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Long-haul Discounters Are Playing In The Big Airlines Trans-Atlantic Sandbox, To Consumers’ Benefit

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Abilene, TX, and Reykjavik, Iceland, aren’t normally thought of in the same breath, yet the two cities share some things in common. Both have about 122,000 residents. They both are relatively isolated from large population centers. And, believe it or not, both now are served by American Airlines, making them two of the very smallest cities served by the world’s largest carrier.

But while giant American is the only carrier that flies to Abilene, it is just the newest of many that serve Reykjavik. Its big U.S. rivals, Delta and United, beat it there. And so did at least eight other European carriers. That includes three that are part of a new breed – long-haul discounters. They are disrupting the once highly profitable international air travel market the way domestic discount carriers already have disrupted the U.S. domestic air travel market.

Icelandair, that nation’s  long-standing national airline, long ago – like in the late 1950s – earned a reputation for providing relatively cheap fares for travel between Europe and the United States via its Reykjavik hub. Then in 2012 Reykjavik-based upstart WOW Air entered the market, driving U.S.-Europe fares even lower. Hyper-aggressive Norwegian Air Shuttle also serves the Europe-U.S. air market via Reykjavik (and other European cities).

And those are just three of a handful of long-haul discount carriers now offering cheap seats across the Atlantic. They are going up against the large conventional airlines – most prominently American, Delta, United, British Airways, Air France and Germany’s Lufthansa – that long have dominated that huge and (previously) lucrative market. They are, in effect, fouling the big carrier’s formerly very profitable sandbox by skimming off the most price-sensitive of trans-Atlantic travelers.

The big conventional airlines don’t earn big profits providing service to such back-of-the-plane travelers. But such travelers, who buy lower-priced tickets, do help fill up the large aircraft that the conventional carriers use on those routes in order to provide high-quality – and – frequent service between major U.S. and European cities. Without some of those thrifty passengers filling up the back of the big guys’ trans-Atlantic flights, the conventional airlines would be unable to offer as many trans-Atlantic departures each day as they do now, and that would make them less popular with the high fare-paying business travelers that drive – or at least used to drive – the conventional airlines big trans-Atlantic profits.

Norwegian Air Shuttle commonly is viewed as the leader of the pack of long-haul discounters. The 25-year-old company based in Oslo entered the long-haul international market in 2013. Ever since  it has courted both price-sensitive U.S. and European travelers and controversy.  Just last month a three-judge panel of the D.C. Court of Appeals ruled against several U.S. pilot unions’ claims that Norwegian is serving the United States illegally via its use of a operating subsidiary in Ireland.  Carriers based in Ireland, a member of the European Union, have virtually unlimited rights to fly to the United States while carriers based in Norway, which is not part of the E.U., do not.

In fact, Norwegian Air has become such a thorn in the big airlines’ side that International Air Group has made two failed attempts to buy it.  IAG is a multi-national holding company that owns British Airways, Span’s Iberia, Ireland’s Aer Lingus and two Spanish discounters. Vueling does not serve the U.S, but the brand new Level does via its new flights between Barcelona and Oakland. News reports from Europe this week also suggest that IAG is preparing a third run at Norwegian and is prepared to offer 1.5 billion Euros, or about $1.8 billion. That’s a significant premium to Norwegian’s current market cap of just over $1.3 billion.

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