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DEBONAIR "HAS MADE MANY MISTAKES"

Since taking up business in June 1996 Debonair with its home airport London-Luton belongs to the pioneers of the new European low price airlines. The young company established itself in Germany with flights from Mönchengladbach, Munich and recently also from Hamburg to destinations in England and Southern Europe. Lately Debonair has reduced its flights from Germany drastically. Furthermore five aircraft were leased to its arch rival Lufthansa. Rumours about impending bancruptcy are rife.

The Italian/American Franco Mancassola has worked in the aviation industry for decades. In 1976 he became Vice President International at Continental Airlines, later he worked for World Airways, founded Discovery Airways in Hawaii and finally Debonair in 1995 with the help of private investors.

FLUG REVUE-Correspondent Andreas Spaeth talked to Debonair Founder Franco Mancassola in Phoenix/Arizona during an aviation conference about his company's problems and the difficulties of independent low-cost-carriers at the time of global alliances.

FLUG REVUE: Why did Debonair let down its German customers?

Franco Mancassola: There have been several developments in Debonair's strategy. The German market did not give us the desired and in our eyes deserved reaction. The German market has up to now been very reserved, not only towards Debonair. It is generally reserved. People tend to wait and study offers. However, a small airline does not have the necessary resources to wait until it has gained the trust of the market. That is why we have followed a different strategy and have split up the firm into different areas. One part carries out flights for other companies, in this case Lufthansa. We are not bound by any strategic decisions. We just lease aircraft and crews to other airlines. We do not develop their marketing ideas, we just fly their aircraft. We are re-organizing in Germany.

FR: What do you mean by that?

Mancassola: We cut those destinations and markets which have not taken up our offers sufficiently, and we focus on those markets reacting better. Today we only fly from Mönchengladbach to Barcelona and London-Luton and from Munich to Luton.

FR: You are using a Fokker 50?

Mancassola: No, we only used a Fokker 50 for two months, when we did not have enough aircraft at our disposal.

FR: You always seem not to have enough aircraft, even on your flights to Luton. This was even reported in the crew magazine "Lufthanseat".

Mancassola: Lufthansa has leased five planes for flights from Munich, and that's what we've given them. There have been neither flight cancellations nor lack of aircraft, they got exactly what they asked for. Apart from that a momentary shortage of aircraft is a sign of rapid growth. We now own 15 planes. We have just received the second Boeing 737-300, which will start service on July 1st. Three planes of our fleet fly for Swissair Express. All revenues from these flights go to Debonair. We have grown so rapidly that we will be a $150 million company next year. If you expand so fast, aircraft can become scarce. After all it is not as easy as buying a car. Aircraft have to be certified, modified and registered, their crew has to be trained - all this takes time. At the same time a small airline like Debonair has to continue growing in order to stay competitive. A lot is happening on the European stage. Ryanair is expanding like crazy, followed by easyJet. These two companies have a lot of own funds. Go is subsidised by British Airways - the market is growing fast. Debonair has to keep up, but we do not have a big brother like Go.

FR: It is said in the industry that the leasing out of aircraft is the final straw for Debonair to avoid bancruptcy. It seems to be your only chance to serve the amounting interest rates.

Mancassola: There are always people who predict the worst, but they are very often wrong. It is a fact that we have grown 100 per cent in the last eight months. We are flying to nine destinations and are leasing additional aircraft. We are in the black and are growing rapidly. This can change tomorrow. But if you stand still, it would be even harder to survive this permanent competition. We small companies have to adjust to many changes. Those who are not prepared to do this won't survive.

FR: You are talking of being in the black. When will be Debonair's first profitable year?

Mancassola: We will make profit for the first time next year. The second quarter of the last business year was the first one to be profitable.

FR: On your Munich-London route you charge higher prices than Go or even Lufthansa. Who will be prepared to fly with Debonair, especially if the way from Luton to London is more complicated than from Stansted?

Mancassola: Our prices from Munich to London are low. Lufthansa's and Go's fares are unrealistic that is a difference. Lufhansa and Go are creating artificial prices. Go belongs to a big carrier whose only aim is to eliminate the competition. Lufthansa is not willing to accept a cheap competitor. The two companies are now carrying on with a stupid price war. There will not be a winner. They won't be able to keep up these low prices forever, and the customer will finally have to pay much higher prices. When one of the giants survives that he will have a monopoly position. The best strategy for a small company like Debonair is to stay out of the line of fire. Lufthansa and British Airways have enjoyed monopolies and subsidies for years. They have not created anything, have not put anything new on the market. They receive preferential treatment: aircraft, slots, wiping out odd debts by the government - a donkey would have been able to lead BA under this circumstances.

