Airline Weekly - September 28, 2015
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Airline Weekly - September 28, 2015

Here They Come Again: Transatlantic-minded LCCs, led by Norwegian, are back in motion across the ocean

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Cover Story

Here They Come Again: Transatlantic-minded LCCs, led by Norwegian, are back in motion across the ocean

It’s really nothing new. People Express and Laker Airways tried low-cost, low-fare transatlantic flying three decades ago. But the trend never really stuck, giving way instead to the dominance of higher-cost, full-service carriers, which would go on to dominate the market with giant joint ventures. Now, in a challenge to those JVs, a new breed of Atlantic-hopping LCCs is gaining momentum.

At the forefront is Norwegian, which filled 97% of its longhaul seats in August, attesting to the popularity if not yet profitability of its growing U.S. offering—U.S. flights accounted for 91% of the longhaul seats it flew last quarter (it also flies to Bangkok). Norwegian’s scale, furthermore, is starting to become meaningful for competitors, with 9% y/y seat expansion to North America last quarter and 29% growth set for next quarter as new sunshine routes to Las Vegas and San Juan start. The airline is doubling its transatlantic capacity from London, moreover, attacking what’s by far the largest transatlantic market.

Next year, the expansion continues with new flights to Boston from Scandinavia (Oslo and Copenhagen) and London Gatwick. Late last month Norwegian added two B787s to its order book, both -9s, which have more seats than the eight -8s it currently uses. By 2018, Norwegian expects to have 19 B787s. Perhaps a few of these will fly to places other than North America, but that’s still a large buildup from zero before the start of 2013. For perspective, Aer Lingus, now a rather influential player in the transatlantic market, currently has a grand total of 11 longhaul aircraft, with a few more wet-leased in for the peak summer.

Norwegian’s growing fleet of Dreamliners, moreover, only partly captures its transatlantic dreams. In 2017, it will become Europe’s first airline to take B737-MAXs, and it has every intention of using them to connect secondary U.K. and European cities with the U.S. Even before those arrive, Norwegian plans to use current-generation B737s for U.S. flights from Cork in Ireland (see page eight).

Norwegian’s dreams are big enough, in fact, to have pushed transatlantic incumbents like Delta, American and United into a panicked lobbying effort to stop Norwegian’s plan to cross the Atlantic using a separate Irish license, which would afford it some cost benefits. Already, Norwegian is the transatlantic market’s second largest independent airline—i.e., one not part of, or soon part of, the Big Four joint ventures—behind only SAS (and probably not behind it for long). It might even manage to profit from longhaul flying, an elusive feat so far... (438 of 1,750 words)

Also Inside this Issue:

As Norwegian and other low-fare operators make interesting moves across the Atlantic, United is moving with similar enthusiasm across the Pacific. In a week that saw U.S. companies (including Boeing) announce investments in China, United said it would send planes from San Francisco to Xian, its second secondary Chinese market after Chengdu.

United, of course, isn’t alone in its zeal to develop U.S.-China traffic. Delta has its ownership stake in China Eastern. American launched its new Beijing-Dallas route in May. And Chinese carriers are all over the U.S. market—just last week, Air China detailed plans to serve Newark, while China Eastern told China Daily it’s interested in Chicago.

Frontier Airlines won’t be flying to China anytime soon. But it’s certainly expanding fast at home—and why not, given its dramatic turn of fortunes? Living paycheck to paycheck for most of the past decade, Frontier is now highly profitable thanks in large part to its ultra-low-cost business model—with help, of course, from cheap fuel and a strong revenue environment.

In Europe, Vueling has likewise used low costs to earn high profits. And now, sensing weakness at Air France, it’s attacking in Paris, forming a base at Charles de Gaulle. Fortunately, demand conditions in Europe seem to be trending well, with additional evidence for that coming from tour operators.

Conditions are anything but good in Venezuela, which squandered the opportunity to develop aviation when oil money was flush and now faces sharply shrinking traffic.

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