US airline JetBlue takes a gamble with budget-flight plans | Business | Economy and finance news from a German perspective | DW
US airline JetBlue is launching trans-Atlantic flights on August 11 — a route that is one of the most lucrative ones in the world, worth about $11 billion (€9.8 billion) a year in revenue.
Low-cost flights across the Atlantic, some believe, could spearhead the aviation industry’s post-pandemic rebound after it was hit hard by the impact of COVID-19.
Others suggest the experience of low-cost carrier Norwegian Air — which went from scratch to carrying more than 2 million people from New York to Europe in 2019 to bankruptcy a year later — should offer a cautionary tale.
Meanwhile, restrictions are still making it difficult to travel between the UK and the US. The US is not open for non-Americans who have been in the UK in the past 14 days, while the UK is requiring a minimum of five days in quarantine for anyone coming from the US. The EU, however, has recommended adding the US to a list of safe-origin countries.
Pre-pandemic, low-cost carriers secured 15% of the trans-Atlantic market, with Norwegian offering 40% of all seats
JetBlue: Fight or flight?
JetBlue wants to cash in on the busiest city pairing in the world — New York/London — where competition was already fierce before the pandemic. Virgin Atlantic and British Airways lead by market share on this route, with 38% and 30%, respectively.
JetBlue Chief Executive Robin Hayes said his airline was nothing like rival carriers that promised to bring low fares to the trans-Atlantic route and then folded.
The key difference could be a mixed offer with business and economy classes. Norwegian had a fleet of Boeing 787 Dreamliners and no business class. JetBlue will have 24 seats in business class, known as Mint, which some believe will allow the airline to compete on level terms with existing carriers. Business magazine Forbes reported that JetBlue’s inaugural flight had sold out.
The airline, one of the biggest in the US, will deploy a single-aisle, narrow-body plane, the Airbus A321LR.
Hayes says the prices will be far below what rivals charged for business class, starting at less than $2,000 (€1,700) for a round trip from the US. Forbes found that the lowest fare was a $202 Blue Basic ticket from JFK to London on September 8.
“JetBlue can start its flight operations under different conditions than European airlines: Vaccinated, recovered and tested US citizens can enter the EU,” Thomas Jachnow, a spokesperson for Lufthansa, told DW.
“Conversely, this is currently still denied to EU citizens. This allows JetBlue to return to its home market and thus get back into the business,” he added.
Budget carriers beware
Norwegian Air began flying across the Atlantic in 2014, with roundtrip tickets selling for about $500. By the third quarter of 2018, LCCs flew 15% of the 13.2 million seats in the trans-Atlantic marketplace, data from the Official Aviation Guide of the Airways (OAG) show. Norwegian was the biggest discount carrier, offering 40% of those seats.
The new entrants on the trans-Atlantic market, such as Norwegian, were popular but not profitable and started disappearing, with carrier Primera being the first in October 2018, followed by Wow in March 2019 and Norwegian in March 2020.
Many saw this as the end of the experiment in the budget trans-Atlantic market. But this appears not to be the case.
Low-cost leisure airline French Bee returned to the US on July 15 with a new route between Newark and Paris. The company said there was sufficient demand from US tourists and the cargo industry to offer the flights. Another French airline, La Compagnie, has also resumed flying between the US and France, with its first flight on June 12 between Newark and Paris.
The Norwegians are also making a comeback. Norse Atlantic Airways was set up in February with shares trading on Euronext Growth Oslo since April. Norse Atlantic’s 15 aircraft will launch commercial operations on trans-Atlantic routes in December, the company said. CEO Bjorn Tore Larsen, who holds 15% in the new venture, says the airline has “nothing to do with” Norwegian.
But the airline plans to fly the same aircraft and operate from the same airports and may also hire the same, recently laid-off, staff. It also doesn’t offer business and first-class cabins.
However, one area where Norse appears to have learnt from Norwegian’s mistakes is in talking with labor associations on both sides of the Atlantic.
Ryanair boss Michael O’Leary says his airline is not considering transatlantic flights
Is the market ready?
“The market will be viable only if there is a demand,” Peter Knapp, the chairman of Landor & Fitch, a brand consultant, told DW.
The carriers struggled because they weren’t able to make up for cheap fares by turning aircraft around more frequently than their legacy airline rivals. Added to this, fuel, where ultralow-cost carriers have no price advantage, makes up a larger portion of costs on a long-haul flight than on a short-haul flight.
“Stripping it down to 25-minute turnarounds or to the basic add-on philosophy is never going to work on long haul,” said Ryanair boss Michael O’Leary. Like Ryanair, Hungarian Wizz Air Holdings says it’s not planning a low-cost, long-haul strategy.
The economics of flying routes of over seven hours are different to those of short-haul, and legacy carriers are better able to manage volatile fuel costs.
However, JetBlue said its A321LR planes are fuel-efficient, with a range of 4,000 miles (6,440 kilometers), and burn up to 20% less fuel than previous models.
Another advantage could be, as The Guardian newspaper reported, that the pandemic helped JetBlue’s entry into London’s Heathrow Airport. This is because trading in the crucial landing slots were suspended while many flights were grounded, thus giving JetBlue an early boost.
Big boys back in?
“Things won’t be going back to the ‘old normal’ anytime soon, so it would be wise for airlines to consider this [low-cost] element when developing new strategies or models,” Knapp said.
If budget airlines do gain a foothold in the market, the bigger carriers will have to shift increasingly into the low-cost sector, he believes. “This could be a real threat to the legacy carriers and it could force them to dramatically rethink their models,” said Knapp.
“We could see an era where a new competitive arena forces a new era of innovation in the industry as the old guard slug it out with the new kids on the block. Who dares wins? It could now be a very exciting time for an industry that has moved very slowly over the last few years,” Knapp added.
And many have indeed been taking the leap to the budget arena. Since July 24, 2021, the youngest airline in the Lufthansa Group, Eurowings Discover, has been flying and will take over Lufthansa’s long-haul tourist program. International Airline Group (IAG), owner of British Airways, Iberia and Aer Lingus, created the Level discount trans-Atlantic brand. American Airlines is also adding new trans-Atlantic services to Croatia, Greece, Iceland and Italy and increasing flights to Spain, Portugal and Italy.
But only time and the timing of the end of travel restrictions will tell if JetBlue’s plans fly or are simply another flight of fancy.