Laker Airways

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Laker Airways
IATA GK	ICAO LKR	Callsign LAKER
Founded		1966
Hubs		London Gatwick Airport Berlin-Tegel International Airport
Secondary hubs		Manchester International Airport
Focus cities		Glasgow Prestwick
Subsidiaries		[International] Caribbean Airways (part-owned) Laker Air Travel Ltd. Arrowsmith Holidays Ltd. Laker Holidays GmbH
Fleet size		20 aircraft (14 widebodies and six narrowbodies) at 5 February 1982
Destinations		Europe/North America/Asia
Parent company		Laker Airways (Leasing) Ltd.
Company slogan		Take a Laker! (mid-'70s)
Headquarters		London Gatwick Airport
Key people		Sir Freddie Laker, Alan Hellary, John Seear, Peter Yeoman, Bill Townsend, Cliff Nunn, John Jones, Richard Boyton
Website: Laker Airways Information Website

Laker Airways was a wholly privately owned, Independent British airline founded by Sir Freddie Laker in 1966. It originally was a charter airline flying passengers and cargo worldwide.

The airline became the world's first long-haul, low-cost, "no frills" airline in 1977, operating low-fare scheduled services between its base at London Gatwick Airport and New York's John F. Kennedy Airport. However, the company did not survive the economic recession of the early 1980s, and operated its last flight on February 4, 1982, the day after it spectacularly went bankrupt.

Contents 1 The formative years 2 New commercial developments 2.1 An overseas base 2.2 Cost saving 2.2.1 Reduced thrust take-off technique 2.2.2 Faster climbs 2.2.3 Increasing range by introducing weight-saving measures 2.2.4 Introduction of DC-10 aircraft 3 Revolutionising air travel 3.1 Beginning of the battle for "Skytrain" 3.2 Widebody era 3.3 Simplified charter rules across the Atlantic 3.4 Redrawing traditional battle lines 3.5 "Skytrain" takes to the air 3.6 Abortive attempts to expand "Skytrain" 3.6.1 Plans for a new low-fare Australian service 3.6.2 Second designated UK carrier to Hong Kong 3.6.3 "Globetrain" 3.6.4 660 new "Skytrain" routes to Europe proposed 3.6.5 Additional "Skytrain" routes to the United States 4 Bankruptcy 4.1 Undercapitalisation 4.2 Capital ownership structure 4.3 Inadequate financial back-up 4.4 Economic climate 4.5 Strategic mistakes 4.6 The beginning of the end 4.7 The final blow 5 Lasting impact on the industry 6 Incidents and accidents 7 Trivia 8 Notes 9 References 10 External links

[edit] The formative years

Sir Freddie Laker unveiled his new airline - to be called Laker Airways - to the press in February 1966. The airline commenced commercial airline operations from its Gatwick base in July 1966 with two former BOAC Bristol Britannia 102 series turboprops. These were supplemented and eventually replaced by a fleet of five new BAC One-Eleven 300 short-haul jet aircraft from December 1967 onwards. (This included an order for three brand-new aircraft that had been placed directly with the manufacturer for delivery during 1967. Sir Freddie subsequently placed a follow-on order for a fourth brand-new aircraft to be delivered in 1968. He also acquired another relatively new aircraft, which had originally been delivered to the failed British Eagle airline, second-hand in 1971. These aircraft were to become the mainstay of the airline's fleet for its short- to medium-haul charter operations to holiday resorts in the Mediterranean and the Canary Islands for many years to come.)

[edit] New commercial developments

The introduction of several brand-new, short-haul jetliners into a small airline's fleet over a relatively short period of time necessitated the development of a more efficient as well as more profitable method of marketing the additional capacity to both existing and new clients. Laker Airways came up with a new "time charter" concept, whereby tour operators were financially incentivised to charter an aircraft's entire capacity for a whole season. This helped ensure that the new fleet's capacity was fully utilised throughout the entire season, thereby "smoothing out" the pronounced peaks and troughs that have traditionally characterised the charter airline industry. It also helped make Laker Airways the most profitable charter airline of its era in Britain.

[edit] An overseas base

August 1968 saw the establishment of its first overseas base at Tegel Airport in what used to be West Berlin in the days prior to Germany's [re-]unification. (The company had up to three of its BAC One-Elevens stationed there until 1981 when these aircraft were replaced with one of its three newly acquired Airbus A300 B4 series widebodies, at the time the largest aircraft operated by any airline out of any Berlin airport. Its Berlin operation was staffed by ca. 90, mainly local, workers. Throughout this period it carried thousands of holidaymakers from the Western parts of the formerly divided German capital to the most popular resorts in the Mediterranean as well as the Canary Islands each year.)

In 1972 Laker Airways co-founded Gatwick Handling, a major Gatwick-based handling agent that has since become part of the Aviance group, with Dan-Air. (Each airline owned 50% of Gatwick Handling at the time of its inception.)

[edit] Cost saving

Laker Airways pioneered a number of operational cost-saving techniques that helped reduce its aircraft engines' wear and tear, reduce its fuel consumption as well as make its planes fly longer distances without a refuelling stop than indicated by the manufacturers' range specifications.

[edit] Reduced thrust take-off technique

Laker Airways was the first airline to use the "reduced thrust" take-off technique it had specifically developed for the BAC One-Eleven at the time it introduced this twin-engined, short-haul narrowbodied aircraft into its fleet. Reducing the BAC One-Eleven's take-off thrust helped reduce the wear and tear of the aircraft's Rolls-Royce Spey engines. This increased the time the engines could stay on the aircraft before they needed to be removed and overhauled, thereby reducing the company's maintenance costs. It also prolonged the engines' overall life.

