Norwegian Escalates its US Invasion

Anyone here flown Norwegian yet? If not, you’re going to have plenty of opportunity. Norwegian has stepped up its efforts to become the first airline to be a successful long haul, low cost carrier with a slew of new service to the US. I really want this to work, but naturally, I’m highly skeptical, especially about the airline’s most recent announcement.

Norwegian started off in a nice, comfortable environment – Scandinavia. Why is that comfortable? Because when your biggest competition is bloated, high-cost SAS, it shouldn’t be hard to get a foothold. Sure enough, Norwegian has grown like a weed. Check out this map of flights from Oslo alone.

Norwegian Oslo

The airline has done well with short haul flying, but it’s taking a big chance by moving into long haul. It’s taking an even bigger chance by buying brand new 787s to do the job.

This summer, Norwegian started with 3 daily flights each from Oslo and Stockholm to New York and Bangkok. Then it added twice weekly flights from Oslo to Ft Lauderdale. Not enough? Copenhagen and Stockholm to Ft Lauderdale followed.

The service started with some hiccups. 787 Dreamliner problems meant that the service had to start with a leased A340, not exactly what they had in mind. This, however, should be worked out soon enough. Then will it work? Eh, not so sure about that.

The problem with long haul flying by a low cost carrier is that there is no low cost fuel. If you’re a low cost carrier, you are probably buying fuel at or close to market price. The longer the flight, the bigger percentage fuel becomes of your total costs. It creates a more level playing field. To be fair, Norwegian has to buy less fuel than others because it uses fuel-sipping 787s. But those 787s cost a lot of money to buy upfront. It’ll take awhile to pay those puppies off. And with more 787s coming off the line, they need to be put to work.

Where are those airplanes going? Norwegian decided to burn even more fuel and go even LONGER haul. Flights will go twice weekly from Stockholm to LA and Oakland. Copenhagen will see twice weekly flights to New York and LA. Oslo will get a weekly flight to LA and thrice weekly flight to Oakland. Orlando will get a twice weekly flight to Oslo as well.

Right, so this is interesting. How is Norwegian going to pull this off? Well, first it laid out a traditional low cost carrier experience. You pay for bags, meals, seat assignments, etc. But there are perks – lots of entertainment onboard, for example. That’s all good for generating a little more revenue (a much smaller percentage of the total ticket price than on short haul), but what about costs?

First it decided to compete with SAS. That gives anyone an instant cost advantage. That being said, Norway is still a very high cost place to do business. That’s why Norwegian has outsourced a lot of its cabin crews to countries with lower costs (like Thailand). Then it loaded up its airplanes with a bunch of seats.

Japan Air Lines has 186 seats on the 787. United manages 219. Norwegian has 291. Of course, United has a bunch of flat beds that will generate a ton more revenue. Norwegian has a lot of coach seats with only a 32 seat premium economy section.

Ultimately, route selection will help here, if done right. Most of these new routes have no nonstop competition and they only operate a couple times a week. These are some relatively thin routes, but that’s a strategy that airlines like Allegiant have made work on short haul routes (granted, with older, lower cost airplanes). It might be a strategy worth pursuing, and I’m really curious to see how these initial routes pan out. For its next round of announcements, however, Norwegian went off the rails.

Over the years, Norwegian has expanded outside its home market, and one of its bases is at London/Gatwick. In fact, it has grown it fairly quickly there, as you can see.

Norwegian London Gatwick

Next summer, Norwegian will fly twice weekly from London to both Ft Lauderdale and LA. It will also fly thrice weekly from London to New York.

These are not long, thin routes. These are some of the busiest routes in the world. So, uh, what is happening here?

Well, clearly Norwegian thinks fares are too high on these routes and it wants to bring them down. But coach fares really aren’t all that high on these routes most of the year. And a huge chunk of the cost is in those high British taxes that apply to everyone equally. Sure, Gatwick is lower cost than Heathrow, but I just have a hard time seeing how this works.

I find myself looking at this mixed bag from Norwegian wondering what, if anything, will turn a profit. I imagine that much of this will work during the peak summer season while Florida should do better in the winter. But these are expensive airplanes that need to be flown a lot, all year long. I think this is going to be very tough-going for Norwegian.

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34 Comments on "Norwegian Escalates its US Invasion"

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David
Guest

Not been formally announced yet but on Monday 21 Oct, GDS systems held details of a new 3x weekly Gatwick – Tel Aviv route with Norwegian as well, beginning spring 2014

Sanjeev M
Guest

Nice. This is also short haul though so I don’t see a problem making this one work.

