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 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 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.