A Matter of Choice

First Choice Airways goes after the upper end of the leisure market . . . and the Dreamliner.

By Cathy Buyck
Air Transport World, May 2005, p.48     Buy this issue

Chris Browne, the fashionable MD of Manchester-based First Choice Airways Ltd., does not mince words. The last three years have been "really, really" hard work, she says. "We suffered like everybody and had to downsize, reduce costs." But, she adds, "It forced us to refocus. We took a very long hard look at what we were doing with the business."

Browne, who began her aviation career with Iberia and rose to the position of GM-UK and Ireland, was named to her current position in April 2002, three years after she joined First Choice Holidays.

Based on a review of financial data, she and the airline have been a good match. As the vertically integrated charter carrier of First Choice Holidays PLC, one of the UK's four leading leisure travel companies, First Choice Airways does not publish separate financial results. However, filings to the UK CAA show that it remained firmly in the black in the 2002 and 2003 fiscal years, earning profits before taxes and exceptionals of £60.37 million and £82.51 million respectively on operating revenues of £556.04 million and £596.03 million. Operating profit amounted to £62 million in FY02, rising to £79.79 million in FY03. Results for the most recent financial year ended Oct. 31, 2004, were not available at this writing, but the parent company had a net profit of £46.1 million on group revenue of £2.35 billion, up from a profit of £32.2 million on sales of £2.24 billion in 2003.

This summer, First Choice, which began operations in 1985 and was known as Air 2000 for most of its existence, will operate 32 aircraft from 15 UK airports to approximately 60 destinations around the world, including the Maldives, Mexico, Orlando and resorts around the Mediterranean basin. Some 70% of flying is done on behalf of the parent company, a figure that rises to 85% during the summer. The remainder is sold to up to 80 third-party tour operators with the exception of its revamped long-haul product, which remains exclusive to First Choice Holidays.

The airline has 10 year-round bases, London Gatwick and Manchester being the largest with respectively nine and eight based aircraft in the summer. It carried 6.39 million passengers in 2003, with ASKs topping 16.59 billion and RPKs 14.93 billion, according to CAA data. Load factor averaged 90%. For the first 11 months of 2004, the latest results available, the number of passengers uplifted on charter services amounted to 5.53 million.

The fleet numbers 32 aircraft comprising seven CFM56-powered A320s, four CFM56-powered A321s, 19 757s with RB211-535E4s and two CF6-80C2-powered 767s. A third 767 is due to arrive later this month or in early June and another three by summer 2006. Its first 787-800s will arrive beginning in 2009. Although already recognized for its excellent service standards, First Choice Airways surprised the industry last summer by announcing it would be a European launch customer for the 787. It has a firm order of six with deliveries between 2009 and 2011 and options for a further six.

Differentiate or Die "We were the first in Europe to sign up for it," Browne tells ATW, laughing that it was a "brave move." But, she says, "In this business it is differentiating or dying. We have to be able to do something that is different, that is better and indeed better value-for-money for the customer. [And] there is no doubt that being a launch customer gives you additional benefits. It has given us the ability to shape the product to how we think it will work for us, and that is a big plus."

The decision to go with a brand-new aircraft type is in keeping with the parent company's strategy of pursuing the upper end of the leisure/holiday market. "On the tour operator level we would never go for volume," says Browne. "We have always preferred profit and trying to excel in terms of the customer service we provide, be that in flight, in the resort or any part of the holiday experience."

First Choice started working on a review of its product offering some three years ago, around the time Browne was named MD. "We knew that we would have to replace our 767s at some stage, we just didn't know what with," she says. The carrier analyzed the A330 as well as the 787, but "the 787 case was . . . compelling in terms of operating efficiencies, both from an engineering point of view and economics," she says. "The fact that it will be an environmentally friendly aircraft also is important to us in terms of our corporate and social responsibility. At the end of the day, the airline industry causes pollution."

