Is Level a legitimate attempt by International Airlines Group to build a long-haul, low-cost carrier? Or is it a "fighting brand" designed to make Norwegian Air's expansion more challenging? Time will tell.
Travelers searching for transatlantic airfare deals this summer may see a new no-frills option — an airline called Level.
It’s one of two International Airlines Group responses to a threat from Norwegian Air, a discounter that in the past three years has delighted frugal travelers with transatlantic fares as low as $69, fees not included. Norwegian is big in several European countries, including France, Ireland, Norway, and Sweden, but of two of its biggest markets are the UK and Spain. International Airlines Group, or IAG, owns the biggest airlines in both countries — British Airways in the UK and Iberia in Spain — so it has more exposure to Norwegian than Lufthansa Group or Air France-KLM.
To compete, IAG is trying two approaches. The first is at London Gatwick, where British Airways has added departures to New York JFK, Fort Lauderdale, and Oakland, all Norwegian markets. Onboard, British Airways offers its typical service, with free meals, but there’s one caveat. On its Gatwick-based Boeing 777s, British Airways plans to add an extra seat per row. The approach will help British Airways lower its per-seat operating cost, allowing it to more closely match Norwegian’s.
In Spain, IAG’s answer is Level, a new brand that starts in June with two Airbus A330s, outfitted with only economy and premium economy classes. At first, Level will fly four routes from Barcelona — to Los Angeles, Oakland, Buenos Aires, and Punta Cana, Dominican Republic. From L.A. and Oakland, Level will compete with Norwegian.
“It is clearly designed to blunt Norwegian’s impact,” said John Kwoka, an economics professor at Northeastern University. “I think all of the major carriers are running if not scared, then very anxious, about Norwegian.”
Level may expand further. In an interview, IAG CEO Willie Walsh said several airports in Spain, Ireland, the UK, France, and Italy could support low-cost, long-haul flights.
“This is a competitive response at one level but honestly we see it going beyond that,” Walsh said. “Our ambition goes far beyond two aircraft.”
Level started selling tickets on March 17 with one-way fares as low as $149. It claims it sold 52,000 tickets on Day 1.
Here are some answers to questions you may have about Level.
1. Is Level an Actual Airline?
For now, it’s more of a virtual one.
Customers will notice flights are operated by Iberia. Starting a new airline with its own operating certificate takes time, and IAG wanted to launch its low-cost brand this summer. This was an easier way to it.
Pilots and flight attendants will be from Iberia, and ordinarily they’re paid higher wages. But IAG negotiated a deal that allows it to pay them wages in line with low-cost carriers, Walsh said.
Eventually, IAG plans to turn Level into a real airline with its own operating certificate. The company already has seven certificates in four different countries, so adding one more isn’t a big a deal.
2. Can Level Take Passengers Beyond Barcelona?
Not yet. But Walsh said Level plans to sell tickets to destinations throughout Europe. That’s important, because while airlines can succeed with only point-to-point traffic, they generally also need connecting passengers, especially during off-season when fewer passengers might visit Barcelona.
IAG owns Spain’s largest low-cost airline, Vueling, and eventually passengers should be able to fly to Barcelona and connect to Vueling flights across Europe. They can do that now, but must buy separate tickets.
Walsh said Level launched without connecting options because it wanted to determine demand for nonstop service. But he said connecting flights will hit the website in the future. “We were delivering trying to asses what the underlying point-to-point demand was,” he said.
3. Does IAG Consider Norwegian an Unfair Competitor?
Norwegian has an unusual business model, at least by American standards. Though it is known by one name, the airline has four operating certificates — two in Norway, one in the UK and one in Ireland.
The strategy helps Norwegian, which has its main headquarters in Norway, capitalize on different labor laws and regulatory approaches in each country. U.S. labor groups, led by the Air Line Pilots Association, oppose the approach, saying carriers should not create subsidiaries outside their home countries simply to operate under more favorable laws.
