Wow failure: can low-cost, long-haul ever succeed?

by Business Travel iQ | 04 April 2019

Last week the Icelandic carrier failed and Norwegian has recently been experiencing well-publicised financial challenges

Icelandic long-haul low-cost carrier Wow, which flew primarily between Reykjavik and the US and Canada, failed last week.

The mainstream media, not surprisingly as Wow flew many leisure travellers, concentrated on tales of passengers left stranded on both sides of the Atlantic.

But for us the bigger story is whether the whole concept of low-cost long-haul is viable.

Norwegian - perhaps the highest-profile carrier operating this model - is itself under financial scrutiny. This carrier has been a serious option for business travellers with its competitively priced, well-turned out premium cabin and route network between London and destinations such as New York, Boston, Los Angeles and Chicago.

But this week Norwegian broke one of the business model rules of low-cost airlines by moving two of its London routes from secondary to primary airports. The flight from London Gatwick will no longer go Oakland but to San Francisco and no longer to Fort Lauderdale but to Miami.

The low-cost model doesn’t translate easily to long-haul travel. Low-cost carriers can offer inexpensive fares because their cost base is much lower for several reasons such as making use of secondary airports with much lower fees. Some airports apparently actually pay carriers to use them because they bring the passengers which attract the retailers whose rent contributes even more revenue to the airport.  

That’s not the only rule. Low-cost carriers operate on very low margins and a hike in external costs such as the price of aviation fuel can wipe out what are probably very thin profit margins. Traditional carriers can sell comparable economy class seats quite cheaply but sustainably because they put a premium on the seats at the front of the plane. Low-cost long-haul carriers usually don’t have enough business travellers to subsidise holiday-makers.

One reason low-cost carriers can be successful in short-haul travel is that they only need to use one kind of aircraft – this means lower operating costs because they can employ only engineers and crew familiar with that model and spare parts can be procured from a single source. In fact Wow looked sounder than Norwegian because it was able to use such short-haul aircraft because its travellers between Europe and America had a layover in Iceland unlike Norwegian whose travellers flew the Atlantic non-stop.

However point-to-point flights between secondary airports are not what corporate travel is about. There is a big cost in time to travelling to central Stockholm from Ryanair’s airport Nyköping which at 100 km southwest of Stockholm is more than twice the distance of Arlanda which also has a high-frequency, dedicated rail transfer service.

Cost is a vital consideration for corporate travel managers but the relevant cost is the total cost of travel, not the fare alone. Travelling from secondary airports costs time which is money.

Even more important is how often business trips require connections. Not all business trips are between two, well-connected city centres. A low-cost carrier can be part of a menu for a corporate programme. It can be a key component of very few corporate travel profiles, especially on long-haul routes.

Moreover, if the low-cost flight does not go to the business traveller’s final destination, there are no partnerships for that onward flight. The traveller will have to recheck any baggage and check-in again.

This century has seen a clutch of operators trying to provide a long-haul service suitable for business travellers.

But as we are reminded over and over again, cost is only one element. The route, connections, infrastructure, service and, ultimately, reliability and traveller welfare also count. And count a lot.

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