Vueling is betting on Barcelona connections and foreign bases
Spanish low-cost airline Vueling is the International Airlines Group's only unit that manages to generate solid returns on intra-European routes. And having just placed a huge order for up to 120 and , Vueling is working on refining its model further.
IAG, the parent ofand (BA), took full control of Vueling earlier this year to complete its portfolio with an asset that is successful where others, including Iberia and BA, have failed: making money in Europe. But Vueling is outgrowing its home market, Spain, as well as its hub, Barcelona, so is weighing its options.
One possibility is developing foreign bases in Paris, Rome and Amsterdam, and that is where 80-90% of the planning is focused, CEO Alex Cruz tells Aviation Week. Vueling is increasingly putting its sights on becoming a pan-European airline. Cruz believes that if the brand is not attached to a specific country, growth will be more easily attained. “The wider brand gives us some freedom,” he says. In 2014, the airline plans to open more bases outside of Spain and increase capacity at its existing international bases. Vueling has allocated three aircraft to its Paris operation and is placing one in Rome and one in Amsterdam.
The CEO sees the airline's network extending to Russia, primarily to cater to Russian outbound leisure traffic, and into Africa. He is working to obtain traffic rights to Senegal, and Dakar is on his wish list. But Cruz also sees significant opportunities in Central Africa, thanks to the geographic location of Barcelona. In that part of the market, Vueling would compete mostly withPortugal, which has developed African destinations via its Lisbon hub.
But in spite of the hub-and-spoke operation in Barcelona and its affiliation with sister companies Iberia and British Airways within IAG, Vueling has no plans to join the Oneworld alliance, although talks have taken place. “But alliances have to understand they cannot impose the same kind of requirements” on hybrid airlines such as Vueling. “[These] add too much cost,” Cruz says.
As part of a broader IAG aircraft order, Vueling will gain access to a large fleet of more A320s and A320neos. Of the 62 aircraft on firm order, 58 are options. TheMAX and the were also in the running. Cruz says that ultimately the assessment of risk in taking on a newly developed aircraft model kept it from ordering the CSeries. “It was very close; Bombardier did a fantastic job. But you have to add in some risk cost in the calculation, and we made our own predictions,” Cruz explains. If it had selected the CSeries, it would have opted for the 160-seat version of the CS300 and would also have ordered either the A320neo or the 737 MAX. A CSeries order would have made a parallel Airbus commitment more likely than a MAX order, because Vueling would have otherwise had to integrate two new fleet types instead of one.
Separately, Vueling is working on refinements at Barcelona. Minimum connecting times are being reduced to 35 min. from 55, which doubles the possible connections there.
The move is part of a broader initiative to grow the airline's share of connecting traffic. Currently, 18.5% of its passengers are in the connecting category. Cruz expects that share to rise to around 20% by year-end, and grow up to 25% in 2014.
The airline began experimenting with the concept in 2009. Cruz believes there is a “natural limit” to the amount of connecting traffic, simply because of Vueling's fare structure. Connecting fares are essentially what would be the two local fares combined, plus a connection fee that can be up to €20 ($27.20). That makes its connections, in many cases, more expensive than its competitors', but it ensures that the airline can recover the additional cost. “We can't afford to dilute revenue,” says Cruz.
The system also protects the airline from overly aggressive expansion based on low yields, and the network is still designed based on local demand. Cruz observes that a lot of last-minute bookings are made for the connecting flights, indicating that passengers chose those itineraries when competing airlines are already fully booked.
Extensive studies were conducted before the 35-min. connecting time procedure was implemented. This change requires more manpower on the ground for the accelerated process. Early figures indicate the investment is paying off through significantly higher revenues. The reduced minimum connecting time applies to all flights within the Schengen Agreement area, which covers countries that do not involve additional passport/security checks.
Vueling plans to invest more in information technology and in targeting a few Spanish coastal cities for direct services to European destinations.