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The Battle of the ULCC Long Haul Carriers: A Deeper Look

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The Battle of the ULCC Long Haul Carriers: A Deeper Look

Juraj Patekar

The Battle of the ULCC Long Haul Carriers: A Deeper Look
August 29
12:09 2017

Since the emergence of European LCC’s like Ryanair and easyJet, the market has evolved into two further markets that merge well in quite a smooth manner. We have the Ultra Low-Cost Carriers such as WOW Air, LEVEL, Norwegian, Boost and Eurowings who operate or will be operating long-haul flights. We will look at how they are changing the low-cost model as they grow further. We will also look at how quickly these five carriers have emerged and explained how they are going to change the market on the more competitive front.

WOW Air

We first look at Iceland-based WOW Air. The airline has only been in the game for at least five years after they commenced operations in 2012. With 17 aircraft and a route portfolio of 33 destinations, the carrier was soon operating to destinations with the dense competition. Three years after they commenced operations, their USP really kicked in. They began operating flights to the U.S. via Iceland which provided a stopover for travellers who wanted to explore the country as well as bring the price down.

Routes to Los Angeles and San Francisco began in 2016 when the airline expanded their fleet to two Airbus A330-300 aircraft which were leased from Air Europa. Because of the huge and quick growth from the carrier, their annual passenger capacity grew to 1.6 million people in 2016, which was a 46% increase compared to 2015, which was at around 740,000 passengers.

In terms of fleet growth, the carrier hopes to acquire some more A321 aircraft as well as some Airbus A330-900neo aircraft to further boost their long-haul growth, with such deliveries beginning from 2018 onwards. On the competition front, the stopover at a hub puts the carrier in line with Icelandair, who also adopt the same model. However, with the carrier running the travel agency WOW Travel, it is not just going to change the LCC market, it will also change the way that people book with travel companies, which could be perceived as a big game changer in the aviation industry.

On top of this fleet growth, WOW Air also announced that they would be adding limited flights between Europe and the U.S. at a staggeringly low price of $69, which shows the absolute potential to dominate in the ULCC long haul market. Although it is only 1,800 tickets that will be available at that price, it sends out a message to other competitors within the market that they can operate at such a low price per seat, which could result in further price wars.

Although they are not as big as Norwegian per se, the Reykjavik-based carrier does indeed have the potential to create a huge impact on them, especially with the use of calling at Reykjavik, which can be used to their advantage on the tourism front too. For Norwegian, they do not have a port of call to stop at, which doesn’t open any tourist-based opportunities, which therefore enhances WOW Air’s USP even further.

Norwegian Long Haul AS & UK

Norwegian’s long-haul subsidiaries being Norwegian Long Haul AS and Norwegian Air UK have provided a much bigger adventure for the carrier as a whole. The long haul subsidiary was formed in 2012 by the Air Shuttle subsidiary which originally planned to launch long-haul services from Oslo and Stockholm to New York’s JFK and Bangkok. They used Airbus A340-300’s originally whilst waiting for the delivery of their Boeing 787 Dreamliner aircraft, which they mainly use on all long-haul services. They now have 12 aircraft which currently serve 21 destinations across the globe.

One year after they formed, flights to Fort Lauderdale and Oakland were launched, with Los Angeles and Orlando launched sooner after. Flights from London Gatwick were launched in July 2014 to destinations such as San Juan and much more. 2015 came along and the carrier launched their UK subsidiary which would enable base operations from the airport itself. This was to go in competition with British Airways and Virgin Atlantic due to the significant operations that they had at London Gatwick already.

Much later in 2016, flights were launching from Paris Charles De Gaulle to JFK, LA and Fort Lauderdale respectively, which would be big playing against Air France, Delta, United and American Airlines etc. On top of this, they were wanting to gain a foothold in the Irish market. This resulted in services from Cork and Boston to inaugurate and launch which was Cork Airport’s first ever long-haul flight for 70 years. This would compete with Aer Lingus’ Boston route which operates from Dublin as travellers could be more inclined to go to Cork due to the cheaper prices.

Long-haul growth continued this year with new additions from London Gatwick to Seattle, Denver, and Singapore all due to commence next month. With Italy looking to be a key point for operations considering the bankruptcy of Alitalia, they are launching Rome to Newark and Los Angeles flights which are due to begin in November.

Looking into 2018, the carrier still seems to be growing their international portfolio. Mainly growth from Gatwick, flights to Buenos Aires, Chicago and Austin are due to begin in the first half of the next year with Paris to Newark, Boston, and Oakland also being confirmed for the same period.

Norwegian is strategically setting themselves up with competitors and also with mainland carriers in order to reduce their competitor’s market share and increase their global share, which gives the reason of why they are more successful compared to WOW Air as such. With Norwegian, there is no need to stop over at a point as all flights are direct and are still at low costs. In order for WOW to step its game up against Norwegian, flights would most likely have to be advertised at a lower price. At the moment, there is no stopping Norwegian at the moment and are the “Ryanair” of Europe in terms of the low-cost market.

However, as of late, their long-haul program has not been working the way it has been expected to. With shares of the subsidiary falling 38%, shareholders are worried that their growth plan is putting a strain on their returns. With the carrier’s growth plan featuring new destinations and an order for 200 aircraft across different manufacturers, it does question whether their growth strategy is actually the right one.

