I recently attended my first IPW, a massive travel trade show that is meant to showcase the USA to the world. It doesn’t generally have a lot of relevance for air travel which is why I haven’t gone before. But this year since it was local, I decided to attend. I had several good meetings during my time there — you’ll see posts around those later — but probably the most interesting was my discussion with Lars Sande, SVP of Sales and Distribution for Norwegian.
I started off asking how Norwegian was going to fix its financial position. Lars struck an optimistic tone at first, highlighting that the airline has slowed deliveries and is canceling routes that aren’t profitable. He mentioned that both Denver and Seattle are being cut in the winter. With all these changes, Lars says “revenues are improving” though there are headwinds. We’ll find out more on July 12 when the next earnings are released, but for now, let’s take a look at what’s going well and what’s not.
Headwind #1 – Airplane Problems On All Sides
The most obvious hits have been the grounding of the 737 MAX and the continuing 787 Rolls Royce Trent engine problems. Norwegian continues to wet lease aircraft to offset the loss of capacity, but that isn’t cheap. It’s also highly disruptive with some flights being canceled outright, though eventually — Lars didn’t say this, but I’m assuming — it should be compensated by Boeing and Rolls-Royce for the problems. At this point, I imagine Norwegian would be most interested in just having the airplanes flying.
Headwind #2 – Nordic Plunge
The more interesting headwind is an apparent downturn in travel in the Nordic countries. Lars says that the Nordics have always been the airline’s “cash cow.” But as of when we spoke earlier this month, bookings for May through September of this year were down 15 percent compared to last year. He stressed that this isn’t a Norwegian issue. This is for all airlines flying in the region. While there are theories about why this is happening, all Norwegian can do at this point is hope last minute bookings pick up to help replace the lost traffic. The last thing it needs to do is lower fares even more.
Headwind #3 – Frozen Out By The Russians
A third headwind is the continued inability to get a deal to fly through Siberian airspace over to North Asia. I didn’t realize that, as Lars explained, Norwegian’s plan was to go east before it was going to go west to the US. But an ancient agreement between Russia and the three primary Scandinavian countries only allows one Scandinavian airline, SAS, to fly through the airspace right now. Individual agreements would have to be struck between Russia and each country to change that, and so far, there has been no luck.
I was surprised to find that this is just an issue for flying over Siberia. Norwegian does fly to Bangkok and you can see on any flight tracking website that it does fly through Russian airspace. The southern corridors are allowed, apparently. It’s just flying through Siberia that’s the problem.
Bright Spot #1 – The Premium Cabin
I asked about the airline’s premium cabin to see how that was selling. Lars didn’t give specifics, but he indicated it sells well, and even on flights where it’s booked lightly, there is good uptake on the “bidding for upgrade” product they offer.
One thing we went back and forth on was whether Norwegian is selling this properly. Today with third parties (travel agents, etc), it sells the premium cabin as business class. The price is great, but it’s also a significantly worse product than any business class. Should Norwegian be selling this as premium economy? If it did, it would be the best premium economy flying. Apparently this has been a point of discussion at the airline, and so far, nothing is changing.
Bright Spot #2 – Massive Feed From easyJet
Finally, we talked about easyJet. Norwegian has been participating in the “Worldwide by easyJet” site which is powered by dohop. The idea is for easyJet to sell in one transaction short-haul on an easyJet flight connecting to long-haul on another airline. It’s sold with a guarantee that the connection will be made or they’ll find another option, so it has nice protection. This just sums up the local fares in the market and adds an additional charge to connect them into a single transaction, but the savings can be substantial over regular published options with a single ticket on a traditional carrier.
So how it this product doing? Lars said it’s “really, really good.” I wanted more detail, but the best I could get is that they are selling “thousands and thousands” of seats per week. Even at that lower end of that vague range, that is a lot, and it shows how much demand there must be to be able to connect all these unrelated airlines.
Will Norwegian still be around in a year? I didn’t bother asking that question since I knew his answer would certainly be “yes.” Personally, I think the July results may tell us more about how this new low-growth strategy is doing and whether it can save the airline. That is an uphill task.
On Headwind #2, no need for theories. It’s because of the “no-fly movement”.
