At the beginning of the month I wrote about minor transatlantic player Primera Air shutting down.
They blamed higher than expected maintenance costs, delays in obtaining new aircraft, and an inability to secure bridge financing as the drivers of their bankruptcy. In other words, the airline’s narrative was ‘bad luck and an unwillingness of investors to stick with them until they start earning the profits that they clearly expect.’
That was silly. They weren’t filling their planes despite rock bottom fares. Operating a single frequency between cities like New York and London with higher seat costs and lower fares isn’t a winning model. Airbus A321neos may make sense on short transatlantics between secondary cities that can command higher non-stop fares. Not competing head-to-head with widebodies.
And there is a glut of low cost transatlantic capacity. Iceland-based carrier Wow Air is pulling back, too. At the time I mentioned they were leaving Cincinnati. Then it came out that they were leaving St. Louis. It turns out they’re eliminating five routes.
- Cincinnati: 4 times weekly service discontinued October 26
- Cleveland: 3 times weekly service discontinued October 25
- Dallas/Fort Worth: 3 times weekly service discontinued October 26
- New York JFK: Daily service discontinued October 26
- St Louis: 3 times weekly service discontinued January 6
Wow Air, Copyright: zhukovsky / 123RF Stock Photo
New York JFK surprises me, since they’re not trying to compete in the London non-stop market but in several connecting markets, although it’s very competitive. The rest make good sense. Dallas in particular — there’s no way three airlines flying from Dallas Fort-Worth to Reykjavik makes any sense at all.
American entered with daily service, they’ve said they would defend their hubs and they have a bigger customer base and started with daily service compared to the three times weekly Icelandair and Wow each flew.
Cleveland, too, had more than one airline flying to Iceland since both Wow Air and Icelandiar offered four times weekly service.
Last summer I said Wow Air had announced service to every mid-sized city in America. That simply wasn’t sustainable. The only route from that expansion they appear to be keeping is Detroit – Reykjavik, where there is no other player in the market.
Norwegian, the other main transatlantic discounter, has faced rising costs and some argued they lacked the cash to keep going. There has been talk about British Airways parent IAG acquiring them as a way to kill low fare competition.
Copyright william87 / 123RF Stock Photo
There’s likely a business model here, but no one has found it yet. And the challenge isn’t a new one.
Transatlantic low cost carriers date to Freddie Laker’s Skytrain — which after the British government for years tried to stop them, eventually flew and became profitable but expanded too quickly and faced a devaluing pound with interest payments due in dollars and a fleet of DC-10s ground after an American Airlines incident.
What Sir Freddie Laker saw was that major airlines matched his low fares, just as today’s Norwegian and Wow Air drive down fares to the consternation of major established players. But there’s too many of them, fighting for too few passenger, without enough scale to offer competitive schedules. 2017 and 2018 are likely to be high points for low fare transatlantic service, with some ‘rationalizing’ in the market finally happening.
Amidst rising fuel prices Iceland’s government has launched a task force “to create an emergency plan to respond should Wow Air and Icelandair go bankrupt.”