Low-cost, long-haul player Norwegian Airlines’ financial woes are well documented, with the airline today reporting quarterly earnings weaker than expected, and hiking its estimate for unit costs.
The short-haul, low-cost formula operated successfully by the likes of Ryanair is to have flights of five hours or less and to operate at airports which allow it to turn its aircraft around quickly, in order to maximise flying hours and aircraft utilisation.
They also try to operate as few different aircraft types as possible to reduce the cost of carrying spares and increase utilisation of pilots and crew thanks to a single aircraft fleet.
These unit cost efficiencies allow low-cost carriers to offer lower prices than traditional airlines like British Airways and drive higher average load factors, which in turn yield higher profits.
However, when we move into the long-haul sector different aircraft types are required and the benefits of turnaround times are lessened, simply because the aircraft land less frequently.
Secondly, legacy carriers have a major average revenue advantage because of the high yields delivered by their business class passengers. These passengers tend to be locked into the traditional carriers via loyalty schemes, business lounges and the connectivity delivered by their hub networks.
Traditional carriers can more easily fight off competition from supposed “long-haul, low-cost carriers”, by simply discounting seats at the back of the aircraft to similar or lower prices, while using the premium cabins to subsidise the average revenues per flight.
Hence, we have seen many long-haul, low-cost carriers go bust since the days of Freddie Laker’s Sky Train and most pundits predict further collapses on the horizon.
So given Norwegian’s struggles, why is Thomas Cook continuing to increase its long-haul flying programme with new city routes including New York, San Francisco and Seattle?
The answer appears to be that these routes are the icing on its long-haul cake, with its core destinations remaining beach destinations like Mexico, Florida and the Caribbean.
Within these destinations Thomas Cook combines its flight seats with holiday hotels, to sell packages on a convenient point-to-point flying basis, utilising high density aircraft configurations and via a distinctive leisure distribution network.
Beach routes have allowed Thomas Cook to become Manchester’s largest long-haul carrier and to then add city routes such as San Francisco, where it faces no direct competition from traditional scheduled carriers.
So for Thomas Cook, it seems to be a case of “if you can’t beat them, simply avoid them” and extra profits should come flying in.