Monday: “I’m going to start selling tickets between Europe and the United States for one pound (about $15).” Thursday: “No, I didn’t mean it.” Friday: “I still plan to do it.” Ryanair’s Michael O’Leary had an up-and-down press week. But the question he raised—about future low-fare transatlantic flights—remains a good one. Two players are currently in the game, both face barriers.
The active player is Norwegian, which flies from several U.S. points to Scandinavia and from Los Angeles or New York to London/Gatwick. Norwegian has several state-of-the-art 787s, with more on order, and it wants to expand in North America. But to do that, it wants to establish an affiliate or subsidiary company in Ireland, which participates in the EC open skies agreement with the U.S. and provides a more favorable business climate than Norway.
Currently, Norwegian is losing money, and industry insiders seem to think that it can’t go on indefinitely from a high-cost base, let alone expand. I haven’t heard any rumors that it might pull back on its operations, but some changes will be needed, sooner rather than later, to maintain and expand the low-fare operation. For now, Norwegian’s application to operate from Ireland is on hold with the U.S. Department of Transportation (DOT). Its modest Norway-based operation will probably keep going, but it won’t be a big factor in the marketplace without the Ireland-based expansion.
Although O’Leary backed away from his initial statement, he has been actively planning transatlantic routes for years. The main barrier is finding modern long-range planes at good prices. And he might be able to get what he needs in a year or two. Facing a slowdown in orders but wanting to keep assembly lines going, both Airbus and Boeing might offer sweetheart deals. Or an overextended line somewhere might sell him a few planes to raise cash. And although I haven’t seen anything in print about it, Ryanair could cut some kind of partnership deal with Norwegian: Norwegian has the planes Ryanair wants, and Ryanair has the Irish base Norwegian wants.
Barrier Number One: Economic. For years, industry pundits have been advising that the low-fare airline model cannot easily be applied to transatlantic flights. On long-haul flights, the opportunity to squeeze in an extra flight a day by fast turnaround doesn’t work: Schedule and time-zone factors mean feasible schedules are limited to the eastbound overnight, westbound by day, so one airplane can make only one round-trip a day from the East Coast to Europe and can’t even do that from the West Coast. Also, fuel cost is much more important on long-haul flights than on short trips: A low-fare airline can’t cut its fuel costs below competitors’ costs, so flying older, cheaper-to-own fuel-guzzlers doesn’t provide a cost advantage.
Clearly, the “10 pound fare” is a publicity stunt. Sure, Ryanair might sell enough seats to comply with U.S. (and applicable European) regulations against “bait and switch” promotions, but most seats would be at much higher prices. Still, Norwegian is currently undercutting the giant lines, and Ryanair would do the same.
Barrier Number Two: Protectionism. After decades of pushing “open-skies” treaties that allow airlines to fly where, when, and at what fares they want, the giant U.S. lines and their European counterparts are suddenly pushing back on existing open-skies treaties. The reason: They fear low-fare competition from Norwegian (and presumably Ryanair) and they fear high-service competition from Emirates, Etihad, and Qatar. Norwegian would hire cheap labor, they say, and those Gulf lines enjoy huge subsidies from their governments.
Norwegian has a decent chance for approval to base in Ireland, and Ryanair really does want to fly transatlantic. My takeaways are that (1) you will soon see more nonstop low-fare service from the U.S. to Europe, (2) initially, those additional flights will be on Norwegian rather than Ryanair, and (3) within a few years, you’ll see Ryanair’s harp logo at U.S. and Canadian airports. But you’ll pay a lot more than $15 each way.
Ed Perkins on Travel is copyright (c) 2015 Tribune Media Services, Inc.
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