Ron
Guest

The Israel–EU open skies agreement starts going into effect in April 2014. Expect a lot of airlines to dip their toes. It will probably be several years before we know what the market will look like long-term.

This much said, LGW–TLV has traditionally been the domain of charter airlines like Monarch and the now defunct XL. I think the entry of easyJet (from Luton) has caused the charters to largely abandon the market. With open skies coming, all bets are off.

David
Guest

I’m with you on the puzzled factor regarding profitability. The more I look at Norwegian, the more I think of Air Berlin around 2006. Mid sized airline that has done so well so far and decides that it’s now invincible and can expand into any market it chooses at the same time

Jared Hanner
Member
It will be interesting. I looked up in July of nezt year. AA, BA and VS are all about $1250 for a RT ticket from LAX to LHR. Norwegian is $700. That’s a huge price difference. They only fly on Wednesday and Sunday so they will miss out on people that don’t search for those days… It looked like they also had a package for bags and meals for $60 each way. Interesting concept. I know lots of people that travel to Europe with a carryon and don’t eat the food. Interesting. I just don’t know if there is enough… Read more »
David SF eastbay
Member

I’m sure most of the traffic will go beyond ARN/CPH/OSL, and by the route map shown they seem to have a lot of ‘beyond’ service.

Will they be the new Freddie Laker of the LGW/USA routes?

nicholas.irving
Member

It is so wrong to me that they are outsourcing from other countries just to pay them peanuts…morally wrong!

David
Guest

Nick – have you seen the cost of labour in Norway and the related social taxes a Norwegian employer must pay ?

Sean S.
Guest

So? This is the kind race to the bottom mentality that encourages all of us to become the labor equivalent of third world countries. There’s a reason why people in developed economies have fought hard for labor rules and wage increases; so that we’re NOT being exploited by others.

Ake
Guest
Sean, you have it all backwards. These are the kinds of jobs that will enable countries with low income to build up their social capital, let their kids go to school instead of work. By not letting them have these jobs, that they see as awesome, we are denying them to go through the same steps we all did in the more affluent countries. On the other hand, Norway is just insane. Why do you think that a large chunk of the labor force is Swedes (~10%)? Swedes who have one of the highest living standards in the world still… Read more »
Sean S.
Guest
By not letting them have these jobs, that they see as awesome, we are denying them to go through the same steps we all did in the more affluent countries. Nonsense. This is the old saw that people throw up to explain why it is okay to exploit labor in foreign countries, because, of course, these people “need” those jobs. Yet, funny enough, when that same labor pool in low income countries agitates for raises in wages and better working conditions guess what they tell them? You are replaceable by the next low-income country in line. Jobs move from America… Read more »
Ake
Guest
It didn’t let me reply to your post so here goes. Sorry for going insanely off topic… China?s poverty rate fell from 85% to 15.9%, or by over 600 million people from 1981 to 2005. I think this illustrates my point very well. Since they had the chance to educate their children, China is now well posed to also take on more qualified jobs and services. These 600M people can now buy more thing and services benefiting everybody. Sure China is starting to outsource production further south, but that is just awesome for those countries! It sucks for some people… Read more »
SEAN
Guest

So well put Sean S. I thaught earning higher wages aids society on the whole, but there are those who like exploitation & justify it with ecconomics. If you remember former president G W Bush’s comment on illegal imigration, he stated there doing the jobs americans won’t do.

Christian
Guest

Yes, which is why Norwegians enjoy one of the highest standards of living in the world. Put the median American next to the median Norwegian and the contrast is sobering. I completely agree with Sean. This kind of subversion employed (literally) by Norwegian undermines the very ideals of Norwegian society, and as a Norwegian, I can tell you that it’s not gone unnoticed in Norway and the topic of Norwegian’s expansion and operating model makes for conversation in non-aviation circles than you would expect.

Bill from DC
Guest

So if it offends the Norwegians delicate sensibilities, they don’t have to fly this airline. At their prices, I’ll bet they can do just fine flying citizens from the rest of the world.

Jared
Guest

Not saying it’s right or wrong, but cruise lines use outsourced labour from all over the place, even if they are an American or Norwegian cruise line. They fly in people from Southeast Asia and put them on a boat for 6 months. You can also say these individuals are making way more money doing these jobs than they would at home.

It is almost thr same thing with a US company setting up a call center in India. A $20k salary in the US isn’t great but in a developing country that goes much further.

km_seattle
Member

I completely agree. Norwegian should not be allowed to open a US base with up to 800 employees paid US salaries. That?s exploiting cheap US labor at the expense of Scandinavian labor.

http://www.norwaypost.no/index.php/news/latest-news/28722-aviation-norwegian-to-open-us-base

/end sarcasm.

