Been beaten to death a few times on several threads. The low-cost/low-fare model is simply not sustainable for longhaul. On shorthaul, if done with discipline like RyanAir or Wizz, it is possible to achieve a good 50% cost advantage over the full service network model. High aircraft utilisation, secondary airports, local crew bases (no overnighting), simple product and strictly no connecting traffic (except on two tickets at passengers risk) can achieve this. On longhaul much of the cost advantage disappears (network carriers also squeeze out 16-18 hours from the longhaul fleet), due to stage lengths cannot do away with hotel layovers, fuel is a much larger % of total cost, etc. On the revenue side, the low-fare model is able to induce a substantial amount of discretionary spending on shorthaul (who cares for the 20 euro airfare if one can save twice that amount on five beers on a friday night...), whereas on longhaul even the lower fares are above the discretionary spending threshold for the majority of customers, so traffic will have to be captured from others rather than inducing additional travel. By forfeiting premium service, the most stable part of longhaul revenues are missing. Network airlines play with offering low fares for a one-stop product while charging premium for the point-to point, meaning that there will always be a full service network airline matching the lower point to point fares through their hub, eliminating much of the fare advantage, and on longhaul a transfer does not add substantially to total journey time. It simply does not add up, period.
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andrasz. At last someone who knows what they are talking about!
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Except he neglected to mention that the lack of short turnarounds on long haul networks enables cargo to be carried, which covers a significant amount of the cost of the operation, as it did for Norwegian. Virgin, BA and TUI have proven that a 787 can cross the Atlantic with ZERO passengers and still make money.
As has also been said to death, a certain proportion of the Norwegian long haul network, specifically out of LGW and Oslo, was profitable. He also used ‘Wizz’ and ‘discipline’ in the same sentence, which is where he lost me. Wizz have been anything but disciplined in the last year or so. |
Airlines can currently fly across the atlantic with no pax because freight charges have increased massively.. Under normal times that certainly isn't the case...!
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Vokes55
Yeah, the idea of "low cost long haul doesn't work" is just lazy. There are some segments of it that worked, and actually worked well. Norwegian was just unorganized and undisciplined in the way it implemented its operation, and went overboard on its expansion. If Norwegian had operated strictly to LGW and OSL to a handful of destinations to the States, with a fleet of 10-12 787s, and invested a bit into a more robust operations center, it could have worked. But instead they ordered close to 100 787s, tried flying anywhere and everywhere, and tried to do it out of an operations center more suited to a small regional airline instead of an airline with 140 airplanes and a global presence. |
AQUAPLANE1
In normal times there are plenty of routes across all airlines that are only viable due to their carriage of freight, which covers the bulk of the cost of the operation. And whilst the freight charges have gone up, the levels of freight actually decreased during the height of the pandemic. Key industries like car manufacturing, which is the bulk of a lot of transatlantic cargo routes had a massive decrease in demand throughout the spring and summer. Don’t underestimate the importance of cargo to all long haul operations. Saying low cost long haul doesn’t work is short sighted when there could be £100k+ worth of goods in the hold. In the case of Singapore, the route was profitable largely due to the cargo carried. Unfortunately due to take off performance issues, the cargo was often offloaded instead of passengers and baggage, which led to the company losing the contract. Poor management yes, proof that the concept doesn’t work, absolutely not. I believe they learned their lesson from this and capped passenger numbers on the Buenos Aires to Gatwick route which was also often performance limited with a sizeable cargo load. |
Originally Posted by Vokes55
(Post 10956782)
Wizz have been anything but disciplined in the last year or so.
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I don't know where did this myth of cargo being a prime revenue source on longhaul flights originate, but it is just that, a myth. In the best of times (and let's ignore the current unprecedented and certainly transient situation) generic cargo rates from Singapore to Europe were around $2 per kilo, roughly half of the yield of an average economy passenger counted at 100kg with bags. Passenger aircraft are optimised for a maximum passenger load (plus baggage), so there is not much cargo space left with a full pax load at the edge of the range envelope, 3-5 tonnes at most. Add to this the variable headwinds, on a 14 hour sector to Europe the winter winds will reduce cargo capacity to nil (and sometimes even reduce pax load). With all this variability and uncertainty, critical cargo shippers will not chose passenger airlines, they will use dedicated freighter services of which there is plenty. Pax airlines are left with non-time critical generic cargo, which is good to fill underload if there is not a full pax load, but it is not a stable revenue to base a route on. Also this cargo is one-way only, on Asian routes the east-to-west cargo flow is about 10x the volume of west-to-east (where the winds would permit a higher load), thus usually pax flights carry very little cargo eastbound (cargo airlines manage this by operating continuously westbound round the world services).
