Business Traveller (Middle East)
One way of achieving a low ticket price is to strip out the extras and then get passengers to pay for them
We are being offered more choice than ever before on long- haul flights. But where will it end?
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, checkingin 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 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 longhaul 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. 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 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.
Once airlines get us used to paying for “choice”, it will come into every class of cabin