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.
