IAG’s testing of the low-cost, long-haul market with a virtual airline seems to have paid off. Its success shows that the model is here to stay. We’ll be keeping a close eye on how this affects the legacy carriers, including those in IAG’s own brand stable.
— Patrick Whyte, Skift
When IAG launched Level, its low-cost, long-haul airline in March this year, nobody was quite sure whether it was something the company was genuine about or simply an attempt to outmuscle airlines like Norwegian, which were already active in the segment.
The fact that it was launched so quickly — and that it operated under Iberia’s air operator’s certificate, or AOC — gave the impression that it might not last long, especially as some previous airlines within airlines had largely been failures.
Seven months on and IAG Chief Executive Willie Walsh says the brand is “doing extremely well” and will shortly get its own air operator’s certificate, a dedicated CEO, and a second operating base. The company said in its third-quarter results released last week that the trading performance for Level was “positive” but did not give a specific revenue figure.
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Level currently flies to four destinations – Los Angeles, Oakland, Buenos Aires, and Punta Cana in the Dominican Republic – out of Barcelona, using two of Iberia’s aircraft. Another three jets are being added to the fleet, at least two of which will go to the new base, which will either be Paris or Rome.
“We will announce the new destinations – where the aircraft go – we’ll probably do that at the end of November, certainly the first week in December at the latest, Walsh said in an interview at the Airport Operators Association Conference in London. “We’re finalizing the recruitment of the CEO to run the business and the AOC will follow after that so there are a couple of decisions to make.”
He continued: “We’ve not yet decided where we will base the AOC; we have options open to us, and we felt it would be better to allow the CEO when appointed to have some say in that.”
The success of Norwegian has persuaded legacy airline groups such as IAG that low-cost, long-haul can work. The growth in the segment has been aided by advances in aircraft technology as well as the trend for unbundling fares.
New aircraft such as the Boeing 737 Max are making transatlantic flights on single-aisle planes much more attractive for airlines thanks to their greater fuel efficiency. These can be used to connect smaller airports directly.
Then there is the willingness of airlines to strip fares down to their basic level with passengers then give the option of whether they want to pay extra for things like in-flight meals. The problem for consumers is that the headline-grabbing lowest price is often elusive.
In a world where low-cost, long-haul is a reality, what does the future hold for legacy airlines that have often traded on their premium image? IAG airline British Airways has been heavily criticized for its apparent move down market under CEO Alex Cruz.
Walsh believes the industry is becoming increasingly savvy when it comes to understanding consumer behaviour.
“There are people who are solely influenced by the price, but there are others who are influenced by other factors,” he said. “And when we segment the market, we see there is a market that can be served by a number of different business models.”
Said Walsh: “The challenge is in the past we’ve tried to serve all the segments with one business, and that’s impossible. So I think you’ve got to be clear in terms of which segment you will operate in, and that’s the beauty of IAG in that we have multiple brands, multiple operating companies so we can look at the market and segment it and use different brands to serve different segments of the market.”