When you hear an airline say it wants to be global, that generally means it wants to fly to places around the world. But when Norwegian says it, it means something different. And its competitors here in the US think that Norwegian’s efforts should be blocked.
I’ve written about Norwegian before. It’s based in an extremely high-cost country, Norway, and that’s not exactly the best foundation for a low-cost carrier. But Norwegian thrived early because it was lucky enough to compete with bloated, high-cost SAS. That’s not the hardest thing to do. Norwegian’s aspirations, however, went beyond intra-Scandinavia flying and even beyond Europe entirely. That changes the competitive set and makes the airline work harder to succeed.
Norwegian is now dipping its toes into the long haul, low-cost market. That’s a market that nobody has ever successfully conquered for any lengthy period of time, and you would think that an airline coming from a high-cost country wouldn’t be the most likely suspect to end up with a different result.
With that rather large problems staring Norwegian in the face, how would it actually be able to make a run at success here? Norwegian is registering aircraft in Ireland and using lower cost Asian cabin crews.
Norwegian applied for an air operator’s certificate (AOC) in Ireland. The plan is to run the long haul airline from there in an administrative sense. There aren’t any flights currently planned to touch Ireland, but that’s not the point. The point is that Ireland is a tax-friendly place and most importantly, it has much more liberal labor laws.
Norway, like all Scandinavian countries, has strict rules that tend to favor labor. That generally means high wages and taxes. It also means blocking workers from outside Europe from taking a job. And that’s precisely what Norwegian has decided to work around. It has turned its eyes toward Southeast Asia where it can recruit people for a much lower “living wage” than what it would take in Europe, especially in Norway itself.
Here’s how it works. Norwegian contracts with Rishworth Aviation to recruit pilots. It bases them in Bangkok and offers a 3 year contract that is renewable. While they don’t give pay rates in the job posting, there is an article that points to flight attendants making less than $500 a month in base pay. That kind of pay makes first year flight attendants at US carriers seem rich. But in Thailand, that isn’t a bad wage, or so they say.
That may be the recipe for success for Norwegian, but it has other airlines and labor groups fuming. The Air Line Pilots Association (ALPA) was quick to condemn Norwegian for tactics that would give the airline “a serious and unfair economic advantage over U.S. airlines in the competition for the business of international passengers flying to and from the United States.” ALPA is not alone. The legacy carriers in the US are also lobbying for the US to deny the airline access to the US. (Of course, they’re already here, but this would be for ongoing permanent access.)
For its part, Norwegian scoffs at these claims. It has ramped up its PR campaign by talking about the new bases it’s opening in the US in New York and Ft Lauderdale. Wait, what? Yeah, it might make sense to staff some flights to the US with Thai crews, but that presents logistical issues. It can make more sense to open a base in the US as well. After all, US laws look very friendly versus Norway. This way, Norwegian can keep its long haul crews at the spokes in North America and Asia, so-to-speak, because that’s where the friendliest laws are.
Of course, it’s the job of airlines and crews in the US and elsewhere to try to fight new competition. Just as they’ve done with gulf carriers like Emirates, they’re trying to block anything that hurts their competitiveness. It seems like an uphill battle.
So far, Ireland and Norway seem to have failed to prevent this from happening, and that says a lot. If they can’t successfully fight the outsourcing of jobs, then it seems silly for the US to be able to block it. But hey, it’s politics. We might see a lot of rhetoric in the political sphere over this, though in the end, I doubt it will amount to anything of substance, as is often the case.
[Original Statue of Liberty, Viking, Leprechaun, and Buddha statue photos via Shutterstock]
What do you suppose this means for travelers?
If Norwegian does offer intercontinental flights at actually low-cost – and that’s a big IF – how likely is that to detract from the established airlines? Although the number of travelers in Europe and N. America is growing, it’s not growing that fast and so I suppose Norwegian would look more towards Asia but if Air Asia X wasn’t able to make intercontinental work then I’m not sure Norwegian can.
Norwegian already DOES offer intercontinental flights at actually low-cost… no “if” about it.
My apologies for lack of clarity.
We should perhaps define what an intercontinental low-cost would be. Suppose we choose the LON-NYC market. If Norwegian’s average economy ticket price is $700 then that’s fairly close to what most airlines already are selling it for and is unlikely to stimulate more people to travel.
But if they’re serious about offering very low-cost product, say an average fare below $500 over the course of 2-3 years then I think Cranky’s theory that long-haul LCCs can’t work would be disproved.
Matt B – Well if they can get below $500 then that might make a difference. I’m not convinced that they can do that. But certainly with these kinds of moves to reduce cost, it helps them get closer.
Will it work? Possibly. But it’s really just another case of a company basing it’s business model on being the “least worst house on the block.” Even the Gulf carriers, who see significant labor savings through their nonexistent labor laws and lack of taxation, don’t sell themselves as low cost even if their fares are competitive or in many cases lower than legacies. That’s because no one wants to be PeoplesExpress, and the idea of “low”-cost long haul sounds like being cramped even more like sardines than people already are. They also lack the geographical advantage that Icelandair does, which allows them to offer rock bottom prices through their hub. No amount of labor penny-pinching will somehow remove the difficulties of fuel costs or the lack of broader connectivity.
