A quick check at Scoot’s website for a return flight from Singapore to Athens sometime end-June this year showed a fare of around SGD1,300 to SGD1,400 (about USD928 and USD1,000) and that’s exclusive of check-in luggage, meals or seats with wider pitch. One attraction is you get to fly direct on a 787 Dreamliner, but surely not at that price?
Comparatively, if one were to fly on Qatar Airways around the same period, to the same destination, the Gulf carrier charges SGD1,636 or thereabouts, with food, 30kg baggage allowance and the comfort of flying from Singapore to Doha (and back) on the airline’s latest A350XWB. And you get your miles.
It’s a no-brainer, really… That said, can low cost, long-haul carriers – especially those in Asia Pacific – make money?
In February this year AirAsia X, Malaysia’s long-haul budget airline, said its 4Q16 profit slumped 80% from a year ago, mostly as a result of forex volatility (the Malaysian ringgit has been one of the worst performers in the region).
The good news was that the airline registered a net profit of MYR39 million (USD8.8 million) and, more importantly, its fifth straight quarter of profits, largely due to weakened oil prices. Since then AirAsia X has begun flying to Tehran (4x weekly) and has announced flights to Honolulu (4x weekly via Osaka) at the end of June this year.
Airlines have been enjoying sub-USD50/bbl oil prices for quite a while now and that’s been reflected in the positive figures coming out of not just AirAsia X, but also Scoot, Jetstar and of course, Norwegian Air Shuttle.
Can history tell us anything?
In the past, track records of long-haul budget airlines have been nothing short of abysmal. Laker Airways introduced its “Skytrain” in 1977 between LGW and JFK and was successful in its first year.
However, due to an economic downturn in the early 1980s and a combination of the company expanding too quickly, draining its finances, Laker declared bankruptcy in 1982. The company’s debts were denominated in USD when GBP revalued from USD2.40 to USD1.80. Ouch!
Next there’s the failure of People Express in the 1980s and Hong Kong-based Oasis in the early 2000s. Interestingly, others tried the reverse: going all-business class only – Silverjet, MaxJet and Eos – and all folded between 2007 and 2008.
Then there were others that came up with long-haul LCC ideas, including FlyAZUL, which was to be an incredibly ambitious B747-200 service from Buenos Aires to Madrid and onwards to Delhi/Tokyo. From South Africa, there was Civair, which had planned to fly a B747-300 from Cape Town to London Stansted. Both didn’t take off as they couldn’t get the financial backing.
Closer to home, Viva Macau started long-haul operations about a decade ago, flying within Southeast Asia as well as to Australia. It even got an award from CAPA (Centre for Asia Pacific Aviation) in 2007 for its contribution to tourism to Macau.
Viva Macau operated under a concession from Air Macau and, using B767-200/300s, it flew to among others, Melbourne, Sydney and Tokyo. In 2010, the airline collapsed, having ran out of money.
Back to the future…
While history is littered with the carcasses of failed long-haul LCCs, times have changed.
It’s true the cost advantages of LCCs doing short-haul routes can’t be replicated on long-haul segments. For one, turnaround times on long-haul flights tend to be longer than the 20-25 minutes achieved by LCCs as an aircraft needs more refueling time as well as for servicing.
Additionally, cost efficiencies are impacted by utilisation of crew, nighttime curfews at airports and of course, fuel costs. Moreover, long-haul means the aircraft would need to carry food for sale and IFE and since widebody planes on long-haul low cost flights typically cram as many passengers as it can, there’s less potential to eke out revenue from cargo.
So why is there now a proliferation of budget long-haul airlines, especially in Europe? Markets and planes have changed; the advent of the B787 Dreamliner, with the lowest consumption of fuel per block hour, makes it possible for Norwegian Air Shuttle to successfully carve a niche in long-haul, low cost flights, particularly across the Atlantic.
It would seem Norwegian is on to something; in mid-March IAG, the owner of British Airways, introduced LEVEL, a new budget long-haul airline that would initially fly to Los Angeles, Oakland, Buenos Aires and Punta Cana in the Dominican Republic from June 2017. Fares are to start from USD149 one-way.
About the same time, Icelandic discount carrier WOW Air also announced it, too, would go transatlantic with four weekly flights to Chicago from July 13, using A321 planes.
Indeed, the battle for the long-haul budget business has taken on another dimension when German flag carrier Lufthansa said it would offer non-stop flights from Köln/Bonn to the U.S. come July by using its low cost unit, Eurowings. Its aircraft of choice: the A330.
Bottom line is, airlines investing in discount, long-haul travel have learned much from past failures. More fuel- efficient aircraft such as the B787 and A350XWB have opened up new possibilities not available 10 years ago.
Point-to-Point (PTP) network concept is also contributing to the success of some of these budget carriers. However, PTP appears to work well mostly on medium-haul (7-8 hour segments). Hence, the attraction of transatlantic flights from Europe. Intercontinental budget trips from Asia to Europe or the U.S. are another ballgame altogether. The risks and challenges are too many to enumerate. But it appears unstoppable.