A senior Rolls-Royce engineer working at the plant that overhauled Spey engines for his employer's airline customers once remarked that the engines Laker Airways sent for overhaul always used to be the best-maintained of any BAC One-Eleven operator's engines handled at that plant.

[edit] Faster climbs

In the days when both airports and air space were still relatively uncongested, Laker Airways used to instruct the flight deck crews flying its BAC One-Elevens to line up the aircraft behind a Boeing 707, the most common long-haul jet aircraft at the time, while queuing for take-off whenever possible. The airline furthermore instructed these crews to tune in to the same frequency as the one used by the Boeing 707 crews departing ahead of them and to begin a "casual" conversation with them as soon as their conversation with the air traffic controller who had cleared both aircraft for take-off ended.

The aim of getting into a "casual" conversation with the pre-departing 707 crew was to obtain information about that aircraft's height while continuing its climb.

The four-engined Boeing 707 was designed from the outset as a long-haul, intercontinental jet plane. It had more powerful engines than the BAC One-Eleven and other contemporary short-haul jets and therefore could climb faster than these planes to attain its cruising altitude.

This helped Laker's BAC One-Eleven crews to climb faster to reach their cruising altitude, thereby reducing the time spent climbing, which is the most fuel-intensive flight pattern of an aircraft along with the landing pattern. This, in turn, helped the company reduce its fuel bill.

[edit] Increasing range by introducing weight-saving measures

Among the weight-saving measures Laker Airways used in order to make its aircraft fly longer distances without a refuelling stop than the manufacturers' range specifications indicated, was a policy of strictly applying a free baggage allowance limit of only 15 kg - rather than the more usual 20kg - per passenger as well as carrying fewer passengers per flight than the maximum number the aircraft could hold in a single-class configuration.

This policy was first employed when the airline took delivery of its BAC One-Elevens. By limiting the free baggage allowance to 15, instead of 20kg per person as most of its competitors did at the time, and restricting the number of passengers on non-stop flights that exceeded the range the manufacturer had specified for this aircraft type to 70, rather than the maximum number of 89 the aircraft could accommodate in Laker's single-class configuration, the company was able to use the weight thus saved to carry more fuel to increase the aircraft's range. The resulting range increase was sufficient to permit non-stop flights from London Gatwick or Berlin Tegel to Tenerife, at the time the most popular holiday resort in the Canary Islands for both British and German tourists, at least in one direction, depending on whether the plane encountered strong head- or tailwinds. This range increase also helped make Laker's One-Elevens more competitive compared with the larger, longer range aircraft operated by its rivals, especially for smaller tour operators struggling to fill a bigger aircraft's larger capacity profitably. The company furthermore offered British and German tour operators willing to charter its One-Elevens for non-stop flights from Gatwick and Berlin Tegel to the Canary Islands to pay for a technical stop in Lisbon on the return leg whenever adverse weather conditions necessitated this. If, on the other hand, the passenger load was greater than 70, it was the responsibility of the charterer of the aircraft to pay for any technical stops. Thus, the firm incentivised tour operators chartering its aircraft for non-stop trips beyond the BAC One-Eleven's design range to keep to the 70-passengers-per-flight limit.

Alternatively, the weight saving resulting from limiting the free baggage allowance to 15 kg per passenger could be traded for reducing fuel consumption on shorter routes that were well within the BAC One-Eleven's design range by making the aircraft lighter, even with a full load of passengers.

[edit] Introduction of DC-10 aircraft

The same policy stood Laker Airways in good stead when the airline decided to introduce the McDonnell Douglas DC-10 series 10 into its fleet at a later stage in its development.

This particular model of the DC-10 lacked the long range of the series 30 model. It was optimised for the US and Canadian domestic markets and only had sufficient range to fly non-stop between the East and West coasts of North America. The aircraft McDonnell Douglas was offering Laker Airways had actually been built against an order placed with the manufacturer by All Nippon Airways. That airline had decided to cancel its order due to its decision to switch to the L-1011 "Tristar", a rival widebodied trijet built by Lockheed. Before offering the aircraft to Laker, McDonnell Douglas had already asked British Caledonian (BCal) whether it was interested in these aircraft. At the time BCal was looking for a suitable widebody replacement for its aging Boeing 707 and Vickers VC-10 narrowbodied long-haul equipment. However, BCal had rejected this offer because it felt that the aircraft had insufficient range to enable it to fly non-stop from its Gatwick base to the most distant points on its long-haul scheduled route network.

Despite these obvious drawbacks, Laker Airways decided to take the aircraft after all. The airline concluded that it could achieve a range increase that would be sufficient to enable these aircraft to fly non-stop from the UK to any point East of the Rockies by keeping the free baggage allowance limit at 15 kg per passenger and reducing the maximum, single-class seating capacity from 380 to 345. The resulting weight saving could then be used to carry more fuel. The company's own calculations had also shown that even with this reduced seating capacity, its low cost base allowed it to fill just 52% of the aircraft's seats to break even. Moreover, Laker Airways had figured out that the aircraft's low break-even load factor would enable it to operate its proposed London-New York "Skytrain" service with a significantly lower break-even load factor compared with the 707, an aging narrowbodied aircraft type whose operating costs were much higher on a per-passenger basis.

These were the decisive factors that swung the firm's decision in favour of accepting McDonnell Douglas's offer to acquire this particular DC-10 model.

