Low cost long haul: Norwegian Air drops world’s longest LCC route 

Summary

• Norwegian is suspending services from London Gatwick to Singapore in Jan-2019, only 15 months after launching the route.
• London-Singapore is now the longest LCC route in the world; Norwegian's London-Buenos Aires service will gain this distinction when Singapore is dropped.
• Norwegian has a very small presence in Asia and will probably focus its long haul operation on the trans Atlantic market, which is generally higher yielding and is more important strategically.
• Southeast Asia-Europe is an extremely competitive market, with very low one-stop fares that make it hard for an LCC to penetrate.
• High fuel prices make long haul routes such as Singapore-London even more challenging for an LCC.

The economics of long haul low cost routes and the challenges of the Europe-Southeast Asia market will be discussed during the CAPA Low Cost Long Haul Global Summit in Seville on 4/5-Oct-2018.

London-Buenos Aires to replace London-Singapore as world's longest LCC route

Norwegian launched services to Singapore in late-Sep-2018 and since then has operated the London Gatwick-Singapore route four times per week with two class 787-9s.

See related report: London-Singapore becomes world's longest LCC route as Norwegian enters

Norwegian recently announced plans to suspend services from Jan-2019. The LCC group will have only served Singapore for 15 and a half months when the last Singapore-London flight operates on 11-Jan-2019.

Following the suspension of London-Singapore, London-Buenos Aires becomes the longest route for Norwegian - and the longest route in the world for any LCC. Norwegian launched services to Buenos Aires in Feb-2018 with four weekly 787-9 frequencies.

Longest LCC routes are in Europe to Argentina, Singapore and Thailand markets

London Gatwick-Buenos Aires currently has a scheduled flight time of 13hr 40mins southbound sector and 13hr 00min northbound. London Gatwick-Singapore has a scheduled flight time of up to 14hr 00min westbound (slightly shorter for some frequencies) and 12hr 45mins eastbound.

The fourth longest route by an LCC is also to Argentina - LEVEL's Barcelona-Buenos Aires service. This flight, which is operated six times per week with A330-300s, has a scheduled time of 13hr 20mins southbound and 12hr 40mins northbound.

Singapore will still have one of the five longest LCC routes. Singapore-Berlin is currently the third longest LCC route, with a scheduled flight time of 12hr 55mins westbound and 12hr 05mins eastbound. Scoot launched Berlin in Jun-2018; its Singapore-Athens service, which was launched in Jun-2017 with a scheduled flight time of 11hr 10mins westbound and 11hr 55mins eastbound, was the longest LCC route for Singapore (and Scoot) before Norwegian's launch of Singapore-London.

Eurowings' once weekly Cologne-Bangkok A330-200 service is currently the fifth longest route in the world, based on scheduled flight times. Eurowings is dropping Cologne-Bangkok and Munich-Bangkok in late Oct-2018 but is launching, at the same time, four weekly services from Duesseldorf to Bangkok, which will have a longer scheduled westbound flight time of up to 13hr 30mins (making it the second longest LCC route after London-Buenos Aires once London-Singapore is dropped).

Five longest LCC routes based on scheduled flight time: w/c 10-Sep-2018

Rank	Route	Airline	Launch date	Outbound sector	Return sector
1.	London Gatwick-Singapore	Norwegian	Sep-2017	12:45	14:00
2.	London Gatwick-Buenos Aires	Norwegian	Feb-2018	13:40	13:00
3.	Singapore Berlin-Tegel	Scoot	Jun-2018	12:55	12:05
4.	Barcelona-Buenos Aires	LEVEL	Jun-2017	13:20	12:40
5.	Cologne-Bangkok	Eurowings	Dec-2015	11:35	12:30

Source: CAPA - Centre for Aviation.

South America is a more strategically important market for Norwegian

It is very unlikely that Norwegian would also suspend London-Buenos Aires because Argentina is a strategically important market. Norwegian's new Argentina-based affiliate, Norwegian Air Argentina, is planning to launch operations in Oct-2018 (initially with domestic services).

Norwegian is upgrading London-Buenos Aires from four weekly services to daily in early Dec-2018, as it looks to leverage the launch of Norwegian Air Argentina. The group is planning to add several more long haul routes from Buenos Aires over the next few years.

Norwegian also plans to launch services in spring 2019 from London Gatwick to Rio de Janeiro, which will be its second South Atlantic route. Norwegian has not yet set a launch date or begun sales for London-Rio, which has a scheduled time of 11hr 45mins southbound and 11h 20mins northbound (currently operated by British Airways from Heathrow).

