DIDYOU

AIRLINE
ISSUE 44 | MAR-APR 2018

AIRLINE LEADER
KNOW?
LEADER

ISSUE 44 MAR-APR 2018

THE STRATEGY JOURNAL FOR AIRLINE CEOS

South East Asia is the world’s leading region for

widebody LCC operations, followed by Western
Europe & North America.

42% of Europe’s aircraft orders are

from LCCs although Europe lags
Asia Pacific in total LCC orders
Source: CAPA Fleet Database

LCCS DIVERSIFY,
IN DIFFERENT
Keep ahead of the industry with a CAPA Membership DIRECTIONS
CAPA Membership delivers the very latest insights into the global Meanwhile, Full
commercial fleets market and more Service Airlines
adopt contrasting
strategies
centreforaviation.com
 DID
YOU
KNOW?
W E D O N ’ T IN NOVAT E ,
W E B U ILD NEW P ERSP E CT I VES
With our brand new East wing

Korea was Northeast Asia’s first

major LCC market and today
remains the largest and most
vibrant.

Our LCCs in North Asia Summit will

return to South Korea (Seoul) in
2018 to discuss the key challenges
and strategic issues facing LCC
operators in North Asia as they seek
further opportunities for growth.

Join the LCC CEOs of the region

on 11-12 June, for an unrivalled
Tomorrow we will welcome your long-haul fleet with more comfort and opportunity to network and do
technology: 520 meters long, 6 wide-body parking slots, a modern passengers’ business with the region’s key
area and a low environment impact structure with 5’000 m2 of solar panels. decision makers. 11-12 June, Seoul
All designed for our future within air transport.

lcc18.capaevents.com
gva.ch/b2b REACH NEW HEIGHTS

INFORM. CONNECT. INSPIRE.

They “just didn’t get it”. It’s about culture
I
N RETROSPECT it can be hard to understand
why it took nearly 30 years for the Southwest
Airlines LCC model to be replicated.
There are so many elements of it that today
it seems obvious: improved utilisation, denser
configurations, simple fleet and network structure, and
so on.
Certainly, direct selling via the internet provided a
tailwind, but then Southwest had pioneered its own
style of direct selling, for example using a network of
women working the phones from home.
The legacy systems suddenly seemed so lazy and
inefficient.
As new entry became easier, when, in the early years
after Southwest became recognised as a phenomenon
in the US, other airlines would be welcomed to the LCC
to understand the model.
Iconic founder (along with lesser known Rollin King)
Herb Kelleher once explained to us that many of his
staff would question the wisdom of sharing secrets
with the opposition – many of them more powerful and
intent on using their political influence to prevent the
upstart from expanding.
His response was, “don’t worry, they just don’t get
it”. The traditional airlines were studying each element
of the new system analytically and dissecting it down
to its roots. But what they didn’t “get” was that it was
about more than simply a set of rules. Apart from having
the magic Herb ingredient, Southwest was imbued
with a culture. A culture of can-do, of efficiency and
impatience with bureaucracy. And a fierce passion of
cost consciousness.
This was at a time when the prevailing wisdom was
that the focus should be on unit revenues; it was much
more profitable to raise yield by 1% than to reduce costs
by that amount.
The equation still applies generally, but adherence to
that credo gave licence to a complacency that did little
or nothing to disrupt the underlying cultural deficiency.
(And, by corollary, the merits of higher yield seeking can
easily lead to the downfall of once-low cost-focussed
LCCs; moving up market and introducing complexity
is a minefield and can be extremely challenging to the
original culture.)
CAPA was involved directly in the movement nearly
30 years ago, when a young Air New Zealand executive
returned home from his role as GM for the US, fresh
with the new (Southwest) concept he’d seen there.
We helped him develop the business plan for a low
cost airline that Air New Zealand would use to fly
domestically in Australia, a move that was permitted
under their respective entry regimes.
Thwarted at the last minute by a protectionist
Australian executive government decision, the
disillusioned executive left for Europe where he found
and convinced a self-professed “Greek rich kid” to
invest in his idea. The rich kid was Stelios Haji-Ioannou,
the executive, Ray Webster – and so easyJet began.
Hence we feel there’s a bit of CAPA DNA in Europe’s
LCC revolution and in the movement overall (we
convened the world’s first LCC conference in Feb-
2004, in Singapore).
This issue of Airline Leader contains a selection
of articles about the evolving LCC marketplace. It’s
now innately global – but each region has distinctive
elements, often sculpted by the need to navigate those
good old fashioned restrictive bilateral entry rules. And
there are lessons to be learned from each region. As
you read the lines, try to read between them, for the
culture.
PETER HARBISON
EXECUTIVE CHAIRMAN
CAPA – CENTRE FOR AVIATION
AIRLINE LEADER | MAR-APR 2018 1
 T H E S T R AT E G Y J O U R N A L F O R A I R L I N E C E O S

allegiant
air

AIR

P.12 P.24 P.30 P.34

FEATURE FEATURE FEATURE FEATURE
LCCs continue to A growing niche. Long haul low cost Long haul low cost
provoke change in Southeast Asia is airlines move to could gradually
airline models. the leading region mainstream as they join transform city pair
for widebody LCC their parents’ JVs. opportunities.
operations.
 T H E S T R AT E G Y J O U R N A L F O R A I R L I N E C E O S

The Flight Deck

On the record – Quotes from industry leaders 06

Opinion – Progress in Digital Transformation in Aviation 08

Regional – The North Atlantic market is being transformed by longhaul LCCs, wide and 40
narrowbody
Regional – Europe’s LCC fleets continue to grow. Ryanair leads; Wizz Air has most orders 48

Regional – Can LCCs and regional airlines co-exist? In Europe it seems so 56

Regional – Japan’s LCC market in transition 61

– Part 1: ANA & JAL move to a focus on international leaving their LCC 62
subsidiaries to grow domestically
– Part 2: As ANA’s LCCs Peach and Vanilla merge, Qantas and JAL need to 68
align strategy
EDITOR: Peter Harbison
MANAGING EDITOR: Liz Pinczewski
SUBEDITORS: Corinne Hitching; Peter Hickling
DESIGN: David Bell; Maryam Dirou

SENIOR ANALYSTS:
Head of Research: Liz Pinczewski
Chief Analyst: Brendan Sobie
Chief Financial Analyst: Jonathan Wober
Chief Airports Analyst: David Bentley
Senior Analyst – North Asia: Will Horton
Senior Analyst – Americas: Lori Ranson
Senior Analyst – Middle East: Simon Elsegood

HEAD OF AVIATION DATA RESEARCH: Sharon Dai

PROFILE MANAGER: Adam Basir

Advertising enquiries: advertising@centreforaviation.com

Editorial enquiries or feedback: airlineleader@centreforaviation.com

Airline Leader is produced by CAPA - Centre for Aviation, the leading provider of
independent market intelligence for the aviation and corporate travel sectors globally.
CAPA provides market intelligence, analysis, reports and data services on commercial aviation
and corporate travel, covering an entire spectrum of daily, worldwide industry developments that
support strategic decision-making.
CAPA also holds C-level aviation and corporate travel summits in key markets around the world.

Published by Airline Leader Pty Ltd. Please visit the website airlineleader.com or write to us at Level 4, 88 Phillip St, Sydney NSW 2000,
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airlineleader@centreforaviation.com. © Airline Leader Pty Ltd. Airline Leader is printed in Singapore by Times Printers.
 BORN
LEADERS
FLYE2

Congratulations
Widerøe Airlines on
taking delivery of the
E190-E2 aircraft.
From unsurpassed passenger comfort
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AIRLINE LEADER | MAR-APR 2018 5
QUOTES

On the Record
EgyptAir Cargo
ON HOW IT IS EASIER TO HANDLE FREIGHT THAN PASSENGERS
“It is certainly much easier dealing with freight rather than passengers… One hour delay could
mean a million complaints on the one hand, but one hour in cargo operations is acceptable. And,
of course, cargo does not eat and drink.” Safwat Musallam, chairman and CEO

Hawaiian Airlines
ON CHANGES IN THE AVIATION SECTOR
“There are a number of things that are fundamentally different about the industry today that
position us better for the future. Airlines are much stronger financially, we have generally
stronger balance sheets, strong cash flow, and that is allowing people to make long term
decisions that are sensible. We are still susceptible to economic swings and we are still
exposed to currency and commodity volatility, but I do agree with the notion that from a
financial performance perspective, the highs should be higher and the lows should be less low
as we go through an economic cycle.” Peter Ingram, CEO

American Airlines
ON PREFERRING A STREAMLINED WIDEBODY FLEET WITH FEWER AIRCRAFT TYPES
“We see significant advantages to carrying common fleet types, including creating less friction in
our operation when aircraft swaps are necessary, reducing inventory needs, and creating a more
consistent service for customers and team members.” Derek Kerr, CFO

IATA
ON DEEP CONCERN OVER GLOBAL INFRASTRUCTURE CHALLENGES
“On infrastructure, I am deeply concerned. Demand is growing faster than we are able
to build airports or upgrade air traffic management. We are headed for a global crisis…
These frustrations are now being felt the world over. We had high hopes that private sector
management would improve the relationship between airports and airlines. In many cases
infrastructure was built, but the expected benefits of greater efficiency and higher service
levels have not fully materialised.” Alexandre de Juniac, director general and CEO

HK Express
ON PARTNERSHIPS AMONG LCCS
“I think any low cost carrier is always looking for strong partnerships. As long as everyone’s
on the same page in terms of direction and there’s really strong network synergy, then
there’s scope for that.” Jonathan Hutt , commercial director

6 AIRLINE LEADER | MAR-APR 2018

 Ryanair
ON POTENTIAL BREXIT FALLOUT
“We see no progress toward a solution that will address either the flight rights or the
ownership rules... The first industry over the cliff will be flights. And I think maybe that’s the
way you bring about the crisis that gets everybody in Britain to say ‘well, maybe let’s look at
this again’.” Michael O’Leary, CEO

Virgin Atlantic
ON CHALLENGES IN MONETISING ANCILLARIES
“Airlines are transport companies. To move to being a retailer is a change of mindset...
We pride ourselves on giving the customer more for less, but it is difficult to then ask
customers to pay for things. We come up with really good ideas, but monetising them is
difficult.” If there is a way to make money on short haul, we will investigate any opportunity
to add a bit of Virgin sparkle to the experience”.
Veronica Hull, head of global distribution

Airlines for Europe

ON THE POWER OF GOOGLE
“We shouldn’t underestimate Google. A lot of airlines take them very seriously. We need to
prevent flying being a commodity.” Thomas Reynaert, MD

Airlines for America

ON NEED FOR CONSOLIDATION IN EUROPE
“Europe could use a little consolidation. There may be some overcapacity in Europe.
Consolidation has saved the US industry. Competition has never been stiffer in the US.
Prices are down 16% in real terms over the past four years.”
Nick Calio, president and CEO

Arab Air Carriers Organization

ON THE ‘BIG MESS UP’ OF BREXIT
“It is not wise to think that everything is going to be rosy [after Brexit]. Brexit was a big
mess up. It came on the rise of populism and nationalism. They will do everything to keep
the wheels rolling, but it is not as easy as this…. some flights may stop flying. I am not very
optimistic. The [UK] politicians have to follow the vote, but how do you manage something
that voters didn’t see happening?” Abdul Wahab Teffaha, secretary general

AIRLINE LEADER | MAR-APR 2018 7

OPINION
Progress
in Digital
Transformation
in Aviation
R
ECENTLY in Airline
Leader the potential
of an airline to offer
Mobility-as-a-Service was
discussed. This refers to a scenario
in which an airline could extend its
prevailing business model of selling
scheduled seats between airports
to offer not just outcomes instead of
products, but also provide solutions to
travellers’ mobility requirements. Such
a scenario, while quite appealing
from many consumers’ perspectives,
is a long way away from the current
digital transformation initiatives
being introduced by even the
leading airlines, airports and aircraft
manufacturers.
Here are some examples of recent
digital oriented initiatives in the
aviation industry:
• Some airlines are experimenting
with the use of facial recognition
technologies to improve the check
in and boarding processes;
• Some airports are experimenting
with the introduction of robots that
can make air travel less stressful.
Meet Leo, a robot created by
SITA and being tested at Geneva
International Airport that can come
to the curb side of an airport,
8 AIRLINE LEADER | MAR-APR 2018
take a passenger’s bag, tag it
and transport it to the appropriate
location inside the airport. Also
meet KATE, an intelligent check in
kiosk robot created by SITA and
being tested at Kansai International
Airport, that can move to a
congested area at an airport to
expedite the check in process;
• Airbus’ A3, a Silicon Valley
subsidiary, has been designing
customisable modules to provide
airlines with the capability to
reconfigure aircraft interior cabin
layouts to offer passengers
dramatically different options on
how they spend their time in the
cabins.
While all such initiatives will add
much value, step-changing digital
transformation in aviation is still at a
very early stage. Progress relating to a
significant level of transformation has
been relatively slow due to:
• The unwillingness of management
to change existing business models
and business processes, due, in
turn, to the misconceptions of digital
transformation and the uncertainty
behind transformative initiatives;
• Varied stages of development of
businesses within different sectors
of the aviation industry, calling for
widely different strategies and their
timings;
• The significant gap between the
capabilities of legacy technology
systems and processes, and the
contemporary customer centric
technology systems and processes
needed to engage with customers
and provide personalised services;
• The complexity of some sectors
within the aviation industry and
management’s sentiment to engage
in transformation quickly;
• Resistance to the implementation
of fail/fast initiatives even in
areas that do not relate to safety
considerations;
• The continuation of planning cycles
based on an annual planning
schedule.
Consider the confusion between
the word digitisation and digitalisation.
Some executives still believe that
by digitising some functions and
processes, they are transforming
the business. However, digitising
some functions refers to converting
information from an analogue into
a digital form without changing the
content and simply automating
some conventional paper-based
and/or labour intensive processes.
For step-changing transformation,
what is called for is digitalisation
that goes further and refers to the
use of digital technologies (and
digitised data) to change how the
business is conducted in some areas.
Consequently, the focus needs to be
on the word transformation, not on
digital.
Challenges such as the complexity
of business processes, and
constraints in legacy systems also
attribute to the slower pace of
transformation. With regards to the
first part of the challenge, despite
other business sectors deal with
complex issues – automobile,
pharmaceutical, petrochemicals, for
instance – airlines consider their
sector exceptionally complex. With
respect to the second part of the
challenge, legacy systems, there has
been, and continues to be, a gap
between the operational needs of
the business and the commercial
needs of customers. To deal with
these complexities and constraints,
airlines have been developing
sophisticated systems and processes
within their major functions. However,
the introduction and implementation
of airline functional systems within
existing systems has made the airline
business more, not less, complex.
Moreover, integration among
systems within the isolated
operational space as well as within
the siloed commercial space has
been handled through human
interfaces that compounded the
ongoing complexity. Furthermore,
instead of streamlining operations,
the complexities increased with
the formation of airline groups
– for example, the IAG Group
and the Lufthansa Group. Social
media engagement and increased
mobile device use also add to
the complications. As a result, the
gap between the operations and
the marketing space continues to
exist, affecting costs, revenues and
customer experience, not to mention
employee experience. Finally, on
the point of annual planning cycle
continuity, it is a process that has held
back agility. Digital transformation can
now make the airline business more
agile and more flexible. For example,
digital technologies can enable an
airline to reduce the planning cycle
from the standard 12 months for the
development of schedules to a few
weeks, but it calls for major changes
in revenue management and
AIRLINE LEADER | MAR-APR 2018 9
OPINION

reservations functions – a discussion
for a different column. Similarly, digital
transformation within the operations
space (flight/crew planning, fuel
management and M.R.O) can bring
up incredible levels of reductions in
operating costs, not to mention an
increase in the capability of aircraft to
generate more revenues as well as
improve customer experience through
reductions in delays. Looking forward,
the aviation industry should consider
using information and analytics-based
platforms to develop and implement
transformative strategies to face
both challenges and opportunities
created by the convergence and
intersection of, at least, three major
forces. These forces are (a) increasing
levels of complexity, (b) expected
growth and changes in traffic, and
(c) the emergence of exponential
technologies to enable management
to transform their business models.
Platforms will enable, for example, markets. As for the rankings in the
airlines to achieve scale and scope as top ten air passenger markets, 2016
well as agility and flexibility (through vs 2036, the US shifts down from
strategic partnerships) to offer number one to number two and the
intelligently aggregated travel-related UK moves down from number three
services right now. Subsequently, they to number five, while India moves
will enable airlines and airports to up from number seven to number
provide solutions to travellers’ global three and Indonesia moves up from
mobility requirements. number ten to number four. These
The most important and immediate shifts in traffic can be explained by
capability that digitally-focused such developments as relaxation
platforms will provide is to develop of aviation regulatory policies and
a bond between operations and expansion of LCCs.
marketing that reduces complexity It is the operating framework of
significantly and enables the platforms that will enable airlines to
development of value-adding price- the balance marketing and operations
service options to accommodate the centricity. Airlines have always had
expected growth and shifts in traffic an operations centricity. Going back
worldwide. For example, according in history, it was the initial complexity
to charts published by IATA, 2018 of logistics that caused airlines to
could be a pivotal year when the focus much more on operations
percentage of Origin-Destination than on marketing. The airline
traffic within developing markets industry worldwide was heavily
becomes higher than within advanced regulated (until about the end of the