In addition, Laker Airways agreed with Japanese lessor Mitsui that was going to buy the aircraft from McDonnell Douglas before leasing them to Laker to pay for the leases out of flying revenues only. This effectively meant that the airline was not going to pay anything for the aircraft if they were not utilised for revenue-earning services. It also proved to be a highly effective method to minimise the financial risk an investment decision on this scale posed for a small company.

[edit] Revolutionising air travel

[edit] Beginning of the battle for "Skytrain"

The early 1970s saw the airline and its "larger-than-life" owner commence its "epic" battle with the aviation authorities in the UK as well as the US to gain approval for a new type of low-cost, "no frills" transatlantic air service that was intended to link London and New York on a daily basis. This service was to be marketed under the trade mark "Skytrain" for the then low fare of £32.50 one-way in winter and £37.50 in summer.

Two Boeing 707-138B series aircraft were acquired for this purpose from the estate of the defunct British Eagle airline in 1969. (Both aircraft were originally operated by Qantas when new. They were subsequently purchased by the Kuwait Finance Corporation, the Kuwait government's overseas investment arm, which had leased them to Heathrow-based British Eagle until that airline's demise in November 1968.)

Since approval for the proposed "Skytrain" service was not forthcoming for several years, Laker Airways needed to find alternative work to keep its newly acquired long-haul planes busy.

Initially, both of the Boeing 707s were mainly used to supplement the BAC One-Elevens at busier times on its busiest Mediterranean and Canary Islands holiday charter routes, such as Gatwick-Palma de Mallorca and Gatwick-Tenerife. From December 1970 onwards, one of the aircraft was also utilised for a new once-a-week low-fare service linking Luxembourg with Barbados on behalf of International Caribbean Airways, the new Barbadian flag carrier set up by the Barbados government in 1970, which was initially 33% - eventually 49% - part-owned by Laker Airways. (This aircraft's livery incorporated a subtle change compared with its original as well as its sister aircraft's livery. It sported "International Caribbean" titles as well as the Barbadian flag on both sides of the forward fuselage in place of the "Laker" titles and the Union Flag featured by all of the company's other aircraft.)

Both aircraft eventually replaced the Bristol Britannias on all of the airline's long-haul flights, an increasing number of which were so-called "affinity group" charters to North America, primarily the US.

[edit] Widebody era

In November 1972 Laker became the first airline outside North America to operate the McDonnell Douglas DC-10 widebody when it took delivery of a pair of brand-new series 10 aircraft direct from MDC's factory in Long Beach, California, via Japanese lessor Mitsui. (Interestingly, these aircraft's livery already incorporated additional "Skytrain" titles in a hybrid "Union Flag-cum-Stars and Stripes" colour scheme on each side of the white, upper forward part of the fuselage, even though final approval to commence a commercial "Skytrain" service between London and New York was still being withheld for a few more years.)

[edit] Simplified charter rules across the Atlantic

On April 1, 1973 new charter regulations came into effect in the UK, the US and Canada. These replaced the old, complicated "affinity group" rules with a new, simplified set of rules officially termed "Advanced Booking Charters", which became popularly known as ABC flights. The new rules enabled Sir Freddie to build a successful ABC flights business across the North Atlantic over the next couple of years making Laker Airways the undisputed market leader in transatlantic ABC flights. (During the early- to mid-1970s the airline ran a low-key, yet highly effective advertising campaign on hoardings and local public transport in London, Manchester and several other large British cities under the motto "Take a Laker" that informed the British public of the availability of the company's wide range of low-fare transatlantic ABC flights.)

Laker Airways flew the world's inaugural ABC flight on April 2, 1973 from Manchester to Toronto on one of its McDonnell Douglas DC-10s with about 250 passengers who had paid as little as £49 for a return ticket.

Laker's transatlantic charter flights provided free meals, free inflight movies - a brand new phenomenon in those days that helped distinguish it from the competition whose ABC flights were almost exclusively operated with aging Boeing 707 or Douglas DC-8 narrowbodied equipment lacking these amenities - and a free inflight bar.

A third DC-10 series 10 widebody joined the airline's fleet to enable it to meet its growing commitments in the ABC flights market.

However, despite attaining a market leadership position in the transatlantic ABC market, Sir Freddie considered this only a "second best" in the absence of approval for his proposed "Skytrain" service and therefore vowed to continue his long-running fight to eventually get "Skytrain" airborne.But how ever Sir Freddie Laker wanted to introduce even more route from Gatwick like Tegal to New York. Although this didn't seem very popular with many people the route was then dropped

[edit] Redrawing traditional battle lines

A novel feature characterising the long drawn-out and bitterly fought battle over "Skytrain" was that the main protagonists were two fellow, wholly privately owned, Independent airlines, rather than the independents on one side and the corporations, i.e. BEA and BOAC as well as their joint successor British Airways, on the other.

British Caledonian (BCal), at the time Britain's foremost wholly privately owned, Independent airline as well as the country's "Second Force" carrier, which happened to be Laker Airways' next-door neighbour at Gatwick, became the fiercest opponent of "Skytrain".

