Across the Aisle from IAG CEO Willie Walsh on Level, His New Airline

Across the Aisle Interviews, IAG

International Airlines Group (IAG) launched its fifth airline brand last week. The name is Level, and while you’ll have a hard time finding its website for now (“level airline” doesn’t bring it up on the first page of Google results for me), IAG is betting that this is going to be a big player in the low-cost, long-haul space.

I had the chance to speak with IAG CEO Willie Walsh for half an hour, and this is part 1 of that conversation. Look for part 2 tomorrow.

Brett Snyder, Cranky Flier: The basics I think have already been well-covered. [Level] is starting from Barcelona to 4 cities in June: LA, Oakland, Punta Cana and Buenos Aires, correct?

Willie Walsh, CEO International Airlines Group: That’s correct, yeah.

Cranky: And using A330s to start with being operated by Iberia and eventually it’s own crew. Is that the plan?

Willie: That’s the plan, Brett. We have two brand new A330-200s being delivered from Airbus so we were keen to get flying as soon as possible. So what we did on Friday was we revealed the new brand. The brand will be Level. The operating company initially will be Iberia, so there will be Iberia pilots and cabin crew, and it will be operated on the Iberia [operating certificate].

Cranky: But eventually it will be on its own [certificate]?

Willie: Yeah, that’s the plan. We intend to develop it into an airline that will be operating from multiple cities in Europe, across the Atlantic, north and south, and looking east as well. But initially our focus will be North and South Atlantic.

Cranky: Alright so my first question is… why do you need the new brand? Why couldn’t you do this with the existing brands you have?

Willie: It’s a great question. We actually challenged ourselves quite a bit on that. In the end what we realized is that the ambition for this is quite significant. So if it were only operating from Barcelona with the routes we announced with limited expansion then we probably would have used one of the existing brands. But our view is that the scope and the potential goes well beyond that. So the more we sort of developed that, the more realized that this is something that will develop into another operating airline.

We did quite a bit of research and we challenged ourselves on whether we could stretch the existing brands to extend into this segment of the market or whether we could have a, if you like, associate brand. In the end we concluded that the best thing to do was actually develop a new brand. And I think it shows the flexibility of IAG that we can actually do that. We have the scope to create something new within the group and the freedom to do so which is something other airline groups wouldn’t have.

Cranky: So the way that this looks like it’s being structured in terms of the on-board configuration and some of the routes you’re looking at, it’s more of a lower-cost operation that’s going to compete with the other carriers, such as Norwegian, that have ambitions to do the same. So why is this going to work for you guys in what is a big Transatlantic market with a lot of capacity out there right now?

Willie: We refer to this as next-generation low-cost. You can call it long-haul low-cost, but we’ve labeled it internally as next-generation low-cost. We’ve been thinking about this for several years. This is not a new initiative. We’ve been watching what Norwegian has done, Air Asia, Air Asia X. And quite honestly we’ve also looked at Aer Lingus, because you’ve heard me say this before. I would say that Aer Lingus probably is the low-cost Transatlantic success out there. What is clear is that the opportunity here is to stimulate a new customer base, grow the market in a significant way.

We’re convinced that the model works. We’re convinced that having looked at what Norwegian has done in terms of successfully unbundling the product, there is consumer appetite for that in a way that you know, 5 years ago we wouldn’t have believed possible. And we’re convinced that this is something we can do and be profitable doing it. We wouldn’t be launching it if we weren’t absolutely convinced that we could return, sort of financial targets, measures, equivalent to the targets we’ve set for the rest of the group. We think we’ve got a combination of factors that work for us.

You will have heard Bjørn [Kjos, CEO] at Norwegian talk about this. To make the long-haul widebody, low-cost work, you need feed. It’s not that you have strong point-to-point demand. You also need feed. And clearly that helps to point us into the direction of Barcelona where we’ve got a very significant short-haul network with Vueling.

We also think that the A330 is a better aircraft because of the range of the aircraft which fits exactly what we have in mind. And it’s cheaper in terms of ownership costs or leasing costs than the 787. I’m not saying the 787 is a bad aircraft. I’m just saying that the A330, particularly the high density A330-200 works very well in this segment of the market. And I think what drove us then toward a new brand was the onboard proposition.

It’s a two-class configuration with economy and premium economy. We’re not trying to sell that premium economy as a business class product. There are no flat beds. So when we looked at all of this, we put it all together with the unique proposition that IAG has that something new can plug into our existing cost structures and take advantage of the scale of the group. Plus, uniquely we have Avios our loyalty program, our loyalty currency that we can use. This is something we’re quite excited about and we think there’s very significant potential to expand this model beyond Barcelona, obviously, but into new markets around Europe, stimulating new traffic and new demand.

Cranky: You mentioned Vueling, the importance of connectivity in Barcelona so far. Why not make this a part of Vueling? I know for Vueling, Barcelona is its biggest operation, but it’s not necessarily a Spanish brand. So why not use that?

