Crossover Jets Practice Niche Marketing In Europe

KLM Cityhopper
Credit: KLM

Niches. Every entrepreneur and business tries to find them and exploit them, particularly when they have a product developed to match that market. Subsequently, those with such products look to grow those niches to the point where they become a mature market.

In the airline industry, the most recent example has, of course, been the success of low-fare airlines – niche challengers in the early 1990s to mainstream in just a few years, especially in Europe following market liberalization.

Now crossover narrowbody jets are seeking to expand the niche they have found. And while much of the industry has suffered during the Covid-19 pandemic, industry observers have noted an increased potential for crossover jets to bring more right-sizing to the European market.

“I think the key is the issue of fleet commonality,” notes Professor Rigas Doganis, chairman, Airline Management Group (AMG). “In other words, if an airline is large enough to have a significant fleet size and have efficient routes, or is small enough to have an entire fleet of crossover jets, then the economics improve significantly. There’s no future of airlines having four or five crossover jets in a fleet of 50 or 60 featuring other types. 

“I think a minimum of 15, but probably more like 20 or 25 would make it a viable option. So though an airline might think, ‘We’ve got a few routes where we could use these’, buying five or six for those routes just doesn’t make sense,” Doganis adds. 

His AMG colleague, founder Peter Davies, agrees but adds, “On secondary routes where the big guys are not interested, because there isn’t the weight of market, then crossover jets will prove highly beneficial, as well as on making connections into Paris and Frankfurt and similar hubs for the connecting traffic. There’s a good opportunity and I do believe there are airlines which might want to push the reset buttons to fulfil their ambitions going forward.”

Cesar Pereira, vice president–Europe, Middle East and Africa for Embraer Commercial Aviation, believes the pandemic shattered all long-term expectations for the industry. “Ongoing inequities in national inoculation rates and travel restrictions are prolonging recovery time. The impact is profound. It is transforming the way we live,” he declares. “Some airlines are struggling to survive. The pre-pandemic environment was already fragile. Even though demand was strong, margins and yields were weak and reducing further. Companies that have the flexibility to adapt will be the ones most likely to prosper.

“There are clear developments making crossover narrowbody jets more attractive than ever in the European market,” Pereira continues. “For instance, the push toward lower emissions got more traction, faster, in Europe than anywhere else and has become a priority for people, governments, and the industry. But the disruptive fuel/propulsion technologies that will allow us to decarbonize fully are not yet available. We do know however is that they will be implemented first in [our] segment before seeing wider applications on larger jets.”

The feeling at Airbus is that the A220 has certainly proved to be a resilient, game-changing aircraft, weathering the pandemic to this point, according to Claude Debeauquenne, head of single-aisle market development. He points to the example of airBaltic, which actually accelerated the retirement of its Q400s and 737s during this time to transition to an all-A220 fleet. Moreover, beyond Europe the A220 fleets at Delta Air Lines, Air Canada and Korean Air all maintained nearly 100% utilization during the worst months of the pandemic in 2020. 

“Flexibility is the primary asset of the aircraft that allowed operators to continue flying through the crisis. It has a lower trip-cost than larger single-aisle aircraft, as well as similar range to those larger aircraft, outreaching any regional jet,” Debeauquenne emphasises. “Although the pandemic has demonstrated the benefits of flying smaller modules, it has mainly emphasized the need for superior efficiency that can only be achieved with new generation aircraft.”

There is clearly a debate over which airline models – full service carriers, hybrids, low-fare carriers – are more likely to adopt crossover narrowbody jets, although Debeauquenne is quick to point out that the A220 has already been adopted by all business models. “It is very well suited to operations in the European region, offering the perfect capacity and range to connect various European cities, while opening new routes beyond Europe, for example airBaltic’s recent route opening from Riga to Dubai,” he remarks.

Pereira agrees that every currently employed business model is already served by crossover narrowbody jets to some degree. “The use of the segment by full service carriers has been widely adopted by the largest airlines in Europe – and we expect more mainlines to join. The jets have played a fundamental role in the worst months of pandemic, something that could be clearly seen at KLM with its very strong regional network,” he says. 

