We are be­ing of­fered more choice than ever be­fore on long- haul flights. But where will it end?

Business Traveller - - AIRLINES -

Long-haul low cost is here to stay, al­though not in the way you might imag­ine.

The ad­vent of Nor­we­gian’s long-haul transat­lantic flights from the UK in 2014 shook up the avi­a­tion in­dus­try, and whether Nor­we­gian con­tin­ues to be in­de­pen­dent or is bought by an op­er­a­tor such as IAG, the ef­fect is clear – long-haul low cost is, well, here for the long haul.

Nor­we­gian at­tracts pas­sen­gers be­cause of its low fares. It can of­fer such low prices be­cause it has adopted the low-cost car­rier (LCC) model for long haul. With­out go­ing into the nitty-gritty of what makes an LCC so ef­fi­cient, one way of achiev­ing a low ticket price is to strip out the ex­tras and then get pas­sen­gers to pay for them. Whether it’s seat se­lec­tion, check­ing-in a bag, or buy­ing some­thing to eat and drink on-board, Nor­we­gian of­fers th­ese as ex­tras to that head­line price that tempted you. And the ap­proach is prov­ing pop­u­lar.

This suc­cess must have come as a bit of a shock. For years, when the bosses of ex­ist­ing air­lines were asked whether they thought long-haul low cost was a fea­si­ble op­tion, their an­swer was al­ways the same: peo­ple might be pre­pared to pay for their food on a short trip, but they ex­pected a meal to be pro­vided on long haul. The same for seat se­lec­tion, checked bags and a level of com­fort. The con­sen­sus was clear – low cost worked short haul, but wouldn’t work long haul. Then Nor­we­gian con­sis­tently achieved load fac­tors of more than 80 per cent, and con­tin­ued to ex­pand – this year alone it will take de­liv­ery of a fur­ther 11 Boe­ing 787-9 Dream­lin­ers, as well as 12 Boe­ing 737 MAX 8s and two Boe­ing 737-800s, tak­ing the av­er­age age of the fleet to 3.6 years. And the legacy air­lines have had to change their tune.

A game changer

Take British Air­ways. At first it down­played the threat. The year be­fore the long-haul op­er­a­tion started, Wil­lie Walsh, chief of BA’s own­ing com­pany, IAG, said that Nor­we­gian’s en­try was “not sig­nif­i­cant”. Fast for­ward three years and it was sig­nif­i­cant enough for BA to launch di­rect route com­pe­ti­tion against Nor­we­gian with flights from Lon­don Gatwick to Fort Laud­erdale and to Oak­land; two desti­na­tions it had ig­nored un­til Nor­we­gian started fly­ing to them. Then IAG an­nounced its own low-cost air­line – Level – which would com­mence long-haul low-cost flights out of Barcelona, tra­di­tion­ally an un­der­served air­port, to Los An­ge­les, Oak­land In­ter­na­tional, Punta Cana and Buenos Aires, and th­ese flights have, ap­par­ently, done well. Fi­nally, IAG has made a num­ber of takeover bids for Nor­we­gian, the fi­nal re­sult of which we were still wait­ing for at the time of go­ing to press. The real ef­fect Nor­we­gian has had is else­where, how­ever. It has demon­strated to other air­lines that in search of a low price we are pre­pared to buy a flight-only fare, and then pay for what we ac­tu­ally want on top via add-ons – what the air­lines call an­cil­lary rev­enue. Not sur­pris­ingly, they are jump­ing on this band­wagon.

Lufthansa Group has an­nounced new transat­lantic hand-bag­gage only (HBO) fares this sum­mer, along with its part­ners Swiss, Brus­sels Air­lines and Aus­trian Air­lines. As you’d ex­pect, it’s all about choice, or as Lufthansa puts it, the new fares will be “the least ex­pen­sive op­tion for price­con­scious pas­sen­gers only trav­el­ling with carry-on lug­gage and who do not re­quire any ticket flex­i­bil­ity”.

