Small airlines fasten seatbelts: The coming of liberalised skies to Europe poses a challenge that may devastate the aviation industry's minor players, Stan Abbott reports

JUST AS Europe's national airlines are clustering together to shelter against the cruel winds of liberalisation of the skies, so too are their little cousins.

On 1 November, a new British Airline, Brymon European Airways, begins operations. The 15-aircraft company is the result of the merger of Plymouth-based Brymon, best known for its flights to London City Airport, and Birmingham European Airways. Such consolidation may well represent the shape of things to come.

Liberalisation will in theory lead to a new dawn in consumer choice and tumbling fares. But if Europe follows the American example, in a few years' time our airfields will be littered with corpses of brave little airlines launched on a wing and an (ultimately unanswered) prayer.

This is no business for a quick buck, and Britain's small to medium-sized carriers often rely on the deep pockets of large shareholders to see them through lean times. Brymon and Birmingham European are cases in point - British Airways and Maerske Air of Denmark each have a 40 per cent stake in the holding company, TPL.

The smallest independent airlines do not enjoy such a luxury. They also have to contend with the Civil Aviation Authority's liberal licensing policy. This has caused severe problems for Newcastle-based Gillair, which claims to have traded profitably even through 1991 and the Gulf war, which cost the airline industry worldwide billions of pounds.

'Most of our competitors are chronically unprofitable and their shareholders have to have very deep pockets,' Colin Pollard, Gillair's commercial director, said. Gillair would like to add to its six existing schedules, but its fleet of Short 330s and 360s is geared to operating relatively short legs.

Expansion into continental and longer domestic routes would mean investment in new aircraft. But before he launches any new routes, Mr Pollard wants better guarantees from the Civil Aviation Authority that it would not grant additional licences to other operators prepared to run up telephone number-sized losses.

A case in point is Newcastle-Aberdeen: Gillair had the route to itself when it began its service in 1989, but now three other airlines are licensed, with Brymon and Air UK operating in competition with Gillair.

'There are now as many as six round trips a day between Newcastle and Aberdeen and that's more than the route can stand,' Mr Pollard said. A similar situation could arise on the Newcastle-Stansted route, for which the CAA has granted licences to Gillair, Air UK and Jersey European.

Instead of guaranteeing customer choice, the result is a stalemate in which no airline will risk the first move and the would-be passenger remains grounded. 'The big fear is that we could spend money, get the service going and then Air UK will come in and reap the benefit,' said Mr Pollard, who argues that such a situation cannot benefit either the customer or the industry as a whole.

'We make the point over and over again to the CAA: 'How can you expect us to make major investment decisions which would be beneficial to the market when we don't know whether we have that business to ourselves or not?' '

The CAA's response is unequivocal. 'Our main concern is that the passenger is being served as well as possible and if that means licensing a second operator for the sake of competition then that may be the route we will go down,' a spokesman said.

The CAA said it would not grant a second licence if it did not think a route could bear the competition. But provided the competition remains fair and the operators remain solvent, the profitability of individual services is not its concern.

The CAA is not totally laissez faire. In an unprecedented ruling, it acted in April to restrict British Airways' operations between Manchester and Edinburgh, following a complaint from Loganair, part of the Airlines of Great Britain Group, alleging anti-competitive behaviour.

Loganair found its profitable schedule of four flights a day plunged into loss when BA increased its flights - with bigger and faster aircraft - from one to four a day. The CAA shared the view that BA was trying to drive the smaller operator off the route and restricted it to a twice-daily schedule.

But that could be just a skirmish before the bloodbath feared by Roy Suckling, director of Suckling Airways, which operates a single 17-seat Dornier 228 on routes from Cambridge to Manchester and Amsterdam. He tries to avoid the kind of head-to-head confrontation in which Gillair has found itself with Air UK.

'In theory, an operator like Gillair ought to be protected by the anti-predatory rules, but of course there are ways and ways . . . In the end, the weakest protagonist will pull out and leave the strongest, which may be operating for some reason other than the best interests of the passenger,' he said.

And that is the logical outcome in a deregulated environment, he believes. 'In America it happened overnight in 1977 and people said, 'This is great news for the consumer.' Everyone and his uncle started airlines and began operating on routes where previously there had only been one carrier.'

But instead of fares tumbling and choice proliferating, the opposite happened. 'The small airlines went bust or merged, or were taken over by majors, and the end result is that the American airline industry has five major players and the rest are in Chapter 11, hiding from their creditors and operating at lower costs.'

The result, Mr Suckling said, is that American consumers have less choice now than in 1977. What the British consumer wants is just to get from A to B reliably - an aspiration that might mean settling for something in between over-regulation and a US-style 'free market'.

(Photograph omitted)