11-Dec-2019 3:30 PM

Europe longhaul LCCs: Norwegian cuts, Eurowings exits

Analysis

In late Nov-2019 Norwegian announced the cessation of its long haul operations from Copenhagen and Stockholm from the start of the summer season at the end of Mar-2020. Its long haul network from the two cities comprises routes to the US and the Thai capital Bangkok.

Norwegian will also suspend its Oslo to Bangkok service for the coming summer and is reviewing this route and its winter-only service from Oslo to the Thai leisure destination Krabi for winter 2020/2021. Its US routes from Oslo will continue.

Norwegian is the leading European long haul low cost operator by number of seats and routes. Its cuts to its intercontinental network come as Lufthansa prepares to pull the long haul routes of its Eurowings subsidiary into its Network Airlines division and to rebrand Eurowings' long haul operations to differentiate them from the low cost market segment.

Eurowings is Europe's number two long haul low cost operator by route numbers and ranks third by seats. It is planning growth next summer, but its exit from the LCC sector will leave Western Europe with IAG's LEVEL, French Bee, and a reduced Norwegian as its only long haul low cost operators.

Summary

Norwegian Air is ceasing its long-haul operations from Copenhagen and Stockholm, as well as suspending its Oslo-Bangkok service for the summer season.
The decision reflects a strategic restructuring, insufficient demand in Scandinavia, and operational challenges with the Rolls Royce engines on its Boeing 787-9 fleet.
Norwegian is the leading low-cost long-haul operator in Europe, followed by Eurowings.
Low-cost airlines operate on only 10% of long-haul routes from Western Europe, with North America being the leading destination.
Norwegian's cuts and Eurowings' exit from the low-cost market segment represent a significant reduction in low-cost seats on routes to North America, Latin America, and Asia Pacific.
The experiences of Norwegian and Eurowings highlight the need for a strong low-cost focus, network feed, and disciplined growth in the long-haul low-cost model.

Summary

Norwegian's long haul refocusing reflects insufficient Scandinavia demand, operational problems with its 787 engines and a strategic restructuring.
Norwegian is Europe's biggest low cost long haul operator. Eurowings is number two by routes, number three by seats.
Low cost operators fly on 10% of all long haul routes from Western Europe, but on 16% of routes to North America, which is the leading long haul low cost destination.
Norwegian's cuts and Eurowings' long haul exit represent 15% of LCC seats on Western Europe to North America, 19% to Latin America, and 28% to Asia Pacific.

"Scandinavia is not large enough…"

Norwegian's decision to cease long haul from Copenhagen and Stockholm and to suspend Oslo-Bangkok follows a review of its global long haul network.

This reflects its strategic restructuring in an attempt to restore profitability, an assessment of demand in its markets, and operational challenges with the Rolls Royce engines on its Boeing 787-9 fleet.

According to Norwegian's Senior Vice President Commercial, Matthew Wood, "Scandinavia is not large enough to maintain intercontinental flights from Oslo, Stockholm and Copenhagen".

Norwegian's US routes from other European cities - London, Paris, Barcelona, Rome, Madrid, Amsterdam and Athens - are not affected.

Indeed, Norwegian is increasing its frequencies on a number of routes and has announced the launch of three new seasonal Europe-US services in summer 2020. The new routes are from Paris CDG to Chicago (competing with United, American and Air France), from Rome FCO to Chicago (competing with United and American), and from Rome FCO to Denver (no other operators).

Norwegian also operates long haul routes from London Gatwick to Buenos Aires and Rio de Janeiro. No changes to these services have been announced.

Norwegian is Europe's leading low cost long haul operator

According to data from OAG for the seasonal peak week of 26-Aug-2019, Western Europe had four long haul low cost brands operating in summer 2019: Norwegian, Eurowings, LEVEL and French Bee.

All but French Bee are also short haul LCC brands.

Western European low cost long haul operators, week of 26-Aug-2019

Airline	Seats	Number of routes
Norwegian	146,496	51
Eurowings	22,518	12
LEVEL	32,312	9
French Bee	10,686	2
Total	212,012	74

Low cost operators on 10% of long haul routes from Western Europe

Low cost airlines operated on 92 long haul routes from Western Europe in the week of 26-Aug-2019.

For the purposes of this analysis, a long haul route is taken to mean a service between Western Europe (including Greece) and destinations in one of North America, Latin America, Asia Pacific or Southern Africa.

The 92 long haul low cost routes represented just 10% of total long haul routes from Western Europe in summer 2019.

North America is the leading long haul low cost region from Western Europe

North America dominated long haul low cost services from Western Europe in the period, with 68 routes representing approximately three quarters of long haul low cost capacity to/from Western Europe.

Long haul low cost services from Western Europe, week of 26-Aug-2019

LCC share of Western Europe-North America routes was 16% - the highest for any region.

There were 14 LCC routes to Latin America (7% of routes between the two regions), nine to Asia Pacific (3% of routes), and just one to Southern Africa (Paris Orly to La Reunion, operated by French Bee).

Proportion of routes from Western Europe to long haul regions with low cost operators, week of 26-Aug-2019

Western Europe to US: Norwegian had 46 routes in summer 2019

According to data from OAG for the seasonal peak week of 26-Aug-2019, Norwegian operated 46 routes between Western Europe and the United States in summer 2019.