TOP TEN AIR PASSENGER MARKETS 2036 VS 2016

SOURCE: IATA/TOURISM ECONOMICS

US 1 China

China 2 US

UK 3 India

Japan 4 Indonesia

Spain 5 UK

Germany 6 Japan

India 7 Spain

Italy 8 Germany

France 9 Turkey

Indonesia 10 Thailand
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036

10 AIRLINE LEADER | MAR-APR 2018

1970s), preventing management to
develop and implement traditional
marketing strategies relating to,
for example, price-service options.
However, even after the airline
industry was deregulated, although
in steps, management focus, with
the exception of a few airlines,
continued to be high on the logistics
of operations relative to the marketing
side of the business. More recently,
a few top tier airlines, having “almost
mastered” the logistics of their
operations, have begun to devote
more attention to contemporary
marketing challenges and
opportunities even though complexity
continues to exist and, in some cases,
has even increased for some of the
reasons mentioned above.
Compare this business model in
the airline sector to the business
model of Amazon that seems to
have focused on marketing first and
logistics second. Amazon started
with the identification of products
to sell and the ease of shopping
(the famous “one-click” mantra, for
instance), followed then by efficient
logistics, such as fast delivery. Product
line, initially focused on retail, began
to expand into other sectors, the
grocery sector and the healthcare
sector being the latest areas. After
marketing came the focus on delivery
logistics – two days, next day, and,
in some cases, the same day. Now,
for the transport of grocery-related
products, deliveries could even be
envisioned within a couple of hours.
The interesting twist is that Amazon
is now reportedly considering
“marketing” its logistics competency.
As such, Amazon could easily deploy
its capabilities in logistics to make
deliveries for other businesses that
sell their products on the Amazon
platform.
Although considerations relating
to logistics and the complexity of
airline operations did come before
marketing, focus has been shifting,
although slowly, to the marketing side.
In recent years, airlines have been
exploring and implementing some
customer-centric marketing initiatives.
The bundled product has been
unbundled and the physical product
has begun to be integrated with
some digital elements, such as the
mobile capability to shop and book,
the availability of digital boarding
passes and the availability of limited
amounts of personalisation. Some full
service airlines also created lower
cost divisions and started to offer
fares that matched the fares offered
by lower cost airlines to appeal to
the price-sensitive market. Air France
went even further and designed its
low fare division, Joon, launched in
Dec-2017, to appeal to millennials by
introducing some digital features such
as streaming-based entertainment.
Going forward, however, airlines will
need to work with newer generations
of platforms if they are to meet the
dramatically changing needs of their
customers and their businesses. The
newer generation of platforms will
provide airlines and airports, besides
the capabilities to achieve scale and
scope, with capabilities to create
and capture new values by bonding
the marketing and operational
systems and processes. If airlines do
not transform in this direction, and
rapidly, there could be technology
businesses, working with customer-
centric platforms, which could help
travellers create personalised and
total trips with flexibility and the ease
to change the trip components in real
time and on a contextual basis. Airbnb
could step forward for example, and
offer a platform for a comprehensive
set of travel-related services. Such an
operator of a platform could simplify
the shopping process, for example,
by including:
• All components of the end-to-end
travel process, based on context
and total needs of the traveller;
• Services such as prediction of
fares and prediction of on time
performance (not just on the day of
travel but also during the shopping
phase), recommendations and
reviews trusted by the shopper;
• Availability of convenient payment
systems.
The core competencies of these
powerful technology businesses lie in
the areas of data, analytics, customer
relationship management and the
focus on making consumers’ lives
easier. Keep in mind the mission
of some technology companies to
“empower people to achieve more”.
How fast can airlines transform to
“empower travellers to achieve
more”? AL
AIRLINE LEADER | MAR-APR 2018 11
FEATURE

LCCs CONTINUE
TO PROVOKE
CHANGE IN
AIRLINE MODELS
In this issue of Airline Leader, we review
a number of different aspects of the
LCC phenomenon, relating to regional
changes, but also to the nature of the low
cost concept and how it has evolved.

L
CCS HAVE BEEN RARELY out of the news over the
past 20 years as they disrupted market after market. And
ever since, full service airlines have been learning from
the often revolutionary methodology applied by the LCC
model, in such areas as ancillary revenue as well as operational
efficiencies and cost reduction. Equally, as LCCs proliferated and
entered new markets, many sought to diversify, creating systems
that mimicked their older peers.
But nothing has more vividly highlighted the convergence of the
two service groups than IAG’s recent bid to buy the ubiquitous
LCC, Norwegian. Whatever IAG’s motivation and what comes
of that process, it is clear that industry leaders feel the need to
target both the full service and lower priced segments more
effectively.
Norwegian Air itself has been a remarkable agent of change. It
has broken new ground strategically as the only independent
European LCC with both single aisle and twin aisle operations,
as well as establishing operating subsidiaries and JVs in multiple
jurisdictions. Norwegian’s innovation has encouraged legacy
groups such as IAG, as well as Lufthansa (Air France’s unions
prevent it from making this market move) to launch their own
long haul low cost operations, and prompted local rival SAS to
establish bases outside Scandinavia.

12 AIRLINE LEADER | MAR-APR 2018

After weak financial results in 2017, Norwegian expects better results in
2018, but low profit margins and high debt levels have left it exposed to
any cyclical downturn or localised demand shock affecting its network,
and hikes in oil prices or interest rates. This provided an attractive
scenario for IAG to make a bid for the publicly listed company.
Dual brand airline strategies move to Stage 2 in Asia Pacific
Until relatively recently, dual brand strategies targeting different
market segments have been rare, but Asia Pacific is now rife with such
examples. This has prompted further evolution of the nature of those
partnerships.
Qantas and wholly owned subsidiary Jetstar remain the model for
dual airline brand strategy globally. As it has evolved since Jetstar’s
birth in 2003, this combination of full service and low cost/no frills
airline within one group has become a powerful combination to
combat independent LCCs making inroads into the traditional leisure
sector – and which then moved up market.
In the early history of dual brand strategies in Asia, airlines often took
only a minority-only stake in an LCC “subsidiary”. This half way house
has proven strategically weak in some cases since the lack of full
ownership and control prevented the parent airline from using its LCC
for strategic, integrated purposes. It was from this background that
Singapore Airlines eventually paid dearly in 2016 to take full control of
its former minority equity JV in Tigerair.
Now, further north, Japan’s All Nippon Airways will again pay a
premium to increase its stake in Peach Aviation. In total, ANA is
investing USD400 million, valuing Peach at USD1 billion, but ANA may
need to pay a further USD300 million for full control.
LCC subsidiary history also includes nuanced chapters where multiple
brands, often overlapping, prevailed. Singapore Airlines for example
has merged its short and longhaul subsidiaries Tigerair and Scoot
under the Scoot brand.
North Asia was slower than southeast Asia to adopt the LCC model
As Japan’s LCC market becomes more dynamic, with existing and
forthcoming local and foreign operators, ANA is putting its house in
order to compete more effectively.
Peach will now take over the 100% ANA-owned LCC Vanilla Air.
Peach will logically be the surviving brand from the merger, which is
to be completed in 2019. That is a relatively quick time frame in the
Japanese market, but underscores the strategic urgency after such a
long wait while ANA negotiated with Peach’s other two shareholders.
There will inevitably a knock-on impact on the other major player
in the Japan market, Japan Airlines, which along with Qantas
participates in a JV in Jetstar Japan. As JAL reviews its options in this
shifting framework, more innovations can
be expected. (This report contains a special
feature on the evolving Japan market.)
Another sign of convergence?: LCC
alliances
It has been two years since LCCs in Asia
captured headlines by establishing the
world’s first LCC alliances. The 13 founding
members of the U-FLY and Value Alliances
were naturally upbeat about the prospects,
but so far neither grouping has been able
to generate a significant volume of cross-
bookings.
Value Alliance members remain relatively
optimistic, although they acknowledge that
the integration has been more challenging
than expected. The alliance is planning to
relaunch its website in 2018 with a new
booking functionality and to start marketing
joint itineraries more aggressively.
All Value Alliance members will soon finally
be on a common technology platform
provided by Air Black Box, designed to
facilitate interlines. U-FLY also initially
selected the same Air Black Box platform,
but subsequently decided not to proceed
with implementation, raising questions
whether a common platform is really
needed for LCCs to leverage interline
opportunities.
Longhaul Low Cost Carriers go the next
stage of network coverage
LCC seat share on the North Atlantic has
grown from almost nothing five years ago to
8% in summer 2018, higher than in any long
haul market from Europe (LCCs have 1.0%
on Europe-Asia Pacific, 1.7% on Europe-sub
Saharan Africa, and 3.4% on Europe-Latin
America).
The dominance of immunised JVs involving
the leading legacy airlines is being eroded,
in no small measure due to LCC expansion.
In particular, low cost narrowbody growth is
AIRLINE LEADER | MAR-APR 2018 13
FEATURE

now outpacing LCC widebody expansion in
this market.
Led by Norwegian, LCCs have exploited
EU-US market liberalisation and new
generation aircraft (although Canada’s
WestJet mainly uses older Boeing 767s).
WOW air’s Icelandic connecting model has
also contributed. New entrant Primera Air,
an all-narrowbody operator, is following
Norwegian in launching trans Atlantic routes
from the UK and France, outside its Nordic home markets.
History shows that the North Atlantic can be challenging for LCCs.
Today, aircraft technology and the liberalisation of traffic rights have
transformed the market and North Atlantic LCCs now appear to have
a strong tailwind.
And so the evolution rolls on. That the added has been good for
consumers and tourism bodies is a given. It has also helped some full
service airlines that had the prescience to take bold steps to adapt,
knowing that in a turbulent world sitting still was not an option.

INDEPENDENT LCC PROFILES: ROUTE NETWORK AND FLEET SUMMARY*

SOURCE: CAPA FLEET DATABASE (LISTED IN ORDER OF CURRENT IN SERVICE FLEET SIZE)

Airline Routes Manufacturer Variant Variant Fleet In On

Type Age Average Service Order
Age
Southwest 802 Boeing 737 MAX 0.52 14 226
Airlines 10.65
737NG 10.85 703 17

Ryanair 1776 Boeing 737 MAX 110

6.74
737NG 6.74 432 27

JetBlue 263 Airbus A320-200 12.58 130

Airways
A320neo 85
9.48
A321-200 2.12 55 8
Embraer E190 9.49 60 24

IndiGo 220 Airbus A320-200 7.43 121

A320neo 1.15 5.90 32 398
ATR 72-600 0.25 6 44

Azul 259 Airbus A320neo 0.89 14 49

A330-200 15.90 7
A330neo 5
5.57
ATR 72-600 4.37 37 6
Embraer E190 9.16 9
E195 5.65 59 30

14 AIRLINE LEADER | MAR-APR 2018

 Airline Routes Manufacturer Variant Variant Fleet In On
Type Age Average Service Order
Age
Spirit Airlines 249 Airbus A319-100 11.58 31
A320-200 4.15 52 10
5.26
A320neo 1.45 5 43
A321-200 1.30 30

Gol 223 Boeing 737 MAX 125

9.50
737NG 9.50 117

Allegiant Air 465 Airbus A319-100 12.77 26

A320-200 12.24 30 2

allegiant Boeing/ MD-83 28.05 18.16 29

air McDonnell
Douglas
MD-88 28.38 3

Frontier 338 Airbus A319-100 12.85 18

Airlines1
A320-200 7.20 5.56 24
A320neo 0.72 20 196
A321-200 1.68 19 2

Jet2.com 349 Boeing 737CL 25.84 18

737NG 8.37 15.02 51 6
757-200 28.13 11

Interjet 105 Airbus A320-200 9.41 47

A320neo 0.67 5 35
6.70
A321-200 1.04 6
Sukhoi RRJ-95 3.20 18 8

flydubai 113 Boeing 737 MAX 0.52 6 245

4.39
737NG 4.81 55

SpiceJet 155 Boeing 737 MAX 180

737NG 8.74 34
7.94
Bombardier DHC- 6.57 20 25
8Q-402

AIRLINE LEADER | MAR-APR 2018 15

FEATURE

Airline Routes Manufacturer Variant Variant Fleet In On

Type Age Average Service Order
Age
JEJU air 67 Boeing 737NG 11.66 11.66 33 3

GoAir 77 Airbus A320-200 7.15 19

4.60
AIR
A320neo 0.88 13 131

Sunwing 206 Boeing 737 MAX 4

Airlines 7.63
737NG 7.63 32

airBaltic 79 Boeing 737CL 21.11 11

Bombardier CS300 0.90 8 12
10.29
DHC- 6.63 12
8Q-402

flynas 80 Airbus A319-100 15.37 2

A320-200 10.25 10.62 26
A320neo 80

Blue Air 104 Boeing 737 MAX 6

737CL 26.11 20.23 14
737NG 14.35 14

Volotea 292 Airbus A319-100 14.12 11

14.58
Boeing 717-200 14.87 17

VivaAerobus2 89 Airbus A320-200 5.26 4.95 22

A320neo 1.50 2 38

Onur Air 76 Airbus A320-200 20.73 7

A321-100 20.82 2
19.00
A321-200 20.03 5
A330-200 16.39 8

Sun Country 51 Boeing 737NG 14.31 14.31 20

T'way Air 45 Boeing 737NG 9.88 9.88 20

16 AIRLINE LEADER | MAR-APR 2018

Airline Routes Manufacturer Variant Variant Fleet In On
Type Age Average Service Order
Age
WOW air 37 Airbus A320-200 7.95 2
A320neo 0.93 2 2
A321-200 2.21 3.12 11 1
A330-300 4.67 3
A330neo 4

kulula.com3 64 Boeing 737-400 29.00 2

7.815
737-800 3.10 9 2

JetSMART 19 Airbus A320-200 0.79 0.79 5

(Chile) A320neo 70

Salam Air 9 Airbus A320-200 11.20 11.20 3

AIRLINE LEADER | MAR-APR 2018 17

FEATURE

INDEPENDENT LCC GROUP/JV/PARTNERSHIP/CONSORTIUM*

SOURCE: CAPA FLEET DATABASE (LISTED IN ORDER OF CURRENT IN SERVICE FLEET SIZE)

Airline Group Airline Routes Manufacturer Variant Variant Fleet In On

Type Age Average Service Order
Age
EasyJet plc easyJet 996 Airbus A319-100 6.88 11
Switzerland A320-200 6.32 15
easyJet Airbus A319-100 11.14 83
A320-200 4.34 6.96 86 9
A320neo 0.44 6 124
easyJet Airbus A319-100 9.47 36
Europe A320-200 3.63 49

AirAsia Group AirAsia 126 Airbus A320-200 6.76 67 14

A320neo 0.63 19 376
Thai AirAsia 89 Airbus A320-200 6.18 50
A320neo 0.69 9
Indonesia 28 Airbus A320-200 7.64 6.52 23
AirAsia
AirAsia Japan 1 Airbus A320-200 2.27 2
Philippines 45 Airbus A320-200 12.03 21
AirAsia
AirAsia India 42 Airbus A320-200 8.11 17

Lion Group6 Wings Air 138 ATR 72-500 7.03 19

72-600 3.02 34
Lion Air 187 Airbus A320-200 1
A320neo 178
4.99
A330-300 2.43 3
ATR 72-600 27
Boeing 737 MAX 0.76 8 242
737NG 6.39 101 6
Thai Lion Air 57 Airbus A330-300 0.39 3
Boeing 737 MAX 0.09 4.99 1
737NG 3.03 27

WestJet WestJet 256 Boeing 737 MAX 0.38 6 49

737NG 9.40 115
7.71
767-300 25.83 4
787-9 10

18 AIRLINE LEADER | MAR-APR 2018

Airline Group Airline Routes Manufacturer Variant Variant Fleet In On
Type Age Average Service Order
Age
WestJet (cont)7 WestJet 378 Bombardier DHC- 2.65 44 1
Encore 8Q-402

Norwegian Group Norwegian Air 297 Airbus A320neo 88

Shuttle ASA9
Boeing 737 MAX 104
737NG 5.19 52
787-8 4.19 5
787-9 29
Norwegian Air 251 Boeing 737 MAX 0.77 6
International
737NG 3.54 3.67 63
787-8 3.95 3
787-9 1.52 6
Norwegian Air 13 Boeing 737NG 4.61 1
UK
787-9 0.45 13
Norwegian - Boeing 787-9 1.15 1
Air Argentina
(Startup)

Wizz Air Group10 Wizz Air 623 Airbus A320-200 6.20 65 4

A320neo 256
A321-200 1.26 4.54 26 13
Wizz Air UK Airbus A320-200 0.12 3
A321-200 0.05 2

