Ultra-Low Cost Airlines: Coming And Going

The only constant in the airline industry, particularly on the international front, is change. New low-cost startup airlines seem to launch every day, although that could be in the face of the one that started last year ending this year. I don’t know if it’s good or bad, but the air transportation is one of the few businesses that’s incredibly easy to enter (on a relative basis, of course) and difficult to exit. There’s always somebody willing to finance a plane for you (often the manufacturers) and, when you get into trouble, there always seems to be somebody around to bail you out. Here are a couple of examples.

French Bee

french bee

French Bee flies to an odd mix of cities

I have to admit that, until a few days ago, I’d never heard of French Bee Airlines, although there’s really no reason that I would have. The airline is alow cost carrier (LCC)* that only flies to a few cities, all from Paris’s Orly Airport. It flies only widebody aircraft on long-haul routes, and tends to follow the same business plan that so many other LCC fail with: Find a pair of cities that major airlines don’t serve well and launch non-stop service between them. Keep your costs low and charge low enough fares that you can fill the plane. Then, charge those people based on the amenities they want. For instance, you can buy a premium seat, but it will cost you significantly more than the prices you see advertised.

The problem with this plan is that it assumes that the major airlines don’t react. That’s not a good assumption. The last thing that the legacy carriers like Air France want is to allow any competition, particularly from low cost carriers. Heaven forbid that a competitor do something horrible like lower prices on a route. What happens if that competitor starts to grow and lowers prices everywhere else? So even though Air France may not have a lot of demand from, say, Paris to Punta Cana, it will match competitors anyway, to keep them from growing. Air France is large enough that it can afford the losses almost indefinitely.

It’s good while it lasts.

Wow Airlines/Icelandair

Several weeks ago, Icelandair announced that it was buying ultra-low cost (ULCC) competitor Wow Airlines, and the investors were happy. Wow’s money-losing experiment would come to an end, and Icelandair would get rid of its main challenger. The latter’s stock jumped, from just under 7 to just over 12. But the government put strict conditions on the merger and, a few days ago, the merger was called off.

Wow still needed money, however, and it found the cash in the form of airline old-timer Bill Franke, whose Indigo Partners stepped in. The owner of Frontier and other carriers, Indigo provided cash to Wow in exchange for a chunk of ownership.

Mr. Franke’s money may have simply delayed the inevitable. Wow’s losses have spiked and there still isn’t a coherent business plan beyond “being cheap.” Mr. Franke does, however, have a long-standing relationship with airplane manufacturer Airbus, so he may try to lever that relationship to extend Wow’s life until they get it right.

Air France to Shut Down Joon

The only thing that is less successful than an independent ULCC is a ULCC that is owned by a traditional carrier. In other words, it’s a high-cost carrier that tries to operate a low-cost model. It just doesn’t work. So nobody will be surprised that Air France is shutting down its low-cost subsidiary Joon.

Joon, which sounds like “jeune,” the French word for “young,” was supposed to appeal to millennials, which means describing itself as a “lifestyle brand,” since 60-year old marketing executives think that the term appeals to 30-year old travelers. I’m closer to the former than the latter, but even I knew that it wasn’t going to work. Last summer, I wrote, “Do you know what millennials hate more than brands? It’s brands that pretend not to be brands to appeal to millennials. Fortunately, I’m guessing that they’re not going to have to deal with Joon for long.” 

I’m surprised that it has even made it a year.

 


*Beginner’s Hint: A low-cost carrier is similar to Southwest or JetBlue. You buy a ticket in one of several fare “buckets.” The total price depends on how many amenities you want. LCC tend to charge fewer fees and have fewer upcharges than their ultra-low cost carrier brethren, such as Spirit or Ryan Air.

 

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