The Invasion of Low-Cost Airlines

The transatlantic market, typically the most lucrative aviation market in the world, is under attack.

Research carried out by Telegraph Travel in conjunction with OAG, the air travel analysts, has revealed the pressure being put on traditional carriers by low-cost, long-haul disrupters.

Telegraph Travel asked OAG to compare this winter’s transatlantic capacity with 2016/17. In terms of total seats on offer, British Airways remains the biggest player for flights between Europe and North America, but the low-cost airlines are closing in fast.

BA raised its available number of seats by 1.1%. Norwegian, on the other hand, raised its transatlantic capacity by 111.4%, whilst WOW Air has grown by 31.1%.

Other legacy carriers such as Delta, United Airlines and Lufthansa, the second, third and fourth biggest transatlantic airlines, are also treading water having increased capacity by just 3.2%, 2.6% and 2.9%, respectively. Meanwhile, Virgin Atlantic has cut its number of seats resulting in a drop of 3.2%.

Nevertheless, a few premium airlines are bucking the trend. Iberia and Aeroflot both increased capacity by more than a quarter this winter. In addition, Emirates added almost 50,000 transatlantic seats, driven largely by the introduction of flights from Italy and Greece to North America.

Top 20 biggest airlines for transatlantic travel

The Legacy Carriers’ Fight Back

BA and other legacy carriers have sought to fight back against the rise of low-cost carriers by cutting some of their frills in order to keep prices low – a policy that has not gone down well with some passengers. In addition, American Airlines has removed first class from many of its transatlantic services.

Meanwhile, IAG has launched its own low-cost airline. “Level” flies from Spain to a handful of North American destinations. Two of the four routes operated by Level (to Los Angeles and Oakland) go head-to-head with Norwegian.

However, not everyone is overly worried by the threat posed by low-cost carriers. United President, Scott Kirby, doubts the low-cost long-haul model will work long term:

“It’s my perspective that that’s either a business model that they change over time, or they go away because you can’t produce the kinds of losses that they produce and stay in business” he said.

According to analysis by Barclays, Norwegian’s current low-cost long-haul wide-body business model is making a margin of about 2-3%, compared with the margins of about 15-20% that most legacy airlines are generating on the north Atlantic.

Norwegian were not profitable in 2017 despite it being a good year for the airline industry in general and their shares dropped 40% compared to other budget airlines which have increased e.g. easyJet (44%) and Ryanair (19%).

There is surely still a place for the legacy airlines, particularly with business travellers. The low-cost flights are typically less frequent and fly to less convenient airports, and a customer willing to accept less leg-room on a domestic flight might opt to pay extra for a more comfortable transatlantic journey.

It’s Not over Yet

The battle looks set to continue throughout 2018 and beyond.

Starting this summer, Norwegian will operate flights to Amsterdam, Madrid and Milan from New York’s John F. Kennedy International and Los Angeles International airports. In addition, in December 2017 the airline bought extra slots at Gatwick Airport to expand its UK operations.

IAG also boosted its presence at Gatwick, securing slots from Monarch after the airline’s collapse at the start of October 2017. Analysts have speculated that IAG’s newly acquired Gatwick slots could be used to expand its low-cost long-haul airline, Level.

Who ultimately wins the battle over the transatlantic space remains to be seen and we will be watching with interest!