Low cost long haul is ‘fake’ and has ‘never been successful’, EUR10-EUR20 airfares ‘not sustainable’ in current political environment and travel today is ‘much more’ than just the airline experience – initial insights from CAPA’s Low Cost Long Haul Global Summit

New aircraft technologies, evolving passenger preferences and stable fuel prices are pushing LCCs (and restructuring full service airlines) to consider new growth opportunities. High fare long haul markets are ripe for disruption and airports/destinations are aggressively courting new routes. New city pairs are emerging, and secondary airports are featuring regularly in the long haul low cost networks.

But it’s not just fuel efficient widebody equipment that’s changing the game – the new long haul narrowbodies are opening up vast new opportunities for airlines – and they’ll be entering the fleets of airlines around the world in large numbers in the coming years.

The implications are profound, touching the entire travel value chain from airports to accommodation, ground transportation, distribution/payment and technology – and even corporate travel.

The CAPA Low Cost Long Haul Global Summit, returning for a second year, last week attempted to tap into the latest industry issues and developments, challenging leaders of the industry to reflect on what is needed to drive the industry forward.

The event, hosted at The Grand Elysée Hotel, close to Hamburg’s city centre, brought together hundreds of aviation and travel executives from airlines, airports and suppliers to explore relevant issues, as well as the commercial and operational pillars underpinning strategic decision making at international carriers.

Here’s some initial insights from the event:

‘People want to travel and want to travel affordably’
Air Arabia CEO Adel Ali said the development of low cost long haul has been a process of trial and error. “We have been doing this for 100 years as an industry and we are still doing it”, he continued. “Everybody thought it [LCC operations] would not work in the Middle East”, he said, arguing it has succeeded since “people want to travel and want to travel affordably”.

Low cost long haul is ‘fake’ and has ‘never been successful’
Royal Jordanian president and CEO Stefan Pichler stated low cost long haul (LCLH) is “fake” and has “never been successful”. Mr Pichler said aircraft used for low cost operations “take the same 10 hours to fly from A to B… it’s different if you fly up to three hour sectors because you can squeeze in more movements in the day”.

Full Service Carriers are becoming more sophisticated in competing with Low Cost Carriers in long haul
Air Lease Corporation (ALC) executive chairman Steve Udvar-Hazy said FSCs are becoming smarter and more sophisticated in yield management and are becoming “more sophisticated at competing with LCCs in the long haul space”. He added that these carriers can allocate seat prices at the back of widebody aircraft that match LCC fares and this can also be combined with frequent flyer advantages that LCCs cannot offer.

Fleet choice ‘not as clear cut as this airplane versus that airplane’
Boeing Commercial Airplanes director market analysis Wendy Sowers stated airlines are shifting to widebodies after a 2500nm range. “Most airlines are shifting when they reach that mark”, she said. Ms Sowers argued fleet choice comes down to business model and geography and traffic volumes of different markets, adding it is “not as clear cut as this airplane versus that airplane”.

EUR10-EUR20 airfares ‘not sustainable’ in current political environment
Lufthansa Group CCO network airlines Harry Hohmeister argued airfares below EUR10-EUR20 are “not sustainable” in the current political environment. He further argued such low airfares are generating artificial demand and burdening infrastructure and the environment as a result.

WOW air’s widebody introduction ultimately caused its demise
Air Lease Corporation (ALC) executive chairman Steve Udvar-Hazy said the introduction of widebody aircraft by WOW Air caused its “demise”. He said WOW Air had a “very sound business plan… everything was working great” until it introduced widebody A330 aircraft across the North Atlantic to Europe in a seasonal market. “In two or three months they could make a little money… but in the off season they were losing far more money on A330 operations” and “wiped out” any profitability on their narrowbody operations.

Travel today is ‘much more’ than just the airline experience
Amadeus SVP airlines Christian Baillet stated ancillary and merchandising is about engaging the consumer, delivering relevant offers at the right time and delivering them seamlessly. He also said travel is “much more” than the airline experience, but rather an “end-to-end journey”, concluding: “You want to deliver an experience that goes across that journey”.

‘Everybody can join the party’ with new long haul narrowbody aircraft
CAPA – Centre for Aviation chairman emeritus Peter Harbison stated the use of long haul narrowbody aircraft is “really going to change the nature of the industry”. He further said development of long haul narrowbody aircraft means “everybody can join the party”. Mr Harbison added it is “almost impossible” to assess the permutations of routes long haul narrowbody aircraft offer, there is “such a variety” of city pairs that we are going to see “a lot of experimentation”.

TUI Group has shifted away from tour operator business over the past five years
TUI Group head of communications Aage Dünhaupt stated the group bears less similarities to Thomas Cook Group in terms of its business model. he said TUI has shifted away from the tour operator business over the past five years, which now only accounts for 30% of the business while 70% stems from cruises and hotel activities. “There will be many more years to come for our company”, he affirmed.

French bee poses ‘significant threat’to Air France, particularly in colonial French markets
Air France-KLM EVP strategy Angus Clarke stated the group has “a lot of competition” in Paris, particularly from French bee which poses a “significant threat in colonial French markets”. He noted French bee’s “uncomfortable” 10 abreast configuration in its A350-900/-1000s are “keeping me awake at night”.

LCCs have ‘massively outperformed’ FSCs in generating ancillary revenue
Travelport head of Europe air partners Mike Rock stated LCCs have “massively outperformed” FSCs in terms of ancillary revenue. He pointed out that better performing LCCs generate 30% to 45% of revenue through ancillaries, while the best performing FSCs generate 10% to 15%, up to 75% of which stems from FFPs.

LOOK OUT… Exclusive executive interviews from Hamburg will be published on CAPA TV in the coming weeks, as well as full coverage of the agenda sessions.

Self connect partnerships will have ‘clear’ benefits for passengers and airlines
London Stansted Airport CEO Ken O’Toole stated its self-connecting partnership with Kiwi.com will be “interesting” as it will “for the first time” facilitate connections between two unaligned carriers, including full transfer capabilities such as baggage transfer and integrated itineraries. He said apart from the “clear” benefits for passengers, the implications for airlines are improved turn around time and “essentially filling a seat that they may not have filled before”.

Norwegian ‘fine tuning’ trans Atlantic network: EVP strategic development
Norwegian EVP strategic development Tore Østby stated the carrier is “fine tuning” its trans Atlantic network, with additional counter cyclical leisure routes to Asia and “we are looking at others”.

Skyscanner: Voice search ‘hasn’t quite materialised’ but will accelerate as technology improves
Skyscanner commercial director Gavin Harris stated voice enabled search popularity “hasn’t quite materialised” but as technology adapts and becomes more accurate, “it’s only going to accelerate”.

CAPA – Centre for Aviation members were able to see live updates from the CAPA Low Cost Long Haul Global Summit and have access to over 100 briefs from the event. Find out more about how a CAPA membership provides a front row seat to global aviation news, analysis and data as it happens, with access to a comprehensive suite of tools that can be customised to your needs.

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