The collapse of Primera Air has once again shone a spotlight on the viability of the long-haul low-cost airline model.
While most commentators agree that long-haul low-cost operators have had a disruptive influence in their respective markets, doubt creeps in when discussion turns to the model's economic viability.
Our analysis of some of the key players indicates that those doubts are well founded. Few if any airlines have made true long-haul low-cost work in a sustainable manner, despite some achieving sporadic profitability.
FlightGlobal schedules data for October 2018 shows that the market's major participants operate mixed networks. In other words, no significant players have bet the house on becoming dedicated low-cost long-haul operators.
Several trends emerge from our analysis: long-haul point-to-point services frequently fail to attract enough demand, hampered by the lack of connecting passengers, while having no true business-class products and passengers can fatally stymie revenue opportunities.
When new players do gain some traction, powerful network carriers have been quick with defensive moves.
These and other factors are causing some carriers to rethink their strategies entirely, often leading to the adoption of products more commonly associated with traditional network carriers.
The network carriers themselves are also embracing long-haul low-cost – but it is doubtful whether those units can be considered true budget airlines.
However, the sector remains in its infancy. Many of the markets developed under the long-haul low-cost banner may prove sustainable; but the operating model seems likely to be "lower cost", rather than true low-cost.
Ironically for a market so suited to pioneers, the odds seem stacked against entrepreneurial start-ups.
"Sadly, low-cost long-haul is the graveyard of ambition for start-ups," Ryanair chief operating officer Peter Bellew opined on Twitter after news broke of Primera Air's demise. "[It] seems almost impossible without business class or the deep pockets of a legacy carrier."
As fuel prices rise, the market is only likely to become more unforgiving.
Routes with sector length of more than 4,000km: 86
Routes with sector length of less than 4,000km: 363
Aircraft on sector lengths of more than 4,000km: Boeing 737-800, 737 Max 8, 787-8, 787-9
Longest flight by distance: London Gatwick to Buenos Aires (11,098km)
Norwegian continues to be the industry's go-to disruptor, although it arguably still has much to prove in long-haul markets.
Loss-making during periods when rivals were making hay amid low oil prices, it surprised some by swinging to an operating profit for the second quarter of 2018. That came as IAG appeared to cool its fervour to acquire the Scandinavian operator.
The second quarter of this year represented the "peak" of Norwegian's growth, said the carrier, with capacity in ASKs up 48% year on year. That was partly driven by a doubling of the widebody fleet over the previous 12 months.
Norwegian's multiple new long-haul point-to-point services – many flown with Boeing 737 Max 8 narrowbodies – have brought mixed results. A number have closed within months of launch, most recently its transatlantic routes from Edinburgh.
The airline has also announced the cessation of its London Gatwick-Singapore service – the latest failure within a Europe-Asia market that appears hostile to low-cost operations.
"Norwegian's long-haul growth is substantially diluting the company's operating performance, and further stretching an already-stretched cash flow and balance sheet," argued analysts Bernstein in a July report.
In the next few months, Norwegian's stakeholders will be keeping a close eye on the impact of rising fuel costs on its long-haul operations and on defensive moves from network carriers.
Routes with sector length of more than 4,000km: 30
Routes with sector length of less than 4,000km: 400
Aircraft on sector lengths of more than 4,000km: Airbus A330, A340
Longest flight by distance: Munich to Las Vegas (9,281km)
Lufthansa described the first half of this year as "very busy and stressful" for Eurowings, as its second-quarter operating profit fell 91% to €5 million ($5.8 million).
The drop in performance was attributed to "increasing service irregularities" in the form of flight delays and cancellations, which necessitated "significant modifications" to Eurowings' summer schedule.
In terms of recent long-haul developments, Eurowings announced in December its plan start thrice-weekly La Vegas flights from Dusseldorf on 3 July 2019, using Airbus A330 and A340 jets.
Dusseldorf has become the carrier's largest long-haul base for the winter season. The carrier has based eight aircraft there and announced new services to Thailand and Cuba, alongside several existing US routes.
Munich is considered Eurowings' "second location" for intercontinental services, it said earlier this year. Lufthansa, however, will grow mainline operations rapidly at Munich next summer, including starting daily Bangkok services – a route that Eurowings has operated this summer.
Much of Eurowings' recent growth has come from taking on Air Berlin, Brussels Airlines and LGW assets, while some of its flights are operated by leisure airline SunExpress.
Eurowings is widely seen as having a defensive function to offset the rise of true budget operators in the region. Its strong ties to its parent make it more of a "hybrid" airline than a low-cost operator – a point proven by its absorption of some Brussels Airlines assets – meaning it has limited value as a bellwether for the business model.
