American Airlines is seeing pressure from long-haul low-cost carriers on a market-by-market basis across the Atlantic, says senior vice-president of revenue management Don Casey.
Norwegian, Wow Air and other airlines are putting downward pressure on economy pricing in transatlantic markets where they operate, he says, calling the impact "material" at the Boyd International Aviation Forecast Summit in Las Vegas today.
However, strong premium pricing and high load factors are offsetting the yield erosion in the market, he adds.
American saw passenger unit revenue across the Atlantic fall 2.2% on a 1.3% decrease in capacity during the first half of 2017. At the same time, its load factor in the market increased 4.8 percentage points to 77%.
Norwegian has added a number of new routes from American partner hubs in Europe, for example London, home to British Airways. The LCC flies to Boston, Fort Lauderdale, Los Angeles, New York John F Kennedy, Oakland and Orlando from London Gatwick, all routes served by BA from either Gatwick or London Heathrow under American's and BA's immunised joint venture.
American is being more "price competitive" in markets where it competes directly with Norwegian and other long-haul LCCs, says Casey. In addition, it is looking at expanding its no-frills basic economy fares to the market.
"Over time, hopefully sometime in 2018, we would have a form of this product on the transatlantic," he says of basic economy.
American plans to offer the no-frills fare across its domestic network by the end of September, says Casey. However, international expansion will be in markets where it makes sense on a competitive basis, he adds.
He declines to say whether passengers would have to pay extra for a meal or checked bag if they book a basic economy fare across the Atlantic.
Pricing is not the only way American is responding to long-haul LCCs. Level, the new long-haul LCC by BA parent International Airlines Group (IAG), is targeting the segment as part of the joint venture that includes American, BA, Iberia and Finnair.
"[Level's] part of our revenue sharing agreement, so we will benefit from whatever success Level has on the Atlantic," says Casey.
Level's service to Los Angeles and Oakland from Barcelona, its only routes to the USA to date, have met their targets since service began in June, he adds.
"[IAG does] believe quite strongly that this low-cost model is sustainable," says Casey.
Source: Cirium Dashboard