Special Report: Why Norwegian believes low-cost long-haul will work

Special Report: Why Norwegian believes low-cost long-haul will workBy Ian Taylor

Norwegian Air Shuttle will launch low-cost flights to the US from Gatwick next summer, arguing the Boeing Dreamliner will finally make no-frills transatlantic flights profitable.The rapidly growing carrier will operate from Gatwick to New York JFK three times a week and to Fort Lauderdale and Los Angeles twice a week each.

Norwegian chief executive Bjorn Kjos promises one-way fares from £149 to New York, £179 to Florida and £199 to Los Angeles. All three services will begin in the first week of July and operate year round.

Norwegian currently has two 787s, although one recently had to be taken out of service due to technical problems.

It is due to take delivery of a third in November, has four more on order next year and another to come in January 2015.

The carrier already flies long haul to five US cities from Oslo, Stockholm and Copenhagen, as well as to Bangkok, and it operates 320 short-haul flights a week from Gatwick – with more to come.

It began flying from Gatwick in 2009 and has grown rapidly, aiming to carry 2.4 million passengers from the airport next year.

But Norwegian’s expansion has been Europe-wide and, unlike Ryanair and easyJet, it has gambled on extending the low-cost model to long haul.

The Boeing 787 is the principal reason. The Dreamliner can cut fuel use on a long-haul flight by 20%-25% compared with existing aircraft.

It is this, allied to transfer traffic from Norwegian’s growing network, which lies behind Kjos’s confidence.

He says: “We have a lot of feeder flights into Gatwick and the airport has one of the biggest networks in Europe.

“We estimate we will attract a lot of transfer passengers, not just off our own network but from other carriers.”

Norwegian will offer interlining on its own network – meaning transfer passengers will be able to check bags through to their final destination – but won’t enter interline partnerships with other airlines.

Kjos insists the services will be profitable despite other low-cost carriers, such as AirAsiaX, abandoning attempts to fly long haul from Europe.

AirAsiaX tried flying from Stansted and Gatwick before pulling out in March 2012. The carrier blamed Air Passenger Duty, but since it also withdrew from Paris and ended flights from Europe we can assume there was more than APD behind the move.

AirAsia also had a big network at one end of its long-haul operations to feed traffic into and from.

Kjos argues: “We know low-cost long haul works. The reason it did not work [for others] is they didn’t have a network.”

He insists using the Boeing 787 will make a decisive difference. In London last week to announce the services, Kjos said: “We looked at this previously but couldn’t do it without a Boeing 787.

“You would never get close to the same figures on fuel efficiency.

“The 787 is another world and you can keep it in the air longer. It is £5 million a year less costly to operate [than other aircraft].”

He has a point. Fuel makes up about half the cost of flying to the US, so Norwegian’s transatlantic flights could be about 10% cheaper to operate than on other types of aircraft.

However, British Airways is also deploying the 787 which could limit the advantage.

Norwegian will operate with a single economy cabin and charge for drinks and food, meaning it is unlikely to tap into the business market which is what makes most long-haul services viable.

Crew will be based in New York and Fort Lauderdale. The carrier won’t base an aircraft at Gatwick, which suggests there could be delays in the event of technical problems.

Norwegian will also face stiff competition. BA and partner American Airlines fly to New York every hour from Heathrow.

Virgin Atlantic and partner Delta offer nine flights a day and are poised to enhance services after winning anti-trust immunity on transatlantic services.

Kjos dismissed suggestions that Norwegian may struggle in face of the competition, saying: “Other airlines can dump prices but they can’t do it on every aircraft for every passenger.”

He added: “We don’t try to get business passengers.”

Kjos also insisted Norwegian’s existing long-haul routes deliver “positive cash flow”.

The carrier has more than 200 aircraft on order, but has yet to report a profit although Kjos argues: “We have a profitable operation.”

So the carrier’s long-term long-haul success is likely to depend on its access to funds – Norway has a considerable sovereign wealth fund – and the commitment of investors.

Sourced from Travel Weekly.


Ryanair boss O’Leary throws down gauntlet to BA with plan for £6.30 flights to the US


Ryanair boss Michael O’Leary has thrown down the gauntlet to the major transatlactic airlines with an eye-catching plan for ‘ten buck’ flights to the United States.

The ebullient budget airline chief executive said he wanted tickets to start from as little as US $10 – or around £6.30 at current exchange rates – to bust open the strangle-hold of the major airlines including rivals British Airways.

Mr O’Leary told delegates at the World Low Cost Airlines Congress yesterday that the bargain flights could start in four years’ time: ‘But we’re not going to do it until we’ve got some planes.’

