Wednesday, June 7, 2017

Low-cost airlines shake up market for long haul flights



Low-cost, long-haul air travel has taken off across the Atlantic, shaking a club of major airlines meeting in Mexico this week and forcing established flag carriers to set up budget subsidiaries or lower fares.

Transatlantic routes are among the industry's most popular and profitable, and budget carriers are trying to grab a slice of that business by boosting capacity on them by 68 percent this summer, according to data from air travel intelligence company OAG.

A looming fare war has gained fresh momentum from lightweight new planes with fresh, appealing interiors that help to keep costs down.

Norwegian Air Shuttle and Icelandic rival Wow have grabbed headlines with fares as low as $69 and $55 this summer, although Wow's flights involve a stop in Reykjavik.

Legacy carriers are not idly standing by, and executives at the International Air Transport Association meeting in Cancun, Mexico, said in interviews they were confident their plans to offer low-cost long-haul flights would succeed.

"Disrupters such as Norwegian Air Shuttle and AirAsia X  have shaken up the airline market and forced scheduled operators to rethink their transatlantic strategies," Euromonitor travel project manager Nadejda Popova said.

Lufthansa's Eurowings budget carrier is in its second year of long-haul flying, while Air France is planning to launch a lower-cost long haul brand this fall in a project dubbed Boost.

"It confirms our decision that others are following," Lufthansa Chief Executive Carsten Spohr said, adding that the German carrier would not have invested in Eurowings without the potential for profit.

International Airlines Group, the holding company for British Airways, Iberia, Aer Lingus and Vueling, launched low-cost long-haul brand Level on Thursday with surprisingly strong ticket sales.

IAG CEO Willie Walsh said at the launch that Level would fly five planes next summer and expand to other European cities.

Level's hub is in Barcelona, where Norwegian will also launch U.S. flights this summer with two A330s.

British Airways is putting more seats on its 777 planes, moving to 10 abreast in economy.

"BA's seat cost will be lower than Norwegian's by this time next year," Malaysia Airlines CEO Peter Bellew predicted.

U.S. carriers, stung by previous efforts to set up low-cost units in the 1990s, have introduced new, no-frills fare classes that let passengers pay for extras while booking online.




PROFIT DOUBTS AND LAKER LEGACY

The 68 percent increase in low-cost transatlantic capacity equates to a 5 percent market share, up from 3 percent last year.

Aviation consultant John Strickland said he doubted whether low-cost long-haul can be profitable, especially on some less popular destinations.

He pointed out that even Michael O'Leary, CEO of the highly profitable European low-cost carrier Ryanair has held back because he said he could not get planes at the right price.

"On the North Atlantic you have volume markets where it can work. Asia can work, but the extent to which the model can be delivered at levels of sustainable profitability is far from clear," Strickland said.

Air France-KLM CEO Jean-Marc Janaillac said low-cost carriers would have a hard time on transatlantic routes unless they also offer an attractive business travel service.

"It's not just about the seats. It's whether you have the right frequencies, the air miles, the connections with other destinations," Janaillac said.

In September 1977, Freddie Laker challenged legacy carriers by offering cut-price Skytrain flights between London's Gatwick Airport and New York's John F. Kennedy International Airport. But it went bust in 1982 after established rivals cut fares and forced it out of the market.

Norwegian is pressing on anyway, shifting away from short-haul routes to focus on long-haul. It is deploying narrow body 737 Max planes on transatlantic routes and has converted some Airbus orders to larger A321neo planes that can fly longer routes.

In homage to Laker and in a pointed signal to established rivals, his portrait will adorn the tail fin of Norwegian's new 737 Max planes taking off this summer on transatlantic routes.

It is also in talks with Ryanair over the Irish carrier feeding its own short-haul customers to Norwegian's long-haul flights, which would help fill planes.

Younger travellers especially find the new budget carriers appealing.

Qubilah Huddleston, a 26-year-old graduate student from Baltimore, Maryland, in January flew Norwegian Air roundtrip from Boston to London for about $300.

"The first time I flew to Europe, I flew Delta, and I think I paid like $1,000," Huddleston said. "And I got way better service on Norwegian." 

Original article can be found here: http://www.reuters.com

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