20-Sep-2018 11:27 AM

Low cost long haul disrupts North Atlantic aviation

Featured Analysis

Change is now in the air as low cost long haul operators capitalise on the capabilities of new narrowbody aircraft and increasing liberalisation to stimulate competition in markets traditionally dominated by full service carriers.

As a prime example, LCCs, led by Norwegian, have been encroaching on the tightly controlled North Atlantic route over the past five years. LCC growth here and elsewhere owes much to new, more cost efficient aircraft types - both the widebodies, such as the 787, and the narrowbodies, such as the Boeing 737 MAX and A321neo.

A panel discussion at the inaugural CAPA Low Cost Long Haul Summit in Seville on 4-5 October 2018 will consider the role of new aircraft technology in opening up new long haul markets for LCCs. It will also consider the response of legacy airlines in defending existing routes or taking the fight to the LCCs with new routes of their own.

This report provides some context for this discussion by looking at the importance of new routes to the growth in North Atlantic capacity since 2012, which was the year before Norwegian entered. New airport pairs have driven the majority of seat growth on the North Atlantic since 2012, but incumbent airlines (and airports) have added more seats than new entrants.

More information about the inaugural: CAPA Low Cost Long Haul Global Summit on 4-5 October in Seville, Spain

Summary

From summer 2008 to 2013, the numbers of routes and airlines operating between Europe and North America fell, but have grown since then.
Since 2012, more seat growth has come from new airport pairs than from pre-existing routes, but new entrant airports only account for a small share of seats.
New entrant airlines have contributed strongly, but incumbent airlines have driven more of the seat growth.
London Gatwick to New York JFK is the biggest of 179 new North Atlantic routes added since 2012.

From 2008 to 2013, the number of North Atlantic routes and airlines fell, then rose again to 2018

In the summer peak week that commenced 23-Jul-2018, there were 486 scheduled airport pairs operated by airlines between Europe and North America.

A review of the trend in the number of routes on the North Atlantic over the past decade shows that the number fell from 369 in the final week of Jul-2008 to 352 in the equivalent week of Jul-2013, affected by the aftermath of the global financial crisis, before rising sharply to reach this Jul-2018 total.

The net increase of 137 in the number of airport pairs between Jul-2012 and Jul-2018 was the result of 179 new routes and 42 closed routes.

The number of airlines operating on the North Atlantic also fell between Jul-2008 and Jul-2013, from 61 to 44, the result of consolidation, market exit and fewer fifth freedoms. By Jul-2018 the number of airlines had risen to 58, the result of new entries, particularly by low cost and leisure operators.

North Atlantic (Europe-North America): number of airlines and routes, Jul-2008, Jul-2013 and Jul-2018*

Since 2012, more seat growth has come from new airport pairs than from pre-existing routes

Norwegian entered the North Atlantic in 2013 and now has 5% of seats in this market, so it is worth looking at developments since 2012, the year before it entered.

Over the six years between the week of 23-Jul-2012 and the week of 23-Jul-2018, the number of airline seats on routes between Europe and North America increased by 45%. Capacity on routes that were operating in Jul-2012 grew by 20% over this period, but a further 25% of capacity was added by airport pairs opened since then.

Put another way, out of the net additional capacity over the decade of 807,000 seats in the last week of July, just over 353,000 seats came from growth on existing routes and more than 453,000 seats came from new routes.

These new routes (i.e. those added since 2012) now account for 18% of all North Atlantic seats, based on the week of 23-Jul-2018.

North Atlantic (Europe-North America): weekly seat capacity by route category in last week of Jul, 2012 to 2018*

The number of airports in the North Atlantic market is also up since 2012

The number of airports in the Europe-North America market has also grown significantly: from 114 in the week of 23-Jul-2012 to 135 in the week of 23-Jul-2018.

The number of European airports in the market grew from 61 to 70 (14 in and five out), and the number of North American markets with North Atlantic routes grew from 53 to 65 (13 in and one out) over this same period.

The 14 European airports that have added North American links since Jul-2012 are London Stansted, Cologne/Bonn, Bucharest, Budapest, Zagreb, Belgrade, Cork, Kraków, Baku, Bergen Friesland, Rzeszów, East Midlands, Bristol and Akureyri (a regional airport in Iceland, which has links to Greenland, which is included in North America).

Those no longer serving North American destinations that did so in Jul-2012 are Moscow Domodedovo, Pisa, Valencia, Riga and Exeter.

The 13 North American airports that have added European links since Jul-2012 are Providence, Stewart, Austin-Bergstrom, San José, New Orleans, Hartford Bradley, Winnipeg, Indianapolis, Saint Pierre, Nashville, Cleveland, St Louis and Kansas City.

Among airports that did so in Jul-2012, Memphis is the only North American airport no longer serving European destinations in Jul-2018 (Delta terminated its Amsterdam service in Sep-2012).

