By Rory Jones and Robert Wall
Budget airlines have gutted the short-haul businesses at established network rivals from Singapore Airlines Ltd. to Air France-KLM SA.
Now a new breed of low-cost operators, armed with more fuel-efficient planes, is threatening to do the same to most big airlines’ most profitable business: long-haul flying.
The emergence of intercontinental discount airlines also represents the first serious low-cost challenge to the Middle East’s rapid-growth airlines, including Emirates Airline and Qatar Airways Ltd. Their focus on connecting continents had left them less exposed to the emergence of the region’s short-haul budget carriers such as Air Arabia Co.
Cebu Air Inc.’s Cebu Pacific began operations from Manila to Dubai last year, targeting the Persian Gulf region’s large Filipino diaspora. The carrier is using Airbus Group NV A330s in a high-capacity, nine-abreast configuration seating 436 to keep costs low.
Emirates quit flying to Clark International Airport, about 60 miles from Manila, after just six months of operations earlier this year, in part due to increased capacity that was also bolstered by Philippine Airlines Inc.
Emirates President Tim Clark is a believer in the discount model, even though his airline is more famous for luxury amenities than low frills. “I think it is a question of time,” he said.
Closer to home, flynas, a Saudi Arabia-based discount airline, has launched services to the U.K., North Africa and Asia.
“Price-sensitive passengers will choose us for connecting flights,” said Wael Al Sarhan, the marketing director for flynas. “We have the edge,” he added, as the airline offers return fares to London for GBP200 ($334), about half the typical ticket price offered by its regional peers.
It isn’t uniformly accepted that low-fare competition is inevitable on intercontinental routes, though. “You cannot pack people like a sardine can,” Qatar Airways Chief Executive Akbar Al Baker told reporters in October. “I don’t think it will work.”
Among the challenges to the discount model on long routes: Many cost-saving techniques used by short-haul operators can’t be replicated. Discount carriers like Southwest Airlines Co. and Ryanair Holdings PLC, the U.S. and European leaders, try to get planes unloaded and back in the air quickly. That is harder to do on intercontinental flights, which face more departure restrictions.
Getting more favorable labor contracts also has pitfalls. Norwegian Air Shuttle A/S’s efforts to expand to North America using offshore contracts have drawn fierce opposition from the U.S. pilots union, the Air Line Pilots Association. The union has argued that the carrier employed unfair labor practices through its Irish registration, a charge the company rejects.
Trying to bring discount operations to long-haul flying may be in vogue, but it isn’t a new idea. For many Americans and Europeans, the Skytrain service set up by British aviation pioneer Freddie Laker was their first opportunity to afford trans-Atlantic flights in the early 1980s. The airline connected cities such as London with New York and Los Angeles.
The business eventually failed amid an economic downturn in the 1980s and price cuts by network carriers in response to Mr. Laker’s service.
More recent attempts included AirAsia X Bhd’s flights to London and Paris from Kuala Lumpur, which were scrapped in 2012 after management realized it couldn’t make money on the routes using the gas-guzzling Airbus A340.
A new generation of more fuel-efficient, long-range jets from Boeing and Airbus is spurring the concept’s revival. Norwegian Air CEO Bjørn Kjos said the business only works with jets like the Boeing 787 Dreamliners he is betting on or the Airbus A350. AirAsia X will test the European market again using twin-engine Airbus A330s.
Norwegian, whose long-haul network links Scandinavian capitals with the U.S. and Asia, plans to start London-to-Los Angeles service July 2, with New York and Fort Lauderdale, Fla., to follow.
British Airways, whose parent, International Consolidated Airlines Group SA, derives most of its profit from trans-Atlantic flights, isn’t worried about the newcomer so far.
IAG CEO Willie Walsh has said that some of the rock-bottom teaser fares are simply unprofitable given mandatory flight charges, such as the U.K.’s passenger tax, which can add as much as GBP188 to each ticket. In other instances, British Airways’ sale fares can match what rivals offer, he said.
A more serious threat to British Airways could be an oft-discussed push by Ryanair CEO Michael O’Leary to begin a long-haul business. Mr. O’Leary said he is waiting for prices of the more fuel-efficient planes to drop.
Slow to respond to the budget-airline threat in their short-haul operations, network carriers want to avoid repeating that mistake.
Deutsche Lufthansa AG has converted some of its Airbus A340-300 long-range planes to squeeze in more seats, and Air France is doing the same with its Boeing 777 wide-bodies.
Whereas short-haul discount airlines generally focus on all-economy cabin configurations, most airlines are adopting a different approach for multihour flights.
David Neeleman, founder of Brazil’s Azul Linhas Aéreas Brasileiras SA, said his proposed long-haul budget operations will feature 35 business-class seats and 50 extra-legroom economy seats because 60% of the carrier’s business is corporate travel. Azul expects profitability on long-haul routes to outpace that on its domestic network, Mr. Neeleman said. “I think we are going to stimulate a lot of traffic.”
Daniel Michaels in Frankfurt and Susan Carey in Chicago contributed to this article.