Pereira’s highlighting of KLM concurs with the point made by Doganis that a critical mass of crossover jets is needed. The Dutch carrier’s KLM Cityhopper subsidiary already operates 49 Embraer E1s (E175s and E190s) and has taken four of the 25 E195-E2s ordered by its parent. 

“Of course, they have a different business plan, which is the dependence on feeding their long-haul routes at Amsterdam. They can use the smaller aircraft on thinner feeder routes, where the economics is dependent on getting enough passengers on those routes to go onto the long-haul,” Doganis comments. 

Pereira, meanwhile, moves on to assess crossover jets in the low-cost model. “For low-fare carriers, the need to develop businesses that are both enduring and resilient to risk, became clearer with the pandemic,” he asserts. “Connectivity is essential for a robust European commercial airline network. The region’s diversity of market size, distances, and multiple hubs, suggest a diversity of aircraft types. Yet the intra-Europe fleet of 150 to 210-seat narrowbodies has grown from 50% to 71% in the past decade. As a result, 62% of markets are served with less than a single daily frequency. 

“Given all the factors affecting demand in the post-COVID – including the environment and digitalization – we understand low-fare carriers will need to adapt, be it by adding a second, more flexible fleet category or by rightsizing their future growth expectations to be more in line with the new dynamics,” Pereira explains.

Another potential area of opportunity for crossover jets in Europe is ACMI (aircraft, crew, maintenance, insurance) work. “Either ACMI or pop-up airlines, because in Europe the full impact of Covid-19 on the balance sheet is not yet fully felt,” AMG’s Davies comments. “When traffic comes back to a reasonable level then airlines will begin to chase capacity and potentially lower their fares again at a time when they need the cash. Those two things don’t go together.

“The likelihood of bankruptcies is high, and to replace the capacity you wouldn’t use the same model – why would you when there are other models such as ACMI, pop-up operations and others. The brand will still be important, but you might manage it in a different way and I’m a great supporter of that,” he confirms.

Debeauquenne reports that A220s have been operating under wet-lease agreements since 2019, more recently with Nigeria’s Ibom Air, which is flying two A220s under a wet-lease agreement. He is therefore confident that further such operators will look to the type for their lift.

According to Embraer’s Pereira, some airlines realise that operating a mixed fleet with different aircraft sizes “can bring benefits that completely outweigh any additional complexity”, whilst others consider the increasingly favoured capacity purchase agreement (CPA) model. 

“The demand for wet leasing or ACMI for smaller aircraft has grown to an unexpected level during the pandemic. Increasingly, airlines are looking to learn more about crossover jets to add capacity flexibly whilst adapting to a new reality of frequent change – so we could say the segment is in the spotlight for this type of operation,” states Pereira.

Finally, although airBaltic has pioneered the ‘all-crossover jet fleet’ in Europe with its A220s, there has not yet been a central or eastern European carrier following either that model or that being introduced by Breeze Airways in the US. 

AMG’s Doganis believes that for an airline like Volotea, crossover jets might be ideal aircraft to open up niche routes. After all, the airline began operations with Boeing 717s which had similar seating capacity to the current crossover jets.

“I’m sure there are enough niches [across Europe],” Doganis remarks. “The problem is that they are scattered around too many carriers. But you can see that particularly an eastern Europe carrier – most of which have given up long-haul – might actually use a smaller aircraft to develop themselves.”

Peter Davies is also optimistic for such a business model to succeed in Europe, and believes that could be by focussing on a network of secondary cities. “These would be the Bristol–Rotterdam type routes and others. But you’ve got to watch for the bigger players. I’d agree there is a huge opportunity for non-trunk routes and minor secondary routes which require jets rather than turboprops,” he elaborates.

“You’d have to run an exceptionally lean operation in order to make sure that you are at least appearing to be competitive [on price] rather than simply saying that you’re going to fly more efficient aeroplanes and still charge higher rates. The Breeze model is to try to have a low-cost option with a smaller aircraft. That tends to work on slightly longer routes rather than short hops,” Davies adds, noting that this is exactly what the extended ranges of the E2 and A220 families can offer.

Which could quite rightly be regarded as developing a niche.