Al­i­talia, Delta and Air France-KLM all of­fer var­i­ous ver­sions of a “light” fare (HBO), while British Air­ways has in­tro­duced a new “Ba­sic Econ­omy” HBO fare, which in­cludes in-flight meals, two-pieces of hand bag­gage and the use of Avios (the cur­rency of its loy­alty pro­gramme) as part pay­ment.

IAG’s Aer Lin­gus, mean­while, is clear that as a re­sult of com­pet­ing with Ryanair for two decades and nearly go­ing bank­rupt in the process, it is al­ready very well placed to com­pete. De­clan Kear­ney, former di­rec­tor of com­mu­ni­ca­tions at Aer Lin­gus, said in April that the air­line saw it­self not as low-cost but as “value”. It has of­fered HBO fares – what it calls a “Saver Fare” – since 2017.

“As far as the low-cost com­pe­ti­tion goes, we have long ex­pe­ri­ence of this,” Kear­ney said. “Look back to 2001 and we nearly went bank­rupt, and our re­sponse was to be­come a low fares car­rier. We ploughed that fur­row, but we could see that we were also leav­ing money on the ta­ble, since we had a stripped down short haul and a long haul with a busi­ness cabin with bells and whis­tles. So, the model that evolved is that we are com­pet­i­tive on pric­ing. [Nor­we­gian] might be €99 each way [transat­lantic] and we are €159, but we would say that on a seven-and-a-half-hour flight, the ex­tra £50 rep­re­sents value for money. We think that when you’re trav­el­ling the At­lantic in the mid­dle of the night and you want a blan­ket and some­one tries to charge you, it leaves a bad taste.” Vir­gin At­lantic, mean­while, has in­tro­duced three forms of econ­omy, one of which is a HBO fare (see the ta­ble on page 50-51).

Pil­ing on the pounds

Of course, whether or not you choose the least ex­pen­sive fare, the wide­spread adop­tion of the prac­tice has a num­ber

One way of achiev­ing a low ticket price is to strip out the ex­tras and then get pas­sen­gers to pay for them

of im­pli­ca­tions. The fact that all the air­lines have so quickly switched to this model is be­cause of the power of the in­ter­net. When we search for a flight, the metasearch en­gines trawl the in­ter­net to find the cheap­est price and HBO fares rank higher in the search be­cause cheaper. When you click through to the air­line’s own web­site to find this fare, only then do you dis­cover you will have to pay ex­tra to check-in your bags or or­der a hot meal, but the bar­gain price has done its job and you are keen to book any­way.

For the air­line, ev­ery­thing from this point on­wards is a bonus. You are prob­a­bly al­ready go­ing to pay ex­tra for your bag, so while you are do­ing so, is there any­thing else they can sell you? Seat se­lec­tion is some­thing most cheap tick­ets now of­fer for an ex­tra charge – those exit rows, bulk­head seats and sim­ply the rows at the front or at the sides in cer­tain cab­ins that of­fer more com­fort, or in some cases, even ex­tra legroom.

Then there is the prospect of pay­ing for a bet­ter meal in econ­omy – British Air­ways has been of­fer­ing this op­tion since 2015 (see a re­view of it on our web­site, busi­nesstrav­eller. com). BA’s new Ba­sic Econ­omy (HBO) fare does not al­low seat se­lec­tion, but you still get in-flight meals, in-flight en­ter­tain­ment (IFE), head­phones and a blan­ket. In con­trast, new low-cost air­lines such as Primera and Level as­sume that pas­sen­gers will hap­pily bring their own blan­ket (or do with­out), al­ready have an iPad for in-flight en­ter­tain­ment, and would pre­fer to pur­chase some­thing from a menu rather than hav­ing the ex­ist­ing econ­omy food placed in front of them. And how long will it be be­fore the HBO fare – or per­haps any of the fares, even the more ex­pen­sive ones – also of­fers the op­tion of wifi at a re­duced rate if pre-bought, or of buy­ing premium en­ter­tain­ment over and above that of­fered on the IFE sys­tem? All of which will be great, so long as it doesn’t lead to a strip­ping out of the ex­ist­ing pack­age.

