Trans-Atlantic tickets apt to get cheaper as budget airlines
force hand of legacy carriers
By Robert Wall
LONDON -- The race to offer supercheap flights across the
Atlantic is heating up, as the parent company of British Airways
became the latest full-service airline to launch its own low-price
offering to fight back against the budget carriers that have
invaded the lucrative market.
International Consolidated Airlines Group SA announced Friday
that it is creating a Barcelona-based budget carrier aiming to fly
between Europe and the U.S. West Coast.
Air Canada, Germany's Deutsche Lufthansa AG and Air France-KLM
SA have also recently launched no-frills subsidiaries to ferry
passengers on long-haul flights at budget prices.
Budget carriers offering cheap tickets -- sometimes half the
fare of traditional carriers -- have ushered in one of the biggest
shake-ups of the U.S.-Europe aviation market in decades. The
competition 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. Full-service
airlines, slow to respond when budget carriers lured away flyers on
short -haul routes within the U.S. and Europe, are trying to avoid
the same mistake with their long-haul operations, a key driver of
profit.
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. Norwegian, for example, charges $31.50 for two hot
meals, including a beer or glass of wine, during its seven-hour
London-to-New York flight.
IAG Chief Executive Willie Walsh has been closely watching
Norwegian's progress. "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.
Ireland's Aer Lingus, meanwhile, is considering buying a
long-range version of an Airbus jet to connect secondary U.S.
cities from the carrier's Dublin hub.
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.
The push to offer lower ticket prices on long-haul routes 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.
Earlier this month, Delta Air Lines Inc. President Glen
Hauenstein said the arrival of discount carriers on trans-Atlantic
routes was "probably the least impactful" of a number of headwinds
in that market, in the short term. "Maybe in the long run, it could
be the most impactful."
So far, none of the big U.S. carriers that dominate the
trans-Atlantic market, American Airlines Group Inc., Delta and
United Continental Holdings Inc., have joined the fray, although
Delta last year began offering its "Basic Economy" fares on some
international flights. 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.
--Susan Carey contributed to this article.
Write to Robert Wall at robert.wall@wsj.com
(END) Dow Jones Newswires
December 24, 2016 02:47 ET (07:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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