Jump to content

Iceland Air Increases Yeg Service


manwest
 Share

Recommended Posts

I think Transatlantic profitability is going to be turned upside down this summer.

Anyone who lives near a Costco gas pump knows precisely what happens to retail gas pricing when Costco, with its minimal retail presence, knocks a nickel off the price per liter of gas.

All the competiors have to match the price. It starts out localized with nearby stations but then the "next to nearby" stations follow suit and pretty soon the discounting spreads like a cracked windshield through the entire market.

The same will happen with airfares that are going to have to be matched on an ever widening basis in order to remain competitive.

It will impact profitability in the one quarter most airlines rely upon to print enough cash to hold them through the lean winter months.

Link to comment
Share on other sites

Sorry to prolong this thread but there has not been much airline industry banter around here recently.

This Icelandair introduction has created quite a buzz here in Edmonton. There may well be a price war on transatlantic fares this summer for anything I know to the contrary, but I do not think this is the significance of this announcement. Although Icelandair is known for low fares on transatlantic travel, all the low promotional fares on the Edmonton service have already disappeared, and even the moderately reasonable fares for this extra weekly flight are now hard to find. The significance of this adventure, in my opinion, is the remarkable success of this new product launch. This is the third expansion of the service, and they have not started flying yet!

I don't know why everthing came together so well. Some parts were good work and others good fortune. The product launch itself was pretty standard, with a press conference and a few press releases. The local market was receptive and there good buzz on the various internet places. The news media was receptive, but that doesn't explain why everybody started buying tickets. Then the route was expanded to year round and the start up moved forward three weeks. Each change increased the buzz. I don't think this was a deliberate attempt at hype. They seem to really have sold out most of the seats through summer. There has recently been a modest advertising and promotion campaign, but not really Hollywood slick.

It must be said that Air Canada was most obliging by linking the Icelandair launch to their suspension of the Heathrow service this winter. This booted the issue up from an airline thing to a public issue. All of a sudden there was dramma and human interest. There were white hats and black hats; the forces of righteousness lined up against the forces of evil; David against Goliath. Everybody was talking about it. Everbody seems to have aither booked a seat or knows someone who did.

The weird thing is, I don't think Air Canada will lose much business to this at all. A good part of Icelandair's traffic will be new traffic particular to them, and the rest will only take part of the normal increase in demand.

For the industry as a whole any significance is, in my opinion, due to the fact that we have a very public demonstration that an airline with no local brand recognition has put a new transatlantic service in and sold all or almost all of the first season's seats before the first fight has taken off. It is sort of like watching an oil prospector in the next field hammering a stake into the ground and watching oil gush out. Word gets around and you never know who else will try their luck. Icelandair themselves, of course, will adapt their future plans somehow because of this, as presumably may other airlines thinking about the transatlantic business. Perhaps some form of the Icelandic model may surface elsewhere. Newer types of aircraft and liberallized air travel agreements may make things possible. A transatlantic service with one connection using smaller narrow body aircraft will be hard to beat cost-wise, if a way can be found to make it work.

Sorry to be prolix.

  • Like 1
Link to comment
Share on other sites

Slow down on the hyperbole speed-racer.

Not 'everyone' is talking about it. The average man-in-the-street still has no idea what is an Icelandair

I have spoken to a couple of people who are planning to go to Europe this summer and had not heard a thing about Icelandair.

"Sold all of their seats". Maybe all of their cheap seats have gone. I bet their premium seats are still very available.

New traffic? There are very few people who have decided to forsake their trip to West Edmonton Mall and spend their money on a European vacation instead.

Link to comment
Share on other sites

I don't see anything big here either. Icelandair's competitors in US markets and YYZ rarely see the need to match Icelandair pricing from what I have observed. Their YEG service, while great for the consumer, won't make a lot of difference to other airlines.

Link to comment
Share on other sites

I would like to see YEG disclose the subsidy package they offered FI to launch this route.

If you put money on the table, somebody will take it.

However then you have situations like Myrtle Beach where everyone involved with the revenue guarantee package they gave WestJet was fired after they were on the hook for almost $600,000 and potentially up to a million. And if there was ever an airport authority that is foolhardy, it's YEG.

Link to comment
Share on other sites

Here is a pair of articles about the "WestJet Scandal" in Myrtle Beach

700 pages of emails outline struggles in WestJet’s first year at Myrtle Beach International Airport

http://www.myrtlebeachonline.com/2014/02/01/3993274/700-pages-of-emails-outline-struggles.html

Horry County to pay WestJet $551K

http://www.myrtlebeachonline.com/2013/12/11/3897850/horry-county-to-pay-westjet-551k.html

In the WestJet deal, the county entered into a revenue guarantee agreement that stated if WestJet did not make at least a 15 percent profit in its operating margin, the county would reimburse the airline up to $1 million. It was the first time Horry County had provided a revenue guarantee to an airline, which was a push to get more tourists from Canada to fly to the beach during summer months and not just their typical trek during the area’s off season.

Link to comment
Share on other sites

Super 80: do you know for sure there was subsidy package at YEG?

