Time and time again, bright strategists flush with cash have tried to prove that low-cost, long-haul flying works. And time and time again, they’ve been proven wrong. The coronavirus pandemic has hurt every airline, but it’s also highlighted some of the shortcomings of these low-cost, long-haul carriers even more. And now, they are suffering mightily with IAG’s entrant, LEVEL, shrinking nearly into nothingness.
We’ve already seen Norwegian get taken to the brink of insolvency before finding yet another way to pull a rabbit out of a hat. But with a team focused on profitability for the first time in its history, Norwegian doesn’t expect to even take a swing at long-haul flying again until later this year at the very earliest. But this story isn’t about Norwegian. It’s about LEVEL.
IAG — parent of British Airways, Iberia, and others — decided to get into the low-cost, long-haul game back in 2017. At the time, Air France was busy putting together the now-defunct absurdity called Joon. Lufthansa was still wrongly thinking Eurowings would be a big player internationally, something it for some unknown reason continues to try to figure out. And IAG had LEVEL.
When I interviewed IAG CEO Willie Walsh in March of that year, he sounded far too bullish about the new airline’s prospects.
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.
LEVEL had plans to grow to more than a dozen aircraft and operate long-haul from cities throughout the European continent across the North and South Atlantic and potentially to Asia. In reality, it looked like it was being designed to simply kill Norwegian off, but whether IAG actually thought it would work or no, it never took off. Instead, it became a dumping ground for bad ideas.
When the airline launched in June 2017, it flew from Barcelona to Buenos Aires, Los Angeles, Oakland, and Punta Cana. Punta Cana failed quickly and was gone by the next spring. LAX and Oakland made it until October 2018 when LEVEL walked away. Norwegian was still in both those markets, but the bloodbath was apparently unbearable. LEVEL did move the Oakland flight to San Francisco, but it operated very infrequently until the pandemic stopped everything temporarily.
Over the last couple years, LEVEL strayed from its original plan in strange ways. The airline started flying short-haul out of Vienna after the failure of airberlin and its subsidary Niki. IAG was spurned in its takeover attempt for the remains of Niki, so it put LEVEL into the market to fight. This should have been Vueling, but since it was never going to be a successful, sustainable operation, Vueling probably didn’t want it. Last month LEVEL Europe’s short-haul operation was dissolved.
When IAG didn’t know what to do with its OpenSkies subsidiary, it turned to LEVEL as well. OpenSkies was originally a 757 operator that flew from the East Coast of the US to continental Europe. The idea when it was launched was in its name. British Airways wanted to take advantage of the open skies agreement between the US and Europe by flying its own airplanes in an all-business class configuration. That hung on far longer than most expected. But instead of killing it, IAG turned it into LEVEL France.
LEVEL France had three A330-200s and started up in November 2018 with a leisure focus from Paris/Orly to Fort-de-France (Martinique), Newark, and Pointe-a-Pitre (Guadeloupe). It added Montreal last May and briefly tried Las Vegas last winter. Now it too is being shut down for good.
When the pandemic hit, these long-haul LEVEL operations were exposed to even greater economic forces than usual. Low-cost, long-haul operators pay the same price for fuel as everyone else, and fuel is a much bigger piece of the pie on long-haul than for short-haul carriers. The playing field is more, ahem, level. At the same time, the big airlines had a lot of empty seats to fill. Why fly LEVEL with its nickel-and-diming strategy when you could fly another traditional airline for the same price and earn your miles? This was already an issue in off-peak times before the pandemic. Now every time is an off-peak time.
IAG hasn’t given up entirely. LEVEL Spain is still flying from its Barcelona home, but best I can tell, that is only one aircraft operated by Iberia. LEVEL is merely a brand these days that — at pre-pandemic levels — flies four aircraft from Barcelona to Boston, Buenos Aires, New York/JFK, Santiago, and San Francisco. There isn’t much reason for the airline to still exist with demand in the tank, Norwegian on ice, and nobody else trying to get into the game.
