(inquisitive music)
- So, if you've been looking to fly
from America to Europe this year,
you'll have noticed that there's a whole bunch of airlines
that seem to suddenly be offering very cheap fares.
Airlines like Norse, French Bee, and Play
have all been trying to capture a wave
of post pandemic revenge spending transatlantic travelers
by trying to lower their ticket prices as much as possible.
And their tactics go far, far further
than just charging for the seats
and separating out added extras.
- It's more about getting every part of your business
at the lowest possible costs.
- But major legacy airlines
are competing hard on pricing, so much so
that sometimes they even undercut the low-cost carriers.
And now with winter around the corner and demand set to fall
there's a huge question over the long-term viability
of low-cost transatlantic flight.
So are these airlines and their airfares
set to disappear as quickly as they arrived?
Let's find out.
Okay, so first I want to know how these low cost airlines
are getting their ticket prices down.
And so to do that, I've come to visit Norse Atlantic.
The company was formed in Norway after the pandemic
and has 15 of these Boeing 787 Dreamliners,
10 of which it currently operates from America to Europe.
Now, part of what helps Norse get its prices down
is by doing something called unbundling ancillaries,
which in plain English is basically charging separately
for everything other than the seat.
Flying its most basic fare,
Norse will charge you to check in a bag,
or to bring a carry on,
or to choose which seat you want to sit in.
Meals will cost extra,
as will priority boarding and check-in.
Norse makes around $87 per passenger
on ancillaries on every flight,
around a fifth of all passenger revenue.
And has aims to become the highest ancillary revenue
per passenger airline globally.
But any airline, including the big legacy carriers,
can, and often do, unbundle their ticket prices.
So much so that revenue from ancillaries
across the aviation industry has doubled since 2013
to total over a hundred billion dollars.
So to really get prices down, especially as a startup,
you need to go even further.
And for Norse,
that started with getting these aircraft for cheap.
- It was really an asset play initially
where we got the assets at historic low prices
and very flexible terms
- [George] That's CEO Bjorn Tore Larsen
who told me that Norse has streamlined operations
in an attempt to minimize costs.
- We fly long haul only,
we fly one aircraft type, the Dreamliner, only.
So all our crew are trained on only one type of aircraft,
we only do one type of maintenance.
- The company also operates some of its flights
from cheaper airports,
like flying out of Gatwick instead of Heathrow,
though they do have a slot at New York's JFK.
And instead of flying out of and back to a fixed hub,
Norse's planes fly onward from each destination.
- You don't have a lot of costs that is associated
with a hub and spoke operation where you are
into a much, much more complex operation straight away.
- Now, all of these factors
have helped Norse get pricing down
and achieve profitability for the first time this year.
But here's the thing, (snaps)
Norse isn't actually always that much cheaper
than major legacy US carriers.
See, airline prices vary wildly
depending on how far in advance you book,
how long your stay is,
and whether you plan on flying one-way or return.
But if you compare the prices for this flight
between Norse, Delta, and United,
Norse averaged around $615 and United was 660.
Now if you include the fact that Delta and United's price
includes a carry-on bag and a meal,
which would cost you upwards of $50 on Norse,
then that price gap soon starts to shrink.
So how are these legacy carriers
able to get their prices down?
- Because of the scale and the amount of capacity they have
and that brings their unit cost down.
- [George] That's John Grant,
Chief Analyst at aviation data firm OAG.
- If a legacy airline has got 1,500 economy seats
spread across seven flights during the day
then they're able to match that.
- Another reason is that economy seats only make up
a small fraction of legacy airlines cabins,
the rest being far more profitable premium economy,
business, and first class seats.
And that kind of explains why
when I search for tickets around Labor Day
Norse was more expensive than some major US rivals.
- Sometimes our prices are going up a little bit
and that is basically because the cabin is being filled.
So the last passenger is actually paying quite a bit more
than the first passenger.
- Now recently, demand has been so strong
that there's been enough flyers for both low cost carriers
and legacy carriers to be able to profit.
- The relative strength of the US dollar
has encouraged a lot of North American visitors.
And we've been blessed with just enough capacity.
- But as the summer season draws to a close,
international demand is set to drop.
And that's got some wondering
whether these low cost long haul carriers
will be able to survive the winter.
Is it sustainable long term?
- No.
- [George] After all, other airlines have in the past
tried and failed to make low cost transatlantic flight
commercially sustainable.
For years Norwegian Air used to operate
a budget friendly route between Europe and America.
But the company faced a whole bunch of headwinds,
from operating Boeing planes
that were grounded during the MAX crisis
to trying to juggle a wide array of roots.
- They had embarked on rapid growth.
They had a short haul network and a long haul network.
They spread themselves too thinly too quickly.
- During the pandemic,
the company filed for bankruptcy protection,
restructured, reduced its fleet from 156 aircraft to 51,
and crucially, discontinued long haul operations.
What's not certainly is how sustainable this is long term.
What are your views?
- You're absolutely right,
It's yet to be proven and it has not a great history.
- But here's the thing,
many of Norse's planes are actually old Norwegian planes.
So is the company set to suffer the same fate?
- I don't totally agree that we are born out of the ashes,
because we are a brand new airline.
We have no hub and spoke operations,
we don't own, you know, short haul operations
trying to put everything together.
It's very different.
- You still have winter coming,
and you've said yourself, you know, demand fluctuates.
Are you worried about some of the winter months?
- I'm always worried, that's my job,
you know, I'm born worried.
And we really have to be very careful.
It's easy to burn a lot of money if you get things wrong.
- So how can these low cost carriers survive winter?
Well, one option is to chase the warmer weather
and adjust your routes.
And Norse plan on doing just that.
Opening up winter routes to Barbados, Jamaica,
and even adding a new route to Bangkok in Asia.
But shifting key routes when you don't have many planes
can create another headache.
- Dipping in and dipping out of markets
is a relatively high risk strategy
because your brand awareness and your presence
is not as large as the other carriers
who are there year round.
- So another tactic is to try and carry more cargo,
providing there's more cargo to be carried.
- We are definitely seeing a better cargo market
typically during the winter, but you don't know.
So you can't take that for granted.
- And if those fail, well, hunker down for the cold months
and conduct your scheduled maintenance
while your fleet is out of use.
Norse told me that they'd try all of these tactics,
but the aviation industry can be pretty cutthroat.
And while low-cost carriers brace for the winter,
legacy carriers will capture every advantage.
- If the market becomes a little bit tougher
those legacy carriers are not gonna say,
"The market's yours."
They're gonna compete for every seat with you,
and that's a challenge.
(rhythmic music)