The fact that in those days all scheduled airline operations were tightly regulated and only very limited opportunities existed for Independent airlines to provide fully fledged scheduled air services on major domestic and international trunk routes was the main reason for that airline's unrelenting opposition to Laker's desire to establish itself as the UK's leading low-fares, long-haul scheduled airline. This also meant that most of the bilateral air services agreements the UK government had negotiated with its overseas counterparts contained no provisions for a second British scheduled airline in addition to the incumbent UK flag carrier. The few bilateral agreements that did contain such a provision - for instance, the Bermuda II accord governing all commercial air services between Britain and the US - contained no provision for the UK authorities to designate a third scheduled carrier. For this reason any award of a licence to Laker permitting it to operate a scheduled service on a route of its choosing and nominating it as the UK's second designated flag carrier on that route invariably prevented BCal from operating a competing scheduled service on the same route.

Another important reason it vehemently opposed these plans was that under the "Second Force" concept, which defined the official aviation policy of successive British governments throughout the 1970s as well as during the first half of the 1980s, BCal was the Government's "chosen instrument of the private sector". What this meant was that the Government was obliged to support the development of BCal's worldwide scheduled ambitions before considering rival ambitions of other UK-based Independent airlines.

In addition, BCal, Laker and most of the other contemporary Independent airlines in the UK were denied access to Heathrow, traditionally the main market place for scheduled airlines in the UK where three quarters of the population in London and two thirds of the population in the whole of Southeast England live. Confining these airlines' scheduled operations to Gatwick meant that they were forced to compete against each other for the custom of only a quarter of London's and a third of the entire Southeast's population.

Therefore, BCal's senior management felt that Laker's plans would undermine the Government's "Second Force" policy and would weaken it in the long term by making it more difficult for BCal to become an effective competitor to the established scheduled airlines.

[edit] "Skytrain" takes to the air

Laker Airways had taken delivery of a fourth McDonnell Douglas DC-10 series 10 widebodied jet during the summer of 1977 to enable it to launch its daily Gatwick-JFK "Skytrain" operation in the autumn of that year. By that time the airline's total work force had expanded to 1,000 employees (up from only 500 during the mid-1970s).

"Skytrain" was finally inaugurated between London Gatwick and New York JFK on September 1 in 1977.

Based on the service's initial success, Laker Airways expanded very rapidly to add Los Angeles, California (1978) and Miami, Florida (1980) as well as Tampa, Florida (1981) from Gatwick, Manchester and Prestwick. To support this growth, the airline placed additional orders for a further two McDonnell Douglas DC-10 series 10 widebodies as well as its first order for five longer range McDonnell Douglas DC-10 series 30 widebodied aircraft. The company also acquired two second-hand Boeing 707-351B narrowbodied long-haul aircraft, which were sourced from Cathay Pacific (Northwest Airlines being the original operator), to enable it to commence non-stop operations to the US West Coast prior to receiving the first of the McDonnell Douglas DC-10 series 30 aircraft that were on order. At the same time, the firm retired both of the older, shorter fuselage Boeing 707-138Bs and disposed of one of the BAC One-Elevens (subsequently acquired by Dan-Air). This left it with a fleet of 20 aircraft comprising 14 widebodies and six narrowbodies (eleven DC-10s [five series 30 and six series 10 aircraft], three A300s, two 707s and four One-Elevens), thereby effectively doubling the fleet size within a time span of only five years. Over this period the number of people working for Laker Airways and its associated companies doubled again to 2,000.

During the 1981 peak summer period Laker operated up to three daily frequencies each way between Gatwick and JFK and Gatwick and Miami as well as twice daily round-trips between Gatwick and L.A. This made Laker Airways the fourth biggest transatlantic scheduled airline (behind British Airways, Pan Am and TWA) at the time.

[edit] Abortive attempts to expand "Skytrain"

[edit] Plans for a new low-fare Australian service

In the early 1980s Laker Airways proposed to commence a direct low-fare service from London Gatwick to Australia with only one intermediate stop. It was to be operated at a frequency of one flight a day in each direction utilising the airline's newly delivered fleet of five McDonnell Douglas DC-10-30 widebodies. In contrast to Laker's original "Skytrain" concept, this service was to feature a first class section to be called "Pullman". It was planned to operate three flights per week each to Sydney and Melbourne, respectively, while the remaining flight's destination was to be Perth.^[1]

This service never saw the light of day because Laker's application for a scheduled licence to the relevant aviation authorities in both the UK and Australia was unceremoniously dismissed by Peter Nixon, at the time the Australian Minister for Transport. Nixon maintained that there was no demand for such a low-fare service. Then wholly government-owned Qantas had exerted pressure on him to protect its lucrative duopoly on the "kangaroo route", which it used to share with British Airways under a highly restrictive "pool" agreement at the time. The Australian government's outright refusal to even consider Laker's application prompted Sir Freddie to comment on the Australian government's unfavourable view of his proposed service in a rather unflattering manner that "Mr. Nixon probably thought that the earth was still flat".

(Interestingly, both the CAA as well as the Australian aviation authorities took a similarly negative view of a rival application made by Laker's arch-rival BCal to launch a conventional, fully fledged scheduled service between Gatwick and Australia via Colombo at a frequency of four flights a week each way.^[2])

[edit] Second designated UK carrier to Hong Kong

The UK government decided in 1979 to open up the lucrative route between London and the then Crown Colony of Hong Kong to additional competition. This was to be provided by a second British scheduled carrier to ease the shortage of capacity passengers were experiencing at peak times on the ten-times-a-week monopoly service operated by British Airways between Heathrow and Hong Kong.

A competitive race for the additional daily scheduled service on offer ensued when BCal, Laker and Cathay Pacific, Hong Kong's home town airline as well as its de facto "flag carrier", all filed their own application with the Civil Aviation Authority (CAA) in London.