But most competing airline executives acknowledge Norwegian’s approach is legal. Oscar Munoz, United Airlines’ CEO, recently told reporters Norwegian’s strategy is “clever.” At the same conference, American CEO said, “It’s never been an issue competing with someone who has a different model or lower costs – we do that all the time and we’re good at it,” according to a report from Flight Global.
Walsh said he has no issues with Norwegian’s UK or Irish operating certificates. (IAG also owns Aer Lingus, Ireland’s flag carrier.)
“I am very supportive of what Norwegian is doing,” Walsh said. “I have made it clear that our response to Norwegian will be a competitive response.”
4. IS IAG WORRIED LEVEL WILL HURT ITS FULL SERVICE AIRLINES?
Let’s say Level is successful, and passengers love it. Perhaps they won’t mind pay extra for food and bags. Why, then, would IAG customers book more expensive coach tickets on the company’s full service airlines?
But IAG’s Walsh said he’s not concerned Level will hurt British Airways, Iberia, or Aer Lingus, arguing the brand instead will attract passengers who rarely fly long-haul, as well as travelers who might otherwise fly Norwegian.
“There is clear evidence that this a completely new customer base,” he said. “When you go in with these prices you are stimulating new demand.”
Still, IAG will protect its core assets. Walsh said he does not foresee Level at IAG’s two most important hubs — London Heathrow and Madrid Barajas.
5. Don’t Airlines Within Airlines Fail?
More often that not, discount brands launched by major airlines fold within several years. It happened in the United States in the early 2000s to three carriers — Delta Air Lines, United Airlines, and US Airways. (You may remember Delta’s “Song,” United’s “Ted” and US Airways’ “MetroJet,” all attempts to thwart competition from low-cost carriers, including Southwest Airlines and JetBlue Airways.)
Even British Airways briefly had a discount carrier called Go in the late 1990s. It eventually became part of EasyJet.
“They all failed,” Northeastern’s Kwoka said. “It’s a odd beast. On the U.S. side, many suspected that these were not so much serious long-term efforts to create and establish a second presence, but just to create a fighting brand — something designed to hammer away selectively at your competition where they are making inroads.”
Kwoka said he will not be surprised if Level closes in a few years, but he said that wouldn’t make the airline a failure.
“If the point of Level is to hammer away at where Norwegian has a vulnerable spot and make Norwegian think twice about expanding, then it may well have served its purpose,” he said.
Walsh said he understands past mistakes, but said IAG’s approach is different. While it is now part of Iberia, Level is expected to be a stand-alone entity with its own management. IAG’s legacy airlines won’t meddle in Level’s operations, Walsh said, just as they don’t direct strategy at Vueling.
Walsh argued low-cost brands fail when they’re too closely tied to a legacy carrier.
“It wasn’t the competition that killed the [U.S.] low-cost subsidiaries,” Walsh said. “It was the parent companies. You could argue they were tactical responses rather than strategic responses.”
Steve Ison and Lucy Budd, who study transportation issues at Loughborough University in the UK, noted that airlines-with-airlines tend to struggle for the same reasons, including internal clashes between institutional cultures at the two airlines owned by the same company, and “brand confusion,” where customers don’t know “which airline they are flying with or what the difference is between them.”
In an email to Skift, Ison and Budd also said tension can arise if the low-cost brand steals share from the established carrier.
But they said some some recent airlines-within-airlines have performed stronger than past ones, including Jetstar, controlled by Qantas, and Scoot, controlled by Singapore Airlines. IAG could have similar success, they said.
“IAG [has] significant capital and experience of operating in these markets,” Ison and Budd wrote. “They also have the advantage of being able to learn from other airlines’ experiences of launching [airlines-within-airlines] or long-haul low-cost operations and so should, in theory, be able to avoid repeating the mistakes of the past.”
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Photo Credit: With its new long-haul, low-cost airline called Level, International Airlines Group hopes to stimulate new demand while protecting its core airlines — British Airways, Iberia and Aer Lingus. International Airlines Group
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