AIR CANADA ROUGE
Routes with sector length of more than 4,000km: 26
Routes with sector length of less than 4,000km: 93
Aircraft on sector lengths of more than 4,000km: Boeing 767-300
Longest flight by distance: Toronto to Athens (8,148km)
Air Canada's budget arm has been a key part of strong group performance in recent years.
It is therefore better versed than many in the challenges of the low-cost long-haul model.
Speaking at Farnborough air show in July, Air Canada chief executive Calin Rovinescu said that while low-cost carriers had a competitive edge in short-haul markets, there was an "equalising" effect in long-haul markets, where fuel is such a large proportion of cost that legacy carriers' extra burdens in other areas – such as pension liabilities – are less pronounced.
Nevertheless, "we are not ready to throw in the towel to the likes of Norwegian yet", he added, weeks after the Scandinavian carrier had announced plans to move into the Canadian market.
Air Canada Rouge was launched in 2012 with a focus on serving leisure routes with high-density, older aircraft handed down from its parent. It currently operates to destinations in Africa, Asia, the Caribbean, Central and South America, Europe, and the USA.
Cheaper crew contracts have helped the unit to flourish, but as with many such subsidiaries of mainline carriers, it is debatable whether Rouge can be considered a true low-cost operator.
Routes with sector length of more than 4,000km: 19
Routes with sector length of less than 4,000km: 174
Aircraft on sector lengths of more than 4,000km: Boeing 737-700, 737-800, 737 Max 8, 767-300
Longest flight by distance: London Gatwick to Vancouver (7,643km)
The Canadian operator announced its first quarterly loss in 13 years for the three months ended 30 June 2018.
That came a few months after it waved goodbye to chief executive Gregg Saretsky, with Ed Sims taking the reins amid a transformative period for the carrier.
Key to its long-haul strategy are incoming Boeing 787-9s, which will feature lie-flat and premium economy seats. They will be deployed on routes to Europe and possibly Asia. WestJet is also building business-class lounges.
Those moves suggest that it is unlikely to be considered a true low-cost long-haul operator for long.
"When WestJet launched back in 1996, it was very much a point-to-point carrier," wrote Sims in the carrier's in-flight magazine earlier this year. "Today, WestJet is evolving into what is known as a hub-and-spoke airline."
Routes with sector length of more than 4,000km: 16
Routes with sector length of less than 4,000km: 56
Aircraft on sector lengths of more than 4,000km: Airbus A320; Boeing 787-8, 787-9
Longest flight by distance: Singapore to Berlin (9,936km)
The Singapore Airlines low-cost unit saw its operating profit fall from S$3 million ($2.2 million) to S$1 million in the second quarter of 2018.
Scoot's longest route, a Singapore-Berlin service, was launched in June this year, while it also flies long-haul services to Athens, Honolulu and destinations in Australia.
Much of the budget carrier's focus in recent years has been on the integration of fellow SIA carrier Tigerair, which added a number of Airbus narrowbodies to Scoot's fleet.
Speaking to FlightGlobal in the middle of last year, Scoot chief executive Lee Lik Hsin said the carrier was focusing on improving feed between the group's narrowbody and widebody operations.
Beyond its own operations, Scoot's strategy is very closely tied to that of its parent.
In June, SIA senior vice-president of corporate planning Lee Wen Fen said of the group's network strategy: "It's really looking at various markets and saying, does this market warrant an LCC, or full service, or is the market big enough for both... and then working out amongst ourselves, co-ordinating within the group on who should fly where and how do we manage overlaps."
AIRASIA X GROUP
Routes with sector length of more than 4,000km: 16
Routes with sector length of less than 4,000km: 14
Aircraft on sector lengths of more than 4,000km: Airbus A330-300
Longest flight by distance: Osaka-Kansai to Honolulu (6,624km)
AirAsia X Group co-chief executive Tony Fernandes recently told FlightGlobal that true long-haul low-cost services were not on the carrier's radar.
"We are pioneers in the long-haul low-cost market, but the reality of the model is medium-haul routes of six to eight hours – that is the sweet spot," he said.
Fernandes also noted that AirAsia X's strategy was focused on "high frequency, country dominance" routes that have connection options with sister carrier AirAsia.
He doubts the viability of most long-haul point-to-point markets, arguing that network carriers have much of the market sown up through their hubs.
That all but rules out any European routes for AirAsia X.
Earlier this year, however, Fernandes reiterated the operator's plans to start flights to the west coast of the USA via Japan after it receives its first Airbus A330neos in late 2019.
AirAsia X reported a deeper operating loss of MYR96 million ($23.3 million) for the second quarter of this year, compared with MYR12.8 million in the same period of 2017.
