Legacy carriers have survived by beating LCC’s at their own game

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RyanAir, easyJet, Wizz, WOW, Primera, Vueling, Volotea, Norwegian, Southwest, on and on…. they all spelt the doom of the inflexible giants like British Airways and Lufthansa and all the other so-called “Legacy Airlines”.

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The legacy title refers in effect, to any airline with a long history that stretches back a century, but can be as recent as the 1980’s. Even Virgin Atlantic is considered a legacy carrier.

They all flew before aviation liberalisation and open skies.

The low and ultra-low-cost revolution that started with Southwest – whose model was deliberately copied by RyanAir in active cooperation with their CEO, kicked off a new age. Some would say that Freddie Laker really began it all in the U.K. with Skytrain.

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Those first generation low-cost carriers are now utterly dominant in their fields. So much so that they have now, a grip on their respective niche markets (and low cost is still a nice market, even if its a huge one, it appeals to a certain type of traveller, not everyone), that’s almost become monopolistic.

By being first they had time to develop and establish, they grew big enough to pass that point of critical mass that makes them able to ride any storm that comes their way.

The US market while being vast, is in fact not very competitive, as the few airlines self-regulate their pricing to match competition. They don’t operate as a cartel, but they don’t push themselves down so far as to make ludicrous price wars a matter of course. They have also lobbied successfully to repeal laws forcing them to be transparent about their fares.

In Europe, the perception of RyanAir is that it’s a ULCC, offering super low prices for limited periods-£19.99 one way isn’t unusual and even seats for £0.01 have been used.

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easyJet is seen as an LCC, one step above. Yet while it too, now and again offers low prices, generally speaking its price algorithms are so close to BA and others your average passenger would probably be quite shocked.

The marketing has won. People expect RyanAir to be a low-level travel experience, and they think easyJet is cheaper than BA or the others because, well it’s easyJet!

Yet the legacy carriers whose end was so arduously spoken about and for so long expected? Most are still here. And they’re making big money.

Not only are they making money, they grew, they expanded, they even bought up existing or invented their own, low cost carriers. And they’re competing exceptionally well with their alleged executioners.

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WOW however, is a prime example of how not to run an airline. First, it’s only income was low fares. Ridiculously low fares. £/$99 return to the US. Stupidly low fares from Europe to Iceland.

Aircraft were full, seats cramped, but you could go with nothing more than a back pack and a passport for next to nothing, Trans-Atlantic. For young or budget conscious travellers it’s a dream come true.

And the airlines forward bookings kept it going. Then it started leasing more aircraft, bigger aircraft. Much more expensive to operate aircraft. A330’s cost more, they take more and better paid crew, need more fuel, more expensive maintenance.

The latest A320neo might be hyper efficient but its lease cost is high. You’d have to keep it airborne 90% of the day, and at the prices WOW were charging passengers for seats the maths didn’t add up.

Airlines like WOW and Norwegian work on the “ball of string” theory. You don’t know how long it is until it runs out. Some are able to stitch an extension on time after time, some make enough thread as they go to just keep the end far enough away. And some like WOW just run out.

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Their demise is sometimes – and in WOW’s case I do believe this, of their own making. Too often CEO’s and founding CEO’s especially, believe so much in their dream they can’t let go and can’t accept they have a profound problem, until its way too late.

Naresh Goyal of JetAirways in India is another recent victim of his own intransigence. And so very nearly was his airline, and it still may fail.

Yet the vast European conglomerates of Lufthansa Group and IAG seem to reign supreme. Just take a look at the airlines they own between them:

British Airways, Iberia, Vueling, Level, Aer Lingus, Lufthansa, Swiss, Austrian, Luxair, Eurowings, Brussels Airlines, Adria, Air Dolomiti, Edelweiss. Never mind the “city” brands.

By the time you add AF-KLM and Transavia there’s not much left. Those that failed to offer a tempting business case like Alitalia are sat in the aviation intensive care ward, wondering if the plug wiull be pulled, or hope someone thinks they’re worth resuscitating.

The use of the “legacy” title is now pretty much irrelevant. It was used as an insult. Those airlines took their place in the world for granted and their arrogance was staggering.

Now while a few of them – United and American especially – have gobbled up their opponents and vanquished their brands, still retain that air of superiority, most have changed.

They compete on fares in economy as hard and as low as any other. They offer more discerning customers lavish first and business class, and those who don’t want to break the bank but still want something more than cattle class, the world of Premium Economy.

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And they make money. Not from those basic fares which in reality few people ever buy, but from business class and higher-end economy and premium seating.

Down in the world of the ULCC it’s not so easy – populism rarely is. It promises much but delivers little in the way of satisfaction. Or profits. Unless you’re a vast airline with seriously large numbers of aircraft well above 100, it’s a harsh world. Customers expect more than they pay for. Crew barely get paid at all, suffering punishing hours and conditions, all at the legal maximum or minimum for their industry.

If there are complaints most of them are about ULCC airlines. You get what you pay for.

Norwegian though has tried to be something like a long haul easyJet. Not the bottom rung of air travel, but a little bit more. It’s European short-haul business has worked quite well, but long haul has almost dragged it into the dustbin of history.

Like WOW, it’s leased expensive aircraft – 787-9’s and it sells seats cheaply. Sometimes. It’s long haul use of 7M8’s hasn’t really proved to be that successful.

Look at what it charges for seats on say Gatwick-SFO and you can find the same or less from BA . The fact is that factors they all have to pay – taxes, airport charges, fuel and labour, leave no room for tinkering about with already squeezed margins.

Norwegian needs it’s marketing spin to provide the smoke and mirrors of looking like a low-cost carrier when in reality it’s little better than the legacy carriers it competes against.

Meanwhile many of the smaller airlines have had easyJet or RyanAir turn up at their local airport and crush them. SmallPlanet, Germania just this year. Wizz is holding its own in Eastern Europe and has just about reached a survival level in numbers. Others will not be so lucky.

And this scenario is happening all around the world except Japan, which retains its duopoly system, however cleverly masked. Even Cathay Pacific has bitten the bullet and bought up Hong Kong Express as its ultra low cost operation in just the last week

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The legacy airlines are here to stay. Too big to fail, too diversified, and very dominant. The disrupters have changed the market but they haven’t upturned it.

In more ways than one the legacy airlines have morphed and mutated, developed anti-bodies and fought off the upstarts. They’re going nowhere.

Anyway you look at it, in the end the legacy carriers have not just survived, they’ve won, using their corporate muscle to leverage buyouts and takeovers, even the largest of the low-cost carriers isn’t any where near as powerful or as strong. In some places like the North Atlantic and the airports that serve them people want to use, the big legacy airlines are wrapped up in legally protected cartels they call “an immunised joint venture”. No other industry in the world is so cosseted.

Is it any wonder RyanAir and easyJet have made no real move into the long haul market? If it was easy they’d have already done it.