Spring International Travel Spring Airlines 233 Airbus A320-200 4.31 78 2

Service Ltd A320neo 60
4.20
Spring Airlines 7 Boeing 737NG 2.73 6
Japan11

Pegasus Airlines Group Pegasus 200 Airbus A320-200 4.16 12

Airlines A320neo 0.98 17 83
Boeing 737NG 7.65 5.52 44 3
Izair 21 Boeing 737-800 ? 7
Pegasus Asia 9 Boeing 737-400 ? 1

AIRLINE LEADER | MAR-APR 2018 19

FEATURE

Airline Group Airline Routes Manufacturer Variant Variant Fleet In On

Type Age Average Service Order
Age
Volaris Group12 Volaris 171 Airbus A319-100 11.37 7
A320-200 4.54 43
A320neo 0.73 6 119
4.76
A321-200 1.85 10
Volaris Costa 16 Airbus A319-100 10.35 3
Rica

Cebu Pacific Group Cebu Pacific 79 Airbus A320-200 5.65 35

A320neo 32
A321-200 0.11 1 6
A330-300 3.34 4.59 8
ART72-600 7
Cebgo 48 ART72-500 9.28 8
ART72-600 0.91 9

VietJet Group VietJet Air 64 Airbus A320-200 5.23 24

A320neo 0.32 1 72
A321-200 1.00 30 6
3.05
Boeing 737 MAX 100
Thai VietJet 6 Airbus A320-200 6.05 4
Air

Air Arabia Group Air Arabia 50 Airbus A320-200 5.48 8

Maroc
Air Arabia 79 Airbus A320-200 3.63 37 2
4.16
A320neo 6
Air Arabia 8 Airbus A320-200 8.68 2
Egypt

AirAsia X Group AirAsia X 29 Airbus A330-300 5.31 22

A330neo 66
A350-900 10
6.72
Thai AirAsia X 5 Airbus A330-300 9.44 7
Indonesia 15 Airbus A330-300 12.69 2
AirAsia X

Grupo Viva VivaColombia 26 Airbus A320-200 14.28 11

Viva Air Perú 6 Airbus A320-200 16.35 14.60 2
VivaArgentina -

20 AIRLINE LEADER | MAR-APR 2018

FULL SERVICE AIRLINE PARENT LCCs*
SOURCE: CAPA FLEET DATABASE (LISTED IN ORDER OF CURRENT IN SERVICE FLEET SIZE)

Airline Group Airline Routes Manufacturer Variant Variant Fleet In On

Type Age Average Service Order
Age
Hainan Airlines Group Lucky Air 146 Airbus A319-100 12.30 3
(HNA) A320-200 4.78 8
A320neo 1
A330-300 0.32 1 3
Boeing 737 MAX 4
737NG 5.90 35
Beijing Capital 227 Airbus A319-100 12.30 3
Airlines A321-200 1.58 15
A330-200 6.14 6 1
5.30
A330-300 1.35 2 1
A350-900 2
West Air 85 Airbus A319-100 6.84 4
A320-200 3.94 25
HK Express 26 Airbus A320-200 8.53 8
A320neo 1.02 3 7
A321-200 0.78 10
Urumqi Air 45 Boeing 737NG 5.28 12
Embraer E190 9.07 1

Deutsche Lufthansa AG Germanwings Airbus A319-100 13.95 29

A320-200 26.81 8
Eurowings Airbus A319-100 9.61 8
507 9.96
A320-200 3.07 25
Eurowings Airbus A319-100 6.95 6
Europe A320-200 4.19 10

International Airlines Vueling Airbus A319-100 10.88 5

Group (IAG)
353 A320-200 7.74 87
A320neo 8.23 47
A321-200 1.93 15
Iberia Express 4413 Airbus A320-200 14.30 18
A321-200 13.03 3

AIRLINE LEADER | MAR-APR 2018 21

FEATURE

Airline Group Airline Routes Manufacturer Variant Variant Fleet In On

Type Age Average Service Order
Age
Qantas Group Jetstar Airbus A320-200 8.47 52
Airways14
A320neo 99
99
A321-200 9.15 8
Boeing 787-8 3.63 7.14 11
Jetstar Asia 29 Airbus A320-200 7.39 18
Jetstar 62 Airbus A320-200 4.12 17
Pacific15

Air France-KLM S.A. Transavia 147 Boeing 737NG 9.21 42

Transavia 86 Boeing 737NG 5.17 7.46 32
France

SunExpress16 107 Boeing 737NG 8.47 48

737 MAX 35
8.66
Lufthansa (50%) & Turkish SunExpress 4817 Airbus A330-200 14.24 7
Airways (50%) Germany Boeing 737NG 15.00 11

Air Canada Group Air Canada 5018 Airbus A319-100 19.81 20

rouge A321-200 2.31 18.60 5
Boeing 767-300 20.88 25

Garuda Indonesia Group Citilink 72 Airbus A320-200 5.52 45

5.06
A320neo 0.93 5 30

Singapore Airlines Group Scoot 70 Airbus A319-100 9.22 2

A320-200 6.71 24
A320neo 39
6.12
Boeing 787-8 1.70 10
787-9 2.95 6 4
NokScoot19 9 Boeing 777-200 16.87 4

China Southern Air Chengdu 115 Airbus A319-100 5.94 4

Holding Company Airlines A320-200 4.69 28
4.25
Comac ARJ21-700 1.20 4 26
Jiangxi Air 29 Boeing 737NG 3.38 8

China Eastern Air Holding China United 91 Boeing 737NG 4.52 4.52 42
Company Airlines

22 AIRLINE LEADER | MAR-APR 2018

Airline Group Airline Routes Manufacturer Variant Variant Fleet In On
Type Age Average Service Order
Age
ANA Holdings Inc. Peach 31 Airbus A320-200 4.12 20 7
A320neo 3.42 10
Vanilla Air 17 Airbus A320-200 2.49 15 1

Kumho Asiana Group Air Busan 37 Airbus A320-200 12.18 6

A321-200 11.82 10.47 17
Air Seoul 18 Airbus A321-200 4.93 6

Thai Airways Group Nok Air ATR 72-500 10.51 2

Boeing 737 MAX 8
50 5.72
737NG 6.46 18
Bombardier DHC-8Q-402 2.85 8

Korean Air Group Jin Air 43 Boeing 737NG 12.03 12.03 20

777-200 12.05 4

Air India Limited Air India 55 Boeing 737NG 8.05 8.05 23

Express

Japan Airlines Jetstar 26 Airbus A320-200 4.95 4.95 22

Japan20

Aeroflot Group
Pobeda 79 Boeing 737NG 2.41 2.41 18 2

Virgin Australia Holdings Tigerair Airbus A320-200 8.47 14

Limited Australia 24 9.37
Boeing 737NG 13.59 3

Juneyao Airlines Group 9 Air Boeing 737 MAX 2.60 30

44
737NG 2.60 15 2

China Airlines Group Tigerair 25 Airbus A320-200 3.05 11

3.05
Taiwan

Saudia flyadeal 9 Airbus A320-200 0.43 0.43 6 1

Notes: * Airline/Aircraft data as at: 23-Apr-2018. ‘In Service’ aircraft is based on the definition by the CAPA Fleet Database, some
airlines also have aircraft in storage which have not been included in these numbers. 1Part of Indigo Partners. 2Was part
of Grupo Viva until being recently 100% owned by Grupo IAMSA. 3Part of Indigo Partners. 4Based on website destinations.
5
Fleet age based on average age of Comair fleet average. 6Lion group is uniquely an LCCC core airline with 2 FSC airlines.
7
Plans to launch ULHLCC Swoop in June 2018. 8Based on website destinations. 9IAG Owns 4.61%. 10Part of Indigo Partners.
11
JV with Spring Airlines (China). 13Based on website destinations. 14Eastern Australia Airlines & Jetconnect operate a fleet
of Bombardier DHC-8 (19) & Boeing 737 (5) Aircraft on behalf of Jetstar in New Zealand. 15QF is a minority owner (30%)
Vietnam Airlines owns majority share (70%). 16JV between Lufthansa (50%) & Turkish Airways (50%). 17 & 18Based on website
destinations. 19JV with Thailand Nok Air. 20Joint venture with Qantas Airways.

AIRLINE LEADER | MAR-APR 2018 23

FEATURE

24 AIRLINE LEADER | MAR-APR 2018

THE WORLD’S LOW
COST AIRLINE
WIDEBODY
AIRCRAFT FLEET–
A GROWING NICHE
Summary
• Southeast Asia is the world’s leading region for widebody LCC
operation, followed by Western Europe and North America;
• There are 22 low cost carriers (LCCs) operating 175 widebody
aircraft, led by Norwegian, Air Canada rouge and AirAsia X. Only
six are widebody-only airlines;
• A330 variants are the most popular widebody in service and on
order with LCCs, followed by Boeing 787 variants;
• Widebodies are a small proportion of the total LCC fleet, but
orders are high relative to LCC widebodies in service, particularly
in Southeast Asia and Western Europe.

W
IDEBODIES ARE A SMALL proportion of the global
LCC fleet, but orders are high relative to the number
in service with LCCs, particularly in Southeast Asia and
Western Europe (already the two leading regions for LCC
widebodies in service).
Of the 22 LCCs operating widebodies, 17 are in Asia Pacific or Europe.
The world’s biggest LCC widebody fleet is currently operated by
Norwegian, followed by Air Canada rouge, a rare North American long
haul low cost operator, and AirAsia X, which is one of only six LCCs that
operate widebodies exclusively.
A330 variants are the most popular widebodies in service and on order
with LCCs, followed by 787 variants.
This report presents a detailed analysis of data on the LCC widebody
fleet and aircraft orders from the CAPA Fleet Database.

AIRLINE LEADER | MAR-APR 2018 25

FEATURE

Southeast Asia is the world’s leading WIDEBODY AIRCRAFT NUMBERS IN SERVICE WITH
region for widebody LCC operation LCCs, BY REGION*
According to the CAPA Fleet Database, SOURCE: CAPA FLEET DATABASE

there are 175 widebody aircraft in service 70 64

with low cost airlines as at 06-Apr-2018. This 60
compares with 136 at the end of 2016 and 115
50
at the end of 2015, so there has been a 52% 40
increase in just over two years. 40
The largest widebody LCC fleet is to be 30 29
found in Southeast Asia, which accounts for
20
64 aircraft, followed by Western Europe (40) 13
10 11 8 7
and North America (29). Asia Pacific overall
2 1
has 88 LCC widebodies, almost half of the 0
global total, and Europe has 48.

Southeast Asia

Western Europe

North America

Northeast Asia

Southwest
Pacific
Eastern/Central
Europe
Upper South
America

North Africa

Middle East
Widebodies operated by twenty two LCCs,
led by Norwegian, Air Canada rouge and
AirAsia X
According to the CAPA Fleet Database,
Note: * As at 06-Apr-2018
there are 22 low cost airlines operating 175
widebody aircraft as at 06-Apr-2018.
The database reveals the biggest LCC
operator of widebodies to be Norwegian,
with 27 Boeing 787s (eight 787-8s and 19
787-9s; including Norwegian Air Shuttle,
Norwegian Air International and Norwegian
Air UK). WIDEBODY AIRCRAFT NUMBERS IN SERVICE WITH
Second is Air Canada rouge (the low cost LCCs, BY AIRLINE*
SOURCE: CAPA FLEET DATABASE
subsidiary of the largest Canadian airline),
which has 25 767-300ERs. Ranked third is
30
× × × × × × 100%
Widebody aircraft

25 80%
AirAsia X, the long haul brand of the AirAsia

Widebodies as % of total fleet

20
60%
Group, which has 22 A330-300Es). 15
× 40%
The only other LCCs with double digit 10 × ×
widebody numbers are Scoot (ten 787-8s ×
20%
5
× × × × × ×
and six 787-9s) and Jetstar (eleven 787-8s). 0 × × × × × × 0%
Norwegian
Air Canada rouge
Air Asia
Scoot
Jetstar Airways
Cebu Pacific
Beijing Capital Airways
Onur Air
Eurowings
Azul
Thai AirAsia X
Jin Air
WestJet
NokScoot
WOW air
Lion Air
Thai Lion Air
French Blue
Air Leisure
Indonesia AirAsia X
Lucky Air
Jordan Aviation

Only six LCCs have all-widebody fleets

Only six of the 22 airlines are 100%
widebody operators. Three of these are
AirAsia X and its affiliates Thai AirAsia X and
Indonesia AirAsia X, which all operate A330-
300 variants.
The other three widebody-only LCCs are ■ Widebody aircraft x Widebodies as % of total fleet
Bangkok-based NokScoot, which operates Note: * As at 06-Apr-2018. Norwegian includes Norwegian Air Shuttle (five widebodies), Norwegian Air
International (nine) and Norwegian Air UK (13).
four 777-200ERs, Cairo-based Air Leisure,

26 AIRLINE LEADER | MAR-APR 2018

WIDEBODY AIRCRAFT VARIANTS OPERATED BY which operates two A330-200s; and the
LCCs* Paris Orly-based French Blue, a subsidiary of
SOURCE: CAPA FLEET DATABASE Groupe Dubreuil, which has one A330-300E
90 and two A350-900s.
81
80 A330-330X:
six After these six, there are three airlines
70
54 where widebodies form more than one third
60 A330-200:
thirty
50 of the fleet: Air Canada rouge, Scoot and
30 Onur Air.
40 A330-300E: 787-9: twenty 767-300ER:
forty five five
30 one
At Air Canada rouge, widebodies are half
20 767-300ER: of the total fleet (in addition to its 25 767s, it
787-8: twenty
nine
twenty nine 8 2
10 also operates 25 A320 family aircraft).
0
A330 787 767 77-200ER A350- Widebodies are 38% of Scoot’s fleet
900XWB (alongside its 787s, it also operates 26
Note: * As at 06-Apr-2018
Airbus A320 family aircraft) and 36% of the
fleet for Turkish LCC Onur Air (it operates
PROPORTION OF WIDEBODIES IN GLOBAL FLEET* 14 A320 family aircraft, in addition to eight
SOURCE: CAPA FLEET DATABASE
A330s).
20%
18% For each of the remaining 10 LCCs,
16% 18.1%
widebodies account for less than 20% of the
14% 18.1%
12% total fleet.
10% 16.1% The A330 is the most popular widebody in
8%
6% service with LCC operators
4% Perhaps not surprisingly all of the
2% 3.1% widebody aircraft in service with LCCs are
0%
All airlines LCCs that operate All LCCs twin engine jets, as at 06-Apr-2018, rather
widebodies than the higher fuel burn four engine types.
Note: * As at 06-Apr-2018. Aircraft in service.
The model most commonly operated by
LCCs is the A330, variants of which account
WIDEBODY AIRCRAFT ORDER NUMBERS BY LCCs* for 81, or nearly half, of the 167 widebodies
SOURCE: CAPA FLEET DATABASE
in service with low cost airlines. Of these, 45
100 × × 100%
Widebodies orders as % of total orders

90 are the A330-300E, 30 are the A330-200,

80 80%
Widebody orders

and six are the A330-300X.

70
60 60% The second most common model is the
50 ×
787, of which there are 54 in service with
40 40%
30
× LCCs. Of these, 29 are the 787-8 and 25
20 20%
10 × × are the 787-9. There are 30 767s (29 767-
× ×
0 0% 300ERs and one 767-200ER), eight 777-
AirAsia X

Norwegian

WestJet

Azul

WOW air

Scoot

Aieways

Lucky Air

200ERs and two A350-900s in service with

LCCs.

■ Widebody orders x Widebodies orders as % of total

Note: * As at 06-Apr-2018.

AIRLINE LEADER | MAR-APR 2018 27

FEATURE

Widebodies make up only a small
proportion of the total LCC fleet
Widebodies continue to make up a very
low proportion of the total LCC fleet. The
175 widebodies account for just 3% of LCC
aircraft in service globally.
However, among the 22 LCCs that operate
widebodies, the type accounts for 16% of
their combined fleet, which is not far from
the widebodies’ 18% share of all global
commercial aircraft.
AirAsia X has the highest number of
widebody orders among LCCs, followed by
Norwegian
The CAPA Fleet Database records 141 LCC
widebody aircraft orders by eight LCCs as at
06-Apr-2018.
LCCs are focusing on widebody expansion relatively faster than
non-LCCs
The trend is for LCCs to expand their widebody capability relatively
faster than other airlines. Although widebodies are a small proportion
of the LCC fleet in service, low cost operators are more enthusiastic
than other airlines about ordering more, relative to the installed base.
Among all airlines globally, widebody order numbers are equivalent
to 44% of widebodies currently in service. Among all LCCs, widebody
orders are 81% of widebodies in service.
Widebody orders by LCCs are particularly high in Southeast Asia
(80 aircraft), where they represent 125% of the numbers in service, and
Western Europe (39), where they are 98% of aircraft in service.
In Upper South America and Northeast Asia, long haul aircraft
orders are also more than 50% of aircraft in service with LCCs. North
America’s orders are relatively low.
Among the eight LCCs that currently have outstanding widebody
orders, the type represents 160% of aircraft in service.

