Lufthansa, British Airways & Avianca: Airlines Move to Low-Cost Model as Price War Hots Up

LONDON – Full-Service-Carriers are developing their bulwark against the rise of low-cost airlines. However, the direction taken doesn’t go towards strengthening the FSC model, rather towards a transition to the LCC scheme.

Large legacy groups are trying to conform to the current price-sensitive demand of the market, as was predicted. The equation is crystalline: the more LCCs gain ground, the more FSCs are forced to seek ancillary revenues by adjusting their services.

Lufthansa

In addition to low-cost or tightly focused subsidiaries, such as the newly born leisure carrier Eurowings Discover, in 2020 the Lufthansa Group introduced the buy-on-board (BOB) service, justifying the choice to avoid food waste (McWhirter, 2020).

However, paying for food onboard a plane is more than just an environmentally friendly initiative. This is a prime example of service adjustment towards a low-cost model.

Early adopters of the concept in Lufthansa’s Group are Brussels Airlines and Eurowings. But from summer 2021, also LH subsidiaries Swiss and Austrian launched their BOB service for short- and medium-haul economy class travelers.

Quintin Soloviev, CC BY-SA 4.0 https://creativecommons.org/licenses/by-sa/4.0, via Wikimedia Commons

Still, the cabin of LH’s new A321neo could easily be mistaken for a cabin of any budget airline. The aircraft is configured with 215 seats, 30-inch pitch, and 18-inch width for both ‘European business’ and economy classes (Airbus, 2021).

That’s all? The brand experience is no longer in the picture replaced by the magic word capacity. For comparison, EasyJet’s A321neo is configured with 235 single-class seats, 29-inch pitch, and 18-inch width. Ryanair’s 737-800 has 189 seats, 30 pitch, and 17 width.

All the configurations aforementioned are very similar. Adding the buy-on-board service, the flight experience on Lufthansa and EasyJet becomes practically indistinguishable.

British Airways

After starting to charge passengers for food and drink in 2017 (Gollan, 2017), British Airways is considering opening a low-cost base in London-Gatwick that would begin flying with 17 Airbus A320 family aircraft.

The main goal is to cut staff costs that would be in a sort of low-cost purely point-to-point subsidiary but with the same level of services as the mainline. However, the machine is so complex, based essentially on privileges accumulated over years of operations, that BA’s proposed project may collapse.

In September 2021, the British Airline Pilots’ Association (BALPA) pulled out of talks after BA refused to provide the same benefits to the pilots of its new subsidiary as in the parent company.

Anna Zvereva from Tallinn, Estonia, CC BY-SA 2.0 https://creativecommons.org/licenses/by-sa/2.0, via Wikimedia Commons

“We have received an email from BA making it clear that the company is not prepared to include the protection clause we require”, said BALPA. In light of this, the union continued, “we can no longer recommend the proposed LGW short-haul agreement. As such we have terminated the consultative ballot with immediate effect” (Burgess, 2021).

Hope is not lost, but surely the British flag carrier cannot risk flight crew strikes due to lower salary contracts for Gatwick.

Among the possible actions, the IAG group might open a new airline by transferring the planned aircraft from British Airways to a potential Vueling UK with UK COA.

Vueling is characterized by lower service quality and lower salaries than those on BA, employees who decide to join the new subsidiary know what to expect, although problems with the union may persist.

Avianca

Avianca Holdings continues its transition from an FSC to an LCC model. The decision came after the Panama-based holding firm posted a net result of -894 million in 2019, more than 1 billion in 2020, and very narrow margins in previous years.

The new horizon will be strongly focused on cutting costs and will result in a budget structure on the domestic market.

Avianca has recently announced six fare bundles to rebuild its identity. The new “Tailor-Made Flights” fares families will be available starting from October 20 for customers in the United States and Canada. The new offer is divided into XS, S, M, and L. Each fare allows the passenger to purchase ancillary services in addition to the service already included (Avianca, 2021).

The holding firm has a fleet of thirteen Airbus A330-200s and thirteen Boeing 787-8s on long-haul, over sixty A320 families, and fifteen ATR-72-600 aircraft on the short-medium haul network.

The change mainly consists of getting a single-cabin configuration to all aircraft that fly domestically. The list includes Airbus A319s and A320s which are currently configured in two-class (Avianca, 2021).

aeroprints.com, CC BY-SA 3.0 https://creativecommons.org/licenses/by-sa/3.0, via Wikimedia Commons

Last year, the airline filed for Chapter 11 in the United States in an attempt to restructure its business forced by the unforeseeable impact of COVID-19 (Casey, 2020).

While the airline moves towards “a successful completion of the financial and operational restructuring,” Avianca has secured a US$1.6bn capital as a financial means to exit Chapter 11 protection.

But it’s not just the fare to change. The cutting-cost policy also includes leasing at least 14 A320s to other airlines.

According to court documents, four aircraft are ex-Aeroflot owned by AerCap, three ex-Interjet owned by Aviation Capital Group, two by AerCap, and two by Aircastle.

In June 2021, Avianca also rejected eight Airbus A321s on lease from various aircraft lessors (Cirium, 2021).

The three cases examined on this occasion are likely to be followed by several other transition processes. The low-cost apparatus is proving to be considerably more efficient than the old ‘trunk’ one.

In the worst-case scenario, the purely Hub and Spoke structure will only survive in big metropolises identified by a high GDP per capita and guaranteed feeding (this is the network approach against the route one adopted by LCCs).

The troubled Italian flag-carrier is one of the airlines that, during the umpteenth reconstitution process, could have seriously considered the introduction of a hybrid model, based on low fares, additional paid services but a flight experience close to, if not identical to that of an FSC.

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