Transatlantic airfares remain low, even as LCCs drop out

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Consumers in search of budget fares are enjoying 17% cheaper airfares on North America-Europe routes this year.
Consumers in search of budget fares are enjoying 17% cheaper airfares on North America-Europe routes this year. Photo Credit: Vytautas Kielaitis/Shutterstock

The past year has brought the demise of North America-Europe low-cost carriers (LCCs) and a capacity-share shift toward traditional airlines in transatlantic travel. 

The diminished scope of the LCCs, however, has not resulted in a decrease in the availability of low fares. 

"Across the board, economy and basic economy fares are still down," said Hayley Berg, an economist for Hopper, an app-only booking platform that specializes in price predictions.

According to a Hopper analysis, seat capacity in the North America-Europe marketplace is up 2.6% in 2019. 

But this growth has come entirely from major carriers, which are offering 3.8% more seats this year. Transatlantic LCC capacity is expected to end 2019 down 11% after doubling between 2017 and 2018. 

The declines have occurred in the aftermath, most notably, of the March closure of Iceland's Wow Air, which flew 13 U.S. routes in the summer of 2018. More recently, the demise of British tour operator Thomas Cook also spelled the end of Thomas Cook Airlines, which flew eight U.S. routes last summer. 

Discount transatlantic carrier Primera Air, which flew six U.S. routes in the summer of 2018, failed last fall. And France's XL Airways, which flew four U.S. routes, shut down in September. 

Other discount transatlantic carriers, most notably Norwegian Air, Lufthansa's Eurowings and International Airline Group's Level, continue to fly but have scaled back growth. 

Those changes, though, haven't resulted in higher prices  -- not even close. Consumers in search of budget fares are enjoying 17% cheaper airfares on U.S./Canada-Europe routes this year, according to the Hopper analysis. On LCCs, ticket prices are down 23%. 

The analysis states: "There are instances where prices on specific routes are slightly higher, such as U.S. to Iceland due to the closure of Wow Air, but prices remain down overall."

Hopper defines budget fares as the lowest 10% of the fare quotes it tracks.

George Hobica, president of Airfarewatchdog.com, said he has anecdotally observed similar conditions.

"The Wow effect seems to have stuck around," he said. 

Hobica recently noticed a roundtrip basic economy fare of $343 between New York and Paris on American.

"I have a feeling that’s not an anomaly," he said. 

At its peak, the seat-share of LCCs on routes between the U.S./Canada and Europe was 8.7%. Share is likely to fall to 6% or less through the end of 2019, Hopper said. But the presence of LCCs has an outsized effect on prices. 

According to Berg, airfares on a specific city-pair typically drop approximately 20% when a discount carrier enters that market. If the low-cost entrant subsequently leaves the market, prices, on average, recover just 11%. 

Berg said a primary reason prices continue to go down on transatlantic routes is that the major carriers continue to expand aggressively as they chase market share.

"There’s so much competition, and no one wants to give up even an inch of share, so prices are the easiest way to compete," she said. 

Berg also noted that fuel, though relatively steady this year, is still low compared with the decade-long trend.

While the cheapest North America-Europe fares have gotten even less expensive over the course of 2019, Hobica said he has also noticed a new trend in the market: a widening gap between basic economy and standard economy. 

"I'm seeing a lot of $70, $80, $90 differences on one-way tickets where it used to be $40 or $50," Hobica said. 

The abundance of cheap tickets available on flights across the Atlantic over the past few years, he said, has conditioned a certain segment of consumers to expect to fly to Europe for something like $300.

"Millennial travelers and Gen Z travelers are price conscious, not status conscious," he said. "It's not about possessions or perks. It's about the Instagram and getting there as cheaply as possible with a small backpack."

Those travelers can expect more good news next year, according to Hopper. U.S./Canada-Europe LCC capacity is projected to be down 16% in 2020. But overall, as traditional carriers take on new aircraft and expand routes, networks and frequencies, capacity is expected to grow 4.5% compared with this year's 2.6% rise. 

"Transatlantic prices are likely to remain lower than historical levels, barring a significant change in jet fuel prices," the Hopper analysis states.

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