Competition propels global airlines into smaller cities
A couple of months ago, Natalie Kendrick did something that she said was uncharacteristically spontaneous. It began when Kendrick’s friend texted her a one-word message: “Iceland?”
“I responded with ‘Yeah, when?’” Kendrick said.
Within a few weeks, they were halfway around the world, hiking through the Icelandic wilderness, surrounded by beautiful, surreal vistas: lava rocks, green mossy fields, waterfalls. Oh, and rainbows galore.
“Everywhere you looked there was a mountain and most likely a rainbow,” said Kendrick, 23, who works in human resources in Cleveland. “It looked like everything you were seeing was already edited.”
Another great thing about Iceland besides the scenery, she said, was the price to get there; her round-trip ticket was just $300. “Every flight I’ve seen to Europe is between 700 and 1,500 [dollars],” Kendrick said, “so to see it that cheap, I was all in.”
This is not a deal she could have gotten a year ago. That’s because, for almost a decade, no trans-Atlantic airlines were flying to Cleveland Hopkins International Airport. Then suddenly, this past May, two companies, Icelandair and WOW air, landed in Cleveland, offering direct flights to Iceland and one-hop trips to various other destinations in Europe such as Brussels, London, and Frankfurt.
“It’s kind of a market that’s up for grabs,” said Seth Kaplan, editor of Airline Weekly, an industry publication. What happened in Cleveland is part of a broader trend of global airlines opening routes in smaller cities, Kaplan said.
In recent months, global carriers such as British Airways and Norwegian Air have added new flights to Pittsburgh, Oakland, Providence and Fort Lauderdale, according to OAG, a firm that collects and distributes airline schedules.
“If you go to a smaller city, on one hand, there might be less competition,” he said. “That’s good, from an airline’s perspective. But on the other hand, there might be less demand, and that’s bad.”
While expanding to a new market can be risky, Kaplan said airlines have had a couple of economic tailwinds that have made it easier for them to take a chance on what airline industry insiders call “secondary” cities.
For one thing (and this may not come as a shock if you’re currently stuck at the airport) Americans are flying abroad more and more. According to the National Travel & Tourism Office, Americans made about 38.3 million overseas trips in 2017, a 9.1 percent increase over 2016. As a result, the climbing demand for air travel has propelled some global airlines to expand to smaller cities in search of untapped markets, such as Cleveland.
Also giving the industry a lift: relatively low oil prices between 2014 and 2017, coupled with newer models of planes that are smaller and more fuel-efficient than previous generations of commercial aircraft.
However, the profit-padding that came with cheap jet fuel has begun to flag, said John Grant, a Senior Analyst at OAG. As of mid-November, the International Air Transport Association estimated the global price for jet fuel to be around $85.20 per barrel — about 13.4 percent higher than a year ago.
“It’s a difficult dilemma for an airline flying to those secondary markets where there probably isn’t enough demand for a daily service,” Grant said.
Case in point: In October, less than six months after WOW air swooped into town, the budget airline — which had advertised fares as low as $69 for a one-way ticket to Iceland — called it quits in Cleveland (and in St. Louis and Cincinnati, where it also established new routes this year). Less than two days later, Icelandair canceled its remaining fall and winter flights, despite promising in July that it would continue flying from Iceland to Cleveland on a year-round schedule.
About two weeks later, on Oct. 5, Icelandair announced its intent, pending regulatory approval, to acquire WOW. Neither company responded to a request for comment.
The Cleveland market probably wasn’t big enough yet to support two Iceland-based carriers that offer similar service to Europe, said OAG’s Grant. Or, to put it another way: an oversupply of airline seats met an undersupply of butts.
“It creates a challenging environment that was ultimately unsustainable for two airline operations,” Grant said. Despite the turbulence, global carriers are likely to keep experimenting in smaller cities, he said. Even Icelandair says it’ll return to Cleveland next summer.
Not that that’s much consolation for customers like John Brickel, a commercial banker in Cleveland, who had planned a romantic Icelandic getaway with his wife — that is, until Icelandair canceled his November flight and tried to book him on a new itinerary with two extra layovers. He said, “No thanks.”
“Do I want to travel to Iceland in the future?” he said. “Sure. But do I want to travel on one of their airlines? Very unlikely.”
So, for now, the only getaway he has planned this winter is to Las Vegas.
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