PS. I'm no fan of Wizz, but I have to grudgingly admit that they are very disciplined when it comes to sticking to their cost model. Their adventure this past year with routes is a different story, we'll see what comes out of that. |
Passenger aircraft are optimised for a maximum passenger load (plus baggage), so there is not much cargo space left with a full pax load, 3-5 tonnes at most. I listened to a presentation by Rod Eddington where he talked about why he loved the B777. He directly contradicted some of your assertions. But then he was only the CEO of a large and successful airline so what did he know? |
I found the following analysis quite interesting, and although it leaves out some key components (such as freight, which is a very fickle business at the best times), it does have some good research behind it.
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Originally Posted by M.Mouse
(Post 10957411)
But then he was only the CEO of a large and successful airline...
I agree generalisations don't always apply (they do in the case of Norwegian), with the relatively short transatlantic stage lengths out of LHR the T7 did have a substantial cargo capacity, as it was built for 10+ hour routes. However the cargo market was very different in those days, 20 year have passed and specialty operators have in the meantime captured most of the premium market. BA was/is in a special position with slot constrained LHR (which is the reason it survived to this day, not because of any stellar corporate performance) which does change bits of the equation. It all boils down to network which drives everything else, and I agree no two airlines are the same. |
Norwegian is going bust because is managed by amateurs. Dot. Talking more than this is a waste of our time. Been both and in nas and fr, Is like night and day the way operations are organized.
fr is at top level of industry efficiency, while Nas is runner by Norwegian guys that believes to know it better than a 500+ 737 operator |
In a nutshell! (and a cautionary tale of where an (ex)pilot thinks they know how to run an airline .. and not the only one, at that)!
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Not really optimistic regarding LGW recovery in any shape or form, the current fares advertised on the US routes from April for NAS are about 35-50% more than the offering BA have as a full service airline. Hubris and arrogance have put us in an "unrecoverable jet upset!"
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Originally Posted by Joe le Taxi
(Post 10957644)
...and a cautionary tale of where an (ex)pilot thinks they know how to run an airline .. !
Many moons ago I was called to a high office at an airline that is now history. On most flights I was invited up front, and after doing away with niceties and distractions like takeoff and landing, the conversations usually revolved around how the airline should be run, with me mostly doing the listening. After a while I took on the habit of offering helpful advice to the flight crew, like a little bit to the right, now a little to the left... The smarter ones took the hint :) |
As a pilot I often get called by the cabin crew telling me there is a funny noise, a funny smell, a peculiar vibration, etc. I always listen carefully. Most of the time is nothing but I always listen and try my best to avoid the "buff, what now? what do they know..." You never know when you might learn something quite important. I was also at high office at a couple of airlines once, I applied the same logic then and listened to the crews carefully. Among the very abundant chaff there was plenty of wheat, I found. Maybe that is smarter than sitting there basking in your own smugness.
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andrasz
You prioritized passengers over cargo ("so there is not much cargo space left with a full pax load, 3-5 tonnes at most."). If the order of priority is pax+bags and then fill the remaining available lift capability with cargo, it will loose money as you claim. If the order of priority is cargo, then fill the remaining lift capability with passengers and bags, routes more often become profitable, or at least break even. This is why Norwegian's lack of communication to its front line workers was so fatal. Crews and operations folks would refuse cargo to accommodate passengers and bags, when the route was opened on the basis of the cargo contract. This is why the route was closed when the shipping agent cancelled the contract. It has been said more than enough times, and validated in financial reports, that there were aspects of Norwegian's long haul operation that worked, and worked well. LGW to the US, and OSL to the US was making money overall (and I believe, but am not positive, that OSL/CPH/ARN to BKK was strong as well). LGW to South America, and CPH/ARN/CDG/AMS/BCN/MAD/FCO to the US were money losers. Norwegian expanded too much and too quickly, and the debt incurred could not be sustained with trying to carry all the unprofitable routes. I strongly believe if Norwegian has expanded a bit more slowly, and only operated 10-14 787s with limited routes, it would have worked. |
Ignore the "smugness" jibes, Andrasz. Unnecessary.