I believe the airport has stated publicly that a standard incentive package was offered to Icelandair. Details for these things are always confidential, but the usual offering seems to be a partial remission of some airport fees for a limited period (say two or three years). The airport has also similar arrangements with United for the Newark route, and possibly others as well. There was a substantial incentive package for Air Canada when they restarted the Heathrow flights a number of years ago. Some unkind observers suggest part of the reason for the recent cut in the Heathrow service is because the incentive period has expired and Air Canada wishes to negotiate a new one. Certainly the famous leaked letter was quite explicite that Air Canada was seeking substantial considerations from the Edmonton airport. Presumably shopping the Heathrow slots around to Winnipeg and others is intended to help with negotiations.

I think this thing between Air Canada and Edmonton will blow over. These things have happened before and they will happen again. I am more interested in whether the Icelandair initiative provides a template that will be used in other situations; here or elsewhere.

Link to comment
Share on other sites

Here is a pair of articles about the "WestJet Scandal" in Myrtle Beach

700 pages of emails outline struggles in WestJet’s first year at Myrtle Beach International Airport

http://www.myrtlebeachonline.com/2014/02/01/3993274/700-pages-of-emails-outline-struggles.html

Horry County to pay WestJet $551K

http://www.myrtlebeachonline.com/2013/12/11/3897850/horry-county-to-pay-westjet-551k.html

And yet after all this, WJ is back in Myrtle Beach this spring, with service starting earlier this year compared to last, with no community subsidy in 2014.

If Myrtle Beach's goal was to attract n/s service from Canada, I'd say the money was well spent.

Link to comment
Share on other sites

Some unkind observers suggest part of the reason for the recent cut in the Heathrow service is because the incentive period has expired and Air Canada wishes to negotiate a new one. Certainly the famous leaked letter was quite explicite that Air Canada was seeking substantial considerations from the Edmonton airport. Presumably shopping the Heathrow slots around to Winnipeg and others is intended to help with negotiations.

I think this thing between Air Canada and Edmonton will blow over. These things have happened before and they will happen again. I am more interested in whether the Icelandair initiative provides a template that will be used in other situations; here or elsewhere.

The problem with YEG is a very long memory for broken, imagined and implied promises combined with an irrational sense of entitlement that creates ridiculous expectations of Air Canada. YEG is the toddler in the car seat demanding that they get everything their older sister is getting even though there is no plausible justification for it. Because WAAHHH, thats why.

For YEG to then go enlist and subsidize another airline to skim away some of Air Canada's connecting traffic is just stupid when they should have objectively understood the relative weakness of the route is pretty obnoxious. What is AC's breaking point on YEG-LHR?

But never fear! British Airways, Lufthansa and KLM are going to annouce YEG any day now, who needs Air Canada? Somebody get Singapore Airlines on the phone.

  • Like 1
Link to comment
Share on other sites

1-34d10ad546.jpg

This issue predates the LHR issue, but there it is in the second paragraph.

The key complaint is contained in the last paragraph-sentence. 'the manner in which'

What has really **bleep** off Air Canada is the way that the Edmonton Airport Authority stood up to announce the KEF routing is 'far superior and more convenient' than the alternative og going through Heathrow.

A direct slash in Air Canada's direction.

This was then followed by some really dumb remarks by the head of the Edmonton Economic Deveelopment Authority and other quasi government officials. These insulting remarks were directly at Air Canada. Edmonton has never been very suave in its approach to anything.

Link to comment
Share on other sites

Last I checked YEG has been rolling out phase after phase of terminal expansion and there would be obvious pressure to deliver new air service to justify much of the spend to the community. This is not uncommon and will likely be seen a few hours south on the QE2 before to long. What varies is the level of support some are willing to provide a route to incent new and existing lift. The economic impact business case is actually an interesting one when substantial inbound traffic can be expected. Even with primarily outbound traffic,the airport revenue per departing pax adds up over time.

I recognize AC has not had the best relationship with YEG but interested to know which airports one would consider "chummy" with the red team. Some Canadian carriers and even those to the south have invested considerable resources to managing those relationships and have done much better from what I understand.

With most airports touting themselves as economic engines within their communities, route support of varying levels is always available east,west, and south of the border not to mention in our own back yard, you just need the right people negotiating. I would expect that even AC should be able to benefit from material route support with the right resources dedicated to airport relationships.

Link to comment
Share on other sites

The problem with commercial aviation in Edmonton is that their glory days as "aerial crossroads of the world" still casts a very long shadow over both public opinion and decision making and it isn't that their status as a wartime boomtown and refueling post was unsustainable, it had to have been stolen from them by Calgary.

The turbulence in the relationship between YEG and Air Canada comes from a belief on the part of YEG that promises made by politicians fifty years ago that YEG would be TCA's western hub and their own assumptions that consolidating the regional flights from YXD at YEG would instantly create the hub they were deprived of before were to be binding on present day Air Canada. Therefore Air Canada must be irrationally lashing out at YEG at the behest of Calgary.

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

 Share



×
×
  • Create New...