WILLIE WALSH has spent much of the past few years stripping the frills from British Airways planes, at least on short-haul routes. The boss of IAG, BA’s parent firm, seems keen to ape the success of Europe’s low-cost carriers, such as Ryanair. Hence, everything that once distinguished it as a “full-service” carrier—whether a complimentary sandwich, a free checked bag or to the right to choose your seat—has been deplaned. The strategy has proved a success. Despite the weak pound, British Airways posted an operating profit of £1.5bn in 2016—about 80% of IAG’s total.
When it comes to long-haul flights, however, Mr Walsh has had to contain his cost-cutting zeal. On such routes, BA must compete against carriers that boast sparkling amenities, particularly at the front of the plane, such as Emirates and Singapore Airlines. So although BA has managed to skimp a bit in the premium cabins (by, for example, reducing the food options and downsizing the washbag) it is also investing £400m to upgrade its posh Club World service.
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On transatlantic flights, however, the full-service carriers are facing a new threat to their business: low-cost long-haul operators. This has traditionally been a tricky model to make work. Fuelling a plane to fly vast distances was once so expensive that it was difficult to make enough savings elsewhere to cut the price of a ticket significantly. From Laker Air to Oasis Hong Kong Airlines, aviation history is littered with those that tried and failed. But now a slew of new entrants, flying new fuel-efficient planes, seem to be making a decent fist of it.
Norwegian Air is probably the best known of these. It flies from Europe to America, often for under $200. That seems to have spooked IAG. So on 17th March the group announced that it, too, would enter the long-haul budget market. It is launching Level, a new carrier, which will be based in Barcelona. Level will initially fly to Oakland, Los Angeles, Buenos Aires and the Dominican Republic.
The choice of cities is significant. Last year Norwegian launched its own Barcelona-California routes. Buenos Aires, meanwhile, is on its wish-list. Although Norwegian is the incumbent, Level could enjoy a playing field that is less than horizontal. IAG has said that it will feed Level flights through Vueling, the group’s short-haul budget airline. That will hugely increase its potential customer base—Vueling serves some 138 cities from Barcelona. Level will also use cabin crew from Iberia, another IAG carrier, to staff its planes, saving on start-up costs.
If IAG’s move suggests that the long-haul low-cost model is coming of age, it may also prove a conundrum for British Airways. One reason that IAG has decided to launch a new brand, rather than convert one of its existing carriers, is presumably because it does not want its full-service model tarred with the low-cost brush. A budget image would not go down well with premium flyers. Yet BA needs full ecomony cabins as well. Although those at the front of the plane offer the juiciest profits, carriers need full cabins at the back in order to operate the busy schedules rich customers demand. If, in the future, cheapskate passengers desert it for low-fare competition, then that model fails. No amount of skimping on radiant eye gel will make up for that.