British Airways is reportedly in talks with unions to create a new short-haul airline at London Gatwick. Gatwick airport has been telling BA to use or lose their slots and BA sees less use for them than they once did. An announcement from British Airways is expected to be imminent, making use of these slots and having this new carrier rehire crews at lower wages.
BA is owned by airline conglomerate IAG, which also owns Aer Lingus, Iberia, and Vueling as well as long haul low cost carrier LEVEL. At one point the future for long haul low cost, especially entering the pandemic and after several similar operations had failed, was in doubt. But transatlantic flying out of Barcelona looks to continue – American Airlines has even re-instituted codeshares.
Now they’re looking at the idea of a separate London-based short haul carrier. CNBC’s Carl Quintanilla says “The ‘90s are back.”
In-house ‘airline within an airline’ low cost carriers began sprouting up in the 90s but was hardly limited to that era, for instance:
- Continental Lite (1993-1995)
- US Airways MetroJet (1998-2001)
- Shuttle By United (renamed United Shuttle, 1994-2001)
- Delta Song (2003-2006, actually a better product than mainline)
- United Ted (2004 – 2009, the letters represent ‘the end of United)
None of these efforts survived. With separate carriers the major airlines build in inefficiencies, like having separate crews that can’t be scheduled across carriers. They create customer confusion – especially when multiple brands may even operate the same routes. They become distractions for the company and require duplicative capabilities.
Singapore Airlines realized that its separate SilkAir and TigerAir brands no longer made sense, too, so it’s not just a U.S. phenomenon. And in Singapore’s case separate brands at least had the rationale of offering differentiated products without diluting the strong brand value of mainline, in the face of unique markets (short haul, low cost competitor).
It almost always seems better to solve the structural problems of the mainline carrier than to start a new airline. That seems harder ex ante but given the track record of ‘creating new airlines’ and walking away from economies of scale in the process the airline within an airline model hardly seems the uniquely better option.
Indeed, British Airways has already altered its short haul product to be more like a low cost leisure carrier, with less seat pitch than Ryanair (even in business class). They’ve reduced their labor costs through a series of contracts, B scales, and labor actions over the past dozen years – a process which accelerated during the pandemic.
Perhaps they’ll be among the outliers (along with the likes of Jetstar) which this does not fail. It might work akin to the BA subsidiary flying from London City airport. Their IAG umbrella perhaps has excess management capacity and a capability in managing more airlines. But it’s not an obvious play.