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Low-cost airlines targeting intercontinental routes have come and gone since the days of U.K. entrepreneur Freddie Laker’s trans-Atlantic Skytrain service in the 1970s.
But a new generation of discounters equipped with more-efficient jets and using the Internet to tap markets closed to their forerunners is set to endure, challenging the long-haul dominance of network carriers, International Air Travel Association Chief Executive Officer Alexandre de Juniac said Tuesday.
“There’s a general conviction in the industry that this phenomenon will keep on going and developing,” de Juniac, who was previously CEO of Air France-KLM Group, said in an interview at IATA’s World Cargo conference in Abu Dhabi. “You see a lot of legacy companies which are preparing for competition with low-cost long-haul either by reducing fares or creating their own subsidiary.”
This time round, airlines have “learned from past experience,” he said. Carriers such as Norwegian Air Shuttle ASA are also benefiting from the fuel savings offered by aircraft including Boeing Co.’s 787, together with an ability to sell flights in a far bigger marketplace via digital technology.
Dubai-based Emirates, the world’s biggest long-haul carrier, said last week it was bracing for a “gathering storm” as low-cost airlines encroach on the inter-continental routes around which it has built a business model.
Still, de Juniac said that the forecast increase in global air travel over coming decades should be sufficient to support the co-existence of both hub-based airlines and discounters plying point-to-point routes, adding that the latter may remain focused on connecting secondary cities.
Norwegian Air said Tuesday that it has flown 4 million people between Europe and the U.S. since its first trans-Atlantic trip in 2013. The carrier serves eight American cities, having begun with flights from Scandinavia before expanding to London in 2014 and Paris at the end of 2016. It will add Barcelona in June and is also set to commence narrow-body journeys to relatively minor U.S. terminals that will undercut bigger operators even further.
European network carriers have responded to the cut-price challenge by establishing new discount divisions, with Deutsche Lufthansa AG expanding long-haul operations at its Eurowings arm and British Airways owner IAG SA planning to commence low-cost trans-Atlantic flights from Barcelona. And at Air France-KLM, de Juniac’s successor Jean-Marc Janaillac is creating a unit dubbed Boost to operate lower-margin routes.
Laker’s Skytrain folded in 1982 after competitors including Pan Am, TWA and the then state-owned British Airways slashed prices during a global recession. The company had also struggled for years to win access to the most attractive routes in the highly regulated market of the time.
De Juniac also said that IATA, which represents mainly network operators and current or former flag-carriers, is looking to recruit some of the bigger low-cost carriers as members. The industry group currently includes 265 airlines comprising 83 percent of global air traffic.
The executive said that IATA continues to favor open borders and the free movement of goods and people over protectionism, adding that he raised the issue with Elaine Chao, U.S. President Donald Trump’s newly appointed transport secretary, at a recent meeting.
©2017 Bloomberg L.P.