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MAY 8, 2006
GLOBAL BUSINESS

A Closer Continent
How the explosion in bargain Euro-fares is breaking down borders and creating a new class of commuters

When Kurt Wilson's pals told him they were throwing him a bachelor party in Vilnius, Lithuania, back in 2002, the British entrepreneur was less than thrilled. Aside from cheap beer, what could this grim former Soviet bloc city offer? Plenty, as it turned out. Wilson, now 32, fell so in love with Vilnius, with its friendly people and beautiful medieval old town, that he has since made it his second home.


A Brit commuting to Lithuania? A few years ago, such an idea would have been unthinkable. Now, thanks to airfare as low as $100 round-trip on Ryanair (RYAAY ) or its local competitor, Air Baltic, Wilson and his wife travel between London and Vilnius at least once a month. The couple owns two apartments in Vilnius. And Wilson, impressed with the skilled and inexpensive local workforce, opened a local office of Advansys, his Reading-based software development company. "When I first came here, my friends thought I was mad," he says. "Low-cost airlines are opening up places that used to be beyond most people's comfort zones."

Ryanair, easyJet, and nearly 40 other low-cost airlines across Europe are accomplishing what the politicians in the expanding European Union couldn't. Not until the discount airlines came on strong did millions of Europeans start to cross borders en masse for business and pleasure. Airlines last year logged more than 420 million passengers on intra-European flights, an increase of some 40% from five years ago. In the process, they've played a major role breaking down cultural barriers, revitalizing local economies, and opening up new business opportunities. "Bureaucrats in Brussels have been blathering on about European unity for ages," says Michael O'Leary, CEO of Dublin-based Ryanair. "But low-cost airlines are at the forefront of delivering it."

Jetting around Europe used to be a luxury. Now it's possible to crisscross the region for as little as $30 round-trip -- less than the fare on a taxi ride to the local airport. The British pop over to Budapest for budget root canals and cut-price nip-and-tucks. Irish property speculators fly to Estonia to bag a bargain. Latvian construction workers head to Dublin to cash in on that city's construction boom, while Polish doctors and nurses jet over to Britain to fill hospital shortages. "I've been to places I've never even heard of just because it's so cheap," says Dave Marsden, a 38-year-old dispatch manager at a Manchester printing company who recently spent a weekend in Santiago de Compostela in Spain.

The explosion in low-cost flights has given rise to a new group of Euro-commuters. For six years, Herman Bynke, a 34-year-old Swede who runs London-based Hela Ltd., a maker of ergonomic computer accessories, endured the stress and high cost of living in London. But when Ryanair began offering direct flights from London to Gothenburg, Bynke decided it was time to move back home. Now for $85 or less round-trip, he makes the three-hour door-to-door trip from his home in Sweden to his office in London biweekly. "I can spend more time with my family, save more money, and have a better quality of life," he says.

The trend originated in 1997 when Brussels deregulated the aviation industry, enabling discounters to get airborne. Ryanair was one of the first. The Irish carrier launched service from Britain to the Continent in 1997, keeping fares low by flying to smaller, out-of-the-way airports, a model pioneered by Southwest Airlines Co. (LUV ) in the U.S.

Today, Ryanair is Europe's leading discounter, flying 334 routes to 23 countries. The company is on course to log a 6% increase in pretax profit this year, to $409 million, on revenues of $2.1 billion, according to estimates from Switzerland's UBS (UBS ). O'Leary's fleet of 105 Boeing 737s will ferry some 42 million passengers this year, more than British Airways (BAB ). To fight back, BA, Air France (AFK ), Lufthansa (DLAKY ), and the other flag carriers have been slashing their own fares. The fare wars could set the stage for an industrywide European shakeout, but for now consumers are the big winners. In Sweden, for instance, the average international airfare fell from $160 in 2001 to $110 last year.

TO SLOVAKIA, TO SLOVENIA 
The resulting surge in European travel is turning once-sleepy backwaters into boomtowns. Bratislava's airport used to be a grim, deserted place. But that was before Slovakian upstart SkyEurope turned it into its hub four years ago. Traffic has more than quadrupled since 2002, from 300,000 passengers a year to more than 1.3 million, as easyJet PLC and Ryanair have followed SkyEurope's lead and added Bratislava to their routes. With the terminal "completely full," says a spokeswoman, authorities are preparing to overhaul the airport.

To cater to Europe's new commuters, savvy entrepreneurs are setting up businesses that offer every service imaginable. Frances Sargent, a 56 year-old Briton, discovered Slovenia after vacationing there a decade ago. Now she and her family spend weekends at their second home, in the Julian Alps, and she runs Slovenian Properties, a company that helps Slovenian real estate agents market their properties to English-speaking buyers. Since low-cost flights to Slovenia started two years ago, values in areas such as the tiny lakeside town of Bled have risen 30%. Sargent's own property has doubled in value since she bought it 18 months ago. "I realized that Slovenes hadn't anticipated the interest from British buyers," she says.

Thanks to low fares, Britons are even flocking to dentists in Budapest. Hungarian Dental Travel Ltd., a one-year-old London-based outfit, has built a brisk business referring travelers to English-speaking dentists in Hungary. "In Britain the average cost of an implant is $3,500, but in Hungary you can get it done for $1,000," says Managing Director Christopher Hall.

British consumers aren't just stopping in Hungary for their teeth -- they're also headed to the Czech Republic for the rest of their bodies. Tamara Zdinakova, 28, runs Beauty in Prague, a Web site that refers English-speaking patients to plastic surgeons in the Czech Republic, where prices are a fraction of those in the West. British builder Tony Barham and his wife, Maureen, both 55, flew easyJet to Prague for a 17-day holiday -- and Maureen's face-lift. "It should be called Plastic Surgery Airline," Tony says. At $3,700, they'll pay one-quarter what they would for the same procedure back in Britain. Zdinakova says the business wouldn't exist without discount airlines. "It just wipes out the barriers," she says of the cheap airlines. "Prague has not been this close ever before."

By all accounts, low-cost carriers will only keep shrinking Europe. Cheap air travel has "changed my life for the better," says Peter Allegretti, a 44-year-old Italian hypnotherapist who regularly commutes from his home in Barcelona to work in London. "National boundaries are disappearing." Now, that sounds like a true European Union.
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By Kerry Capell, with Katerina Zachovalova in Prague, Maha Aziz in London, and Andrea Zammert in Frankfurt
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