The changing order of transatlantic aviation

What goes around comes around. This year sees the fortieth anniversary of the launch of Freddie Laker’s SkyTrain, a pioneer of low cost flying across the Atlantic.   The latest generation of transatlantic low cost carriers is celebrating by growing fast.

Traditional carriers are still by far the predominant force between Europe and North America, with four legacy airline joint ventures accounting for about three quarters of overall capacity. The largest of the newcomers, Norwegian, still has only a fraction of total market capacity, but its Europe-US passenger numbers surpassed KLM’s late last year. This summer it will grow its North Atlantic activity by about two-thirds.

The new transatlantic order itself is likely to evolve significantly in two years’ time, based on recent announcements. JetBlue revealed that it had pushed back its first transatlantic-capable A321neo delivery until 2019. This was driven by wanting to control capital costs, but also showed a lack of confidence in the current excitable market growth. WestJet, on the other hand, demonstrated its faith in longhaul success by ordering its first 787-9s – also for delivery in 2019. 

Intriguingly, both these new-style carriers have fastened on a legacy carrier product feature as a key part of their future plans. JetBlue’s Mint cabin is just the thing for attracting business and upper end leisure travellers in the highest yield transatlantic markets out of New York. And now WestJet has said that it too will probably introduce lie-flat seats in a business class cabin.

This follows Norwegian’s announcement that some of its 787 deliveries next year will feature a much higher number of premium economy seats. This trend to compete more actively for higher-paying passengers shows that there are chunks of the transatlantic market which won’t be conquered just by having the lowest unit costs. Airlines also need to attract some of the premium passengers who pay more and demand more - as they did when Virgin Atlantic was the cheeky newcomer in the 1980s with lower costs and high frills.

Why are these carriers breaking with the “low costs, low fares win all” model? One reason is seasonality. There are twice as many passengers between the US and Europe in June as in February. Low fares don’t tempt Europeans to visit Chicago or Boston in winter.  But business travel continues most of the year, and the most lucrative transatlantic business customers are used to comfort, frills and loyalty programmes.

That’s a clue to who can succeed in the changing order. Norwegian has talked of the importance of connecting traffic flows to sustain low cost longhaul routes. But it also has a well-established loyalty scheme. 

Future newcomers are likely to need the ability to feed traffic onto their transatlantic routes and will want to have a strong presence at one end of the route to ensure awareness and a ready-made customer base. JetBlue and WestJet fit that mould well with ready-made feed networks and loyalty programmes.  And they are also looking to tap premium traffic.

Successful future carriers on transatlantic routes have a lot in common with the legacy carriers which they will compete against. But they combine those common features with lower costs and up to date operational and commercial practices.  And the legacy carriers can fight back – by reducing costs and keeping their grip on high yield customers.