Page 49 - demo

If you've been following the press, you may This year, it will probably try to raise prices as
think low-cost carriers will take over the world, much as competitors permit. And it likely will
disrupting established airlines and delighting continue to prune its network, culling poor
customers with cheap fares for decades to come. performers, including flights between secondary
cities in the United States and Europe (Hartford
Let's not get ahead of ourselves. to Edinburgh, Scotland was a disaster), as well
as ultra-long flights. London to Singapore, the
Yes, short-haul, low-cost airlines such as Ryanair longest low-cost-carrier flight in the world,
and Southwest Airlines have proven they can disappeared in January.
make money providing service customers like, or
at least tolerate. But long-haul, low-cost airlines “They couldn't make money when oil was at
only have figured out half the equation. Most $40 a barrel,” Ryanair CEO Michael O’Leary said
know how to win customers, but not how to on an earnings call about Norwegian. With fuel
produce sustainable margins. now pricier, O'Leary said the airline might suffer
further.
It shows, again, how rare it is for new entrants
to disrupt the world’s airlines. Most of today’s Problem With the Model
most powerful airlines have been around for
decades, and though some have been resistant For insiders, it’s not hard to see the problem.
to change, they have so much size and scale Systemically, the low-cost model doesn’t work
they can withstand challenges from disruptive as well for longer flights as for shorter ones.
competitors. You could argue the last airline
LOW-COST to truly change how the industry operates was Take fuel. On a long journey, it accounts for
much of an airline’s costs. While low-cost carri-
Southwest, which introduced the low-cost, short-
haul model almost 50 years ago.
ers usually have several advantages over legacy
airlines, including lower labor costs and a more
CARRIERS There is still hope, of course. But this year could efficient workforce, every airline pays roughly
be much different than the previous two, when the same price for fuel.
airlines like Norwegian Air, Primera Air, and
Wow Air capitalized on cheap fuel and sluggish On Singapore to London, which can take 14 hours,
LOSE SOME competition to rapidly add markets and aircraft Norwegian would have paid nearly the same
for transatlantic markets.
price per liter as the competition — Singapore
Airlines, British Airways, and Qantas. And while
Skift wrote about the burgeoning low-cost, Norwegian was the only one of the group to fly
LUSTER long-haul trend in a 2017 megatrend, asking the Boeing 787, which burns less fuel than most
whether these airlines would permanently other widebody aircraft, it paid a premium to
change how people travel. But Primera went acquire its new technology aircraft, negating
bust last October, and Wow Air is in a precarious much of that savings.
place. As it hemorrhaged cash at year-end, Wow
returned some aircraft to lessors, while waiting Meanwhile, Norwegian was at a revenue disad-
Skift Take: to see whether Frontier Airlines owner Indigo vantage. Its competitors had four cabins — first,
Customers like low-cost airlines, but none so far Partners would close on plans to invest in it. business, premium economy, and economy —
Indigo stepped in with an investment proposal allowing them to reach every market segment.
have perfected the model for long-haul flights. after Icelandair walked away f rom a planned Norwegian had just two, both economy products.
acquisition in November, saying the discount
It’s not clear they ever will. airline could not meet conditions. Passengers don’t tend to care much about
premium seats on a one- or two-hour flight, so
Writer: Brian Sumers Norwegian may be the last hope. It’s consider- even a business traveler might defect to Ryanair
ably larger than the others, with a more robust or Southwest if the price or schedule is right.
network, so it can better take advantage of But on a six- to 14-hour flight, the calculation
scale. But amid fierce competition with legacy is different.
airlines, and higher fuel prices, Norwegian may
Illustrator: Bing Qing Ye have to adapt.

44 Skift Skift 45