Thinking ahead: Mr O'Leary said he would like to introduce pay-as-you fly wi-fi into his planes for £1 an hourThinking ahead: Mr O’Leary said he would like to introduce pay-as-you fly wi-fi into his planes for £1 an hour

The plan has echoes of seventies cut-price pioneer Sir Freddie Laker whose cheap Skytrain flights to the USA transformed transatlantic travel for the masses, until being effectively killed off by the established airlines, though it inspired Sir Richard Branson to launch Virgin Atlantic.

Speaking at the Sofihotel adjoining Heathrow Airport’s Terminal 5, Mr O’Leary told 400  budget airline bosses: ‘Ryanair fares across the Atlantic could start from around ten bucks.’

He stressed: ‘Clearly not all fares would be ten bucks.’

But he pointed out that in 1991 average Ryanair fares were around £99: ‘We’re now down to £18.’

Frode Foss, chief financial officer with low-cost Norwegian Air Shuttle, who shared the platform  with Mr O’Leary said his airline had bought 220 lanes costing  £13billion and would use some of them to run  transatlantic flights  from Oslo to New York for around £100 each way.

And currently the price of the long-haul aircraft required is simply too high because Gulf state airlines were buying them up from Boeing and Airbus and there was insufficient availability: ‘They’ve put in gargantuan long-haul orders. So there’s no availability on suitable aircraft.’

Mr O’Leary also said he would like to introduce pay-as-you fly wi-fi into his planes for about £1 per hour online – but that it was still three to four years away.

The cost to the Irish-registered airline would have to come down to about 6p an hour for it to be profitable to the airline, he said.

Paid-for extras or ‘ancilliaries’ now constitute near a quarter (24 per cent) of Ryanair’s income.

Willie Walsh, chief executive of British Airways’ parent company IAG also said BA was exploring wi-fi but had yet to settle on a global provider. He said:’Everyone will have wi-fi at some stage. But there are different systems and they are not all going to succeed. If we do it,  we will do it globally.  It will happen. It’s a question of when.’

Referring back to the rival video battles of the 1980s he said: ‘It’s like VHS and Beta-max. We don’t want to buy the Betamax.’

On Monday Ryanair  announced plans to increase passenger numbers at Stansted airport  by 50 per cent to more than 20million, reversing a threat to cut flights at the airport.

The ten -year deal with Stansted’s new owner Manchester Airport Group will create an estimated 7,000 jobs at the site, said the airline.

Mr O’Leary also said Ryanair was working with the airport to help attract long-haul airlines.

The carrier had threatened earlier this year to cut flights from the Essex airport by 9 per cent because of increased fees, but has now reached a deal with Manchester Airport Group. The new agreement is expected to see the airline operate more than 2,000 flights a week from the airport, up from 1,800.

Stansted hopes to increase annual passenger numbers to 30million a year over the next ten years, making it London’s fastest-growing airport. Ryanair is also planning big expansion in Poland.

In the wake off a safety row involving some reports from Ryanair pilots, he insisted: ‘Ryanair’s reputation on safety should not be impugned by anyone.’

When questioned about the morale of his staff, he told delegates: ‘Morale among my staff has never been higher. Anyone who questions that gets beaten until the morale improves.’

Read more: http://www.thisismoney.co.uk/money/news/article-2424991/Ryanair-boss-OLeary-throws-gauntlet-BA-plan-6-30-flights-US.html#ixzz2fKk67fcM  Follow us: @MailOnline on Twitter | DailyMail on Facebook

Aeroflot to establish low-cost airline

Aeroflot to establish low-cost airlineBy Phil Davies

Aeroflot is taking serious steps to launch the country’s first sustainable budget carrier.The airline, which still controls 40% of the Russian aviation market, is hoping from 2014 to launch its first budget routes from Moscow to Saint Petersburg and to cities in the south of Russia from next year.

The new Aeroflot subsidiary, whose name has yet to be unveiled, plans to eventually serve international destinations including Kiev, Yerevan, Istanbul and Barcelona with a fleet that will comprise 40 aircraft starting with Boeing 737s, according to the daily newspaper Vedomosti.

The budget Aeroflot would likely be based at Domodedovo in the south of Moscow as opposed the airline’s main hub at Sheremetyevo airport, the AFP news agency reported.

Russia’s third biggest airline, UTair, is also planning to set up its own low-cost carrier, pointing to a clear market demand.

“People consider more and more that their time is precious and they are going to want less and less to spend two or three days to get anywhere,” chief executive Andrei Martirossov toldVedomosti.

