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Zurich - 20. June 2004

Denim Air: Flexibility as a key to success

The growing number of low cost airlines has changed the industry. Many airlines are facing new challenges due to the aggressive approach of the new competitors. But sometimes, such a threat can also be helpful in the long term, as can be seen on Denim Air.

When Denim Air was founded in 1996, the airline entered a hard-fought market. Operating three daily roundtrips between Eindhoven and London City, it was in direct competition with KLM and a growing number of low cost carriers including EasyJet, which was already strong on the routes between the Netherlands and the London area.

Denim Air had a hard time fighting the large competition. But in the end, it became clear that the airline on its own wasn't strong enough to compete with the low cost players in the long term. To survive, Denim Air was forced to find a new business concept to keep its staff and the fleet of two Fokker 50 aircraft.

To find a viable strategy for the airline, Mr. Leen P. Jansson was appointed as an external consultant. Mr. Jansson is a known airline expert in the Netherlands, he founded Netherlines, a regional airline which later became KLM Cityhopper.

After an extensive market research, scheduled flights were stopped in March 1997 and the company was entering the ACMI (Aircraft, Crew, Maintenance and Insurance) market. The Fokker 50 aircraft were now offered to other carriers on wet-lease contracts. That means that Denim Air was going to operate the aircraft including crew, maintenance and insurance on behalf of other carriers.

Air Nostrum was interested to lease up to six Fokker 50 aircraft to operate on their commuter routes for Iberia. But the Spanish airline didn't just signing a leasing contract, it was the leading force behind Denim Air's reorganization. Air Nostrum acquired 100% of Denim's shares and Mr. Jansson became the new CEO of the company. During the next years, the fleet was growing to 12 Fokker 50 aircraft, all of them flying under ACMI contracts. In 2001, they were joined by a second type when Air Nostrum asked Denim Air to operate five Bombardier Q300 on their behalf.

The ACMI contracts with Air Nostrum are still in place today, and the operations will continue to 2006 at least. However, the ownership has changed. In October 2002, the company was taken into independency again by a management buy-out. Mr. Jansson, along with other senior managers founded a holding company and acquired all shares from Air Nostrum. The new ownership structure enabled Denim Air to expand into other area and to find a second pillar beside ACMI charter.

Scheduled flights were on the table again, but a lot has been learned since the first attempt on the London route. This time, the airline was looking for a niche market with many business travelers and low competition by established carriers. In the end, the German city of Augsburg won the race to become the first new hub. Augsburg was also chosen due to the fact that Lufthansa relocated all its flights to Munich, which is about 70 kilometers away. Augsburg was left without any scheduled connections.

The first service between Augsburg and Duesseldorf was started on June 10th, 2003. Today, Denim Airways is also serving Berlin out of Augsburg, as well as seasonal charter destinations in Italy and Croatia.

Denim's scheduled flights were originally operated using the brand name "Euro-Hopper" but quite soon, the name was changed to Denim Airways, to mark the strong ties with the parent company Denim Air. Denim Airways is part of the same holding company, but from a legal standpoint, it remains an independent part of Denim Air's holding.

The strategy to concentrate on niche routes was obviously very wise and the routes out of Augsburg went into profitability after the startup period. To expand the scheduled operations, the airline kept looking for other opportunities to open routes in Europe.

Zurich was the next target. After extensive analyses, Denim Airways decided to build a new hub in Switzerland. And within just one single month, everything was ready to start flying out of Zurich to Venice and Florence in Italy. During that month, a local office was opened and all operational preparations for the flights were done. Furthermore, Denim Airways negotiated a code-share agreement with Swiss International Air Lines and harmonized the schedule to enable connections to other Swiss flights.

The first flights out of Zurich took off at June 1st, 2004. Swiss International was very pleased to welcome Denim Airways in Zurich. For the first time since the launch, Swiss International was able to add new destinations to their network, as Jean-Claude Donzel, spokesman of Swiss pointed out. The new connections are particularly interesting as they're serving the interesting North Italian market and giving these passengers a choice beside Alitalia. Previously, Milano Malpensa was Swiss International's only destination in Northern Italy.

Everything worked fine during the first days and the booking numbers are looking promising so far. Denim Airways is already looking into the possibility to add more frequencies and destinations to the mini-hub in Zurich. At the moment, two Fokker 50 aircraft are based in Zurich, even though only one is needed to fulfill the current timetable. But looking to Denim Airways' pace, it shouldn't take long until the backup aircraft is operating flights out of Zurich too, perhaps even to the company's homebase in Eindhoven (Netherlands).

Denim Air's strategy saw a lot of changes during the years. But one thing has always been constant, the Fokker 50 has ever since been the aircraft of choice. The commitment to the Fokker 50 has certainly played an important role in Denim's success. After the breakdown of Fokker, the plane's manufacturer in 1996, second-hand Fokker 50s became available at very reasonable prices. The support and spare part service is still provided today, through Stork, a Dutch industrial company who bought a part of the assets after Fokker's demise.

The aircraft might not be the newest high-tech tool, but it has proven to be very reliable and comfortable for both, crew and passengers. Right now, the average fleet age at Denim Air (incl. Denim Airways) is around 11 years. And according to Mr. Matthijs J. Boertien, the airline's CEO since February 2004, they're here to stay for couple of more years.

Beside that, Denim Air is currently thinking about a larger aircraft in the +70-seater segment. The decision has not yet been finalized, but the shortlist is down to the Fokker 100 or the Bombardier Q400.

A lot of Fokker 100s have recently been released out of mainline fleets at American Airlines and US Airways. These planes entered the second-hand market and can be picket up cheap. Although it's a 100-seater, it could be an interesting choice for Denim due to the low price and the existing knowledge with Fokker aircraft.

The second aircraft on the shortlist is the Bombardier Q400, equipped with about 70 seats. The Q400 is still in production and would also be a good match to the existing fleet, as it already includes the Q300. At the moment, the airline operates 14 Fokker 50 and 5 Bombardier Q300 aircraft. The decision about the new fleet member should be taken later this year.

When Denim Airways was launched, it was the goal to base the whole group in two business fields to get more flexibility. With the addition of Zurich to the scheduled network, this goal is nearer than ever. It will be crucial how the routes out of Zurich will perform, but the Swiss airport obviously offers a lot of interesting routes for an aircraft in the 50-seater segment. And with Swiss International Air Lines as a local partner, there certainly is a lot of potential to expand the airline part.

At the moment, the biggest part of the turnover of 45 Million Euro is coming from the ACMI business, but as the scheduled operations are growing, that will change.

Denim Airways is certainly flying into exciting but also challenging times. But as long as the company keeps looking for niche markets as it did now, it will keep soaring.

It's going to be interesting to see what aircraft type they will add and what destinations will appear on their timetable within the next months.