The Risky Business of Low–Cost Long Haul Airlines

Low-cost long haul airlines picking up speed

Disruptors such as Norwegian Air Shuttle and AirAsia X have shaken up the airline market and forced scheduled operators to rethink their transatlantic strategies. They are aggressively upgrading their fleet and opening routes to and from such regions as Asia Pacific and North and Latin America. The increased competition is also impacting schedule operators such as IAG to follow suit by launching its own low-cost long haul brand – e.g. LEVEL.

Low operational costs still a major challenge for this business model

This business model has a different operational economics with costs being the major hurdle for airlines. Fuels costs can be over 50% because of the long haul nature of the flight in addition to higher surcharges, which in turn can dampen passenger demand and become profitability constraint.

Partnerships are on the agenda

Low cost airline powerhouses in Europe have been trying to boost their margins, through partnership with different players. Norwegian and Ryanair are considering a partnership in the form of joint feeder flights. This will ultimately give Norwegian access to destinations such as Barcelona and some Irish cities, from where it will be able to boost its transatlantic passengers flows to the US.

Pressure on established players

Competition from low cost long haul carriers could threaten the expansion and performance of established market players by offering cheaper fares with new unexplored route networks while tapping into the price sensitive consumer segments.