But setting up a budget airline is still dependent on changes to Russia’s aviation regulations which are stricter than in Europe.

Russian law also forbids the hiring of foreign pilots, a major problem in a country whose aviation boom had led to a pilot shortage and consequent high salaries.

Aeroflot chief executive Vitaly Saveliev called it a “paradox” that Russian authorities have allowed Wizz Air and easyJet to fly into the country but has not levelled the regulatory playing field so Russian companies can use the same business model.

“As long as the law does not change, absolutely nothing is going to fly. We are not going to take the risk,” he said. “Aeroflot is not going to invest $100 million in a project which is not going to make us money.”

The Russian authorities appear to have understood the necessity of acting after president Vladimir Putin gave his agreement in principle to the creation of a low-cost airline last October. But changes have been slow to come, according to the AFP report.

Sourced from Travel Weekly

Low-cost air fares: How ticket prices fall and rise

By Erica GornallBBC

Flight prices

“You can’t have paid less than me, you booked a week later,” said one Easyjet passenger to the friend seated next to her.

As the pair waited at Venice’s Marco Polo airport for their flight home, the woman who had paid more for her ticket became increasingly annoyed.

Her friend must have got the figure wrong, she insisted. Like many of us, she had assumed that prices only go up as the date of departure nears.

But BBC research suggests we may need to reassess some of the things we think we know about air fares.

Prices on routes from London to major European cities including Rome, Barcelona and Berlin were monitored every day for six weeks.

The findings show that fares can actually fall and then rise a number of times during the period leading up to a flight.

The price of a Ryanair flight from London to Rome in the middle of April, for example, fell on six separate occasions in the six weeks before departure.

You could therefore have saved money by waiting for a day or so, and in a couple of cases, the saving was quite substantial. Between 14 and 15 March, the price fell from £40.14 to £28.14. And between 1 and 2 April it fell from £78.91 to £54.99.

“We will know whether we are over or below [the target for passengers buying seats],” says Michael Cawley, Ryanair’s deputy chief executive.

“And if we are above it, we can increase the fare, because we need to slow down the rate of booking, or if we are below it, we need to reduce the fares,” he explains.

This is classic demand management, of course. But it makes particular sense for the low-cost airlines, because their business models depend as much on selling extras – hotels, refreshments and car hire – as they do on selling tickets.

As they say at Ryanair, it is all about “bums on seats”. Fewer passengers means fewer opportunities to sell gifts on board.

Fill your ‘buckets’

The stag party arrives at Riga airport

It is price, not place, that countsLow-cost air travel takes people to places they had never thought of visiting – but not necessarily because they are fulfilling their travel ambitions. Often, it is just because the destination is the cheapest on offer.

“Passengers generally have a budget, and are in many cases indifferent to where they go, so long as it’s a sunshine destination or a historic destination depending on their preference,” says Ryanair’s Michael Cawley.

“So if it’s Krakow or Prague it really doesn’t matter. Or if it’s Alicante or Malaga, it doesn’t matter. It’s the price that determines that demand.”

For best man Richard Fry, organising a stag party for his friend, the best choice was Riga in Latvia because it was “cheaper than Prague and Amsterdam” and the trip took no longer than it would take to get to Liverpool or Manchester by train.

“It’s a bit of a no-brainer, really,” says Richard.

This results in the peaks and troughs in the prices. In the space of just four days, a ticket from London to Barcelona with the Irish airline went from £57.99 to £35.34 to £28.14 and then back up to £41.74.

At Easyjet it is all about “buckets”. On each flight, groups of tickets are sold in a series of “buckets”, with the buckets sold closer to the flight having higher prices, explains UK director Paul Simmons.

But while in general the later buckets have higher fares, to sell all the tickets in a particular bucket, prices may be cut to boost sales and move on to the next, higher priced bucket.

And if there’s low demand on a flight, the system may never reach the higher priced buckets.

“It doesn’t accelerate through the buckets at all if it’s a low-demand flight, so it may never get to the final buckets, it may just carry on at a lower trajectory,” says Mr Simmons.

That is what appears to have happened with the Easyjet flight to Berlin on 12 April.

The research for the BBC programme, Flights and Fights: Inside the Low Cost Airlines, showed that if you had booked on 13 March you would have paid £90.99. But on 10 April, just two days before the flight, the fare had gone up by just £9 to £99.99.

How to save

So how can you try to get the best fare?

“Days of the week do vary. Tuesdays would be our weakest day from a revenue point of view,” says Paul Simmons. “So if you are flexible, say you can fly on your summer holiday Tuesday to Tuesday, rather than Saturday to Saturday, you’d probably save money.”

