q Across the Aisle from IAG CEO Willie Walsh on Why His Long-Haul, Low-Cost Airline Will Work While Others Won’t – Cranky Flier

Across the Aisle from IAG CEO Willie Walsh on Why His Long-Haul, Low-Cost Airline Will Work While Others Won’t

Across the Aisle Interviews, IAG

Yesterday I published the first half of my interview with International Airlines Group CEO Willie Walsh on his new long-haul, low-cost startup Level. Today, we finish it up with his characteristically blunt take on why Level is going to work while other attempts at long-haul, low-cost won’t.

Brett Snyder, Cranky Flier: Talking a little bit about you compared to the other two big airline groups in Europe. Everyone seems to have an idea of how low-cost, long-haul should work. Lufthansa has its Eurowings effort. Air France has… all kinds of things. Did you learn from what they were doing? Are there things you saw them doing that you thought made no sense at all and did that inform your decision to go with this plan?

Willie Walsh, CEO International Airlines Group: Didn’t really inform us because you’ve hit the nail on the head. Anything we saw them doing isn’t going to work. We were more interested in looking at what we thought were genuine efforts to do low-cost. I think what Air France is doing, they talked about a “lower” cost. You can’t compete in this segment, this very price-sensitive segment of the market unless you have a very efficient cost structure. And we don’t believe either of those have the efficiency in terms of the cost performance that will be required. And again that’s the unique nature of the IAG model. We have that. And we can build on that very quickly. It’s something that the others are struggling to do.

You see Air France talking about doing something, but they’re doing it with their existing labor structures which just won’t work. They won’t be able to compete in this segment of the market in a way that makes sense for them. So they’re not going to make any money. They’re not making money with their current cost base and they haven’t a hope of making money trying to compete in this segment of the market. We’re in this because we we believe we can make it work. As I said to you at the beginning, we wouldn’t do this unless we were convinced that the airline can achieve the financial targets that we set for all the airlines in the group.

Cranky: Also for Air France/KLM and Lufthansa Group, it seems like some if not most of what they talk about is recapturing markets that they’ve lost because of their inability to be cost competitive.

Willie: Yeah.

Cranky: For Level is that not any part of this? Is this entirely growth for you?

Willie: We see this as market stimulation. These people are not people who are waiting there to see how much the fares are going to be with Aerolineas Argentinas or somewhere else. They saw a price and said “shit, give me some of that.” Without question this is stimulating demand. People who will fly with us on this airline are people who didn’t believe it would be possible for them to fly.

Now, some of the people flying may well be someone flying from Barcelona to Buenos Aires instead of going Barcelona to Paris. But at the prices we put in the market, they now see these as opportunities for them. And that’s what we were convinced about. We watched what others have done. We were keen to understand how price can stimulate demand in this segment as well. Is it just a short-haul feature of the business that price will stimulate? And without question, everywhere we looked, the work we’ve done ourselves out of Gatwick and looking at what Norwegian has done, there’s clear evidence that you’re stimulating new demand. So this is not a defensive strategy from us. This is a segment of the market that we believe is going to be significant going forward tapping into a whole new generation of fliers who are looking to experience something beyond what they had before and experience the world. This is the start of something that will be very significant for us.

Cranky: I look at the website and it seems pretty clear from the pictures on there that this is a millennial play. You look at the design, the marketing effort. Is that how you would describe it? You’re not targeting the same people?

Willie: Yeah I think that’s fair. We did the launch in a fascinating place in Barcelona called Generator. When we were looking for a venue, I told the team to look for something that represents what we’re trying to do with the airline. This is a new way of flying long-haul, and even look at the outfits that myself and Luis and Javier were wearing. I said I’m not wearing a tie, I rarely wear one anyway.

We did some of the branding ourselves. So it is, it’s aimed at people who want to experience the world, are not as focused on the things as maybe I was focused on: buying a car, buying a house and all that. They just want to get out there and see what life is all about, and giving them an opportunity to do that. It’s very much driven by the belief that consumers today are targeting value and targeting choice, where they want to have the option to decide what it is they want as opposed to being told what it is they want. We’re responding to what we’re seeing as changing trends, not just in the airline market but in consumer behavior. We’re trying to position ourselves for what consumers want today and will want tomorrow while still recognizing there are people out there who want what traditional airlines have offered. But for a lot of people maybe those brands haven’t been relevant to them.

Cranky: US carriers have taken a different approach lately where they think there’s more opportunity to put different, whether you call them brands or products, on the same aircraft. Was there a look at the idea of putting an A330 that’s Iberia in a dense configuration with a “Level” brand on the aircraft? Did you look at that at all?

