Is a true all-LCC option on the horizon for the Australia-London market? AirAsia X’s potential Gatwick relaunch and a Norwegian-Jetstar partnership could make it possible

5 May, 2017

AirAsia X is planning to resume services on the Kuala Lumpur-London Gatwick route –perhaps as early as late this year if it decided to acquire 777s but at the latest in 2018 as it takes delivery of new A330-900neo aircraft.

AirAsia X suspended services to London and Paris in early 2012, when it decided to drop all long haul routes and stick to medium haul routes within Asia Pacific. A combination of high oil prices and inefficient aircraft – AirAsia X had A340s at the time – made the Kuala Lumpur to London and Paris routes unviable.

New aircraft technology and cheaper oil prices have significantly changed the operating economics of long haul low cost routes. Norwegian’s decision to launch Gatwick-Singapore services in Sep-2017 represents a significant milestone in the evolution of the long haul low cost model. As Blue Swan previously highlighted, Gatwick-Singapore will be the world’s longest LCC route and reopens up the possibility of an all-LCC option to London for Australia passengers.

Norwegian is now offering Singapore-London return fares starting at AUD518. With a separate Sydney-Singapore ticket available for AUD356 on Scoot, Australia passengers can travel from Sydney to London for AUD861 return in Oct-2017 (the first full month the new Norwegian route is operating) with a self-connection in Singapore. These fares include taxes but exclude optional charges for baggage, food and drinks.

Norwegian is not likely to attract significant Australia traffic as the self-connection option on two LCCs is usually only slightly cheaper – and often can be more expensive – than the cheapest full service option with a through connection on one airline. Once AirAsia X resumes services to London Gatwick – and it is a matter of when not if – it is likely to attract a much larger share of total Australia-London traffic.

The keys for any LCC in attracting significant Australia-Europe traffic will be schedule and competitive origin and destination pricing or strong partnerships.

AirAsia X offers a Fly-Thru connection product which for a small fee enables passengers to have a seamless connection at Kuala Lumpur and check their bags through to their final destination. In recent years AirAsia X also has started pricing one-stop itineraries with origin and destination fares, offering significant discounts compared to the typical sum of sectors approach used by most LCCs and with all self-connections.

The new origin and destination pricing approach and the Fly-Thru product has enabled AirAsia X to significantly boost its portion of transit passengers, including to and from its four Australia destinations (Gold Coast, Melbourne, Perth and Sydney). Transit traffic now accounts for approximately half of AirAsia X’s total traffic with passengers connecting to other AirAsia X medium/long haul flights as well as AirAsia short haul flights.

The additional transit traffic has supported additional capacity to all four of AirAsia X’s Australia destinations. AirAsia X currently operates two daily flights to Melbourne, Perth and Sydney as well as 11 weekly flights to the Gold Coast. The multiple frequencies are critical for connections, including London when it is launched, as it ensures quick transit times in Kuala Lumpur in both directions.

Back in early 2012, when London was suspended, AirAsia X had not yet implemented origin and destination pricing. AirAsia X also only had one daily flight to all its Australia destinations at the time, resulting in long connection times in at least one direction for Australia-London and Australia-Paris passengers.

Since AirAsia X’s withdrawal from the London market, there have been two-stop LCC options from Australia to London but these are inconvenient and generally expensive as separate tickets have to be purchased. There also has been a one-stop LCC option available from Melbourne to Scandinavia since 2013, when Norwegian launched flights to Bangkok. Passengers from Melbourne can now fly to Bangkok on Jetstar and connect to Norwegian’s flights to Copenhagen, Oslo and Stockholm. However, these are small markets from Australia and there are no LCC connections from Sydney to Bangkok as Qantas rather than Jetstar operates this route (as well as Thai Airways).

Another one-stop LCC option for Australian passengers opened up in late 2015, when Eurowings launched flights from Cologne to Bangkok and Phuket. However, Eurowings suspended Cologne-Phuket in late Apr-2017. Jetstar serves Phuket from Melbourne and Sydney, providing passengers from both cities a one-stop option to Germany when the Cologne-Phuket flight was still operating. Eurowings will continue to operate Cologne-Bangkok, still giving Melbourne passengers a one-stop LCC option when buying separate tickets on Jetstar and Eurowings.

Australia passengers will also get a new one-stop LCC option to Europe in Jun-2017, when Scoot launches services from Singapore to Athens. This option has been generating more interest as Scoot is offering attractive origin and destination pricing that in some cases is significantly less than existing one stop full service options. Australia-Greece is also a sizeable market with significant ethnic traffic, particularly during peak periods, However, as Blue Swan has previously analysed, the new Athens-Singapore flight does not connect well with Scoot’s Singapore-Australia flights, resulting in extremely long layovers in at least one direction. Scoot is also only serving Athens with two to four weekly flights depending on the time of the year.

The keys for any LCC in attracting significant Australia-Europe traffic will be schedule and competitive origin and destination pricing or strong partnerships. Norwegian has an attractive schedule in Singapore as it has two separate timings for its initial four weekly Singapore-London flights, resulting in relatively fast connections to Australia two times per week and fast connections from Australia two times per week. However, it does not have any partnerships with Asian LCCs which would enable a through product and potentially better pricing.

A partnership between Norwegian and Scoot seems unlikely given Scoot’s parent Singapore Airlines competes on the Singapore-London route and is one of the largest competitors in the Australia-London market. A partnership with Jetstar could be more feasible although there would be some competition with Qantas on Australia-London.

An interline or partnership between Norwegian and Jetstar would likely involve multiple Jetstar subsidiaries, including Singapore-based Jetstar Asia. Jetstar Asia would be able to offer connections regionally within Southeast Asia as well as to Darwin and Perth while Jetstar Airways would offer connections to Melbourne. The Jetstar Group currently accounts for a 7% share of total capacity in Singapore, make it a potentially appealing partner to Norwegian and other foreign airlines serving Singapore. Jetstar Asia already interlines with more than 25 foreign airlines and most of these airlines also work with Jetstar Airways.

A Jetstar-Norwegian partnership would be intriguing and open up a host of potential network synergies. However, AirAsia X would still be in a much better position to attract Australia-London traffic once it resumes service to Gatwick.