Transatlantic low cost airlines still show signs of growth

The recent closure of transatlantic ultralow-cost carrier
Primera Air, coupled with U.S. route cancellations by Iceland’s Wow Air,
have prompted questions of whether discount transatlantic air service is moving
toward a decline after years of rapid growth. 

However, winter flight schedules show that a slowdown hasn’t
arrived yet. 

According to data provided by the airline industry analytics
company OAG, discount airlines have scheduled 32% more transatlantic flights
this year than last year, bringing the total to 5,587. The jump will continue
the robust growth of low-cost transatlantic service that saw the number of
one-way flights during the November through March season rise from 657 during
the 2014-15 winter to 4,224 in the 2017-18 season. 

The rise in discount transatlantic airlift will continue
even as the sector comes under increasing financial pressure due to rising fuel
costs and competitive measures taken by larger legacy rivals. 

The price of jet fuel is 36% higher than it was a year ago,
according to IATA. Meanwhile, full-service airlines have introduced
inexpensive, no-frills ticket offerings and have even started their own
low-cost subsidiaries in order to fend off Norwegian, Wow and other low-cost
transatlantic competitors. 

The more difficult operating environment proved to be too
much for Primera Air. The Nordic carrier abruptly ceased operations in early
October as its first season of transatlantic flying was ending.

Some other carriers are showing signs of strain as well.
Wow, which flew its first U.S. flight in 2015, had built its U.S. network to 13
cities by this summer. But this month the carrier announced it will halt
service to Cincinnati, St. Louis and Cleveland. 

Meanwhile, Norwegian, which is by far the largest of the new
low-cost transatlantic airlines, reported net losses of $372 million for the 12
months that ended in June, and its operating margin of -8% placed it 73rd among
the 74 airlines that the newsletter Airline Weekly tracks in its Global
Earnings Scorecard. 

Norwegian, nevertheless, continues to grow rapidly across
the North Atlantic. This winter, the carrier will fly 1.3 million seats to and
from the U.S., up 54%, according to OAG. 

Airline Weekly editor Seth Kaplan said there’s a simple
reason that Norwegian continues to grow so fast. 

“They have the airplanes,” he said. “They
have to put them somewhere.”

What’s more, Norwegian isn’t the only ultralow-cost carrier that is still
growing in the transatlantic market. Wow Air’s seat count to North America is
scheduled to rise 6.4% this winter compared with last, buoyed by new
Orlando-Reykjavik service. 

Meanwhile, Eurowings, the discount unit of the Lufthansa
Group, is scheduled to fly 102,000 seats to the U.S. this year, a more than
five-fold increase, as it replaces routes formerly flown by the defunct carrier
Air Berlin. 

OAG senior analyst John Grant said he expects low-cost
carriers in general to experience narrow margins on flights across the Atlantic
this winter, in part because mainline carriers are increasing their total
number of transatlantic flights by 10% year over year. 

That jump will especially impact Wow, as well as its
home-country competitor Icelandair, Grant said, since those airlines only offer
one-stop U.S.-Europe service via Reykjavik, as opposed to all the new nonstop
capacity being added by the main lines. 

Grant said it’s still too early to be sure how much North
American capacity low-cost airlines will offer next summer, but scheduling data
to date leads him to believe it will be 7% to 8% more than this past summer. 

The sector’s growth will likely slow in the long run, he
added.

“The low-costs will reach a point of maturity, and most
of the major bases will be covered,” he said.

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