The Future of Low-Cost Long-Haul Carriers, by Travel Radar Correspondent David Hopwood
Aboudy Nasser is the Chief Commercial Officer of Stansted Airport, one of the five airports serving London. Stansted is home to several low-cost carriers including EasyJet, Ryanair and Jet2 and its catchment is the area north of the London as far as Cambridge and Peterborough.
Nasser was asked on his views on the future of the low-cost/long haul (LCLH) carriers by Airways magazine. This is a summary of his key points.
Where do profits come from?
It’s commonly agreed that full-service carriers make most of their profits per flight from business and first class. Aside from add-on costs, such as seat selection and baggage charges, they’re fortunate if they can make any profit on economy seats. With ‘pure’ low cost carriers, this leaves them vulnerable to fuel price shocks and the general economic climate. Also, their load factors (proportion of occupied seats) must be very high.
How Can LCLH carriers avoid this problem?
Since LCLH will always be vulnerable to external shocks, they must do as much as possible to keep their costs as low as possible. Since fuel represents a large portion of the costs, the aircraft need to be as fuel-efficient as possible. In some markets they should be seriously considering a hybrid model; low cost in the economy cabin and a premium (business and first) section. Norwegian were attempting this, but their business class offering wasn’t as good as full-service airlines and so are pulling back from North America routes.
Does the season have an effect?
Yes, but not in all situations. The North Atlantic route is highly seasonal for leisure travel, with money to be made in the summer months but very difficult trading in the winter, especially in January-March. Business travel is much less affected by the season. The Asia-Pacific market is much less seasonal, so LCLH operators have an easier time.
Who’s getting it right?
On the North Atlantic routes where many operators have failed–like Primera and Wow–others like West Jet and JetBlue seem to be succeeding. They have adjusted their business plan from a pure LCC to a more hybrid model with business class and a very low-cost economy on the same service. British Airways in particular use old equipment on their North America routes—those aircraft have been fully depreciated so their costs and fares are very hard to beat for an LLC.
In Asia Pacific, Lion Air are performing well, but that market is unique, and they pack as many as 440 passengers on a A330NEO. That wouldn’t work elsewhere. Asia Pacific has a massive and growing middle class who are keen to travel and so carriers like Lion can fill wide bodies all at low prices. The longest routes there are in the range of 6-7 hours which is about right.
The Europe-Australasia routes are becoming more and more dominated by Chinese airlines and the traditional carriers are falling away.
In the Gulf, there are some interesting developments; Wizz establishing a base in Abu Dhabi; Air Arabia working with Etihad. One major growth area is eastern Europe to South East Asia; Wizz look like they’re trying to exploit that market.
There will always be a place for LCLH, but the model varies with the market; the trans-Atlantic is very different from Sydney to Bangkok. In the more difficult heavily traded markets, the successful will be those who disrupt the establishment. Globally, managing costs with the most fuel-efficient aircraft; like the 787 and A321XLR have the best chance of success.