Columns on long-haul lowcost airlines, and inventive in-room charges

Are long-haul low-cost airlines here to stay?

Long-haul low-cost carriers (LHLCCs) operate the airline business model of the moment. Some would argue we’ve been here before, with a nity charters (get a group together and travel cheaper). Today’s LHLCC airlines are pricing their fares low to steal tra c from incumbent carriers on existing routes; but more signi cantly, they are also stimulating new tra c and opening up new markets.

ey are being aided by a new generation of fuel-e cient aircra , such as the B787 Dreamliner or the A350, both of which carry fewer passengers than previous widebodied aircra . Less fuel consumption and fewer seats reduces risk when testing new markets. Two companies are taking the lead: Airasia X operating out of Malaysia in the Asian markets, and Norwegian in the European to US markets. Being popular and attractive to customers is one thing, achieving pro tability and long-term sustainability is another, however.

To date, Airasia X has delivered limited pro tability, while Norwegian turned in a signi cant loss for 2017. We are going to see more LHLCCs arrive on the scene, but I’d be surprised to see the level of success that’s been witnessed for short-haul LCCs. ere are many inbuilt challenges to delivering the pro t margins needed to pay for the new and e cient, yet expensive, aircra that airlines such as Norwegian have on order.

Using low prices to stimulate tra c results in more reliance on leisure customers, who can be easily tempted away by competitors. So LHLCCs are tackling this by o ering more lucrative premium seats with additional space, meals and added frills.

NEW STRATEGIES

e seasonality of passenger tra c is another challenge. In many markets, not even low fares will ll the aircra on a year-round basis, resulting in the need to nd other counterseasonal markets. Full service network carriers get over this by feeding high volumes of short-haul tra c onto their long-haul ights at their hubs. LHLCCs need their own feed. Around half of Airasia X’s passengers connect from Airasia short-haul ights. Outside of Scandinavia, where Norwegian has the density of short-haul schedules to do the same thing, it needs to nd other solutions. Ryanair would have made a good partner, but the two airlines have fallen out, so no deal there.

If this wasn’t enough of a challenge, there’s been a response from long-haul network carriers. When short-haul LCCs began to grow, existing airlines didn’t take the model seriously until it was too late. Lessons have been learned, and that mistake will not be repeated. Lu hansa has now set up a longhaul arm of its LCC Eurowings, and Air France KLM is dabbling with Joon, though exactly what these “new” airlines will achieve isn’t clear. Joon is evidently lower cost (than Air France), but not truly low cost, and is pitched at millennials; but some French millennials I spoke to recently said they didn’t understand what the airline was about.

IAG, on the other hand, has a multi-faceted response to the LHLCC phenomenon and is joining the party in earnest by using several of the airlines in its portfolio. Aer Lingus, a lean, mean ghting machine, is expanding its North Atlantic activity out of the Republic of Ireland with plenty of feed potential to and from the UK and Europe. It has also introduced cheaper economy fares with fewer frills – and it has scored where Norwegian failed, by reaching a feeder deal with Ryanair that’s to come into place later this year. is deal will boost its ability to ll seats on its long-haul

ights. British Airways is also introducing the no-frills economy fares, bringing densi ed Boeing 777s with ten-abreast economy seats to London Gatwick, but also including more higher-pro t premium economy seats. is will allow BA to deliver lower unit costs than Norwegian can on its B787s. IAG has also established its own LHLCC airline, Level, which has started services to North and South America from Barcelona and begins operations from Paris Orly in summer. Level can obtain feed from IAG stablemate Vueling at both airports and uses Airbus A330 aircra that consume more fuel, but are cheaper to buy or lease.

It’s going to be interesting to see how this plays out in the years ahead. ere are going to be winners and losers, and we could see some big shocks, but it looks like the LHLCC model is here to stay.

When short-haul LCCs began to grow, airlines didn’t take the model seriously until it was too late