Monday, April 16, 2007
Low-cost airlines to tackle long-haul carriers
By Kevin Done in London
Monday, April 15, 2007, FT
The long-haul network airlines are being challenged in unprecedented fashion by new aviation business models.
The upstart breed of low-cost carriers has made inroads into the traditional airlines’ short-haul markets, capturing a growing share and forcing legacy carriers to restructure drastically their operations to survive.
The attack in the long-haul sector has taken longer to materialise, but challengers are now stepping forward, a development that could drive the aviation industry into an era of wrenching change.
The gauntlet has been thrown down first in the business-class segment of the market, where the legacy carriers make the lion’s share of their profits.
Eos Airlines and Maxjet began flying 18 months ago in the London-New York market and have been followed early this year by Silverjet, a UK start-up on the same route, and by L’Avion flying between Paris and New York.
The London-New York route is the test bed for the latest aviation experiments, because it is the world’s busiest and most lucrative long-haul market with more than 4m passengers a year.
For several years, airlines have shied away from trying to make the low-cost airline business model work on long-haul routes.
Analysts have argued that passengers need costly in-flight service “frills” for routes taking many hours, and some of the key operating factors in the short-haul model, such as quick airport turnrounds are much tougher to achieve in long-haul.
Equally, bargain basement fares are already available from the legacy carriers themselves.
The conventional wisdom is set to be challenged, however, most notably by two of the world’s most successful low-cost aviation entrepreneurs, Tony Fernandes, chief executive of Malaysia’s Air Asia, and Michael O’Leary, chief executive of Ireland’s Ryanair.
Mr O’Leary says his transatlantic assault could be launched in the next three to four years, while Mr Fernandes hopes his AirAsia X could take off before the end of the year.
Both entrepreneurs insist they will set up separate companies to run the budget long-haul operations. Mr O’Leary said last week: “The minute you put a long-haul business on top of a short-haul operation you kill it.”
There is still scepticism that economy long-haul carriers can be viable, however.
“Long-haul already has budget fares,” said Lawrence Hunt, founder of Silverjet. “Eighteen pounds per passenger per hour is already the average of the lowest [transatlantic] economy fares, which is slightly lower than Ryanair’s average on short-haul routes in Europe.
“If he is going to be offering £7 seats, he is going to be offering £7 service, which is untenable on long-haul flights lasting several hours.” ¶ 2:32 AM
Monday, April 15, 2007, FT
The long-haul network airlines are being challenged in unprecedented fashion by new aviation business models.
The upstart breed of low-cost carriers has made inroads into the traditional airlines’ short-haul markets, capturing a growing share and forcing legacy carriers to restructure drastically their operations to survive.
The attack in the long-haul sector has taken longer to materialise, but challengers are now stepping forward, a development that could drive the aviation industry into an era of wrenching change.
The gauntlet has been thrown down first in the business-class segment of the market, where the legacy carriers make the lion’s share of their profits.
Eos Airlines and Maxjet began flying 18 months ago in the London-New York market and have been followed early this year by Silverjet, a UK start-up on the same route, and by L’Avion flying between Paris and New York.
The London-New York route is the test bed for the latest aviation experiments, because it is the world’s busiest and most lucrative long-haul market with more than 4m passengers a year.
For several years, airlines have shied away from trying to make the low-cost airline business model work on long-haul routes.
Analysts have argued that passengers need costly in-flight service “frills” for routes taking many hours, and some of the key operating factors in the short-haul model, such as quick airport turnrounds are much tougher to achieve in long-haul.
Equally, bargain basement fares are already available from the legacy carriers themselves.
The conventional wisdom is set to be challenged, however, most notably by two of the world’s most successful low-cost aviation entrepreneurs, Tony Fernandes, chief executive of Malaysia’s Air Asia, and Michael O’Leary, chief executive of Ireland’s Ryanair.
Mr O’Leary says his transatlantic assault could be launched in the next three to four years, while Mr Fernandes hopes his AirAsia X could take off before the end of the year.
Both entrepreneurs insist they will set up separate companies to run the budget long-haul operations. Mr O’Leary said last week: “The minute you put a long-haul business on top of a short-haul operation you kill it.”
There is still scepticism that economy long-haul carriers can be viable, however.
“Long-haul already has budget fares,” said Lawrence Hunt, founder of Silverjet. “Eighteen pounds per passenger per hour is already the average of the lowest [transatlantic] economy fares, which is slightly lower than Ryanair’s average on short-haul routes in Europe.
“If he is going to be offering £7 seats, he is going to be offering £7 service, which is untenable on long-haul flights lasting several hours.” ¶ 2:32 AM
