Can Thomas Cook make longhaul work when Norwegian Airways can’t?

Norwegian Airways woes are well documented, with a lack of fuel hedging this year further undermining a business model, that is simply not working financially.

 Last year Norwegian where ranked second to last in financial results when compared to 75 other global low cost carriers, with an operating profit of -8%.

 The short haul low cost formula operated successfully by the likes of Rynair, is to have stage length of 5 hours or less and to operate at airports which allow it to turn its aircraft around very quickly in order to maximise flying hours and its aircraft utilisation.

 They also try to operate as few different aircraft types as possible, as this reduces the cost of carrying spares and allows higher utilisation of its pilots and crew, due to the interchangeability a single aircraft fleets delivers.

 These unit cost efficiencies, allow low cost carriers to offer lower prices than traditional carriers like British Airways and drive higher average load factors, which in turn yield higher profits.

 However, when we move into the Longhaul sector different aircraft types are required and the benefits of turnaround times are mitigated, simply because the aircraft land less frequently.

 Secondly, traditional carrier have a major average revenue advantage because of the high yields delivered by their business class passengers. These passengers tend to be locked into the traditional carriers via loyalty schemes, business lounges and the connectivity delivered by their hub networks.

 Traditional carriers can therefore more easily fight off competition from supposed “long haul low cost carriers”, by simply discounting seats at the back of the aircraft to similar or lower prices, whilst using the premium cabins to subsidise the average revenues per flight.

 Hence, we have seen many long haul low cost carriers go bust since the days of Freddie Laker’s Sky Train and most pundits seem to think Norwegian may be heading the same way.

 So given Norwegians struggles, why are Thomas Cook continuing to increase its long haul flying program with new city routes such as New York, San Francisco and Seattle.

 The answer appears to be that these routes are just icing on its longhaul cake, with its core destinations remaining beach destinations such as Mexico, Florida and the Caribbean.

 Within these destinations Thomas Cook combines their flight seats with holiday hotels, to sell packages on a convenient point to point flying basis, utilising high density aircraft configurations and via a distinctive leisure distribution network.

 Beach routes have allowed Thomas Cook to become Manchester’s largest longhaul carrier and to then add city routes such as San Francisco, where it faces no direct competition from traditional scheduled carriers.

 Hence, in Thomas Cooks case, if you can’t beat them, simply avoid them and extra profits should come flying in!

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