Last February, FCA achieved another first by becoming the global launch customer for the GEnx engine to power its fleet of Dreamliners. "It wasn't an easy decision," notes Browne. "We could have gone for either [the Trent 1000 or GEnx] because both manufacturers have a fantastic reputation in terms of delivering certified engines . . . But after a long and very detailed process of evaluating both, the recommendation was to go for the GEnx." While the choice could be seen as a logical successor to the CF6s powering its 767s, Browne says the engine won out on technical and environmental merits, including the expected durability and light weight resulting from the use of composites for the front fan case and fan blades, its reduced noise footprint, fuel efficiency and lower NOx levels.

More long-haul The staged growth of the carrier's long-haul fleet fits the company strategy to reduce exposure to highly competitive business activities such as flight-only and short-haul. "While it's not that we won't fly to short-haul destinations-we do and we will continue to do so-the share of that in our total offering will be greatly reduced," Browne states. "That's deliberate. We believe we can't add much value on the real-short-haul routes unless we've got exclusive product." Short-haul was 60% of seat capacity in 2000 and will evolve to less than 25% by 2008; long-haul was 5% in 2000 and should be 20% by 2008. Medium-haul was 35% in 2000 and will be 55% in 2008. Seat-only was 30% some years ago and should hang about its current level of around 15%.

Concurrently, the parent company picked up on the trend toward dynamic packaging (ATW, 1/05, p 46) and signed a five-year agreement with easyJet in December. Under terms of the deal, First Choice now provides its online booking service Hotelopia to customers of the LCC for booking of air and ground packages in real time.

To support its commitment to increase long-haul, FCA is investing in upgrading its product. "We could not neglect consumer response which said our choice of destinations was good, ontime performance was good [at around 80%], cabin crew was good but seat pitch was just too small," Browne acknowledges. The carrier opted to revamp its 767s with enhanced 777-style interiors and is fitting seats with a 36-in. pitch in Premium class and 33 in. in Standard as well as state-of-the art seatback IFE giving customers up to 30 channels and video-on-demand on 9-in. widescreen TVs in Premium and up to 20 channels on 7-in. screens in Standard. The first "new look" 767 entered service in February, the second one this month, and customer feedback is "fantastic," she says, adding, "Our new long-haul is exclusively for First Choice Holidays. It's so good we don't want to offer it to the competition."

'Air Therapists' Beginning this month, inflight service also will be enhanced, including upgraded meals and Air Therapists offering a selection of beauty and massage treatments. Is First Choice copying Virgin Atlantic Airways? "Oh, I expect us to be a bit better," Browne quips, only half-joking. "You constantly have to deliver better value for money because it's a matter of choice. The customer will choose elsewhere." The Air Therapists, which at present are only a trial on the Mexico routes, are a cooperation with Dermalogica, an environmentally friendly cosmetics brand.

Another new service is available on flights to Florida and follows an agreement with Disney. Cabin crew received training so that they can give passengers advice on how to get around in the Disney World park, what they should pre-book, what they should do or not do. They also can buy Disney World passes onboard. "Just giving the customer more value for money," explains Browne. It also helps revenue; according to research by Generation Group, First Choice Airways ranked seventh among the world's airlines, scheduled and chartered, in terms of inflight retail turnover in 2003 with sales in excess of ﾣ18 million.

Because it sells most of its lift to its parent as part of inclusive tour packages, First Choice does not calculate cost per ASK like a scheduled carrier. Net operating margin at the group level was 4.2% in FY04 with a target of raising this a point or two in coming years. "There has always been pressure on costs," says Browne, adding that 9/11 and the investment in long-haul created additional pressure. The airline did not reduce its fleet following the terrorist attacks but did renegotiate some aircraft leases, producing "tremendous savings."

Three years ago, FCA began subleasing aircraft to its related Canadian tour operator Signature during the slower winter season, keeping the airplanes busy when they otherwise would be underutilized or undergoing maintenance. It also has subleased one or two 757s to Ground Expeditions, a US company that sells round-the-world trips. These aircraft are configured for just 90 seats.

As is characteristic of many charter airlines, all aircraft are on operating leases. "This works well for us," Browne says. Average lease term is about seven years and the carrier aims to have some leases mature each year. "If we want to downsize or grow, we have that flexibility," she notes.

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