AirAsia X leads LCC widebody orders, In the case of AirAsia X, its widebody orders are 345% of its current

with 76 aircraft in the pipeline, of which 66 widebody fleet, and orders also represent 100% or more of aircraft
in service for Lucky Air (300%), WestJet (250%), WOW air (133%) and
are A330-900neos and 10 are A350-900s.
Norwegian (130%).
AirAsia has more than double the widebody
order numbers of Norwegian, which has 35,
all for 787-9s.
WIDEBODY AIRCRAFT NUMBERS IN SERVICE AND
WestJet has 10 787-9 orders, while the
ON ORDER WITH LCCs, BY REGION*
remaining five LCCs with widebody orders SOURCE: CAPA FLEET DATABASE
have five or fewer on order. 80 160%
The A330 accounts for the most widebody 70 140%
orders by LCCs 60 × 120%
The A330’s popularity in current LCC fleets 50 100%
×
is also reflected in the number of orders for 80%
40
the model by low cost airlines. It accounts for × 60%
30
80, or 57%, of the 141 LCC widebody orders,
× 40%
20 20%
led by the re-engined A330-900neo, which
×
10 10%
has 75 orders. 0%
0 × × × ×
As with aircraft in service, the 787 is the
Southeast Asia

Western Europe

North America

Northest Asia

Southwest Pacific

Eastern/Central
Europe
Upper South
America

North Africa

Middle East

second most popular choice of widebody

order by LCCs, which have 49 on order.
These are all 787-9s, reflecting LCCs’
preference for the larger variants lower cost
per seat.
■ In service ■ On order x On order as % of in service
The remaining 12 LCC widebody orders Note: * As at 06-Apr-2018.
are for the A350-900.

28 AIRLINE LEADER | MAR-APR 2018

WIDEBODY LCC ORDERS BY AIRCRAFT VARIANT*
SOURCE: CAPA FLEET DATABASE
80
80 A330-200: one
A300-300E: four
70
60 A330-900neo:
49
50 seventy five

LOW COST
40
30

LONG HAUL
12
20
10
0
A330 787-9 A350-900 XWB
Global Summit
Note: * As at 06-Apr-2018.

WIDEBODY ORDERS AS A PERCENTAGE OF

WIDEBODIES IN SERVICE*
SOURCE: CAPA FLEET DATABASE
400%
345%
350% 300%
300% 250%
250%
200% 133% 160%
150% 130% 4-5 October, Seville
100% 70% 81%
50% 25% 44%
50%
0%
Book your seats
AirAsia X

Lucky Air

WestJet

WOW air

Norwegian

Azul

Aieways

Scoot
Weighted
average

All LCCs

All airlines

early to our
Low Cost Long Haul
Global Summit.
Note: * As at 06-Apr-2018.

Save BIG
Widebody LCC operation is a niche, but it’s growing
Ultra Early Birds
on now!
This analysis of data from the CAPA Fleet Database demonstrates
that widebodies still make up only a small proportion of the LCC fleet
globally.
Nevertheless, the size of the LCC widebody order book is significant,
relative to the fleet in service. This is especially so in Southeast Asia Visit
and, to a slightly lesser extent, in Western Europe. lclh18.capaevents.com
This is further evidence that the long haul LCC model has found a
niche that is growing (and that is before taking into account the growth
of intercontinental narrowbody operations by LCCs). AL

AIRLINE LEADER | MAR-APR 2018 29

FEATURE

30 AIRLINE LEADER | MAR-APR 2018

LONG HAUL LOW
COST AIRLINES MOVE
TO MAINSTREAM AS
THEY JOIN THEIR
PARENTS’ JVs
Summary
• Lufthansa and Singapore Airlines are working to bring long haul LCC
subsidiary Scoot into their JV covering the Singapore-Europe and
Australia-Europe markets;
• Scoot will launch four times weekly Singapore-Berlin service with 787-8s
in Jun-2018, which will add 2,632 weekly return seats to the Lufthansa
Group-Singapore Airlines (SIA) JV.;Capacity under the Lufthansa Group-
SIA JV increased by more than 10% on 27-Mar-2018 to 34,690 weekly
return seats as Lufthansa launched five times weekly Singapore-Munich
service and SIA added a fourth weekly Singapore-Dusseldorf frequency;
• The Lufthansa Group-SIA JV now includes Lufthansa’s four home markets
in Europe along with Australia and Singapore; Indonesia and Malaysia may
be added later.

A
S FULL SERVICE AIRLINE GROUPS rapidly expand into the long
haul low cost sector, questions on whether to include LCC subsidiaries
in intercontinental JVs naturally emerge. Scoot’s upcoming launch of
service to Berlin adds urgency to bringing Scoot into the JV launched
by SIA and Lufthansa in 2017.
The Singapore Airlines-Lufthansa JV currently includes SIA full service regional
subsidiary SilkAir but excludes LCC subsidiary Scoot. SIA and Lufthansa are now
working to add Scoot to the JV, a sensible move as it will enable Scoot to start
cooperating rather than competing with Lufthansa.
SIA began codesharing with Lufthansa LCC subsidiary Eurowings in 2017 but
Lufthansa does not yet codeshare with Scoot. There is also no relationship yet
between Scoot and Eurowings, which has been expanding in Berlin – opening the
possibility of Scoot using Eurowings to feed its new Singapore-Berlin service.

AIRLINE LEADER | MAR-APR 2018 31

FEATURE

The Lufthansa-SIA joint venture now LUFTHANSA GROUP-SINGAPORE AIRLINES JV

covers six countries ROUTES AND CAPACITY: SUMMER 2018*
The Lufthansa Group and SIA forged a JV SOURCE: LUFTHANSA GROUP

agreement in Nov-2015 and commenced the Carrier Airport FQ/ Aircraft Seat vv.
JV in Oct-2017, following a lengthy approval Week
and implementation process. Lufthansa Frankfurt 7 A380-800 7126
The initial agreement covered four Lufthansa Munich 5 A350-900 2930
markets in Europe (Austria, Belgium,
SWISS Zürich 7 777-300ER 4760
Germany and Switzerland) and four markets
Lufthansa Group 19 14,816
in the Asia Pacific (Australia, Malaysia,
Indonesia and Singapore). However, the JV Singapore Airlines Düsseldorf 4 A350-900 2024
has so far only been implemented in the four
Singapore Airlines Munich 7 A350-900 3542
European markets, Australia and Singapore.
Singapore Airlines Frankfurt 7 777-300ER 3696
SIA and Lufthansa are still seeking
approval from competition authorities in Singapore Airlines Frankfurt 7 A380-800 5306
Malaysia, which could be secured later in Singapore Airlines Zürich 7 A380-800 5306
2018. In Indonesia, discussions are ongoing Singapore Airlines 32 19,874
with authorities on how to proceed. The
situation is rather complex in Indonesia Joint Venture TTL 51 34,690
because Indonesian competition authorities
markets outside the JV only the Singapore-Germany/Switzerland
have no experience with airline anti trust
segment is included.
immunity (ATI) cases.
In addition to jointly pricing flights, the JV partners have started to
The JV provides several benefits for
coordinate schedules and align corporate sales programmes. The
Lufthansa and SIA
coordinated schedules are designed to improve connectivity and
With ATI immunity, Lufthansa and SIA
would be able to start jointly pricing reduce transit times.

itineraries from Malaysia and Indonesia to JV capacity increases as Lufthansa launches Singapore-Munich

the four European markets via Singapore. service

Lufthansa and SIA already engage in joint
pricing from eight cities in Australia, which
are served by SIA or its regional subsidiary
SilkAir.
Austria and Belgium are jointly priced with
a one stop product from Singapore and a
two stop product from Australia as there are
no nonstop services connecting Singapore
with Vienna or Brussels.
Lufthansa and SIA share revenues on
all trunk services connecting their home
markets. For itineraries connecting beyond
Singapore, Germany or Switzerland to
The Lufthansa Group and SIA both added capacity in the Singapore-
Europe market since forging the JV.
Lufthansa launched five times weekly Munich-Singapore service
with A350-900s on 27-Mar-2018 , generating 2930 weekly seats. The
new service increased capacity covered under the JV by 9% to 34,690
weekly return seats.
Lufthansa Group subsidiary SWISS increased Zurich-Singapore
capacity by 55% in 2017 as it replaced A340-300s with larger 777-
300ERs.
SIA added capacity to Germany in Jul-2016 as it launched three
times weekly Dusseldorf service using A350-900s. SIA added a fourth
weekly frequency on 27-Mar-2018, which resulted in a further 1.5%
increase in capacity covered under the JV.

32 AIRLINE LEADER | MAR-APR 2018

 As the chart opposite highlights, SIA currently has 5000 more seats
than Lufthansa on the JV routes.
However, the actual gap is less because passengers who continue
to New York on SIA’s daily A380 service to Frankfurt are excluded
from the revenue sharing pool. Lufthansa Group has a separate trans
Atlantic JV with United Airlines and Air Canada, making it impossible to
cooperate with SIA in the North American market.
Scoot could be added to the Lufthansa-SIA JV
SIA LCC subsidiary Scoot is currently excluded from the JV. However,
Lufthansa and SIA are working to add Scoot and its new Singapore-
Berlin service to the JV. Scoot will commence four times weekly Berlin
service using two class, 329 seat 787-8s on 20-Jun-2018.
Adding Scoot to the JV has the benefit of removing a layer of
complexity.
SIA is already selling Scoot’s Berlin service under the new SIA-Scoot
codeshare arrangement, which was implemented in late 2017. SIA is
not selling the Scoot service in the local Berlin-Singapore market and is
instead offering one stop connections via Dusseldorf, Frankfurt, Munich
and Zurich using Lufthansa Group. However, SIA is selling Scoot in
the Berlin-Australia market, offering the Scoot service from Berlin to
Singapore and SIA operated services from Australia to Singapore. SIA
is offering this option at a significantly cheaper price and with faster
overall transit times than two-stop Berlin-Australia connections under
the JV using Lufthansa Group to operate the first leg (from Dusseldorf,
Frankfurt, Munich and Zurich to Berlin).
Scoot is also selling in Berlin-Australia services with both legs
operated by Scoot. It is also of course selling in the Berlin-Singapore
market, offering much cheaper fares than the SIA-Lufthansa JV
(generally less than half the price).
Adding Scoot to the JV would enable Scoot to cooperate with
Lufthansa and further strengthen its ties with SIA. This is particularly
important for Singapore-Germany passengers with multiple stop
itineraries. For example, a passenger originating in Singapore who
visits both Berlin and Munich.
Lufthansa-Scoot and Eurowings-Scoot codeshare would also make
sense.
Lufthansa could also benefit from gaining access to Scoot short
haul services within Southeast Asia. SilkAir is already included in the
Lufthansa-SIA JV. Lufthansa began codesharing to several SilkAir
destinations in Asia Pacific (including Australia) after the JV with SIA
was initially forged.
Scoot has several unique destinations in
Southeast Asia that SIA and SilkAir now sell
via their new codeshare. Scoot does not yet
have any codeshare partners outside the
SIA Group, but Lufthansa would be a logical
place to start.
SIA began codesharing with Lufthansa’s
LCC subsidiary Eurowings in Jun-2017
as SIA launched services to Dusseldorf.
Eurowings is based at Dusseldorf and the
SIA-Eurowings codeshare mainly covers
destinations beyond Dusseldorf as Lufthansa
has a very limited presence at Dusseldorf.
Eurowings also has been expanding
in Berlin since the demise of airberlin. A
codeshare or interline between Eurowings
and Scoot would be sensible as it would
provide Scoot with feed beyond Berlin.
Eurowings now links Berlin with nearly 20
destinations in Europe.
Scoot would not be the first LCC to be
included in a JV – nor will it be the last.
Including an LCC subsidiary in a JV is
still rare, but becoming more common. For
example, Air Canada LCC subsidiary rouge
and IAG’s new long haul low cost subsidiary
LEVEL are now included under their
respective trans Atlantic JVs.
The anticipated addition of Scoot to the
Lufthansa-SIA JV would be the first time an
LCC is included in any of the Asia Pacific JVs.
However, it will almost certainly not be the
last as full service airline groups continue to
expand and launch LCC subsidiaries.
Long haul low cost operations are
becoming more mainstream. Seven full
service airline groups now have long haul
LCCs. It makes sense for these seven long
haul LCC subsidiaries to cooperate with and
complement – rather than compete against
– their parents’ JV partners. AL
AIRLINE LEADER | MAR-APR 2018 33
FEATURE

34 AIRLINE LEADER | MAR-APR 2018

LONG HAUL LOW
COST COULD
GRADUALLY
TRANSFORM CITY
PAIR OPPORTUNITIES
Summary
• Jetstar Airways has converted 18 A321neo orders to the A321LR;
• There are now nine airlines, including three LCCs, that have announced
commitments for the A321LR since the programme was launched three
years ago;
• There are likely several other airlines that have acquired the A321LR
but have not yet been disclosed, because Airbus does not distinguish
between the A321LR and A321neo in its order book;
• Most of the A321LRs will be used in the trans-Atlantic market;
• There are also opportunities for the aircraft to penetrate thin long haul
markets within Asia Pacific, and from the Middle East.

O
NE OF THE AIRCRAFT that can make this happen is the
A321neoLR (A321LR). The Qantas Group, on 22-Feb-2018
announced the conversion of 18 A321neo orders to the A321LR.
Qantas’ LCC subsidiary Jetstar Airways plans to take delivery of the
18 aircraft from 2020 to 2022.
Jetstar is only the third LCC to commit to the A321LR, joining Air Arabia and
Norwegian Air. At the Dubai Airshow in Nov-2017, Air Arabia signed a deal
with Air Lease Corporation for six A321LRs, while Norwegian announced the
conversion of 30 A320neo orders to A321LRs in Jul-2016.
Air Arabia and Norwegian both plan to take delivery of A321LRs from 1H2019
while Jetstar must wait until mid 2020 as there are no more early slots available.
Airbus completed the first A321LR test flight on 31-Jan-2018 and expects to certify
the aircraft in 2Q2018.

AIRLINE LEADER | MAR-APR 2018 35

FEATURE

Nine airlines have so far announced A321LR DISCLOSED COMMITMENTS*

commitments for A321LRs. SOURCE: CAPA FLEET DATABASE

Airbus launched the A321LR programme Airline Number of Source First

in Jan-2015 with a commitment from Air Orders Delivery
Lease Corporation. The aircraft is essentially Norwegian Air 30 Airbus 2019
identical to the A321neo, which was
Jetstar Airways 18 Airbus 2020
launched in late 2010, with the exception
of an extra fuel tank and a higher maximum Air Transat 10 AerCap 2019
take off weight. This enables the A321LR to TAP Air Portugal 10 Airbus 2019
fly approximately 1000km further than an
Aer Lingus 8 Air Lease 2019
A321neo, for a range of over 7000km.
Nine airlines have announced Air Arabia 6 Air Lease 2019
commitments since 2015. These include the
Air Astana 4 Air Lease 2019
three LCCs (Air Arabia, Jetstar Airways and
Norwegian Air) and six full service airlines SATA 4 Air Lease 2019
(Aer Lingus, Air Astana, Air Transat, Primera Primera Air 2 AerCap 2018
Air, SATA International and TAP Air Portugal.
Air Astana was the first airline to make a Unassigned 37 Air Lease N/A
Note: * As at 22-Feb-2018
commitment, signing an agreement with Air
Lease Corporation in Jun-2015. Air Astana
plans to take delivery of its first A321neo
in early 2019. Primera is currently in line to are the only airlines to announce A321LR orders directly with Airbus.
become the first operator, with deliveries The five announced orders are for a combined 129 aircraft, according
starting in 4Q2018, according to the CAPA to the CAPA Fleet Database. They consist of 59 aircraft for launch
Fleet Database. customer Air Lease Corporation, 30 for Norwegian, 18 for Jetstar, 12 for
Air Transat, Primera and SATA are all AerCap and ten for TAP.
considered FSCs, although they follow Of the 59 orders from Air Lease Corporation, 22 have been placed
leisure airline models. Aer Lingus, Air Astana (eight to Aer Lingus, six to Air Arabia, four to Air Astana and four
and TAP are flag carriers but not in the to SATA), but placements for the remaining 37 have not yet been
traditional sense; they follow hybrid models, announced. All 12 of the AerCap aircraft orders have been placed,
particularly Aer Lingus, and have low unit including two for Primera Air and 10 for Air Transat.
costs – which likely attracted them to the Several other airlines may have undisclosed commitments to the
A321LR. A321LR
Only three airlines have announced Several other airlines may have committed to A321LRs but have not
A321LR orders directly with Airbus formally announced their intention to operate the new type. It is likely
Aer Lingus, Air Arabia, Air Astana and that other lessors have also committed to A321LRs on behalf of their
SATA are taking their A321LRs from Air customers.
Lease Corporation, while the aircraft for Air Airbus does not provide a breakdown between the A321LR and
Transat and Primera Air are from AerCap. Air the standard A321neo in its order book. Therefore, several customers
Lease and AerCap are the only two lessors (airlines and lessors) that have ordered the A321neo may have
to announce A321LR orders. specified A321LRs, but these are not being reflected in the Airbus
TAP Air Portugal, Norwegian and Jetstar order book (and never will be).