Nine of these were to/from Copenhagen and Stockholm and will be discontinued from summer 2020.

Although the cancelled routes were 20% of Norwegian's route numbers to the US, they were only 11% of its seats to the US.

Moreover, load factors were often below the group's average and were declining. The same can be said of its US routes from Oslo, which are being maintained, but Norwegian will be hoping that these routes benefit from additional feed from Copenhagen and Stockholm.

Western Europe to Asia Pacific: Norwegian had three routes in summer 2019

Norwegian operated three routes to Asia Pacific in summer 2019, to Bangkok Suvarnabhumi from each of Oslo, Copenhagen and Stockholm, and is stopping all three.

It launched a winter-only Oslo-Krabi route in Oct-2018, which is operating again this winter but is under review for winter 2020/2021.

Western Europe to North America: 15% of LCC seats to exit this market segment

On Western Europe to North America, Norwegian was the leading low cost operator by routes and seats in summer 2019. Its 46 routes were more than four times the total of second placed WestJet's 11.

Eurowings had five, equal with LEVEL (three operated from Barcelona on its behalf by Iberia and two operated from Paris Orly by LEVEL France). French Bee had just one route (Paris Orly to San Francisco).

Norwegian's suspensions represent 8.0% of low cost seat capacity and Eurowings represents 6.6% of low cost capacity, using data for the week of 26-Aug-2019.

Based on peak summer 2019 data, a total of 14.6% of LCC seats between Western Europe and North America will either cease or no longer be classified as low cost (but this will be partly offset by Norwegian's new services from Paris and Rome).

Norwegian will remain the leading low cost operator between Western Europe and North America.

Western Europe to North America: low cost operators by number of routes and seats, week of 26-Aug-2019

Airline	Number of routes	Seats
Norwegian	46	137,141
WestJet	11	23,560
Eurowings	5	12,622
LEVEL (Iberia)	3	10,584
LEVEL France	2	4,396
French Bee	1	2,466
Total	68	190,769

Western Europe to Latin America: 19% of LCC seats to exit this market segment

On Western Europe to Latin America, Eurowings represents 18.8% of low cost capacity, but this will no longer be classified as low cost from summer 2020.

In summer 2019 LEVEL had the most seats among LCCs in this market, followed by Azul (the only Latin American low cost operator to Europe).

Eurowings' six routes will no longer be counted as LCC routes, so LEVEL's four services (two from Barcelona operated by Iberia and two from Paris operated by LEVEL France) will also take it to the top on this measure.

Western Europe to Latin America: low cost operators by number of routes and seats, week of 26-Aug-2019

Airline	Number of routes	Seats
LEVEL (Iberia)	2	12,936
LEVEL France	2	4,396
Azul	2	10,116
Eurowings	6	8,060
Norwegian	2	7,450
Total	14	42,958

Western Europe to Asia Pacific: 28% of LCC seats to exit this market segment

On Western Europe to Asia Pacific, Norwegian's suspensions represent 14.1% of low cost seat capacity and Eurowings represents 13.6% of low cost capacity, using data for the week of 26-Aug-2019.

Based on peak summer 2019 data, a total of 27.7% of LCC seats between Western Europe and Asia Pacific will either cease or no longer be classified as low cost. Eurowings relaunched Munich-Bangkok in Oct-2019, but this will be reclassified away from low cost.

The changes by Norwegian and Eurowings will leave Scoot and Beijing Capital Airlines as the only low cost operators between Western Europe and Asia Pacific.

Western Europe to Asia Pacific: low cost operators by number of routes and seats, week of 26-Aug-2019

Airline	Number of routes	Seats
Scoot	2	5,994
Beijing Capital Airlines	3	3,768
Norwegian	3	1,905
Eurowings	1	1,836

Low cost long haul needs strong focus

Norwegian's refocusing of its long haul network and Eurowings' move away from the low cost market segment represent a setback for the low cost long haul phenomenon in Europe.

In addition, earlier this year the Nordic operator Primera Air went bust after attempting to expand onto long haul markets with a low cost model, and Iceland's WOW air was also a high profile casualty of overexpansion.

Norwegian, a true pioneer of this market and still Europe's leader, has been forced to recognise and to rectify its overexpansion and lack of focus. Its losses began after it entered long haul markets in 2013 and its scatter gun approach to network planning now needs refining.

In addition to reducing its Scandinavian long haul operations, it has also taken steps to sell aircraft and future orders, and it has agreed to exit the domestic Argentine market by selling its operation to JetSMART.

Norwegian's recent award of slots at London Heathrow is a diversification of sorts, and Norwegian has yet to detail its route plans. Long haul routes and premium passengers must be part of its thinking, but Heathrow's high costs and the strength of the immunised JVs will be challenges.

Eurowings' long haul operations are outsourced to SunExpress Germany under wet lease, but its cost base has never been in the LCC range and the point-to-point focus of its short haul network is not fully suited to long haul. Eurowings, like Norwegian, is loss-making.

Lufthansa has not yet detailed its plans for the repositioning of Eurowings' long haul operations, but Eurowings will be more closely aligned with, and managed by, its Network Airlines division and is expected to be given a new name.

Long haul low cost from Western Europe is far from over, but the experiences of Norwegian and Eurowings indicate that the model needs to continue to evolve. A strong low cost focus and network feed, together with disciplined growth, are essential.