Yahoo Finance Why flights to Europe might get more expensive
Low-cost long-haul airlines were already in financial trouble before the coronavirus pandemic hit about a year ago. Primera and Wow Air had gone out of business in 2018 and 2019, respectively, and Norwegian Air had long been struggling.
The pandemic has disproportionately affected the travel industry – leisure and hospitality jobs cratered in March with only some recovery since then. And this week Norwegian Air announced it would cease operating long-haul flights.
“Due to the impact of the COVID-19 pandemic on the aviation industry, including ongoing travel restrictions and changing government advice,” the airline wrote, “Norwegian has made the difficult decision to discontinue the operation of its long-haul flights.”
You may never have flown Norwegian, but you owe a lot to them if you’ve flown transatlantic, Scott Keyes, founder of Scott’s Cheap Flights, told Yahoo Finance.
“Even if you never fly budget airlines, you owe a huge debt of gratitude for the impact they had on bringing down airfare for all carriers — not just budget,” said Keyes. “This is one of the main reasons why the ball got rolling on the ‘Golden Age of Cheap Flights.’”
The airline industry is famously competitive and that competition affects pricing to a degree typically not seen for consumer-oriented goods and services. The most important factor for determining ticket prices is what competitors are charging, Keyes said. And for most consumers, there’s nothing more important than pricing — something Norwegian capitalized on with fares sometimes as low as $300.
With the pandemic dealing the already profit-troubled long-haul service its coup de grâce, significant downward pressure is removed for other carriers who otherwise might have had to lower their prices to stay competitive — a bad development for any budget-minded traveler.
Before Norwegian’s long-haul entrance pushed prices down in 2014, Keyes said, transatlantic round-trip flights often cost around $1,000. Fortunately for travelers, prices for long flights won’t likely return to a pre-Norwegian model.
“I don’t want to be pollyannaish,” said Keyes. “This isn’t a good development for the cheap flight lovers of the world, but I don’t want to overstate and say, ‘it’s going to go back to what it was before 2014.’”
Instead, the way forth is more nuanced with average transatlantic fares rising perhaps $100 to $150.
“I would not say the golden age of cheap flights is over,” he said. “There will still be $300 flights to Europe, but maybe less often, and maybe more $1,000 fares due to less downward pressure.”
According to aviation analyst Robert W. Mann, long-haul international flights will still be “cheap” even without Norwegian due to the pandemic suppressing demand, at least for the near term.
The future of ‘budget’ long-haul travel
In the past, airlines relied heavily on economy fares, but today with credit card and points partnerships, cargo and logistical mastery, and business travel, economy fares are just one tool.
They’re making so much off these other factors, Keyes said, that the economy seats are almost like “gas money” for some airlines. Furthermore, he added, before low cost airlines like Norwegian came on the scene, the basic economy category wasn’t widespread — Delta started it in 2012. The big airlines added that category to compete with the upstarts.
“Legacy [airlines] have adopted basic economy business — all airlines are budget airlines,” he said. “There’s not a huge distinction.”
This, combined with the fact that low fares have turned out to be useful loyalty and marketing tools to draw and keep passengers, means “cheap” flights may still have a future.
Another potentially bullish factor is that while successful budget carriers haven’t gone after long-haul, they’ve done more and more medium-haul travel as planes get more efficient.
This is a good sign, but according to Mann, most of the efficiencies associated with ultra-low cost carrier short- and medium-haul regional travel “evaporates on long-hauls, especially international/intercontinental hauls, where formalities and full refueling drive lengthy turn times.”
“The long-haul, low-fare ultra-low cost carrier model has never really proven itself, and not only on the Atlantic,” Mann added.
On top of that, the fact that RyanAir and other budget carriers with total mastery of the short- and medium-haul business have not dipped their toes in long-haul is another warning sign for more budget airlines looking to offer longer flights.
Though Keyes and Mann are pessimistic about the budget long-haul business model, there is one wildcard. The history of aviation is populated by volatile and visionary personalities, from Southwest's Herb Kelleher to RyanAir's Michael O'Leary, to Virgin's Richard Branson to Norwegian's Bjørn Kjos. There’s an allure in the business that allows for a brave soul with a touch of hubris to change the game.
“It’s not likely or possible, but Elon Musk could decide that he wants to light one-thousandth of his personal wealth on fire to create a low-cost way to travel long distances and that could eat up a ton of market share,” said Keyes. “The airline industry has largely been pushed forward by visionaries even if some concede in doing so, they might be turning their billionaire status into millionaire status. But that’s kind of the double-edged nature of being a visionary.”
If a “new Norwegian” were to come along to disrupt, don’t expect that to be anytime soon, Mann said.
“It will be a few years hence until airfares climb back up to four digits in summer, which is historically the point at which new entrants start to think of joining the fray,” he said.
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Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, personal finance, retail, airlines, and more. Follow him on Twitter @ewolffmann.
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