The carrier attributed the poorer results to a "higher operating cost" environment.
Routes with sector length of more than 4,000km: 15
Routes with sector length of less than 4,000km: 172
Aircraft deployed on sector lengths of more than 4,000km: Boeing 787-8
Longest flight by distance: Melbourne to Honolulu (8,858km)
Jetstar Group achieved a record earnings result for the year ending 30 June, although domestic operations appear to be central to this.
The Qantas unit was established in 2003 in a defensive move as Virgin eyed Australian services. Long-haul routes launched in 2006, meaning its markets are much more mature than equivalents in other regions.
Jetstar appears relatively relaxed, therefore, on its long-haul ambitions.
It currently serves markets in China, Hawaii, Indonesia, Japan and Vietnam using Boeing 787-8 widebodies.
Change is most likely when it receives Airbus A321neos, which are due to enter its fleet from 2020.
In announcing the delivery of the jets, Qantas said they could fly up Australia's east coast up to Denpasar, potentially allowing some of Jetstar's 11 787-8s to be deployed in other markets.
However, Jetstar Group chief executive Gareth Evans told FlightGlobal earlier this year that the main focus for the A321neos would be on the domestic network, where they are central to a replacement programme for its fleet of 52 baseline A320s and eight A321s.
Meanwhile, in June, Evans all but ruled out Jetstar services to Europe, stating: "Those sorts of distances are pretty new for low-cost European carriers, but here to Europe is a different proposition altogether. It's multi-sector, so you're going to have to stop off on the way, and that adds cost and complexity, and our business model is all about simplicity."
Aside from its main operation, Jetstar's various units are focused on short-haul markets.
Thanks to its status as a Qantas unit, Jetstar has limited use as a health indicator for the long-haul low-cost business model.
Routes with sector length of more than 4,000km: 15
Routes with sector length of less than 4,000km: 18
Aircraft on sector lengths of more than 4,000km: Airbus A321, A330
Longest flight by distance: Reykjavik to Los Angeles (6,943km)
Wow Air's recent financial performance was outlined in an August 2018 investor presentation related to its first bond issue.
The presentation shows that the Icelandic carrier swung to an operating loss of $14 million in 2017, having made a $30 million profit the previous year. Wow expects the loss to deepen to $28 million in 2018, before a return to profit in 2019.
"Yields decreased in 2017, as airfares adjusted to previous drops in fuel prices and increased competition," the document states. "Growing pains include higher hiring and training costs; infrastructure investments; delivery costs associated with new aircraft; and start-up costs for new routes."
Early in 2017, Wow added "Comfy" and "Premium" booking options, the latter featuring a larger seat, as the carrier embraced the trend of seeking revenue growth away from the traditional, no-frills low-cost offering.
"As of Q2 2018, Comfy and Premium seats deliver 1.9x and 2.9x higher yields, respectively, compared to basic economy fares," the document notes.
It also states that from 2019, Wow's growth rate will be "adjusted to more sustainable levels". Just two aircraft are set to join its fleet next year.
Wow will meanwhile launch its first Asia service in December, operating from Reykjavik to Delhi, and is set to put its first A330neo into service around the same time.
Chief executive Skuli Mogensen recently confirmed that the carrier was also planning an IPO within the next 18-24 months.
Iceland's location means that Wow is able to offer transatlantic connections with relatively short flights, compared with European rivals.
LION AIR GROUP
Routes with sector length of more than 4,000km: 12
Routes with sector length of less than 4,000km: 244
Aircraft on sector lengths of more than 4,000km: Boeing 737-900, 737 Max 8 (Airbus A330 deployed on sub-4,000km sectors)
Longest flight by distance: Bali to Tianjin (5,304km)
Indonesia's Lion Air Group flies a number of sectors that only just register on the long-haul barometer.
In a more significant development regarding long-haul low-cost, however, Lion emerged as a customer for the re-engined Airbus A330neo in August.
Eight of the aircraft will be delivered from 2019 via lessor BOC Aviation.
The A330neo will allow the company to expand its network and consider longer routes, according to Lion Air Group chief executive Edward Sirait.
Lion has previously ordered six A330-300s, three of which are operated through its partner carrier Thai Lion Air. They are currently deployed on short- and medium-haul routes.
Lion Air Group is a private company, so does not release financial results.
Routes with sector length of more than 4,000km: 10 (estimation)
Routes with sector length of less than 4,000km: 14 (estimation)
Aircraft used on sector lengths of more than 4,000km: Airbus A330-200
Longest flight by distance: Barcelona to Buenos Aires (10,458km)
Launched by IAG in 2017 as a long-haul low-cost operation based in Barcelona – seemingly as a defensive response to Norwegian's expansion from the city – Level has since added a Paris base and broadened its horizons to include short-haul services from Vienna.