Laker proposed to run a daily "Skytrain" service linking London Gatwick and Hong Kong via Sharjah to be initially operated with single-class, 380-seat McDonnell Douglas DC-10-30s. At the CAA hearing into its licence application the airline also proposed introducing larger, higher capacity Boeing 747s on this route as soon as demand justified. The company tried very hard to convince the CAA that its proposal for an additional all-economy class discount service was the "best" option to alleviate the shortage of seats on this important route, which was supported by its own, extensive market analysis. This showed that the "bottom end" of the economy market was the most under-served segment of that market because of the scarcity of low fares. The other airlines used the findings of Laker's analysis in support of their claims that "Skytrain" would "flood" the market with millions of cheap seats that risked undermining all incumbent's profitability without doing anything to alleviate the shortage of premium seats. Laker retorted that low fares would stimulate the market by creating new, "untapped" demand from people who could not afford to fly on this route because of British Airways' high fares, rather than taking away market share from competitors. It furthermore pointed to the success of its existing transatlantic "Skytrain" operations in helping to create new demand while maintaining that its rivals' proposals would do very little to meet the unsatisfied demand for more low-fare seats.

After the hearings into the rival applications had concluded, the CAA decided to award the additional daily scheduled service between London and Hong Kong solely to BCal, which had proposed running a conventional scheduled service from Gatwick to Hong Kong via Dubai utilising its rapidly growing fleet of McDonnell Douglas DC-10-30 widebodies in a three-class configuration featuring a first and an executive class in addition to an economy cabin. BCal had also agreed to offer a limited number of low fares that would match the lowest fares Laker had proposed. The CAA rejected both Cathay Pacific's and Laker's rival applications, thus clearing the way for BCal to become the second British scheduled carrier on that route.

However, Hong Kong's Air Transport Licensing Authority (ATLA) unexpectedly refused to endorse BCal as the official, second British carrier on the London-Hong Kong route because many influential people in the Crown Colony felt very upset that Cathay Pacific was going to be excluded from one of the world's most lucrative air routes. This caused a minor diplomatic row between the UK government and the colonial administration in Hong Kong. Cathay Pacific immediately began a "back-door" lobbying campaign in the Crown Colony as well as in London, stressing that it had invested millions of pounds in the British economy at a time of high unemployment in the UK by placing large orders for Rolls-Royce RB211-powered Boeing 747s. The UK government eventually relented and allowed Cathay Pacific to join Laker in appealing to John Nott, at the time the UK's Secretary of State for Trade and Industry, against the CAA's award of a licence exclusively to BCal.

The Secretary of State for Trade and Industry decided to overturn the CAA's decision and to throw the route open to all three airlines, i.e. BCal, Cathay Pacific and Laker, without imposing any restrictions on the frequencies of their proposed services.

As far as Laker Airways was concerned, this unfortunately turned out to be only a "partial victory" because the ATLA continued to refuse granting it a reciprocal permit, without which Laker's proposed service remained grounded.

In the event, Cathay Pacific commenced a thrice-weekly service between Hong Kong and Gatwick via Bahrain on July 17, 1980 using a Rolls-Royce RB211-powered Boeing 747-200B ahead of BCal, which began a four-times-a-week Gatwick-Hong Kong service via Dubai on August 1, 1980 using a McDonnell Douglas DC-10-30.

[edit] "Globetrain"

Laker Airways planned to link its existing Gatwick-Los Angeles "Skytrain" service with the proposed Gatwick-Hong Kong "Skytrain" service across the Pacific via Honolulu and Tokyo to create the first-ever daily round-the-world through-plane service operated by a British airline in both directions. (At the time Pan Am was the only airline in the world to operate such a service.) This service was to be marketed under the trademark "Globetrain".

Cathay Pacific was among those airlines attacking Laker's plans to launch a new round-the-world low-fare operation. The established transpacific airlines were concerned that the type of service Laker proposed was likely to create a lot of excess capacity and exert further downward pressure on prices in an already competitive market characterised by low margins, thereby threatening to undermine the profitability as well as the long-term viability of these routes for the incumbent carriers. Stung by Cathay Pacific's criticism, Sir Freddie hit back by commenting that what that airline really seemed to be concerned about was sharing the busy Hong Kong-Tokyo route with a new competitor because he believed this route was the main source of profits for Cathay Pacific's entire regional Asian and transpacifc operation.

Ultimately, the airline decided to abandon its "Globetrain" plans due to its inability to obtain the necessary regulatory approvals.

[edit] 660 new "Skytrain" routes to Europe proposed

In 1979 Laker Airways surprised the aviation world with its decision to become the UK launch customer for the twin-engined Airbus A300 short-to-medium-haul widebodied jetliner. The airline placed an order for ten series B4 aircraft and simultaneously announced that these planes were primarily meant to serve a network of up to 660 European "Skytrain" routes in a 314-seat single-class configuration at a frequency of one flight per day in each direction. The vast majority of the intended low-fare network of European routes was not going to touch the UK at either end, thus making it the first truly pan-European commercial airline operation.