Also, check comparison sites because British Airways, often considered a more expensive “full service” airline, was sometimes cheaper than those known as “low-cost” airlines.

On the route to Barcelona, for example, BA was cheaper than Easyjet for most of the period. It would only have been cheaper to fly Easyjet six weeks before the flight and for a few days right before take-off.

And although Ryanair was still consistently the cheapest, they often fly to different airports, further from the centre of the city.

Simon Calder, who has monitored the industry for many years, warns consumers not to confuse “low-cost” airlines, which operate as cheaply as possible, with “low fares”, which is what the customers pay to fly.

“‘Low-cost airline’ means an airline whose costs are low, not necessarily an airline whose fares are low,” says Mr Calder.

“A low-cost airline can have very high fares. A high-cost airline can have very low fares. The crucial thing about low-cost airlines is that the lower your costs, the more likely it is that you will be able to make a profit and offer – most of the time – decent value to your customers.”

Flights and Fights: Inside the Low Cost Airlines, will be broadcast on BBC Two on Thursday 20 June at 21:00BST.

How we did the research:

Easyjet, Ryanair and BA

We checked the price of fares to a number of popular European cities leaving London on 12 April 2013

We picked one flight per airline per destination. Every day for six weeks prior to departure, we recorded the lowest price available for that flight on the airline’s website

The aim was to track how fares moved, rather than to compare prices

As the flights depart at different times of the day and travel to and from different airports, direct comparison between airlines is not possible

Berlin flights:

Ryanair and Easyjet from London Stansted to Berlin Schoenefeld

BA from London Heathrow to Berlin Tegel

Barcelona flights:

Easyjet and BA from Gatwick to Barcelona

Ryanair from Stansted to Barcelona Girona

Rome flights:

Easyjet and BA from London Gatwick to Rome Fiumicino

Ryanair from London Stansted to Rome Ciampino

What was included in these fares?

Ryanair and Easyjet included taxes, admin and booking fees, online check in, but no checked bags

BA included taxes, admin and booking fees, and one checked bag – except on the Barcelona flight, which didn’t include a checked bag

Sourced from BBC Business News.

Low-cost flights now the majority, Amadeus research finds

Low-cost flights now the majority, Amadeus research finds

By Phil Davies

More than half of all flights from the UK (52%) are now operated by low-cost carriers (LCC), a rise of 4% on 2011, new research out today reveals.

Spain has the highest share of departing LCC traffic in Europe at 57%, followed by the UK. Meanwhile, 65% of all air travel in the Philippines and 61% of all air travel in Thailand is made on low-cost carriers.

LCC penetration is highest in Europe at 38% and North America at 30%

The new analysis from Amadeus Air Traffic Travel Intelligence shows that worldwide air traffic grew by 5% between 2011 and 2012, with Asia being the largest, fastest-growing and most competitive market.

Asia saw year-on-year growth of 9%, followed by Latin America, at 6%.

The study also highlights that 22% of all global air travel is concentrated on just 300 ‘super routes’, each of which carries more than one million passengers a year.

Furthermore, 69% of all global air travel is made on major routes with 100,000 annual passengers.

The Middle East is a strong performer for connecting traffic, with the three key airports of Doha, Abu Dhabi and Dubai all showing high traffic volumes, serving about 15% of all air traffic between Asia and Europe and from Europe to the southwest Pacific.

Europe-Asia traffic routed via the Middle East is growing at roughly 20% a year.

Asia is the world’s most competitive aviation market with 75% of routes served by three or more airlines and just 25% of routes by one or two carriers, according to the study.

Analysis of the busiest routes in the world by passenger volume shows that seven out of the top ten world’s busiest air travel routes are in Asia.

Jeju-Seoul in South Korea is the world’s busiest route, while Beijing-Shanghai has risen from seventh-busiest route to fourth-busiest in 2012.

Sapporo-Tokyo has overtaken Rio de Janeiro-Sao Paulo to second-busiest route ranking, and Okinawa-Tokyo has entered the top ten table, as ninth-busiest route in the world.

Globally, the airline industry has become consistently more competitive over the past three years. The percentage of air traffic served by just one or two airlines has fallen by 2% each year from 39% in 2010 to 35% in 2012.

Concurrently, the percentage of air traffic with four or more competing airlines has also risen consistently from 35% in 2010 to 38% in 2012, the research shows.

Amadeus head of travel intelligence Pascal Clement, Head said: “The rapid pace of change and increasing competitiveness of the global airline industry, as evidenced by this data, means airlines and the wider travel industry increasingly need to base operational decision-making on data insights and analytics, in order to identify opportunities and risks as they emerge.