Willie: We did, and we’ve been doing a bit of that. But it does get to a point where I think the view is you’ve sort of stretched the brand quite a bit. I think it’s easier to do that in the US because the size of the US domestic market. You know the carriers there are more focused on the domestic market and everybody’s doing pretty much the same thing. We’re not operating in that market so we felt we needed to do something different. Trying to adapt existing brands to meet changing consumer behavior is very difficult.

If you take the case of British Airways where we have four different class cabins onboard a long-haul aircraft normally, Fist Class, Business, Premium Economy, Economy… trying to be everything to everybody on that aircraft is extremely difficult. And what does the brand stand for? It stands for different things depending upon where you sit on the aircraft. It’s just so much easier to get this message with this new airline, this new brand, in a very simple, clear, clean way.

In fact that’s what I like about it. When I first saw the brand and the brand proposition, and the name, it just hit me that this is something so simple that we’re really starting with a blank sheet of paper again. We can hope to cut out a lot of the noise and the friction that exists in today’s business model and try to make it easier and more exciting and more entertaining for a different customer segment if you like.

Cranky: I’ll wrap this up with a bit of a summary question since we’ve talked about bits of pieces of this. If we look at the history of legacy carrier, legacy groups, starting their own low-cost brands — and of course, Vueling you didn’t start, that was an acquisition — there hasn’t been success. You could maybe debate Jetstar, but it hasn’t been successful for most. Going into the launch of this new brand, why is this going to work where others have failed?

Willie: Because IAG is not an airline and that’s the difference. We’ve already demonstrated we can have multiple airlines with different brand, different customer propositions beside one another focusing on their own opportunities, their own challenges. And we’re agnostic. Where it went wrong in the past. You look at United with Ted. It was the parent company that killed the child. Because the people in that company didn’t want to see Ted succeed.

The people at IAG want to see all of our brands succeed. And that’s the difference. It’s a completely different approach for us. We don’t mind if it’s BA that gets the aircraft or Level gets the aircraft. The one that makes the most sense, the strongest argument about who should get the capital, who should get the aircraft, who should get the focus will get it. And they compete internally to get that access to capital to get that access to aircraft. We’re happy if it’s BA, we’re happy if it’s Vueling, we’re happy if it’s Level. But it means there’s good healthy competition internally and the parent doesn’t get the opportunity to smother the child. That’s the history as you know.

Most of the low-cost startup subsidiaries of the main airline, on their own they look successful. But what kills them is not competition, what kills them is the parent. That’s not what happens at IAG . That’s not the way we operate. We’ve proven that we can do this with the four main brands we have, BA, Iberia, Aer Lingus, and Vueling. We’ve proven that they can all coexist, they can all focus on opportunities that are there for them. And we just stop them doing silly things with one another and that’s unique. It’s why we are different from Lufthansa Group and Air France/KLM. Air France/KLM is Air France. Lufthansa Group is Lufthansa. We’re IAG.

Cranky: There’s no question it’s different. It’ll still be interesting to see if it’ll work.

Willie: Oh it’ll work.

Cranky: But do you have metrics you’re looking at and if it doesn’t work… does IAG say, “this experiment didn’t work” and you move on?

Willie: If that were to happen, of course. But I’m absolutely convinced it will work. We wouldn’t start if we weren’t absolutely convinced that this is going to be successful. I look at what we’ve achieved in the first couple of days with absolutely zero advertising spend, the feedback has been phenomenal. The seats that we’ve sold in the first couple of days has really staggered me.

Cranky: Hopefully they’re not pulling away from connecting in London or Madrid or whatever it may be.

Willie: No, and that’s the beauty of that. Because we can watch that. We can monitor that ourselves. But these people are, without question, they wouldn’t have been flying. You know this better than anybody. You don’t have somebody sitting there saying “I wonder will the prices for flights in July come down?” Everybody is saying, “there’s only one way those prices are going to go.” So these are people that saw an opportunity to fly that they didn’t think would exist.

And with that, Willie was off to his next interview. Thanks to Willie and IAG for taking the time to talk. If you’re a cool millennial and would like to buy a ticket, head on over to levelairlines.com.

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22 comments on “Across the Aisle from IAG CEO Willie Walsh on Why His Long-Haul, Low-Cost Airline Will Work While Others Won’t

  1. OK, OK, bash Air France and its dreadfully incompetent, inbread management all you want. But don’t drag the Royal Dutch Airlines into it. I think everyone agrees that the only (HUGE) mistake the KLM management ever made was to join Air France. But even in that swamp, KLM is the profitable, well run spark. And their low cost play Transavia is doung pretty well, too. I get that Biggie Smalls needs to belittle his competitors but a little objectivity is needed here.

  2. Great interview, Brett. Did Willie provide any detail on Level’s plan for distribution? It will be interesting to see if they connect to GDS or maybe to OTAs directly and feel that they can effectively distribute a la carte in those channels or whether they simply choose a direct channel only approach.