Is that really that big? (serious question; here in the US it doesn’t seem to get much coverage)
The “no-fly movement” has its roots in Sweden so yes, it’s likely that is the cause of a downturn in Nordic-originating passengers. There have been all sorts of studies discussing how Swedish society is especially susceptible to consensus and groupthink (look up the concept of “lagom”) – so yes, no doubt in my mind that Swedes are staying home as climate change becomes the dominant social issue in the news there.
Apparently in Sweden the movement led to a decrease of 20% in domestic flights in the first quarter of the year or something like that. I think it’s probably not a coincidence that Norwegian is seeing the same in its home market.
Maybe I need to brush up on geography, but I thought Finnair made good use (and marketing) of HEL’s location for flights to East Asia, presumably bypassing Siberia?
Speculating here, but perhaps that is because Finland isn’t one of the “three primary Scandinavian countries”.
In fact, as I just recently learned, Finland is a Nordic country, not a Scandinavian country, if you ask people in Scandinavia :)
Oliver – That’s correct. It’s just Denmark/Norway/Sweden that are part of that agreement with Russia. Finland is separate.
So does this mean that Norway isn’t a Nordic country?
Norway is a Nordic country and a scandinavian one.
Finland is a Nordic country but not a scandinavian one.
An Norway is also a European one. But not a European Union member ;)
Wow, I totally learned something new today.
All three Scandinavian countries are Nordic, but not all the Nordic countries are Scandinavian. Iceland and Finland are Nordic, while Norway, Sweden and Denmark (apart from Greenland and the Faroe Islands) are both Nordic and Scandinavian.
Finland gained its independance from Russia one century ago.
It was “Russia” during some years before the independance.
Maybe this helps Russia to be more keen with Finland and Finnair.
I’ve been to Finland several times, and from what people told me there, it’s rather the opposite. The independence war was lingering and nasty, and Finland really only succeeded with the fall of the Tsar. (That’s in contrast to what my US-centric high school history books said, which attributed Finland’s “liberation” to the WWI peace treaty.)
More likely, the slightly better relationship between Finland and Russia dates to the Cold War era, when Finland’s foreign policy followed a path of cautious neutrality – not wanting to be the next Lithuania/Latvia/Estonia (all near neighbors).
Wendover productions on YouTube has a good basic video about Siberian overflight agreements and specifically mentions the problems Norwegian and other low cost carriers have when it comes to flying over Siberia. https://youtu.be/jdNDYBt9e_U
What are the 787s going to do this winter? There are big cuts on US routes.
I think they put them on the NE USA- European Caribbean market for snow birds.
Tim – Probably cover for all those grounded MAXs. ;) But seriously, they have that Argentina operation they’re trying to ramp up, as crazy as that looks. And there are always more warm weather destinations that they can try to serve.
Regarding Rolls Royce compensation I believe that has been agreed. Regarding compensation for the MAX groundings they have certainly got some concessions from Boeing including deferment of deliveries either later this year or next, which will help their finances (if they make it that far).
It’s interesting but not surprising to hear that the Nordic market is their cash cow. Which explains why they’re in such a financial mess, from departing from their area of strength and trying low cost long haul from all over Europe with those Dreamliners. That was a flawed strategy, especially ordering so many of them and having to choose routes “dartboard” style when the main tranche of the 787s arrived.
They only avoided going under thanks to a 3 billion NOK rights issue in March (and a private placement in March of last year) and they burned through half of that in the first quarter. Unless something dramatic happens it looks like they’ll survive the summer, but some the winter they’ll be out of liquidity again. How many more Nordic billionaires are there to bail them out a third time?
Russian overflights are a problem for a lot of folks, including U.S. air carriers. I’m curious to know how aggressively the Scandinavians are trying to negotiate this away (and what the Russians want in return).
Good interview with Mr. Sande, Cranky! Whether they make it or not, one has to admire the persistence, the tenacity & the enthusiasm of Norwegian.
Now, I realize that I’m not the brightest nav light on the widebody, so could someone please tell me what the initials IPW stand for? I searched Google & Wikipedia, but they were no help. I went deeper into the ipw.com website than I cared to, but even their “about IPW” page did not give a definition. If it is a proper noun, like LEVEL, then how is IPW pronounced?
Thank you all for your responses & I hope you have a happy & safe Dorkfest!
IPW is International Pow Wow