The recovery post-pandemic has so far focused more on the leisure traveler. You would think LEVEL would be in a position to take advantage of that fact, but clearly that’s not the case. When every airline flying over the Atlantic is a low-fare carrier, the ones that actually position themselves as low-fare seem to lose out first.
In Barcelona, this problem exists, though with less competitive pressure than in a business-friendly market like Paris it may limp along for longer. But why? LEVEL appears to be on borrowed time, like so many other efforts at low-cost, long-haul before.
Specific to IAG, part of the problem was that LEVEL was the airline to be used to p8y723 in other people’s Cheerios. It was unfocused strategically and incapable of accomplishing any strategic goal even in the best days of the airline industry.
Overall, LEVEL was a low cost, long-haul airline in a world where the concept has never succeeded long-term.
Norwegian won’t be adding back longhaul capacity back any time soon and neither will any other low cost carrier; the concept requires volume and low fares; there is a lack of willingness to travel right now, not a lack of capacity to absorb low fares.
Legacy carriers on both sides of the Atlantic have enormous amounts of capacity they can add back and will price as necessary to rebuild their networks; there isn’t any spill for longhaul LCCs.
And the fact that LEVEL and other low cost longhaul carriers will be gone from the market is why legacy/global carriers that have the financial strength to stick out the crisis will do better than alot of people have predicted.
You might say that IAG thanks to Willy Walsh isn’t on the Level.
“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.”
I’m sorry, but this guy is delusional.
He wasn’t delusional, it’s just that saying out loud “We created this airline to price dump Norwegian out of existence before it becomes a threat to BA in LGW and VY in BCN” would have been illegal.
I guess we’ll agree to disagree here.
Can you explain to me the Barcelona- San Francisco flight? US citizens are not allowed in the EU right now, correct? So tourist from the US are out. San Francisco is a shadow of itself, all the major tourist attractions are closed. So even if the Spanish want to come to San Francisco most world realize its not a great time. So who is actually on these flights, and why? Or are they actually flying empty
SF Spiders – LEVEL isn’t currently flying to the US. Flights are supposed to resume in September.
But even then Cranky, your answer doesn’t square with SF Spiders point of what SF has become.
I refer to you to todays NY Times as an article asks… will America’s superstar cities recover from the Coronavirus. The article points out it is possible that 40% of white collar tech job holders may remain at home & not return to the office. Or perhaps they move to a far flung town & not return to any of the tech rich cities at all.
Keep in mind it’s nothing near absolute, but this thought has been bubbling up since the pandemic began. Personally it sounds like fantasy to me as by nature we are social animals.
SEAN – I don’t think that’s what he was asking, but there will always be huge demand for tourism to SF and Barcelona. Whether LEVEL should exist to serve that is a different issue, but the decline of the great world cities seems to be more about people living and working, not visiting.
Venice, Italy, anyone? A lack of a working population hasn’t prevented many from visiting.
Generally cities that depend on tourism as Venice as Chris points out, Vegas & many others have swings in their economies that are quite unhealthy. OTOH the global cities with stable employment fair much better like a NY, SF & so forth. In your case you’ll see this show itself in aviation bookings as going forward those who do choose to fly will be doing so as a leisure activity & far less as a business one.
As an aside, I read something in regards to Las Vegas several years ago that got my attention. As casinos started focusing more on the non-gaming aspects of the business such as retail, dining/ high end bars/ clubs & shows, some insiders noticed the income although increasing was becoming less predictable or stable.
I point this out as the same could be said for our primary cities going forward & one of the ways this is currently showing itself as transit use has cratered specially in subway & commuter rail ridership. Another piece in the NYT takes a deep dive into the MTA’s financial disaster. Ironicly it isn’t all that different than the airline industry except for the fact that the MTA is a state owned benefit corporation & not a publicly traded company. Just look at the finances of each & you’ll see they maybe different types of apples, but apples they are.
You are assuming, of course, that U.S. flag carriers will never become public benefit corporations with stock held by local, state and fedral governments. Could happen. Not likely, but given these times, anythig is possible.
In 1946 most would have laughed at the thought of intercity passenger rail being publicly owned – 25 years later, Amtrak.