Laker's European "Skytrain" plans were immediately opposed by BCal, which was keen to expand its limited short-haul European network beyond the existing four routes linking London Gatwick with Paris Charles de Gaulle, Amsterdam Schiphol, Brussels National (Zaventem) and Genoa. (BCal needed to develop its connecting traffic at Gatwick by growing the European network to include destinations in Germany, Switzerland, Scandinavia and Southern Europe in order to help it increase load factors on its long-haul flights to Africa, South America and the US as well as to improve the profitability of these services.) BCal came up with its own proposal to create a new network of European low-fare services to be marketed under the trademark "Miniprix" to counter Laker's plans. This alternative low-fare proposal was far less ambitious than Laker's. Including BCal's existing four European routes, it envisaged linking Gatwick with up to 25 points on the Continent. Most of these services were to be initially operated with the airline's existing narrowbodied equipment, i.e. the BAC One-Eleven 500 and the Boeing 707-320C, at a frequency of one flight per day in each direction. BCal was evaluating both the McDonnell Douglas MD-80 narrowbody as well as the Airbus A310 widebody as suitable long-term replacements for its existing narrowbodied aircraft on these routes.

Both Dan-Air and Britannia Airways, the UK's two leading charter airlines at the time, were sceptical about Laker realistically standing any chance of success to see its ambitious pan-European "Skytrain" plans implemented. They feared that Laker would ultimately be forced to "dump" all this additional widebody capacity on the European charter market, thereby creating huge excess capacity that would lead to a collapse in charter rates.

In the event, the CAA, which conducted the hearing into Laker's plans to create a pan-European network of low-fare scheduled services as well as into BCal's and other UK Independent airlines' counter proposals and objections, rejected Laker's application. It subsequently awarded two scheduled licences to Laker Airways, one for the Gatwick - Berlin Tegel route and the other for a Gatwick-Zürich service, following British Airways' decision to abandon several short-haul routes it had been operating from London Gatwick at low frequencies since the late 1970s and to surrender a number of unused licences to the CAA. By the time the CAA awarded Laker these route licences, the airline was already experiencing growing financial difficulties and had decided to dispose of all three A300 widebodies in its fleet as part of a restructuring plan that aimed to cut costs by reducing the number of aircraft types it operated as well as the overall fleet size. Laker Airways intended to commence operations on both routes during the spring of 1982 operating two flights a day each way utilising spare capacity on its remaining BAC One-Elevens. Unfortunately, the airline ceased to exist before the inaugural date of these services and the CAA subsequently transferred both scheduled route licences to Dan-Air.^[3] (Laker did however manage to introduce a short-lived scheduled service between Manchester and Zürich during 1981, which it operated at a frequency of one flight per day in each direction utilising a newly delivered A300 widebody. [This route, the airline's only short-haul scheduled operation, had come about as a result of British Airways' decision to abandon its loss-making Manchester-Zürich services at short notice. Laker's successful application to have BA's licence for that route transferred to itself resulted in it replacing the UK's national carrier as the UK flag carrier between Manchester and Zürich. The airline's subsequent withdrawal from the aforesaid route and its ultimate demise in turn resulted in Dan-Air becoming the UK flag carrier between Manchester and Zürich.]

BCal eventually began offering "Miniprix" fares on off-peak services on its existing Gatwick-Amsterdam route after it had obtained all necessary approvals from the UK authorities and their Dutch counterparts.^[4])

[edit] Additional "Skytrain" routes to the United States

Laker Airways sought to strengthen its position as a major transatlantic scheduled airline by applying to the CAA as well as the [now defunct] US Civil Aeronautics Board (CAB) for route licences to serve additional US cities under the Bermuda II UK-US aviation accord. Both the CAA and the CAB duly approved the airline's application to commence daily "Skytrain" operations from Gatwick, Manchester and Prestwick, its three UK departure points, to Chicago, Detroit, San Francisco, Seattle and Washington DC.

The company did not have any spare aircraft capacity that would have enabled it to use the newly awarded licences immediately.

Meanwhile, the firm's deteriorating financial position did not permit it to add more aircraft to its fleet to serve the new routes.

By the time Laker Airways went out of business all of these additional licences remained unused and they were subsequently re-allocated to other airlines.

[edit] Bankruptcy

Ultimately, Laker Airways proved not to have the financial strength to survive the recession of the early 1980s and the major competitive onslaught at the hands of the established scheduled airlines, all of which had access to greater funds on more favourable terms than Laker.

[edit] Undercapitalisation

According to an article that appeared in the Swiss-based aviation enthusiasts' magazine Interavia in 1978, Laker's paid-up share capital was a mere £10,000. This compared with £12m for its next-door Independent rival BCal and £100m for then wholly state-owned British Airways and clearly illustrated the extent of the airline's undercapitalisation in relation to its competitors.

[edit] Capital ownership structure

The company's weak financial position was further underlined by the fact that 90% of its share capital was privately held by Sir Freddie himself and the remainder by Joan Laker, a former spouse, while Laker Airways itself was a wholly owned subsidiary of Jersey-incorporated Laker Airways (Leasing). Although this tax-efficient arrangement had served the firm well since its formation, it nonetheless acted as a deterrent to lenders, especially at a time of acute crisis. The very fact that the airline's ultimate holding company was headquartered in a so-called "off-shore tax haven" outside the jurisdiction of UK law considerably increased any lenders' risk to get their money back in case things went wrong.

[edit] Inadequate financial back-up

In addition to the firm's undercapitalisation and its weak financial position, Laker Airways was not backed up by any significant assets.

The bulk of its fleet - including all widebodies - were leased as was the maintenance hangar at its Gatwick base that also housed the airline's offices.

The only other financial back-up that Laker Airways had was Sir Freddie's stud farm and his considerable personal wealth. However, this was only "a drop in the ocean" when compared with the financial requirements of the airline.

