Watching Norwegian this year has been like watching a completely new airline. In the first part of this year, the airline really tried to start tightening things up. It stopped trying to grow so fast, it made some prudent route decisions, and it shed itself of its misguided CEO. That was just the start. The airline has now gone into overdrive trying to create a sustainable airline before it runs out of money.
New Leadership
In November, Norwegian announced its new CEO, Jacob Schram would take the reins on January 1, 2020. This seems like an odd choice considering Jacob has absolutely no airline background whatsoever.
Jacob spent most of the last decade running Circle K’s European operation, so he does have big business experience. But in December 2018, he left for McKinsey. That is always a red flag considering McKinsey’s sordid and destructive history in the airline industry, but I’ll give him a pass since he didn’t actually work on the airline side.
I don’t know anything about his management style, and that’s why the most important indicator is to see with whom he surrounds himself. So far, so good. Geir Karlsen was brought in as Chief Financial Officer (CFO) back in 2018, and he became the interim CEO until Jacob was appointed. Anyone who could keep that airline afloat financially deserves a gold medal (or prison time, but let’s just assume the best here). So it’s encouraging that Geir is staying as CFO and will be Deputy CEO.
More importantly, however, is the decision to bring in Marty St George as Interim Chief Commercial Officer (CCO). You all know Marty as the former CCO at JetBlue until earlier this year. If Jacob is a good leader, then he needs someone who really understands the nuts and bolts of the airline industry while also being able to motivate the troops. Marty is that guy. (In fact, I would have thought Marty would have been an excellent addition at American if there was a big leadership change there.)
The press release makes it sound like Marty had to really be convinced. After all, he’s only the Interim CCO, officially. That being said, there is no time limit on the whole “interim” thing, or at least not one that’s been announced publicly.
If Marty is going over there, he has to believe there is a chance to do something good to save the airline. It’s going to be a challenge, but if it were an impossible challenge, I can’t imagine he would have taken the job. The fact that he went, even on an interim basis, gives me hope that this airline has a future.
Route Changes Already Happening
The other good news is that there must be people who understand the business at Norwegian, because there are some smart moves being made even before the new leadership walks in the door.
When I spoke with Lars Sande, Norwegian’s SVP of Sales and Distribution back in June, he told me that the Nordics were weak. In fact, he said at the time that summer bookings were down 15 percent year-over-year. Whether that was due to increased competition, reduced demand, or a combination of everything isn’t entirely clear, but it did not bode well for air service there.
Sure enough, this winter, Norwegian said it would cancel all long-haul flights from Copenhagen and Stockholm going forward. All those flights were suspended for the winter so they just won’t come back next year… except for Ft Lauderdale to Stockholm which, as TPG noted, ends for good on March 27.
Oslo will still have long-haul flights, and that isn’t a surprise since it’s the airline’s headquarters. But shedding those Danish and Swedish routes will do two things. First, it will give the airline more slack in its system so that continuing 787 engine issues won’t push it to enter into expensive wet-leasing deals to operate its schedule. Second, it will allow Norwegian to cull the worst performing routes and refocus where the money is.
Another positive trend is that Norwegian continues to shift into higher-revenue airports instead of secondary ones. In the US, it has shifted several flights from Oakland to San Francisco including London, Paris, and Barcelona. The Ft Lauderdale to London flight has moved over to Miami. Norwegian has also left Newark entirely in favor of moving everything to JFK. It has also shelved all those 737 flights from the East Coast to Europe, including the elimination of flying to Stewart/Newburgh, Hartford, and Providence.
On the other side of the Pond, there are no longer US flights to Paris/Orly with all of them going to Charles de Gaulle instead. But the biggest news is that Norwegian has snuck its way into Heathrow, albeit on a very limited basis. The airline will have three weekly slot pairs next year which isn’t much, but it is something to keep an eye on.
The end results is an incredible turnover in routes between the US and Europe on Norwegian. Take a look:
Overall, Norwegian has dropped 27 routes and added 24. Only 14 flew in 2017 that are still flying by next summer.
A New Tango Partner In Argentina
One of the more curious (read: ridiculous) plans that Norwegian had was to start short-haul operations within Argentina. That country has long been a painful place to operate for airlines, but when the government swung the doors open to new competition, a bunch of companies jumped in. Norwegian’s chances of success were close to zero.
Somehow, the airline has now found someone to actually take this garbage off its hands. JetSMART — an Argentinian start-up backed by Indigo Partners — has bought the Norwegian operation in Argentina outright. Norwegian didn’t say what JetSMART paid, but I’m guessing it was basically nothing. The deal doesn’t even include the three airplanes in the fleet — those go back to Europe. JetSMART probably said “hey, we’ll help you stop hemorrhaging if you give us the airline. We won’t even make you pay us.”
Revenue Going Up
All that really matters is that Norwegian Argentina is gone. The overall airline group has new leadership in place, and it is making strides. After big cuts of more than 25 percent year-over-year, Norwegian saw load factor climb more than 4 points and unit revenue increase 18 percent in November. That’s probably what you’d expect to see with such massive cuts, but it is nonetheless encouraging.
