In the Game of Low Cost Long Haul, IAG LEVELS up.

By Shihal Sapry

Level is a long haul low cost airline owned by International Airlines Group(IAG). Just to clarify, IAG encompasses British Airways, Iberia, Vueling, Aer Lingus and Openskies. Level began flying in June last year. They are based at Barcelona El Prat Intl. Level is IAG's response to Norwegian airlines. Level's launch was brought forward due to Norwegian airlines starting long haul operations from Spain, in particular, Barcelona.

Level was to begin operations in 2018, but IAG brought forward the date to June 2017. This indicates that IAG is able to react swiftly to changes in the market. IAG wanted level to start operations, even if it wasn’t a carrier on its own.

So, IAG decided to use Iberia crew and Iberia’s air operator certificate(AOC) to launch level. Two Airbus A330-200’s from Iberia are to be used. Ground crew may have come from Iberia or third party companies. Therefore, at launch, Level Airlines was merely a rebranded Iberia. This approach is an interesting one. If Level struggles to meet IAG’s expectations, then the operation can very easily be shutdown with minimal blowback. If Level meets or exceeds IAG’s expectations, then Level can well, level up and become its own carrier.

Well, that is precisely what has happened. IAG has ordered 3 more A330-200’s for Level, and Level will now take over Openskies’ AOC in 2018. Openskies currently operates out of Paris Orly Aiport. Level will launch a second base at Paris Orly airport. This opens up a new range of destinations. Furthermore, Air France-KLM’s own low cost carrier, Joon Airlines is based at Paris CDG. So, to perhaps lessen the burden of competition, Paris Orly was chosen. Interestingly, Norwegian Airlines(Long haul division), who initially planned to operate long haul flights from Paris CDG, has indicated they will now fly from Orly instead. With IAG’s conservative approach, level has a fighting chance of making it in the long haul low cost market.

In relation to Air France Joon, Level will have its own AOC and own cost base. Joon on the other hand is simply as rebranded Air France. While Joon has slightly cheaper labour contracts than Air France, the remainder of the cost base is the same as Air France's. This means that Level is more low cost than Joon. While Air France can arrange for Joon to become a stand-alone carrier, they have not indicated their intentions to do so yet.

Barcelona was chosen as it is a leisure destination and it is also a base for Vueling(IAG's short haul low cost carrier). Level began flights to San Francisco's Oakland airport as well as Los Angeles. New destinations for 2018 include Guadeloupe, Martinique, Boston and New York (Newark). Level's decision to serve Oakland over San Francisco International, indicates that they are following the low cost model and this also avoids cannibalisation of Iberia traffic. Level's longest flight will be their Barcelona to Buenos Aires service with an estimated 13hr 45 min service.

While IAG has Vueling as its short haul low cost carrier, it is more prudent to not let Vueling handle the long haul low cost flights. Low cost long haul is a different ball game to short haul and it becomes more logical to separate the two operations. IAG has stated that Vueling will play the role of the feeder airline for level's long haul flights. Globally, the long haul low cost carriers are subsidiaries and separate carriers from their short haul parents. Air Asia X is a subsidiary of Air Asia.

Level started off with two new Airbus A330-200 aircraft fitted with 21 Premium Economy seats and 293 Economy Class Seats. The table below depicts the difference between the Norwegian 787-8 and Level A330-200. We do not consider Norwegian's 787-9 as it is too large. Furthermore, we will denote the non-Economy Cabins as "Premium". These cabins are more representative of a premium economy cabin at full service carriers.

We note that Norwegian has more Premium Economy Seats than Level with a ratio of 10.99% compared to Level's 6.69%. Level has a larger Economy Class Capacity.

Level's choice of the A330-200 over the 787-8 is quite interesting. Firstly, Iberia operates the A330-200 and British Airways operates the 787-8. The next reason is return on investment. IAG stated that a Norwegian 787-8 burnt 6 tons less fuel as compared to a Level A330-200 flying the same long haul sector. So yes, the 787-8 is indeed more fuel efficient. When IAG factored in ownership costs, the A330-200 offered a reduced total cost.

Therefore, it is important to consider the point on the payload range curve, where the 787-8 offers a lower cost of ownership. Furthermore, it is equally vital to ascertain the point where the 6 additional tonnes of fuel burn on the A330-200 outweigh its lower capital cost. This is Airbus' arguments for the A330 Family(Both CEO and NEO). Air Asia X exclusively uses A330-300 aircraft and also has a decent A330-900NEO order. Cebu Pacific and Azul also use A330-300 equipment. Both airlines fly the aircraft on 10 hour sectors. Beijing Capital and Eurowings both utilise A330-200 equipment on 11 hour sectors. We can therefore conclude that the A330 Family offers an excellent alternative to the 787 Family in the long haul low cost market.

