CAPA Low Cost Long Haul Global Summit

CAPA - Centre for Aviation , Executive Chairman, Peter Harbison [Download Presentation]

Keynote and Q&A: Building the Airline Business Model of the Future
LEVEL, CEO, Vincent Hodder [Download Presentation]

While LCCs are still a relatively young force they have massively disrupted air travel and the way all airlines now think about serving the public. With a nimble strategy offering point to point connectivity, industry innovations, ancillary focused activities and modern digitalisation and technological practices, they have become the new ‘normal’ in the industry, causing major headaches for the full service carriers on short haul markets. Whether low cost carriers will create a similar transformative effect in the long haul sector remains to be seen. No less than 19 LCCs have launched widebody services in the last six years, while further disruption is on the cards in the long haul narrowbody space. The new generation single aisle Boeing 737 MAX and Airbus A320neo aircraft families have brought long, thin routes into the realm of operational and financial viability for LCCs, in turn stimulating new traffic between secondary city pairs and allowing passengers to bypass traditional hubs. Yet the low cost long haul model doesn’t have the same inherent cost advantages as the short haul model, which potentially narrows the cost gap between LCCs and FSCs, and growth has come at the expense of profits for many LHLCCs. The prospects for independent low cost long haul carriers aren’t particularly promising either; it’s rare for secondary point to point markets to be large enough to operate sustainably without additional feed.Still, low cost long haul airline growth shows no signs of abating. As the average passenger profile moves towards the price sensitive end of the spectrum, outstripping growth in premium markets, it becomes harder for higher cost airlines to sustain previous expansion rates without deploying radical strategies to address the low cost long haul onslaught. 

 

Moderator: Cranfield University, Visiting Professor, Peter Morrell

Low cost long haul operators are establishing partnerships with short haul low cost airlines as a means of expanding their network breadth and supporting their growth aspirations, as recently demonstrated by Norwegian’s tie up with easyJet. For long haul operators, connecting traffic is critical in scaling sustainably, especially as very few long haul destinations generate enough demand to justify year round capacity, while their partners benefit from additional traffic growth in short haul markets. Legacy carriers, who have long ceded competitive ground to short haul LCCs, could see history repeating itself as long haul-short haul LCC partnerships gain more momentum and disrupt full service carriers’ long haul networks. 

Moderator: Skylight Aviation, Senior Advisor and former easyJet Group Strategy & Network Director, Cath Lynn

Panel:

As full service airline groups rapidly expand into the long haul low cost sector, questions on whether to include LCC subsidiaries in intercontinental JVs naturally emerge. Including an LCC subsidiary in a JV is still rare, but becoming more common. For example, Air Canada LCC subsidiary rouge and IAG’s new long haul low cost subsidiary LEVEL are now included under their respective transatlantic JVs. Asia-Pacific JVs are yet to include any LCCs, although the addition of Scoot to the Lufthansa-Singapore Airlines JV is in the works, which would simplify the Singapore flag’s current separate partnerships with both Lufthansa and Scoot. While joining a parent’s existing JV seems like a natural strategic evolution for low cost subsidiaries, independent LCCs need to consider other options if they want to expand their market presence, whether that be forming codeshares with fellow LCCs or with full service carriers, or as famously demonstrated in 2016 by the Value and U-Fly alliances, forging their own groupings to sell joint itineraries and generate cross-bookings. Meanwhile, other creative regulatory solutions exist. In Asia, the cross border JV model has allowed the region’s major LCC groups – AirAsia, Jetstar, Lion Air, and to a lesser extent VietJet – to accommodate foreign ownership restrictions by taking branded minority stakes in local airlines. Similar strategies are being pursued in the Middle East with Air Arabia, in Latin America, through the Viva group and in Africa with fastjet/Fly540.With an array of different partnership mechanisms available, airlines need to consider whether they are prepared to create additional complexity and cost before embarking on this road. 

Moderator: European Aviation Club, Chairman, Rigas Doganis

Change is now in the wind as low cost long haul operators continue to capitalise on the capabilities of new narrowbody aircraft and increasing liberalisation to stimulate competition on markets traditionally dominated by the full service carriers. As a prime example, LCCs, led by Norwegian, have been encroaching on the tightly controlled trans-Atlantic route over the past five years. Their presence continues to grow here and elsewhere, thanks to the development of new, more cost efficient aircraft types such as the 787, and narrowbodies such as the Boeing 737 MAX and A321neo. The better fuel efficiency of the MAX and the A321neo and, in particular, the additional range of the A321neoLR enable new smaller city pairs that are not big enough to sustain widebody operations to become economically viable. Legacy airlines are also taking advantage of new narrowbody equipment to open up or defend existing routes. 

Moderator: Avolon, Head of Strategy, Dick Forsberg

LCCs, as the newer players in the industry, are competing to meet future growth needs. They can scarcely afford to stand still if they are to assert themselves in the long term – especially as newer models enter. The need to plan for fleet expansion and replacement, as well as making decisions on leasing and purchasing. For larger LCC groups, one notable strategy to offset the risk inherent in large forward orders has been to establish a leasing capability, to absorb any excess capacity as new aircraft are delivered. 

 

Moderator: SMBC Aviation Capital, Head of Strategic and Market Analysis, Shane Matthews

Whilst geographic position plays a large part in an airline’s decision whether or not to fly to a particular destination, the airport also holds an influential role in the decision making process. LCCs and low cost long haul LCCs in particular have unique requirements compared with their FSC counterparts; so it follows that those airports that are able to offer the right facilities and services for their airline customers stand to gain. But additionally, there is huge untapped potential for airports to share data and co-operate commercially with airlines for mutual benefit; this could prove a key factor in attracting and retaining carriers assessing the viability of a new route. 

Moderator: ForwardKeys, CMO, Laurens Van Den Oever [Download Presentation]

Panel: