and names:
- G-BKRM - Renée Manchester, Air Europe's first chief stewardess. The aircraft was named Fiona (after Errol Cossey's daughter).
- G-BPGW - Peter G. Woodward, an Air Europe director and ILG Financial Director. The aircraft was named Anne Marie (after Peter Woodward's wife).
Air Europe's final batch of Boeing 757s, delivered from mid-1990, were also allocated out of sequence registrations, beginning with:
- G-BRJD - Rory J Downes, Air Europe's then Chief Pilot (and ironically a 737 pilot)
Air Europe's first British-registered F100 had the following out of sequence registration:
- G-FIOO.
Air Europe's first MD-11 was allocated the following out of sequence registration:
- G-MDII.
Air Europe clocked up its first 1m miles on July 26, 1979, its load factor averaged 94% during the peak month of August and the 100,000th passenger boarded in September.
Air Europe made an operating profit after only nine weeks of trading.
Air Europe was allocated the two-letter AE airline identification designator in October 1980, allowing it to replace the initial KS designator.
Air Europe's application to the CAA requesting permission to carry mail and newspapers on its regular charter services from London Gatwick to Gibraltar on days when there were no scheduled flights was approved on November 7, 1980.
Air Europe introduced a separate premium class cabin branded Premier Class on its charter flights between London Gatwick and Funchal
Funchal
Funchal is the largest city, the municipal seat and the capital of Portugal's Autonomous Region of Madeira. The city has a population of 112,015 and has been the capital of Madeira for more than five centuries.-Etymology:...
in November 1983.
Air Europe became the first customer in the then brand-new American Airlines flight training centre near Gatwick Airport
London Gatwick Airport
Gatwick Airport is located 3.1 miles north of the centre of Crawley, West Sussex, and south of Central London. Previously known as London Gatwick,In 2010, the name changed from London Gatwick Airport to Gatwick Airport...
in 1983.
Air Europe won the prestigious Travel Trade Gazette Top Charter Airline of the Year award twice in two consecutive years, 1983 as well as 1984.
Air Europe achieved full Category III compliance in 1985.
Air Europe operated its own airside executive lounge at Gatwick's South Terminal.
Air Europe staff working on the Boeing 747 leased from Tower Air during 1989-'90 nicknamed the aircraft "Fat Freddie" after the last two letters of its US registration N602FF.
ILG was estimated to have gross liabilities of £460m at the end of October 1990 and it lost £56m in its last three months of trading.
Accidents and incidents
Air Europe had an unblemished safety record throughout its twelve-year existence.During that time there never was a fatal accident involving an Air Europe aircraft as a result of good airmanship and an extremely high safety consciousness throughout the organisation. It was one of the company's greatest contributions to European commercial aviation.
However, there was one noteworthy non-fatal incident involving an Air Europe aircraft.
- On December 17, 1989 F100 PH-ZCL en route from CopenhagenCopenhagenCopenhagen is the capital and largest city of Denmark, with an urban population of 1,199,224 and a metropolitan population of 1,930,260 . With the completion of the transnational Øresund Bridge in 2000, Copenhagen has become the centre of the increasingly integrating Øresund Region...
to Gatwick suffered a flight deck fire, necessitating a return to Copenhagen's Kastrup Airport. Although none of the 88 occupants (seven crew and 81 passengers) were harmed by the fire that had started behind the co-pilot's seat, the aircraft needed to be taken out of service and sent to the NetherlandsNetherlandsThe Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
for repairs. It re-entered service on June 22, 1990.