36 AIRLINE LEADER | MAR-APR 2018

 Airbus currently has orders for nearly 2000 A321neos. The 129 Bali routes now served with Boeing 787-
disclosed commitments for the A321LR represent only 7% of the total 8s and on slightly shorter (domestic and
A321neo order book. international) routes now served with
Batik Air is potentially one of several undisclosed A321LR A320ceos.
operators Jetstar plans to configure the A321LRs
The A321LR will ultimately account for a much larger share of total with 232 seats, compared to 180 seats on
A321neo deliveries. There could be more than 20 A321LR operators by its A320ceos and 335 seats on its 787-8s.
the end of 2020. Jetstar also has a small A321ceo fleet, which
For example, Batik Air CEO Achmad Luthfie told CAPA in Feb-2018 is used on domestic trunk routes, and those
that the airline is planning to take delivery of A321LR aircraft from aircraft have 220 seats.
2019. Batik parent, the massive Lion Group, currently has orders for 65 The A321LR will have significantly lower
A321neos and 113 A320neos. Mr Achmad said all of Batik’s A321neos unit costs compared to the 787-8, enabling
will be A321LRs. Jetstar to compete more effectively against
Airbus discloses when an airline converts an A320neo order to Batik and other airlines in the Australia-Bali
the larger A321neo but does not make an announcement if an airline market. The new A321LR will also free up
converts an A321neo order to the A321LR. It is therefore entirely up to 787-8s for longer routes to Asia.
the airline to announce the acquisition of A321LRs. Jetstar currently operates 15 long haul
For privately owned airlines such as Batik, an announcement is not routes, including three to Bali with a fleet
likely. The Jetstar announcement on 22-Feb-2018 was part of Qantas of 11 787-8s. The three Bali routes are its
Group’s fiscal first half earnings announcement and Airbus did not thickest long haul routes and account for
make its own announcement. more than one third of its total long haul
Jetstar’s A321LRs are planned to replace 787-8s on Australia-Bali seat capacity. As the Bali services transition
routes to A321LRs, the equivalent of approximately
Jetstar, initially at least, plans to use A321LRs on six hour Australia- four 787s will be freed up for new long haul
routes and/or more frequencies on existing
long haul routes.
JETSTAR AIRWAYS FLEET SUMMARY* Jetstar was a pioneer with the long haul
SOURCE: CAPA FLEET DATABASE
low cost model but has not expanded its
Aircraft In service On Order
long haul operation for several years, due
A320-200 53 0 to fleet limitations. Its 11 787-8s were used
primarily to replace its original fleet of A330-
A320-200neo 0 54 300s, which were used to launch long haul
operations in 2006. Long haul narrowbody
A321-200 8 0
aircraft should be able to drive a new phase
of growth.
A321-200neo 0 27
At least six of the 18 A321LRs will be
A321-200LR 0 18 required to replace the four 787-8s now
used on Bali routes as Jetstar will need
Boeing 787-8 11 0 to boost frequencies in order to maintain
capacity in the Bali market. Jetstar will also
Total: 72 99 use A321LRs to replace A320ceos on some
Note: * As at 22-Feb-2018 of its longer existing narrowbody routes,

AIRLINE LEADER | MAR-APR 2018 37

FEATURE
such as Perth-Bali. While the A320ceo is capable of operating routes of
up to five hours, the A321LR is more efficient, and the fuel savings are
more pronounced on longer routes.
Jetstar will have the densest seating configuration among A321LR
operators
Jetstar could also use some of the A321LRs to launch new routes
to Asia. However, the decision to squeeze 232 seats onto the aircraft
may limit its options. Of the nine airlines to have announced A321LR
commitments so far, Jetstar has the densest configuration.
Norwegian plans to configure its A321LRs with 220 seats. The only
other LCC with A321LR commitments, Air Arabia, has selected a 215
seat single class configuration.
Air Arabia has always offered a relatively generous 32in pitch on its
A320s, which generally seat 168 passengers compared to the normal
LCC configuration of 180. The 32in pitch will be maintained on the
A321LRs, whereas Jetstar will go with a tighter pitch.
The six full service operators plan two class configurations
with between 166 and 200 seats. Air Astana has the least dense
configuration, opting for 16 lie flat business and 150 economy seats,
matching the configuration on its 757s.
Air Astana plans to use its fleet of A321LRs to replace 757s on
long thin routes from Kazakhstan to Western Europe and East Asia. It
currently operates 757s to Bangkok, Frankfurt, Ho Chi Minh City, Kuala
Lumpur, London and Seoul (routes of six to eight hours).
Air Astana, Air Arabia and Jetstar are so far the only announced
operators intending to operate A321LRs to Asia.
Air Arabia is expected to use A321LRs to launch routes of six
to seven hours to Asia, Africa and potentially Western Europe. Air
Arabia’s longest current routes, from Sharjah to Nairobi and Urumqi,
are approximately five hours. Air Arabia does not yet serve Western
Europe from its Sharjah base.
The trans Atlantic market will account for the bulk of A321LR
operations
Aer Lingus, Air Transat, Norwegian, Primera, TAP and SATA plan to
use their A321LRs on trans-Atlantic routes.
Aer Lingus now uses A330s and wet leased 757s on trans Atlantic
routes. Air Transat operates A310s and A330s and plans to phase out
the former as it takes A321LRs.
TAP and SATA, also known as Azores Airlines, both operate A330s.
SATA also recently began deploying A321neos from its Azores base to
Boston, a route of less than six hours. SATA plans to use A321LRs for
longer trans Atlantic routes.
Norwegian launched long haul narrowbody trans Atlantic services
with 737 MAX 8s in summer 2017 and plans to add longer narrowbody
38 AIRLINE LEADER | MAR-APR 2018
trans Atlantic routes in 2019 after it takes
delivery of A321LRs. Norwegian is already
a large long haul low cost operator, having
operated 787s since 2013.
Primera currently only operates short haul
routes within Europe but plans to begin
serving North America with A321neos in
summer 2018 and to launch longer trans
Atlantic routes after it takes A321LRs.
The trans Atlantic is an ideal market for the
A321LRs, particularly for thinner secondary
routes. The aircraft has the range to connect
the Northeast US or Eastern Canada with
a large portion of Northern and Western
Europe.
There will inevitably be more than three
LCC A321LR operators
The 757 has been used for years to serve
thinner trans-Atlantic routes but the type
is starting to reduce in number as the fleet
ages. The A321LRs offer similar range and
size but are much more efficient, making
them attractive to both LCCs and FSCs.
LCCs never acquired 757s, although they
were often favoured by European charter
companies. The A321LR and 737 MAX 8,
which has slightly less range and capacity,
are opening up long haul narrowbody
opportunities to LCCs for the first time.
There will inevitably be a lot more than
three LCC operators for the A321LR.
The aircraft has the potential to open up
hundreds of new LCC city pairs that are now
too small for widebody aircraft but are too
long to be economically served with other
narrowbody aircraft.
The biggest impact will clearly be in the
trans Atlantic market. However, over time the
A321LR will also penetrate long haul routes
within the vast Asia Pacific region, along with
the Middle East-Africa and Middle East-East
Asia markets.
The difference they make will be large –
and transformative in network terms. AL
AIRLINE LEADER | MAR-APR 2018 39
REGIONAL

40 AIRLINE LEADER | MAR-APR 2018

THE NORTH
ATLANTIC
MARKET IS BEING
TRANSFORMED
BY LONG HAUL
LCCS, WIDE AND
NARROWBODY
Summary
• Low Cost Carrier (LCC) seat capacity on the North Atlantic is set to grow
by 60% in 2018, giving a seat share of 7.7%, from virtually zero five years
ago;
• Norwegian is by far the leading North Atlantic LCC, followed by WOW air
and WestJet. Eurowings and new entrants Primera Air and French Bee are
also present;
• Immunised JVs are losing share on the North Atlantic and non JV seat
growth is driven mainly by LCCs;
• LCC narrowbody growth on the North Atlantic, based on newer aircraft
types, is especially strong. Non-LCCs focus narrowbody capacity on the
Boeing 757.

L
CC SEAT SHARE on the North Atlantic has grown from almost
nothing five years ago to 8% in summer 2018, higher than any other
long haul market from Europe (LCCs have 1% seat share on Europe-Asia
Pacific, 1.7% on Europe-Sub Saharan Africa and 3.4% on Europe-Latin
America).
The dominance of immunised joint ventures (JVs)involving the leading legacy
airlines is being eroded, in no small measure due to LCC expansion. In particular,
low cost narrowbody growth is now outpacing LCC widebody expansion in this
market.

AIRLINE LEADER | MAR-APR 2018 41

REGIONAL
Led by Norwegian, LCCs have exploited
EU-US market liberalisation and new
generation aircraft (although Canada's
WestJet mainly uses older 767s). WOW
air's Icelandic connecting model has also
contributed. New entrant Primera Air, an all
narrowbody operator, is following Norwegian
in launching trans Atlantic routes from the
UK and France, outside its Nordic home
markets.
History shows that the North Atlantic can
be challenging for LCCs. Today, aircraft
technology and the liberalisation of traffic
rights have transformed the market and
North Atlantic LCCs now appear to have a
strong tailwind.
LCC North Atlantic seat capacity to grow
by 60% in 2018, taking a seat share of 8%
According to preliminary data from the
OAG Schedules Analyser for 2018 airline
schedules, LCCs will grow seat capacity in
the North Atlantic by 59.9% in 2018. This
compares with non LCC growth of 3.8% and
total market growth of 6.6%.
NORTH ATLANTIC*: ANNUAL SEAT CAPACITY
FOR NON-LCCs AND LCCs♦
SOURCE: CAPA - CENTRE FOR AVIATION, OAG SCHEDULES ANALYSER
60
50
Annual Seats (million)
40
30
20
10
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
■ Non-LCCs ■ LCCs
Note: *All routes between Europe and North America. ♦2008 to 2018
42 AIRLINE LEADER | MAR-APR 2018
Total LCC seats between Europe and North America will be nine
times the number deployed in 2014, which was the first full year after
Norwegian entered the market.
LCC seat share will be 7.7% in 2018, still quite low, but a level that
is clearly visible and a very big increase compared with 0.2% just
five years ago. Even as recently as 2016, LCCs had only 3% of North
Atlantic seats.
Norwegian is comfortably the leading North Atlantic LCC, followed
by WOW air and WestJet
The leading LCC on the North Atlantic by seat numbers is
Norwegian, whose seat share of the total market will be 4.8% in 2018,
based on current OAG data (this includes Norwegian Air Shuttle,
Norwegian Air International and Norwegian Air UK). Its capacity in 2018
will be nearly two thirds higher than in 2017 (up by 64.1%).
Norwegian has well over half of all LCC seats in this market, putting
it comfortably ahead of WOW air, whose 1.6% share places it ahead of
WestJet, which has 0.6% of seats in 2018.
New entrant Primera Air will have 0.4% of North Atlantic seats
(0.5% in the summer season) with its routes between Europe (London
Stansted, Paris and Birmingham) and North America (New York Newark,
Boston, Toronto and Washington DC) in summer 2018. It plans an all
narrowbody operation.
Eurowings, with a share of 0.3%, is the only other LCC with more than
0.1% of seats. New entrant French Bee (formerly French Blue), with a
12%
10%
8%
Share of Seats
6%
4%
2%
0%
- - LCC % of total
NORTH ATLANTIC*: WEEKLY SEAT CAPACITY FOR LCCs♦
SOURCE: CAPA - CENTRE FOR AVIATION,OAG

120,000
■ Sunwing Airlines

■ Iceland Express
100,000

■ Jet2.com

80,000
■ French Bee
Weekly seat capacity

■ Eurowings
60,000

■ Primera Air

40,000
■ WestJet

■ WOW air
20,000

■ Norwegian

-
Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

Jan-14

May-14

Sep-14

Jan-15

May-15

Sep-15

Jan-16

May-16

Sep-16

Jan-17

May-17

Sep-17

Jan-18

May-18
Sep-18
Note: *All routes between Europe and North America. ♦Sept-2011 to Sept-2018

new Paris Orly-San Francisco-Papeete service in summer 2018, and The JV within the Star Alliance (Lufthansa
Jet2.com (in focused seasonal operations) are also active in this market Group excluding Eurowings, plus United
in 2018. Airlines and Air Canada) will increase seat
Immunised JVs are losing share on the North Atlantic numbers by 4.2%, but its share of seats will
LCC growth on the North Atlantic is having an impact on the market fall from 27.9% in 2017 to 27.2% in 2018.
share of the antitrust immunised JVs that lie at the heart of the three SkyTeam's immunised JV (Air France-KLM,
branded global alliances. Delta and Alitalia) will grow by 4.4% and its
Collectively, the three will have 67.8% of seats between Europe and seat share will dip from 20.4% to 20%.
North America in 2018, down from 69.2% in 2017, as they are growing Total JV seat growth will be 4.6% (including
by only 4.5% – more slowly than total market growth of 6.6%. Virgin Atlantic), while non-JV growth will be
Adding in Virgin Atlantic's capacity, which is in a separate JV with 12.2%.
Delta (but is now expected to join the Delta/Air France-KLM JV), the Non-JV seat growth is driven mainly by
total share of seats that is in immunised JVs is 72.3% this year, down LCCs
from 73.7% in 2017 and a peak of 79.8% in 2015. The strong growth in non-JV seat capacity
The oneworld JV (British Airways, Iberia, American Airlines and this year is driven by LCCs, whose 59.9%
Finnair) will grow by 5%, the fastest growing among the JVs, but its seat expansion compares with only 0.7% growth
share will ease back from 20.9% in 2017 to 20.5% in 2018. by non-LCCs that are outside the JVs.

AIRLINE LEADER | MAR-APR 2018 43

REGIONAL

NORTH ATLANTIC*: ANNUAL SEAT CAPACITY FOR JVs WITH

ANTITRUST IMMUNITY♦
SOURCE: CAPA - CENTRE FOR AVIATION, OAG SCHEDULES ANALYSER

40 82%

35 80%

30 78% ■ Virgin Atlantic

■ SkyTeam
25 76% Oneworld

Share of Seats
Seats (million)

■ Star
20 74%
■ JV share of
72%
seats
15

10 70%

5 68%

- 66%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Note: *All routes between Europe and North America. ♦2008 to 2018. Includes all members of the three JVs within the branded global alliances throughout the period; includes Virgin
Atlantic (in JV with Delta) from 2014 only.

Over the four years since 2014 (the first
full year of Norwegian's participation in the
North Atlantic market) the non LCCs outside
the JVs grew by a healthy 34%, but LCCs
have grown nine-fold.
LCCs account for 27.7% of non JV seat
capacity in 2018, from an almost standing
start five years ago.
LCC narrowbody growth on the North
Atlantic is particularly strong
LCCs' North Atlantic growth is even more
rapid on narrowbody aircraft. In 2018 LCCs
will grow widebody seat numbers by 49%,
a very significant rate, but their narrowbody
capacity will leap by 89.4%.
Their narrowbody capacity is up by 60
times since 2014, while their widebody
capacity is up just over six times.
Narrowbodies will account for almost one
third (31.7%) of LCC capacity on the North Atlantic in 2018, compared
with 26.7% in 2017 and 19% in 2016.
The 787 is the biggest contributor to LCC seat capacity on the North
Atlantic, accounting for 54.8% of the total in 2018 (39% for the 787-8
and 15.8% for the 787-9), and all operated by Norwegian.
After these widebodies, the next most important LCC aircraft in this
market are narrowbodies: the A321 (20.9% of LCC seats) and the 737
MAX 8 (8.6%).
LCCs have 37% of North Atlantic narrowbody seats in 2018
LCCs are now a very significant factor in long haul narrowbody
operations, taking 36.6% of all narrowbody seats on the North Atlantic
in 2018, according to current OAG data. As recently as 2015, this was
as low as 3.9%.
Non-LCC narrowbody capacity declined from 2011 to 2013, before
enjoying a modest rebound to 2015 and then falling once more. There
is projected to be a 12.4% drop in non LCC narrowbody seat numbers
between Europe and North America in 2018.
LCC narrowbody growth on the North Atlantic is led by A321 and
737 MAX aircraft

44 AIRLINE LEADER | MAR-APR 2018

NORTH ATLANTIC*: ANNUAL SEAT CAPACITY OUTSIDE THE JVs♦
SOURCE: CAPA - CENTRE FOR AVIATION, OAG SCHEDULES ANALYSER

16 32%

14 28%

12 24%

Seats (million)

Share of Seats
10 20%

8 16%

6 12%

4 8%

2 4%

- 0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
■ Non-LCCs ■ LCCs - - LCC share of non JV seats
Note: *All routes between Europe and North America. ♦2008 to 2018

NORTH ATLANTIC*: ANNUAL LCC SEAT CAPACITY DIVIDED

BETWEEN WIDEBODY AND NARROWBODY AIRCRAFT♦
SOURCE: CAPA - CENTRE FOR AVIATION, OAG SCHEDULES ANALYSER

4,500,000

4,000,000

3,500,000

3,000,000

2,500,000
Seats

2,000,000

1,500,000

1,000,000

500,000

-
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
■ LCC widebody ■ LCC narrowbody
Note: *All routes between Europe and North America. ♦2008 to 2018

