Will full-service airlines sit back as low-cost carriers succeed in entering long-haul?
Recent developments, such as the rise of the A321XLR, combined with increased air travel demand, indicate growing opportunities for low-cost airlines aiming for long-haul operations. Airlines like Jetstar and Scoot e.g. have successfully established long-haul footprints within airline groups - with the first mentioned filling a very important gap in the leisure and Visiting Friends and Relatives (VFR) market for the larger QANTAS Group, and Scoot operating over 50 routes with a competitive Singapore Airlines dimension.
Meanwhile, Wizz Air’s move to operate Budapest-Mumbai flights and IndiGo’s application for slots at Amsterdam Schiphol (willing to expand into Western Europe), signal a broader trend: LCCs are indeed capturing market share in long-haul corridors. With KLM operating flights to four Indian cities, could the Dutch carrier start feeling the heat? What about Gulf carriers, that are long known for offering budget-conscious travelers a lower-cost, one-stop alternative between Europe and Asia: Should they find themselves under threat of missing their competitive advantage?
With low-cost carriers being able to provide direct, no-frill services at a comparable price point, and passengers becoming constantly more budget-conscious, to simply watch passively is not the best way to respond.
Price x Comfort
It is important to consider if passengers will always sacrifice comfort for the lowest fare. In competitive markets where passengers have higher value for money expectations, offering “good enough” service in addition to cheaper fares is still expected by travelers.
An interesting move is JetBlue’s transatlantic Mint business class, a premium cabin available at their US-Europe routes at competitive pricing, designed to challenge traditional FSCs while maintaining a low-cost structure. In contrast, there is Wizz Air offering Budapest-Mumbai flights with non-reclinable seats - an interesting move to follow in order to help answering the following: Is cost the most important factor when ensuring a safe position in this fight?
Even though the market still has significant untapped potential for LCLHs, achieving economies of scale, mitigating seasonal demand fluctuations, and controlling costs remain critical to operations. In order to operate long-haul, carriers have to reach a point where they have a steady network that isn’t constantly shifting with the seasons. Many carriers struggle to maintain this stability, and hitting that sweet spot is crucial for building a strong, reliable operation. For LCLHs, being part of a larger airline group can be a safe place in order to achieve that. We see LEVEL e.g. benefiting from being part of IAG, levering its parent’s resources, and avoiding the struggles of operating independently.
But what will be required from FSCs so they can close the price gap just enough while offering a significantly better experience?
Capturing cost-conscious travelers without fully sacrificing premium passengers
Our sector is at such a point where costs are high and margins are extremely thin, making efficiency key to survival - and being efficient while maintaining reliability and passenger satisfaction is a delicate balancing act. Having a good operational model in place can therefore make it or break it.
Passengers’ expectations when it comes to connections at major hub airports when flying with LCCs e.g. are considerably lower, so selecting secondary airports with lower landing fees rather than expensive major hubs – like Ryanair flying to Stansted Airport instead of London-Heathrow – can be a good operational strategy for LCLHs. However, connections expectations towards FSCs are considerably higher, and risking access to hub airports can cost a lot in passenger satisfaction. But there are other structures that help maintain long-haul services at reasonable costs.
Take British Airways and Finnair as an example. The airlines have positioned themselves with efficient Europe-Asia routes by leveraging local crew bases at their destinations in Asia-Pacific - a move that allows them to reverse traffic and utilize an economy of scale to achieve flexibility and agility.
British Airways, with its robust structure and strong financial position, strengthened its presence in Asia-Pacific by e.g. hiring local crew at various destinations in India, while Finnair partnered with AAP Aviation and leverages our local crew bases in India, Singapore, Thailand and Hong Kong. The Finnish carrier was also honored in July last year with The Executive Leadership: Europe award at the 2024 Airline Strategy Awards because of its successful turnaround - with other factors as improved digital services, leased out extra planes, and operated joint flights with Qatar Airways and Qantas Airways, being part of the secret for such success.
Compete or concede: Will cost define long-haul dominance?
The rise of fuel-efficient, narrow-body aircraft, and the success of carriers like Jetstar, Scoot, and Wizz Air stresses a growing shift where passengers are increasingly willing to trade traditional amenities for lower fares, especially in price-sensitive markets. The question is no longer whether LCLHs can survive but how much market share they will capture, presenting a dilemma for FSCs – and Gulf Carriers: How to remain competitive without engaging in a direct price war? The focus should be on targeted and strategic cost reductions.
With the landscape shifting rapidly, a hybrid approach, where FSCs offer more unbundled fare options and optimize routes to balance demand and costs, may be a good path forward - so FSCs ensure they do not become complacent. Efficiency remains a deciding factor in this scenario – and the success of Finnair and British Airways in leveraging local crew bases in Asia-Pacific is one example of how FSCs can enhance efficiency without sacrificing quality. Their approaches show that staying competitive requires not just cost-cutting but strategic operational models, in a world where “price is king”.