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ANALYSIS VIEWPOINT Is there a long-haul low-cost gap? Norwegian’s decision to focus on short-haul leaves a hole in the market that may look inviting to some operators RIGAS DOGANIS AIRLINE MANAGEMENT GROUP n 2019, Norwegian Air operated Iby far the largest number of long-haul (more than 4,500km) low-cost flights in the world. It operated across the Atlantic and from Europe to Asia. But because of over-rapid expansion and huge debts it was haemor- rhaging cash badly even before the impact of the pandemic in 2020. So, there was no surprise when in January this year chief execu- tive Jacob Schram announced that Udvang/Shutterstock Thor Jorgen the carrier was abandoning long- Singapore Airlines sees value in pursuing a twin-brand strategy with its low-cost subsidiary Scoot haul and would focus on short- haul low-cost operations. appears viable on long-haul 20% lower than those of legacy operating costs, low-cost airlines The preceding months and routes because it produces signif- airlines but operates with the must target high loads and very years had already seen other Euro- icantly lower operating costs per high 338-seat configuration used high seat factors on each flight. To pean long-haul LCC exits, includ- seat or per passenger than can be by Norwegian, then its CASK achieve this, a long-haul low-cost ing Primera Air, Wow Air, XL Air- offered by a legacy airline flying would be about half that of Brit- operator needs to meet most of ways and Air France subsidiary the same or similar aircraft. This ish Airways and about 30-35% the following requirements: Joon, while IAG has significantly is achieved by spending less to lower than that of Air France, ■ Focus on direct point-to-point pared back its Level operation. fly the aircraft and by packing it American Airlines or Virgin routes with leisure and VFR Does the collapse of Norwegian with more seats. Atlantic. The CASK differential demand; and these other airlines mean that would be even greater if the low- ■ Avoid routes with very highly the low-cost model is not finan- TRIP COSTS cost carrier adopted the still- peaked seasonal demand varia- cially viable in long-haul markets? On long sectors, the cost savings higher seating density used by tions; Or, does it suggest that post-pan- which can be achieved using the Scoot, Singapore Airlines’ low- ■ Prefer routes with traffic origi- demic there will be a major gap low-cost model are not as signifi- cost subsidiary. nating from both ends; available in the transatlantic and cant as on short-haul routes. Nev- To compensate for their higher Europe-to-Asia markets for one or ertheless, a low-cost airline flying trip costs and CASK, legacy air- more low-cost airlines to exploit ? the same aircraft as a legacy net- lines must attract some business In theory the low-cost model work carrier should be able to and leisure passengers prepared achieve total trip operating costs to pay substantially higher fares to Seating on Boeing 787-9s about 15-20% lower than its leg- travel in their premium cabins. In in 2020 acy competitor. A recent study the case of Air France, such pre- showed that, using a Boeing mium passengers represent only Legacy carriers Seats 787-9, a new-entrant low-cost 8% of its traffic but generate 35% Air Canada 296 operator could operate at up to of its passenger revenues. Air France 276 25% lower trip costs. In contrast, low-cost airlines American 274 Low-cost operators can con- use very low fares, made possible Virgin Atlantic 258 vert their lower trip costs on long by their much lower CASK, both British Airways 216 sectors into even lower costs per to stimulate new demand and to Low-cost carriers seat-kilometre by adopting much divert passengers from higher- Scoot 375 higher seating densities in their fare legacies. But low CASK does aircraft than the legacies do. not in itself guarantee profitabil- Norwegian 338 Assuming a low-cost carrier ity, as Primera, Wow and Norwe- Westjet 320 operating a 787-9 across the gian have found out. To operate Source: Doganis, 2021 Atlantic has total trip costs about profitably and cover their total 46 | Airline Business | April-May 2021 FlightGlobal.com/airlines ■ Where possible, have some feed at one or both ends of a route provided either by its own short- haul operations (as is the case with Scoot, Jetstar and Westjet, for example) or by a commercial alliance with another carrier; ■ Target long-haul routes under- served or not served by direct legacy flights. These may often be to