CSA Ableger als neuer LCC

[jblu]

Prager Zeitung 24th Nov 2003

 

CSA moves to launch low-cost subsidiary

by Marius Dragomir

Travel Servis purchase sought as part of CSA goal to be pan-regional airline

 

The supervisory board of Czech Airlines (CSA) last week decided to launch negotiations for acquiring complete control of the biggest charter airline in the country, Travel Servis, with the aim of turning it into a low-cost airline serving Western and Eastern Europe.

If successful, CSA would be the first of the scheduled airlines in the region to even contemplate a low-cost subsidiary.

CSA currently envisages the existing charter operations of Travel Servis continuing alongside the new low-cost business.

CSA had brushed off any suggestion that it would go the low-cost route, but it now admits that it cannot continue cutting scheduled fares in response to the cheaper competition. "Continuing to dump prices will spoil the company's image," a source close to the top management of the airline said.

CSA is committed to buying Travel Servis by the end of the year, the same source said. "The negotiations may be finalized very quickly," said Michal Pozar, manager in the marketing and sales division of CSA.

Part of the urgency is caused by the need to know whether or not Travel Servis will figure in the airline's future strategy. The acquisition is part of a bigger development plan to transform CSA into a pan-regional airline that will serve destinations in the European Union and Eastern Europe, company spokeswoman Marcela Pickova said.

CSA president Jaroslav Tvrdik last week was given 10 more weeks to finalize the airline's overall strategy, which will include the development of Travel Servis and purchase of new aircraft worth billions of crowns, Pickova said.

CSA financial and marketing specialists have already written a business plan for the launch of the no-frills airline, the source said, and the company has appointed a team of consultants from KPMG to advise on the purchase of Travel Servis. The low-cost airline should be launched no later than March 2004, the source added.

The company wants to introduce a new brand name, Pozar said, and it will offer "a different level of quality at a lower cost." He cited the example of CSA's SkyTeam alliance partner Delta Air Lines, which has a low-cost subsidiary, Song. The alliance also includes Air France, Korean Air, Delta Air Lines, Alitalia and AeroMexico.

 

CSA has apparently overcome its worry that launching a low-cost subsidiary might confuse and tarnish its brand image. "That's why a separate airline for quick, cheap flights is needed," the source said. CSA's low-cost and charter airline will definitely have a new name and design, Pickova said, but she wouldn't give more details.

Seven low-cost airlines now offer services to Prague. Six of those entered the Czech market this year.

Talks with Travel Servis' shareholders started in May, co-owner and Travel Servis director Roman Vik said at the time. Initially, CSA reportedly wanted to buy 50 percent of Travel Servis. In August, both companies announced that the negotiations had collapsed, but neither side would explain why. CSA has been eyeing several other charter carriers in the past six months, Pickova said.

Travel Servis is by far the biggest charter carrier in the country with around 70 percent of the charter flights to and from the Czech Republic and 57 destinations in Europe, Africa and Asia. CSA's own charter division is second on the market, flying to 38 destinations. The third-largest charter carrier is Fischer Air with 35 destinations. Eighteen airlines currently offer regular charter flights to and from Prague, two more than last year.

Travel Servis is owned by the companies Lerox and Unimex, controlled by Jiri Simane, the owner of travel agency Cedok. The airline wants to establish strong cooperation with Cedok by maintaining Travel Servis' charter flights to the agency's holiday destinations.

In the first nine months of 2003, Travel Servis posted a profit of Kc 90 million, 30 percent more than in the same period last year. Its sales in 2003 are expected to reach Kc 4 billion.

CSA has already announced flights to several new destinations in Eastern Europe including Krakow, Poland; Baku, Azerbaijan; and Cluj, Romania. In Western Europe, Dortmund, Germany, and Marseille, France, will be also be added to CSA's list of destinations from March 2004, bringing CSA's total number of destinations to 75 in 44 countries.

The takeover of Travel Servis would also add seven planes to CSA's fleet, Pickova said. The company has been negotiating over the past two months to buy several more planes to rejuvenate its aged fleet. Both Boeing Company and Airbus have been aggressively lobbying to sell their planes to the Czech carrier.

CSA asked the two companies to present initial offers two weeks ago. The supervisory board will analyze the manufacturers' proposals and determine whether they fulfill CSA's technical and budgetary requirements. The company will then organize a tender during which manufacturers will present their aircraft's quality and price advantages, Peter Jusko, CSA vice-president for flight operations, said. Some of the planes will be purchased outright, and others will be leased, although the exact number of each had not been determined.

CSA currently has a fleet of 35 planes. By March 2004, the airline will buy three more Boeing 737-400s and three new ATR 42s as part of already agreed purchases. For long-distance routes such as flights to New York, the company plans to buy Airbus A310 airplanes. The airline already has three such aircraft