  3. Oh Willie, don’t know anything about LH Group, do you?? LH, LX, OS, SN, 4U, EW, etc. and you claim they are LH??? Get your head out of your arse!

    1. BOSFlyer – He was pretty clearly trying to say that Lufthansa runs the group, not that it was the only airline in it. It’s a different dynamic than what he’s been trying to build at IAG where no one airline gets priority.

      1. Yup. And just look at all of those IATA codes, especially EW and 4U (EuroWings and GermanWings). LH Group initially bet on 4U, then realized they weren’t as less loss making as EW so switched. EW is still loss making.

        Walsh has experience of dealing with Lufthansa and coming up on top. Anyone remember British Midland (BMI)? Lufthansa apparently couldn’t turn it around so eventually sold it to IAG. Within months IAG had shuttered the horrendously loss making bmiBaby, found a buyer for the non core BMI Regional, and integrated the mainline business into BA.

        Now why couldn’t Lufthansa have at the very least shut down Baby and found a buyer for Regional? Perhaps because they were so focused on the big part of their business at FRA and MUC?

  4. Hmm I just tried to book a flight from Oakland to Barcelona and a direct Level flight came in $100 higher than a single connection using Norwegian.

    If they are going for the price sensitive leisure travelers that was a loss. It’s also almost impossible to differentiate Iberia vs. Level when you book a flight and they appear to be one in the same. Once you leave the main Level website to book tickets you end up on what appears to be an Iberia booking page?

    1. Yeah, I found it confusing that once I went to booking I was faced with Iberia logos. So much for avoiding brand confusion.

  5. great interview… you just validated the arrogance that Willie Walsh has..he.. now he gets to prove that he actually can deliver.

    Willie might find that his own employees aren’t much interested in delivering high quality service as he peels off more and more of its network away from those high-cost legacy employees and operate new airlines with lower paid, new hire employees.

    The only problem is that he gets to battle Norwegian in London with high low factors while other carriers have lots of seats they can sell at very low discount passengers and displace no one.

    So let’s wait and see how well IAG does compared to AF/KLM and the LH Group.

    1. He may be arrogant but there’s a lot of truth in what he says. Lufthansa stumbled into EuroWings – they initially bet on GermanWings – and it’s still loss making. And long haul EuroWings wasn’t as much launched as let out on parole. Air France’s low cost long haul initiative is still just words in a turnaround/rescue plan. And Air France/KLM is (in Walsh’s words) just Air France because the (French) management is so obsessed with saving face of the French side of the business that it stifles the opportunity for the much better Dutch arm to succeed.

      Level doesn’t look to be part of any turnaround plan, IAG doesn’t need one. It’s a (shameless) copy and compete against Norwegian from the most profitable full service airline holding group in Europe. And if it doesn’t work out and Walsh has to walk away with his tail between his legs it likely won’t have done huge damage to IAG.

      1. If Norwegian is the threat, then it is focused disproportionately on IAG. Roughly 40% of Norwegian’s widebody flights between Europe and the US are from Scandinavia (their “home country”), 40% are from LGW and BCN with LGW the largest US operation for Norwegian longhaul in Europe with just 20% from other cities.
        Thus, IAG does have the most at risk in the growth of low cost longhaul air travel.
        Yes, LH’s low cost longhaul efforts aren’t anything earth-shattering and AF is still on the drawing boards but the growth of transatlantic low cost airlines are not as large there.

  6. Cranky,
    Do you believe Walsh when he says that Level is a profit-making business model? I tend to think it’s just an effort to make live miserable for Norwegian. I don’t think there’s any evidence that a transatlantic low fare coach model actually works.

    1. iahphx – Well, I believe him when he says he WANTS it to be a profit-making business! He does think they’ve cracked the code. That could be some of the arrogance others have talked about, but I got the feeling he does believe this will work financially. I just hope he holds to what I mentioned toward the end, and he kills it if the numbers are awful.

  7. Its interesting.. this seems like its a retrenchment to pre-deregulation where you had specific leisure/vacation carriers instead of AA’s innovation to put the full fare and the leisure passengers on the same plane?

  8. As someone who likes lie flat seating on international trips, I know I will never consider Level. They seem to know what they are after and will chase that market. It seems like people are totally willing to be crammed in like sardines to save a few bucks. I guess they really aren’t going to be everything to everybody.

    1. Not really a surprising thing. Look at the success of Spirit and Allegiant domestically.

      Wonder what happens when the Level airplane goes kaputt. Will Willie reroute passengers on other IAG carriers or are they essentially hosed?

        1. Hahaha, I haven’t laughed that hard in a while. Earn points for spending on drywall, gravel and paste. Classic.

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