[edit] Economic climate

Both the UK as well as the US economies were in the grip of a major recession in the early 1980s, which was characterised by low growth, high unemployment, high inflation and sky-high interest rates. These were the airline's two main markets, especially for "Skytrain". During that period the company was expanding rapidly to sustain its commercial success generally and that of "Skytrain" in particular. Laker Airways also needed to ensure that it was well-placed to take advantage of additional opportunities to expand its business profitably in order to maintain its position as Britain's second largest Independent airline (behind BCal) and its third principal long-haul operator (behind British Airways and BCal). Eventually, the company borrowed large amounts of money at high interest rates to finance its ambitious expansion plans. The then prevailing sky-high interest rates were a major cause for the substantial increase in the firm's borrowing costs as well as its debts.^[5]

Although the Laker Airways fleet contained a greater proportion of modern, state-of-the-art widebodied aircraft than most of its contemporary competitors, which made it cheaper to operate and maintain, the airline still felt the effects of the sudden tripling of the price of crude oil in the aftermath of the Shah of Iran's fall from power in the late 1970s.^[5] Laker Airways needed to pay the high spot market oil prices because, unlike today's airlines, it could not "hedge" its future oil supplies by negotiating fixed-rate, forward purchases of its fuel requirements as such financial derivatives were non-existent in those days.

The airline did however attempt to protect itself against sudden, unpredictable movements in the sterling-dollar exchange rate by forward-purchasing its US dollar foreign exchange requirements at a fixed rate of exchange. This was a necessity as, in common with all other airlines outside of the US, most of its costs were denominated in US dollars whereas most of its income was denominated in another currency (pounds sterling).^[5] Unfortunately, the company's growing financial problems were exacerbated as a result of wrongly anticipating the sterling-dollar exchange rate for the 1981/2 winter season. (During the whole of 1980 and the better part of 1981 the prevailing sterling-dollar exchange rate was 1:2. The main reason a pound could buy two dollars in those days was that sterling had effectively become a "petro" currency whose value was kept artificially high by Britain's buoyant North Sea oil exports and the importance these oil exports assumed against a background of high crude oil prices, in the aftermath of the second global energy crisis caused by the Shah of Iran's fall from power in 1979. Like many other businesses, Laker Airways did not anticipate the speed of sterling's subsequent decline against the US currency. This meant that it needed to pay substantially more for its dollar-denominated foreign exchange requirements during that period than it had originally budgeted for, thus leading to an increased outflow of precious funds at a time of acute financial crisis.)^[6]

[edit] Strategic mistakes

The original "Skytrain" concept was primarily targeting people who were clamouring for deeply discounted air fares to be able to afford to fly across the Atlantic, many of them for the first time in their lives. This was a market the established transatlantic scheduled carriers had deliberately ignored in the days prior to "Skytrain", mainly because it was not profitable for them, given their high cost structures and complex organisations.

Although Laker Airways had far lower costs and was a much simpler organisation than any of its competitors, it still needed to achieve very high, year-round load factors to be able to make any money at all with the "Skytrain" discount model. After all, each person availing him-/herself of "Skytrain" to fly across the Atlantic would only produce a very low yield for the airline. Moreover, most of these people were likely to travel during their holidays to visit a friend or relative "on the other side of the Pond", especially during the annual summer holiday peak period in July and August. This made it extremely challenging for the company to achieve the high load factors it needed to be profitable outside of this period, particularly during the lean winter months. The firm's exclusive reliance on carrying huge volumes of transatlantic discount air travellers whose travel patterns were highly seasonal furthermore deprived it of the opportunity to counter-cyclically cross-subsidise less profitable discount travellers with far more profitable premium passengers during the off-peak season. This would have helped stablise seasonally fluctuating load factors throughout the year, thereby stabilising revenues as well.

[edit] The beginning of the end

The beginning of the end for Laker came when Pan Am, one of its main transatlantic competitors, decided in October 1981 to drop its lowest economy class fares on all routes where it was in direct competition with Laker's "Skytrain" by 66%. Laker retaliated by introducing a cut-price premium cabin branded "Regency Class".

Following the end of the 1981/2 Christmas/New Year peak travel period, then wholly state-owned British Airways and TWA, Laker's other two main transatlantic competitors, decided to follow suit by dropping their fares by a similar amount.

All this came against the backdrop of a major recession on both sides of the Atlantic at a time when there was insufficient traffic to support four major airlines competing with each other across the North Atlantic (the so-called "dead season" between January and March).

[edit] The final blow

The final blow came when British Caledonian (BCal), a fellow wholly privately owned, Independent British airline and Laker's next-door neighbour at Gatwick, found out about a rescue package that McDonnell Douglas and General Electric, the suppliers of DC10 widebodied aircraft and its CF6 engines to both Laker as well as BCal, had begun putting together. (GECAS, a unit of GE, also happened to be the lessor of some of the widebodied aircraft in Laker's fleet.) BCal drafted a letter that was circulated to all other operators of the DC10/CF6 airframe/engine combination in Europe. This letter stated that BCal on behalf of all DC10/CF6 operators in Europe warned McDonnell Douglas and GE that in the event of the proposed rescue package for Laker being approved, none of these airlines would do any future business with those companies. This was sufficient to ensure that McDonnell Douglas and GE decided not to go ahead with their rescue package for Laker and that the plug was finally pulled on the airline during the early morning of February 4, 1982. Laker Airways collapsed with outstanding debts of £270m making it the biggest corporate failure in Britain at the time.