Willie: We tested it. We did brand research in a number of countries, and it wasn’t as strong in the US as we would have hoped. So I think having looked at it quite a lot, a number of issues pointed us to creating a new brand. We want to keep these companies focused on their core activities. Vueling’s core activity is short-haul low-cost. Quite honestly they didn’t have a great appetite to do the long haul, it’s a very different proposition, as you know. The fact that Ryanair doesn’t do long-haul demonstrates just how different it is. If it were simple, they would have done it and they would have done it a long time ago. We felt we had scope to create a new brand, a new operating company in the group. And having worked with Brand Union on the development of the brand, we came up with Level which we felt had better resonance in the target markets we were looking at.

Cranky: You’re looking beyond Barcelona. Connectivity of course that’s another thing Ryanair has never had. But looking beyond Barcelona, you’re not going to have that same ability to connect if you’re picking some city in say Germany. So is this something that you’re looking at what you can do on this side of the Pond as well? Are you looking at American, for instance. Are you trying to be plugged in to multiple airlines?

Willie: No, in the short-to-medium term we’re focused on our own network. You mentioned there yourself, Vueling isn’t just in Barcelona. Vueling has a strong presence in Italy. It has a strong presence in France. So when we look around at IAG brands through the various airlines, we’re very strong in Spain, the UK, Ireland. And we’ve got good strength in Italy, Belgium. So maybe not as strong in Germany, but there are plenty of markets there that we can focus on in the short-term as we develop that presence. And clearly what we have in that group is the ability to quickly develop a network. So it’s something that Norwegian is investing in trying to develop a short-haul network to support its long-haul ambition. We’ve already got it in a lot of these markets. In terms of speed to market and speed to growth, we’re out there way ahead of anybody else. And we’ve got the flexibility to be able to do this and proven ability to have these airlines operate successfully quasi-independently within the group so they don’t interfere with one another, they don’t try to encroach on one another, they don’t try to suppress one another. That’s the sort of focus we have at the moment.

Cranky: Might we see this in some of the traditional hubs like Madrid, London, Dublin? In particular, I think about London where you have these flights to Oakland and Ft Lauderdale with the high-density 777s. Is that a place you’d like this to go or is this more about going outside those hubs?

Willie: Yeah, I don’t think it’s going to, not necessarily in London. The reason we don’t see so much strength in London is because the premium content in the London market is very high. It’s not as high anywhere else. Once you move outside of London you don’t have quite as high premium demand. So the configuration of the aircraft that we’re using out of Gatwick still has quite a significant flat bed premium product and that’s because there’s so much strength in that particular market.

When you move away from London, you know the depth of the premium market gets shallower and shallower. And that’s why we think it works best outside the London market and the BA configured aircraft works extremely well in Gatwick. The richer premium content aircraft BA has at Heathrow works extremely well there. So, it really is “horses for courses” if you like. We can have the different brands focus more strongly on different customer segments, and we can allow them to operate side-by-side.

Cranky: I want to talk about the aircraft a little bit. You mentioned the lower acquisition cost of the A330. Why a -200 instead of a -300? Is the -300 just too much capacity?

Willie: Well the -200 has got good range and [the -300] probably has got too much capacity. Again looking at this we balanced the point-to-point demand with what we think is reasonable in terms of feed, and the -200 works very well. The seat costs of the aircraft in a configuration we have with 314 seats. So looking at everything together we think you get a cost advantage with the 330-200 in the markets that we’re targeting. The availability of the aircraft was good. We think looking forward there’s strong availability of 330-200s so everything pointed us to looking at that aircraft as, if you like, the core aircraft in the fleet.

Cranky: And you had mentioned Air Asia X earlier and you had called [your configuration] the high-density configuration. But Air Asia X has a REALLY high-density configuration with 9 abreast. Did you think about 9 abreast?

Willie: No, when I say high-density, it’s high compared to what we would have had, higher densities than what we used before. We think this is the appropriate densification for the markets that we’re targeting. In other areas of the world, you might get at a higher density, but we think this works well on the North Atlantic/South Atlantic routes we’re going to be targeting.

Tomorrow in part 2, Willie talks in greater detail about why this plan is going to work while those of Air France/KLM and Lufthansa Group won’t. (If you know Willie, he’s never one to mince words.)

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34 comments on “Across the Aisle from IAG CEO Willie Walsh on Level, His New Airline

  1. The number of different airline brands in Europe is crazy. Also, the airline-within-an-airline strategy seems to work there for some reason?

    1. I think that may simply be because it’s better to have different brands for different countries in order to appeal to nationalism. For example, Lufthansa and Swiss both remain in order to help enforce to the people of each country that this is their airline, while in the US they would probably be consolidated for efficiency.

    1. Heh, yeah :)

      It is ironic that the seating is less dense (width-wide) than on BA’s 777s (going 10 across) and 787s (9 across).

  2. Brett: You may want to hold this one for moderation. The Across The Aisle grafic: It’s JFK smoking a cigarette (on a plane) with his left hand on his crotch leering at a woman who is clearly leaning away from him. The phrase “what’s wrong with this picture” would fill up an essay. I can find it funny in a college-dorm sort of way, and it’s in tune with the Cranky minimalist/primitive grafic esthetic, but does anyone ever give you crap over it?

