BA explores new avenues in cost-cutting, but will its peers follow?
has begun offering discounted fares for passengers carrying only hand luggage, as it evolves its long-standing legacy model.
The airline, part of the International Airlines Group (IAG), has been eager to learn from its low-cost competitors and is taking a lead where its peers have so far been reluctant to go.
The airline tested the idea at itsbase earlier this year, and it is now rolling out the initiative across its other bases at Heathrow and airports, with the aim of changing customer behavior and in turn reducing airport costs. BA is the first legacy airline to openly apply a low-cost strategy across its mainline fleet. While other European majors are embracing low-cost ideas, they are being more conservative, using their affiliates to adopt a low-fare approach, rather than adapt their wider operation.
The strategy is not an “unbundling,” IAG CEO Willie Walsh insisted at the World Low-Cost Airline Congress in London this month. “You will get a discount. . . . It's better than a charge. We have got an environment where, if you want additional services, you pay for it.”
BA gives passengers a fare discount if they only travel with hand baggage, rather than charging more for checked bags.
“We should never be so proud when someone else has done something smart,” said Walsh. “We should have done this better over the years. . . . I have no problem in copying an idea. We are in business to make the best of what we can do.”
IAG has already spent more than $1 billion trying to reduce costs at. Part of this work was to establish Iberia Express, a clean-slate offshoot of the airline's' short-haul operation, feeding into Iberia's long-haul route network.
“Costs at Iberia Express, excluding fuel, are 40% lower than they were at Iberia's short-haul business,” Walsh noted. “There's little we can do about fuel, so we have to be much better able to compete, targeting a lower cost base.”
The reassignment of roles of affiliates such as's and 's Air One is allowing legacy carriers to reboot their flagging short-haul operations and reestablish themselves without having to deal with legacy issues such as industrial relations and labor contracts. In addition, a change in brand allows them to use the low-cost tactic of unbundling fares and charging for passenger creature comforts without the risk of damaging business traffic, since the changes are limited to non-hub operations.
Lufthansa's plan has been to integrate its wholly owned low-cost affiliate Germanwings to help shave 20% from the cost of non-hub short-haul operations. The Germanwings fleet of 38narrowbodies is planned to grow to 64 within the next 18 months. They will be complemented by 23 operated by Eurowings on secondary routes, but Germanwings CEO Thomas Winkelmann is keen to return to an all-Airbus fleet soon to reduce complexity in the fleet. “On some of the routes, the [CRJ900] is right, [because] there are some routes that are hard to stimulate to 150 seats,” Winkelmann says. “The CRJ900 will not stay forever,” he adds. “Our core fleet is Airbus.”
In Italy, as the restructuring of Alitalia continues, its subsidiary Air One Smart Carrier is preparing to start non-hub, point-to-point operations under an Alitalia codeshare, as part of the parent's wider revamping. During 2014, Air One will operate ninefrom Catania and Palermo in Sicily as well as from Venice and Pisa. Alitalia will take over Air One's hub operations at Milan Malpensa and Rome Fiumicino airports.
“This is something new for Alitalia, to give us independence, but we cannot be fully independent,” says Laura Cavatorta, managing director of Air One. The low-cost carrier needs its parent's help to “become well-known through codeshare,” she says. “It will be something we do in steps. . . . This is an experiment for Alitalia, too—it has to copy a little bit of the low-cost model.”
The/ group has been more conservative than its competitors, although subsidiary Transavia Airlines has been taking on more leisure routes and the group's Transform restructuring program is adopting low-cost initiatives. These include operating fewer aircraft types, increasing seat numbers and reducing turnarounds and exposure to southern European routes afflicted by the economic crisis.
“We are reducing turnaround times on our medium-haul services by up to 30-35%, but we are not yet there yet,” says Pieter Elbers, KLM deputy CEO and COO. He explains that “the connectivity product” is preventing the airline from achieving turnaround times similar to those ofand .
The group's network of early morning flights from European destinations is designed to meet a bank of long-haul services departing from Amsterdam, but several routes have been streamlined to reduce the number of aircraft overnighting, which also helps cut down on crew accommodation costs. Air France/KLM does not plan to hybridize its short-haul operations, but routinely partners with low-cost carriers, with codeshares through WestJet Airlines in Canada and Pegasus Airlines in Turkey.
“These relationships can really be mutual and beneficial,” says Elbers. “The two worlds are getting closer, and that eventually will make the relationship between low-cost airlines and [the airline] alliances] more fluid.”