Market For Long Haul Flights Shaken Up By Low-Cost Airlines

Established flag carriers have been forced to set up budget subsidiaries or lower fares and a club of major airlines meeting in Mexico this week were shaken by low-cost, long-haul air travel which has taken off across the Atlantic.

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

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

With fares as low as $69 and $55 this summer, Norwegian Air Shuttle and Icelandic rival Wow have grabbed headlines.

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

“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.

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

“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.

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

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

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

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

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

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

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

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

“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.

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

“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.

(Adapted from Reuters)

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