Making low-cost long-haul pay is a difficult business, but airlines continue to try to crack the market…

Most people believe that budget short-haul aviation came before long-haul low-cost flying. In fact, the reverse is true. Long-haul low-cost carriers (LCCs) trace their history back to the seventies and eighties, when pioneers Laker Skytrain and US airline People Express took to the skies.

After their demise, matters went quiet until the emergence of short-haul carriers such as Ryanair, Go and Easyjet during the nineties.

Long-haul LCCs came to prominence back then because the transatlantic market between the UK and the US was not restricted as with other world regions. The European liberalisation that led to short-haul low-cost travel did not start until more recently.

Short-haul LCCs have proved successful. Every year they carry hundreds of millions of passengers throughout Europe. Although a number of long-haul counterparts have appeared on the scene recently, whether or not they will succeed in the long term is open to debate.

It’s important to note that short- and long-haul low-cost business models are not the same. Short-haul carriers make their money by operating more flights within a given time span. In Europe, a typical LCC operates between 6am and midnight. During that time, it would hope to roster up to four return flights or eight sectors. Ancillary fees – anything from checked bags to onboard catering and seat selection – form a large proportion of earnings. Operating eight flights per day provides carriers with eight opportunities to earn such fees.

There are fewer opportunities long-haul. For an airline flying Europe-Singapore, how many sectors can be operated during an 18-hour day? How much ancillary revenue will there be? There are further drawbacks, too: fuel consumption is higher, as are navigation fees. All carriers, both long- and short-haul, get no price breaks for these.

As Azran Osman-Rani, a former executive of Air Asia X, said in 2012, the “sweet spot” is for a flight sector lasting no more than eight hours. Above that time, fuel consumption becomes less economical because of the weight carried. That’s a disadvantage for carriers needing to keep costs as low as possible. Little wonder, then, that no LCC has ever held an ambition to operate over the Kangaroo route between Europe and Australia.


LCCs first appeared on the transatlantic routes because they had the freedom to set fares and were warmly welcomed in the US. In addition, because they flew over water, the cost of operating their flights was lower than if they had to overfly numerous countries.

Once liberalisation spread around the globe, the low-cost airlines extended their wings. But then another issue emerged – they discovered the problems and costs involved in having to negotiate overflying rights and pay navigation fees. The flight path between London and Singapore, for example – a route that Norwegian tried to operate but failed – is a case in point.

Not only that, but LCCs then realised that competition was tough not only from direct carriers but also from indirect carriers. The latter can provide services to a multitude of destinations (at both ends) thanks to their hubs. Conventional airlines, meanwhile, have downgraded their economy classes to compete on price. Indirect or what’s termed sixth-freedom carriers often have less interest in selling at a profit so they will dump capacity on the market.

Mainland China carriers are guilty of this. China Southern, for example, sells London-Bangkok tickets via Guangzhou for less than a ticket to Guangzhou in some instances. It’s a case of filling seats that would otherwise be empty. Over Easter weekend, meanwhile, Air China was selling return economy tickets (via Beijing) at £426 for Tokyo, £364 for Bangkok and £517 for Sydney. How could any low-cost carrier compete?

And yet, airlines continue to try to crack this market. Skuli Mogensen, the former chief executive of Iceland’s now defunct Wow Air, thought his business model could work around the world and that by opening a route between Reykjavik and Delhi, he would be able to cash in on the voluminous market that exists in both directions between India, North America and the UK. Wow Air said it would offer the lowest no-frills fares but did not realise that Indian travellers are particular in their requirements. They’re known for wanting amenities at a keen price, which is something that most, if not all, airlines struggle to deliver. This, in a nutshell, explains the failure of Jet Airways (at the time of writing, the Mumbai-based carrier had suspended all flights).

As we reported last September, India’s government became concerned by Wow Air’s no-frills approach and instructed it to at least offer passengers free water. More than that, the above routings are served by dozens of indirect airlines, all of whom charge the most competitive of fares and offer for free the amenities for which LCCs would charge.

Wow Air was not the first low-cost carrier with Asian ambitions. Norwegian had wanted to expand into the region, and in particular China and Japan, but when faced with the problems of overflying rights and the cost of operating these complex routes, it instead turned its attention to the North Atlantic and, more recently, Latin America.


Both carriers realised (as did Icelandair) that it might be possible to gain Russian overflying rights. But after deducting royalty payments to Russia, fares would then become uncompetitive. Royalty payments to the Russians are kept under wraps but in May last year we reported that it was believed they could amount to US$100 per passenger per flight. In other words, the LCCs would have to inflate their ticket costs to China or Japan by some US$200.

How do the conventional carriers manage to offer promotional fares? It’s because profitable premium class tickets offset economy fares. With a London-Tokyo business class return costing around £6,000 when bought close to departure, several times more than an average economy fare, it’s not hard to see how.

So why do these LCCs have to overfly Russia, and how can Russia charge so much for it when it’s so much less for others? Russia holds the key to the shortest routes between Europe, China and Northeast Asia. And because it never signed the 1944 International Civil Aviation Organisation agreement, Russia is free not only to pick and choose the airlines to which it grants overflying rights but can also charge for the privilege.

So Europe’s low-cost carriers have had to abandon plans to serve what would have been lucrative destinations. Instead, they focus on transatlantic routes, such as Norwegian’s foray into Latin America.

Likewise with Air Asia X. Besides the cost of fuel, one of the main reasons it retreated from Europe in 2012 was because of competition from indirect carriers in terms of price and convenience. There are Malaysian communities in Manchester and Glasgow as well as in London, from where Air Asia X was operating, so why spend time and money travelling to London when the Gulf carriers could offer a better value product from one’s local airport?

It is true that Singapore Airlines’ low-cost subsidiary, Scoot, flies between Singapore, Athens and Berlin, but as yet its success is unproven. One could argue that Scoot has absorbed a former SIA destination while Berliners, were it not for Scoot, would have no nonstop service to Singapore.

Ultimately, whether or not there is a future for long-haul low-cost depends on the route, the region and how you define “long-haul”. Perhaps in the Asia-Pacific region, where many routes that we would call long-haul are defined as medium-haul, there’s a greater chance of success.

No wonder the most successful LCCs in Europe and the US – Ryanair, Easyjet and Dallas-based Southwest – have never ventured long-haul. In the final analysis, their greatest chance of success (outside Asia-Pacific) would be transatlantic.