large secondary airports not adequately served by a country’s major carrier (Barcelona, Man- chester and Marseilles, for example); ■ Avoid dense traffic routes where legacy carriers offer high Kielaitis/Shutterstock Vytautas frequencies and high seat Operators such as XL Airways were unable to make the low-cost model work on long-haul routes capacities, which enable them to match low-cost airlines by In Europe, demand for long- will be a supply gap for long-haul twin-brand strategy in which a offering a few seats on each flight haul low-cost flights has grown low-cost low fare services. How low-cost independently managed at very low fares; rapidly. Their share of trans- could this be filled? subsidiary is a significant and ■ Use cheaper secondary airports atlantic passengers grew from 2% The first possibility is the crucial part of a legacy airline’s where possible; in 2014 to about 10% in 2019. launch of new low-cost carriers total business. Yet Singapore Air- ■ Match frequencies closely to This year, some LCCs such as dedicated to operating long-haul lines and Qantas have done just demand – a daily frequency on Westjet and Air Canada Rouge services. They would be free of that. Is a twin-brand strategy per- long-haul leisure routes is not are still flying, while JetBlue is legacy costs as well as any heavy haps the key to long-term sur- essential; due to enter the market. But there debts incurred in order to survive vival for major players in long- ■ To more easily match capacity will still be a significant loss of the pandemic. haul markets? to demand on sectors of less than long-haul LCC capacity com- One new entrant, Norse Atlan- 8,500km, operate single-aisle air- pared with 2019. There will also tic, has already been launched by SHORT SHIFT craft such as the Airbus A321LR be a cutback of low-cost capacity a group of executives previously In the end, EasyJet and Ryanair and -XLR rather than larger twin- on Europe-to-Asia routes. linked to Norwegian, who are in would seem to be the best placed aisle aircraft which are more dif- the process of raising funds. to capitalise on this market gap. ficult to fill year-round; and SUPPLY DEFICIT Another, FlyPop, is planning Given their size, their wide- ■ Use the newest, most fuel-effi- As a result, there will be substan- flights to India. But any stand- spread brand recognition, their cient aircraft, since fuel cost is a tial suppressed demand for very alone new entrant would need numerous bases in many key very significant part of total costs low fares on long flights from time before it could make any European markets and their on long-haul sectors; Europe. In the short term, this real inroads into pent-up demand existing short-haul networks, In developing new long-haul may be met by the low fares for low-fares across the Atlantic they can satisfy many of the low-cost operations, it may not likely to be offered by legacy car- or to Asia. requirements mentioned above be possible to meet all of these riers as they try to stimulate Alternatively, existing legacy for successful long-haul low-cost requirements on every route, but demand coming out of the pan- airlines could launch long-haul operations. they are a valuable checklist. demic. In the longer term, there low-cost subsidiaries. Air Canada Michael O’Leary has spoken in appears to have done this suc- the past of doing so, but held back. Air Canada Rouge is cessfully with Air Canada Rouge; Perhaps 2021 or 2022 will be the perhaps a template and in Asia, Singapore Airlines right time for Ryanair or EasyJet for legacy airlines has done so with Scoot and Qan- to take the plunge. Someone tas with Jetstar. But then in should. It is a big underserved Europe there were the more lim- market out there. ■ ited attempts of IAG with Level and Air France with Joon. Professor So, there is not much appetite Rigas Doganis among the large European carri- is chairman of the Airline ers to enter the long-haul low- Management cost market with their own Group and subsidiaries. author of Though Lufthansa has tenta- Flying off Course: Airline tively just launched “Eurowings Economics Discover” to do just that, it seems and unlikely that this will be a signifi- Marketing, the cant player. All three European fifth edition of which is majors have failed to see available to purchase from publisher Vadim Gouida/Shutterstock Vadim any value in fully embracing a Routledge and through Amazon FlightGlobal.com/airlines April-May 2021 | Airline Business | 47.

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