North Atlantic (Europe-North America): number of airports in the market in last week of Jul, 2012 to 2018*

But airports that have entered since 2012 only account for a small share of seats

Nevertheless, although new airport pairs added since 2012 now make up close to one fifth of all North Atlantic seats, the impact of airports that are completely new to this market is more limited. This is because most of the new airport pairs involved at least one airport that already had other trans Atlantic routes.

In the week of 23-Jul-2018, European airports that had did not have North American routes in Jul-2012 accounted for just over 1% of all North Atlantic seats. North American airports that had did not have European routes in Jul-2012 accounted for just less than 2% of all North Atlantic seats in Jul-2018 (source: CAPA analysis of OAG data).

New entrant airlines have contributed strongly…

Turning to the capacity impact of airlines that have entered the North Atlantic since 2012, they now have a seat share of 11% (based on the week of 23-Jul-2013). Just under half of this, almost 5%, is attributable to the Norwegian Group.

LCCs overall have a little more than 8% of seats - all new since 2012. After Norwegian, the leading North Atlantic LCCs are WOW air, West Jet, Primera Air and Eurowings.

Other new entrants since 2012 include airline subsidiaries of the leisure groups Thomas Cook and TUI, which have just over 1% of seats, and the leading fifth freedom operator, Emirates, which has 0.5%.

North Atlantic (Europe-North America): seat capacity in the week of 23-Jul-2018 of airlines that have entered since 2012

…but incumbent airlines have driven more of the seat growth

As noted earlier, total seat growth on routes between Europe and North America increased by 45% between Jul-2012 and Jul-2018. In aggregate, airlines that have entered since 2012 have been responsible for seat growth of 16%, but this is less than the 29% attributable to incumbent airlines.

North Atlantic (Europe-North America): weekly seat capacity by airline category in last week of Jul, 2012 and 2018*

London Gatwick to New York JFK is the biggest of 179 new North Atlantic routes added since 2012

Among the 179 North Atlantic airport pair routes operated in Jul-2018 that did not exist in Jul-2012, the top 20 are shown in the chart below.

The biggest new route by seat capacity is London Gatwick to New York JFK. Launched by Norwegian in Jun-2014, and eventually prompting British Airways to enter the route in summer 2016, this route had 12,600 seats in the week of 23-Jul-2018.

To put this in some context, Gatwick-JFK was ranked number 44 out of the 486 North Atlantic routes operated in Jul-2018. Of course, it is part of the biggest city pair, London-New York.

The second biggest new airport pair since 2012 is Reykjavik-New York Newark, with more than 11,200 weekly seats in Jul-2018. This was launched in Oct-2013 by Icelandair and then entered by WOW air in Nov-2016. This added to the Reykjavik-JFK service already operated by Icelandair and, in the summer only, by Delta (and entered by WOW air in summer 2018).

At number three is Athens-New York Newark, launched in May-2016 by United as a seasonal summer service and entered by Emirates as a year-round fifth freedom operation in Mar-2017. Athens-New York JFK was already being operated by Delta.

The fourth biggest new route since 2012 is London Heathrow to Charlotte Douglas, solely operated by American Airlines since Mar-2013 and originally launched by US Airways, which had previously operated from Gatwick to Charlotte Douglas.

Reykjavik-Chicago, at number five, was launched by Icelandair in Mar-2016 and entered by WOW air in Jul-2017. Its 7,500 weekly seats rank it a number 88 among all North Atlantic routes in the week of 23-Jul-2018.

Also of note among the top 20 are Dublin-Los Angeles, launched in Jun-2015 by the fifth freedom operator Ethiopian Airlines and entered in May-2016 by Aer Lingus, and Dublin-New York Stewart, a narrowbody (737 MAX-8) operation launched by Norwegian in Jun-2017.

Turkish Airlines has two services in the top 20 new North Atlantic routes: Istanbul to Miami (Oct-2015 launch) and Houston (Apr-2013).

North Atlantic (Europe-North America): top 20 new routes launched since 2012 by seat capacity in the week of 23-Jul-2018

North Atlantic: big impact of long haul low cost, but strong incumbent response

These top 20 new routes illustrate some key themes in the North Atlantic market, including the importance of New York and London, as well as the impact on growth of the two Icelandic airlines, Turkish Airlines and, albeit to a lesser extent, fifth freedom operators.

The top 20 new routes also clearly highlight the role played by LCCs (particularly Norwegian and WOW air) in growing the market and in opening new routes with narrowbody aircraft.

Moreover, they highlight the response by incumbent airlines and groups.

New airport pairs have driven the majority of North Atlantic seat growth since 2012, but incumbent airlines (and airports) have added more seats than new entrants. A number of incumbent airlines such as Turkish Airlines and Aer Lingus have relatively low unit costs themselves, and others have mimicked LCC pricing strategies.

Long haul low cost has made a significant impact on the North Atlantic, taking an 8% seat share from virtually nothing in a little more than five years, but the legacy airlines are not shying away from the fight.