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Low Cost, Long Haul Promises Scant MRO Savings

Low-cost carrier maintenance costs under scrutiny.

Within the next year all three of Europe’s major airline groups should have a low-cost, long-haul (LCLH) brand. Lufthansa already operates A330s with Eurowings; IAG’s Level began flights from Barcelona last week, and Air France-KLM has announced its own venture, provisionally named Boost.

In fact, with 15 or so LCLH carriers in operation worldwide, the business model has never been more popular, even though serious questions linger about its sustainability.

Earlier this year Barclays Capital distributed an exhaustive analysis of the LCLH sector, which included a detailed look at Norwegian’s cost advantages over legacy carriers.

These included potential savings on maintenance for the carrier’s 787 fleet, which is covered by Goldcare and TotalCare MRO contracts with Boeing and Rolls-Royce, respectively.

Barclays estimated that outsourced maintenance could offer a 10% advantage over the US legacy carriers that tried so hard to block Norwegian from the US market (its analysts put American and United MRO costs at $933 per block hour).

That may seem a handy saving, but it pales in comparison with the 50% maintenance cost advantage that very large LCCs like Ryanair and Easyjet enjoy over their full-service peers. Barclay put the disparity down to the large, homogenous fleets of the budget operators, and to outsourcing.

However, startup LCLH operators cannot benefit from this scale. This includes Norwegian, which despite its large backlog only has about a dozen 787s in service. The airline also operates narrowbodies, which whittles away some advantages of standardization.

Returning to the likes of Eurowings and Level, it seems unlikely that they could even achieve the 10% saving ascribed to Norwegian, since their maintenance will probably go their parents’ in-house maintenance arms.

If they are to keep ticket prices low, therefore, they will have to seek savings elsewhere.

TAGS: Europe
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