AIRLINE LEADER | MAR-APR 2018 45

 The sharp growth in LCC narrowbody order to fulfil its summer schedule, Primera Air is to lease 757 aircraft
capacity on the North Atlantic since 2014 for services from Stansted to Boston and Newark between Apr-2018
was driven first by A321 aircraft and, from and Aug-2018.
2017, also by 737 MAX 8 aircraft. Norwegian introduced the 737 MAX 8 onto the North Atlantic in 2017
These two aircraft types are projected to and is expanding its use of the type in 2018. It will be joined by WestJet
account for 93% of LCC narrowbody seats in in the deployment of the MAX on the North Atlantic in 2018 (although
this market in 2018. the Canadian LCC mainly operates ageing 767s in this market).
The better fuel efficiency of the MAX and Norwegian also has 30 A321LRs on order for long haul use, and
the A321neo and, in particular, the additional JetBlue is considering trans Atlantic operations for at least some of the
range of the A321LR enable new city pairs 60 that it has ordered.
that are not big enough to sustain widebody Non-LCC narrowbody capacity on the North Atlantic is dominated
operations to become economically viable. by 757 variants
WOW air was the sole LCC operator of Among non-LCC operators on the North Atlantic, narrowbody aircraft
A321s on the North Atlantic from 2015 to remain a very small part of their operations, accounting for just 4.6% of
2017, but is joined in 2018 by Primera Air. seats. Moreover, 757 variants remain the dominant narrowbody aircraft
This has mainly been through A321ceo choice for these operators, accounting for 93% of non-LCC narrowbody
aircraft, of which WOW air had 11 by the end seats on the North Atlantic.
of 2017. However, this may be starting to change, as LCC interest in newer
The Icelandic LCC took delivery of one narrowbody types for long haul operations has nudged some legacy
A321neo in Jun-2017 and will take two more airlines in the same direction.
in summer 2018 (one in Apr-2018 and one in SATA International (operating as Azores Airlines) is launching three
Jun-2018). A321neo trans-Atlantic services in summer 2018, from the Azores to
Primera Air is due to take delivery of eight Boston and Toronto. In addition, TAP Portugal has 10 A321LRs on order
A321neos from Apr-2018 to Oct-2018 and and Aer Lingus has eight A321LR aircraft on order, and both plan to
two A321LRs in Nov-2018 and Dec-2018. In deploy the variant on the Atlantic.

NORTH ATLANTIC*: ANNUAL NARROWBODY SEAT CAPACITY

FOR NON-LCCs AND LCCs♦
SOURCE: CAPA - CENTRE FOR AVIATION, OAG SCHEDULES ANALYSER

4,000,000 42%

3,500,000 36%

3,000,000
30%
Share of Seats

2,500,000
Annual Seats

24%
2,000,000
18%
1,500,000
12%
1,000,000

500,000 6%

- 0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
■ LCC widebody ■ LCC narrowbody - - LCC share of narrowbody seats
Note: *All routes between Europe and North America. ♦2008 to 2018

46 AIRLINE LEADER | MAR-APR 2018

 NORTH ATLANTIC*: ANNUAL NARROWBODY LCC SEAT
CAPACITY BY AIRCRAFT TYPE♦
SOURCE: CAPA - CENTRE FOR AVIATION, OAG SCHEDULES ANALYSER

1,400,000
■ Boeing
1,200,000 (Douglas)
MD-80
Seat Capacity 1,000,000 ■ A319/A320

800,000 ■ 757

600,000 ■ 737NG

400,000 ■ 737MAX
8 Passenger

200,000
■ A321
-
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Note: *All routes between Europe and North America. ♦2008 to 2018

The Canadian leisure airline Air Transat also plans to re-enter the launch of that route), offering simplified fares
narrowbody trans Atlantic segment with A321LR routes to Europe from with hand luggage only and establishing new
2019. low cost long haul operations (such as IAG's
Air Canada and Icelandair are both operating 737 MAX 8 equipment Level and the long haul part of Lufthansa's
between Europe and North America in 2018. Eurowings).
LCCs' growth in seat share on the North Atlantic seems set to Eurowings is not part of the North Atlantic
continue joint venture within the Star Alliance, but it
Led by Norwegian, LCCs have become a noticeable feature of does codeshare with Lufthansa on Cologne/
the North Atlantic aviation market over the past five years and their Bonn-Miami service and will codeshare with
presence continues to grow. Lufthansa and United on Duesseldorf-New
The growth of LCCs in this market has been built on the York service from Apr-2018.
development of new, more cost efficient, aircraft types (first the Legacy airlines are also starting to follow
widebody 787 and now narrowbodies such as the A321neo and 737 the LCCs in acquiring newer narrowbody
MAX). aircraft types to open up new North Atlantic
It has been facilitated considerably by the market liberalisation routes.
allowed by the EU-US open skies agreement, permitting airlines such LCC growth in this long haul market has
as Norwegian and Primera Air the freedom to operate outside their come at a cost. The largest participant,
home markets, and from the UK in particular (something that may Norwegian, made a loss in 2017 and has
potentially be questioned after Brexit). struggled with sustaining its profitability since
The Icelandic connecting model operated by WOW air has also entering the North Atlantic in 2013.
made a significant contribution. Nevertheless, and in spite of the legacy
Legacy airlines have responded in various ways. These include response, LCCs' growth in seat share on the
following LCCs on some routes (for example, British Airways' launch North Atlantic seems set to continue. AL
of London Gatwick-Oakland in competition with Norwegian's earlier

AIRLINE LEADER | MAR-APR 2018 47

REGIONAL

48 AIRLINE LEADER | MAR-APR 2018

EUROPE’S LCC
FLEETS CONTINUE
TO GROW. RYANAIR
LEADS; WIZZ AIR HAS
MOST ORDERS
Summary
• Europe’s LCC fleet has grown at a compound average growth rate
(CAGR) of 6.7% p/a over the past decade to form 20% of the total fleet
in 2017, a higher share than in any other region;
• Of all aircraft orders in Europe, 42% are from LCCs, although Europe
lags the Asia Pacific in LCC orders;
• Ryanair operates Europe’s largest LCC fleet, while Wizz Air leads
Europe’s LCC aircraft orders;
• Boeing has the highest number of aircraft in service with Europe’s
LCCs, but Airbus leads on aircraft orders, thanks to its A320neo family.

A
IRCRAFT OPERATED by LCCs account for 20% of the total airline
fleet in Europe, a higher share than in any other world region. Over
the decade from 2007 to 2017, Europe’s LCC fleet almost doubled
in size, while the continent’s total fleet grew by less than a quarter.
LCC widebody numbers have more than tripled, but their share of Europe’s
LCC fleet was still only around 3% in 2017, similar to the global average.
Europe’s LCCs account for a disproportionate share of the continent’s
aircraft orders with 42% – although they are far behind LCCs in Asia Pacific on
absolute order numbers. European LCC orders are equivalent to two thirds of
LCC aircraft in service, compared with only one third for all European airlines.
Ryanair has Europe’s largest LCC fleet, while Wizz Air has the highest
number of LCC aircraft orders. As a percentage of aircraft in service, the much
smaller Primera Air has orders which represent the biggest bet on the future.
Boeing has the highest number of aircraft in service with Europe’s LCCs, but
Airbus leads on aircraft orders, thanks to its A320neo family.
This report presents a detailed analysis of data on Europe’s LCC fleet and
aircraft orders based on the CAPA Fleet Database.

AIRLINE LEADER | MAR-APR 2018 49

REGIONAL

Europe’s LCC fleet has grown at a EUROPE: LCC AIRCRAFT IN SERVICE AND LCC
compound average rate of 6.7% p/a over
FLEET AS A PERCENTAGE OF TOTAL AT YEAR END*
the past decade to form 20% of Europe’s SOURCE: CAPA FLEET DATABASE
total fleet in 2017
According to the CAPA Fleet Database, 2,000 25.5%
Europe’s LCC fleet grew by 6.2% in 2017, to 1,800
close 2017 at a total of 1537 aircraft. 1,600 20.0%
This was slower growth than in the 1,400
previous two years (it grew by 9.7% in 2015 1,200 15.0%
and 11.7% in 2016), but close to the CAGR of 1,000
6.7% over the past ten years. 800 10.0%
By comparison, Europe’s total fleet grew
600
by 3.0% in 2017 and at a CAGR of just 2.1%
400 5.0%
pa from 2007 to 2017.
200
- 0.0%
LCC operated aircraft composed 20.4%

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017
of Europe’s total fleet at the end of 2017.
Interestingly, this marks the first time that the Number of LCC aircraft LCC fleet as % of total
proportion has exceeded 20%. The figure Note: * 2017-2017

has risen on a consistent year-on-year basis

since 2007, when it measured at 13.1%.
LCCs account for 36% of Europe’s
narrowbody fleet and took a 40% share of
intra Europe seats flown in 2017, reflecting GLOBAL LCC AIRCRAFT IN SERVICE AND LCC
their superior aircraft utilisation. FLEET AS A PERCENTAGE OF TOTAL BY REGION*
Europe’s LCC fleet the world’s third SOURCE: CAPA FLEET DATABASE
largest, but has a higher share of the total 5535
2,000
↑
fleet than any other region 25.5%
As at 31-Jan-2018, the CAPA Fleet 1,800
Database records a similar number of LCC 1,600 ∆ 20.0%
∆ ∆
operated aircraft in each of the world’s
three largest aviation regions – somewhere
1,400
∆ ∆
1,200 15.0%
around the 1600 mark. Europe’s total is just
1,000
behind that of North America, while Asia
800 10.0%
Pacific is out in front with some 100 more
600
∆
than North America.
However, when the LCC fleet is expressed 400 ∆ 5.0%
as a percentage of the total fleet in each 200
region, Europe comes out just on top. In - 0.0%
Asia Middle Africa Europe North Latin Global
Europe, 20% of aircraft are operated by Pacific East America America
LCCs, compared with 18% in Asia Pacific and
Aircraft in service ∆ LCC fleet as % of total
16% in North America. Note: * As at 31-Jan-2018
Latin America comes closest to Europe’s
ratio, with 19%, while in Africa and Middle
East LCCs account for only a single digit
percentage of aircraft, while the global
average is 17%. numbers, Europe has more than 1000, but this places it a distant
Europe is the number two region for LCC second to Asia Pacific’s more than 2300. North America has 23% fewer
aircraft orders, far behind Asia Pacific LCC aircraft orders than Europe, in spite of a similar number of LCC
When it comes to LCC aircraft order aircraft in service.

50 AIRLINE LEADER | MAR-APR 2018

 Europe is closer to Asia Pacific on LCC orders expressed as a
percentage of all aircraft orders. In Asia Pacific, almost half (47%) of all
aircraft on order are for LCCs, compared with 42% in Europe. In North
America, this proportion is only 33%.
However, with 48%, Latin America has the highest proportion of LCC
orders compared with total orders. The global average is 27% (note
that there are more than 5000 non LCC aircraft orders that are not
currently assigned to any region).
For Europe’s LCCs the aircraft order numbers are equivalent to
66% of the fleet in service. This compares with a figure of 31% for all
European aircraft orders as a percentage of aircraft in service, but is
below the global LCC average of 89%.
This partly reflects Europe’s relatively high base of LCC aircraft
already in service, but may also suggest that the region’s LCCs
anticipate less growth potential than in other regions (in Asia Pacific,
LCC orders are 140% of fleet in service and, in Middle East, they are
232%).
GLOBAL LCC AIRCRAFT ON ORDER AND LCC
ORDERS AS A PERCENTAGE OF TOTAL BY REGION*
SOURCE: CAPA FLEET DATABASE
4941
↑ France), only one more than a year ago. It is
2,500
∆ ∆ 50%
2,000
∆ 40%
which it has grown from 12 to 22 over the
past 12 months.
Widebodies now account for 15% of
Norwegian’s fleet, compared with just 3% of
the total European LCC fleet, similar to the
global average. This has grown from less
than 2% in 2007.
IAG’s Vueling, in fourth place with 102
aircraft, is the only other European LCC with
more than 100 aircraft and is the largest
LCC subsidiary of a European legacy airline
group.
Two others are approaching the 100
aircraft milestone: Lufthansa’s Eurowings
has 90 aircraft, including Germanwings
and seven widebodies wet leased from
SunExpress Germany (broadly stable on the
number the previous year), and Wizz Air has
88 (from 75 a year earlier).
Jet2.com, in seventh place with 75 aircraft,
has grown its fleet by 12 over the past year,
while Pegasus Airlines’ fleet of 71 is seven
smaller than a year ago.
In ninth place is Air France-KLM’s
Transavia, with 61 aircraft (including Transavia
the smallest LCC subsidiary of a European
big three legacy group.

1,500
∆ 30%
The top 10 is completed by TUIfly, the
∆ German airline of the TUI Group, which has
33 aircraft.
1,000 ∆ 20% Wizz Air leads Europe’s LCC aircraft orders
Europe’s leading LCC by the number of
500 10%
orders is Wizz Air, which has 281 aircraft due

-
∆ 0%
for delivery, all narrowbodies. Norwegian is
Asia Middle Africa Europe North Latin Global second, with 233 orders, of which 83% are
Pacific East America America narrowbodies and 17% are widebodies. This
Aircraft on order ∆ LCC orders as % of total orders is a higher proportion of widebodies than
Note: * As at 31-Jan-2018 for its current fleet in service, reflecting the
focus for its future growth.
Europe’s top two LCCs are only third
and fourth by aircraft orders. Ryanair has
157 orders, and easyJet has 138. No other
Ryanair is Europe’s leading LCC by fleet size European LCC has more than 100 orders,
Ryanair comfortably leads Europe’s LCCs by fleet size, with 416 although there are another five with double
aircraft at 31-Jan-2018, an increase of 46 over the past 12 months. digit numbers: Pegasus (88 orders), Vueling
Second placed easyJet’s 276 strong fleet is 15 aircraft larger than a (50), Primera Air (30), airBaltic (13) and Jet2.
year ago. com (11).
Third ranked Norwegian has added 25 to reach its current total of The remaining European LCCs with aircraft
143 aircraft and is the only top three LCC to operate a widebody fleet, orders outstanding are WOW air (eight

AIRLINE LEADER | MAR-APR 2018 51

REGIONAL

orders), Blue Air (six), Transavia (five) and
Pobeda (four).
Primera Air’s orders are higher as a
percentage of fleet in service
The growth ambitions of these airlines can
perhaps be better illustrated by looking at
their orders as a percentage of their existing
fleet in service.
By this measure, Primera Air comes out
on top, with orders representing more
than three times its fleet in service (orders
are 333% of its fleet, including Primera Air
Nordic), followed closely by Wizz Air (319%).
Norwegian (163%) and Pegasus (124%) also
have more orders than current aircraft in
service.
No other European LCC has order
numbers representing more than 50% of
its fleet in service. For easyJet, Vueling,
WOW air, airBaltic and Ryanair, orders as a
percentage of aircraft in service are higher than the 31% average for all
European airlines, whereas Pobeda, Blue Air, Jet2.com and Transavia
are below this average.
Boeing has the highest number of aircraft in service with Europe’s
LCCs
Boeing is the most popular manufacturer among LCCs for current
aircraft in service, with 875 aircraft versus Airbus’ 656. 737 variants
account for 823, while A320 family aircraft account for 636.
Bombardier has 19 aircraft in service with European LCCs (of which
12 are Dash 8s and seven are the CSeries) and Embraer has just four
E190s.
787 types are the most popular widebody among European LCCs,
with 23 in service, versus 19 A350s.

EUROPE’S LCCs RANKED BY TOTAL FLEET SIZE*

SOURCE: CAPA FLEET DATABASE

0 50 100 150 200 250 300 350 400

Ryanair 416
easyJet 276
Norwegian 143
Vueling 102
Eurowings♦ 90
Wizz Air 88
Jet2.com 75
Pegasus 71
Transavia▲ 61
TUIfly 33
airBaltic 30
Volotea 28
Blue Air 28
TUI Airlines 23
Onur Air 22
Iberia 21
WOW air 17
Pobeda 16
Primera Air ▼ 9
French Blue 2
blu-express 1
■ Narrowbody ■ Widebody ■ Other
Note: * As at 31-Jan-2018, ♦ Eurowings includes Germanwings, Eurowings Europe and widebodies operated for it by SunExpress Germany, ▲ Transavia includes Transavia France,
▼
Primera Air includes Primera Air Nordic.

52 AIRLINE LEADER | MAR-APR 2018

EUROPE’S LCCs RANKED BY OUTSTANDING AIRCRAFT ORDERS*
SOURCE: CAPA FLEET DATABASE

Number of aircraft orders

0 50 100 150 200 250
Wizz Air 281
Norwegian 233
Ryanair 157
easyJet 138
Pegasus Airlines 88
Vueling 50
Primera Air ▼ 30
airBaltic 13
Jet2.com 11
WOW air 8
Blue Air 6
Transavia▲ 5
Pobeda 4
■ Narrowbody ■ Widebody ■ Other
Note: * As at 31-Jan-2018, ▲ Transavia includes Transavia France, ▼ Primera Air includes Primera Air Nordic.