You clearly understand more about running an airline than us pilots....(WW was an exception, but he was never a career pilot). Top management in the multi-dimensional and fast-changing arena that is the airline world requires a totally different skillset from that used by the experienced captain/trainer/Chief Pilot. As a short/long haul pilot myself, I have been bored silly listening to the 'wise' pontifications of colleagues about what must be done to run the airline properly. The only carrier I worked for that survived in part was bmi. (Swallowed up by BA/IAG) The rest fell flat on their faces, for a multitude of reasons. (Never worked for FR....they are the likely European survivors of the present crisis, along with some legacy carriers.) As for the rest, EJ included, disappearance and subsequent reappearance in a different size and form is likely. Sad times indeed. |
Originally Posted by NEDude
(Post 10957716)
You prioritized passengers over cargo...
Another thing is that it is a very tricky exercise to say whether this or that route made money or not. A large component of costs (around 30-35% on longhaul, higher on shorthaul) are allocated fixed costs that are spread based on some arbitrary measure (flight hours, seats, pax numbers, length of the chief purser's hair, whatever). Depending on the method used for the allocation of fixed costs and overheads, route profitablity changes dramatically, and it is the most common fallacy of inexperienced airline management to cut 'unprofitable' routes. That usually only results in the fixed costs being spread over a smaller base, making formerly 'profitable' routes unprofitable. Inversely, chasing growth it is easy to make more established routes profitable by adding loss making ones to spread the cost base. Overall, airline profitability can only be measured on a full network basis (that of course does not preclude measuring and ranking routes on a contribution basis, but even there connecting traffic, if it exists, muddies the picture), and I have yet to see numbers that support a low-fare model for longhaul operations. |
Some observations are valid, some not so applicable. If the fixed cost relates to a set number of rotations of profitable routes it makes sense to amortise that cost base, on the other hand, if additional non-profitable rotations are added it may result in additional staffing and overheads and thus the previously stated "fixed costs" are now increased dragging down the overall group profitability. More frequent schedules on popular routes does not automatically lead to more profit as this model demands high pax numbers/ freight or combination of both. Having said that, even with full pax and headwinds a 787 can easily cope with the routes Norwegian were operating and still allow a modest amount of cargo, In normal weather conditions I've never seen a 777 or 787 with no underload. The issue appears to have been the lack of a proper load optimising system, communications and bad cargo contracts. If cargo timing is not critical then eventually it all gets shipped.
Getting back to the LC LH model, while some routes may have been revenue positive, taking the whole operation it was a financial disaster, bit like running a supermarket with one profit making product, eventually the overheads will kill the company. Some posts elude to the ticket pricing, frankly, compared to the majors it's not cheap and the most successful routes are those on which they created demand rather than try and poach customers from others. You cannot borrow your way out of debt, this is what is being attempted now. |
An extremely interesting and educative conversation from the beans arithmetic's world that many of us are not familiar with. Thanks you for that.
A question on belly cargo on board pax a/c if I may, :, Andrasz, you mentioned 2 $ / Kg on some LH routes, but at this rate what kind of profit margin the airline gets considering the fuel cost penalties to to carry that extra load on a 10+ hours leg ? Back to Norwegian LH future. A friend of mine is Capt 787 with them was just sent back last week for retraining on the Sim with a lot of other colleagues after months of inactivity together. So looks like money is still there to do this and the plans seems to be to restart soon. |
Originally Posted by ATC Watcher
(Post 10958304)
you mentioned 2 $ / Kg on some LH routes, but at this rate what kind of profit margin the airline gets considering the fuel cost penalties...
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Hi ATC Watcher.