It is too early to assess the success or otherwise of this venture by the British Airways and Iberia parent, however.
During a half-year briefing, IAG chief executive Willie Walsh said there was "still a lot of noise" regarding Level traffic statistics – which are "embedded" in Iberia's – and that IAG wants to "clean it up" before disclosing its figures.
Indeed, the airline has only just welcomed its first dedicated chief executive – in July it announced that Flybe chief strategy officer Vincent Hodder had been appointed to the role.
Hodder has taken over an airline with plenty of potential, not least thanks to the feed provided by IAG's pan-European network.
Routes with sector length of more than 4,000km: 9
Routes with sector length of less than 4,000km: 271
Aircraft on sector lengths of more than 4,000km: Airbus A330
Longest flight by distance: Beijing to Lisbon (9,682km)
The HNA Group carrier, based at Beijing Capital International airport, relaunched as a low-cost operator in 2014.
In terms of long-haul growth plans, it was most recently seen requesting rights to fly to Seattle from Xian, beginning December this year.
It also began service from Beijing to the Maldives in July, as well as a Hangzhou-Moscow route.
Details on its financial performance are few and far between.
Earlier this year, Hainan Airlines denied claims it was planning to sell a majority stake in Capital Airlines to Air China.
Routes with sector length of more than 4,000km: 7
Routes with sector length of less than 4,000km: 204
Aircraft deployed on sector lengths of more than 4,000km: Airbus A320, A330-200
Longest flight by distance: Sao Paulo to Lisbon (7,903km)
The Brazilian budget carrier's long-haul services are closely tied to its partnership with TAP Air Portugal, hence its daily Sao Paulo-Lisbon service.
Aside from a few US services, Azul's network is dominated by domestic Brazilian flights, and its international ambitions appear to be small.
Routes with sector length of more than 4,000km: 5
Routes with sector length of less than 4,000km: 18
Aircraft deployed on sector lengths of more than 4,000km: Airbus A340-300
Longest flight by distance: Paris to Cape Town (9,328km)
Air France-KLM has been careful to talk up Joon as a millennial-focused hybrid operation, rather than a low-cost one. While it therefore offers little encouragement to true long-haul low-cost operators, it perhaps hints at where the market might be heading.
Some of its strategy is budget-like, such as new contract terms for cabin crew. But elsewhere, the product is closer to a full-service offering, with three-class cabins and complimentary food on its long-haul flights.
Recent route developments include the announcement that Joon will operate Paris-Quito services during the summer of 2019.
At the carrier's launch last year, Joon chief executive Jean-Michel Mathieu said the subsidiary was a response to competition, specifically to address concerns that Air France was losing ground at its Paris Charles de Gaulle hub.
It remains to seen what importance new Air France-KLM chief Ben Smith places on Joon in the group's future strategy.
Routes with sector length of more than 4,000km: 3
Routes with sector length of less than 4,000km: 76
Aircraft used on sector lengths of more than 4,000km: Airbus A330
Longest flight by distance: Manila to Dubai (6,915km)
The Philippine low-cost carrier has significantly reduced its long-haul presence in recent years.
In the middle of last year, for example, it cut routes to Doha, Riyadh and Kuwait.
Just before those cancellations, Cebu chief executive Lance Gokongwei told FlightGlobal that Middle East competition had become "quite a bloodbath" as Gulf carriers and Philippine Airlines competed for its customers.
Towards the end of 2017, Cebu said it needed to "rethink" its long-haul strategy and focus on meeting existing demand for regional and domestic flights.
Earlier this year it suggested that "our international growth strategy going forward is to connect secondary Philippine cities to international destinations", but few hard details have been forthcoming.
The carrier has previously cited the large concentration of Filipino workers overseas as potentially creating long-haul point-to-point markets.
But rising fuel prices and a weaker second-quarter performance are unlikely to prompt any significant long-haul moves.
Additional reporting by Aaron Chong, Oliver Clark, John Hemmerdinger, David Kaminski-Morrow, Ellis Taylor, Mavis Toh and Greg Waldron
Notes: Network and aircraft data is FlightGlobal schedules data for October 2018. Airlines operating 10 or more routes during the month considered for inclusion. Route data includes services of any frequency operated during the month. Categorisation of long-haul route as 4,000km-plus based on Eurocontrol definition. Data for Level is estimated, as airline is yet to operate under its own AOC
The article has been updated to include details of Wow Air's financial performance and premium strategy
Source: Cirium Dashboard