EUROPE’S LCC FLEET IN SERVICE BY

MANUFACTURER*
SOURCE: CAPA FLEET DATABASE
875
900
800
But Airbus leads on aircraft orders, thanks 656
to its A320neo family 700
737: 823
Although Boeing has more aircraft in 600 (MAX: 7)
service, Airbus is more popular for aircraft
500 A320: 636
orders by Europe’s LCCs. Airbus’ 660
400 (neo: 21)
orders are almost double Boeing’s 348,
mainly thanks to the A320neo family, which 300
accounts for 604 orders (out of 656 for all
200
A320 variants). 19
Boeing 737 MAX orders amount to the 100
much smaller figure of 220 aircraft (out of 0
308 for all 737 variants). Boeing Airbus Bombardier Embraer
There are 13 orders for the Bombardier 787: 23 A330: 19 DHC8: 12 E190: 4
CSeries (all from airBaltic). 717: 17 A350: 1 CSERIES: 7
Among widebody orders, Boeing is more 757: 11
popular than Airbus among Europe’s LCCs.
The 787 has 40 orders, significantly more ■ E190 ■ CSERIES ■ DHC8 ■ A350 ■ A330 ■ A320 ■ 787
than the A330’s four orders. This reverses ■ 767 ■ 757 ■ 717 ■ 737
the global pattern, where the A330 has more Note: * As at 31-Jan-2018
orders from LCCs than the 787 has.

AIRLINE LEADER | MAR-APR 2018 53

REGIONAL

EUROPE’S LCC AIRCRAFT ON ORDER BY

MANUFACTURER*
SOURCE: CAPA FLEET DATABASE

660
700

600

500
348
400
787: 40
300
A320: 656 737: 308
200 (neo: 604) (MAX: 220)

100

0
Airbus Boeing Bombardier
A330: 4 CSERIES: 13
■ CSERIES ■ DHC8 ■ A330 ■ A320 ■ 787 ■ 737
Note: * As at 31-Jan-2018. Firm orders only.

Europe’s LCCs will continue to grow their share of fleet and traffic
LCCs have transformed the European airline landscape over the past
decade, with four leading independent low cost operators leading the
way.
Ryanair and easyJet are not only Europe’s two largest LCCs, but
they are also its two largest individual airlines by passenger numbers.
Norwegian’s growth and entry into long haul markets has also had
a significant impact, while Wizz Air’s aircraft orders demonstrate its
confidence in the future.
More recently, developments by smaller LCCs such as WOW air, Blue
Air and Primera Air show that others continue to identify significant
opportunity in the low cost segment in Europe.
These developments have prompted Europe’s big legacy airline
groups to respond with LCCs of their own.
IAG’s Vueling and Lufthansa’s Eurowings are both in the top five
among European LCC fleets, although Air France-KLM’s Transavia is
lagging at number nine.
There is little evidence to suggest that LCCs won’t continue to grow
their share of fleet and traffic in Europe.
At the same time it seems clear that the profile of LCCs is changing,
as they both cater more for higher yielding passengers and come
under the wing of full service airline groups. AL

54 AIRLINE LEADER | MAR-APR 2018

 DID
YOU
KNOW?

The Latin American aviation industry is

undergoing some dynamic changes.
Airport and airspace infrastructure
is improving and airline operating
efficiencies are rising.

Meanwhile a crop of new low cost

carriers are pushing full steam ahead,
opening up exciting new markets in
their efforts to stimulate traffic in the
region.

We invite you to join us in Cartagena 2018 Latin America

for our Latin America Aviation & LCCs
Summit (10-11 September). We’ll explore
AVIATION & LCCs SUMMIT
the regional aviation outlook and the
issues affecting LCCs. 10-11 September, Cartagena

laas18.capaevents.com

INFORM. CONNECT. INSPIRE.

REGIONAL

56 AIRLINE LEADER | MAR-APR 2018

CAN LCCs AND
REGIONAL AIRLINES
CO-EXIST?
In Europe it seems so

Summary
• Europe’s regional airlines and Low Cost Carriers (LCCs) are both almost
exclusively intra Europe operators;
• LCCs operate five times the number of routes compared with regional
airlines, yet with half the number of airlines. LCCs have much larger
aircraft, but fewer frequencies;
• Regional airlines typically have high unit costs, but face LCC competitors
on only 5% of their airport pairs within Europe;
• KLM Cityhopper competes with LCCs on 38% of its airport pairs from
Amsterdam, but is apparently successful in spite of this high LCC overlap.

K
LM CITYHOPPER MD Warner Rootliep has said that his airline can
benefit from competition by LCCs on certain routes. Mr Rootliep said
that the presence of an LCC on a route “creates a lot of noise about
the destination”. This prompts an analysis of the extent of competition
between regional airlines and LCCs on routes within Europe.
There are twice as many regional airlines as LCCs operating on intra European
routes, but LCCs have a huge advantage in scale, with much bigger aircraft and a
greater total number of routes. Moreover, the regional airline model has high unit
costs. The only valuable card held by regional airlines over LCCs is their higher
frequencies.
However, regional airlines typically operate much shorter routes and face direct
LCC competition on only a very low proportion of their routes. KLM Cityhopper
has a much larger than average overlap with LCCs, but appears to have devised
ways to compete.

AIRLINE LEADER | MAR-APR 2018 57

REGIONAL

Europe’s regional airlines and LCCs are REGIONAL AIRLINES VERSUS LCCs ON INTRA
almost exclusively intra Europe operators EUROPEAN ROUTES*
For both the regional airlines and the SOURCE: CAPA - CENTRE FOR AVIATION, OAG

LCCs based in Europe, routes within Number of Airlines Number of routes

European make up almost all of their seat 40
5,000
capacity. 35
Based on OAG data for the week 30 4,000

commencing 13-Aug-2018, intra Europe 25

3,000
20
accounts for 98% of seats for the continent’s
15 2,000
regional airlines and 95% of seats for its
10
low LCCs. This compares with 78% for full 1,000
5
service airlines based in Europe.
- -
In Europe LCCs operate far more routes Regional LCC Regional LCC
with half the number of airlines Number of Seats Number of Frequencies
A comparison of the two categories of 12,000,000 70,000
airline for which intra European routes are
10,000,000 60,000
almost entirely the only focus, reveals stark
differences in scale. 8,000,000 50,000

There are just over twice as many regional 40,000

6,000,000
airlines (39) as there are LCCs (19) operating
30,000
within Europe listed in the CAPA Database 4,000,000
20,000
for the week of 13-Aug-2018. 2,000,000
Yet LCCs operate five times as many 10,000
- -
routes and more than nine times as many
Regional LCC Regional LCC
seats as their regional counterparts on intra Note: * Week commencing 13-Aug-2018.

Europe.
Regional airlines have an advantage in
PROPORTION OF SEATS ON INTRA EUROPEAN
frequencies, but much smaller aircraft
ROUTES FOR REGIONAL, LOW COST AND FULL
LCCs are less dominant when it comes to
frequencies, with only four times the number
SERVICE AIRLINES BASED IN EUROPE*
SOURCE: CAPA - CENTRE FOR AVIATION, OAG
of weekly departures compared with
100%
regional airlines.
90%
From this it can be calculated that the
80%
regionals operate an average of just over
70%
17 weekly departures per route, versus just
60%
under 13 for LCCs. This highlights the one
50%
main advantage that they have over LCCs.
40%
Regional airlines typically operate routes
30%
of the order of 1,500km or less, and very
20%
often of less than 1,000km. They operate
10%
these routes mainly with regional jets and/
0%
or turboprops, generally with fewer than 100
Regional LCC Full Service▲
seats per aircraft.
Note: * Week commencing 13-Aug-2018. Includes charter.
▲

In fact, the average number of seats

58 AIRLINE LEADER | MAR-APR 2018

per departure for regional airlines on intra European routes is 72, KLM Cityhopper competes with LCCs on
compared with 178 for LCCs (week of 13-Aug-2018, source: OAG). 38% of its airport pairs from Amsterdam…
Regional airlines typically have high unit costs There are 108 routes from Amsterdam on
The combination of short journeys and small aircraft means that which LCCs operate, while KLM Cityhopper
regional airlines tend to have high unit costs. Even taking account operates 69 routes. On an airport pair basis,
of their shorter average trip length, they have a significant unit cost it faces LCC competition on 26 of these
disadvantage compared with other business models, in particular routes, or 38% of the total.
versus LCCs. On a city pair basis, it also faces LCC
However, since regional airlines operate with much lower average competition on Amsterdam to Belfast, Berlin
trip lengths than airlines with other business models, they tend to face and London, giving 29 routes in total.
less direct competition from other airlines.
Instead, their main competition comes from ground transport, in
particular from rail services (but also coach and private car). AIRPORT DESTINATIONS
By contrast, there is much more overlap between full service carriers, FROM AMSTERDAM WHERE
LCCs and ultra LCCs in Europe, particularly in the 1,000km-2,000km KLM CITYHOPPER FACES LCC
range of average trip length. COMPETITION*
SOURCE: CAPA - CENTRE FOR AVIATION, OAG
Regional airlines in Europe face LCC competitors on only 5% of
their airport pairs Bilbao, Bordeaux, Bristol, Copenhagen,
Analysis of OAG data for the week of 13-Aug-2018 shows that there Dublin, Edinburgh, Basel/Mulhouse/
is very little overlap in the number of routes that are operated by both Freiburg, Florence, Geneva, Glasgow,
regional airlines and LCCs within Europe. Hamburg, Ibiza, Leeds Bradford, Lyon,
For regional airlines, which operate close to 1,000 airport pairs Manchester, Milan Malpensa, Munich,
between European destinations, LCCs overlap on only 5% of these Nice, Oslo Gardermoen, Porto, Prague,
routes. When analysed by city pair, regional airlines face LCC Stockholm Arlanda, Stuttgart, Venice
competition of approximately 8% of their intra European routes. Marco Polo, Vienna, Zurich
For LCCs, the overlap with regional airlines on intra Europe Note: * Week commencing 13-Aug-2018.
represents less than 1% of their airport pairs and less than 2% of their
city pairs.

…but is apparently successful in spite of

this high LCC overlap
As a wholly owned subsidiary of KLM, the
COST PER AVAILABLE SEAT KILOMETRE (CASK, US regional airline Cityhopper flies under its
CENTS) VERSUS AVERAGE TRIP LENGTH* own AOC and with a separate fleet from that
SOURCE: CAPA - CENTRE FOR AVIATION, AIRLINE COMPANY ACCOUNTS
of the mainline KLM operation. According to
the CAPA Fleet Database, KLM Cityhopper’s
fleet consists of 32 Embraer 190s and 16
CASK (US cent)

Regionals
Embraer 175s (and it also has one E175 on
order and two Fokker F-28s in storage).
FSCs Nevertheless, it operates exclusively on
LCCs behalf of KLM and under the KL code to feed
Ultra LCCs its parent’s network from Amsterdam. Air
- 1000 2000 3000 4000 5000 6000 7000
France-KLM does not report any separate
Note: * Indicative trend lines for different business models.
traffic or financial data for Cityhopper, since

AIRLINE LEADER | MAR-APR 2018 59

REGIONAL

it is managed as an integral part of the KLM

network.
KLM’s focus on profitability (it consistently
makes higher operating profit margins than
its sister Air France) probably means that
Cityhopper makes a positive contribution to
its result.
This apparent success has been achieved
in spite of a higher overlap with LCCs than is
usual for a European regional airline.
On the majority of the routes where
KLM Cityhopper overlaps with LCCs (and
across its network) the destination attracts
a significant element of business traffic,
for whom frequencies are important. This
may help it to defend itself against LCC
competition.
In addition, KLM Cityhopper uses larger
aircraft than many other regional airlines in
Europe. Its 100 seat E190s and 88 seat E175s
give it an overall average of 96 seats per
aircraft, compared with the average of 72 for
all European regional airlines.
Although it is more or less impossible for
a regional airline to close the unit cost gap
to low cost airlines, this feature should help
to lower Cityhopper’s unit cost. Moreover, its
average fleet age is just 4.6 years – one of
the youngest among its peer group.
Without more detailed data on KLM
Cityhopper’s costs and profitability, this
analysis can only be broadly accurate.
Nevertheless, it seems that Mr Rootliep’s
welcoming of LCC competition may be well
founded. AL

60 AIRLINE LEADER | MAR-APR 2018

 DID
YOU
KNOW?

The CAPA Low Cost Long Haul Global

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strategy event dedicated to the new
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INFORM. CONNECT. INSPIRE.

REGIONAL

SPECIAL FEATURE: JAPAN’S

LCC MARKET IN TRANSITION

62 AIRLINE LEADER | MAR-APR 2018

AS ANA’S LCCs PEACH & VANILLA MERGE, QANTAS AND JAL NEED TO ALIGN
STRATEGY

Summary
• Peach and Vanilla both operate A320ceos with CFM power plants. Peach’s aircraft
backlog includes seven A320ceos, 10 A320neos; while Vanilla has three A320ceos;
• ANA is investinging USD400 million to grow its stake in Peach, and could eventually
spend a further USD300 million to take total control;
• ANA receives a better deal in Peach compared to SIA’s acquisition of its LCC, Tigerair;
• Peach will be the post merger brand. Peach is stronger and larger, and was flying
aggressively in Vanilla’s home market;
• JAL needs a stronger LCC platform. Jetstar Japan should have been preparing for an
eventual Peach-Vanilla merger, but the partners are at different stages.

I
N THE EARLY HISTORY of dual brand strategies in Asia, airlines often took only a
minority stake in an LCC. This half way house has proven strategically weak, since the lack
of full ownership and control prevented the parent airline from using its LCC for strategic,
integrated purposes. That was also at a time when conservative minds at the big two
Japanese airlines were not fully convinced of the future for LCCs.
From a similar background, Singapore Airlines eventually paid dearly to take full control of
former JV Tigerair, and now All Nippon Airways will again pay a premium to increase its stake in
Peach Aviation. All up, ANA is investing USD400 million, which values Peach at USD1 billion, but
ANA may need to pay a further USD300 million for full control.
LCC subsidiary history also includes nuanced chapters where multiple brands, often
overlapping, prevailed. As Japan’s LCC market becomes more dynamic, with existing and
forthcoming local and foreign operators, ANA is putting its house in order to compete more
effectively.
Peach will take over the 100% ANA owned LCC Vanilla Air. Peach will logically be the surviving
brand from the merger, which is to be completed by Mar-2020. That is a relatively quick time
frame, given the Japanese market, but underscores the strategic urgency after such a long wait
while ANA negotiated with Peach’s other two shareholders.

AIRLINE LEADER | MAR-APR 2018 63

REGIONAL

Peach-Vanilla merger provokes Airbus and lessor changes million. Combined with its Apr-2017 share
The merger of Peach and Vanilla will cause some small changes in increase, ANA is investing USD398.2 million
the aircraft market. Peach operate only new build aircraft and places for greater control of Peach. Both share
its own aircraft orders, having seven outstanding deliveries for the acquisitions value Peach at approximately
A320ceo and 10 orders for the A320neo. Vanilla Air has outstanding USD1 billion. The 2017 share increase valued
orders for three A320ceos. Vanilla Air has been able to acquire aircraft Peach at USD1.025 million, while the 2018
through ANA’s backlog, and even through ANA’s existing fleet. Vanilla share increase valued Peach at USD990
Air briefly flew ex-ANA aircraft. million. Once the transaction closes in Apr-
Both Peach and Vanilla A320ceo fleets use the CFM power plant, 2018, ANA will have 77.9% of Peach, First
according to CAPA’s Fleet Database. Vanilla Air’s average fleet age is Eastern will hold 7%, and INCJ 15.1%.
2.5 years, while Peach’s is 4.2 years. Assuming ANA wants full ownership
ANA will have spent USD400 million, valuing Peach at USD1 billion of Peach, it will need to spend (at least) a
ANA will acquire a further 10.9% of Peach Aviation for USD107.9 further USD218 million.

PEACH FLEET SUMMARY*

SOURCE: CAPA FLEET DATABASE

Aircraft In In On order On order

service storage (confirmed) (unconfirmed)
Airbus A320-200 20 0 7 0
Airbus A320-200neo 0 0 10 0
Total 20 0 17 0
Note: * As at 19-Mar-2018.

PEACH AND VANILLA AIR FLEET

OWNERSHIP & LESSOR PROFILE*
SOURCE: CAPA FLEET DATABASE

Peach Vanilla

10.0% 0.0%

90.0% 100.0%
● Owned ● Leased ● Owned ● Leased
Note: * As at 19-Mar-2018 Peach’s fleet of 20 A320s are 90% leased and 10% owned, whereas Vanilla
Air’s fleet of 15 A320s are all leased.

