Running a niche airline

In July this year VLM Airlines announced that in the first six months of 2005, it carried 315,739 passengers. It's not much by Air France/KLMKoninklijke Luchtvaart Maatschappij (Royal Aviation Company) the flag carrier of the Netherlands and a good example of how acronyms can aid simple discourse. or BA standards but it represented an increase of 20% on the figures for 2004.

These in turn were a 31% increase on the numbers for 2003. In the grim years after 9/11, the legacy carriers would have killed for growth on that scale.

But while they were drastically cutting staff, routes and capacity to stem losses, VLM continued to make an annual profit.

The net profit of €948,000 for the year ending 2004 was the seventh consecutive year where the airline enjoyed a surplus.

The secret of successfully running a niche airline is finding the right niche. VLM seems to have done that by targeting the business traveller. David Nye, VLM's regional manager for the UK, says 84% of its passengers are on business. "We have found a niche to perform in for the business market," he said.

But it has two other great strengths: a reputation for punctuality and its main hub at London City airport. In the first six months of this year, VLM was punctual on 92% of its flights.

But it is London City that is perhaps crucial to its success. Peter Kenworthy, a former executive with GB Airways before joining VLM as commercial director this year, admits it may not have had the same level of success without the docklands airport.

"We operate out of an airport that can deliver," Mr Kenworthy said. "It is more like a regional airport in feel, design and ease of use which enable us to give high punctuality."
VLM has been operating out of London City since it started up in 1993 and now runs flights from there to four UK destinations and six on the continent.

The business model for a niche airline seems to fall somewhere between that of a low cost carrier and that of a traditional carrier. VLM mainly runs short haul point to point flights, usually about 90 minutes long.

But its also provides food and drink and says that its standard class is above the usual level of economy class.

Where it differs slightly is that it provides onward flights from London City for passengers who wish to travel from say, Rotterdam to Manchester.

Another key to its success, Mr Kenworthy said, was flying routes which no other carrier did, like the Rotterdam to London City service.

The airline enjoys load factors in the "high 50s" but this rises during business peak time in the morning and evening to around 80%. There are often also two flights each morning to the more popular destinations and two return flights for the evening peak.

What is perhaps surprising is that it does not always see other airlines as competitors. "We don't see BA or bmi as competitors on the London-Manchester route and many business  travellers no longer fly from Manchester to Heathrow to do a day's business," Mr Kenworthy said.

"Our main competition is Virgin Trains which run every half hour out of Manchester to London Euston.

"On the continent, we see Eurostar to Belgium as our competition but they have not really made any dents in our business. Our business to the Benelux countries is improving and we have increased frequency to Brussels and Antwerp."

About one third of VLM's business is booked through its website while the rest comes from agents. Its success in attracting such a high proportion of business travellers, combined with its strength at London City where it is the largest operator, has made it a better proposition for the travel management companies (TMCs).

The airline, once quite heavily reliant on paying commissions, now pays 1% and that will be scrapped on January 1, 2006. Mr Kenworthy, while expecting the level of online bookings to rise, is also keen to keep this relationship with the TMCs.

As such the airline is determined to retain a sales force in the UK, Belgium, the Netherlands and Luxembourg.

It is also likely that after the opening of the Isle of Man-London City route this month, its next step is likely to be a further expansion of routes, possibly on the continent.

It is an airline that seems also likely to enjoy its eighth consecutive profitable year.