Aviation Cheap pond hoppers: The impact of low-cost carriers By Robert Silk / May 24, 2017 Share 1 -- This summer, ultralow-cost carrier (ULCC) Norwegian Air will introduce 19 transatlantic routes, bringing its rapidly expanding number of flights between the U.S. and Europe to 43. Meanwhile, Wow, another ULCC, will make an entry into Pittsburgh and Chicago O'Hare by July, giving the Iceland-based carrier eight U.S. destinations barely two years after making Boston its first.But while Wow and Norwegian have attracted most of the headlines, they're not the only discount airlines and leisure airlines that are beefing up service from Europe to the U.S. An economy-class seat on Condor, a German-based leisure carrier. Condor and its partner, Thomas Cook, will add four seasonal, transatlantic routes this summer. Indeed, partner leisure airlines Condor and Thomas Cook have more than doubled their summer seasonal U.S. flights in the last two years. Lufthansa's low-cost carrier (LCC), Eurowings, began U.S. service in 2016 and will have four routes to America this summer. Edelweiss, the Lufthansa Group's Switzerland-based leisure airline, is adding U.S. service. Meanwhile, in June, International Airlines Group (IAG), the parent of British Airways, Iberia, Aer Lingus and Vueling, will launch low-cost, transatlantic airline Level, with operations based out of Vueling's Barcelona hub. Other legacy airlines are also responding to upstart competitors like Norwegian and Wow, and growing transatlantic service from other low-cost carriers. For example, Delta now offers no-frills, basic economy fares on some transatlantic routes. In April, Tap Portugal airline introduced a series of branded fares that among other options gives flyers the chance to save upward of 25% if they choose not to check a bag. And legacy carriers throughout the transatlantic region are offering their own flashy, cheap fares to draw in customers and compete with the offerings from their low-cost rivals."There is a seismic shift going on here," CNN aviation editor Jon Ostrower asserted while chairing a panel on long-haul LCCs in the Atlantic market at the CAPA Americas Aviation Summit in Orlando in April. Also sitting on that panel was Mark Schwab, a former CEO of the Star Alliance, which counts United, Air China and Lufthansa among its 27 members. He expressed a similarly strong sentiment. "You have to be able to address it, or you have to walk away from the market," he said. Gauging the market shiftIn raw numbers, the shift doesn't appear so seismic at all. According to the aviation data analytics company OAG, there are 4,909 flights scheduled between the U.S. and Europe for the upcoming summer season by ULCCs and LCCs, an increase from 1,662 just two years ago and nearly double last year's total of 2,625 frequencies.But in the same period, mainline carriers increased their summer U.S.-Europe frequencies from slightly more than 89,000 to just more than 100,000, a larger leap in real numbers even though the jump is much smaller on a percentage basis. All told, ULCCs and LCCs will operate 4.7% of U.S.-Europe flights this summer. And while that represents a significant jump from the 1.8% of such flights they operated two years ago, it is still less than one in 20 flights in that market.Nevertheless, the low-cost service appears to be impacting the market. Hopper, an app that tracks airfares for consumers, projects that low-end fares from the U.S. to Europe will be approximately 30% less expensive this summer than they were in 2015. Fares for travelers originating in Europe aren't down as much, having dropped from an average of approximately $750 in early 2015 to $700 now. Of course, those price drops can't be attributed directly to increasing low-cost service. In an email, Hopper chief data analyst Patrick Surry noted that the drops followed the summer 2014 plunge in oil prices. Last summer's weak transatlantic demand was another factor. Still, major carriers are definitely responding to their upstart competitors. In early April, George Hobica, who heads the website Airfarewatchdog.com, spotted a roundtrip fare between Boston and Paris on Air France for $470, $100 more than Wow was charging. But Wow also charges a $49.99 fee per checked bag each way, thereby making the Air France fare a match for its ULCC competitor -- and without the stop-off in Reykjavik, Iceland."We have adjusted our prices, and for part of our marketing we will compete against [the ULCCs] as necessary," Air France-KLM senior vice president of North America Marnix Fruitema said in an interview. "We also have to educate the customer. The customer needs to be sharper in comparing the prices."Icelandic ultralow-cost carrier Wow will fly to eight U.S. destinations as of July. Similarly, when British Airways announced last fall that it would begin competing this year against Norwegian on the Oakland, Calif.-London Gatwick route, it offered tickets as low as $299 each way. The many opportunities for cheap U.S.-Europe fares has analysts like Hobica saying that now is a "golden age" for passengers when it comes to flying those routes. And the good times might linger until the market shakes itself out, with some upstarts succeeding and others falling by the wayside."These airline guys don't like to lose," Hobica said of the legacy carriers. "They're not going to say, 'Oh well, we give up.'"In the long run, said Barry Humphreys, a U.K.-based aviation analyst, it's some of the new entrants, and not the established legacy carriers, that are likely to be the losers. Humphreys compared what is going on in today's transatlantic aviation market with the disruption caused by the Gatwick-based Laker Airways in the 1970s, when it began offering low-cost service to New York. Legacy stalwarts Pan Am, TWA and British Airways responded with lower fares, Humphrey said. In the early 1980s, Laker went bankrupt amid a global recession. In Europe, where low-cost carriers such as Ryanair and EasyJet have made a much larger impression on the continental market than American ULCCs such as Spirit have made here, the model has proven to have staying power. But Humphreys said the economics are different on long-haul routes because fuel, which big carriers can buy at least as cheaply as smaller, new-entry competitors, comprises a bigger portion of costs than it does on shorter flights, on which LCCs can benefit more substantially from lower labor costs. "We are going through a disruptive period, and the established airlines are being forced to respond to the new market entries," Humphreys said. "As a result, it's probably a good time for customers from that point of view. But the question is: What will happen when the market settles down? The legacy entrants will still be there. It may be some of the new entrants will be there, but some might fail."The cabin of a Norwegian Air jet. The ultralow-cost carrier will launch 19 U.S.