Something is rotten in the state of
Denmark Ireland. Well, what’s actually rotten is right here in the United States related to an Irish subsidiary of a Norwegian company. Got it? Me neither. But that’s the kind of complexity involved when trying to understand how Norwegian Air Shuttle and its many subsidiaries function. One thing I do know is that the US government is obnoxiously stalling on deciding the fate of one of the airline’s subsidiaries. Norwegian tried to push the feds to act, but that has apparently failed. The result? Fewer low fare flights. This whole thing is ridiculous.
Norwegian Air Shuttle has quite the complex ownership structure. It’s so confusing that there’s a webpage on Norwegian’s site dedicated to trying to explain it. Even that isn’t entirely clear. Best I can tell, this is an accurate representation of how it all comes together.
Norwegian Air Shuttle ASA is Norway-based and operates most of the Scandinavian-based flights within Europe on 737s. It also operates the 737s that fly between the northeast US and the Caribbean. It has a Norway-based subsidiary called Norwegian Long Haul AS. That operation flies the airline’s 787s to the US and Asia today. That means all those 787s from Scandinavia, London, and as of this summer, Paris, that fly to the US are on the Norway-based long haul airline.
This is where it gets complex. Norwegian has created an Irish-based operation called Norwegian Air International. So far, this operation just flies 737s, primarily in Europe, from non-Scandinavian bases. But it’s also the airline Norwegian wants to use to fly some of its 787s to the US. Some? Yeah, it also has Norwegian Air UK which it wants to use to fly long haul from the UK. And theoretically, the flights from Scandinavia may continue to be operated by Norwegian Long Haul, but I have no idea.
Why is this happening? Norwegian is getting into the complex game of subsidiary-creation in order to take advantage of traffic rights, labor laws, and taxation rules. This all has my head spinning, so let’s focus on Ireland-based Norwegian Air International specifically since that’s where the story is most interesting right now.
Taxation is lower and labor laws are more relaxed in Ireland than in Norway. The general thought was that an Irish subsidiary would make long haul flying more feasible because of the lower cost structure, but not solely because of that. It would also allow Norwegian to take advantage of all European Union bilateral agreements with other countries. Norway isn’t part of the EU, and while it is a party to the EU-US open skies agreement, that isn’t the case for all EU deals. One example I was told was if Norwegian wanted to route a plane from Europe to the US and on to Brazil, it could do that with its Irish subsidiary but not its Norwegian one. (Warning: I haven’t confirmed that exact one to be true, but you get the idea.)
It was more than two years ago that I first wrote about Norwegian’s plans for its Irish subsidiary to fly to the US. And what’s happened since then? Nothing. The US first refused a temporary exemption to let it start operating while the case was being reviewed. But here we are more than 2 years later with no official ruling being made. Apparently the plan is to simply kick the can down the road. That’s inexcusable. There should be an answer one way or another. (Norwegian Air UK was started much more recently, but it is still waiting for approval as well.)
But Norwegian hasn’t been sitting on its hands here. One of the big objections previously was that Norwegian wouldn’t even fly out of Ireland with its Irish subsidiary. So Norwegian decided to rectify that problem. Last September, it announced it would begin flying 737s from Cork to Boston this summer and New York next summer.
This was a brilliant move. After all, it quieted the critics who said that Norwegian’s Irish subsidiary wouldn’t fly from Ireland. At the same time, it’s a route short enough to be operated by 737s, so the level of risk is far less than a 787 would require. With any luck, this move could help clear the log jam. But it hasn’t. Norwegian has just announced that it will postpone Boston flights because it still doesn’t have clearance to fly Norwegian Air International to the US.
This is somewhat disingenuous since it could fly the Cork-Boston route today with a Norwegian Air Shuttle 737. That’s how it’s flying from Boston to the Caribbean, after all. But the point is very clear. Norwegian wants to start an Irish airline that will fly from Ireland (and other places) to the US. If it can’t get it started, then the US won’t get low fare flights. I can’t blame them taking this stance.
Should the US approve Norwegian Air International? Yeah. Will it only fly from Ireland to the US? Definitely not. But will that make these flights viable when they wouldn’t be otherwise? Eh, hard to say.
It’s pretty clear that Norwegian isn’t doing very well for itself in its current state. In 2015, its operating margin was a mere 1.5 percent, though that’s far better than its -7.2 percent margin last year. I remain highly skeptical that low cost, long haul works on expensive new airplanes. (I do, however, like the idea of 737s from Ireland to the US.)
But if Norwegian wants to lose its investors’ money, that’s for the Board to decide. The US government shouldn’t be standing in the way here.
[Original tangled wire photo via Shutterstock]