Low-Cost Carriers Are Going Long-Haul -- There's No Way to Stop Them!

In recent months, Delta Air Lines (NYSE: DAL  ) and other major U.S. airlines have protested Norwegian Air Shuttle's plan to fly from London-Gatwick Airport to the U.S. using an Irish operating certificate. These lobbying efforts succeeded in delaying U.S. approval of Norwegian Air Shuttle's proposed Irish subsidiary.

However, Delta's protests did not stop Norwegian Air Shuttle from beginning its low-cost flights between London and the U.S. last week. Norwegian Air Shuttle is simply using its existing Norwegian operating certificate, for now.

Despite Delta's protests, Norwegian Air Shuttle began flights from London to the U.S. last week. Photo: The Motley Fool

Indeed, in the long run, it is inevitable that so-called "low-cost carriers" (or hybrid carriers) are going to start acquiring widebody planes and flying long-haul routes. In Canada, WestJet (TSX: WJA  ) recently announced plans along these lines. In the U.S., JetBlue Airways (NASDAQ: JBLU  ) is the most likely to begin competing with legacy carriers on long-haul widebody routes.

New long-haul rivals arise
In recent years, long-haul routes beyond North America have been dominated by the three global airline alliances -- each of which is anchored by one of the three big U.S. legacy carriers. (There have also been side deals such as Delta's tie-up with Virgin Atlantic.) Even low-cost carriers like JetBlue that have moved beyond a single aircraft type have stuck with all-narrowbody fleets.

However, Norwegian Air Shuttle's foray into low-cost transatlantic service may mark the beginning of a flood of new competition on long-haul routes. Earlier this year, Azul Linhas Aereas -- a Brazilian airline started by JetBlue founder David Neeleman -- announced that it was acquiring a fleet of Airbus widebodies to support flights to the U.S. Azul plans to begin flying to the U.S. in early 2015.

WestJet plans to add widebody planes to its fleet next year. Photo: Wikimedia Commons

Most recently, WestJet has rolled out plans to get into the long-haul low-cost carrier game. The move wasn't all that surprising; WestJet already branched out to a new aircraft type with the Q400 turboprop last year and it recently began seasonal service to Europe on its existing fleet of 737s.

WestJet is currently close to deciding on which widebody planes to purchase or lease, and it could begin long-haul flights as early as 2015. At first, it plans to use widebodies for flights to Hawaii, but looking further ahead it is likely to fly them to Europe as well.

Who will be first in the U.S.?
Norwegian Air Shuttle and Azul Linhas Aereas will both serve the U.S. with low-cost long-haul flights, but none of the U.S. low-cost carriers have moved yet to acquire widebody planes. That is a necessary first step for operating long-haul routes abroad. Most U.S. low-cost carriers are determined to minimize costs by operating a single aircraft type, ruling out long-haul flights.

However, JetBlue has previously expressed an interest (albeit a vague interest) in expanding its fleet with widebodies. Indeed, wide-bodies would be a better fit at JetBlue than at the other U.S. low-cost carriers and ultra-low-cost carriers.

JetBlue has already begun thinking about adding wide-body aircraft. Photo: JetBlue Airways.

First, JetBlue moved beyond a single fleet type nearly a decade ago. It has experience handling the complexity of multiple aircraft types. Second, JetBlue has its main operating bases in big metropolitan areas and tourist destinations: New York, Boston, Fort Lauderdale, and Orlando. Third, JetBlue's relatively upscale product is particularly appealing on longer routes.

JetBlue Chief Executive Officer Dave Barger has previously stated that JetBlue's first target for widebody flights would be Latin America. He has pointed out that there is plenty of service today from the U.S. to Europe and Asia.

That said, if JetBlue acquired widebodies, it would likely offer service to Europe, too. JetBlue recently introduced a premium cabin called "Mint" on some flights from New York to Los Angeles, which it will expand to all flights from New York to Los Angeles and San Francisco next year. Mint offers lie-flat seats at a much lower price than what legacy carriers have charged.

A similar concept could make sense on flights to key business markets in Europe like London, Paris, and Frankfurt, Germany. Today, a round-trip business class ticket from New York to London can cost $4,000-$6,000 or more, even with an advance purchase. However, London is only 40% further from New York than LA JetBlue could probably make money on flights to London with business class fares starting as low as $999 one-way.

Foolish conclusion
Delta Air Lines, the other U.S. legacy carriers, and their joint venture partners are enjoying their dominance of the long-haul travel market today. However, it won't last. Legacy carriers' efforts to match capacity to demand and increase fares for flights to Latin America, Europe, and Asia will create a compelling business case for low-cost carriers to enter the market.

Today, WestJet in Canada and Azul in Brazil are preparing to launch long-haul widebody service in 2015. Sooner or later, a U.S. low-cost carrier will follow -- with JetBlue being by far the most likely candidate. In the long run, legacy carriers will have to face competition from low-cost carriers everywhere: even on long-haul international routes.

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