Low-cost carriers with new aircraft are disrupting the transatlantic market. Are travel buyers persuaded to use them?
Just when you thought you had got to grips with one low-cost, long-haul concept, along comes another. First Norwegian, Scoot and Air Asia X brought low-cost, long-haul flights to the market; then the legacy airlines tried to match them, with Virgin Atlantic, British Airways and Lufthansa, among others, introducing tiered economy class.
You would be forgiven for not noticing, but a third part of this revolution began this summer in an understated way at Stansted airport. At first glance, Stansted and a single daily flight to Newark on a narrow-body aircraft from a Danish leisure airline does not scream revolution (or business travel), but stay tuned, because this is another part of the trend.
The airline in question is Primera Air and the aircraft is a new version of the Airbus A321 workhorse, known as the A321neo (or New Engine Option), which will further extend the sweep of budget long-haul flights and looks likely to cause a ripple effect throughout the market. The new aircraft, fitted with a premium economy cabin, can carry around 200 passengers transatlantic at a cost 25 per cent cheaper than the equivalent aircraft, Boeing’s 757. The 757, another single-aisle jet last produced in 2005, in the absence of anything else, is still the stalwart of long-haul transatlantic routes from the UK regions. There is more to come next year, when the A321neo LR (Long Range) enters service. This will fly 600 nautical miles (690 miles) further, giving a range, fully loaded, of around ten-and-a-half hours – and with per seat costs 40 per cent lower than those of a 757.
These aircraft are Airbus’s response to the Boeing 737 MAX jets that budget brand Norwegian is already using to cross the Atlantic from Scotland and Ireland. Norwegian has 110 of these on order and, like Primera, plans to spread its fleet around Europe, operating them to Asia as well as to North America.
So far, not so very business travel-like, but the new aircrafts’ capabilities have not gone unnoticed by mainstream airlines. Aer Lingus, for example, will receive the first of up to 12 A321LRs next year and has already put out a request to North American airports asking for suggestions as to where to fly them.
The Irish carrier has form here. It previously leased a 757 to fly into Hartford, Connecticut, which has the dubious distinction of being known as the insurance capital of the world, but was until late 2016 a transatlantic destination that other carriers had studiously ignored.
Aer Lingus will almost certainly operate its new Airbuses in a two-class configuration, and the aircraft will enable it to introduce new destinations that were previously out of reach and commercially unviable. The carrier is one of those at the head of the queue for the new generation jets, just behind Primera.
Primera Air chief executive Hrafn Thorgeirsson believes his airline is ahead of the curve. “It has never really been this time in aviation history before,” he says. “We could see a year and a half ago that if we did not get into low-cost transatlantic by 2018 that it would probably be too late – these planes are game-changers. We think we have a head start because it is going to be difficult for people to get these aircraft; the queue is really, really long.”
At first, budget carriers might not attract the real corporate road warriors, but they are having an effect on fares throughout the market. And while buyers might sniff at them, in future in some areas of the UK, there may be no other option than flying budget on new generation, narrow-body aircraft. At Birmingham, for example, the exit of American Airlines and United Airlines on the New York route in 2017 means the only direct carrier is Primera.
Like Norwegian, Primera is making a pitch for business travellers in a small way, targeting the SME market with its 16-seat Premium cabin. Given Norwegian’s success – it originally fitted 35 premium seats to its wide-body Boeing 787-9s, but now offers 56 – there is clearly a demand, although what proportion comes from business travellers is unclear.
The more this type of product enters the market, the more price pressure on traditional carriers, which prompts them to strip back their basic economy offering. Aer Lingus, for example, believes it straddles both sectors with its basic economy Saver Fares. It offers connections through Dublin from across Europe, which brings it a huge potential transatlantic market attracted by lower fares and the bonus of US immigration pre-clearance in Ireland.
An Aer Lingus spokesperson says: “We do not see ourselves in the same market as them [the low cost airlines], however, we have a comparable product. Our market is price and service, but we frequently have the lowest price on the Atlantic.
“We think that if you want a blanket in the middle of the night and it costs 15-20 bucks, it leaves a feeling of dissatisfaction.” Expect more secondary North American cities to be on the Irish carrier’s route network from 2019.
“We look for city pairs that have demand on both sides,” says the spokesperson, who cites Hartford as an example of “a big business city where people did not want to travel the extra two hours to JFK”.
The new narrow-body variations will carry on a revolution that properly started with the Boeing 787, which, Norwegian will tell you, consumes 36 per cent less fuel to fly the Atlantic than comparable aircraft. The revolution is spreading, with Canada’s Westjet another carrier about to hurry along its transition from domestic budget airline to long-haul using the 787. Next year, the first of ten of these aircraft enters service, with the airline’s first business cabin of 16 lie-flat seats in a 1-2-1 layout.
There’s a promise of more choice with more direct routes at cheaper fares on these new aircraft. This will doubtless be attractive to SMEs, but will the corporate traveller embrace the idea? Some think they will, but only over time.
“There’s quite a balance between customers’ needs and where they are travelling to versus their views on working with new carriers,” says Jessica Gallimore, Capita Travel and Events’ head of proposition – air and ancillary services. She adds that clients are now well used to the likes of Easyjet and Wizz Air, and younger staff may have experienced long-haul budget carriers during gap years.
However, Jennifer Charlton, American Express Global Business Travel’s vice-president, supplier services, EMEA, disagrees. “They [low-cost carriers] are not a major disruptor at this point,” she says. “They are well below one per cent of our transatlantic distribution. What customers really want is frequency and convenience.” She adds that there is some nervousness about the stability of some new entrants.
She is also sceptical of the impact on business travel of the new economy fare categories legacy airlines are offering to compete with the growth of the budget carriers and their lower cost base. These include Lufthansa Group’s Economy Light fare and Virgin’s new three-tier approach. Charlton believes business travellers will always opt for flexibility – which basic fare categories do not offer – and adds that the confusion of sub-brands is often “something only marketers understand”. She adds: “We have little call for restricted fares, but we have seen a pick-up in premium economy. Instead of down-trading from business, people are up-trading from economy.”
Long term, having more airlines, more fuel-efficient aircraft, more fare categories and increased competition for the cheaper seats can only be a good thing. Business travellers, especially SMEs, can expect to pay less to fly less comfortably to a wider range of airports and to get less in the way of extras. With 20 years of budget short-haul flights behind us, many will shrug their shoulders and view it as progress.