FR: You have recently introduced a Business Class. Won't you risk losing Debonair's claim to be a low-cost-carrier?

Mancassola: We have introduced an Affordable Business Class (ABC), because mainly the English customers demanded it. We have contracts with Rover/BMW for the Munich/London route and with Philips and Rank Xerox for the Mönchengladbach/London route. The customers want flexible tickets, their own cabin with ample leg room, direct telephone booking without having to wait in line with low-cost ticket buyers, and their own check-in desk. This is meant for all those who have always flown Business Class and whose company is now no longer prepared to pay for it. That is why we have introduced a much cheaper Business Class, without abolishing the usual privileges. Our business tariffs are about 40 per cent below those of the big airlines. The only thing you will not get onboard our aircraft is a meal. The seat pitch is 32-33 inch, the same as in Economy Class, but there is more legroom than at Lufthansa or BA.

FR: Why did you give up the domestic route between Mönchengladbach and Munich? Did you answer to pressure put on by Lufthansa?

Mancassola: No, there simply was no demand for it. Our successors, European Air Express, fly 20 passengers per day with their Fokker 50, there just are not enough customers. We tried extremely cheap prices and morning flights - we were not successful.

FR: Wasn't it a mistake, being a low-cost carrier, to create a hub at a high cost airport like Munich?

Mancassola: It probably was a mistake. But you can learn from your mistakes. Whether it was wrong to go to Munich per se is hard to say though. It is certainly an expensive airport, we complained heavily about this. But Munich is our homebase today, because there we have the leasing agreement with Lufthansa as well as our own flights. This enables us to build up an infrastructure for maintenance, which makes good sense. We have made many mistakes with Debonair, but we still have a healthy company with 15 planes, which are all leased except our new Boeing 737-300.

FR: This is different to Ryanair, which owns all its aircraft.

Mancassola: That is a different story. At the moment Ryanair is the industry's favourite. This company has been in business for 17 years and has lost a lot more money than Debonair in 14 of them. Ryanair has only survived because Tony Ryan and his former leasing company have pumped a lot of money into it. All of a sudden the American investor and former Continental Chairman Richard Bonderman turned up with a bag full of bucks. Ryanair is now going on an aircraft-shopping tour. During the last years it only had old Boeing 737-200s that hardly cost them anything. One has to wait and see with the new 737 generation. Let's continue discussing Ryanair in two years.

FR: Where do you see the position of a niche company in today's landscape of global alliances among the big carriers?

Mancassola: Global alliance is no more than a fancy expression for cartel. Cartels are just reality today. Small independent airlines have not been able to assert themselves in Europe or the USA. There are only a few left, possibly six or eight. Apart from us, in Europe there are only Ryanair and EasyJet in England. Idealism is one thing, realism another. The big companies enter alliances amongst themselves and push the little ones to the fringe. And they have to adjust somehow to the new climate. The customer does not seem to mind whether British Airways pushes little companies like us or EasyJet out of the market with the help of Go. Today consumers just want a cheap deal. In the US current prices are higher since the deregulation began. Why? Because there is no competition any more and the customer doesn't care.

FR: Where do you see the biggest difficulties for low-cost carriers today?

Mancassola: We have made many mistakes that are typical for beginners. It is for example almost impossible to find good managers, because as a newcomer no one wants to work for you. It is furthermore difficult to get an adequate cash flow. It is a fight - everyone is pitted against you. But I am still convinced that there are market chances in Europe. The only problem is that the other components of the travelling industry, hoteliers and car hire agencies, have not followed cheap flight offers. You are able to buy a ticket from London to Munich for DM150, but then you have to pay three times as much for a hired car and twice as much for a hotel room, which means that your travel package is anything but cheap.

FR: What are your plans for Germany?

Mancassola: Even if you say that we have vanished from Germany, this country is still our second biggest source of income after England. Each working day we have ten scheduled flights, and we are planning to consolidate this. We also have plans for three daily flights from Mönchengladbach to Pontoise near Paris as well as to another destination. I cannot reveal now which one it is going to be. On June 1st we started London/Perugia. There is also a big demand for Perugia/Munich as feeder for the Munich Hub. We have not stood still. And reports about our alleged death are greatly exaggerated.

From page 32 of FLUG REVUE 7/1999