64 AIRLINE LEADER | MAR-APR 2018

 Peach’s other two shareholders, INCJ
and First Eastern, probably have no reason
to decrease their valuation on Peach. If
anything, their asking price could increase as
Peach continues to prove its worth and ANA
becomes more eager for ownership control.
First Eastern and INCJ are equity firms with
no other significant ties to ANA – a situation
that should make them cash focused and
with no need to buckle to any pressure from
ANA.
ANA’s Peach buyout is a good deal,
compared to Singapore Airlines’ Tigerair
takeover
ANA moving to a presumed total buyout
of Peach provides a comparison with
Singapore Airlines (SIA) taking full ownership
of Tigerair. Like ANA, SIA was initially a
minority investor in its LCC. SIA wanted full
control to merge Tigerair with Scoot, the
long haul LCC 100% owned by SIA.
SIA’s final takeover offer valued Tigerair
at just over USD1 billion. The offer per share
that SIA offered was a third of Tigerair’s
share price at the time of its IPO, but
SIA’s offer was still a 45% premium above
Tigerair’s share price at the time the offer
was first announced.
ANA’s deal for Peach is, by comparison,
very good: Peach has stronger growth
opportunities and public reception than
Tigerair had. Alternatively, ANA may also be
overpaying, but not by nearly as much as SIA
did.
ANA investing USD400 million – and
maybe later close to USD700 million – is no
small sum.
But as CAPA previously noted, ANA has
a significant cash pile, is generating profits,
and has a large aircraft order backlog. ANA
and JAL will outlay USD10.7 billion in capital
expenditure over the next three years. This
puts the Peach investment in perspective.
PEACH AVIATION SHAREHOLDING EVOLUTION*
SOURCE: CAPA FLEET DATABASE
ANA  First Eastern Innovation Network Corporation of Japan
100%
75%
50%
77.9
25%
67%
38.7%
0%
Original Apr-2017 Apr-2018
Note: * 2012-2018
ANA may be able to generate better synergies in Peach (and capture
a higher share of profits) than if it used the cash to purchase aircraft for
ANA mainline.
LCC subsidiaries are too valuable for partial ownership or IPO
In hindsight it may seem that ANA and SIA should have immediately
taken 100% ownership of their LCCs. In the past half decade, most
LCCs established by a full service airline have been under total
ownership.
Elsewhere in the world, IAG took full ownership of Vueling, and
WestJet’s new LCC Swoop is under full ownership. LEVEL and Joon
are both under full ownership by their respective owners.
One exception for the trend is Korean Air’s IPO for its LCC Jin Air.
Korean Air retains a significant position and earned much needed cash.
The business environment in Korea may mean that Korean Air retains
effective control.
Peach was aggressively moving on Vanilla Air’s Tokyo home
It is unsurprising that Peach will be the surviving brand from the
merger. Peach’s brand was more visible and was well received. Vanilla
Air’s branding was created quickly in the wake of AirAsia pulling out of
AirAsia Japan. Peach is larger, has been more profitable, and has the
stronger headquarters and back end office support.
For a long time Peach has made clear that it is the stronger LCC
brand in ANA’s portfolio. ANA’s participation in AirAsia Japan arose out
AIRLINE LEADER | MAR-APR 2018 65
REGIONAL

PEACH AVIATION DAILY FREQUENCIES FROM

TOKYO AND VANILLA AIR DAILY FREQUENCIES
FROM OSAKA*
SOURCE: CAPA - CENTRE FOR AVIATION AND OAG
12

8 Peach

4
Vanilla
0
201310
201402
201406
201410
201502
201506
201510
201602
201606
201610
201702
201706
201710
201802
201806
201810
Note: *2013-2018

of concern that AirAsia would instead partner with then-independent Jetstar Japan implications: JAL will have to
Skymark. ANA’s blocking move prevented the presence of an review its ownership and control strategy
independent LCC, but meant that ANA had two LCCs. ANA’s announcement was not unexpected.
18 months after its launch, Peach began flying to AirAsia Japan’s ANA has as a result thrown the competitive
home base of Tokyo. In 2015, by which time AirAsia Japan had spotlight on part JAL-owned Jetstar Japan,
morphed into Vanilla Air, Peach grew its presence in Tokyo. At its peak, as it will constitute a stronger competitor,
in late 2016, Peach flew (on average) 10 frequencies a day from Tokyo, and because the combined Peach-Vanilla
including domestic at Narita and international from Haneda. There operation will be larger than Jetstar Japan.
was strong messaging from Peach of being the first Japanese LCC to Yet the ownership and operation of ANA’s
operate from Haneda. LCC was always an anomaly, and Jetstar
As Peach expanded in Tokyo, Vanilla Air grew in Peach’s base in Japan was surely making provisions for a
Osaka. Vanilla Air briefly had five daily frequencies from Osaka, but more rational future.
mostly had four frequencies between Mar-2017 and May-2018. Both Yet when considering the larger dynamics
Peach and Vanilla are reducing their presence in each other’s hub. in Japan’s LCC sector, from current and
Vanilla Air’s reduction is driven by its exit from the Tokyo Narita-Osaka future airlines at home and abroad, the
Kansai market. question for Jetstar Japan is whether Japan
Peach’s operation out of Tokyo was more significant: not only was Airlines will remain content with what it can
the volume of frequencies larger than the number Vanilla Air was flying achieve with its minority ownership in Jetstar
out of Osaka, but Vanilla Air’s relatively small presence in Tokyo meant Japan, or if JAL needs to make changes to
that at its peak Peach was flying 60% as much from Tokyo as Vanilla Air its LCC strategy.
was. The strength ANA is creating is not about
In comparison, Vanilla Air’s flying from Osaka was only 13% the size the size and synergies of its LCCs, but rather
of Peach’s local Osaka network. ANA’s ability to use its LCCs more effectively

66 AIRLINE LEADER | MAR-APR 2018

and to achieve strategic aims. With only a minority stake in Jetstar
Japan, the new dynamic puts JAL at a disadvantage. This disadvantage
is amplified by JAL being smaller than ANA in the domestic and
international markets. Thus, JAL could potentially use LCCs to reinforce
its position. But JAL has obligations to the Jetstar Group, and in turn the
Qantas Group.
At a group level, Qantas is restricting capital expenditure to focus on
return on investment in order to help convince shareholders Qantas is
a long term, counter-cyclical business. As a result, airlines in the group
may have to wait for capital expenditure. Jetstar’s Australian long haul
division should for example take more Boeing 787s, but must wait for
Qantas to receive its own.
In comparison, like ANA, JAL has ample cash: more than it needs,
and more than it appears able to spend. With JAL now free of
restrictions that limit its business growth, it can consider all options to
grow its business, including LCCs, and achieve strategic growth that
ANA is gaining.
Qantas will need to re-examine its investment strategy and how it
wants Jetstar to evolve
brand is important to it and Qantas places a
high priority on its Japan position.
This changed dynamic, coupled with the
pace of market growth and ANA’s reinforced
opportunities, will create pressure on JAL to
find smarter ways of achieving an expanded
LCC operation. At the same time, JAL’s
relationship with the Qantas Group is too
important for it to be considering a path
that would be less than helpful to Jetstar.
JAL also benefits from Qantas’ complete
commitment to Jetstar Japan and the
networking opportunities it delivers.
This may prompt Qantas to re-examine its
priorities, given the importance of the Japan
market – and its wider Jetstar strategy –
now and in the future. As the Japanese LCC

Unlike at Peach, where the other investors are willing to sell to ANA, market matures, each of the Jetstar parents
Jetstar Japan’s marquee investor – the Jetstar Group – may not be will have to take a long hard look at where
willing to give JAL majority or full ownership and control. The Jetstar their respective strategies are evolving. AL

PEACH AVIATION DAILY FREQUENCIES FROM

TOKYO AS A PERCENTAGE OF VANILLA AIR
LOCAL OPERATION AND VANILLA AIR DAILY
FREQUENCIES FROM OSAKA AS A PERCENTAGE
OF PEACH LOCAL OPERATION*
SOURCE: CAPA - CENTRE FOR AVIATION AND OAG
80%

60%
Peach

40%

20% Vanilla

0%
201403
201406
201409
201412
201503
201506
201509
201512
201603
201606
201609
201612
201703
201706
201709
201712
201803
201806
201809

Note: *2014-2018

AIRLINE LEADER | MAR-APR 2018 67

REGIONAL

68 AIRLINE LEADER | MAR-APR 2018

PART 2: ANA & JAL
MOVE TO A FOCUS
ON INTERNATIONAL
LEAVING THEIR
LCC SUBSIDIARIES
TO GROW
DOMESTICALLY
Summary
• LCCs are an important domestic – and potentially international –
growth tool for All Nippon Airways (ANA) and Japan Airlines (JAL)
• ANA will reduce domestic capacity by 3%; frequencies to be
maintained through the use of smaller aircraft;
• JAL will grow domestically by 3%, but with fewer aircraft as
upgauging occurs;
• The outcome is likely to be a significantly increased role for LCCs
in Japan’s domestic market.

J
APAN’S FULL SERVICE airlines are shifting away from their
domestic heartland as they prepare for international revenue to
overtake domestic revenue. In the long term ANA will reduce its
domestic network by 3% by maintaining frequencies but using
smaller aircraft. JAL will grow its domestic market by 3% but through
upgauging as it reduces its domestic fleet.
There will be a net increase of 20 narrowbody aircraft in ANA’s LCC
fleet, including long range narrowbodies. JAL has a minority stake in
Jetstar Japan, which will grow its fleet, but JAL also wants to deepen its
involvement in the LCC sector, also seeing the potential in international
long haul as others around them do so.

AIRLINE LEADER | MAR-APR 2018 69

REGIONAL

ANA reduces domestic capacity and JAL ANA AND JAL DOMESTIC ASK PLANS INDEXED
cuts domestic fleet (2017=100)*
ANA and JAL are both planning downward SOURCE: CAPA FLEET DATABASE

capacity changes in the domestic Japanese

market, but in different ways – and, in 105 103
Japanese style, without dramatic shifts.
101
♦ JAL

ANA will cut domestic capacity (ASKs) by 100 ♦ ♦

2022. Domestic capacity in 2022 will be 3% 100
♦
100
♦
100
101
smaller than in 2017, but ANA will retain its
leadership position in the domestic market –
95 ♦ ANA
enlarged when the smaller airlines that ANA 97
partners with and invests in are included.
ANA plans to maintain frequency but use 90
smaller aircraft. Capacity increases at the
2017 2018 2019 2020 2022
smaller airlines may offset ANA’s mainline
Note: * 2017-2020
reduction.

ALL NIPPON AIRWAYS’ FLEET PLANS*

SOURCE: ANA

Fleet Plan

LCC LCC
End of FY2017 End of FY2022
(Forecast) (Plan)
294 in total: ANA ANA 335 in total▲:
ANA 259 ANA 280▲
LCC 35 LCC 55▲

Change in fleet allocation

Widebody: 50 LCC International Widebody: 55▲

Approx. 35-40%
Midbody: 109 15% Midbody: 115▲
Cargo
Narrowbody: 76 3% Narrowbody: 80▲

Regional: 24 Regional: 30▲

LCC Narrowbody: 35 LCC Narrowbody: 55▲

Domestic Inside: End of FY2017

Approx. 45% Outside: End of FY2022
Note: *As of Feb-2018. ▲Approximation

70 AIRLINE LEADER | MAR-APR 2018

ANA AND JAL DOMESTIC ASKs AND FORECAST*
SOURCE: CAPA FLEET DATABASE

70

60

50 ANA

40

JAL
30
2008 2010 2012 2014 2016 2018 2020 2022
Note: * 2008-2017 Solid Line, 2018+ Dashed Line.

JAL plans a 3% domestic ASK increase by 2020, but this will be done JAL’s LCC, Jetstar Japan, operates 21
with a reduction of four domestic aircraft. JAL will upgauge and slightly A320ceos with a further three on sublease.
push load factor improvements. Jetstar Japan expects to operate 28 aircraft
Since JAL’s bankruptcy restructuring, its domestic network has been in 2019, and the airline is yet to decide if
approximately two thirds the size of ANA’s. Once ANA reduces its or when it should operate the A320neo.
mainline network, the result could be that JAL’s domestic network will Jetstar Japan has not stated any intent to
be slightly larger, at 71% the size of ANA’s. operate longer range aircraft – either on the
LCC expansion is an important growth development for ANA and narrowbody or widebody platform.
JAL Jetstar Group CEO Gareth Evans,
LCC subsidiaries feature in ANA and JAL’s growth plans for speaking at the CAPA Global LCC Summit in
development in domestic, short haul international and (soon) longer Mar-2018, described the potential for long
services. haul low cost operations from Japan as “very
ANA expects its LCC platform Peach (which will be the surviving attractive”, adding: “We are very interested
brand as the Peach-Vanilla Air merger completes) to grow their in exploring the long haul opportunities out
combined fleet from 35 narrowbody aircraft to 55. of Japan”. Mr Evans said the launch of such
ANA’s LCC growth includes an unspecified number of long range operations would not happen immediately
narrowbody aircraft, such as the A321LR. Peach operates 20 A320ceos and would require the right aircraft.
and has orders for 17 A320ceos/neos. Vanilla Air operates 14 JAL does not comment actively about
A320ceos with four A320ceos on order. its LCC business, partially because JAL
has only a minority stake in Jetstar Japan,
whereas ANA has a majority stake in Peach
PEACH FLEET SUMMARY*
SOURCE: CAPA FLEET DATABASE and wholly owns Vanilla. After the Peach-
Vanilla Air merger, ANA will retain majority
Aircraft In In On Order On Order
Service Storage (Confirmed) (Unconfirmed) ownership in Peach.
A320-200 20 0 7 0 JAL’s management plan makes only a

A320-200neo 0 0 10 0 passing mention of LCCs, saying JAL will

“deepen relations with [our] foreign-affiliated
Total 20 0 17 0
Japanese LCC partner”, i.e. Jetstar Group.
Note: * As at 12-Mar-2018

AIRLINE LEADER | MAR-APR 2018 71

REGIONAL

ANA REVENUE PLAN (JPY): FY2014, FY2017, FY2022

SOURCE: ANA

Op. Revenues Approx. Approx.

(Air Transportation) FY2014 (results) 1.1 times FY2017 (Estimate) 1.3 times FY2022 (Plan)
Total 1,484.6bn Total 1,692.0bn Total 2,150.0bn
(¥Billion) CAGR CAGR
750.0 +4.5% +4.9%

500.0

250.0

0
Int’l Dom Cargo LCC Others Int’l Dom Cargo LCC Others Int’l Dom Cargo LCC Others

The phrasing, intentionally or not, does not explicitly lay out a larger The changing emphasis is necessary as
growth commitment for Jetstar Japan. It seems to suggest that JAL ANA and JAL prepare for more revenue to
wants to achieve more from a LCC platform and may be limited by its be generated from international flying than
minority-only stake in Jetstar Japan. domestic. Within the international category,
Outlook: Japan’s majors shift away from the domestic heartland – ANA and JAL are shifting from domestic
spelling further emphasis on domestic LCCs sales to majority foreign sales.
Domestic is the market to which ANA and JAL have been most Despite this evolving repositioning, there
exposed and feel comfortable. But domestic demand is weakening as is no prospect that Japan’s two dominant
Japan’s population ages. airlines will allow their supremacy to be
There is a gradual shift to LCCs as younger consumers are willing seriously challenged at home. The Spring
and AirAsia brands are also now established
to try new types of airlines, while foreigners travelling domestically
in Japan and ANA and JAL will be anxious to
are accustomed to using LCCs from other markets. International traffic
ensure they do not make significant inroads.
is growing and freight – another area on which ANA and JAL are The outcome should be an interesting
adding focus – offer opportunities, but both are more complex and and increasingly competitive domestic LCC
competitive than the domestic market. marketplace. AL

JAL REVENUE PLAN: FY2016, FY2017, FY2018, FY2020

SOURCE: JAL
1600.0
1455.0
1366.0
1288.9 400.0
326.0
308.0
296.8
94.0
78.2 88.0
1200.0
■ OTHER 517.0 520.0
498.6
■ CGO/MAIL REV
■ DOM PAX REV 415.2 453.0 515.0
■ INT PAX REV
FY2016 result FY2017 result FY2018* plan FY2020 target
Note: * Figures reflect the effects of proration of domestic sector revenue in international ticket and revised rules (Domestic routes ↑6 JPYbn, International routes ↑6 JPYbn)

72 AIRLINE LEADER | MAR-APR 2018

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KNOW?
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DIDYOU
AIRLINE
ISSUE 44 | MAR-APR 2018

AIRLINE LEADER
KNOW?
LEADER

ISSUE 44 MAR-APR 2018

THE STRATEGY JOURNAL FOR AIRLINE CEOS

South East Asia is the world’s leading region for

widebody LCC operations, followed by Western
Europe & North America.

42% of Europe’s aircraft orders are

from LCCs although Europe lags
Asia Pacific in total LCC orders
Source: CAPA Fleet Database

LCCS DIVERSIFY,
IN DIFFERENT
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CAPA Membership delivers the very latest insights into the global Meanwhile, Full
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