In July Norwegian Airlines announced the arrival of the world’s longest low-cost flight; London to Singapore in 12 hours and 45 minutes for only £149.90. This followed the company’s announcement in February that the airline would be offering flights to Chicago for £179 and to the north east of America for as little as £50.
For a generation of young people used to being able to book a flight for less than the cost of a pair of trainers, the news that you can now fly across the world for a similar price seems like the natural progression.
Today it was announced that the low-cost airline Monarch has gone bankrupt leaving thousands of passengers stranded or without travel. This announcement came in the wake of the news that Ryanair, the controversial grandfather of low cost European air travel, cancelled significant numbers of flights due to an admin error, leaving thousands of passengers stranded across Europe. Many people are now questioning the reliability and standards of passenger safety for budget airlines.
Norwegian airlines have worked hard to fight the traditional image of a budget airline and have been quoted as saying that passengers experiencing their budget transatlantic flights will experience a “spacious, modern economy cabin with seatback inflight entertainment,” or for an extra cost can opt for a Premium cabin with “more than a meter of legroom, complimentary meal service, generous baggage allowance and airport lounge access.”
A mix of factors have influenced Norwegian airlines’ ability to offer such cheap flights: the advances in fuel technology mean that new models of planes are the more fuel efficient than ever; a weakened Norwegian Kronor, Sterling and Euro means that markets outside of Europe are much better value for money; a surge in operators offering transatlantic flights means companies are having to cut prices to compete; and a fall in the cost of jet fuel means that the cost of running flights has fallen.
Norwegian airlines accounts have shown an increase on revenue year on year since 2007, in line with their increased operations. The company have almost consistently made a profit, something which is unusual in the aviation industry due to the huge investment in new technology which often takes years to recuperate, and increased profit by 525% in the year from 2015 to 2016. The company says that their continued investment in a new air fleet is “necessary to keep [our] costs down” and allows them to offer “inexpensive fares”.
However, many of these factors are only circumstantial leaving many wondering how sustainable this market is? Once Britain and Europe have reached an agreement on Brexit investors’ confidence in the pound and euro is likely to increase leading to airlines’ margins beginning to reduce unless they increase prices. The current low price of jet fuel is also unlikely to last due to the oil market’s notorious volatility. Norwegian airlines also a tough market with subdued growth for flights and holiday tour operators as wages remain stagnant and living costs rise, meaning people have less disposable income to spend on holidays.
To avoid becoming the next Monarch, airlines need to ensure they have negotiated their fuel contracts to be fixed as far ahead as they are selling their low-cost tickets. Airlines should also have hedged against any fluctuations on the currency market over the next twelve months as with negotiations for Britain’s departure from the EU still going the currency market is particularly volatile with experts predicting that the current currency rates are unlikely to remain stable.