A 'hybrid' model. In essence, this does not invite a very clear definition. And when we look at these new companies that are shaking up the air transport industry, we see a real mishmash of carriers that were originally very traditional in their offerings - but which are moving towards greater flexibility - and low-cost players who are broadening their range of services. Over and above the marketing gimmickry behind the emergence of this new genre, it would appear that we are currently witnessing one of the major changes taking place in the airline industry, a change that is likely to drive the sector for some time to come.
A little backtracking. Several years ago, low-cost leaders all made the same prediction: the dynamics of the low-cost concept would wreak havoc with scheduled carriers and cannibalise the majority of short-haul routes in Europe. But what is the reality today? If we look at market trends over the last two decades, the case is clear: low-cost carriers have cut traditional carriers to shreds. From barely 5 % of seat capacity in Europe in 2001, low cost has grown to almost 40 % today. What's more, in Spain and a number of Central and Eastern European countries, this market share easily exceeds 50 %. This means, by contrast, that the European market is still dominated by the traditional model, which accounts for almost the remaining 60 % of the market, apart from a few fractions of a percentage which can be credited to charter airlines.
One fact explains this resistance. The "behemoths" of European airspace - Air France-KLM, IAG (British Airways-Iberia) and Lufthansa - have found a way to counterbalance the rise of the low-cost carriers. Their response is called a "hybrid airline". Faced with market losses on so-called point-to-point routes - i.e. those that do not support a network of connections around major hubs - they have decided to fight with the same weapons by creating their own low-cost subsidiaries! The Franco-Dutch group has launched HOP! Air France and Transavia, while Germany's Lufthansa developed Euro wings/Germanwings. For its part, IAG strengthened its position in this market segment by acquiring Spanish carrier Vueling in 2013.
FROM LOW COST TO HYBRID
To go back to the origins of this movement and find the "ancestor" of all these hybrid airlines, we have to turn to Asia and Singapore Airlines. In 1992, Singapore's national carrier no longer considered itself capable of flying under its own flag to regional destinations. In fact, its fleet consisted almost exclusively of large-capacity aircraft, which were not suited to short-haul routes but rather to long- and medium-haul flights. Serving cities such as Kuching in Malaysia or Surabaya in Indonesia with Airbus A310s or Boeing 757s was becoming economically irrational. And yet these services were still necessary to supply the carrier's hub at Singapore Changi airport. Silk Air was born as a compromise. This new carrier has taken off with aircraft with an average of 150 seats, while opting for an "intermediate" on-board product in terms of service. While, on the one hand, it offers business and economy classes, serves meals and provides lounge access in Singapore, on the other, its offer is simplified compared with the top-of-the-range canons in force on Singapore Airlines.
This strategy, which has made it possible to limit the operating costs of regional routes, has been followed by other major airlines, from Australia's Qantas with Jetstar to Air Canada Rouge, which operates the Canadian national carrier's leisure flights, and Thai Smile, recently launched by Thai Airways International.
In Europe, the pioneer of the 'hybrid' concept is undoubtedly Vueling. Some ten years ago, its CEO Alex Cruz constantly boasted that the Vueling model was the perfect amalgam of low-cost and traditional services and therefore represented the future of European air transport. Even though, in an interview given in 2014, the man who took over as CEO of British Airways this year told the BBT website: "I challenge anyone in our industry to say that we are not a 'full service' company in terms of our product. On the other hand, it can be said that we have a low-cost operation and that we offer the product that everyone wants.." For several years now, business travellers on Vueling routes have been able to travel in Excellence business class, a fare which also gives them access to VIP lounges at around thirty airports.
