OP-ED: Transatlantic Low Cost / Long Haul

The battle for low cost transatlantic traffic has heated up in recent years, and especially this year, as European legacy carriers are now getting in on the action. Notably, some existing large US & European low cost (LCC) short / medium haul carriers are not - such as Southwest & Ryanair & EasyJet respectively. They are focused on their core business model. On the contrary, JetBlue is widely regarded to be planning a long haul service using A321LRs, with an announcement yet to be made.

There's no doubt that there is demand for lower cost long haul carriers - there always has been - but long term success and profitability has been elusive thus far.

Laker Airways (UK), in the 70s, was the first airline to seriously have a go at this concept, with it's Skytrain product. Low fares and little frills, flexible ticketing (even buy on board tickets - not an option in today's security environment) were highly successful with budget conscious travelers. The concept however was not well received by incumbent legacy carriers however, hiding behind archaic bilateral rules that favored business as usual. That is, a regulated environment from route authorities to fare basis rules. Laker's history and demise is well known, but the concept has persisted, even if it has taken some 40 years for a semblance of reality to occur.

This is partly because the right equipment for low cost carriers has simply not existed until recent times, along with regulatory burdens that made such a business unsustainable and / or commercially impracticable.

Norwegian trail blazed and commenced a low cost transatlantic business in 2013, utilizing 787-8s, and later 787-9s. This has recently been supplemented by 737 MAX 8s on thin EU to East Coast destinations, flying to less utilized airports.

The apparent success, or threat, of Norwegian has spurred a variety of would be competitors, notably from EU legacy carriers, keen to both take a slice of this 'new business', as well as expand their 'brand portfolio'.

Several EU legacy carriers have already created low cost short haul subsidiaries, or created 'basic economy' mainline products that offer un-bundled products that offer a base airfare, with the customer paying for everything else, from food & beverages, seat selection, checked baggage etc. The US legacy three (AA/DL/UA) have also used the 'basic economy' fare as a means of countering the perceived threat to their business from Norwegian and others.

To some extent, mixing basic service on board a premium airline has had mixed results, due to the confusing message it transmits to consumers. Stand alone subsidiaries, strongly branded and marketed directly to budget minded clientele are likely to have a far greater prospect of success.

The powerhouse that IAG (British Airways, Aer Lingus, Iberia, Iberia Express, Vueling) represents, has created LEVEL, based in Barcelona, with Iberia providing the crew, AOC and all technical aspects - for now. Operations commenced last month to Los Angeles, Oakland, Buenos Aires and Punta Cana. IAG has stated that LEVEL will ultimately become a stand alone carrier with it's own AOC. Initial results are said to be highly positive, with LEVEL performing beyond expectations at this (early) point. The airline has two new A330-200s, and has recently ordered three more for delivery in 2018. Prospect: Good (based on strong branding, management and financial backing).

Air France is also jumping on this bandwagon with it's planned new airline Joon, due to commence service this fall. Joon is planning a wider variety of leisure services encompassing short, medium and long haul services with narrow and wide body aircraft (A320/A340/A350). Air France's partner KLM has recently announced it has no intention to offer buy on board (BOB) products or create a low cost long haul leisure airline. Prospect: Poor (based on Air France's poor labor relations history, and a confused focus in offering short, medium and long haul services).

Air Berlin inherited through acquisition a long haul operation when it purchased LTU. This has steadily expanded, with a current fleet of 17 A330-200s. The business is more of a hybrid than the newer entrants, and to some extent the turmoil over it's unprofitable short haul  business is overshadowing it's long haul business success. Prospect: Poor (as a stand alone independent - probable merger with Eurowings, via the Lufthansa group).

Eurowings, also from Germany, and a subsidiary of Lufthansa, has lofty ambitions in both short and long haul low cost services. Long haul at EWG is in it's infancy, but growing, with six A330-200s currently in service. Prospect: Good (based on Lufthansa's backing, management and focus).

WOW Air (Iceland) has rapidly created a niche in offering ultra low cost transatlantic fares, but with it's service offered via the more traditional hub model, through Reykjavik. The airline operates both A321s and A330s across the atlantic. Prospect: Medium (operationally the hub concept has proved challenging with flight delays being too common).

Primera Air (Iceland / Denmark) has recently announced plans to operate transatlantic service from Birmingham, London (STN), and Paris (CDG) to Newark and Boston with Airbus A321 NEOs. (United recently announced the cancellation of 757 operated BHX-EWR service after some 19 years of daily round trips, citing a lack of demand). Prospect: Medium (as untested, and a major departure from Primera's existing European vacation business).

Ryanair (Europe's low cost short haul carrier)...has dallied with the prospect of TATL service for some time (like a decade), but has not stepped up, and instead has started to develop interline services with existing long haul operators, such as Norwegian. Prospect: will likely not enter TATL market, and remain focused on it's existing short to medium haul business. EasyJet has similarly made no known plans to commence long haul flying.

Which brings us to Norwegian...the prime driver of the long haul low cost transatlantic business in recent years. It's rapid expansion with expensive new 787s, and more recently 737 MAX 8s has seriously burdened the airline with capital expenses. In addition, it's costs are also rising rapidly, some 45% higher this year than 2016. This is not sustainable in the long term without structural changes. A further potential distraction is Norwegian's plan to become a quasi leasing company with it's yet to be delivered A320s...not a plan likely to succeed in a highly competitive leasing market, with major experienced players focused solely on that business sector. Prospect: Poor - for all of the above reasons, unless substantial changes are made, with a more focused strategy. [Sir Freddie Laker, featured on Norwegian's first 737 MAX 8]

The arrival of Airbus's forthcoming A321LR (the 737 MAX is not a true transatlantic aircraft) will very likely add to the fragmentation and growth of the transatlantic point to point market, including hub to secondary cities by majors, and secondary to secondary cities by new and existing LCC entrants. Narrow bodies are far less capital intensive to acquire or lease, more flexible to reconfigure and remarket, and cost far less to operate than wide bodies. There is also less operational risk in filling smaller cabins. Prospect Overall: Good for the long haul low cost transatlantic market to expand and innovate with a wider selection of routes and competing carriers.

Robert Grundy
JetTrak (by Seven Seas Aviation)

[If readers would like to contribute an op-ed article for JetTrak, please contact me via e-mail: rg7cavn@gmail.com]