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

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.

Q&A: IAG CEO dishes on new European discount airline Level

TODAY IN THE SKY: By the numbers: Level, the new European budget carrier

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.

Norwegian Air's $65 fares to Europe: What’s the catch?

“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.

Norwegian Air: $65 one-way fares from Northeast to Europe now on sale

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."

By Ben Mutzabaugh , USA TODAY

TWITTER: You can follow Today in the Sky editor Ben Mutzabaugh at twitter.com/TodayInTheSky

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Wow Air Is Offering Flights To Europe As Low As $99, Seeking To Be The Low Cost Leader

Wow Air is on a mission to make flying to Europe cheaper, forever. REUTERS/Michaela Rehle

Wow Air, the roughly three-year old discount air carrier, is going where few other ultra low cost airlines have gone: across the Atlantic. And if all goes according to plan, it's going to do it much cheaper than anyone else.

The budget airline, which is based in Iceland, announced last week that it will begin flying passengers non-stop from both Boston and Baltimore to Reykjavik, Iceland for as little as $99 each way. The airline will also offer one-stop flights from the two U.S. cities to London and Copenhagen, starting at $228 for a round trip. The airline will begin offering the flights next March. 

"Paying even $200 for a one-way flight to, say, London, is unheard of," said Tom Parsons, the CEO of bestfares.com, which tracks airline pricing. "It just doesn't exist."

The incredibly low ticket prices are real, but don't expect them to last forever. "Those are definitely opening, introductory fares," said Skuli Mogensen, Wow Air's chief executive. "On an occasional basis we hope to be able to introduce similar fares, but those very aggressive. We wouldn't be talking if I had introduced prices more commonly seen in the market, would we?"

But the airline's commitment is to offer the cheapest ticket for every route the airline flies, including transatlantic routes, Mogensen said. The prices Wow Air offers will vary by season, and depend on a number of other factors, including fuel prices and flight vacancies.

Wow Air's cheapest transatlantic offerings, by month, looked something like this on Tuesday afternoon, according to the airlines' website. 

By comparison, the average price of a round-trip plane ticket between Boston and Reykjavik in March of 2015 is just under $600, by Parson's estimate. A single stop round-trip ticket between Boston and London runs about $770, while a non-stop ticket costs roughly $800.

How does Wow Air expect to pull this off? For one, by operating like all other ultra discount carries. A ticket on Wow Air will come with little more than a seat, mini-tray table, and 11 pound carry-on. Everything else will cost extra. A carry-on will cost an extra $29 when booked online, or an additional $48 when done so at the airport. Checked luggage will set one back a bit more—an extra $48 online or $67 at check-in. And extra leg room, pre-assigned seats, and, of course, food will rack up the bill, too.

But unlike Spirit Airlines, which is famous for squeezing passengers' knees, Wow Air won't skimp quite as much on leg room. The seat pitch, the distance between two seats, is between 30 and 36 inches on the Airbus A320 aircrafts flown by the airline, said Svanhvít Fridriksdóttir, Wow Air's director of communications. Most pitch sizes are about 31 inches, and many discount carrier pitch sizes are less than 30 inches. Spirit Airlines', for instance, is 28 inches.

Wow Air also expects to save money by operating as efficiently as possible. The company relies heavily on online sales and marketing, for instance, which allows it to skip the cost of middlemen. It also operates few airplanes—only four currently—but maximizes their utility. "We have extremely good aircraft utilization," said Mogensen. "Within one 24-hour cycle, a single airplane will fly from Iceland to Boston, back to Iceland, and continue to London, and then back to Iceland, each time full of passengers."

Wow Air plans to fly all of these routes in 2015. (Source: Wow Air)

And Wow Air expects to fill all of its planes, a feat few if any airlines operating transatlantic routes have managed. "Our assumption is that we will fill every plane, and we price accordingly," said Mogensen.

But Wow Air's biggest advantage might be its headquarters. Iceland is ideal, because it gives airplanes a midpoint where they can stop to refuel. That allows the airline to fly passengers to and from Europe in smaller planes, which it can more consistently fill with passengers. It also helps the airline save money on fuel. "About 40 percent of the fuel airplanes carry is used to ferry the fuel to the final destination," said Bob Mann, an aviation industry analyst at R.W. Mann and Co. Consulting. "As you go shorter and shorter distances, you can ferry less fuel, and save money."

Convincing customers to travel with a stop over might be difficult, but if it means hundreds in savings it's hard to believe it won't be possible.

Still, the small Icelandic airline faces what some industry experts believe is a steep uphill battle. Wow Air isn't, after all, the first airline to try operating cheap transatlantic flights. Low-cost air travel pioneer Freddie Laker tried unsuccessfully to do it in the late 1970s with Laker Airways; the airline closed in the early 1980s after it couldn't stay afloat. More recently, Norwegian.com, a subsidiary of Norwegian Air Shuttle, began offering affordable transatlantic flights this summer. The pitch was London-New York flights for $241. But the flights haven't been as cheap as advertised, and the routes have been stricken with delays, according to Mann. "Norwegian has had huge difficulties," he said. "All across the summer it has been running relays for its transatlantic flights to and from New York."

The biggest obstacle to discount long distance air travel might simply be that long trips could strip an airline like Wow Air of the efficiency on which it so heavily relies. Despite Wow Air's advantage of being able to stop in Iceland, the nearly 5.5-hour flight between Boston and Reykjavik is still long by budget airline standards.  

A comparatively small fleet becomes a competitive disadvantage as soon as there's a delay. "Once it starts to get off-schedule, they'll never get it back on schedule unless they start cancelling flights," said Mann. Likely for that very reason, low cost carriers have soared domestically, but shied away from routes between North America and Europe. Discount airlines currently control nearly a third of the airline market in North America, and more than third of it in Europe, but only about 1 percent of the market for transatlantic travel.

Convincing customers to travel with a stop over might be difficult, but if it means hundreds in savings it's hard to believe it won't be possible.

Still, the small Icelandic airline faces what some industry experts believe is a steep uphill battle. Wow Air isn't, after all, the first airline to try operating cheap transatlantic flights. Low-cost air travel pioneer Freddie Laker tried unsuccessfully to do it in the late 1970s with Laker Airways; the airline closed in the early 1980s after it couldn't stay afloat. More recently, Norwegian.com, a subsidiary of Norwegian Air Shuttle, began offering affordable transatlantic flights this summer. The pitch was London-New York flights for $241. But the flights haven't been as cheap as advertised, and the routes have been stricken with delays, according to Mann. "Norwegian has had huge difficulties," he said. "All across the summer it has been running relays for its transatlantic flights to and from New York."

The biggest obstacle to discount long distance air travel might simply be that long trips could strip an airline like Wow Air of the efficiency on which it so heavily relies. Despite Wow Air's advantage of being able to stop in Iceland, the nearly 5.5-hour flight between Boston and Reykjavik is still long by budget airline standards.  

A comparatively small fleet becomes a competitive disadvantage as soon as there's a delay. "Once it starts to get off-schedule, they'll never get it back on schedule unless they start cancelling flights," said Mann. Likely for that very reason, low cost carriers have soared domestically, but shied away from routes between North America and Europe. Discount airlines currently control nearly a third of the airline market in North America, and more than third of it in Europe, but only about 1 percent of the market for transatlantic travel.

Contributed by Roberto A. Ferdman, www.thewashingtonpost.com

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