Beyond these questions of semantics, what does this third way, which is increasingly used in air transport, really mean? The basis of a hybrid airline is based on the best of both worlds, drawing inspiration from both low-cost and traditional airlines. The idea, which is rather clever, combines a simplified on-board offer - with services that often have to be paid for - with a very wide range of fares, from low-cost tickets to business fares. But this clever mix is proving tricky. In Europe, Brussels Airlines, following its merger with Virgin Express, was one of the first to combine low-cost and traditional services on the same aircraft. The Belgian airline decided to offer both the "Virgin Express" product - i.e. pure low-cost with every service at its own price - and the "SN Brussels Airlines" product, with services offered on board. Two different names for a good idea that has since been abandoned...
However, the concept of segmenting the cabin according to fare has gained ground. It is even establishing itself as a new standard. Traditional carriers such as Finnair, Flybe and SAS, as well as HOP! Air France and Eurowings/Germanwings have adopted this hybrid model. In practice, the ticket offered at the lowest price by these airlines only provides the service of flying with hand baggage, while the highest fare gives the right to a dedicated check-in counter, a substantial baggage allowance, priority access to airport formalities and access to the lounge. While some airlines such as Austrian Airlines and HOP! continue to offer a small snack on board - a mini-sandwich or Viennese pastry - even in economy class, they also offer à la carte services for a fee, such as access to the lounge or a more elaborate in-flight meal.
SATISFY EVERYONE AT ONCE
The advantage of this mix is that it meets the needs of all types of passenger. Thanks to its 'dry flight' offer, with no extras, it appeals to low-cost, price-conscious customers. At the same time, with its 'plus' services combined with the most expensive fares, it is perfectly in tune with the expectations of business travellers who want more flexibility when travelling and expect superior services. In addition, the products of hybrid subsidiaries must be in line with the top-of-the-range offer of their parent companies on long-haul flights in order to guarantee connecting passengers a consistent experience throughout their journey.
This hybrid development allows the major groups to exploit new synergies. Eurowings/Germanwings and, even more so, HOP! Air France are perfect examples of this. Since 2013, HOP! has become an essential tool for Air France in the regions, as the CEO of Air France, Frédéric Gagey, pointed out during a presentation: " It's time for the Air France group to go on the offensive in the short-haul market, where competition with rail is intense. A dense coverage of the French territory, a strong commercial presence and a simpler and more reactive organisation should enable HOP! Air France to become the benchmark on Europe's largest domestic network." . By grouping the entire French offer under a single brand - with the exception of flights serving the Paris-CDG hub - Hop! offers nearly 600 daily flights and around fifty stopovers, while enabling frequent Air France travellers to earn miles on their Flying Blue account.
This complementarity between traditional and hybrid airlines also justifies the activity of Eurowings/Germanwings. Faced with an erosion of its revenues on point-to-point routes, Lufthansa passed the baby on to its new entity. As a result, in the space of two and a half years, all regional and short-haul routes from Berlin, Cologne, Düsseldorf, Hamburg and Stuttgart have come under the Eurowings/Germanwings flag.
More surprisingly, the hybrid model is even infiltrating the world of low-cost airlines. We saw above that Vueling was quick to shed its low-cost image. This example has been followed by other players such as Airberlin and AirBaltic, Latvia's national airline, which broke away from the low-cost model in 2008. In Asia, Lion Air and Spring Airlines are also increasingly moving towards a hybrid product.
EVEN RYANAIR GETS INVOLVED
How are pure low-cost airlines reacting to this? By moving towards the hybrid model, of course! This is particularly true of AirAsia in Asia and easyJet in Europe. After launching the easyJet Plus card in 2008, which allows passengers to be allocated a seat, check in a hold bag and enjoy a queue-cutting service at boarding, the airline has been offering its frequent flyers a loyalty programme, called Flight Club, since the beginning of 2016. Even Ryanair seems to have been affected by the hybrid model. The airline has "humanised" itself by introducing additional services such as seat allocation and a free baggage allowance on its highest fare.
Mango, the low-cost subsidiary of South African Airways, is probably the best example of the transformation of a low-cost carrier into a hybrid airline. After starting its repositioning in 2010 with a fare offering a larger baggage allowance and a meal on board, Mango is now working on launching a premium class in 2016. This development is undoubtedly influenced by Star Alliance's recent decision to include Mango in its new concept of "connecting partners", partners designed to provide regional connections for passengers travelling on member airlines of the alliance.