With their A330-200, Level can offer an 8 a breast economy class layout. Whereas with the 787-8, a 9 abreast layout is offered. We only need to discuss Economy Class as it is low cost. With the 8 a breast(2-4-2) layout, 75% of the seats are either window or aisle seats and every seat is at most one seat from the aisle. With the 9 a breast(3-3-3) layout, 67% of the seats are either window or aisle seats and the two window seats are two seats away from the aisle. We are using the most common seat layouts for 8 and 9 a breast.

Moreover, some leisure operators use the A330 in a 9 a breast layout. French Blue, Air Transat, XL Airways are examples. Air Asia X uses a 9 a breast on their A330 fleet. Philippine Airlines also uses a 9 a breast on the A330-300's. Once Level establishes itself, it has additional flexibility in switching to 9 a breast on the A330 if need be.

We will now discuss the seating configurations of the Level A330-200 with other appropriate 787-8 operators. The table below offers insight. Our convention regarding premium cabins remains unchanged.

Norwegian has the largest number of premium cabin seats onboard. All other carriers have an equal number of seats. Our average is pushed upwards by Norwegian. Our standard deviation is small(relative to some of our previous analysis articles) and represents, that the optimised number of seats for both the A330-200 and 787-8 is 21 seats. We will not discuss seat properties and configurations as this is not a trip report.

As a consequence of having the largest premium cabin, Norwegian has the smallest economy class cabin. Both, Scoot and Jetstar have identical number of seats onboard their 787-8's which indicates that the number of seats is optimal on the 787-8. Both carriers have the largest number of economy class seats. Level and Eurowings have the same number of premium cabin seats. Their economy class seat numbers differ by 4 seats. This is just over 1%. We can therefore neglect this difference. This indicates that the number of economy class seats on the A330-200 is optimal.

Our economy class average is 0.8 seats larger than Level's economy class capacity. Whilst you might think that this provides further evidence to indicate that Level has an optimal number of seats, the average is actually pushed downwards by Norwegian. If we exclude Norwegian, the new average is 302.5, which is approximately midway between 290 and 314. The new average is more representative of the larger economy class capacity of the 787-8. We must stress that the 787-8 and A330-200 have approximately the same number of economy class seats. Therefore it is difficult to comment on the optimal number of seats for low cost long haul on an aircraft this size.

Furthermore, Level uses a 31" seat pitch on the A330-200's. While that might seem minimal, Qatar Airways' Dreamliner also has a 31" seat pitch but their Dreamliner flies for a maximum of around 10 hours. American Airlines has a 31" seat pitch on their 787-8, 787-9, 777-300ER, 767-300 and 757-200 fleet. Therefore, we can conclude that Level offers a competitive long haul economy class. On the flip side, we can conclude that the Legacy carriers are attempting to effectively compete with the long haul low cost carriers.

Level has also indicated possible collaboration with Aer Lingus using A321 NEO LR equipment. It will be interesting to see how this turns out.

This portion is perhaps less objective but extremely important for us to evaluate. These are factual statements. IAG has stated that Level's target market is a younger audience which refers to millennials. We note the minimalist logo and livery. The logo is very minimalistic with only two colours. An opposing view is that the livery could be due to cost concerns. This concurs with the minimlistic, but popular branding of the 21st century. Apple and Starbucks come to mind.

The safety video is also minimalistic and interestingly asks passengers to remove their headphones for the video. The more avid travellers will know that not all carriers explicitly say this. This may have been done for safety reasons as more passengers start to use their own headphones, which may not be plugged into the IFE. If your headphones are not plugged into the IFE, you may not hear the safety information. This indicates that Level is keeping up with the technology of their passengers. Therefore, this small technical adjustment, may be directed at their younger target market.

The IFE has a "Slide to Unlock" feature, mimicking smartphones of today. The food ordering system is done through the IFE with the flight attendent merely delivering the food to you, as opposed to a traditional service. This brings to light self-service and e-shopping. While this may appeal to a host of people, when we combine all of these specific items, we can tell that Level has tried a more modern approach to aid in their appeal to their target market.

In conclusion, we note IAG's prudent approach in launching Level. We also note that IAG is flexible in bringing forward the launch date, as well as in the progress of Level. The use of the A330-200 over the 787-8 might seem illogical, but the A330-200 operates at a lower cost for Level. Ultimately, the final return on investment will dictate asset procurement strategies. We also noted Level's capacity of the A330-200 for low cost long haul is optimal relative to other A330-200 operators. We also note that Level's capacity is adequate in relation to 787-8 operators. We have not discussed whether Level will upgrade to a larger fleet type. It is still perhaps too early to tell.

The short haul network of Vueling will further aid Level in its ambitions. Further co-operation with other IAG airlines is possible and could further aid the Group's growth and profitability. Our discussion regarding the target market, shows us that Level is dead serious. In the game of low cost long haul flying, if IAG uses the appropriate strategy as they currently have, they will surely LEVEL UP.