Are you 100% sure this friend of yours is a pilot with Norwegian LH? No crew has been asked to return to work, no crew is yet being retrained and no internal information regarding any such events has been issued. So maybe this friend of yours works with a different company? Out of curiosity where is your friend based? |
He is based in Paris CDG
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Lots of LGW crew are under the impression they’re going back to work this side of summer, couple 787s positioned to LGW today apparently
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If they did, none of the spotters noticed...
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Meanwhile up the road at Heathrow a barely whispered New Year’s Eve announcement as BA gets a UK taxpayer backed £2 Billion loan. Guess Willie Walsh must be fuming that the government has dared to step in and support a UK airline. Yeah right!
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andrasz
Your theory would hold some merit if the figures weren't so out. Looking at BA's fares (to avoid any ignorant comments from others like "well Norwegian should just charge more then") from LON-NYC, the bread and butter of Norwegian's long haul operation, the revenue per passenger once government taxes and airport fees have been taken out is more like $68 per passenger per sector. A far cry from $400, and using your own cargo price estimation, about a third of the $200 per 100kg, assuming the costs associated with handling cargo and passengers are similar. Of course the average revenue per passenger would increase once you include higher fare brackets and cabin classes, but these aren't the passengers that are going to be sacrificed for the carriage of cargo. The myth of cargo being a prime revenue source may be a myth on some routes, with some airlines. But for airlines like Qatar, for example, cargo is the reason they're able to operate such a high number of frequencies to offer optimal connecting opportunities for passengers. Qatar don't (pre-Covid) fill six widebodies per day into and out of Heathrow for around 45 of 52 weeks of the year, but they do regularly shift over 100 tonnes of cargo per day in each direction. It's not a case of waiting for the last bag to be checked in and then working out how many kg of cargo they can load, the airlines will be able to model an estimated passenger load a couple of weeks in advance and artificially adjust capacity above and below the floor as required. A vast amount of long haul routes all over the world rely on cargo to be viable, it's not just a few extra dollars to the bottom line. Going back to Norwegian and Singapore, offloading bags and/or passengers would've been far more beneficial than offloading cargo, and this has been covered a number of times. As you well know, being offloaded as a passenger is rarely a traumatic experience that results in "100 lost customers per mistreated passenger". There's usually plenty of volunteers to be offloaded with the incentive of 600 Euros in DBC, a free hotel room and a seat on the next flight. Nor is a missing bag going to cause the airline to lose 100s of passengers. All airlines have bags that don't end up on their intended flight, intentionally or otherwise. I've had Iberia misplace my bag three times on the exact same widebody flight from Madrid to LHR, including once when no bags at all made the flight - bumped off in favour of the vast quantities of fresh fruit from South/Central America. With that being said, if your argument was that low cost Ultra long haul doesn't work, I'd tend to agree. Singapore, which is essentially ultra long haul, was always going to be a marginal route with performance issues. Another factor at play in Norwegian's case was that most of the flights departed from Singapore in the late morning, when temperatures are typically 3-4 degrees warmer than the "traditional" European departure bank around Midnight. Not only did the few extra degrees add to performance issues, but the daytime airway closures in India add significant track mileage to flights operating Westbound at this time of day. They simply didn't have the aircraft availability to operate evening departures in both directions, not helped by the well publicised RR issues. And that's before you consider the volatile airspace the route uses, whether it's Pakistani airspace closing, Iran's airspace restrictions, Russian overflight or, if all that fails, the near impossible task of getting a Saudi overflight permit at short notice. Low cost to Singapore was probably always doomed. Low cost to New York, Los Angeles and Orlando on the other hand... |
No, just no.
Originally Posted by ATC Watcher
(Post 10959154)
He is based in Paris CDG
This leaves basically three different scenarios. 1. You are making stuff up. 2. Your friend is making stuff up. 3. Your friend paid for his own LPC and you thought that meant he had been recalled. I suppose you have no interest in number 1., I suppose your friend has no interest in number 2., so lets conclude your above post was all a big misunderstanding. But just to make it crystal clear - NO LONG HAUL CREW HAS YET BEEN RECALLED. |
well, they”re flogging tickets CDG-JFK in March so I guess it’s not out of the question to start the long process of getting crew retrained! After so long it will entail a lot more than just a two day LPC so this kind of lead in is probably about right..