LEVEL

LEVEL is a new player in the ULCC Long Haul market. They formed in March 2017 with a fleet size of two aircraft, looking at expanding to five by the Summer 2018 season. They only operate to five destinations, being mainland America and South America. LEVEL is a direct response from Willie Walsh to the competition poised from Norwegian’s long-haul program.

In order to stop the expansion of Norwegian in Barcelona, LEVEL’s headquarters is now based in Barcelona, Spain. Within two days of the carrier coming into light, they sold 52,000 tickets and 147,000 more a month and a half after they came into the ULCC spotlight. Such destinations are Buenos Aires, Punta Cana, Los Angeles and Oakland initially with plans for Rome, Paris, and Milan looking into the future.

The carrier signed a one year contract with IAG carrier Iberia for the Airbus A330 aircraft that they currently have in their fleet and will also operate some Iberia flights under the LEVEL flight code, whilst they have such a tiny fleet. The carrier also has code sharing agreements with American Airlines and Vueling respectively too.

On their low-cost model, LEVEL has two cabins and services. First being Premium Economy, which offers 21 seats in a 2-3-2 configuration, which will be offered at a little bit of a higher price. Then you have Economy, which is a 293 seat 2-4-2 layout, will make LEVEL the most amount of revenue. On both services, free on board entertainment is offered to passengers, which removes the sense of no-frills on board an eight to ten-hour flight.

In terms of competition with WOW Air, the only fear of competition with LEVEL would only be on the Barcelona route currently with the stopover in Reykjavik. LEVEL could lose out on some passengers potentially going to Los Angeles as WOW Air also do operate there. It is the perspective of what the passenger preference is, and whether they are willing to fly longer and pay less or pay a little bit more and fly less.

All-in-all, with LEVEL trying to stop the growth of Norwegian in Spain, they may have potentially come to the scene a little too late due to the infrastructure and operations that Norwegian currently have, especially with a base in Barcelona and many European and international flights already coming in. Norwegian and LEVEL would fight hand-in-hand on the Barcelona-Oakland route. In order for LEVEL to achieve success on the Oakland route, they would need to offer more services than Norwegian currently does for more affordable prices also.

Boost

Boost is a new ULCC initiative approved by the pilots at Air France. The carrier is set to launch operations in the Winter schedule of 2017 and will look at operating 10 long haul aircraft by the Summer season of 2020. It will use Air France pilots and has a fuel unit cost target of 15 to 18% below mainland Air France costs.

The carrier is supposedly aimed towards the millennial generation in order to get more young people flying and in the skies. As long-haul is Air France-KLM’s most profitable activity in the airline industry, they are looking to capitalise on that. Through them offering lower prices than the likes of Norwegian and WOW, they could, in theory, stop the growth that those two carriers have and put them into more financial difficulty on the long-haul perspective, like how Norwegian is currently suffering.

However, will this work? Air France is less profitable than KLM and offering such a service could put their profits in jeopardy, especially if it is not successful and the load factors are not as expected. With the huge dominance of Middle Eastern carriers also, this could also be a difficult move, as Boost will look at operating to Asian and Middle Eastern areas of the world.

Eurowings

 Soon after Lufthansa announced that Eurowings will be put on the long-haul spectrum, their growth has been significantly exponential. With new services to Seattle, Orlando, Miami and Las Vegas from Cologne/Bonn Airport, the carrier is looking to shut down the growth that Norwegian and WOW Air have experienced in America.

The aircraft used are Airbus A330’s and will operate two classes as well. “BEST”, which is located at the front of the aircraft will feature 21 reclining seats at 2-3-2 configuration, with Economy offering 289 standard seats in a 2-4-2 configuration. This will enable low-cost perspectives for over 300 passengers per flight, meaning that they have huge capacity opportunities also.

They are however taking it much more slowly now. They only have one more route launch for the year, which is a new service to Cape Town, South Africa beginning in November. This will bring their long-haul portfolio to approximately 14 destinations by the end of the year, with the Dominican Republic and Jamaica being big money makers during the summer.

As with the same with Boost, will this model work look into the future? With the bankruptcy of Air Berlin and Alitalia over recent months, it is showing that the industry is becoming quite volatile. Is the ULCC the way to go to prevent such volatility from taking place? And will it work for Eurowings? Considering the size of the Lufthansa group, it should not be a problem. They just have to hit the right destinations.

Overall

All-in-all, I believe that due to the volatility in the airline industry, the battle of the ULCC’s will heat up as destinations will become saturated with low-cost carriers trying to survive. Each of these five carriers has problems of their own from the beginning. For example, LEVEL could have been started too late, as could Boost due to the emergence of Norwegian’s long-haul market over a certain period of time.

However, with Norwegian’s profits on the long-haul sector struggling, could this be the time that the other four try and make a move? Could this be why these carriers are emerging? Maybe the monopoly and huge success that Norwegian has had over the past few years is starting to descent, rather than climb.

For the likes of WOW Air, they could be on their way to the huge emergence in the global market, especially with the use of Reykjavik as a stopover point. With cheap prices too, they could also run Norwegian for their money, especially in the London Gatwick market as well. They could be on their way for great success if Norwegian do not pick up the pace.

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James Field

James Field

James is a passionate AvGeek based in Manchester, U.K who has been actively spotting for years. James has been an Aviation Enthusiast for 8 years and has a fond likening to Concorde! James hopes to grow in the aviation industry with journalism being his primary focus.

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