IAG enters the low-cost, long-haul market

2017/3/20 21:47:17

Level, a new carrier, will be based in Barcelona and will initially fly to Oakland, Los Angeles, Buenos Aires and the Dominican Republic.



From The Economist, Mar 20th 2017


WILLIE WALSH has spent much of the past few years stripping the frills from British Airways planes, at least on short-haul routes. The boss of IAG, BA’s parent firm, seems keen to ape the success of Europe’s low-cost carriers, such as Ryanair. Hence, everything that once distinguished it as a “full-service” carrier—whether a complimentary sandwich, a free checked bag or to the right to choose your seat—has been deplaned. The strategy has proved a success. Despite the weak pound, British Airways posted an operating profit of £1.5bn in 2016—about 80% of IAG’s total.


When it comes to long-haul flights, however, Mr Walsh has had to contain his cost-cutting zeal. On such routes, BA must compete against carriers that boast sparkling amenities, particularly at the front of the plane, such as Emirates and Singapore Airlines. So although BA has managed to skimp a bit in the premium cabins (by, for example, reducing the food options and downsizing the washbag) it is also investing £400m to upgrade its posh Club World service.


On transatlantic flights, however, the full-service carriers are facing a new threat to their business: low-cost long-haul operators. This has traditionally been a tricky model to make work. Fuelling a plane to fly vast distances was once so expensive that it was difficult to make enough savings elsewhere to cut the price of a ticket significantly. From Laker Air to Oasis Hong Kong Airlines, aviation history is littered with those that tried and failed. But now a slew of new entrants, flying new fuel-efficient planes, seem to be making a decent fist of it.


Norwegian Air is probably the best known of these. It flies from Europe to America, often for under $200. That seems to have spooked IAG. So on 17th March the group announced that it, too, would enter the long-haul budget market. It is launching Level, a new carrier, which will be based in Barcelona. Level will initially fly to Oakland, Los Angeles, Buenos Aires and the Dominican Republic.






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