Strange times indeed…
Oh no – I didn’t assume that airlines couldn’t become public benefit corporations. In fact now that you mentioned it, that idea has tickled my interest.
Level always seemed like IAG looked at LH Group’s goat rodeo of carriers and thought “we need to do more of that”. It’s all moot now but I don’t understand why they didn’t just add the 330s to Vueling? Crew contracts?
Trent880 – I think that each airline in IAG has more independence than you might expect, or at least that’s what I’ve heard. If that’s true, then Vueling undoubtedly said “no way, we don’t want to touch that hot garbage.” So LEVEL became the enforcer and Vueling could keep running a viable business. Of course, that could be wrong, and then we’re back to square one.
Vueling has one aircraft type. Having multiple adds all kinds of unneeded/unwanted/expensive complexity. Something to avoid, to say the least. Who gets to work the widebody, under what conditions, what are the rules, people unhappy with the rules, people trying to game the rules, etc. Whereas one aircraft type is simplicity.
But adding a new airline (brand) to operate different aircraft type in order to avoid a more complex/mixed fleet seems… ridiculous.
LEVEL existed purely for the purpose of destroying Norwegian Air. With the latter barely alive and IAG as a whole burning through a lot of cash, no real reason to keep fares low with LEVEL.
First of all, as a Catalan I’m contractually obligated to start this post by whining about the use of a matador to represent a BCN-based airline. Sorry, I don’t make the rules.
Now back to the topic, the reason why IAG created Anisec/LEVEL Europe was apparently because VY’s pilots reached an agreement with the airline so that they wouldn’t have to overnight outside their bases in Spain and Italy, threatening the economic viability of their operations in airports like AMS, which is why it became LEVEL’s 2nd short-haul base after VIE.
As for LEVEL Spain, I don’t have much hopes of them bringing back their operation to what it was pre-pandemic now that, as you’ve written, they’ve accomplished their primary objective of making DY’s BCN long-haul operation fold, at least for now. The only route that did really well was BCN-EZE, where the low-cost model was clearly more well-suited to the VFR traffic between the two cities, to the point of making AR give up and achieving a total monopoly. And once again, outmanoeuvring Norwegian before they could start it from either end (although DN were based in AEP instead).
Jay – So what’s a good thing to use instead of a matador. I know that would work better for a Madrid-based operator, but I couldn’t think of anything iconic.
Oh don’t worry, I was just joking! If anything, the fact that LEVEL Spain is basically rebranded Iberia makes it more appropriate.
Maybe you could use the Sagrada Familia or another iconic Antoni Gaudi building in BCN.
The answer to that is the caganer.
Well this is pretty amazing.
I second the amazingness of this comment. Thank you for this contribution!
Right now I would guess most airports are low cost, especially international flights. Or am I wrong on that? Demand seems unlikely to increase at remainder of this year.
Well they are certainly low fare. Whether the costs have actually decreased too remains doubtful. Especially if looking at costs on a per px basis.
This is unfortunate. I had booked for the first time a premium cabin trip to Barcelona from California, and also a Norwegian premium from London to California. Both of these are now canceled by the airlines, and I’m getting refunded to the credit card. I’d rather have been able to go on the trips, frankly. Almost all of my domestic and international events this year have been canceled.
I think the level model is very limited, it was impossible to pre-reserve a seat except within 24 hours through Iberia. They have not integrated their call centers so that Iberia can work together with their sister companies level and vueling. I would definitely pay more to use premium status with American and partners British airway, in order to have a better and more seamless experience with level. vueling is a train wreck in terms of services and integration, and I also would be glad to pay more for their point to point services. The policies regarding changes to flights and flight cancellations are also abhorrent and extremely passenger unfriendly. I think at least for the six months to come, demand will be close to zero. Spain and the UK of course, have set up a quarantine of 14 days for all arriving American passengers.
There are worse problems of course, and I’m very grateful to be healthy and able to travel. It would help to have some proper leader ship to manage the pandemic.
Level was a limited concept, and the timing of the pandemic will ensure its Demise.
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Sir Freddie Laker, where art thou? Shades of the Skytrain…everything old is new again…