Emirates feels low-cost, long-haul competition

Note: Nov. 24 and 25 are Thanksgiving Holidays in the US. Our next post will be Monday.

By Bjorn Fehrm

23 November 2016, ©. Leeham Co: Emirates Airline president Tim Clark says the carrier “has to change its approach to long-haul pricing to combat increasing competition” after presenting a half year 2016 profit which plunged 64% on 9 November.

The reason is that traditional mainline carriers are entering the low-cost, long-haul market in addition to the established LCC entrants: Norwegian Air Shuttle, AirAsiaX and Wow Air.

emirates-a380

Figure 1. Emirates long-haul A380. Source: Emirates.

Emirates will add new low-cost fares to keep its growing fleet of Airbus A380 and Boeing 777 filled. Clark states this is necessary and that the airline will not back down on its plans for additional aircraft. It will be a period “of fierce competition as more and more international network carriers are entering low-cost, long-haul,” declares the COO.

What has changed? Isn’t Emirates the Kings of competitive long-haul travel?

Mainlines and low-cost, long-haul

Low-cost, long-haul from mainline airlines have been operating for years, with Australia’s Jetstar (low-cost arm of Qantas) flying long-haul since 2003. Add to that Singapore airline’s Scoot, which been offering long-haul flights with its Boeing 787 fleet since 2012.

Beyond the established LCCs long-haul arms, like AirAsiaX or Norwegian Air Shuttle (Norwegian), it has been an Asian phenomenon.

Europe and US carriers refrained from entering the market until Lufthansa Group announced last year that its Eurowings brand would be the future low-cost carrier for the group. After an initial growth by transferring short-haul routes from the larger Germanwings, it was announced by Lufthansa last year that Eurowings would also fly long-haul.

Eurowings centres its long-haul operations from the Cologne/Bonn airport. The aircraft are flown by the Lufthansa/Turkish Airlines joint venture SunExpress. After a 2015 start with predominately third world leisure destinations, more mainstream destinations like Tehran, Las Vegas, Boston and Miami have been added during 2016.

The operation is done like a classical LCC point to point operation. This is also why the low-cost long-haul is flying out of Cologne/Bonn. This is separate from the mainline hubs Frankfurt and Munich, with their elaborate feeding structures designed for the full fare passenger.

Air France-KLM is not sitting still. The airline recently announced its intent to start low-cost, long-haul flying. The discussion is, how? The announcement was made by the French arm of the group, which has had substantial problems with all low-cost plans so far. The airline’s powerful pilot union, SNPL, has so far blocked all efforts to grow its present low-cost, short-haul arm, Transavia.

The activity might be started as a clean sheet company organized directly under the group headquarters, Air France-KLM, to clean the table from all existing union agreements. Still the question remains, will SNPL let this happen?

IAG group (British Airways, IBERIA, Air Lingus) has a well-established low-cost activity with Vueling. Vueling currently is focused on classical short haul, low-cost. There are no announcements that IAG intend to change that. But it could start long-haul operations under the Vueling brand or let one of its subsidiaries, like Air Lingus, compete with the low-cost, long-haul carriers.

Air Lingus could combine its favorable geographical location for trans-Atlantic services with feeder services performed by, e.g., Vueling to a Shannon hub, all in order to protect its full-fare Dublin trans-Atlantic network. The operation could be operated under the most suitable group brand.

US response

US carriers have so far not entered in the discussion, most likely as they don’t want to mix things up at the time when they blame the Gulf carriers for dumping prices with state money on long-haul US destinations.

But when the Asian and European mainline carriers all have functional long-haul, low-cost alternatives flying on US destinations, one wonders what will be the reaction? The dedicated long-haul LCCs (Norwegian, Wow, AirAsiaX, Scoot, Jetstar) and the mainline subsidiaries will all chip away at the US carriers most profitable sector, long haul.

So a response will have to come. And it will not suffice with moaning about state subsidies.

17 Comments on “Emirates feels low-cost, long-haul competition

  1. Emirates used to be flavour of the month for me flying between Europe and Africa except that their prices, when compared to Turkish Airlines disappeared off the skyscanner web site as being too high. In my experience their customer service was poor and landing at Dubai always included a bus excursion!

  2. Better cabin and fare differentiation is a relatively more simple way of bringing a LCC ‘cabin’ element to existing airlines.

    Door 1-2 is business… Door 2-3 premium econ and comfort econ, and door 3-4 is LCC style econ with tighter seating ans perhaps 9/10-abreast vs. 8/9 abreast in the main econ cabin.

    Fares are realigned to ‘the seat/cabin/service’ you ‘choose’ instead of the time of booking.

    Todays mainline carriers frustrate their customers by placing little priority on who sits where and the space they get – even within the econ cabin… There is room in aircraft for different seat spacing, and even seat types (rear/slimline/pre-reclined). Whole subfleets and the supports and marketing they require seem overkill to me. Differentiate the cabin you already have… Fill all the seats… Use the same aircraft/brand… Get what you paid for… And were informed about when pirchasing.

