Low Cost Airlines Playing the Long-Haul Game

There are currently 29 low cost airlines operating across Europe, with Ryanair, the largest in terms of passenger numbers, expected to carry a staggering 119m travelers this year.

Low cost airlines (LCCs) are so popular that of the 10 largest airlines operating in Europe right now 4 are LCCs (Ryanair, easyJet, Norwegian and Air Berlin). Between them they will carry more than 250m this year alone.

It’s a huge business and it’s changing…

Whilst in the past, LCCs have focused on short-haul services in order to maintain a low-cost base, many of the world’s biggest LCCs have now started operating long-haul services. This brings them head-to-head with full-service airlines on popular routes such as the ever-busy transatlantic flights.

Norwegian (Air Shuttle) is leading the way in terms of operating long-haul flights.

Today, Norwegian offers a number of long-haul services such as New York, Boston and San Francisco from its UK London Gatwick hub, operating the Dreamliner 787 aircraft. The Dreamliner gives the airlines the ability to operate on a low-cost basis since this aircraft is 20% more fuel efficient than other aircraft able to fly such distances.

Ryanair is also getting in on the act by recently announcing its partnership with Spanish carrier Air Europa. The Irish airline, in partnership with Air Europa, now offers its customers flights from Madrid to several long-haul destinations in North and South America such as Miami, New York and Montevideo.

Icelandic low-cost carrier, WOW Air also offers indirect long-haul services from three UK airports (London Gatwick, Bristol and Edinburgh) to destinations across the US.

More recently, British Airways’ owner IAG also entered the low cost long-haul market with its new airline, Level.

So, why are low-cost airlines changing the original short-haul point to point business model?

There are several reasons behind this including the ability to attract more passengers and take a share of the market away from full-service airlines, especially on the highly profitable, highly competitive transatlantic routes.

Our latest whitepaper (Stay Ahead In 2017 With The Right Payment Strategy) shows that travelers are becoming more and more adventurous with their travels, constantly looking for new and exciting destinations to visit. Furthermore, our whitepaper reveals the growing number of travelers jetting off to far flung destinations such as the Caribbean (which saw increase in visitors from the UK, up 10% on the previous year), and when it comes to booking flights, travelers are particularly price-conscious.

Staying ahead of the game

Our whitepaper shows that whilst traditional airlines are the largest travel segment in Europe, with gross bookings set to reach €107.1 billion by 2020, these carriers are facing significant competition from LCCs. LCCs are Europe’s fastest growing segment with bookings set to increase from €20.9 billion in 2016 to a staggering €27.8 billion in 2020. (See Phocuswright’s European Online Travel Overview Twelfth Edition for more).

The growth of long-haul LCCs only intensifies the need for travel companies to ensure they offer the right flights and the right prices in order to win customers, as travelers increasingly move away from traditional airlines to LCCs in order to keep essential travel costs down.

This is why many travel companies are switching to Virtual Card Numbers (VCNs) …

A VCN is a single-use card number enabling secure payment of suppliers and facilitating automatic reconciliation. VCNs are used to make real-time payments and are accepted globally by travel suppliers, such as airlines, using existing systems. VCNs help travel companies to save money on supplier payments.

Facilitating the payment of suppliers in over 150 currencies, VCNs allow travel companies to avoid FX rate mark ups and cross-currency fees saving around 3% on international payments. Plus, as VCNs allow travel companies to pay suppliers in their local currency, the supplier can also avoid fees for receiving an out of currency payment – this can contribute towards stronger more robust relationships with suppliers.

VCNs offer travel companies the opportunity to earn money on payments made which can provide an extra revenue stream.

Read more posts like this from Ian Johnson on the WEX Travel Payments Insights Blog