As the aviation industry develops there has been a general upgauging across multiple markets as they show maturity. Across Europe, the US and Latin America low-cost carriers (LCCs) are already transitioning to larger short haul equipment to meet demand and deliver better operational economics. The Asian LCC market, while is still in its infancy compared to other parts of the world is quickly catching up and following a similar trend.
There is also increasingly a greater overlap between the operations of twin aisle and single aisle aircraft types. This is not new, but is an accelerating trend. The use of twin aisle on short haul operations, that is routes less than 2000nm, has increased by 26% in six years, according to Airbus.
Whether this has been driven by capacity constraints, cargo requirements or simply demand, it is fundamentally changing the way airlines are approaching network development strategies. Similarly, while twin aisle aircraft are used more often on routes less than 2000nm than single aisle types are on the routes longer than 2000nm, the arrival of new generation aircraft like the Boeing 737 MAX and A320neo will blur that gap as the extended range and enhanced efficiency of the aircraft opens up new city pair opportunities.
The number of unique city pairs has roughly doubled in the past 20 years to over 18,000, according to IATA. If this trend continues, the number of city pairs will exceed 25,000 by 2027. That is 7,000 new routes over the space of the next ten years – almost two per day. But, when it comes to making network decisions, airlines have traditionally been risk averse. It is a major risk (and expenditure) to put an aircraft in a new market unless there is sure analysis behind the decision.
Now new generation aircraft in both the short and long haul markets are offsetting that risk element through a step change reduction in operational costs. For example, Norwegian has used its 737 MAX-8s to open up new single aisle trans Atlantic connections linking Norway, Scotland, Northern Ireland and Republic of Ireland with the greater Boston and New York markets.
These are all brand new city pair links that have translated the successful basic principles of the short haul LCC model into the long haul market, particularly utilising smaller airports like Newburgh’s Stewart International Airport, 97km north of downtown Manhattan, and Theodore Francis Green State Airport in Providence, Rhode Island.
In Europe, WOW air is taking advantage of Iceland’s location to fly A321s into points Eastern Canada and USA, while leisure carrier Primera Air is using its new A321neoLRs to launch service from Birmingham, London Stansted and Paris CDG to Boston and New York from summer 2018, with service to Toronto expected to follow.
Suddenly small and medium-sized airports across the globe can now realistically sustain longer routes through the deployment of smaller single aisle equipment. Norwegian is a clear innovator as it grows its long haul low cost strategy to become a global player, while Primera Air’s transatlantic ambitions are based on solid historic travel data highlighting the true demand for its flights. But both airlines’ strategies are reliant on the new generation airliners rolling off the production line.
Route decisions are based on a range of different parameters that also differ between individual airlines and the destinations under consideration. There can be a fine line between securing the rewards of first mover status and balancing the risk involved in being first to market or instead placing an aircraft in an established market (either own or a competitor) where data shows clear demand to support the additional capacity.
British Airways (BA) has recently shown the clear value of first mover status and the role new generation aircraft play in the process with its London Heathrow-Austin Bergstom International route, the only nonstop transatlantic connectivity from the Texas state capital, now considered one of the world’s major centres for the tech industry. This is a route that has been born from advancements in aircraft technology and one which BA and airport officials acknowledge would not have been economically viable before the UK carrier introduced the 787 into its fleet.
BA has significantly stimulated demand on the London-Austin city pair, growing O&D demand estimates by over 50% between the year ahead of its Mar-2014 launch (Mar-2013 to Feb-2014) and the last 12 months (May-2016 to Apr-2017), handling 97,500 passengers in 2014, 124,500 in 2015 and 130,500 in 2016, according to the UK Civil Aviation Authority (CAA).
The route started with a 787-8, growing to a daily service from May-2014. In winter 2015/2016 strong demand saw a 777 deployed on the route and from Jul-2016 it has been exclusively flown by a 787-9. Over this period BA has built its market share of this growing market from less than 10% to over 67%.
Its success has now brought competition to the market with Norwegian adding its own three times weekly London–Austin route from Mar-2018, albeit flying from Gatwick airport in the UK capital.
Ultimately route decisions come down to a mix of the true business case for each service, the confidence or previous experiences of the carrier and perhaps a tint of strategic reasoning. But, when it comes to new markets airlines will seek as much support as possible through incentives and marketing support and that is what could win new connectivity.
As the LCC business model matures across the globe and long haul low cost operations grow, it is clear that network carriers are adapting their business strategies to boost competitiveness. Over the past decade, as consolidation and network restructuring has occurred, most notably in the US but also in other regions, balance sheets have strengthened and many network carriers are better financially positioned to withstand the increasingly competitive environment.
New dimensions to the ever changing competitive landscape of the network carriers versus the growing LCC market segment, are also being underpinned by digitalisation and technological developments. And a new generation of short and long haul aircraft is contributing to the fragmentation of international networks and will drive significant new network opportunities.
This article was adapted from a feature that appears in the latest issue of Airline Leader – the strategy journal for airline CEOs. Visit Airline Leader to find out more.