After driving Norwegian on an aggressive growth path across Europe, chief executive Bjørn Kjos is beginning his most ambitious assault yet with the launch of long-haul flights to Asia and North America
They span the worlds of music, literature, philosophy, science and sport. They include such luminaries as Henrik Ibsen and Edvard Munch. But the array of heroes adorning Norwegian’s aircraft tails tells a tale not just of national pride, but of Nordic kinship, too: in a nod to the neighbours, they include the odd Swede (Greta Garbo) and Dane (Hans Christian Andersen).
But the character of the patriotically named airline is changing: what was once a local story is becoming not just continental, but also global. Dramatic notice of the carrier’s intentions has been served. In January 2012, it placed an eye-popping order for 222 aircraft, split between Boeing and Airbus: 100 737 Max narrowbodies, 22 737-800s and 100 A320neos. This summer, the carrier commenced long-haul services from Oslo to New York and Bangkok, using A340s for interim lift. Now, it is poised to put into service its first of eight 787s. Nor are the low-cost airline’s ambitions confined to far-flung destinations and the latest in airliner technology: in an ongoing campaign to cut costs and maximise efficiency, it has shown that it is not prepared to let parochial concerns stop it from locating crews – or registering aircraft – outside Norway.
“I think we have to learn to compete with everyone,” says Bjørn Kjos, the former fighter pilot, spy novelist and lawyer who bought into a revamped Norwegian Air Shuttle 20 years ago and has been at its helm for a decade. “In the future, you will compete with everyone. Obviously, our stronghold has been the Nordic countries, but on the leisure market, it’s having a good product and good price... If you have a low cost then you are of course able to file low prices. It’s as simple as that.”
On the day Airline Business caught up with Kjos, Norwegian revealed plans to make the Spanish destination of Fuerteventura its 15th direct route from its newly opened base at London Gatwick. The day before, it had added flights from three German cities to its new Spanish bases at Alicante, Gran Canaria, Malaga and Tenerife, making clear its commitment to being a pan-European carrier as well as a Scandinavian and long-haul one. But does having a brand name that ties it to a particular nation present a challenge? “Everything connected to Scandinavia is normally very good quality,” says Kjos, but he adds: “Looking at the leisure market, especially if you go long-haul, there will always be changes in the pattern where people fly in the future.” Specifically, he predicts, more people will fly from Asia to Europe than in the opposite direction, raising a question: “If you have a good brand in Europe, what is this worth in Asia?”
By Kjos’s reckoning, the internet provides global visibility on low fares, and this will dictate the competitive dynamic in future: “In our digital world, people will go: do you have a good price? Maybe they’ll look at the aircraft... but then they’ll look at what area of the world you come from – if you come from Europe and Scandinavia, it means that you will normally have a good quality – and then it’s price, price, price. Because people will always find cheap tickets in our digital world.”
Norwegian’s strategy for attaining the low costs required for low fares is based partly on embracing the newest airliners, for which huge gains in fuel efficiency are promised. Its decision to split an order between Max and Neo aircraft was aimed at ensuring a steady flow of clean-burning narrowbodies into its fleet. “We couldn’t get enough Maxes in the early years, because it’s limited, what’s available,” says Kjos.
Arrival of Norwegian’s first Max is scheduled for the third quarter of 2017. “Even though we will be launch customer, they will still not be up to speed in production before ‘18, ‘19,” he says. “We need new aircraft before that, and the Neo is available. And the Neo is a very good aircraft.” Thus, the required volume of aircraft dictates that the advantages of commonality can be traded off: “Obviously, it would have been easier for us to go with the Boeings, but the Boeing wasn’t available in that scale, and then it’s a matter of pure mathematics. Even though I’m a pilot I don’t care what the different aircraft look like! They’re both very good.”
It is not just from more efficient airliners that Norwegian is seeking cost savings. Setting up bases in the UK and Spain, as opposed to pricey Scandinavia, “gives us stability of costs”, says Kjos: “It’s lower-paid crews, and everything is cheap.”
Inevitably such outsourcing has met with union opposition. “Many feared that they would be out of their jobs,” says Kjos, “but we try to explain: this we have to do in order to grow, and it will benefit you, it will safeguard your jobs because it will decrease our average cost level. And they’re seeing it working now. So they’re seeing that we’re not going to exchange them, we need them all – and we need more people – but you cannot compete with Norwegian crews flying between Spain and Germany. That has to be either Spanish or German crews.”