-Europe routes this summer, which increases its total transatlantic flights to 43. Jittery times could already be approaching for Norwegian, which in the first quarter of this year reported losses of $173.9 million, nearly double from a year earlier. CEO Bjorn Kjos blamed the results on the recent rise in fuel prices and the increase in the value of the Norwegian krone in comparison with the British pound and the euro. But the company expressed confidence in its business model and said its global growth strategy will provide economies of scale and lower unit costs. "Our long-haul operation is now well established, proving that customers want affordable fares and new aircraft on intercontinental routes," Kjos was quoted as saying in a company press release. Despite the losses at Norwegian, there's no sign that expansion in transatlantic, low-cost operations is about to abate. "Long-haul flying on some of the niche routes, it may be underserved," Christoph Debus, the chief airline officer of Thomas Cook Group Airlines, said in reference to transatlantic routes. This summer the group's eponymous airline, Thomas Cook, along with its German carrier, Condor, is launching a total of four routes to the U.S. from Condor's Frankfurt hub and Thomas Cook's Manchester, England, hub. Hybrid business modelsBoth carriers offer a business model that falls somewhere between the highly stratified legacy model, with its sharp differences between cabins, and the ULCC approach, which features extra charges for most services, including checked bags and food. Condor flies three-class aircraft, but its business class has angled seats, not lie-flats. Thomas Cook offers only an economy and premium economy cabin. Both carriers offer a free checked bag, free food service and a portion of its onboard entertainment as part of the ticket price. An early May search for a mid-June roundtrip ticket on Condor's new Frankfurt-New Orleans route yielded a price of $720.Debus described the approach of both carriers as one that maximizes value for the money, while providing a product that customers like. He added that he sees plenty more expansion opportunities to the U.S. and that the Thomas Cook Group might soon begin offering year-round U.S. flights. Thomas Cook Airlines' base in Manchester also serves as an inducement to some travelers, Debus said."It makes it very, very attractive when you don't have to go through a monster hub like Heathrow," he said. The business class on Swiss carrier Edelweiss, which will add flights from Zurich to San Diego in June. Swiss-based Edelweiss, which describes itself as a "premium leisure airline" and prices its products more in line with traditional legacy airlines, is another leisure carrier that sees more opportunity in the U.S. "Looking at the data, the U.S. has been a very profitable and good market to expand into from Zurich," Edelweiss chief commercial officer Alain Chisari said, referencing the carrier's hub.This summer, Edelweiss, which is part of the Lufthansa Group, will join Condor in adding service to San Diego, the third U.S. route for Edelweiss, augmenting flights from its hub to Tampa and Las Vegas. "The San Diego decision was an easy one," Chisari said. Like other legacy airline companies, the Lufthansa Group is also putting down a discount U.S.-Europe footprint. Eurowings, the group's LCC, launched its first U.S. route last year, servicing Miami from Cologne Bonn Airport in Germany. This summer Eurowings will begin flying from Cologne Bonn to Seattle, Las Vegas and Orlando. The carrier was advertising that Las Vegas flight for as low as $219.99 in early May, but the price doesn't include checked bags or meals. A rendering of a Level airplane, a new low-cost carrier run by the International Airlines Group. Level will begin offering flights between Barcelona and California in June. Also following the unbundled, ULCC business model is Level, the long-haul carrier that IAG will launch in June. The carrier will begin operations from Barcelona with four routes to the Americas, including to Oakland and Los Angeles. Analyst Humphreys said it remains to be seen if Lufthansa and IAG will be able to successfully fly low-cost carriers alongside their larger legacy holdings. He referenced Go Fly, the low-cost, intra-Europe carrier that IAG founded in the late 1980s to compete against the LCC EasyJet. But IAG ended up selling the airline to EasyJet in 2002. "It was competing with EasyJet, but in the end it was also competing against British Airways," Humphreys said. The legacy U.S. carriers are implementing more modest changes than IAG to compete in the new transatlantic marketplace. Delta initiated basic economy fares on some U.S.-Europe routes last year and expects to offer the highly restricted fare class on all of its routes globally by 2018. An early May spot-check of Delta fares from Salt Lake City to Heathrow showed that discounts for basic economy were modest: less than $40 on tickets of more than $1,200.United and American have also announced plans to sell basic economy tickets on transatlantic routes. Portuguese legacy carrier Tap is taking a different tack to compete against its low-cost competitors in the transatlantic marketplace.Expanding on the strategy that it employed last September to compete against LCCs within Europe, in April the carrier unveiled four economy-class, branded-fare packages for its flights to the U.S. and Canada. The least expensive of those options, called the Discount fare, is not changeable or refundable, does not permit checked bags nor pre-assigned seats and offers only a 10% ratio of frequent flyer miles compared with miles actually flown. On the other end of the spectrum, the Plus fare permits free ticket changes, up to three checked bags, seat selection in the Preferred Zone, where there is extra legroom, and a frequent-flyer-miles-to-miles-flown ratio of 150%. "What we want to do is reach what the customer wants, and this is what the customer wants," Carlos Paneiro, Tap's head of North American sales, said, sounding a similar tune to one often played by the ULCCs themselves.