Friday, March 24, 2017

$149 Europe Fares? British Air Parent Rolls Out New Budget Airline

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A new European budget airline is making waves selling bargain-basement fares between the USA and Europe. But this new discounter isn’t some fly-by-night upstart. Instead, it’s the work of British Airways' parent company International Airlines Group (IAG).
Level officially launched last week, its $149 one-way fares from California to Barcelona selling at a pace so brisk the carrier’s website strained under the demand. Level sold more than 64,000 tickets during its first 48 hours of sales, according to IAG.
That a major airline company like IAG has launched its own stand-alone budget carrier underscores a new wave of competition on trans-Atlantic routes. Fast-growing discount carriers Norwegian Air and WOW Air of Iceland have added dozens of new U.S. routes in recent years. Fares from the U.S. to Europe have dropped as low as $65 one-way as those airlines have added new routes and destinations.
So, for IAG – whose holdings also include British Airways, Iberia, Aer Lingus and Spanish low-cost carrier Vueling – Level is in part a way to fight back against its growing discount rivals. But IAG CEO Willie Walsh says it’s also an attempt to exploit a market that the company believes can be profitable.
Level’s first flights will come this June when it begins flying four routes with Airbus A330 aircraft. All of the carrier’s initial routes will operate from Barcelona. Two will go to California: Los Angeles launches June 1 while Oakland begins June 2.  The others will go to Punta Cana (June 10) in the Dominican Republic and to the Argentine capital of Buenos Aires (June 17).  Level will fly twice a week from L.A. and three times a week from Oakland.
Walsh says Level could be flying as many as 30 widebody A330s within five to seven years, expanding to additional cities across Europe and the Americas.
“Our ambition here goes way beyond what we’ve just announced,” Walsh said in an interview with Today in the Sky. “We’ve made it clear that we think this is a segment that can be competed (for) by IAG profitably. We wouldn’t do it if we didn’t believe we could be profitable.”
Of course, a number of industry observers have directly connected IAG’s effort to launch Level to one rival in particular: Norwegian.
Norwegian now flies dozens of routes between the U.S. and Europe. It’s set up one of its biggest bases at London Gatwick, an airport that  perhaps not coincidentally is British Airways’ second-busiest base. And Norwegian flies several of its newer U.S. routes from Barcelona, which is in the backyard of IAG units Iberia and Vueling and also where Level will launch its first flights.
Stoking the trans-Atlantic competition even further, Norwegian made headlines earlier this year by announcing a set of U.S. routes from the Northeast, putting flights on sale for just $65 from cities like Providence; Hartford, Conn.; and Newburgh, N.Y. The routes go to Irish and Scottish destinations that each sit close to the main networks of both British Airways and Aer Lingus.
Despite the increasing competition, Walsh pushes back against the idea that Level is aimed solely at Norwegian.
“I can understand why people take that view,” Walsh says, adding: “It’s much more broad than that.”
Walsh says IAG thinks there’s money to be made by moving into the market for budget trans-Atlantic flights.
“We go where the demand exists,” he says. “We’re very much focused on return on invested capital. We wouldn’t do this if we didn’t believe that the business is capable of generating the returns that we’ve targeted.”
Still, Walsh acknowledges the role Norwegian has played in helping to prove the segment is a viable one.
“We give credit to Norwegian for trailblazing some of the issues,” Walsh says about Norwegian’s aggressive attempt to bring a low-cost pricing structure to trans-Atlantic routes. “They’ve clearly demonstrated that the trans-Atlantic product can be unbundled.”
And while he does admit Level will give IAG a new tool to go up against Norwegian, Walsh insists IAG has lofty ambitions for Level.
"I’ve been very supportive of Norwegian in their applications for route licenses and approvals. I’ve made it clear that we will respond to what Norwegian is doing with a competitive response," Walsh says. "You could argue this is part of that competitive response, but it’s bigger than that. We believe this is a segment of the market that actually represents a great opportunity for us."

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