THE TRANSATLANTIC WAVE

27 Mar 2023

This may be a sign that we are finally rid of the pernicious effects of Covid. Carriers are rushing to the transatlantic axis, which can be a real cash machine, provided, however, that overcapacity does not lead to a new tariff war.

Summer operations are well in place. From Paris alone, I note 48 flights a day to 15 destinations in the United States alone, including 14 to the two New York hubs. Certainly, Air France and Delta Air Lines, which have a "joint venture" agreement, take the lion's share with 34 frequencies together, the remaining 14 being shared between United Airlines, American Airlines, French Bee, La Compagnie, Air Tahiti Nui, and even Norse Atlantic, the latest operator.

And here's where the problem lies: I want to talk about the arrival of Norse Atlantic in a landscape that seemed quite well-balanced. I also note that another troublemaker has invited himself into the game with Jet Blue whose details of the operation are not yet available. The last two cities make no secret of their strategy: it consists of taking market share by putting very low rates on the major axis: Paris New York. That is the danger. Since the middle of 2022, there had been a sharp rise in selling prices that brought the air transport economy back to its fundamentals: a product that is all in all expensive because it is very expensive to operate in a completely safe way at the cost of a modest drop in the number of passengers.

Finally, all this was going in the right direction, including vis-à-vis the ecological constraint. The race for volume seemed to have stopped. Then the question is asked: will she start again? Moreover, the situation from London is similar, except that the volumes of supply are much greater: between London and New York, there are no less than 8 carriers offering 35 daily round trips, all with large capacity aircraft. Roughly speaking, transatlantic traffic from London is 2 and a half times higher than from Paris. And we are witnessing the same phenomenon: the return of low costs.

Of course, the offer of new carriers is nothing comparable with traditional companies. But isn't the arrival of Norse Atlantic and Jet Blue cause for concern? I remember perfectly the speech given by Mike Conway, at the time the CEO of America West Airlines in Cannes in the mid-1990s when in front of an audience of the least skeptical if not downright ironic leaders of traditional companies, he announced, I still have his words in memory: "Low-cost carriers will dictate the rates to the historical companies." And that's what happened. The arrival on a traditional market of new operators much better managed, it must be said and who did not have to bear the weight of the past, has upset the fundamentals of air transport.

We have gone from a somewhat elite concept, it must be admitted, to the frantic search for new layers of customers enticed by call price displays, none of which correspond to the reality of costs.

Thus, traditional carriers have gradually been led to lower the quality of their service and, finally, to make their customers pay for the reductions in charges necessary to fight against a new competition much less dependent on historical social constraints.

In the end, no one won. Call rates were considered by customers as reference prices when they were far from paying the costs. They were compensated by ancillary but ultimately mandatory services that consumers had to pay for, such as in particular the baggage policy. Moreover, to ensure, if possible, that the carriers were certainly very low, they were led to look for load factors which, to say the least, did not take into account the necessary quality of service.

Many of these new entrants were led to file for bankruptcy and eventually leave customers on the ground who had paid the competitive rates, but who did not benefit from the products purchased or the reimbursement of their purchases. The same players are returning to the market with the same practices. We can always think that, for the moment, they do not weigh much compared to the volume of seats generated by traditional airlines. But isn't that the worm in the fruit? Do we want to get back into the same suicidal situation? And why not use legislation that prohibits selling at a loss?