//Industry insights: Low-cost long haul

Industry insights: Low-cost long haul

Gary Noakes highlights the no-frills carriers mapping routes previously the preserve of premium airlines, creating industry-wide competition as they go

Last year, when British Airways launched flights to Oakland, 21 miles east of San Francisco, it did so because, in the words of the airline’s chief executive, Alex Cruz, it had learned there were destinations that it “had no idea people wanted to fly to”.

BA had followed budget long-haul carrier Norwegian, which pioneered the route from Gatwick in May 2016, by launching flights less than year later. However, BA will pull the plug on the route in October: Oakland is probably not BA territory – it already serves San Francisco proper and San Jose – and lack of demand persuaded BA that its Boeing 777 could be better used elsewhere.

It’s an example of how Norwegian, with its fleet of new Boeing 787s – which burn around one-third less fuel crossing the Atlantic than comparable types – has shaken up the market. So much so that, in April, BA’s parent company IAG bought a 4.61 per cent stake as a shoe-in; now, it says it will not retain its share unless it can acquire full control of the group. In March last year, IAG launched Level, its own low-cost carrier at Barcelona, another Norwegian hub. Air France followed this with long-haul budget brand Joon last December and Lufthansa is expanding offshoot Eurowings into long-haul.

If you want further proof of what budget long-haul brands are doing, BA now fits 10-abreast economy seating instead of nine across on its Gatwick 777s and many carriers offer ‘hand-bag-only’ fares. The traditional airline world is having to adapt.

I don’t think I’m ready to throw in the towel to the Norwegians of this world

Speaking at this year’s Farnborough Air Show, Calin Rovinescu, Air Canada president and chief executive said: “Even the carriers that have a higher legacy cost structure, that have a unionised workforce and pension arrangements can compete quite well. I don’t think I’m ready to throw in the towel to the Norwegians of this world. Low cost can be lower cost and you modify your product accordingly.”

Nevertheless, while Oakland might not be BA territory, destinations such as Denver, Austin and Buenos Aires, three former BA monopolies broken by Norwegian, are. Of course, while Norwegian is unlikely to entice as many business passengers as BA, it is attracting others previously deterred by high fares.

Norwegian may yet become part of the IAG stable, but other disrupters are out there. Iceland’s Wow Air has proved that if fares are cheap enough, people will buy them. Reykjavik and Delhi may not seem the most obvious city pairing, but Wow launches this route in December. The airline’s hope is that its fares will persuade customers in 15 North American cities that Wow Air serves (including, new this year, Cincinnati, Cleveland and Detroit) that the near seven-hour layover in Iceland on the outbound leg is worth the saving; although flying to India via Reykjavik may be a hard sell in the UK.

Wow Air will use a wide-body aircraft to serve India – a new-generation Airbus A330neo (new engine option), which promises a 14 per cent fuel saving over the current A330 model. Wow Air, unlike Norwegian, has until now built its long-haul network using narrow-body aircraft, but the addition of four of these 365-seaters move it up a gear and allow it to bridge the North America-Asia divide for the first time.

The next stage of the low-cost revolution will however revolve more around new-generation narrow-body aircraft, namely Boeing’s 737 MAX and the Airbus A321neo. Norwegian has again led the way, with the first of 110 737 MAXs on order already flying the Atlantic from Scotland and Ireland and with plans for them to operate to Asia from mainland Europe.

Meanwhile Primera, a Danish/Latvian travel group, is building a small transatlantic network from Stansted and Birmingham using the new Airbus, two of which will be the LR (Long Range) version that flies, fully loaded, for around 10 and a half hours at a per seat cost 40 per cent cheaper than the old equivalent aircraft.

There are no seatback TVs and meals cost extra, but price is king and these aircraft will give budget carriers a definite advantage, although some legacy airlines are already on their tails. Aer Lingus is one of them; it gains the first of 12 A321LRs next year and while it will equip them as full-service aircraft, it will use them to open transatlantic routes not economically possible before.

All this would make the original low fares pioneer, Sir Freddie Laker, a little jealous. Laker tried to take on the big transatlantic airlines in the 1980s using gas-guzzling DC-10 aircraft. Fittingly, his image now adorns the tail of one of Norwegian’s less thirsty 737s that flies across the pond: Laker’s spirit is still aloft.