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Dear Brigitte. I do not know who you are , it is one of your first posts so I'll be gentle.
Replying to your questions: I do not makes things up to post here . A lot of people here by now know who I am and what I do. My friend is not making this up either we fly together in the same flying club since decades . All I said was that he and other B787 crews went to the sim to revalidate . That is a fact . When and how and where to they will fly again I do not know and this is what I wrote : So looks like money is still there to do this and the plans seems to be to restart soon. Last point, I have no horse in this race as the British say. I do not own shares or whatever and even never flew with them , I so just have a friend flying for them . I am here because I find this thread very interesting as I learn a bit how an airline internally functions, and post from people like Andrasz regarding finance are very educative for me. Nothing more .. I can see that the subject is more sensitive and personal for you and I sympathize. Lots of people are going to be severely affected this year by the crisis . I am one of the lucky ones, having retired before the crisis. so I wish you good luck and really hope to see Norwegian pulling out of this mess. . |
Dear ATC Watcher.
If what you meant was simply that your friend went back and did re-training (Number 3 above), I apologize. Your quote "So looks like money is still there to do this and the plans seems to be to restart soon.", made me (and others) believe you implied the company (Norwegian) paid for your friends training. However, if we can agree to the fact that your friend paid for his own training, and that Norwegian has not recalled CDG pilots and paid for their training - let's call it a misunderstanding - and I apologize for my part. Respectfully. |
It is well known that Norwegian earned their money on Norwegian domestic flights and on flights from Scandinavia to southern Europe.
Overall the longhaul branch was operating with massive losses, for the following reasons The management had no idea how intercontinental flights operate, it is a completely different ballgame than short- medium haul operations. The mistakes they made regarding longhaul ops, were to utilize a new completely unproven and very expensive. aircraft with no business class. Their cargo. operation was a complete disaster. As all the money they were earning on the good short- medium haul routes were used cover the losses from longhaul , forcing the company to continue a completely unsustainable expansion, just to generate some cashflow, among other things leading to the catastrophic Argentinian adventure. Some will say that a few of the longhaul routes from LGW were making money, and that may be true, but not nearly enough to cover the massive losses from the rest of the longhaul ops. The only one who has ever had any success with low cost longhaul was Sir Freddy Laker with his Skytrain, until the operation was killed by BA and other airlines. There are a few other lowcost longhaul airlines that were operating pre corona, They were also not doing that great, but most of them has business class, and they are either owned by legacy carriers, or other large companies that have other revenue streams. Norwegians way of low cost longhaul was always doomed. |
Vokes55 I don't know about BA average yields on the NYC route, but $68 Euros sounds a tad low even with fees and taxes deducted. Then again, the last time I have seen real numbers from them was 10+ years ago, and the world did change, but fundamental airline economics haven't. One can argue that LHR-JFK is really on the borderline of being a longhaul route (the fastest eastbound I ever did with a good kick in the rear by the jetstream was something like just over 4 hours), and with some cunning and finesse the low-fare model may actually work. The figures I used were all for the Singapore to Europe routes (not really material which, though the UK is on the long end). Having a lengthy exposure to both the ful service and the low cost side of the industry, I do stand by my original statement that by and large the low fare model is not viable on routes over six hours. However I'm always open to being proven wrong, would love to see those figures and calculations.
