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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