Sunday May 25, 05:46 AM
Spanish airlines feel pressure from expansion of fast train network
By Daniel Silva
MADRID (AFP) - Spanish airlines are facing growing pressure on their domestic routes from the expansion of the country's high-speed railway network, which the government says will be the world's most extensive by 2010.
State-owned railway operator Renfe opened a bullet train service between Madrid and Malaga (MLG.TO - news) on the Mediterranean coast in December and between the Spanish capital and Barcelona, Spain's second-largest city, two months later.
"We have the largest amount of high-speed rail under construction, with five times more than the next country, Japan, and in just two years we will have the most kilometres of high-speed in operation," Deputy Prime Minister Maria Teresa de la Vega said at the time.
The government plans to have 10,000 kilometres (6,200 miles) of high-speed railway track in place by 2020, meaning 90 percent of Spain's population will live less than 50 kilometres from a bullet train station.
Earlier this month Spanish flag carrier Iberia (Madrid: IBLA.MC - news) blamed the opening of the new links to Barcelona and Malaga for a 0.5 percentage point fall in its domestic load factor in the first quarter from the same time last year to 69.2 percent.
The decline came even though the airline had slashed capacity on its flights within Spain by 13 percent during the first three months of the year.
Iberia chairman Fernando Conte, who has called the competition posed by bullet trains "tremendous," said the carrier would push ahead with plans to reduce its capacity on domestic flights by 15 percent during the rest of 2008.
It plans to reduce capacity on its flights between Madrid and Barcelona, one of the world's busiest air routes, by up to 20 percent by using planes with smaller capacity but maintaining the number of daily flights on the route.
The airline's strategy is to gradually reduce its domestic flights, where it also faces stiff competition from low-cost airlines, and increase its long-haul flights, especially to Latin America.
Iberia is the market leader on flights between Europe and Latin America.
Other carriers are also struggling to compete with the fast-speed trains.
Spanair, the second-biggest Spanish airline, has reduced the number of its flights between Madrid and Malaga while loss-making low-cost airline Vueling canceled its summer connection between the two cities.
The high-speed AVE trains, which are fitted with video and music players and chairs that can swivel in the direction of travel, can make the 660-kilometre trip between Madrid and Barcelona in about two and a half hours.
Passengers say bullet trains have more roomier and comfortable seats than planes, faster check-in times and have the advantage of arriving and departing from downtown cores.
Business travellers also like the availability of mobile services and electrical outlets in their seats that allow them to work along the way.
"There is no question that high-speed rail attracts passengers who would otherwise fly," said Henry Harteveldt, travel industry analyst at Forrester Research (NASDAQ: FORR - news) , a San Francisco-based consultancy. "Taking the train is easier."
He predicted that airlines facing competition from bullet trains would focus their flights on those routes to serve passengers who want to fly beyond key hubs.
"For example, Iberia will operate its Barcelona-Madrid flights to serve passengers who are traveling beyond Madrid to other points in Europe, the Americas or Asia," he told AFP.
A study by Spain's Vigo University concluded that airlines would find it difficult to compete with trains for journeys that could be covered in up to three hours. Beyond that time, the plane continues to be the preferred option, it found.
Spain opened its first high-speed rail connection, linking Madrid and the southwestern city of Seville, in April 1992.
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