Sean S.
Guest

This contradicts everything else that is posted about how they are reducing labor costs through flagging planes in Ireland and hiring crew from Thailand. I’m having a hard time imagining they are going to hire 800 crew members at prevailing US wages to staff allegedly low cost ultra long haul flights. That doesn’t make any sense. So we’re going to have two EU hubs being serviced by a mixture of SE Asian crews, US crews, and EU crews? Oh that totally doesn’t sound like a fiasco waiting to happen.

Sean S.
Guest
I have a difficult time seeing this work, because unlike Icelandair which has the benefit of geography, there is not an immediate natural hub in Norway unless I’m looking at things wrong. Icelandair gets away with this stuff because of the nature of its hub and the fact that it has no domestic or near by competition, and a domestic base that in fact see’s a direct benefit to its hub status. It is able to offer fares that are significantly cheaper than competitors that would be difficult for them to match on a non-stop flight. I think there is… Read more »
Frank
Guest

So what do we know Norwegian?

It calls itself Norwegian, yet its fleet is registered in Ireland; it uses Thai-based flightcrews working under Singaporean contracts; and perhaps best yet, it’s purchasing its B787’s with loan guarantees underwritten by American taxpayer’s by way of the US government’s own Export-Import Bank.

Frankly, it sounds as if Norwegian is an airline designed from the ground up to evade the laws of nations around the world, and I agree with ALPA, that it’s disgraceful that the US government approves of its application to fly here. (see: http://bit.ly/15MFzu4)

Nick Barnard
Member

I’m sort of curious how they end up getting around Norwegian or Ireland’s labor laws (Whichever applies, I’d figure it’d be one of them.) Wouldn’t they have to provide what is legally required of any Norwegian or Irish employer?

Sarah Miles
Guest

I guess that the airlines are taking a lead from cruise ship operators who often employ a wide range of nationalities to staff their ships even though each boat has to be registered to a specific country

alan
Member
Norwegian has been incredibly successful operating flights out of LGW, their timekeeping and service throughout the peak season was the talk of the travel industry. However many wonder whether this is a folly too far. They claim fuel costs are 20% lower with the 787 than anything they have ever flown before but it has been anything but a Dream for them. Reliability is below 50% and they said last week their actual costs due to endless problems meant their real costs were 50% higher than expected. The fares on launch day were good, every flight in July 2014 was… Read more »
rogerintrenton
Guest

Aren’t their 787s leased instead of purchased? I’ve flown Norwegian a couple years ago between Helsinki and London. I actually really enjoyed the flight.

RAW
Guest
The 787s are leased from ILFC, based right here in LA. I think David has it right, Norwegian looks very much like the Air Berlin of yore, before their fatal overreach and their now perpetual dance on the edge of bankruptcy. I’d ascribe that to the guy running (and owning much of) the airline: Bjørn Kjos. A prickly and grandiose personality. As to the merits of the business case: Jared, it’s deceptive if you look up $1250 for legacy liners and $700 for Norwegian. As someone else noted, there’s an additional $120 for bags and crackers, surely another $60 or… Read more »
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[…] Norwegian Air Shuttle is trying to be the first major European low-cost carrier to operate a large transatlantic route network. The airline, which is taking delivery of a bunch of Boeing 787s will, by next summer, fly from Los Angeles to Oslo, London, Stockholm and Copenhagen. But will this strategy work? Brett Snyder, who runs the blog crankyflier.com, says he is skeptical.  […]

yo
Guest

Oslo to Oakland? What, Vilnius to Palmdale didn’t pan out?

David SF eastbay
Member

OAK is a better option to SFO and used by a lot of charters. It’s closer to the majority of the bay area population then SFO/SJC, it’s cheaper to operate from, the flight will have customs to themselves, and on days like today and the last two days, we’ve had fog so OAK is operating and SFO will be at a crawl.

yo
Guest

Trust me, I know. I remember the Rich International DC-8 flights, and when Corsair brought in their wonderful 747-SP. I prefer OAK to SFO every day. It does look like Norwegian is going all post-regulation Braniff.

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[…] written about Norwegian before. It’s based in an extremely high-cost country, Norway, and that’s not exactly the best […]

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[…] om deres modell med langdistanse lavkost har livets rett. Mange mener at dette ikke går – jeg, i likhet med den amerikanske flybloggeren CrankyFlier, tror bildet er mer nyansert. Norwegians ruter fra Oslo og Stockholm til Bangkok og Ft. Lauderdale […]

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