Because, and this is one of the major innovations, hybrid airlines are now appearing within the airline alliances. "There is an increasingly perceptible convergence between the full-service airline and the low-cost business models of the airline industry, said Mark Schwab, CEO of Star Alliance, during the presentation of Connecting Partners. And all this under pressure from our customers, who tell us that they need access to destinations where we do not offer ideal connectivity, as the global airlines are not in a position to fill this gap."While Mango will be the first official member of the "Connecting Partners" offer, we can already imagine that Silk Air and Scoot, hybrid offshoots of Singapore Airlines, as well as Eurowings/Germanwings, on the side of Lufthansa, could rapidly enlarge this circle.
For its part, the oneworld alliance recently integrated Jetstar, the low-cost/hybrid arm of Australia's Qantas. Jetstar airlines - in this case three subsidiaries in Australia, Singapore and Vietnam - are now part of the Global Explorer programme, which offers a combination of flights and preferential fares around the world. The hybrid revolution is reaching a new dimension by extending to long-haul flights.
It is in Asia that this development is most advanced. For several years now, airlines such as Jetstar and Scoot have been offering long-haul services from Australia, China and Japan to South-East Asia. Singapore Airlines is even considering introducing Scoot flights to certain secondary European destinations. In 2015, Singapore Airlines' hybrid subsidiary has already started to take over some of its parent company's routes, such as Singapore-Jeddah... As for Jetstar, it has concluded partnerships with around thirty traditional airlines from Singapore and signed codeshare agreements with four members of oneworld: American Airlines, Japan Airlines, LAN and, naturally, Qantas.
AND NOW LONG-HAUL
Now it's Europe's turn to be affected by the phenomenon. A pioneer, Norwegian launched long-haul low-cost routes from Scandinavian capitals in 2013. While the destinations offered are mostly leisure, business travellers can choose from a network covering Los Angeles, Oakland (San Francisco), New York, Boston and Washington, as well as Dubai and Bangkok. The carrier is now extending its offer to the major European hubs with direct low-cost flights from London and soon from Roissy. At the end of July, Norwegian will open three flights, with a Premium cabin, from Paris to New York JFK, Los Angeles and Fort Lauderdale. "Charles de Gaulle represents a strong potential for expansion thanks to the addition of longer-haul routes and several frequencies on these three new routes", explains Bjorn Kjos, CEO of Norwegian.
In Germany, Lufthansa is also betting on hybrid air transport with its new Eurowings entity, which now includes long-haul routes and the Germanwings short-haul network. Based in Cologne, the airline offers flights to the Caribbean, Dubai and Thailand, and will be adding routes to Boston, Las Vegas and Miami in summer 2016. Passengers booking the "Best" fare enjoy a Premium Class with a seat similar to Lufthansa's Eco Premium. "This is a trial balloon. If the long-haul flights are not conclusive, we will revise our strategy."This is what Martin Riecken, Lufthansa's Director of Communications Europe, said last September. The initial results show that the new Eurowings seats are very popular. This should give other carriers plenty of ideas.
A la carte rates
Hybrid airlines are positioning themselves on the market with a simplified fare structure, organised around three or four price ranges. The most "basic" - dubbed Basic/Basic + at HOP! Air France and Base at Vueling - is akin to pure low-cost, with 'one-way' flights at extremely low fares, for example e49 one-way in France at HOP! or, even cheaper, from e33 at Eurowings/Germanwings. Next comes an intermediate fare, again in economy class. This includes the option of changing flights - usually at an extra cost, but sometimes without - as well as free baggage allowance and sometimes lounge access. Finally, the highest fare, close to business class, offers total flexibility on the route and ground services - lounge access, priority boarding - as well as in-flight services.
Also in this issue: Meet Hélène Abraham, Deputy CEO of Hop Air France!