If the US carriers were as great as they think they are, they wouldn’t worry or care about Norwegian. And it’s not like everyone flying over the Atlantic would only fly DY. If fact the US carriers should be glad, now DY can take all those pesty coach passengers and the US carriers can only fly airplanes full of business and first class passengers each purchasing $5000.00 and up tickets………LOL
My thoughts exactly. For the most part US based airlines really don’t care about coach passengers at all (including southwest). Personally I’m ok with this. It’s perfectly legal for them to do it and it introduces more competition. Which is always a good thing. To me all of this requires airlines to be more inventive with their product.
You mean like EOS, L’Avion, Silverjet, and MaxJet all failed premium only airlines? People have tried that before and there is not sufficient demand, especially in the current economic environment, to justify such flights. BA still has a all-first class flight, but that’s only tenable due to their huge feed and built up business. Coach and domestic feed still matter.
Depending on the airline, the cost of labour can be the biggest factor still.
I found this article very interesting regarding Norwegian and labour costs for airlines in Europe:
“The second highest employee cost-per-employee is paid by Norwegian, which might not have been expected in view of its overall low costs and reasonable profitability.”
Cruise lines typically get a lot of their cabin attendant and waitstaff from lower wage countries and have their ships registered in much more tax-friendly nations (Bahamas, for example). I don’t really see how this is that much different. Cruise lines are typically focused on the leisure market and one can assume that low-cost long haul flights would be targeted that same market niche.
I tend to think of charter companies as more akin to cruises than low-cost airlines. Charter companies after all capture not only the flight but the often all-inclusive hotel as well, or have some sort of arrangement with the destination they are funneling traffic to that makes the flying lucrative. In the case of pure low cost airlines they don’t see that money, and long-haul is in a situation where they are serving destinations that often aren’t amenable to that sort of revenue capture. You’re operating then on razor thin margins , and it’s not as if Norwegian somehow has a lock on 787’s and the fuel savings they have.
I’m scratching my head just a little on this one. Isn’t Norwegian targeting the ultra low-fare leisure market, kind of like an Air Asia or Jetstar? If that’s the case, I’m not sure why the U.S. legacies care. It would seem that the target market here is a niche that the legacies wouldn’t be particularly interested in serving, anyway.
I looked at the US to LGW fares for next summer …. to tell you the truth, by the time you pay for a bag, pay for a seat assignment and buy something to drink … Norwegian is NO cheaper than the legacy carriers
So the US airlines don’t like that, eh? I take it none of them would route my calls to a foreign call center then?
United has or had flight attendants based in Asia (HKG, NRT, ?). Did they have American union contracts and were they paid the same as their US co-workers?
United still has flight attendants based in HKG and NRT that are working under American contracts making the same rate as pay as all other United FA’s. United did have foreign national flight attendants that were based in BKK and SIN that were paid at lower rates, wore different uniforms and could not work along side union represented flight attendants. They were let go because of a clause in the contract that states foreign nationals must be terminated before furloughing union represented flight attendants. United has had furloughed union represented flight attendants for over 5 years now.
This move by Norwegian really have me concerned. I think this may be the turning point that the American workers didn’t want to believe was coming.
Thanks for confirming and clarifying.
“it’s the job of airlines and crews in the US and elsewhere to try to fight new competition.”
If only they tried to compete in the market instead of with bureaucrats in Washington, D.C. . . .
I just don’t see how slashing crew wages can drop the seat cost enough to really make them competitive. If the gross wages for a flight are $20,000 with a passenger count of 200 the cost per pax is only $100. So they could work for FREE and you can only cut the ticket price by $100.
Well, it’s not just the wages. It’s the health insurance, the pension obligations, etc. Want to give US airlines more of a competitive advantage with the rest of the world? Provide healthcare and a basic social safety net for American citizens so that private businesses do not have to do so.
I am late to the party, but there is already a low cost carrier doing UK – US, which is Jet2, flying a limited schedule mostly around holidays from Leeds Bradford, Manchester and Newcastle to Newark, which you can also book in reverse (http://www.jet2.com/flights/usa/new-york). Seating is what I would call “Spartan” but baggage is pretty generous for carry-on and checked (22 kg’s per bag).
Are there any other low cost options between the US – UK? Jet 2’s schedule is very limited. Thanks
Not that I’m aware. But if you’re prepared to make stop-overs there are decent options via regular carriers via e.g. SAS, LOT or IcelandAir. I use Kayak and there are lots of options.
I also have to wonder if budding European airlines such as Norwegian will have a positive effect on the established, already successful airlines such as KLM and Lufthansa. I already think these airlines have much better service that USA-based airlines, but it may cause them to raise their stakes even more with perhaps more competition on the forefront…
The problems Norwegian is having with the 787 is causing them major problems and all their good intentions started of pretty badly because of this. The news are awash with people who had a bad experience flying Norwegian and that will take a long time to recover from.
Still to this day I have not been able to find a single flight on Norwegian that was cheaper than full service airlines. And lets face it – if you travel intercontinental you ARE going to bring a suitcase unless you want your clothes to stink of sweat after a one week holiday in Florida. Long haul “low-cost” just doesn’t work.