Air Europe was a wholly privately-owned and independent British airline, established in 1978 under the working title Inter European Airways. It adopted the Air Europe name in the following year. two former Dan-Air executives
Cossey presented the plan forged with O'Regan and Snudden. Goodman agreed to support it as an equity holder. This was the point at which Air Europe was incorporated; however, Snudden decided to join Monarch Airlines. At the time, this consisted of serving spam salad on all flights out and sandwiches back. This seemed to be a low-cost way of minimal catering on inclusive tours but was labour-intensive especially when taking into account that these meals needed to be prepared freshly several hours before departure. Caterers were charging for fresh preparation and seasonal produce. However, the salad leaves tended to wilt and the sandwiches acquired quickly staled due to the dry atmosphere inside an aircraft cabin. As a result, many passengers disliked the food.
A typical example of Dan-Air's opportunistic diversification into activities was its long-term commitment to start a comprehensive network of regional scheduled services linking secondary airports across Europe, many of which operated on a seasonal basis only. This took up massive resources – financial and managerial. It never became a financial success.
Cossey and O'Regan therefore honed in on low-risk activities, specifically few but core activities. underwriting greatly the Japanese financiers' outstanding loans (equal to fair depreciated resale values).
Air Europe's first commercial air service was on 4 May 1979, with a brand-new, 130-seat Boeing 737-2S3 Advanced, named Adam (registration G-BMHG) flying Gatwick to Palma de Mallorca with a full passenger load, flight KS 1004. Dan-Air was able to do this as these predominantly older, second-hand aircraft had much lower acquisition costs and were already largely or fully depreciated at the time they entered its fleet.
Air Europe therefore sought business partners whose seasonality was counter-cyclical to its own so that its surplus aircraft could be leased out to other operators in winter and those operators' surplus capacity could be leased in for the busy summer period. Air Europe agreed an aircraft lease-swap with Air Florida, which commenced at the start of the 1980/81 winter season. Under this deal, Air Europe leased three of its aircraft to Air Florida to cover that airline's peak season, which occurred in winter. In return, Air Florida leased two of its aircraft to Air Europe to cover the UK airline's summer peak period. The number of aircraft Air Europe leased from Air Florida during the summer months subsequently increased to three.
Although this arrangement initially worked to both airlines' satisfaction, Air Europe decided to terminate it at the end of the 1982/83 winter season due to Air Florida's growing financial problems such as paying its rent on time. Further not all aircraft returned to the UK on time along with the aircraft Air Florida was contractually obliged to supply from its own fleet at the start of the UK carrier's summer season. as well as in indirect competition with British Airways' and Pan Am's services from Heathrow. The service was to commence at a frequency of five weekly return flights in summer and four weekly round-trips in winter. Air Europe proposed operating the service either with a McDonnell-Douglas DC-10 30 series widebodied trijet or a Rolls-Royce RB211-powered Boeing 747-200B. Air Europe had already reserved delivery positions with both manufacturers. In support of its application, the airline stressed that any spare capacity would be filled with its tour operator affiliates' customers. It hoped that this would convince the CAA of the proposed operation's viability on a year-round basis, especially during off-peak periods.
In the event, the CAA rejected Air Europe's application. It argued that the airline was still in its infancy as this was only its second year of operation and, therefore, lacked the expertise to take on three competitors on a major, intercontinental long-haul scheduled service route.
Launching low-frequency services on leisure routes
Air Europe's first successful scheduled route launch occurred on 2 May 1985. On that day, the airline launched a four-times weekly scheduled service between London Gatwick and Palma de Mallorca. This was followed by further scheduled route launches between Gatwick and Gibraltar, as well as Manchester and Gibraltar in November 1985 and November 1986, respectively.
These route launches were part of Air Europe's initial scheduled service strategy to operate low-frequency services on selected leisure routes to destinations already served by Air Europe's charter operation. On 29 October 1989, ILG fully integrated Guernsey Airlines into Air Europe Express.
At the end of a detailed performance evaluation of an updated, re-engined, Rolls-Royce Tay-powered version of the original BAC One-Eleven 500 featuring a 1990s style glass cockpit, the BAe 146-300 and the Fokker F100, Air Europe decided to place an order for eleven RR Tay-powered F100s, including an option on a further eleven aircraft, in March 1988. Deliveries of the aircraft on firm order were to begin in late 1990. Air Europe primarily chose the F100 as its main scheduled aircraft to ply its business routes because it promised 25% lower trip costs than the 737-300/400. (It rejected both rival contenders because these had revealed serious range/payload shortcomings during the evaluation process.)
The airline intended to use these aircraft to operate a mix of long-haul charter and scheduled services, thereby helping sister company Intasun to reduce its dependence on third party suppliers to provide it with long-haul capacity.
Work on licence applications to launch new, long-haul scheduled routes from London Gatwick to New York City, the Caribbean, Australia and New Zealand to be operated with the new MD-11s commenced during the autumn of 1989. However, these never reached the hearing stage.
ILG's abortive attempts to take over British Caledonian Group
ILG launched its first takeover bid, which valued British Caledonian Group at £36 million, in May 1986. At the time Air Europe had ambitions of its own to become a major short-haul scheduled operator. Given a combined BA-BCal's superior financial strength, considerably lower borrowing costs and far greater economies of scale, Air Europe's management felt that it would be imprudent to launch these new routes if it had to compete with BA out of Heathrow and Gatwick as well. Therefore, its parent ILG had decided to make a counter bid, which it hoped would either kill off BA's proposal to take over BCal lock, stock and barrel or result in it being referred to the MMC.
To enhance its credibility as a serious contender, Air Europe's bid contained a detailed proposal to return BCal to profitability by way of a reorganisation. This proposal had been prepared by a retired BA head of route planning whom ILG had specifically hired for this purpose. The proposal itself entailed separating BCal into four discrete businesses, each of which would have had its own management who would have been accountable for the performance of their own business unit. The businesses into which BCal was to be split included a long-haul operation using the existing BCal brand, a short-haul operation to be merged into Air Europe's existing short-haul operation using the BCal brand to serve business routes and the Air Europe brand to serve leisure markets as well as an engineering and a ground handling unit. Many of the aircraft operated by Air Europe and Air Europe Express were impounded, leaving a large number of passengers stranded at airports. The Airlines of Europe conglomerate quickly unravelled, with Norway Airlines following its former UK-based parent into liquidation.
Hans Rudolf Wöhrl, NFD's founder and original majority shareholder, bought back the stake he had sold to ILG from the administrators, thereby saving NFD. Air Europa survived the collapse and successfully established itself as one of the leading charter and scheduled operators in Spain. Air Europe Italy became one of the leading independent Spanish airlines following ILG's failure. Most of the Spanish and Italian sister airlines' aircraft retained the UK carrier's livery for a few years.
Causes of collapse
The main causes leading to the collapse of ILG and its UK-based subsidiaries, including Air Europe and Air Europe Express, were:
- A major, unforeseen downturn in traffic as a result of the recessionary economic conditions in the UK.
- The looming Gulf War