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Paris or London? Budget airlines push summer deals to Europe
[NEW YORK] Forget Yellowstone. Right now, you can buy a ticket to travel from New York to Paris in August — on a major American airline — for under $500.
Low prices on routes across the Atlantic are coming as budget carriers, Norwegian Air and Wow Air of Iceland in particular, increase routes in hopes of capturing summer travellers. Whether these low fares will last, especially if oil prices continue to climb, is uncertain.
"What used to be four-digit airfares in peak summer are now three digits," said Robert W. Mann, an airline industry consultant. Mann describes the situation as "quite unusual," suggesting travellers take advantage while they can.
Low-cost competition is not a new phenomenon, even on long international flights. Norwegian has been flying from the United States to Europe since 2013. But trans-Atlantic capacity, in particular from smaller cities, is growing. Last week, the airline announced a new flight to London from Tampa, Florida, adding to the more than 60 routes it flies from the United States. It has added eight routes this year, and has announced plans for three more.
As Norwegian and Wow go after travellers who are willing to forgo some convenience, the major carriers are responding by dividing up their cabins or offering no-frills options just like they have done on domestic flights. Some airlines now have as many as four classes on international flights, and economy cabins that are further subdivided.
Customers buying the cheaper tickets, and accepting limits on carry-on baggage or in-flight food, were never likely to pay for a premium ticket, analysts say.
"Airlines have seen there is a price-sensitive part of the market that can be best served by no-frills point-to-point service," said Brian Pearce, the chief economist for the airlines' trade group, the International Air Transport Association.
As they tap into new markets with the added routes, the no-frills airlines are also sharply undercutting major carriers, said Mann. "Norwegian, in particular, they're pricing at US$50 to other people's US$100," he said.
The "other people" in this case — American Airlines, Delta Air Lines and United Airlines — would not comment for this article, but they are offering low trans-Atlantic fares as well. For travellers willing to layover in Pittsburgh, a round-trip ticket from New York to Paris on Delta could be had for under $500, as of Monday.
Of course, in an industry that has been scarred by bankruptcies, it is reasonable to wonder how the cheap tickets are possible, and whether they are sustainable in the long run, particularly as oil prices continue to rise. Jet fuel is one of the airline industry's largest costs.
Part of the reason for the cheap airfares are new, more fuel-efficient planes like the Boeing 737 MAX and the Airbus A320neo, Pearce said.
"This is partly technology-driven," he said. But airlines like Norwegian also keep their prices low by selling airfare-only tickets and charging more for bags and other onboard services.
"We've debundled the fare so passengers are able to choose if they want to have the luggage, assigned seats, et cetera," said Thomas Ramdahl, the airline's chief commercial officer. "The freedom to choose is important to us, but we are in the game to make money as well, so we are not giving away tickets."
He also said that the lower fares actually helped the airline save money on advertising.
"The lowest prices are a tool for marketing," Ramdahl said. "Instead of using tons of money on big campaigns, we can use the fares as a campaign instead." The low prices also mean the airline is less likely to have empty seats on its flights.
But if oil prices continue to rise, Mann said, long-haul low-cost airlines like Norwegian could be caught in a financial bind and struggle to keep their fares so low. Other larger airlines will certainly be affected, too, but may be more resilient to short-term rises in the price of oil, partly because they have more passengers willing to pay higher fares.
Pearce estimated that the larger airlines made 60 per cent of their revenue from premium cabin customers on North Atlantic routes in 2017. Those margins also mean that legacy airlines are better able to compete with low-cost airlines for budget-conscious international travellers, because their larger premium cabins can help subsidize the lower fares.
Joseph DeNardi, an airline industry analyst at the investment company Stifel, also noted that in the United States, no-frills carriers like Spirit had not aimed to win business away from their biggest rivals. The same can probably be said for new trans-Atlantic rivals. "Spirit has always talked about this — their model isn't necessarily that they're going to use their low fare as a weapon to take share from Delta, United and American," he said. "You could probably make the same argument for Norwegian. If they're able to offer lower fares to Europe than anybody else, they're going to stimulate demand."
Nonetheless, when Norwegian enters a new market, Ramdahl said, other airlines usually lower their fares.
It is one reason you could fly round-trip from New York to Key West, Florida, next month for about US$300. Or for just a little bit more, you could visit Paris instead.