Long-haul low-cost wins new fans

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Ryanair chief executive Michael O'Leary has become the latest low-cost airline leader to toy with the idea of launching a long-haul carrier.

His recent revelation that he intends to launch a no-frills long-haul carrier around the turn of the decade has certainly got the industry talking. If the plan goes ahead, it could shift gears on what is currently a niche market being experimented with by a few small players and bring the long-haul low-cost model into the mainstream.

O'Leary, who has hinted in the past that the long-haul market could feature in Ryanair's future plans, says the no-frills carrier would operate independently of Ryanair with a fleet of up to 50 Airbus A350s or Boeing 787s. Keeping the long- and short-haul operations separate is also the aim of AirAsia founder Tony Fernandes in his quest to launch AirAsia X. Fernandes says it is important for him to "ringfence" AirAsia X so as not to distract from AirAsia.

"I was very clear it should not be done by AirAsia. It would be a very poor use of capital it was done by AirAsia," says Fernandes, who is working on bringing in a team of industry outsiders to run AirAsia X. "If it works it will bring a nice feed into AirAsia, and promote the brand in places we don't go."

And it is a big "if". While the network carriers are not outwardly showing signs of concern, ABN-AMRO analyst Andrew Lobbenberg believes they should be paying attention. Although the opportunities for the long-haul low-cost market are "not as big or obvious" as those associated with the short-haul market, there is a chance for new entrants to use the legacy labour practices and high overheads of the network airlines to their own advantage, he says.

Despite this warning, Virgin Atlantic group commercial director Willy Boulter says the carrier is not concerned about the prospect of competing with new low-cost transatlantic carriers. "It's an interesting development," he says. "But there are structural differences between the short- and long-haul markets. We already use our aircraft 14 hours a day and we already utilise crews the maximum amount allowed under the law. It's hard to see new long-haul carriers being able to provide seats any cheaper than we do today."

Lobbenberg concurs that the cost savings drawn from high aircraft and crew utilisation do not exist in the long-haul market, and says economy class passengers are "not being ripped off the same as they were on short-haul before liberalisation" because of cross-subsidisation from business class fares. However, he believes there are opportunities to generate considerable ancillary revenues within the long-haul model.