The Spanish market being one where leisure travel is the growth driver, a particular focus on cost is required, says Kjos: “We have a different product than Ryanair, but we can compete with Ryanair – not necessarily on Spain out of Norway, but we can definitely compete with Ryanair when [we] fly out of the Spanish bases... If you cannot compete with everyone, you should stay out.”
EYE ON IRELAND
Towards a goal of operational flexibility, Norwegian has looked at registering aircraft in Ireland. Flying a Norwegian-registered aircraft into Norway, resting its crew there and flying them out again is not permitted, notes Kjos, who delivers a blunt verdict of the regulation: “It’s a stupid rule. I don’t think you will find that in another country in the world.”
Competition faced by Norwegian naturally varies by route and market – EasyJet, Vueling and Germanwings between Spain and Germany; EasyJet and Ryanair between Spain and the UK; SAS and Ryanair in and out of Scandinavia – but, broadly, Kjos considers SAS and Ryanair the main rivals. As to how market dynamics will change in the next decade, “the critical mass of aircraft will increase”, he predicts: “You have to fly new aircraft because it’s too expensive to fly old aircraft, and, secondly, you have to have a mass of around maybe 100 aircraft or more, so you won’t see newcomers, and you will see a lot of small airlines disappear.”
Kjos foresees consolidation around “four or five larger” low-cost operators and “some of the big legacy carriers like British Airways, Lufthansa, Air France-KLM”. He adds: “Many of the legacy carriers will not be able to survive the future, because, first of all, the competition is too tough, but secondly, you haven’t even started to see the competition from the Far East.” Asian airlines – “the carriers you will meet in the future” – can be “far more competitive than most of the European long-haul carriers are today”, and big opportunities are offered by the likely influx of Asian tourists to Europe: “This is one of the reasons why we set up the crew bases in Asia: that’s because that is where the flow will originate in the future.”
History is littered with failed attempts at low-cost long-haul operation – Eos, Silverjet, Maxjet and Oasis Hong Kong Airlines among them – but by Kjos’s reckoning, new airliner technology has radically changed the game. “I think the A350 and the 787 are the only ones that you can fly low-cost long-haul with, because they are so much lower on operating cost,” he says. “We looked into it with older types of aircraft like the 767, A340, and the figures wouldn’t add up at all.” The A330 may be economical for flights shorter than eight hours, but not for Norwegian’s 11-hour Oslo-Bangkok service. The A340, meanwhile, “is way too high cost per seat-kilometre in order to compete”, and “you cannot run a low-cost with an all-747” – which would explain Oasis Hong Kong’s demise. “We wouldn’t even think about setting it up with those types of aircraft.”
Kjos seems unconvinced by the notion that the dynamics of long-haul and short-haul differ fundamentally: “We can run short-haul profitably. Most of the legacy carriers cannot run short-haul profitably – or just about none of them – so why shouldn’t we run long-haul profitably? To me, long-haul is three hours longer than a short-haul. We use the same infrastructure – we use everything that we have developed and paid for by the short-haul. The only thing that’s different is the airframe and the crews. We have crews based in Asia and not in Europe... The airport, whether it’s in Dubai – as we fly to – or New York, it’s just about the same.”
Part of what makes the 787 a “totally different ballgame”, in Kjos’s view, is the GoldCare arrangement under which the airframer takes charge of maintenance to reduce initial cost and complexity for the airline: “That, we will see in the future: airlines won’t do their own maintenance operation because it’s too costly. You cannot even be close to competing with the cost that Boeing can run it for, because there is a huge fleet that they can look after.” The impact of delays to Boeing’s Dreamliner was reduced by Norwegian’s decision to pursue a soft launch of its long-haul services, says Kjos: “We can substitute two Dreamliners [for] two A340s, but if it had gone on for a longer time, we would have needed three A340s to substitute for two Dreamliners. You can see the cost saving... You cruise at much lower speed, you need more maintenance time on the ground. It adds up. That’s why it is a game changer, the 787.” Norwegian will initially assign its first 787 to European routes for a month, flying it from Oslo to Alicante, Barcelona, London, Malaga and Nice.
Of the challenges facing low-cost airlines, none keeps the Norwegian chief awake at night, he jovially insists. “But it’s an extremely interesting game and it’s extremely challenging, also,” he acknowledges. “The most difficult thing is that it’s today decided how you are going to look like in five years’ time: how you operate and the fleet you operate, maybe in what areas you operate, how you compete.”