    • I kind agree, why just board thru one door on most jets when there are a minimum of 4 doors.
      I the future you might board your seat at the Gate and get the security brief. Section after section with buckled-up pax and luggage are then quickly fed into the emptied Aircraft thru the doors and locked in Place and the pushback can start at once.
      Arriving at an Airport without these facilities just allows for a normal and slow turn around.

  3. Only a limited number of LCC (Norwegian, Vueling …) routinely leverage their C.ASM using an aggregate ansatz for ASM (combining passenger and freight utilities), as given by
    ASM = [ maindeck cabin capacity + number of free lower deck ULD/φ ] x distance
    where φ is the equivalence factor of freight vs passenger revenue. This ansatz is applied by LCC Retail Psychologists for bottomline arbitrage i.e. in competitive situations when sharpened flexibility is needed to pilot the on-line CRS pricing unit.
    That payfreight-leveraged CASM is not in common use @ Legacy Majors filters in filigrane in the within report by Leeham : the bite from LCC tactics are felt to the bone.

  4. I think the biggest problem for Emirates right now is a lack of flexibility.

    1) All their planes are either large or very-large widebodies. Not really their fault, as they are seriously slot/gate-restricted at DXB, and they’re still operating out of DXB because DWC has been repeatedly delayed while Dubai tries to find the money to finish construction.

    2) ~80% of EK’s fleet are 3-class planes. This is definitely a self-inflicted wound. When they were a smaller airline, it was easier to cherry-pick the routes with lots of business travel, but if your goal is to continually expand, you’re going to end up with an increasing amount of low-yield traffic. With the plunge in oil prices sharply reducing the number of people from the Middle East willing to pony up for increased service, EK is now left struggling to fill their business and first-class seats at cut-rate prices.

  5. We can also note the use of A380 into very non large yield airports. Too many large and no mid.

    When they buy the 787-10 things can change, but they also have the issue to the imbalanced fleet that is not nearly as flexible as fleet with A330/787/A350 or even 767.

    And competition always catches up.

  6. Would Hawaiian operate the A380’s to offer city pair routes via Honolulu eg. Rio – Honolulu – Tokyo. I can’t think of any other reason for them to operate them.

      • ANA fly Sao Paulo- Frankfurt- Tokyo
        the Great Circle direct route is 11,500 miles (10,000 nm) which passes near Washington DC, going via Frankfurt makes it 11,900mi.

      • “What is the distance from Rio to Tokyo or China?”

        Enough to require a stopover, that’s for sure. Honolulu could be that stopover and much more effectively than existing ones. United offer Rio – Houston – Tokyo but that can’t compare with Rio – Dubai – Tokyo from Emirates. Honolulu could throw a spanner in the works. I wouldn’t mention it only I can’t think of any other decent reason for Hawaiian to operate the A380.

  7. Happy Thanksgiving Scott, TransWorld and all my fellow Americans who visit this wonderful site!

    • Geo:

      Thank you, while a somber one, it is still Thanksgiving and its well worth for those of us who have a home, family and job worth being thankful for and grateful to the community in which we live.

      I extend mine to all on this site, Keesje, OV-99, Martin, Deukfor and many more.

      And while we disagree at times, we all love aviation and we all want the best for it as an industry and a the service it does for human kind on this planet.

      • Thnx. A bit late, but I see many US friends & colleagues turned this into a long week-end. So all the best to you are your families.

  8. EKs problem is it used to be the cheapest long haul, and it`s customer economy customer base was an LCC long haul customer base, ie price above all else, often compànies flying their labour. Now the legacies are doing the same thing on the main routes. Funny thing here is I don`t think either the legacies or EK are making money on this model. LCCs with their lower cost base are killing it, and with no business class are often more comfortable in economy. Norwegian 787 economy is 31-32 inch, BA is 30-31 inch. For the same price take Norwegian.

    Moral to the story is if a legacy wants into this market they need a clearly defined LCC arm and a better product for the mainline brand.

  9. Not so many EK pax have Dubai as their final destination, hence they are dependent on long routes from Western Europe/America that require a fuel stop and they made Dubai that natural stop. As Aircraft range increases with lower fuel burn it will reach a Point where you can fly non stop everywhere and the payload fraction will be acceptable. The total travel time will be reduced and the cost of maintenance of the Aircraft/Engines will be halved. If will be cheaper and quicker flying non stop on a A350-900ULR. It maybe require the next generation of Engines giving and additonal 5-7% lower SFC but then the ME3 will have to fight harder. The funny thing is that they drive the development of longer range Aircraft with better Engines to reach new destimnations, the same combination that eventually be their fall.

    • QF are planning Perth-Europe direct flights with the 787-9. If this is the future it might be interesting.

  10. New smaller & efficient long range widebodies are changing the route dynamics and the basic advantage of Emirate’s Hub & Spoke system

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