Unlike other airline long haul expansion, LGW doesn't canibalize ANY of WJ's existing operations. There were very few people who used GLA and DUB as the gateway to London.
How many people per flight flew via SYD to go to BNE last summer? How many flew through FRA to fly to PRA, WAW or BUD last summer? All that connecting traffic that has been diverted from connecting segments to the n/s has to be replaced. Is AC revenue sharing with LH on their n/s's to BUD, FRA and PRG, because they definitely were when that traffic went through FRA. I wonder how LH feels about this, given the reduction in connecting traffic obviously impacts LH's balance sheet too.
The biggest risk to WJ's TATL strategy is very clearly aircraft reliability. I'd be willing to bet there are more than a few people who wish they'd simply bitten the bullet and gone with 787's from the get go.
LGW is already having a marked impact on Canada to UK pricing. One can fly Toronto to LGW r/t tix over the last 10 days of May for well under $600, with LHR about $300 more. A lot of that price sensitive market, who were paying $1,200 or more r/t in the spring of 2015 are more than happy to pay $850 to LHR this spring, or $564 to LGW. Those sorts of prices have been floating around for months now and are a considerable part of the reason why airlines are making noises about "weak TATL market".
Sure, the premium cabin tops up the market, but those fares are down too.
With roughly 2,700 economy seats a day from Canada to LHR, operating at their reported 3Q 2015 TATL l/f of 88% l/f + another 256 seats to LGW, what happens if revenue from May 6 thru Sept 30, (147 days), drops a conservative average of $100 a seat each way?
2,700 x .88 = 2,376 economy seats x $100 a seat x 147 days = $34.9m each way x 2 = roughly $70m of revenue that may disappear on Canada to LHR alone over the spring / summer season. That excludes the revenues that disappear from PY and J discounting and lower revenues from belly cargo.
And because we're still a week away from WJ's launch, we still haven't seen what WJ is going to do to critical "last minute" pricing from Canada to the UK, where the real money is made. Will fares remain around $1,800 for Y walk up, $3,600 for PY and $6,700 for J?
AC generated a respectable 11.72% operating margin in 3Q 2015. To replace the $70m that is fairly easy to identify from Canada to LHR, and presumably contributes heavily to that 11.72% margin, AC will have to generate an additional $602m in revenues over that period at that margin.
That's no easy task, especially given a lot of the new flying is already canibalizing established, presumably profitable flying, (for example, adding BNE to SYD, adding BUD, PRG and WAW to FRA, adding LYS to GVA, adding DUB from YVR that takes traffic from YVR-LHR, adding n/s's to Asia from YYZ that remove traffic from the domestic trans-con and YVR-Asia flights.). Then there's the likes of Hainan's new YYC-PEK n/s that intercepts AC traffic and has caused peak summer fares to drop about $300 r/t from the mid $1,500 range to the mid $1,200 range.
In a business where it takes "pennies to make dollars", seeing those sorts of declines has a tendency to tighten the sphincters of route managers.
All of this adds up to a 2016 late spring / summer TATL environment that might be a little more frustrating for some than previously expected, a scenario that is already being strongly hinted at by a number of US carriers with long established TATL exposure.