  3. I find the argument that Vueling doesn’t have a name recognition in the Americas and thus an entirely new brand is needed …. interesting,

    Level, of course, has at this point in time zero name recognition anywhere. So they have to create that both in Europe and in the Americas. It doesn’t make a lot of sense to me that that is a lowe cost route to success than going with an existing brand (Aer Lingus might have been another option). It’s not like KLM/AF or the LH group where national loyalties and sensitivities probably prevent merging the various brands into one.

    1. I also got the impression from the article that the people running Vueling didn’t want to take on running a long haul LCC. Sure they wouldn’t really have a choice if their bosses at IAG told them to do it, but it seems like it was a factor in favor of creating a new brand rather than using Vueling.

      1. David – He did make it seem like Vueling wasn’t interested in the conversation. I guess that’s just how much latitude they give their different airlines. It did seem strange.

      2. In that case, why not hire some more people to run it under the same brand? They can be two separate operations even with the same name.

    2. Try getting five Americans to say “Vueling.” It will probably be only slightly colourful than asking five Brits to say “Vueling.” Now get five Americans to say “Level.”

      1. And yet they manage to fly all over Europe with god knows how many different languages and apparently manage to sell tickets. Don’t get me wrong, I don’t particularly like the Vueling name but that plane left El Prat de Llobregat 13 years ago.

        Level is not a very exciting or memorable name either.

  4. Interesting how Norwegian flies OAk- LGW and BA then starts the same Market. DY says it will fly OAK-BCN and LAX- BCN and now Level will fly the same routes. I guess IAG heard of the children’s game called follow the leader and that must be what they think DY is, the leader so they will follow Norwegian in every Market outside Scandinavia they will fly.

  5. He said “north and south atlantic”, are there any specific cities on the table? BOS, YUL, BWI/IAD, PHL, ORD….MCO, FLL? Caribbean obviously, although I don’t know how popular the Caribbean is with the Spaniards.

  6. I remember reading that one of the reasons the airline-within-an-airline model failed in the US is that the low cost airline ended up being the only choice on particular business-heavy routes and that pushed business travelers away altogether. While the US and European markets are apples and oranges in many extents, it’ll be interesting to see how well IAG can manage all of their different airlines’ networks and product offerings to make sure they don’t bleed into each other. Then again, the entire group is getting the LCC treatment more or less, so it probably doesn’t even matter that much.

    1. I don’t think the airline w/in an airline product ever really touched “business-heavy” routes in the U.S. But there’s business traffic on almost every route, and when the United 1K who lives in Chicago suddenly can’t fly F to his family vacation home in FLL, well, you’ve just pissed off a 1K.

      But the real issue with the airline within an airline model in the U.S. was that it didn’t substantially bring costs down. Ted and Song were merely all-Y planes with some different paint on the fuselage. The two biggest airline costs, fuel and crew, didn’t change, among most other things. U.S. airline unions make it almost impossible for the companies to set up separate pay scales for crew. That’s why the European carriers can try this stuff — they can set up a separate certificate and come up with creative ways to pay crew less than they normally would. Of course, in Europe, air crew can strike much more easily than they can here in the U.S.

  7. Willie certainly is, and has been an interesting fellow over the years. Airlines are making money so they may be able to do things they couldn’t do before.

    Given the company name, you have to wonder if everything about this effort is really on the…, well whatever. Willie’s probably got another start-up–“Kilter”–waiting in the wings!

    With the Barcelona angle, makes me wonder if this isn’t part of some long lost episodes with John Cleese and his Faulty Towers. And, maybe this is Willie’s (you know what Saturday is!) joke.

  8. The aircraft comments are interesting. The Level 332 is slightly over 20 seats larger than DL’s 333s which are regular fixtures at BCN. To say the 333 is too large seems strange given that DL has a lie flat business class product and still has 255 or so economy seats. I find it hard to believe that IB/Level is going to generating any more revenue and probably less while having very similar costs. The idea that so many airlines have of jamming seats into aircraft in order to justify lower fares seems doomed to fail against strategies that include competing for low fare passengers and still getting the premium revenue. If anything, a lot of these low cost carrier within a carrier efforts simply push away the premium revenue and passengers that don’t want a low cost experience.

    It is interesting that the US 3 have all said they aren’t going with airline within airline strategies even over the Atlantic and have tried it domestically. The Europeans seem to think they have to come up with an airline within airline idea that has never worked either in Europe or the US.

  9. Congrats on getting an interview with Willie Walsh – good things come to those who put the hard work into their blog…

  10. This must be the biggest name you’ve interviewed yet. Congratulations.

    So how does one pronounce Vueling?

    1. tharanga – So Willie pronounces it “vwayling” which is how I always did. But I seem to recall him telling me that now-BA CEO and former Vueling CEO Alex Cruz called it “viewling” so I don’t know. It sounds like they might not actually care what you call it.

    1. James – That was the original plan. But he was on a speakerphone and the quality wasn’t as good as I think it needed to be.

  11. After I started reading and looked at the website, I checked the calendar and was seriously surprised that today isn’t April 1st.

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