Chang­ing tac­tics

Iron­i­cally, Nor­we­gian, the air­line that started this rev­o­lu­tion, at least this time (there was also Fred­die Laker – see box right), is re­al­is­ing that al­though peo­ple love low prices, they also en­joy com­fort. Nor­we­gian first an­nounced its long-haul low-cost fares in 2014. Fast for­ward to 2018, and it’s clear that it has had more suc­cess than it imag­ined in fill­ing its premium cabin, and that is where it makes the most money. As a re­sult, new de­liv­er­ies of its B787-9 Dream­lin­ers have a larger premium cabin – 56 seats as op­posed to 35. (You can

read a re­view of a premium flight on page 76.) Nor­we­gian also needs a to at­tract busi­ness trav­ellers, who are more likely to pay for this com­fort, and so it is in­creas­ing the fre­quen­cies on routes such as Lon­don Gatwick to New York, where a third daily flight will start from Oc­to­ber 2018 us­ing th­ese newly con­fig­ured air­craft. Just as the other air­lines bor­row Nor­we­gian’s low-cost tac­tics, Nor­we­gian is try­ing to make some money by fly­ing more peo­ple in premium. It’s sim­i­lar to what has hap­pened short haul with Easyjet, as it has in­creased its fo­cus on busi­ness peo­ple who travel fre­quently, with great suc­cess.

For those of you read­ing this in premium econ­omy or busi­ness class and think­ing th­ese devel­op­ments won’t af­fect you, think again. Once air­lines get us used to pay­ing for “choice”, it will come into ev­ery class of cabin. If you could lower the price of your premium ticket by, say, not hav­ing the meal you al­ways com­plain about, and in­stead have the op­tion of choos­ing the meal you want, wouldn’t you be tempted? The tech­nol­ogy is al­ready there to do so, even when you are on-board. IAG’s Level air­line has launched a new “Pair and Pay” mo­bile pay­ment op­tion, al­low­ing pas­sen­gers to pur­chase in-flight ser­vices us­ing their per­sonal de­vices. The

tech­nol­ogy en­ables cus­tomers to con­nect de­vices to their seat-back screen, and pay for el­e­ments in­clud­ing food, drinks, wifi, amenity kits and duty-free prod­ucts. Level is plan­ning to use the tech­nol­ogy to al­low for the pay­ment of movies, TV shows and mu­sic.

So will all the air­lines fol­low suit? Not ac­cord­ing to Ak­bar Al Baker, chief ex­ec­u­tive of Qatar Air­ways Group and also a ma­jor share­holder in IAG. I asked him if Qatar Air­ways would start charg­ing for exit rows in econ­omy or for food.

“We don’t want to do this,” he said. “It be­comes too com­plex to ad­min­is­ter all th­ese dif­fer­ent charges. British Air­ways has to do it be­cause of the com­pe­ti­tion. I feel that there will al­ways be peo­ple who want to travel on full-ser­vice car­ri­ers. When you start pay­ing for ev­ery­thing on a low-cost car­rier, it is not a very big dif­fer­ence from what you will get in econ­omy on a long-haul air­craft.”

What Al Baker means by this is that if you bought the LCC fare and then added in a cabin bag, the meals and the rest, it would, in fact, end up cost­ing a sim­i­lar amount to an econ­omy ticket with a legacy air­line.

“There is a per­cep­tion that it is cheap, but when you buy some­thing and then keep pay­ing more for it, some peo­ple don’t like it,” Al Baker added. “Many think go­ing on an LCC is good value for money. Well, maybe on short haul, but on long haul, if you eat two meals you have al­ready paid the price dif­fer­ence to a full-ser­vice air­line.” He may be right. We will see.

Once air­lines get us used to pay­ing for “choice”, it will come into ev­ery class of cabin

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