Transatlantic air fares could drop 30%, says report

 

THE CURRENT weak demand for long-haul aircraft offers a “two-year window of opportunity” to establish a Dublin-based low-cost carrier on transatlantic routes, according to a report published by Bloxham Stockbrokers.

Bloxham aviation analyst Joe Gill yesterday presented a thesis for the launch of a low-fares transatlantic service that would undercut fares offered by flag carriers by 30 per cent and take advantage of Ireland’s attractive corporate tax rates.

Mr Gill estimates that such a service – which he called AerFair – could be launched with about €300 million in equity and debt backing.

He said it would only gain traction if a major low-cost European operator such as EasyJet or Ryanair could be attracted as an equity partner, with a view to leveraging off their websites and brand awareness. Mr Gill proposed that the airline could offer a simple point-to-point passenger service between cities in Europe and the United States. It would not carry cargo, have frequent-flyer programmes or business lounges.

Passengers would pay for their seat or lie-flat bed and be charged for any services they use on board, including in-flight entertainment, food, internet and duty free.

His analysis proposes initially launching four services – Dublin to Boston, Paris Beauvais to Chicago Milwaukee General Mitchell International, London Stansted to San Francisco Oakland, and Frankfurt Hahn to New York Stewart International Airport.

Each of the American airports is a secondary facility located some distance from the cities they serve. This is a model that Ryanair has used successfully in Europe.

Mr Gill said crew costs would be at least 30 per cent below what flag carriers currently pay on transatlantic routes. Mr Gill’s business model projects carrying 565,000 passengers in year one, rising to 1.17 million by year five. With a two-class configuration of 400 seats and an 80 per cent load factor, that would give an average cost per passenger of €193, including first class.

Mr Gill has pencilled in revenues of €169.5 million in the first year rising to €362.7 million in the fifth year.

The airline would make an after-tax profit of €5.6 million in year one, rising to €21.9 million in year five. These figures are based on the price of oil being $75 a barrel during the five years.

“The conditions are right to establish a low-cost, long-haul carrier,” Mr Gill said. “The market for wide-bodied aircraft is getting quite tough.”

In response to Mr Gill’s report, Ryanair said: “Michael O’Leary has confirmed that we have a transatlantic model in development, separate to Ryanair. But any such plan is contingent on securing a fleet of low-cost, long-haul aircraft, which are not currently available.”