There was a previous battle in world war two.  The next one will not be violent but looks to be as belligerent.  The next battle will be in the skies over the Atlantic as the newcomer LCCs pour capacity into the market and upset what has become a comfortable club for network airlines.

The belligerents include the network airlines from the US (American, Delta, and United) and the EU (Air France/, British Airways, Lufthansa, and their partners).  On the other side of this fight will be Norwegian, and soon JetBlue, with more to come.  To try offset the disruptive role being played by Norwegian, British Airways and Iberia are offering LEVEL.   Now Lufthansa is going to extend the reach of its Eurowings brand.  Air France is creating something called Boost.

Norwegian probably could never have imagined such a competitive response.  The EU competition is rolling out their big guns.  LEVEL and Eurowings will deploy A330s.  It’s not clear what Boost will deploy, but the bet would be A330s as well.  These aircraft are cost effective and paid for.  Norwegian will deploy 787s and MAX8s.  JetBlue will deploy the and A321LR. Then there is WOW and Icelandair also growing their reach.  These last two have home bases that will allow for disruptive use of single aisle aircraft in the market.

As we have seen numerous times before, the plans at airlines are easily disrupted by labor strife.  The big three European airlines about to get into this battle have long histories with strikes.  Air France’s decision to hire cabin crew for Boost at 40% less than its mainline has been described as “scandalous”.   Lufthansa has just ended a long-running fight with its pilots.  British Airways crews are getting annoyed again, too.  No wonder LEVEL will be based in Spain.

Jean-Marc Janaillac Air France-KLM CEO noted “We are lagging behind in terms of competitiveness. Since we are a legacy carrier, we are old, with many layers of . We are not agile and lean enough to be innovative. We need to reduce our unit costs and continue our productivity efforts in order to grow.”  And there’s the rub.  This comment applies to the network airlines on both sides of the Atlantic.  The aircraft will not make the difference. It will be the people.   Imagine the reaction at these airlines when and if the sclerotic layers are cut?  The US airlines are further down the road on this, and although we have seen better financials, we have also seen what happens when exogenous factors like weather throw operations into a crisis.  The management layers are a problem – until you need them.  Since airline operations are subject to many exogenous factors, sometimes you need those people.

However, it is clear that newer airlines like Norwegian are doing things differently.  The way they hire people saves the airline a lot of money.  In the US, Norwegian faced pushback from local airline unions.  And then, suddenly, the problem was gone.  Is Norwegian more supple and flexible? Absolutely and the legacy airlines cannot match this.  Their labor relations are much more complex and the legacy airlines can’t pivot as quickly.  Recall the attempts by Delta (Song) and United (Ted) to invent sub-brands and how that worked out.  Corporate culture is not something that grows more flexible over time.

The Atlantic market is getting more crowded and the network airlines are going to lose market share and revenues.  Given their high costs, the size of the impact is not clear, but we can be sure the impact will be negative.

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