Planning so far ahead requires you to “build yourself a view of how are people flying in the future”, he adds. His theory? “It will be totally different in 10 years.” For consumers, Kjos’s outlook is a happy one: “It will be cheap to fly in the future. You’ll probably see long-haul flights down the road for maybe half the price you have today... Is it that amazing to say, look for twice the price when you fly twice as long? It shouldn’t be.” Leading the revolution in fares will be carriers with “maybe less than half the cost of airlines that you see today”.
Kjos expects a lot of players in the short-haul market to follow the example of Norwegian and AirAsia X by going long-haul. “I would be surprised if Ryanair won’t,” he says – although at a subsequent results briefing, the Irish budget carrier’s deputy chief Howard Millar says that any long-haul venture “won’t be Ryanair” and “won’t involve Ryanair management”. Of US carriers, meanwhile, Kjos sees JetBlue and Southwest as “highly likely” to embrace long-haul.
Provision of onboard wi-fi included in the ticket price sets Norwegian apart from the hardline no-frills brigade – as do the 32 seats it is allocating to a premium economy class in its Dreamliners. Kjos sets out a vision of technological advances making rising service levels possible for low-cost airlines. “It will be a normal thing that you will supply to the passengers, for instance, their IFE,” he says. “On the long-haul you will have the possibility [to] bring your own food if you don’t want to pay.’ [But with] the new modern IFE, you will have your own kiosk – punching for a gin and tonic, or punching for a sandwich, or punching for a beer. And you will put in your credit card, so it will be like a bar and they will come and serve you what you have ordered. ”
This fits with a strategy of technology-enabled “dynamic packaging” offering passengers “a living charter operation where you put your own things together”, be it hotel bookings or car rental.
Kjos notes a problem faced by airlines that struggled to compete in the past: they “didn’t have the websites, their tickets weren’t available like they are in our digital world – people couldn’t even find them. So, it’s a totally different world we are living in.”
Despite his airline’s exponential growth track and his own dramatic career history, Kjos chooses to occupy a modestly sized office at Norwegian’s similarly functional headquarters in Lysaker, a business district on Oslo’s western fringes. “It is a flat structure; it will always be a flat structure,” he confirms. “You have to have a flat structure in order to really be in touch with everything that goes on, and you have to have very advanced IT systems... I have to have an overview of all that’s going on, and then you need to delegate – everybody has to be responsible for their own things. They can always run it better than I can. And if they cannot run it better than I can, then they have to find something else to do. That’s why I need them. Because they’re better than me!”
TRUE TO CHARACTER
Of his leadership style, he offers a simple analysis: “You have to be yourself, because you cannot change yourself. At least I cannot! But to run an airline, it’s not something that you do on your own.” A football analogy is drawn: “Even though you have a captain, you need all the players... and they have to have different types of quality in order to be a winning team.”
To be a winning team, of course, Norwegian must face down fearsome competitors in the shape of Ryanair and EasyJet. Discussing the Irish behemoth, Kjos argues that higher service levels can compensate for a gap in cost: “We fly to main airports, of course, and I think we have a better product. We cannot reach the cost level that Ryanair has [but] the people that we fly are inclined to pay a little more for the type of services that we add into our product.”
As for EasyJet, Kjos sees Norwegian standing toe-to-toe with the UK carrier: “We will not close the gap on Ryanair on the cost side, but we should definitely be able to fly on lower cost than EasyJet out of the different areas.” His reasoning is based on seat counts: EasyJet’s A319s are 156-seaters, while Norwegian flies 186-seat 737-800s. The Carolyn McCall-led carrier has a fleet almost three times the size of Norwegian’s – 212 aircraft versus 75, as shown by Flightglobal’s Ascend Online database in mid-June – but Kjos argues that “today we are just about the same cost level as EasyJet, but we definitely have a much lower cost level out of the bases outside Norway”.
New threats must be engaged by Norwegian as it welcomes the 787 to its fleet and extends its long-haul foray: “There will be a lot of airlines trying to protect their own turf, and trying to prevent airlines from selling cheap tickets. That’s what we experienced in Norwegian when we started up, and that you will have to anticipate that we will meet in the long-haul sector as well.” But Kjos finds hope in a historical precedent: “It’s easy to enter into markets where you have high-priced markets as you used to have in Europe, but luckily, today, everybody can find cheap tickets thanks to Ryanair, Norwegian and EasyJet.”
Clearly, Kjos’s task has evolved beyond recognition since his first year with the airline, when, he recalls, the challenge was “how to save Norwegian because it could easily have gone down the drain”. Now, the carrier flies on some 330 routes, employs about 3,000 people, and has more than 270 aircraft on order
As comebacks go, it’s almost heroic.