In mid-January 2021, Norwegian announced it will refocus its operations on European routes and cease long-haul operations as part of its plans to exit the insolvency court. Ever since it started servicing routes between Europe and the United States with its fleet of 32 Boeing 787s, the airline became known for offering customers the opportunity to travel on modern and fuel-efficient aircraft very cheaply.
Using Fleet and Flight data from InsightIQ, IBA’s aviation analyst Finlay Grogan reviews the transatlantic market and which operators may extend their operations to fill capacity gaps once restrictions and passenger demand returns and if new generation narrowbody aircraft may also be a key asset in facing a volatile transatlantic market.
From its various bases in London, Paris, Madrid, Rome, Oslo and Stockholm, Norwegian disrupted the transatlantic market. It competed with legacies and well-established airlines in the market segment such as IAG Group, Air France-KLM, Lufthansa Group and the ‘Big 3’ US airlines: American, Delta and United. In 2018 and 2019, Norwegian’s market share of transatlantic flights to the US amounted respectively to 5.4% and 5.1%. In 2019, this figure was above 23% for flights departing from Barcelona and nearly 12% for flights out of Rome to cities in the US. IAG Group reacted to Norwegian’s success by launching a new brand in 2017, Level, a new low-cost carrier (LCC) that offered short and long-haul flights out of its bases in Barcelona and Paris-Orly. However, the new airline did not present much competition for Norwegian as it offered fewer than 550 flights between Europe and the US with its smaller fleet of seven A330-200s.
Covid-19 travel restrictions, still applicable in January 2021, as well as low demand for long-haul flights between Europe and the US, resulted in a 61% decline in flights in 2020 compared to 2019. Evidently, the pandemic has severely affected the profitable transatlantic routes of operators and has forced airlines, including Norwegian and IAG’s LCC, Level, to end such operations.
As demonstrated in the graph above, only cargo operators increased capacity in 2020, mostly due to the lack of belly cargo available as passenger flights were significantly reduced last year. InsightIQ shows that FedEx, UPS and Lufthansa Cargo recorded growth rates of 18%, 6% and 12% respectively over the period.
Last year, Air France-KLM was the fourth largest operator in terms of flights operated between Europe and the US.
Before the Covid-19 outbreak, InsightIQ flight data shows that Norwegian operated nearly 9,000 flights between Europe and the US. The end of its transatlantic operations means it leaves more space for growth once demand recovers to 2019 levels, benefitting existing carriers such as IAG Group, the ‘Big 3’ US airlines as well as Air France-KLM Group and Lufthansa Group which operate within this market segment.
The existing carriers might not be the only operators to fill the gap left by Norwegian. We’ve seen in the past how transatlantic routes attract airline start-ups; Nordic Primera Air and WOW Air, which filed for bankruptcy in 2018 and 2019 respectively, were both tempted. Indeed, the French LCC French Bee, owned by the Dubreuil Group, was planning to service a new route between Paris-Orly and Newark Liberty Airport (EWR) with its fleet of three A350-900s before the pandemic, adding to its Paris to San Francisco route. However, French Bee’s operations will apply only very limited pressure to existing strong airline groups.
Another opportunity for transatlantic capacity growth will exist for smaller and fuel-efficient widebody aircraft. Indeed, Boeing’s 787 became the second most used aircraft type for operations between Europe and the US as demand declined significantly in 2020. The aircraft type’s usage share on transatlantic routes increased by 8%.
Moreover, Airbus suggested that new generation narrowbody aircraft may also be a key asset in facing a volatile transatlantic market. Data recorded by InsightIQ in 2020 backs this up; A320neo family utilisation for transatlantic routes increased from 0.7% in 2019 to 1.6% in 2020 as low demand boosted the A320neo family’s usage on long-haul routes. As of January 2021, only four European airlines employed the A321neo aircraft they have in fleet on transatlantic routes to the US: Aer Lingus, TAP Air Portugal, Azores Airlines and the French business-only airline La Compagnie. This trend is likely to increase once demand recovers in the next few years.
European LCCs are not the only carriers looking at expanding operations into transatlantic routes; indeed, transatlantic travel is one of the most important revenue streams for US airlines. Before the pandemic, JetBlue unveiled planned services to the UK and placed an order for 13 A321XLRs. Its CEO has recently announced the airline will also target other European destinations such as Italy since the ordered aircraft bring most of Western Europe within its reach. Moreover, United will add 50 A321XLRs into its fleet to expand its transatlantic routes. According to United’s CEO, the A321XLR opens potential new destinations to further develop the airline’s route network.
IBA expects the next few months to look much the same as at the end of 2020, with a sharp capacity decline in flights from Europe to the US compared with 2019 levels. Once the vaccine roll-out program has progressed and a new travel sanitary policy is in place between European nations and the US, we are likely to see increased capacity in terms of the number of flights but with operators offering fewer seats using smaller widebody and long-range fuel-efficient narrowbody aircraft.
IBA’s analysis platform - InsightIQ, flexibly illustrates multiple asset, fleet and market positions, actual and potential, to inform client choices and identify acquisition opportunities. Immediate access to crucial aircraft, engine, lease rate, fleet, and flight data eases appreciation of historic and future aircraft concentrations and operator profiles.
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In our 2021 forecast for the year ahead, Dr Stuart Hatcher, Chief Revenue Officer at IBA, shares IBA’s opinion on traffic, transactions, asset values and airline failures in 2021. ‘Now that 2020 is behind us, we can begin to look forward to 2021 and beyond; we can consider whether there are signals we can be optimistic about. A long, slow vaccination process is underway but, although this is a positive development, when do we realistically foresee the current market’s harsh conditions will start to ease?’
Significant uncertainty will remain in 2021, but the global aviation industry remains agile and resilient to weather future challenges in 2021 and beyond. Join IBA, the 2020 Appraiser of the Year, for a Market Update as we uncover, discuss, and predict trends across aviation finance for the year ahead. This webinar is a must for the aviation community looking for comprehensive, accurate and up-to-date market insight. Topics covered include: IBA’s aircraft values The changing face of airline fleets Possible airline failures The road to recovery OEM activity What are the changing trends in retirements? Transactional activity Trading sales and capital activity The slide deck is available to download here. If you have any further questions or comments, please contact Mike Yeomans.
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