Why low-cost long-haul airlines are failing
Gary Leff at 24. March 2021.
Ben Baldanza is the former CEO of Spirit Airlines, a member of the board of JetBlue and a former member of the board of transatlantic low-cost carrier Wow Air. In his podcast Confidential Airlines, he discussed French Bee’s plan to add 488 seats on two new Airbus A350s it plans to introduce this year, about 50 percent more than most airlines – and why such a plan is likely to fail.
- The fare advantage of theis not as great for long-haul flights as it is for short-haul flights. Although the more expensive airlines offer longer routes to recover the cost of seats, the difference in cost per passenger kilometre carried on a long route is not as great as on short routes. Ryanair and easyJet could therefore significantly weaken British Airways in Europe, but their advantages would be reduced if they operated flights to the US or Asia.
- long-haul aircraft are highly seasonal; even low-cost airlines can’t fill that many seats year-round. French Bee ‘s can fill 488 seats in summer but not in winter, while new large aircraft like A350s pay year-round rent (even when the engines are running at full power on an hourly contract).
- Passenger experience is more important on long-haul flights Even American Airlines still offers entertainment on its wide-body aircraft and installs stoves in the galleys. On a 2-3 hour trip, people accept the lack of comfort and other experiences, but on an 8-12 hour trip, it becomes much more difficult.
Appropriations : Olivier de FRANCE via Wikimedia Commons.
Baldanza has previously argued that Vau Air has been unable to cross the Atlantic because of rising costs, including because it was unwilling to hire cheap labor, Iceland was too seasonal to be an efficient hub, and the Airbus A330 was too expensive (it had to cross the Atlantic with narrow-body aircraft). I thought this explanation, while probably true, was incomplete.
Wau Air faced significant competition from larger airlines offering more destinations and failed to fill its aircraft. It wasn’t just a cost, it was a revenue, regardless of rates. But that underlines the fact that they were not for the masses – too much potential.
Wow Air, Copyright : Zhukovsky / 123RF Stock Photo
In times without a pandemic, full-service operators benefit from a combination of traffic, high-margin commercial rates and low holiday prices. They are more likely to receive orders from companies and have a regular customer base. Low-cost airlines are not as diverse.
Since American Airlines introduced super-low fares in the late 1970s, the big full-service airlines have known that they can offer both an expensive and a cheap product on the same plane by filling the marginal seats they use anyway for the same price as the low-cost carriers. As long as airlines can segment passengers so they don’t sell cheap to someone who wants to pay full fare, they can compete on price.
Scott Kirby, CEO of United Airlines, said low-cost carriers can’t succeed because United can offer the same fares. But he’s wrong. They can fly successfully over short distances and have done so for many years. The call comes in over long distances.
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