Why have low cost long-haul airlines gone under in the last 5 years?

Airlines going under isn’t a new thing, since the first airlines started, some airlines have gone under. But this phenomenon of low cost long-haul airlines going under has been exasperated in the past 5 years. So, why have low cost long-haul airlines gone under in the last 5 years?

Most of the time, airlines have gone under due to poor management of finances, but the past 5 years have proven different. Whilst poor financial management may have been a factor, the main issue is sustainability. 

Most of the airlines that have gone under have been low cost long-haul airlines. These m are not usually your typical low cost airlines like Ryanair or EasyJet, but are usually low cost and long-haul airlines. Think along the lines of Wow Air, Thomas Cook and Primera Air– all of these had the same business model, all of these are airlines that have gone under. 

Whereas budget airlines like Ryanair, EasyJet and Southwest are all booming, their low cost long-haul counterparts are struggling. But why exactly are their long-haul counterparts struggling so much? 

As stated earlier, the answer is normally economic. Low cost long-haul airlines are built on the pretext that they can take you wherever in the world for cheap. However, this requires a lot of fuel, which costs a lot of money. 

Take for instance, Primera Air’s one-way transatlantic ticket, it cost $99, whilst spending roughly $95 on fuel. This obviously only left a $4 profit, but when you factor in the salaries of the staff, the insurance, and the slots, you are operating at a considerable loss per seat. 

But why do airlines do this?

Airlines are corporations at the end of the day, their main objective is to make money for their shareholders. They do this to become the dominant airline in the low cost long-haul market. 

They know that they can’t compete with the long-established airlines such as BA or Qantas. This is why they choose something new, just as fintechs are usurping traditional banks, low cost long-haul airlines aim to usurp traditional airlines. 

They aim to entice holiday-makers with their low prices, and far flung routes. Once they can get enough long-term, loyal customers, they can dethrone BA and Qantas, and become the kings of the air. Once they have become the kings of the air, they can consolidate pricing and charge whatever they like. 

Why do low cost long-haul airlines keep failing?

Low cost long-haul airlines keep failing due to their lack of profitability. They can’t seem to conquer the market, and get the market share they so desire. 

This is thought to be because these airlines are essentialist airlines- you only get what you need. What you need is a seat, a seatbelt, safety equipment, and that is it when it comes budget airlines. If you want some water, you’ll have to pay for that, if you want a glass of coke, you’ll have to pay for that, whereas, BA, Qantas or Virgin, you get it for free. 

People like the fact that when they fly on BA, Qantas or another carrier, that they are given “free” drinks, rather than having to give the airline “more” money.  

It takes them too long to conquer the market, they simply don’t have the time to get a loyal customer base. Time is money for these airlines, they don’t make enough to keep themselves solvent, so they borrow millions from the banks. These banks will want repaying, plus interest, so these airlines have to become profitable, something they can’t seem to do. 

So when this happens, they need to borrow more money, and then more money, and more money, and so on. This continues until the points where creditors get tired, and refuse to loan more money out, and the airline collapses. 

There’s also the issue of seasonality, most low cost long-haul airlines rely on the lucrative summer months to pay for their not-so lucrative winter months. This is the same amongst most of the industry, except airlines that fly from both the Northern and Southern Hemispheres. 

When you fly from both the Northern and Southern Hemispheres, you get the bonus of both the Summer months in each hemisphere. This allows your quarterly earning to stay roughly the same per quarter without massive spikes and dips, as can be seen with Ryanair’s earning reports. 

Which low cost long-haul airline started this trend?

Monarch was the first of the low cost long-haul airlines to go under in September 2017. At the time, the collapse of Monarch Airlines was the largest in the history of the UK, this was only until the collapse of Thomas Cook. 

After the collapse of Monarch, many other low cost long-haul airlines followed them, Wow Air being the most well known. But other now-deceased low cost carriers are Aigle Azur, Air Berlin and Adria Airways to name a few. 

I hope you have enjoyed this article, I know it is still a little different from what we normally publish. I just thought that this was an increasingly common occurrence in the aviation industry. Do you believe that we have seen the end of this trend? If not, which airlines do you think will be next? I’d love to read your opinions!