Singapore - and Asia generally - is not as strategically important for Norwegian. The group has no plans for establishing a subsidiary or affiliate in Asia.

Norwegian also has not yet forged a partnership with an Asian airline. The lack of feed has likely impacted Norwegian's performance on the Singapore-London route and its ability to expand in Singapore with routes from its other European bases, which at one point was under consideration.

Norwegian focuses on long haul services across the Atlantic

Since it was launched in 2013, Norwegian's long haul operation has focused mainly on the North Atlantic market. The group currently serves nearly 20 destinations in North America. Its longest North Atlantic route is Los Angeles-Rome, which has a scheduled time of 12hr 20mins westbound and 11hr 50mins eastbound.

Singapore marked the first time that Norwegian had pursued any expansion in Asia since 2013. Bangkok was one of Norwegian's initial two long haul destinations (along with New York), but the group focused almost entirely on the trans Atlantic market for the next four years as it expanded its 787 fleet.

With the suspension of Singapore, Norwegian once again will have just one destination in Asia: Thailand. Expansion in Asia does not seem to be a priority at this point. (Norwegian would likely launch services to North Asia if it could secure Russian overflight rights, which have so far proven elusive.)

Norwegian slowly expands in Thailand

Norwegian launched services to Bangkok from Oslo and Stockholm in Jun-2013 and services to Bangkok from Copenhagen were added in Jul-2014. For a few years these were the longest LCC routes in the world; all three of Norwegian's Bangkok routes currently have a scheduled time of between 11hr 40mins and 12hr 00min westbound and 10hr 45mins to 11hr 05mins eastbound.

Norwegian still serves Bangkok from all three Scandinavian cities, with a low frequency schedule. Norwegian has only one weekly service on all three routes during the northern summer season. In the northern winter season, Norwegian has four services from Stockholm to Bangkok, three services from Oslo and two services from Copenhagen.

Norwegian has not expanded in Bangkok since winter 2014/2015. Capacity on its three Bangkok routes has since been flat - or down slightly - and it has elected against launching any services to Bangkok from any of its other European bases.

However, Norwegian is adding service to a second destination in Thailand, Krabi, in late Oct-2018. Norwegian will operate six weekly flights to Krabi this winter including two flights from Copenhagen, two from Oslo and two from Stockholm. The three Krabi routes have a scheduled flying time of 11hr30mins to 12hrs westbound and 10hr25min to 1045min eastbound.

Offering direct services to one of Thailand's most popular beach destinations differentiates Norwegian as Krabi is not as competitive a market as Bangkok. However, Krabi is a relatively small niche market and is highly seasonal. All three routes will only operate during the northern winter season (from late Oct-2018 to late Mar-2019).

Bangkok is a much larger market and less seasonal but extremely competitive. While Eurowings is the only other LCC serving the Bangkok-Europe market, Gulf airlines offer aggressively priced one-stop options. Thai Airways and several European full service airlines also operate nonstop flights from Bangkok to 21 European destinations.

Norwegian competes against Thai Airways in the Bangkok to Copenhagen, Oslo and Stockholm markets. As it offers connections beyond the three Scandinavian hubs, Norwegian has a one-stop product on numerous Bangkok-Europe city pairs, most of which are also served by several FSCs.

Singapore-Europe market is more challenging

The Singapore-Europe market is similarly very competitive. Singapore is linked nonstop with 19 destinations in Europe but, as is the case with Bangkok, a high proportion of the traffic opts for the attractively priced one-stop options.

In several aspects, Norwegian's position in the Singapore market is even more challenging than its position in the Bangkok (or Thailand) market.

Norwegian is relying more on point-to-point traffic for its Singapore-London service, compared to its three Bangkok-Scandinavia routes. Norwegian has a hub at Gatwick but connections to continental Europe via London involve backtracking, and are inconvenient.

Given the low fares offered by other one-stop competitors in the Singapore-continental Europe market, it is very difficult for Norwegian to attract transit traffic. Norwegian is also offering some connections to North America, but the Singapore-North America market has also become extremely competitive, with very low fares often offered by FSCs.

Norwegian has no feed in Singapore

Norwegian does not have any partnerships with any airlines serving Singapore. Feed beyond Singapore, which is a huge hub for the Southeast Asia region and Australia/New Zealand, would have enabled Norwegian to reduce its reliance on local Singapore-London traffic.