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Vokes55
Sorry but that argument still doesn’t stack up. Air Cargo News puts the current average air cargo rates at $3.30/kg (in a world where cargo yields are higher than normal) While a quick online search has Singapore-UK being offered at between $2-$4/kg. So let’s take the top end at $4/kg for cargo. You need to offload a passenger to uplift an extra 100kg of “very profitable” freight. Cost of passenger offload = EU261 compensation (€600)+ Hotel+Subsistence+Potential loss of not being able to sell the seat the next day At current rate €600 is a little over $700, plus let’s say $150 for hotel and subsistence claims. Can’t quantify the loss of revenue for a possible last minute seat sale on the next flight. But absolute minimum cost of passenger offload $850. Revenue from freight = $400 Doesn’t make much sense from a revenue perspective to cost yourself $850 to “earn” $400 And in my experience airlines don’t offload passenger baggage for cargo either, as that quickly gets expensive. Luggage has to be forwarded on to final destination, possibly involving connecting flights and then couriered to home address or hotel. Plus passengers are normally offered expenses to buy some replacement items. When my job has involved dealing with cargo in an operational capacity, on high demand cargo routes, there was an agreed minimum cargo uplift offered by the airline in the freight contract. When there was additional demand we would get a phone call/email/SITA on the day of departure from cargo, once the passenger figures were known and we could calculate a real world flight plan, to ask for how much additional cargo we could accept. And the answer was almost always yes with an increased figure for them to work to. I don’t recall us often not being able to accept the agreed minimum cargo uplift, except in extreme weather contains. Was rare. This again looks like another case of Norwegian getting it wrong. They offered more cargo capacity than the aircraft would routinely carry based on performance and en-route restrictions, and lost the contract as a result of regularly not being able to accept the agreed freight uplifts. The idea of offloading passengers and baggage to try and save a flawed freight contract would have been a commercial non-starter. |
Downwind_Left Finally some sense. The original outlined idea above, off-loading bags or pax to keep the lucrative cargo customer served, did not make any sense cashflow-wise. Not to mention additional overheads, PR and loss of customer confidence.
I'm not really disputing anything voiced previously, just wanted to thank you for re-aligning the puzzle pieces. Restrict pax load before selling the tickets, in order to preserve freight capability? Well, perhaps. IDK, not a yield manager. But to offload at the last minute sounds like a trick from the techcrew such as myself. |
But wouldn't this all depend on the contracted cargo allowances, or more importantly, any penalties payable for being unable to carry the contracted load? From past experience, the penalties for default are significantly more than the original contract sum.
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Racking my brains here, normally the dispatcher advises the crew about the cargo before the final fuel figure is calculated for the estimated ZFW in order to avoid any last minute issues. I can't think of any occasions of denying pax, left baggage behind in the past, but not PAX, except when overbooked or families can't be seated according to the requirements e.g UMs or special assistance.
By the way, most LGW LH destinations are being advertised from 2nd Qtr, doesn't mean we will fly again. |
Originally Posted by SWBKCB
(Post 10959357)
If they did, none of the spotters noticed...
Literally going off posts I’ve seen on Facebook from some of the staff, I’ve not actually seen them myself |
Downwind_Left,
I never said that it’s a common practice for on the day offloads of passengers and/or bags, for the reasons you described. The majority of routes (worldwide, not Norwegian specific here) that have a large regular cargo uplift will have onboard capacity restricted in advance, either for every flight with a contracted minimum cargo capacity, or based on estimated loads a couple of weeks or so in advance. One thing that nobody is disputing is that Norwegian handled the Singapore route badly. If the cargo was keeping the route profitable, passenger capacity should’ve been restricted in advance - I believe they did learn their lesson on this one and started restricting passenger capacity on the EZE route, I’m sure one of the NUK drivers on here can confirm or deny that - however, much like how airlines overbook flights on the premise that 19 times out 20 there are sufficient no shows, sometimes it doesn’t work out on the day and something has to be left behind, particularly on a performance limited route like SIN-LON, where something as small as 10-15 knot wind speed increase in the strong jet stream over the Sub-continent could require an extra 2 tonnes of fuel. Norwegian should’ve taken the hit that you outlined with a few passengers, which would’ve cost them a few quid on the day but might’ve ultimately saved the cargo contract. Also worth remembering that if the performance is tight, offloading bags and/or passengers is a far more refined way of getting the numbers below the limiting factor than offloading an entire pallet of cargo. There’s plenty of fat in the performance figures, there’s nothing wrong with departing on MTOW to the kg. Also worth noting that airlines expect a certain number of EU261 claims per year and will adjust ticket prices to cover this inevitability. It’s only when the number of claims becomes excessive that it becomes a problem for the airline, and offloading a few passengers voluntarily with this incentive would barely scratch the surface of this contingency “fund”. |
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