Low-cost international flights are doomed.
For the past few years, air travel from the U.S. to Europe was at unheard of levels of affordability. Airlines like Wow, Norwegian, Primera, Level, Iceland and others provided travelers with round-trip options that occasionally even dipped under $300. The competition also pushed down prices for legacy carriers, creating a race to the bottom that benefited travelers.
But a new research note from Bernstein analysts says costs will rise for smaller airlines and will eventually necessitate higher prices.
“We do not see LHLC [long-haul low-cost] as a threat to incumbents and do not expect the model to survive on its own on the trans-Atlantic market,” the note says.
Last year, these affordable airlines accounted for around 15% of Europe-North America capacity. But in the past year, Primera Air and Wow went bankrupt (highlighting the fact that travelers should buy tickets with a credit card) and other airlines like Norwegian have been facing high debt and steep losses and might not survive without bankruptcy or restructuring.
Low labor costs will eventually rise
Bernstein’s thesis holds that the cost advantages the cheaper carriers cultivate are small. For example, fuel costs the same for everyone and ultimately, Bernstein writes, labor expenses will as well. Currently, low labor costs are the main reason Norwegian Air can offer such low airfare to customers.