Norwegian was hoping to attract some self-connecting passengers. Singapore is an easy airport for self-connections and there are ample LCC options. However, Singapore's high passenger service and security fees can dissuade self-connecting passengers, which are generally price sensitive.

Singapore recently increased passenger service and security fees to SGD47.30 (USD34.30) per departure. While transit passengers in Singapore only pay SGD9, Norwegian does not have any transit passengers in Singapore and self-connecting passengers need to pay the full SGD47.30 (or SGD94.60 for a return journey).

Singapore Changi Airport also recently increased landing and parking charges. Singapore was already an expensive airport to operate into, and the further increase in charges could have been a factor in Norwegian's decision to suspend services to Singapore.

High oil prices impact long haul low cost route economics

Rising oil prices were also likely a factor. As Norwegian's longest route, Singapore-London would have the highest allocation of fuel costs among all Norwegian's routes.

Long routes have always been challenging for LCCs as the cost gap with FSCs is less. The higher the fuel price is, the less the cost gap becomes. New generation aircraft such as the 787 help, but fuel is still a high proportion of total costs for low cost long haul routes.

While Norwegian has been generating decent load factors on Singapore-London, the revenues it has been able to generate are simply not sufficient to cover the high cost - and the increasing cost - of the operation. Norwegian is better off focusing on other long haul routes (i.e. across the Atlantic) where the costs may be lower and the average yield higher.

Norwegian's suspension benefits one-stop Singapore-London competitors

Norwegian's suspension will be disappointing to Singapore Changi Airport and Singapore consumers. However, several airlines will benefit from the suspension.

Norwegian provided the only low fare nonstop option from Singapore-London. Norwegian offers Singapore-London return fares that start at less than SGD600 (USD436) including taxes. The other three nonstop competitors - British Airways, Qantas and Singapore Airlines (SIA) - generally do not have any fares below SGD1200.

SIA has four daily services from Singapore to London Heathrow, British Airways has two daily services, and Qantas one daily service. SIA currently has approximately a 50% share of Singapore-London seat capacity compared to 26% for BA, 17% for Qantas and only 7% for Norwegian.

However, Norwegian is a larger competitor in the local Singapore-London market than Qantas, which resumed Singapore-London in Mar-2018 but does not have many seats available for local passengers as its Singapore-London service relies mainly on passengers originating in Australia.

Singapore to London one-way weekly seat capacity by airline: Sep-2011 to Nov-2018

Note: Garuda Indonesia operated nonstop flights from Singapore to London from Mar-2016 to Oct-2017 but never operated nonstop flights from London to Singapore.
Source: CAPA - Centre for Aviation & OAG.

Most passengers who have been flying Norwegian from Singapore to London are not about to switch to the other nonstop competitors after Norwegian suspends the route but will more likely opt for one-stop products.

Several airlines offer one-stop fares below SGD1000 in the Singapore-London market. Air India, Emirates, Etihad, Finnair, LOT Polish, Malaysia Airlines, Qatar Airways, SriLankan Airlines, Turkish Airlines and Vietnam Airlines are among the airlines offering attractive fares in this market (although not on all dates).

Scoot and SIA Group to benefit the most

While SIA is not likely to attract many of Norwegian's Singapore passengers, Norwegian's suspension benefits the SIA Group.

If Norwegian had been successful in the Singapore-London market, it would have likely launched other Singapore-Europe routes. As CAPA highlighted in an Apr-2017 analysis (shortly after Norwegian announced the launch of Singapore), services from Singapore to Barcelona, Paris and Scandinavia were possibilities.

See related report: Norwegian strengthens London Gatwick & Singapore Changi LCC hub position

A larger Norwegian presence in Singapore would have dictated a response from the SIA Group and its LCC subsidiary Scoot. While SIA was adamant about not using Scoot to serve the London market, the group was willing to accelerate Scoot's expansion in continental Europe if Norwegian had pursued expansion in Singapore. With Norwegian now pulling out of Singapore entirely, the pressure on Scoot to expand in Europe has been lifted.

Scoot is generally reluctant to launch true long haul routes and prefers to focus on less risky opportunities within Asia Pacific. While Scoot may still add one or two European routes over the next couple of years, it now does not have to go into Europe in a big way. With fuel prices again on the rise, Scoot may simply decide to maintain its small European operation, or could even pursue a reduction.