American airlines can no longer ignore cheap European rivals on transatlantic routes
New arrivals have made the behemoths uneasy
By A.W. | WASHINGTON, DC
GULLIVER tried an experiment the other day: he visited Kayak, a price-comparison website, plugged in some random dates in December, and looked for flights between New York and Berlin. The lowest fare that came up was a modest $387, with Norwegian Air Shuttle. The second-lowest fare was $419, also with Norwegian. After that came several flights combining legs on Norwegian and other airlines, including easyJet and Iceland’s WOW air, and a full itinerary on WOW. Only after scrolling through nearly two pages of results did the cheapest fare not involving one of these low-cost airlines appear: a $742 itinerary on Aer Lingus.
The lowest fare on an American airline didn’t show itself until page 19 of the results. That round-trip flight, with United, was selling for $2,123—more than five times the cheapest fare, with Norwegian.
That, to put it mildly, is a problem for American carriers. The big American airlines used to compete only with their European equivalents—the likes of Lufthansa, Air France and British Airways—on transatlantic flights. It was a reasonably friendly fight, since they co-operated through codeshare alliances. The three big international American carriers—Delta Air Lines, American Airlines and United Airlines—and their European partner airlines control nearly 80% of transatlantic seats.
But new arrivals have made the American behemoths uneasy. WOW started flying in 2012; Norwegian introduced low-cost routes across the Atlantic the next year. The threat increased when Norwegian began to fly between the United States and Europe without stopping in Norway. Its passengers can now fly directly from New York to Paris, and some of those cheap Norwegian flights to Berlin go through London Gatwick or Copenhagen, not Oslo. Norwegian increased the number of its transatlantic flights by 34% last year and then another 44% this year.
The American airlines have tried to quash the competition with behind-the-scenes wrangling. Several of them have asked the Department of Transportation to stop Norwegian’s flights between America and Dublin; the matter has yet to be resolved. Hillary Clinton was among those complaining that the carrier was skirting labour laws, giving it an unfair advantage. Congress is weighing legislation that would block further transatlantic expansion by Norwegian, although it’s unlikely to pass this year. (The pressure is not all one way. Britain’s transport minister, John Hayes, said this week that the country would pressure America to allow Norwegian’s British subsidiary to fly to and from America.)
Absent any success thus far on the regulatory front, one American airline is contemplating taking on its low-cost competitors the old-fashioned way: on the open market. Delta executives, citing declining revenue from transatlantic flights amid increased competition from low-cost airlines, said that the airline is considering adding its own ultra-cheap fares across the Atlantic to compete with Norwegian and its ilk.
“I think we have to look at our entire service offering and ensure that we are supplying what the market wants to buy,” Edward Bastian, Delta’s boss, was quoted as saying in the Los Angeles Times. “I think what we know is that Delta has a very, very strong brand, and much stronger than some of the [ultra low-cost carriers], and that people would prefer to fly with us than they would on some of the unknown, non-brand names.”
If, that is, Delta can compete on price. It is not yet clear what form these low-cost Delta fares would take—whether a designated transatlantic shuttle line or simply a no-frills fare class on existing flights—and there is no reason to anticipate a transatlantic market akin to the intra-European low-cost flight scene, where a hop between countries can be had for the price of a decent steak. But it’s apparent that the big American airlines are feeling a kind of competitive pressure to which they are not accustomed. Already, low fares on domestic routes from airlines like Spirit and Frontier have prompted the them to introduce a fare class below economy. Now it looks as though international flights on American airlines could follow suit in some fashion.
But don’t expect fares on domestic American flights to keep going down. Bloombergreports that Delta will curtail the number of seats it offers in order to boost fares, and its main American competitors will likely do the same. With fuel prices beginning to rise again, the days of widespread cheap flights at home may be numbered—even if new bargains emerge across the Atlantic.