Sir Freddie sued British Airways, BCal, Pan Am, TWA, Lufthansa, Air France and other major scheduled airlines for conspiracy to put his airline out of business by predatory pricing.

They eventually settled out of court for US$50m, which enabled Laker Airways to pay off its debts. (This was exclusive of British Airways, which had reached a separate out-of-court agreement with Sir Freddie for £8m.)

[edit] Lasting impact on the industry

While Laker Airways ultimately failed, not least because certain aspects of the business model the airline chose to adopt were ahead of its time - especially in relation to then revolutionary "Skytrain" low-fares concept, parts of that model, like low fares and buying meals on board the aircraft for instance, are becoming more popular in the 21st century. Similarly, the idea of buying tickets on the day of travel has been adopted by airline shuttles plying the United States' Northeast corridor and on the Eastern shores of Australia.

However, Laker Airways' most important legacy was that its pioneering low-fare scheduled services across the Atlantic helped pave the way for today's low-cost, "no frills" airlines, such as easyJet and Ryanair, by setting in motion an irreversible trend of liberating the air transport industry from the "regulatory straightjacket" IATA had imposed on it for decades in collusion with governments. These governments invariably were the sole or majority owners of most of IATA's member airlines whose interests they sought to protect against unwanted competition from wholly privately owned, Independent airlines. This was arguably Laker Airways' greatest contribution to its industry's future development, long after the airline departed the scene.

The "ups" and "downs" Sir Freddie Laker had experienced with Laker Airways throughout the airline's 16-year history generally - and with the "Skytrain" operation during its five-year existence in particular - also became both an inspiration as well as a "cautionary tale" for Sir Richard Branson and the senior executives at Virgin Atlantic Airways, which served as illustrative lessons when they set about defining that carrier's long-term strategy.^{[citation needed]}

[edit] Incidents and accidents

Laker Airways had an unblemished safety record during its 16-year existence. There never was a serious incident or accident involving a Laker Airways aircraft. In fact, not a single passenger's life was harmed as a result of good airmanship and an high safety consciousness throughout the organisation, which made the airline stand out from most of its rivals.

This was one of the company's greatest contributions to British commercial aviation.

[edit] Trivia

• The colours used in Laker Airways' livery, i.e. black, red and white, were Sir Freddie Laker's racing colours.
• "Panamania" and "Teenie Weenie" were the nicknames Sir Freddie Laker gave Pan Am and TWA respectively, the two US-based rivals of his transatlantic "Skytrain" operation.
• A Laker Airways McDonnell Douglas DC-10 series 10 widebodied aircraft was one of four widebodies that were specially flown in for the inauguration of the then new terminal building at Berlin's Tegel Airport on November 1, 1974. (A British Airways Lockheed L-1011 "Tristar" 1, a Pan Am Boeing 747-100 and an Air France Airbus A300 B2 were the other widebodies specially flown in on that day to mark this occasion.)
• Following Laker Airways' demise at the end of the first week of February in 1982, a number of aircraft the airline had operated at that time were quickly re-allocated to other operators. These included two McDonnell Douglas DC-10-10 widebodies that joined the fleet of British Caledonian Charter, BCal's charter division, four BAC One-Eleven 300 narrowbodies that replaced the seven One-Eleven 200s BCal had inherited from British United Airways at the time of its formation and three Airbus A300 B4 widebodies that were placed with Air India.
• Laker Airways (Bahamas) was a US-registered airline based in the Bahamas to which Sir Freddie Laker lent his name and operational expertise. The airline was established in 1992 with financial assistance from Oscar Wyatt, a Texas oilman and business partner of Sir Freddie Laker. The initial fleet comprised two Boeing 727-200 "Advanced" narrowbodied jet aircraft. The company subsequently leased 2 McDonnell Douglas DC-10-30 widebodied jet and in 1996 commenced a daily service linking Fort Lauderdale in Florida with London Gatwick, Manchester and Glasgow Prestwick. Laker Airways (Bahamas) stopped operating in 2005 when the firm was wound up.

[edit] Notes

[edit] References

• Eglin, Roger, and Ritchie, Berry (1980). Fly me, I'm Freddie. Weidenfeld and Nicolson. ISBN 0-2977-7746-7. 
• Airliner World - Britain's Carferry Airlines, January 2004. Key Publishing.  (Airliner World online)
• Airliner World - The Laker Airways Skytrain, July 2005. Key Publishing.  (Airliner World online)
• Aviation News - UK and Irish airlines since 1945 (Part 50 [Laker Airways], Vol. 66, No. 6, June 2004. HPC Publishing.  (Aviation News online)
• Branson, Richard (2006 [2nd reprint]). Losing my Virginity - The Autobiography. Virgin Books Ltd.. ISBN 0-7535-1020-0. 
• Calder, Simon (2002). No Frills - The Truth behind the Low-cost Revolution in the Skies. Virgin Books. ISBN 1-8522-7932-X. 
• Simons, Graham M. (1999). It was nice to fly with friends! The story of Air Europe. GMS Enterprises. ISBN 1-8703-8469-5. 
• Thomson, Adam (1999). High Risk: The Politics of the Air. Sidgwick and Jackson. ISBN 0-2839-9599-8. 
• Berlin Airport Company - German language edition of February 1975 Monthly Timetable Booklet for Berlin Tempelhof and Berlin Tegel Airports (incl. a summary of the 1974 annual report), 1975. Berlin Airport Company. 

[edit] External links

• www.lakervirtual.com - A virtual airline for MS FS2004 website dedicated to Laker Airways.