IAG Starting Budget Long-Haul Airline -- Update
December 23 2016 - 10:32AM
Dow Jones News
By Robert Wall
LONDON--The parent of British Airways is joining the race to add
supercheap flights across the Atlantic, saying it is creating a
Barcelona-based budget carrier aiming to fly between Europe and the
U.S. West Coast, including Los Angeles and San Francisco.
The move by International Consolidated Airlines Group SA follows
close on the heels of similar bets by other so-called full-service
carriers. These legacy airlines are increasingly fighting back
after a bevy of budget airlines--mostly European upstarts--have
invaded the lucrative trans-Atlantic market, offering cheap
tickets, sometimes half the fare of traditional carriers.
That move has represented one of the biggest shake-ups of the
U.S.-Europe aviation market in decades. It promises to eventually
drive down ticket prices on those routes, and it has already
increased the number of second-tier airports served by European
links.
Norwegian Air Shuttle ASA, which helped pioneer the market, is
offering fares next year as low as $69, one way, for New
York-to-London flights. Norwegian said this month it was setting up
a new U.S. base at Stewart International Airport, about 60 miles
north of New York City. It is also planning a second new base,
either in Portsmouth International Airport in New Hampshire, or
T.F. Green Airport near Providence, R.I.
Canada's WestJet Airlines Ltd. and Iceland's WOW air are also
offering low-fare trans-Atlantic tickets.
Budget carriers generally offer lower ticket prices by charging
extra for perks such as seat assignment and onboard food that
network carriers traditionally have included in ticket prices.
Decades ago, network carriers were slow to respond to the emerging
ranks of short-haul budget airlines such as Southwest Airlines Co.
in the U.S. and Ryanair Holdings PLC in Europe. They ended up
losing business and retrenching. This time, they are trying to
avoid the same mistake with their long-haul operations, which are a
key driver of profit.
Air Canada, Germany's Deutsche Lufthansa AG and Air France-KLM
SA have all recently launched no-frills subsidiaries that will
ferry passengers on long-haul flights at budget prices. Ireland's
Aer Lingus is considering buying a long-range version of an Airbus
jet to connect secondary U.S. cities from the carrier's Dublin
hub.
IAG Chief Executive Willie Walsh has been closely watching
Norwegian's progress, in particular. "They have actually
demonstrated that consumers will accept some things that people
questioned whether they would work on long-haul," Mr. Walsh told
analysts last month.
IAG said its new low-fare business will begin flying overseas
from Barcelona starting in June. Barcelona is already home to IAG's
European low-cost carrier, Vueling, allowing some passengers to
connect to the new long-haul operation.
Possible routes for the IAG long-haul discounter include Los
Angeles, San Francisco, Buenos Aires, Havana, Tokyo and Santiago,
Chile. The service will commence with two Airbus Group SE A330
long-haul planes.
The push to offer lower ticket comes as airlines have already
had to sharply slash fares amid an oversupply of seats and
softening demand for international travel because of terrorist
attacks and weak global economic growth. The International Air
Transport Association this month said airline profits would decline
in 2017 for the first time in years.
Prices on trans-Atlantic routes have softened, but it is hard to
attribute that to the budget carriers, yet. There are still
relatively few budget flights on offer, and legacy carriers have
long struggled with a bigger headache: "There is general
overcapacity in the market," said John Strickland, an airline
consultant.
So far, none of the big U.S. carriers that dominate the
trans-Atlantic market, American Airlines Group Inc., Delta Air
Lines Inc. and United Continental Holdings Inc., have joined the
fray. While trans-Atlantic routes are important to them, as well,
their domestic market is generally much more so.
IAG had already started to move more discreetly toward
lower-fare tickets between Europe and the U.S.
British Airways last month said it would add seats on some of
its Boeing 777 long-haul planes that operate from London Gatwick,
an airport that typically serves leisure destinations. The
additional seats give British Airways the flexibility to drop
prices on U.S. routes from Gatwick and better compete with the
budget carriers.
"That will give us a unit cost advantage over Norwegian out of
Gatwick, which is absolutely key to competing there," British
Airways Chief Financial Officer Steve Gunning said last month.
Write to Robert Wall at robert.wall@wsj.com
(END) Dow Jones Newswires
December 23, 2016 10:17 ET (15:17 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
International Consolidat... (LSE:IAG)
Historical Stock Chart
From Apr 2024 to May 2024
International Consolidat... (LSE:IAG)
Historical Stock Chart
From May 2023 to May 2024