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Low-cost airlines blaze trail in race over the Atlantic

 
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Angel92



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PostPosted: Fri May 19, 2017 1:03 am    Post subject: Low-cost airlines blaze trail in race over the Atlantic Reply with quote

Norwegian Air lays down challenge to legacy groups in lucrative long-haul market
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Freddie Laker may have failed at cracking the “no frills” long-haul flying market. But the late airline entrepreneur’s pioneering spirit will take to the skies again in June with his picture emblazoned on a Norwegian Air Shuttle aircraft.
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One of Norwegian’s new red and white fleet, which will open up direct routes from small Irish and UK regional airports to the US from as little as £69, will have Laker’s image on the tail fin and will be part of the Scandinavian low-cost carrier’s attempt to cement market share in the intensifying battle between the airlines over the Atlantic.
While Laker’s low-cost service between London and New York in the 1970s failed after five years, Norwegian is hoping the launch of the next generation of fuel-efficient narrow-body jets will help it “change the game” in making “no frills” long-haul flying profitable over the long-term.
The innovative deployment of single-aisle jets normally used only for short-haul operations is the next stage of Norwegian’s plan to shake up the lucrative transatlantic market, which for decades has been dominated by a handful of US and European legacy airlines.
It is a high-risk gamble for Norwegian. Only last http://www.sportswearclearance.com week questions were raised about potential aircraft delivery delays after Boeing temporarily suspended test flights of its new 737 Max 8 jet, which Norwegian will use for its transatlantic service, after discovering problems with the engine.
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But Bjorn Kjos, chief executive of Norwegian, is confident his strategy can pay off, particularly as Boeing still plans to deliver the first 737 Max 8 aircraft to its customer in June. Norwegian says the launch of its transatlantic routes from Edinburgh, Ireland and Belfast to the US will not be delayed.
Since 2013, Norwegian has used Boeing’s 787 Dreamliner to launch low-cost services between Europe and the US. The competition from Norwegian, and other low-cost players such as Canada’s WestJet and Iceland’s WOW Air, has seen legacy airlines rush to protect their large market share.
In March, International Airlines Group, owner of British Airways, launched Level, a low-cost brand that will begin flying next month from Barcelona to four destinations, including Los Angeles and Oakland, the secondary airport for San Francisco. Lufthansa is expanding its “no frills” subsidiary Eurowings, while Air France-KLM is also launching a lower-cost airline called Boost.
While the likes of Norwegian and WestJet have proved there is demand for cheap transatlantic flights, analysts believe that the use of new-generation narrow-body aircraft on the north Atlantic could make the difference in turning low-cost, long-haul flying profitable.
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As well as Boeing’s 737 Max 8, Norwegian will use a new long-range version of Airbus’s A321 to offer services between regional European airports and smaller US hubs, a cheaper option than its existing strategy.
According to an analysis by Barclays, Norwegian’s current low-cost long-haul wide-body business model is making a margin of about 2 per cent to 3 per cent, compared with margins of about 15 per cent to 20 per cent that most legacy airlines are generating on the north Atlantic.
“That’s not good enough to survive an economic cycle. It doesn’t stop lots of people having a go for a few years — but whether it’s a sustainable, profitable business model is another question,” says Oliver Sleath, analyst at Barclays.
“They’ve been very lucky that as they’ve grown, the fuel price has halved. I think without that they wouldn’t be around.”
New technology means the next-generation narrow-bodies will be able to fly six to eight-hour routes at a lower cost than even the most fuel-efficient wide-bodies.
This will enable airlines to increase the frequency of flights on existing transatlantic routes, as well as unlock a range of new nonstop services. Barclays estimates that this could equate to as many as 60 additional point-to-point routes.
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Andrew Lobbenberg, analyst at HSBC, agrees that the economics of the new narrow-body planes are “really appealing”.
“It means smaller markets that you once laughed at being a transatlantic market can become one, hubs get overflown and airlines that couldn’t previously fly transatlantic markets . . . now can,” he says.
From next month, Norwegian will be using the 737 Max 8 aircraft to launch 10 routes to the US from five UK and Irish cities. The range for this plane means it will be confined to flying from the UK or Ireland to the US east coast.
However, the launch of the A321 LR in 2019, which has an additional 500-mile range, will provide more potential, with the ability to fly longer distances from continental Europe to the US and Canada.
Norwegian’s Mr Kjos says the two strategies will secure its position in the low-cost long-haul market. “I think the two models serve different purposes. As we saw with low-cost short-haul flying, you can create new layers of people who want to travel,” he says.
But it is not just Norwegian eyeing up the potential of the new technology. Both Aer Lingus, part of International Airlines Group, and US-based JetBlue have signalled interest in using the A321 LR. For the latter, this could see it make its first foray into the transatlantic market.
“Will the new narrow-body aircraft facilitate more entries? Almost certainly. Is that what either the new boys or the legacy boys want? Not on your life,” says Andrew Charlton, a Geneva-based aviation analyst.
Some in the industry remain sceptical of the low-cost, long-haul narrow-body model. “The question is how many of these smaller markets can be developed and supported. Is there enough demand from travellers?” says John Strickland, an aviation consultant.
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He points out that a number of transatlantic services to UK regional airports have been dropped by US legacy carriers recently, highlighting the risk of filling planes on these routes. “That is already a sign that it will be challenging, even with a different model with lower costs and fares,” says Mr Strickland.
The new transatlantic contenders are also likely to face a strong fight from the legacy airlines, determined to defend their market share.
“Everybody knows flying across the transatlantic is the most lucrative aviation market in the world. It is no great surprise that it is under the attention of other carriers who are trying to enter the market, but I would not underestimate the full-service airlines,” says Shai Weiss, chief commercial officer at Virgin Atlantic.
The airline, which has a transatlantic partnership with US carrier Delta, says it has no plans to launch a low-cost subsidiary as its rivals have — but would focus on competing on price.
“The legacy airlines are all incredibly alive to Nike Air Max Men Cheap the threat of low-cost long-haul services,” notes Mr Lobbenberg. “It’s where they make the majority of their profits. They aren’t going to make the same silly mistake they did with European short haul, where they lost out to the low-cost carriers.”
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