“This data provides good news for the airline industry, showing that passenger air traffic has increased in every region of the world from 2011 to 2012. As in 2011, this growth is led by Asia, however, the data points to a further opportunity in the region, where the majority of traffic is on a small number of busy routes.”

Sourced from Travel Weekly

Vueling expand Summer services

Vueling - Love the way you fly logoDue to the positive response from Welsh travellers for flights to Spain from Cardiff, leading Spanish airline Vueling has increased services to Malaga and Alicante.

Flights have been added to both Malaga and Alicante starting on March 23rd in time for the great Easter Getaway.

There are also additional flights to Malaga on a Wednesday throughout August and September, taking into account the increased demand during the school holidays.

Spencer Birns, Head of Air Service Development and Commercial Operations at Cardiff Airport commented, “It’s great to see Welsh passengers using the Vueling flights and those that have travelled with them already are re-booking because of the competitive pricing and quality product.

We would urge more welsh passengers to support their local airport and fly with Vueling this summer.”

VY EC-LOPJavier Suarez, Vueling´s Routes Manager, states that “Vueling is satisfied with the success of our routes from Cardiff´s airport and the increase on the route Cardiff – Malaga translates our engagement to offer more seats with low fares and high quality to travelers from South Wales “

Vueling operate flights to Alicante, Barcelona, Malaga and Palma Majorca from Cardiff starting on March 23rd.

Direct flights from Cardiff to Palma Majorca will operate on Tuesdays, Thursdays and Saturdays commencing 20th June 2013.

Flights to Alicante and Malaga will also operate on Tuesdays, Thursdays and Saturdays commencing 23rd March 2013. Wednesday flights to Malaga are available during August and September.

Flights to Barcelona will operate on Fridays and Sundays starting on 28th March 2013 offering connections to cruises departing from Barcelona.

Vueling flights also offer a wealth of onward connections available via Vueling’s successful Barcelona Hub operations, currently accessing over 50 destinations in Europe and North-Africa, with full baggage through check-in from Cardiff Airport to final destination.

Tickets are available now via http://www.vueling.com, travel agents, Vueling’s iPhone app, mobile portal m.vueling.com, and call centre (UK number) 0906 754 7541.

Fastjet launches in Africa

Fastjet, the first low-cost airline for Africa, backed by easyJet founder Stelios Haji-Ioannou, has launched with its British management team promising to “give people used to 12 hour bus rides the option to fly”.

Air travel in Africa is among the most expensive in the world, with some 45 minute flights costing more than £300.

Fastjet offers base fares from £13 before taxes, cheaper than taking long-distance buses, and begins its first commercial flights from its hub in Tanzania’s commercial capital, Dar es Salaam, on Thursday.

Its British bosses, former senior managers of airlines including easyJet, Go, FlyBe and Ryanair, intend to open new hubs in Kenya next and later in Ghana and Angola.

“There is no typical fastjet passenger,” said Ed Winter, its chief executive and formerly chief operating officer at both Go and easyJet.

“There will be everyone from people who have never flown before, to traders finding new markets, to government ministers. The idea is to give people who used to spend 12 hours on a bus to visit their relatives the option to fly for the first time.”

Fastjet’s first aircraft, a 156-seat Airbus A319 that was until six weeks ago in service with easyJet, took its inaugural public flight from Dar es Salaam on Tuesday, a 40-minute round trip over the Indian Ocean above Zanzibar.

Regular African passengers used to ample space in the continent’s flag-carrying airlines are likely to be surprised at both the limited leg room and the charges for drinks, snacks and checked-in bags.

Apart from two domestic no frills outfits in South Africa, all other airlines in Sub-Saharan Africa operate full service flights.

“It is going to take a week or two to get this new model fully understood, few passengers in Africa have had exposure to the way low cost carriers operate,” said Kyle Haywood, fastjet’s general manager, who earlier helped launch the Gulf’s first no frills airline, Air Arabia.

Fastjet plans to expand its fleet, all Airbus A319s, to 15 aircraft within 12 months. Its initial route focus will be in East Africa, with hubs in Dar es Salaam and Nairobi serving Ethiopia, South Sudan, Uganda and Rwanda.

“We’re looking at a lot of different possible destinations,” Mr Winter said. When asked if they might include Mogadishu, Somalia’s capital, he said, “why not? There’s a lot of demand.” The company is majority owned by Lonrho, with Mr Haji-Ioannou holding 5 per cent of the shares and acting as lead consultant.

Sourced by The Telegraph